Income Tax

Income Tax is a direct tax that is charged on an individual’s or entity’s income. The tax is calculated on the next taxable income of the entity based on the income slabs which are pre-defined by the IT Department.

Note: You can now file your taxes through the New income tax portal. The New portal comes with a plethora of features and is designed to ease the tax filing process.

What is Income Tax?

Income tax is a tax charged on the annual income earned by an individual. The amount of tax paid will depend on how much money you earn as income over a financial year. One can proceed with Income tax payment, TDS/TCS payment, and Non-TDS/TCS payments online. All taxpayers must fill in the relevant details to make these payments. The entire process becomes simple and quick.

Income tax for FY 2020-21 applies to all residents whose annual income exceeds Rs.2.5 lakh p.a. The highest amount of tax an individual could pay is 30% of their income plus cess at 4% if their income is more than Rs.10 lakh p.a.

Who should pay Income Tax?

It is mandatory to file ITR for individuals If the gross total income is over Rs.2,50,000 in a financial year. This limit exceeds Rs.3,00,000 for senior citizens and Rs.5,00,000 for super senior citizens. The entities listed below are required to pay tax and file their income tax returns.

  1. Artificial Judicial Persons
  2. Corporate firms
  3. Association of Persons (AOPs)
  4. Hindu Undivided Families (HUFs)
  5. Companies
  6. Local Authorities
  7. Body of Individuals (BOIs)

Taxpayers and Income Tax Slab Rates

In the Union Budget 2020, the Finance Minister of India has announced a new income tax slab. However, the new income tax regime is optional, and individuals can either opt for the new regime or file their taxes as per the old regime.

Income Tax slab under New tax regime for FY 2020-21 & AY 2021-22

Income Tax Slab Tax Rate
Up to Rs.2,50,000 Nil
From Rs.2,50,001 to Rs.5,00,000 5%
From Rs.5,00,001 to Rs.7,50,000 10%
From Rs.7,50,001 to Rs.10,00,000 15%
From Rs.10,00,001 to Rs.12,50,000 20%
From Rs.12,50,001 to Rs.15,00,000 25%
Income above Rs.15,00,001 30%

Note: New income tax rates are optional

Existing Income Tax Slabs for FY 2020-21 (Alternative)

The income earned individuals will determine the income tax slabs under which they fall. The lower the income, the lower the tax liability, and those who earn less than Rs.2.5 lakh p.a. are exempt from tax.

Depending on the age of the individual, the three categories that resident individual taxpayers are divided into are mentioned below

  • Individuals who are less than the age of 60 years old.
  • Senior citizens who are above 60 years old and below 80 years of age.
  • Super senior citizens who are above 80 years old.

Here is the income tax slab for individuals who are less than 60 years old:

Income Tax Slab Tax Rate
Up to Rs.2,50,000 Nil
From Rs.2,50,001 to Rs.5,00,000 5% of the amount exceeding Rs.2.5 lakh
From Rs.5,00,001 to Rs.10,00,000 Rs.12,500 + 20% of the amount exceeding Rs.5 lakh
More than Rs.10,00,000 Rs.1,12,500 + 30% of the amount exceeding Rs.10 lakh

*An additional cess of 4% will be applicable to the tax amount calculated above.

Advance Tax

The calculation of tax liability before-hand and paying the taxes to the government accordingly is called advance tax. There are certain deadlines for the advance tax payments. These deadlines are listed below:

Due Date Advance Tax Payable
On or before 15th June 15% of advance tax
On or before 15th September 45% of advance tax
On or before 15th December 75% of advance tax
On or before 15th March 100% of advance tax

Income Tax Return

Here is all you need to know about how to file ITR online. Before you file your taxes, you will need your Form 16, provided by your employer, and any proof of investment. Using that you can compute the tax payable and refunds, if any, for the year. You can download the IT preparation software from the IT department’s website. Once you have all the documents ready, you can start the Income tax return filing process.

E-Filing Income Tax

e-Filing Income Tax Return, TDS return, AIR return, and Wealth Tax Return can be completed online on https://incometaxindiaefiling.gov.in. E-filing your return has obvious advantages like the fact that you won’t have to deal with the hassle of paperwork and waste time sorting through it all. You can simply log on to the secure website and e-file your return.

This government website also has provisions for you to submit returns, view form 26AS, outstanding tax demand, CPC refund status, rectification status, ITR – V receipt status, online application tools for PAN and TAN, e-pay your tax and even has a tax calculator.

