Income Tax

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 being 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 higher slab rate for higher income. If we talk about the Income Tax cycle of India, it starts with fiscal on April 1 of the year and ends on 31st March of 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?

  • Salaried individuals
  • Self-employed individuals
  • Self-employed professionals
  • Hindu Undivided Family (HUF)
  • Legally Recognized artificial persons
  • Body of Individuals (BOI)
  • Association of Persons (AOP)
  • Companies and corporate firms
  • Local Authorities

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 that it increases with the Net Annual Income of the individual. The Income-tax slab rates changes periodically and announcement of same made at the time of presenting Union Budget every year.

Budget 2020 has given an 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.

Income Tax slab rate for Financial year 2020-2021 for the assessment year 2021-2020 are as follows:

Total IncomeSimplified, 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 CITIZEN 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%
Above 10,000,00 30% 30% 30%

Note:

For income:

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 the taxpayers to pay 4% of Educational and Health Cess irrespective of in any Income Tax slab they are coming.

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 amount which exceeds 10,000
Above 20,000 30% of amount which exceeds 20,000

For Firms and Domestic Companies:

There are no slab rates in case of domestic companies, firms and Local authorities.

  • Flat Tax rate of 30% computed on total income.
  • 7% surcharge levied on domestic companies, if total income is above 1 Crore
  • 12% surcharge levied on domestic companies, if total income is above 10 Crore
  • 3% of Education Cess also to be charged from such entities

Mandate to file Income Tax Return https://incometaxindiaefiling.gov.in/.

  • To file an Income Tax return is mandatory. Income Tax Department is responsible for activities related to the taxation process.
  • It is compulsory that at the end of the financial year to declare Income or earnings from any source to the Income Tax Department by every taxpayer. There is a form prescribed by the Government of India to make a declaration
  • It is compulsory for every entity and individual earning Income in India to file return, irrespective of tax deducted at source.
  • come can be earned in any form such as pension, salary, income from housing property or any income from capital gains.

Avoid Income Tax Penalty

  • By filing the form of Income Tax Return, one can inform the government about earnings and tax that is to be paid on it.
  • Filing Income Tax return act as a proof of income on which you have paid the tax
  • It is mandatory to file Income Tax return otherwise there are serious implications as a result, the IT department can put you under the category of tax defaulter. It will lead to the charging of penalties also.
  • If you have paid more tax than required, the excess amount paid by you will be refunded.

Different forms of Taxable Income

  • Income from Salary
  • Income from Capital Gains
  • Income from House Property
  • Income from Business
  • Other Income in the form legal gambling and lottery etc.

For whom it is mandate to file Income Tax Returns as per Income Tax Act?

  • If the Gross Total Income is above 250,000 in a Financial Year. This limit exceeds 3,000,00 for senior citizens and 5 Lakh for all citizens who are above 80 years
  • If you are resisting as a company no matter whether it is witnessing profit or loss
  • You look forward to claiming an income tax refund.
  • One needs to file Income Tax return, if he or she is a resident of India and have assets outside India.
  • If you receive income from a property held under a Trust for Charitable and Religious purposes, a Research Association, a Political party, Educational Institution, News agency, medical or educational institution.
  • In the case of NRIs, income earned in India is taxable

E-filing Income Tax

  • In the year 2006-2007, the concept of the E-Filing facility came into existence. This concept is being brought by the Income Tax Department of India. One can E-file Income Tax Return at https://incometaxindiaefiling.gov.in/.
  • Companies and firms must file a return that required Statutory audit under Section 44AB.
  • The benefit of E-Filing has been extended to all the Assessee.
  • Presently, only a significant section of taxpayers are e-filing Income Tax returns.
  • The Income Tax Department aims to bring all the returns online.
  • E-filing return avoids having any paperwork and it leads wastage of time in sorting papers.
  • Just with a click of a mouse, you can log into a secured website and file online Income Tax Returns.

What is the most important thing one needs to keep in mind for paying Income Tax?

