Income Tax is surely the most important source of earning revenue for the Indian government. It is established as an imposition on the citizens of the country for raising funds for the development and defense needs of India.
Taxes are imposed on income, sale, purchase, and property and these help the government to run various government machinery and work.
Income Tax can be defined as the tax being charged on an individual’s annual income. The amount of tax applicable to a person depends on the amount of money you earn as your income over a financial year. You also have the option of making your income tax, TDS/ TCS and Non-TDS/TCS payments online. The relevant details need to be filled by the taxpayers to make such payments. The process of online income tax payment is very simple and can be done in a matter of minutes.
Table of Contents
Direct tax is a type of tax paid on your income directly to your government. These are broadly classified as follows:
This type of tax is levied on an individual or any taxpayer other than companies on their received income. The law specifies the rate at which incomes should be taxed.
This is the type of tax that companies pay on the profits made from their businesses. Here also, it follows a prescribed rate if tax for corporates has been predecided by the income tax laws of our country.
This is a type of tax that somebody else collects on your behalf and pays to the government, such as in theatres, malls, restaurants, e-commerce websites, etc. Indirect taxes can be of several types like the service tax you pay on your restaurant bills and movie tickets, VAT or value-added tax on products like electronics and clothes.
Everyone who earns or makes living in India is subject to paying income tax (be it a resident or non-resident of India). Your incomes include your salary, pension or interest from your savings account.
The Income Tax Department has broken down income into 5 broad heads:
| Income Type | Nature of Income covered |
| Income from Salary | Income from salary and pension |
| From Other Sources | Income from the interest of savings bank account, fixed deposits, etc. |
| From your house property | Rental income mostly |
| From Capital Gains | Income received from the sale of a capital asset like mutual funds, shares, house property, etc. |
| From Business and Profession | Income when you are self-employed, a freelancer, contractor or when you run a business, tuition teachers, etc. |
Income Tax Department is a government agency that has the responsibility for the collection of direct taxes. All the operations of this department are handled by the Central Board for Direct Taxes (CBDT). People can receive various details about taxation like income tax slabs, international taxation, tax laws, tax rules and so on, on the official website of this department.
The Income Tax Act of India was passed back in 1961 and handles all income tax provisions in addition to any tax deductions that might be applicable. Ever since being enacted, there have been several changes to the tax laws due to varying economic conditions and inflation.
The first Income Tax Act was introduced in India in 1860. It was launched by James Wilson to overcome heavy losses suffered by the British Government in India’s freedom movement of 1857. The history of India’s Income Tax can be divided into 3 different periods:
As of now, the Income Tax Act of 1961 is applicable in our country. Back in 1956, the government addressed the request to impose an Income Tax Act. The Law Commission then submitted its report on the Income Tax Act in 1958. In 1961, the Income Tax Act was introduced to the public. Ever since the Act has undergone multiple amendments from time to time. The Act comes with a wide array of sections. Each of these sections caters to a specific aspect of taxation rules in our country.
Income Tax in India is filed annually based on the ‘Previous Year’ and ‘Assessment Year’.
Previous Year: The income tax rules state that the ‘Previous Year’, also known as the ‘Financial year’ begins on the 1st of April of the current year and ends on the 31st of March of the next year.
Assessment Year: This is the upcoming fiscal year that comes after the ‘Previous Year’ and an individual needs to assess and file their income tax returns in the ‘Assessment Year’.
The Income Tax Act, 1961 has a wide range of sections. Each section caters to a specific aspect of the taxation rules of India. Below are given details of the various chapters of the IT along with some relevant sections and sub-sections:
Chapter 1: This is a basic introduction to the IT Act.
Chapter 2: This deals with the commencement and extent of the IT Act
Chapter 3: This deals with income tax charges, dividend income, the scope of income, etc.
Chapter 4: This deals with other forms of income that don’t make a part of the total income like income from the property.
Chapter 6: This deals with the transfer of income with no actual transfer of assets.
