1. Build your Credit Score
2. Reduce your Current Borrowing / EMI Costs
Have you been contemplating why you need to pay income tax even though you are already contributing by paying service taxes, excise duty, VAT, toll, entertainment tax, and other forms of tax whenever you buy goods, fuel, food or even use public facilities such as transport and roads? Do you feel frustrated with the amount of money that you pay as an income tax? Your frustrations might be unjustified.
Taxes, especially income tax, are essential tools of revenue generation for the country. mymoneykarma explains in detail the intricacies of income tax and its importance.
Any tax is a financial obligation for individuals or property owners in order to support a government or legislative authority. In simple words, a tax is the money that people have to pay to the government, which, in turn, is used to provide public services.
There are two broad categories of taxes.
A direct tax is a kind of fee that is imposed directly on the taxpayer and paid directly to the government. A direct tax is a tax that cannot be passed on by the taxpayer to someone else, i.e., each person must pay whatever tax he/she owes. A significant direct tax imposed in India is income tax. Wealth tax and property tax also fall in the purview of this category.
These taxes are transferable from one person to another. The entire burden of the tax is on the ultimate consumer, but the immediate liability to pay tax is on the supplier of goods or services.
Indirect taxes are levied on goods or services but not on income or property. Service tax and GST are indirect taxes.
An income tax is a tax imposed by the governments on income generated by businesses and individuals within the government’s jurisdiction. Taxpayers are legally mandated to file an income tax return annually to determine their tax obligations. Income taxes are sources of revenue generation for governments across the world. The government uses income taxes to generate revenue for public services, finance government obligations, and provide for the country’s citizens.
1. To avoid a penalty: Paying your taxes is considered a civic duty, although doing so is also a requirement of the law. The income tax department requires you to pay your taxes. If you do not pay your taxes, you would have to face penalties such as fines or even imprisonment.
2. To avoid paying back taxes: The governments keep track of your income tax submissions each year. The amount of unpaid taxes accumulate over the years into a substantial sum that can get very difficult to pay at once. Hence, it's better to avoid any due tax.
3. Social welfare packages: The income tax collected from you is to fund social welfare packages that are essential for the needy. The government has used proceeds from income taxes to build health services and other institutions over the years. Social welfare packages are a must for the social development of a country, and without taxes, it wouldn’t be possible to render such services.
File your income tax returns is as crucial as it is to pay your income tax. Income tax returns are necessary documentation that you need in every walk of life. They are proof of the fact that you pay your income tax regularly. Apart from this, it is also essential for the following purposes:
Income proof: You can use your income tax return receipts as your income proof if you don't have your salary slips handy. For self-employed people, it is the only form of income proof available.
Loans: Most loans such as home loans and two-wheeler loans require Form 16 receipts as a part of their documentation.
Visa processing: Most embassies require copies of income-tax returns as your income proof when you apply for a visa to go abroad for various reasons.
Insurance cover: Many high-end medical and life insurance covers need a copy of your Form 16 for processing your request.
Whenever we feel disgruntled with the rising rates of income taxes, it is essential to understand that paying our taxes makes us better citizens. We are indirectly contributing to building a stronger nation for its citizens and for the future generation that will follow. Taxes are the life source of a nation. We should be sensitive to this life source and keep the nation functioning.
This article is purely educational and should not be considered as tax advice. mymoneykarma does not provide tax advice. For tax counsel, please reach out to a tax advisor.