Need of Paying Income Tax

The major requirement for the development and growth of a country is money. Without capital, a country cannot grow and hence cannot move forward at all. A shortage of money will hamper the growth of a country. This is why each and every individual is accountable to pay their Income Tax Return.

The inhabitants of a country contribute a major part towards the progress of a country and each and every citizen should feel a sense of responsibility and should file his/ her ITR.

Types of Income Tax Returns

Income Tax Return is generally classified into two main categories:

1. Individual Income Tax Return
2. Professional Income Tax

The taxes should be paid within specified time in order to avert any fine or late payment. It helps to avail any kind of loan and also helps to create a good impression among the IT authorities.

Heads of Income

The total income of a person is divided into five heads:

Income from Salary

All income received as salary under employee-employer relationship is taxed under this head. The employer must provide their employees with a form 16 which clearly shows the net income and all the tax deductions. The employers must deduct the tax if the income is above the maximum exemption as Tax Deducted at Source (TDS). Form 16 also contains any other kind of deductions made like conveyance allowance, house rent allowance etc.

Income from House Property

The annual value of the house is taken into account to calculate the income from house property. The annual value in case of a let out property is the maximum of the following:

• Rent received
• Municipal valuation
• Fair rent

Annual value in case of a self occupied house is nil. However, if some someone occupies two houses the annual value of the other house is taxable.

Income from Business or Profession

The income earned by a professional is computed under this head. For example: an architect earns some charges some fees from all his clients and in this way he earns a certain amount in a year. However there would be some expenses which are deducted from his professional fees in order to calculate the total taxable income. These expenses could include

• the electricity bills he pays for the use of equipments in his office premises
• the fuel expenses for his car to visit various sites
• society maintenance bills
• amount spent to purchase some material of professional practice

Income from Capital Gains

Transfer of capital assets results in capital gains. Under Section 2(14) of the Income Tax Act, 1961 a capital asset is defined as a property of any kind held by an assesse, whether or not connected with his business or profession, but does not include any stock-in-trade, consumable stores or raw materials held for the purposes of his business or profession.

There are two types of capital assets that are considered for tax purposes. They are : long term and short term.

Long term assets are those which are held by a person for at least three years. Shares and mutual funds are the only exception which becomes long term after one year of holding.

All capital gains that are not long term gains are short term gains.

Income from Other Sources

Income which does not meet any of the criteria listed above come under this head. There are some specific incomes that can be taxed under this head. Some examples are listed below:

• Income from horse races.
• Income by way of dividends.
• Income from shares.