A tax is a compulsory contribution of a person or entity to the state as per the rules. The tax payer does not receive direct and or special benefit in return. It is spent by the government for the common interest and benefit of the people. The government mandates that individuals who earn a specified amount of annual income must file a tax return within a pre-determined due date. The tax as calculated must be paid by the individual and failure to pay tax will invite penalties from the Income Tax Department. Filing tax returns is an annual activity seen as a moral and social duty of every responsible citizen of the country. Those who earn less than the prescribed level of income can file returns voluntarily. Filing returns is a sign that you are a responsible citizen. Even if your income level does not qualify for mandatory filing of returns, it may still be a good idea to voluntarily file returns. If you plan to apply for a home loan in future it is a good idea to maintain a steady record of filing returns as the home loan company will most likely insist on it. In fact, you may even consider filing your spouse’s returns if you want to apply for a loan as a co-borrower.
Filing returns on time has many advantages regardless of whether you draw the prescribed level of income necessary to file returns. Various losses incurred by an individual or a business both speculative as well as non-speculative, short term as well as long term capital losses and various other types of losses not recorded in the tax return in a financial year, cannot be shown for exemption in subsequent years for the purpose of tax calculation. So it is best to file returns regularly, because you never know when you may want to claim an adjustment against past losses.
The Central Finance ministry proposed to cut the tax rate for individuals in the lowest income tax bracket of Rs 2.5 lakh to Rs 5 lakh @ 5% from 10%. The existing rebate under Section 87A of the Income-tax Act, 1961 (currently given to people with income up to Rs 5 lakh) is proposed to be reduced to Rs 2,500 from Rs 5,000 for those earning between Rs 2.5 lakh and Rs 3.5 lakh. Only those earning an income above Rs 1 crore were required to pay surcharge of 15% which continues. Proposed income-tax slabs for FY 2017-2018 (assessment year 2018-19) announced in Budget 2017 is as under:-
Normal tax rates applicable to a resident individual below the age of 60 years, non-resident individual, resident/non-resident HUF, AOP, BOI, artificial juridical person as under:-
| Net Income range | Income Tax rate | Education plus secondary & higher education cess |
| Upto 2,50,000/- | Nil | Nil |
| Rs.2,50,001/- to Rs.5,00,000/- | 5% of (total Income-Rs.2,50,000/-) | 2% + 1% of Income Tax |
| Rs.5,00,001/- to Rs.10,00,000/- | Rs.12,500/- plus 20% of (total Income – Rs.5,00,000/-) | 2% + 1% of Income Tax |
| Above Rs.10,00,000/- | Rs.1,12,500/- plus 30% of (total income – Rs.10,00,000) | 2% +1% of Income Tax |
Normal tax rates applicable to a resident individual of the age of 60 years or above at any time during the year but below the age of 80 years is as under:-
| Net Income range | Income Tax rate | Education plus secondary & higher education cess |
| Upto 3,00,000/- | Nil | Nil |
| Rs.3,00,001 to Rs. 5,00,000/- | 5% of (total income- 3,00,000/-) | 2% + 1% of Income Tax |
| Rs.5,00,001/- to Rs.10,00,000/- | Rs.10,000/- plus 20% of (total income – 5,00,000/-) | 2% + 1% of Income Tax |
| Above Rs.10,00,000/- | Rs.1,10,000/- plus 30% of (total income – Rs.10,00,000) | 2% +1% of Income Tax |
Normal tax rates applicable to a resident individual of the age of 80 years or above at any time during the year is as under:-
| Net Income range | Income Tax rate | Education plus secondary & higher education cess |
| Upto 5,00,000/- | Nil | Nil |
| Rs.5,00,001 to Rs. 10,00,000/- | 20% of (total income- 5,00,000/-) | 2% + 1% of Income Tax |
| Above Rs.10,00,000/- | Rs.1,00,000/- plus 30% of (total income – 10,00,000/-) | 2% + 1% of Income Tax |
NOTE:-Surcharge@10% for taxable income between Rs.50 lacs to Rs.1 crore and @15% for taxable income > 1 crore.
The education cess of 2% and secondary cess of 1% are calculated on the amount of tax payable separately. Both the cess are then added to the tax payable to arrive at the Gross tax payable amount. The surcharge is levied @ 15% on the amount of income tax where net income exceeds Rs 1 crore. In the case where the surcharge is levied, the cess will be levied on the tax amount plus surcharge.
Education cess
Governments resort to imposition of cess for meeting specific expenditure. For instance, both corporate and individual income is at present subject to an education cess of 2%.
Secondary & higher education cess (SHEC)
SHEC is an additional levy on the basic tax liability. Government resorts to impositing of cess for meeting specific expenditure. For instance, both corporate and individual income is at present subject to an education cess of 2% and the government had imposed another 1% cess for FY 2018 to finance secondary and higher education. So, the total education cess currently stands at 3%.
Surcharge
A surcharge of 10% on a tax rate of 30% effectively raises the combined tax burden to 33%. In the case of individuals earning a net taxable salary of more than Rs 1 crore, a surcharge of 10% is levied on tax liability.
The major concept of tax is to generate government revenue and in course of time it has been utilized for various purposes mentioned below. Sources of revenue are taxes, fees, charges, fines & penalties, foreign grants etc. Among them tax is the main sources of collecting the government revenue.
- To raise government revenue for development and welfare programmes.
- To maintain economic equalities by imposing tax to the income earners and improving the economic condition of the general people.
- To encourage the production and distribution of the products of basic needs and discourage the production and harmful ones.
- To discourage import trade and protect the national industries.
- To regulate the economic sectors into right direction by encouraging the production and distribution of useful goods and discouraging the harmful products by imposing high tax rate on them.
- To reduce regional economic disparity by encouraging the entrepreneurs to establish industries in remote and backward regions by giving tax exemptions, rebates and concessions etc.
According to the date released by Central Income Tax Department just 1.7 per cent of the total population paid income tax in the assessment year (AY) 2015-16.The number of income-tax return filers increased to 4.07 crore in assessment year 2015-16 (Financial Year-FY 2014-2015) from 3.65 crore in the previous year but only 2.06 crore actually paid tax as the others claimed income below taxable limits.The total income tax paid by individuals declined to Rs 1.88 lakh crore in Assessment Year-AY 2015-16 from Rs 1.91 lakh crore in Assessment Year 2014-15.The dataindicates that just over 3 per cent of the 120 crore population filed returns. Out of these 2.01 crore filed nil income tax return and 9,690 paid tax of over Rs 1 crore.In all 4.35 crore income tax returns including those by individuals were filed in AY 2015-16. Total income declared was Rs 33.62 lakh crore.In the previous year 3.91 crore returns were filed with Rs 26.93 crore declared income.Companies filed 7.19 lakh returns with gross income of Rs 10.71 lakh crore.
According to the figures, during the year 2014-15, taxes to the tune of Rs 4760.77 crore were realized by the Commercial Taxes Department from the State of J&K against Rs.5515.96 crores during the financial year 2015-16. The realization of taxes from Jammu division is more as compared to Kashmir division which is due to establishment of more companies and industrial units in Jammu as compared to Kashmir valley besides realization of taxes at Lakhanpur are considered as the reason behind.
Shabir Ahmad Shah, is an executive in Financial Institution and writes on socio-economic issues.
