Income Tax

Governments levy income taxes directly on the annual income and profits that people and businesses make. It is based on a person's or organization's net taxable income for the relevant financial/fiscal year, which runs from April 1 through March 31 of the following calendar year.

To whom must income tax be paid?

Any individual or corporation with income, regardless of the amount received, is required to file income tax returns under the current rules of the IT Act. However, at the moment, only if a fiscal year's net taxable income exceeds Rs. 2.5 lakh is tax on income due. The main categories of people and companies that must pay taxes if their net taxable income for FY 2022–2023 exceeds the established ceiling are as follows:

• Salaried individuals
• Self-employed individuals
• Self-employed professionals
• Hindu Undivided Family (HUF)
• Legally recognised artificial persons
• Body of Individuals (BOI)
• Association of Persons (AOP)
• Companies and corporate firms
• Local Authorities

What are Slab Rates for Income Tax?

In India, income is taxable based on established income tax slab rates that change depending on the tax assessee's net annual income. The progressive structure of the income tax slab rates means that they rise as an individual's net annual income rises. The income tax slab rates are subject to change from time to time and are disclosed as part of the Union Budget. The following are the income tax slab rates for the assessment year 2023–2024, or the financial year 2022–2023:

Income Tax Slab for Individuals

General Category (Less than 60 years):

Senior Citizens (60 years and above but below 80 years):

Very senior citizens (80 years and above):

Note:

• Between ₹ 50 Lakh to ₹ 1 Crore – A surcharge of 10% of the income tax has to be paid as well.
• Between ₹ 1 Crore to ₹ 2 Crore – A surcharge of 15% of the income tax has to be paid as well.
• Between ₹ 2 Crore to ₹ 5 Crore – A surcharge of 25% of the income tax has to be paid as well.
• Above ₹ 5 Crore – A surcharge of 37% of the income tax has to be paid.
• Maximum rate of surcharge on income from dividends or income under the provisions of Sections 111A, 112A and 115AD is 15%
• 4% of the income tax has to be paid as Health and Education Cess by all taxpayers irrespective of the slab they fall into.

Income Tax Slab for Businesses

For co-operative societies:

For Firms and Domestic Companies

• Local governments, businesses, and domestic companies are exempt from the slab rates.
• The whole revenue is multiplied by a flat 30% tax rate.
• Domestic businesses are subject to a 7% surcharge if their annual revenue exceeds Rs. 1 Crore.
• Domestic enterprises are subject to an additional 12% tax if their annual revenue exceeds Rs. 10 crore.
• Such entities are additionally subject to an education cess of 3% of tax plus an additional surcharge.

Filing Returns is Mandatory

• Activities connected to the taxation process fall within the purview of the income tax department.
• Every tax payer must submit a form that has been specified by the Indian government to the IT Department at the conclusion of the fiscal year to disclose their income.
• It is required of all people and organisations generating money in India to file a return, regardless of whether tax was withheld at the source.
• The income earned during a specific fiscal year is summarised on this ITR (Income Tax Return) Form.
• The income may come from a business, a salary, a pension, a rental property, or even capital gains.

Avoiding Penalties

• You can let the government know about your earnings and the tax you've paid on them by submitting an ITR form (Income Tax Return form).
• The Income Tax Return you file serves as evidence of the earnings for which you have made tax payments.
• The Income Tax Act mandates that ITRs be filed annually.
• Not filing an ITR could have detrimental effects. You can be viewed as a tax defaulter by the IT department.
• Not filing an ITR could have detrimental effects. You can be viewed as a tax defaulter by the IT department.
• The Income Tax Department may impose penalties.
• If you have paid more tax than necessary, you will receive a refund for the extra money.

What are the various Taxable Income Types?

The following are the main types of income that are currently subject to taxation at the corresponding rates under the Income Tax Act of 1961:

• Income from Salary
• Income from Capital Gains
• Income from House Property
• Income from Business
• Various sources of income include dividend payments and other legal forms of gaming.

