Income Tax in India: Basics, slabs and E-filing Process 2021

Income Tax Basics in India
Income tax is a tax charged on the annual income earned by an individual. The amount of tax paid will depend on how much money you earn as income over a financial year. One can proceed with Income tax payment, TDS/TCS payment, and Non-TDS/TCS payments online. All taxpayers must fill in the relevant details to make these payments. The entire process becomes simple and quick. Government use this revenue for developing infrastructure, providing healthcare, education and subsidy to farmer/agriculture sector and in other various government welfare schemes.
Mainly there are two types of taxes, direct taxes and indirect taxes. Tax levied directly on the income earned is called as direct tax and they are non-transferable. For example, Income tax is a direct tax. Indirect Tax is a tax levied by the government on the goods and services, not on the income/profit/revenue of an individual. Indirect tax are transferable, i.e. it can be shifted to one taxpayer to another. The tax calculations are based on the income slab rates applicable during that financial year.
 
Who should pay Income Tax?
It is mandatory to file ITR for individuals If the gross total income is over Rs.2,50,000 in a financial year. This limit exceeds Rs.3,00,000 for senior citizens and Rs.5,00,000 for super senior citizens. The entities listed below are required to pay tax and file their income tax returns.
  • Artificial Judicial Persons
  • Corporate firms
  • Association of Persons (AOPs)
  • Hindu Undivided Families (HUFs)
  • Companies
  • Local Authorities
  • Body of Individuals (BOIs)
Individuals are classified into residents and non-residents. Resident individuals are liable to pay tax on their global income in India i.e. income earned in India and abroad. Whereas, those who qualify as Non-residents need to pay taxes only on income earned or accrued in India.
The residential status has to be determined separately for tax purposes for every financial year based on, the individual tenor of stay in India. Resident Individuals are further classified into below mentioned categories for tax purposes-
  • Individuals less than 60 years of age
  • Individuals aged more than 60 but less than 80 years
  • Individuals aged more than 80 years
In India, Everyone who earns or gets an income is supposed/subjected to pay income tax, be it a resident or non-resident. In Simple words, the Income tax department breaks down income into five main heads:
 
Head of Income
Nature of Income covered
Income from Capital Gains
Surplus Income from sale of a capital asset such as mutual funds, shares, house property etc is taxable under this head of Income.
Income from Salary
Income earned from salary and pension is taxable under this head of income
Income from Other Sources
Income from savings bank account interest, fixed deposits, winning in lotteries is taxable under this head.
Income from Business and Profession
Profits earned by self employed individuals, businesses , freelancers or contractors & income earned by professionals like life insurance agents, chartered accountants, doctors and lawyers who have their own practice, tuition teachers are taxable under this head.
Income from House Property
Income earned from renting a house property is taxable under this head of income.
 
 
Income Tax Slabs and Taxpayers
Each of those taxpayers are taxed differently, under the Indian income tax laws. While firms and Indian companies have a fixed rate of tax calculated on their tax profits, the individual, HUF, AOP and BOI taxpayers are taxed based on the income slab they fall under. People’s incomes are clubed into blocks called tax brackets or tax slabs. Each tax slab has a different tax rate. If the income increases, the rate of income tax also increases. In Budget 2020, a “New Tax Regime” was introduced for Individuals and HUF taxpayers.
 
 
What is the Existing / Old tax regime?
The income earned individuals will determine the income tax slabs under which they fall. The lower the income, the lower the tax liability, and those who earn less than Rs.2.5 lakh p.a. are exempt from tax.
In the old regime there were 3 slab rated for income tax, i.e. 5%, 20% and 30% tax rate for different brackets of income. The individuals has been given the option to continue with this OLD tax regime and they can claim deductions of allowances like Leave Travel Concession (LTC), HRA, and certain other allowances. Deductions for tax saving investments as per 80C (LIC, PPF, NPS etc) to 80U can also be claimed. Standard deduction of Rs 50,000 is given for interest on Home Loan.
Here is the income tax slab for individuals who are less than 60 years old:
Income Tax Slab
Tax Rate
Up to Rs.2,50,000
Nil
From Rs.2,50,001 to Rs.5,00,000
5% of the amount exceeding Rs.2.5 lakh
From Rs.5,00,001 to Rs.10,00,000
Rs.12,500 + 20% of the amount exceeding Rs.5 lakh
More than Rs.10,00,000
Rs.1,12,500 + 30% of the amount exceeding Rs.10 lakh
*An additional cess of 4% will be applicable to the tax amount calculated above.
 
Advance Tax
The calculation of tax liability before-hand and paying the taxes to the government accordingly is called advance tax. There are certain deadlines for the advance tax payments. These deadlines are listed below:
Due Date
Advance Tax Payable
On or before 15th June
15% of advance tax
On or before 15th September
45% of advance tax
On or before 15th December
75% of advance tax
On or before 15th March
100% of advance tax
 
 
 
There are two other tax slabs for two other age groups: those who are 60 and older and those who are above 80. A word of note: People often misunderstand that if they earn let’s say Rs.12 lakhs, they will be paying a 30% tax on Rs.12 lakhs i.e. Rs.3,60,000. That is incorrect. A person earning 12 lakhs in the progressive tax system, will pay Rs.1,12,500+ Rs.60,000 = Rs 1,72,500. Check out the income tax slabs for previous years and other age brackets.

