An income tax is a government tax levied on both earned income (wages, salaries, commission) and unearned income (dividends, interest, rents). The Ministry of Finance along with the Government of India are responsible for assessing the income tax rates in India. Provisions relating to the income tax are governed by the Income Tax Act, 1961. The Income Tax Department (also referred to as the IT Department) is responsible for monitoring the income tax collection by the government.
Any income that an employee receives is taxed under the head 'Income from Salaries'. This tax only applies when there is an employer-employee relationship. Taxes applicable will be determined based on the salary slab the employee falls in. The amount as well as the type of tax deduction varies depending on the kind of investments the employee has made. The individual will need to submit a declaration about the proposed investments, which the employer will take into consideration prior to deducting the income tax from the employee's salary. By making the declaration of taxes in advance, there will be no need for the employee to go through the lengthy process of claiming for refunds from the Income Tax Department at a later stage.
The Income Tax Slab Rates are as under:
| Income Tax Slabs | Tax Rate | Health and Education Cess |
|---|---|---|
| Income up to Rs. 2,50,000 | No tax | |
| Income from Rs. 2,50,000 – Rs. 5,00,000 | 5% | 4% of Income Tax |
| Income from Rs. 5,00,000 – Rs. 10,00,000 | 20% | 4% of Income Tax |
| Income more than Rs. 10,00,000 | 30% | 4% of Income Tax |
| Income Tax Slabs | Tax Rate | Health and Education Cess |
|---|---|---|
| Income up to Rs. 3,00,000 | No tax | |
| Income from Rs. 3,00,000 – Rs. 5,00,000 | 5% | 4% of Income Tax |
| Income from Rs. 5,00,000 – Rs. 10,00,000 | 20% | 4% of Income Tax |
| Income more than Rs. 10,00,000 | 30% | 4% of Income Tax |
| Income Tax Slabs | Tax Rate | Health and Education Cess |
|---|---|---|
| Income up to Rs. 5,00,000 | No tax | |
| Income from Rs. 5,00,000 – Rs. 10,00,000 | 20% | 4% of Income Tax |
| Income more than Rs. 10,00,000 | 30% | 4% of Income Tax |
Surcharge: 10% of income tax, where total income exceeds Rs.50 lakh up to Rs.1 crore.
Surcharge: 15% of income tax, where the total income exceeds Rs.1 crore.
| Income from Salary | Salary, Allowances, Leave encashment, etc. |
| Income from House Property | Income from house or building. This may be owned and self-occupied or rented out. |
| Income from Capital Gain | Income from gain or loss when a capital asset is sold. |
| Income from Business or Profession | Income/loss arising out of carrying on a business or profession. |
| Income from Other Sources | This is the residual head - includes income from savings bank accounts, family pension, fixed deposits or gifts received. |
The following are the various deductions that can be claimed to help reduce one’s taxable income:
Section 80C: A deduction of up to Rs. 1,50,000 can be claimed from the total income. Popular investments eligible for this tax deduction are payments made towards i) life insurance policies ii) superannuation/provident fund iii) equity-linked savings scheme and iv) certain post-office schemes such as Sukanya Samriddhi Yojana.
Section 80CCC: A deduction of up to Rs. 1,50,000 can be claimed from the total income for contribution to certain pension funds.
Section 80CCD: A deduction of up to Rs. 1,50,000 can be claimed from the total income for contributions to pension schemes notified by the Central Government.
Note: Section 80CCD Part (1B) provides an added deduction of Rs. 50,000 for contribution made under National Pension Scheme. While the maximum deduction as an aggregate of the three Sections mentioned above should not exceed Rs. 1,50,000, but, after including Section 80CCD(1B), the total deduction limit comes to Rs. 2,00,000.
Section 80D: A deduction of up to Rs. 1,00,000 can be claimed for expenses incurred towards medical insurance.
Section 80DDB: A deduction of up to Rs. 40,000 (Rs. 1,00,000 for senior citizens and for super senior citizens) can be claimed for medical expenses incurred to treat certain diseases.
Section 80E: Tax deduction can be claimed on the interest part of the EMI paid towards an education loan during a financial year. There is no limit on the maximum amount that can be claimed as deduction.