Advantages of Filing Income Tax Return (ITR)

A person with taxable income is required to file tax returns. You are exempt from paying income tax if you are under 60 years old and earn up to 2.5 lakhs. Many paid people have been seen to believe that because their employer has withheld tax at source, their obligation is complete. Income tax payment and IT return filing are two different responsibilities. You must file your income tax returns even if you have no tax liability. Filing tax returns has a number of benefits, including:

• makes loan processing simple.
• Return filing is necessary for the processing of VISAs.
• It is feasible to register movable property quickly.
• The bank won't offer a credit card unless the applicant consistently files his returns
• Making income tax returns helps the Income Tax Department establish a record.

Filing Income Tax Returns

The Income Tax Act states that filing income tax returns is required if:

• If your gross total income is over ₹ 2,50,000 in a financial year. This limit exceeds to ₹ 3,00,000 for senior citizens and ₹ 5,00,000 for citizens who are above 80 years.
• You exist as a company irrespective of whether you witness a loss or profit.
• You look forward to claiming an income tax refund.
• Filing income tax return is mandatory if you are a resident of India and you have assets outside India.
• If you get income from a property held in trust for charitable or religious reasons, or if it is used by a news organisation, political party, research organisation, educational institution, or medical facility.
• In case of NRIs, income earned in India is taxable.

E-filing Income Tax

• The Income Tax Department initially made use of the e-filing function in the fiscal year 2006–2007.
• All assessees are now able to take advantage of e-filing.
• For businesses and organisations that fall under the purview of section 44AB, it is a requirement.
• Currently, a sizeable portion of tax payers file their income tax forms electronically.
• The income tax division wants to make all the returns available online.
• You can e-file your income tax returns at https://incometaxindiaefiling.gov.in/.
• e-filing returns has several advantages, like you don’t have to perform paperwork and waste time sorting them out.
• You can log in to the secure website and submit your income tax returns there with only a few mouse clicks.

You should have a basic understanding of how income tax is calculated before you make any payments. You will learn how to reduce your tax liability as well as get an idea of how much you will have to pay. Knowing the income tax slabs makes calculating the tax amount simple. Applying the current tax rates and subtracting the taxes that have been paid through TDS results in the total tax that is due (tax deduction at source).

You must carefully review the deductions that have been outlined under the various provisions of the IT Act, 1961, if you want to reduce your tax liability to its highest level. Under section 80C of the IT Act 1961, some investment options, such as National Savings Certificates and Public Provident Fund, are eligible for a tax deduction. However, the majority of tax payers frequently overlook a variety of investment opportunities that qualify for tax breaks. An overview of investments that are eligible for deductions under various provisions of the Income Tax Act is provided below: The following are eligible for income tax deductions under section 80C:

1. Tax Saving Mutual Fund

2. Tax Saving Fixed Deposit

3. National Savings Certificate

4. Repayment of the principal on a housing loan

5. Life insurance policy premium

6. Equity Oriented Mutual Funds

7. Contributions made to Employee Provident Fund

8. Under section 80C, the tax exemption limit is ₹ 1.5 lakhs.

Deductions permitted under different Sections

Under certain provisions, a taxpayer may claim more deductions. Following are a few of these:

• Under Section 80CCC, contributions to annuity plans such as LIC are considered for tax benefit up to ₹ 1.5 lakhs.
• Interest on savings account is tax exempt up to Rs. 10,000 annually under Section 80TTA.
• Investment in Rajiv Gandhi Saving Scheme is eligible for deduction under Section 80CCG.
• If a person pays a medical insurance premium for their spouse, children, or themselves, they are eligible to claim a 25,000 rupee income tax deduction under Section 80D. The cap has been raised for older citizens to 30,000. Tax deductions are also available for preventive healthcare costs up to 5000 per household.
• A family member of the tax payer is eligible for a deduction of up to 75,000 for expenses related to medical care for dependents who are disabled under Section 80DD if they have a 40% disability.
• A person is eligible for deductions under Section 80DDB if they spend at least 40,000 for the care of certain illnesses, such as AIDS, haematological disorders, chronic renal failure, and malignant tumours.
• You are eligible for income tax deductions under Section 80E if you borrowed money for your schooling and are paying the interest. However, deductions are not permitted for paying back the college loan's principal.
• If a person made donations to a recognised organisation during a financial year, they are eligible for deductions under Section 80G, 80GGA, 80GGB, and 80GGC.
• In Budget 2022, a standard deduction of 50,000 has been added for the salaried class. Regardless of the employee's expenses, this deduction is permitted. To claim this deduction, the assessee is not required to provide the actual bills.