Chapter 7: This is about the deductions applicable to income generated from certain sources and payments.
Chapter 8: This deals with the rebates and the amount of share a member would receive in a body or an association
Chapter 9: This is about the double taxation relief in detail and helps the taxpayers to receive a rebate on the income tax paid.
Chapter 10: This deals with special scenarios where you can avoid income tax payment.
Chapter 10A: This is about different types of general anti-avoidance income tax rules for the income taxpayers.
Chapter 12: This is about tax calculation under special cases.
Chapter 12BB: This is about the taxation process needed to convert a foreign company into an Indian subsidiary
Chapter 12D: This is about the taxation process involving profits earned by domestic companies.
Chapter 12DA: This deals with rules on the distributed income of an organization.
Chapter 12E: Deals with the distributed income of unit holders.
Chapter 12F: Deals with taxes on income from venture capital funds and companies.
Chapter 12G: Deals with special provisions from the shipping companies and the tax procedures involved.
Chapter 13: Deals with information related to various IT authorities.
Chapter 14: Deals with the return filing formalities.
Chapter 14A: Deals with special provisions that help to avoid repetitive appeals.
Chapter 15: Deals with liabilities for different cases including both general and special provisions.
Chapter 16: Deals with the firms and their taxation and assessment process.
Chapter 17: Deals with clauses related to the collection of tax and recovery.
Chapter 18: Deals with income tax relief given to companies for dividends paid to the shareholders.
Chapter 19: Deals with the tax refunds in the case of any extra tax is paid to the IT department.
Chapter 19A: Deals with the settlement of cases and includes sections 245A to 245L.
Chapter 19B: Deals with all advance rulings and sections from 245N to 245V.
Chapter 20: Deals with the appeals forwarded to the commissioner and deputy commissioner.
Chapter 20A: Deals with the acquisition of immovable property to counteract tax evasion.
Chapter 20C: Deals with buying of immovable property.
Chapter 21: Includes sections 271 to 275 of the IT Act and deals with penalties applicable to taxpayers in various cases.
Chapter 22: Includes section 275A to 280D, which deals with prosecution and offenses concerning failure in compliance and other related things.
Chapter 23: This includes sections 281 to 298 and almost all miscellaneous topics that can’t be categorized under other tax chapters mentioned above.
Schedules made to the IT Act, 1961 consist of several annexures that underwent amendment and got added to include the scenarios which were missed initially. These were introduced to make the IT Act much more comprehensive and inclusive.
The new Income Tax regulations for the fiscal year 2020-2021 have revised the income tax slabs for various groups of income. The people who earn up to INR 2.5 lakh are exempted from tax. 10% tax will be imposed on those earning between INR 5 lakhs and INR 7.5 lakhs. 15% tax is to be levied on people making INR 7.5 lakhs and INR 10 lakhs. Lastly, 20% and 25% tax will be levied on the income group of INR 10 lakh to INR 12.5 lakhs and INR 12.5 lakhs to INR 15 lakhs respectively.
| Annual Income (in Lakhs) | Old Rate | New Tax |
| Up to 2.5 | – | – |
| 2.5 to 5 | 5% | 5% |
| 5 to 7.5 | 20% | 10% |
| 7.5 to 10 | 20% | 15% |
| 10 to 12.5 | 30% | 20% |
| 12.5 to 15 | 30% | 25% |
| 15 and above | 30% | 30% |
Our legislature had enacted the Income Tax Act of India in 1961 to administer the income tax in the country. The Income Tax Rules, 1962 were created with the motive to help in the application and the enforcement of the law constituted in the Act. In addition to that, the Income Tax Rules can be read-only in conjunction with the Act. The Income Tax Rules are enacted within the framework of the Income Tax Act and are not allowed to override the Act’s provisions.
Form 15G and 15H are forms that you need to submit to prevent TDS deduction on your income if you happen to meet the following conditions:
Form 15H is for citizens above 60 years of age and 15G is for everybody else.
