\
Overview:
Income Tax is that percentage of your income that you pay to the government to fund infrastructural development, pay the salaries of those employed by the state or central governments, etc. All taxes are levied based on the passing of a law, and the law that governs the provisions for our income tax is the Income Tax Act, 1961.
Income tax is only of the direct means of taxation like capital gains tax, securities transaction tax, etc., and there are many other indirect taxes that we pay like sales tax, VAT, Octroi, service tax, etc.
The income tax you pay every month or upon every contractual earning is what forms a large part of the revenue for the Government of India. These revenue functions are managed by the Ministry of Finance, which has delegated the responsibility to managing direct taxes (like income tax, wealth tax, etc.) to the Central Board of Direct Taxes (CBDT).
Income Tax – In Detail:
Income tax has to be paid by every individual person, Hindu Undivided Family (HUF), Association of Persons (AOP), Body of Individuals (BOI), corporate firms, companies, local authorities and all other artificial juridical persons that generate income.
Taxes are calculated on the annual income of a person, and an annual cycle (year) in the eyes of the Income Tax law starts on the 1st of April and ends on the 31st of March of the next calendar year. The law recognizes and classifies the year as “Previous Year” and “Assessment Year”.
The year in which income is earned is called the previous year and the year in which it is charged to tax is called the assessment year.
For example: Income earned between April 1st 2016 and March 31st 2017 is called the income of the previous year and will be charged to tax in the next year, or the assessment year that starts on April 1st 2017.
Taxes are collected by the government in three primary ways:
1.Voluntary payment by taxpayers into designated banks, like advance tax and self-assessment tax.
2. Taxes Deducted at Source (TDS) which is deducted from your monthly salary, before you receive it.
3. Taxes Collected at Source (TCS).
Income Tax Slab Rates:
Income tax slab rates are for different categories of taxpayers, who are taxed progressively higher based on their earning. The income tax slab rates can be broadly classified into the following categories:
1. Individuals and Hindu Undivided Families (HUF):
These are the slab rates as of financial year 2017-2018, i.e. assessment year 2018-2019.
On all the tables listed below, Education Cess of 2% and SHEC of 1% will be levied on the tax computed using the rates given below.
Under Section 87(A), an Income Tax Rebate of Rs.5,000 is provided for all individuals earning an income that’s less than Rs.5,00,000 per annum.
For Male individuals below the age of 60 and HUF:
| Income Tax Slabs | Income Tax Rates |
| Total income less than Rs.2,50,000. | -NIL- |
| Total income greater than Rs.2,50,000 but less than Rs.5,00,000. | 5% of the amount by which it exceeds Rs.2,50,000. |
| Total income greater than Rs.5,00,000 but less than Rs.10,00,000. | 20% of the amount by which it exceeds Rs.5,00,000. |
| Total income greater than Rs.10,00,000. | 30% of the amount by which it exceeds Rs.10,00,000. |
For Female individuals below the age of 60:
| Income Tax Slabs | Income Tax Rates |
| Total income less than Rs.2,50,000. | -NIL- |
| Total income greater than Rs.2,50,000 but less than Rs.5,00,000. | 5% of the amount by which it exceeds Rs.2,50,000. |
| Total income greater than Rs.5,00,000 but less than Rs.10,00,000. | 20% of the amount by which it exceeds Rs.5,00,000. |
| Total income greater than Rs.10,00,000. | 30% of the amount by which it exceeds Rs.10,00,000. |
For all individuals above the age of 60 – Senior Citizens:
| Income Tax Slabs | Income Tax Rates |
| Total income less than Rs.3,00,000. | -NIL- |
| Total income greater than Rs.3,00,000 but less than Rs.5,00,000. | 5% of the amount by which it exceeds Rs.3,00,000. |
| Total income greater than Rs.5,00,000 but less than Rs.10,00,000. | 20% of the amount by which it exceeds Rs.5,00,000. |
| Total income greater than Rs.10,00,000. | 30% of the amount by which it exceeds Rs.10,00,000. |
For all individuals above the age of 80 – Super Senior Citizens:
| Income Tax Slabs | Income Tax Rates |
| Total income less than Rs.5,00,000. | -NIL- |
| Total income greater than Rs.5,00,000 but less than Rs.10,00,000. | 20% of the amount by which it exceeds Rs.5,00,000. |
| Total income greater than Rs.10,00,000. | 30% of the amount by which it exceeds Rs.10,00,000. |
The following tables indicate the tax slabs for businesses.
