Income Tax Login

What is Income Tax?

Income tax is a type of tax levied by the central government on the income earned by individuals, businesses, and other entities during a financial year. It is a direct tax, meaning it is imposed directly on the income of the taxpayer. The government uses the revenue collected from income tax to fund various development projects, provide healthcare and education services, subsidize agriculture, and implement welfare schemes for citizens.

In India, the Income Tax Act governs the rules and regulations related to income tax. The Act classifies taxpayers into different categories, such as individuals, Hindu Undivided Families (HUFs), firms, companies, associations of persons, and others. Each category is subject to different tax rates and regulations.

Types of Taxpayers

According to the Income Tax Act, everyone in India, whether a resident or a non-resident, must file income tax returns if their income exceeds a certain threshold. Currently, income tax is payable if the income exceeds Rs 3 lakh in a financial year. The categories of taxpayers are as follows:

  • Individuals
  • Hindu Undivided Family (HUF)
  • Firms
  • Companies
  • Association of Persons (AOP)
  • Body of Individuals (BOI)
  • Local Authority
  • Artificial Judicial Person

Individuals and HUFs are further classified as residents and non-residents for tax purposes. Resident individuals are liable to pay tax on their global income (income earned in India and abroad), while non-residents must pay taxes only on income earned or accrued in India.

Heads of Income

The Income Tax Department classifies income into five main heads for easier categorization:

  • Income from Salary: Income earned from salary and pension is taxable under this head.
  • Income from House Property: Income earned from renting a house property is taxable under this head.
  • Income from Business and Profession: Profits earned by self-employed individuals, businesses, freelancers, contractors, and professionals like doctors, lawyers, and chartered accountants are taxable under this head.
  • Income from Capital Gains: Surplus income from the sale of capital assets such as mutual funds, shares, house property, etc., is taxable under this head.
  • Income from Other Sources: Income from savings bank accounts, fixed deposits, lottery winnings, and other sources not covered in the above heads is taxable under this head.

Income Tax Slabs and Rates

Income tax in India is calculated based on tax slabs or tax brackets. Each tax slab has a different tax rate, and the rate increases as the taxable income increases. In the Budget 2023, the government introduced a new tax regime with revised tax slabs and lower tax rates for individuals and HUFs. 

Income Slabs Tax Rates Old vs New

Here are the current income tax slabs for individuals for the financial year 2023-24 (assessment year 2024-25) under the new tax regime:

Taxable Income

Old Tax Regime

New Tax Regime

Up to Rs.2.5 lakh

Exempted

Exempted

Greater than Rs.2.5 lakh to Rs.3 lakh

5%

Exempted

Greater than Rs.3 lakh to Rs. 5 lakh

5%

5%

Greater than Rs.5 lakh to Rs.6 lakh

20%

5%

Greater than Rs.6 lakh to Rs. 9 lakh

20%

10%

Greater than Rs.9 lakh to Rs.10 lakh

20%

15%

Greater than Rs.10 lakh to Rs.12 lakh

30%

15%

Greater than Rs.12 lakh to Rs.15 lakh

30%

20%

Above Rs.15 lakh

30%

30%

A few key points about the new tax regime:

  • For individuals with income up to Rs 7 lakh, a tax rebate of up to Rs 25,000 has been introduced, effectively making their tax liability nil if their taxable income is below Rs 7 lakh.
  • Under the new tax regime, salaried employees and pensioners can claim a standard deduction of Rs 50,000.
  • The highest surcharge rate has been reduced to 25% from 37% for individuals earning more than Rs 5 crore, bringing down their maximum tax rate from 42.74% to 39%.
  • Most deductions and exemptions are not allowed under the new tax regime, except for a few like transport allowances for specially-abled persons, conveyance allowances, and daily allowances.
  • The new tax regime will be the default tax regime, but taxpayers can opt for the old regime if it is more beneficial for them before the due date for filing returns.

It’s important to note that most deductions and exemptions are not allowed under the new tax regime, except for a few, such as transport allowances for specially-abled persons, conveyance allowances, and daily allowances.

New Income Tax Slabs as per Union Budget 2023

Income Tax Slab

Income Tax Rates Applicable for FY 2023-24 as per the new regime for HUF and all Individuals

<₹ 3,00,000

No Tax

₹ 3,00,001 to ₹ 6,00,000

5%

₹ 6,00,001 to ₹ 9,00,000

10%

₹ 9,00,001 to ₹ 12,00,000

15%

₹ 12,00,001 to ₹ 15,00,000

20%

>₹ 15,00,000

30%

Income Tax Slabs for Individuals and HUF

The recent tax reforms have introduced a uniform tax structure that applies to all individual taxpayers and Hindu Undivided Families (HUFs), marking a departure from the previous system where tax rates varied based on the taxpayer’s age. These changes were implemented as part of the Union Budget 2023. The revised tax regime for the fiscal year 2023-24 can be summarized as follows:

Tax Slabs

Income Tax Rates

Up to Rs. 3,00,000

Nil

Rs. 3,00,001 – Rs.6,00,000

5% (tax rebate under section 87A)

Rs. 6,00,001 – Rs. 9,00,000

10% (tax rebate under section 87A below Rs. 7 lakh)

Rs.9,00,001 – Rs.12,00,000

15%

Rs. 12,00,001 – Rs.15,00,000

20%

Above Rs. 15,00,000

30%

How to Know Which Income Tax Slab an Individual Fall In

To determine how much income tax you need to pay in a financial year, you must first understand which income tax slab your total taxable income falls under. The tax slab you fall into depends on the income tax regime you choose for that year.

