Income Tax Act, 1961 regulates all the provisions for taxes to be charged on various types of income. This includes the collection, recovery of taxes and administrative role. Income Tax is calculated on an annual basis, however, deducted every month from the income on a pro-rata basis. The amount of tax depends on various factors such as the type of entity, annual income limits, the slab rates etc.
Income tax is calculated on the gross annual income of a person and according to the annual cycle starting on the 1st April of every year ending on 31st March of the preceding calendar year. The year in which income is calculated is called the Financial Year or Fiscal Year and the year in which tax is charged is called the Assessment Year. For e.g. the income received between 1st April 2016 until 31st March 2017 is called the income from the previous financial year and hence the tax will be charged at a rate applicable for the assessment year (2017-18) which starts from 1st April 2017.
Income tax is collected by the IT department in 3 basic ways:
- Voluntary tax payment by entitled taxpayers into the designated banks for e.g. advance tax & self-assessment tax.
- TDS or Taxes Deducted at Source, which is deducted directly from the monthly salary, prior credit to the employee or beneficiary.
- Taxes collected from nodal agencies.
- Salary: Any income received as monthly salary from an employer is taxable under the IT Act 1961. The employer is responsible for withholding tax under the Section 192 according to the tax slab in which the employee falls.
- Rental Income: Any income received as monthly rental of the house to a resident individual. This is not applicable for self-occupied property. The property cannot be used for any business or commercial purposes.
- Business Income: The business income or profit earned from any business or professional services is also taxed under income tax. The provisions for calculating tax & rates applicable are mentioned under Sections 30 - 43D of the Indian Income Tax Act.
- Capital Gain Income: Any income that arises due to the transfer of capital assets such as buildings, land, equity shares, debentures, bonds, jewelry, etc. falls under the ambit of taxable Income.
- Resident Individual having a fixed source of income.
- An HUF (Hindu Undivided Family).
- Association of person.
- A company.
- Any quasi or local authority.