Beginners Guide To Income Tax in India

What is Income Tax in India?

Every year a small part of your gross annual income goes to the Government of India in the form of Income Tax. Now, not everyone has to pay the same amount of income tax.

The law of Income tax in India categorizes the amount of income and the rates at which you have to pay your taxes.

One must be aware of their income tax liability, and this article is the guide to understand the nitty-gritty of income tax in India including your slab rates, income tax calculations and income tax return filing.

incometaxindiaefiling efiling

Sources of income for Income Tax in India

Income Tax calculator

Apart from your salary, you might have other sources of income which you have to consider while calculating your tax liability. These include:

  • House/property that you may own or rent
  • Capital gain when you sell an asset or shares
  • Business/profession
  • Other sources like savings bank accounts, fixed deposits or gifts.

All these incomes will add up to form your gross income per annum.

Know which slab of Income Tax in India do you fall under?

Under the existing Income Tax regime, the tax payers are categorized according to their age as:

1. Individuals below 60 years of age

Taxable income in India (in Rs)Income tax rates
Up to 2.5 LakhNil
2.5 – 5 Lakh5%
5 – 10 Lakh20%
> 10 Lakh30%

2. For Senior citizens (Individuals between 60-80 years of age)

Taxable income in India (in Rs)Income tax rates
Up to 3 LakhNil
3 – 5 Lakh5%
5 – 10 Lakh20%
> 10 Lakh30%

3. For super senior citizens (Individual >80 years of age)

Taxable income in India (in Rs)Income tax rates
Up to 5 LakhNil
5 – 10 Lakh20%
> 10 Lakh30%

NOTE: Any resident Indian, whose net income does not exceed Rs. 5 lakhs, can avail a rebate of 100% of tax or Rs. 12,500, whichever is less. (Section 87A)

Special Income tax rates for individuals and Hindu Undivided Families (HUFs) – Optional

• Finance Act, 2020 proposed an option to resident Indian individuals and HUFs from assessment year 2021-22 and onward:

Taxable income in India (in Rs)Income tax rates
Up to 2.5 LakhNil
2.5 – 5 Lakh5%
5 – 7.5 Lakh10%
7.5 - 10 Lakh15%
10 - 12.5 Lakh20%
12.5 - 15 Lakh25%
> 15 Lakh30%
  • If a person opts for the special 2020 regime then:
    • They cannot apply for 70 deductions and tax exemptions
    • They will have an option of pre-filled income tax return
  • Section 87A is applicable to both existing and special income tax slabs and rates.
  • The taxes are further subject to the 4% health and education cess.

SOURCE: This information is from Income Tax India official website.

How to find which Income Tax Regime is best for you to save Tax?

Now that you know which tax slab you fall under, you must decide which option is best for you and will save you more tax.

Let’s understand this with an example:

Swati (32 yrs old) has a gross annual income of Rs. 15,00,000 including her salary, rents from property and interests from her savings bank account. She has various investments in the form of Public Provident Fund, Employee Provident Fund, Insurance Premiums etc. which grossly amount to Rs. 3,50,000.

Now, she needs to decide, which tax regime is beneficial for her and will save her more money.

STEP 1:

She goes to the official Income Tax department website, www.incometaxindiaefiling.gov.in.

Income Tax Official page

STEP 2:

She selects the option of Tax Calculator FY 2020-21 (see the highlighted section below) and a short form appears.

Tax Calculator FY 2020-21

STEP 3:

Then she enters her details of age category, her annual income and gross deductions from all her investments.

Income Tax Calculator

STEP 4:

After filling up the details, when she clicks on the ‘Compare Tax Under Existing and new regime’ she sees the difference.

Income tax India Calculator
  • Swati finds a tax benefit of Rs. 31,200 due to her huge investments that she can claim if she opts for the old regime (even though the new regime has lower rates).
  • If she had no investments or less investments (below Rs. 2,50,00), the new regime would have been beneficial for her.

NOTE: If you opt for the new regime your deductions are assumed to be zero, you can switch between old and new regime during the process of income tax filing.

How to find out tax liability using Income Tax calculator?

The above method is only to give a gross idea of which tax regime would be beneficial.

