All About Income Tax

Income tax is the tax that is paid to the government on the income earned. It is the main source of income generation for every government. In India, income tax is governed by Income Tax Act 1961 and rules there under. For the purpose of taxation, income earned in a slab of 12 months starting April 1st and ending 31st March of the next year is taken and tax is calculated thereon. This brings us to two important terms – assessment year and previous year. Previous year is the year in which income is earned and assessment year is the year following previous year in which income is assessed by filing returns. Direct Income tax can be broadly divided into- taxation on individuals and taxation on partnership firms or companies.

Tax on Individuals

For tax purposes, income in the hand of individuals is neatly divided into- Income from salary, Income from Business & Profession, Income from house property, Income from capital gains and Income from other sources. The same components are part of the income tax return too. The total income under each head is taken to compute tax. For those individuals who do not need to get their accounts audited, the last date of filing returns is 31st July whereas the category requiring audit has to file their returns by 30th September.

Income tax Slab for Individuals

Tax Slab for age below 60 Years

Income Tax Slab
Income up to Rs. 250,000 NIL
Income between Rs. 250,001- Rs 500,000 10% of Income exceeding Rs. 250,000
Income between Rs. 500,001- Rs. 10,00,000 20% of Income exceeding Rs. 500,000
Income above 10,00,000 30% of the Income exceeding 10,00,000

Tax Slab for age above 60 Years but less than 80 years

Income Tax Slab
Income up to Rs. 300,000 NIL
Income between Rs. 300,001- Rs 500,000 10% of Income exceeding Rs. 250,000
Income between Rs. 500,001- Rs. 10,00,000 20% of Income exceeding Rs. 500,000
Income above 10,00,000 30% of the Income exceeding 10,00,000

Tax Slab for super Senior Citizens Above the Age of 80 Years

Income Tax Slab
Income up to Rs. 500,000 NIL
Income between Rs. 500,001- Rs 10,00,000 20% of Income exceeding Rs. 250,000
Income above 10,00,000 30% of the Income exceeding 10,00,000

Tax Deduction Available to Individuals

There are special exemptions and deductions from Income that can be claimed to lower the tax liability. They are discussed below:

Section 80C: Investments including ULIP, insurance policies, mutual funds, post office deposits, PF contributions and National Saving certificates. Maximum allowable deduction is Rs. 150,000

Section 80CCC and 80CCD: Contribution to Pension scheme for self or dependants to the tune of Rs. 50,000

Section 80D: Medical insurance premiums up to Rs. 25,000. For senior citizens this limit is Rs. 30,000 and for super senior citizens above the age of 80 who do not have medical insurance, are allowed to claim Rs. 30,000 is a year towards medical expenses.

Section 80DD: Expenses towards rehabilitation of handicapped dependant relative

Section 80DDB: Medical expenditure on self or dependants on specific ailments

Section 80E: Payment of interest towards education loan

Section 80EE: Additional interest exemption on home loans to the tune of Rs. 50,000

Section 80G: Donations to certain specific charitable funds and trusts.

Section 80GG: Deduction on account of house rent

Section 80TTA: Interest on savings account is exempt up to the limit if Rs. 10,000

Section 80U: Expense on treatment of Employee or dependants suffering from physical disability

Section 24: Rs. 2 lakhs is allowed as deduction towards repayment of home loan interest in case of self occupied house.

Section 87A: Those individuals whose income is less than Rs. 5 lakhs can claim rebate to the extent of Rs. 5000.

Apart from the above deductions, an individual need not pay tax on long term capital gains on certain shares, receipts by members of Hindu undivided family, Income share from a partnership firm, agricultural income, amounts received under Voluntary retirement scheme, scholarships for educational expenses, gratuity, foreign service allowance and leave travel concession.

Tax Returns

An individual has to file one of the following returns as per the applicability and terms and conditions of the form given along

  • ITR 1 (SAHAJ): To be used by individuals and Hindu Undivided Families (HUF) that do not have income from business or profession.
  • ITR 2: Again applicable to individuals and HUFs but those who are partners in firms but not owners of proprietorship.
  • ITR 3: This form is meant for tax payers that pay presumptive tax.
  • ITR-4S (SUGAM): Those individuals and HUFs who have income from proprietary business or profession need to file their return using ITR-4S.
    Following are the Returns to be filed by persons other than individuals.
  • ITR 4: This form is to be used by firms, Association of Persons and Body of Individuals for filing returns.
  • ITR 5: This form is to be used by Companies other than companies claiming exemption under section 11.
  • ITR 6: Persons including companies that are required to furnish return under section 139 (4A), 139 (4B), 139 (4C) and 139 (4D) use this form to file return.

Income tax in India has a complex structure and it is advisable to be well aware of the various rules and regulations. For complete guidance on income tax, hiring CA services and filing return visit us on Letzbank. We have tie up with clear tax- India’s most reliable and popular tax filing portal. Our panel of experts can provide their valuable consultancy and make the tedious process of filing return a cake walk.