A Complete Comprehension of Income Tax Basics

What is Income as per Income Tax Act?

The word Income has a very broad and inclusive meaning which is defined under section 2(24) of the income tax act; without getting too in-depth, we will understand it broadly.

• In the case of a salaried person, whatever amount received from an employer, either in cash or kind or as a facility, is considered as income.
• For a businessman, his profits and gains will constitute income
• For professionals, freelancers, etc., their earnings from various sources like professional fees, other incomes, etc., are considered as Income.
• You might receive Rental income from a house owned.
• Or capital gains from the sale of shares, buying or selling of property, etc.
• Income may also flow from investments in the form of Interest, Dividends, Commission, etc.
• The Income Tax Department has classified income into 5 broad categories. Those are;
  1. Income from Salary : The amount you receive from your employer every month comes under the head Income from salary. This applies only if there is an employer-employee relationship. Otherwise, the amount will be considered under a different head, and you will not get the exemptions and allowances available to salaried individuals. Your salary includes:
     • Basic pay
     • Dearness allowance
     • Medical allowance
     • Transport allowance
     • Annuity
     • Gratuity
     • Advance of salary
     • Other allowances and commissions
     • Perquisites in lieu of salary
     • Retirement benefits
     The total of these incomes, after exemptions but before deductions, is called gross salary. This is the amount that is taxed under the head income from salary.
  2. Income from House property : Any Rental Income from residential or commercial property that you own will be taxed. If you have a home loan, then the interest part of it would also be considered as negative income from House property.
  3. Income from Business or Profession : Income earned through business or profession is taxable under the head's profits and gains of business or profession. The income on which tax is levied shall be net of expenses.
  4. Income from capital gains : Any profit or gain arising from the transfer of capital asset held as investments (such as house, Jewellery are chargeable to tax under the head capital gains). The gain can be on account of short-term and long-term gains. Our article Basics of Capital Gain talks about it in detail.
  5. Income from other sources : Any income that does not come under the above four heads of income is taxed under the head income from other sources. For example, savings bank interest, lottery you win, or Reality shows like “Kaun Banega Crorepati”, etc. All these Incomes are taxable, which means the person winning 1 Crore in the show will get the reward amount after tax deduction at source at the rate of 30%.

Refer to the table below to get an idea about the various classifications of income:

Insert in the above table “Income from other sources”.

While your hard-earned income is generally taxable, there are certain categories of income that are exempted; these are called tax-free incomes and are provided in Section 10 of the Income Tax Act, 1961.

Tax Free Incomes – The Essential List Part-I

What are Exempt Incomes/Tax-Free Income and Taxable Incomes?

Exempt Incomes are not chargeable to tax as per the Income Tax act. I.e., they are not included in the total income for the purpose of tax calculation. For Example, Interest earned from PPF, etc. Whilst taxable Incomes are chargeable to tax. For example salary, house property, capital gains Income, etc.

What is PAN?

PAN stands for Permanent Account Number, it’s a ten-digit unique alphanumeric number issued by the Income Tax Department that acts as an identification for us. Whether we are Individual, HUF, Company, Firm, or any other assessee, the same can be known through our PAN. PAN is a prerequisite for filing ITR, also the tax department can trace all our communications, returns, refunds, and other activities relating to Income Tax through our PAN. It looks like as shown in the below image. Where the first Five digits will always be Alphabetic, the Next four digits - Numeric, and the Last digit - Alphabetic, the 4th letter is important as it denotes the type of assessee (Individual, Company, Firm Etc.)

Given below is an illustrative PAN: AAAAA1234A

Does every person who has a PAN card need to file ITR?

Only those having taxable income or otherwise who come under the ambit of mandatory filing of Income Tax returns as per the Income Tax Act are required to file ITR.

What is TAN?

TAN refers to Tax Deduction Number which is a 10-digit alphanumeric number allotted to those who are liable to deduct TDS by the Income Tax Department.
TAN Format- JPRD00214F
First Four digit Alphabetic, then after Five digit Numeric and last digit is Alphabetic.

Who is an assessee?

As per Income Tax Act, an assessee means “a person by whom any tax or any other sum of money is payable under this Act”.
In layman’s term if you are liable to pay taxes, have any taxable income, or are otherwise required to file ITR, you are an assessee. The Income Tax Act, 1961 has classified Assessee in different categories, such as

What is the difference between Financial Year and Assessment Year?

