Pankaj Gupta, Author at GeeksScan

We believe in sharing various informative blogs for the learning and continuous up-gradation of our readers, being as an expert in taxation, We have strong knowledge in areas of Income-tax such as Income tax return filing online, Income Tax due diligence, Corporate tax planning, Tax planning, optimization, etc. As an Indian citizen, if you want to start a business in India or you are a person having business operations in India here are few basic things that you should know about Income Tax in India. 1). INCOME TAX IS A DIRECT TAX Direct taxes are those which are based on the principle of the Ability-to-pay of a taxpayer. This economic principle states that one who has more resources or earns a higher income should pay more taxes. It is a way to redistribution of the wealth of the nation, by giving government funds for public welfare and lessen the gap between rich and poor. There is only one tax which is a direct tax and rest all taxes are indirect, as none is related to the amount of income earned and is applied equally to everyone. 2). MEANING OF FINANCIAL YEAR, PREVIOUS YEAR AND ASSESSMENT YEAR In India, the Financial year starts from 1st April and ends on 31st March of the next year. The financial year in which income is earned is called the Previous year as per Income tax and the financial year in which it is assessed to tax is called an Assessment year. It is better to have a clear understanding of it to avoid any confusion while filing Income tax returns online as well as to avoid confusion with the tax department. e.g For the financial year starting from 1 April 2019 to 31 March 2020, previous year is 2019-20, and the assessment year is 2020-21. All the income tax returns for the above said financial year will be filed as per the Assessment year 2020-21. 3) VARIOUS HEADS OF INCOME TAX There are five head of taxation in Income tax which means that all types of income earned by a person is categorized under any of these five heads for the purpose of charging income tax and filing income tax returns online, they are: Income under the head Salaries Income received by an employee due to his employer-employee relationship is taxed under this head. The head includes basic wages or salary, advance salary, pension, commission, gratuity, perquisites, allowance, etc received from any employer. This income is generally available from Form 16 generated by the employer. It is easy for a person having only income from salaries to file their income tax returns online without a need of the best income tax consultant. Income under the head House Property Rental or any other income being earned from any House Property is covered under this head and includes commercial, residential, or any other property. This is very simple to calculate as limited deductions are available for a taxpayer under this head. Income under the head Profits and Gains from Business or Profession Any income earned from trade, commerce, manufacture, profession, etc shall be chargeable under this head of income after deducting specified expenses as allowed under the Income-tax Act, 1961. This is a very wide Chapter and covers various scenarios of earning existing in India and also has various deductions available to the taxpayers. The person with income under this head normally needs income tax consultants to file and calculate their taxes. For those who don't have knowledge about how to start a business in India, a basic understanding of this head is required to enable them to have better tax planning. Income from Capital Gains Capital Gains are the losses or profits earned by a person by selling or transferring a capital asset, which was held as an investment. Any capital asset like property, mutual funds, shares, jewelry, etc sold by a person is taxed under this head. Capital gains can be short term or long term depending upon the period of holding each class of asset. The different time periods have been specified under the Income-tax act, 1961 for different categories of the asset to qualify as long term or short term. It is important to know whether an asset is long term or short term as rates for taxation and benefits available are different for long term or short-term capital gain. Income from Other Sources Any income which is not chargeable to tax under the above mentioned 4 heads of income shall be chargeable under this head except for the fact that income is not exempt from tax as provided in the Income-tax Act,1961. Examples of Income from other sources are interest income from banks deposits, lottery, gambling, etc. 4). PAYMENT IS NOT A CRITERIA FOR INCOME TAX RETURN FILING It is a common myth among taxpayers that Income tax return filing is mandatory only if you have to pay taxes. However, both are two different things one can even file a return with nil tax liability by availing the benefit of basic exemption, deductions, and other tax-saving provisions. This helps an individual to create its records with the income tax department and also helps in getting loans from banks. 5). BENEFITS OF BEING HONEST AND COMPLAINED, TAXPAYER Honest and consistent taxpayers always have an add on benefit over others. Taxation Charter was recently launched by the Prime Minister which honors the honest taxpayers. As a complied tax-paying citizen, you have a better record in terms of visa processing, bank loans, insurance policies, etc. By being an honest taxpayer, you have your peace of mind in relation to Income tax department inquiries and also you contribute to the nation-building. 6) PRESERVE YOUR INVOICES, DEDUCTIONS DOCUMENTS, TDS/TCS CERTIFICATE ETC FOR 8 YEARS It is always advisable for taxpayers to preserve year-wise necessary supporting documents like invoices, bank statements, deductions document, TDS TCS certificates, etc. for a period of at least 8 years so as to have smooth assessments of their income. 7). SEEK PROPER ADVICE FROM INCOME TAX CONSULTANTS The various commercial transaction giving rise to income or gains have an income tax implication and thus, we suggest the taxpayers, seek proper advice from any income tax consultant. One should seek proper help from Income tax consultant while filing an Income tax return online or while planning to start a new business in India. It is always advisable to seek pre-advice rather than post support as prevention is better than cure. This helps to avoid more than 90% errors in Income tax returns and also avoid unnecessary income tax litigations. We hope you liked our blog, kindly reach out to us for continuous email updates or any other query in relation to Income tax in India.

Pankaj Gupta

7 KEY THINGS ABOUT INCOME TAX THAT BEGINNERS MUST KNOW IN 2020