Indian National Income Tax Day: India's Taxation System
Indian National Income Tax Day: India's Taxation System
National Income Tax Day: Introduction
Indian National Income Tax Day or राष्ट्रीय आयकर दिवस (Rastriya Aaykar Divas) is a significant event in India, commemorated on July 24th each year. It marks the country's commitment to responsible financial citizenship and reflects the importance of taxation in nation-building. In this blog, we delve into the intricacies of the Indian National Income Tax Day, its history, and the relevance of filing taxes in India. We aim to provide expert insights, experiences, and valuable information to make the tax-filing process more accessible and understandable for all taxpayers.
When is National Income Tax Day and Why It is Celebrated in India?
The Indian National Income Tax Day is an annual observance held on July 24th to commemorate the introduction of India's first Income Tax Act in 1860 by Sir James Wilson. The Income Tax Act was an essential step towards organizing and regulating the country's taxation system, ensuring a steady flow of revenue for national development.India celebrates National Income Tax Day on July 24 annually. This day had been chosen because it was the first day that income tax was collected as a duty in India, back in 1860. The Income Tax department first chose to honor this day in 2010 to mark 150 years of tax collection. This year we will witness the 163rd National Income Tax Day.
National Income Tax is observed every year to spread the awareness and understanding of Taxation System in India.
Head Office of Income Tax Department and Its Name?
The Head Office of Income Tax Department is situated in New Delhi and it is responsible for collecting direct taxes for the Government of India. The Income Tax Department comes under The Ministry of Finance’s Department of Revenue and is run by the Central Board of Direct Taxes (CBDT). The Central Board of Revenue Act of 1963 created the Central Board of Direct Taxes (CBDT), a separate board for direct taxes, from the Central Board of Revenue.
Understanding the Indian Taxation System:
In India, the Central Government and the State Governments each have their own taxing authority. The local governments, including the Municipality and the Local Governments, also levy a few small taxes. Direct tax and indirect tax are the two main categories of taxation in India. Let's examine these two categories of taxes:Central Taxes - Income Tax, Central Goods & Services Tax (CGST), Customs Duty, Integrated Goods & Services Tax (IGST)
State Taxes - State Goods & Services Tax (SGST), Stamp Duty & Registration
1. Direct Tax: A direct tax is one that is paid directly to the taxing authority (typically the government) by a person or an organization. A direct tax cannot be transferred to an additional person or entity. The fulfilment of the tax payment is the responsibility of the person or entity upon whom the tax is imposed.
The Central Board of Direct Taxes handles issues relating to the levying and collecting of direct taxes as well as the formulation of various direct tax policies.
A taxpayer may be required to pay a direct tax to the government for a variety of reasons, such as real estate taxes, personal property taxes, income taxes, asset taxes, FBT, gift taxes, capital gains taxes, etc.
Examples of Direct Tax: Income Tax, Expenditure Tax, Gift Tax, Interest Tax, Capital Gains Tax, Securities Transactions Tax (Estate and Wealth Taxes had been removed)
Here are some of the Important Direct Taxes –
A. Income Tax: Income tax is the most typical type of direct tax because it is paid to the government directly. Income tax is levied on the money made over the course of a fiscal year. Based on the income tax slabs set by the Income Tax department, the tax is paid.
Slabs of Income Tax under the new Tax System:
- Between 0 and 3,00,000 – 0%
- Between 3,00,001 and 6,00,000 – 5%
- Between 6,00,001 and 9,00,000 – 10%
- Between 9,00,001 and 12,00,000 –15%
- Between 12,00,001 and 15,00,000 – 20%
- Above 15,00,001 – 30%
B. Capital Gains Tax: Anyone who has capital gains must pay tax to the government on those gains. Capital gains may come from real estate or investments like stocks. The capital gains tax is charged as either long-term capital gains (LTCG) or short-term capital gains (STCG), depending on how long the investor held the investments.
2. Indirect Tax: Multiple meanings can be attached to the term "indirect tax." In the common sense, an indirect tax is one that is collected from the person who will ultimately be responsible for paying the tax—in this case, the consumer—by an intermediary, such as a retail store. Indirect taxes include sales taxes, specific taxes, value-added taxes (VAT), and goods and services taxes (GST).
Later, the intermediary files a tax return and sends the money from the tax to the government along with the return. In this context, the term "indirect tax" is used to contrast with "direct tax," which is paid by the government directly to the individuals (whether legal or natural) upon whom it is levied.
