Income Tax in India

What is Income Tax

Income Tax refers to a percentage of your income that you are liable to pay directly to the government. The money collected by this direct tax route is used by the Government for infrastructural developments and also to pay the employees of central and state government bodies.

Taxes levied by the Government are of two types- Direct taxes and Indirect taxes. Indirect taxes are those that are levied on services and goods. Direct taxes, on the other hand, are levied on profits and income. For example, service tax that you pay in a restaurant is an indirect tax whereas Income Tax that is deducted from your salary every month in the form of TDS is an example of direct tax.

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

Who are the Tax Payers?

Any Indian citizen aged below 60 years is liable to pay income tax if their income exceeds 2.5 lakhs. If the individual is above 60 years of age and earns more than Rs.3 lakhs, he/she will have to pay taxes to the government of India. 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

What are the Different Income Tax Slab Rates?

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

For HUFs and Individuals (Male or Female) Below the Age of 60 Years Income Tax Slabs & Rates 2016-17

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.2.5 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 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

10% 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 Corporates, Domestic Companies, Firms and Local Authorities

Income Tax Slabs

Income Tax Rates

Taxable income between 0 to 1 Crore

Flat rate of 30% applicable

Taxable income greater than Rs. 1 Crore

 

Flat 30% + an additional surcharge of 5%

(The surcharge is however not applicable to firms and local authorities)

 

 

**Income Tax Slab Rates for the assessment year 2016-17 

How is the Income Tax Collected?

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

  • Taxes Deducted at Source (TDS)
  • Taxes Collected at Source (TCS)
  • Voluntary payment by tax payers 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

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 must be provided by the employer to the employee.

  •  Income From Capital Gains

Capital gains taxation applies to earnings from sale of capital assets held by the tax assesse. Capital assets refer to the properties such as buildings, lands, bonds, equities, debentures, and jewelries etc. Taxes are levied on the income of the assesse 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, under this head, the property cannot be used for business or professional purposes.

  • Income (Profits) From Business

As per section 30 to 43D of the Income Tax Act, the profits earned from businesses or by providing professional services are considered taxable as per 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 on government securities, debentures, and bonds.

What are Income Tax Returns?

Every individual, who has a source of income, regular or irregular, are legally required to file their income tax returns. Even if your income is below the Taxable bracket, you should file your income tax returns. 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.

ITR Form 1

Any person who receives regular salary or pension or has an income from residential property or other sources.

ITR Form 2

This form is for those who are 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 fall under the head of Profits and Gains of Business or Profession.

ITR Form 4S

This form, also known as SUGAM, is applicable to HUFs(Hindu Undivided Families) and individuals opting for SUGAM taxation scheme as per section 44 AD/ AE

ITR Form 4

This form is applicable to Hindu Undivided Families and individuals who are professionals or proprietors

ITR Form 5

This form is applicable for LLPs, Firms, BOIs, AOPs, artificial judiciary persons and local authorities.

ITR Form 6

This form is applicable to companies that claim no exemptions as per section 11 of the Income tax Act.

ITR Form 7

This form is applicable 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.

 

Income Tax Calculation

Tax calculation is done on the annual income of a person 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 Income Tax Act of 1961, which allows reduction on one’s Taxable Income.

1.  Sections 80C- Under this section, deduction is available to individuals and HUF. On the payment made towards life insurance policies, provident Fund or superannuation, tax deduction is available up to the amount of Rs1,50,000/-.

2.  Section 80CCC- Tax exemptions under this section are on payment made on insurance companies and LIC that are under approved pension plans. The pension policy must be taken from the individual himself and must be up to Rs1,50,000 out of taxable income.

3.  Section 80CCD- Tax exemption under this section is for contribution by the assesse and the employer to the new pension scheme. The tax exemption under is equal to the contribution, not exceeding 10% of an individual salary.

4.  Section 80D- The premiums paid on the health insurance comes under this section of income tax deduction.  The health insurance policies generally provide coverage to the insured person, spouse, and dependent children. If you pay premiums for your health insurance, then you can save your taxes up to Rs15,000 to Rs20,000. In the case of Hindu Undivided Family, the general deduction is up to Rs15,000 and additional deduction is Rs5,000.

5.  Section 80DDB- Under this section, the tax deduction is done on medical expenses that arise from the treatment of any disease or illness specified in the rule (11DD).  The tax benefit is applicable for the taxpayer, for the family member or any member of HUF.

6.  Section 80E- The interest paid on education loan in the country comes under this section of the tax deduction.

7.  Section 80EE- The first time home owners come under this section of tax benefit. Those people whose first home purchase value is less than Rs40 lakh and the loan takes for which is Rs25 lakh or less are applicable for the tax deduction.

8.  Section 80RRB- Under this section, the tax deduction is applicable on the income earned by way of royalties and patents. For the patent registered under the patent act,1970 up to the amount of Rs3,00,000 income tax can be saved.

9.  Section 80TTA- Tax deductions are applicable on interest earned in the post office and co-operatives society and saving bank accounts. Up to Rs10,000 of interest income  individuals and HUFs can claim the deduction.

10.  Section 80U- This section of income tax deduction is applicable for disable people. To avail the tax benefit under this section one need to show their disability certificate. Depending on the severity of disability up to Rs1,00,000 can be non-taxed.

11. Section 24-   The interest paid on housing loan comes under this section of tax exemption. In addition to the deduction under section 80C, 80CCF, and 80D up to Rs2,00,000 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 saving.

Income Tax E-Filing

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

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

 

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