Income Tax in India

The income tax in India is the tax levied by the Indian government on the income of individuals, businesses and other entities. It is processed under the rules and regulations of the Income Tax Act, of 1961 which provides the procedures for assessment, collection and administration of taxes.

The new tax regime has now been made the default tax regime for all taxpayers. Anyone who wants to opt for the old tax regime will need to submit Form 10 IEA.

Income Tax

Income tax is the tax collected from various earning sources of individuals, businesses and others, such as salary, business profits, capital gains and other forms of income. It has a progressive tax structure where the rates are categorised based on different income slabs set by the government. Where the more you earn, the higher your income tax rate will be. Making it a fair and just system.

Income tax is a major source of revenue for the government, allowing it to use the funds for public services or building infrastructure projects. Making the payment of income taxes mandatory for all taxpayers who exceed a specific income threshold. Non-compliance with the tax regulations will lead to penalties and legal consequences. Taxpayers should file their Income Tax Returns for every financial year, reporting their income, deductions and taxes paid. The government has also made it convenient for taxpayers to file their taxes with both online and offline modes available.

Types of Taxpayers

According to the Income Tax Act, every resident and non-resident in India are required to pay income tax if their income exceeds ₹3 lakhs in a year. Taxpayers are categorised into different categories given below, with different tax rules applying to different taxpayers:

  • Individuals (Residents and non-residents)
  • Hindu Undivided Families (HUFs) (Residents and non-residents)
  • Companies
  • Firms
  • Association of Persons (AOP)
  • Local Authorities
  • Body of Individuals (BOI)
  • Artificial Judicial Person

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Different Types of Income

There are 5 different types of income that have been classified by the Income Tax Department to ensure proper taxation. Each category covers different types of income sources including the rules for deductions and exemptions that will help you understand your tax liabilities and accurately report your income. Here are the 5 types of income:

  • Income from salary: The income from salary and pension will fall under this category. It will include the basic salary, allowances, prerequisites, and any other benefits that you get from an employer.
  • Income from business and profession: This will include the profits of a self-employed individual, or the gains received from businesses, freelancers or contractors. It also includes professionals like doctors, lawyers, etc. who have their own practices.
  • Income from house property: This category includes the income earned from renting out a house property.
  • Income from capital gains: This includes income from the sale of capital assets such as mutual funds, shares, house property, and other investments. Capital gains can be classified into short-term and long-term, depending on the holding period of the asset.
  • Income from other sources: This will include income earned from savings bank account interest, fixed deposits interest, and winnings from lotteries. Any income that does not fall under the other specified heads is also taxed under this category.

Taxpayers & Income Tax Slab

Taxpayers in India can choose between the old tax regime and the new tax regime. These regimes both offer different income tax slabs. In the new tax regime the income tax slabs are general and will apply to all individuals and HUFs. However, in the old tax regime, the income tax slabs vary based on the age of the taxpayer. Given below are the income tax slabs of the new regime and the old regime:

Income Tax Slabs of the New Regime

The table below shows the tax slabs and rates of the new tax regime:

Income Tax Slabs Income Tax Rates
Up to ₹3,00,000 Nil
₹3,00,001 - ₹6,00,000 5% (Tax rebate Under Section 87A)
₹6,00,001 - ₹9,00,000 10% (Tax rebate Under Section 87A up to ₹7,00,000.
₹9,00,001 - ₹12,00,000 15%
₹12,00,001 - ₹15,00,000 20%
Above ₹15,00,000 30%

Income Tax Slabs of the Old Regime

Given below is a table of the tax slabs and rates as per the old tax regime:

Tax Slabs Taxpayers below 60 years Taxpayers 60 - 80 years Taxpayers above 80 years
Up to ₹2,50,000 Nil Nil Nil
₹2,50,001 - ₹3,00,000 5% (Tax rebate u/s 87A) Nil Nil
₹3,00,001 - ₹5,00,000 5% (Tax rebate U/S 87A up to ₹5 lakhs) 5% (Tax rebate U/S 87A up to ₹5 lakhs) Nil
₹5,00,001 - ₹10,00,000 20% 20% 20%
Above ₹10,00,000 30% 30% 30%

Income Tax Components for Companies

The table below shows the tax rates of companies in India:

