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The most important source of revenue for the Indian government is income tax. It has been created in order to collect revenue for the country's growth and defence needs. Taxes on income, purchases, sales, and property assist the government in operating various government organizations and machinery.
The first Income Tax Act was passed in India in 1860. In India, the Income Tax Act of 1960 is now in effect. This guide explains everything that a taxpayer must know about income tax in detail.
Individuals and corporations pay income tax, which is a sort of direct tax levied by the government on their earnings over the course of a year. It is determined using the tax slabs established by the Income Tax Department.
Individuals and corporations pay income tax, which is a sort of direct tax levied by the government on their earnings over the course of a year. It is determined using the tax slabs established by the Income Tax Department.
This clause will apply to both residents and ordinary residents in India.
As per the rules stated in the Income Tax Act, 1961, there are five heads of income under which all your income can be categorised and taxed as per the provisions.
These heads of income are as follows –
Once the income is categorised under the above-mentioned heads, the gross taxable income is arrived at. From this income, tax-free deductions and exemptions are deducted to arrive at the net taxable income. The net taxable income is, then, subject to the calculation of tax liability. There are income tax slabs which specify the tax payable on the net taxable income. In India, income tax is charged on a progressive basis meaning as the income increases, so does the tax liability.
The income tax slab rates can be changed by the Government of India if felt necessary. Currently, the income tax slab rates are as follows –
Income of the assessee | Rate of Tax under Existing Regime for FY 22-23, 21-22 and 20-21 (i.e, AY 23-24, 22-23 & 21-22) | New Regime Slab Rates for FY 22-23, 21-22 and 20-21 (i.e, AY 23-24, 22-23 & 21-22) | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Individuals with age less than 60 years or HUF | Individuals with age 60years or more but less than 80 years | Individuals with age 80 years or more | Applicable for All Individuals or HUF | |||||||||
Rs 0.0 to Rs 2.5 Lakhs | NIL | NIL | NIL | NIL | ||||||||
Rs 2,50,001 to Rs 3.00 Lakhs | 5% (tax rebate u/s 87a is available) | NIL | NIL | 5% (tax rebate u/s 87a is available) | ||||||||
Rs. 3,00,001 to Rs 5.00 Lakhs | 5% (tax rebate u/s 87a is available) | NIL | ||||||||||
Rs. 5,00,001 to Rs 7.5 Lakhs | 20% | 20% | 20% | 10% | ||||||||
Rs 7,50,001 to Rs 10.00 Lakhs | 20% | 20% | 20% | 15% | ||||||||
Rs 10,00,001 to Rs. 12.50 Lakhs | 30% | 30% | 30% | 20% | ||||||||
Rs. 12,50,001 to Rs. 15.00 Lakhs | 30% | 30% | 30% | 25% | ||||||||
Exceeding Rs. 15 Lakhs | 30% | 30% | 30% | 30% | ||||||||
Note: 1. In Addition to basic Income Tax as discussed above , Followings are also to be taken care of:- - Surcharge: Surcharge is levied on the amount of income-tax at following rates if total income of an assessee exceeds specified limits:-
- Rebate u/s 87A (no tax will be payable on total income upto Rs.5 lakh in both regimes) 2. Certain income tax exemptions and deductions like section 80C, 80D,80TTB, HRA etc are available in the OLD tax regime but will not be available under the new tax regime. |
Income bracket | Tax payable |
---|---|
Up to INR 250,000 | Nil |
INR 250,001 to INR 500,000 | 5% of income exceeding INR 250,000 |
INR 500,001 to INR 10,00,000 | INR 12,500 + 20% of the income exceeding INR 500,000 |
INR 10,00,001 and above | INR 112,500 + 30% of the income exceeding INR 10,00,000 |
For senior citizens and very senior citizens, the tax slabs are different. They are as follows – Income tax slab for senior citizens (Applicable for FY 2021-22)
Income bracket | Tax payable |
---|---|
Up to INR 300,000 | Nil |
INR 300,001 to INR 500,000 | 5% of income exceeding INR 300,000 |
INR 500,001 to INR 10,00,000 | INR 10,000 + 20% of the income exceeding INR 500,000 |
INR 10,00,001 and above | INR 110,000 + 30% of the income exceeding INR 10,00,000 |
Income bracket | Tax payable |
---|---|
Up to INR 500,000 | Nil |
INR 500,001 to INR 10,00,000 | 20% of the income exceeding INR 500,000 |
INR 10,00,001 and above | INR 100,000 + 30% of the income exceeding INR 10,00,000 |
Tax Slab(₹) | New Tax Rates |
---|---|
0 – 2,50,000 | 0% |
2,50,000 – 5,00,000 | 5% |
5,00,000 – 7,50,000 | 10% |
7,50,000 – 10,00,000 | 15% |
10,00,000 – 12,50,000 | 20% |
12,50,000 – 15,00,000 | 25% |
15,00,000 & above | 30% |
Here are few terms which you should know as they help in tax calculations –
The calculation of tax liability in advance and paying the taxes to the government before the actual filing date is called advance tax. There are specified deadlines for the advance tax payments, which are listed below:
Due Date | Advance Tax Payable |
---|---|
On or before 15th June | 15% of advance tax |
On or before 15th September | 45% of advance tax |
On or before 15th December | 75% of advance tax |
On or before 15th March | 100% of advance tax |
As mentioned earlier, there are some tax-free deductions and exemptions which are allowed under the Income Tax Act, 1961. These deductions reduce the gross taxable income and help in the calculation of the net taxable income. The more the deductions that you claim, the lower would be your tax liability and vice-versa. The available deductions under Section 80 of the Income Tax Act are as follows –
Income tax section | Deduction available |
---|---|
Section 80 C | Deduction is available on eligible investments done and expenses incurred. The maximum deduction allowed under the section is INR 1.5 lakhs. It includes the following eligible investments and expenses –
|
Section 80 CCD (1B) | This section allows an additional deduction of INR 50,000 if you invest in the National Pension Scheme offered by the Government of India |
Section 80 D | Premiums paid for health insurance plans are allowed as a deduction under this section. The available limit of deduction is INR 25,000 which increases to INR 50,000 for senior citizens. Additionally, if premiums are paid for health insurance for parents, another INR 25,000 can be claimed as deduction which also increases to INR 50,000 if parents are senior citizens |
