MEANING OF INCOME TAX
Income tax is referred to the percentage of the income that one pays to the government of India to finance infrastructural development, payment of salaries of state and central government employees, etc. The law that governs the provisions of income tax in India is the Income Tax Act, 1961. Income tax is a type of direct tax as the impact and incidence of taxation falls on the same person.The income tax one pays every month or based on every contractual earning form a large portion of the revenue for the Indian government. These revenue oriented functions are taken care of by the Ministry of Finance, which has further delegated such responsibility of managing direct taxes (income tax, wealth tax, etc.) to the CBDT(Central Board of Direct Taxes).
PROS OF INCOME TAX
1) Canon of equality: The rich should pay more taxes than the poor people.A direct tax is strictly according to the canon of equality. Indian system of Income Tax follows progressive taxation system.
2) Canon of certainty: The amount of tax payable by a taxpayer should be certain and definite to him/her. There should not be any ambiguity regarding the amount of tax to be paid by a taxpayer.
3) Creation of social awareness: Income Tax creates awareness among the public in the society. As one has to pay a particular amount of money to the government, he/she expects something back as well. Apart from that, one tends to feel more socially responsible as because of it his/her money that is spent by the government all around him/her.
4) Creation of equal distribution of wealth: Income Tax helps the economy to achieve equal distribution of wealth in the society. As the government imposes more taxes on the people who can afford to pay them and spend that amount of money on the poor people, a right step is taken.
IMPORTANCE OF INCOME TAX
The government of India needs to impose taxes on public for carrying out its activities. Income Tax forms a large portion of the revenue of Indian government. The government of India needs Income Tax for carrying out expenditure for the welfare of the nation. Let us have a look at a few areas where the government requires to spend on.
1) Maintenance of defense services in the country.
2) Carrying out expenditure on essential services, law and order, capital equipment, machinery, the functioning of government itself and judiciary.
3) Creating and incurring expenses on maintenance of infrastructure.
4) Expenditure on social welfare services.
5) Incurring expenditure in the educational sector of India.
PAYMENT OF INCOME TAX
Let us have a look at the steps to be followed by an individual for carrying out e-payment of Income Tax.
1) Go to the e-filing website of Income Tax – incometaxindiaefiling.gov.in
2) Create an account for which you will require an email ID and a mobile number. After registering login into the website using your ID and password.
3) Click on the box given on the left side labeled as “Quick links’’. After this, select “E-Pay Tax’’ option from the same box. You will be taken to the website of NSDL.
4) Click on “CHALLAN NO./ITNS 280” given on the bottom of the page.
5) On the top there you will get an option to select “Tax Applicable”. You have to select “(0021)INCOME-TAX (OTHER THAN COMPANIES)”.
6) Click on “Type of Payment” and select “(300)SELF ASSESSMENT TAX”.
7) You have to fill up the other details. Once done, select your bank and to reach to the payment gateway.
8) You have to complete your payment by entering relevant information like your user ID, password, OTP etc.
9) After returning to the Income Tax website, You will find an acknowledgment. You have to save or take a printout of the same. These details will be required when you are going to do filing of your Income Tax return.
HOW TO COMPUTE INCOME TAX
Let us have a look at the Income Tax slab for the Financial Year 2016-17 (Assessment Year 2017-18).
| Let us have a look at the Income Tax Calculator for a salaried individual for the Financial Year 2016-17 (Assessment Year 2017-18) | |||
| Particulars | Details | Type | Amount(Rs) |
| Gross income (CTC) | Salary, bonus, allowances, other income etc | Input | 1,200,000 |
| HRA Exemptions u/s 10 A | HRA calculation below | Input | 99,000 |
| Other Exemptions u/s 10 A | Medical, conveyance, etc. | Input | 34,200 |
| Professional tax | Professional tax | Input | 2,500 |
| Net income under salaries | Gross income – exemptions | Output | 1,064,300 |
| Deductions u/s 80 C | Investments in PF, PPF, Ins, ELSS, NPS etc | Input | 150,000 |
| Deductions u/s 80 CCG | Investments in RGESS (50% of First-time Invest) | Input | 25,000 |
| Deductions u/s 80 CCD | Investments in NPS (50 K Maximum) | Input | 50,000 |
| Deductions u/s 80 D | Medical insurance premium (self, parents) | Input | 25,000 |
| Deductions u/s 80 G | Eligible donations up to specified percentage | Input | 20,000 |
| Deductions u/s 80 E | Interest paid on education loan | Input | 15,000 |
| Deductions u/s 80 TTA | Interest received on savings bank A/C | Input | 10,000 |
| Tax benefit u/s 24 | Interest paid on home loan (max 2 L) | Input | 200,000 |
| Total deductions/benefits | 495,000 | ||
| Taxable income | Tax payable on this income | Output | 569,300 |
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| Tax slab | Slab income | Tax rate | Tax amount(Rs) |
| Income Tax payee type | Male, female, sr. citizen>60, very sr. citizen>80 | Input | Male |
| 250,000 | 250,000 | 0% | – |
| 500,000 | 250,000 | 10% | 25,000 |
| 1,000,000 | 69,300 | 20% | 13,860 |
| 10,00,000+ | – | 30% | – |
| Tax on Total Income | Output | 38,860 | |
| Surcharge | 15% on Tax if Income > Rs 1 Crore | 15% | – |
| Tax with surcharge | Output | 38,860 | |
| Education Cess | 3% | 1,166 | |
| Tax with cess | Output | 40,026 | |
| Tax credit | Upto Rs. 5000 if Taxable Income < Rs. 5 lakhs | Output | – |
| Tax liability | Output | 40,026 | |
| Income Tax ratio | |||
| Monthly income | Gross Income/12 | Output | 100,000 |
| Monthly tax (Appx TDS) | Tax Liability/12 | Output | 3,335 |
| Income Tax ratio | Gross Income/Tax liability | Output | 3.34% |
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HRA exemption calculator |
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| City living in | Input | Metro | |
| Basic salary + DA | Input | 450,000 | |
| HRA received | Input | 144,000 | |
| Actual rent paid | Input | 144,000 | |
| Least of the following will be HRA exemption | 99,000 | ||
| 1 | HRA received | Output | 144,000 |
| 2 | % of salary+DA (50%-metro & 40%-non-metro) | Output | 225,000 |
| 3 | Rent paid in excess of 10 % of salary | Output | 99,000 |
CONCLUSION
Income Tax contributes to a very high proportion of revenues for the Government of India. But unfortunately, a substantial proportion of the income of the people in India is still not yet accounted for. The presence of parallel economy or in other words, which we call as black money is there which is still preventing the Indian government to maximize the collection revenue from Income Tax. Even tax evasion is playing a negative role in the collection tax revenue for the government. This is the high time that the Indian government should pay emphasis in fighting the odds outs to maximize the collection of revenue from direct taxes.