What is the meaning of income tax

Taxes are nothing but a part of your payment that goes towards the government’s revenue. There are two types of taxes - direct taxes and indirect taxes. Taxes you pay on goods and services are indirect taxes. On the other hand, income taxes deducted in the form of TDS from your salary is an example of direct tax.

Direct taxes contribute to expenses towards state and central government expenses, such as infrastructural development. Let’s get into the details of income tax working in India and its various aspects. 

What is the meaning of income tax?

Generally, there are two types of taxes that an individual pays in India i.e., direct and indirect taxes. Income tax comes in the category of direct tax. In simple terms, income tax is a tax imposed on an individual or a business based on their income, or the profit earned. These incomes are termed taxable income. 

The taxation rates may vary depending on the type of employment and the amount of income received by an individual or an entity. The Income Tax Act of 1961 governs the provision of income tax and the various applicable deductions. However, considering the socio-economic conditions and inflations, the act has made several amendments for citizens’ ease

While you need to pay income taxes based on your income slabs, there are several ways to save taxes and, the most common and safest ways are an investment in tax-saving deposits. You can opt for IDFC FIRST Bank’s high-return fixed deposit and save taxes on an annual deposit of ₹1.5 lakhs or ₹12,500 per month. In addition, you get several banking services at your fingertips. Watch the video below to know more about IDFC FIRST Bank fixed deposits.

Who are the taxpayers?
 

An individual who earns an income and falls in the taxable slab as per the government’s rule is known as a taxpayer. In India, anyone below the age of 60 years earning an income above ₹2.5 lakh needs to pay income tax. Moreover, individuals earning above 3 lakhs and over 60 years of age also need to pay taxes according to the taxation rules.

In addition, the following categories of citizens and entities generating income also need to pay taxes.

·       Body of Individuals (BOI)

·       Hindu Undivided Family (HUF)

·       Local Authorities

·       Association of Persons (AOP)

·       Corporate firms

·       Companies

·       All Artificial Juridical Persons

What are the various taxable categories of income?
 

The government imposes taxes on individuals and entities based on their income category and income slab. Following are the categories from which the government imposes taxes.

·       Salaried income
 

Taxes paid as a fraction of the income of the employees working in various corporate, public, government sectors are known as taxation on the salaried income. Usually, the employers provide Form 16 mentioning the details of tax deductions and net salary received.

·       Profits from capital gains
 

Taxes on capital assets such as houses, land, securities, equities, debt instruments, and jewellery are taxation on the profits from capital gains. 

·       House and property income
 

Tax on house property income is charged on the income through rent when the owners rent their properties out. However, the properties should not be commercial under this category.

·       Business income
 

Taxes imposed on profits through business activities by offering products or services fall under this type. The applicable tax rates are regulated under sections 30 and 43D of 80d Income Tax.

·       Other income sources
 

Other income sources refer to the ones that are not included in the list mentioned above. Some examples include lottery, dividend earnings, pensions, received gifts etc.

It is crucial for earning individuals to pay income taxes based on their salary slabs. The old tax regime follows a progressive taxation system, while the new tax regime is accessible to people and HUF with lower tax rates but with zero allowances and exclusions. 



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