INCOME TAX


 



Income tax is an unavoidable part of life for every earning individual and business in India. Whether you're a salaried professional, a freelancer, or a business owner, you are required to pay income tax on your earnings. However, many people find the concept of income tax confusing—what exactly is income tax, how is it calculated, and how can one legally reduce their tax liability?

This blog will provide a comprehensive guide to income tax in India, covering its definition, tax slabs, deductions, and how you can file your tax returns smoothly. By the end of this post, you'll have a clear understanding of how income tax works and how you can optimize your tax payments.

What is Income Tax?

Income tax is the amount of money that individuals and businesses pay to the government based on their earnings. The government uses these funds to provide public services like infrastructure, healthcare, education, and defense.

In India, income tax is governed by the Income Tax Act, 1961, and is collected by the Central Board of Direct Taxes (CBDT) under the Ministry of Finance. The tax is imposed on different categories of taxpayers, including:

  • Individuals

  • Hindu Undivided Families (HUFs)

  • Companies

  • Partnership firms

  • Limited Liability Partnerships (LLPs)

  • Associations of Persons (AOPs)

  • Trusts and NGOs with taxable income

The tax is calculated based on the taxpayer’s total income for the financial year (FY), which runs from April 1 to March 31.

Who Needs to Pay Income Tax?

If your total income exceeds the basic exemption limit, you are required to pay income tax. The exemption limits vary under the old tax regime and the new tax regime introduced in Budget 2020.

Basic Exemption Limits

Taxpayer Category

Old Tax Regime

New Tax Regime

Individuals below 60 years

₹2,50,000

₹3,00,000

Senior citizens (60-80 years)

₹3,00,000

₹3,00,000

Super senior citizens (80+ years)

₹5,00,000

₹3,00,000

If your annual income is below the exemption limit, you do not need to pay any income tax. However, filing an Income Tax Return (ITR) is still recommended as it helps in loan approvals, visa applications, and other financial matters.

Sources of Taxable Income

The Income Tax Act classifies taxable income into five major heads:

1. Income from Salary

This includes wages, bonuses, pensions, and other employment-related earnings. If you are a salaried employee, your employer deducts Tax Deducted at Source (TDS) before paying your salary.

2. Income from House Property

If you earn rental income from residential or commercial property, it is taxed under this category. You can claim deductions on municipal taxes and home loan interest.

3. Income from Business or Profession

This applies to profits earned from businesses, freelancing, or professional services (doctors, lawyers, accountants, etc.). Business owners must maintain proper records of income and expenses.

4. Income from Capital Gains

This includes profits from selling assets like land, buildings, stocks, or mutual funds. Capital gains are categorized as:

  • Short-term capital gains (STCG) – Holding period is less than 36 months (or 12 months for stocks).

  • Long-term capital gains (LTCG) – Holding period is more than 36 months.

5. Income from Other Sources

Any income that does not fall under the above categories, such as interest on savings accounts, fixed deposits, dividends, lottery winnings, and gifts, is taxed under this head.


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Income Tax Slabs for FY 2024-25

Income tax in India is levied based on different slabs. The new tax regime has lower tax rates but removes most deductions and exemptions, while the old tax regime allows more tax-saving options.

New Tax Regime (FY 2024-25)

Income Slab (₹)

Tax Rate (%)

0 - 3,00,000

Nil

3,00,001 - 6,00,000

5%

6,00,001 - 9,00,000

10%

9,00,001 - 12,00,000

15%

12,00,001 - 15,00,000

20%

Above 15,00,000

30%

Old Tax Regime (FY 2024-25)

Income Slab (₹)

Tax Rate (%)

0 - 2,50,000

Nil

2,50,001 - 5,00,000

5%

5,00,001 - 10,00,000

20%

Above 10,00,000

30%

A rebate under Section 87A is available for individuals with income up to ₹7 lakh under the new tax regime and ₹5 lakh under the old tax regime, making them tax-free.

Tax Deductions and Exemptions

Taxpayers under the old tax regime can claim various deductions to reduce taxable income. Here are some common ones:

1. Standard Deduction

A flat ₹50,000 deduction for salaried individuals and pensioners.

2. Section 80C – ₹1,50,000 Limit

Deductions for investments in:

  • Provident Fund (EPF/PPF)

  • Life Insurance Premium

  • National Savings Certificate (NSC)

  • Tax-saving Fixed Deposits

  • Equity Linked Savings Scheme (ELSS)

  • Tuition fees for children

3. Section 80D – Medical Insurance

  • ₹25,000 deduction for self and family

  • ₹50,000 deduction for senior citizen parents

4. Section 24(b) – Home Loan Interest

  • Up to ₹2,00,000 deduction on home loan interest.

5. Section 80G – Donations

  • Deductions for donations to approved charities and NGOs.

How to File Your Income Tax Return (ITR)?

Filing your ITR is easy if you follow these steps:

Step-by-Step Process

  1. Collect Documents – Gather Form 16, bank statements, investment proofs, and other relevant documents.

  2. Select the Correct ITR Form – Different forms exist for salaried individuals, business owners, and companies.

  3. Login to the Income Tax Portal – Visit www.incometax.gov.in.

  4. Enter Income and Deduction Details – Fill in your earnings, deductions, and exemptions.

  5. Verify Tax Liability – Check your tax calculations with Form 26AS.

  6. Pay Any Pending Tax – If applicable, pay tax before filing.

  7. Submit and Verify – Use Aadhaar OTP, net banking, or send ITR-V to CPC Bangalore for verification.

Penalties for Not Filing ITR

  • Late Filing Fees – ₹1,000 to ₹5,000 under Section 234F.

  • Interest Charges – Interest under Sections 234A, 234B, and 234C.

  • Loss of Refunds – If you are eligible for a refund, you must file an ITR to claim it.

  • Legal Consequences – Severe non-compliance can lead to prosecution.

Conclusion

Understanding income tax laws is crucial for proper financial planning. Whether you're a salaried professional, a business owner, or an investor, knowing how to save taxes and file returns correctly can help you avoid penalties and optimize your tax liability.

Need help with tax planning or filing? NGO RC Tax Consultancy is here to guide you! Contact us for expert advice and hassle-free tax filing services

https://www.rctaxconsultancy.com/



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