The countdown for exams to end and the summer vacation has begun. With lots of time, energy and creativity in your hands, you and few of your apartment friends decide to set up a public library in the community hall. It’s not much investment; you and your society friends crowdsource your favorite books and set up shelves with different genres is ready, the library cards at a monthly membership fee of Rs 100 have been rolled out and voila! You have your community reading nook set up!
Is that it? Are you sure? Who is going to take charge of maintaining the library, ensuring that the books are returned on time and in good condition? Well, we will also need a librarian to do rounds to ensure that the community reading nook is running smoothly!
“But, as a member, I pay only for my membership. Why should I pay for the maintenance when it is being used by everyone?”
That’s because it is our duty to maintain what is used by us and commonly belongs to all of us. It is also one of the key reasons why we pay our income taxes. If this word taxes your mind with images of reams of paperwork, which seems too complicated to understand at this point, let’s simplify these with a series of questions.
Firstly, what’s a tax?
Before we understand Income Tax, let understand the word tax. Tax is a fee compulsorily charged by the government from people in order to maintain and run public services like public transport, roads, buildings healthcare, education and other services. With this tax earned the government pays civil servants such as government employees, soldiers. As a citizen of a country, it is our duty to pay these taxes, without which the country will not be able to function properly.
So now, what is Income Tax?
Income tax is a type of tax that the government collects from earning individuals, whether they work in a company or run their own businesses. It is one of the biggest sources of revenue for a government.
Why should I pay Income Tax?
If you have ever crossed the expressway on a road trip and crossed toll booths and wondering why you’re being charged for travelling by your own vehicle, you’re paying a tax to the government to develop and maintain the road you’re travelling on. Taxes help develop the country and prosper. As citizens, we use these resources and it’s our duty to pay them responsibly. It is with these taxes that the civil servants get paid.
How much Income Tax do I pay?
The income tax we pay depends on our annual earnings. Higher the income, higher the tax. Depending on the income, taxpayers are divided into groups and a separate percentage of tax is charged for each group. The Income Tax Department under the Government of India sets an income tax slab . Here is the income tax slab for the year 2021 – 2022.
When do I pay Income taxes?
The tax year or the financial year is a 12-month period. April 1st marks the beginning of the Financial Year and ends on March 31st . For example, if you join a company on May 4th , 2020 then the tax or financial year would be from April 1st 2020 to March 31st 2021. For this amount earned you will be paying an income tax in the following year, known as the Assessment Year I.e. 2021 – 2022. In this year you’ll pay the tax for the income earned in the previous Financial Year
Financial Year – The year in which you earn your income
Assessment Year – The year in which you pay taxes on the income earned in the Financial Year
What is the income on which I pay taxes?
Salary is not the only income on which we pay taxes. We have different sources of income which all add up and we pay the income tax on this amount. Our different sources of income are:
Salary Income : Income earned on salary if we’re employees of a company
If there is one thing I wish I learned in school, it would be about taxes. Financial literacy is a subject we are tottering with as adults and only now realise that we got a good grip of while in school. Fortunately, Varsity by Zerodha, has created an extensive resource hub on financial literacy modules from investments to taxes and so much more, all which are accessible for free.
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