Income Tax
What is Income Tax ?
Income Tax is a direct tax levied by the government on an individual's or entity's income. It is imposed under the Income Tax Act, 1961, and collected by the Income Tax Department of India.
Every person earning above a certain threshold must pay income tax based on the tax slabs set by the government.
Who Pays Income Tax?
Income tax is applicable to:
- Individuals (Salaried employees, self-employed, freelancers, professionals)
- Hindu Undivided Families (HUFs)
- Companies & Firms
- Partnerships & LLPs
- Trusts & NGOs (if applicable)
Types of Income Tax
- Direct Tax → Paid directly by individuals or businesses to the government (e.g., Income Tax, Corporate Tax).
- Indirect Tax → Levied on goods and services (e.g., GST, Customs Duty).
Income tax is a direct tax, meaning it is paid directly by the taxpayer to the government.
Sources of Taxable Income (As per Income Tax Act, 1961 - Section 14)
Tax is levied on income from the following 5 heads:
1️⃣ Income from Salary → Salaries, wages, pensions, bonuses.
2️⃣ Income from House Property → Rental income from owned property.
3️⃣ Income from Business/Profession → Profits from business, freelancing, consultancy.
4️⃣ Income from Capital Gains → Sale of property, stocks, mutual funds, etc.
5️⃣ Income from Other Sources → Interest income, lottery winnings, gifts, dividends, etc.
Income Tax Slabs (For FY 2024-25 in India)
Income tax is calculated based on slabs, where different rates apply to different income ranges. There are two tax regimes:
1. New Tax Regime (Default option)
| Income Slab (₹) | Tax Rate (%) |
|---|---|
| 0 - 3,00,000 | 0 (No Tax) |
| 3,00,001 - 6,00,000 | 5% |
| 6,00,001 - 9,00,000 | 10% |
| 9,00,001 - 12,00,000 | 15% |
| 12,00,001 - 15,00,000 | 20% |
| Above 15,00,000 | 30% |
No deductions are allowed except for NPS and EPF contributions.
2. Old Tax Regime (Optional - With Deductions)
| Income Slab (₹) | Tax Rate (%) |
|---|---|
| 0 - 2,50,000 | 0 (No Tax) |
| 2,50,001 - 5,00,000 | 5% |
| 5,00,001 - 10,00,000 | 20% |
| Above 10,00,000 | 30% |
✅ Deductions Allowed under Section 80C, 80D, 24(b), etc.
Example:
If your taxable income is ₹7,00,000, under the new regime, you pay ₹25,000 as tax. However, under the old regime, after deductions, tax might be lower.
How to Calculate Income Tax?
1️⃣ Compute total income from all sources.
2️⃣ Apply deductions (under Section 80C, 80D, etc., if using the old regime).
3️⃣ Check the tax slab applicable to your taxable income.
4️⃣ Calculate tax payable based on the slab rates.
5️⃣ Subtract TDS (Tax Deducted at Source), advance tax, or any rebates (if eligible).
Income Tax Deductions & Exemptions (For Tax Savings)
| Section | Deduction | Limit (₹) |
|---|---|---|
| 80C | Investments in LIC, PPF, EPF, ELSS, NSC, Home Loan (Principal) | 1,50,000 |
| 80D | Health insurance premium (Self & Family) | 25,000 – 50,000 |
| 80E | Interest on education loan | No Limit |
| 80G | Donations to charities | 50%-100% deduction |
| 24(b) | Home loan interest | 2,00,000 |
| 87A | Tax rebate (Income < ₹7 lakh in new regime) | ₹25,000 |
How to Pay Income Tax?
✅ TDS (Tax Deducted at Source): Employers/banks deduct tax before paying you.
✅ Advance Tax: Self-employed individuals pay tax in installments.
✅ Self-Assessment Tax: Paid before filing the tax return.
You can pay tax online via the Income Tax e-filing portal https://www.incometax.gov.in.
Income Tax Return (ITR) Filing
Individuals and businesses must file Income Tax Returns (ITR) annually.
✅ Due Date for ITR Filing:
- Individuals & Salaried Taxpayers → 31st July
- Companies & Audited Firms → 30th September
Why Should You Pay Income Tax?
✔️ Legal Requirement – Mandatory for individuals earning above taxable limits.
✔️ Avoid Penalties – Late filing leads to fines and legal consequences.
✔️ For Loan & Visa Applications – Banks & embassies require ITR proof.
✔️ Claim Tax Refunds – If extra TDS is deducted, you get a refund.
✔️ Nation Building – Taxes fund infrastructure, healthcare, education, etc.
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