Income Tax
What is Income Tax?
Income tax is a direct tax levied by the government on the income earned by individuals, businesses, and other entities. It is a mandatory financial charge imposed on earnings from various sources, such as salaries, business profits, property income, and capital gains. The tax collected is utilized for public welfare, infrastructure development, and economic growth.Income tax is governed by the Income Tax Act, 1961, and administered by the Central Board of Direct Taxes (CBDT) under the Ministry of Finance. It is a key source of revenue for the government and plays a vital role in shaping the nation’s economy.
Why is Income Tax Important?
✔ Funding Government Expenditure – Supports infrastructure, healthcare, education, and defense.
✔ Reducing Income Inequality – Progressive tax rates ensure fair distribution of wealth.
✔ Encouraging Compliance – Legal enforcement ensures accountability and financial discipline.
✔ Boosting Economic Growth – Revenue generated helps in policy-making and national development.
✔ Supporting Social Welfare Schemes – Funds government programs like pensions, subsidies, and healthcare initiatives.
Who is Liable to Pay Income Tax?
✔ Individuals – Salaried employees, self-employed professionals, and freelancers.
✔ Hindu Undivided Families (HUFs) – Family-based income groups with joint financial holdings.
✔ Companies – Domestic and foreign corporations earning profits in India.
✔ Partnership Firms & LLPs – Businesses operating under partnership models.
✔ Trusts & NGOs – Subject to specific exemptions based on their operations.
✔ Artificial Juridical Persons – Entities other than individuals or firms earning taxable income.
Sources of Taxable Income
The Income Tax Act, 1961 classifies taxable income under five heads:
✔ Income from Salary – Earnings from employment, including wages, bonuses, and perks.
✔ Income from House Property – Rental earnings from owned properties.
✔ Income from Business or Profession – Profits earned by businesses and self-employed individuals.
✔ Capital Gains – Profits from the sale of assets like property, shares, and mutual funds.
✔ Income from Other Sources – Dividends, interest on savings, lottery winnings, etc.
How to File Income Tax Returns (ITR)?
✔ Step 1: Gather Documents – Collect Form 16, bank statements, and investment proofs.
✔ Step 2: Choose the Correct ITR Form – Based on income sources and taxpayer category.
✔ Step 3: Login to the Income Tax Portal – Visit www.incometax.gov.in.
✔ Step 4: Fill in Income and Deductions Details – Enter earnings, deductions, and tax payments.
✔ Step 5: Verify and Submit the Return – E-verify using Aadhaar OTP, net banking, or DSC.
✔ Step 6: Download the Acknowledgment – Save the ITR-V receipt for records.
Penalties for Non-Compliance
✔ Late Filing Fees – ₹1,000 to ₹5,000 under Section 234F.
✔ Interest on Tax Due – 1% per month under Section 234A/B/C.
✔ Penalty for Concealment – 50% to 200% of the evaded tax under Section 270A.
✔ Prosecution – For willful tax evasion, imprisonment up to 7 years.
✔ Scrutiny Assessment – Failure to report income accurately may lead to tax scrutiny and audits.
Advance Tax and TDS
✔ Advance Tax – Individuals and businesses with tax liability exceeding ₹10,000 must pay advance tax quarterly.
✔ Tax Deducted at Source (TDS) – Employers and financial institutions deduct tax at source before making payments.
✔ TCS (Tax Collected at Source) – Tax collected by sellers at the time of certain high-value transactions.
✔ Self-Assessment Tax – Tax paid before filing returns for any pending tax liability.
