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Income Tax in India: Ultimate Guide for Beginners

Updated on July 26, 2021 , 12333 views

Union Budget 2021 Update

No changes in Income Tax slabs or rates have been proposed. Also, no changes in additional tax exemptions or deductions been introduced. Standard Deduction for the salaried and pensioners also remains same as before. With no change in the income tax slabs and rates and basic exemption limit. An individual tax payer will continue to pay the tax at the same rates applicable in FY 2020-21.

Finance Minister Nirmala Sitharaman announced no filing of Income Tax Return by senior citizens (above 75 years of age) who have only pension and interest income.

Pension from the ex-employer is taxed under the income tax head of Salary while family pension is taxed as ‘income from other sources’.

Interest income received from SCSS, Bank FD etc., is taxed as per one’s income slab under the head ‘income from other sources’.

Budget 2021 has extended the ITR filing due dates for a certain category of taxpayers whose accounts need to be audited. The timeline for filing revised returns has also been proposed to be reduced from April 1, 2021.

ITR filing is made easy. Details of capital gains, income from list securities, dividend income, income from interest on bank deposits will come pre-filled in ITR.

Income Tax in India

Income tax in India is what the government levy for the objective of financing several operations. Basically, there are two major Types of Taxes - direct and indirect. In the former category, income tax is covered. And, VAT, excise, service tax, as well as goods and services tax (GST) all come in the indirect taxes.

Along with funding governmental activities, collected taxes are also used as a fiscal stabilizer that helps in the adequate distribution of wealth among the population. There are several aspects that Indian income taxation system comprises. Let's find out more about it.

Types of Income Tax in India

Income tax can be divided into three different categories, based upon the payee and the time of payment, such as:

Tax Deducted at Source (TDS)

Any sort of income tax that is deducted and paid on the taxpayer’s behalf by a second person (who generates the source of income for the taxpayer) is called TDS. This tax is a measurement method that the income tax department uses to ensure timely payment of taxes.

Advance Tax

Throughout the financial year, professionals and businessmen have to pay the income tax in four instalments. Those instalments are known as Advance Tax. There are certain fixed dates for the payment of these taxes, such as:

  • Before or on 15th June: 15% of the AD
  • Before or on 15th September: 45% of the AD
  • Before or on 15th December: 75% of the AD
  • Before or on 15th March: 100% of the AD

Self-Assessment Tax

Self-assessment tax means any sort of balance tax that is paid by the taxpayer on the calculated income after taking TDS and advance tax into account.

The Income Source

As per the Indian Income-tax laws, income in India, when generated from the following sources, is meant to be taxable:

  • Salaries
  • House property income
  • Gains and profits of profession or business
  • Capital gains
  • Income from other sources

The income sum from all of these sources is calculated as per the provisions of the Income Tax Act. The tax rates vary based on the earnings of the individual and are called Income Tax slab rates. During the budget, every year, these income tax rates get revised.

Difference Between Financial Year and Assessment Year

A financial year is that year in which you have earned your income. Assessment year, on the other hand, is the succeeding year in which you have to file the income Tax Return for the previous year. So, for instance, you have earned your income in 2019, it will be considered as your Financial Year. And, since you are going to file the return for 2019 in 2020, it will be considered as your Assessment Year.

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Documents Required to File ITR in India

When it comes to filing the ITR online, you would require a certain set of documents. These documents vary as per the source of income.

Below-mentioned is the detail regarding the same:

Income Source Required Documents
Salaried Individuals Form 16, 16A, 26AS. Receipt of Rent for HRA. Payslips. Investment done under Section 80C, 80D, 80E, and 80G.
Capital Gains SIPs, ELSS, mutual fund statement, Debt fund, sale and purchase of Equity Funds. Purchase/selling price, details of capital gains, details of registration if any house property is sold. Statement of capital gains via selling shares and stock trading (if available).
House Property Certificate of home loan interest. Property address. Details of the co-owner, including capital share and PAN card details.
Other Sources Bank details, if receiving interest on Savings Account. Income received from an account in a post office. Details of interest received from tax-saving and/or corporate Bonds.

Apart from the ones mentioned above, there are certain mandatory documents as well, like bank account details, and PAN card.

Income Tax Forms

Income tax forms are the approved forms from the income tax department. These are the ones used by taxpayers to furnish information regarding the earned income and paid taxes for that financial year. In total, there are seven different forms, and each of them belongs to a set category of taxpayers.

So, for instance, a form that is approved for income tax for professionals in India cannot be used by salaried individuals and vice versa.

