Bookkeeping Basics: Importance, Types of Income Computation, and Income Tax Slab

Understanding Bookkeeping for Businesses and Individuals in India

Bookkeeping Basics:

Bookkeeping is an essential aspect of any business or individual's financial affairs. It involves the systematic recording and organization of financial transactions, including purchases, sales, receipts, and payments, in a ledger or journal. The purpose of bookkeeping is to maintain an accurate record of all financial transactions that occur within a business or individual's financial affairs. This helps to ensure that the financial statements produced at the end of a period are accurate and can be relied upon for decision-making purposes.

Book keeping importance:

Maintaining proper books of accounts is important for financial transparency and ensuring compliance with legal and regulatory requirements. Additionally, it can help businesses to manage cash flow, track expenses, and identify areas where they can reduce costs or increase revenue. Under the Indian Income Tax Act, certain entities are required to maintain books of accounts. This includes individuals, Hindu Undivided Families (HUFs), partnership firms, companies, Limited Liability Partnerships (LLPs), other corporate entities, and professionals like doctors, lawyers, accountants, etc.

As per the Indian Income Tax Act, 1961, certain entities are required to maintain books of accounts. The following entities are compulsory required to maintain books of accounts:

Individuals, Hindu Undivided Families (HUFs), and Partnership firms if their total sales, turnover, or gross receipts exceed Rs. 2,50,000 in a financial year.

Companies, Limited Liability Partnerships (LLPs), and other corporate entities, regardless of their turnover or income.

Professionals like doctors, lawyers, accountants, etc. who have income from the profession exceeding Rs. 1,50,000 in a financial year.

Persons who earn income from renting out property, regardless of the amount of income earned.

It is important to note that the above-mentioned entities are required to maintain books of accounts under the Income Tax Act, and they may also be required to maintain additional records under other laws such as the Companies Act, GST Act, etc.

It is advisable for all businesses and professionals to maintain proper books of accounts, even if they are not compulsorily required to do so, as it helps in better management of finances and facilitates compliance with various regulatory requirements.

Types of Income Computation:

The Indian Income Tax Act provides two methods of income computation: cash basis and mercantile basis. Under the cash basis method, income is considered earned when it is received or credited to the taxpayer's account, whichever is earlier. Expenses are considered to be incurred when they are paid. Under the mercantile basis method, income is considered earned when it is due or when it accrues, irrespective of whether it has been received or not. Similarly, expenses are considered to be incurred when they are due, irrespective of whether they have been paid or not.

Taxpayers can choose the method of income computation that is most suitable for them. However, once a method is chosen, it must be consistently followed for all subsequent years unless there is a reasonable cause to change it. It is important to note that some incomes are required to be computed in a specific manner, regardless of the method of income computation chosen by the taxpayer. For example, capital gains are computed based on the sale consideration received or the fair market value, whichever is higher. Similarly, income from house property is computed based on the annual value of the property, which is determined in a specific manner.

The computation of income in the income tax return form is generally divided into five heads of income: 

1) Income from salary,

2) Income from house property,

3) Profits and gains of business or profession,

4) capital gains,

5) Income from other sources.

The computation of income for each head of income involves the identification of the relevant income, deduction of allowable expenses, and computation of the taxable income after taking into account any deductions or exemptions available under the Income Tax Act.

Income Tax Slab:

The Income Tax Slab is a progressive tax system used by the Indian government to levy income tax on individual taxpayers. It is a system where the tax rate increases as the income of the taxpayer increases. The Income Tax Slab is updated every year in the Union Budget by the finance minister. The Income Tax Slab consists of different tax rates for different income levels. For example, for the financial year 2022-23, the Income Tax Slab for individuals (resident or non-resident) as follows:

