So you have only just started learning and are on the path of self discovery especially with regards to your financial life, right? And one of the vital aspects to that would be – taxes. Understanding tax is not easy, but very much necessary. So, lets take it one step at a time – we are going to specifically look at – Income Tax. Here are some of the common confessions and relevant explanations surrounding the whole process.
What is income tax?
Income tax is the tax you pay to the government. It is based on the income you earn, ie when your income exceeds a certain slab, then you are required to pay tax on the excess amount earned.
Why should I pay tax on my earnings?
Every citizen is obliged to pay income tax as per law [Income Tax Act]. The collected sum is used for further development of the nation.
How much should I pay?
The amount of tax you will have to pay is purely dependent on which income slab your salary falls in. The percentage of tax to be paid will also vary depending on:
1) Whether you are a man, woman or a senior citizen [the income slabs are different for all three]
2) Your income and the slab it belongs to (that is specific to you). For instance, the tax payable by someone who is approaching between 180,000 and 500,000 will be 10% of the amount that exceeded 180,000.
Similarly, if the income is between 500,000 and 800,000, then the taxable income is a fixed amount plus 20% of the amount that exceeds 500,000 and so on.
How often should I pay?
Income Tax is paid on a yearly basis. The duration considered here is between April 1st to March 31st of the next year. This period is also known as a financial year or 'previous year'.
And the last date to file your income tax returns would be July 31st.
How to file income tax?
Filing Income tax can be a daunting task, which is why you have to options:
– doing it yourself
– engaging a good chartered accountant.
You also have the facility of filing income tax online or offline.
What are the documents required for filing tax?
The documents to be submitted while filing are as follows:
1. Form 16 – is given to you by the company you work for. It consist details of the tax that was deducted from your salary. This is the main indication that you have paid income tax.
2. Form 16A – is given to you by the bank or financial institution where you have invested in term deposits. This indicates the various tax deductions at source for your account.
3. Bank Statement Summary – shows the transactions performed by you through the financial year. This will include everything from savings, investments, expenses, loans and also income earned.
4. Property details – any property sold or bought by you in the previous financial year should be recorded and duly submitted at the time of filing tax returns.
5. Interest certificate – In case you are paying monthly installments towards your housing loan, if you want to save on tax, then you will have to show the supporting documents in the form of interest certificate from the institution that provided you the loan.
6. Investment details – if you have not already declared it in the Form 16, then do it here. Details of your investments in tax saving tools such as public fund fund and so on.
7. Receipt of advance tax (if any) – to show that you have paid advance tax.
Is the salary I receive the only form of income?
No, there are various types of taxable income:
1. Your salary
2. Rental Income (if any)
3. Income from business
4. Capital gains (for eg, sale of property)
5. Imports from bank deposits, cash gifts and so on.
Some of the key points to be kept in mind while filing income tax are as follows:
- Make sure your signature is uniform across all the documents you use for filing
- Do not overwrite or misspell in the form
- Double check the PAN number you have given.
- Even the date written matters
- Original TDS certificates and receipts to be produced at the time of filing.
- Avoid delay payment of tax as it attracts a fine.