Individual income tax is that type of income tax, which is imposed on the whole income of a particular individual. While calculating the individual income tax, the person gets some tax deductions in some instances. Sometimes, individual income tax is termed as personal income tax.
An individual income tax is different from a corporate income tax in that the corporate income tax is charged on the gross profit of the corporation or company, whereas in case of personal income tax, it is the whole income of an individual that is taxed. The basis of calculation of individual income tax is known as the pay as you earn basis or PAYE.
At the end of every tax year, minor amendments are made on this method. The amendments are done in either of the two methods. The first method involves paying tax to the government for taxable individuals who have not made sufficient payment of tax during the assessment year or tax year. The second method of correction involves tax refunds offered by the government to those people who have made overpayment of taxes.
The authorities regulating the personal income tax frequently offer deductions, which help the taxpayers to reduce their tax burden because in this way the whole taxable income is decreased.
Loss arising from one source of income may be considered for another. For instance, loss arising from share trading activities might be subtracted from tax payable on wages. Some other tax authorities might set apart the loss simply because of the reason that losses arising from commercial activities should be subtracted from business or commercial tax by carrying over the losses to the subsequent tax years.
Usually, the personal income tax is considered as a progressive tax because if the income increases, the rate of tax goes up. The progressive taxation system works on the basis of slabs of income. For instance, the first $5,000 might be taxable at 5%, the next $15,000 may be taxable at 10%, and the amount exceeding $20,000 might be taxable at 20%.
Last Updated on : 5th July 2013