10 Point Checklist for Beginners to Income Tax in India

Paying income tax is an obligation that has to be met by every citizen of India. And, if you have just started your career and are a beginner at paying income tax, you have to be informed of certain aspects that relate to the tax^* mandate. It will help you get through the process easier and receive the best benefits. So, here is a basic checklist that includes ten points for beginners to income tax^* payments in India.

1. PAN Card - Permanent Account Number is a unique identity number with ten digits. The government provides a PAN card to every taxpayer to ensure the individual or the entity pays tax as per the income tax regulations.
   
   It is important to present the PAN card details while paying income tax, filing income tax returns, applying for a refund, etc. Therefore, it is important to hold a PAN card and secure it for future references.
   
   

2. Assessment year and financial year - While making the income tax payment, you should know the difference between the assessment and the financial year. The financial year or the previous year refers to the period or year the income is earned. And, the income earned in the respective financial year is taxable the following year, which is referred to as the assessment year.
   
   

3. Heads of income - The heads of income detail the different income sources that need to be considered for income tax computation. According to the Income Tax Act, 1961, there are five different sources of income:
   
   

   • Income from salary

   • Income from a house property

   • Profits and gains earned from business or/and profession

   • Income from capital gains, and

   • Income from other sources

 

The income from such sources will be calculated as the total gross income. It is the basis for further income tax computation.




4. Tax* Exemptions - The government of India has detailed tax provisions that help taxpayers exempt certain financial benefits from the total gross income.
   
   House Rent Allowance(HRA), Leave Travel Allowance(LTA), returns from life insurance plans, etc., are some of the prominent sources of income that qualify for tax exemption.
   
   For instance, if you are a salaried person with House Rent Allowance as part of your salary, you can avail of a tax exemption. It is the minimum of
   
   

   • The actual HRA received,

   • 50% or 40% of the basic salary is based on the residing city, depending upon if it is a metro or non-metro, and

   • The excess of rent paid considering 10% of the basic salary.

 

The amount that qualifies for tax exemption will be subtracted from the total gross income.



5. Tax deductions - While some income sources get exemption from the computation of income tax basis actual expenditure, other payments qualify for a tax^* deduction. Your investment in a life insurance plan, Equity Linked Savings Scheme, National Savings Certificate, Public Provident Fund, etc., qualify for a tax deduction.
   
   

   For instance, the premium amount you pay towards purchasing a term plan qualifies for tax deduction up to ₹1,50,000 under Section 80C of the Income Tax Act, 1961. So, you must consider investing in such financial products to secure your financial future while saving on tax.
   
   

   Tata AIA term life insurance provides a range of features that help you get a life cover to protect your family in case of your unfortunate demise by customising it as per your requirements. For instance, you can avail yourself of the option to help your family receive the payout as a lump sum or as a regular income based on family commitments. You can also choose the return of premium when you buy term insurance and receive a refund of the premium paid on maturity if you survive the policy term.

    

6. Income tax slab rate - You will derive the net taxable income after considering the tax^* exemptions and deductions. The income tax rate will be applied to this taxable income. Therefore, the income tax slab is the detail of the income tax rate applicable to the income based on the income range for the different categories of taxpayers, i.e., individuals, senior citizens, and super senior citizens. There is a basic exemption limit for the different types of taxpayers.
   
   Also, the government introduced a new tax regime for FY 2020-21 with lower rates on the income tax slab while excluding certain tax deductions and exemption benefits. So, you can choose between the old regime and the new regime while computing the tax^* payable. It is important to mention that if you have plans to invest in different financial products for the benefit of your family, then choosing the old regime will prove beneficial.

 

7. Tax Deducted at Source(TDS) - As per TDS, a deductor paying an amount to a deductee such as a salary will deduct the tax and remit it to the government directly. The government, on its receipt, will furnish the details in Form 26AS for the benefit of taxpayers while filing the ITR.
   
   

8. Advance Tax - If your tax liability is more than ₹10,000 for a financial year, then you have to pay your tax liability regularly at periodic intervals and not as a lump sum amount. It is referred to as the Advance Tax.
   
   

9. Income Tax Return(ITR) filing - The process of furnishing your income tax details based on different sources of income, tax deductions and exemptions, etc., to the Income Tax Department. There are different types of ITR forms available such as the ITR1, ITR2, ITR3, etc. Make sure you choose the right form.
   
   

10. Income Tax Refund - If the total tax deducted from your income exceeds your actual liability, then the Income Tax Department will refund the excess amount paid and referred to as the income tax refund. If you need to claim the refund, you have to file the ITR promptly.

Conclusion

Paying income tax and filing ITR is mandatory as per the tax laws prevailing in India. However, as beginners, it becomes difficult to get acquainted with income tax calculation and e filing of income tax. The ten-point checklist detailed here will help you with the basics of income tax calculation for your benefit!

L&C/Advt/2022/Feb/0233