A Complete Guide on Income Tax Act India

The Income Tax Act of 1961 is a comprehensive set of laws governing taxation in India. It provides the provisions for levying, collecting and recovering tax on income earned by every taxpaying entity in the country. The official website of the Income Tax Department of India lists 23 chapters and 298 sections of this Act, listing rules and regulations related to taxation.

It is mandatory to pay the applicable income tax based on how much you earn. The revenue generated is invested in infrastructure projects, public services, and other welfare programs helping the society at large. Read on to learn about the Income Tax Act, tax slabs, how to file for ITR, and other important details.

Types of Taxes in India

Here are two types of taxes in India:

Direct Taxes

The Central Board of Direct Taxes (CBDT) governs and administers direct tax, which is a tax levied on income or profits. Taxpayers are obliged to pay the government for different purposes, which include income tax, personal property tax, and FBT.

Indirect Taxes

Indirect taxes are imposed by the government on the purchase of goods and services, and they are regulated by the Central Board of Indirect Taxes and Customs (CBIC). These taxes can be passed on from one taxpayer to another, with examples including Service Tax, Customs Duty, GST, and other similar taxes.

Who Are the Taxpayers in India?

The Income Tax Act establishes that everyone in India, whether a senior citizen, super senior citizen, resident or non-resident, must pay taxes and file income tax returns. You have to pay tax if your income exceeds Rs. 3 Lakh under the new tax regime and Rs. 2.5 Lakh under the old regime. In addition, all companies, trusts and other entities that earn income must pay income tax.

Types of Taxpayers

The Income-Tax Act, 1961, categories taxpayers under the following types:

• Individuals
• HUF (Hindu Undivided Family)
• Companies
• Firms
• BOI (Body of Individuals)
• AOP (Association of Persons)
• Artificial Juridical Person
• Local authority

Note: HUFs and individuals are sectioned into residents and non-residents.

What Are the Income Tax Slabs?

An income tax is levied upon the earnings of a taxpayer, calculated at a rate prescribed by the range within which their income lies. These categories or ranges of income are referred to as income tax slabs. The income tax slabs alter by the year, so it is of utmost importance that you stay updated with the latest tax slabs to know how much tax returns you’re entitled to.

Income Tax Slabs

You have the option to choose the income tax slabs under either of the following:

• New Tax Regime - You’re exempt from paying taxes up to an income limit of Rs. 3 Lakh. The new regime is the default from FY23-24 onwards and provides a lower rate of tax.
• Old Tax Regime - Under the old tax regime, you’re granted exemption from paying income tax up to an income limit of Rs. 2.5 Lakh. The old regime provides more tax deductions and exemptions than the new regime.

Refer to the tables below to learn about the applicable income tax rates under both the new and old tax regimes.

New Income Tax Regime (From FY23-24)

Income Tax Slabs	Income Tax Rate
From 0 to Rs. 3,00,000	Exempt
From Rs. 3,00,001 to Rs. 6,00,000	5%
From Rs. 6,00,001 to Rs. 9,00,000	10%
From Rs. 9,00,001 to Rs. 12,00,000	15%
From Rs. 12,00,001 to Rs. 15,00,000	20%
From Rs. 15,00,001 onwards	30%

 

Old Income Tax Regime

Income Tax Slabs	Income Tax Rates
From 0 to Rs. 2,50,000	Exempt
From Rs. 2,50,001 to Rs. 5,00,000	5%
From Rs. 5,00,001 to Rs. 10,00,000	20%
From Rs. 10,00,001 and above	30%

    

What Are the five Heads of Income?

Under the Income Tax Act, there are five heads of income subject to taxes, namely:

1. Income From Salary – The salary received from an employer comes under “income from salary”. This head also includes the pension amount you receive post-retirement. The Form 16 should be submitted as proof of income when you file your taxes upon earnings under this category.

2. Income From Profession or Business – Your earnings from a profession, business, freelancing gig, etc., come under this head of income. The Income Tax Act India has proclaimed that this source of earnings is taxable.

