Income Tax Basics

Income Tax Overview

• Income tax is a significant revenue source for the government, levied on individuals' income.
• It is imposed by government authorities within their jurisdictions.

Filing Income Tax Returns

• Most countries require citizens to file income tax returns annually.
• In India, individuals earning above a certain threshold must file returns to stay tax compliant.
• Even if taxable income is zero, individuals must still file and declare no taxable income.

Tax Deductions

• Investing in specified options/funds entitles taxpayers to tax deductions.
• In India, taxpayers can avail of up to Rs 1,50,000 in tax deductions per year under Section 80C of the Income Tax Act, 1961.

Income Disclosure

• When filing income tax, taxpayers must disclose income from all sources, including:
  • Employment
  • Sale of capital assets (e.g., stocks, properties)
  • Other sources

Goods and Services Tax (GST)

• GST is an indirect tax on the supply of goods and services, replacing Value Added Tax (VAT) in India.
• It applies a single tax rate on both goods and services, and is a multi-stage, destination-oriented tax.

Key Purpose of GST

• To simplify the tax structure and create a uniform and integrated tax system.
• To reduce the tax burden on businesses and consumers.

Types of GST

• Central GST (CGST): collected by the central government on intra-state transactions.
• State GST (SGST): collected by individual states on intra-state transactions, vital for revenue generation.
• Integrated GST (IGST): collected by the central government on inter-state transactions, imports, and exports of goods and services.
• Union Territory GST (UTGST): collected by union territories on intra-UT transactions.

Key Principles of GST

Destination-Based Taxation Model

• Tax revenue goes to the state where goods are consumed, not produced.
• Ensures fair distribution of tax revenue among states and eliminates cascading effect of taxation.

Value Added Tax (VAT) in GST

• Tax is imposed only on the value added at each stage of the supply chain.
• Prevents tax from being charged on the same value more than once, and ensures the final customer bears the tax obligation.

Input Tax Credit (ITC) Mechanism

• Lets taxpayers claim credit for tax paid on inputs employed in producing or supplying goods/services.
• Reduces tax costs, prevents tax cascading, and ensures efficient taxation.
• Requires registration under GST, possession of valid tax invoices, and utilisation of eligible inputs for business purposes.

Test your understanding of income tax, its implications, and its importance in generating revenue for the government. Learn how income tax is levied and utilized in various countries.