Income tax is a direct tax levied on income earned by individuals or organizations. The Income Tax Department determines the amount of tax based on prescribed income slabs and calculates it according to the applicable rules.
What Is Income Tax? Income tax is a tax paid to the government based on your earnings. It is calculated according to the income category set by the government.
These taxes fund development projects and contribute to the national treasury. Online platforms facilitate the payment of income tax, TDS (Tax Deducted at Source), TCS (Tax Collected at Source), and non-TDS/TCS payments, streamlining the process for taxpayers.
Who Has to Pay Income Tax?
In India, taxpayers are required to pay income tax based on their age and income under the old tax system:
- Individuals below 60 must pay income tax if their annual income exceeds ₹2.5 lakhs.
- Senior citizens (aged 60 to 80 years) also follow the ₹2.5 lakh limit.
- The mandatory filing of Income Tax Returns (ITR) occurs if the total gross income, including standard deductions, exceeds:
- ₹3 lakhs for those below 60 years.
- ₹3 lakhs for senior citizens (aged 60 to 80 years).
- ₹5 lakhs for super senior citizens (aged 80 years and above).
The following entities are also required to pay tax or file income tax returns:
- Corporate Bodies
- Associations of Individuals (AOP)
- Hindu Undivided Families (HUF)
- Companies
- Local Authorities
- Boards of Individuals (BOI)
Income Tax Rules in India: The Income Tax Act of 1961 regulates income tax in the country, supplemented by the Income Tax Rules of 1962.
Types of Income
Every individual in India, regardless of residency, is liable to pay income tax on their income. The Income Tax Department categorizes income into five types, each with specific sources:
- Property Income: Income from renting out residential property.
- Salary Income: Income from employment, including salaries and pensions.
- Business or Professional Income: Income from self-employment, freelancing, trade, contracting, and professional services such as those provided by chartered accountants, doctors, lawyers, and tuition teachers.
- Capital Gains Income: Income from selling capital assets like stocks, mutual funds, or real estate.
- Income from Other Sources: Income from savings accounts, fixed deposits, lottery winnings, and interest.
Income Tax Return (ITR)
The Income Tax Return (ITR) is a form submitted to the Income Tax Department detailing an individual’s income. Before filing taxes, employers typically provide Form 16, which helps calculate the tax payable for the year, including any applicable returns.
Common IT forms have been updated for MSMEs and professionals. If cash receipts exceed 5%, the estimated tax limit is increased to ₹ three crore (turnover) and ₹75 lakhs (income).
Income Tax E-Filing
E-filing your returns offers several benefits, including saving time. You can easily e-file by logging into a secure government portal.
Income Tax Returns, TDS Returns, AIR Returns, and Wealth Tax Returns can be e-filed online at https://incometaxindiaefiling.gov.in.
This government website provides tools for filing returns, viewing Form 26AS, checking pending tax demands, tracking CPC return status, editing statuses, and confirming ITR-V receipt status. It includes an online application tool for PAN, TAN, e-payment of taxes, and a tax calculator.
Taxpayers’ Income Tax Slab Rates for FY 2024-25:
In the Union Budget 2024, the Finance Minister announced changes to the income tax slabs under the new optional regime. Taxpayers can opt for the new system or continue filing taxes under the old regime.
Income Tax Slabs in the New Regime for FY 2024-25:
- No tax on income up to Rs. 4 lakh.
- Income between Rs. 4 lakh and Rs. 8 lakh is taxed at 5%.
- Income from Rs. 8 lakh to Rs. 12 lakh is taxed at 10%.
- Income from Rs. 12 lakh to Rs. 16 lakh is taxed at 15%.
- Income from Rs. 16 lakh to Rs. 20 lakh is taxed at 20%.
- Income from Rs. 20 lakh to Rs. 24 lakh is taxed at 25%.
- Income above Rs. 24 lakh is taxed at 30%.
