Tax Liabilities

Tax liabilities are the total amount of taxes that an individual, business, or entity is legally required to pay to the government. These liabilities arise from various sources of income, business profits, or transactions and can include taxes like income tax, corporate tax, GST, and capital gains tax. Understanding and managing tax liabilities is essential for compliance with legal requirements and for effective financial planning.

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Disclaimer: ^Section 80C allows annual deductions of up to ₹1.5 lacs from the taxable income. Section 10(10D) provides tax-free maturity benefits for investments of up to ₹2.5 Lacs/ year, on policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws. All plans listed here are of insurance companies’ funds.
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What are Tax Liabilities?

Tax liability in India refers to the amount of tax an individual or entity owes to the government. This liability is determined based on income, assets, or business activities. Understanding tax liabilities is crucial for individuals and businesses to ensure compliance with Indian tax laws and avoid penalties.

Types of Taxes

India's taxation system is broadly divided into two major categories: Direct Taxes and Indirect Taxes.

  1. Direct Taxes

    Direct taxes are those that are levied directly on the income or wealth of individuals and organizations. These taxes are paid directly to the government.

    • Income Tax: This is the most common type of direct tax in India. It is levied on individuals' income from various sources, including salaries, business profits, capital gains, and rental income.

    • Corporate Tax: Companies are subject to corporate tax on their profits. The tax rate varies depending on the company's size and nature of business.

    • Securities Transaction Tax: This tax is levied on the trading of securities in the Indian stock market.

    • Capital Gains Tax: This tax is imposed on the profits made from the sale of assets, such as property or shares.

    • Prerequisite Tax: This tax is levied on certain facilities provided by organizations to their employees.

  2. Indirect Taxes

    Indirect taxes are levied on the sale of goods and services. These taxes are typically included in the price of the product or service, so the consumer ultimately bears the tax burden.

    • Goods and Services Tax (GST): GST is India's only indirect tax. It replaced several indirect taxes, including VAT, excise duty, and service tax. GST is levied on the supply of goods and services within India.

    Save Tax Invest Today Save Tax Invest Today
  3. Subdivisions of Direct Taxes

    • Income Tax: This tax is levied on individuals and Hindu Undivided Families (HUFs). It is also levied on companies, but the tax rates for companies are different from those for individuals and HUFs.

    • Corporate Tax: This tax is levied on the profits of companies. It has several subcategories:

      • Health and Education Cess: This is an additional 4% of the income tax that is collected for health and education purposes.

      • Dividend Distribution Tax: This tax is levied on the dividends paid by companies to their shareholders.

      • Minimum Alternative Tax (MAT): This is a tax that is levied on companies that have a low effective tax rate.

      • Fringe Benefits Tax: This tax is levied on the benefits provided by companies to their employees.

Different Types of Tax Liabilities

  1. Current Liabilities

    Current tax liabilities are short-term tax obligations that are due and payable within a year. 

  2. Deferred Liabilities

    Deferred tax liabilities are tax debts that are assessed or due for the present period but have not been paid within the year. They arise primarily due to differences between the accounting treatment of certain items and their tax treatment.

What are the Steps to Pay Taxes in India?

Below are the two ways through which you can pay taxes in India: 

  1. Online Tax Payment:

    • Navigate to the Authorized Website: Begin by visiting the authorized website for tax payments: www.tin-nsdl.com. Log in using your credentials.

    • Locate the e-Payment Section: Once logged in, navigate to the "Services" tab and find the "e-payment" option. This will direct you to the online tax payment section.

    • Select Challan ITNS 280: On the e-payment page, you'll see options for various challans. Select "challan - ITNS 280" specifically designed for tax payments.

    • Fill the Challan with Details: Enter your Permanent Account Number (PAN) or Tax Deduction and Collection Account Number (TAN) along with other required details on the challan form.

    • Confirmation and Bank Gateway: After submitting your PAN/TAN and details, a confirmation screen will display your name. Upon confirmation, you'll be redirected to your bank's secure net-banking portal.

    • Complete Online Payment: Log in to your net banking and enter the necessary payment details. Once the payment is successfully processed, you'll receive a digital copy of the challan as proof of payment.

    Invest & Save upto â‚ą46,800 per annum in taxInvest & Save upto â‚ą46,800 per annum in tax
  2. Offline Tax Payment:

    • Download or Collect Challan 280: If you prefer an offline method, you can download Challan 280 from the internet or collect a physical copy from your bank branch.

    • Fill Out the Challan: Fill out the challan form with your details and tax information.

    • Payment Options: You can clear your tax liabilities at your bank branch either by cash payment or cheque. Ensure the cheque is drawn from a bank account with sufficient funds.

    • Submit Challan at Bank: Submit the completed challan form along with your cash payment or cheque to the bank teller.

    • Retain Payment Proof: The bank will provide a receipt or acknowledgement slip as proof of your tax payment. Keep this document for your records.

Tax Liabilities on Gifts

The tax liabilities on gifts in India depend on the relationship between the donor and the recipient and the value of the gift.

  • Gifts from Relatives: Gifts received from close relatives, such as parents, spouses, or siblings, are generally exempt from income tax.

  • Gifts from Others: Gifts received from individuals who are not close relatives are taxable if the total value exceeds a specified threshold. This threshold varies depending on the donor's relationship with the recipient.

  • Gifts for Charitable Purposes: Gifts made to charitable organizations are eligible for tax deductions.

It's important to consult with a tax professional for specific guidance on gift tax liabilities in your situation.

FAQs

  • What documents are needed for filing ITR?

    When filing your ITR, you'll require details such as:
    • Your total tax amount

    • The assessment year

    • PAN number

    Additionally, you'll need to specify the type of payment, like whether it's a self-assessment tax or advance tax.

  • How is Tax Liability Calculated?

    Tax liability is calculated by applying the applicable tax rates to your taxable income. The tax rates vary depending on the tax regime you choose (old or new) and your income level. You can use an income tax calculator to determine your tax liability accurately.
  • What is the difference between taxable income and exempted income?

    Taxable income is the portion of your earnings on which tax is imposed, while exempted income is tax-free. For instance, if you earn Rs. 3 lakh annually, Rs. 2.5 lakh may be exempted from tax, and only the remaining Rs. 50,000 would be taxed.
  • Do I need to declare all my sources of income?

    Yes, it is mandatory to disclose all sources of income to avoid any penalties.
  • What is tax assets and liabilities?

    Tax assets are potential future tax benefits that can reduce your tax liability. Examples include tax credits, deductions, and carryforwards.

    Tax liabilities are current or future tax obligations that you must pay. They can arise from various sources, such as income, property, or business activities.

Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. This list of plans listed here comprise of insurance products offered by all the insurance partners of Policybazaar. The sorting is based on past 10 years’ fund performance (Fund Data Source: Value Research). For a complete list of insurers in India refer to the Insurance Regulatory and Development Authority of India website, www.irdai.gov.in
*All savings are provided by the insurer as per the IRDAI approved insurance plan.
^The tax benefits under Section 80C allow a deduction of up to ₹1.5 lakhs from the taxable income per year and 10(10D) tax benefits are for investments made up to ₹2.5 Lakhs/ year for policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws.
¶Long-term capital gains (LTCG) tax (12.5%) is exempted on annual premiums up to 2.5 lacs.
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