Income tax is a type of tax that the central government charges on the income earned during a financial year by the individuals and businesses. Taxes are sources of revenue for the government. Government utilizes this revenue for developing infrastructure, providing healthcare, education, subsidy to the farmer/ agriculture sector and in other government welfare schemes. Taxes are mainly of two types, direct taxes and indirect form of taxes. Tax levied directly on the income earned is called as direct tax, for example Income tax is a direct tax. The tax calculation is based on the income slab rates applicable during that financial year.
How to file Income Tax Return?
Here is all you need to know about how to file ITR online. Before you file your taxes, you will need your Form 16, provided by your employer, and any proof of investment. Using that you can compute the tax payable and refunds, if any, for the year. You can download the IT preparation software from the IT department’s website. Once you have all the documents ready, you can start the filing process.
e Filing Income Tax in India
e-Filing Income Tax Return, TDS return, AIR return, and Wealth Tax Return can be completed online on https://incometaxindiaefiling.gov.in. E-filing your return has obvious advantages like the fact that you won’t have to deal with the hassle of paperwork and waste time sorting through it all. You can simply log on to the secure website and e-file your return.
This government website also has provisions for you to submit returns, view form 26AS, outstanding tax demand, CPC refund status, rectification status, ITR – V receipt status, online application tools for PAN and TAN, e-pay your tax and even has a tax calculator.
Taxpayers and Income Tax Slabs
Each of these taxpayers is taxed differently under the Indian income tax laws. While firms and Indian companies have a fixed rate of tax calculated on their tax profits, the individual,HUF, AOP and BOI taxpayers are taxed based on the income slab they fall under. People’s incomes are grouped into blocks called tax brackets or tax slabs. And each tax slab has a different tax rate. Rate at which income is charged to tax increases with increase in income. Budget 2020 introduced a ‘New tax regime’ for the Individuals and HUF taxpayers:
Who should pay Income Tax in India?
The amount of tax that must be paid depends on the individual’s age and the income they make. The entities listed below are required to pay tax and file their income tax returns.
- Artificial Judicial Persons
- Corporate firms
- Association of Persons (AOPs)
- Hindu Undivided Families (HUFs)
- Companies
- Local Authorities
- Body of Individuals (BOIs)
Income Tax Slabs
Income tax payment for individuals and corporate entities is a mandatory requirement as per the Income Tax Act, 1961 if their annual income is above the minimum exemption limit. However, taxpayers can also avail tax benefits under various sections of the Act. To reap these benefits, one must understand the income tax slab and applicable rates.
What is the Income Tax Slab?
In India, where individuals earn an income within a diverse range, levying a tax on all individuals at a specific rate would not be a fair policy. The Act, therefore, segregates income ranges and levies tax at different rates as per the segregation. These groups are thus known as tax slabs.
The slabs also vary based on age if the taxpayer is an individual and as per the classification of entities. Income tax slabs are amended and revised each year during the Central Government’s Budget Session. These amendments and revisions once proposed are approved by the Parliament and implemented as law.
Income Tax Slabs for Resident Individuals
An individual resident’s basic exemption limit is decided based on his/her income. There are three categories of individual taxpayers that are categorized as:
- Individuals within the age of 60 years which includes residents as well as non-residents.
- Resident senior citizens with age above 60 years but below 80 years.
- Resident Super senior citizens with age above 80 years.
Income Tax Slabs for Individuals below 60 years of age in FY 2020-21 (AY 2021-22)
| Income Tax Slab | Tax Applicable as per New Regime |
| Rs.0 – Rs.2,50,000 | Nil |
| Rs.2,50,001 – Rs. 5,00,000 | 5.00% |
| Rs.5,00,001 – Rs. 7,50,000 | Rs.12500 + 10% of total income exceeding Rs.5,00,000 |
| Rs.7,50,001 – Rs. 10,00,000 | Rs.37500 + 15% of total income exceeding Rs.7,50,000 |
| Rs.10,00,001 – Rs.12,50,000 | Rs.75000 + 20% of total income exceeding Rs.10,00,000 |
| Rs.12,50,001 – Rs.15,00,000 | Rs.125000 + 25% of total income exceeding Rs.12,50,000 |
| Above Rs. 15,00,000 | Rs.187500 + 30% of total income exceeding Rs.15,00,000 |
- The tax calculated on the basis of mentioned rates will be subject to health and education cess of 4%
- Any individual who wishes to go by the new slab rates FY 2020-21 onwards will not be able to avail of certain exemptions and deductions/ tax benefits.
- List of exemptions and deductions that won’t be available are:
- Leave Travel Allowance (LTA)
- House Rent Allowance
- Conveyance
- Daily expenses in the course of employment
- Relocation allowance
- Helper allowance
- Children education allowance
- Other special allowance [Section 10(14)]
- Standard deduction
- Professional tax
- Housing loan interest (Section 24)
- Deduction under Chapter VI-A (80C, 80D, 80E, and so on) (Except section 80CCD(2) – NPS contribution by the employer and 80JJA)
Important Things to Remember while opting New Tax Regime
Under the Union Budget 2020, the individuals are offered a choice between the old and new tax regime to calculate their income tax liability. If an individual opts to go with the old regime, they can avail of the applicable exemptions and deductions, whereas in case of the new tax regime 70 of the commonly used deductions and exemptions are not available.
Should you opt for a new tax regime or go with the old regime?
The optional tax regime offered under the new budget is a mixed bag of both good and bad. While it is beneficial for individuals whose income falls under the slab up to ₹ 15 Lakh, it may not go in your favour if your income falls above the bracket of ₹ 15 Lakh. The reason for the same is that if you opt for a new tax regime, you have to forgo 70 exemptions, including house rent allowance, medical insurance premium, and travel allowance.
Tax slab rates applicable for Individual taxpayer below 60 years for Old tax regime is as below:
| Income Range | Tax rate | Tax to be paid |
| Up to Rs.2,50,000 | 0 | No tax |
| Between Rs 2.5 lakhs and Rs 5 lakhs | 5% | 5% of your taxable income |
| Between Rs 5 lakhs and Rs 10 lakhs | 20% | Rs 12,500+ 20% of income above Rs 5 lakhs |
| Above 10 lakhs | 30% | Rs 1,12,500+ 30% of income above Rs 10 lakhs |
Residents and Non Residents
Levy of income tax in India is dependent on the residential status of a taxpayer. Individuals who qualify as a resident in India must pay tax on their global income in India i.e. income earned in India and abroad. Whereas, those who qualify as Non-residents need to pay taxes only on their Indian income. The residential status has to be determined separately for every financial year for which income and taxes are computed.
When it is mandatory to file Return of Income?
It is mandatory to file return of income for a company and a firm. However, individuals, HUF, AOP, BOI are mandatorily required to file return of income if the income exceed basis exemption limit of Rs 2.5 lakhs. This limit is different for senior citizens and super senior citizens.
What documents are to be enclosed along the return of income?
There is no need to enclose any documents with the return of income. However, one should retain the documents to produce before any competent authority as and when required in future.