With all the complicated terminology that taxation comes with, every year it becomes literary a cause of panic for us. Here is a simplified understanding for the same
Shristy Agarwal
Taxation becomes a panic attack for every common man especially when the due date of filing Income Tax Returns i.e., 31st July (extended to 31st August for F.Y 2018-19) approaches.
But you need not worry anymore because the basic understanding of taxation is covered in the article written hereunder.
Let’s begin with a famous quote in the world of taxation:
“In this world, nothing can be certain except death & taxes – By Benjamin Franklin”.
So, when it is the most certain thing, an understanding should be built about taxes. In the Indian system of taxation, there are two types of taxes – Direct and Indirect taxes.
Direct taxes are those where the burden of tax lies on the person who pays it. For e.g. Income Tax, wealth tax, etc. Indirect taxes are those where the burden is shifted on to the ultimate consumer whereas, the person who is paying those taxes is someone else like a trader or manufacturer. Example of indirect tax is GST, Service Tax, Excise duty, etc.
The major part of Direct tax comprises of Income tax which is also a major source of income to the Indian exchequer. Income tax is a tax levied on the net taxable income of a person. The term person includes individuals, Association of persons, Body of Individuals, HUF, Company, Partnership firms, Trust and every other person whether or not registered under any acts in force. Net taxable income refers to the annual income of a person after deducting the deductions allowable by the Income Tax Act, 1961.
Earlier having a PAN (Permanent Account Number) was a prerequisite for filing return, but now after the Budget of 2019 interchangeability of Adhaar and PAN is possible.
This implies that PAN is not mandatory; individuals can use their Adhaar to file the returns, thus easing the process.
For individuals a slab is provided for taxation
- Up to annual income of Rs 2, 50,000 – Tax rate is NIL
- From 2, 50,000 – Rs 5, 00,000 – Tax rate is 5%
- From 5, 00,000 – Rs 10, 00,000 – Tax rate is 20%
- From Rs 10, 00,000 and above – Tax rate is 30%.
Apart from the above slab rate a major amendment was done by the current budget to benefit taxpayers is an increase of rebate u/s 87A.Rebate u/s 87A is provided to those individuals whose Net Taxable Income does not exceed Rs 5, 00,000 p.a.
Total rebate provided under this section is limited to Rs 12,500 – this implies that if your tax comes to say Rs 8560, the whole of your tax shall be exempt and you don’t need to pay anything to the government.
Many other sections are also provided to benefit the taxpayers which include section 80C and 80D.
Section80C provides various investment based deductions which includes investment in LIC, recognized provident fund, approved superannuation funds, mutual funds, repayment of housing loan, tuition fees of children(max 2 children), and investments in fixed deposit with a maturity of five years or more.
Section 80D provides deduction in respect to the medical insurance premium paid by an individual for himself and his family. Family for this purpose includes spouse, parents and children.
For more details about these sections, you can refer to the given link: https://www.incometaxindia.gov.in/Pages/acts/income-tax-act.aspx
Coming to indirect taxes, GST is the most prominent and important topic in the nation today. GST stands for Goods & Service Tax. Several indirect taxes have been subsumed in GST like Service tax, Excise duty, Luxury tax, Central Sales tax, State sales tax, Purchase tax, Octroi, etc.
GST is a consumption-based tax.
The main objective behind the introduction of GST is to remove the multiplicity and complexity of taxes.
GST has been implemented in the dual model namely central tax and state tax where the revenue from Central GST goes to the Central Government, State GST goes to the state government of consuming state and that of Integrated GST is shared between Central Government and respective state government in the ratio of 1:1.
This was all about basic taxation. To know more about taxation and finance please follow the series of articles that will come out in this section.