Income Tax Slabs for Individuals Below 60 Years of Age (Old Regime):
- There is no tax on income up to Rs. 2.5 lakh.
- Income between Rs. 2.5 lakh and Rs. 5 lakh is taxed at 5%.
- Income from Rs. 5 lakh to Rs. 10 lakh is taxed at 20% on the amount exceeding Rs. 5 lakh.
- Income above Rs. 10 lakh is taxed at 30%.
- Note: An additional cess of 4% is applicable on the calculated tax amount.*
Categories of Taxpayers
- Individuals below 60 years of age.
- Individuals aged 60 to below 80 years.
- Super senior citizens aged above 80 years.
Income Tax Calculation:
Income tax can be calculated manually or by an online income tax calculator. The tax amount you owe depends on the tax slab applicable to your income.
Salaried individuals’ income includes basic salary, house rent allowance (HRA), transport allowance, special allowances, etc.
However, some components of your salary may be tax-free, such as Leave Travel Allowance (LTA) and reimbursements for telephone bills.
If HRA is part of your salary and you reside in a rented house, you may claim an exemption. Additionally, there is a standard deduction of up to Rs. 75,000.
Advance Tax:
Advance tax refers to the estimated tax liability that must be paid to the government in advance. There are specific deadlines for paying advance tax:
- 15% of advance tax must be paid on or before June 15.
- 45% of advance tax must be paid on or before September 15.
- 75% of advance tax must be paid on or before December 15.
- 100% of the advance tax must be paid on or before March 15.
Payment of Income Tax:
Taxpayers can pay income tax online through the e-payment facility. To make an online payment, you need a net banking account with an authorized bank and must provide a PAN card or Tax Exemption and Collection Number (TAN) for verification.
The government collects income tax primarily through three methods:
- Voluntary taxpayer payments at designated banks (e.g., advance tax, self-assessment tax).
- Tax Deducted at Source (TDS) is deducted from your monthly salary before disbursement.
- Tax Collected at Source (TCS).
The Income Tax Department (IT Department), operating under the Department of Revenue in the Ministry of Finance, oversees the collection of income taxes, excise duties, and other financial laws approved in the Union Budget each year.
The Central Board of Direct Taxes (CBDT) regulates tax policy and planning and implements direct tax laws through the IT Department.
In addition to tax collection, the IT Department also works to prevent and detect tax evasion.
Income Tax Form List:
To obtain Income Tax (IT) returns, an individual must first file an income tax return. Depending on the income assessment group, the following ITR forms must be filed:
- ITR-1: Individuals earning income from salary, house property, and other sources (e.g., interest).
- ITR-2: Individuals not earning income from business or profession.
- ITR-2A: For individuals without business or professional income, for Hindu Undivided Families (HUFs), and individuals without foreign assets except for capital gains.
- ITR-3: For individuals/HUFs that are partners in a partnership firm and do not conduct business or profession independently.
- ITR-4: For individuals with income from a proprietary business or profession.
- ITR-4S: For estimated business income (presumptive taxation).
- ITR-5: Individuals, HUFs, companies, and others are required to file Form ITR-7.
- ITR-6: For companies other than those claiming exemption under section 11.
- ITR-7: For individuals and entities required to file a return under various sections (e.g., section 139(4A)).
- ITR-V: Acknowledgment form for filing an income return.
To file an ITR, one must submit documents such as bank statements, Form 16, and a copy of the previous year’s return. To register and file the return, visit the Income Tax Department’s official website.
To file your Income Tax Return (ITR), you must submit a copy of your bank statement, Form 16, and the previous year’s return. Visit the Income Tax Department’s website to register and file your return.
How to Claim Income Tax Returns
If you have overpaid your taxes, you can claim an income tax refund for the excess amount. For instance, if your Total Tax Deducted at Source (TDS) liability for 2023-2024 is Rs. 35,000 and your employer has deducted Rs. 40,000, you can claim a refund for the additional Rs. 5,000.
