What is the Income Tax in India

Income Tax in India



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Income Tax India FREE Return Filing Portal

Income Tax refers to the charges levied on your income on an annual basis. The Government of India introduced the Income Tax Act in 1961 to regulate the taxes collected in the country. Under the act, a certain percentage of an individual’s annual income is deducted as the income tax. The tax slabs are based on the person’s annual income. For instance, individuals earning less than Rs.2.5 lakh a year are exempted from the taxes.  

Not understanding the tax slabs currently applicable can not only be a complicated problem but also lead you into trouble with the income tax department. Understanding the act and the tax slabs currently in motion will help you file your taxes in an error-free manner and will help you in tax-saving as well. There are a numerous website, Bankbazaar is one of them which provides more information on Income Tax in India 

Tax slabs 20192020 

The tax slabs are categorized in three parts based on different age groups of the taxpayers. Here are the tax slabs applicable for this financial year:  

  • Individuals and Hindu Undivided Families (HUF) aged below 60 years 
Annual income  Tax  Health and education cess 
Up to Rs.2.5 lakh  Nil  Nil 
Rs.2,50,001 to Rs.5 lakh  5% of the total annual income minus Rs.2.5 lakh  4% of income tax 
Rs.5,00,001 to Rs.10 lakh  Rs.12,500+20% of total annual income minus Rs.5 lakh  4% income tax 
Above Rs.10 lakh  Rs.1,12,500 + 30% of total annual income minus Rs.10 lakh  4% income tax 

 

  • Senior citizens who are above 60 years of age and less than 80 years old 
Annual income  Tax  Health and Education cess 
Up to Rs.3 lakh  Nil  Nil 
Rs.3,00,001 to Rs.5 lakh  5% of the total annual income minus Rs.3 lakh  4% of income tax 
Rs.5,00,001 to Rs.10 lakh  Rs.10,000 + 20% of the total income minus Rs.5 lakh  4% of income tax 
Above Rs.10 lakh  Rs.1,10,000 + 30% of the total annual income minus Rs.10 lakh  4% of income tax 

 

  • Senior citizens aged above 80 years 
Annual income  Tax  Health and education cess 
Up to Rs.5 lakh  Nil  Nil 
Rs.5,00,001 to Rs.10 lakh  20% of the total annual income minus Rs.5 lakh  4% of income tax 
Above Rs.10 lakh  Rs.1 lakh + 30% of the total annual income minus Rs.10 lakh  4% of income tax 

 

Tax Rebate  

In the interim budget of FY2019-2020, no changes were made to the tax slabs, however, a full tax rebate was introduced for individuals earning up to Rs.5 lakh per annum. The changes were made under section 87A of the Income Tax Act, 1961 wherein the tax rebate was increased from Rs.2,500 to Rs.12,500.  

Though most might read this move as an exemption from the tax bracket, it is not so. Individuals exempted from the tax bracket, like individuals earning below Rs.2.5 lakh, are not required to file income tax returns. However, People earning above Rs.2.5 lakh and less than Rs.5 lakh still have to file tax returns as the rebate is treated as tax benefit.  

Types of taxes 

As citizens of India, we pay two types of taxes that act as a major source of revenue to the government: 

  • Direct taxes: Direct taxes are the taxes we pay to the government on the basis of our annual income. As is evident from the name, direct taxes are paid directly by us.  
  • Indirect taxes: Indirect taxes are collected as a part of the services we pay for and in the prices of the goods we buy. Unlike direct taxes, indirect taxes are not paid directly by us, the tax is paid by the service provider and the producers, manufacturers, etc., who provide us with the services and good. GST is an indirect tax. 

Taxable Income 

As mentioned earlier, the income tax is collected on the basis of our annual income. However, understanding the definition of annual income is important to calculate the accurate amount and to determine the tax bracket or slab your fall under.  

Under the Income Tax act of India, 1961, annual income includes the following:  

  • Salary 
  • Profits from business 
  • Capital gains 
  • Gains from residential property 
  • Any subsidy or reimbursement 
  • Income received from sources outside India 
  • Cash prizes from lottery or gambling 
  • Any that values more than Rs.50,000 
  • Income from other sources

Understanding these important aspects of the Income Tax Act can prove to be a major asset in the tax season. Having knowledge of the tax slabs and taxable income will ease the process of filing tax returns. Due to its importance and legal obligation, income tax is a subject that needs to be dealt with carefully. With thorough knowledge in this matter, filing income taxes can become a cakewalk for you.  

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