Income Tax

Income tax is charged on the annual income earned by an individual. The amount of tax paid depends on how much money an individual earned as income over a financial year. Income tax is paid on your taxable income as per the provisions of the Income Tax Act. Whereas, you file a tax return to show that you've paid all the tax that you need to pay. Income tax payment, TDS/TCS payment, and Non-TDS/TCS payments can be done online. The ITR document is very useful when it comes to applying for a loan or visa.

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What is Income Tax

Income Tax is a tax you pay directly to the government basis your income or profit. The Government of India collects income tax. Taxes are of two types - direct tax and indirect tax.

Direct tax is the tax you pay on your income directly to the Government and is levied on profits and income. However, indirect tax is levied on goods and services collected by someone else on your behalf and paid to the Government like theatres, restaurants, etc. So, for example, service tax is what you pay in a restaurant and is an indirect tax, whereas Income Tax, which is deducted from your salary every month in the form of TDS, is an example of direct tax.

The money collected by the direct tax route is used by the Government for infrastructural developments and also to pay the employees of central and state government bodies.

Income Tax Act of India was passed in 1961. This Act governs the income tax provisions and the various deductions that apply to it. However, since 1961, the law has been amended several times to take care of inflation and other socio-economic situations.

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Income Tax Overview

Income Tax is undoubtedly the most crucial source of revenue for the Indian Government. Hence, it is established as an inevitable imposition on the citizens in order to raise funds for fulfilling the development & defense needs of the country.

Taxes imposed on income, purchase, sale, and property help the Government run different government embodiment and machinery.

In India, the first Income Tax Act was introduced in 1860. It was implied by James Wilson to overcome heavy losses suffered by the British Government due to India's freedom movement in 1857. The history of Income Tax in India is divided into 3 different periods:

  • 1860-1885

  • 1886-1914

  • 1914 till date

Currently, the Income Tax Act 1961 is applicable in India. In 1956, the Government referred to the request to impose Income Tax Act. The Law Commission further submitted its report on the Income tax Act in 1958, and the same year, Chairman Shri Mahavir Tyagi chaired the Direct Taxes Administration inquiry Commission. 

The Income Tax Act 1961 was introduced to the public. Since then, it has undergone amendments from time to time.

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Income Tax Rules

The legislature introduced the Income Tax Act 1961 to govern and administer income tax in the country. However, in 1962, the income tax rules were created to help enforce and apply the law constituted in the Act. Moreover, one can only read the income tax rule combined with the Income Tax Act. The Income Tax Rules are made within the Income Tax Act's structure and are not allowed to overrule its provisions.

Types of Taxes in India

As per the Income Tax Act, there are 2 types of taxes in India:

  1. Direct Taxes

    It is borne and paid directly by the individual it is imposed on, such as wealth tax, income tax, gift tax, etc. The taxpayer pays this tax directly to the Government without any involvement of an intermediary source.

  2. Indirect Taxes

    If the taxpayer passes on a tax to the other person, it is an indirect tax, e.g., sales tax, Value Added Tax (VAT), etc. This type of tax is paid indirectly to the Income tax department.

Who are the Tax Payers?

Any Indian citizen aged below 60 years is liable to pay income tax if their income exceeds Rs 2.5 lakhs. If the individual is above 60 years of age and earns more than Rs 2.5 lakhs, they will have to pay taxes to the Government of India.

Income Tax

Additionally, the following entities that generate income are liable to pay direct taxes:

  • Hindu Undivided Family (HUF)

  • Body of Individuals (BOI)

  • Association of Persons (AOP)

  • Local Authorities

  • Corporate firms

  • Companies

  • All Artificial Juridical Persons

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Income Tax Slab for Financial Year 2022-2023

  • Tax Rates for Individuals and HUFs (Old Regime)

    Let's take a look at how new tax rules will affect the tax outgo of taxpayers as per the age criteria:

    Tax Rate for Individuals

    Net Income Range Income Tax Rates
    Assessment Year 2022-23 Assessment Year 2021-22
    Up to Rs. 2,50,000 NIL NIL
    Above Rs. 2,50,000 but less than Rs. 5,00,000 5% 5%
    Above Rs. 5,00,000 but less than Rs. 10,00,000 20% 20%
    Above Rs. 10,00,000 30% 30%
  • Special Tax Rates for Individuals and HUFs (New Regime)

    Total Income Simplified Optional Tax Rate
    Up to Rs.2.5 lakh Nil
    From 2.5 lakh- Rs.5 lakh 5%
    Rs.5 lakh-Rs.7.5 Lakh 10%
    Rs.7.5 Lakh-Rs.10 lakh 15%
    Rs.10 lakh-Rs.12.5 lakh 20%
    Rs.12.5 lakh-Rs.15 lakh 25%
    Above Rs.15 Lakh 30%

    Surcharge

    The cess and surcharge on income tax payable are applicable if the total income of the assessee exceeds the below-mentioned limits:

    Assessment Year 2022-23
    Income Range Surcharge
    Above Rs. 50 Lakhs but less than Rs. 1 Crore 10%
    Above Rs. 1 Crore but less than Rs. 2 Crores 15%
    Above Rs. 2 Crores but less than Rs. 5 Crores 25%
    Above Rs. 5 crores but less than Rs. 10 Crores 37%
    Above Rs. 10 Crores 37%

    Disclaimer: Policybazaar does not endorse, rate, or recommend any particular insurer or insurance product offered by an insurer.

  • Tax Rate for Senior Citizens

    A Senior Citizen of India is an individual more than 60 years of age at any time during the previous financial year.

    Net Income Range Income Tax Rates
    Assessment Year 2022-23 Assessment Year 2021-22
    Up to Rs. 3,00,000 NIL NIL
    Above Rs. 3,00,000 but less than Rs. 5,00,000 5% 5%
    Above Rs. 5,00,000 but less than Rs. 10,00,000 20% 20%
    Above Rs. 10,00,000 30% 30%
  • Tax Rate for Super Senior Citizens

    Super Senior Citizen is an individual more than 80 years of age at any time during the previous financial year.

