Income Tax in India
Income tax is a type of tax that the Indian central government charges on the income earned during a financial year by the individuals and corporates. Taxes are sources of revenue for every government. Government use taxes for developing infrastructure, providing healthcare, education, Taxes are mainly of two types, direct taxes and indirect taxes. Income Tax is directly charged on the income earned income tax calculation is based on slab rates applicable during that previous year as decided by Government during Budget session..
Types of Income Tax payers
Tax Payers can be divided in different categories taxpayers.
- Individuals
- Partnership Firms
- Companies
- Hindu Undivided Family (HUF).
- Association of Persons(AOP) and Body of Individuals (BOI)
Individuals are broadly classified into two categories
Residents and
Non-residents. (NRI)
Resident individuals pay tax on global income in India (one income in India and abroad.
Whereas NRI pay taxes only on income earned in India. For NRI income earned abroad does not attract tax in India. Residential status is based on number of days stay in India.
Resident Individuals Tax payers can be difided into more categories-
- Individuals less than 60 years
- Individuals more than 60 years
- Individuals more than 80 years
Types of Income which are taxable in India
Anyone who earns income in India will be taxed. Income tax can be levied on 5 heads of income given below.
Salary Income
Income earned from salary or pension is taxable under this head
House Property Income
Income earned from renting a property is taxable under this head
Capital Gains Income
Income from sale of a capital asset is taxable under this head
Business and Profession Income
Profits earned by self-employed individuals, professionals and corporates are taxed here.
Income from Other Source
Income bank interest, winning in lotteries is taxable under this head.
Income Tax slabs
Each taxpayers are taxed differently partnership firms and companies have a fixed rate of tax calculated on tax profits, the individual, HUF, AOP and BOI taxpayers are taxed on slab system they fall under. tax Budget 2020 introduced a ‘New tax regime’ for the Individuals and HUF taxpayers :
· Income Range | · Tax rate | · Tax to be paid |
· Up to 2.5 Lacs | · 0 | · No tax |
· Between Rs 2.5 to 5 Lacs | · 5% | · 5% |
· Between Rs 5 to 10 Lacs | · 20% | · Rs 12,500+ 20% |
· Above 10 Lacs | · 30% | · Rs 1,12,500+ 30% |
Further there are two other tax slabs for two other age groups: those who are 60 and older and those who are above 80.
Income Tax Slabs under new tax regime
From the FY 2020-21, new tax regime started for individuals & HUFs Individuals and HUF have option to choose new regime, or continue with older one. New tax regime is optional. If the old regime is continued then deductions/exemptions can be availed by the taxpayer.
New income tax slabs :
New regime slab rates | |||
Income between Rs 2.5 to 5 Lacs | 5% | ||
Income from Rs 5 to 7.5 Lacs | 10% | ||
Income from Rs 7.5 to 10 lacs | 15% | ||
Income from Rs 10 to 12.5 lacs | 20% | ||
Income from Rs 12.5 to Rs 15 lacs | 25% | ||
Income above Rs 15 lacs | 30% | ||
Many deductions and exemptions are not allowed under New Tax regime. However following deductions are available under the new regime are:
- Transport allowances in case of a specially-abled person.
- Conveyance allowance received to meet the conveyance expenditure
- Any compensation received to meet the cost of travel on tour or transfer.
- Daily allowance received to meet the ordinary regular charges or
Following Income are taxable at fixed rate (specialrates under Income Tax Act.)
Capital gains income is an exception to this rule. Capital gains are taxed at fixed rates. The holding period would determine the rates.
Residents and (NRI) non residents:
Income tax applicability in India depends on the residential status of taxpayer. Individuals who qualify as a resident in India should pay tax on their global income in India i.e. income earned in India and abroad. Whereas, (NRI) Non-residents need to pay taxes only on their Indian income. The residential status has to be determined for every financial year for which income and taxes are computed.
Income Tax – FAQs
- When should some one file ITR ?
It is mandatory to file ITR of a company and a firm. However, individuals, HUF, AOP, BOI are mandatorily required to file return of income if the income exceed basis exemption limit of Rs 2.5 lakhs.
- Can i file return of income even if my income is below taxable limits ?
Yes, one can file ITR voluntarily even if your income is less than basic exemption limit
- What documents are to be required along with ITR?
There is no need to enclose any documents with ITR. However, one should keep documents to produce before income tax authority if required in future.
- Should I disclose all my income in the return even if it is exempt?
Yes. Income from every source including exempt income must be
IPA offers Income tax course