Paying income tax is something we all do, but a question might come to your mind, “Who should pay income tax?” Do you want to learn more about income tax and the requirements for filing your IT returns? Well, in this article you will find the answer to this question, and with that, we will cover other aspects as well.
This article is all about income tax, different income tax categories, the benefits of paying income tax, and the eligibility criteria.
What is the definition of income tax and what does it signify?
By simple definition, income tax is a form of direct tax that the government levies from the income of its citizens every year. According to the Income Tax Act 1961, the central government has every right to levy tax on its citizens. In every fiscal year of the union budget, the government makes new rules and regulations regarding the income tax of the citizens.
Another thing to notice is that “income” doesn’t necessarily mean money earned in the form of a salary. The income you generate from your house, property, business, investments, etc. also falls under the income category.
What are income tax slabs, and what do they refer to?
Income tax slabs are mere categorizations of different income groups, and accordingly, they pay their income tax. For instance, there are four categories under which the Income Tax Departments divide the different income groups.
- People whose income is below 2.5 lakhs and less per annum:
You fall into this category if your annual income is equal to or less than Rs 2.5 lakh. Income tax for this first category is not taken from the government.
- People whose income is between 2.5 lakhs to 5 lakhs:
If your income happens to be between 2.5 lakhs and 5 lakhs per annum, you belong to the second category. Your income tax is calculated based on this income.
- People whose income is 5 lakhs to 10 lakhs per annum:
You fall into the third category if your annual income is between 5 and 10 lakhs. Your income tax is then calculated based on this income.
- People whose income is more than 10 lakhs per annum:
If your annual income exceeds 10 lakhs, you fall into the last category, and your income tax is decided based on this income.
What are the benefits of paying income tax?
Here are some explicit benefits of paying your income tax:
- Loan approvals:
For any type of loan, you apply for, no matter what, banks will ask you for your income tax returns, at least for the previous two years. Be it a personal loan, or a home loan, it is mandatory to show your income Tax returns to the bank for loan approval.
- Visa approvals:
Suppose you apply for a visa for countries like the USA, UK or Canada, you will be asked to show your last 2 to 3 years of income tax returns. This is a mandatory requirement to ensure that you are not fleeing to another location.
- Acts as income proof:
Another advantage of paying your income tax is that the IT returns act as a document for your income proof. You can use it as a legal document and get your legal work done, in case you don’t have any other income proof.
- Public infrastructural development:
All government roadways, highways, institutes, cities, etc. are built on the money that we pay in the form of income tax. Largely, this money also comes from other forms of taxes that we pay, like road tax, property tax, etc.
- Promoting welfare schemes:
The tax you pay goes directly to the government, which then uses it for our development and welfare. Health schemes, agricultural schemes, educational schemes, employment schemes, etc. are covered by collecting these funds. This money is also used for the implementation of new schemes now and then for our benefit.
- Promoting Defence:
Our defense system is probably one of the strongest in the world, and one big reason is the investment by the government to buy new weapons, and train our armies. These funds are covered by the income tax we file every year.
- Promoting scientific research:
All types of scientific research and development are also carried out with the funds that we pay in the form of income tax.
Who should be paying income taxes and who shouldn’t be?
According to the Tax Department of India, anyone whose gross income is more than 2.5 lakhs rupees per annum, has to mandatorily file for Income Tax Returns. For senior citizens, this level isn’t 2.5 lakhs per annum. Rather, the limit goes up to 3 lakhs per annum, and for super senior citizens, the limit is 5 lakhs per annum.
Companies, Corporate Firms, Bodies of Individuals (BOI), local authorities, associations of persons (AOPs), and Hindu Undivided Families (HUFs) should pay income tax.
Besides, if your gross income is above the mark of 2.5 lakhs, you should file your Income Tax Returns every year.
For different income groups, different rates are charged, and accordingly, they pay their tax. For example, for people whose income slab is between 5 lakhs to 7.5 lakhs, the tax rate is 10%, and for people whose yearly income is between 7.5 lakhs and 10 lakhs, the tax rate is 15%. By paying your income tax on a yearly basis, you contribute to the overall development of the country, and it should be considered a sacred duty to do so.
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