Income Tax
Income tax is a direct tax levied by the government on the income earned by individuals, businesses, and other entities. It is governed by the Income Tax Act, 1961, in India. The tax collected is a significant source of revenue for the government to fund public services, infrastructure, and development programs.
Applicability
Income tax is applicable to:
- Individuals: Based on income slabs and age (e.g., below 60, 60-80, above 80).
- Hindu Undivided Families (HUFs): For income generated by a family as a unit.
- Businesses: Sole proprietorships, partnerships, LLPs, and companies based on profits.
- Other Entities: Trusts, associations, and societies for their taxable income.
Sources of Income Taxed
- Salaries
- Income from house property
- Profits and gains from business or profession
- Capital gains
- Income from other sources (e.g., interest, dividends)
Due Dates
The key due dates for income tax-related compliance are as follows:
- For Individuals and HUFs:
- Filing of Income Tax Return (ITR):
- July 31 of the assessment year (if audit not required).
- October 31 (if audit required).
- Filing of Income Tax Return (ITR):
- For Businesses and Companies:
- Filing of ITR (without audit): July 31.
- Filing of ITR (with audit): October 31.
- Tax Audit Report Submission: September 30.
- Advance Tax Payments (for individuals and entities with taxable income):
- 15th June: 15% of the tax liability.
- 15th September: 45% of the tax liability.
- 15th December: 75% of the tax liability.
- 15th March: 100% of the tax liability.
- TDS/TCS Payments:
- Deposit by the 7th of the following month.
- Quarterly TDS/TCS returns:
- 31st July, 31st October, 31st January, and 31st May.
Penalties for Non-Compliance
- Late filing fees under Section 234F.
- Interest on unpaid tax under Section 234A, 234B, and 234C.
- Prosecution or fines for willful tax evasion.
Income tax compliance is essential for legal and financial transparency while contributing to national development.
Goods and Service Tax (GST)
Goods and Services Tax (GST) is a unified, multi-stage, destination-based indirect tax levied on the supply of goods and services in India. Introduced on July 1, 2017, it replaced multiple indirect taxes like VAT, excise duty, and service tax, streamlining the tax system.
Applicability of GST
- Businesses:
- Applicable to businesses with an annual turnover exceeding ₹20 lakh (₹10 lakh for special category states).
- Threshold for goods-only suppliers is higher, at ₹40 lakh in most states.
- E-Commerce: Mandatory for operators facilitating online sales.
- Inter-State Transactions: Compulsory for businesses involved in inter-state trade.
- Special Cases:
- GST applies to certain professions, exports, imports, and services, irrespective of turnover.
GST Due Dates
- Monthly Filings:
- GSTR-1: For outward supplies (due on the 11th of the following month).
- GSTR-3B: Summary return for tax payment (due on the 20th of the following month).
- Quarterly Filings (for small taxpayers under the QRMP scheme):
- GSTR-1: Due on the 13th of the month following the quarter.
- GSTR-3B: Due on the 22nd or 24th of the month following the quarter (depending on the state).
- Annual Return:
- GSTR-9: Due on December 31 of the following financial year.
- GSTR-9C: Reconciliation statement for taxpayers with turnover above ₹5 crore (if applicable).
Benefits of GST
- Simplifies tax compliance.
- Eliminates cascading of taxes.
- Promotes a unified national market.
GST is mandatory for eligible businesses, ensuring transparency, compliance, and streamlined taxation.
Tax Deducted at Source (TDS)
Tax Deducted at Source (TDS) is a mechanism where a person (deductor) responsible for making specified payments deducts tax at a prescribed rate from the payment and remits it to the government. It helps in preventing tax evasion and ensures a steady inflow of revenue to the government.
Applicability of TDS:
TDS applies to various types of payments, such as:
- Salaries: Employers deduct TDS based on the employee’s income tax slab.
- Interest Payments: On fixed deposits, savings accounts, etc.
- Rent: For payments exceeding ₹2,40,000 per annum.
- Professional Fees: For services exceeding ₹30,000.
- Commission and Brokerage: If payment exceeds ₹15,000.