Section 80 DD | Deduction for maintenance of a disabled family member. The amount of the deduction is fixed at INR 75,000 if disability is 40% to 80% and INR 1.25 lakhs if disability is more than 80% |
Section 80 DDB | Deduction for treatment of named illnesses. The amount of deduction ranges from INR 40,000 to INR 80,000 depending on the age of the assessee |
Section 80 E | Deduction for interest paid on an education loan. The entire amount of interest is allowed as a deduction |
Section 80 EEA | Deduction for interest paid on home loan if you are a first time home buyer. To claim the deduction, the house should be up to INR 45 lakhs and the loan should be taken within 31st March 2020 |
Section 80 EEB | Deduction on interest paid for a loan availed by the tax-payer to buy an electric vehicle. The deduction would be available if the loan is sanctioned between 1st April, 2019 and 31st March 2023. The maximum limit of deduction which is available is INR 1.5 lakhs |
Section 80 G | Deduction for donations made to charitable institutions. 50% or 100% of the donation can be claimed as deduction depending on the charity donated to |
Section 80 GG | Deduction for HRA if HRA is not a part of the salary component of an employee. The deduction would be lower of INR 5000/month, 25% of the income or rent paid over 10% of your income |
Section 80 TTA | Deduction for interest earned from savings accounts. The maximum limit is INR 10,000 |
Section 80 TTB | Deduction for interest earned from savings accounts, fixed deposits, post-office deposits etc. by senior citizens. The maximum limit of deduction is INR 50,000 |
Section 80 U | If the tax-payer is disabled, this deduction can be claimed. The deduction would be INR 75,000 if disability is between 40% and 80%. For severe disabilities, the deduction would be INR 1.25 lakhs |
Besides the above-mentioned popular deductions given in Section 80, there are other common exemptions which you can claim. These are as follows –
If you are a “resident individual”, you would be taxed on your global income which means the income earned from India as well as any foreign income that you might have earned would be taxable. In case of Non-Resident Indians (NRI’s), however, income tax is charged only on the portion of income which they earn in India. Foreign income would be taxed in the country in which they live.
So, understand the concept of income tax and how it is calculated so that you can calculate your tax liability and file your income tax returns every year without any ambiguity.
PAN is an abbreviation for the Permanent Account Number. The Income Tax Department issues each Indian taxpayer with a unique 10-digit alphanumeric digit. A person's unique permanent account number is used to track all of their tax-related transactions and information. When a person has to pay advance tax or self-assessment tax, the PAN number must be mentioned. Also, when a person presents his PAN to institutions such as banks, mutual fund firms, and so on. The income tax agency receives financial information from such organisations via PAN. This permits the taxman to link all of the department's tax-related actions. As a result, the taxman may identify all of your financial activities simply by entering a permanent account number.
TAN is an abbreviation for Tax Deduction and Collection Account Number. The Income Tax Department of India has assigned it a unique 10 digit alpha numeric digit. Everyone who is in charge of tax deduction (TDS) or collection (TCS) is responsible for acquiring a TAN. TDS/TCS returns, TDS/TCS payment challans, and TDS/TCS certificates must all include the TAN.
When making payments to the recipient of income, the payer deducts tax at source for certain amounts. By reconciling the TDS amount with the ultimate tax liability, the income receiver can claim the TDS amount as a credit.
The balance tax is the tax that the taxpayer must pay on his or her assessed income. After subtracting the advance tax and TDS from the total income tax computed on the assessed income, the self-assessment tax is determined.
Every year, the taxpayer must file an income tax return using the ITR forms established by the income tax department. The government has created seven ITR forms for taxpayers to use when filing their income tax returns. The taxpayer must fill out the relevant ITR forms and submit his tax return.
There are 7 types of Income Tax Forms. You can read more about the forms here.
A number of documents are required to file your income tax such as PAN Card, Form-16, Bank Account Details, AADHAAR card, etc. You can read a detailed guide here.
The taxpayer must file his or her income tax return online using the IT department's e-filing portal. The taxpayer must first register on the government portal in order to file an income tax return. The taxpayer can then access the website and file his ITR. In addition, there is no need to manually send the acknowledgement of return to the Bangalore office. The income tax department now offers e-verification of ITRs in a variety of methods.
Document ITR-V is an income tax return verification form that is created after a taxpayer files and submits an income tax return to the Income Tax Department. The ITR-V must be e-verified or delivered to CPC Bangalore for verification at "Income Tax Department – CPC, Post Box No – 1, Electronic City Post Office, Bangalore – 560100, Karnataka." Only once the ITR has been verified will it be processed.
No, in case of companies, a corporate tax is payable which is determined using different tax rates.
You are required to file an income tax return of a financial year by 31st July of the assessment year. However, sometimes, the Government of India allows an extension on the last date of filing the income tax returns.
Yes, proof of investments and expenses would have to be submitted to claim deductions which are available under different income tax sections. These proofs are submitted to your employer and not required to be submitted to the tax department unless asked by them through issuing a notice to you.
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