Ongoing since pre-independence, income tax is levied on every earning individual in India. It has been the highest revenue generating direct tax of the government. As of 2019, statistics show < 50% of government income comprises of direct income taxes. Unlike indirect taxes such as the goods and services tax (GST), income tax is a direct tax that every individual/ organization pays to the government on the basis of their income/profit.
To an ordinary salaried person this tax is deducted from their salary by the employer in form of TDS (tax deducted at source). To businesses, income tax (called the corporate tax) is payed by the company, calculated on the basis of a specific rate of tax, as prescribed by the income tax law of India.
The income of every individual is categorized into one of four tax brackets (also called tax slabs) according to which they their taxes are calculated. The tax rate or decreases or increases based on income of a person and their age.
In case of corporate firms, the categorization of firms is, domestic companies (those registered under Companies Act of India) and foreign companies (those not registered under Companies Act of India and have management and controls abroad) Taxpayers can pay their taxes via online portals making it a quick and hassle-free process.
Apart from paying taxes they are to file in tax returns. A tax return is a report stating the payers’ income, expenses, allows to calculate tax liability, schedule payments, etc. Income tax returns are also filled via online portals.
Payable amount due for income tax is based on the head of income, mainly five: income from salaries i.e., the tax payed on the basis of salary for working individuals; income from capital gains i.e., capital received by liquidation of assets such as property, jewellery, bonds, equities, etc; income from house property i.e., earnings from residential renting of property; income (profit) from business i.e., the profits earned from a business; other sources of income i.e., lottery winnings, rental income (other than residential), income from dividends, etc.
Even to individuals that are not liable to pay income tax (earning under 2.5 Lakhs/annum), filing of regular income tax returns has a number of benefits at its disposal. Financial institutions find it easier to retrieve a credit score which facilitates the process of issuing loans. Travelling becomes easier, as visa processing requires proof of income tax return filing as well as in issuing a passport which would otherwise require more documentation and time. For corporations, should they suffer a business loss, speculation loss, etc an income tax return filing (on or before deadlines) proof helps to carry forward the loss. In order to claim insurance in case of accidents, income tax returns are required, without which the insurance amount to be claimed can be significantly reduced. And last but not the least, in case of overpayment of taxes, it is easier to get back refunds.
Income tax returns benefit the government in providing higher quality of life to its citizens. Government uses these taxes in construction of transport facilities, educational institutions, developing smart city solutions, creating various public benefiting schemes, supporting scientific research, maintaining the defence force of the country, providing essential utilities such as water and electricity, employee salaries, law enforcement, etc.
Planning tax payments is a vital part of financial planning, regular payment of income tax and filing returns is beneficiary for the individual/company (on a micro-level) as well as to the efficient functioning of the government (on a macro-level). E-filing of returns has made the process even easier ensuring a number of benefits such as confidentiality, convenience, accuracy, etc. As citizens of the country paying due taxes is the patriotism every individual can showcase towards their homeland.