To learn about the taxes imposed on an individual in India
1. Types of Taxes
In India, tax is charged in the following two ways:
Direct tax: This tax is charged directly on a person’s income such as income tax.
Indirect tax: This tax is charged on goods and services that a person buys from the market.
2. Who pays the income tax?
Income tax has to be paid by a resident of India.
- Resident of India (ROI): If a person stays in India for more than 182 days even if he is a citizen of somewhere else, he will be considered as a resident of India. He has to pay tax on his entire global income including India.
- Resident but Not Ordinary Resident (RNOR): If a person visits India sometimes, but he is not a complete resident of India, he has to pay tax on income that is earned from India.
The Government of India charges tax according to different tax slabs.
3. Tax Overview for an Individual
Every individual of 18 years or above age is allotted a PAN number for tax purpose. Also, banks have linked Aadhaar and PAN numbers to the accounts of the users for tracking their income. So, all the transactions routed through banks will be known to the government.
4. Tax Collection by Government
Tax Deducted at Source (TDS): When the tax is deducted automatically from the source of income in advance, it is known as “Tax deducted at source.”
Self-assessment tax: If your income exceeds the taxable limit and your TDS is not deducted, you can do a self-assessment of income and pay tax to the government.
5. Tax-related forms
a. Form 16:
When you are a salaried person, the company has to calculate your annual tax payable, divide it into monthly basis, and then pay this amount to the government.
The company should provide you quarterly form 16 showing the amount paid by the company to the government as TDS.
b. Form 26AS:
You have to log in to the income tax website and add your details for registration. You can check the amount credited as tax through form 26AS.
c. Income tax returns forms:
You have to use different forms according to the source of income as follows:
- Salaried with other income: ITR 1
- Salaried with capital gains: ITR 2
- Businessman & professional: ITR 4
- Company: ITR 6
d. Form 15 G & Form 15 H:
If your total income is below taxable income and you earn income through bank FD interest, you can use these forms.
You can declare that your total income is below taxable income, so, the bank will not deduct TDS on FD interest.
6. Tax planning
You should do tax planning to avoid tax liability. There are many sections where you can get a deduction on tax such as:
Section 80 C- Deduction up to Rs. 1.5 lakh
- Life insurance
- Term insurance
- Tuition fees
- PPF
- ELSS (Equity linked savings scheme) mutual funds
- Tax saver FD
- Medical health insurance – Deduction up to Rs.25,000
- Donation
Thus, you should do tax planning with the help of a financial consultant to save your tax money while abiding with all the rules and regulations.
Key Outcomes
- Take the help of a financial consultant for tax planning
- Use form 15 G & form 15 H to avoid TDS on FD interest