Income tax is a tax levied on the income of a person by the Central Government. It is calculated at specified rates on the total income earned by an individual and paid to the government directly. The Ministry of Finance with the Government of India are responsible for assessing the income tax rate in India. Provisions relating to the income tax are governed by the Income Tax Act, 1961.
Funds collected via this tax route generally form one of the main sources of income for government entities. Besides using it to run the country smoothly, it is also used to pay state and central government employees. The government also utilizes it for protecting its citizens and development of infrastructure facilities like railways, airports, roads, hospitals, etc.
The Income Tax Department (also referred to as the IT Department) is responsible for monitoring the income tax collection by the government. It is governed by the Central Board for Direct Taxes, which forms part of the Department of Revenue in the Ministry of Finance. It is in charge of the administration of direct tax laws through the IT Department.
Replace 3% education cess on corporation tax and personal income tax with a 4% health and education cess, which will take care of the education and healthcare needs of poor and rural households.
A standard deduction of Rs 40,000 on the income of the salaried class. This will replace the transport allowance and the medical cost reimbursement.
For senior citizens, the government has proposed increasing the tax deduction benefit of Rs. 30,000 under Section 80D to Rs. 50,000. The budget has also proposed increasing the limit for benefit under Section 80(DDB) to Rs. 1 lakh from the existing Rs. 60,000.
Until now, long-term capital gains were exempt from tax. However, in this Union Budget, Finance Minister Arun Jaitley introduced LTCG tax on stocks. Investors will have to pay 10% tax on profits surpassing Rs. 1 lakh from the sale of shares or equity mutual fund schemes, which are held for over a year.
The government has proposed introducing a 10% dividend distribution tax on equity-based mutual funds.
Since the range of income among taxpayers in India is diverse, it wouldn’t appear right to charge a single tax rate. Therefore, the government has come up with income tax slabs, where taxpayers are categorized into different groups depending on their earnings, and each group is levied tax differently.
Income Tax Slab Rate for FY 2018-19 (AY 2019-20) for individuals is as under:
Individual (resident or non-resident) who is below 60 years of age on the last day of the relevant previous year:
| Taxable income | Tax Rate | Health and Education Cess |
|---|---|---|
| Up to Rs. 2,50,000 | Nil | Nil |
| Rs. 2,50,000 to Rs. 5,00,000 | 5% | 4% of Income Tax |
| Rs. 5,00,000 to Rs. 10,00,000 | 20% | 4% of Income Tax |
| Above Rs. 10,00,000 | 30% | 4% of Income Tax |
Resident senior citizen, who is 60 years or older but less than 80 years of age at any time during the previous year:
| Taxable income | Tax Rate | Health and Education Cess |
|---|---|---|
| Up to Rs. 3,00,000 | Nil | Nil |
| Rs. 3,00,000 - Rs. 5,00,000 | 5% | 4% of Income Tax |
| Rs. 5,00,000 - Rs. 10,00,000 | 20% | 4% of Income Tax |
| Above Rs. 10,00,000 | 30% | 4% of Income Tax |
Resident super senior citizen who is 80 years or older at any time during the previous year:
| Taxable income | Tax Rate | Health and Education Cess |
|---|---|---|
| Up to Rs. 5,00,000 | Nil | Nil |
| Rs. 5,00,000 - Rs. 10,00,000 | 20% | 4% of Income Tax |
| Above Rs. 10,00,000 | 30% | 4% of Income Tax |
Points to be noted
Surcharge: 10% of income tax is applicable when total income is above Rs. 50 lakhs up to Rs. 1 crore.
Surcharge: 15% of income tax is applicable when total income surpasses Rs. 1 crore.
Income Tax Slabs Rates for FY 2017-18 for Individuals is as under
Individual who is below 60 years of age on the last day of the relevant previous year:
| Taxable income | Tax Rate | Health and Education Cess |
|---|---|---|
| Up to Rs. 2,50,000 | Nil | Nil |
| Rs. 2,50,000 to Rs. 5,00,000 | 5% | 3% of Income Tax |
| Rs. 5,00,000 to Rs. 10,00,000 | 20% | 3% of Income Tax |
| Above Rs. 10,00,000 | 30% | 3% of Income Tax |
Resident senior citizen who is 60 years or older but less than 80 years of age at any time during the previous year:
| Taxable income | Tax Rate | Health and Education Cess |
|---|---|---|
| Up to Rs. 3,00,000 | Nil | Nil |
| Rs. 3,00,000 - Rs. 5,00,000 | 5% | 3% of Income Tax |
| Rs. 5,00,000 - Rs. 10,00,000 | 20% | 3% of Income Tax |
| Above Rs. 10,00,000 | 30% | 3% of Income Tax |
Resident super senior citizen who is 80 years or older at any time during the previous year:
| Taxable income | Tax Rate | Health and Education Cess |
|---|---|---|
| Up to Rs. 5,00,000 | Nil | Nil |
| Rs. 5,00,000 - Rs. 10,00,000 | 20% | 3% of Income Tax |
| Above Rs. 10,00,000 | 30% | 3% of Income Tax |
Points to be noted
Surcharge: 10% of income tax is applicable when total income is above Rs. 50 lakhs up to Rs. 1 crore.
