In the month of July when parents are talking about Income Tax Returns and the whole family making calls to a specific person who is important in all these matters – a Chartered Accountant – two things happen.
Either the child doesn’t bother about all this or a child asks questions about what is happening. What will you do when such a scenario occurs? You will do the right thing ie. educate the child about income and tax in a simple way.
Let’s begin with some fundamentals about the income and tax terms –
Income – The earning your parents receive every month in the form of salary – whether on the job, as a freelancer, or as a businessperson.
Tax – Taxes are of many kinds like income tax, property tax, wealth tax, etc. Income tax is the tax on the money that your parents earn. It is also called personal tax.
Why income tax is needed?
Taxes are levied for contributions to the country’s development, especially for infrastructure and public welfare and development.
Is it necessary to pay taxes?
Paying taxes is a legal obligation. The money paid in taxes goes towards funding vital public services like education and healthcare. There are rumours that paying taxes is a burden, it is also important. It has social impact and benefits. It is a way the citizens can contribute to the development of the country.
Are all people taxed?
No. Those who have an income of 3 Lac and more are liable to pay income tax. As per the FY2023-24, the tax rates are –
- Up to Rs.3 lakh – 0% (Nil)
- Rs 3 lakh to 6 lakh – 5%
- Rs 6 lakh to 9 lakh – 10%
- Rs 9 lakh to Rs 12 lakh – 15%
- Rs 12 lakh to Rs 15 lakh – 20%
- Above Rs 15 lakh – 30%
This means that the higher your parents earn, the more income tax they have to pay. This doesn’t mean that it is unfair to earn more. It also presents an opportunity to save too. There are many savings schemes that allow people to be exempted from paying income tax.
This means that our government wants us to save too!
This basic understanding should help you realise that not all that your parents earn can be spent. You need to spend wisely and save too! You can also watch this video that explains taxes – https://www.youtube.com/watch?v=KeC5g3acjJM
