Direct tax is the tax paid by individuals and organizations/Corporates to the tax imposing authority. Direct Tax is paid directly to the Government by taxpayers. Taxpayers include both citizens and organizations. Moreover, direct tax is levied by the Government and cannot be transferred for payment to another body.
Direct taxes are levied on the basis of income and profit levels of individuals and organizations. More you earn, more are the taxes.
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The Central Board of Direct Taxes, CBDT, was constituted through the Central Board of Revenue Act, enacted in 1924, and is responsible for levying and regulating Direct Taxes in India. The central board of direct taxes in India, works under the Department of Revenue in the Ministry of Finance and is responsible for the regulation of the direct tax laws. Adding to that, the Central Board of Direct Taxes is consulted by the Government, while framing policies related to the direct taxes in India.
A chairman heads CBDT and there are up to six members in the committee. The Central Board of Direct Taxes is the apex policy framing body for the Income Tax Department.
SEE ALSO: What is Direct Tax?
The following direct taxes are applicable to all Indian citizens and organizations:
That is, Taxable income = (overall income) – (deductions and exemptions).
Different heads of Income under which income tax is chargeable are as follows:
Remember that Income Tax is levied differently on the basis of nationality and residential status.
SEE ALSO: Types Of Direct Taxes In India
As mentioned earlier, income tax is levied on the basis of income. Income tax rates differ with age.
The table below shows the tax rate for individuals below 60 years:
The table below shows the tax rate for individuals that are aged above 60 years but less than 80 years:
The table below shows the tax rate for individuals that are aged above 80 years:
Surcharge of 10% of income tax is levied if the total income exceeds Rs 50 lakhs and is less than Rs 1 Crore.
Surcharge of 15% of income tax is levied if the total income exceeds Rs 1 Crore.
Health and Education Cess is levied at 4% of Income Tax.
Note: Investments in certain schemes like EPF, PPF, NSC, 5 Year Tax Saving FDs and so on, are eligible for tax deductions of up to Rs 1,50,000 per financial year, as per Section 80C, under Income Tax Act.
We have explained the Direct Tax Code in this section along with key features. We have taken examples of income tax, corporate tax, wealth tax and capital gains tax for explaining the Direct Tax Code.
The DTC, Direct tax code or Direct Tax Law, was drafted to replace the Indian Income Tax Act of 1961. This was done to establish a much effective and equitable direct tax system. The vision was to stabilize and amend all laws pertaining to direct taxes in order to ease compliance and increase the tax-GDP ratio. With 319 Sections and 22 Schedules under Direct Tax Law or Direct Tax Code, DTC, the aim was to replace the old Income Tax Act and offer a more stable, well organized and overall better code of taxation.
Income Tax Department has laid down guidelines for availing tax deductions. You can avail tax deductions under the following circumstances:
Salaried individuals living in a rented house can get the benefit of House Rent Allowance, HRA. If you are not living in a rented house and still continue to receive HRA, then you are taxed. HRA is offered on minimum of the following conditions:
The income tax laws allow LTA exemptions to salaried employees. It is important to note that the exemption does not include expense of the trip like shopping, food expenses, entertainment and so on. LTA is allowed for two travels over four years. If employees don’t use LTA exemption within 4 years, then they carry the same to the next block. Below are the conditions applied on LTA deduction:
As per this section, an individual or a HUF (Hindu Undivided Family), investing or spending on stipulated avenues, are allowed to claim tax deduction of up to Rs 1.5 Lakhs a year. Deductions under Section 80C of the Income Tax Act, 1961, are offered for the investments made in a wide range of financial instruments. Some of the schemes covered under Section 80C are mentioned below:
Section 80D is a deduction offered on medical expenses/hospitalization. Deductions under this Section are available over and above the deduction under Section 80C. You can save tax by availing health insurance for self, family and dependent parents. These expenses are deducted from overall taxable income. The ceiling for Section 80D deductions is set at Rs 25,000 for premiums paid for self/family. You can claim deduction of up to Rs 50,000 on premiums paid for parents who are senior citizens. Health checkups of up to Rs 5,000 are also covered under the overall limit of Rs 25,000 and Rs 50,000 depending on the case.
Homeowners have the option of claiming up to Rs 2 Lakh a year as deduction for interest on home loan repayment for a self occupied property as per Section 24. If the house is let out, then there is no upper limit on the deduction, you can deduct entire amount paid towards interest on home loan. In addition to the above, you can also claim the principal component of the housing loan repayment as a deduction under Section 80C, up to Rs 1.5 Lakhs a year.
Income Tax Act offers deduction of interest on education loans. You can claim this deduction from the year in which the loan repayment commences and up to the next seven years (i.e. total of 8 assessment years) or before repayment, whichever is earlier. Legal guardians too are eligible to avail this income tax deduction.
Section 80G of the Income Tax Act, 1961, provides income tax deduction to donors who make donations to certain charitable organizations. This deduction varies on the basis of the receiving organization (place where you donate), which means you can avail tax deductions of 50% or 100% of the amount donated, with or without restriction.
Section 80TTA of the Income Tax Act, 1961, allows a deduction of Rs 10,000 a year on interest income on bank savings accounts. This deduction is allowed to both Individuals and HUFs. The ceiling on the deduction under this section is Rs 10,000 a year. If the income from savings bank interest is less than Rs 10,000 a year, then the entire amount is allowed as a deduction. If the income from bank interest exceeds Rs 10,000 a year, then the deduction would be restricted to Rs 10,000.
Section 80EE offers home owners an additional deduction of Rs 50,000 for interest paid on home loan. This is over and above Section 24. This is applicable if the loan is less than Rs 35 Lakh and the value of the property is less than Rs 50 Lakhs. Moreover, the individual must not have any other property registered under his or her name at the time the loan is sanctioned.
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