Taxation
Complete Guide on Income Tax in India
5 min read
•
Nov 14, 2022
Table of contents
Income tax is the percentage of your income, which you are liable to directly pay to the Government. The Government uses such tax to make developments in the field of infrastructure, health, rural, defence, etc. and pay central and state government employees.
The Income Tax Act of India passed in 1961 governs the provisions for income tax and applicable deductions. The law regulating income tax in India has been amended multiple times since 1961 to take care of inflation and socio-economic situations.
Taxpayers and tax rates:
Income tax slab rates are defined as per the earnings of the taxpayers. The tax rule applies to all residents whose income exceeds INR 2.5 lakh annually. The highest tax rate is 30% plus 4% education cess if the income is more than INR 10 lakh p.a.
The tax is payable by the following:
- Individuals
- Hindu Undivided Families (HUFs)
- Body of Individuals (BOI)
- Association of Persons (AOP)
- Companies
- Firms
During the Union Budget 2020, the finance minister announced a new tax slab, which is optional. It is completely a taxpayer’s choice whether he/she wants to opt for a new or old tax regime. The Taxpayer can evaluate both the regimes and then make a choice.
The following table shows the applicable tax slab rates as per the new and old tax regime
| Income Tax Slabs | Old Tax Regime | New Tax Regime | ||
| Individuals and HUF under the age of 60 years | Individuals & HUF above the age of 60 years but less than 80 years | Individuals above the age of 80 years | Applicable for all Individuals and HUF | |
| INR 0.0 - INR 2.5 lakh | 0 | 0 | 0 | 0 |
| INR 2.5 - INR 3.00 lakh | 5% | 0 | 0 | 5% |
| INR 3.00- INR 5.00 lakh | 5% | 5% | 0 | 5% |
| INR 5.00 - INR 7.5 lakh | 20% | 20% | 20% | 10% |
| INR 7.5 - INR 10 lakh | 20% | 20% | 20% | 15% |
| INR 10.00 lakh - INR 12.50 lakh | 30% | 30% | 30% | 20% |
| INR 12.5 lakh - INR 15.00 lakh | 30% | 30% | 30% | 25% |
| More than INR 15 lakh | 30% | 30% | 30% | 30% |
With the New Tax Regime, several exemptions and deductions have been removed. Some of them include house rent allowance, leave travel allowance, professional tax, deductions u/s 80TTA and 80TTB, among others. On the other hand, taxpayers can avail offers, deductions and exemptions under the Old Tax regime.
Surcharge at below rates is also applicable under old and new regime if income exceeds INR 50 lakh p.a.
| Income tax Slab | Surcharge Rate |
| INR 50 lakhs to INR 1 crore | 10% |
| INR 1 crore to INR 2 crore | 15% |
| INR 2 crore to INR 5 crore | 25% |
| INR 5 crore to INR 10 crore | 37% |
| More than INR 10 crore | 37% |
Example of Income Tax Computation as per the New and Old Tax Regime
Let’s understand the income tax computation as per the Old and New Tax regime. Suppose an individual’s annual income is INR 10,00,000, so here’s how the tax calculation would be:
| Particulars | Old Tax Regime (Rs) | New Tax Regime (Rs) |
| Gross Income | 10,00,000 | 10,00,000 |
| Deductions: | ||
| U/Sec: 80C | 1,50,000 | - |
| U/Sec: 80D | 25,000 | - |
| U/Sec: 24(b) | 75,000 | - |
| Taxable Income | 7,50,000 | 10,00,000 |
| Old Tax Regime | New Tax Regime | |||
| Income Tax slab | Tax Rate | Tax | Tax Rate | Tax |
| Up to INR 2,50,000 | 0 | 0 | 0 | 0 |
| Froom INR 2,50,000 to INR 5,00,000 | 5% | 12,500 | 5% | 12,500 |
| From INR 5,00,000 to INR 7,50,000 | 20% | 50,000 | 10% | 25,000 |
| From INR 7,50,000 to INR 10,00,000 | - | - | 15% | 37,500 |
| Education Cess | 4% | 2500 | 4% | 3000 |
| Total Tax Payable | 65,000 | 78,000 | ||
Whether you want to opt for a New or Old Tax Regime, it is recommended that you do a comparative analysis before you file your taxes.
How is the income tax collected?
The Government collects income tax in India in majorly three ways:
1. Taxes Deducted at Source or TDS
TDS, as the name implies, is the tax deducted at the source itself. For example, if you are a salaried employee, TDS will be deducted from your salary and given to the government as per your income tax slab.
Apart from salary, TDS is also deducted from rent income, interest payments, commission, professional fees, etc. Depending on the entity deducting TDS, you will receive Form 16 or Form 16A with information about the deducted tax, which you will need while filing your income tax returns.
2. Taxes Collected at Source or TCS
Sellers of goods collect TCS from buyers. Section 206C of the IT Act details all the goods for which TCS is applicable. The TCS rates are dependent on the product sold.
Note that here the seller is not paying any tax but collecting it from the buyers and passing it on to the government. Post collection of TCS, Sellers are required to issue the certificate in Form 16A with information about the collected tax, which you will need while filing your income tax returns.
3. Online or offline tax payments
While the TDS is deducted at source and TCS collected by goods sellers, there are other types of taxes like Regular Assessment Tax, Self-Assessment Tax, and Advance Tax that you might be required to pay to the government online or offline using Challan 280.
You can visit the TIN NSDL website to pay these taxes online or pay the same offline at one of the designated bank branches enlisted by the IT department.
Disclaimer
“This blog has been prepared to provide the readers with general information and basic understanding. The Income tax definitions and rules keep on changing, so it is suggested that the readers cross-check all the facts and contents of the material. Before taking any decisions, please consult your tax advisors.”
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