What is Income tax?

Income tax is one of the most fundamental taxes any individual/business has to pay to the government on their income/profits. Income tax generated through the taxation system is directly contributed towards infrastructural development as well as towards payment of salaries of the central government employees. In this article, we will learn about income tax e-filing and all things related to the tax levied on individuals as well as businesses

In India, the income tax is classified into two types:

  • Direct Taxes – Taxes Levied on your salary/profit(for businesses).
  • Indirect Taxes- Taxes levied on goods and services you purchase for eg. Online Shopping, Food in restaurant, Movie tickets etc

The income tax taxation system in India is governed under the regulation specified in the Income Tax Act of 1961. This does not imply that the laws related to the income tax in India are archaic because there have been several amendments to the laws since its implementation.

Who pays the Income Tax?

In India, any individual under the age of 60 years, is eligible to pay the  Income Tax (income higher than 2.5 Lakhs per annum). In addition to this, the following entities who generate income/profits are also liable to pay the income tax:

  • Salaried Individuals
  • Businesses
  • Hindu Undivided Family(HUF)
  • Body of Individuals (BOA)
  • Association of Persons (AOP)
  • Local Authorities
  • Corporate Firms
  • Companies
  • Artificial Judicial Person

How is Income Tax collected?

The income tax in India is collected by the Central Government in several ways. These are enlisted below:

  • TDS: The concept of TDS (Tax Deducted at Source)was introduced with an aim to collect tax from the very source of income. As per this concept, a person (deductor) who is liable to make payment of specified nature to any other person (deductee) shall deduct tax at source and remit the same into the account of the Central Government
  •  Self-Assesment Taxes paid before filing Income Tax Returns or ITR
    Read: Types of Assessments under Income Tax
  • Advance Tax Payments

Where is Income tax applicable?

The income tax is applicable to profits as well as incomes of varying kinds. Here, we define which all heads/ sources of incomes are taxable under the Income Tax system. Basically, there are 5 heads of income which are taxable and they are as follows:

Taxable Income HeadNature of the Income/Capital Gain Covered
Income from SalaryIncome generated by individuals from salary as well as a pension is covered in this head of income
Income from other sourcesIncome generation from savings bank account interest, Fixed deposits, Winnings from competitions like “KBC”
Income from House/PropertyIncome you get in the form of rent from your tenants
Capital Gains IncomeIncome generated from the sale of a capital asset such as mutual funds like ELSS, shares, house/property
Income from Profession and BusinessPeople who are self-employed, work as a freelancer or contractor, or you run a business. Life Insurance Agents, Chartered Accountants, Doctors, Lawyers etc having their own practice

Income Tax Rates / Tax Rates Slabs for FY 2018-19

The income tax for people of different incomes/profits is different and it is classified under various slabs for every taxpayer. Here we list down the various Income Tax Slabs for all taxpayers.

Income Tax Rates for Individual Tax Payer  & HUF  (Up to 60 years Old)

Income Tax SlabsTax RateHealth and Educational Cess
Income up  to ₹ 2,50,000No Tax
Income Range ₹ 2,50,000- ₹5,00,0005%4% of Income Tax
Income Range ₹ 5,00,000- ₹10,00,00020%4% of Income Tax
Income Above ₹ 10,00,00030% 4% of Income Tax

Income Tax Rates for Senior Citizens (60-80 Years Old)

Income Tax SlabsTax RateHealth and Educational Cess
Income up  to ₹3,00,000No Tax
Income Range ₹ 3,00,000- ₹5,00,0005% 4% of Income Tax
Income Range ₹ 5,00,000- ₹10,00,00020% 4% of Income Tax
Above ₹10,00,00030% 4% of Income Tax

Income Tax Rates for Super Senior Citizens (80 years +)

Income Tax SlabsTax RateHealth and Educational Cess
Income up  to ₹5,00,000No Tax
Income up to ₹5,00,000 – ₹10,00,00020%4% of Income Tax
Income ₹10,00,00030%4% of Income Tax

Income Tax Rates for Cooperative Socities

Turnover ParticularsTax Rate
Taxable income less than  ₹ 10,00010%
Taxable Income between ₹ 10,000- ₹20,000 20% of the amount exceeding the  ₹10,000
Taxable income greater than  ₹ 20,000 30% of the amount exceeding the ₹20,000

Income Tax Rates for Domestic Companies

Turnover ParticularsTax Rate
Gross turnover upto ₹ 250 Crores25%
Gross turnover greater ₹ 250 Crores 29%

Income Tax Rates for Foreign Companies

Turnover ParticularsTax Rate
If Foreign Companies are paid by the government in form of royalties50%
Payment for Technical Services 50%
Any other Services 40%

Exceptions to the Tax Slabs

Not all income can be taxed on a slab basis . Capital Gains that you have are taxed on the basis of the type of asset that generates that income and how long you have been holding it. The holding time of the asset will determine wthere it is a Long Term Capital Gain (LTCG) or  ashort term one. Here is a quick look into the holding period nature of asset and rate of taxes for the same in a tabular format.

