Income Tax - Latest Updates, Basics, Tax Slabs, Rules, Income Tax Guide 2024-25

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What is Income Tax?

• Income tax is a type of tax that the central government charges on the income earned during a financial year.
• Taxes are sources of revenue for the government. The government utilizes 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  or wealth earned is called a direct tax; for example, Income tax is a direct tax. 

Who Should pay Income Tax? – Types of Taxpayers

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: 

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

Residential status:

• In India, income of a person is taxed based on his residential status, irrespective of whether a person is a citizen of India.
• Individuals and HUFs are classified into residents, resident but not an ordinary residents and non-residents. This classification is made based on number of days stayed by the person in India.
• 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

Types of Income – What are the 5 Heads of Income?

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:

Popular deductions/ Tax saving instruments:

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: 

*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.

Health Insurance and Medical Expense Deduction

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. 

Education Loan Deduction

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.

Home Loan Deduction

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 for Interest Income

• 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.
•  For senior citizens, deduction u/s 80TTB can be provided up-to Rs.50000.

Tax Slabs

• Imagine a staircase, it rises at a point and remains flat until a certain point, and rises again. Slab rates are similar.
• Tax rates are fixed for income until certain point, and it rises after the income crosses the limit prescribed. This is also called progressive taxation.
• Tax is calculated in slab rates for individuals and HUF predominantly. For assessees like companies and trusts, tax is calculated in a flat rate.

What is the Old Income Tax Regime?

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: 

• Deductions of allowances like Leave Travel Concession (LTC), House Rent Allowance (HRA), and specific other allowances.
• Deductions for tax-saving investments as per Section 80C (LIC, PPF, NPS, etc) to 80U can be claimed.
• Standard deduction of Rs 50,000.
• Deduction for interest paid on home loan.

Tax slab rates applicable for Individual taxpayers below 60 years for the Old tax regime are as below: 

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. 

What is new Tax Regime?

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:

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:

• Transport allowances in case of a specially-abled person.
• Conveyance allowance received to meet the conveyance expenditure incurred as part of the employment.
• Any compensation received to meet the cost of travel on tour or transfer.
• Daily allowance received to meet the ordinary regular charges or expenditures you incur on account of absence from his regular place of duty. 
• Under the new tax regime, the highest surcharge has been reduced to 25% from 37% for people earning more than Rs 5 crore. This move brings down their tax rate from 42.74% to 39%.
• Standard deduction under the head salary is Rs. 75,000 under new tax regime. (Rs.50000 for old regime)
• Deduction on employer's contribution to pension scheme is 14% of salary (10% for old regime)
• Maximum limit on family pension deduction is Rs. 25,000 (Rs.15000 for old regime)
• The limit on the exemption of Long Term Capital Gains on the transfer of equity shares or equity-oriented units or units of Business Trust is increased from Rs.1 Lakh to Rs.1.25 lakh per year. 

Exceptions to the Income Tax Slab

• 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. holding period is different for different classes of assets. 

A glance at the holding period, the nature of the assets and the tax rate for each are found in the article.

Rebate u/s 87A and cess

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.

Old Tax Regime:

• If the income after reducing deductions is up-to Rs 5 lakh in a financial year, a rebate of maximum Rs.12,500 is allowed.
• This means if your total tax payable is less than Rs 12,500, then you will not have to pay any tax.

New Tax Regime:

• If the income after reducing deductions is up-to Rs 7 lakh in a financial year, a rebate of maximum Rs.25,000 is allowed.
• This means if your total tax payable is less than Rs.25,000, then you will not have to pay any tax.
• If the total income is slightly above Rs.7,00,000, a benefit is available. Read out the article to know further.

 In all the cases, a cess is calculated at 4% of the income tax calculated after rebate.

Income Tax Payment

Tax Deducted at Source (TDS)

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.

Advance Tax

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.

Self-Assessment Tax

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.

E-Payment of Taxes

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.

Refund:

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.

Important terms:

Financial Year

• The financial year is a one-year period that the taxpayers use for accounting and financial reporting purposes.
•  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.

Assessment Year

• The one year from 1st April to 31st March starting immediately after the financial year is termed an assessment year. 
• This is the period in which the person's income is assessed to tax
• For example, for incomes earned during the FY 2023-24, the assessment year will be AY 2024-25.

PAN:

• 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. 
• PAN is captured for all significant financial transactions by entities like banks. Thus income tax department captures the transactions undertaken by a person.      