Income tax calculation

Income tax calculation can be done either manually or by using an online income tax calculator. The amount of tax that must be paid will depend on the tax slab under which you fall. For salaried employees, income from salary includes the basic pay, House Rent Allowance (HRA), Transport Allowance, Special Allowance and any other allowances. However, certain components of your salary are tax-exempt, like Leave Travel Allowance (LTA), reimbursement of telephone bills, etc. In case HRA is part of your salary and you reside in a rented house, you are eligible to claim exemption. Apart from these exemptions, there is a standard deduction of up to Rs.50,000.

Important Income Tax Dates 2021

The Important dates to remember for individuals who fall under the bracket to pay Income Tax for FY 2020-21 & AY 2021-22 is mentioned in the table below:

Important Due Dates The task that must be completed
Before January 31 Individuals must submit their proof of investment
Before March 31 It is deadline before which any investments under Section 80C of the Income Tax Act, 1961 must be made
Before 31 July Due date to file income tax return
Between October and November Tax returns must be verified by this time

Income Tax Payment Details

Taxpayers can pay direct taxes online by using the e-Payment facility. In order to avail the online tax payment facility, taxpayers must have a net-banking account with an authorised bank. The Permanent Account Number (PAN) or Tax Deduction and Collection Number (TAN) will have to be provided for validation as well.

About Income Tax Department India

A government agency that undertakes the direct collection of tax in India is the Income Tax Department. All operations of the department are handled by the Central Board for Direct Taxes (CBDT). Individuals can get various details such as international taxation, tax laws, and rules, organizational setup, etc., on the official website of the department.

Income Tax Act

Passed in 1961, the Income Tax Act of India handles all income tax provisions as well as any tax deductions that may be applicable. Since its introduction, there have been many changes to the law because of economic situations and inflation.

Income Tax Rules in India

The legislature enacts the Income Tax Act, 1961, to administer and govern income tax in the country, but the Income Tax Rules, 1962, were created to help in the application and enforcement of the law constituted in the Act. Moreover, the Income Tax Rules can only be read in conjunction with the Income Tax Act. The Income Tax Rules are within the framework of the Income Tax Act are not allowed to override its provisions.

Income Tax Collection

Taxes are collected by the government in three primary ways:

  1. Voluntary Payment by taxpayers into designated banks, like Advance tax & self-assessment tax.
  2. Taxes Deducted at Source (TDS) which is deducted from your monthly salary, before you receive it.
  3. Taxes Collected at Source (TCS).

Under the Department of Revenue of the Ministry of Finance, the Income Tax Department (IT Department) handles monitoring the collection of Income Tax, Expenditure Tax, and various other Financial Acts that are passed every year in the Union Budget. The Central Board of Direct Taxes (CBDT) regulates the policy and planning of taxes. CBDT is also responsible for administering the direct tax laws through the IT Department. Besides to the collection of taxes, the IT department is also involved in the prevention and detection of tax avoidance.

Income Tax Forms List

If an individual needs to claim income tax refund, he/she will need to first file the income tax return. Depending on the income assessment group, the individual will need to submit one of the ITR forms listed below:

ITR Form Name Description
ITR-1 For Individuals having Income from Salaries, One house property, other sources (Interest etc.)
ITR-2 For Individuals and HUFs not having Income from Business or Profession
ITR-2A For Individuals and HUFs not having Income from Business or Profession and Capital Gains and who do not hold foreign assets
ITR-3 For Individuals/HUFs being partners in firms and not carrying out business or profession under any proprietorship
ITR-4 For individuals and HUFs having income from a proprietary business or profession
ITR-4S Presumptive business income tax return
ITR-5 For persons other than, - (i) individual, (ii) HUF, (iii) company and (iv) person filing Form ITR-7
ITR-6 For Companies other than companies claiming exemption under section 11
ITR-7 For persons including companies required to furnish return under sections 139(4A) or 139(4B) or 139(4C) or 139(4D) or 139(4E) or 139(4F)
ITR-V The acknowledgment form of filing a return of income

To file the ITR, an individual will require producing the bank statement, Form 16, and a copy of the previous years' returns. The individual will need to visit the Income Tax Department's website - https://incometaxindiaefiling.gov.in/ to register and file the returns.

