The Union Budget 2021 has scrapped income tax filing for senior citizens above the age of 75 whose only source of income is pension and interest. The Government has not changed direct taxes, but has taken steps in direct tax incentives to ease compliance for taxpayers. In this context, here are a few things you should know about income tax.
Who needs to file income tax returns?
Income tax is a tax levied by the Government on the income of every person. Income tax needs to be filed not only by all individuals, but also associations, companies, universities, etc. (each one of these entities is considered a ‘person’ for taxation purposes).
How does the Government calculate taxable income?
The Income Tax Department taxes you based on your income from various sources such as:
- Capital gains
Gross total income is the total income from all sources of income, and the Government deducts some amount from this gross total income as income tax.
How much tax do you have to pay?
The amount you need to pay as income tax depends on the tax rates applicable on your gross total income (different income categories are charged with different tax rates). The rates of income-tax and corporate taxes are available in the Finance Act passed by the Parliament every year. You can also check your tax liability and calculate the amount of income tax you have to pay by using the free online tax calculator available at the Income Tax Department website.
Can you reduce the amount of tax to be paid?
Yes. A deduction is an expense subtracted from your gross total income to reduce the amount which is going to be taxed. Deductions can be less, more than or equal to the amount of income. If the amount deductible is more than the amount of income, then the resulting amount will be taken as a loss while calculating taxes. You can avail deductions for expenditures such as:
- Donations to certain funds, trusts and charitable institutions
- Medical treatment
- Contribution to LIC and other pension funds
- Interest payment on a loan taken for higher education
What can you do if you have paid excess tax?
If the Assessing Officer is convinced that the amount of tax paid by you for any assessment year exceeds the amount with which you should actually be charged, then you are entitled to a refund of the excess. Any excess tax you pay can be claimed as a refund.
If you want to know more about Income Tax and how to file tax returns, check out our explainer.