INCOME TAX : FROM THE SCRATCH

671
INCOME TAX : FROM THE SCRATCH

INCOME TAX : FROM THE SCRATCH

Have you ever wondered , why TAX is of so much importance in a country?

A Tax is a compulsory contribution by an individual or company to the government, whether local or national. It is the ‘compulsory’ aspect that makes it a tax, as opposed to a donation, of course. Taxes are reality of life for all of us, rich and middle-class, in some form or the other. It has become an important source of revenue for government in all countries.

There are two types of taxes:

1. Direct taxes

2. Indirect taxes

Lets talk about the direct tax in India i.e Income Tax Act 1961,

If you are a budding entrepreneur or just got out of your college and want to start business of your own, here are some of the basic terms of Income Tax which will you would hear on regular basis and will definitely help you in conducting your affairs as a prudent citizen.

BASIC TERMS OF INCOME TAX

1 FINANCIAL YEAR : The financial year is the period between 1 April and 31 March in which you earn an income.

2 ASSESSEMENT YEAR : Assessment year is the following year in which this income is assessed and taxed.

 AY and FY for recent years

Period Financial Year Assessment Year  
1 April 2018 to 31 March 2019 2018-19 2019-20  
1 April 2017 to 31 March 2018 2017-18 2018-19
1 April 2017 to 31 March 2018 2017-18 2018-19

INCOME ON WHICH YOU PAY TAX

These are the major heads under which you earn an income. You can earn income from more than one source in year. Depending upon the nature of your income it will be broadly classified and taxed under these heads of income.

Section 14  include total five Heads of income:

No Source of income Particular  
                       1 1 Income from salary (sec 15 to 17)   Salary, allowances, perquisites. “Salary include all the money you received while rendering job as resulting as employment agreement”.  
                       2 Income from House property (H.P) (Sec 22 to 27)     Income from rent of residential house or commercial building. It may be self-occupied or rented  
                        3 Income from Business or profession. (PGBP) (Sec 28 to 44D)   Profit/Gain or losses carrying on Business or profession.  
                        4 Income from Capital Gain. (CG) (Sec 45 To 55A)   Income from Gain or losses when you sell the capital asset. Like Building, share and etc..  
                     5 Income from Other sources. (OS) (Sec 56 To 59)     This is residual head suppose income from saving Bank A/c. Fixed deposits, gift Income and etc.  

DEDUCTIONS: In order to compute ‘Total Income or Net Total Income’, deductions under Chapter VIA are considered and adjusted from GTI ( Gross Total Income). The aggregate amount of deductions under Chapter VIA cannot exceed GTI of the assesse.

TAX DEDUCTION AT SOURCE(TDS): It was introduced to collect tax at the source from where an individual’s income is generated.  The government uses TDS as a tool to collect tax in order to minimise tax evasion by taxing the income (partially or wholly) at the time it is generated rather than at a later date. 

TDS is applicable on the various incomes such as salaries, interest received, commission received etc. 

TAX EXEMPTION AND TAX DEDUCTION:

      BASIS FOR COMPARISON               DEDUCTION                  EXEMPTION  
                                  Meaning  Deduction means subtraction i.e. an amount that is eligible to reduce taxable income.   Exemption means exclusion, i.e. if certain income is exempt from tax then it will not contribute to the total income of a person.
                                    Concept The amount of deduction is first included in the gross income and then deducted from it to arrive at the net income.   The exempted income is not considered as a part of total income, the whole amount is an exemption for the taxpayer.  
                 Income is Tax deductible Tax free  
                                Sections Sections Section 80 C to 80 U deals with deduction   Section 10 deals with exemptions  

Maitri Badani (CA- Intermediate)

LEAVE A REPLY

Please enter your comment!
Please enter your name here