Are you just out of college and have landed a new job? Does the thought of filing Income Tax Returns scare you? Well, this article is here to guide you and brief you about the nitty-gritty of taxation in India.
Article Written By: Ms. Ancita Gonsalves
What is Income Tax?
Income tax is a type of tax that the central government charges on the income earned during a financial year. Taxes are an important source of revenue for the government. Government utilizes this revenue for developing infrastructure, providing healthcare, education, etc.
Period of Income
Generally, the income earned during any previous year is assessed or charged to tax in the immediately succeeding assessment year. Previous year is the 12 month period that begins on 1st April and ends on the 31st March of the next year.
Assessment Year is a term used in relation to tax filing. It is the financial year after the previous year in which you will ‘assess’ and file your return, So, assessment year is 2020-21 for the previous year 2019-20
Why Should you Pay Tax?
The word person is a very wide term and includes:
1. Individual: It refers to a natural human being- male or female; minor or major.
2. Hindu Undivided Family: It is created due to operation of Hindu Law. The manager is called “Karta” and its members are called ‘Coparceners’.
3. Company: It is an artificial person registered under Indian Companies Act 1956 or any other law.
4. Firm: It is an entity which comes into existence as a result of partnership agreement between persons to share profits of the business carried on by all or any one of them. It is important to note that for Income Tax purposes, a limited liability partnership (LLP) constituted under the LLP Act, 2008 is also treated as a firm.
5. Association of Persons or Body of Individuals: When persons combine together to carry on a joint enterprise and they do not constitute partnership under the ambit of law, they are assessable as an Association of Persons. They not only receive the income jointly but also share a common purpose. An AOP. can have firms, companies, associations and individuals as its members. A body of individuals (BOl) cannot have non-individuals as its members. Only natural human beings can be members of a body of individuals.
6. Local Authority: Municipality, Panchayat, Cantonment Board, Port Trust etc. are called local authorities.
7. Artificial Juridical Person: A public corporation established under special Act of legislature and a body having juristic personality of its own are known to be Artificial Juridical Persons. Universities fall under this category.
Source of Income
As per the Income Tax Law, there are five heads of income, namely:
Income from Salary | It includes Salary, Allowances and perquisites. It includes all the money you receive as a result of your employment agreement |
Income from House Property | Income from house or building, this may be owned and self-occupied or may be let out on rent. |
Income from Capital Gain | Income from gain or loss when you sell a capital asset. |
Income from Business or Profession | Income/loss that arises as a result of carrying on a business or profession. |
Income from Other Sources | This is the residual head. It generally includes your income from savings bank accounts, fixed deposits, family pension or gifts received. |
Kindly Note that income tax provides you with certain ‘Deductions’ to reduce your Gross Income. These amounts help in bringing down your tax liability.
The applicable Tax Slab Rates?
Income tax in India levies tax on individual taxpayers on the basis of a slab system. The Slab system prescribes different tax rates for different ranges of income. As the income increases, the tax rates also positively correlate. Such Income Tax slabs often undergo a change every year when the budget is announced. The three categories of “Individual“ taxpayers are:
- Individuals (aged less than of 60 years) including residents and non-residents
- Resident Senior citizens (60 to 80 years of age)
- Resident Super senior citizens (aged more than 80 years)
The Income Tax Slab Rates under New Regime (Applicable from FY 20-21)
With the introduction of the new regime, taxpayers have an OPTION to choose either:
1.To pay income tax at lower rates as per New Tax regime while giving up certain permissible exemptions and deductions available under Income Tax.
Or
2. To pay income tax at a higher rate as per the Old Tax Regime while availing the benefits of rebate and exemptions available under Income Tax Act.
Overview of the Slab Rate under Old & New Tax Regime
Income Tax Slab | Existing Regime Slab Rates for FY 19-20 and FY 20-21 | New Regime Slab Rates for FY 20-21 | ||
Resident Individuals & HUF < 60 years of age & NRIs | Resident Individuals & HUF > 60 to < 80 years | Resident Individuals & HUF > 80 years | Applicable for All Individuals & HUF | |
Rs 0.0 – Rs 2.5 Lakhs | NIL | NIL | NIL | NIL |
Rs 2.5 – Rs 3.00 Lakhs | 5% (tax rebate u/s 87a is available) | NIL | NIL | 5% (tax rebate u/s 87a is available) |
Rs. 3.00- Rs 5.00 Lakhs | 5% (tax rebate u/s 87a is available) | NIL | ||
Rs. 5.00 – Rs 7.5 Lakhs | 20% | 20% | 20% | 10% |
Rs 7.5 – Rs 10.00 Lakhs | 20% | 20% | 20% | 15% |
Rs 10.00 – Rs. 12.50 Lakhs | 30% | 30% | 30% | 20% |
Rs. 12.5 – Rs. 15.00 Lakhs | 30% | 30% | 30% | 25% |
> Rs. 15 Lakhs | 30% | 30% | 30% | 30% |
Tax Payable
On your Taxable Income, tax rates/slabs are applied and final tax payable is calculated. It is also important to note that certain special incomes are taxed at specified rates.
Happy Filing J
