Q: What do you mean by a progressive system of Taxation?
A: A progressive tax is one in which the tax rate rises in proportion to the growth in taxable income. In India, a progressive system of taxation is followed.
It is a method of taxation in which the percentage of tax charged is directly proportional to the income of the individual. People earning a higher level of income are charged a higher percentage of taxes.
Progressive taxes are implemented in an attempt to decrease the tax burden on people with lower incomes by shifting the burden to those with higher incomes. This approach is more just and unbiased, aiming to reduce income inequality among citizens in a country.
Q: How long does it usually take to get Tax Refunds back?
A: It generally takes around 4 weeks for the refund amount to be credited to the taxpayer’s account, averaging ninety days, following the e-verification of the assessee’s income tax return (ITR) filed.
When the tax department assesses a person’s ITR, it takes into account all relevant deductions and exemptions.
Q: What is a Tax Holiday, and How is it Helpful for Start-ups?
A: A tax holiday is a period of time during which specific taxes are temporarily reduced or completely eliminated. The main goal of tax holidays is to promote economic activity and growth. This incentive aims to encourage investment, innovation, and job development.
Start-ups are exempt from paying corporate income taxes for a period up to 3 years, subject to the condition that their annual income should not be above Rs. 25 crores.
It provides financial relief to newly established start-ups by reducing their tax burden.
Tax holidays can make a country more appealing to investors since they indicate a positive business environment. This may lead to higher venture capital investments for entrepreneurs.
It helps start-ups to grow and expand, and this will lead the start-ups to create new jobs, adding to overall economic growth.
By reducing financial pressures, start-ups can devote more time to developing new goods and services, encouraging an innovative culture.
Q: What is the difference between Assessment Year (AY) and Financial Year (AY)?
A: A Financial Year (FY) can be simply defined as the 12-month period from April 1 to March 31, the accounting year in which a person earns his income.
The assessment year (AY) is the year that follows the financial year. This is the period in which income earned throughout the FY is assessed and taxed.
As the present financial year is from 1 April 2024 to 31 March 2025, it is known as FY 2024-25. The AY for this particular FY begins once the FY ends. So the AY is from 1 April 2025 to 31 March 2026. Hence, the assessment year for the current financial year would be AY 2025-26.
Q: What is the difference between Tax Avoidance and Tax Evasion?
A: Although there is a trend to use these terms interchangeably, they mean different things.
Tax avoidance is the process of using legal loopholes to avoid tax liability. Although it is legal, it might raise ethical concerns and may be subject to increased scrutiny by tax authorities. It involves hedging of taxes.
Tax evasion refers to reducing tax liability by using illegal measures. This includes intentionally underreporting income or falsely claiming deductions or credits. It’s a criminal offense, which could result in a penalty or imprisonment. It involves the concealment of taxes.
While tax avoidance is done before the tax liability arises, tax evasion is practiced once the tax liability arises.
Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
