The tax system in India is usually understood to be really complex and also not fully explained to students in school. However, knowing how taxes function in the country is essential as a citizen. Income tax is a type of charge in India that the government levies on the income earned by individuals or businesses throughout the fiscal year.
Based on the tax slab that you have opted for, it is levied every year. The Income Tax Act 1961 governs the income tax system and is administered by the Central Board of Direct Taxes (CBDT), which is part of the Department of Revenue under the Ministry of Finance. In this article, we will talk about what income tax is, who is required to pay it, the different tax slabs, types or categories of income tax, the exemptions and deductions and a brief overview of how to file Income Tax in India.
What is Income Tax?
The government generates revenue through taxes. Income tax is a type of direct tax that the government levies on the earnings of people and corporations in a financial year. The tax calculation is according to the income slab rates that were in effect during that fiscal year. This tax collection is used for various developmental purposes such as healthcare, education, infrastructure, subsidiaries and other welfare programs run by the government.
Who is required to pay income tax in India?
Any Indian citizen under the age of 60 who earns more than Rs. 2.5 lakhs in a financial year is legally liable to file income tax. The income tax exemption limit is up to Rs.3 lakh for senior citizens over 60 years but less than 80 years old.
Tax Structure and Income Tax Slabs:
Under the Indian income tax regime, every category of taxpayers is taxed differently. India follows a progressive tax system, where tax rates increase as income levels rise. Different tax slabs exist for individuals, Hindu Undivided Families (HUFs), Association of Persons (AOPs), companies, and other entities. People's earnings are classified into tax brackets or tax slabs. And the tax rate varies for each tax slab. The rate where the income is taxed rises in direct proportion to income.
The Indian government hopes to develop a fair taxation system for all citizens by introducing income tax slabs. The government frequently updates the tax slabs and announces changes to the Union Budget in order to achieve this goal. Your income tax bracket determines the amount of tax you will be asked to pay. The maximum income tax rate is set at 30%, with a surcharge and education cess applied.
Types of Income to Look out for while filing Income Tax in India
For ease of classification, the Revenue Tax Department divides income into five major categories:
- Income from salaries- The income received from wages, and even your pension is included in this category. Form 16 carries every detail of your income from wages. While filing your taxes, consider submitting this form as proof of income and employment.
- Income from business and profession- According to Sections 30 to Section 43D of the Income Tax Act, profits generated by self-employed persons, businesses, freelancers, or contractors, as well as income made by professionals such as life insurance agents, chartered accountants, doctors, and lawyers who have their own practice, and tuition teachers, or even income earned by a side hustle are taxable under this heading.
- Income from property- Renting, leasing or selling a residential property is taxable under this category.
- Income from capital gains- This type of income category applies to earnings from sources like the sale of capital assets, such as mutual funds, stocks, or real estate. This section also divides your capital gains into two major categories based on your holding period. These are long-term capital gains (LTCG) and short-term capital gains (STCG).
- Income from Other Sources- Any income that does not fall in the above-mentioned four categories is considered in this category. Under this heading, income from savings bank account interest, fixed deposits, lottery winnings, etc., are taxable.
Now that we have discussed income tax slabs and types let's look at the different slabs under the old and new tax regimes for a better understanding:
The table below illustrates the taxable income of individuals and Hindu undivided families in India.
| Income Slab for Individuals and HUFs | Old Tax Regime | New Tax Regime (From 1st April 2023) |
| Rs 0 - Rs 2,50,000 | - | - |
| Rs 2,50,000 - Rs 3,00,000 | 5% | - |
| Rs 3,00,000 - Rs 5,00,000 | 5% | 5% |
| Rs 5,00,000 - Rs 6,00,000 | 20% | 5% |
| Rs 6,00,000 - Rs 7,50,000 | 20% | 10% |
| Rs 7,50,000 - Rs 9,00,000 | 20% | 10% |
| Rs 9,00,000 - Rs 10,00,000 | 20% | 15% |
| Rs 10,00,000 - Rs 12,00,000 | 30% | 15% |
| Rs 12,00,000 - Rs 12,50,000 | 30% | 20% |
| Rs 12,50,000 - Rs 15,00,000 | 30% | 20% |
| > Rs 15,00,000 | 30% | 30% |
Are there any exemptions and deductions available while filing income tax in India?
There are various exemptions and deductions available under the Income Tax Act, such as those for investments in specific instruments (like Provident Fund, National Pension System, Equity Linked Savings Scheme, etc.), expenses (like education loan interest, medical insurance premiums, etc.), and others (like house rent allowance, standard deduction, etc.). Example- By well-planning the Section 80C investments that are spread diversely across various options like NSC, ULIP, PPF, etc., an individual can claim deductions up to Rs 1,50,000.
How To File Income Tsx in India: A General Overview
Learning how to file Income Tax in India is a complex process thus, many people prefer hiring a professional Chartered Accountant to handle the same. However, if you understand the Income Tax Act clearly, you can simply upload Form 16 onto the Income Tax India website. However, if you are self-employed or own a business, you must maintain a book of accounts. Here is a quick overview of the process:
- Gather your financial documents, such as Form 16, TDS certificates, bank statements, investment details, and other related documents.
- Choose the suitable ITR form based on your income sources.
- Calculate Taxable Income by adding all sources of income and deducting eligible deductions under various sections of the Income Tax Act.
- Calculate Tax Liability and consider any advance tax or prepaid TDS.
- File the tax. Most taxpayers must file their returns online on the Income Tax Department's e-filing website (https://www.incometaxindiaefiling.gov.in).
- Verify your return using verification methods provided by the Income Tax Department, such as Aadhaar OTP, EVC, etc. and submit
- Acknowledgement: You will receive an acknowledgement (ITR-V) on your registered email after successful submission. Download and keep it for your records.
- Processing of Return: The Income Tax Department will process your return and issue an intimation if there are any discrepancies or adjustments.
Note that it is essential to file the return within the due date to avoid penalties, interest and legal action. The due date is according to the category you fall in. It is advisable to consult a professional if you are new to it or filing it for the first time.