Income Tax in India – About, Eligibility, Tax Slabs, New Regime, Exceptions, Income Groups & more

Have you ever wondered about your contribution to the development of the country? Are you worried about filing your Income Tax return? So, you have just come to the right site.

Here you are going to learn a lot about income tax, how it works in India, its basics, and all the other aspects.

Income tax is a crucial source of income for the government. It is one of the major contributions by the citizen of the country towards the growth of the nation.

It is also a vital thing to keep in mind while planning your investments and making your budgets. So, here you will get all the details about income tax which will help you in the same.

About Income Tax in India

Income tax is a direct tax payable to the government of India. Income tax is a percentage of your annual income. By annual income, we mean salary, business profit, or income from other sources.

Eligible taxpayers pay this tax every year to the government. Tax deducted at source (TDS) and tax collected at source (TCS) is two primary methods of collecting the income tax.

The taxpayer can pay the tax to the government on their own. As per Income Tax Act 1961, resident Indians as well as non-resident Indians are liable to pay Income tax.

If your income is more than the exemption limit set by the government, you are liable to pay income tax.

It is important to pay your income tax to help the government earn revenue. It is in turn used for developing our own country.

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Who is eligible and liable to pay Income Tax in India?

As per current law and tax slabs, an Indian citizen who is less than 60 years of age, earns more than 2.5 lakhs in a year is liable to pay tax.

The eligibility criteria changes as per the tax slabs which we will discuss in the next section of the article.

People above 60 years of age, who earns more than 300000 are liable to pay income tax.

While super senior citizens who are above 80 years old, need to pay income tax only if their income is above 5 lakhs a year.

Not only individuals but HUF or Hindu Undivided Family, Body of Individuals, Local Authorities are also bound to pay taxes.

Similarly, companies, corporate firms, an artificial juridical person if generates income beyond the exempted limit, are liable to pay tax.

Articles on Income Tax Planning and Policy

What are the Income Tax rates and slabs in India currently?

In India, there are different tax rates for different incomes. The more you earn, the higher would be the rate of tax for you. So, in the Finance Act of the country, there are certain slabs of income.

According to these slabs, tax rates are decided. Let us see the current tax slabs and corresponding tax rates for the assessment year 2021-22 and 2020-21 –

Old Regime – Everyone except Senior Citizen & HUF

Old Regime – Senior Citizen

who is 60 years or more at any time during the previous year.

Old Regime – Super Senior Citizen

who is 80 years or more at any time during the previous year.

Old Regime – HUF

Hindu Undivided Family (Including AOP, BOI, and Artificial Juridical Person)

Surcharge

If an assesses total income exceeds the following range, then the surcharge is applicable on the amount of income tax.

Tax Slabs as per New Tax Regime

The government has given a unique option to the individual and HUFs in the Finance Act 2020. Individual taxpayers and HUFs can pay tax at reduced rates –

But, these rates will work only if you forego the deductions and exemptions of –

• House rent allowance
• Daily expenses allowance in the course of employment
• Leave travel allowance
• Conveyance
• Relocation allowance
• Children education allowance
• Helper allowance
• Standard deduction
• Housing Loan Interest as per section 24 of IT Act
• Professional tax
• Other special allowance as per section 10 (14)
• Deductions under section 80C, 80 D, 80 E, and others within the Chapter VI – A of Income Tax act.

The local authorities and partnership firms are liable to pay tax at a rate of 30%. It is for the assessment year 2020-21 and 2021-22.

If the income of the partnership exceeds Rs. 1 crore, then they need to pay a surcharge of 12% on the total amount of tax.

The domestic companies are also liable to pay tax. If the total turnover does not cross Rs. 400 crore mark, then 25% tax is payable.

It is for the previous year 2017-18. The assessment years is 2020-21.

Similarly, for the previous year 2018-19, the rate would be 25% and the assessment year would be 2021-22.

For domestic companies having total turnover over and above Rs. 400, the tax is payable at the rate of 30% for both the 2020-21 and 2021-22 assessment year.

If the domestic company opts for the special tax rates –

Exceptions to the tax slabs

Capital gains incomes are exceptions to tax slabs. Income tax on capital gains is calculated as per the holding period of the asset and type of asses.

Holding period further defines a short-term capital gain and long-term capital gains and taxes are different for both. Let us see the rate of tax for each of them –

• If house property is held for less than two years then it will be a short-term capital gain. It would be long-term if the holding period is above two years. The tax rate applicable here is 20%.
• If equity mutual funds are held longer than 1 year then it would be long-term capital gain. If the capital gain amount crosses Rs. 1 lakh mark, the rate of tax chargeable would be 10% for short- term and 15% for long-term.
• Debt mutual funds are taxed at a rate of 20%.
• Shares are taxed at 10% and 15%.
• Shares where the Security Transaction tax is unpaid, the tax rate applicable is 20%.
• For FMPs the rate is 20%.