However, when you want a basic in detail tax calculation you can go to the official website www.incometaxindia.gov.in

Here are the steps you can follow to find out tax liability:

STEP 1:

Scroll down the home screen and find the section of ‘Important links’ and clicks on ‘Tax Calculators’ from the options, as shown below.

Income Tax liability calculation

STEP 2:

Select the ‘Individual’ and ‘Income tax calculator’

Income tax calculations

STEP 3:

A form will appear wherein you need to fill all the details of your different income sources and investments as follows.

Source of Income in Income tax calculator

STEP 4:

Opt for assessment year 2021-22, for the financial year of 2020-21.

STEP 5:

‘Whether opting for taxation under Section 115BAC’ refers to the new tax regime.

The calculations will be according to the regime you choose. If you want to go with the old regime, you can choose ‘no’ from the drop down options.

Income Tax calculate

STEP 6:

As I opted for the new regime the deductions are very limited. If you opt for old regime you will get the option to enter your other investments as well.

Income Tax deductions

The total tax liability is generated automatically as seen in this screenshot.

Which exemption you should let go in the Special Income Tax Regime in India?

  1. Standard deduction of Rs 50,000.
  2. Investments in provident funds, life insurances, home loans, tution fees etc (Section 80C).
  3. Medical insurance premium (Section 80D).
  4. Exemptions for disability (Section 80DD and 80DDB) and donations to charitable institutions (Section 80G).
  5. House rent allowance (HRA) and leave travel allowance.
  6. Interest on deposits in savings account, deposits to senior citizens (Section 80TTA/80TTB respectively).
  7. Entertainment allowance (government employees).
  8. Interest on housing loan for vacant or self-occupied house property (Section 24) and education loan (Section 80E).
  9. Exemption of 15,000 from family pension (Section 57 clause (iia)).

Income Tax Return Filling Process

Income Tax e-filing

You can file your returns at the end of the financial year. In this form you provide your gross income, deductions and net liability. You have to select the right form (out of the seven forms on the portal), depending on your profile.

You can find the detailed income tax return filing forms here. 

Types of ITR forms

NOTE: For the Assessment Year 2020-21, ITR-1, 2 and 4 have been notified. Download the forms from the income tax e-filing official website. Click here.

 

What is the process of Income tax e-filing?

You can file the income tax return in two ways:

  1. Offline Mode
  2. Online Mode

1. Income tax e-filing using the offline method:

  • For the offline method, you must have either EXCEL or JAVA utilities.
  • Download the form applicable to you. ( Steps shown below)
  • Fill it offline
  • Save the generated XML file
  • Upload it

2. Income tax e-filing using the online method:

  • You can fill the form directly at the e-filing portal and submit it.
  • ITR forms 1 and 4 are available for online filling and submitting.

Follow these steps for filing your income tax return:

Income Tax Process Filling

Source:

A step by step in detail guide on how to file your income tax returns on the official website of income tax department India in both online and offline methods.

Important Dates for Income tax in India

Important datesEvents and tasks
31st Jul-2020Quarterly statement of TDS/TCS deposited for the quarter ending March 31, 2020
15th Aug-2020TDS certificate to employees in respect of salary paid and tax deducted during FY 2019-20
15th Sep-2020Second instalment of advance tax for the AY 2021-22
15th Oct-2020Quarterly TCS deposit statement filing quarter-ending September 2020
30th Nov-2020Last date of Income Tax Return filing for assesses requiring account books audits and undertaking international transactions
15th Dec-2020Last date for advance tax payment for AY 2021-22 (third instalment).

NOTE: Do check out other important dates and events related to Income tax in India tax calender .

Being up to date with the important dates and your tax categories helps you to plan and time your investments judiciously to gain maximum benefit during your income tax return filing.

Conclusion:

Paying and managing income tax in India might seem intimidating.

Even Albert Einstein would have found it daunting enough to say that “The hardest thing to understand in the world is the income tax”.

However, in today’s time, its digitization with online income tax calculators and income tax e-filing system has made it easy to follow and a more compliant job. Understanding your tax liabilities and opting for the right regime will help you in planning your investments judiciously.

As an Indian citizen, it is just one of the ways of performing your social responsibilities while lawfully, saving something for your own pockets.