Not only our family, even government wants money to satisfy the citizen’s basic needs such as infrastructure, roads, salary to people representatives. Governments gets money from common man as “Tax”. In this, Income tax is money paid by citizens who get income from salary, income from house property, income from business, income from capital gain, income from other sources. If you are salaried employee, you are contributing to nation’s growth by paying income tax.
You are contributing to Nation’s growth, By Income Tax. Feel proud.
Your employer or company would calculate tax on your income and pay to the government. It is all streamlined in india and it is properly working department in india:) But it is important to understand how much money needs to be paid as tax. Let us discuss basic knowledge on income tax in simple terms.
How Income Tax calculated:
Every individual or company income from Apr 1 to Mar 31 of every year considered as financial year income in India. Income in financial year calculated and tax imposed on that income as income tax. Below income are considered taxable income in india.
1. Income from salary – your salary income
2. Income from House Property – rental income
3. Income from Business and Profession – income from any business or practicing a profession (cricketer, actor, CA’s Office, Doctor, etc)
4. Income from Capital Gain – on sale of any land, building, shares and securities (anything which is a capital asset).
5. Income from Other Sources – any income you earn from any other source.
Financial year is April to March.
Income Tax Slabs:
Tax is calculated income on financial year(April – March). Income tax is calculated based on your income. Total income and tax percentage , following are the slab rates for Individuals in FY2018-2019,
Upto 2,50,000 — No Tax
2,50,001 to 5,00,000 — 5 %on any amount above Rs 2,50,000.
5,00,001-10,00,000 — 20% on any amount above Rs.5,00,000 + Rs. 25,000.
Above 10,00,000 — 30%on any amount above Rs 10,00,000 + Rs. 1,25,000.
Note: It differs slightly for Women and senior citizens.
Tax is calculated on our taxable income. Taxable income is income after government allowed deduction such as HRA, PPF, health insurance. Will discuss deduction in next section in details.
Taxable income : Rs 4,00,000 (income slab = 5%)
Tax on his income = 10% of his income exceeding basic exemption 2.5 lakhs = 10% of (400000 – 250000) = 5% of 150000 = 7500.
Taxable income : Rs 10,00,000 (income slab = 5%)
Tax on his income = 10% of his income exceeding basic exemption 2.5 lakhs = 10% of (500000 – 250000) = 5% of 250000 = 15000
(+) 20% of his income exceeding after 500000 = 20 % of 500000 = 100000 = (Total Tax is 115000).
For working professional, the employer or organization takes care of rudimentary management of your income tax. Here note the point that organization would calculate the tax on your income and they would inform us about deductions or tax exemption. It is our responsibility to understand what is tax exemption and available exception in income tax act . Plan investment based on tax exemption and submit the deduction proof to get tax exemption. Proper understanding of tax exemption would reduce 50,000 rupees tax and make your money to grow in investment. Now you clear about your income and which income slab you are in, how much tax are you paying to the government.
We would discuss different sections of income tax such as 80C,80CCC and HRA, LTA in upcoming sections.