Types of Income Tax

There are different types of income tax. The most common classifications are as follows –

Individual Income Tax: If an individual is paying income tax to the government then it is regarded as individual income tax.

The source of income for the individual can be salary, income from self-employment, business – sole proprietorship, wages, and other types of income.

There are multiple options to reduce taxable income. You can use the deductions and exemptions available in the IT act.

We will discuss more on this in the latter part of the article.

Business Income Tax: As you have just noticed above, there is a different tax rate slab for the domestic company and partnership companies.

These are known as business income tax. As businesses earn revenue which is their income, tax is chargeable on the same.

Whether a domestic company, foreign company, partnership firm, or others, all are liable to pay taxes.

Which incomes are taken into consideration for Income Tax in India?

Income sources are crucial and you must be aware to plan your taxes well. There are mainly five heads of income that are taxable under the IT Act.

There are also capital gains which we have already discussed above as exceptions to tax slabs. Now let us see the five main components of taxable income.

Salary or Pension Income

Income from salary includes the basic salary that you draw. Your dearness allowances, House rent allowances, and other taxable allowances.

Then it also includes perquisites, pension received after retirement, and profit instead of salary. This is one of the major components of taxable income.

Business and Professional Income

If you own a business or you are a professional, your income is taxable. If your income is above the exemption limit, then you are liable to pay taxes.

By business income here, we mean income generated from business done within the individual capacity.

If you are a professional like a doctor or a chartered accountant, then your income will be similarly taxable.

Income from House Property

Your house can earn you income and that income is taxable. You can earn income from your house property by renting it.

The income you generate from the house property can be adjusted against the municipal taxes you pay for that property.

The net income from the property is taken for the calculation of the taxable income.

Income from the lottery, Horse Race, Betting, and others

This is another source of income which is an exception to the tax slabs as well. They are not taken for the calculation of the taxable income. Though they are included in your total income.

Income from other sources

You can earn income from your savings in banks, fixed deposits, and other investments. These incomes are treated as income from other sources. Taxable income includes all this income.

Income from other courses also includes pension received by family members after the pensioner’s death.

If you earn rent from some asset that is not house property, that income will be treated under this head.

Interests, dividends, and others come under this income source.

More information related to GST and Tax Planning

How to file an Income Tax Return?

The times have changed. Everything is getting done online with a click of the mouse now-a-days.

Consequently, income tax filing is also online now. You can pay your taxes online without much hassle and here we will be discussing the same.

You would need a few documents to pay your taxes and they are –

• PAN or Permanent account number, or;
• TAN or Tax Deduction and Collection Number.
• AADHAAR
• Bank Account Details
• Form 16
• Details of your investments

You also need an online payment method or e-banking facility to pay tax online. Your bank needs to be an authorized bank of the country.

Steps of Paying Tax Online

• First, you have to visit this government site – ITR Website
• Secondly, you have to create your login id and password. You have to register yourself on this site using your PAN number.
• You can link the AADHAAR number later or right after registration.
• Once you have your user id and password, login using the same.
• Now, you can go to the e-filing section. You have to select options from the dropdown menu below your PAN number.
• You can only fill ITR 1 and ITR 4s here.
• Choose the right ITR and the assessment year.
• Now you have to click on “Prepare and submit ITR online”.
• Then you have to check and confirm your bank details. And press continue.
• If you are paying income tax for business income then you would need DSC or Digital Signature Certificate. You need to register it on this site if you have it. Upload it as well and submit.
• If you don’t have DSC, then the next step is income tax return verification.
• It will be displayed on the screen once you successfully submit the return.
• Once, it is there, you have to download the ITR-V form. You will get a link on the screen for the same.
• Once you get the form, you need to sign the same and submit to the CPC within 120 days of e-filing your return.
• Finally, the process gets over with the submission of ITR-V and your ITR e-filing will be completed.

Different types of Income Tax Returns

Since there are different income heads, accordingly there are different income tax returns to be filed.

Here, we are going to discuss the different types of income tax returns which an individual, HUFs, or business organization file for paying income tax.

