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How is Income Tax Calculated, Can it be Paid Online? All You Need to Know Ahead of Union Budget 2021

Finance Minister Nirmala Sitharaman had announced the new concessional income tax regime last year.

Finance Minister Nirmala Sitharaman had announced the new concessional income tax regime last year.

As Finance Minister Nirmala Sitharaman delivers her promised budget speech on Monday, which is expected to provide relief to the middle class by way of income tax benefits, we answer all your queries related to income tax.

Every salaried person in India has to pay a certain amount of money in the form of tax to the Income Tax Department of India. As Finance Minister Nirmala Sitharaman delivers her promised budget speech on Monday, which is expected to provide relief to the middle class by way of income tax benefits, we answer all your queries related to income tax slabs, how it’s calculated and what makes Form 16 an important document.

How is income tax calculated?

Income tax is calculated on the basis of tax rates determined by the government for an Assessment Year (AY). Your taxable income is worked out after making relevant deductions, other taxes that you may have already paid (Advance Tax) and tax deducted at source (TDS), the resultant taxable income will be taxed at the slab rate that is applicable.

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Various components are taken into account when the government calculates income tax. The three major ones are: gross taxable income, HRA (house rent allowance) exemption, and transport allowance.

The HRA depends on an individual’s basic salary. It is also dependent on the type of city they reside in. Transport or conveyance allowance, a salary component, is also exempted from the income tax.

Once the gross total income is calculated by adding all the above sources, whichever applicable, deductions on account of tax-saving investments, allowed expenses, donations etc are adjusted.

What is Form 16 for Income Tax in India?

The Income Tax is paid every year to the IT-Department at the end of each assessment year through an Income Tax Return Form (Form 16). Form 16 or the Income Tax Return form is a document that has details about your taxable salary, a breakup of deductions under Section 80C, TDS (Tax Deducted at Source), an aggregate of Section 80C Deductions (including gross & deductible amount). It is provided by employers to their employees in order to fill the complete explanation of all their deducted tax in a financial year.

It is Mandatory for EmpPloyers to provide Form 16?

Employees with an income of less than Rs. 2,50,000 for the Financial Year are exempted from income tax. Since no tax has been deducted, Form 16 is be issued to them. However, Form 16 is to be mandatorily provided by the employer if it has deducted TDS on an employee’s income, as Form 16 is a tax certificate that carries full details of income earned and the TDS deducted during the financial year. With the help of Form 16, a salaried employee can file income tax return (ITR), especially when the employee does not have income from any other sources.

How to pay the income tax online in India?

The e-filing system was launched in 2006 as a pilot project and was developed and expanded to individual assessees over the years. The returns can be filed from anywhere, faster processing of return and the issue of refunds, and easy excess of past data online are some of the key benefits of the e-filing project.

The Income Tax Department introduced two simpler income tax return forms for individual taxpayers from the financial year 2010-11. The form ITR-1 (Sahaj) was meant for salaried individuals, the form ITR-4S (Sugam) was interned for small business taxpayers falling within the presumptive taxation category.

To track the status of refunds and credit for prepaid taxes including an online facility, the taxman subsequently took a number of measures towards efficient tax administration, including an online facility for taxpayers. The taxman launched TRACES or TDS Reconciliation, Accounting and Correction Enabling System to serve as an integrated one-stop platform to facilitate TDS operations in the financial year 2011-12.

The taxman started crediting the income tax refunds directly to the taxpayers' bank accounts through the Electronic Clearance Service (ECS), discontinuing the practice of remitting cheques by post from the financial year 2013-14. Now, you get the refund directly credited in your account within a month of filing return... The digital transfer and timely payment of refunds emerged as the biggest positive step to encourage the assessees to file income tax returns.

The Income Tax Department launched a national website www.incometaxindia.gov.in with enhanced features and content. The electronic tax credit statement - or Form 26AS - contains details on payments involving tax deducted at source (TDS) by the taxpayer. Previously, the 26AS was only available in physical form.

Income Tax Department presently offers seven forms to the assessees for filing their income tax returns, and one form - ITR-V - for electronic verification. To reduce the compliance cost for assessees, especially small taxpayers, the taxman expanded the "e-Sahyog" pilot initiative in 2016. To resolve mismatches in ITRs without requiring taxpayers to visit the income tax office, the project was aimed at providing an online mechanism.

What is an income tax slab?

The taxpayers have been categorised by the government into different groups based on their yearly income. These groups are referred to as ‘Tax Slabs’. Each group is charged tax at varying rates, and each year, the income tax slab rates are revised during the budget session.

What is the tax slab for women in India?

For Financial year 2019-20, women taxpayers in the country have been categories as the following: No tax payable for up to Rs 2.5 lakh, 5% of total income which exceeds Rs 2,50,001 for those in the salary bracket of Rs 2,50,001 to Rs 5,00,000, and Rs 12,500 + 20% of total income which exceeds Rs 5,00,000 for those in the salary bracket of Rs 5,00,001 to Rs 10,00,000.