By Tashriq Ahmad
Every country needs to have infrastructure and facilities for its citizens which should match their living standards. This needs a large amount of money to make advanced infrastructure and provide better facilities to its citizens, therefore, most democratic countries tax their citizens to raise the amount so required. Hence, it’s the need of the hour for laymen to understand the concept of tax.
Taxes are the main source of revenue collection for the government so that the government may utilize this revenue for development of infrastructure, providing healthcare, education and other welfare schemes for citizens.
- Types of Taxes
There are mainly two types of taxes, one is known as Direct Tax and another one is Indirect Tax.
Direct Tax is levied directly on the income earned, for example Income Tax.
Indirect tax is levied on goods and services for which the consumer pays while buying any goods or services.
What is Income Tax?
Income tax is a type of tax, levied by the Government on the income earned during a financial year by individuals and businesses. The word “Income” has a very broad and inclusive meaning which is defined under Section 2(24) of the Income Tax Act, without getting too much in depth we will understand it in a simple way:
Income from Salary: In case of a salaried person, whatever amount received from an employer, either in cash or kind will be considered as income of the person. The amount received by an employee from his/her employer comes under the head “Income from Salary”. The amount of Salary includes basic pay, dearness allowance, medical, transport, annuity, gratuity, advance of salary, allowances, commission, perquisites in lieu of salary and retirement benefits etc.
Income from House Property:
Any rental income from residential or commercial property will amount to be income and the same is taxable under Income Tax Act, 1961.
Income from Business or Profession: The income earned through business or profession is taxable under the head “profits and gains of business or profession”. The income on which tax is levied shall be net expenses.
Income from capital gains: Capital gain can be defined as any profit that is received through the sale of a capital asset (such as house, property, jewellery). The profit that is received falls under the income category and Income Tax needs to be paid on the income so received. This tax is called capital gains tax and it can either be long term or short term.
Income from other sources: Any income that does not come under the above four heads of income is taxed under the head income from other sources, for example, savings bank interest, family pension or gifts received, investments in the form of Interest, Dividend and Commission, lottery you win or Reality shows like “Kaun Banega Crorepati” etc. all these Incomes are taxable.
Income Tax Slabs:
Keeping in view the capacity of every tax payer, the Government levies higher Income Tax on those who earn more, moderate Income Tax levies on them whose income is moderate and no Income Tax on those who earn very less. There are different tax slabs for every tax payer as per his/her income. The current Tax Slabs for Assessment Year 2022-23 are as follows:
|Income Tax Slab for FY 2022-23/ AY 2023-24If claiming deduction and exemption|
|Income Slab||Individual (Aged below 60Yrs)||Senior citizen (Aged 60 Yrs And above but below 80 Yrs)||Super Senior Citizens (Aged 80 Yrs and above)|
|Up to Rs. 2,50,000||Nil||Nil||Nil|
|Rs. 2,50,001 to 3,00,000||5%||Nil||Nil|
|Rs. 3,00,001 to 5,00,000||5%||5%||Nil|
|Rs. 5,00,001 to 10,00,000||20%||20%||20%|
|Rs. 10,00,001 and above||30%||30%||30%|
If not claiming deduction and exemptions
|Income Slab||Income Tax Rate|
|Up to Rs. 2,50,000||Nil|
|Rs. 2,50,001 to 3,00,000||5% (with Tax Rebate under Sec. 87A)|
|Rs. 5,00,001 to 7,50,000||10%|
|Rs. 7,50,001 to 10,00,000||15%|
|Rs. 10,00,000 to 12,50,000||20%|
|Rs. 12,50,001 to 15,00,000||25%|
|Rs. 15,00,000 and above||30%|
Benefits of Income Tax
The concept of Income Tax is very progressive and productive. Funds and capital are not evenly divided among the people of a country. Some have abundant funds; some have moderate funds; some have meagre funds, and some have almost no funds. The Government itself has no funds or capital; it generates funds and capital from taxes. Income tax is the most potent and effective medium to collect these funds from people according to their capability and affordability to pay the tax.
The primary objective of any government is to achieve equal distribution of wealth. Direct taxes in India play an important role in attaining this equality. These taxes are designed with progressiveness; they are beneficial in reducing income inequalities. The government levies higher taxes on taxpayers who can afford them and uses this money to help the poor, which reduces the ill-effects of income inequality.
This type of tax is productive and elastic. The revenue earned through such taxes automatically increases or decreases depending on the changes in the national economy system of the country.
Thus, we should pay Income Tax to build our nation, the revenues collected from income tax are directly spent on the national projects of development. It uses to construct new roads, Highways, Flyovers, and Railways etc. It is also used to buy new defence equipment and new defence researches for the safety of our country and to construct new hydro, solar, nuclear and thermal power generation units for a progressive country. It is also used for space researches and sending new rockets and installation of satellites into the space. All projects of national development are run and financed by this revenue collected from income tax. Besides, contributing to national development and security, income tax is also used for welfare schemes for the deprived and weaker sections of society. It is a great tool to build a progressive nation; therefore everyone must pay income tax honestly for the prosperity and progress of our nation. Finally in my words:
“Income Tax makes a Dream Nation”
“Pay Income Tax for Dream India”
“Love Income Tax, love India”
“My Income Tax for my India”
The author is Advocate, Supreme Court of India