Uses:
Form 16 is a type of certificate issued by your employer and it has the information you need to prepare and file your income tax return. The employers need to issue it every year on or before 15th June of the next year. Form 16 has two parts A and B.
Part A: It contains the following components-
Part B: Some components of Part B are as follows:
The following entities need to pay income tax and also file their income tax returns:
Individuals who fall under the bracket to pay Income Tax for the fiscal year 2019-2020 and AY 2020-21 need to remember the following dates:
| Important Due Dates | Task to be completed |
| Before January 31st | Individuals need to submit their proof of investment |
| Before March 31st | Deadline before which investments falling under Section 80C of the Income Tax Act, 1961 need to be made |
| Before 31st July | File Income Tax Return |
| October to November | Verify tax returns |
The Income Tax Department (IT Department), under the Department of Revenue of the Ministry of Finance, is responsible for monitoring the procedure of Income Tax collection. The Central Board of Direct Taxes (CBDT) regulates the tax policy and the planning of taxes too. It is also held responsible for administering direct tax laws through the Income Tax Department. The IT department is also involved in the prevention and detection of people avoiding taxes. Income Tax is collected by the government in the following three primary ways:
You can perform your income tax calculation manually or via an online income tax calculator. The income tax rate applicable to your income depends on which tax slab you belong to. For all the salaried employees, the income from salary would include the basic pay plus the House Rent Allowance (HRA) plus Transport Allowance plus Special Allowance plus other allowances.
Certain components of your salary are exempted from tax, such as Leave Travel Allowance (LTA), reimbursement of telephone bills, etc. In case HRA is a part of your salary and you stay in a rented house, then you can claim an exemption on the HRA. Apart from such exemptions, there is a standard deduction up to the amount of INR 50,000.
Below is a 3 part description of the new tax regime, which is optional.
| Income Tax Slab | Tax Rate |
| Up to INR 2.5 lakh | Nil |
| INR 2,50,001 to INR 5,00,000 | 5% of the total income that is more than INR 2.5 lakh + 4% cess |
| INR 5,00,001 to INR 10,00,000 | 20% of the total income exceeding INR 5 lakh + INR 12,500 + 4% cess |
| Above INR 10 lakh | 30% of total income exceeding INR 10 lakh plus INR 1,12,500 + 4% cess |
Individuals who have an income less than INR 5 lakh can claim tax deductions under Section 87A.
| Income Tax Slab | Tax Rate |
| Up to INR 3 lakh | Nil |
| INR 3,00,001 to INR 5,00,000 | 5% of the total income that is more than INR 3 lakh + 4% cess |
| INR 5,00,001 to INR 10,00,000 | 20% of the total income exceeding INR 5 lakh + INR 10,500 + 4% cess |
| Above INR 10 lakh | 30% of total income exceeding INR 10 lakh plus INR 1,10,000 + 4% cess |
| Income Tax Slab | Tax Rate |
| Up to INR 5 lakh | Nil |
| INR 5,00,001 to INR 10,00,000 | 20% of the total income that is more than INR 5 lakh + 4% cess |
| Above INR 10 lakh | 30% of total income exceeding INR 10 lakh plus INR 1,10,000 + 4% cess |
Besides the above-mentioned tax rates, an additional surcharge and cess are levied. Here are the details of the surcharge and cess that shall be levied on the income tax payable:
| Income | Surcharge rate on the amount of Income Tax |
| INR 50 lakh< Net Income< INR 1 crore | 10% |
| INR 1 crore< Net income< INR 2 crore | 15% |
| INR 2 crore< Net income< INR 5 crore | 25% |
| Net income> INR 5 crore | 37% |
Income tax slab rates are categorized as follows:
| Income Tax Slab | Tax Rate |
| Up to INR 2.5 lakh | Nil |
| INR 2,50,001 to INR 5,00,000 | 5% of the total income that is more than INR 2.5 lakh |