Co-operative societies:
| Income Tax Slabs | Income Tax Rates |
| Total income less than Rs.10,000. | 10% of the income. |
| Total income greater than Rs.10,000 but less than Rs.20,000. | 20% of the amount by which it exceeds Rs.10,000. |
| Total income greater than Rs.20,000. | 30% of the amount by which it exceeds Rs.20,000. |
Firms, Local Authorities, Corporate and Domestic Companies:
Income tax slab rates do not apply for these, as they are taxed at a flat rate of 30% on the total income declared.
A surcharge of 5% is levied on the total income tax of domestic companies if their income exceeds Rs.1 crore. This surcharge does not apply to firms and local authorities.
Income Tax Return (ITR):
There is a prescribed form through which the particulars of income earned by a person, and the taxes paid thereon, are communicated to the Income Tax Department. There are different forms for the filing of returns based on different status and heads of income. This is called the return of income.
It’s basically just you telling the government how much you’ve earned, from where you’ve earned it, and how much tax you’ve paid on it.
Tax Forms:
The different forms which have been prescribed for different classes of taxpayers are as follows:
| Assessment Year | ITR Forms | Remarks |
| A Y 2016-17 | Form Sahaj (ITR-I) | For Individuals having Income from Salaries, One house property, Other sources (Interest etc.) Refer to Instructions for eligibility |
| A Y 2016-17 | ITR-2 | For Individuals and HUFs not having Income from Business or Profession |
| A Y 2016-17 | ITR-2A | For Individuals and HUFs not having Income from Business or Profession and Capital Gains and who do not hold foreign assets |
| A Y 2016-17 | ITR-3 | For Individuals/HUFs being partners in firms and not carrying out business or profession under any proprietorship |
| A Y 2016-17 | ITR-4 | For individuals and HUFs having income from a proprietary business or profession |
| A Y 2016-17 | Sugam (ITR-4S) | Presumptive business Income Tax return |
| A Y 2016-17 | ITR-5 | For persons other than,- (i) individual, (ii) HUF, (iii) company and (iv) person filing Form ITR-7 |
| A Y 2016-17 | ITR-6 | For Companies other than companies claiming exemption under section 11 |
| A Y 2016-17 | ITR-7 | For persons including companies required to furnish return under sections 139(4A) or 139(4B) or 139(4C) or 139(4D) or 139(4E) or 139(4F) |
| A Y 2016-17 | ITR-V | Acknowledgement of Filing Return with Income Tax Department |
One can acquire these forms from http://www.incometaxindia.gov.in.
You can also file your return electronically through a free software that the Income Tax Department has provided on www.incometaxindiaefiling.gov.in.
Income Types or Taxable Heads of Income:
Income from different sources is taxed differently. These sources are called heads of income and are as follows:
1. Income From Salaries:
All income received from an employer by an employee is taxed under this heading. Employers are bound to withhold tax compulsorily under Section 192 if the income of their employees falls under a taxable bracket. Employers must also provide a Form 16, which contains details of tax deductions and net paid income.
2. Income from House Property:
Income here is taxable if the assesse is the owner of a property that’s been given out on rent. The property should not be used for business or professional purposes. Individuals and HUFs can claim one property as “self-occupied”, which means you and your family live there, and do not have to pay taxes on this. (Learn more about calculating income from house property)Income from house property is calculated as under:
Gross Annual Value (GAV) = x
Less: Municipal Taxes Paid = (y)
Net Annual Value = x-y
Less: Deductions under Section 24 = z
Income from House Property = (x-y) – z
3. Profits and Gains Of Business or Profession:
These are the taxes that will be applicable for income from business or professional services rendered. The provisions for computing the tax on this type of income is in accordance with Sections 30 to 43D. Income from Capital Gains:
This is for the taxes applicable on income that arises when capital assets are transferred. Capital assets are property of any value that’s held by the assesse like land, buildings, equity shares, bonds, debentures, jewellery, art, assets, etc. (Learn more about calculating capital gains)
4. Income from Other Sources:
Basically, any source of income that cannot be classified under the above heads of income falls under this heading. There are also some specific and pre-determined incomes which fall under this heading, like:
- Income by way of dividends.
- Winnings from horse races / lotteries.
- Employee’s contribution towards staff welfare schemes, any fund set up under the ESIC Act that’s received by the employer from the employees.
- Interest on securities like debentures, government securities and bonds.
- Interest on compensation.
- Rental income other than house property.
- Family pension received after the death of the pensioner.
