The Government of India cuts a certain amount of money from the monthly income of working individuals in the form of tax. This deduction is known as the income tax. Income tax has to be paid compulsory for those individuals who earn more than a certain amount of money on an annual basis while it is a free option for those who earn less. The income tax of any individual varies from one person to another and the amount for the same can change from one year to the next depending on several factors.
Filing income tax at the end of each financial year seems to be a Herculean task for most. With proper preparation for filing income taxes, understanding the costs and considering the exemptions on the taxable income of a person, income tax filing becomes easy. The salary of a person, source for the salary, the type of work that is done by the individual, total amount of exemptions are some of the points to keep in mind while filling out an income tax form.
Importance of Filing Income Tax Regularly
Those who file their income tax forms at the end of each financial year are known to be some of the most responsible citizens of the country. For each company in India, it is mandatory for them to ask their employees to file their tax forms by the end of the financial year either in physical copy or by e-filing all the necessary documents. Some of the reasons why filing income tax forms are so important are:
- It is compulsory for those who earn a certain amount of money on an annual basis to pay income tax. This is a law, which when broken can lead to a fine of Rs. 5,000 or more.
- Filing income tax is a proof of the financial report of a person. This show the total allowance of the person and the amount of money that has been spent by the person in terms of exemptions and other deductibles. Income tax forms are a reflection of the income of a person and what they do with the income.
- Filing income tax makes it easier to procure loans.
- For anyone who has been filing income tax forms for years and are going through financial loss, they can take refunds from the Government on the income tax that they have paid in order to get into a more stable situation. This is only for those who have been filing their income tax forms for years altogether without fail.
Ways to Save Income Tax by Rejigging Your Salary
Some people pay a high amount of money in the form of Income Tax to the Government and are constantly in search for ways in which they can save this amount that is being cut from their salaries on an annual basis. Though there are many exemptions to saving income tax, there are also certain situations where income tax is not levied at all on the salary of an individual. Some cases where income tax money can be saved include:
- Taking a Vacation - Any money that is spent on vacationing for an individual can be claimed under the Leave Travel Allowance of any company. This particular claim is allowed to be taken twice in the span of four years. Though the claim for a leave travel insurance is only within the geographical limit of India, it is one of the best ways to save income tax money.
- Any form of Reimbursement - Any form of reimbursement in the form of a refund or in the form of a cash-back from a store of the company itself is not eligible to be taxable as per the law. Getting more reimbursements over a period of a year means more amount of non-taxable income. One common example of reimbursement includes house deposit reimbursement.
- Staying on Rent - For those who do not own a house and are staying on rent in another house, they are exempted from paying a certain amount of money in the form of tax by the House Rent Allowance. This saves a lot of tax for an individual on an annual basis.
Calculating Taxable Income
The total annual income of an individual is not the taxable income for the individual. There are a list of criteria that first need to be calculated and deducted in order to find the true taxable income for an individual.
The total income of the individual over the course of one year need to be kept in mind. The deductions from the income for any reason along with the exemptions as stated by the Income Tax Act of 1961 need to be added up and subtracted from the grand total income of the person. The amount that the individual is left with after this particular calculation is taken to be the total taxable income by the Government of India. This amount varies from one person to another on a yearly basis.
Not all the income that is earned by an individual is considered to be taxable by the Government of India. There are always certain exemptions in the amount of income money that are taken into consideration and pardoned from being taxed upon. Some of the different exemptions include:
- Exemptions for medical bills or medical insurance.
- Exemption for child care and educational purposes of any child.
- Exemption for living in a rented house (House Rent Allowance).
- Exemption for contributing to a Provident Fund.
- Exemptions for Leave Travel.
- Exemptions for the pension of an individual.