Know About Income Tax in India

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.

The policyholder with a term insurance plan can avail of the tax benefits under section 80D. In addition, if the policyholder has availed of a term insurance policy with health riders, they can claim their health riders' premiums under Section 80D.

The income Tax Act of India, passed in 1961, governs the provisions for income tax and the various applicable deductions. 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, they 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 based on the earnings of the tax payers. Income tax slab rates are broadly categorized as follows:

Special Tax Rates for Individuals and HUFs (New Regime)

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Example of Income Tax Rate Calculated Under New Regime

Tax Rates for Individuals and HUFs Below 60 Years (Old Regime)

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

Example of Income Tax Computation

Let us take an example of 3 individuals with different income ranges that helps in understanding the tax computation:

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Tax Rate for Senior Citizens Between 60 – 80 years (Old Regime)

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

Example of Income Tax Computation

Let us take an example of 3 individuals with different income ranges that helps in understanding the tax computation:

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Tax Rate for Super Senior Citizens Above 80 Years

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

Example of Income Tax Computation

Let us take an example of 3 individuals with different income ranges that helps in understanding the tax computation:

Tax Rate for Domestic Companies

Surcharge

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

How Are the Income Tax Collected?

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

• 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.

1. 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.

2. Income from Capital Gains

   Capital gains taxation applies 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.

3. Income on 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.

4. 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 as per applicable rates. This income head is also known as “Profits and Gains of Business or Profession.” 

5. 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.

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.