3. Income From House Property – If you’re earning from leasing, selling or even renting a residential property, it is taxable and comes under this section.

4. Income From Capital Gains – Taxable earnings also include investments in real estate, mutual funds and stocks, i.e. capital assets. Income from capital gains is further divided into two sub-sections:

• Long-term Capital Gains (LTCG): Equity and equity-related instruments are taxed at a rate of 10% under Section 112A for long-term capital gains (LTCG).
• Short-term Capital Gains (STCG): Any profit made over a short period of time whenever you sell listed equity shares, it is taxed at 15% under Section 111A.

5. Income From Other Sources – Earnings that do not come under any of the above-mentioned heads, are considered to be coming from “other sources". Here are some examples of income from other sources:

• Interest earned from debentures, bonds, securities and more
• Cash gifts coming from families and friends
• Income earned from dividends
• Earnings from game shows, television shows, lotteries, etc.

Formula to Estimate Taxable Income

Tax is calculated by multiplying the taxable income with the applicable tax rate. So, it is important to first find out what portion of your income is taxable. To do so, you need to first calculate your gross salary, and deduct any exemptions or deductions. Then, you can calculate the payable tax and finally, subtract the tax you have already paid off.

Here is how you can calculate your taxable income:

• Gross Taxable Income = Gross Salary – LTA – HRA – Standard Deduction – other deductions + income from other sources

Important Dates for the Income Tax Act

Here are some of the important dates to keep in mind in relation to income tax:

• 30^th April: To make a payment towards TDS and TCS liabilities to the Income Tax Department of India.
• 31^st July: For income tax return filing.
• 30^th September: For tax audit report.
• 31^st October: For income tax return filing on behalf of the assessee covered under the tax audit.
• 30^th November: Important for income tax return filing for transfer pricing cases.
• 31^st December: For revised returns/ belated returns.
• 31^st January: For TDS returns (quarterly basis).

Deductions From Gross Total Income and Exemptions

Deductions mentioned under Sections 80C to 80U will apply to the gross total income of a taxpayer. Section 80A (1) specifies that this is necessary when it comes to considering the total income of the said assessee. However, the aggregate deduction mentioned in this section cannot exceed the gross total income of the taxpayer under any circumstances.

Gross income is the total income earned by a person in a financial year, including salary, business income, capital gains, etc. This is the income before deductions, exemptions or taxes.

Also Read - A Guide to Basic Concepts of Income Tax

What is Advance Tax?

If the income tax is paid in advance instead of as a lump sum amount at the end of the year, it is referred to as advance tax. This tax is paid in instalments on the specific due dates established by the Income Tax Department of India. Anyone who has to pay more than Rs. 10,000 in a year in taxes must pay it in advance.

e-Filing of Income Tax Vs. Offline Method

Here are some of the differences between the e-filing of income tax and the offline method so you can understand which the better option for you is:

e-Filing of Income Tax	Offline Method of Filing Income Tax
Visit the official website for e-filing your Income Tax and complete the process online from anywhere.	You have to take time out separately to visit the physical branch to complete your income tax filing.
Quicker process as the entire online system is streamlined.	Takes much longer with several steps like visiting the physical branch, presenting paperwork, etc.
The Income Tax Department processes online filings faster. So, you’ll receive your refunds much sooner.	The Income Tax Department processes online filings slower in comparison.
Filing your income tax online allows you to maintain a digital record, which is much easier to access.	In the offline method, a digital record is not maintained. However, you will receive a stamped acknowledgement receipt which will serve as proof of filing your income tax.
There is hardly any scope of mistakes.	In the offline method, you will be required to fill out forms and attach the necessary documents. This may leave a lot of scope for mistakes.

