What is Income tax?
There are two types of taxes in India – direct tax and indirect tax.
Direct tax is a tax that is calculated and paid directly on your Income
e.g. tax on salary etc. Income tax is a direct tax.
Indirect tax is a tax that is indirectly charged to you on purchase of
goods or use of service e.g. Buying a mobile phone or eating in a fast food
joint. The seller of the mobile phone or the fast food service provider charges
you tax and then deposits the same to the Government account. Most indirect
taxes are now covered under Goods and Services Tax (GST).
Everyone who earns income above a certain amount is subject to income tax. Your income could be from salary, interest income from savings, income from mutual funds, sale of property or business or professional income. Income tax rates are pre-decided at the start of the year in the Union Budget (in the Parliament of India). The tax paid or deducted on these incomes is called the income tax.
What is Form 16?
The role of Form 16 is that it is a certificate issued to salaried individuals from their employer when they deduct tax from the employee salary. It is kind of an acknowledgment stating that the tax deducted has been deposited within the Income Tax department.
- If the salary of the employee is more than the basic exemption limit of Rs 2,50,000, your employer will be required to deduct TDS as stated by the Income Tax Act.
- TDS will not be deducted if the income is below the basic exemption limit.
- If an employee has worked with more than one employer during the year, they will be required to have more than one Form 16.
What is Income tax return?
Income Tax Return, commonly known as an ITR, is a form that needs to be submitted to the Income Tax Department. ITR contains basic information like a person’s income and the taxes that need to pay on it during the year.
The source of income might be different, check out the various forms such as :
- Income from salary (salaried employees)
- Profits and gains from business and profession
- Income from properties
- Income from capital gains
- Income from other sources such as dividends, interest on deposits, royalty income, winning on lottery, etc.
Why should you File?
Filing an Income Tax Return brings in major entitlements with it. Some of the benefits are mentioned below-
- Easy Loan Approvals
- Quick Visa Processing
- Claiming Tax Refund
- Carry forward your losses
- To avoid penalty
What if I don’t file an ITR?
Missed the final deadline? Well here’s what will happen if a taxpayer does not file income tax returns on time:
- The returns will be processed late and the refund amount will be late!
- Under Section 234F, a late filing fee will be applicable for filing returns after the due date. The charges of this penalty could go up to 10,000.
- For a small taxpayer, whose income is below Rs 5 lakh, the penalty will be Rs 1,000 if ITR is filed after the expiry of the deadline.
- Under section 234A of the Income Tax Act, a taxpayer will be liable to pay a penalty interest of 1% per month on the amount of unpaid tax.
- Not paying tax willingly even after receiving a notice from the Income Tax Department, you may face prosecution u/s 276CC of the Act.
Common mistakes while filing Income tax return
While filing an ITR, people might end up making some common mistakes. Enlisted below are some common mistakes-
- Selecting the Incorrect Form
- Incorrect Personal Information
- Quoting the Wrong Assessment Year
- Not disclosing all sources of Income
- A discrepancy in TDS details
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Salaried Individuals
House Property Income
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Capital Gains
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