For youngsters attempting tax planning for the first time, understanding income tax basics can be quite confusing. Most people hire a tax advisor or a CA to for tax planning and to invest in tax saving instruments, especially at the last minute. However, that’s not the only way out. In this age where information is readily available at your fingertips, you can always educate yourself. Before you start looking for multiple resources, you can begin with this basic list that includes all about income tax in India for starters.
What is income tax?
Income tax is a direct tax levied on your income that is collected by the Central Government. It is a source of revenue for the government.
What does income consist of?
Income consists of
salary (including pension)
earnings from sale of capital assets (land, equity, jewellery, etc.)
income from house property
profits from business.
Income other than the above listed sources is categorized as ‘income from other sources’.
Income on which tax is calculated is called taxable income. Income which is not taxed is called exempt income. Exempt income includes a lot of categories such as interest on certain investments, the maturity value of insurance policy, etc.
What is income tax return?
Income tax returns are prescribed through which you inform the Income Tax department about your income and the tax paid on it.
What are income tax slabs?
All about income tax in India begins with the tax slabs. Following are the income tax slabs for FY 2019-20.
What are previous year and assessment year?
You need to understand these first to get a grasp of income tax basics. Previous year is the financial year starting on 1st April and ending on 31st March for which you are paying taxes. The financial year in which you pay taxes for the previous year is called assessment year. For the previous year 2019-20, assessment year will be 2020-21.
What is standard deduction?
Standard deduction is a flat subtraction from the salary amount before calculating the taxable income. As per Budget 2019, the standard deduction for salaried employees is Rs.50,000.
What is TDS?
Tax Deducted at Source (TDS) is a tax deducted at the point of generation of income. It is applicable on various incomes like salary, commission, interest, professional fees, brokerage, contract payments, royalty, etc. You can claim for a refund of TDS while filing your ITR.
Is PAN card necessary for paying income tax?
PAN is an important part of income tax basics. PAN or Permanent Account Number issued by the Income Tax Department is necessary for transactions with the department. It is also required for opening bank accounts, high-value purchases, taking loans, making property transactions, etc. It is also widely used as an ID proof.
What are deductions?
Deductions are the most integral part of tax saving. Deductions are the amounts that you are allowed to deduct from your salary calculation to bring down your taxable income and thus reduce your tax liability. These income tax deductions are listed under various sections of the Income Tax Act. The most popular of these sections is Section 80C.
What does Section 80C include?
Section 80C allows for a maximum deduction of Rs.1.5 lakhs. The tax saving instruments deductible under this section include:
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Are there deductions available apart from Section 80C deductions?
Yes. Contrary to popular belief, there are other sections too which offer tax saving deductions on income tax. These are Section 80D, 80DD, 80DDB, 80E, 80EE, 80G, 80GG, 80GGB, 80GGC, 80TTA, 80U, and 80RRB. These include:
Health insurance premiums
Expenses for treatment of disabled relative
Expenses for treatment of specific illnesses
Interest payment for education loan
Interest payment on home loan for first-time home buyers
Donations to charities
Contributions to political parties
Interest on savings account
Deduction for handicapped persons
Who is a tax resident of India?
There are three categories of taxpayers based on residential status- ROR (Resident Ordinarily Resident), RNOR (Resident Not Ordinarily Resident), and NR (Non-Resident). There are specific conditions prescribed in the law for all three categories.
Who can you turn to for income-tax related help?
For good tax planning, apart from a tax advisor, you can also turn to the following
Public Relations Officer [PRO] at the local IT Department office
Tax Return Preparers [TRPs]
There you have it. An end to end guide to help you with your tax planning. To simplify and speed things up, you can also use an income tax calculator. If you find your tax outgo to be larger than necessary, the time to invest in tax saving instruments is now. You can turn towards the ULIP plans available on Finserv MARKETS, which not only offer high tax saving benefits, but also offer financial security and high returns. As per your financial goals, you can choose from three different plan variants on Finserv MARKETS - Retirement plans, Child plans or Investment plans. On Finserv MARKETS, you can invest in the top-rated funds at zero allocation charges. Invest in ULIPs now, and reap its plentiful benefits later!