Income Tax:
Income Tax is a tax on income. Not all income is taxable - and you're only taxed on 'taxable income' above a certain level. Even then, there are other reliefs and allowances that can reduce your Income Tax bill - and in some cases mean you have no tax to pay.
What counts as 'taxable income'?
Taxable income includes:
earnings from employment
earnings from self-employment
most pensions income (State, company and personal pensions)
interest on most savings
income from shares (dividends)
rental income
income paid to you from a trust
Non-taxable income:
There are certain sorts of income that you never pay tax on. These include certain benefits, special pensions and income from tax exempt accounts. These are ignored altogether when working out how much Income Tax you may need to pay.
Investment in Shares
The benefits on Investment in Shares are as under :
Dividend from shares and equity-based mutual funds is exempt in the hands of recipient.
If shares, debentures and mutual fund units are held for more than 12 months the profits on sale is taxed as long-term capital gain in which case a lower tax rate is applied. Also the cost of purchase is increased as per a cost inflation index.
The losses in share transaction can be carried forward for adjustment against profits of subsequent years.
Senior Citizens
Senior citizens (individuals >= 65 years at any time during the relevant previous year have following benefits
Higher limit of Rs 15,000/- of premium for medical insurance
An additional rebate from tax payable up to a maximum of Rs 20,000/-.
Higher deduction of Rs 60,000/- (instead of Rs. 40,000/-) under section 80 DDB if expenditure for specified disease is incurred for senior citizen
Women Tax Payers
All women resident in India get a special rebate up to Rs. 5,000/- out of the tax payable by them. This rebate will not be allowable for women tax payers above sixty five at any time during the relevant previous year, who will get senior citizen rebate of Rs. 20,000/-.
Miscellaneous Deductions
In case of winnings from lotteries and races no deduction is allowable.
For family pension, the allowable deduction is 1/3rd of the pension or Rs. 15,000/- whichever is lower.
For income from other sources, any revenue expenditure, exclusively incurred for earning such income is allowed as deduction.
Deductions up to a maximum limit of Rs. 40,000/- u/s. 80DD. is allowable if any expenditure has been incurred on the treatment, nursing,, training of a handicapped dependent, or for creating an insurance benefit for such person a deduction subject to the condition that doctor working in a government hospital has issued the necessary certificate.
Deductions up to Rs.40,000/- u/s 80DDB on treatment of specified diseases is allowed if an individual or an HUF actually incurs expenditure for treatment of certain specified diseases for himself, dependents or a member of HUF. For treatment of senior citizens, the amount of deduction will be up to Rs.60,000 /-. This deduction is available only for certain specified diseases.
