How Governments Tax (General Process)

       🏛️ How Governments Tax (General Process)

Governments impose taxes to fund public services (like roads, healthcare, education, defense, etc.). The process generally involves:

1. Creating Tax Laws

.Parliament or Legislature passes laws defining:
.Who must pay (individuals, companies, etc.)
.What is taxed (income, goods, property, etc.)
.How much is taxed (rates, slabs, exemptions)

.Indian Constitution defines who can levy which tax:

.Union (Central) Government: Income Tax, Corporate Tax, Customs, GST (CGST), etc.

.State Governments: State GST (SGST), Excise (on liquor), Stamp Duty, etc.

.Local Bodies: Property tax, water tax, etc.

2. Types of Taxes

.Direct Taxes: Paid directly to the government.
.Examples: Income Tax, Corporate Tax, Wealth Tax.
.Indirect Taxes: Collected via goods/services.

Tax Type	Who Pays	Governing Body
Income Tax	Individuals, HUFs, firms, etc.	CBDT
Corporate Tax	Companies on profits	CBDT
Minimum Alternate Tax (MAT)	Companies with book profits but no income tax liability	CBDT
Capital Gains Tax	On profit from sale of assets	CBDT
Securities Transaction Tax (STT)	On stock trading profits	CBDT

Examples: GST (Goods & Services Tax), VAT, Excise Duty

.How Individuals Pay Tax (Income Tax Example – India, 2025)

Step-by-Step:

.1Check if You Are Required to Pay Tax

.If your income is above ₹2.5 lakh/year (for FY 2024-25 under old regime), you must file a tax return.
.Slabs vary under new vs. old regime.

.Salary / pension

.Interest (FD, savings, etc.)

.Rent / house property

.Freelancing / business

.Capital gains (stocks, mutual funds, property)

.3Calculate Your Total Income

.Include:
.Salary
.Business income
.Rental income
.Capital gains
.Other sources (FDs, dividends)

Head of Income     Examples

1. Salary           Basic salary, DA, bonus, allowances, perquisites

2. House Property   Rent received, deemed rent, home loan interest

3. Business/Profession   Freelance income, business profits

4. Capital Gains   Sale of shares, mutual funds, real estate, gold

.3Claim Deductions & Exemptions

.Common deductions under Section 80C (like LIC, PPF)
.Medical insurance (80D), education loan interest (80E), etc.

Common Deductions under Chapter VI-A (Old Regime)

Section Deduction Type Max Limit Notes

80C Investments in LIC, PPF, EPF, ELSS, NSC, principal on home loan, tuition fees ₹1.5 lakh Most widely used

80CCC Pension funds (e.g., LIC Jeevan Suraksha) ₹1.5 lakh Part of 80C total

80CCD(1B) NPS (additional) ₹50,000 Over and above 80C

80D Medical insurance premium ₹25,000 (self/family)

₹50,000 (senior citizen) Includes preventive health check-up (₹5,000)

80DD Disabled dependent ₹75,000–₹1.25 lakh Disability certificate required

80DDB Medical treatment for specified diseases ₹40,000–₹1 lakh For self/dependents

80E Interest on education loan No Limit (8 years) Only interest is deductible

80EE First-time home buyer interest deduction ₹50,000/year Loan ≤ ₹35 lakh

80EEA Affordable housing interest deduction ₹1.5 lakh Property ≤ ₹45 lakh (for loans sanctioned before Mar 2022)

80G Donations to charitable institutions 50% or 100% with/without limit PAN of trust needed

80GG House rent paid (if no HRA received) Up to ₹60,000/year For self-employed or no HRA in salary

80TTA/TTB Interest on savings (SB) account ₹10,000 (80TTA, <60 yrs)

₹50,000 (80TTB, >60 yrs) Not for FDs

24(b) Home loan interest (self-occupied property) ₹2 lakh/year Under "Income from House Property"

.4Compute Tax Liability

.Use income tax slabs.

.Apply rebates (e.g., Section 87A) and cress.

.Salary (Basic, HRA, bonus, etc.)

.House Property (rent received or loss from home loan interest)

.Capital Gains (from shares, property, etc.)

.Other Sources (FD interest, dividends, etc.)

.5Pay Advance Tax / Self-Assessment Tax

.If tax is due (after TDS), pay it online via the Income Tax portal.

When to Pay Advance Tax (Due Dates & Installments)

For Individuals & Businesses (Non-Corporates):

Due Date	% of Tax Payable
15th June	15%
15th September	45% (cumulative)
15th December	75% (cumulative)
15th March	100%

.6File Income Tax Return (ITR)

.File annually (usually by 31 July) through:
.https://www.incometax.gov.in

Step-by-Step Guide:

1. Go to:

 https://www.incometax.gov.in

2.✅ Login with your PAN and password

(or click ‘e-Pay Tax’ if you’re not registered)

3. Navigate to:

e-File → e-Pay Tax

4. Click "New Payment"

5.Select:

    .Assessment Year: 2025–26 (for FY 2024–25)

    .Type of Payment:

    .Advance Tax (100) if paying in installments

    .Self-Assessment Tax (300) if after year-end

6. Choose your bank and payment mode

(Net banking, Debit card, UPI, etc.)

7. Enter amount and pay

8. Download challan (ITNS 280)

– Save it for ITR filing

.7Verify and Track Refund

.After filing, verify the return and wait for assessment/refund.

. Methods to Verify ITR (Online):

1.Aadhaar OTP

     .Link Aadhaar with PAN

     .Get OTP on mobile linked with Aadhaar

 2.Net Banking

     .Login to your bank → Find “Income Tax e-Filing” → Auto-verifies

3.EVC via Bank Account/Demat Account

     .Pre-validate in e-filing portal → Get EVC to verify

4.Digital Signature Certificate (DSC)

     .Mostly used by professionals and companies

.Example (FY 2024-25, Individual <60, Old Regime):

Income Tax Rate

₹0 – ₹2.5 lakh Nil
₹2.5 – ₹5 lakh 5%
₹5 – ₹10 lakh 20%
Above ₹10 lakh 30%

+ 4% Health & Education Cress on total tax