Income tax is a tax levied directly on the earnings of an individual, association, and business by the government to finance its several operations. Income tax is of two main types: Direct tax and the newly introduced Goods and Services Tax (GST) that subsumes almost all the State as well as Central taxes, including excise, VAT, and service tax.
In addition to funding the government activities, taxes also serve as a fiscal stabilizer helping distribute wealth equally among the population. Taxes are even influential in mitigating the effects of financial cycles. The payment of income tax in India is made as per the terms defined under the Income Tax Act.
In accordance with the Indian Income Tax laws, income from five main sources is deemed taxable. Allow us to explain them briefly:
- Income from Salary
In case there’s a relationship of an employee and employer between the payer and the payee then an income can be taxed under Salaries. In contrast, if there’s no such relationship, the income will not be considered to be income from salary.
- Income from House Property
This type of income tax is referred to the tax on rental income that is being earned from the House Property. Nevertheless, if the property is not being leased, tax will be charged on the anticipated rent that would have been received if this property was leased. Income from House Property is possibly the only income, which is levied to tax on a national basis.
- Income from Profits and Gains of Business or Profession
Under this income head, any earnings received from any manufacturer, business or trade will be liable to tax after deducting particular expenses.
- Income from Capital Gains
Any revenue or gain resulting from the transfer of a capital asset effected in the financial year will be chargeable to income tax.
- Income from Other Sources
Under this head of income, any earnings that are not liable to tax under the aforementioned four heads of income will be chargeable, given that earnings are not exempted from the calculation of total income.
In India, the tax rates differ as per the income of an individual, alias Income Tax Slab. The slab is modified every year by the government during Budget Session of Parliament.