A tax is simply a mandatory financial obligation or any other sort of levy paid on a taxpayer by an administrative government agency in order to finance various public purposes and government spending. A tax may be charged either as a income-based tax or a consumption-based tax. In the United States, the Internal Revenue Service [IRS] is the sole authority charged with collection of taxes. Evasion of or disobedience to tax, and punishment for tax evasion, are punishable by federal law. An individual who receives money contrary to his outstretched resources is liable to the IRS.
In contrast to the rigid progressive taxation system in the United States, in many countries there is a system known as the proportional tax system. The proportional taxes system in many countries is based on a system which taxes certain incomes or types of income at a fixed rate and allows others to be levied with varying degrees of taxation based on their ability to contribute to the growth of the country’s capital. Generally speaking, a higher percentage of income is taxed in relation to its earning power. These types of taxation also have a fair amount of taxation fairness compared to the progressive tax system.
In most countries with a progressive taxation system, taxes are levied according to how much of the wage or salary a person makes in a month. This means that someone making forty thousand dollars would be required to remit twenty thousand dollars in taxes. If that same person were to make just fifty thousand dollars per month then he could expect to remit just four thousand dollars in taxes.
The highest forms of income tax in most countries are corporate and wealth tax. When it comes to wealth tax, a person or a company is only obliged to file personal income tax once. A company, on the other hand, is liable to file both corporate tax and personal income tax. The latter is usually termed as’regressive’ since the rate of increase is based on the proportion of assets that a company possesses. Wealthy individuals often pay very low rates of income tax because they avoid using their offshore accounts and take the maximum allowable deductions.
For many individuals and companies, it is advisable to keep aside money for their retirement, which is not taxable under most countries’ taxation systems. Most of us however prefer saving our earnings and use them later. That said, most of us are not aware that we can actually deduct a portion of our annual earnings as a deduction on our tax return. If you have a fixed deposit in a bank, some Indian financial institutions allow you to deduct up to a certain amount from your fixed deposit.
If you are wondering how much you should save for your retirement, it is best to get professional advice. However, if you are living in India and still want to know about how to calculate your income taxes, you can follow the formula given below. Remember that this is only a rough guide and is not intended to be used as, in place of or in conjunction with legal or tax advice from a lawyer or other professional.