Tax liability is the combination of various taxes levied by the government on individuals, corporations, partnerships, LLPs, LLCs, etc., forming the crucial pillars of the country’s development. This money is used to build infrastructure, roads, and bridges or upgrade amenities.
What is Tax liability?
Tax liability refers to the total amount of taxes an individual, business, or other entity owes to the government. This liability can arise from various sources, including income, property, goods and services, and investments. Governments use the revenue generated from taxes to fund public services, infrastructure development, and social welfare programs.
Types of tax liabilities
The two types of tax liabilities include:
- Current liabilities
These are short-term liabilities that the individual must pay within a year. - Deferred liabilities:
Deferred liabilities are tax debts that may be due for the current period but have not been paid within the cycle.
How to calculate tax liability
To calculate your tax liability, you need to consider all your income sources, deduct eligible expenses and exemptions, and apply the relevant tax rates. It's advisable to consult with a tax professional or use tax calculation software to ensure accuracy.
Different types of taxes
Taxes can be categorised into direct tax and indirect tax.
1. Direct Tax
Direct taxes are the taxes we pay directly to the government, such as income tax, corporate tax (20% to 40% excluding surcharges and cess), wealth tax, property tax, and capital gains tax based on the tax slab of the particular financial year.
The tax slabs for 2024-25 are given below:
| Income range (in Rs.) | Rates |
| Up to Rs. 2.5 lakh | No tax applicable |
| Rs. 2.5 lakh to Rs. 5 lakh | 5% of the net total income |
| Rs. 5 lakh to Rs. 10 lakh | 20% of the net total income |
| Rs. 10 lakh or more | 30% of the net total income |
Note: This information is for general informational purposes only and should not be construed as tax advice. Please consult with a qualified tax professional for personalised tax guidance.
They are governed by the Central Board of Direct Taxes (CBDT), which falls under the Ministry of Finance, and are paid annually when filing an Income Tax Return (ITR).
2. Indirect tax
Indirect taxes are levied on purchasing goods or services, such as the Goods and Service Tax (GST) and local taxes (luxury taxes, entertainment tax, entry tax, and customs duty).
They are governed by the Central Board of Indirect Taxes and Customs (CBIC), which also falls under the Ministry of Finance. All tax dues (tax liabilities) can be paid online through an online challan, and taxpayers should provide details of the tax paid in their income tax return.
How to pay taxes
Let us look at how you can pay taxes in a step-by-step manner.
A. Online
Step 1: Head to www.tin-nsdl.com and sign in. Then, select ‘Services’ and click ‘e-Payment’.
Step 2: Once the e-Payment of taxes appears, individuals must choose challan - ITNS 28
Step 3: Fill in the challan by providing relevant details, including PAN or TAN
Step 4: Once you submit the PAN or TAN along with your details, your name will appear on the confirmation screen
Step 5: After this confirmation screen, you will be redirected to your bank’s net banking page.
Step 6: Login and enter the payment details.
Step 7: Once the payment is made, you will receive the proof of payment, which is a counterpart of the challan.
B. Offline
To pay your taxes offline, you can download the challan 280 or collect it from your bank. You can then clear your tax liabilities by making cash or cheque payments.
Strategies for managing tax liability
Effectively managing your tax liability can help you save money and avoid penalties. Here are some strategies to consider:
- Tax planning: Plan your investments and financial decisions with tax implications in mind. Invest in tax-saving instruments, utilise deductions and exemptions, and structure your financial transactions to minimise your tax burden.
- Tax-saving investment: Several investment options offer tax benefits. Consider investing in tax-saving mutual funds, retirement plans, life insurance policies, and other eligible instruments.
- Claiming deductions and exemptions: Thoroughly research and claim all applicable deductions and exemptions to reduce your taxable income.
- Filing tax returns on time: File your tax returns accurately and on time to avoid penalties and interest charges.
- Consulting a tax professional: If you have complex tax situations or need expert advice, consult with a qualified tax professional to optimize your tax planning and ensure compliance.
Conclusion
Understanding and managing your tax liability is a fundamental aspect of personal and business finance. By staying informed about tax laws, planning your finances strategically, and utilizing available tax-saving options, you can effectively manage your tax obligations and ensure compliance while minimizing your tax burden. Remember, tax laws can be complex, and seeking professional guidance can be invaluable, especially for complex financial situations.