 

Income Tax Returns

You need to file Income Tax Returns (ITR) if you earn more than the prescribed amount of income or want refunds for excess TDS deductions. We've listed below the reasons as to why you need to file ITR on time:

• It shows that you’re financially responsible.
• The ITR serves as a legal document and can be presented as identity proof or income proof.
• It helps you claim deductions through which you save taxes.
• It holds importance when you apply for loans as the ITR form serves as an identity and income proof.
• Filing an ITR also improves your chances of getting approved for a Visa.
• You can avoid penalties, interest and legal proceedings if you file ITR accurately and on time.
• If you fail to file Income Tax Returns, you will not be able to carry forward or set off any losses.

ITR Forms

Here are the 7 types of ITR Forms you can file:

• ITR 1: For individuals with an income of less than or equal to Rs. 50 Lakh from house property, salary or pension, or other sources.
• ITR 2: Individuals who earn from more than 1 house property, capital gains, foreign and crypto income or holding directorship within a company.
• ITR 3: Individuals who earn from a business, a partner in a firm and all the sources of income as part of ITR 2.
• ITR 4: Individuals and HUFs earning a total income of less than or equal to Rs. 50 Lakh from a house property, pension or salary, presumptive sources and other sources.
• ITR 5: Firms, BOIs, LLPs, and AOPs are eligible to apply.
• ITR 6: Enterprises that do not claim exemptions under Section 11 can apply.
• ITR 7: Companies or Individuals under Section 139 (4A), Section 139 (4B), Section 139 (4C) and Section 139 (4D) can apply.

Claiming Income Tax Refunds

In order to claim income tax return online, you can follow this simple step-by-step guide:

Step 1: Go to the e-Filing portal homepage.

Step 2: Enter the user ID and password.

Step 3: Go to e-File tab > Income Tax Returns > View Filed Returns.

Step 4: Now you can check the refund status for the desired Assessment year.

Click on View Details and here you can also check the life cycle of filed ITR.

Also Read - Everything You Need to Know About Income Tax Returns Filing

To Conclude

By going through the provisions of the Income Tax Act, you can learn how to calculate your income tax, file your income tax, etc. Paying your taxes not only keeps you safe from any imposed penalties from the Income Tax Department but also benefits the nation overall. Plus, you can file your income tax returns online conveniently and get quicker access to refunds (if applicable). So, make sure to file for ITR on time by choosing the appropriate ITR form.

Frequently Asked Questions

1. What is the Standard Deduction in Income Tax?

The Standard Deduction in income tax reduces tax liability on whoever is required to pay taxes, including salaried professionals, subjected to TDS. Additionally, no paperwork has to be presented by a taxpayer for him/her to claim this deduction on his/her income.

2. Do I have to pay income tax?

Yes, if you are an earning individual in India, you are required to pay income tax depending on the tax regime you choose. Whether you are a senior citizen, resident or non-resident, you are liable to pay taxes.

3. What is the minimum salary to pay Income Tax?

If you have an income of Rs. 2.5 Lakh or above under the Old Tax Regime, taxes are applicable. Under the new tax regime, you have to pay taxes if you earn an income of above Rs. 3 Lakh.

4. What is non-taxable income?

The part of your income upon which taxes cannot be applied is called non-taxable income. Some examples of non-taxable income are life insurance returns, inheritances, gifts, gratuities, etc.

5. What is the exemption limit for income tax?

Under the old tax regime, the tax exemption limit is at Rs. 2.5 Lakh whereas under the new tax regime, the tax exemption limit is at Rs. 3 Lakh in a financial year.

6. How much differences are there between the new & old regime?

The deductions and exemptions available under the new tax regime are fewer compared to the deductions and exemptions under the old tax regime. The exemption limit also is higher (at Rs. 3 Lakhs) under the new tax regime than the old tax regime (exemption limit at Rs. 2.5 Lakh). In addition, the tax rates are different for both regimes, with the new regime offering concessional rates.

Disclaimer

This blog provides informational content on tax benefits and rules based on the current provisions of the Income Tax Act of India, 1961. The interpretations are subject to change as per amendments made by the Government of India. Applicable rates of GST and cess will be as per the current regulations. Readers must seek professional advice for accurate and up-to-date information.
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