 
Income Tax Slabs under new tax regime
From FY 2020-21, a new tax regime is introduced for individuals and HUFs with lower tax rated and zero deductions/exemptions. Taxpayers have option to choose from new regime or old regime. New tax regime is optional and choice should be made at time of filing the ITR. If old regime is chosen, then all deduction/exemptions as available can be availed by the taxpayer. The income tax slabs under the new tax regime are:
 
Income Tax Slab
Tax Rate
Up to Rs.2,50,000
Nil
From Rs.2,50,001 to Rs.5,00,000
5%
From Rs.5,00,001 to Rs.7,50,000
10%
From Rs.7,50,001 to Rs.10,00,000
15%
From Rs.10,00,001 to Rs.12,50,000
20%
From Rs.12,50,001 to Rs.15,00,000
25%
Income above Rs.15,00,001
30%

 
If the taxpayer opts for New Tax Regime, most of the deductions and exemptions are not allowed. However the exemptions and deductions available under the new regime are:
  • Transport allowances in case of an especially abled person.
  • Conveyance allowance received to meet the conveyance expenditure incurred as part of the employment.
  • Any compensation received to meet the cost of travel on tour or transfer.
  • Daily allowance received to meet the ordinary regular charges or expenditure you incur because of absence from his regular place of duty.
Exceptions to the Tax Slab
One should be clear that not all the income could be taxed on the slab basis. Capital gains income is an exception to this rule. Capital gains are taxed depending on the asset you own and how long you have had it. The holding period would determine, if an asset is long term or short term. The holding period to determine nature of asset also differs for different assets. A quick glance of holding periods, nature of asset and the rate of tax for each of them is given below:
Type of capital asset
Holding period
Tax rate
House Property
Holding more than 24 months – Long Term Holding less than 24 months – Short Term
20% Depends on slab rate
Debt mutual funds
Holding more than 36 months – Long Term Holding less than 36 months – Short Term
20% Depends on slab rate
Equity mutual funds
Holding more than 12 months – Long Term Holding less than 12 months – Short Term
Exempt (until 31 March 2018) Gains > Rs 1 lakh taxable @ 10% 15%
Shares (STT paid)
Holding more than 12 months – Long Term Holding less than 12 months – Short Term
Exempt (until 31 March 2018)Gains > Rs 1 lakh taxable @ 10% 15%
Shares (STT unpaid)
Holding more than 12 months – Long Term Holding less than 12 months – Short Term
20% As per Slab Rates
 
 
Income tax calculation
Income tax calculation can be done either manually or by using an online income tax calculator. The amount of tax that must be paid will depend on the tax slab under which you fall. For salaried employees, income from salary includes the basic pay, House Rent Allowance (HRA), Transport Allowance, Special Allowance and any other allowances. However, certain components of your salary are tax-exempt, like Leave Travel Allowance (LTA), reimbursement of telephone bills, etc. In case HRA is part of your salary and you reside in a rented house, you are eligible to claim exemption. Apart from these exemptions, there is a standard deduction of up to Rs.50,000.
 
Important Income Tax Dates 2021
The Important dates to remember for individuals who fall under the bracket to pay Income Tax for FY 2020-21 & AY 2021-22 is mentioned in the table below:
Important Due Dates
The task that must be completed
Before January 31
Individuals must submit their proof of investment
Before March 31
It is deadline before which any investments under Section 80C of the Income Tax Act, 1961 must be made
Before 31 July
Due date to file income tax return
Between October and November
Tax returns must be verified by this time
 
 
About Income Tax Department India
IT Department is a government agency that undertakes the direct collection of tax in India. The Central Board handles all operations of the department for Direct Taxes (CBDT). Individuals can get various details such as international taxation, tax laws, and rules, organizational setup, etc., on the official website of the department.
 
Income Tax Act
Passed in 1961, the Income Tax Act of India handles all income tax provisions as well as any tax deductions that may be applicable. Since its introduction, there have been many changes to the law because of economic situations and inflation.
 
Income Tax Rules in India
The legislature enacts the Income Tax Act, 1961, to administer and govern income tax in the country, but the Income Tax Rules, 1962, were created to help in the application and enforcement of the law constituted in the Act. Moreover, the Income Tax Rules can only be read in conjunction with the Income Tax Act. The Income Tax Rules are within the framework of the Income Tax Act are not allowed to override its provisions.
 
Income Tax Collection
Taxes are collected by the government in three primary ways:
  • Voluntary Payment by taxpayers into designated banks, like Advance tax & self-assessment tax.
  • Taxes Deducted at Source (TDS) which is deducted from your monthly salary, before you receive it.
  • Taxes Collected at Source (TCS).
Under the Department of Revenue of the Ministry of Finance, the Income Tax Department (IT Department) handles monitoring the collection of Income Tax, Expenditure Tax, and various other Financial Acts that are passed every year in the Union Budget. The Central Board of Direct Taxes (CBDT) regulates the policy and planning of taxes. CBDT is also responsible for administering the direct tax laws through the IT Department. Besides to the collection of taxes, the IT department is also involved in the prevention and detection of tax avoidance.

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