Income Tax Refund 2020-21

In case you have paid more tax than your actual tax liability, you will be eligible to claim an income tax refund of the extra money you have paid. For example, if your TDS liability for FY 2019-20 was Rs.35,000 and your employer deducted Rs.40,000 instead, you can claim a refund for the additional Rs.5,000 that was deducted. You can also claim an income tax refund in case you forgot to declare your tax-saving investments and tax has been charged to you without considering your deductions. Individuals can check income tax refund status on the official website of Income Tax Department.

Income Tax Saving Investments

Declaring investments - From HRA, Life Insurance Premiums, National Savings Certificate, Leave Travel Allowance to Fixed Deposit (minimum of 5 years), ELSS Tax Saving Mutual Funds, and more, by ensuring that you have declared all your investments, you can achieve more deductions on tax. The following options can be considered for saving on income tax.

Investment options

  • Mutual funds such as Equity Linked Savings Schemes (ELSS) can be claimed for tax deduction under Section 80C. Compare to fixed deposits and PPF’s, the ELSS offers a shorter lock-in period and more benefits when it comes to making money.
  • Unit Linked Insurance Plans (ULIP) are insurance schemes that are linked to the market. The investment made under ULIP qualifies for tax deductions.

Insurance

Life insurance and health insurance - The money paid towards life insurance and health insurance policies are considering for tax deductions under Section 80C.

Home Loans

When we take a loan for buying a house or for renovation purposes, we are eligible for tax deductions up to Rs.1.5 lakh for a financial year.

You can also consider the following options for reducing tax amount on your income.

  • Fixed Deposits (FD) - An FD with a lock-in period of five years can help you save on tax while earning the interest on the deposited amount.
  • National Saving Certificate (NSC) - The NSC offers a safe and reliable method of investing money. You can deposit as low as Rs.100 for a 5-10 year lock-in period. The investments made under NSC are eligible for tax deductions.
  • Provident Fund (PF) - You can also choose to invest more amount towards your PF account that will help you reduce your taxable amount.

Income Tax Deduction Section List

Deductions for your taxable amount are available under various sections of the Income Tax Act, 1961. Deductions will have to be mentioned in the relevant ITR form at the time of e-filing income tax returns.

  • Section 80C
    Deductions under this section are only available to individuals and HUF. This section allows for certain investments like NSC, etc. and expenditures to be exempt from taxation up to the amount of Rs.1.5 lakh
  • Section 80CCC
    Deductions under this section are on payments made to LIC or any other approved insurance company under an approved pension plan. The pension policy must be up to Rs.1.5 lakh and be taken for the individual himself out of the taxable income.
  • Section 80CCD
    Deductions under this section are for contributions to the New Pension Scheme by the assessee and the employer. The deduction is equal to the contribution, not exceeding 10% of his salary.
    The total deduction available under Section 80C, 80CCC and 80CCD is Rs.1.5 lakh. However, contributions to the Notified Pension Scheme under Section 80CCD are not considered in the Rs.1.5 lakh limit.
  • Section 80D
    This is the section that deals with income tax deductions on health insurance premiums paid. In the case of individuals, the insurance policy can be taken to cover himself, spouse, dependent children – for up to Rs.15,000 and parents (whether dependent or not) – for up to Rs.15,000. An additional deduction of Rs.5,000 is applicable if the insured is a senior citizen. In the case of HUF, any member can be insured, and the general deduction will be for up to Rs.15,000 and an additional deduction of Rs.5,000.
    A total of Rs.2.0 lakh can be claimed as deductions whether the assessee is an individual or a HUF.
  • Section 80DDB
    This section is for deductions on medical expenses that arise for treatment of a disease or ailment as specified in the rules (11DD) for the assessee, a family member or any member of a HUF.
  • Section 80E
    This section deals with the deductions that are applicable on the interest paid on education loans for an education in India.
  • Section 80EE
    This section deals with tax savings applicable to first time home-owners. Applies for individuals whose first home purchased has a value less than Rs.40 lakh and the loan taken for which is Rs.25 lakh or less.
  • Section 80RRB
    Deductions with respect to income by way of royalties or patents can be claimed under this section. Income tax can be saved on an amount up to Rs.3.0 lakh for patents registered under the Patents Act, 1970.
  • Section 80TTA
    This section deals with the tax savings that are applicable on interest earned in savings bank accounts, post office or co-operative societies. Individuals and HUFs can claim a deduction on an interest income of up to Rs.10,000.
  • Section 80U
    This section deals with the flat deduction on income tax that applies to disabled people, when they produce their disability certificate. Up to Rs.1.0 lakh can be non-taxed, depending on the severity of the disability.
  • Section 24
    This section deals with the interest paid on housing loans that is exempt from taxation. An amount of up to Rs.2.0 lakh can be claimed as deductions per year, and is in addition to the deductions under Sections 80C, 80CCF and 80D. This is only for self-occupied properties. Properties that have been rented out, 30% of rent received and municipal taxes paid are eligible for tax exemption.

