Am I supposed to pay Income Tax?

The answer depends on the year. For your income for the year 2011-12 (1st April, 2011 to 31st March, 2012), you will have to pay tax if

you are a resident man with a taxable income of more than Rs. 1,80,000

you are a resident woman with a taxable income of more than Rs. 1,90,000

you are a resident senior citizen (age 60+) with a taxable income of more than Rs. 2,50,000

you are a resident very senior citizen (age 80+) with a taxable income of more than Rs. 5,00,000

What is Form 16?

How do you know if your employer is paying your tax on time? and what is the amount?
Your employer will give you a Form 16 at the end of a year. This form 16 has details about the salary he has paid to you, the tax he has deducted on it, and paid to the Income Tax Department

What is Advance Tax / Self-Assessment Tax?

Your employer will deduct tax on your salary income and pay it to the Income Tax Department, but what if you have income from other sources as well?
Say, you sold a piece of land and made a decent profit on it. You now have to pay tax on this profit.
Take another case. Your employer did not deduct tax on your salary. So now you have to pay it to the Income Tax Department.
This tax, which you yourself pay to the Income Tax Department is called Advance Tax / Self-Assessment Tax

What are income tax deductions?

Income Tax Deductions are certain tax benefits you might be allowed to avail. If your income is Rs. 4,00,000, and you are allowed to income tax deductions of Rs. 1,00,000, you will only have to pay tax on Rs. 3,00,000 at the slab rates.
There are numerous income tax deductions. Example:

Premium paid on a Life Insurance Policy

Housing Loan Repaid

Amount deposited in a PPF (Public Provident Fund) Account

Certain Mutual Funds purchased

ULIPs purchased