Every Indian citizen is required to pay income tax as a matter of law. Additionally, if you are a rookie at paying income taxes and have just begun your profession, you need to be aware of specific details about the tax* obligation. It will make the procedure more straightforward, and you'll obtain the most outstanding results.
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So, for those new to paying income tax in India, here is a simple checklist with ten items.
Income Tax Basics for Beginners
1. PAN Card - The ten-digit Permanent Account Number is a unique identification number. To guarantee that each taxpayer pays tax by income tax rules, the government issues a PAN card to each taxpayer. When paying taxes, submitting returns, requesting refunds, etc., it is crucial to have your PAN card information on hand. It is crucial to own a PAN card and keep it safe for use in the future.
2. Assessment Year and Financial Year - Before paying your income taxes, you should understand the distinction between the assessment and the financial year. The time frame or year during which the money is received is referred to as the financial year or the prior year. Additionally, the assessment year—the year after the financial year in question—is when the income produced during that financial year becomes taxable.
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3. Heads of Income - The many income sources that must be considered when calculating income taxes are described in the heads of income. Five primary sources of income are recognised by the Income Tax Act of 1961:
- Earnings from a salary
- Gains from a residential property
- Gains and profits from a business or vocation
- Income from capital gains and other kinds of income
These earnings will be included in the calculation of total gross income. It serves as the foundation for future income tax calculations.
4. Tax* Exemptions - The Indian government has comprehensive tax laws that enable taxpayers to exclude particular financial benefits from their gross income. House rent allowance, leave travel allowance (LTA), life insurance plan returns, etc., are a few well-known income streams that are free from taxes. The total gross income will be reduced by the amount exempt from taxes.
5. Tax Deductions - Other payments are eligible for a tax* deduction, while other income sources are excluded from the income tax calculation based on actual expenditure. You may deduct the cost of your investment in a life insurance policy, an equity-linked savings plan, a national savings certificate, a public provident fund, etc., from your taxes.
For instance, Section 80C of the Income Tax Act of 1961 allows you to deduct up to 1,50,000 of the premium you pay for a term insurance policy. So, to safeguard your financial future and save money on taxes, you should consider investing in such financial products.
Also read: How to Calculate Income Tax?
6. Income Tax Slab Rate - After taking tax deductions and exemptions into account, you will arrive at your net taxable income. This taxable income will be subject to the applicable income tax rate. As a result, the income tax slab is a detailed breakdown of the income tax rate that applies to income based on the income range for the various taxpayer groups, such as people, senior citizens, and super senior citizens. There is a fundamental exemption cap for the various taxpayer classes.
Additionally, the government unveiled a new tax structure for the fiscal years 2020–21 with lower income tax rates but excluded several tax breaks and exemptions. So, when calculating the tax due, you can select between the old system and the new regime. It is vital to note that adopting the old regime will be advantageous if you have plans to invest in various financial goods for the benefit of your family.
7. Tax Deducted at Source (TDS) - According to TDS, a deductor who pays a deductee a sum, such as a salary, will deduct the tax and send the money straight to the government. Upon receipt, the government will provide the information on Form 26AS for the benefit of the taxpayers when completing the ITR.
For example, you can benefit from a tax exemption if you are a salaried person who receives a House Rent Allowance as part of your pay. The least amount of HRA is deducted:
Depending on whether the resident's city is a metropolis, 50% or 40% of the basic pay is based there, and the extra rent is paid compared to 10% of the base pay.
The total gross income will be reduced by the amount exempt from taxes.
8. Advance Tax - If you owe more than 10,000 in taxes for a given fiscal year, you must pay them monthly at set periods rather than all at once. The Advance Tax is the name given to it.
9. Filing of Income Tax Return (ITR) - providing the Income Tax Department with information on your income taxes depending on your many sources of income, tax deductions and exemptions, etc. Several ITR form types are available, including ITR1, ITR2, ITR3, etc. Make sure you select the appropriate form.
10. Income Tax Refund - The Income Tax Department will reimburse the excess amount paid—the income tax refund—if the total tax withheld from your income exceeds your actual due. You must quickly file the ITR if you need to make a refund claim.
According to India's tax rules, submitting an ITR and paying income tax are both requirements. But for newcomers, learning how to calculate taxes and file them electronically can be challenging. You will benefit from the thorough ten-point checklist's assistance with the fundamentals of income tax computation.
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