| INR 5,00,001 to INR 10,00,000 | 20% of the total income exceeding INR 5 lakh |
| Above INR 10 lakh | 30% of total income exceeding INR 10 lakh |
| Income Tax Slab | Tax Rate |
| Up to INR 3 lakh | Nil |
| INR 3,00,001 to INR 5,00,000 | 5% of the total income that is more than INR 3 lakh |
| INR 5,00,001 to INR 10,00,000 | 20% of the total income exceeding INR 5 lakh |
| Above INR 10 lakh | 30% of total income exceeding INR 10 lakh |
| Income Tax Slab | Tax Rate |
| Up to INR 5 lakh | Nil |
| INR 5,00,001 to INR 10,00,000 | 20% of the total income that is more than INR 5 lakh |
| Above INR 10 lakh | 30% of total income exceeding INR 10 lakh |
| Income Tax Slabs | Income Tax Rates |
| Taxable income less than INR 10,000 | 10% of the income |
| INR 10,000< Taxable Income< INR 20,000 | 20% of the amount that exceeds INR 10,000 |
| Taxable Income> INR 20,000 | 30% of the amount that exceeds INR 20,000 |
The income tax rate applicable to Domestic Companies is at the rate of 30%.
| Nature of Income | Tax Rate |
| The agreement designed by Indian Government states that the foreign firms are paid by the Indian Government in the form of royalties | 50% |
| The agreement made with an Indian concern, if the payment is done for the technical services, given by foreign firms. | 50% |
| For other incomes | 40% |
The tax rate is kept at 30% for local authorities.
You should always keep in mind that all income cannot be taxed on the Income Slab basis. Capital gains income is exempted from this rule. Capital gains are taxed based on the asset you own and how long you have owned it. The holding period will determine if the asset is long term or short term. It will determine the nature of an asset as well. A tabulation of holding periods, nature of the asset and the rate of tax for each type of asset are given below:
| Types of capital Asset | Holding Period | Tax Rate |
| House Property | Long term: More than 24 months Short Term: Less than 24 months | 20% (Depends on slab rate) |
| Debt Mutual Funds | Long term: More than 36 months Short Term: Less than 36 months | 20% (Depends on slab rate) |
| Equity Mutual Funds | Long term: More than 12 months Short Term: Less than 12 months | If gains> INR 1 lakh, then tax is imposed @ 10%, 15% |
| Shares (STT paid) | Long term: More than 12 months Short Term: Less than 12 months | If gains> INR 1 lakh, then tax is imposed @ 10%, 15% |
| Shares (STT unpaid) | Long term: More than 12 months Short Term: Less than 12 months | 20% (Depends on slab rate) |
| FMPs | Long term: More than 36 months Short Term: Less than 36 months | 20% (Depends on slab rate) |
Individuals who qualify as residents of India need to pay tax on their global income in the country, i.e. income earned in the country as well as that earned abroad. People who qualify as Non-Residents need to pay taxes.
Let us understand the calculation of Income Tax with the help of an example:
| Income Source (FY 2019-20) | Income (INR) |
| Salary: INR 6.5 lakh | |
| Less: Standard deduction- INR 50,000 | 6 lakh |
| Interest on FD | 50,000 |
| Gross Total Income | 6,50,000 |
| Less: Deduction under the Section 80C | 1,50,000 |
| Total income | 5,00,000 |
| Income Tax (@ 5% if from INR 2.5 to 5 lakh) | 12,500 |
| Less: Rebate as under Section 87A | 12,500 |
You can achieve many deductions and exemptions on tax, based on the investments. For example, you can declare your investments in Life Insurance policies, National Savings Certificate, Leave/ Travel Allowance, Fixed Deposit (at least for 5 years), HRA, ELSS Tax Saving Mutual Funds and much more. The following list of options can be considered while saving on your income tax:
The money invested in life insurance and health insurance also considered for tax exemptions under Section 80C.
When you take up a loan for buying a house or for a house renovation, you become eligible for tax deductions up to INR 1.5 lakhs for the respective financial year.