• First is ITR 1 which is for any person having a regular income from salary or pension. Additionally, it includes income from residential property or other sources as well.
• Secondly, there is ITR 2, which is for HUFs. Under this ITR, the income of the HUFs from any source except profits of business and profession are reflected.
• ITR form 3 is for HUFs again and now it is for their income from business and profession.
• ITR 4S which is also known as SUGAM is a special taxation scheme under section 44AD/ AE. The individuals and HUFs who opt for this scheme need to file a tax return using ITR form 4S.
• Then comes the ITR 4 which is for income generated from the profession and the income of proprietors is also included here.
• ITR 5 stands for the income of Limited Liability Partnership business firms, BOIs, artificial juridical persons, and AOPs as well as local authorities. They need to file their return using ITR 5.
• The ITR form 6 is for the business houses which claim no exemptions under section 11 of the IT Act.
• Next up is ITR form 7 which is for the person requiring to file returns under sections 139 (4A), 139 (4D), 139 (4C), and also 139 (4B).
• Finally, there is ITR Form V which is the acknowledgment form for filing your income tax return successfully.

Deductions in Income Tax

If you are worried about paying a major chunk of your income as tax, then here is some good news for you.

The government provides various exemptions and deductions to reduce your taxable income.

These deductions help you not only save money but also help you find the right investments.

Let us see the crucial deductions available in the Income Tax Act 1961

Section 80C

This is one of the most popular deductions availed by most Indian taxpayers.

Under this section, if you have an investment in life insurance policies, superannuation, and provident fund, you can avail of deduction up to Rs. 150000 from your taxable income.

For instance, you pay a life insurance premium of Rs. 100000 and Rs. 70000 towards the provident fund in a year.

For this, you can avail of a deduction of Rs. 150000 in your taxable income. This means, Rs. 150000 will be deducted from your taxable income.

Section 80CCC

This section helps you get another Rs. 150000 deductions.

If you have some pension plans with LIC or other insurance companies (approved), then you can get up to Rs. 150000 deduction from your taxable income.

The pension policy towards which you pay the insurance company must be for yourself.

Section 80CCD

Under section 80 CCD, you can get a deduction for your payment towards the new pension scheme.

If you are into a salaried profession, then you and your employer must be contributing to these schemes together.

You can avail a deduction of the same up to 10% of your salary.

#NOTE: Under section 80 C, the total deduction can be up to Rs. 150000.

Section 80D

Under this section, you can avail of the deduction for your payments towards the health insurance premium.

If you have health insurance for yourself, spouse, or children (dependent), then you can avail of up to Rs. 50000 deduction on the same.

Section 80DDB

This section is for a deduction on medical expenses. If you have incurred expenses towards medical treatment (illness mentioned in rule 11DD) then you can avail of tax benefit.

Section 80E

If you are paying an educational loan in India, you can avail deduction on its interest.

Section 80EE

This is for first-time homeowners. If you are buying a home on loan which costs less than Rs. 40 lakhs and you have taken a loan of Rs. 25 lakhs or less then you can avail of the deduction.

Section 80TTA

For instance, you have a savings bank account, a post office deposit and in a year you earn interest of Rs. 15000 from these investments.

You can show this in your ITR and avail deduction of Rs. 10000 on the same.

Mutual Funds

These days mutual funds have become quite a popular investment vehicle. It is because one can avail deduction on the amount invested in mutual funds under section 80 C.

There are different schemes such as Equity-linked savings schemes and other options. Similarly, you can claim a deduction for your fixed deposit as well.

The amount you deposit in the bank as FD, you can claim deduction on the same up to Rs. 150000 under section 80 C. However, the interest you earn on the FD will still be taxable.

How Income Tax is calculated?

The process of calculation of tax comes after you calculate the taxable income. Here, the calculation of taxable income is a crucial factor.

Then you can just calculate the tax by multiplying the tax rate according to the income slab.

So, for calculating the taxable income, all the income from all the source mentioned above in the article are summed up.

Then, the deductions which can be availed will be deducted from the gross total. You get the taxable income.

Supposedly, you get an income of Rs. 1500000 for the financial year 2020-21. As the current tax slab, the tax payable would be –

Up to 2.5 lakh – nil

2.5 lakh to 5 lakhs – 5% = 12500

5 lakh – 10 lakh – 20% = 12500+ (20% * 500000) = 112500

10 lakh and above – 30% = 112500+ (30% * 500000) = 112500+150000= Rs. 262500 **

** Additional 4% is levied on Rs. 262500 as health and education cess.

How Income Tax is useful for the government and beneficial for those who pay it duly?

Even though paying tax is a burden for many but there are many benefits attached to it. You might be thinking of how paying tax can benefit you directly, isn’t it?

Indeed, it can benefit you. Here are some benefits that you can avail by paying your taxes on time –

• Availing a loan is a tough job for the general citizen of this country. Most people think the more income you can show or higher credit score can get you a loan easily. However, it is not only the credit score or the higher income range but taxable income and how much tax you pay annually also matters a lot.
• Thinking about a foreign trip? You may get your visa quickly if your ITR is clear and you pay taxes duly. ITR proofs are required for availing visa of most of the countries.
• If you file ITR every year, then carry forwarding of loss becomes easy. You can adjust your losses with your profits next year and pay taxes accordingly.
• If your tax is deducted at the source, but your income is not taxable, then you can claim a refund using your ITR file.
• ITR filing is quite beneficial in availing insurance with high-risk coverage. It is also beneficial in claiming insurance at times.

