Income Tax Basics: Income Tax in India

Posted by Ananya Nair on March 6th, 2020

Income Tax Basics

Everyone who earns or gets an income in India is subject to income even if you are resident or a non-resident Indian. Your income either from Salary, Pension or from a savings account also accumulates a 4% interest. Even if you are winners of ‘Kaun Banega Crorepati’ have to pay tax on their prize money. For simpler classification, the Income Tax Department breaks down income into five heads and that are –

1. Income from Salary - Income from salary and pension are covered under this
2. Income from Other Sources - Income from savings bank account interest, fixed deposits, and winning KBC are covered under this.
3. Income from House Property – Mostly rental income comes under this.
4. Income from Capital Gains - Income from sale of a capital asset such as mutual funds, shares, or house property
5. Income from Business and Profession - This is when you are self-employed, work as a freelancer or contractor, or you run a business, Life insurance agents, tuition teachers chartered accountants, doctors and lawyers who have their own practice.

Taxpayers in India

These are the taxpayers in India for the purpose of income tax -

• Individuals
• Hindu Undivided Family (HUF)
• Association of Persons (AOP)
• Body of Individuals (BOI)
• Firms
• Companies

Income Tax in India

Taxes in India can be categorized as direct and indirect taxes.

1) Direct Tax - Direct Taxes are broadly classified as Income Tax and Corporation.

• Income Tax – This is taxes an individual or a Hindu Undivided Family or any taxpayer other than companies, pay on the income received. The law prescribes the rate at which such income should be taxed
• Corporate Tax – This is the tax that companies pay on the profits they make from their businesses. Here again, a specific rate of tax for corporates has been prescribed by the income tax laws of India

2) Indirect Tax – Indirect taxes take many forms and these are - service tax on restaurant bills and movie tickets, value-added tax or VAT on goods such as clothes and electronics. Goods and services tax, which has recently been introduced is a unified tax that has replaced all the indirect taxes that business owners have to deal with.

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In case you need assistance with the Income Tax Return, you can arrange a call from FinacBooks business advisors or call us at 8800221252. We also offer comprehensive solutions on Company registration, MSME Registration, FSSAI Registration, GST Registration, Business Accounting and Bookkeeping in all over India.