Here are some key points about income tax in India.
The income tax is levied on the total income earned by an individual or entity during a specific financial year (April to March). The income includes salary, wages, business profits, capital gains, rental income, interest, dividends, and other sources of revenue.
India has a progressive tax rate system, where the income is divided into different slabs, and each slab is taxed at a different rate. The tax rates vary depending on the total income earned by the taxpayer.
The Income Tax Act provides for various exemptions and deductions that reduce the taxable income. Common deductions include those for investments made under Section 80C (e.g., Employee Provident Fund, Public Provident Fund, life insurance premiums), deductions for medical expenses, donations to charitable institutions, and more.
Taxpayers are required to pay their income tax in advance through the system of advance tax, especially for those with a significant tax liability. Additionally, Tax Deducted at Source (TDS) is a mechanism through which certain payments, like salary and interest, are subject to deduction of tax at the source before being paid to the recipient.
Every individual and entity with taxable income is required to file an income tax return with the tax department. The return must be filed by a specified due date, and it reflects the income earned, deductions claimed, and the tax paid.
Failure to pay income tax or file the income tax return on time can lead to penalties and interest. In some cases, it may also attract prosecution under the Income Tax Act.
India has Double Taxation Avoidance Agreements (DTAAs) with many countries to prevent double taxation of income for individuals and entities with cross- border income.
While income tax is a direct tax, India also has a Goods and Services Tax (GST), which is an indirect tax levied on the supply of goods and services.
