Income Tax
Income Tax Definition:
An income tax is a money or fee charged by the government on the income of individuals or businesses.
The main aim is to generate revenue for the government so that they can be utilized for public amenities.
Various taxes exist with varying degrees of tax incidence. It can be progressive or regressive. The tax levied on corporations is corporate tax. The tax which is levied on individuals is the individual income tax.
While the individual income taxes charge the total income of the individual, the corporate income taxes charge the net income of the corporation.
Types of Income Tax
Individual Income Tax
An individual income tax is drafted on the total income of the individual with some deductions. The individual income tax is collected by a tax rate which is fixed by the government. The tax rate varies by the gross amount a person earns per year. The individuals who come under a prescribed amount pay the rate fixed by the government for that financial year. Income tax has tax deductions which avail a person that amount of tax liability.
Corporate Income Tax
This is type of tax levied by various governments on the profits earned by a corporation. A corporation’s earnings are GROSS INCOME – EXPENSES. In those expenses which are deducted from income the expenses which are related to capital expenditure are deducted on a prescribed rate.
Capital Gains Income Tax
This is tax which is levied on the profit of sale of a particular asset or good. In most of the situations capital gains tax is treated like a normal income tax and individuals are subjected to marginal rate of income tax.
Income tax rates for the financial year 2010-2011 in India:
| Income tax rates for Men | Percentage |
|---|---|
| Upto Rs. 1,60,000 | Nil |
| Rs. 1,60,001 to Rs. 5,00,000 | 10% |
| Rs. 5,00,001 to Rs. 8,00,000 | 20% |
| Above Rs. 8,00,000 | 30% |
| Income tax rates for women | |
| Upto Rs. 1,90,000 | Nil |
| Rs. 1,90,001 to Rs. 5,00,000 | 10% |
| Rs. 5,00,001 to Rs. 8,00,000 | 20% |
| Rs. 8,00,000 and above | 30% |
| For resident individuals of 65 years and above | |
| Upto Rs.2,40,000 | Nil |
| Rs. 2,40,001 to 5,00,000 | 10% |
| Rs. 5,00,001 to 8,00,000 | 20% |
| Rs. 8,00,000 and above | 30% |
Example:
If a person A earns 8 lac rupees per annum his income tax is calculated as follows:
According to the income tax rates
For men upto Rs. 1,60,000 no tax
8,00,000 – 1,60,000 = Rs. 6,40,000
Tax on income between Rs. 1,60,000 to Rs. 5,00,000 @ 10% Rs.34000 i.e. on Rs. 3,40,000
Tax on income between Rs. 5,00,000 to Rs. 8,00,000 @ 20% Rs.60000 i.e. on Rs. 6,40,000 –Rs.3,40,000 = Rs. 3,00,000
Total tax = Rs. 34,000+60,000 = Rs. 94,000
Education cess @ 3% on total tax Rs.2820
Tax payable = Rs. 94000+ Rs. 2820 = Rs.96820
If a person has LIC premiums or medical policies these are to be deducted from the tax to be paid.
Various Income tax forms
| Form No |
Heading |
|---|---|
| ITR - 1 | For individuals having income from salary/pension/family pension and interest |
| ITR - 2 | For individuals or hindu undivided families not having income from business or profession |
| ITR – 3 | For individuals or hindu undivided families being partners in firms and not carrying out any business or profession under any proprietorship |
| ITR – 4 | For individuals or hindu undivided families carrying out business or profession |
| ITR -5 | Fringe benefit tax return |
| ITR - 6 | For companies other than those companies claiming exemption under section 11 |
| ITR -7 | For persons including companies required to furnish return under section 139(4A) or section 139 (4B) or section 139(4C) or section 139 (4D) |
| ITR – 8 | Return for fringe benefits |
| ITR – V | Where the data of return of income /fringe benefits in form ITR -1, ITR -2,ITR-3,ITR -4 ,ITR-5, ITR-6 and ITR-8 transmitted electronically without any signature |
Income tax refunds
An income tax refund is a deduction of money from the tax liable but a deduction from the income. When a person’s income tax is calculated there are certain factors which are to be deducted from total tax payable so that the individual may benefit from paying large amount to the governments. The factors come under some sections decided by the government.
Certain Investment and Deposits Under Section 88:
- Life insurance premium paid on the policy for self, spouse or children but not parents.
- Contribution to statutory provident fund in his own account.
- Contribution to public provident fund
- Contribution to ULIP, Dhanraksha plan or LIC mutual fund an equity connected saving scheme of mutual fund.
- Deposit in 10 year account under post office saving bank cumulative time deposit rules 1959
- Repayment of a loan taken from a public financial institution for a residential accommodation or cost of construction
- Deposit in NSC
- Deposit in NSS
- Investment in notified infrastructure bonds, mutual funds, debentures and shares.
- Tuition fees for admission in any university, college or school resided in India for the purpose of full time education.
Deductions From Gross Income:
- 80CCC – contribution to pension fund LIC
- 80D – medical insurance premia
- 80DD – maintenance including medical treatment of handicapped dependent
- 80DDB- medical treatment
- 80E- repayment of loan taken for higher education
- 80G- donations to charitable institutions
- 80GG – rent paid by an assessee
- 80GGA – donations for scientific research or urban or rural development
- 80HH- deductions in respect of profits and gains from newly established industrial undertaking or hotel in backward areas
- 80HHA – deductions in profits and gains from newly established small scale industrial undertakings in certain areas
- 80HHB – deductions in respect of profits and gains from projects outside india
- 80HHBA- deduction in respect of profits and gains from housing projects in certain areas
- 80HHC- deduction in respect of profits and gains from export of goods outside india
- 80HHD- deduction in respect of earning in foreign exchange
- 80HHE- deduction in respect of profits from export of computer software etc.
- 80HHF- deduction in respect of profit from export or transfer of film software
- 80IA – deduction in respect of profits and gains from certain industrial undertakings or enterprises etc
- 80IB- deduction in respect of profits and gains from certain industrial undertakings or enterprises other than infrastructure undertaking
- 80JJA- profits and gains from business of collecting and processing biodegradable waste
- 80JJAA- deduction in respect of employment of new workmen.
- 80L- interest on securities, dividends etc
- 80 O- royalties, commissions, fees for professional services etc earned in convertible foreign exchange
- 80 P –cetain income of co-operative societies
- 80 R,RR,RRA – income from foreign sources
- 80U – income of handicapped assessee
Income tax reforms in the recent budget for the assessment year 2010-2011:
The changes in the personal income tax are:
- The tax exemption limit is increased by Rs.15000 from Rs.10000
- Surcharge on income tax is removed
- Section 80DD deduction is increased to Rs. 1,00,000 from Rs. 75000
- Fringe benefit tax is removed
- Income tax return forms are simplified starting with saral- II
- And the benefit which was available under section 80E for loans taken for education for graduate, post-graduate and management courses (in engineering,medicine applied pure sciences) is now available for all fields of studies including vocational studies taken up after school.
