If citizens of a country want to enjoy a decent standard of living and wish to avail infrastructural services such as proper roads with street lighting, housing, medical, educational, railway, air, sea services etc, then the government needs to spend money to build the necessary infrastructure. In order to finance the cost of building infrastructure, the government needs to raise funds and it does this by collecting money through direct and indirect taxes from people and businesses.
What is Income Tax and why should it be paid?
Each citizen who earns a certain minimum salary must contribute to the nation building process and therefore the government charges a tax on the income we earn. The amount charged is based on the level of income that we earn.
Tax from salary or income tax is calculated once a year by the government when we file our returns, taking into account the total income earned in that financial year. In order to raise quick taxes efficiently, the government also collects funds from us at various times when we receive payments for various services rendered. This is called Tax Deducted at Source or TDS.
Who has to pay taxes and how much?
The government has established four major categories of people for Income Tax purposes and has laid out various tax slabs based upon income ranges.
As per Financial Year 2015-2016
General Category (Non-senior citizens)
- Upto annual income Rs 2,50,000: Nil
- Rs 2,50,001 to Rs 3,00,000: 10%
- Rs 3,00,001 to Rs 5,00,000: 10%
- Rs 5,00,001 to Rs 10,00,000: 20%
- Above Rs 10,00,000: 30%
Senior citizens 60 years or more and below 80 years
- Upto annual income Rs 2,50,000: Nil
- Rs 2,50,001 to Rs 3,00,000: Nil
- Rs 3,00,001 to Rs 5,00,000: 10%
- Rs 5,00,001 to Rs 10,00,000: 20%
- Above Rs 10,00,000: 30%
Senior citizens 80 years or above
- Upto annual income Rs 2,50,000: Nil
- Rs 2,50,001 to Rs 3,00,000: Nil
- Rs 3,00,001 to Rs 5,00,000: Nil
- Rs 5,00,001 to Rs 10,00,000: 20%
- Above Rs 10,00,000: 30%
As can be seen from above, there is no Income tax payable if the annual income is:
- Within Rs 2,50,000: upto 60 years of age for all citizens
- Within Rs 3,00,000: above 60 years but below 80 years
- Within Rs 3,50,000: for 80 years and above
Note:
- For those whose income is upto Rs 5,00,000, a tax rebate of Rs 2,000 is offered on total tax calculated.
- If annual income exceeds Rs 1 crore, then a surcharge of 12% is applicable.
- There is an education cess of 3% which is applicable
Understanding Tax Deducted at Source (TDS)
Let us say you have a Fixed Deposit account with a bank and have earned Rs 10,00,000 as interest on your deposit. The bank will deduct TDS @ 10% or Rs 1,00,000 and credit the balance of Rs 9,00,000 to your account. The bank then deposits the deducted amount of Rs 1,00,000 with the government. Since you have paid the government (through your bank) Rs 1,00,000, you can then claim credit for Rs 1,00,000 when filing your income tax returns at the end of the year.
For all resident Indians, TDS is applicable on:
Salary, interest on debentures/securities, dividends, earnings from lottery, card games, horse racing or any other game, payments to contractors etc, insurance commission, brokerage, rents, any professional fee, technical fee, consultation fee, any income earned through sale or transfer of immovable property etc.
Why we should plan and save Income Tax?
Although it is incumbent upon us to pay income tax and contribute to the nation’s development, it is prudent to undertake tax planning to optimize our income by claiming maximum tax benefits permissible under law. Money saved is money earned and therefore it is necessary to understand the current tax slabs and tax rates, along with various categories which offer tax exemptions. But beyond the usual tax savings under Section 80C of the Income Tax Act, there are several other ways to save taxes that you may be missing out on!
Smart tips to save Income Tax
Savings under 80TTA
While we all maintain a savings account, many of us may not be aware that interest earned from savings account is not taxable upto Rs 10,000 and is applicable only on the amount above Rs 10,000. So if the interest income from your savings account is Rs 20,000, then the tax will be calculated on Rs 10,000 only.
Savings on Education loans under Section 80E
Many of us take an educational loan while working, either for ourselves or any dependent member of our family. Under 80E, any interest paid on education loan is not taxable.
Comparing Daily Travel Allowance (DTA) and company leased car option
Government allows for individuals to claim tax benefits upto Rs 19,200 per year, for Daily Travel Allowance (Rs 1600 per month) without having to present any bills, although the limit of non-taxable amount can vary based on the type and size of the vehicle you own.
But an alternate option worth considering could be a company leased car. If your organization has a policy of leasing car for employees, then this is certainly a good option, as you save on tax on the EMI and fuel, that you would have to pay if the car was in your name. In addition, you get the option to get a car replacement from the leasing company in case your existing leased car breaks down. This apart, several other benefits can be availed based on terms negotiated by your organization and the car leasing company.
Saving on meal coupons
Meal coupons up to Rs 2,600 are not taxable and therefore it is wise to ask your employer to issue meal coupons from popular companies like Sodexho, for instance.
Savings on Leave Travel Allowance
Expenses incurred on domestic vacations are exempt from taxes up to the permissible limit, based on your salary. Cost incurred on travel tickets of self, spouse, two children and parents, who travel along with you, is exempt from tax. This is also applicable for brothers and sisters, if they are dependent on you and travelling along with you.
Note: This facility may be availed twice every four years. In case, you have not claimed any benefit during a four year period, then you can claim benefit of one vacation in the first year only, of the next four-year slot.
Go smart and start tax planning
There are several more smart ways and instruments available to optimize your tax savings. Speak to your Tax advisor today to help you plan your tax savings and investments.
Read More:
Income Declaration Scheme 2016
Krishi Kalyan Cess
Indirect tax evasion of Rs. 50,000 crore in two years
Swachh Bharat Cess on Service Tax
Indo-US Tax Information Exchange Agreement
Corporate Tax in India
What is GST: How will it change India
Comparison of Goods and Services Tax Bill under UPA II and NDA
Tax Relief Bonanza
New tax to reduce beverage consumption in India
Tax filing for NRIs
New GST regime and its future impact on telecom industry in India