Components Old Tax Regime New Tax Regime
A company that opts for Section 115BAB, which is not covered under Sections 115BA or 115BAA,is registered on or after October 1st, 2019, and has commenced manufacturing on or before March 31, 2023. Nil 15%
Company that opts for Section 115BAA , where the total income has been calculated without claiming specified deductions, exemptions, incentives, and additional depreciation. Nil 22%
If the Company opts for section 115BA registered on/after March 1, 2016, and is in the manufacturing industry of any article or thing and does not claim any deductions as specified in the section. Nil 25%
If the company’s turnover or gross receipt is less than ₹400 crores in the previous year. 25% 25%
For other domestic companies 30% 30%

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Advance Tax

Advance tax refers to the tax paid in instalments throughout the year if their tax payable exceeds ₹10,000. This process helps the government receive a steady flow of income and reduces the burden of paying tax in a lump sum amount at the end of a financial year.

Income Tax Return

An Income Tax Return is a document that every taxpayer must file to declare their income, expenses and other tax-related information. Filing for Income Tax Returns (ITR) is mandatory for all taxpayers as it ensures transparency, proper calculation and payment of taxes, claims or refunds on excess tax paid as well as compliance with legal requirements. Timely filing your ITR can help you maintain accurate financial records, apply for loans and avoid penalties.

E-Filing Income Tax

e-Filing of Income Tax refers to the process of filing your Income Tax Returns online through the Income Tax Department’s e-filing portal. This digital method of filing the ITR helps taxpayers to file their ITR on time as it is convenient, time efficient and secure. This method not only acts as an eco-friendly alternative to offline filing, it also reduces the processing time of ITR as there is less paperwork involved.

Income Tax Calculation

Accurate calculation of your Income Tax is crucial since it will help you avoid penalties, make sure you comply with tax rules, and take full advantage of the deductions and exemptions that may reduce your taxable income. When calculating your income tax, you should consider all important factors like your total income from all your sources, as well as applicable deductions such as under Section 80C or 80D and exemptions that are specific to your income source.

To accurately calculate your taxable income, you can use an Income Tax Calculator. It is easily accessible online and will help you estimate your tax payable with better ease and accuracy.

You can access the Income Tax Calculator through the e-filing website. You can choose whether you want a basic calculation or a more advanced calculator.

Income Tax Dates 2024

There are several important dates that you must keep in mind when it comes to Income Tax, there are:

Dates Importance
15th March 2024 Due date for the fourth instalment of advance tax for FY 2023-24.
15th June 2024 Due date for the first instalment of advance tax for FY 2024-25.
31st July 2024 Income tax return filing deadline for FY 2023-24 for individuals and entities not liable for tax audit and not involved in international or specified domestic transactions.
15th September 2024 Due date for the second instalment of advance tax for FY 2024-25.
30th September 2024 Submission deadline for audit reports (Section 44AB) for AY 2024-25 for taxpayers liable for audit under the Income Tax Act.

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Income Tax Payment

Payment of taxes can be done both offline and online, to pay your income tax online you can visit the e-filing website and select the ‘e-Pay’ option. Then Provide your PAN/TAN and your mobile number. The payment can be done with a credit card, debit card, over the counter, NEFT/RTGS or through a payment gateway.

Income Tax Act

The Income Tax Act, of 1961, is the legislation that governs the taxation of income in India. Enacted by the Parliament, it provides the rules and regulations for the collection, administration, and enforcement of income taxes. The Income Tax Act, of 1961, applies to all individuals, Hindu Undivided Families (HUFs), companies, firms, associations of persons (AOPs), bodies of individuals (BOIs), local authorities, and any other artificial juridical persons.

Income Tax Rules in India

The Income Tax Rules in India are a set of regulations that sets the rules on how individuals and entities must report and pay their taxes. These rules are important for proper compliance with the Income Tax Act, which mandates the filing of income tax returns for residents and non-residents earning above ₹3 lakhs. The rules classify taxpayers into various categories, each with specific tax rates and exemptions. They also define taxable income across different heads such as salary, house property, capital gains, business profits, and other sources.

Adhering to these rules is helpful to prevent legal issues and to ensure the correct amount of tax is paid. Recent changes introduced reflect updates such as the new tax regime becoming the default, changes in tax slabs, and revised thresholds for various income levels and the exemptions and deductions of the tax regimes. These rules and regulations directly impact taxpayers and tax liabilities.