In India, there are two income tax regimes: the old regime and the new concessional regime. You can compare the tax payable under both regimes and choose the one that benefits you more.

Under the old regime, you can claim various deductions and exemptions, such as House Rent Allowance (HRA), Leave Travel Allowance (LTA), standard deduction, and deductions under Sections 80C to 80U, if eligible. After claiming these deductions and exemptions, you arrive at your taxable income, which determines your income tax slab and the corresponding tax rate.

For example, let’s say your total income from all sources is ₹12 lakh, and you are eligible to claim deductions worth ₹2.10 lakh under Sections 80C, 80TTA, and 80CCD(1b). Your taxable income would be ₹9.9 lakh (₹12 lakh – ₹2.10 lakh). Under the old regime, this taxable income falls within the ₹5 lakh to ₹10 lakh slab, which is taxed at 20%.

On the other hand, if you opt for the new concessional tax regime, you cannot claim most deductions and exemptions. However, you can claim a standard deduction of ₹50,000 from your salary or pension income and a deduction for your employer’s contribution to your Tier-I National Pension System (NPS) account under Section 80CCD(2).

Using the same example, if your gross taxable income is ₹12 lakh and you claim a deduction of ₹2 lakh, your taxable income would be ₹10 lakh. Under the new regime, this taxable income falls within the ₹9,00,001 to ₹12,00,000 slab, which is taxed at 15%.

Remember, the income tax slabs and rates may change annually, so it’s essential to stay updated on the latest tax laws and regulations.

Surcharge on Income Tax

The government imposes an additional tax, called a surcharge, on individuals whose taxable income exceeds a certain limit. This surcharge is calculated based on the income tax amount before any other taxes or cess (additional taxes) are added. According to income tax laws, a surcharge becomes applicable if an individual’s taxable income exceeds Rs. 50 lakhs (5 million rupees).

Starting from the financial year 2023-24, the government introduced changes to the surcharge rates under the new tax regime. These new surcharge rates came into effect on April 1, 2023. It’s important to note that no further changes were announced in the interim budget for 2024. The income tax slabs, income tax rates, and surcharge rates remain unchanged for the financial year 2024-25.

Surcharge rate for FY 23-24

                      Income range

  Surcharge rate

(New Regime)

        Surcharge rate

(Old Regime)

Up to Rs 50 lakh

Nil

Nil

More than Rs 50 lakh but up to Rs 1 crore

10%

10%

More than Rs 1 crore but up to Rs 2 crore

15%

15%

More than Rs 2 crore but up to Rs 5 crore

 

25%

More than Rs 2 crore

25%

 

More than Rs 5 crore

 

37%

Health and Educational cess of 4% tax will be applicable on the sum of income tax liability and surcharges of all cases.

Certain Exceptions to the Surcharge Rates

There are certain exceptions to the surcharge rates mentioned earlier. These exceptions are:

If an individual earns income from capital gains (short-term or long-term) through the sale of equity shares and equity mutual funds, or from dividend income, the surcharge will not exceed 15%, regardless of the income range.

While understanding the concept of surcharge, one must also know about the term “marginal relief.” Marginal relief comes into play when the amount of surcharge on income tax payable exceeds the increase in income over the specified limit. Here’s an example to understand it better:

Suppose an individual has a net taxable income of Rs. 51 lakhs. Since this exceeds Rs. 50 lakhs, the surcharge will be applicable at the rate of 10%.

📌 The tax payable on Rs. 51 lakhs (without surcharge) is Rs. 13,42,500.

📌 The surcharge amount would be Rs. 1,34,250.

However, in this case, the surcharge amount (Rs. 1,34,250) is higher than the additional income above Rs. 50 lakhs (Rs. 1,00,000). This is where the concept of marginal relief kicks in.

To calculate the marginal relief:

  • Calculate the income tax payable on Rs. 50 lakhs (since no surcharge is applicable until the income exceeds Rs. 50 lakhs). This amount is Rs. 13,12,500.
  • Add the income above Rs. 50 lakhs (Rs. 1 lakh) to the income tax payable amount from step 1. The tax payable amount under marginal relief will be Rs. 14,12,500.
  • Compare the normal tax liability (before surcharge and cess) and tax liability after marginal tax relief (without cess).
    • Normal tax liability is Rs. 13,42,500.
    • Tax liability after marginal tax relief is Rs. 14,12,500.
  • The surcharge that will be applicable is Rs. 70,000 (Rs. 14,12,500 – Rs. 13,42,500).

