Income Tax

Income tax is an amount levied on the annual income earned by an individual. The amount of tax paid will depend on how much money you are earning annually. The tax is levied in various forms TDS/ TCS payment, and Non-TDS/ TCS payment. As per the Union Budget 2023, tax applies to all residents whose annual income is exceeding Rs 3 Lakh per annum. The highest amount of tax an individual could pay is 30% of the income including cess at 4% if the income is more than 15 lakh per annum.

According to the new tax regime, the rebate for income tax has been increased to Rs 7 Lakh from the earlier limit of up to Rs 5 Lakh, while the surcharge rate on income of Rs.5 crore and above has been decreased from 37% to 25%.

Types of Income Tax in India :

Direct Tax- It is a tax that is applied directly to the individual by the government either in the form of wealth tax or income tax.

Indirect tax is usually paid either as sales tax, Goods and Services Tax, Value Added Tax (VAT), etc.

  • They are the consumption-based taxes that are applied to goods or services at the time of making a sale or purchase
  • The Government receives Indirect tax payments from the person who sells goods and services.
  • The seller passes the tax to the end-user who is the buyer of goods and services.
  • End-user of Goods and Services do not pay taxes directly to the government.

Who all are liable to pay income tax ?

It is mandatory to file ITR for individuals if the gross income is over Rs.3,00,000 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 taxes and file their income tax returns.

  • Provident Fund:
    • It is automatically subtracted from monthly salary. Any contribution made by the employer and employee towards PF is exempted from tax. The contributions part of PF is eligible for deductions under Section 80C. Voluntary Provident Fund or VPF as it is called, is also eligible for tax deductions under Section 80C of the Income Tax Act.
  • Public Provident fund :
    • It is one of the popular instruments as it offers assured returns. Interest earned on provident fund is compounded annually. The maturity period of Public Provident Fund scheme is 15 years. The minimum investment one can make in public provident fund us Rs 500 and the maximum allowed Rs 1.5 Lakh.The amount you contribute towards PPF is eligible for tax deductions under Section 80C of the Income Tax Act.
  • Life Insurance Premium Payment:
    • If you have purchased a life insurance policy for yourself, your spouse, or your children, all the premium paid for the same annually is eligible for deduction under Section 80C of the Income Tax Act. In case you are holding multiple life insurance policy, you can club all the premiums and claim deduction up to Rs 1.5 Lakh per annum.
  • Equity Linked Saving Scheme:
    • There are some mutual fund saving schemes designed especially for the purpose of tax saving. These are known as ELSS. Investment made under the same allow investor to get deduction under Section 80C of the Income Tax Act.
  • National Savings Certificate:
    • It is also known as NSC. The maturity of the same varies between 5-10 years. The interest earned on this scheme is compounded semi-annually. The minimum amount of money that you can invest in this certificate is Rs.100 and there is no maximum limit on the amount of investment you can make in NSC. The amount you invest in National Savings Certificate comes under Section 80C of the Income Tax Act, subject to a maximum of Rs.1.5 lakh per financial year.
  • Sukanya Samaridhi Scheme:
    • Individuals can open SSY account for a girl child anytime from the date of birth to the day she turns 10 years old. The minimum amount that you can invest in the Sukanya Samaridhi scheme is Rs.1,000 and the maximum is limited to Rs.1.5 lakh in a financial year. The interest earned on SSY is calculated annually and compounded on an annual basis. The interest you accrue through this scheme is eligible for tax deductions under Section 80C of the Income Tax Act.
  • Unit Linked Insurance Plan:
    • It is also one of the popular tax-saving schemes. It not only helps in saving money but also offer tax benefits under Section 80C of the Income Tax Act.

The Deductions available under Section 80D :

  • Artificial Judicial Persons
  • Corporate firms
  • Association of Persons (AOPs)
  • Hindu Undivided Families (HUFs)
  • Companies
  • Local Authorities
  • Body of Individuals (BOIs)

Income Tax Slab under new regime for Financial Year 23-24 :

Income Tax Slab Tax Rate
Up to Rs 3 Lakh Nil
Above Rs 3 Lakh- 6 Lakh 5%
Above Rs 6 Lakh- 9 Lakh 10%
Above Rs 9 Lakh-12 Lakh 15%
Above Rs 12 Lakh-15 Lakh 20%
Above Rs 15 Lakh 30%

Existing Income Tax Slab (Old Tax Regime) :

Based on the income earned by an individual, the income tax slabs are defined. The lower is the income, the lower will be the tax liability. Any individual who is earning less than 2.5 Lakh is exempted 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.