When you calculate your tax liability before-hand and pay your taxes to the government as per that, then such tax will be known as advance tax. Like the name indicates, advance tax is income tax paid in advance.
There are certain deadlines for advance tax payments. These deadlines are as follows:
| Due Date | Payable Advance Tax |
| Before or on 15th June | 15% of advance tax |
| Before or on 15th September | 45% of advance tax |
| Before or on 15th December | 75% of advance tax |
| Before or on 15th March | 100% of advance tax |
Step 1: An individual needs to find his/ her estimated total income by calculating the sum of all the invoices that have been received along with the future payments that the individual shall be received up till the end of the fiscal year, i.e. 31st March.
Step 2: The direct expenses related to the business and the investments need to be deducted from the estimated total income of the individual to get the total taxable income. This is done the Section 80C.
Step 3: Then the total tax liability for the financial year is calculated.
Step 4: The Tax Deducted at Source (TDS) should be deducted from an individual’s total tax liability.
Step 5: If the amount of tax liability after deducting the TDS turns out to be more than INR 10,000, then the individual will need to pay advance taxes based on the due dates given above.
Deductions for an individual’s taxable amount are available under different sections of the Income Tax Act, 1961. These deductions need to be mentioned in the relevant ITR form while e-filing your income tax returns.
The deductions under this section are available only to individuals and HUF. This section allows you to invest in schemes like NSC, etc. and the expenditures shall be exempted from taxation up to INR 1.5 lakh.
Section 80CCC:
The deductions under this section consist of payments made to LIC or some other approved insurance company having an approved pension plan. This pension policy must reach up to INR 1.5 lakh and can be taken out of an individual’s taxable income.
Section 80CCD:
The deductions under this section are for contributing to the New Pension Scheme by the employer and the assessee. This deduction shall be equal to the contribution, not more than 10% of the salary.
The total deduction under Sections 80C, 80CCC and 80CCD is INR 1.5 lakh. But the contributions to the Notified Pension Scheme as mentioned under Section 80CCD are not considered to be limited to INR 1.5 lakh limit.
Section 80D:
This section deals with the income tax deductions made on health insurance premiums paid. In the case of individuals, the insurance policy can be for providing cover to the individual, spouse, dependent children and parents too- for an amount of up to INR 15,000. An additional deduction of INR 5,000 is applicable if the insured person is a senior citizen. In the case of HUF, any member of the family can be insured and the general deduction will be for up to INR 15,000 with an additional deduction of INR 5,000.
You can claim a total amount of INR 2 lakh as deductions whether the assessee is an individual or a HUF.
Section 80DDB:
This section deals with the deductions on medical expenses that are due to the treatment of a disease or ailment as stated in the rules (11DD) for the assessee, any of the family members or any member of a HUF.
Section 80E:
This section is about the deductions that apply to the interest you pay on the education loans for receiving education in India.
Section 80EE:
This section is about tax savings and is applicable to first-time home-owners. It is applicable to people whose first home purchased had a value lower than INR 40 lakh and the loan taken for it was INR 25 lakh or less.
Section 80RRB:
This section deals with deductions concerning income by way of royalties or patents. Income tax on an amount of up to INR 3 lakh can be exempted for patents registered under the Patents Act, 1970.
Section 80TTA:
This section is about the tax savings applicable to the interest earned in your savings bank accounts, post office accounts or other co-operative societies. Individuals and HUFs can claim a tax deduction on their interest income of up to INR 10,000.
Section 80U:
This section is for the flat deduction on income tax that applies to disabled people when they can produce their disability certificate. They will get a tax exemption up to INR 1 lakh, depending on the severity of the disability.
Section 24:
This deals with the interest an individual pays on housing loans that are exempted from taxation. A total amount of up to INR 2 lakhs can be claimed as deductions every year. This amount would be in addition to the deductions made under Section 80C, 80CCF and 80D. This is just for self-occupied properties. Rented out properties, 30% of the rent received and municipal taxes paid are eligible for tax exemption.