    Net Income Range Income Tax Rates
    Assessment Year 2022-23 Assessment Year 2021-22
    Up to Rs. 5,00,000 NIL NIL
    Above Rs. 5,00,000 but less than Rs. 10,00,000 20% 20%
    Above Rs. 10,00,000 30% 30%
  • Tax Rates for HUFs (Hindu Undivided Families)

    Hindu undivided families include BOI, AOP, and Artificial Juridical Person

    Net Income Range Rate of Income-tax
    Assessment Year 2022-23 Assessment Year 2021-22
    Up to Rs. 2,50,000 NIL NIL
    Above Rs. 2,50,000 but less than Rs. 5,00,000 5% 5%
    Above Rs. 5,00,000 but less than Rs. 10,00,000 20% 20%
    Above Rs. 10,00,000 30% 30%
  • Surcharge

    The cess and surcharge on income tax payable are applicable if the total income of the assessee exceeds the below-mentioned limits:

    Surcharge Rate
    Range of Income Assessment Year 2022-23 Assessment Year 2021-22
    Above Rs. 50 Lakhs but less than Rs. 1 Crore 10% 10%
    Above Rs. 1 Crore but less than Rs. 2 Crores 15% 15%
    Above Rs. 2 Crores but less than Rs. 5 Crores 25% 25%
    Above Rs. 5 crores but less than Rs. 10 Crores 37% 37%
    Above Rs. 10 Crores 37% 37%

Income Tax Slab for Financial Year 2020-2021

The New Income Tax Slab for FY 2020-2021 has revised the income tax slabs for different income groups. The income group up to Rs. 2.5 lakh is exempted from tax. There is a 10% tax for those earning between Rs. 5 lakhs and Rs. 7.5 lakhs. 15% tax will be levied on people earning between Rs. 7.5 lakhs and Rs. 10 lakhs in a financial year. 20% and 25% tax is levied on the income group of Rs. 10 lakh to 12.5 lakhs and Rs. 12.5 to Rs. 15 lakhs respectively.

  • Income tax slab and rates 2020-2021 for HUF and Individuals below the age of 60 Years

    Annual Income (in Lakhs) Old Tax Rate New Tax Rate
    2.5 NIL NIL
    2.5 to 5 5% 5%
    5 to 7.5 20% 10%
    7.5 to 10 20% 15%
    10 to 12.5 30% 20%
    12.5 to 15 30% 25%
    15 and above 30% 30%

    Disclaimer: Policybazaar does not endorse, rate, or recommend any particular insurer or insurance product offered by an insurer. The tax benefit is subject to changes in tax laws. *Standard T&C Apply

    Surcharge applicable in the Income tax slab 2020-21 is kept the same as it was in the old tax regime 2019-2020.

Income Tax Slab for Financial Year 2019-20

The income tax slab is a slab under which an individual fall is determined based on the income earned by an individual. Individuals whose income is less than Rs.2.5 lakh per annum are exempted from tax.

The resident taxpayers are divided into three categories based on an individual's age. So let's take a look at it.

  • Individuals who are less than 60 years of age.

  • Senior citizens above the age of 60 years old and below 80 years of age.

  • Super senior citizens who are above 80 years of age.

  • Income Tax Slabs & Rates 2019-20, for HUFs and Individuals (Male or Female) Below the Age of 60 Years (Part 1)

    Income Tax Slabs Income Tax Rates
    Income less than Rs 2.5 lakhs Nil
    Income greater than Rs 2.5 lakhs but less than Rs 5 lakhs 5% of the amount exceeding Rs 2.5 lakhs
    Income greater than Rs 5 lakhs but less than Rs 10 lakhs Rs.12,500+20% of the amount exceeding Rs 5 lakhs
    Income greater than Rs 10 lakhs Rs.1,12,500+30% of the amount exceeding Rs 10 lakhs

    Additional 4% health and education cess are applicable to the tax amount calculated above.

  • For Senior Citizen (Male or Female) Above the Age of 60 Years (Part 2)

    Income Tax Slabs Income Tax Rates
    Income Up to Rs.3,00,000 Nil
    Income from Rs.3,00,000- Rs.5,00,000 5% of the amount exceeding Rs 3 lakhs
    Income from Rs.5,00,000- Rs.10,00,000 20% of the amount exceeding Rs 5 lakhs
    Taxable income greater than Rs 10 lakhs  30% of the amount exceeding Rs 10 lakhs

    An additional 4% health and education cess is applicable to the tax amount calculated above.

  • For Super Senior Citizen Above the Age Group of 80 years (Part 3)

    Income Tax Slabs Income Tax Rates
    Income up to Rs.5,00,000 Nil
    Income from Rs.5,00,000-Rs.10,00,00  20% of the amount exceeding Rs 5 lakhs
    Income more than Rs.10,00,000 30% of the amount exceeding Rs 10 lakhs 

    An additional 4% health and education cess is applicable to the tax amount calculated above.

  • Surcharge applicable to the individuals covered in Part1, Part 2, and Part 3:

    Income Limit Surcharge rate on the amount of Income Tax
    In case the net income exceeds Rs.50 lakhs but less than Rs.1 crore 0.1
    In case the net income exceeds Rs.1 crore but less than Rs.2 crore 0.15
    In case the net income exceeds Rs.2 crore but less than Rs.5 crore 0.25
    Net Income exceeds Rs.5 crore 0.37

What are the Different Income Tax Slab Rates?

