Basic concepts of income tax in India are not very different from those in the United States or any other country. This is because taxes on income in India are based on the performance of the person and not on the basis of his income. Basic income tax in India, unlike the taxes in the US and in many other countries is based on the basis of income earned by an individual and not on the basis of his capacity to earn more money. There are several other concepts which are important to understand before moving ahead with income tax in India.
There are some basic concepts of income tax in India, which are very similar to the concepts of tax in the United States. For example, it is necessary to understand that dividends paid to an individual must be taxable and, if it is not taxable, it is advisable not to pay it. Similarly, property acquired through exchange is not taxable under the laws of income tax in India. If you have any savings account, which is not an individual retirement account, it is advisable not to invest it in business, as the tax on such savings will be much higher than the tax on investment in business.
The concept of profit and loss is also very important. If you do not follow this concept, then there will be a lot of problems. For example, in case of business, you cannot deduct expenses made on buying raw materials used for the operation of your business, but you can deduct expenses that you make for the operation of your business. If you want to pay capital gains tax, you will have to pay income tax only after conversion into profit and loss.
In other words, one has to learn the basic concepts of income tax in India before proceeding further. You cannot proceed in making deductions unless you are certain that the deduction is actually legal. Similarly, if you are not aware of the source from where you are getting income, then you cannot claim deductions on that basis. This rule has been imposed by the government of India. However, it will be illegal if you do not inform the government about all the earnings and expenses.
These are some of the basic concepts of income tax in India, which must be understood very well by an individual or a small business firm. There are many other concepts, which are necessary for a smooth functioning of a country. There are various laws, which are imposed by the government for ensuring the fair distribution of the income and wealth. If you are willing to learn more about the basic concepts of income tax in India, you should consult the attorney who deals with such taxes. He will be able to explain to you all about the concepts and their legal implications.
It is necessary to learn about income tax in India before planning for your business. It is mandatory for every person, who intends to start a business, to pay tax on his income. This tax also helps the government to collect revenue and finances. Since this tax has many complications, it is better to understand the concept of income tax in India before calculating your tax liability. So, start working now and save money!