An Overview of Income Tax

Last Updated On: June 7, 2021, 7:32 p.m.
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AN OVERVIEW OF INCOME TAX

The Income Tax is a Direct Tax that which you pay directly to the government based on your Income/ profit. The government with the tax collected by us provides various services to public, develops infrastructure, defence spending and subsidies among other options.

Not everyone is bound to pay tax under Income Tax act. If your is Income beyond certain limit, it is mandatory to pay Income Tax every year. Let us get to know about the limit in detail.

 

Features of Income Tax:

Below are the highlightened features of Income Tax in India:

a. Tax on Person:

It is a tax on income earned by a person. The term 'person' has been defined under the Income tax Act. It includes individual, HUF, Firm, Company, local authority, Association of person or body of Individual or any other artificial juridical persons. The persons who are covered under Income tax Act are called 'assessees'.
 

2. Tax on Income:

It is a tax on income. The Income tax Act has defined the term income and it includes salary income, house property income, business/profession income, capital gains and other sources income. However, there are certain incomes which are specifically exempt from income tax.  

 

 3. Levied as per the Constitution:

Income tax is levied in India by virtue of entry 82 of I (Union List) of Seventh Schedule to the Article 246 of the Constitution of India which authorizes the Central Government to impose tax on income other than agricultural income".

 

4. Levied by Central Government:

Income tax is charged by the Central Government on all income other than agricultural income. However, the power to charge income tax on agricultural income has been vested with the State Government as per Entry 46 of List II, i.e., State List.

 

5. Direct Tax:

Income tax is a direct tax. This means that the liability to deposit and ultimate burden are on the same person. The person earning income is liable to pay income tax out of his own pocket and cannot pass on the burden of tax so paid on the persons from whom the income has been earned.

 

6. Annual Tax:

Income tax is an annual tax because it is the income of a particular year which is chargeable to tax.

 

7. Income of 'Previous Year' is assessable in 'Assessment Year':

Income earned during a particular financial year is taxed in the immediately following financial year. The year of earning income is called 'Previous Year' and the year in which assessment of income is done is called 'Assessment Year'. The return of previous year's income is filed in the relevant assessment year
 

Who are Taxpayers in India?

In India, every citizen whose annual income is above Rs.2,50,000 (individual) and Rs.3,00,000 ( senior Citizen). In addition to individuals, entities such as Hindu Undivided Family (HUF), Body of Individuals (BOI), corporate firms, companies, Artificial Juridical Persons, local authorities and Association of Persons (AOP) also pay income tax.

 

INCOME TAX SLAB RATES:

The Income Tax you need pay is based on your Annual Income. New Tax Regime was introduced in the Budget 2020.

Below table gives you the Comparision between Old Tax Regime and New Tax Regime.

Tax Slabs Old Tax Regime New Tax Regime
Up to Rs. 2,50,000 Nil Nil
From Rs. 2,50,000 - 5,00,000 5% 5%
From Rs. 5,00,000 - 7,50,000 20% 10%
From Rs. 7,50,000 - 10,00,000 20% 15%
From Rs. 10,00,000 - 12,50,000 30% 20%
From Rs. 12,50,000 - 15,00,000 30% 25%
Above Rs. 15,00,000 30% 30%

 

From F.Y 2020-21, taxpayers shall have the option to choose between the existing taxation system and the new regime. The new system has revised the income slabs and reduced the rates thereon. Another major change in the new scheme is that many of the deductions and exemptions generally applicable in the old tax regime are no longer valid. Nearly 70 of the 100 or so existing deductions and exemptions are to be scrapped in the new regime. Taxpayers can compare their tax liabilities under the two systems and opt for the one that’s most beneficial to them.

 

Existing Deductions under Income Tax Act 1961

According to the Income Tax Act 1961, you can claim deductions under the following sections:

1. Section 80C to 80: Under Section 80C, 80CCC & 80CCD of the Income Tax Act 1961, you can reduce your taxable income by 1,50,000

2. Section 80CCD: Section 80CCD of the Income Tax Act, 1961 focuses on income tax deductions that individual income tax assesses are eligible to avail on contributions made towards the New Pension Scheme (NPS) and Atal Pension Yojana (APY)

3. Section 80D: Under section 80D, you can claim income tax deduction for medical expenses and health insurance premiums

4. Section 80DD: Tax deduction under Section 80DD of the Income Tax Act can be claimed by individuals who are residents of India and HUFs for the medical treatment of a dependant with disability(ies) or differently abled

5. Section 80DDB: Tax deductions under section 80DDB of Income Tax Act 1961 can be claimed for medical expenses incurred for medical treatment of specific illnesses

6. Section 80TTA: Section 80TTA provides a deduction of Rs 10,000 on interest income. This deduction is available to an Individual and HUF.

7. Section 80U: Under Section 80U, physically disabled persons can claim deductions up to Rs.1,00,000.

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