As per the Income Tax Act 1961 Section 192 anyone who is supposed to pay income tax on his or her salary will deduct the same on the basis of the approximate yearly income for the particular financial year under consideration. There are definite rates for income tax that keep varying every year and these are to be used for calculating income taxes. Under normal circumstances there are three slabs of exemption – the lowest is for young earning men, the second highest is for young earning women and the highest level of exemption is kept aside for senior citizens – both ladies and gentlemen.
Before calculating the taxable income it is important to take into account the following factors as well:
· allowances provided with salary
· income from sources other than salary
· income from house property
· income from agricultural sources
· capital gains
There are several sources from which one can earn and all of them could be regarded as sources of taxable income. The sources are income from pension and income from profession or business.
The various sections of the Income Tax Act provide a number of deductions. They have to be taken into account as well while determining the amount that can be termed as taxable. For example the premium being paid for life insurance or health insurance policies to government owned entities can be used as deductions from taxable income. Similarly if one invests in government issued debt instruments such as infrastructure bonds the money thus invested and the returns accrued – in certain cases – are exempted from taxation.
As far as taxable income from salary is concerned there are several heads under which it can be broken down into. Those may be mentioned as below:
· Basic salary
· Fees, bonus and commission
· Retirement benefits
The taxpayers in India can be categorized into the following divisions:
· Hindu undivided families
· Limited liability companies
· Domestic companies
· Cooperative societies
· International companies
From the point of view of residential status they may or may not be living in the country or they could also be classed as not an ordinary citizen.
In India the short-term capital gains, which are covered as per Section 111A, the applicable tax rate is 15 per cent. For the long-term capital gains the percentage goes up to 20 per cent and at times the rate may also come down to 10 per cent. Any money won from crossword puzzles, lotteries or any such other source can be taxed at 30 per cent. An education cess, at the rate of 2 per cent, and a cess for secondary and higher education is applicable at 1%.