Income tax slab rates are defined based on the earnings of the taxpayers. Income tax slab rates are broadly categorized as follows:

  • Income Tax Slabs & Rates for HUFs and Individuals (Male or Female) Below the Age of 60 Years

    Income Tax Slabs Income Tax Rates
    Income less than Rs 2.5 lakhs Not applicable
    Income greater than Rs 2.5 lakhs but less than Rs 5 lakhs 5% of the amount exceeding Rs 2.5 lakhs
    Income greater than Rs 5 lakhs but less than Rs 10 lakhs 20% of the amount exceeding Rs 5 lakhs
    Income greater than Rs 10 lakhs 30% of the amount exceeding Rs 10 lakhs
  • For Individuals (Male or Female) Above the Age of 60 Years:

    Income Tax Slabs Income Tax Rates
    Taxable income less than Rs 3 lakhs Not Applicable
    Taxable income greater than Rs 3 lakhs but less than Rs 5 lakhs 5% of the amount exceeding Rs 3 lakhs
    Taxable income greater than Rs 5 lakhs but less than Rs 10 lakhs  20% of the amount exceeding Rs 5 lakhs 
    Taxable income greater than Rs 10 lakhs 30% of the amount exceeding Rs 10 lakhs
  • For Individuals (Male or Female) Above the Age of 80 Years:

    Income Tax Slabs Income Tax Rates
    Taxable income less than Rs 5 lakhs Not Applicable
    Taxable income greater than Rs 5 lakhs but less than Rs 10 lakhs  20% of the amount exceeding Rs 5 lakhs
    Taxable income greater than Rs 10 lakhs 30% of the amount exceeding Rs 10 lakhs 
  • For Co-operative Societies:

    Income Tax Slabs Income Tax Rates
    Taxable income less than Rs. 10,000 10% of the income
    Taxable income greater than Rs. 10,000 but less than Rs. 20,000  20% of the amount exceeding Rs. 10,000. 
    Taxable income greater than Rs. 20,000  30% of the amount exceeding Rs. 20,000. 
  • For Domestic Companies:

    The income tax rate applicable for Domestic Companies will be 30%.

  • For Foreign Companies: 

    Nature of Income Rate of Tax
    According to the agreement designed by the Indian Government, if the Indian Government pays the foreign firms in the form of royalties (After March 31st,1961 and before April 1st, 1976) 50%
    According to the agreement made with an Indian concern, if the payment is made for the technical services (provided by foreign firms - After February 29th, 1964, before April 1st, 1976) 50%
    For any other income 40%
  • Exceptions to the Tax Slab

    It is important to keep in mind that not all income can be taxed based on income tax slab rates. An exception to this rule is capital gains income. The capital gains tax is applicable based on the asset owned by the individual, and for the period they have owned it. The asset's holding period will determine whether it is a long-term or short-term asset. Let's look at the tax rate applicable to the different types of capital assets based on the holding period.

    Type of Capital Asset Holding Period Tax Rate
    House Property A time period of more than 2 years- long term A time period of less than 2 years- short term 20% depends on the slab rate
    Equity Mutual Fund A time period of more than 1 year - Long term A time period of less than 1 year- Short term Exempt (until 31st march 2018)Capital gains more than Rs.1 Lakh are taxable at 10 %, 15%
    Debt Mutual Fund A time period of more than 3 years- Long Term  A time period of less than 3 years- short term 20% depends on the slab rate
    Shares(STT Paid) A time period of more than 1 year- long term       A time period of less than 1 year- short term Exempt (until 31st march 2018)Capital gains more than Rs.1 Lakh are taxable at 10 %, 15%
    Shares(STT Unpaid) A time period of more than 1 year- long term       A time period of less than 1 year- short term 20% as per the tax slab rate.
    FMPs A time period of more than 3 years- long term      A time period of less than 3 years- short term 20% as per the tax slab rate.

    Disclaimer: Policybazaar does not endorse, rate, or recommend any particular insurer or insurance product offered by an insurer. The tax benefit is subject to changes in tax laws. *Standard T&C Apply

Online Income Tax Payment

Nowadays, taxpayers can use the facility of e-payment in order to pay direct taxes online. However, it is important to keep in mind that the taxpayer should have a net-banking account with an authorized bank to avail of the online tax payment facility. In addition, for the validation purpose, the taxpayers also need to provide the Permanent Account Number (PAN) or Tax Deduction and Collection Number (TAN).

How to File ITR?

Similar to the other countries, tax is the main source of revenue for the Government in India as well. Thus, along with paying taxes, the citizens of India are also obligated to file Income Tax Returns (ITR). Unlike before, filing ITR is not as difficult as it sounds. An individual can file an income tax return online by following simple steps. Let's take a look at the steps to e-file ITR.

Before you start filing the income tax return, these documents should be kept handy.

  • Permanent Account Number (PAN)

  • Adhaar Card

  • Bank Account Details

  • Form 16

  • Investments Details

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Steps to Follow for e-Filing ITR

  • Visit the official website of the income tax department (www dot incometaxindiaefiling.gov.in) and log in using the user ID and Password and enter the captcha displayed.

  • Once you log in to your account, go to the e-file section and select the option of the income tax return. Note-you can fill only ITR 1 and ITR4s Online.

  • Choose the assessment year, ITR form ITR 4S/ITR1, and 'prepare and submit ITR online.'

  • Check the bank details and click on the continue button.

  • You will need to upload the Digital Signature Certificate (DSC) in case you have it. Make sure that the DSC should be registered with the e-filing.

  • Click on the submit button.

  • If you don't have DSC, the income tax return verification will be displayed on the screen on the successful submission.

  • Download the ITR-V form from the link displayed, sign it, and submit it to the CPC before 120 days from the e-filing date.

  • Once the process of ITR-V is completed, your e-filing ITR will be done.

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Income Tax Calculator

One can do the income tax computation manually or using an income tax calculator. The income tax rate applicable for an individual depends on the tax slab under which they fall. For example, for a salaried individual, the income from salary includes the basic income+ House Rent Allowance (HRA) + Transportation Allowance + Special Allowance, if any. However, there are specific components of the salary which are tax exempted, such as; Leave Travel Allowance (LTA), reimbursement of telephone bills, etc. Moreover, an individual is also eligible to claim tax exemption on HRA if they reside in a rented house.

How is the Income Tax Collected?

There are primarily three ways in which the Government collects Income Taxes:

  • Taxes Deducted at Source (TDS)

  • Taxes Collected at Source (TCS)

  • Voluntary payment by taxpayers into designated Banks 

What are the different taxable Heads of Income?

