Basic Concepts of Taxation
Taxation is a fundamental aspect of financial management, impacting individuals and businesses alike. Understanding the basic concepts of taxation is essential for accurately computing your total income and fulfilling your tax obligations. This involves not only knowing what constitutes taxable income but also being aware of deductions, exemptions, and the various heads under which income is classified. In this guide, we'll explore the foundational concepts of taxation and walk you through the process of computing your total income, ensuring you have a clear understanding of how taxes are calculated and applied.
Under the Income Tax regime, individuals can compute their total income based on specific tax slabs. The slabs determine the rate of tax applicable to different income levels. Section 115BAC of the Income Tax Act introduces an alternative tax regime with lower rates but without most deductions and exemptions. This "New Regime" offers taxpayers the option to choose between the traditional tax regime, which includes various deductions (like 80C), and this new simplified regime. Proper planning and understanding of these options can significantly impact the Net Payable or Assessable (NPoA) income for an individual.
Section 115BAC of the Income-tax Act, 1961 provides for concessional rates of tax to individuals/HUF/AoPs/BoIs and artificial juridical persons. Under this regime
certain exemptions/deductions are, however, not available like Leave Travel Concession, interest on housing loan on self-occupied property, deductions under Chapter VI-A [other than section 80CCD(2), 80CCH(2) or section 80JJAA] etc. The rates given under section 115BAC are the default tax rates unless the assessee exercises an option to shift out of the said regime. The basic exemption limit under section 115BAC is ` 3,00,000. This means that no tax is payable by an assessee with total income of upto ` 3,00,000. The tax rates under section 115BAC is as follows -