Income Tax Return Form Taxpayer Income Eligibility
ITR 1 (SAHAJ) ✔Pension or Salary ✔One residential property ✔Other sources (except lottery, horse race, etc.) ✔Total income up to Rs. 50 lakhs.
ITR 2 hindu undivided family (HUFs) and individuals with no income from gains and profits of a profession or a business.
ITR 3 Hindu Undivided Family (HUFs) and individuals earning income from a profession or a business, including partnership companies.
ITR 4 (SUGAM) Anybody with income for presumptive tax.
ITR 5 Everybody apart from: ✔Individuals ✔HUFs ✔Companies ✔Those who are eligible to File ITR 7.
ITR 6 For companies apart from the ones that claim an exemption under section 11.
ITR 7 People, including companies, need to furnish returns under Section 139 (4A)/ 139 (4B)/ 139 (4C)/ 139 (4D)/ 139 (4E)/ 139 (4F).

Income Tax Slab for 2021-22

As mentioned above, the income tax is chargeable as per the income of an individual. The more the income, the more will be the tax. Basically, there are three categories of taxpayers, such as:

  • Residents and non-residents (below 60 years of age)
  • Senior citizens (60 and above years but below than 80 years of age)
  • Resident super senior citizens (above 80 years of age)

So, when talking about income tax and slab rates as per FY 21-22, the below-mentioned rate will be applicable for different categories.

Residents, Non-Residents, and HUFs upto 60 years

Here's the income tax slab rates 2021-22 for-

Note: As per the amendments to Section 87(A), if your annual taxable income is lower than INR 5,00,000, you can avail the Tax Rebate. The existing laws made way for a 2,500 income tax rebate. However, the updated law ensured that the limit was increased to a 12,500 income tax rebate.

Income Range Per Annum Tax Rate 2021-22 Health and Education Cess
Up to INR 2,50,000 No tax Nil
Above INR 2,50,000 to 5,00,000 5% 4% cess
Above INR 5,00,000 to 10,00,000 20% 4% cess
Above INR 10,00,000 to 50,00,000 30% 4% cess
Above INR 10,00,000 to 1 crore 30% + 10% surcharge 4% cess
Above INR 1 crore 30% +15% surcharge 4% cess

Senior Citizens (60 to 80 years of age)

Here's the income tax slab rates 2021-22 for-

Note: As per the amendments to Section 87(A), if your annual taxable income is lower than INR 5,00,000, you can avail the tax rebate. The existing laws made way for a 2,500 income tax rebate. However, the updated law ensured that the limit was increased to a 12,500 income tax rebate.

Income Range Per Annum Tax Rate 2021-22 Health and Education Cess
Up to INR 3,00,000 No tax Nil
Above INR 3,00,000 to 5,00,000 5% 4% cess
Above INR 5,00,000 to 10,00,000 20% 4% cess
Above INR 10,00,000 to 50,00,000 30% 4% of cess
Above INR 50,00,000 to 1 crore 30% + 10% surcharge 4% of cess
Above INR 1 crore 30% +15% surcharge 4% cess

Resident Super Senior Citizens (above 80 years of age)

Here's the tax slab from super senior citizens of India:

Income Range Per Annum Tax Rate 2021-22 Health and Education Cess
Up to INR 2,50,000 No tax Nil
Up to INR 5,00,000 No tax Nil
Above INR 5,00,000 to 10,00,000 20% 4% cess
Above INR 10,00,000 to 50,00,000 30% 4% cess
Above INR 50,00,000 to 1 crore 30% + 10% surcharge 4% cess
Above INR 1 crore 30% +15% surcharge 4% cess

Domestic Companies

Tax rates for domestic companies:

Turnover Particulars Domestic Companies Firms
Income Tax for turnover upto INR 400 crores 25% 30%
Income Tax for turnover above INR 400 crores 30% 30%
Cess 3% + surcharge 3% + surcharge
Surcharge 7% if the income is more between INR 1 crore to 10 crore. And, income above INR 10 crore will be taxed 10% 12% of tax if the total income exceeds INR 1 crore

Conclusion

With the introduction of e-filing, the process to file ITR and claim deductions has become an easier one. Being a young earning individual, you would no longer have to undergo a strenuous process of filing. Now that this post covers almost every aspect of income tax in India, don’t miss out on your responsibilities.

Disclaimer:
All efforts have been made to ensure the information provided here is accurate. However, no guarantees are made regarding correctness of data. Please verify with scheme information document before making any investment.
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