Income taxes are levied depending on the source of income. Following are the five main income heads from which taxes are deducted.

  • Income from Salaries

    The taxable income that all employees receive from their employers is categorized under this head. As per section 192 of the Income Tax Act, the employer will withhold taxes if the employees do not come within the taxable bracket. All about tax deductions and the net paid income are detailed in Form 16 that the employer must provide to the employee.

  • Income from Capital Gains

    Capital gains on taxation apply to earnings from the sale of capital assets held by the tax assessee. Capital assets refer to the properties such as buildings, lands, bonds, equities, debentures, jewelry, etc. Taxes are levied on the income of the assessee when such properties are sold.

  • Income from House Property

    Income Tax is levied on house property if the house is given out on rent by the owner. However, the property cannot be used for business or professional purposes under this head.

  • Income (Profits) from Business

    As per sections 30 to 43D of the Income Tax Act, the profits earned from businesses or by providing professional services are considered taxable at applicable rates. This income head is also known as "Profits and Gains of Business or Profession."

  • Income from Other Sources

    Income from any sources other than the four listed above is categorized under this head. Some specific income coming under this head is listed below:

    • Lottery/horse race winnings

    • Income from dividends

    • Pension received after the pensioner's death.

    • Rental income (other than house properties)

    • Gifts received

    • Interest in government securities, debentures, and bonds.

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What are Income Tax Returns?

Every individual with a source of income, regular or irregular, is legally required to file their income tax returns. You should file income tax returns even if your income is below the taxable bracket. There are prescribed forms through which the income earned by a person and the income tax paid thereon are informed to the Income Tax Authority. The following table shows different forms prescribed for different classes of taxpayers.

Forms Description
ITR Form 1 Any person who receives a regular salary or pension or has an income from residential property or other sources.
ITR Form 2 This form is for those who come under the category of Hindu Undivided Families and have income from any sources other than Profits gained from business and profession.
ITR Form 3 This form is for the Hindu Undivided Families whose income falls under the head of Profits and Gains of Business or Profession.
ITR Form 4S This form, also known as SUGAM, applies to HUFs(Hindu Undivided Families) and individuals opting for the SUGAM taxation scheme as per section 44 AD/ AE
ITR Form 4 This form applies to Hindu Undivided Families and individuals who are professionals or proprietors
ITR Form 5 This form applies to LLPs, Firms, BOIs, AOPs, artificial judiciary persons, and local authorities.
ITR Form 6 This form applies to companies that claim no exemptions as per section 11 of the Income tax Act.
ITR Form 7 This form applies to the persons who are required to file returns as per Sections 139(4A), 139 (4D), 139 (4C), 139(4B)
ITR Form V ITR V is provided to acknowledge that the Income Tax return has been filed.
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Disclaimer: Policybazaar does not endorse, rate, or recommend any particular insurer or insurance product offered by an insurer. The tax benefit is subject to changes in tax laws. *Standard T&C Apply

Uses & Benefits of Filing Income Tax Return

Mentioned below are the uses and benefits of Filing Income Tax Return

  • Easy Loan Processing

    Filing ITR (Income Tax Return) makes it easier for financial institutions to check the financial credibility of an individual (assessee). If a taxpayer applies for a loan, it helps in the easy processing of bank loans.

  • Foreign Travel

    The process of foreign trips' visa procurement needs ITR proofs.

  • Carry Forwarding of Losses

    Some losses such as business loss, speculation loss, a capital loss can be carried forward only when ITR is filed before the due date.

  • Tax Refund

    If you have paid any additional tax, it can only be claimed if you have filed your ITR.

  • Passport Application

    Applying for a passport becomes easier if you have filed your ITR as it serves as a Non-ECR proof (Non-Emigration Check Required). You simply need to submit a photocopy of your ITR assessment and the actual payment receipt of the latest income tax return. Or else, you can also submit the income tax statement attested by IT authorities.

  • Insurance Claim

    If an accidental death occurs, the insurance company will need proof of income to process the claim. In case ITR is missing, it can significantly lower the amount of claim as ITR is the only document the court accepts for such cases.

  • Government Tenders

    Filing ITR also comes in handy while applying for government tenders, panel registration, etc. You must submit your ITRs for the last 5 to 7 years, which the tender scrutiny committee will check. It is done to assess whether you (as an applicant/contractor) have worked on a tender at a particular scale or not.

  • High Life Risk Cover

    If you are planning to buy a high life cover of Rs. 50 lakhs or 1 crore, it can only be bought if you have filed your ITR. It helps the insurance providers to verify your annual income.

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Income Tax Calculation

Tax calculation is done on a person's annual income, and the annual financial cycle under income tax law starts from 1st April to 31st of March of the next calendar year. The law classifies the years as "Previous Year" and "Assessment Year."

"Previous year" is defined as the year in which income is earned, and "Assessment Year" is defined as the year in which it is charged. 

Tax Deduction

The following are the various sections of the Income Tax Act of 1961, which allows the reduction of one's Taxable Income.

  • Sections 80C

    Under this section, a deduction is available to individuals and HUF. On the payment made towards life insurance policies, provident fund, or superannuation, the tax deduction is available up to the amount of Rs 1,50,000/-.

  • Section 80CCC

    Tax exemptions under this section are on payments made to insurance companies and LIC under approved pension plans. The pension policy must be taken from the individual himself and must be up to Rs. 1,50,000 out of taxable income.

  • Section 80CCD

    Tax exemption under this section is for contribution by the assessee and the employer to the new pension scheme. The tax exemption under this section equals the contribution, not exceeding 10% of an individual salary.

  • Section 80D

    The premiums paid on the health insurance comes under this section of income tax deduction. Health insurance policies generally provide coverage to the insured person, spouse, and dependent children. If you pay your health insurance premiums, you can save your taxes up to Rs. 15,000 to Rs. 20,000. In the case of Hindu Undivided Family, the general deduction is up to Rs. 15,000, and the additional deduction is Rs. 5,000.

