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Income tax is a type of direct tax i.e. it is directly levied on the wealth or income of a person. the person who pays the tax to the Government cannot recover it from someone else i.e. the burden of tax cannot be shifted.
Budget 2025 Update
The income earned up-to Rs.12 Lakhs under new regime will ultimately have Nil tax liability. Here's how!
The modified slab rates for new tax regime applicable for FY 2025-2026 are as follows:
Income Tax Slabs
Tax Rates
Up-to Rs. 4,00,000
NIL
Rs. 4,00,001 - Rs. 8,00,000
5%
Rs. 8,00,001 - Rs. 12,00,000
10%
Rs. 12,00,001 - Rs. 16,00,000
15%
Rs. 16,00,001 - Rs. 20,00,000
20%
Rs. 20,00,001 - Rs. 24,00,000
25%
Above Rs. 24,00,000
30%
- The rebate allowed under section 87A has now been increased to Rs.60,000 for new regime from Rs.25,000. Since the rebate allowed has been increased, tax incidence for income up-to Rs.12,00,000 will be zero.
- Rebate is not allowed for income taxable at special rates. For example, capital gain u/s 112A.
- Marginal relief on rebate is still applicable.
- The new Income Tax Bill has been tabled by the Honorable Finance Minister in the Lok Sabha. Learn more.
According to the Income Tax Act, everyone in India who earns taxable income, has to file income tax returns. The person whose income is considered for tax is called assessee. The Income Tax Act has classified assessees into various categories. Different tax rules apply to different types of assessees.
Below are the categories of taxpayers:
Everyone who earns or gets an income in India is subject to income tax (Yes, be it a resident or a non-resident of India). For simpler classification, the Income tax department breaks down income into five main heads:
Head of Income | Nature of Income covered |
Income from Salary | Income earned from salary and pension is taxable under this head of income. |
Income from House Property | Income earned from renting a house property is taxable under this head of income. |
Income from Business and Profession | Profits earned by self-employed individuals, businesses, freelancers or contractors and income earned by professionals like life insurance agents, chartered accountants, doctors and lawyers who have their own practice, and tuition teachers are taxable under this head. |
Income from Capital Gains | Income from the sale of a capital asset such as mutual funds, shares, property, jewellery, etc, is taxable under this head of Income. |
Income from Other Sources | Income which does not fall under above 4 heads. Examples include savings account interest, fixed deposits interest and winning in lotteries. |
A taxpayer can save tax by tax planning. A taxpayer can do tax planning by investing in tax-saving instruments. It helps in reducing the income tax liability. Section 80C to 80U of the Income Tax Act allows a deduction for certain expenditures and investments from the total computed income if taxes are paid under the old tax regime. Some of the popular Section 80C investments are:
Popular Section 80C Investments | |||||
Particulars | ELSS | PPF | NSC | 5-Year Tax Saving FD | SCSS |
Section 80C Benefit | Yes | Yes | Yes | Yes | Yes |
Type of Investment | Equity | Fixed Income | Fixed Income | Fixed Income | Fixed Income |
Lock-in Period | 3 Years | 15 Years | 5 Years | 5 Years | 5 Years |
Maximum Investment | No Max Limit | Rs 1.5 lakh | No Max Limit | Rs 1.5 lakh | Rs 15 lakh |
*ELSS and NSC have no upper investment limit. However, you get tax benefits under Section 80C only up to Rs 1.5 lakh per financial year.
Apart from the Section 80C deduction, a taxpayer can also take a tax benefit under Section 80D for health insurance premium and medical expenditure incurred for self, family and parents.
Person insured | Maximum deduction Below 60 years | Maximum deduction 60 years or older |
You, your spouse, your children | Rs. 25,000 | Rs. 50,000 |
Your parents | Rs. 25,000 | Rs. 50,000 |
Preventative health checkup | Rs. 5,000 | Rs. 5,000 |
Maximum deduction (includes preventive health checkup) | Rs. 50,000 | Rs. 1,00,000 |
Under Section 80E, the taxpayer can claim a deduction for the interest paid on a loan taken for higher education. There is no limit to claiming such a deduction in the income tax return.