- Interest income that is earned other than by way of securities.
Income Tax E-Filing:
You can e-file your Income Tax Return, TDS return, AIR return online through this link https://incometaxindiaefiling.gov.in/. E-filing your return has obvious advantages like the fact that you won’t have to deal with the hassle of paperwork and waste time sorting through it all. You can simply log on to the secure website and e-file your return.
This government website also has provisions for you to submit returns, view forms 26AS, outstanding tax demand, CPC refund status, rectification status, ITR – V receipt status, online application tools for PAN and TAN, e-pay your tax and even has a tax calculator.
Deductions:
Deductions for your taxable amount are available under various sections of the Income Tax Act , 1961.
1. Section 80C:
Deductions under this section are only available to individuals and HUF. This section allows for certain investments like NSC, etc. and expenditures to be exempt from taxation up to the amount of Rs. 1,50,000.
2. Section 80CCC:
Deductions under this section are on payments made to LIC or any other approved insurance company under an approved pension plan. The pension policy must be up to Rs.1,50,000 and be taken for the individual himself out of the taxable income.
3. Section 80CCD:
Deductions under this section are for contributions to the New Pension Scheme by the assesse and the employer. The deduction is equal to the contribution, not exceeding 10% of his salary.
The total deduction available under Section 80C , 80CCC and 80CCD is Rs.1,50,000. However, contributions to the Notified Pension Scheme under Section 80CCD are not considered in the Rs.1,50,000 limit.
4. Section 80D:
This is the section that deals with income tax deductions on health insurance premiums paid. In the case of individuals, the insurance policy can be taken to cover himself, spouse, dependent children – for up to Rs.25,000 and parents (whether dependent or not) – for up to Rs.30,000. An additional deduction of Rs.5,000 is applicable if the insured is a senior citizen. In the case of HUF, any member can be insured and the general deduction will be for up to Rs.25,000 and an additional deduction of Rs.5,000.
A total of Rs.2,00,000 can be claimed as deductions whether the assesse is an individual or a HUF.
5. Section 80DDB:
This section is for deductions on medical expenses that arise for treatment of a disease or ailment as specified in the rules (11DD) for the assesse, a family member or any member of a HUF.
6. Section 80E:
This section deals with the deductions that are applicable on the interest paid on education loans for an education in India.
7. Section 80EE:
This section deals with tax savings applicable to first time home-owners. Applies for individuals whose first home purchased has a value less than Rs.40 lakh and the loan taken for which is Rs.25 lakh or less.
8. Section 80RRB:
Deductions with respect to income by way of royalties or patents can be claimed under this section. Income tax can be saved on an amount up to Rs.3,00,000 for patents registered under the Patents Act, 1970.
9. Section 80TTA:
This section deals with the tax savings that are applicable on interest earned in savings bank accounts, post office or co-operative societies. Individuals and HUFs can claim a deduction on an interest income of up to Rs.10,000.
10. Section 80U:
This section deals with the flat deduction on income tax that applies to disabled people, when they produce their disability certificate. Up to Rs.1,00,000 can be non-taxed, depending on the severity of the disability.
11. Section 24(B):
This section deals with the interest paid on housing loans that is exempt from taxation. An amount of up to Rs.2,00,000 can be claimed as deductions per year, and is in addition to the deductions under Sections 80C, 80CCF and 80D. This is only for self occupied properties. Properties that have been rented out, 30% of rent received and municipal taxes paid are eligible for tax exemption.
TDS:
TDS or Taxes Deducted at Source – is a system incorporated by the Income Tax Law to deduct taxes before the income has been disbursed to the person earning it. It is charged depending on your income tax slab, at its point of origin. You do not get a full amount from which to deduct an income tax amount and pay it back, but get charged even before you’ve earned your income.
The income tax here is deducted by the payer and remitted to the government on your behalf.
TDS on income will not apply if your net taxable income is below Rs.2,50,000 for individuals, Rs.3,00,000 for senior citizens and Rs.5,00,000 for super senior citizens.
It’s important to know which tax bracket one falls under and the investments that can be made to exempt a portion of the income from taxation. A lot of money can be saved through investments, and this helps the flow of funds through investible channels in the economy, thus helping the country develop. Health insurance policies, investments and other deductions can be used to your benefit, if you balance them out well.
Making relevant investments can help save a lot on tax, and earn a lot in eventual interest income. Most tax-saving investments have lock-in periods where the funds cannot be accessed, and in this time compound interest at a rate higher than most savings bank accounts.