Income tax in India is imposed by the Government of India. Everyone who is earning in India has to pay income tax. The income could be pension, salary, or could be earnings from a savings account.
Income Tax is a tax you pay directly to the government based on your income or profit. Income tax is collected by the Government of India. Taxes are of two types - direct tax and indirect tax.
Direct tax is the tax you pay on your income directly to the government and is levied on profits and income. Indirect tax is the tax charged on goods and services and is collected by someone else on your behalf and is paid to the government like theatres, restaurants, etc. For example, service tax is what you pay in a restaurant and 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.
Definition of Income Tax
Income tax is defined as the tax levied on the annual income earned by a person. The amount of tax applicable to you will depend on how much money you earn as income over a financial year. Taxpayers can make their income tax payment, TDS/TCS payment, and Non-TDS/TCS payments online or offline. All relevant details must be filled by taxpayers to make these payments. The process to make the payments online is simple and can be completed quickly.
Who Is Required to Pay Income Tax?
As per the Income Tax Act, the entities listed below are required to pay tax and file their income tax returns. The amount of tax that must be paid depends on the individual’s age and the income they make.
Artificial Judicial Persons
Association of Persons (AOPs)
Hindu Undivided Families (HUFs)
Body of Individuals (BOIs)
Any individual who earns or gets an income in India is subject to income tax. This applies to residents as well as non-residents. Income could be from salary, pension or could be from a savings account that’s quietly accumulating a 4% interest. The Income Tax Department breaks down income into five heads:
Income from Salary - Income from salary and pension are covered under here
Income from Other Sources - Income from savings bank account interest, fixed deposits, winning KBC
Income from House Property - This covers rental income
Income from Capital Gains - Income from the sale of a capital asset such as mutual funds, shares, house property
Income from Business and Profession - This is when you are self-employed, work as a freelancer or contractor, or you run a business. Life insurance agents, chartered accountants, doctors and lawyers who have their practice, tuition teachers
What is Taxable Income?
Taxable income means the income which is chargeable to income tax, and it is calculated to decide how much tax an individual or a company owes to the government in a particular tax year. It is generally described as the gross total income or total income. To arrive at the total income, you have to consider any deductions or exemptions allowed in that tax year.
Taxable income includes salaries, pensions, capital gains, rental income, business income, investment income, and unearned income.
Under existing rules of the Income Tax Act 1961, the following are the key types of income that are subject to taxation as per the applicable rates:
Income from Salary
Income from Capital Gains
Income from House Property
Income from Business
Other income such as lottery and other legal gambling, dividend income, etc.
Income Tax Slabs
The income tax slabs in India are different for regular, senior and super senior citizens. Senior citizens are those who have completed 60 years of age and super senior citizens are persons equal to or over the age of 80 years.
New, optional Income Tax slabs for Financial Year 2020-21 are as below:
|Income bracket||The tax rate for FY 2020-21|
|Not exceeding Rs.2.5 lakh||Nil|
|Not exceeding Rs.5 lakh||5%|
|Not exceeding Rs.7.5 lakh||10%|
|Not exceeding Rs.10 lakh||15%|
|Not exceeding Rs.12.5 lakh||20%|
|Not exceeding Rs.15 lakh||25%|
|Exceeding Rs.15 lakh||30%|
The taxes are further subject to the 4% health and education cess
The rebate of up to Rs. 12,500 through Section 87A is available
The option of a pre-filled ITR will be made available for those opting for the new tax regime
You can use the Tax calculator for FY 2020-21 to pick between the two tax regimes
Important Dates Pertaining to Income tax
Some of the important dates to remember for individuals who fall under the bracket to pay Income Tax for the year (FY 2019-20 & AY 2020-21) is mentioned in the table below:
Before January 31 - Individuals must submit their proof of investment
Before March 31 - It is the deadline before which any investments under Section 80C of the Income Tax Act, 1961 must be made
Before 31 July - Due date to file an income tax return
Between October and November - Tax returns must be verified
Income Tax Deductions and Return
Income tax deductions help you to reduce your tax liability as they lower your net taxable income. For example, if you invest in an ELSS mutual fund, you qualify for a deduction of up to Rs. 1.5 lakh under Section 80C. This amount is then deducted from your gross income to give you your net taxable income.
The Income Tax Act allows you to claim deductions under several Sections when you make certain investments or expenditures. For instance, Section 80D allows you to claim up to Rs. 15,000 for health insurance premiums and Section 24B allows you to claim up to Rs. 2 lakhs based on home loan interest repayment.
An income tax return is a mode via which you can file returns at the close of the financial year. Through this form, you provide tax details such as your gross income, annual deductions, and net liability. Depending on your profile, you will have to choose the right one from the 7 ITR forms available. For instance, individuals earning less than Rs. 50 lakhs can use ITR-1, proprietors can use ITR-3 and those under the presumptive tax scheme can use ITR-4.
Income tax payment is subject to an annual income threshold. Individuals earning beyond this threshold will be liable to pay taxes as per different slab rates. If your total income falls within the basic exemption limit of Rs. 2.5 lakhs, you are not liable to pay tax. For income between Rs. 2.5 lakhs and Rs. 5 lakhs, tax is applicable at the rate of 5%. The tax slab is 20% for income between Rs. 5 lakhs and Rs. 10 lakhs, and 30% for total income above Rs. 10 lakhs.