📌 The final tax payable amount will be:

  • Tax payable amount (Rs. 13,42,500)
  • Plus surcharge (Rs. 70,000)
  • Plus cess at 4% on Rs. 14,12,500 (Rs. 56,500) = Rs. 14,69,000

There are certain situations where the higher surcharge rates of 25% and 37% will not be applied. These exceptions are:

  • Income from short-term capital gains on shares, which is taxable under Section 111A of the Income Tax Act.
  • Income from long-term capital gains on shares, which is taxable under Section 112A of the Income Tax Act.
  • Income of Foreign Institutional Investors (FIIs), which is taxable under Section 115AD of the Income Tax Act.

For these types of income, the highest applicable surcharge rate will be limited to 15%.

Additionally, there is a concept called “marginal relief” which comes into play when the surcharge amount exceeds the increase in income over the specified limit. In such cases, the surcharge amount is adjusted to provide relief to the taxpayer.

It’s important to note that the maximum rate of surcharge on tax payable on income from dividends or capital gains is capped at 15%. Furthermore, the surcharge rate for an Association of Persons (AOP) comprising companies will also be limited to 15%. These revised surcharge rates will be applicable for the Assessment Year 2024-25.

Other Exceptions to the Income Tax Slab

Not all income is taxed based on the slab system. Capital gains income is an exception. Capital gains are taxed differently depending on the type of asset and the holding period. The holding period determines whether the asset is considered long-term or short-term, and the tax rate varies accordingly.

Financial Year and Assessment Year

The financial year is the one-year period from April 1 to March 31 during which income is earned. For example, the financial year from April 1, 2023, to March 31, 2024, is referred to as FY 2023-24.

The assessment year is the one-year period immediately following the financial year when taxpayers evaluate their income earned in the previous financial year and pay taxes. For income earned during FY 2023-24, the assessment year will be AY 2024-25.

Assessee

An assessee is an individual, partnership firm, company, AOP, trust, or any other entity that assesses their income and pays tax as per the Income Tax Act.

Income Tax Forms List

There are different tax return forms (ITRs) that taxpayers in India can choose from depending on their type of income and job. Here’s a simple explanation of each form:

ITR 1

This form is for individuals who are resident Indians (not non-resident Indians), have an annual income up to ₹50 lakhs, earn income from salary, have one house property, other sources like interest, and agricultural income up to ₹5,000.

ITR 2

This form is for individuals and Hindu Undivided Families (HUFs) whose annual income exceeds ₹50 lakhs. It can also be used by individuals and HUFs who don’t have income from business or profession. Non-Resident Indians (NRIs) without business or professional income can also use this form.

ITR 3

This form is for individuals and HUFs whose annual income exceeds ₹50 lakhs and who have income from business or profession.

ITR 4

This form is for individuals, HUFs, and firms (except Limited Liability Partnerships) who are resident Indians, have an annual income up to ₹50 lakhs, earn income from business or profession calculated under specific sections (44AD, 44ADA, or 44AE), and have agricultural income up to ₹5,000.

ITR 5

This form is for entities other than individuals, HUFs, companies, and those filing ITR-7.

ITR 6

This form is for companies that have not claimed tax exemption under Section 11.

ITR 7

This form is for persons, including companies, who are required to file tax returns under specific sections of the Income Tax Act.

ITR V

This is an acknowledgment form used for verifying a tax return. It should be e-verified or signed and sent to the Centralized Processing Centre (CPC) in Bangalore if e-verification is not possible.

Different Types of Taxable Income in India

In India, the income you earn is classified into various categories for the purpose of calculating income tax. There are five main categories or “heads” of taxable income recognized by the Indian tax laws. Let’s understand each of them:

  • Income from Salaries: This category includes the income you receive from your employer in the form of salary, wages, pension after retirement, and any other allowances or benefits provided by your job.
  • Income from Business or Profession: If you are self-employed, a freelancer, or run your own business or profession, the income you earn from these activities falls under this category.
  • Income from House Property: Any income you receive by renting out, leasing, or selling a residential property is taxable under this head.
  • Income from Capital Gains: This category covers the profits you make from the sale of investments or capital assets, such as mutual funds, stocks, real estate, etc. Capital gains are further divided into two types based on the holding period: long-term capital gains (LTCG) and short-term capital gains (STCG).
  • Income from Other Sources: Any income that does not fit into the above four categories is taxed under this head. Some examples include:
    • Gifts received from TV shows or contests
    • Interest earned on fixed deposits, savings accounts, securities, bonds, and debentures
    • Dividends received
    • Income from gambling, horse racing, or lotteries
    • Gifts from friends and family (subject to certain conditions)
    • Rental income from non-residential properties
    • Pension received after the death of the pensioner