If an individual's income exceeds the government's basic exemption level while they are employed in the unorganised sector, they may still be liable for income tax. The basic exemption limit for anyone under 60 as of the current tax year is Rs. 2.50 lakh.
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Presumptive Taxation Scheme
Under this scheme, eligible individuals engaged in certain professions or businesses can declare their income at a prescribed rate, without the need for detailed financial statements. It is generally a percentage of the total turnover or gross receipts. This scheme reduces the burden of maintaining detailed records and simplifies the tax filing process for those in the informal sector.
Small Business and Professional Income
Under Sections 44AD or 44ADA of the Income Tax Act, individuals who operate small enterprises or offer professional services in the unregulated sector may choose to use the Presumptive Taxation Scheme. These sections allow eligible taxpayers to declare a deemed income at a prescribed rate, which is deemed to be their taxable income. This simplifies the tax calculation process for small businesses and professionals in the unorganized industry.
Tax Deductions and Benefits
Deductions under Section 80C for investments in specified instruments, such as life insurance premiums, Public Provident Fund (PPF), and tax-saving fixed deposits, can be claimed. Additionally, deductions for health insurance premiums under Section 80D and interest on home loans under Section 24 are available, subject to specific conditions.
Voluntary Compliance
While there may be challenges in maintaining proper financial documentation for individuals in the informal sector, it is still advisable to maintain records of income and expenses. Voluntary compliance with tax regulations helps build a financial history and facilitates access to financial services and benefits in the future.
For individuals working in the informal sector or unorganized industry in India, specific tax rules and schemes are in place to simplify tax compliance. By understanding and complying with tax rules, individuals in the informal sector can ensure financial discipline and contribute to their own financial well-being.
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