FAQs on Income Tax

1. Who is required to pay income tax?

Any individual or artificial body or group of individuals that earn more than the basic exemption limit are expected to pay income tax.

2. Why is income tax collected?

Income tax is collected by the government for a host of reasons which include paying off the salaries of the state and central government employees and meeting infrastructural expenses. The income tax collected by the government acts as a source of income based on which the development of the nation is taken care of.

3. What type of tax is income tax?

Income tax is a direct tax. That is, income tax is a tax that is paid by the liable entity directly to the entity which imposes the tax. In the case of income tax, the imposing party is the government while the liable party is the one who is drawing an income against which the tax liability arises.

4. Where should I invest to save income tax?

There are various instruments in which you can invest to save tax. Some of the most common options available to you include PPF, National Savings Certificate, National Pension System, ELSS schemes, etc.

5. Do you have to pay taxes if you earn income in cash?

Yes, income tax is charged even on income which is earned in cash. However, if the cash credit is unexplained, the tax is charged at a flat rate of 60% and no other tax benefits in terms of exemption are applicable. On top of that, there is a surcharge of 25% along with which a penalty of 6% is charged.

6. How much is tax free income in India?

There are two different tax regimes which are currently used in India to file income tax returns. However, the tax-free income is the same on the basis of both the old regime and the new regime. In both cases, annual income of up to Rs.2.5 lakh is tax free.

7. Is the due date for filing income tax returns the same for all taxpayers?

All individuals and assessees who do not require their accounts to be audited will have to file their income tax returns by July 31. However, companies, individuals and working partners of firms whose accounts must be audited are required to file their income tax returns by September 30. Assessees who are required to submit a report under Section 92E of the Income Tax Act must file their returns by November 30.

News about Income Tax India

  • Gujarat govt. approves increase of 11% in dearness allowance

    On Monday, Gujarat government approved an increase of 11% in dearness allowance to state government employees and pensioners. The increase saw DA rate jump to 28% which was at par with the one being provided to central government staffers and pensioners. The new rate shall come into effect from July 1. The move to increase DA rate in the state will benefit some 9.61 lakh state government and panchayat employees, as well as 4.5 lakh pensioners covered under the 7th Pay Commission and will reflect in the salary of September. It needs to be mentioned here that the arrears of July and August shall be paid in the months of October and January.

    9 September 2021

  • Last date to file IT returns extended to December 31

    Due to the pandemic and persistent technical problems faced by taxpayers in the official website, the deadline for filing Income Tax returns has been extended till December 31. This was informed by the government on Thursday. Usually due by the end of July, the date was extended to September 30 in the month of May.
    The Central Board of Direct Taxes (CBDT) has also decided to extend the due dates of various reports of audit for the Assessment Year 2021-22. The last date of ITR filing for companies have been extended till February 15, 2022 from November 30, 2021 while the due dates for filing the tax audit report and transfer pricing certificate has been extended to January 15, 2022 and January 31, 2022 respectively. For filing belated or revised return of income, the deadline has been extended by another two months to March 31, 2022.
    It needs to be mentioned here that for the 2020-21 fiscal, the government had given taxpayers the option to choose a new tax regime under section 115BAC of the IT Act.

    10 September 2021

  • Income Tax Department Says Will Refund Extra Fee, Excess Amount

    Taxpayers will be repaid any excess amount or late fee assessed by the new Income Tax site for filing your income tax return (ITR) for the fiscal year 2020-21. The Income Tax Department announced this.

    16 August 2021

  • Income Tax Department Launches Dedicated Emails for Taxpayer’s Complaints

    The Income-Tax (I-T) department announced on Saturday, 7 August 2021 that the central government has created three dedicated email addresses for income taxpayers to express issues relating to faceless tax assessments, penalties, and appeals. According to the department, the move is intended to improve services in accordance with the taxpayers' charter. The three email addresses created are
    samadhan.faceless.penalty@incometax.gov.in,
    samadhan.faceless.appeal@incometax.gov.in, and
    samadhan.faceless.assessment@incometax.gov.in.