If you forget to declare your tax-saving investments and pay more tax, you can also claim an income tax refund. You can check the status of your IT returns on the official Income Tax Department website.
Options to Save Income Tax
Investment: Mutual Funds: Equity-Linked Savings Schemes (ELSS) can be claimed for tax deductions under Section 80C. Compared to Fixed Deposits or Public Provident Funds (PPF), ELSS typically offers a shorter lock-in period and potentially higher returns.
Unit-Linked Insurance Plans (ULIPs): These are market-linked insurance plans, and investments in ULIPs are eligible for tax deductions.
Insurance: Life Insurance and Health Insurance: Premiums paid towards life insurance and health insurance policies qualify for tax deductions under Section 80C.
Educational Loan Deduction: Under Section 80E, you can claim a deduction for interest paid on loans taken for higher education, with no limit on the amount you can claim.
Home Loan: If you take out a loan to buy or repair a house, you can claim a tax deduction on the interest paid for loans exceeding Rs. 1.5 lakhs. Note that deductions are not applicable for personal loans.
Deduction for Interest Income: Interest earned on bank deposits is deductible under Section 80TTA, where individuals can claim a deduction of up to Rs. 10,000.
Strategies to Minimize Tax Liability
Fixed Deposit (FD): An FD with a lock-in period of 5 years helps you earn interest and provides tax-saving benefits.
National Savings Certificate (NSC): This safe investment option allows you to deposit up to Rs. 100 for a lock-in period of 5 to 10 years. Investments in NSC qualify for tax deductions.
Provident Fund (PF): Investing more in your PF account can help reduce your taxable income.
Income Tax Exemption Sections
Various sections of the Income Tax Act 1961 provide deductions on your taxable amount. When e-filing your Income Tax Return, be sure to mention these deductions in the appropriate ITR form:
Section 80C: This section offers exemptions for specific investments, including NSC, up to Rs. 1.5 lakhs.
Section 80CCC: Deductions are allowed for payments made to LIC or any other insurance company under a pension scheme, with exemptions up to Rs. 1.5 lakhs.
Section 80CCD: Exemptions apply to contributions made by the taxpayer and employer to a new pension scheme, limited to 10% of the employee’s salary.
The total exemption available under sections 80C, 80CCC, and 80CCD is Rs. 1.5 lakhs. However, contributions to pension schemes under Section 80CCD do not fall under this limit.
Section 80D: This section provides deductions on health insurance premiums. For individuals, the deduction limit for policies covering self, spouse, and dependent children is up to Rs. 15,000, and for parents (dependent or not), it is also Rs. 15,000.
An additional Rs. 5,000 deduction applies if the insured is a senior citizen. For HUFs, the general deduction is Rs. 15,000, with an additional Rs. 5,000 for senior citizens, allowing a total maximum of Rs. 2.0 lakhs.
Section 80DDB: This section provides deductions for expenses incurred for specified illnesses as per rule (11DD).
Section 80E: Deductions for interest paid on education loans for studies in India.
Section 80EE: Focused on tax savings for first-time home buyers, applicable to individuals purchasing a home worth less than Rs. 40 lakhs and who take a loan of Rs. 25 lakhs or less.
Section 80RRB offers deductions related to income from royalties or patents, allowing for income tax savings of up to Rs. 3.0 lakhs.
Section 80TTA: This section deals with tax savings applicable to interest earned in savings bank accounts, post offices, or cooperative societies. Individuals and HUFs can claim a deduction on interest income up to Rs. 10,000.
Section 80U: This section describes a flat income tax deduction. Depending on the severity of disability, there is no tax up to Rs. 1.0 lakh.
Section 24: This section describes interest paid on a home loan that is not taxed. In addition to deductions under sections 80C, 80CCF, and 80D, a deduction up to Rs. 2.0 lakh can be claimed per annum. This is only for self-occupied properties. Rented properties are eligible for a tax deduction of 30% of the rent received and municipal taxes paid.
Take advantage of these options to minimize your tax liability effectively!