Under Section 24, the taxpayer can claim a deduction for interest paid on a housing loan during the relevant financial year. The deduction amount will depend upon whether the house is self-occupied or let out. The taxpayer can also claim a deduction of the principal amount of the loan under Section 80C up to Rs 1.5 lakh.
Deduction on | Maximum allowed (for self-occupied house property) | Maximum allowed (for property on rent) |
Rs 1,50,000 within the overall limit of Section 80C | Rs 1,50,000 within the overall limit of Section 80C | |
Deduction on home loan interest under Section 24 | Rs 2,00,000 | No cap (but rental income must be shown in the income tax return). Further, the maximum loss from house property is capped at Rs 2 lakhs |
Deduction for first-time homeowners under Section 80EE *certain conditions apply | Rs 50,000 | – |
The old tax regime provides three slab rates for income tax levy, which are 5%, 20%, and 30% for different income brackets. Individuals can continue with the old taxation regime, and they can claim the following deductions:
Tax slab rates applicable for Individual taxpayers below 60 years for the Old tax regime are as below:
Income Range | Tax rate | Tax to be paid |
Up to Rs 2,50,000 | 0 | No tax |
Rs 2.5 lakhs - Rs 5 lakhs | 5% | 5% of your taxable income |
Rs 5 lakhs - Rs 10 lakhs | 20% | Rs 12,500+20% on income above Rs 5 lakh |
Above 10 lakhs | 30% | Rs 1,12,500+30% on income above Rs 10 lakh |
There are two other tax slabs for two other age groups: those 60 and older and those above 80.
A word of note: People often misunderstand that if they earn, let's say, Rs12 lakh, they will be paying a 30% tax on Rs.12 lakh, i.e. Rs 3,60,000. This is incorrect. Tax is payable slab wise. A person earning Rs 12 lakh in the progressive tax system will pay Rs 1,12,500 + Rs 60,000 = Rs 1,72,500.
New tax regime was introduced with an intent to reduce compliance burden on individuals and HUFs. Tax rates and tax deductions were reduced simultaneously. Now individuals don't need to obtain various tax saving investments and document them to lessen their tax. To encourage taxpayers to adopt the new tax regime in Budget 2023, it was made the default regime and the income tax slabs under the new tax regime for FY 2024-25 (AY 2025-26) are as follows:
New tax regime FY 2024-25 | |
Income up to Rs 3 lakh | Nil |
Rs 3 lakh to Rs 7 lakh | 5% |
Rs 7 lakh to Rs 10 lakh | 10% |
Rs 10 lakh to Rs 12 lakh | 15% |
Rs 12 lakh to Rs 15 lakh | 20% |
Income above Rs 15 lakh | 30% |
Most of the deductions and exemptions are not allowed if the taxpayers opt for the New Tax regime. However, the exemptions and deductions available under the new regime are:
A glance at the holding period, the nature of the assets and the tax rate for each are found in the article.
Rebates under Section 87A allow taxpayers to reduce their income tax liability. If you are a resident individual and the amount of your total income after reducing Chapter VI-A deductions (Section 80C, 80D, 80U, etc) does not exceed a certain limit, you can claim a tax rebate. The rebate fixed is different for old and new tax regimes.
In all the cases, a cess is calculated at 4% of the income tax calculated after rebate.
For specified payments, tax is deducted at source when paying the recipient of income. The income recipient can claim credit of the TDS amount by adjusting it with the final tax liability.
The taxpayer must pay tax in advance when his estimated income tax liability for the year exceeds Rs 10,000. The government has specified due dates for payment of advance tax installments. Click here to learn more about the advance tax liability and due dates.
It is the balance tax that the taxpayer has to pay on the assessed income. The self-assessment tax is calculated after reducing the advance tax and TDS from the total income tax calculated on the assessed income.
