5 Mins

Who is liable to pay tax India?

The income tax department divided income into five categories. Any individual who is earning above the threshold limit in these heads is liable to pay tax. For example, any individual earning an income above INR 2,50,000 and is below 60 years of age, is liable to pay tax in India. For people aged above 60 and above 80 the threshold limit is INR 3 lakhs and INR 5 lakhs respectively. The different heads of income are:

  • Income from salary: It includes individuals earning a steady source of income either through salary or pension.
  • Income from other heads: It includes an interest in FDs and savings accounts.
  • Residential property income: It is primarily for rental income; however, it also includes income from the sale of a property.
  • Income from capital gain: This head includes income from the sale of capital assets like shares, mutual funds, etc.
  • Income from business or self employment: It includes income earned from the business, freelancing, contracting, doctors, lawyers, Cas etc.

How can I reduce my tax liability in India?

One can reduce their tax liability through a host of legitimate under the Income Tax Act, 1961. These include Section 80C, National Pension Scheme, health insurance, rent deductions, contribution to charity and political parties.

Section 80C

This is the most popular section under the Income Tax Act, 1961 for tax deductions. This section has various investment policies for the taxpayer that can serve the dual purpose of tax saving and capital appreciation. The investment opportunities in this section, together, offer a deduction of INR 1,50,000 per annum. Following are the different types of investment opportunities under this section are:

  • ELSS funds – Tax saver funds
  • Employee Provident Fund (EPF)
  • Public Provident Fund (PPF)
  • Senior Citizens Savings Scheme (SCSS)
  • Sukanya Samriddhi Yojana (SSY)
  • Tax saving FDs
  • National Savings Certificate (NSC)
  • Life Insurance Premiums
  • Home loan repayment
  • Tuition fees

Contribution to the National Pension Scheme (NPS)

Contribution to NPS under Section 80CCD (1B) will help investors save an additional of INR 50,000 per annum on the taxable income. This scheme also aids investors during their retirement.

Health Insurance Premiums

Under Section 80Df the Income Tax Act, 1961 allows a deduction of INR 25,000 per annum for health insurance premiums. For senior citizens, the limit is INR 50,000 per annum. Also, a person who is paying for self and senior citizens, then the deduction allowed is INR 75,000 per annum.

Deduction on Rent

One can claim a deduction on their HRA amount, in case they live in rented premises and get an HRA. In case one doesn’t HRA, then they can claim rent expense sup to INR 60,000 per annum under Section 80GG.

Donation to Charity

One can get tax exemptions for donating to charities having an 80G certificate. The maximum amount is either 50% of the donated amount of 10% of the total income.

Supporting a Political Party

All donations made to political parties and electoral trusts are eligible for tax waiver under Section 80GGC of the Income Tax Act, 1961. The part has to be registered under Section 29A of the Representation of People Act of 1951. However, no cash deposits are allowed, wired or bank transfers.

How do I increase my tax liability?

It is not common to be looking into ways to increase tax liabilities. However, it can be taken from another perspective like some additional tax privilege can be awarded as well as qualifying for a higher mortgage. Typically, people want to reduce their taxable income to enter a lower tax bracket and owe less money in taxes. Lowering the taxable income will even make the taxpayer eligible for additional deductions or credit.

However, sometimes an individual may want to show more income on the taxes to qualify for a higher mortgage. Or, to ensure taxation at a particular rate before the tax regulations change. The simple rule to increase liabilities is by increasing the taxable income. This can be achieved in by the following:

  • Working overtime
  • Part time job
  • Getting taxable financial aid
  • Start a business
  • Open an interest bearing bank account
  • File a joint tax return with the spouse
  • Claim fewer dependents
  • Accelerate advanced payments in the current year

What is the estimate of total tax liability?

An estimate for total tax liability is the total amount of tax an individual or a company is liable to pay. The estimate is based on the total taxable income generated. The amount is computed after using the official tax slab formulas.

In other words, the taxable income minus all the tax deductions is the gross tax liability. Gross tax liability minus any tax credits is the total income tax liability.

The total tax liability primarily depends on the tax slabs and all the tax deductions. With tax saving investments and other expenses that qualify for tax deductions one can reduce their total tax liability. Also, these investments help in decreasing the taxable income to enter a lower tax bracket and owe less money in taxes.