Definition: The Income Tax is the annual charge levied on the income viz. Salary, wage, commission, dividend, bonus, etc. of an individual, company or a firm. For each assessment year, the rate of tax levied on different income levels, as prescribed in the slab, is defined in the Union Budget (Finance Act).
In India, the income tax is charged annually at the end of each financial year (April – March). It is the main source of Income for the Government that is essential to maintain the deficits and the optimum cash flow in the money market.
There are different tax rates for different income levels on the basis of which the tax amount is computed.There is a minimum cap on income beyond which the tax is calculated.
There are some deductions under different sections of the Income Tax Act that gives relaxation in the Tax Amount.
Few Common Deductions are:
- Public Provident Fund (PPF)
- Life insurance premium
- MediClaim insurance
- Tuition fees for child education
- Contribution to NPS
- Tax Saver Fixed Deposit (FD)
- Health insurance premium
- Investments made under The Rajiv Gandhi Saving Scheme
- Home loan repayment, etc.
Who pays Income Tax
According to the Indian Income-tax Act, 1961, the following parties are liable to pay the income tax, provided their annual income falls into one of the income slabs as prescribed in the Act:
- Hindu Undivided Families (HUFs),
- Association of persons
- Body of individuals
- Local authority
Hence, every individual falling in any of the above-mentioned categories must pay income tax which is used by the government for the betterment of the society.