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Who Is Liable to Pay Income Tax?

Tax is a binding fee that is charged by the government and paid by a citizen. In India, they are imposed and collected by central and state governments. Local authorities also levy minor taxes. Without causing inflation, income from taxation helps the government to fulfil its funds’ requirements. Taxation levied by the government are of two types:

  • Direct taxes: Managed by the Central Board of Direct taxes, these taxes are calculated directly on the earning/ income of an individual and are paid to the concerned authority directly. For instance: income tax, gift tax, estate duty, etc.
  • Indirect taxes: Basically consumption-based, indirect taxes are levied on goods and services. They are called so as they are collected in an indirect manner. For instance: goods and services tax, entertainment tax, sales tax

 

People generally have knowledge related to direct taxes as they are the ones that are deducted from their salaries, profits, and from gains by selling immovable assets. Indirect taxes, on the other hand, are those which are paid on the purchase of any type of goods and services.

What is income tax?

Income tax is the tax levied on the incomes of the individuals which they have procured in different ways. It is calculated by the percentage of one’s salaried income or the profits made in a particular financial year. There are various ways in which the government collect tax from the individual:

  • TDS – Tax Deducted at Source
  • TCS – Tax Collected at Source
  • Voluntary payment by taxpayers

 

As we all know that tax money is the only income of the government and they get more than 50% directly from direct taxes. The government increases the amount of taxes for the betterment of the infrastructure of the society.

Who pays income tax in India?

Everyone earning their income from one source or the other is the one who is liable to pay income tax. Taxpayers are classified in different categories in various sections of the Income Tax Act.

  • Individual
  • Hindu Undivided Family
  • Association of Persons
  • Companies
  • firms: proprietary firms and partnership firms
  • Co-operative societies
  • Local authorities
  • Any other Judicial Entity

 

Income tax is payable by both resident and non-resident citizens of India. There are five different categories of income that are liable for taxation.

  1. Salaried incomes of individuals and pensioners
  2. Income from other sources like earnings from saving accounts and fixed deposits.
  3. Property incomes like rental income and gains from selling the property
  4. Incomes from the sale of capital assets like mutual funds and shares
  5. Income of self-employed individuals like freelancers, contractors, doctors, lawyers, tuition, and various businesses.

 

Income tax slabs – Old vs New tax regime

From the financial year 2020-21, there are two options available for taxpayers to choose from i.e. from the old tax provisions or the new tax provisions.

The tax rates in the new regime have been reduced in various tax slabs except when the income is higher than INR 15 lakhs but various exemptions have been omitted.

Under the new regime, basic tax exemption for all individuals including senior citizens also would be INR 2.5 lakhs. The difference can be explained from the following table for the individuals below the age of 60 years:

Total Income Old taxation rates New taxation rates
Up to INR 2.5 lakhs Nil Nil

 

From INR 2.5 to 5 lakhs 5% 5%
From INR 5 to 7.5 lakhs 20% 10%
From INR 7.5 to 10 lakhs 20% 15%
From INR 10 to 12.5 lakhs 30% 20%
From INR 12.5 to 15 lakhs 30% 25%
Above INR 15 lakhs 30% 30%

Do keep in mind that those individuals who have no income in the current financial year can opt to choose between the old and new regimes. Once they have chosen to go ahead with the new regime they cannot shift to the old regime at the time of payment of tax in the next financial year. It is an opportunity given to the taxpayers to choose wisely whether they want old regime taxation or new regime taxation.

Who pays income tax in India and the rules that are applicable to them

Each individual and the judicial entity that has generated an income in one form or the other is liable to pay taxes in India. Although the taxable amount varies, depending upon the individual income and profession. The tax varies depending on the income generation and also on the type of organization and co-operative body.

Mentioned below are the rules and conditions which apply to all the individuals:

  • Under section 87A, a rebate of INR 12,500 is available to all the taxpayers’ individuals under both regimes. Hence, no income tax is payable by the individual whose total income is below INR 5 lakhs.
  • The above-said rebate is not available for HUFs and NRIs.
  • A cess of 4% is applicable on the total income tax payable applicable to all the taxpayers.
  • If the total amount of income generated exceeds in any financial year, then a surcharge will be charged on the payable tax, before the addition of cess, on different rates

 

Filing the income tax

Every individual who is liable to pay income tax is legally responsible to file the tax within the due date. Due dates may vary according to the category under which an individual is placed who pays income tax in India.

  • Individuals and HUFs have to file their taxes on and before the 31st of July of the assessment year.
  • For the rest of the entities, the date of filing is the 30th of September of the assessment year.

 

Taxpayers have both the option for paying the tax online and offline method. An Individual can manually submit the income tax papers directly to the income tax office.

However, the online mode of payment is the most effective and easy way to file an income tax. To validate their identity, the individuals have to submit their PAN or TAN numbers while filing the tax. These days people prefer the online method for tax submission as it helps them to pay taxes at their convenience. When you pay through online mode, you can easily claim tax deductions and a refund is also easily claimed by the taxpayer. The taxpayers can easily find all the applicable forms online while they are preparing to pay the taxes to the government.

Paying taxes on time is not only legally mandated for the citizens but is also their moral responsibility. Since income tax is the largest source of government income to maintain and progress the growth of the country. The money generated from the taxes will help in the betterment of society.

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