Income tax is a direct tax that a government levies on the income of its citizens. The Income Tax Act, 1961, mandates that the central government collect this tax. The government can change the income slabs and tax rates every year in its Union Budget. 

Income does not only mean money earned in the form of salary. It also includes income from house property, profits from business, gains from profession (such as bonus), capital gains income, and ‘income from other sources’. The government also often provides certain leeway such that various deductions are made from an individual’s income before the tax to be levied is calculated. 

Income Tax Act is also called the IT Act, 1961. Income Tax in India is governed by the rules set by this act. The income taxed by this act can be generated from any source such as profits received from salaries and investments, owning a property or a house, a business, etc. The IT Act defines the tax benefit you can avail of on a life insurance premium or a fixed deposit. It also decides the savings from your income via investments and the tax slab for your income tax. 

The Wealth Tax Act came into effect in the year 1951 and is in charge of the taxation linked with an individual’s net wealth, a Hindu Unified Family (HUF), or a company. The easiest computation of wealth tax was:

If the net wealth of an individual exceeds Rs. 30 lakhs, then 1 percent of the exceeded amount is payable as a tax. It was put to an end in the budget that was announced in 2015. Since then, it has been substituted with a surcharge of 12 percent on the individuals that generate an income of more than Rs. 1 crore p.a. It is also pertinent to the companies, which have generated revenue of over Rs. 10 crores p.a. The fresh guidelines radically raised the sum the government would accumulate in taxes as disparate the amount they would accumulate via wealth tax.

This Act was brought into existence in the year 1958 and assured that if a person received gifts or presents, valuables, or monetary, he has to pay a tax on those gifts. The tax on the aforementioned gifts was sustained at 30 percent but it was put to an end in the year 1998. Originally, if a gift was given, and it was somewhat like shares, jewelry, property, etc. it was subject to tax. As per the new rules, the present given by the members of the family like parents, spouses, uncles, aunts, sisters, and brothers is not subject to tax. Even presents you receive from the local authorities are also exempted from such taxes. If somebody, other than that of the exempted entities, presents you anything, which has a value beyond Rs. 50,000 then the whole gift amount is subject to tax.

The Expenditure Tax Act came into existence in the year 1987 and cope with the expenditure made by you, as a person, may incur whilst you avail the services of a restaurant or a hotel. It is appropriate to the entire nation other than Jammu and Kashmir. It asserts that some expenses are liable under the act if the amount is beyond Rs. 3,000 contingents upon a hotel and all the expenses drawn in a restaurant.

This Act of 1974 copes with the tax, which was chargeable on interest produced in some specific situations. In the Act’s last amendment, it is stated that this act does not apply to interest earned after March 2000.

If you are planning to visit countries like Canada, the USA, or the United Kingdom, it is compulsory for Indians to provide the income tax return (ITRs) of the last 3 years for easy visa approval. Payment of income tax to the home country government acts as an assurance for other countries that you are not leaving the origin country for tax evasion purposes.

Regular payment of income tax to the Government of India is considered important when you have applied for big-ticket loans like home loans, business loans, or personal loans. Before approving the loan, the lender always asks the loan applicant to submit copies of ITR.

For all self-employed professionals like freelancers, firm partners, or consultants, filing income tax acts as income proof. It works in cases where professionals are not getting a fixed salary from any particular company. It plays an important role in all financial and business transactions.

The primary objective of taxing the citizens of India is to raise revenue for the smooth running of government activities.

The income tax paid by the citizens of India is used by the Government of India for improving the quality of infrastructure like public places, smart cities, and government institutes. All the funding of infrastructure projects arises from the tax amount collected from the country’s taxpayers.

From education and health, to housing and employment, the government is launching and running various welfare schemes to provide benefits to Indian citizens. The main source of funding for all these government schemes is the cumulative income tax paid by taxpayers.

We are all proud of missions conducted by the Indian Space Research Organization, and all these missions require huge funding. This is provided by the Government of India. A percentage of the tax money collected is earmarked by the government to space research organizations for running space missions.

The taxation policy of the government is the best way to reduce income inequalities in India. By applying a progressive taxation system, the rich are asked to pay more taxes as compared to the poor. Taxes paid by the rich section of the society are utilised for social services that particularly benefit the disadvantaged sections of society.

Each of the assessees is entitled to carry forward the losses if they were unable to set off any of the losses incurred against the earned income subjected to income tax rules and provisions. In case the assessee attempts a tax evasion, he or she cannot carry forward the losses.

If you delay filing an income tax return, then you are liable to pay a penalty of Rs 5000. The assessing officer has the authority to waive the levied penalty. The taxpayer gets a reasonable opportunity of being heard before the penalty is imposed. But it is always wise to adhere to the rules and regulations.

Imposing higher rates of taxation on people may escalate discouragement to work hard and save. They will start believing that the more their earnings and savings, higher will be the taxation.

When taxation is imposed on a commodity, the cost of that commodity also increases. It will indirectly also increase the cost of production due to which one needs to pay higher wages to workers; this will, in turn, further increase the price of the commodity.

Payment of income tax is of prime importance to assess the creditworthiness of a taxpayer. If you are not paying tax on time, it may prove to be a hindrance to your financial activities in many ways.