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Income tax return filing for an individual with salary income of less than Rs.5 lakhs.

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Income Tax in India

Income tax is levied by the Central Government on the income that is earned during a financial year by the individuals and the business. The taxes are considered to be a source of revenue for the government. The revenue that is collected from the source of tax is then utilized on developing infrastructure, proving better healthcare, education subsidies to the farmers or people employed in the agriculture sector, and also for the government welfare schemes.

Taxes in India are of two types Direct tax and Indirect Tax. The tax that is levied directly on the income is called Direct tax. For instance, Income tax is a direct tax and the calculation of the tax is based on the income tax slab rates that are applicable during a given financial year.

Income Tax Eligibility in India

The income Tax Act in India has classified the taxpayers into different categories as different tax rates apply to the different types of taxpayers.

The taxpayers are classified as below:

  • Individuals
  • Hindu Undivided Family
  • Association of persons
  • Body of the individuals
  • Firms
  • Companies

Individuals are also classified as residents and Non-resident Indians. The resident taxpayers are liable to pay tax on the global income in India ( Both on income earned in India and Abroad). Whereas those who are identified as Nonresident Indians need to pay the taxes only on the income earned or that is accrued in India. The resident individuals are further classified based on their age group.

  • Individuals who are less than 60 years of age
  • Individuals between 60 to 80 years of age
  • Individuals aged more than 80 years.

Which Income is subjected to Income Tax in India?

Everyone who is earning or gets an Income is subjected to pay Income Tax in India. Here is a simpler classification of the income that breaks the income for further understanding.

  • Income from salaries and Pensions is also taxable under the Income-tax law in India.
  • Income from Business and profession which includes the profits earned by self-employed people, businesses, or even freelancers or contractors is also subjected to Income tax payment in India. But besides this, the income earned from professionals like the insurance agents, Chartered Accountants, Doctors, and lawyers who are practicing are also included in this head.
  • Income from Capital Gains like the surplus income from capital assets like the shares, house property, Mutual funds, etc is also taxable.
  • Income from house property is also taxable when a house is rented the income from the rent is also taxable.
  • Income from other sources includes the income from the Bank account interest on savings accounts, lotteries, and fixed deposits

What are the income tax slab rates?

The income Tax law taxes all of these taxpayers differently according to the slab rates. For the Indian Companies and the firms, the taxes are computed based on the profits earned whereas for individuals, the Hindu Undivided Family and, the Association of Person and Body of Individuals the taxes are based on the slab rates prescribed by the Income-tax department. The 2020 budget made way for the New Tax regime for individuals and HUF taxpayers.

Existing and old tax regime

Income Tax was levied as per the old regime had 3 slab rates for the levy of the Income-tax which are 5%, 20%, and 30% of the income. Options are given to continue with this old tax regime where Leave travel concession, the house sent allowance, and certain other allowances can be claimed as deductions. In addition, the deduction for saving investments as per section 80C (LIC, PPF) to 80U can also be claimed. The Income-tax slab rates for the taxpayers under the old regimes are as follows.

Income Range Applicable Tax rate
Up to Rs. 2,50,000 Nil
Rs. 2,50,000 to Rs. 5,00,000 5%
Rs.5,00,000 to Rs.10,00,000 20%
Above Rs.10,00,000 30%

Income tax slab rates under the new regime

A new tax regime can be opted by the Individuals and the Hindu Undivided Families from 2020-2021 with the lower tax rates. But the new tax regimes do not support any deductions. An individual can choose the old or the new regime. The new tax regime is optional and then the decision shall be made while filing the income tax returns. The income tax slab rates under the new tax regime are as follows:

Income Range Slab Rates
Rs. 2,50,000 to Rs. 5,00,000 5%
Rs. 5,00,000 to Rs. 7,50,000 10%
Rs. 7,50,000 to Rs. 10,00,000 15%
Rs.10,00,000 to Rs. 12,50,000 20%
Rs.12,50,000 to Rs.15,00,000 25%
Rs. 15,00,000 and above 30%

By opting for a New Tax regime the deductions and exemptions are not allowed. However, the only exemption and deduction allowed under the new tax regime are:

In case of a specially-abled person transport allowances are allowed

As a part of the employment, the conveyance allowance is received to meet the conveyance expenditure

Any compensation that is received to meet the cost of the travel on tour or transfer.

The daily allowance that is received to meet regular expenditure occurred in the absence of the regular place duty.