What is Income Tax?
Income Tax is a direct tax collection method that is used by the government to collect the tax on the income of its citizens. As per the Income Tax Act of 1961, the central government can collect tax from the citizens of India. Every year in the Union Budget the government changes tax rates, rules regarding income, tax savings plans, and income slabs.
What is considered as income on which tax is levied?
Income is not only the money earned through salary or from the business but also the income earned from property, professional gains, and income from any source. For example, if a person works at a corporation and also earns from house rent then both his/her salary as well as earnings through rent will be taxable.
Income Tax Slab
As per the Government of India, the recent income tax slab is:-
- For income from Rs 0 to Rs 2,50,000 there is no need to pay tax.
- For income from Rs 2,50,001 to Rs 5,00,000, a 5% on the total income is paid.
- For income from Rs 5,00,001 to Rs 10,00,000, an amount of Rs 12,500 plus 20% on the total income is paid.
- For income from above Rs 10,00,000, an amount of Rs 1,12,500 plus 30% on the total income is paid.
Tax Saving Plans
There are many tax-saving plans available for individuals who want to save some tax. By investing in the below-mentioned options one can easily save tax and also earn interest or profits or benefits by investing in the same. As per the Income Tax Act of 1961, under Section 80 C, a person can buy the following tax-saving plans to save tax:-
- ELSS Fund
- NPS or National Pension Scheme
- ULIP or Unit Linked Insurance Plan
- PPF or Public Provident Fund
- Sukanya Samriddhi Yojana
- National Saving Certificate
- Senior Citizen Savings Scheme
- Bank FDs
- Insurance Plans
Returns and Lock-in Period of Tax Saving Plans
Below mentioned are the returns and lock-in period for tax savings plans:-
- ELSS Fund or Equity Linked Savings Scheme offers a return of 15% to 18% and has a lock-in period of 3 years.
- NPS or National Pension Scheme offers a return of 12% to 14% and has a lock-in period till the policyholder’s retirement.
- ULIP or Unit Linked Insurance Plan offers a variable return depending on the amount invested and has a lock-in period of 5 years.
- PPF or Public Provident Fund offers a return of 7% to 8% and has a lock-in period of 15 years.
- Sukanya Samriddhi Yojana offers a return of 8.5% and doesn’t have a lock-in period.
- National Saving Certificate offers a return of 7% to 8% and has a lock-in period of 5 years.
- Senior Citizen Savings Scheme offers a return of 8.7% and has a lock-in period of 5 years.
- Bank FDs offer a return of 6% to 7% and have a lock-in period of 5 years.
Insurance Plans – In insurance plans, one can save on the premium paid as per Section 80C of Income Tax Act, 1961, and also get tax exemption on the returns of the policy as per Section 10 (10D) of Income Tax Act, 1961.