  • Section 80DDB

    Under this section, the tax deduction is made on medical expenses arising from treating any disease or illness specified in the rule (11DD). The tax benefit applies to the taxpayer, the family member, or any member of HUF.

  • Section 80E

    The interest paid on education loans in the country comes under this tax deduction section.

  • Section 80EE

    The first-time homeowners come under this section of tax benefit. Those whose first home purchase value is less than Rs. 40 lakh and the loan taken for Rs. 25 lakh or less are applicable for the tax deduction.

  • Section 80RRB

    Under this section, the tax deduction applies to the income earned by royalties and patents. For the patent registered under the patent act, 1970, up to the amount of Rs. 3,00,000 income tax can be saved.

  • Section 80TTA

    Tax deductions apply on interest earned in the post office and co-operatives society and saving bank accounts. Up to Rs 10,000 of interest income individuals and HUFs can claim the deduction.

  • Section 80U

    This section of income tax deduction applies to disabled people. To avail of the tax benefit under this section, one needs to show their disability certificate. Depending on the severity of the disability, up to Rs 1,00,000 can be non-taxed.

  • Section 24

    The interest paid on a housing loan comes under this tax exemption section. In addition to the deduction under sections 80C, 80CCF, and 80D, up to Rs 2,00,000 per year can be claimed as the deduction. For the rented properties, 30% of the received rent and municipal taxes paid are eligible for tax savings.

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The Basics of Income Tax Calculation in India

Income Tax in India has been filed annually based on 'Previous Year' and Assessment year.'

  1. Previous Year

    According to income tax rules, 'Previous Year,' also known as the 'Financial Year,' begins on 1st April of the current year and ends on 31st March of the next year. Therefore, it doesn't matter in which particular month you have started earning, the financial year will end on the 31st of March, and the new tax year will begin 1st April onwards. Hence, planning your taxes in advance for each financial year is necessary.

  2. Assessment year

    Simply put, the upcoming fiscal year comes after the 'Previous Year,' and one must assess and file their income tax returns in the 'Assessment Year.'

Income Tax Act, 1961

The Income Tax Act comes with a wide range of sections. Each section caters to a different aspect of taxation rules in India. Let's have a look into various chapters of the IT Act along with the related sections and sub-sections:

  • Chapter 1

    The first section of the Income Tax Act offers a basic introduction to the IT Act.

  • Chapter 2

    This chapter deals with the commencement & the extent of the IT Act.

  • Chapter 3

    This particular chapter deals with income tax charges, dividend income, the scope of total income, income earned through working abroad, etc.

  • Chapter 4

    Chapter 4 of Income Tax laws deal with the other forms of income that are not a part of total income, like income from property, institutions, trusts, political parties' incomes, etc.

  • Chapter 5

    The chapter deals with sections about income earned from other sources such as income from capital gains, house property, businesses, etc.

  • Chapter 6

    The chapter deals with the transfer of income wherein no actual transfer of assets are involved. It also includes revocable transfer.

  • Chapter 7

    This chapter is about the deductions on income generated from specific sources and certain payments.

  • Chapter 8

    Chapter 8 of the Income Tax Act deals with the rebates and how much share a member would get in a body or an association.

  • Chapter 9

    This chapter deals with the double taxation relief in detail which helps the taxpayers to get a rebate on the income tax paid.

  • Chapter 10

    This chapter deals with the special scenarios where income tax payment is avoided. This type of scenario normally includes agreements with foreign countries. The chapter deals with information about the particular countries that follow these kinds of agreements.

  • Chapter 10A

    This chapter deals with different types of general anti-avoidance income tax rules for income taxpayers.

  • Chapter 12

    This chapter deals with the tax calculation under special cases.

  • Chapter 12A

    Chapter 12A of the Income Tax Act deals with the special provisions formulated for Non-Resident Indians. It includes short-term capital gains, capital gains, provident funds, etc. This chapter includes Section 110 to Section 115BBE of the income tax rules as per the Income Tax Act, 1961.

    Various cases in this section yield tax-liable incomes such as foreign currency units, dividends, royalty, etc.

  • Chapter 12B

    This chapter deals with special tax provisions designed for particular companies. It includes Section 115J to Section 115JF of the Income Tax Act.

  • Chapter 12BB

    This chapter deals with the taxation process to convert a foreign organization into an Indian subsidiary.

  • Chapter 12D

    This chapter deals with the taxation process for the profits earned by domestic companies. It also deals with the interest payable in case of non-payment of taxes by the companies or if the company is a defaulter.

  • Chapter 12DA

    This chapter deals with the income tax rules on the distributed income of an organization.

  • Chapter 12E

    Chapter 12E of the Income Tax Act deals with the rules meant for distributed income of unit holders.

  • Chapter 12F

    This chapter deals with the taxes on income received from venture capital funds and venture capital companies.

  • Chapter 12G

    This chapter deals with special provisions for shipping companies and the involved taxation procedures.

  • Chapter 13

    This chapter deals with the information related to different income tax authorities, including their jurisdiction, appointment & control, their powers, and disclosure of information.

  • Chapter 14

    Chapter 15 of the Income Tax Act deals with Section 139 to Section 152. This chapter deals with the return filing formalities, including obtaining PAN, e-filing of ITR, and accounting methods. It also includes other amendments, intimation of any loss and related cases, and rectifying mistakes.

  • Chapter 14A

    Chapter 14A deals with the special provisions that help to avoid repetitive appeals. It includes the cases that are already pending in the Supreme Court or High Court.

  • Chapter 15

    This chapter deals with the liabilities for different cases, including general and special provisions. It also deals with the provisions meant for tax recovery from NRIs, private companies, etc.

  • Chapter 16

    Chapter 16 of the Income Tax Act deals with the firms and their taxation and assessment process. It also deals with constitutional changes, succession, and dissolution processes.

  • Chapter 17

    This chapter deals with the clauses related to tax collection & recovery. It also gives an insight into the interest charged on late tax payments or recovery cases.

