ITR
Income Tax in India: Guide, IT Returns, Income Tax Act, Taxpayers & Tax Slab
Taxes in India can be categorized as direct and indirect taxes. Direct tax is a tax you pay on your income directly to the government. Direct Taxes are broadly classified as :
Income Tax – This is taxes an individual or a Hindu Undivided Family or any taxpayer other than companies, pay on the income received. The law prescribes the rate at which such income should be taxed
Corporate Tax – This is the tax that companies pay on the profits they make from their businesses. Here again, a specific rate of tax for corporate has been prescribed by the income tax laws of India
Income tax is defined as the tax charged on the annual income earned by a person. The amount of tax applicable to you will depend on how much money you earn as income over the course of a financial year.
For simpler classification, the Income Tax Department breaks down income into five heads:
|
Head of Income |
Nature of Income covered |
|
Income from Salary |
Income from salary and pension are covered under here |
|
Income from Other Sources |
Income from savings bank account interest, fixed deposits, winning KBC |
|
Income from House Property |
This is rental income mostly |
|
Income from Capital Gains |
Income from sale of a capital asset such as mutual funds, shares, house property |
|
Income from Business and Profession |
This is when you are self-employed, work as a freelancer or contractor, or you run a business. Life insurance agents, chartered accountants, doctors and lawyers who have their own practice, tuition teachers |
Income Tax Act
The Income Tax Act of India passed in 1961 and called as INCOME TAX ACT 1961. The Income Tax Act passed handles all income tax provisions as well as any tax deductions that may be applicable. Since its introduction, there have been many changes to the law because of economic situations and inflation.
Income Tax Rules
The legislature enacts the Income Tax Act, 1961, to administer and govern income tax in the country, but the Income Tax Rules, 1962, were created in order to help in the application and enforcement of the law constituted in the Act. Moreover, the Income Tax Rules can only be read in conjunction with the Income Tax Act. The Income Tax Rules are within the framework of the Income Tax Act are not allowed to override its provisions.
Types of Tax payers for the purpose of income tax in India includes:
· Individuals, Hindu Undivided Family (HUF), Association of Persons(AOP) and Body of Individuals (BOI)
· Firms
· Companies
As per Income Tax Act 1961 each of these taxpayers is taxed differently. The income earned individuals will determine the income tax slab under which they fall. The lower the income, the lower the tax liability, and those who earn less than Rs.2.5 lakh p.a. are exempt from tax. While Indian companies and Firms have a fixed rate of tax of 30% of profits, the individual, HUF, AOP and BOI taxpayers are taxed based on the income slab they fall under.
Tax Regime & Slab
The Budget 2020 proposed a new income tax regime with more tax slabs and lower tax rates. This was introduced to simplify the tax system and lower tax rates, but it came with the removal of all the deductions and exemptions that were available under the old tax regime. Taxpayers having a choice between the new regime and old regime, they can select any one tax regime for their Tax Calculation. To know more about Tax Regime and Slab