Income tax slab for individuals less than 60 years old :

Income Tax Slab Tax Rate
Up to Rs 250,000 Nil
From Rs 250,000- Rs 500,000 5%
Above Rs 500,000 – Rs 10,00,000 20% of amount exceeding Rs 500,000
More than Rs 10,00,00 30% of amount exceeding Rs 10,00,000

Benefits of Paying Taxes in India :

  • Quick loan approvals:
    • Whenever you are applying for any loan, be it, a home loan, vehicle loan, etc., major banks can request a copy of your income tax returns. This can be ITR from the last 2-3 years. Having ITR helps you in getting higher loan amounts that too with quick approvals. The reason is that based on your ITR bank calculates your loan repayment ability. ITR states a clear picture of the income and taxes you are paying from previous years
  • Visa applications :
    • When you apply for a visa, many foreign consulates ask you to furnish your income tax returns from the previous years. ITR submission is mandatory for US, UK, Canada, and Europe. For these countries, ITR is proof that you are not leaving India to evade taxes.
  • Self-employed individuals:
    • Freelancers, consultants, partners of firms, and entrepreneurs never gets form 16. For them, their income proof is their ITR. It is a must document for them during any business transactions.
  • Government Tenders:
    • In India, if you are applying for any government tenders, then also many institutions ask you to furnish ITR as income proof to be sure that you can support well any sort of payment obligations.
  • For claiming tax refunds :
    • You can claim any refunds that are due from the IT department if you have filed income tax returns. Even if income is below the tax exemption bracket, there could be refunds from different savings instruments that can be claimed if ITRs are filed. An example is fixed deposits, on which there is tax deducted at source at 10%.
  • Compensation :
    • For all self-employed individuals, ITR receipts are furnished to claim compensation, in the event of any motor vehicle accidents, resulting in a disability or an accidental death. Through, ITR, the insurance will arrive at the appropriate compensation, the income of the person is to be established first.

How tax calculation takes place?

You can calculate income tax manually and use an online income tax calculator also. The amount of tax you are liable to pay is based on the tax slab under which you fall. For salaried employees, income tax is calculated based on their basic pay, house rent allowance, transport allowance, special allowance, and any other allowances.

Apart from that, certain components in our salary are tax exempted like leave travel allowance, telephone bill reimbursements, house rent, and home loans. Apart from these exemptions, there is a standard deduction of up to Rs.50,000.

Important Income Tax Dates 2023 :

The Important dates to remember for individuals who fall under the bracket to pay Income Tax for FY 2022-23 & AY 2023-24 is mentioned in the table below:

Important due dates Tasks needs to accomplished
Before 31st Jan Individual must submit investment proof
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
Important due dates Tax Payer category
31st July Individuals must submit their proof of investment
31st October Business firms requiring audit
30th November Business firms requiring TP report

Frequently Asked Questions

  • Who is liable to pay income tax in India?
    Any individual, group of individual or any artificial body earning more than Rs 3 Lakh have to pay tax to the government of India.
  • What form of tax is Income Tax?
    Income Tax is a kind of direct tax that is paid by the liable directly to the entity which imposes the tax. In the case of income tax, the imposing party is the government and the liable party is the one who is earning income against which the tax liability arises.
  • Why income tax is levied in India?
    The income tax fund collected used by the Government of India to meet the infrastructural expenses. It acts as a source of income to develop and take care of the nation.
  • What is the taxable income?
    Taxable income or gross income includes salaries, wages, bonuses, etc.
  • What is the tax-saving schemes in India?
    The most common tax-saving schemes are PPF, National Savings Certificate, National Pension System, ELSS schemes, etc.
  • How much income limit is tax-free in India?
    The annual income of up to Rs.2.5 lakh is tax free if you have chosen the old tax regime, while for the new tax regime, the annual income of up to Rs.3 lakh is tax free.