About Income Tax Rebate

When terminology like income tax refund, income tax exemption, and income tax deduction are employed, many misunderstandings occur. Although each of these words is advantageous to the tax payer, their definitions vary.

• Items that can be deducted from the total amount of tax due are included in the income tax rebate.
• Tax exemptions and deductions are claimed from income, whereas rebates are claimed from the amount of tax owed.
• When you file your income tax returns, you can make a section 87A income tax rebate claim.
• A rebate will be available if the tax payer is a resident individual who has not crossed the 80 year mark and whose taxable income is ₹ 5,00,000 or less.
• Hindu undivided Families, companies, trusts, LLP, partnership firms and NRIs are not eligible for tax rebate.

Difference between “Deduction” and “Exemption

• The government provides tax payers with tax assistance in the form of both tax exemption and tax deduction.
• If a certain income qualifies for tax exemption, it will not be subject to taxation.
• It denotes that the income is entirely tax-free and is not taken into account when determining the overall amount of taxable income.
• When calculating the total income in the case of deductions, the income is originally taken into account.
• You may use the income tax deduction if you meet the requirements for a deduction as outlined in the published guidelines.
• In the event of a tax deduction, investing in a particular avenue results in a reduction in the income tax obligation of a certain amount.
• While there is typically no cap on exemption, a financial ceiling may be imposed in cases of deductions.

Effective Income Tax Exemptions for Salaried People

Salaried employees are qualified for a number of income tax exemptions under the Income Tax Act. The salaried staff must inform the company in writing that they are requesting these exemptions. The employer would calculate the tax on the remaining income after subtracting the TDS. Let's examine the tax deductions in more detail:

• Most firms provide a housing allowance to their staff. A portion of the HRA is exempt from taxation under the Income Tax Act.
• Additionally, some firms offer their staff a unique allowance. If the vacation took place in India, a portion of this sum is tax-exempt.
• Most of the time, when an employee works for an organisation, they are eligible for leaves. They have the option to cash in these leaves if they do not claim them. You may also claim exemption for the sum received as leave encashment.
• Up to a certain limit, tax exemption is also given on pensions.
• Sometimes workers choose to retire voluntarily (VRS) before reaching retirement age. In such circumstances, the employer gives the employee a certain sum of money. In the event of VRS, the employee will get this sum, which is tax-free.
• Other benefits like the children's education allowance and the transportation benefit are tax-free, but only up to a specific amount.

An Overview of Tax Planning

• You should be informed of the tax planning tactics to reduce your tax liability as a tax payer.
• By using tax planning, you can precisely adhere to the law while taking full advantage of deductions, exemptions, reliefs, and rebates.
• You can lower your tax liability and pay less tax by using wise tax planning.
• It's crucial that you concentrate on the areas where you can save costs the greatest.
• Among the tools used to reduce taxes, insurance has long been at the top of the list.
• Getting life and health insurance coverage is a smart option for young professionals between the ages of 23 and 30.
• As it is the starting phase of their career, it is the right time to start saving for the future.
• For tax planning, it is best to get in touch with a tax consultant.
• Tax consultants, usually referred to as tax counsellors, are familiar with the rules governing both personal and business taxes.

Tax Planning without a Consultant's Assistance

• Reducing tax liabilities should be the main goal of tax planning.
• Every taxpayer wants to be able to keep as much of his income as possible.
• Planning ahead and taking use of exclusions and deductions would be entirely in the assessee's best interest.
• It can be difficult and satisfying to perform your own tax planning.
• You have the benefit of selecting a tax-saving tool that best meets your requirements.
• It is difficult because if you make the wrong choice, you could be stuck with an unwise investment for three to five years, if not longer.

Eliminate Tax Evasion

The painfully low number of tax payers in India, which suggests widespread tax evasion, is one of the country's major issues. Tax evasion is referred to as an illegal conduct that includes failing to file income tax returns or giving false information about the amount of tax that must be paid. You will face consequences if the Income Tax authorities investigate and find that you made an intentional effort to lower your tax obligation. The fine could be as much as roughly three times the amount that was concealed. Therefore, it is advisable to take precautions while preparing your income tax return because any irregularities found during scrutiny could have a significant impact on your finances.