Taxpayers can pay advance tax and self-assessment tax online from the e-filing website. Click here to learn how to pay taxes online through e-filing portal.
If the TDS deducted from an assessee is greater than his tax liability for the financial year, the excess tax deducted will be depositedto the assessee's bank account. This is called refund.
The process of calculating taxable income after taking into account the income from all the five heads (salary, house property, capital gains, business or profession, and other sources), exemptions, deductions, rebates, set off of losses, etc., is called computation of income. After the computation of income, the taxpayer can compute the income tax liability as per the Income Tax Act.
Here is a quick guideline you can probably follow to compute taxes due on your income:
The government keeps introducing and altering tax slabs, schemes and tax benefits, so it’s a good idea to keep up with the Budget. For calculation of income tax , please refer to income tax calculator
E-filing of income tax return has been made mandatory for all classes of taxpayers, barring a few exceptions:
Note: Age limit can be reckoned as on 31st march of the financial year.
For the rest, E-filing is mandatory. Do note that deadlines for filing returns have also been prescribed. For most individual taxpayers, the due date for filing the return of income is 31 July, immediately following the concerned financial year. If you do not file on time, here are some disadvantages:
Once you file your return online, you either e-verify the same or take a print of the ITR V and send it to CPC, Bengaluru, for processing your return.
Read our detailed article on e-verification of return of income.
Here’s a guide to e-filing your first tax return on Clear.
The taxpayer shall file an income tax return every year via ITR forms prescribed by the income tax department. The government has prescribed seven ITR forms through which the taxpayer can file his income tax return. The taxpayer has to choose the appropriate ITR forms and file his income tax return.
The seven ITR forms are:
Form 16, Form 26AS, AIS, TIS, Form 16A, proof of tax saving investments made, bank account details, etc, are some of the crucial information/documents you need to be ready with before filing your return. Further, the documents you will need to file your tax return will largely depend on your source of income. Here is our detailed article on documents you need for filing of your return of income.
The taxpayer shall electronically file the income tax return through the e-filing platform of the IT department. To file the income tax return, the taxpayer should register at www.incometax.gov.in. After that, the taxpayer can log in to the website and file his ITR. Also, there is no need to manually send the acknowledgement of the return to the income tax department. The income tax department now allows e-verification of the ITR in different ways, which completes the income tax return process.
Form ITR-V is an income tax return verification form generated after the taxpayer files income tax return and submits it to the income tax department. The ITR-V should be e-verified or must be sent to CPC Bangalore at “Income Tax Department – CPC, Post Box No – 1, Electronic City Post Office, Bangalore – 560100, Karnataka” for verification. The ITR processing takes place only if its verification is completed.
You can file your Income Tax Return on ClearTax. Even if you don’t know anything about taxes, we will take you step-by-step and help you e-file. Check ClearTax Income Tax E Filing. Clear also helps you lose the fear of not taking the applicable deductions by helping you claim all the relevant deductions.
You can also go through our Income Tax Calender to know more about the dates
The Income Tax Act includes all the provisions that govern the country’s taxation. Every year, the Finance Minister presents a budget in February. The Union Budget brings in various amendments to the Income Tax Act. The most recent Union Budget presented by the current Finance Minister included the introduction of a new tax regime.
Apart from the IT Act, the other components of the income tax law are income tax rules, circulars, notifications, and case laws. All of these help in the implementation of income tax law and the collection of taxes.
The Income Tax Department is a government agency. The Act empowers the Income Tax Department to collect direct tax on behalf of the Government of India. The Ministry of Finance manages the revenue functions of the Government of India. The finance ministry has given the task of administration of direct taxes, like Income Tax, etc., to the Central Board of Direct Taxes (CBDT). The CBDT is one of the parts of the Department of Revenue in the Ministry of Finance. The CBDT administers direct tax laws through the IT Department.
Thus, the Income Tax Department is a government agency that administers the Income-tax law under the control and supervision of the CBDT. The Income Tax Department has been given the power to collect direct tax on behalf of the Government of India.
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