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A one time zero income tax benefit:
Today I will talk about the basics of income tax, what this benefit is, and what it has to do with you. Grab a cup of coffee and let's get started.
(A Thread)
Today I will talk about the basics of income tax, what this benefit is, and what it has to do with you. Grab a cup of coffee and let's get started.
(A Thread)
Say, you earned some income on your business during the year. The govt charges a certain rate of tax on that income.
They use this tax amount to fund infrastructure, national security, disaster relief, welfare schemes, etc.,
They use this tax amount to fund infrastructure, national security, disaster relief, welfare schemes, etc.,
The income tax is a tax you pay on your income *directly* to the government. This is a part of *direct* taxes.
Since there are multiple ways you can make income, broadly they are classified into five heads of income.
1. Salary income
2. House property income
3. Business/Profession income
4. Capital gains
5. Income from other sources
1. Salary income
2. House property income
3. Business/Profession income
4. Capital gains
5. Income from other sources
Quick examples:
1. You got a paycheck from your employer. This comes under salary.
2. You earned rent from leasing your property to a corporate office. This comes under house property.
3. You made income on your business/ profession, this comes under the third head.
1. You got a paycheck from your employer. This comes under salary.
2. You earned rent from leasing your property to a corporate office. This comes under house property.
3. You made income on your business/ profession, this comes under the third head.
4. Say you bought shares worth Rs 10,000 and sold them at Rs 20,000 during the year making a profit of Rs 10,000
This comes under capital gains.
This comes under capital gains.
If an income doesn't come in any of these heads, it comes under the head 'Income from other sources'
In addition to all of these, we have some exempted incomes like agricultural income, etc.,
In addition to all of these, we have some exempted incomes like agricultural income, etc.,
With this knowledge, you can classify all of your incomes into these five heads and add them up to arrive at *Gross Total Income* (GTI)
Ok, since you have calculated your GTI, you need to pay some 20% to 30% tax on it. Right?
Nope. There is much more to dive in.
Ok, since you have calculated your GTI, you need to pay some 20% to 30% tax on it. Right?
Nope. There is much more to dive in.
See, out of the income you generated from various sources, you may have used it to pay your
•Children tuition fees
•Life insurance premium
•Medical insurance premium
•Housing loan principal repayment etc.,
•Children tuition fees
•Life insurance premium
•Medical insurance premium
•Housing loan principal repayment etc.,
The basic point in all of the above items is it is unfair to charge tax on income spent towards necessities.
And that's the reason, we have something called *Chapter VI A deductions* in the Act which allows deductions with some restrictions.
And that's the reason, we have something called *Chapter VI A deductions* in the Act which allows deductions with some restrictions.
Now, You arrive at your Total income by reducing deductions from GTI.
And this is the second line you see in your income tax acknowledgment.
And this is the second line you see in your income tax acknowledgment.
Right. Since now you have got your total income, you can calculate your taxes & pay to the government.
The below slab rates apply to individuals whose age is below 60 years. I believe most of us would come under this.
The below slab rates apply to individuals whose age is below 60 years. I believe most of us would come under this.
Let's understand this with a small example. Say your total income is 9 lacs.
Tax payable calculation:
First 2.5 lacs: Zero tax
Next 2.5 lacs: 12500 (2.5 lacs*5%)
Balance 4 lacs: 80000 (4lacs*20%)
Adding 4% cess, you get a tax payable amount of 96200.
Tax payable calculation:
First 2.5 lacs: Zero tax
Next 2.5 lacs: 12500 (2.5 lacs*5%)
Balance 4 lacs: 80000 (4lacs*20%)
Adding 4% cess, you get a tax payable amount of 96200.
Two points to note here
1. These slab rates apply only to individuals.
2. Some incomes are charged at a flat rate. For instance, if u win 1 crore prize money from a game show, it will be taxed at 30%.
1. These slab rates apply only to individuals.
2. Some incomes are charged at a flat rate. For instance, if u win 1 crore prize money from a game show, it will be taxed at 30%.
Ok, you may think why these slab rates? Why can't they tax at some flat rate say 30%?
The reason is
With this, the poor will be taxed at low rates as their income comes under the low slab rate.
And the rich will be taxed at high rates because their income comes under the high slab rate.
At least that is the intention of the govt.
With this, the poor will be taxed at low rates as their income comes under the low slab rate.
And the rich will be taxed at high rates because their income comes under the high slab rate.
At least that is the intention of the govt.
Here comes the most important part. Say your income is 5 lakh. Now tell me tax payable on your income. Will give u 5 seconds.
5..
4..
3..
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1..
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It is 12500 right (First 2.5 lacs attract no tax, next 2.5 lacs attract 5% tax which is 12500)
However, we have something called section 87A in the Act which gives you a one-time rebate of 12500 when your income is below 5 lakhs for the FY 19-20.
However, we have something called section 87A in the Act which gives you a one-time rebate of 12500 when your income is below 5 lakhs for the FY 19-20.
Think of 87A as a coupon code you can use when you purchase an item. You calculate the total tax payable and deduct the rebate, provided it applies to u.
And yes finally you should have understood the title of the thread now.
And yes finally you should have understood the title of the thread now.
So for the year FY 19-20 if you are a resident individual and your total income is below 5 lacs, your tax liability comes at *Zero*
After reading all this, you can ask me why in the world should I file tax returns?
After reading all this, you can ask me why in the world should I file tax returns?
Here you go
•To Claim tax refunds
•Avoidance of penalties
•Carry forward of losses
•Ease of Visa processing
•Ease of loan processing
•Being a law-abiding citizen
•Placing government tenders
•To Claim tax refunds
•Avoidance of penalties
•Carry forward of losses
•Ease of Visa processing
•Ease of loan processing
•Being a law-abiding citizen
•Placing government tenders
To conclude, filing income tax returns would create financial history and also aid u in many other processes in the future.
Disc: For info and educational purposes only. Please contact your tax advisor for further assistance if needed.
Disc: For info and educational purposes only. Please contact your tax advisor for further assistance if needed.
That's it, folks. Hope you enjoyed reading. Like and retweet this original thread if you find it value added. Have a great day. https://twitter.com/money_theory/status/1319610621285969921?s=19
