{"id":48553,"date":"2024-04-30T12:10:09","date_gmt":"2024-04-30T12:10:09","guid":{"rendered":"https:\/?p=48553"},"modified":"2024-04-30T14:09:35","modified_gmt":"2024-04-30T14:09:35","slug":"basic-concepts-of-income-tax","status":"publish","type":"post","link":"https:\/\/www.stocktargetadvisor.com\/blog\/basic-concepts-of-income-tax\/","title":{"rendered":"Basic Concepts of Income Tax: Complete Guide"},"content":{"rendered":"<p><span data-preserver-spaces=\"true\">Income tax is a tax that is charged on the income earned by individuals and businesses. It is an important part of everyone&#8217;s finances, and understanding the basic concepts of income tax is crucial to ensure that you comply with the tax laws and regulations and avoid any penalties or legal issues. Some of the basic concepts of income tax include taxable income, tax deductions, tax credits, tax brackets, and tax rates. By having a good understanding of these concepts, you can effectively manage your finances and plan your budget accordingly.<\/span><\/p>\n<h2><strong><span data-preserver-spaces=\"true\">What is the Income Tax Law?<\/span><\/strong><\/h2>\n<p><span data-preserver-spaces=\"true\">The current income tax law in India is governed by the Income Tax Act of 1961, which extends to the entire country. This law came into force on the 1st of April 1962. The Act has 298 sections and XIV schedules. It has provisions for the determination of taxable income, tax liability, appeals, prosecutions, penalties, assessments, and much more.\u00a0<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">The law can\u00a0<\/span><span data-preserver-spaces=\"true\">undergo changes<\/span><span data-preserver-spaces=\"true\">\u00a0(amendments) every year with added or deleted factors according to the Annual Finance Act passed by the parliament. For instance, the amount of income tax you pay each year could change according to the changes in the law. Therefore, it is best if you use an\u00a0<\/span><strong><a class=\"editor-rtfLink\" href=\"https:\/\/groww.in\/calculators\/income-tax-calculator\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">income tax calculator<\/span><\/a><\/strong><a class=\"editor-rtfLink\" href=\"https:\/\/groww.in\/calculators\/income-tax-calculator\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">\u00a0<\/span><\/a><span data-preserver-spaces=\"true\">that is updated frequently before you make any payments.\u00a0<\/span><\/p>\n<h2><strong><span data-preserver-spaces=\"true\">Who Needs to Pay Income Tax in India?<\/span><\/strong><\/h2>\n<p><span data-preserver-spaces=\"true\">Just remember once again that income tax rules and regulations can change often, and this makes it important for everyone to find updated data. Currently, any individual who earns more than Rs. 2.5 lakhs in a year is required to pay income tax to the government of India. Mentioned below are the different kinds of taxpayers India has:<\/span><\/p>\n<ul>\n<li><span data-preserver-spaces=\"true\">Individuals<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Association of Persons<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Firms<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Companies<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Hindu Undivided Family<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Artificial Juridical Person<\/span><\/li>\n<\/ul>\n<p><span data-preserver-spaces=\"true\">An individual needs to have any one of the following residential statuses:<\/span><\/p>\n<ul>\n<li>Resident of India<\/li>\n<li>Resident of India but not Ordinarily Resident of India.<\/li>\n<li>Non-Resident Indian.<\/li>\n<\/ul>\n<h2><strong><span data-preserver-spaces=\"true\">What are the Different Forms of Income Considered According to the Income Tax Act?<\/span><\/strong><\/h2>\n<p><span data-preserver-spaces=\"true\">The income is classified under a few categories, and they are:<\/span><\/p>\n<h3><strong><span data-preserver-spaces=\"true\">1. Income from Salary<\/span><\/strong><\/h3>\n<p><span data-preserver-spaces=\"true\">\u00a0<\/span><span data-preserver-spaces=\"true\">This includes basic pay, medical allowance, gratuity, dearness allowance, transport allowance, annuity, advance of salary, prerequisites\u00a0<\/span><span data-preserver-spaces=\"true\">in lieu of<\/span><span data-preserver-spaces=\"true\">\u00a0salary, advance salary, other allowances, commissions, and retirement benefits.