Income Tax Definition and Legal Meaning
On this page, you'll find the legal definition and meaning of Income Tax, written in plain English, along with examples of how it is used.
What is Income Tax?
It refers to any charge or tax on the persons annual business income, capital gains,investments and all aspects, after the deduction of the expenses, benefits and charities which is levied by the government for the development of the society as a whole. The tax is deducted on the basis of rules and norms established by the governments.
History and Meaning of Income Tax
Income tax is a type of tax that citizens pay to the government on the income they earn from various sources. This tax is levied by the government to incur the expenses of the country on the development of infrastructure and services towards the welfare of people. The concept of income tax dates back to ancient times when rulers used to levy taxes on people based on their earnings. In modern societies, the legal system has established specific rules, regulations, and laws that govern the collection of taxes.
Examples of Income Tax
- John earns $60,000 annually from his job as an accountant. Based on the tax laws of his country, he is obligated to pay 20% of his earnings as income tax.
- Sarah made $10,000 in capital gains from trading stocks this year. She needs to file her taxes and include the capital gains in her total earnings to calculate the amount of tax that she owes to the government.
- Tom runs a small business and paid $5,000 towards rent, $1,000 for utilities and $500 for office furniture. These expenses can be deducted from his total earnings before calculating the income tax that he owes to the government.
Legal Terms Similar to Income Tax
- Capital Gains Tax: A tax levied on the profit earned from the sale of an asset.
- Corporate Tax: A tax levied on the earnings of a company from its business operations.
- Value Added Tax (VAT): A tax levied on the value added to goods and services at each stage of production and distribution.