Before we understand the concept of income tax, here are few terms which you should know as they help in tax calculations –

  • Financial year Financial year is the year in which you earn an income. It starts from April and ends on March of the next year. For instance, the current financial year is 2019-20. It started from 1st April 2019 and would end on 31st March 2020. Income that is within one financial year is taxed in the next financial year which is called the assessment year.
  • Assessment year Assessment year is the year in which your tax liability is calculated. It follows the financial year and calculates the liability on the income generated in that financial year. So, for the financial year 2019-20, the assessment year would be 2020-21 which would start from 1st April 2020 and end on 31st March 2021. Incomes earned up to 31st March, 2020 would be taxed in the financial year 2020-21 which would be called the assessment year.
  • Assessee The individual whose income is taxed is called an assessee in income tax parlance. It can be an individual like you, a company or a partnership firm, LLP etc.
    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 –
    1. Income from salary This head of income is relevant for salaried employees who earn a salary from their employer. The salary that they earn and its various components are classified under this income head.
    2. Income from business/profession Any profits/ gains earned by carrying out a business activity is classified under this head of income. Like earning from running a small shop or proprietorship business etc. Further, earning of individuals who are engaged in a profession like Doctors, Chartered Accountants, Engineers is also classified under this head of income.
    3. Income from house property If you own a house and the house has been let out from which you earn a rental income, such an income would be recorded under this head of income
    4. Income from capital gains Capital gains are said to occur when there has been a sale of a capital asset and you have earned a profit from such sale. Capital assets mean a house property, flat, land, jewellery, mutual funds, shares etc.
    5. Income from other sources This head of income includes incomes which do not fall under any of the above-mentioned categories. For instance, interest income from deposits or bank accounts, dividends received, winnings from lotteries or games, etc.

Income Tax Slabs

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 tax slab for individuals aged up to 60 years (Applicable for FY 2019-20)
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 2019-20)

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 tax slab for very senior citizens aged 80 years and above (Applicable for FY 2019-20)
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

Deductions from income under Chapter VI A of the Income Tax Act, 1961

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 –
  1. Life insurance premium
  2. Investment in five year fixed deposits
  3. Investment in EPF
  4. Investment in PPF
  5. Investment in mutual fund ELSS
  6. Tuition fee paid for up to two dependent children
  7. Principal repayment of home loan
  8. Investment in Senior Citizen Saving Scheme
  9. Investment in National Saving Certificates, etc.
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

Other exemptions

Besides the above-mentioned popular deductions given in Section 80, there are other common exemptions which you can claim. These are as follows –

  • Exemption under Section 24 Section 24 of the Income Tax Act allows you an exemption on the home loan interest paid by you on a home loan that you have availed. The maximum exemption which you can claim under Section 24 is INR 2 lakhs.
  • Standard deduction Salaried employees can claim a standard deduction of INR 50,000 from their salary income.
  • Section 10 (10D) If you receive any benefit from a life insurance policy, such benefits would be tax-free under this section. There is no maximum limit of exemption. The entire benefit that you receive would be considered tax-free in your hands.

Income tax payable by NRIs

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.

Frequently Asked Questions

Q- Do companies also pay taxes on the same income tax slab rates?

No, in case of companies, a corporate tax is payable which is determined using different tax rates.

Q- By when should the income tax return be filed?

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.

Q- Do I need to submit any proofs for claiming deductions?

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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CA Abhishek Soni
CA Abhishek Soni

Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Tax2win is amongst the top 25 emerging startups of Asia and authorized ERI by the Income Tax Department. In the past, he worked in EY and comes with wide industry experience from telecom, retail to manufacturing to entertainment where he has handled various national and international assignments.