TAN:

• 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.   

What Is Computation Of Income?

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:

• List down all your income – be it salary, rental income, capital gains, interest income or profits from your business or profession.
• Exclude incomes that are exempt under the act.
• Claim all applicable deductions and exemptions available under every head of income. E.g., claim a standard deduction of Rs 50,000 from salary income, claim municipal taxes from rental income, claim business-related expenses from your business turnover, etc.
• Claim applicable deductions from your total income, e.g. the Section 80 deductions like 80C, 80D, 80TTA, 80TTB, etc.
• You will now arrive at your taxable income.
• Check the tax slab you fall under and accordingly arrive at your income tax.
• As applicable, calculate rebate u/s 87A and deduct it from the income tax.
• Calculate cess at 4% on the tax payable after rebate.
• Tax already paid - like TDS, advance tax etc., can be deducted from net tax payable to arrive at balance tax payable.

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

Filing Your ITR

E-filing of income tax return has been made mandatory for all classes of taxpayers, barring a few exceptions:

• Taxpayers aged 75 or more and satisfying the following conditions:
  • Total income consists of only pension and interest income. Interest income can be from any account maintained with the same bank in which they receive pension.
  • They have submitted a declaration to the bank.
  • Such bank deducts TDS under Section 194P.
• Taxpayers with an taxable income  less than the applicable basic exemption limit. 
  • Basic exemption limit for old regime:
    • Rs.2,50,000 for individuals under 60 years 
    • Rs.3,00,000 for resident individuals between 60-80 years.
    • Rs. 5,00,000 for resident individuals greater than 80 years.
  • Basic exemption limit for new regime : Rs. 3,00,000 for all individuals

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:

• You will be denied carry forward of losses (except house property loss and loss brought forward from preceding previous years) to future years.
• Delay processing of refund claims if any.
• Difficulty on getting home loans.
• Levy of late filing fee up-to Rs 5,000 (if the total income is above Rs 5 lakh) and Rs 1,000 (if the total income is below Rs 5 lakh) under Section 234F.
• Levy of interest under Section 234A if there are taxes due as on 31 July.

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.

Income Tax Return

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.

Income Tax Forms List

The seven ITR forms are:

• ITR-1: Individuals (residents) having income from salary, one house property, other sources, agricultural income less than Rs 5,000 and with a total income of up to Rs 50 lakh.
• ITR-2: Individuals/HUFs not having any business or profession under any proprietorship, more than one house property. 
• ITR-3: Individuals/HUFs having income from a proprietary business or profession, income of a person as a partner in a firm.
• ITR-4: Individuals/HUFs having presumptive income from business or profession, one house property.
• ITR-5: Partnership firms or LLPs.
• ITR-6: Companies.
• ITR-7: Trusts.

Documents Required for ITR Filing

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. 

E-Filing

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.   

What is ITR–V?

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.

Did You E-file Your Tax Return For This Year?

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.

Important Income Tax Dates 2025

• 15th March 2025 - Due date for the fourth instalment of advance tax for the FY 2024-25. 
• 15th June 2024 – Due date for the first instalment of advance tax for the FY 2024-25.
• 31st July 2025 – Income tax return filing for FY 2024-25 for individuals and entities not liable for tax audit and who have not entered into any international or specified domestic transaction.
• 15th September 2024 – Due date for the second instalment of advance tax for the FY 2024-25.
• 30th September 2025 – Submission of audit report (Section 44AB) for FY 2024-25 for taxpayers liable for audit under the Income Tax Act.
• 31st October 2025 – ITR filing for taxpayers requiring audit (not having international or specified domestic transactions).
• 31st October 2025 – Submission of the audit report for FY 2024-25 for taxpayers having transfer pricing and specified domestic transactions.
• 30th November 2025 - ITR filing for businesses require requiring transfer pricing reports(in case of international/specified domestic transactions)
• 15th December 2024 – Due date for the third instalment of advance tax for the FY 2024-25.
• 31st December 2025 – Last date for filing a belated return or revised return for FY 2024-25.

You can also go through our Income Tax Calender to know more about the dates 

Income Tax Law

Income Tax Act

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.

About Income Tax Department India

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

• Income Tax E Filing
• Income Tax Slabs & Rates
• Check your Income Tax Refund Status Online
• What is Form 26AS?
• What is Form 16?