  • Chapter 18

    This chapter deals with the income tax relief given to the companies for the dividends they pay to their shareholders. Chapter 18 also deals with the tax relief provided to the companies in lieu of the charitable work that they support through their foundation wings.

  • Chapter 19

    Chapter 19 deals with the tax refunds if any extra tax is paid to the Income Tax department. It involves the cases where a taxpayer is eligible to get a refund, interest on their refund if no claim is made and the correctness of the assessment. It includes Section 237 to Section 245.

  • Chapter 19A

    Chapter 19A deals with the settlement of cases and includes sections 245A to 245L. Different aspects of settlements such as application, abatement of proceeding, procedure, and recovery are covered under it.

  • Chapter 19B

    This chapter deals with all advance rulings. It also deals with sections from 245N to 245V. Chapter 19B includes an application for the power of authority, advanced ruling, and procedure.

  • Chapter 20

    The chapter deals with the appeals forwarded to the commissioner and deputy commissioner. Other than this, it also deals with appeals made to the Supreme Court, High Court, and other general revision aspects by the commissioner.

  • Chapter 20A

    Chapter 20A of the Income Tax Act includes sections 269A to section 269S. This chapter deals with acquiring immovable property in some instances to counteract tax evasion. All acquisition aspects, from jurisdiction to every other related aspect, are covered under this chapter.

  • Chapter 20B

    Chapter 20B deals with different payment modes and requires tax evasion corrections. It also deals with loan accepting and deposits and their corresponding modes.

  • Chapter 20C

    This chapter deals with buying immovable property. However, the properties that the central Government makes for transfer cases. A few aspects covered under the chapter are appropriate authority, restrictions on the property, vesting of property, and rectifying mistakes.

  • Chapter 21

    It includes sections 271 to 275 of the Income Tax Act. It deals with different penalties applicable to taxpayers in different cases. In short, it deals with penalties such as non-payment of taxes, non-disclosure, failure to comply with different provisions of the income tax sections, and so on.

  • Chapter 22

    This chapter includes sections 275A to section 280D. These sections deal with prosecution & offenses with respect to compliance failure and other related details.

  • Chapter 23

    This chapter includes sections 281 to 298. It further deals with almost all miscellaneous topics that can't be categorized under any other tax chapters mentioned above. It includes generic and special scenarios that may arise concerning the taxation process for different taxpaying entities.

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Schedules Made to the Income Tax Act

Schedules to the Income Tax Act 1961 consist of various annexures that were amended and added to include the scenarios that were not initially mentioned or covered. These schedules are introduced to make the Income Tax Act more comprehensive and inclusive.

Income Tax E-Filing

Over the past few years, the income tax department of India has digitized the entire Income Tax Collection and return filing process. As a result, it has become very convenient for individuals and businesses to pay their taxes online, file returns, and finally track their payments' history through the various Income Tax Department portals.

Income Tax paid by you is directly used in nation-building activities. The tax helps the Government improve our country's infrastructure, provide better governance and run the various public services smoothly. All the taxpaying Indians are, therefore, in a little way contributing towards a better future for our motherland.

FAQ's

  • Define the administrative framework of the Income Tax?

    Ans: The Government of India's revenue functions is managed by the Finance Ministry. The ministry of finance confides tasks such as wealth tax, income tax, etc., to the CBDT or Central Board of Direct Taxes. Basically, the CBDT is a wing of the Ministry of Finance's Department of Revenue. The CBDT gives essential inputs for policy planning and framing of the direct taxes and administers the laws of direct taxes through the IT department. In this way, the Income Tax laws are administrated by the IT department only under the supervision and control of the CBDT.
  • What is the meaning of Financial Year in the Income Tax context?

    Ans: As per the Income Tax laws, the Financial Year is the period that starts from the 1st of April and ends on the March 31st of the next year (calendar).
  • What is the time period during which the income of a person is taken into account to calculate their income tax?

    Ans: The income that a person earns during the period of 12 months starting from the 1st of April to March 31st (in one financial year) is considered to calculate the Income Tax.
  • What are the different income collection forms?

    Ans: The Government of India collects taxes through different means, which are:
    • Self-assessment tax
    • Advance tax
    • Tax on the regular assessment
    • Taxes that are collected at the source (TCS)
    • Taxes that are deducted at the source (TDS)
    • Attachments, etc.
  • Who should pay the income tax?

    Ans: Any individual, group of people or some artificial body who has earned the income during the previous financial year(s) must pay the Income Tax on their earnings. As per Section 2 (3) of the Income Tax Act, the Income Tax Department recognizes the earners of the income in the below-mentioned seven categories, which are called Status:
    • Hindu Undivided Family (HUF)
    • Individual
    • Association of Persons (AOP)
    • Companies
    • Body of Individuals (BOI)
    • Firms
    • Local Authority and Artificial Judicial Person
    Companies pay income tax as per the Income Tax Act, which is known as the Corporate Tax.
  • What are the means of Income Tax collection? Or how does the Indian Government collect the Income Tax?

    Ans: The Government of India collects the taxes in three ways –
    • The taxpayers of India make voluntary payments in different designated banks, for example, self-assessment tax and advance tax paid by Indian taxpayers.
    • Taxes that are collected at the source (TCS)
    • Taxes are deducted at the source (TDS) from the receiver's income.
    It is mandated by the Income Tax Department of India for every earning person to compute their income and make the tax payment correctly.
  • Mention different heads under which the Income Tax is levied in India?

    Ans: As per the Income Tax Act, the income of any taxpayer is classified under 5 various heads of the income, which are:
    • Salaries
    • Capital gains
    • Income from the house property
    • Gains and profits of profession or business
    • Income through other sources
  • Provide the basic tax exemption limit levied on the Income Tax in India?