For Individual (Resident or Non-Resident) less than 60 years of age anytime during the previous year:
Existing Tax Regime		New Tax Regime u/s 115BAC
Income Tax Slab	Income Tax Rate	Income Tax Slab	Income Tax Rate
Up to ₹ 2,50,000	Nil	Up to ₹ 2,50,000	Nil
₹ 2,50,001 - ₹ 5,00,000	5% above ₹ 2,50,000	₹ 2,50,001 - ₹ 5,00,000	5% above ₹ 2,50,000
₹ 5,00,001 - ₹ 10,00,000	₹ 12,500 + 20% above ₹ 5,00,000	₹ 5,00,001 - ₹ 7,50,000	₹ 12,500 + 10% above ₹ 5,00,000
Above ₹ 10,00,000	₹ 1,12,500 + 30% above ₹ 10,00,000	₹ 7,50,001 - ₹ 10,00,000	₹ 37,500 + 15% above ₹ 7,50,000
		₹ 10,00,001 - ₹ 12,50,000	₹ 75,000 + 20% above ₹ 10,00,000
		₹ 12,50,001 - ₹ 15,00,000	₹ 1,25,000 + 25% above ₹ 12,50,000
		Above ₹ 15,00,000	₹ 1,87,500 + 30% above ₹ 15,00,000
60 plus age group For Individual (Resident or Non-Resident), 60 years or more but less than 80 years of age anytime during the previous year:
Existing Tax Regime		New Tax Regime u/s 115BAC
Income Tax Slab	Income Tax Rate	Income Tax Slab	Income Tax Rate
Up to ₹ 3,00,000	Nil	Up to ₹ 2,50,000	Nil
₹ 3,00,001 - ₹ 5,00,000	5% above ₹ 3,00,000	₹ 2,50,001 - ₹ 5,00,000	5% above ₹ 2,50,000
₹ 5,00,001 - ₹ 10,00,000	₹ 10,000 + 20% above ₹ 5,00,000	₹ 5,00,001 - ₹ 7,50,000	₹ 12,500 + 10% above ₹ 5,00,000
Above ₹ 10,00,000	₹ 1,12,500 + 30% above ₹ 10,00,000	₹ 7,50,001 - ₹ 10,00,000	₹ 37,500 + 15% above ₹ 7,50,000
		₹ 10,00,001 - ₹ 12,50,000	₹ 75,000 + 20% above ₹ 10,00,000
		₹ 12,50,001 - ₹ 15,00,000	₹ 1,25,000 + 25% above ₹ 12,50,000
		Above ₹ 15,00,000	₹ 1,87,500 + 30% above ₹ 15,00,000
Individual (Resident or Non-Resident) 80 years of age or more anytime during the previous year:
Existing Tax Regime		New Tax Regime u/s 115BAC
Income Tax Slab	Income Tax Rate	Income Tax Slab	Income Tax Rate
Up to ₹ 5,00,000	Nil	Up to ₹ 2,50,000	Nil
₹ 5,00,001 - ₹ 10,00,000	20% above ₹ 5,00,000	₹ 2,50,001 - ₹ 5,00,000	5% above ₹ 2,50,000
Above ₹ 10,00,000	₹ 1,00,000 + 30% above ₹ 10,00,000	₹ 5,00,001 - ₹ 7,50,000	₹ 12,500 + 10% above ₹ 5,00,000
		₹ 7,50,001 - ₹ 10,00,000	₹ 37,500 + 15% above ₹ 7,50,000
		₹ 10,00,001 - ₹ 12,50,000	₹ 75,000 + 20% above ₹ 10,00,000
		₹ 12,50,001 - ₹ 15,00,000	₹ 1,25,000 + 25% above ₹ 12,50,000
		Above ₹ 15,00,000	₹ 1,87,500 + 30% above ₹ 15,00,000

 

Taxpayers are required to file their income tax returns based on their income levels and the applicable tax rates. They are also eligible for certain deductions and exemptions under the Income Tax Act, which can reduce their taxable income and tax liability.

Thanks with Regards

U.RAMESH

(Tax Consultant) 

Cell- 9600423331

Email: abiaccworld@gmail.com

Website:www.abiaccounts.com

Digital Visiting card: https://www.mycrd.in/abi-accounts-world 

Comprehensive List of Documents Required for Filing Income Tax Returns in India

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The list of documents required for filing income tax returns in India may vary based on the source of your income, your residential status, and other factors. However, here are some commonly required documents:

1)    PAN Card: Permanent Account Number is a mandatory document required to file your tax returns in India.

2)    Form 16: Form 16 is a certificate issued by an employer that provides details of the employee's salary, TDS deducted, and other deductions.

3)    Form 26AS: Form 26AS is a statement that shows the details of tax credit available to the taxpayer based on TDS deducted by employers, banks, and other sources.

4)    Bank Statements: It is always advisable to keep your bank statements handy while filing your ITR, as it helps to calculate interest income, and any other income from deposits.

