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Know all About Income Tax

In most countries, the citizens pay a compulsory contribution to the government. These funds are then used by the government in creating infrastructure as well as offering welfare benefits to the countrymen. In India too, we pay taxes that can be broadly classified into 2 categories:

Direct taxes:  These taxes are calculated directly on the earning/ income of an individual, they are paid to the authority directly.

Indirect taxes: Indirect taxes are consumption-based taxes that are levied on goods and services.

You must have guessed by now that Income Tax is a kind of direct tax, as you pay a part of your income directly to the government. There are some basic rules and standards that are followed and if you are clear with them you would be in a better position to understand income tax details.

What is income tax?

Being a direct tax, Income Tax is paid by you to the government on the amount that you earn. Both Indian citizens and NRIs need to be aware of the tax details in India, so that they can pay the taxes, as per the Income Tax Act, 1961. An Indian citizen pays the tax on the income that he has earned in a financial year and includes the income he has earned in India or abroad, whereas for an NRI, the tax has to be paid on any income that is generated in India.

The government collects income tax from the individual in the following ways:

  • TDS – Tax Deducted at Source
  • TCS – Tax Collected at Source
  • Voluntary payment by taxpayers

 

Who needs to pay income tax in India?

An individual who generates an income from either one source or another is liable to pay income tax. Taxpayers can be classified as:

  • Individual
  • Hindu Undivided Family
  • Association of Persons
  • Body of Individuals
  • Companies
  • Firms: Proprietary firms and Partnership firms
  • Local authorities
  • Any other Judicial Entity
  • Co-operative societies

 

Understand Your Income

You know by now that an income has to have a tax. It is important to understand the different components in your income, as only then you would be able to understand the income tax details. There are five different heads under which the income is segregated:

1. Income generated from salary: Being a salaried person, the salary that you draw falls under this head

2. Income generated from business: Any income earned by self-proprietary businessmen and professionals

3. Income generated from the property: The rent earned through residential or commercial property

4. Income generated from capital gains: Profits that you earn by selling a capital asset come under this head

5. Income generated from other sources: An income apart from the above-mentioned heads

 

Income Tax Slab:

As explained above, an adult who earns has to pay taxes, however, what is also important to be kept in mind is that everyone doesn’t have to pay the same tax. There is a specific tax rate that is fixed on the basis of the income and the tax slabs that a person falls into, knowing about the income tax details in India will help you find out which slab you fit in.

In the Financial Budget 2020, Smt Nirmala Sitaraman, the Finance Minister of the country, brought into existence a New Tax Regime. However, the people have been given the freedom to choose between the Old regime or the New Regime.

Total Income

Old taxation rates New taxation rates
Up to INR 2.5 lakhs Nil

Nil

From INR 2.5 to 5 lakhs

5% 5%
From INR 5 to 7.5 lakhs 20%

10%

From INR 7.5 to 10 lakhs

20% 15%
From INR 10 to 12.5 lakhs 30%

20%

From INR 12.5 to 15 lakhs

30% 25%
Above INR 15 lakhs 30%

30%

A taxpayer can fall into any of these 3 categories:

  1. Residents who are below the age of 60 years, including residents as well as non-residents
  2. Resident Senior Citizens, individuals in the age group of 60-80 years
  3. Resident Super Senior Citizens, individuals over the age of 80 years

Let us take a look at the different tax slabs:

Income Tax Slab Rates for the Individuals under 60 years of age, HUF, and NRIs

Income Tax Slab

Rates for the Individuals under 60 years of age
Till INR 2.5 lakhs

Nil

From INR 2.5 lakhs – INR 5 lakhs

5%
From INR 5 lakhs – INR 10 lakhs

20%

Over INR 10 lakhs

30%

 

Income Tax Slab Rates for the people between 60 years – 80 years

Income Tax Slab

Rates for the Individuals for the age group 60 – 80 years
Till INR 3 lakhs

Nil

From INR 3 lakhs – INR 5 lakhs

5%
From INR 5 lakhs – INR 10 lakhs

20%

Over INR 10 lakhs

30%

 

Income Tax Slab Rates for people over 80 years of age

Income Tax Slab

Rates for the Individuals for the age group 60 – 80 years
Up to INR 5 lakhs

Nil

From INR 5 lakhs – INR 10 lakhs

20%
Over INR 10 lakhs

30%

 

 Old Tax Regime Vs New Tax Regime:

Though the taxpayer has the freedom to decide which tax regime he wants to choose, this has also created confusion for many. However, it is not as difficult as it may seem. We have already compared the tax slabs under both regimes, now let us take a look at their pros and cons:

Under the old tax regime, about 70 exemptions and deductions are allowed to the taxpayer to reduce his taxability. There are many choices such as health insurance premiums under Section 80D, home loan repayment, EPF, NSC under Section 80 C, etc. On the other hand, though, the new tax regime allows concessional tax rates to the taxpayer, there are no exemptions and deductions that can be availed by the taxpayer.

Filing the income tax:

Thanks to the advancements in the field of digitization filing your Income Tax Return is no longer a tedious and endless task. More and more people find filing ITR online to be a much easier and simpler process. Let us take a look at how to file your Income Tax Return:

  1. Step 1: Required Documents
    When calculating your gross income, documents such as Form 16, Form 26AS, salary slips, etc should be kept handy.
  2. Step 2: Compare
    If you find that the TDS certificate and Form 26AS are not in agreement, you would have to rectify the errors as soon as possible.
  3. Step 3: Find Out the Gross Income
    You need to calculate your income from all different heads, thereafter you would have to subtract the deductions.
  4. Step 4: Calculating the Tax Liability and Tax Payable
    For this, you can select any out of the Old and the New Tax Regime. However, in case you earn less than INR 2.5 lakhs a year, you do not have to pay any income tax.
  5. Step 5: File the ITR
    Once you are satisfied with the calculations, you can start the filing process.
  6. Step 6: Verification
    The ITR can be verified electronically or physically.

 

As a responsible citizen, following the rules set up by the government is vital. Paying taxes is one of your most basic yet crucial duties. Most people consider income tax a sore point, but that is not the right approach. It is the duty of every earning citizen to make his contribution towards the growth of the country.

 

 

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