Income Tax Collection

The Income Tax Department, under the Department of Revenue of the Ministry of Finance, oversees the collection of Income Tax. There are three primary methods by which the government collects taxes, these are:

  1. Advance Tax and self-assessment tax: This is done voluntarily by the taxpayer who makes payments into designated banks.
  2. Taxes Deducted at Source (TDS): This is deducted by the employers from the taxpayers’ monthly salaries.
  3. Taxes Collected at Source (TCS): This is a tax collected by the seller from the buyer at the time of purchase.

Income Tax Forms List

Income Tax Returns have 7 different kinds of forms, these are:

  • ITR 1 or Sahaj: This form is to be submitted by individuals with an annual income of less than ₹50 lakhs which they receive from their salary or pension or if they have only one house as their property.
  • ITR-2: ITR 2 is to be used by shareholders of private companies, company directors, NRIs, and individuals with income from capital gains, or who have two or more house properties, and foreign sources, with an income over ₹50 lakh.
  • ITR-3: Individuals running a proprietorship or working as professionals must submit the income tax return 3.
  • ITR-4 or Sugam: The form is to be submitted by individuals who fall under the presumptive taxation scheme and are earning less than ₹50 lakh from their professional income or less than ₹2 crore from business income.
  • ITR-5: This form should be submitted by associations, bodies of individuals, LLPs, and partnership firms to report their income and tax computation.
  • ITR-6: Form ITR-6 is supposed to be filed by companies registered in India.
  • ITR-7: This form is specific for entities who are claiming exemptions as universities, colleges, scientific research institutions, political parties, and religious or charitable trusts.

Income Tax Refund FY 2023-24

Sometimes, you may pay more tax than the actual amount that is required. In such cases, you can file for an Income Tax refund for the same amount. For instance, if your TDS amount for the FY 2023-24 is ₹20,000, but your employer deducted ₹40,000. Then you can claim for a ₹20,000 refund.

You can also claim a refund for your deductions on tax savings investment if they were not taken into account while filing.

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Investments to Save Income Tax

Several investments are there that can help you reduce your taxable income. These investments help to maximise your savings while reducing your overall tax liability. If you want to take advantage of tax saving investments, here are some options:

  • Equity-linked Savings Schemes (ELSS)
  • Public Provident Fund (PPF)
  • National Savings Certificate (NSC)
  • Tax-saving Fixed Deposits (FDs)
  • Life insurance policies that are eligible for deductions under Section 80C.

Income Tax Deduction Section List

The Income Tax Department also offers several deductions that you can take advantage of to minimise your tax liability, these are:

  • Section 80C: Deductions on investments in Provident Fund (PF), Public Provident Fund (PPF), Equity Linked Savings Schemes (ELSS), National Savings Certificate (NSC), etc.
  • Section 80CCC: Deductions for contributions to certain pension funds.
  • Section 80CCD: Deductions for contributions to the National Pension System (NPS).
  • Section 80D: Deductions for medical insurance premiums paid for self, spouse, children, and parents.
  • Section 80DD: Deductions for maintenance including medical treatment of a disabled dependent.
  • Section 80E: Deductions on interest paid on educational loans.
  • Section 80G: Deductions for donations to certain funds, charitable institutions, etc.
  • Section 80TTA: Deductions on interest income from savings accounts.
  • Section 80U: Deductions for individuals with disabilities.
  • Section 24: Deductions on interest paid on home loan for self-occupied or let-out property.

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Frequently Asked Questions

An income tax is a levy imposed by the government on the earnings of its citizens. These taxes are paid to fund public services like infrastructure, healthcare, education, and defence.

Different countries will have their own rules or regulations for taxing. Your income will be taxed as per that country’s tax rules.

Gross income is total earnings before deductions, while taxable income is gross income minus allowable deductions and exemptions.

Tax deductions reduce taxable income by subtracting eligible expenses like contributions to retirement accounts, or medical expenses from total income.

You can claim tax credits by reporting eligible expenses or investments. Common types include education, dependent care, and more.

Tax brackets are income ranges that determine tax rates. Higher income falls into higher brackets, subjecting it to higher tax rates.

If you don’t file your return on time, it will result in penalties and charges under the Income Tax Act.

You can easily track your tax refund status through the e-filing website. Simply log in to your e-filing website to access the service.

The common mistakes to avoid when filing taxes are missing deadlines, incorrect filing status, forgetting to report income sources, and miscalculating deductions.

You can minimise your tax liability by investing in tax saving investments and maximising deductions and exemptions.

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