INCOME TAX - TIPS

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IMPORTANT TIPS:

• All governments collect taxes from the citizens of the nation.The amount received in the form of taxes is utilized to create infrastructure, provide better education and maintain public health, etc.



• Income tax is a type of DIRECT TAX.



• Income tax is collected from those citizens whose annual income exceeds certain fixed minimum amount.



• The person who pays tax is called a TAX-PAYER (an ASSESSEE).



• There are certain rules decided by the government to calculate the amount of tax to be paid by a person based on his annual income.These rules are amended as and when needed (i.e. these rules are not permanent).



• Income tax is calculated according to the rates prevailing in the year under consideration.



• Some special SAVINGS made by the person during that year are deducted from his GROSS ANNUAL INCOME before calculating TAXABLE INCOME.



• The tax amount is calculated on TAXABLE INCOME.



• Sometimes, the government charges cesses like educational cess and surcharge on the income tax to be paid by the assessee.These are additional liabilities on the tax-payer.



• For a salaried person, income tax is deducted from his salary every month and deposited to the Income-Tax Department.This is called TAX DEDUCTED AT SOURCE (T.D.S.).



• Businessman, Industrialists, Professionals and Self-employed persons pay their taxes directly to the I.T.Dept.



• Each tax payer has to file ANNUAL INCOME TAX RETURN in which he gives statements of his income, expenditure, savings, etc.



• It is compulsory for the assessee to mention his/her PAN (PERMANENT ACCOUNT NUMBER) in the income tax return filed by him/her.



• A person whose income is less than the minimum income fixed to calculate tax does not have to pay income tax.



• A person who has paid more income tax (as T.D.S. or Advanced Tax) than he should actually have paid is refunded the excess amount paid by him.



• Each ACCOUNTING YEAR starts on 1st April of the year and ends on 31st March of the next year.



• The next year is called the ASSESSMENT YEAR for the previous accounting year. Thus, for the accounting year 2004 - 2005 (i.e. 1 - 4 - 2004 to 31 - 3 - 2005),the assessment year is 2005 - 2006.



• Rates of Income Tax for the financial year(accounting year) 2005 - 2006 are:

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  [Here, I.T. = INCOME TAX.The surcharge is calculated on I.T. Thus, if calculated tax is Rs.5000 and surcharge is 10% then it amounts to 10% of 5000 or Rs.500.Similarly, Educational Cess is calculated as 2% of the total of I.T. and surcharge.]


• For any taxpayer(who is not a woman/senior citizen), the gross income upto Rs.100000/- is free from incone tax.



• For a woman taxpayer(who is not a senior citizen),the gross income upto Rs.135000/- is free from income tax.



• For senior citizens (persons above 65 years of age),the gross income upto Rs.185000/- is free from income tax.



• Savings amount upto Rs.100000/- under section 80C is exempted from tax.Such savings include:LIC(Life Insurance Corporation)Premiums, PPF(Public Provident Fund),GPF(General Provident Fund),PLI(Postal Life Insurance),Certain Government Bonds(RBI Bonds,National Savings Certificate-NSC,Kisan Vikas Patra-KVP,etc).



• Housing loan interest upto Rs.150000/- is exempted from total income under section 80D.Housing loan principal is exempt under section 80C within the limit of Rs.100000/-.



• Mediclaim premium upto Rs.10000/- is exempted under section 80D.



• DO NOT APPLY ANY OTHER INCOME TAX RULE WHICH HAS NOT BEEN MENTIONED IN THE TEXT BOOK.INCOME TAX RULES KEEP ON CHANGING YEAR BY YEAR.IT IS NOT POSSIBLE TO MENTION ALL RULES IN THE BOOK.THE PURPOSE OF THE CHAPTER IS TO GIVE YOU A PRELIMINARY IDEA OF CALCULATING TAX.