Income tax is a certain amount of money that is cut from the income earned by a person an annual basis by the Government of India. The amount of money that is cut from the income of a person is decided on the annual income that the individual earns, the source of the income and the other jobs that the individual does. Though not every person is entitled to pay income tax to the Government, those who fit into the salary criteria are required to pay income tax on a regular basis as per the Income Tax Act of India.
Those who earn a salary of Rs. 2,50,000 on an annual basis are not entitled by Law to pay any sort of money to the Government of India in the form of taxes. They are advised to pay a certain amount in the form of taxes in order to have a financial record with the
Government. This will, in turn help the individual in the future.
The Importance of Paying Income Tax Annually
For those whose income is under the criteria for paying income tax on an annual basis by
the Income Tax Act of 1961, there are a number of reasons why this responsibility and law
should be maintained by all at the end of each financial year. Some of the reasons why
filing income tax receipts are necessary include:
For everyone who earns an annual income that is more than Rs. 2,50,000 per year,
they are required to file income tax forms at the end of each financial year. As per the
law, those who fail to do so are faced with severe penalties from the Government of
India. Anyone who fails to do so can easily be charged a fee of Rs. 5,000 or more for
failure to submit their income tax forms within the prescribed time.
Filing income tax forms on a regular basis shows the responsibility of an individual and
their respect towards the tax laws of the country. It is important for everyone, even
those with very minimum annual salary to be able to file a certain amount of money in
the form of tax on an annual basis for future purposes.
Filing income tax returns at the end of a financial year shows the financial records of an
individual as all aspects of the lifestyle for that individual are taken into account when
tax is calculated. The financial record of that comes from income tax filing is required
when the individual is getting loans of investing in property etc. Banks want to see
statements that prove the finances of an individual over the years and income tax forms
are the surest proof.
For anyone who has come across a certain amount of loss in their income over a period
of time, income tax refunds are available for them to regain their lost income. This is
only for those individuals who have been filing their income tax forms and receipts on a
regular basis for years altogether and have proof for the same.
What is a Taxable Income?
Not everyone who earns an income is eligible to pay taxes to the Government of India.
Depending on the source of the income, the type of work that is done, the expenses of the
individual over a year’s basis, the total amount of money that an individual has to pay in the form of income tax to the Government is calculated. The base over which income tax is
calculated for a person is known as their taxable income.
The taxable income for every person can be calculated easily using a simple formula.
Firstly, the total income of a person over the course of a financial year needs to be calculated. The deductions that are levied on the income for any reason should all be
calculated for that financial year. If there are any exemptions on the taxable income then
they all should be calculated as well.
In short, the taxable income of a person is:
Taxable Income = gross income – (deductions + exemptions)
Do Refunds Count as Taxable Income?
A refund is defined as any payment that the individual has got in return. Refunds are not
considered to be a part of the income that an individual has earned by themselves. Due to
this reason, refunds are not taxable by the Government of India. Refunds in the form of
house deposits, rental deposits or any other sort of deposits that are kept for safe-keeping
and do not have an interest rate on them are considered to be tax-free by law. However, if
there are certain refunds like in the case of a savings bank account where there is an
interest that is added to the money that is being kept in the bank over a period of time, then that money is considered to be taxable.