Conclusion – Income Tax

To conclude, income tax is indeed one of the most important contributions of the citizen towards the economy. It is of course the main revenue source for the government to finance all its expenses.

If you think paying tax to the government would reduce your income, then you might be wrong.

Paying a little percentage of your income might reduce your income a bit but can add to society and the economy. It can also help you avail of various benefits as you have seen above.

In the age of the internet, you can sit on your couch and pay your taxes. You just need to visit the government website and follow the process written above.

Always try to pay the taxes on time to avoid penalties.

Related terms of Income Tax

Previous year: The previous year in Income Tax means the financial year. It starts on the 1^st of April of the present or the current year.

It ends on 31^st March of the next year. The income you earn this year is going to be taxed in the assessment year.

Assessment Year: The assessment year is the year in which you pay the tax for the income generated in the financial year. It is in simple words the financial year which is after the previous year.

To illustrate, we can take 2020-21 as the financial year. This means the income you generated from 1^st April 2020 to 31^st March of 2021 will be taken for calculation of taxable income.

Then the assessment year would be 2021-22 that is from 1^st of April 2021 to 31^st March of 2022. In this period you have to pay the tax for the financial year 2020-21.

Income Tax FAQs

Ques – Is it mandatory to file income tax returns?

Answer: Yes, it is mandatory to file an ITR if you earn more than the prescribed limit of the income. If an individual or HUFs earning exceeds Rs. 2.5 lakhs in a year then they are liable to file ITR.

Ques – Do I need to file an ITR if my income is lower than the taxable income limit?

Answer: You may file it as it would help you in other ways. You would not be paying any taxes though.

However, if you have a non-taxable ITR, it can help you get the visa processed easily. You can also get loans easily.

Ques – Do I need to disclose all my earnings in ITR?

Answer: Yes, you should disclose all your incomes from all the sources. If a certain income is exempted, then that will be deducted automatically.

Ques – Which are the documents required for filing ITR?

Answer: Generally there are no requirements for any documents while you file the ITR online.

However, your PAN and AADHAAR should be linked on the ITR e-filing website of the government (link provided above).

Ques – What are the basic exemptions in Income Tax?

Answer: The basic exemptions are as follows –

• For individuals, BOI, HUF, and AOP the basic exemption limit is up to Rs. 2.5 lakh.
• For individuals aging more than 60 Years but less than 80 years is Rs. 3 lakhs.
• And people above 80 years of age get exemption up to Rs. 5 lakhs.

Ques – Are there any exemptions for companies, co-operative societies, local authorities, and others?

Answer: No, there is no such exemption limit for them.

Ques – Is PAN necessary for ITR filing?

Answer: Yes, PAN or permanent account number which is an alphanumeric number consisting of ten digits is mandatory for filing ITR in India.

Ques – Who is eligible to pay income tax?

Answer – There are certain areas of affirmation that must match an individual in order for them to pay income tax. That being any individual younger than 60 years and have an income more than 2.5 lakhs is requested to pay income tax.

Ques – Where can I check income tax rates and slabs?

Answer – Our content acknowledges you with entire tax scenario that is being regulated in India at current date. You can check the entire set of tax slab and also the tax rates attached with them.

Ques – Can I pay income tax online? What are the steps?

Answer – It is now very easy to pay your taxes online. One just need to visit the official government sit , that is given the article, later which, personals are supposed to create their log in ID and password and register themselves. Following which one can easily pay the ITR online.

Ques – What are the different types of income tax returns?

Answer – Different income heads attract different kind of income tax returns. There are various income taxes ranging from the ITR1, ITR2 to ITR5. Detailed information for each has been constructively given in the article.

Ques – Is it mandatory to file income tax returns?

Answer – Yes, every individual who has an income over 2.5 lakhs is required to pay their duty, i.e. pay taxes on time to the respective country. Income tax returns are taken very seriously by government and every individual is required to pay it duly without fail.

Ques – What are the benefits of paying income tax?

Answer – Paying income tax is an indirect proof that the individual has been a good citizen, from the visa approval to scoring a loan; individuals who pay regular tax are duly benefited with faster action in this area from the government’s side.

Ques – What happens if ITR is not verified?

Answer – Not having the ITR verified can cause one various issues. Ranging from getting ones visa verified to applying for loan.  Both these major services may not be availed by the individuals who do not hav a verified ITR.

Ques – Who will provide Form 16?

Answer – The form 16 is generally issued by the employer. Every employer must issue it every year on or before 15^th June of the coming year.

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