- Contract Payments: Exceeding ₹30,000 in a single payment or ₹1,00,000 annually.
- Sale of Property: TDS is applicable for property transactions above ₹50 lakh.
- Dividends: On dividend payments to shareholders.
The applicability, threshold limits, and rates vary based on the nature of payment as defined under the Income Tax Act, 1961.
TDS Due Dates:
- For Depositing TDS:
- Monthly Payments: TDS deducted must be deposited by the 7th of the following month.
- March Month: Deposit by 30th April.
- For Filing TDS Returns:
- Quarter 1 (April to June): 31st July.
- Quarter 2 (July to September): 31st October.
- Quarter 3 (October to December): 31st January.
- Quarter 4 (January to March): 31st May.
Importance of TDS:
- Ensures timely collection of taxes.
- Reduces the tax burden at the time of filing returns.
- Improves compliance with tax laws.
Non-compliance with TDS provisions may lead to penalties, interest, or disallowance of expenses.
Employees’ Provident Fund (EPF)
The Employees’ Provident Fund (EPF) is a retirement benefits scheme managed by the Employees’ Provident Fund Organisation (EPFO) under the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952. It requires both employers and employees to contribute a portion of the employee’s salary toward a fund that provides financial security post-retirement.
Applicability of EPF
- Who Must Register:
- Mandatory for establishments with 20 or more employees (certain categories may apply for fewer employees based on notification).
- Applicable to organizations in specified industries and sectors.
- Eligible Employees:
- Employees earning a monthly wage up to ₹15,000 are mandatorily covered.
- Employees earning above ₹15,000 can opt-in with employer consent.
- Contributions:
- Employer Contribution: 12% of the employee’s basic salary + dearness allowance.
- Employee Contribution: 12% of the basic salary + dearness allowance.
- Smaller organizations with fewer than 20 employees may contribute at a reduced rate of 10%.
Due Dates
- EPF Payment:
- Contributions must be deposited by the 15th of the following month.
- EPF Returns Filing:
- Monthly returns must be filed by the 25th of the following month.
- Annual returns must be submitted by April 30 for the previous financial year.
Benefits of EPF
- Retirement Savings: Ensures financial security after retirement.
- Tax Benefits: Contributions are tax-exempt under Section 80C of the Income Tax Act.
- Withdrawal Options: Funds can be partially or fully withdrawn for specific purposes like marriage, education, or medical emergencies.
EPF is a critical component of employee welfare, ensuring long-term savings and financial stability for workers.
Employee State Insurance (ESI)
The Employee State Insurance (ESI) is a social security and health insurance scheme in India governed by the Employees’ State Insurance Act, 1948. It is managed by the Employees’ State Insurance Corporation (ESIC) and provides medical, cash, maternity, and other benefits to employees and their dependents.
Applicability:
- Coverage:
- Applies to establishments such as factories, shops, hotels, restaurants, cinemas, and other organizations employing 10 or more employees (may vary to 20 in some states).
- Employees earning a gross salary of up to ₹21,000 per month (₹25,000 for disabled employees) are covered.
- Employer’s Responsibility:
- Employers must register their organization under the ESI scheme.
- Employers contribute 3.25% of gross wages, and employees contribute 0.75% of gross wages.
Benefits to Employees:
- Medical care for employees and dependents.
- Sickness and maternity benefits.
- Compensation for workplace injuries or disabilities.
- Pension to dependents in case of death during employment.
Due Dates:
- Contribution Payment:
- Contributions must be deposited by the 15th of the following month.
- ESI Return Filing:
- Returns are generally filed semi-annually:
- April to September: Due by November 11.
- October to March: Due by May 11.
- Returns are generally filed semi-annually:
Timely compliance with ESI ensures legal adherence and access to benefits for employees.
Professional Tax (PT)
Professional Tax (PT) is a state-level tax levied on individuals earning an income through employment, profession, or trade. It is applicable in most Indian states and is governed by the respective state laws.
Key Features of Professional Tax:
- Applicability:
- Imposed on salaried employees, self-employed professionals (e.g., doctors, lawyers, chartered accountants), and businesses.