Taxpayers also have the option of paying their direct taxes online via the e-Payment facility available. To avail the online tax payment facility, the taxpayers need to have a net-banking account at an authorized bank. The taxpayer’s Permanent Account Number (PAN) or Tax Deduction and Collection Number (TAN) needs to be provided for validation too.
In case, you happen to have paid more tax than your original tax liability, then you are eligible to claim it back, i.e. an income tax refund of this extra amount you have paid. For instance, if your TDS liability for the Fiscal Year 2018-19 was INR 35,000 and the employer deducted INR 40,000 instead, then you can claim a refund for the extra INR 5000 deducted.
You can also claim an ITR if you have forgotten to declare all your tax-saving investments and tax has been charged to you without considering the deductions.
While filing the income tax returns, you need to keep these documents at hand:
If a person wants to claim an income tax refund (ITR), then they will first need to file their income tax return. Based on the income assessment group they belong to, they will be required to submit one of the ITR forms given below:
| Sl. No. | ITR Form | Description |
| 1. | ITR-1 | For people whose income is from salaries, one house property or other sources (like interest on fixed deposits, etc.) |
| 2. | ITR-2 | For people and HUFs who don’t have income from business or profession |
| 3. | ITR-2A | For people and HUFs who don’t have income from Business or Profession and Capital Gains and who are not holding any foreign assets. |
| 4. | ITR – 3 | For people or HUFs who are partners in firms and do not carry out any business or profession under any proprietorship |
| 5. | ITR-4 | For people and HUFs who have income from a proprietary business or related profession |
| 6. | ITR-4S | For those having a presumptive business income tax return |
| 7. | ITR-5 | For people other than – 1. Individual, 2. HUF, 3. The company, 4. People filling out the Form ITR-7 |
| 8. | ITR-6 | For companies other than the ones claiming exemption under section 11 |
| 9. | ITR-7 | For people and companies needed to furnish return under sections 139 (4A)/ 139 (4B)/ 139(4C)/ 139 (4E)/ 139 (4F) |
| 10. | ITR-V | This is the acknowledgment form of filing an income tax return |
To file an ITR, a person needs to produce the bank statement, Form 16, and a copy of his previous years’ returns. You need to visit the Income Tax Department’s website: https://incometaxindiaefiling.gov.in/ and register and file the required returns.
Taxpayers can check the status of their refund on the official website of the Income Tax Department, at the e-filing website or the TIN NSDL portal.
Every individual who has an income source, be it regular or irregular, needs to file their income tax returns, by law. It is mandatory to file a return of income for a company or a firm. But, for individuals, AOP, BOI, HUF, it is mandatory to file a return of income if their income exceeds the exemption limit. Now, this limit is different for different age groups.
Can I file a return of income even if my income is below taxable limits?
Even if your income is lesser than the taxable bracket, you still can voluntarily file your income tax returns.
What documents need to be enclosed along with the return of income?
You don’t need to enclose any document with the return of income. But, you should always retain the documents, in case, you are asked to produce them before any competent authority in the future.
Do I need to disclose all my income in the return even if it is exempt?
Yes, you should disclose your income from every source including the income that is lower than the exemption limit.
The abbreviation PAN form stands for Permanent Account Number. It is a unique ten-digit alphanumeric code issued by the Department of Income Tax.
PAN is required for every transaction with the Department of Income Tax. It is mandatory for various financial transactions like when someone needs to open a bank account. PAN is also needed for the purchase of high-end consumer goods, availing financial credits, foreign travel, security issues, etc. Besides this, a PAN card is considered as the most valuable photo identification method that is accepted everywhere, be it in non-Government or Government institutions of India.
According to the announcement, people who do not hold a PAN shall soon be able to file ITR just by quoting their Aadhaar numbers. However, as per current IT laws, it is mandatory to quote your PAN number to file an ITR.
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