Financial Year is the year in which you have earned income. On the other hand, Assessment Year is always the succeeding year in which you file your Previous Year's Income Tax Return and offer the particulars of your income earned during the Previous Year to be assessed by the Income Tax Department.

What is Income Tax?

An income tax is a tax imposed by the government on income earned by you. Income tax is a key source of funds that the government uses to fund its activities and serve the public.

What is Corporate Tax?

When Companies pay taxes under the Income Tax Act, it is normally called Corporate tax.

Which body governs the filing of taxes in India?

The Central Board of Direct Taxes (CBDT) provides essential inputs for policy and planning of direct taxes in India and is also responsible for the administration of the direct tax laws through the Income Tax Department.

CPC Bengaluru or Income Tax Centralized Processing Centre undertakes the work of receiving and processing all income tax returns filed in India.

Do I have to file my Income Tax Return?

Whether you are required to file your income tax return or not depends upon a number of conditions. One such basic condition is, if your income exceeds Rs. 2,50,000 (For the financial year 2023-24, income up to Rs. 3,00,000 is exempt from tax as per Union Budget 2023 under the new tax regime) in a Financial Year you are required to file ITR. For more details, read our blog https://blog.tax2win.in/is-it-mandatory-to-file-income-tax-return/

What documents are required to be gathered to e-file your income tax returns in India?

Go through this list to see the documents you’ll need to file your taxes. You won’t need all the documents listed here as they vary on a case-to-case basis:-

What is Form-16?

Form 16 is issued to salaried individuals by their employers. This form prescribes details regarding

• TDS deducted and
• The Salary Amount Received
• Allowances (like amount paid for HRA, medical reimbursements, etc)
• Other Income if detail is provided to the Employer.
• Deductions etc

Form is given at the end of the year and helps you file your income tax return as a breeze.
It is to be noted that deduction of TDS does not free you from the mandate of Filing of Income tax return.

Form 16 might differ in format depending upon employer to employer but a standard form 16 looks like this:-

• Part A of FORM 16 contains details of taxes that have already been paid by you or deducted from your income
• Part B gives a detailed breakup/composition of your income

What is TDS?

As per Income Tax Act, there are certain payments including salary, interest etc. in which the one who makes such payment is liable to deduct tax known as Tax Deducted at Source. At the time of making the final computation of income, TDS is adjusted with taxes payable. Any excess tax deducted at source is credited back to the taxpayer’s bank account by the Income Tax Department.

What are Income Tax Forms?

These are prescribed forms through which a person can furnish the details of his /her income earned and taxes paid for the relevant financial year to the Income Tax Department. The ITR forms on successful submission to the tax department becomes Income Tax Return.

Can I file my return even if I don’t have my Form-16?

Filing your ITR without Form-16 is possible but may require some extra effort and diligence on your part. You should always obtain your Form-16 from your employer as it simplifies the process and reduces the chances of errors or mismatches in your tax records. However, if you do not have your Form-16, you can still file your ITR using other documents and sources of information. Here are the steps to follow:

• Collect your payslips and bank statements for the financial year. These will help you calculate your gross income, deductions, exemptions, and TDS.
• Download your Form-26AS from the income tax e-filing portal. This is a consolidated statement of all the taxes deducted from your income by various sources, such as your employer, bank, etc. You can use this to verify the TDS amount and claim credit for it in your ITR.
• Compute your taxable income by adding all your income sources, such as salary, interest, capital gains, etc., and subtracting the deductions and exemptions available to you under various sections of the Income Tax Act, such as 80C, 80D, etc.

What is ITR Form? How is ITR submitted to Department?

ITR forms as already discussed are the prescribed forms in which information is needed to be furnished to the income tax department. There are different ITR forms for different categories of the assessee and the same have been explained below:-

Form and their Description

How can ITR be filed?

An assesse filing a belated or a revised return- 31st dec of the relevant A.Y.(this should be edited in the image).

What is the process of e-filing ?