5)    Investment proofs: Documents related to investments made during the year, such as mutual fund statements, life insurance premium receipts, PPF account statement, etc.

6)    Property documents: Documents related to the ownership of the property, such as sale deed, purchase deed, and loan certificate, are required to be submitted for claiming tax deductions related to home loans.

7)    Capital Gains statement: If you have sold any property or equity shares, you need to provide the capital gains statement to calculate capital gains tax.

8)    Business and profession documents: Documents related to your business or profession, such as balance sheet, profit and loss account, and audit report (if applicable).

9)    Rent agreement: A rent agreement is required if you are claiming House Rent Allowance (HRA) exemption.

10)                        Medical bills: If you are claiming deductions for medical expenses under Section 80D or 80DD, you need to provide medical bills as proof.

11)                          Donation receipts: If you have made donations to charity, you need to provide donation receipts to claim tax deductions under Section 80G.

12)                        Educational loan certificate: If you have taken an educational loan, you need to provide a certificate of interest paid on the loan for claiming deductions under Section 80E.

13)             Disability certificate: If you or any of your dependents have a disability, you need to provide a disability certificate to claim deductions under Section 80U or 80DD.

14)                        Foreign income documents: If you have earned income from a foreign country, you need to provide documents such as Form 16A or Form 16B, bank statements, and tax paid certificates.

15)                        Form 15G/15H: If your income is below the taxable limit, you can submit Form 15G/15H to the bank to avoid TDS deductions on your interest income.

16)                        Proof of travel expenses: If you have claimed LTA (Leave Travel Allowance) from your employer, you need to provide proof of travel expenses.

17)                        Share transaction details: If you have bought or sold shares, you need to provide details of the transactions, such as purchase and sale invoices, demat account statement, and brokerage charges.

18)                        Details of foreign assets: If you have any foreign assets, such as foreign bank accounts, property, or investments, you need to provide details of the assets, including their value and income earned.

19)                        Proof of house rent paid: If you are paying rent, you need to provide rent receipts or a rent agreement to claim HRA (House Rent Allowance) exemption.

20)                        Details of other sources of income: If you have income from sources other than salary, such as rental income, interest income, or capital gains, you need to provide details of the income earned and tax paid.

21)                        Form 10E: If you are claiming relief under Section 89, you need to file Form 10E to provide details of arrears or advance salary received during the financial year.

22)                        Form 15CB: If you have made payments to non-residents and are required to deduct TDS, you need to file Form 15CB and obtain a certificate from a chartered accountant.

23)                        Proof of education expenses: If you have paid tuition fees for yourself, your spouse, or your children, you can claim deductions under Section 80C. You need to provide proof of the fees paid, such as fee receipts.

24)                        Aadhaar card: It is mandatory to link your Aadhaar card with your PAN card for filing income tax returns in India. You need to provide your Aadhaar card details while filing your returns.

25)                        Form 16C: If you have rented a property and the rent is more than Rs 50,000 per month, your tenant is required to deduct TDS under Section 194-IB. You need to obtain Form 16C from your tenant and provide it while filing your returns.

26)                        Form 26QB: If you have sold a property, your buyer is required to deduct TDS under Section 194-IA. You need to obtain Form 26QB from the buyer and provide it while filing your returns.

27)                        Partnership deed: If you have income from a partnership firm, you need to provide a partnership deed to show your share of profits and losses.

28)                        Proof of professional tax paid: If you are required to pay professional tax, you need to provide proof of the tax paid.

29)                        Proof of rent-free accommodation: If you are in receipt of rent-free accommodation from your employer, you need to provide details of the accommodation, including its value and the rent that would have been paid if you had rented a similar property.

30)                        Form 10BA: If you are claiming deductions for rent paid under Section 80GG, you need to file Form 10BA and provide details of the rent paid.

31)                        Form 10F: If you are a non-resident Indian (NRI) and have income in India, you need to file Form 10F to claim tax benefits under the Double Taxation Avoidance Agreement (DTAA).

 

Note: It is important to note that the above list is not exhaustive and the documents required may vary depending on your individual case. It is always recommended to consult a tax expert for a comprehensive list of documents required for filing your income tax returns.

Thanks, and regards

 

U. RAMESH

(TAX Consultant)     

 

Cell- 9600423331

Email: abiaccworld@gmail.com

Website: www.abiaccounts.com

Digital Visiting card: https://www.mycrd.in/abi-accounts-world