Examples of Indirect Tax: Service Tax, Goods and Services Tax, Value Added Tax, Excise Duty, Customs Tax, Entertainment Tax, Stamp Duty Tax,
Here are some of the Important Indirect Taxes –
A. Goods and Service Tax (GST): In India, a variety of other indirect taxes, including value added tax, service tax, excise duty, purchase tax, and more, have been replaced by the Goods and Services Tax (GST), which is the most prevalent example of an indirect tax. A single, unified, and comprehensive indirect tax known as GST is levied on goods and services based on tax slabs established by the GST Council of India.
B. Customs Duty: If you buy any goods or services from another country, you will be subject to paying customs duty. You are still required to pay this duty regardless of how the product got to you—by air, sea, or land. Customs duty is therefore an indirect tax that is imposed to make sure that all goods entering India are subject to tax.
Importance of Filing Taxes:
For a number of reasons, filing taxes is necessary. First of all, adhering to local tax regulations is a requirement set forth by law for all citizens. By filing taxes, people and companies show that they are following the tax laws and aid in the functioning of society.The government must be able to generate revenue in order to pay for various public services and infrastructure improvements, which is made possible by tax filing. The entire population benefits from these services, which include healthcare, education, public safety, social welfare initiatives, infrastructure development, and other essential initiative.
Furthermore, accurate tax filing enables people to claim tax credits and deductions, which lowers their overall tax burden and may result in tax refunds. Additionally, it enables governments to keep up an open and effective tax collection system, reducing tax evasion and fostering economic stability. Paying taxes not only satisfies legal obligations but also significantly contributes to the advancement of the nation and the welfare of its citizens.
Tips for Smooth Tax Filing Experience:
Navigating through the tax filing process can be daunting, especially for first-time taxpayers. Here are some expert tips to ensure a smooth tax filing experience:1. Keep Accurate Financial Records: Maintain meticulous records of all your financial transactions, including income, expenses, investments, and deductions. You can accurately calculate your taxable income with this assistance.
2. Leverage Online Filing Platforms: The Indian government offers user-friendly online portals for tax filing. Utilize these platforms to file your taxes conveniently and securely from the comfort of your home.
3. Seek Professional Assistance: If you find the tax filing process overwhelming, consider seeking assistance from tax professionals or chartered accountants. Their expertise can help you maximize deductions and avoid errors.
4. Be Aware of Important Deadlines: Stay informed about the tax filing deadlines to avoid penalties or late fees. Mark the dates on your calendar and set reminders to ensure timely compliance.
Understanding Tax Deductions and Exemptions:
In India, taxpayers can avail various deductions and exemptions to reduce their taxable income. Understanding these provisions can help taxpayers optimize their tax liability.1. Section 80C Deductions: Section 80C of the Income Tax Act offers deductions for investments in specified instruments like Public Provident Fund (PPF), Employee Provident Fund (EPF), Life Insurance Premiums, Equity-Linked Savings Scheme (ELSS), and more. Taxpayers can claim deductions up to Rs. 1.5 lakhs under this section.
2. House Rent Allowance (HRA) Exemption: For salaried individuals who receive HRA as part of their salary, a portion of the HRA can be exempted from tax. The exemption amount depends on the actual HRA received, rent paid, and the city of residence.
3. Medical and Health Insurance Deductions: Taxpayers can claim deductions for premiums paid towards health insurance policies for themselves, their spouses, children, and parents. Under Section 80D, additional deductions are available for senior citizens.
4. Education Loan Interest Deduction: Interest paid on education loans can be claimed as deductions under Section 80E. This provision encourages students and parents to pursue higher education without financial burdens.
Recent Changes in Indian Taxation:
The Indian taxation system undergoes periodic changes to accommodate evolving economic conditions and the government's fiscal policies. Staying updated with these changes is vital for taxpayers.1. Introduction of New Tax Slabs: In the Union Budget 2020, the Indian government introduced an optional new tax regime with reduced tax rates but without many deductions and exemptions. Taxpayers can choose between the new and old regimes based on their financial preferences.
2. Digitalization of Tax Filing: The Indian government has taken significant steps towards digitizing the tax filing process. Initiatives like e-filing, Aadhaar-based verification, and pre-filled income tax forms aim to enhance taxpayer convenience and efficiency.
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