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General info on Income Tax
What is Income Tax?
Income tax is a charge or levy collected by the government based on what you earn. Tax laws are broadly based on laws of equity. Which means the more you earn, the more you pay. Sounds fair, doesn't it? For sheer convenience, income (or what you earn) has been categorised as follows: 1) Salary 2) House/ Property 3) Business and Profession 4) Capital Gains Don't feel too thrilled in case your 'income' does not fit into any of the above categories. There is one more head for the leftovers. It's called: 5) Other Sources Though the charge or levy on each of the heads is the same, certain special concessions are available for each category. An individual is supposed to includel his/ her income under all these heads when calculating his entire income. Who has to pay tax? Since tax is a charge on income, it includes everyone. All individuals, whether Indian or not, have to pay tax on income earned in India. This tax is the individual's contribution towards the development and well-being of the country. What are the current tax rates? Once a year, the parliament comes out with the nation's annual budget. This budget is presented by the finance minister, approved and passed by Parliament and signed by the president. The budget fixes the income tax rates for the year. Take a look at the current rates.
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How is income tax calculated?
Let's assume Mr X earns an annual income of Rs 4,50,000.
He earns an annual income of Rs 9,00,000, so he ends up paying a surcharge as well.
Look at instruments that offer a tax benefit. Sell your shares a year after buying them so you don't have to pay capital gains tax. The government has given you options that can reduce the amount of tax you pay. Use them to your advantage. Relax With Tax is a Mumbai-based personal tax & finance solutions provider. |
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Income Tax Liability
It is proposed to give basic information about Income Tax which every industrialist should know. The intention is only to give an overview, without using any technical jargon. It is obviously advisable to consult an expert, if one is not familiar with the intricacies of the law. The legal position is as applicable for financial year 2005--2006 (Assessment Year 2006-2007) unless specified otherwise. Provisions applicable for financial year 2006-07 (AY 2007-08) are also indicated at appropriate places. Income Tax is payable by every assessee at the rates prescribed from time to time. These rates are fixed by Finance Act every year. The Finance Bill is presented at the time of presenting Budget. The relation between Finance Act and Budget is so close that often people associate budget only with taxation. Really, taxation is only one of the aspects of the Budget. Who can be assessee ? - The assessee may be * Individual * HUF * Company * Partnership Firm * Association of Firms * Local Authority like Municipality etc. * Artificial Judicial person not falling in any of the aforesaid categories e.g. a Hindu deity. Different sources of income - An assessee may get income from different sources e.g. * Salaries * House property income * Profits and gains of business or profession * Capital Gains * Income from other sources not falling under any of preceding heads e.g. interest on securities, lotteries, races. Income from each of these sources is first calculated. All this income is added to find out total income of the assessee. Permissible deductions are reduced and then income-tax payable is calculated at the prescribed rates. Income from one head can be set off against loss from other head, unless specifically prohibited. In Rajasthan State Warehousing Corporation v. CIT 2000 AIR SCW 629, it was held that if income is derived from various heads, assessee is entitled to claim deduction permissible under respective head whether or not computation under each head results in taxable income. If income to assessee arises under any of the heads of income but from different items e.g. different house properties or different securities etc., and income from one or more items alone is taxable whereas income from the other item is exempt under the Act, the entire permissible expenditure in earning the income from that head is deductible. - . - If assessee carries business in various ventures, entire expenditure incurred on all ventures is deductible if all ventures constitute one business Financial Year and Assessment Year - One very confusing aspect of Income Tax for a common man is the difference between Financial Year and Assessment Year. The Financial Year for income tax purposes (called ‘Previous Year’) is always the year ending 31st March. The ‘assessment year’ is next to the ‘Financial Year’ or ‘Previous Year’ e.g. for Financial Year (FY) 2005-06 (1st April 05 to It may be noted that an assessee can have separate accounting year for his own purposes e.g. a Company can close its accounts on any day of the year, an individual may start his year on Diwali or any other auspicious day. However, for income tax purposes, the accounts must be closed only on 31st March. |