The Income Tax Department of India breaks income into 5 different sub-categories. There are also different income tax slabs, tax rebates, and tax refunds that are important to understand to be compliant with the law.
The Income Tax or IT department is essentially responsible for monitoring the inflow of taxes and their subsequent collection by the Indian Government. The IT department falls under the jurisdiction of the Department of Revenue under the Finance Ministry.
The Income Tax Department of India is supposed to administer the following direct tax acts pronounced by the Parliament of India:
- The Income Tax Act of 1961
- The Expenditure Act of 1987
- Multiple Finance Acts passed in every year’s Budget session
The Predominant Nature of Your Income
Any individual, whether a resident or an NRI, whose place of origin is India and who gets a salaried income in India falls into the slab of IT and is therefore eligible for tax payment. This income could materialise in any form - pension, salary, or a savings account with a good interest rate. Additionally, individuals such as reality TV show winners are also required to pay tax on the sum of money they receive from the program.
For a better understanding, let’s break the nature of your income falling under the Income Tax Department into 5 sub-categories:
- If you have a salaried income, your pension and salary will fall into this category.
- If you are earning from other sources, remunerations from fixed deposits, interest on your savings account, etc. will fall into this category.
- If you have a real estate or a property, it falls into the category of rental income.
- If you are gaining from capital investments, your earnings from selling these assets in the form of market shares, house property and mutual funds shall fall into this category.
- If you are an entrepreneur or a businessman, you fall into the category of “self-employed individuals”. Lawyers, doctors, CAs, and teachers encompass this category.
Income Tax Department e-Filing
- Registration: For e-filing your IT return, the first step would be registering yourself on the website of the Income Tax Department. Enter your PAN card details along with your birth date. Your PAN number acts as your username in this case.
- Mode of e-filing: Primarily, there are 2 ways of e-filing that you can use. First is the offline method, wherein you download the form from the website, fill it up and upload it back on the site. Or, promptly choose the e-file option on the website if you want to fill the form online.
- Choose the required form: This depends entirely on the nature of your income. Refer to the aforementioned points determining the nature of your income to get a better understanding of your remunerations. Choose a form accordingly.
- Documents must be within immediate reach: PAN card, certificates of your TDS, statement of interests, Form 16, Home loans and investment details are considered as mandatory documents while filing an income tax return. Thereafter, make sure you validate your tax return to check your liability by downloading Form 26AS.
- Upload the form once you’re done filling: This is again depends on your choice of the mode of filing. If you choose to fill the form online, there will be no hassle of downloading and saving a copy separately. Alternatively, if you are filling out the form offline, download a copy first, fill up all the sections (do not leave anything blank), then click on the option ‘Generate XML’. Once you are done filling it up, cross-check for any discrepancies. After that, go to the ‘Upload XML’ option and submit your file.
- ITR-V Verification: Once you submit your ITR form, you will get an acknowledgment number. If you have used digital signature while filing the return, make sure to preserve this number. If not, an ITR-V will be procured and sent to your ID.
The nature and structure of the Income Tax Department of India undergo minimal changes every year. Make sure you are thoroughly aware of all the information before you begin to file your returns.
Income Tax Slabs
If you are an Indian citizen and are working in the Indian marketplace, by now you must be aware that each person’s income falls under a certain tax bracket. These brackets are termed as “tax slabs”. Each tax slab offers a different rate of tax. This pursuit is of utmost importance when you are filing IT returns during a financial year.
India is gradually increasing its tax rates and for better comprehension, let us look at these brackets by breaking them into classifications:
- If you are earning up to Rs.2.5 lakh, you owe zero tax to the Government.
- If your remuneration is between Rs.2.5 and Rs.5 lakh, your tax rate will be 5%.
- If your earning falls between Rs.5 lakh to Rs.10 lakh, an amount of Rs.12,500 along with a 20% deduction (for earners above Rs.5 lakh) will be made.
- If you are earning more than Rs.10 lakh, you will be eligible to a 30% tax rate.
The Financial year 2017-18 saw the above-mentioned tax brackets. The existing tax groupings may undergo alterations during the next financial year.
Tax Rebate Under Section 87A
If you are a resident of India, you will undoubtedly be eligible to a tax rebate offered under Section 87A of the Income Tax Act. However, this comes along with its own set of terms and conditions. If your taxable income does not exceed the amount of Rs.3 lakh, then you will be eligible to a Rs.2,500 benefit or the tax amount, whichever is lesser!
If you are required to pay taxes up until the allowed rebate limit, then you will not have to pay any additional charges for towards the amount, provided you have taken the benefit already! In order to avail the complete rebate amount, your total taxable income of the returns filed will have to be till Rs.3.5 lakh, pertaining to fiscal year 2020-21 and assessment year 2021-22.
Who all can claim a refund under Section 87A for assessment year 2020-21?
The following set of individuals will be eligible to claim a tax rebate under Section 87A:
- If you are a resident individual
- If your total taxable income does not exceed Rs.3.5 lakh
What is the total amount of Rebate that is allowed under this section?
The computation of how much rebate you are eligible to under Section 87A is pretty simple. You are eligible to a tax exemption upto the basic exemption limit. However, in case your total payable taxes are less than the basic exemption limit, the amount of your exemption will only be restricted to the lower amount of payable tax! In a nutshell, it can be stated that
Tax Rebate under Section 87A will only allowed for:
- 100% of the total payable tax and
How to calculate Rebate under Section 87A?
Mentioned below are a few steps that might assist you in calculating your total tax rebate under this section.
- First and foremost, compute how much your Net Gross Total Income stands at.
- Subtract the exemptions that falls under Section 80C all the way to Section 80U.
- After this, subtract the basic limit of exemption from your total taxable income. This exemption limit stands at Rs.2.5 lakh for the financial year 2017-18.
- Refer to the income tax slabs in order to compute your total payable taxes.
- Minus the rebate amount from this figure that you computed in the step above.
- The end figure is how much rebate you are eligible for.
Let us understand the computation better with an example:
Mr. Diniz has a total taxable income of Rs.3.45 lakh, and he wants to compute the amount of rebate that he is eligible for.
|TTI (total taxable income)||Rs.3.45 lakh|
|Basic Limit of Exemption||Rs.2.5 lakh|
|Tax that is payable at 5%||Rs.4,750|
|Less: Relief offered under Section 87A||Rs.2,500|
|Total balance that is payable||Rs.2,250|
|Add: Educational and Secondary Education Cess Charge||67.5|
|Final Amount of tax that is payable||Rs.2,317.50|
|Round the figure||Rs.2,320|
Rebate Amounts under Section 87A for the Preceding Financial Years:
|Rebate Under Section 87A||Financial Year 2016-17||Financial Year 2017-18||Financial Year 2018-19|
|TTI or Total Taxable Income Will be Up to||Rs.5 lakh||Rs.3.5 lakh||Rs.3.5 lakh|
|Rebate (maximum rebate) under Section 87A||Rs.5,000||Rs.2,500||Rs.2,500|