Take a moment and think about 3 things - mitochondria is the powerhouse of the cell, tax filing and 80 C. Which of these do you remember having learned in school? The first one, right?
It might be safe to say that we’ve all had the recurring thought of realising that school did not prepare us for the real world and understanding taxes make up a significant chunk in that, so let's get into it.
Taxes can be complex to understand and we only think of them when we see the food bill at a restaurant or if we belong to a particular tax bracket. We all know that paying taxes is important because getting in trouble with the income tax department is something none of us wants but what is tax planning? What are tax brackets? And income tax return filing? This already sounds so stressful!!!
Well, fear not, because the Kool Kanya “Finance Pass: Personal Finance made easy” is here to alleviate some of that stress. Through this course, you will not only learn how taxes work and why they’re important. but also gain a deeper understanding of how to work your way around tax deductions and exemptions.
Additionally, we also want to help you #RaiseYourPower and choose any career path you love. This is why you need to secure yourself a Kool Kanya PowerPass that will give you access to courses on digital marketing, content creation, consumer research and so much more.
Yes, we know taxes can be confusing. This is why we’ve collated a few tax lessons that you probably did not learn in school:
- Lesson 1: why do we need to pay taxes?
- Lesson 2: when do you have to pay income tax?
- Lesson 3: what is a tax exemption?
- Lesson 4: how do you plan for tax?
- Lesson 5: do you need a chartered accountant for taxes?
Lesson 1: Why do we need to pay taxes?
By its nature, taxes serve a good purpose but tax credited to the government’s account and debited from ours stings a little.
You may ask, “what good purpose do taxes serve?” Assuming that none of us fully remember the definition of taxes we learned in school, let us take a moment to understand what they are.
Taxes are a social contract and a responsibility that the citizens of every country hold toward the country’s economy. The parks, hospitals, schools, railways, and other infrastructure we see built around the country are built from the taxes paid by its citizens. That is inherently a good cause because the country is built by its own people but taxes can start to weigh heavy on the already expensive lifestyle the whole world has grown accustomed to. This is why personal tax planning is important.
Lesson 2: When do you have to pay income tax?
If you’re someone that has yet to turn 60 years old and earns above 2.5 lakhs annually, you have to pay an income tax. To make it easier for you, we’ve broken down the income tax brackets and associated feelings that each tax rate invokes.
*Tax Brackets 2022
*Disclaimer: The information in the table below is subject to change. You are advised to do your own research as this is not a professional recommendation.
The thing is, although taxes are scary, you only have to pay a lot of taxes if you earn a LOT, so maybe it balances out a little?
If you think it doesn't, you'll be glad to know that you can be exempted from paying hefty taxes.
Lesson 3: What is a tax exemption?
It definitely is music to your ears, to hear that you can be exempt from paying taxes. Tax exemption refers to being relieved of paying taxes on some or all of your income. According to Section 10 of the Income tax act, 1961, you can claim an exemption on taxes on certain types of income:
- House Rent Allowance
- Agricultural Income
- Children's Education Allowance
- Special Allowance and so much more
Income that is classified under these categories is not taxable, thus significantly lowering your total taxable income. So if you feel the weight of taxes is getting higher and higher, you should see if you can be exempted from paying them and that can be done by proper tax planning.
Lesson 4: How do you plan for tax?
We all want to minimise the amount of tax we have to pay and this can be done by proper tax planning. By understanding the nitty-gritty of taxes you can ensure that you avail every exemption and deduction applicable to you.
One method of reducing taxable income is to make tax-saving investments under section 80 C. You can start by investing in these few options:
- Public Provident Fund
- Unit Linked Insurance Plans
- Tax saving fixed deposits
Of course, there are so many more investment options, but this could be a great start.
Apart from this, you can also save under section 80D which is directly linked to medical insurance. If your medical insurance covers your spouse, children, other dependents and yourself, you can deduct Rs.25000 per individual and Rs.50000 if they're above the age of 60.
Several more sections under which you can reduce the taxable income exist:
- 80 TTA - Interest on savings account
- 80 GG - House rent paid
- 80 E - Interest on education loan
- 80 EE - Interest on Home loan
- 80 DD - Rehabilitation of disabled dependent
- 80 U - Physical disability
- 80 DDB - Medical expenditure on self or relative
- 80 G - Donation towards social causes
Lesson 5: Do you need a chartered accountant for taxes?
Income tax filing is complicated and a small mistake such as simply forgetting to account for a source of income could lead to having to pay a penalty. This is why having a charted account that is fully accustomed to the procedures of tax-paying can help save you from unnecessary penalties.
One thing we must remember is that at the end of the day, we are all responsible for our own actions. Yes, having a CA can be a perk, but learning how to do your own taxes is a bigger PERK.
The journey of experiencing financial freedom is a liberating one and by learning how to do your own taxes you take a step in the right direction.
It's just been 5 lessons but there's so much more to learn about taxation in India and the importance of tax planning that would keep you here for a while. Therefore, your best bet for getting an in-depth learning experience on taxing would be with Kool Kanya’s course “Finance Pass: Personal finance made easy”. Through this course, you will learn all about tax planning and also gain deeper insight into financial safety nets, insurance and budgeting, among other topics.
So don't spend an entire financial year making your decision; sign up for the course today!
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