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.
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.
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.
Income tax returns are prescribed through which you inform the Income Tax department about your income and the tax paid on it.
All about income tax in India begins with the tax slabs. Following are the income tax slabs for FY 2019-20.
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.
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.
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.
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.
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.
Section 80C allows for a maximum deduction of Rs.1.5 lakhs. The tax saving instruments deductible under this section include:
Tax-saving fixed deposit
Sukanya Samriddhi Yojana
Senior Citizens Savings Scheme
National Savings Certificate
Home loan principal repayment
Unit Linked Insurance Plans (ULIPs)
There are various subsections of 80C which include other instruments like
Pension or annuity plans
National Pension Scheme
Government-approved infrastructure bonds
Government-approved equity savings scheme
You can put into practice a whole lot of tax saving under Section 80C by going for the ULIPs available on Finserv MARKETS. It is a good option for long-term wealth creation which provides the dual benefit of a life cover along with investments in funds chosen as per your risk appetite.
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
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.
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!