Income Tax Slab Rates for F.Y. 2023-24 (Old Tax Regime)

There are various Income tax Slabs determined by the government depending upon the age of an individual. They are as under:

Income tax slab for Individual taxpayers & HUF (less than 60 years old)

INCOME(Rs.)	F.Y. 2023-24
Up to Rs 2,50,000	No Tax
Rs. 2,50,001 to 5,00,000	5%
Rs.5,00,001 to 10,00,000	20%
Above Rs. 10,00,000	30%

Income tax slab for senior citizens (60 years old or more but less than 80 years old)

INCOME(Rs.)	F.Y. 2023-24
Up to Rs 3,00,000	No Tax
Rs. 3,00,001 to 5,00,000	5%
Rs.5,00,001 to 10,00,000	5% of the income exceeding INR 300,000 + 20% of the income exceeding INR 500,000
Above Rs. 10,00,000	5% of the income exceeding INR 300,000 + 20% of the income exceeding INR 500,000 + 30% of the income exceeding INR 10,00,000

Income tax slab for super senior citizens (80 years old or more)

INCOME(Rs.)	F.Y. 2023-24
up-to 5,00,000	Nil
Rs.5,00,001 to 10,00,000	20%
Above Rs. 10,00,000	20% of the income exceeding INR 500,000 + 30% of the income exceeding INR 10,00,000

Income Tax Slab Rates for F.Y. 2023-24 (New Tax Regime)

Income tax slab for Individual taxpayers & HUF (less than 60 years old)

INCOME(Rs.)	F.Y. 2023-24
Up to Rs 2,50,000	No Tax
Rs. 2,50,001 to 3,00,000	5%
Rs.3,00,001 to 5,00,000	5%
5,00,001 to 6,00,000	10%
6,00,001 to 7,50,000	10%
7,50,001 to 9,00,000	15%
9,00,001 to 10,00,000	15%
10,00,001 to 12,00,000	15%
12,00,001 to 12,50,000	20%
12,50,001 to 15,00,000	25%
Above 15,00,000	30%

Income tax slab for senior and super senior citizens (New Tax Regime)

Note:-
Surcharge:
A- 15% of income tax, where total income exceeds Rs.1 crore.
B- 10% of income tax, where total income exceeds Rs.50 lakhs but up to Rs. 1 crore.

Cess:
2% on Education Cess and 1% on 3% on income tax

Rebate under Section 87A: The rebate is available to a resident individual if his total income does not exceed Rs. 5,00,000. The amount of rebate shall be 100% of income tax or Rs. 12,500, whichever is less.

How to calculate income tax from income tax slabs?

This example explains how to apply tax slabs to calculate income tax for FY 2023-24 (AY 2024-25).

Rohit has a total taxable income of Rs 8,00,000 i.e. and not claiming any deduction deductions under chapter VI A. Rohit wants to know his tax dues for FY 2023-24.

Tax = Rs 15,000 (from the first slab) + Rs 20,000 (from the second slab)
= Rs 35,000

Cess (at 3% on the total tax) = 3% of Rs 35,000
= Rs 1,050

Total tax in FY 2023-24 (AY 2024-25) = Rs 35,000 + Rs 1,050
= Rs 36,050 (rounded off)

Thus, Rohit's total tax dues for FY 2023-24 (AY 2024-25) amount to Rs 36,050.

What is Deduction under section 80C?

In simple terms, you can reduce up to Rs 1,50,000 from your total taxable income through section 80C, by making investment in prescribed routes like PPF, LIC etc. This deduction is allowed to an Individual or a HUF.

Example

After providing deduction u/s 80C Taxable income will only be Rs 3.5 lakhs and not 5 lakhs.

What is Rebate u/s 87A?

Rebate under section 87A is accessible to resident individuals with a taxable income that falls below a specified threshold. This provision decreases the individual's payable income tax. The rebate's value and threshold under section 87A vary based on the chosen tax regime and the financial year selected by the individual.

For FY 2023-24 (AY 2024-25), the rebate u/s 87A is as follows:

• Under the new tax regime, the rebate is Rs 25,000 if the taxable income is up to Rs 7,00,000.
• Under the old tax regime, the rebate is Rs 12,500 if the taxable income is up to Rs 5,00,000.

For more details and calculations read our blog on Income Tax Rebate Under Section 87A

What is Advance Tax?

Advance tax means income tax paid in advance instead of a lump sum payment at the time of filing the ITR. It is also known as the “Pay As You Earn” tax. These payments have to be made in installments as per the due dates provided by the Income Tax Department.

Advance Tax Due Dates For FY 2023-24:

Who should pay Advance Tax?

