TAXATION IN INDIA

TAXATION IN INDIA

Taxes so collected act as a source of revenue for the Government help the Government in meeting its Financial Commitments.

INTRODUCTION
 

By the virtue of Article 265 of Constitution of India, Government of India is empowered to collect Taxes. The word Tax is derived from the Latin word ‘Taxo’ which means a rate. Tax is a kind of charge that government levies on individuals and businesses to raise funds for itself in order to run the economy of the country. Taxes could be seen as a kind of levy charged by the state and the central government on any product, service, income or activity. It is a compulsory payment that has to be made to the relevant authority. Taxes are applicable throughout the country.

Taxes can be charged by central government or by the state government. Article 246 of Indian Constitution has clearly defined under its three lists as to what taxes can be collected by Central Government, which taxes can be collected by state government and as to which taxes can be collected by the local authority. The various taxes mentioned under the list can be broadly classified into two categories.

Direct Taxes are levied on the incomes, profits or gains of the individuals, businesses, firms, etc. and the burden of the tax falls directly on the earning party. In case of direct taxes the point of payment and point of incidence is same. Direct tax includes Income Tax which is collected by the union government, i.e., the central government on the incomes of businesses and firms. The tax is levied on the basis of residential status of a person, and every Indian resident earning income from any source falls into the category of a tax payer.

Indirect taxes, however, are levied on the goods and services being sold or rendered in the state or country or outside the country by the residents and the burden of the tax can be shifted by one individual to another. In case of indirect taxes the point of payment may be different from the point of incidence. These include GST, excise and Custom Duty, however excise duty has been subsumed after GST but it is still applicable on certain products like petroleum and liquor. GST is collected both by the state government as well as the central government on sale of goods and services. Custom Duty is levied on import/export of goods. India generally does not charge any tax on exports.
 

PURPOSE

The taxes so collected act as a source of revenue for the government and thereby help the government in meeting its financial commitments in areas like defence, health, education, infrastructure, etc. 

The taxes also help in reducing the income parity among citizens. India follows a progressive tax regime, i.e., charges higher taxes to high income earners thereby reducing the gap between rich and poor.

For example, for Assessment year 2020-21, a person who is below 60 years of age has to pay tax as follows:

Annual Income

Upto Rs. 2.5 lakhs

Rs. 2.5 Lakhs- Rs. 5 Lakhs

Rs. 5 Lakhs- Rs. 7.5 Lakhs

Rs. 7.5 Lakhs- Rs. 10 Lakhs

Rs. 10 Lakhs- Rs. 12.5 Lakhs

Rs. 12.5 Lakhs- Rs. 15 Lakhs

Above 15 Lakhs

Tax

NIL

5%

10%

15%

20%

25%

30%

The table shows that as one’s income grows higher, higher is the tax he would have to pay. Similarly for the senior citizens aged between 60- 80  years, following rates are applicable:
 
Annual Income

Upto Rs. 3 lakhs

Rs. 3 Lakhs- Rs. 5 Lakhs

Rs. 5 Lakhs- Rs. 7.5 Lakhs

Rs. 7.5 Lakhs- Rs. 10 Lakhs

Rs. 10 Lakhs- Rs. 12.5 Lakhs

Rs. 12.5 Lakhs- Rs. 15 Lakhs

Above 15 Lakhs

Tax

NIL

5%

10%

15%

20%

25%

30%

For those above 80 years of age, following rates are applicable
 
Annual Income

Upto Rs. 2.5 lakhs

Rs. 2.5 Lakhs- Rs. 5 Lakhs

Rs. 5 Lakhs- Rs. 7.5 Lakhs

Rs. 7.5 Lakhs- Rs. 10 Lakhs

Rs. 10 Lakhs- Rs. 12.5 Lakhs

Rs. 12.5 Lakhs- Rs. 15 Lakhs

Above 15 Lakhs

Tax

NIL

NIL

10%

15%

20%

25%

30%

The taxes so collected go to the consolidated money and is spent on the basis of annual expenses decided by the Parliament in the annual budget of the country. A large part of taxes collection also goes to the Public Account where funds are utilized for various purposes like secondary and higher secondary education purposes, Swachch Bharat Abhayan, facilitation of proper health-care for all, etc.
 

FREQUENTLY ASKED QUESTIONS (FAQs)
 
Who has to pay Income Tax?
 

Anyone who is earning an income through any source exceeds more than the threshold limit as per prescribed slabs has to pay tax.

How do I pay Income Tax?
 

To pay income tax one has to file a return with the income tax authority of India. One can file return directly on the official website https://www.incometaxindiaefiling.gov.in or one could take a help of a Charted Accountant/Company Secretary/Cost Accountants/Tax Consultants/Legal Professionals, in paying tax and filing the tax returns.

My employer is paying my income tax, do I still need to file a return?
 

Yes. The employers are required to pay our income taxes at the source of income itself. But we may have other incomes, other than salary ( for which employer has paid tax), like rent, capital gain, etc. So, every earning individual has to file his own tax return.  This kind of deduction by the employer is called Tax deducted at source. (TDS).

Who should file a Income Tax return?
 

Any individual who is below 60 years of age and is earning more than Rs. 2.5 lakhs annually is required to file a income tax return. For senior citizens, those who are earning more than Rs. 3 Lakhs per year are also required by law to file income tax returns.

If my income is below Rs. 2.5 lakh per year, do I still need to file a return?
 

No, it is not mandatory to file return for those who fall below the tax paying category. 

How do I calculate my own Tax?
 

One can refer to the slabs mentioned in the article or can visit the official tax website and use the tax calculator software to calculate their tax. Here is the direct link for the calculator https://www.incometaxindiaefiling.gov.in/Tax_Calculator/index.html?lang=eng.

What are the documents required for a Taxpayer?
 

It is important to have a PAN card and a Aadhar card. It is also important to link the PAN and the Aadhar card.  Further documents are required depends upon the category of taxpayer the person falls in.

What is the last date for filling Income Tax Return?
 

Usually, every year July 31 is the last date by which we have to file tax return on the incomes earned in last previous year.

What if I do not file income tax return by due date?
 

If return is not filled by due date then there will be interest penalty on your tax liability of upto 1 percent per month and the revised return will have to be calculated based on the additional interest amount.

What documents I need to file a Income Tax Return?
 

A.    Form 16
B.    Interest certificates from bank and post office.
C.    Form 16A/Form 16B/ Form 16C
D.    Form 26 AS
E.    Tax saving investment proofs 
F.    Home loan statement , if any
G.    Salary slips
H.    Aadhaar card, etc.

Is e-filling of income tax returns is mandatory?
 

Yes. E-filling or electronic- filling of return is mandatory.