Tax is defined as a compulsory contribution to state revenue, levied by the government on your income and business profits, or added to the cost of some goods, services and transactions. The important part of this definition is compulsory contribution to state revenue. You have no option but to pay your taxes.

5 main heads of income under the income tax law:

Your income is broadly classified under five heads for the purpose of taxation. The five heads are:

It is therefore important that you classify your income carefully as the tax treatment of the same could be different under each head.

Do also note that a certain part of your income is designated as tax-free: for instance, interest earned on Provident Fund, Medical Reimbursement (up to Rs 15,000), Gratuity (up to Rs 10 lakh), Provident Fund withdrawals (which are tax free provided you have completed 5 years of membership), Employers contribution to Provident Fund, Employers contribution to National Pension Scheme (up to 10% of basic salary), and so on. Consult this guideline or your tax advisor for more information.

How can you create a statement of total income?

To prepare your statement of total income, you just need to add your income under all the above heads, after considering any deductions within each head that you are eligible for. Once you do this, deduct the exemption that you are eligible for, under various sections of income tax regulation (e.g. section 80C, 80D, etc to derive your total taxable income. If you are confident that you possess adequate knowledge to do this, you may go ahead and do it on your own. Otherwise you would do well to seek the service of a Chartered Accountant or Tax Return Preparer (TRP).

Investments that can fetch you tax deductions under section 80C

It is not that you can’t save on your income tax liability. By making certain specified investments of up to Rs 1.50 lakh in a financial year, you can save tax every year. Which will depend on your total taxable income and the tax slab under which your income fall. The investments that qualify are:

Tax-free Income: Long Term Capital Gains and Dividend

You may also save tax by making smart decisions that can enable you to achieve tax-free gains. These are:

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