Advance tax is to be paid by an individual if his total tax liability is Rs 10,000 or more in a Financial Year. The provision of Advance tax applies to all taxpayers. Whereas, Senior citizens, who are 60 years or older, and do not run a business, are exempt from paying advance tax.

What is Self-assessment Tax?

Procedure for payment of taxes?

Taxes can be paid online by making an e-payment, or alternatively, the hard copy of the challan can be deposited in any nearest branch of a bank. For more details, please read click here.

What is interest under section 234A, 234B, and 234C?

You can attract the interests u/s 234A, B, C in the following circumstances

What is the computation of income?

A systematic presentation of inputs entered by an assessee, together with the calculation of taxes is known as computation of total income. There is no fixed format for the same. Generally, following elements are considered while making Computation Of Total Income

• Personal details of assessee
  - Name
  - Father's name
  - Address
  - Contact details etc
• Bank account details
• Income details and
• Calculation of taxes
• Taxes paid details

A specimen of the computation has been given here under for your reference;

Why correct calculation of your income is important?

The tax which will be paid by you to the Income Tax Department, is calculated on the basis of your total income. Wrong computation of income may lead you in a situation of

• Paying Taxes
• Wrong selection of ITR form
• Penalty for not paying advance tax (if applicable)
• Undue cash crunch etc

Hence correct calculation of income becomes very crucial.

For example, In case of incomes earned between 1st April 2023 to 31st March 2024

What if I don’t file my return?

In case you don’t file your return, following repercussions may follow:-

• A notice can be issued by the Income Tax Department.
• Any business losses during the year will not be allowed to carry forward to the next years.
• Penalty shall be imposed u/s 270A, and interest may be payable as per the section 234A,B,C
• Other consequences may also be there as per Income Tax act, 1961.

What if wrong particulars are furnished while filing Income Tax Return?

So, in case you have furnished incorrect information in your income tax return, you can submit a revised return before the end of the relevant assessment year in which the original income tax return was filed. I.e. for Financial Year 2023-24; AY 2024-25, you can file a revised return till 31st December 2024.

Your return can now be revised irrespective of the fact it was filed till the due date or afterward. To summarize, a belated return can also be revised.

In case of any misreporting detected in the income tax return, the income tax officer can levy a penalty of 200% of the tax, which is sought to be avoided. In other cases of underreporting of income, the penalty shall be restricted to 50% u/s 270A of the Income Tax Act 1961. Hence be very vigilant while disclosing your income and filing taxes.

What is an Income tax refund and How you can claim it?

An Income tax refund is the excess tax paid by you which is refunded back by the Income Tax Department. For eg : tax you need to pay was Rs. 10,000 but you paid 15,000, then after filing your income tax return which would be showing tax refund of Rs. 5,000 the amount will be given back to you by the Income Tax Department.
You can now track the status of your Income tax refund with our free Refund Status

Can a return be filed after the due date? Fee u/s 234F!!

Yes, if you fail to file the return of income on or before the prescribed due date, then you can file a belated return. A belated return can be filed till the end of the relevant assessment year.The timeline to file a belated return is on or before 31 December of the relevant A.Y.
Example :-
Return for F.Y 2023-24 was say required to be filed latest till 31st July 2024. But Mr. Chopra fails to do so. Now, he can furnish a belated return of income till 31st December 2024.

Penalty for Late Filing under section 234F:

The Income Tax Act has changed the rules for late filing of ITR under section 234F. If you miss the deadline, you may have to pay a penalty of up to Rs.5,000.

The penalty amount has been reduced from Rs.10,000 to Rs.5,000 for the financial year 2021 onwards. This means that for FY 2023-24, you can avoid the penalty if you file your ITR by 31st July 2024 (30th September 2024 for audit and 31st October 2024 for transfer pricing cases). If you file your ITR after 31st July 2024, the penalty limit will be Rs.5,000. But if your total income is not more than Rs 5 lakh, you will only have to pay Rs.1,000 as the maximum penalty for late filing.

Fee Details of late filing:

Finally, my income tax return has been filed, am I free now?

Yes, you are free now until you haven’t made any mistake while filing. A mistake can lead you to revise your return u/s 139 (5) or rectify u/s 154. You have reached the end of our tax guide and learned a lot about the complex topics. Congratulations, you are no longer a tax novice but a tax-savvy! Well done!!

We recommend you consult an expert before filing your income tax return to avoid mistakes. If you have not filed your return yet, don’t delay any further. File it now! Book eCA now!