\u00a0<\/span><\/p>\n<h3><strong><span data-preserver-spaces=\"true\">2. Passive Income from Property<\/span><\/strong><\/h3>\n<p><span data-preserver-spaces=\"true\">This includes any form of rental income from residential or commercial property that you own. If you have a home loan, then the interest of this loan will be known as the negative income from the house property you own.\u00a0<\/span><\/p>\n<h3><strong><span data-preserver-spaces=\"true\">3. Income from a Business or a Profession<\/span><\/strong><\/h3>\n<p><span data-preserver-spaces=\"true\">Income that is earned from a business or your profession will be taxed income. The income will be the net of all expenses.\u00a0<\/span><\/p>\n<h3><strong><span data-preserver-spaces=\"true\">4. Income from Your Capital Gains<\/span><\/strong><\/h3>\n<p><span data-preserver-spaces=\"true\">Any kind of profit from the transfer of a capital asset held as an investment, such as jewelry. The gains can be even on account of short-term or long-term gains.\u00a0<\/span><\/p>\n<h3><strong><span data-preserver-spaces=\"true\">5. Income from Other Income Sources<\/span><\/strong><\/h3>\n<p><span data-preserver-spaces=\"true\">This will include income that does not come under the categories mentioned above. These forms of income will be taxed under income from other sources. This means, that<\/span><span data-preserver-spaces=\"true\">\u00a0<\/span><span data-preserver-spaces=\"true\">even if you win a lottery, it will be considered as a form of income and it will be taxed under the Income Tax Act.\u00a0<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">Understand income classifications through the table below:<\/span><\/p>\n<p><strong><span data-preserver-spaces=\"true\">Income from Salary:\u00a0<\/span><\/strong><span data-preserver-spaces=\"true\">This is\u00a0<\/span><span data-preserver-spaces=\"true\">in regard\u00a0<\/span><span data-preserver-spaces=\"true\">to<\/span><span data-preserver-spaces=\"true\">\u00a0 \u00a0\u00a0the<\/span><span data-preserver-spaces=\"true\">\u00a0salary you earn. For instance, if you are working in a\u00a0<\/span><span data-preserver-spaces=\"true\">corporate company<\/span><span data-preserver-spaces=\"true\">, it will mean the entire salary you earn from this\u00a0<\/span><span data-preserver-spaces=\"true\">corporate company<\/span><span data-preserver-spaces=\"true\">, including basic salary, wages, salary advance, leave encashment, commission, and much more.\u00a0<\/span><\/p>\n<p><strong><span data-preserver-spaces=\"true\">Income from your Business:\u00a0<\/span><\/strong><span data-preserver-spaces=\"true\">If you have\u00a0<\/span><span data-preserver-spaces=\"true\">a business<\/span><span data-preserver-spaces=\"true\">\u00a0of your own, the income earned through this income will also\u00a0<\/span><span data-preserver-spaces=\"true\">be taxed<\/span><span data-preserver-spaces=\"true\">. This income, however, will not mean your entire income; it will\u00a0<\/span><span data-preserver-spaces=\"true\">mean your<\/span><span data-preserver-spaces=\"true\">\u00a0net income. This means it will exclude all your expenses, and finally, the amount that stands in your hand will be taxed.\u00a0<\/span><\/p>\n<p><strong><span data-preserver-spaces=\"true\">Income from Your Profession:\u00a0<\/span><\/strong><span data-preserver-spaces=\"true\">If you have\u00a0<\/span><span data-preserver-spaces=\"true\">a profession<\/span><span data-preserver-spaces=\"true\">, for instance, if you are a doctor and are running a clinic.\u00a0<\/span><span data-preserver-spaces=\"true\">The income<\/span><span data-preserver-spaces=\"true\">\u00a0you earn from this clinic will be taxed. However, the income that\u00a0<\/span><span data-preserver-spaces=\"true\">would be<\/span><span data-preserver-spaces=\"true\">\u00a0considered is the amount that is left after all the expenses are paid.\u00a0<\/span><\/p>\n<p><strong><span data-preserver-spaces=\"true\">Income from Capital Gains:\u00a0<\/span><\/strong><span data-preserver-spaces=\"true\">Income earned\u00a0<\/span><span data-preserver-spaces=\"true\">from capital<\/span><span data-preserver-spaces=\"true\">\u00a0gains of any kind will be taxed. Whether it is capital gains\u00a0<\/span><span data-preserver-spaces=\"true\">earned from<\/span><span data-preserver-spaces=\"true\">\u00a0selling a property or selling a stock, they will be taxed according\u00a0<\/span><span data-preserver-spaces=\"true\">to the<\/span><span data-preserver-spaces=\"true\">\u00a0Income Tax Act.