How to pay the right income tax and be tax compliant?




Income tax is one of the direct taxes that is levied on individuals based on their total income. This income is categorized across different categories based on the nature or source of the income. Individuals usually file separate returns and pay or claim taxes due or refunds. Hindu Undivided families can file a joint single return of all family members, which is the other exception to income taxes.


What are the key categories of income?


·         Income from salary


The income can be consistent like salary, pension (generated due to employment), commissions or incentives. These are usually recurring payments and not one-time income. This type of income is broadly classified as ‘Income from Salary’. There is minimum effort for income tax compliance for people having income only under this particular category.


·         Income from House Property


Income from house property largely constitutes rental income.


·         Income from Capital Gains


This section deals with income generated through the sale of an asset. Could be home, could be stocks, could be jewelry, could be mutual funds, or any other major movable or immovable asset.


·         Income from business and profession


Professionals like lawyers, Chartered Accountants, Doctors, etc., may not get a salary if they are into a profession or have their sole proprietor type business. The income generated from business or such a profession can be reported under this head.

·         Income from other sources


This is a broad head for income that does not fall under any of the above 4 categories. These may include interest in fixed deposits, savings account or any other interest income. Any contest wins, gambling winnings, etc., are also reported here.


It is important to report all types of income under the respective head for calculation of accurate tax and to remain income tax compliant.


Tax slabs and its Exceptions


The biggest aspect of income tax compliance is tax slabs and its exceptions. Every year during the budget most people look forward to the revision of tax slabs for relief or reduced tax liability. The tax slabs vary for senior citizens and are dynamic by nature. It is not necessary to know tax slabs or its exceptions for income tax e-filing as the software or form automatically calculates the taxes based on slabs, however for smart tax planning having knowledge of tax slabs and exceptions can be really helpful.


Exceptions may include with respect to capital gain transactions arising from house property, mutual funds, shares, fixed maturity funds, etc. The rate may be categorized differently based on the type of transaction short term or long term. Irrespective of the slabs, usually for long terms, beyond the basic exemption of say 2.5 Lacs (dynamic with tax law changes), the rate may be capped to 20% (estimate, may vary from actual) for such long-term gains reported on the return.


Deductions and Exemptions


Apart from exceptions and tax slabs, there are several deductions and exemptions under several sections of the Income Tax Act that can further minimize tax liability. In order to know about the eligible deductions and exemptions or to make investments to exercise those benefits, the use of professional income tax compliance service providers can be the best option. They may also provide for income tax e-filing and help you manage your tax liability and refunds. 

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Location: Block-B, Shankar Garden, Vikaspuri, Delhi, 110018, India

Comments

  1. vajith26 October 2020 at 23:52

    the information you have updated is very good and useful,plse update further.
    if you required any info regarding TAX & GSTR please visit

    Tax consultants in bangalore
    Income Tax Consultants in Bangalore

    ReplyDelete
  2. nareshnk12 September 2022 at 00:32

    According to the details you provide on your W-4 form in salary taxes in usa, your employer is responsible for withholding this amount from your salary. You must complete this form and submit it to your employer before beginning a new job.

    ReplyDelete

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