    Ans: The basic tax exemption limit for the financial year 2017 – 18 is as follows:
    • For HUF, individual, BOI, and AOP – Rs.2,50,000
    • For individuals falling in the age range of 60 to 80 years – Rs.3,00,000
    • For individuals who are 80 years of age or more – Rs.5,00,000
    However, there is no basic tax exemption limit for other categories, like co-operative societies, companies, firms, and other local authorities. Therefore, they should pay taxes on their complete income that is chargeable on tax.
  • Is there any provision for Double Taxation Relief in India?

    Ans: Yes, a taxpayer can claim relief concerning the income charged to tax abroad and in India. The taxation relief is either granted according to the provision of the double taxation avoidance agreement mentioned along with the country (if there is any) by the Indian Government or by allowing the relief according to section 91 of the Income Tax Act with respect to the tax that is paid in the foreign country.
  • What are the account's books prescribed under the Income Tax law that is to be maintained?

    Ans: The companies' account books are prescribed under the Companies Act. However, other people are expected to maintain and keep such account books and other documents that may enable the officer to compute the total income as per the provision of the Income Tax Act.
    In addition, the Institute of Charted Accountants of India has mentioned different accounting standards and guidelines that business entities must follow.
  • What is PAN?

    Ans: The full form of PAN is the Permanent Account Number. It is a ten-digit alphanumeric code issued by the Department of Income Tax. It is a unique code.
  • Define the benefits of having PAN?

    Ans: Permanent Account Number or PAN is required for each and every transaction with the Department of Income Tax. The PAN is made mandatory for various other financial transactions like when one opens a bank account, for purchasing high-end consumer goods, availing financial credits of institutions, foreign travel, dealing with securities, making a transaction of some immovable property, etc. In addition, a PAN card is considered one of the most valuable ways of photo identification that is accepted by all of the non-Government and Government institutions of India.
  • How does one know the income tax they must pay?

    Ans: The corporate tax and income tax rates are provided in the Finance Act that is passed by the Parliament each year. One can as well check their tax liability by using the free tax calculator online available at www.incometaxindia.gov.in
  • If I want to discuss some tax-related matters, where should I ask for the help of an Income-tax expert?

    Ans: If you want to discuss some tax-related matter, you can discuss it with the tax professionals or take the help of any Public Relations Officer (PRO) in every local Income Tax office. You can also discuss your issue with Tax Return Preparers (TRPs). To locate the nearest TRP, you can visit – www.trpscheme.com
  • What do the terms like Income-tax other than companies and Income-tax on companies mentioned in Challan mean?

    Ans: The tax that companies pay on their income is known as corporate tax, and to pay the same in the Challan, it is specified as Income-tax on companies – 0020. However, the tax paid on the non-corporate assessee is known as income-tax, and to pay this in the challan, this tax is mentioned as Income-tax other than companies – 0021.
  • What is the process to calculate advance tax and pay it?

    Ans:  The advance tax is calculated as per the expected liabilities of tax of the year. This tax is paid in installments as mentioned below:
    • For all the assessees (except the assessees mentioned in the Section 44AD and 44ADA):
      • Up to 15% - By 15th June
      • Up to 14% - By 15th September
      • Up to 75% - By 15th December
      • Up to 100% - By 15th March
    • For the eligible assessees who are referred in the Section 44AD and 44ADA:
    • Up to 100% - By 15th March
    Note: Any advance tax paid by 31st March is also treated as the tax paid during the same FY. One can make the deposits of the advance tax through challan ITNS 280 by selecting the relevant column for advance tax.
  • What is the meaning of tax on regular assessment, and what is the process to pay it?

    Ans: As per the Income-tax Act, every person must calculate and pay their due taxes. When the Income Tax Department underestimates the income and the consecutive due tax, it takes special measures to calculate the amount of tax that should be paid. This kind of demand raised on the person is known as Tax on Regular Assessment. This tax on regular assessment – 400 must be paid within 30 days of receiving the demand notice.
  • What precautions should one take while filling the challan of the tax payment?

    Ans: At the time of tax payment, with other things, a person should clearly mention the below things:
    • The Head of the payment can be Income-tax or Corporation tax (other than the organizations).
    • Mode of payment and amount of the tax.
    • Type of the payment, for example, Self Assessment Tax, Advance Tax, Tax on Dividend, Tax on Regular Assessment, Surtax, or Tax on the Distributed Income to the Unit Holders.
    • Assessment year
    • PAN issued by the Income Tax Department
  • Do I need to get some payment proof from the Banker to whom I have given (or submitted) the challan?

    Ans: The bank should return the stamped counter-foil of the IT challan filed by the taxpayers. Therefore, you should get this counter-foil with the stamp. It is recommended to make sure that the bank's stamp contains the Banker's Serial Number Code (BSR), the date of payment, and the Challan Identification Number (CIN).
  • How does a taxpayer know that the Government of India receives the amount deposited by him/her as tax in the bank?

    Ans: The website – www dot tin-nsdl dot com gives online services known as Challan Status Enquiry. One can also check their tax credit by seeing their Form 26AS from the e-filing account from www dot incometaxindiaefiling dot gov dot in. The Form 26AS also discloses the information related to TCS/TDS of one's account.
  • What should one do if their particulars related to tax payment are not found against their name on the website?

    Ans: There are the following reasons due to which the particulars of a person are not displayed in their Form 26AS:
    • The collector or deductor has not filed the TCS/TDS statement.
    • The PAN number provided to the collector or deductor by the taxpayer is not correct.
    • The taxpayer has forgotten to provide the PAN number to the collector/ deductor.
    • The deductor or collector has made some errors while quoting the PAN of the taxpayer in the TCS/ TDS return.
    • The deductor or collector has not provided the PAN of the taxpayer.
    • The challan's details for which one's TCS/ TDS was deposited were quoted wrongly in the statement through the deductor, or the bank uploaded the wrong challan details.
    For the rectification of these errors, a taxpayer may request the deductor to:
    • File the TCS/TDS statement if it has not been filed.
    • Furnish the statement to correct if the deductor has filed the TCS/ TDS statement and has missed providing the details, or the taxpayer has forgotten to provide the PAN details before filing the TCS/ TDS return.
    • Rectify the PAN through the PAN correction statement mentioned in the TCS/ TDS statement already uploaded if there is some error in the quoted PAN.
    • If the TCS/ TDS filed by the deductor is mistaken in the challan details, then furnish the correction statement.
    • Take to the bank to rectify the issue in the challan details uploaded through the bank.
  • Are the responsibilities of a taxpayer over once they pay their taxes?