- Employers deduct PT from employees’ salaries and remit it to the state government.
- Self-employed individuals pay it directly to the government.
- Slab-Based Tax:
- The tax amount depends on income levels and varies from state to state.
- Maximum annual PT is capped at ₹2,500 under the Constitution of India.
Applicability:
- Employers: Must obtain a Professional Tax Registration Certificate (PTRC) to deduct PT from employees’ salaries.
- Self-Employed Individuals: Must obtain a Professional Tax Enrolment Certificate (PTEC) to pay their own PT.
Due Dates:
- Monthly or Annually: Due dates for payment and returns depend on the respective state’s rules.
- For Employers: Payment is usually due monthly.
- For Self-Employed: Payment is often due annually, typically by March 31.
- States like Maharashtra and Karnataka have distinct due dates for different categories.
Penalties for Non-Compliance:
- Fines for late payment.
- Interest on unpaid tax.
- Legal action for consistent non-compliance.
Professional Tax is a key compliance requirement for businesses and individuals, ensuring proper contributions to state revenue.
Labour License
A Labour License is a mandatory permit issued by the government to contractors or businesses employing a specified number of workers, ensuring compliance with labour laws. It is governed by the Contract Labour (Regulation and Abolition) Act, 1970 in India.
Key Features:
- Applicability: Required for contractors employing 20 or more workers (may vary by state).
- Validity: Issued for a specific duration and renewable as needed.
- Regulation: Ensures proper wages, working conditions, and welfare of labourers.
Purpose:
- To regulate labour employment practices.
- To prevent exploitation and safeguard workers’ rights.
- To ensure compliance with labour laws.
Process:
- Contractors must apply to the relevant authority with necessary details like worker count, employment duration, and employer details.
A labour license is essential for maintaining transparency, ensuring worker welfare, and complying with legal requirements for labour management.
Import & Export Code
The Import Export Code (IEC) is a 10-digit unique identification number issued by the Directorate General of Foreign Trade (DGFT) in India. It is mandatory for businesses or individuals engaged in importing or exporting goods and services.
Key Features:
- Mandatory for Trade: Required for customs clearance and international banking transactions.
- One-Time Registration: Valid for a lifetime without the need for renewal.
- No Compliance Filings: No periodic returns or filings are required after obtaining IEC.
Purpose:
- Enables businesses to participate in international trade.
- Acts as a primary identification for importers and exporters.
Application Process:
- Done online via the DGFT portal with required documents like PAN, address proof, and bank details.
IEC is essential for any business involved in cross-border trade, facilitating smooth import and export operations.
Udyam Certificate
Udyam Registration is a government initiative in India for micro, small, and medium enterprises (MSMEs) to gain official recognition and access various benefits. It replaced the earlier Udyog Aadhaar Memorandum system.
Key Features:
- Simplified Process: Registration is fully online, free of cost, and based on Aadhaar.
- Lifetime Validity: Once registered, it remains valid without renewal.
- Classification: Categorizes enterprises into Micro, Small, or Medium based on investment and turnover.
Benefits:
- Access to government subsidies, schemes, and credit facilities.
- Easier access to loans with lower interest rates.
- Preference in public procurement and tender processes.
- Protection against delayed payments under the MSME Act.
Udyam Registration helps MSMEs formalize their operations and leverage government support to grow and compete effectively.
LEI Code
A Legal Entity Identifier (LEI) code is a unique 20-character alphanumeric code used globally to identify legal entities involved in financial transactions. It enhances transparency and reduces risks in financial markets by enabling clear identification of parties.
Key Features:
- Global Identifier: Standardized under ISO 17442.
- Mandatory for Financial Transactions: Required for entities participating in cross-border and certain domestic financial activities.
- Issued by Accredited Bodies: In India, LEI codes are issued by the Legal Entity Identifier India Ltd. (LEIL).
Purpose:
- Improves transparency in financial transactions.
- Facilitates risk management and regulatory oversight.
- Links financial data to legal entities for efficient reporting.
LEI codes are essential for businesses to ensure compliance with financial regulations and participate in global markets securely.