Income Tax
Income tax is a mandatory financial contribution imposed by governments on individuals and businesses. It is calculated based on earnings and plays a crucial role in funding public services and government functions.
What is Income Tax?
Income tax is a direct tax imposed by governments on the earnings of individuals and entities within their jurisdiction. Governed by the Income Tax Act of 1961, the central government is responsible for collecting this tax. The annual Union Budget provides an avenue for adjustments to income slabs and tax rates. It's essential to note that income encompasses more than just wages, including revenue from housing, business profits, professional gains, capital gains, and other sources.
Direct taxes, broadly categorized, include income tax and corporate tax. Income tax pertains to individuals, Hindu Undivided Families (HUFs), and non-corporate taxpayers. The tax rate for such income is legislatively determined. Corporate tax, on the other hand, is levied on the profits generated by corporations.
Types of Income Taxpayers:
- Individuals
- Association of Persons (AOP)
- Body of Individuals (BOI)
- Firms
- Companies
- Hindu Undivided Family (HUF)
For individuals, residency status plays a vital role. Residents are further categorized based on age, distinguishing those below 60, between 60 and 80, and above 80 years old. Residents are liable for tax on worldwide income, while non-residents are taxed only on income earned in India.
Income Tax Slabs Under New Tax Regime:
The new regime introduces progressive slab rates for different income brackets. Here’s a simplified breakdown:
- Income from Rs 2.5 lakh to Rs 5 lakh: 5%
- Income from Rs 5 lakh to Rs 7.5 lakh: 10%
- Income from Rs 7.5 lakh to Rs 10 lakh: 15%
- Income from Rs 10 lakh to Rs 12.5 lakh: 20%
- Income from Rs 12.5 lakh to Rs 15 lakh: 25%
- Income above Rs 15 lakh: 30%
Existing regime slab rates:
- Income from Rs 2.5 lakh to Rs 5 lakh: 5%
- Income from Rs 5 lakh to Rs 10 lakh: 20%
In essence, understanding income tax is crucial for individuals and entities alike, as it impacts financial planning, compliance, and the overall economic landscape.
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