    Ans: No, the responsibilities do not get over after paying the taxes. This is because the taxpayer has to ensure that the tax credits are available in their tax credit statement. The certificates of TDS/ TCS received by them, and the complete particulars of the income and the taxpayers are given to the Department of the Income Tax as Return of Income that must be filled before the mentioned due date.
  • Define Assessing Officer in brief.

    Ans: Assessing officer is an officer appointed by the Income Tax Department. This officer has given a particular jurisdiction in a specific geographical area in the town or city or on the class of people. One can find out his/her area's Assessing Officer from the department's website – www dot incometaxindia dot gov dot in or through the PRO.
  • Since income tax is levied on each person's income. So, according to the income tax law, what is considered income?

    Ans: As per the Income Tax laws, the word income has an inclusive meaning. If we talk about a salaried person, all the money that one gets from their employer comes under the category of income. If we talk about a business person, their net profit is considered as their income. Income can also come from investments such as commission, dividends, interest, etc. In addition, the income can also be earned on the sale of some capital assets such as gold, building, etc.
  • Define taxable income and exempt income?

    Ans: The income that is chargeable to tax is known as taxable income, whereas the income that does not fall in the tax category is considered exempt. The law of the Income Tax exclusively grants tax exemptions to some income.
  • What are a capital receipt and revenue receipt?

    Ans: The receipts can be classified into two categories – (1) Capital Receipt and (2) Revenue Receipt.
    The capital receipts have an isolated nature, such as receipts of sale of personal jewelry, receipt of sale of some residential property, etc.
    On the other hand, the revenue receipt has recurring nature, such as salary receipts, interest income, etc.
  • Are these receipts, which are revenue and capital, charged to tax?

    Ans: According to the income tax law, all the receipts (revenue) are taxable unless they have some special permission or grant exemption from tax. All the capital receipts are exempted from tax unless there is some special provision to charge tax on them.
  • Do the income of agriculturists taxable?

    Ans: The income from agriculture is not taxable. However, if one has some non-agriculture income also, then at the time of tax calculation, while calculating the tax on the income through non-agriculture mode, one's agricultural income is also taken into account for the purpose of rate. To understand more about agricultural income, read the Income Tax Act's Section 2(IA).
  • According to the Income Tax law, is the income earned from animal husbandry taken as agricultural income?

    Ans: No
  • Does one need to maintain some record or proof of their earnings?

    Ans: One should maintain the proof of income from every source and make the records according to the Income Tax Act. However, failing to maintain such records, one should maintain other reasonable records through which one can provide support for the claim of income.
  • As an agriculturist, should one maintain proof of expenditures and earnings incurred?

    Ans: Even if one's source of income is only agriculture, they are also suggested to maintain all the proofs of their expenditure and earnings.
  • If one wins price money or lottery in some competition, do they need to pay the income tax on it?

    Ans: Yes, these winnings also attract a flat rate of 30% tax without any limit on the basic exemptions. In such situations, the price money payer deducts the tax at the source (TDS) itself from the contestant's winnings and pays the balance amount only.
  • If a person's income is taxed abroad and in India, can they claim any kind of relief on the double taxation?

    Ans: Yes, in such a case, one is eligible to claim relief with respect to the income that is charged abroad and in India. This relief is either granted according to the double taxation avoidance agreement provided with that country by the Indian Government or by allowing relief under Section 91 of the Income Tax Act in respect of the tax payment in foreign currency.
  • What is the meaning of Profession?

    Ans: The profession's basic meaning is the independent exploitation of one's knowledge and skills. The profession also involves vocation. Some examples of the profession are engineering, medical, legal, accountancy, agriculture, artist, technical consultancy, writing, interior decoration, etc.
  • Which books of accounts are prescribed to be maintained by the people with a profession or business under the Income Tax Act?

    Ans: According to the Income Tax Act, no books are prescribed for the account of a person involved in some business or non-specified profession. However, it is suggested to such persons to maintain and keep account books and other documents that can help the accessing officer to calculate that person's total income as per the Income Tax Act, if:
    Particular Details HUF or Individual Any Other Assessee
    If some existing profession or business, the income or the gross turnover in any of the three preceding years exceeds the below:
    1. Income through profession or business
    2. Gross income receipts or turnover in the profession or business
    Rs. 2,50,000
    Rs. 2,50,000
    Rs. 1,20,000
    Rs. 10,00,000
    In the situation of some newly setup profession or business, the gross turnover or income of the 1st previous year is most likely to exceed the below:
    1. Income through profession or business
    2. Gross income receipts or turnover in the profession or business
    Rs. 2,50,000
    Rs. 2,50,000
    Rs. 1,20,000
    Rs. 10,00,000
    For the organizations, the account books are prescribed according to the Companies Act. Different accounting guidelines and standards need to be taken care of by the business entities. According to the maintenance of the account books by an individual professional who is engaged in some specific profession, they have to maintain some prescribed account books if the annual receipt through their profession exceeds Rs.1,50,000 in all 3 years soon after the previous year (in the situation of new business set up, their annual receipts provided in the business for that specific year are most likely to exceed Rs.1, 50, 000).
    The specified professions cater to medical, engineering, legal, accountancy, architecture, technical consultancy, company secretary, authorized representative, interior decoration, information technology, or film artist.
  • Where should the account books related to business be kept, and for how long?

    Ans: All the account books and related documents must be kept at the business's principal place. It is recommended to keep these documents for at least six years, calculating from the end of a relevant year of Assessment, which is for seven financial years from the end of a relevant year. However, when the assessment is reopened, all the account books and other relevant documents that were being maintained and kept at the reopening must be maintained and kept until the assessment occurs.
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