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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. In this article we will explain the following:
| Tax Slab | Tax Rate |
| upto ₹ 3 lakh | Nil |
| ₹ 3 lakh - ₹ 7 lakh | 5% |
| ₹ 7 lakh - ₹ 10 lakh | 10% |
| ₹ 10 lakh - ₹ 12 lakh | 15% |
| ₹ 12 lakh - ₹ 15 lakh | 20% |
| more than ₹ 15 lakh | 30% |
Click here to read all highlights on Budget 2024
Income tax is a type of tax that the central government charges on the income earned during a financial year by individuals and businesses. Taxes are sources of revenue for the government. The government utilises this revenue for developing infrastructure, providing healthcare, education, subsidies to the farmer/agriculture sector and other government welfare schemes.
Taxes are mainly of two types: direct taxes and indirect taxes. Tax levied directly on the income earned is called a 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.
Direct Taxes are broadly classified as :
According to the Income Tax Act, everyone in India, whether resident or non-resident, who earns taxable income, has to file income tax returns. Currently, tax is payable if the income exceeds Rs 3 lakh in a financial year as per the new tax regime. The Income Tax Act has classified taxpayers into various categories. Different tax rules apply to different types of taxpayers.
Below are the categories of taxpayers:
Further, Individuals and HUFs are classified as residents and non-residents. Resident individuals are liable to pay tax on their global income in India, i.e. income earned in India and abroad. Meanwhile, those who qualify as non-residents must only pay taxes on income earned or accrued in India. The residential status has to be determined separately for tax purposes for every financial year based on the individual tenure of stay in India. Resident Individuals are further classified into the mentioned categories for tax purposes:
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 Other Sources | Income from savings bank account interest, fixed deposits, and winning in lotteries 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 Capital Gains | Income from the sale of a capital asset such as mutual funds, shares, house property, etc, 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 Salary | Income earned from salary and pension is taxable under this head of income. |
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 taxable income, the individual, HUF, AOP and BOI taxpayers are taxed based on the income slab they fall under. People's income grouped into blocks are called tax brackets or tax slabs. And each tax slab has a different tax rate. The rate at which the tax is charged increases as the taxable income increases.
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.
In the 2020 budget, a new tax regime was introduced with lower tax rates and limited deductions/exemptions for Individuals and HUFs. Hence, many taxpayers did not opt for the new tax regime. However, 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 revised by Budget 2024as follows:
New tax regime FY 2023-24 | New tax regime FY 2024-25 | ||
Income up to Rs 3 lakh | Nil | Income up to Rs 3 lakh | Nil |
Rs 3 lakh to Rs 6 lakh | 5% | Rs 3 lakh to Rs 7 lakh | 5% |
Rs 6 lakh to Rs 9 lakh | 10% | Rs 7 lakh to Rs 10 lakh | 10% |
Rs 9 lakh to Rs 12 lakh | 15% | Rs 10 lakh to Rs 12 lakh | 15% |
Rs 12 lakh to Rs 15 lakh | 20% | Rs 12 lakh to Rs 15 lakh | 20% |
Income above Rs 15 lakh | 30% | 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:
One must remember that not all income can be taxed on a slab basis. Capital gains income is an exception to this rule. Capital gains are taxed depending on your asset and how long you’ve owned it. The holding period would determine if assets are long-term or short-term. The holding period to determine the nature of assets differs for different assets. A glance at the holding period, the nature of the assets and the tax rate for each are given below.
The financial year is a one-year period that the taxpayers use for accounting and financial reporting purposes. It is the year in which the income is earned. According to the Income Tax Act, such a period begins from 1st April of the calendar year to 31st March of the next calendar year. It is abbreviated as “FY”. For example, the financial year starting from 1st April 2023 and ending on 31st March 2024 can be written as FY 2023-24.
In simple words, a financial year is a year in which the income of a person is earned.
The one year from 1st April to 31st March starting immediately after the financial year is termed an assessment year. This period is the assessment year because all the taxpayers have to evaluate their income earned in the financial year and pay taxes this year. For example, for incomes earned during the FY 2023-24, the assessment year will be AY 2024-25.
In simple words, the income earned in the financial year will be assessed to tax in the assessment year.
The assessee is a person or a group who assesses his/her income and pays tax as per the Income Tax Act. The assessee can be an individual, a partnership firm, a company, an Association of Persons (AOP), a Trust, etc.
PAN is an abbreviation for the Permanent Account Number. It is a unique 10-digit alphanumeric digit issued by the Income Tax Department to Indian taxpayers. All the tax-related transactions and information of a person are recorded against their unique permanent account number. When the person has to pay advance tax or self-assessment tax, they must mention the PAN number.
Also, an individual submits his PAN to certain entities like banks, mutual fund companies, etc. The financial information from such entities goes to the income tax department via PAN. This allows the Government to link all tax-related activities with the department. Hence, just by putting in a permanent account number, the department can identify all your financial transactions.
TAN is an abbreviation for Tax Deduction and Collection Account Number. It is a unique 10-digit alphanumeric digit allotted by the Income Tax Department of India. All persons responsible for deduction (TDS) or collection of tax (TCS) are required to obtain TAN. It is compulsory to quote the TAN in TDS/TCS return, any TDS/TCS payment challan, and TDS/TCS certificates.
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.
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.
E-filing of income tax return has been made mandatory for all classes of taxpayers, barring a few exceptions:
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.
How Can I Calculate my Income Tax?
Individuals should calculate income tax depending on the nature of their income. The salaried individual can take the eligible exemptions available for various allowances received. Individuals/HUF can take a deduction under Sections 80C to 80U, deduct it from the gross total income, and calculate the income tax liability. Also, the total income tax liability should be adjusted by the taxes paid, such as advance tax, TDS, etc.
Also, the taxpayer should apply the effect of rebate under Section 87A and relief under Section 89, Section 90, and Section 91 to arrive at the net amount of income tax payable.
Any income that you receive should form part of your income tax return. Of course, the law provides exemptions for certain incomes, e.g. LTCG on listed equity shares up to Rs 1 lakh in any financial year, agricultural income, etc. Therefore, 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.
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.
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 Rs 5 lakh in a financial year, you can claim a tax rebate up to Rs 12,500. This means if your total tax payable is less than Rs 12,500, then you will not have to pay any tax.
In Budget 2023, a tax rebate on income of Rs 7 lakhs has been introduced under the new tax regime, and no changes have been made in the 2024 interim budget. Under the new tax regime, if your net taxable income is less than Rs 7 lakh, you can claim a tax rebate of up to Rs 25,000. Meaning, you will not have to pay any tax if your total tax payable is less than Rs 25,000,
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.
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 taxpayer can also claim a deduction for interest on deposits from banks under Section 80TTA of the Income Tax Act. Individuals can claim up to Rs 10,000 deduction under the said section.
You can also go through our Income Tax Calender to know more about the dates
Under the old tax regime, individuals below 60 years of age are required to file an Income Tax Return (ITR) if their income exceeds Rs. 2.5 lakhs, while those above 60 years must file if their income exceeds Rs. 3 lakhs and those above 80 years must file if their income exceeds Rs. 5 lakhs. However, under the new tax regime, the basic exemption limit for all the individuals irrespective of the age is Rs. 3 lakhs starting from FY 2023-24.
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.
Related Income Tax Articles
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