    11 August 2021

  • Income Tax Amendment Bill that Scraps Retrospective Taxes is Introduced in Lok Sabha

    A new bill has been introduced in Lok Sabha that will work to amend Income Tax rules and eliminate retrospective taxation. India introduced the new Income Tax amendment bill after losing retrospective tax demand cases against Cairn Energy Plc and Vodafone. While India has appealed the decisions in both cases, the subject of retrospective taxation has sparked a lot of debate in the country. The new bill intends to eliminate retrospective taxes from the Income Tax Act of 1961. According to the bill, no tax demand will be raised based on the stated retrospective amendment for any indirect transfer of Indian assets in the future, if the transaction was made before 28 May 2012.

    09 August 2021

  • Income tax can be filed at post office

    The process to file your Income tax return (ITR) will become easier as the India Post is now allowing the taxpayers the option to file their ITR at the nearest post office's Common Services Centres (CSC) counters. The announcement was made by the India Post on their Twitter handle bringing a huge relief to a large number of salaried income tax payers in India.
    The India Post on its Twitter handle announced that taxpayers can now visit their nearest post office CSC counters to file their IT returns.
    Post Office’s CSC counters in India functions as a single access point for Indians to avail various financial services like banking, postal, and insurance services. A person can enjoy various other government benefits and information through these Post Office CSC counters. The Indian Government also offers different types of e-services to the citizens of India under its Digital India programme.

    19 July 2021

  • Income Tax deadline under Vivad se Vishwas scheme extended for 2 months

    Minister of State for Finance Anurag Thakur on Friday announced that payment without interest under Vivad se Vishwas Scheme has been extended has been granted for two months from 30 June to 31 August. The date of linking PAN with Aadhaar card has been extended from 30 June to 30 September 2021.
    Earlier the date for making payment under Vivad se Vishwas scheme was extended by two months till 30 June. Thakur said that said the scheme can be closed in the next two months with interest by 31 October 2021.
    Thakur also said that those who are investing in residential houses will receive an extension of three months on their tax deductions up to 30 September 2021.

    28 June 2021

  • Tax relief for ex-gratia payment and Covid-19 treatment

    The Central Government of India announced that the amount received by employees as help from their employers as help for the treatment of Covid-19 will be exempted from being taxed. Also, in case an employee expires, the ex-gratia amount received by their family will also be exempted from being taxed.

    In case of ex-gratia payment, amount up to Rs.10 lakh will not be taxable.

    28 June 2021

  • FM announces Tax Relief for Senior Citizens 75 years and above

    Finance Minister Nirmala Sitharaman during the Union Budget 2021 announced tax relief for senior citizens aged 75 years and above.

    The Finance Minister of India announced that senior citizens who only have pension and interest income are exempted from filing income tax returns.

    In other tax related news, Sitharaman also announced that the time limit to reopen the assessment procedure is reduced from 6 years to 3 years under the Income Tax Act.

    05 February 2021

  • Union Budget 2021 – Income Tax Appellate Tribunal to be ‘faceless

    The Union Budget 2021 was announced on 1 February 2021 by the Finance Minister Nirmala Sitharaman. In the announcement, the FM announced that going forward the Income Tax Appellate Tribunal will be ‘faceless’.

    In simple terms, the Income Tax Appellate Tribunal will go online and all the procedures in this regard will be carried out electronically. The proposal was made to turn the entire mechanism in to an electronic one wherein the process will be made easier, simpler, and hassle-free.

    4 February 2021

  • Government creates a special unit in the IT department to probe undisclosed foreign assets

    A special unit has been created in the Income Tax department by the government for a probe in the cases of undisclosed foreign assets which are held by Indians abroad along with the possession of black money in foreign countries.

    The Foreign Asset Investigation Unit has been recently created in the 14 investigation directorates of the IT department located in various parts of India. They will be tasked with undertaking raids, seizures and gather intelligence to check for any kind of tax evasion by the people.

    69 existing posts in the IT department were diverted to create this unit by the Central Board of Direct Taxes in November 2020. The unit was officially created after the approval of the Union Finance Minister, Nirmala Sitharaman.

    12 January 2021

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