\u00a0<\/span><\/p>\n<p><strong><span data-preserver-spaces=\"true\">Income from Your House Property:\u00a0<\/span><\/strong><span data-preserver-spaces=\"true\">Income that\u00a0<\/span><span data-preserver-spaces=\"true\">is earned<\/span><span data-preserver-spaces=\"true\">\u00a0from a property. In case you earn property, whether residential\u00a0<\/span><span data-preserver-spaces=\"true\">or not<\/span><span data-preserver-spaces=\"true\">, when you earn income from the property, such as rent and deposits,\u00a0<\/span><span data-preserver-spaces=\"true\">the income<\/span><span data-preserver-spaces=\"true\">\u00a0is taxed according to the act.\u00a0<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">So, if everything is taxed, are there financial attributes that do not carry taxes? Of course. Keep reading to find out what taxes are exempt from in India.<\/span><\/p>\n<h2><strong><span data-preserver-spaces=\"true\">What is Exempt from Taxes in India?<\/span><\/strong><\/h2>\n<p><span data-preserver-spaces=\"true\">There are certain forms of income that are<\/span><span data-preserver-spaces=\"true\">\u00a0completely exempt from tax:<\/span><\/p>\n<ul>\n<li><span data-preserver-spaces=\"true\">Agriculture Income.\u00a0<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Certain Interest to Non-Residents.\u00a0<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Interest to Non-Resident on Non-Resident Account.\u00a0<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Leave Travel Concession.\u00a0<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Tax on Perquisites paid by the employer.\u00a0<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Payment from Statutory Provident Fund.\u00a0<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Scholarships are given to meet education expenses.\u00a0<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Income from one palace of a former ruler.\u00a0<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Income of a local authority.\u00a0<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Income of European Economic Community.\u00a0<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Income of SAARC fund.\u00a0<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Income of IRDA.\u00a0<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Income of Secretariat of Asian Organisation of Supreme Audit Institutions.\u00a0<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Income of the Prasar Bharati.\u00a0<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Tax-free mutual funds.\u00a0<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Exemption of income from the securitization trust.\u00a0<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Income from international sporting events.\u00a0<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Reverse mortgage.\u00a0<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Income of National Financial Holdings Company.<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Income received by any person for, or on behalf of, the New Pension System Trust.\u00a0<\/span><\/li>\n<\/ul>\n<p><span data-preserver-spaces=\"true\">So, before you pay taxes on a form of income, just cross-check for these forms of exemptions.\u00a0<\/span><\/p>\n<h2><strong><span data-preserver-spaces=\"true\">Conclusion<\/span><\/strong><\/h2>\n<p><span data-preserver-spaces=\"true\">Income tax is an important element in managing your finances. When you know your income taxes well, it can go a long way in accomplishing your financial goals. This post has taken you through the basic elements of income tax that you need to know, and it can help you kick-start your understanding of income tax in the long run.\u00a0<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Income tax is a tax that is charged on the income earned by individuals and businesses. It is an important part of everyone&#8217;s finances, and&#8230;<\/p>\n","protected":false},"author":8,"featured_media":48556,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[1],"tags":[],"class_list":["post-48553","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-blog"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v19.4 (Yoast SEO v21.4) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Basic Concepts of Income Tax: Complete Guide | Stock Target Advisor<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.stocktargetadvisor.com\/blog\/basic-concepts-of-income-tax\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Basic Concepts of Income Tax: Complete Guide\" \/>\n<meta property=\"og:description\" content=\"Income tax is a tax that is charged on the income earned by individuals and businesses. 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