Taxes act as the main source of revenue for the government. In order to finance its huge spending, the government relies on various types of taxes. Although are a number of taxes, today we will explain income tax.
Here we will discuss:
- Income Tax: What It Is?
- Significance: Why It Is Important to Pay Income Tax
- The Tax Structure of India
- How To Ascertain How Much You Need To Pay
- The Bottom Line
Income Tax: What It Is?
Income tax is a direct tax which is levied by the government on the income of an individual and is mandatory for an individual to pay tax on the money earned. Income also includes the money received from bonus, lottery, or by selling your property etc. and not only the income that you receive in the form of salary.
The Income Tax Act, 1961 approves the Central Government and allows it to collect this tax from the people. Income Tax is an example of Personal Tax which every individual (resident as well as non-resident) earning in India has to pay to the Central Government.
Why It Is Important To Pay Income Tax?
While almost everyone considers Income Tax as a burden as it cuts down a considerable portion of their money, it has a greater significance for the economy in general and as people of the economy in particular.
Let us take a look to understand how important is Income Tax for India :-
- Helps In The Nation Building Process
India is a huge country and keeping in mind the population, the cost of running the country is humongous. It is through the taxes that we pay, the government is able to meet the expenditures, maintain the civil operations and run the economy. Thus, indirectly the tax that we pay helps in the nation building process. If people start finding means to avoid taxes, it will seriously affect the growth and development of the nation and could also lead to a social collapse.
- Helps In Financing The Welfare Schemes Launched By The Government
Right from employment programs to providing subsidy on home loans, the government has launched several welfare schemes for the welfare of the difference sectors of the society. While these schemes benefit millions of people, it requires huge sum of money for it’s smooth functioning. By paying taxes, you not only play your role in ensuring success of such schemes but also encourage the government to come up with more such schemes for the needy.
- Improvement In Healthcare And Education
The government spends a huge sum of money which it earns from taxes on improving the healthcare and education services across the nation.
Talking about healthcare, there are various government hospitals in the country that offer treatment to the patients at minimum cost. Over the years, the quality of healthcare services provided in government hospitals has improved significantly.
Similarly, there are thousands of government schools spread across the country which offers quality education to poor students who cannot afford studying in private schools. Over the years, the quality of education delivered to students in such schools have also improved remarkably.
While paying taxes we not only fulfill our responsibility but also playing a crucial role in ensuring growth, development and prosperity of our nation.
The Tax Structure Of India
India follows a progressive tax rate system. In this, there exist a direct relationship between the tax rate and the income of the tax payer. In other words, in progressive tax rate system the rate of tax increases with the increase in the income of an individual and vice-versa. This is the reason why, the higher income group has to pay more and more taxes while the lower income group has to pay a relatively small amount of tax.
How To Ascertain How Much You Need To Pay
While there exists so much of chaos and confusion when it comes to paying taxes, the actual procedure is not so confusing.
- First of all you need to fill the Income Tax Return (ITR) form. This is a statement which shows your status by taking into account various sources of income and making the possible deductions (if any) in it to arrive at your taxable income.
- The next step, is to check in which slab your taxable income falls. The income tax that you have to pay depends upon the tax rate of the slab in which your income falls.
As per the union budget 2019-2020, the tax slab for an individual below 60 years is as follows:-
|Income||Tax Rate||Amount of Tax|
|Upto Rs 2,50,000 p.a.||0%||Nil|
|(Rs 2,50,001- Rs 5,00,000)p.a.||5%||5% of the total income exceeding Rs 2,50,000|
|(Rs 5,00,001- Rs 10,00,000)p.a.||20%||Rs 12,500 +20% on the income exceeding Rs 5,00,000|
|Above Rs 10,00,000 p.a.||30%||Rs 1,12,500 +30% on the income exceeding Rs 10,00,000|
For the individuals above the age of 60 years, the income tax slab as per the Union Budget of 2019-2020 is as follows:-
|Income||Tax Rate||Amount Of Tax|
|Upto Rs 3,00,000 p.a.||0%||Nil|
|(Rs 3,00,001- Rs 5,00,000)p.a.||5%||5% of the total income exceeding Rs 3,00,000|
|(Rs 5,00,001- Rs 10,00,000)p.a.||20%||Rs 10,000+ 20% of the income exceeding Rs 5,00,000|
|Above Rs 10,00,000 p.a.||30%||Rs 1,10,000 + 30% of the income exceeding Rs 10,00,000|
For the individuals above the age of 80 years, the income slab as per the Union Budget 2019-2020 is as follows:-
|Income||Tax Rate||Amount Of Tax|
|Upto Rs 5,00,000 p.a.||0%||Nil|
|(Rs 5,00,001- Rs 10,00,000) p.a.||20%||20% of the total income exceeding Rs 5,00,000|
|Above Rs 10,00,000 p.a.||30%||Rs 1,00,000+ 30% of the total income exceeding Rs 10,00,000|
- After checking the tax slab in which your income falls, the last step is to pay your income tax accordingly.
The Bottom Line
Wrapping it up, all I would say is instead of looking at Income Tax as burden we should look it as the sum of money spend for the welfare of our economy in general and welfare of individual in particular. This will not only change our perception about the way we look at income tax but will also motivate us to pay taxes honestly and precisely.