What is Income Tax?

Tax imposed by the Government of India on any body who earns income in India.This tax is levied on the strength of an Act called "Income Tax Act" which was passed by the Parliament of India.

What is an Assessment Year?

Assessment Year means twelve-month period from 1st April to 31st March immediately following the previous year .In the Assessment year a person files his return for the income earned in the previous year.For example for Fianancial Year:2008-09 Your Assessment Year is 2009-10.

What does the Income Tax Department consider as income?

The word Income has a very broad and inclusive meaning. In case of a salaried person, all that is received from an employer in cash, kind or as a facility is considered as income. For a businessman, his net profits will constitute income. Income may also flow from investments in the form of Interest, Dividend, and Commission etc. Infect the Income Tax Act does not differentiate between legal and illegal income for purpose of taxation. Under the Act, all incomes earned by persons are classified in to 5 different heads, such as:

  • Income from Salary
  • Income from House property
  • Income from Business or Profession
  • Income from capital gains
  • Income from other sources

    • I own shares of various Indian companies and receive dividends.Is it taxable?

    No.The dividend declared by Indian companies is not taxable in the hands of the share holders because tax on distributed profits have already been borne by the company.

    How does the Government collect Income Tax?

    Taxes are collected by three means:
    a) Voluntary payment by persons into various designated Banks. For example Advance Tax and Self Assessment Tax .
    b) Taxes deducted at source [TDS] on your behalf from the payments receivable by you.
    c) Taxes collected at source [TCS] on your behalf at the time of spending. It is the constitutional obligation of every person earning income to compute his income and pay taxes correctly.

    What can I do to reduce my tax?

    The tax can be reduced by making investment in approved schemes and also by making donations to approved charitable institutions.

    What is TDS?

    TDS means Tax Deducted at Source. It is the amount withheld from payments of various kinds such as salary, contract payment, commission etc. This withheld amount can be adjusted against your tax due.

    What is the procedure for receiving Foreign Direct Investment in an Indian company?

    An Indian company may receive Foreign Direct Investment under the two routes as given under:

    Automatic Route : FDI is allowed under the automatic route without prior approval either of the Government or the Reserve Bank of India in all activities/sectors as specified in the consolidated FDI Policy, issued by the Government of India from time to time.

    Government Route : FDI in activities not covered under the automatic route requires prior approval of the Government which are considered by the Foreign Investment Promotion Board (FIPB), Department of Economic Affairs, Ministry of Finance. The Indian company having received FDI either under the Automatic route or the Government route is required to comply with provisions of the FDI policy including reporting the FDI to the Reserve Bank.

    Which are the sectors where FDI is not allowed in India, both under the Automatic Route as well as under the Government Route?

    FDI is prohibited under the Government Route as well as the Automatic Route in the following sectors:

    What are different types of investment ?

    Investment can be done in Gold,Shares,Bonds,Mutual Funds,Property,Insurance etc.

    What is PAN (PERMANET ACCOUNT NUMBER)

    Every person and entity is eligible to apply and get the PAN card.The procedure is very simple, only thing you need is any identity proof and residential address proof .Many banks are authorised to accept this form. On application, within 15 days you will get a nicely printed PAN card with full name, father's name and date of birth printed along with your photograph and signature. PAN card is an important identity/ age proof required for opening a bank account; demat account, Mutual Fund/ Share application etc. it should be noted that on getting PAN card it is not necessary to file return if your income is not taxable. Till such time that AADHAR cards under Unique Identification Number of issued to all the citizen important of PAN card will remain as identification proof.

    What is Gift Tax?

    Any amount / property above Rs 50000 received as gift, price, and donation or under any nomenclature are taxable in the hands of receiver. The exceptions are any inherited or "will" property, any amount received. The exception are any inherited or "will" property, any amount received from blood relative and any amount received from anybody on occasion of own marriage. However, gift to spouse (husband or wife) and minor children would attract clubbing provision for income arising out of such gift. For example a person on retirement invest 5 lakh in wife's name & she earns an interest of Rs 45,000 next year. The interest will be clubbed with person's income, hence purpose of transfer for saving tax will be defected.

    What is Wealth Tax?

    If the value of property exceeds Rs 30 lakh than this tax is payable at 1% for value exceeding Rs 30 lakh. However,one residential house, bank deposit, Shares, Debentures, Mutual Fund, Insurance investment, bonds etc. are not included in computing the Rs 30.

    What is Provident Fund ?

    PF(Provident Fund): For every employed person a minimum of 8.33% of pay will be deducted as PF besides at is option employee can increase the contribution every April (called as Voluntary PF). The entire amount invested is eligible for deduction under section 80C. Besides entire interest earned is also exempt under section 10. the amount is received back on leaving the service and the entire amount received is also exempt. The amount is received back on leaving the service and the entire amount received is also exempt. The present rate of interest is at 8% (half yearly compounded) it is proposed to increase the rate to 9.5% (Under consideration of labour and Finance Minister). The salaried person has got no option of PF, but Voluntary PF is at option . it is advisable to take maximum advantage by increasing the voluntary PF. Person can change VPF contribution in April.
    PPF(Public provident Fund): The scheme is started to given PF advantage to non employed citizen. However , employed persons are also allowed to open an account in the scheme. The account is for 15 years and a person can save from Rs 500 to Rs 1,00,000 in this account. After five years of account some withdrawals or on maturity is also exempt. the present rate of interest is at 8.6% (yearly compound) historically the rate similar to as that of PF. The existing account of PPF on maturity after 15 years can be extended for another five/five years. Up to unlimited period. It is advisable to continue the PPF account even after retirement.