While you might have definitely heard about it here and there, it is time that you pay attention to what it is and how it works. Let us have a look at some of the most important things one should know about income tax.
What is Income Tax?
Most people are generally familiar with the term "income tax". However, now that you have started working, it is essential to know the exact income tax definition.
Income tax is a form of direct tax based on the IT Act of 1961. It is imposed on your income (salary and other sources), and you are required to pay it directly to the government every year.
Who is Required to Pay Income Tax?
If your age is below 60 years and you earn more than Rs. 2.5 lakhs in a year, you are liable to pay income tax. If you are above 60 years, the taxable income limit is Rs. 3 lakhs and above.Apart from individual citizens, even corporate firms, companies, HUF (Hindu Undivided Family), local authorities, etc. are also required to pay income tax.
What is the Income Tax Rate?
The income tax rate varies based on your annual income and age. If you are below 60 years, the income tax rates are as follows-
- Income up to Rs. 2,50,000 - NIL
- Income Rs. 2,50,000 to Rs. 5,00,000- 5%
- Income Rs. 5,00,000 to Rs. 10,00,000- 20%
- Income above Rs. 10,00,000 - 30%
If you are above 60 years, the NIL tax slab is increased to Rs. 3 lakhs per year. To know the accurate amount of tax you will be required to pay in a financial year, you can use an online income tax calculator.
What are Tax Deductions?
You can also reduce your income tax liability by taking advantage of tax deduction options offered by the IT Act. Section 80 of the IT Act talks about all the different deductions you can make use of for reducing your tax liability.
While you might find income tax payment difficult to understand at first, things will get better with time. Consult a tax professional and look for popular tax deduction options for more clarity and maximum tax savings.
* Terms & conditions apply. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances.
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