Income-tax is the main source of revenue for our government. As the name suggests, Income-tax refers to tax charged on income. It is a direct tax. Every taxpayer, whose income is more than basic exemption limit, is required to pay Income-tax on his income. In India, Income-tax is charged as per the slab rates which are provided by Finance Ministry every year.
Income-tax is sub-divided into following sub-heads-
- Advance tax: – The tax paid in advance is known as Advance Tax. Here, taxpayer estimates his annual income in advance and thereby total tax liability. Tax is required to be paid in the financial year in which income is received and hence it is also called as “pay-as-you-earn” scheme.
In case of salaried taxpayers, tax on salary is deducted and paid by employer. So, advance tax would be payable only if they have any other income besides salary and which is not reported to their employer. Further, Advance–tax is mandatory only if the net tax liability for the financial year (after considering TDS and tax relief) is more than Rs. 10,000/-. There are some due dates for the payment of advance tax.
- TDS (Tax deducted at source):- When taxpayer receives certain incomes viz. salary, commission, interest, rent, etc., some percentage of income (say 10%) is kept aside as Income-tax by the payer. This kept aside amount is paid in the account of Central Government. In short, taxpayer receives the income after deduction of tax hence this tax is known as ‘Tax deducted at source’.
- Self-assessment tax: – Assessment, in simple terms, means estimation and calculation of incomes and tax thereon. Taxpayer is required to consider all the incomes viz. salary income, capital gains, business/professional income, interest, dividend etc. earned by him during the year. After that all the eligible deductions shall be subtracted so that he will get taxable income. Here whatever taxes paid by the taxpayer earlier viz. advance tax, TDS (tax deducted at source) shall be deducted. And final tax payable is calculated as per the applicable slab rates. Taxpayer needs to pay this tax before filing his Income-tax return. This process is done by the taxpayer himself hence this tax is known as Self-assessment tax.
- Tax on regular assessment/scrutiny assessment: – Regular assessment is the same process as self-assessment. The only difference is in regular assessment, income and tax thereon is calculated by the Income-tax officer (assessing officer). Income-tax officer issues a notice to the taxpayer intimating that his case is selected for assessment. Taxpayer is required to provide all the documents related to the incomes to the officer. Assessing officer may demand any proof of income or deduction, whether shown by taxpayer in his return or not. After considering all these, officer finalizes the tax computation. If any tax is payable, the same is required to be paid by taxpayer. Here, all the tax calculation process is done after regular or scrutiny assessment; hence this tax is called as ‘Tax on regular assessment’.