  • Before making Income Tax payment, it is must to have a working knowledge of how Income Tax is being computed. It will not only help in making Income Tax payments but also help a taxpayer in saving tax to some extent.
  • For paying accurate income tax, it is must to be aware of the income tax slabs.
  • The final tax payable calculated on applying the tax rates which are in force by making a deduction on taxes that have been paid via TDS.
  • To save Tax, it is a must to do a proper examination of deductions that have been defined under the different sections of the IT Act, 1961. Certain investments are the National Saving certificate or Public Provident Fund which comes under 80C of the IT Act 1961. The exemption limit under 80 C is Rs 1.5 Lakh.

Some of the major tax deductions under 80C if you are going with the old tax regime:

  • Tax Saving Mutual Fund
  • Tax Saving Fixed Deposit
  • National Savings Certificate
  • Repayment of the principal on a housing loan
  • Life insurance policy premium
  • Equity Oriented Mutual Funds
  • Contributions made to Employee Provident Fund

Income Tax Deductions allowed under various sections in old tax regime:

Under Section 80 CCC: Contributions made in Annuity plans in the form of LIC considered as Tax Benefit up to Rs 1.5 Lakh.

Under Section 80TTA: Interest on saving account qualifies for 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 extended to Rs 30,000. Also, preventive health checkup will cost up to Rs 5000 per month of family to qualify 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: Person allowed to make deductions in Income Tax amounting of Rs 40,000 or more on 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, 80 GGC: Person if making any donations to an approved body during a financial year are also allowed to make Income Tax deductions.

Note: Apart from above there is a standard deduction of 40,000 introduced in budget 2018 for salaried class as medical reimbursement and transport allowance. This Income Tax deduction is allowed irrespective of expenses incurred by employee. The assessee does not have to submit actual bills to claim this deduction.

About Income Tax rebates

There are many confusions 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 Deduction 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.

Income Tax rebate is available in case the Taxpayer is a resident Individual who is below 80 years and whose taxable income is less Rs 5 Lakh.

Who are not eligible for Income Tax Rebate?

  • Hindu Undivided Families
  • Companies
  • Trusts
  • LLP
  • Partnership Firms
  • NRIs

Difference between ‘’ Deduction’’ and “Exemption”

  • Both Tax Deduction and Tax Exemption are Tax relief which extended by the government to taxpayers
  • If an income is eligible for tax exemption, then he is not liable for any kind of taxation. It means income is completely tax-free and not to be a part of the time of computing total taxable income
  • In the case of tax deductions, income included initially when total income is computed
  • If anyone is qualified as per guidelines provided for tax deduction, then one can avail the advantage of Income Tax Deduction
  • In the case of tax deduction, income tax liability decreases by a specific amount of investment in an avenue
  • In the case of tax deductions, monetary ceilings may be specified whereas generally there is no limit on the exemption

What are the useful Income Tax Exemptions for salaried individual?

As per the Income Tax Act, 1961, several income tax exemptions 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 given by employer to 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

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

  • As a taxpayer, one should be fully aware of tax planning strategies to minimize the tax payout
  • Tax planning is a method by which one can take full benefits of deductions, exemptions, reliefs and rebate by strictly following the law
  • By doing proper tax planning, one can reduce tax liability and safe some tax
  • Understanding of sections that comes under Income Tax Act us must to save the tax
  • From a very long time, insurance is considered as a front runner instrument when we think about saving taxes
  • For all the young earners who falls under the age bracket of 23 years to 30 years, it is wise to go for health insurance or for life insurance cover
  • For a better tax planning, one can also take the help of the tax consultant. They have a better understanding of regulations regarding business and individual taxes

How to do tax planning without the help of consultant?

  • The prime objective of tax planning should be to reduce tax liability as every taxpayer want to retain the maximum part of his earnings
  • It would be in the interest of the assessee to plan his taxes well in advance, avail the exemptions and deductions
  • It is both a challenging and rewarding task to do tax planning
  • You have the advantage of choosing a tax-saving instrument that best suits your needs