Section 80EE: Tax deduction can be claimed under Section 80EE on the interest payable on home loan (for first-time home buyers). The deduction shall be the interest amount or Rs. 50,000, whichever is lesser.
Section 80RRB: Those who receive an income as royalty can claim deduction for royalty income earned or Rs. 3,00,000, whichever is lesser.
Section 80TTA: A deduction of Rs. 10,000 can be claimed on interest income from savings account with a i) bank ii) co-operative society carrying on the business of banking and iii) post office.
Section 80U: An individual who has been certified as a person with disability can claim tax benefit under this Section. Deduction of Rs. 75,000 is allowed for people with disabilities and Rs. 1,25,000 for those with severe disability.
Section 24: Individuals owning a home can claim tax deduction of up to Rs. 2,00,000 on the home loan interest if the owner or his or her family is residing in the house property.
The finance minister has raised cess on personal income tax to 4% from 3%.
A standard deduction of Rs. 40,000 has replaced deductions of Rs. 19,200 for transport allowance and Rs. 15,000 for medical reimbursement.
The threshold for TDS on interest income for senior citizens hiked to Rs. 50,000 from Rs. 10,000.
The government has proposed extending the tax-free withdrawal benefit from National Pension System to all of its subscribers – both employees as well as non-employees.
Tax deduction for health insurance premiums paid for senior citizens raised to Rs. 50,000 from Rs. 30,000.
What is the difference between Assessment Year and Previous Year?
Assessment Year is the year in which you file the returns, whereas Previous Year, as the name would suggest, is the year preceding the Assessment Year. Eg. if AY is 2018-19, the Previous Year would be the financial year ending 31st March 2018.
Are there any fines/penalties if I file Income Tax Returns after the due date?
Yes. You may be asked to pay a penalty up to Rs. 10,000 and interest on tax due at 1% for every month of default.
Will I have to pay tax on gifts received?
Gift received via cash which is more than Rs. 50,000 is taxable. However, gift tax will not apply in the following scenarios:
1) Gifts in cash or kind whose value is below Rs. 50,000.
2) Gifts received on the day of marriage from relatives and friends.
3) Gifts received from relatives as stated under the Act.
How does the government collect Income Tax?
There are 3 ways by which the government collects income tax:
Voluntary payment by the taxpayers such as Advance Tax, Self-Assessment Tax.
Tax Deducted at Source (TDS)
Taxes Collected at Source (TCS)
What are the Income Tax Slab rates for FY 2018-19?
Income Tax Slabs for Individuals and HUF (less than 60 years old) for FY 2018-19 are as under:
| Income Tax Slabs | Tax Rate | Health and Education Cess |
|---|---|---|
| Income up to Rs. 2,50,000 | No tax | |
| Income from Rs. 2,50,000 – Rs. 5,00,000 | 5% | 4% of Income Tax |
| Income from Rs. 5,00,000 – Rs. 10,00,000 | 20% | 4% of Income Tax |
| Income more than Rs. 10,00,000 | 30% | 4% of Income Tax |
Income Tax Slabs for Senior Citizens (60 years old or more but less than 80 years old) for FY 2018-19 are as under:
| Income Tax Slabs | Tax Rate | Health and Education Cess |
|---|---|---|
| Income up to Rs. 3,00,000 | No tax | |
| Income from Rs. 3,00,000 – Rs. 5,00,000 | 5% | 4% of Income Tax |
| Income from Rs. 5,00,000 – Rs. 10,00,000 | 20% | 4% of Income Tax |
| Income more than Rs. 10,00,000 | 30% | 4% of Income Tax |
Income Tax Slabs for Super Senior Citizens (80 years old or more) for FY 2018-19 are as under:
| Income Tax Slabs | Tax Rate | Health and Education Cess |
|---|---|---|
| Income up to Rs. 5,00,000 | No tax | |
| Income from Rs. 5,00,000 – Rs. 10,00,000 | 20% | 4% of Income Tax |
| Income more than Rs. 10,00,000 | 30% | 4% of Income Tax |
Surcharge: 10% of income tax, where total income exceeds Rs.50 lakh up to Rs.1 crore.
Surcharge: 15% of income tax, where the total income exceeds Rs.1 crore.
