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Income tax in India is a tax based on your income (and profit, in the case of companies) that you pay to the Government. The Government uses this tax money for various purposes including, public services, infrastructure development, defence spending and subsidies. If you earn income beyond a certain limit, paying income tax is obligatory each year.
The Finance Minister of India tables a Finance Bill annually proposing reforms to direct and indirect taxes. Once both Houses of the parliament pass the bill, the President approves it and it becomes the Finance Act. Such changes will become part of the Income Tax Act, usually from the first day of the next financial year.
The Finance Act consists of four parts:
Part I: Determines the rate at which income tax is imposed on various types of income during a financial year.
Part II: It determines the rate at which tax at source will be deducted during the financial year.
Part III: It points out the increases in income tax rates, i.e. the rate of taxes paid under the head of salary and the rate of advance tax assessment for a financial year.
Part IV: It explains the rules in this section for calculating agricultural profits.
About Income Tax Slabs
Under the Income Tax Act, 1961 – the proportion of tax owed to the government is based on the amount of income an individual received over the course of a year.
Considering that the tax burden is higher for people with lower wages – in India, the tax rate is higher for those making higher income in a financial year. This is achieved by applying a specific tax rate for different annual income amounts. Those slabs are tweaked in annual budget announcements by the government.
Income Tax Slabs for the Financial Year 2019-20 & Assessment Year 2020 – 21
In case of an Individual (resident or non-resident) or HUF or Association of Person or Body of Individual or any other artificial juridical person
Individuals (Other than senior and super senior citizen)
Net Income Range
Rate of Income-tax
Assessment Year 2021-22
Assessment Year 2020-21
Up to Rs. 2,50,000
Rs. 2,50,000 to Rs. 5,00,000
Rs. 5,00,000 to Rs. 10,00,000
Above Rs. 10,00,000
Senior Citizens - (who are 60 years or more at any time during the previous year)
Up to Rs. 3,00,000
Rs. 3,00,000 to Rs. 5,00,000
Super Senior Citizens - (who are 80 years or more at any time during the previous year)
Up to Rs. 5,00,000
Hindu Undivided Family (Including AOP, BOI and Artificial Juridical Person)
Surcharge is the amount levied on your income tax amount at following rates if total income of an assessee exceeds specified limits:
Rate of Surcharge
Range of Income
Rs. 50 Lakhs to Rs. 1 Crore
Rs. 1 Crore to Rs. 2 Crores
Rs. 2 Crores to Rs. 5 Crores
Rs. 5 crores to Rs. 10 Crores
Exceeding Rs. 10 Crores
Health and Education Cess: Health and Education Cess is levied at the rate of 4% on the amount of income-tax plus surcharge.
Note: A resident individual (whose net income does not exceed Rs. 5,00,000) can avail rebate under section 87A. It is deductible from income-tax before calculating education cess. The amount of rebate is 100 percent of income-tax or Rs. 12,500, whichever is less.
In the budget session of February 2020, the Finance Minister announced a special, reduced Income Tax rate for individuals and HUFs who do not wish to claim any rebates for their Income Tax.
Total Income (Rs)
Up to 2,50,000
From 2,50,001 to 5,00,000
From 5,00,001 to 7,50,000
From 7,50,001 to 10,00,000
From 10,00,001 to 12,50,000
From 12,50,001 to 15,00,000
Surcharge on Special Income Tax Rates
Partnership Firms / Corporations and LLPs (Limited Liability Partnerships) have a flat tax rate and are expected to pay income tax at a rate of 30%.
Added to the tax is:
Local authorities are also taxed at a 30% flat tax rate.
Domestic Companies received a major boost this year. So the turnover rose from Rs.250 crores to Rs.400 crores for a 25% tax rate. The estimation of turnover slab wise of taxes is:
Gross turnover up to Rs.400 Crores in the previous year
25% (subject to conditions as set out in the Taxation Laws Amendment Ordinance, 2019)
Gross turnover exceeding Rs.400 Crores in the previous year
30% (subject to conditions as set out in the Taxation Laws Amendment Ordinance, 2019)
Added to the tax amount are:
Special Tax rates applicable to a Domestic Company
Where it opted for section 115BA
Where it opted for Section 115BAA
Where it opted for Section 115BAB
Nature of Income
Royalty received from Government or an Indian concern in pursuance of an agreement made with the Indian concern after March 31, 1961, but before April 1, 1976, or fees for rendering technical services in pursuance of an agreement made after February 29, 1964 but before April 1, 1976 and where such agreement has, in either case, been approved by the Central Government
Any other income
Up to Rs.10,000
10% of Income
Rs.10,000 to Rs.20,000
20% of Income exceeding Rs.10,000
30% of Income exceeding Rs.20,000
The Finance Act, 2020 incorporated a new Section 115BAD in the Income-Tax Act to provide the cooperative societies with an option to be taxed at a rate of 22% plus 10% surcharge and 4% cess. Resident cooperative societies have an opportunity to opt for taxation under the new Act w.e.f. Assessment Year 2021-22 section 115BAD. If exercised under this clause, the right cannot be revoked subsequently for the same year or any other prior year.
If a cooperative society opts for the new Section 115BAD law, its revenue shall be measured without providing for a defined exception, deduction or benefit available under the Act. The societies that opted for this section are held out of Alternative Minimum Tax (AMT) purview. Furthermore, the provisions relating to the calculation, forwarding and set-off of AMT credit shall not apply to these assessed persons
The option of paying tax at lower rates shall only be available if the total income of the cooperative society is calculated without demanding any exemptions or deductions
End Note: Income Tax is calculated based on the income earned during the year. The Finance Act determines the tax for every income bracket. Taxes are deducted at source based on this tax slab. Individuals should consult this tax slab while filing their income tax returns.
1. Are the Tax Slab rates different for men and women?
No longer. But, there were different slabs for men and women earlier. For example, the basic exemption limit for men aged up to 65 years was Rs. 1.6 lakh per annum for FY 2010-11, while women aged up to 65 years had a higher basic exemption limit of Rs. 1.9 lakh. As for FY 2018-19, that is not the case anymore.
2. How does the government collect the taxes?
The government raises taxes by three means:
3. What is the time period considered for the purpose of income tax?
Income-tax is based on a person's annual taxable income. The year under the Income-Tax Law is the period beginning on April 1st and ending on March 31st of next calendar year.
4. Is the due date for filing tax returns the same for all taxpayers?
No, not all taxpayers have the same due date. The due date for individual taxpayers is July 31st of the assessment year. However, for FY 2019-20, the due date to file income tax returns is extended till November 30th, 2020.
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