Know About Income Tax in India

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. On the other hand, direct taxes are levied on profits and income. For example, the 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.

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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)

Total Income Simplified Optional Tax Rate
Up to Rs.2.5 lakh Nil
From 2.5 lakh- Rs.5 lakh 5% if total income exceeds Rs. 2.5 lakhs
Rs.5 lakh-Rs.7.5 Lakh 10% if total income exceeds Rs. 5 lakhs + Rs. 12,500
Rs.7.5 Lakh-Rs.10 lakh 15% if total income exceeds Rs. 7.5 lakhs + Rs. 37,500
Rs.10 lakh-Rs.12.5 lakh 20% if total income exceeds Rs. 10 lakhs + Rs. 75,000
Rs.12.5 lakh-Rs.15 lakh 25% if total income exceeds Rs. 12.5 lakhs + Rs. 1,25,000
Above Rs.15 Lakh 30% if total income exceeds Rs. 15 lakhs + Rs. 1,87,500

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

Example of Income Tax Rate Calculated Under New Regime

Gross Total Income Rs.12 lakh
Deductions under Section 80 and 80CCD NIL
House Rent Allowance (HRA) NIL
Medical and Travel Allowance NIL
Taxable Income Rs.12 lakh
Up to Rs.2.5 lakh NIL
Above Rs.2.50 but less than Rs.5 lakh Rs.12,500
Above Rs.5 lakh but less than Rs.7.50 lakh Rs.25,000
Above Rs.7.50 but less than Rs.10 lakh Rs.37,500
Above Rs.10 lakh but less than Rs.12.50 lakh Rs.40,000
Total Tax Paid Rs.1,15,000

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:

Net Income Range Income Tax Rates
Assessment Year 2022-23
Up to Rs. 2,50,000 NIL
Above Rs. 2,50,000 but less than Rs. 5,00,000 5% if total income exceeds Rs. 2.5 lakhs + 4% cess
Above Rs. 5,00,000 but less than Rs. 10,00,000 20% if total income exceeds Rs. 5 lakhs + Rs. 12,500 + 4% cess
Above Rs. 10,00,000 30% if total income exceeds Rs. 10 lakhs + Rs. 1,12,500 + 4% cess

Example of Income Tax Computation

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

Components Mr. X Mr. Y Mr. Z
Annual Salary Rs. 5,00,000 Rs. 10,00,000 Rs. 15,00,000
Standard Deductions Rs. 50,000 Rs. 50,000 Rs. 50,000
Deductions under Section 80C of the Income Tax Act, 1961 Rs. 70,000 Rs. 1,50,000 Rs. 1,50,000
House Rent Allowance (HRA) 82,000 90,000 1,40,000
Gross total income Rs. 2,88,000 Rs. 7,00,000 Rs. 11,50,000
Gross total income Tax Computation
Up to Rs.2,50,000 NIL NIL NIL
Above Rs.2,50,00 but less than Rs.5 lakh Rs. 1,900 Rs. 12,500 Rs. 12,500
Above Rs. 5 lakhs but less than Rs.10 lakhs - Rs. 40,000 Rs. 1,00,000
Above Rs.10 lakhs - - Rs. 45,000
Total Tax Rs. 1,900 52,500 1,57,500
Deductions under Section 87A 1,900 NIL NIL
Additions of surcharge NIL Rs. 2,100 Rs. 6,300
The Total tax that is payable (Rs.) (Total Tax + cess – Deductions under Section 87A) NIL Rs. 54,600 Rs. 1,63,800

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

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.

Net Income Range Income Tax Rates
Assessment Year 2022-23
Up to Rs. 3,00,000 NIL
Above Rs. 3,00,000 but less than Rs. 5,00,000 5% if total income exceeds Rs. 3 lakhs + 4% cess
Above Rs. 5,00,000 but less than Rs. 10,00,000 20% if total income exceeds Rs. 5 lakhs + Rs. 10,500 + 4% cess
Above Rs. 10,00,000 30% if total income exceeds Rs. 10 lakhs + Rs. 1,10,000 + 4% cess

Example of Income Tax Computation

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

Components Mr. X Mr. Y Mr. Z
Annual Salary Rs. 5,00,000 Rs. 10,00,000 Rs. 15,00,000
Standard Deductions Rs. 50,000 Rs. 50,000 Rs. 50,000
Deductions under Section 80C of the Income Tax Act, 1961 Rs. 70,000 Rs. 1,50,000 Rs. 1,50,000
House Rent Allowance (HRA) 82,000 90,000 1,40,000
Gross total income Rs. 2,88,000 Rs. 7,00,000 Rs. 11,50,000
Gross total income Tax Computation
Up to Rs.3,00,000 NIL NIL NIL
Above Rs. 3,00,001 but less than Rs.5 lakh NIL Rs. 10,500 Rs. 10,500
Above Rs. 5 lakhs but less than Rs.10 lakhs - Rs. 40,000 Rs. 99,500
Above Rs.10 lakhs - - Rs. 45,000
Total Tax NIL 50,500 1,55,000
Deductions under Section 87A NIL NIL NIL
Additions of surcharge NIL Rs. 2,020 Rs. 6,200
The Total tax that is payable (Rs.) (Total Tax + cess – Deductions under Section 87A) NIL Rs. 52,520 Rs. 1,61,200

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

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.

Net Income Range Income Tax Rates
Assessment Year 2022-23
Up to Rs. 5,00,000 NIL
Above Rs. 5,00,000 but less than Rs. 10,00,000 20% if total income exceeds Rs. 5 lakhs + 4% cess
Above Rs. 10,00,000 30% if total income exceeds Rs. 10 lakhs + Rs. 1,00,000 + 4% cess

Example of Income Tax Computation

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

Components Mr. X Mr. Y Mr. Z
Annual Salary Rs. 5,00,000 Rs. 10,00,000 Rs. 15,00,000
Standard Deductions Rs. 50,000 Rs. 50,000 Rs. 50,000
Deductions under Section 80C of the Income Tax Act, 1961 Rs. 70,000 Rs. 1,50,000 Rs. 1,50,000
House Rent Allowance (HRA) 82,000 90,000 1,40,000
Gross total income Rs. 2,88,000 Rs. 7,00,000 Rs. 11,50,000
Gross total income Tax Computation
Up to Rs.5,00,000 NIL NIL NIL
Above Rs. 5 lakhs but less than Rs.10 lakhs - Rs. 40,000 Rs. 1,00,000
Above Rs.10 lakhs - - Rs. 45,000
Total Tax NIL Rs. 40,000 Rs. 1,45,000
Deductions under Section 87A NIL NIL NIL
Additions of surcharge NIL Rs. 1,600 Rs. 5,800
The Total tax that is payable (Rs.) (Total Tax + cess – Deductions under Section 87A) NIL Rs. 41,600 Rs. 1,50,800

Tax Rate for Domestic Companies

Income Range Tax Rate
Gross turnover equals or less than Rs.250 crore for last year 25%
Gross turnover above Rs.250 crore for last year 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
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%

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.

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.

 

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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