Income Tax is a Direct Tax that every individual, local authority, company, or corporate firm is legally required to pay to the government if they come under the tax slab. Income Tax is calculated on the net taxable income of a person. In India, there are incremental tax slab rates to determine the tax applicable to income. There is a lower slab rate for lower-income and a higher slab rate for higher income. If we talk the Income Tax cycle of India, it starts with the fiscal on April 1 of the year and ends on 31st March of the next year.
Define Direct Tax
Direct taxes are payable directly by the Assessee to the government and the most common examples of Direct Taxes are Income Tax and Corporation Tax.
Who needs to pay an Income Tax?
Income Tax slab rates 2020
Income earned in India is taxable based on prescribed slab rates of Income Tax. The slab rates for Income Tax are progressive in that it increases with the Net Annual Income of the individual. The Income-tax slab rates change periodically and an announcement of the same is made at the time of presenting the Union Budget every year.
Budget 2020 has given the option to choose between the existing income tax regime and a new regime for the coming financial year 2020-21.
The new tax regime offers lower tax rates and new tax slabs and simultaneously removes tax exemptions and will result in lower tax outgo for the taxpayer, according to the finance minister.
The income Tax slab rate for the Financial year 2020-2021 for the assessment year 2021-2020 are as follows:
|Total Income||Simplified, optional tax rates|
|Up to Rs 2.5 Lakh||NIL|
|From 250,001- Rs 500,000||5%|
|Rs 500,001- Rs 750,000||10%|
|From Rs 750,001- Rs 10,00,000 ||15%|
|Rs 10,00,001 – Rs 12,50,000||20%|
|Rs 12, 50,001 – Rs 1500,000||25%|
|Above Rs 1500,000||30%|
Existing slab rates
|INCOME TAX SLAB||GENERAL CATEGORY||SENIOR CITIZENS 60 YEARS AND ABOVE BUT BELOW 80 YEARS||SUPER SENIOR CITIZEN|
|Up to 2,50,000||NIL||NIL||NIL|
|2,50,001 To 300,000||5%||NIL||NIL|
|300,001 TO 5,00,000||5%||5%||NIL|
|5,00,001 TO 10,000,00||20%||20%||20%|
Between ₹ 50 Lakhs to ₹ 1 Crore: 10 % surcharge of the income tax must be paid as well.
Above ₹ 1 Crore – 15% surcharge of the income tax must be paid.
It is compulsory for all taxpayers to pay 4% of Educational and Health Cess irrespective of in any Income Tax slab they are coming from.
Income Tax Slab for Business
|Income Tax Slab||Income Tax rates|
|When Income is within 10,000||10% of the Income|
|When Income lies between 10,000-20,000||20% of the amount which exceeds 10,000|
|Above 20,000||30% of the amount which exceeds 20,000|
For Firms and Domestic Companies:
There are no slab rates in the case of domestic companies, firms, and Local authorities.
Mandate to file Income Tax Return https://eportal.incometax.gov.in/iec/foservices/
Avoid Income Tax Penalty
Different Forms of Taxable Income
For whom it is mandated to file Income Tax Returns as per Income Tax Act?
E-filing Income Tax
What is the most important thing one needs to keep in mind for paying Income Tax?
The final tax payable is calculated by applying the tax rates which are in force by making a deduction on taxes that have been paid via TDS.
Some of the major tax deductions under 80C if you are going with the old tax regime:
Income Tax Deductions are allowed under various sections in the old tax regime:
Under Section 80 CCC: Contributions made in Annuity plans in the form of LIC are considered as Tax Benefits up to Rs 1.5 Lakh.
Under Section 80TTA: Interest on a saving account qualifies for the deduction.
Under 80CCG: Investment in Rajiv Gandhi Scheme.
Under Section 80 D: If an individual is making payment for medical t insurance for his spouse, children, or for its own, he or she can claim Income Tax Deduction for the same Rs 25000.
For a senior citizen, the limit is extended to Rs 30,000. Also, preventive health checkups will cost up to Rs 5000 per month for families to qualify for tax deductions.
Under Section 80 DD: If a family member of a Taxpayer suffers from 40 percent disability, in that case, one can claim deductions for up to Rs 75000 for spending on medical treatments for disabled dependents.
Under Section 80DDB: A person is allowed to make deductions in Income Tax amounting to Rs 40,000 or more on the treatment of specific diseases which are neurological diseases, malignant cancers, chronic renal failure, AIDS, and hematological disorders.
Under Section 80 E: If a person is having an education loan and repaying the interest, then also qualify for income tax deductions. However, deductions are not allowed for repayment of the principal amount of the education loan.
Under Section 80G,80GGA, 80GGB, and 80 GGC: Persons making any donations to an approved body during a financial year are also allowed to make Income Tax deductions.
Note: Apart from the above there is a standard deduction of 40,000 introduced in budget 2018 for the salaried class as medical reimbursement and transport allowance. This Income Tax deduction is allowed irrespective of expenses incurred by the employee. The assessee does not have to submit actual bills to claim this deduction.
About Income Tax rebates
There are many confusions that arise in the mind of a taxpayer in terms of Income Tax exemption, Income Tax Rebate, and use of Income Tax deductions. Although all these terms are beneficial to the taxpayer. Income Tax rebate includes those items which one claims from the total tax payable. Tax Deductions and Tax exemptions are claimed from Income and rebates claiming done from tax payable.
Income Tax rebate claim under section 87A at the time of filing Income Tax returns.
An income Tax rebate is available in case the Taxpayer is a resident Individual who is below 80 years and whose taxable income is less than Rs 5 Lakh.
Who are not eligible for Income Tax Rebate?
Difference between ‘’ Deduction’’ and “Exemption”
What are the useful Income Tax Exemptions for salaried individuals?
As per the Income Tax Act, of 1961, several income tax exemptions are given to the salaried individual. A salaried employee must inform the employer regarding claiming exemptions. So, at the time of the TDS deduction, the employer computes tax on the balanced income.
House Rent Allowance is given by the employer to the employee. As per the Income Tax Act, the portion of HRS is exempted from the tax
Special allowance also is given by the employee in which certain parts of the amount is exempted from tax provided the vacation was within India
Employees are also eligible for the leaves they serve in an organization. If they do claim leaves, then they can also encash these leaves. When leave encashment takes place they serve as an organization. The amount received as an encashment of leaves can also be claimed as an exemption
Up to a certain limit, tax exemption is also given on pensions
For employees who opt for VRS before the age of retirement, in such a situation, the employer pays out an amount of money to the employee. The amount received by the employee for taking VRS is exempted from Tax
Other allowances that are exempted from Taxes are transport allowance and Children's Education Allowance
Benefits of understanding tax planning strategies
How to do tax planning without the help of a consultant?