Income Tax

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Income Tax

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What is Income Tax?

Ans:- In India we have two kinds of taxes one is direct tax and other is indirect tax direct tax is like income tax and indirect tax like GST custom duty etc. Income tax is nothing but just a direct tax on your Income. But what kind of income, for individual income tax calculate on his/her salary or business income but for a company income tax is calculated on net profit of the company in a year.

   Income Tax

Slab Tax                    surcharge                       Cess

Income tax is made of with three parts the major parts. First, the slap tax then, surcharge and in the end the health and education cess charges.

Let's understand each of this one by one.

1. What is Slab Tax?

Slab tax is a part of your income tax which is calculate on base of the amount of you income in a year. Every year government realise this slap structure for income tax.
Nowadays in India we have two different slabs one is old tax regime and the second is new tax regime.

     a. Old & New Tax Regime:

Old tax regime is continuing till previous years but the new tax region is introduce in this year. There are some different between the slabs on this both regime, because in old regime slabs are depend on age but in new tax regime slap are independent of ages. There are also some difference between tax deductions in both regime. But otherwise surcharge, slap tax calculation and health and education cess are same in both case.
Government also said that they will remove the old tax regime in next financial year. Then there will be only one Tax regime in India, which is the New tax regime.

Old Tax Regime

Income Slab Rate Tax ( age below 60 years ) Slab Rate Tax ( age between 60 years - 80 years ) Slab Rate Tax ( age above 80 years )
below 5 lakh 0% 0% 0%
5 lakh - 10 lakh 20% above 5 lakh + 12,500 20% above 5 lakh + 10,000 20% above 5 lakh
Above 10 lakh 30% above 10 lakh + 1,12,000 30% above 10 lakh + 1,12,000 30% above 10 lakh + 1,00,000

New Tax Regime Slap

Income Slab Rate Tax
below 7.5 lakh 0%
7.5 lakh - 10 lakh 15% above 7.5 lakh + 37,500
10lakh - 12.5 lakh 25% above 10 lakh + 75,000
12.5 lakh - 15 lakh 25% above 12.5 lakh + 1,25,000
Above 15 lakh 30% above 15 lakh + 1,87,500
Let assume your Income is 9 lakh on this year.
so your fall between 7.5 lakh to 10 lakh , according to above list.
therefore, your slab tax = (9 lakh - 7.5 lakh ) x 10% + 37,500 INR.
= 1.5 lakh x 10% + 37,500 INR
= 15,000 + 37,500 INR
= 52,500 INR.

    2. What is Surcharge?

Surcharge is a extra tax which is applied on your slap tax. So basically surcharge is a tax on tax. Surcharge is applicable in your Income Tax if an only if you income goes beyond 50 lakhs.
Income Surcharge on Tax
50 lakh - 1 Cr 10%
1 Cr - 2 Cr 15%
2 Cr - 5 Cr 25%
Above 5 Cr 37%
In case of dividend income maximum surcharge can be applied 15%
Let assume your Slab tax is S and your income is above 2 cr but below 5 cr.
So, by the above list
your surcharge will be = S x 25%
If S = 1 lakh,
then, Surcharge is = 1,00,000 x 25% = 25,000 INR.

    3. What is Cess? 

Cess means tax on tax. In this case Cess will be applicable on your slap tax + surcharge amount.
In India cess on income tax is just 4%.

Let say your Slab tax + surcharge tax is Y.
so your cess will be,
              Cess = Y x 4%
If Y = 10,000
Then cess = 10,000 x 4% = 400 INR.
Let's Try to Link everything:
Let your Income is 60 lakh.
First, In new tax regime your income fall above 15 lakh.
so, your slab tax = (60 lakh - 15 lakh ) x 30% + 1,87,500 INR
= 45 lakh x 30% + 1,87,500 INR
= 13,50,000 + 1,87,500 INR
= 15,37,500 INR

Second, since your income fall between 50 lakh - 1 Cr in Surcharge list. You have to pay 10% surcharge on ur slab tax.
now, surcharge = 15,37,500 x 10%
= 1,53,750 INR

Third, Your cess will be = (slab tax + surcharge) x 4%
= (15,37,500 + 1,53,750) x 4% INR
= 16,91,250 x 4% INR
= 67,650 INR

Now your net Income tax will be = Slab tax + surcharge + cess
= 15,37,500 + 1,53,750 + 67,650 INR
= 17,58,900 INR

Thus, Your Income tax is 17 lakh 58 thousand 9 hundred rupees only.
Now it's time to ask some critical questions about Income Tax.

1. Why we have this three kind of tax on income?

Ans : Historically in India we just only have the slap tax but later in the British rule in World war 1 and World war 2 British government face critical financial crisis. So they need more wealth to overcome financial crisis.For that they introduce the surcharge which is a way to extract more and more wealth from India's rich and upper middle class people. 

2. But then why we still use this surcharge?

Ans : Actually for this you need to understand this three type of parts of income tax.
By the constitution of India, 
Slab Tax :
the slab tax you pay to government it first goes to the central government then Central government has to share this amount with the state government also up to 46%. But
Surcharge:
in case of charge Central Government don't have to share this amount with any state government according to our constitution. And since the adding new tax and removal of taxes is a Central Government issue and since this surcharge is a good way of income for government why they should remove it.
Cess:
In India we call it health and education cess. As you already know you have to pay 4% cess on your slap plus surcharge tax. This cess amount will further divided into four parts
  • 1% will go to the central and state government school for giving good quality of food to the students which we called mid day meal.
  • 1% will go to the government hospitals to ensure the health condition in the country.
  • 1% will go to the primary education sector.
  • 1% will go to the secondary and High secondary education sector.
This cess tax is said to be divided among these above list by the government. Cess is first introduce by the central government budget on 2018. at that time it's just only 1%. but later they increase it to 4%.

3. If state government don't get the share of the surcharge then why they don't protest about it.

Ans: Yes, in history there are many state government has file objections and start protest about this discrimination with them. But nothing will happen so far.