Surcharge: 15% of income tax is applicable when total income surpasses Rs. 1 crore.
Income Tax Slabs Rates for FY 2016-17 for individuals is as under
Individual who is below 60 years of age on the last day of the relevant previous year:
| Taxable income | Tax Rate |
|---|---|
| Up to Rs. 2,50,000 | Nil |
| Rs. 2,50,000 to Rs. 5,00,000 | 10% |
| Rs. 5,00,000 to Rs. 10,00,000 | 20% |
| Above Rs. 10,00,000 | 30% |
Resident senior citizen who is 60 years or older but less than 80 years at of age any time during the previous year:
| Taxable income | Tax Rate |
|---|---|
| Up to Rs. 3,00,000 | Nil |
| Rs. 3,00,000 - Rs. 5,00,000 | 10% |
| Rs. 5,00,000 - Rs. 10,00,000 | 20% |
| Above Rs. 10,00,000 | 30% |
Resident super senior citizen who is 80 years or older at any time during the previous year:
| Taxable income | Tax Rate |
|---|---|
| Up to Rs. 5,00,000 | Nil |
| Rs. 5,00,000 - Rs. 10,00,000 | 20% |
| Above Rs. 10,00,000 | 30% |
Points to be noted
Surcharge: 15% of income tax is applicable when total income surpasses Rs. 1 crore.
Higher education and secondary cess: 3% of Income Tax.
Taxable Income Heads
Income from Salary: This involves any remuneration received by an individual for the services provided by him or her based on a contract of employment. Certain tax exemptions are allowed by employers as part of the salary. These include Conveyance Allowance (under Section 10 sub-section 14(ii)), House Rent Allowance (under Section 10(13A)) and Medical Allowance (under Section 80D).
Income from House Property: Income received by assesses for giving their property out on rent shall be taxable under the head Income from House Property. While calculating the income earned from renting out the property, an individual can avail a number of deductions under Section 24 to determine the net taxable income from house property income.
Calculation of Income from House Property
| Gross Annual Value | XXX |
| Less: Municipal Taxes | (XXX) |
| Net Annual Value | XXX |
| Less: Deduction under Section 24 | (XXX) |
| Standard Deduction @ 30% | (XXX) |
| Interest paid on Borrowed Loan | (XXX) |
| Income from House Property | XXX |
Income from Gains of Profession or Business : Income earned from the profits of business or profession are subject to taxation under the Income Tax Act. This includes profits earned during the assessment year, export incentives, sum received under a Keyman Insurance Policy, etc.
Income from Capital Gains : Capital gains are referred to as the profits or gains earned by selling or transferring capital assets. Such assets can include buildings, equity shares, debentures, land, machinery, etc.
Income from Other Sources: Any form of income that does not fall under the aforementioned heads, come under the category Income from Other Sources. Interest income from bank deposits, gifts, gambling or other sports awards, interest on securities and family pension received after the demise of the pensioner are some of the incomes that fall under Income from Other Sources.
The Income Tax Department has developed a portal - www.incometaxindiaefiling.gov.in, where taxpayers can file their Income Tax Returns online. A taxpayer needs to first register himself or herself on the website to be able to file his or her tax return. The website also has provisions to submit returns, view forms 26AS, check CPC refund status and generate ITR – V receipt status, among other things.
The final date for filing tax returns (online or physical) is 31st July.
What is called an assessment year?
An assessment year starts from April 1 and ends on March 31 and immediately succeeds a financial year. To cite an example, April 1, 2017 to March 31, 2018 is a financial year, the assessment year shall be April 1, 2017 to March 31, 2018. It is the year in which the income earned is assessed.
How do you define a financial year?
A financial year is defined as the year in which income is earned. This year is calculated as starting from April 1 and ending on March 31 of the following year.
What is the meaning of exempt income?
As the term suggests, Exempt income is income that is not chargeable to tax. The provisions of the Income Tax Act, 1961, offer tax exemption on a number of incomes, and these are referred to as exempt incomes.
How does one decide whether he/she is liable to pay income tax?
In India, every person who earns an annual income above the minimum exemption limit is expected to pay tax. The word ‘person’, in this context, can refer to individuals, HUFs (Hindu Undivided Families), BOIs (Body of Individuals), local authorities, AOPs (Association of Persons), companies and any other artificial judicial persons.
According to my income, how would I know how much tax should I pay?
The amount of tax to be paid is decided by the tax slab under which you fall. Persons whose annual income is under Rs. 2.5 lakh, will be exempt from paying tax. Similarly, those who earn between Rs. 2.5 lakh and Rs. 5 lakh will be subject to 5% tax. Moreover, those who earn between Rs. 5 lakh and Rs. 10 lakh will have to pay 20%, and the ones who earn above Rs.10 lakh will have to pay 30%. It is important to note that these rates apply for individuals who are under 60 years of age.
