Income Taxes : The Insider's Guide

Post By - Laxmi Mahera
Review By : Rohan Sharma
Updated on : October 29, 2021

Introduction to Income Taxes : The Insider's Guide

The most fundamental definition of income tax is that it is a tax levied on earnings. To fully comprehend income tax, we must first comprehend these two terms: tax and income. Tax services Boca Raton can assist you in clarifying this.
Tax is a statutory, mandatory payment made to the government, and it is classified as income tax or direct tax when it is paid directly as a proportion of income.

The term “indirect tax” refers to a tax that is imposed as part of the price of products or services and paid to the government indirectly. The Goods and Services Tax (GST) is currently India’s only indirect tax.

Let’s have a look at what the word “income” means. In terms of taxation, it has a very broad and extensive connotation. For a salaried employee, all compensation received from an employer, whether in cash, kind, or as a benefit, is considered income. Net earnings will be considered income for a businessperson.

Investments can also generate income in the form of interest, dividends, and commissions, among other things. The Income Tax Act also makes no distinction between legitimate and unlawful income.

The Income Tax Act Divides Income into Five Categories

Salary-based Income : Salary, allowances, perks, gratuity, pension, and leave encashment are all examples of compensation. It’s basically the money you get for doing your work as a result of your employment contract.
House Property Rental Income : This is essentially the rental income from any home or property that you own.
Income on Capital Assets : Profits from the sale of a capital asset such as mutual funds, stocks, real estate, agricultural land, and so on.
Income from a Business or a Profession : This is the revenue or profit generated by a business, profession, contract, or other arrangement.
Other Sources of Income : Interest from savings bank accounts, term deposits, KBC lottery prizes, and other sources of income

Individuals, Hindu Undivided Families (HUF), Associations of Persons (AOP), Bodies of Individuals (BOI), corporate firms, companies, municipal governments, and all other artificial juridical persons that create money must pay income tax.

Taxes are based on a person’s yearly income, which begins on April 1st and ends on March 31st of the following calendar year in the eyes of the Income Tax law. The year is recognised and classified by the legislation as either a “Previous Year” or a “Assessment Year.”

The prior year is the year in which income is earned, while the assessment year is the year in which it is taxed.
For example, income produced between April 1st, 2017 and March 31st, 2018 is referred to as previous-year income and will be taxed in the next year, which begins on April 1st, 2018.

The Government Normally Collects Income Tax in three Ways

TDS : It refers to the amount of tax deducted on a regular or irregular basis by the person who provides you with income. The TDS regulation requires the payee or employer to deduct a specific amount of tax before paying the receiver in full.
TDS applies to salaries, commissions, professional fees, interest, and rent, among other things. As a result, companies frequently deduct income tax from the compensation they pay. Similarly, if the amount of interest paid on fixed deposits (including Recurring Deposits) exceeds 10,000/- in a year, the bank deducts tax.
Advance Tax : It is the payment of a portion of one’s tax bill prior to the conclusion of the Assessment year. According to the Income Tax Act, any individual, whether salaried, self-employed, a businessman, or a corporation, is required to pay Advance Tax on any income for which TDS is not deducted. Any taxpayer whose projected tax liability for the year exceeds $10,000/- is required under the Income Tax Act to pay tax in advance by the due dates listed below:

3. Self- Assessment Tax: After an assesses has paid tax through TDS and Advance Tax, he must determine how much tax remains to be paid. Before filing a tax return, the balance tax must be deposited with the income tax department. This is referred to as the Self-Assessment Tax.

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Income Taxes : The Insider's Guide