Capital Asset TypeHolding PeriodTax Rate
House PropertyHolding Less than 24 months -Short Term
Holding More than 24 months -Long Term
20% dependent on Slab Rate
Debt Mutual FundsHolding Less than 36 months -Short Term
Holding more than 36 months -Long Term
20% dependent on Slab Rate
Equity Mutual FundsHolding Less than 12 months -Short Term
Holding more than 12 months -Long Term
Exempt (Till 31 March 2018 ) Capital Gains greater than 1 lakh rupees are taxable at 10% 15%
Shares (STT Paid)Holding Less than 12 months -Short Term
Holding more than 12 months -Long Term
Exempt (Till 31 March 2018 ) Capital Gains greater than 1 lakh rupees are taxable at 10% 15%
Shares (STT Unpaid)Holding Less than 12 months -Short Term
Holding more than 12 months -Long Term
20% As per slab rates
FMPsHolding Less than 36 months -Short Term
Holding more than 36 months -Long Term
20% dependent on slab rates

How to pay Income Tax?

In India, the Income Tax can be paid via two methods:

  • Online Filing of Income tax also known as Income Tax e-filing
  • Offline Income Tax Filing

Online Procedure (Income Tax e-filing)

To file the income tax online you will need to visit the Tax Information Network of the Income Tax Department.
Step 1: Fill up the Challan 280

Challan 280 for Income tax e-filing

Challan 280

Step 2: Fill up the details with respect to the type of taxpayer you are

For eg. if you are an individual this is how you fill up the details:

  1. Select (0021) Income Tax (Other than companies)
  2. Enter PAN details
  3. Select Relevant Assesment Year(AY) for eg. for the financial year 1st April 2018- 31st AMrch 2019, the assessment year is 2019-20
  4. Enter Address
  5. Select Appropriate Payment Type
    • Advance Tax- (100) Advance Tax
    • Self Assessment Tax – (300) Self Assessment Tax
    • Regular Assesment Tax – (400) Tax on Regular Assesment
  6. Select Payment Mode (Netbanking or Debit Card)
  7. Enter the given captcha correctly
  8. Click Proceed
    Incom tax e-filing procedure

    e-form for Income Tax e-filing

     

Step 3: Check and Cross-check the information provided to you as you will re-directed to the website’s Payment Page

Income tax e-filing

Payment gateway: Income tax e-filing

Step 4: Once you have successfully made the payment for the income tax, you will receive a tax receipt. Details of the payment along with a receipt will be given to you You will also be given a BSR Code(Basic Statistical Returns) along with the challan serial number. Keep this receipt safe with you by taking a screenshot. This receipt might be useful for future references.

Income Tax e-filing

Income Tax e-filing receipt format

In case, you forget to print a receipt of your tax payment, Login to your net banking account and retrieve it.

Offline

In the case that for some reason or the other an individual/business is unable to pay the income tax online they can avail the offline option for payment of income tax. Steps for paying income tax offline are as follows:

  • Visit the nearest concerned bank and ask for tax payment challan form. The concerned form is challan 280
  • Fill up the respective details of the form
  • After filling up the required details submit the form and make the payment as a tax. Payment can be made either in cheque or cash. Be careful that for a large amount bank might refuse a cash payment and might ask only for a cheque. The cheque should be made in the name of “Income Tax Department “
  • The official responsible for depositing the cash will provide you with a receipt against the payment of taxes. This receipt should be kept handy for future references.

Income Tax Deductions

The income tax department has introduced incentives to reduced income taxation levied on the individuals and businesses. These are the forms of income tax deductions

  • Deductions under section 80 of the Income Tax Act  claimed from the total income
  • Deductions specific to each source of Income

Here we discuss some of the major tax deductions :

Home Ownership

  • Registration as well as well as stamp duty under Section 80C
  • Home Loan and Principal Interest
  • First-time home-owners enjoy a benefit of ₹ 50,000 under Section 80EE of the income tax act

Type of Deduction Maximum Deduction (Self-occupied House property)Maximum Deduction (Property on Rent)
Stamp Duty and Registration + Principal ₹ 1,50,000 within the overall limit of Section 80C ₹ 1,50,000 within the overall limit of Section 80C
Home Loan Interest deduction – Section 24₹2,00,000No Cap [Rental income should be displayed in the Income Tax return ] Maximum loss from house property has been capped at ₹ 2,00,000
Deduction for first-time homeowners under Section 80 EE (Conditions Apply)₹ 50,000

Home Renting 

  • Many Indians move cities for work and have to rent apartments, in accordance with the same most salaried individuals get paid a House Rent Allowance or HRA for short. You should make sure that you claim tax returns if you are living in an apartment on a rental basis.
  • If you are living on rent basis but don’t have a provision of an HRA in your salary and in addition if you are not salaried but live on rent, you can make a claim for deduction in rent under the Section 80GG.

Medical Care/Insurance

Medical Insurance has multiple benefits for both personal coverages of healthcare expenditures as well for your family. The premiums you pay for insurance medical care schemes, as well as life insurance, are liable for tax deductions. Here are the schemes eligible for tax deductions 

  • Life Insurance Premiums  under Section 80C 
  • Medical Insurance under Section 80D
  • Preventive Checkups under Section 80D
  • Medical Bills [Salaried Individuals] (Standard Deduction-  ₹ 40,000 effective from April 1, 2018)