What is Income Tax in India?

What is Income Tax?

Income tax is a tax charged on the annual income earned by an individual. The amount of tax paid will depend on how much money you earn as income over a financial year. One can proceed with Income tax payment, TDS/TCS payment, and Non-TDS/TCS payments online. All taxpayers must fill in the relevant details to make these payments. The entire process becomes simple and quick.

Income tax for FY 2020-21 applies to all residents whose annual income exceeds Rs.2.5 lakh p.a. The highest amount of tax an individual could pay is 30% of their income plus cess at 4% if their income is more than Rs.10 lakh p.a.

Who should pay Income Tax?

It is mandatory to file ITR for individuals If the gross total income is over Rs.2,50,000 in a financial year. This limit exceeds Rs.3,00,000 for senior citizens and Rs.5,00,000 for super senior citizens. The entities listed below are required to pay tax and file their income tax returns.

Artificial Judicial Persons

Corporate firms

Association of Persons (AOPs)

Hindu Undivided Families (HUFs)

Companies

Local Authorities

Body of Individuals (BOIs)

Taxpayers and Income Tax Slab Rates

In the Union Budget 2020, the Finance Minister of India has announced a new income tax slab. However, the new income tax regime is optional, and individuals can either opt for the new regime or file their taxes as per the old regime.

Income Tax slab under New tax regime for FY 2020-21 & AY 2021-22

Existing Income Tax Slabs for FY 2020-21 (Alternative)

The income earned individuals will determine the income tax slabs 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.

Depending on the age of the individual, the three categories that resident individual taxpayers are divided into are mentioned below

Individuals who are less than the age of 60 years old.

Senior citizens who are above 60 years old and below 80 years of age.

Super senior citizens who are above 80 years old.

Here is the income tax slab for individuals who are less than 60 years old:

An additional cess of 4% will be applicable to the tax amount calculated above.

Advance Tax

The calculation of tax liability before-hand and paying the taxes to the government accordingly is called advance tax. There are certain deadlines for the advance tax payments. These deadlines are listed below

Income Tax Return

Here is all you need to know about how to file ITR online. Before you file your taxes, you will need your Form 16, provided by your employer, and any proof of investment. Using that you can compute the tax payable and refunds, if any, for the year. You can download the IT preparation software from the IT department’s website. Once you have all the documents ready, you can start the Income tax return filing process.

Important Income Tax Dates 2021

The Important dates to remember for individuals who fall under the bracket to pay Income Tax for FY 2020-21 & AY 2021-22 is mentioned in the table below:

Income Tax Payment Details

Taxpayers can pay direct taxes online by using the e-Payment facility. In order to avail the online tax payment facility, taxpayers must have a net-banking account with an authorised bank. The Permanent Account Number (PAN) or Tax Deduction and Collection Number (TAN) will have to be provided for validation as well.

About Income Tax Department India

A government agency that undertakes the direct collection of tax in India is the Income Tax Department. All operations of the department are handled by the Central Board for Direct Taxes (CBDT). Individuals can get various details such as international taxation, tax laws, and rules, organizational setup, etc., on the official website of the department.

Income Tax Act

Passed in 1961, the Income Tax Act of India 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 in India

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 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.

Income Tax Collection

Taxes are collected by the government in three primary ways:

1. Voluntary Payment by taxpayers into designated banks, like Advance tax & self-assessment tax.

2. Taxes Deducted at Source (TDS) which is deducted from your monthly salary, before you receive it.

3. Taxes Collected at Source (TCS).

Under the Department of Revenue of the Ministry of Finance, the Income Tax Department (IT Department) handles monitoring the collection of Income Tax, Expenditure Tax, and various other Financial Acts that are passed every year in the Union Budget. The Central Board of Direct Taxes (CBDT) regulates the policy and planning of taxes. CBDT is also responsible for administering the direct tax laws through the IT Department. Besides to the collection of taxes, the IT department is also involved in the prevention and detection of tax avoidance.

Income Tax Forms List

If an individual needs to claim income tax refund, he/she will need to first file the income tax return. Depending on the income assessment group, the individual will need to submit one of the ITR forms listed below:

To file the ITR, an individual will require producing the bank statement, Form 16, and a copy of the previous years' returns. The individual will need to visit the Income Tax Department's website - https://incometaxindiaefiling.gov.in/ to register and file the returns.

Income Tax Refund 2020-21

In case you have paid more tax than your actual tax liability, you will be eligible to claim an income tax refund of the extra money you have paid. For example, if your TDS liability for FY 2019-20 was Rs.35,000 and your employer deducted Rs.40,000 instead, you can claim a refund for the additional Rs.5,000 that was deducted. You can also claim an income tax refund in case you forgot to declare your tax-saving investments and tax has been charged to you without considering your deductions. Individuals can check income tax refund status on the official website of Income Tax Department.

Income Tax Saving Investments

Declaring investments - From HRA, Life Insurance Premiums, National Savings Certificate, Leave Travel Allowance to Fixed Deposit (minimum of 5 years), ELSS Tax Saving Mutual Funds, and more, by ensuring that you have declared all your investments, you can achieve more deductions on tax. The following options can be considered for saving on income tax.

Investment options

Mutual funds such as Equity Linked Savings Schemes (ELSS) can be claimed for tax deduction under Section 80C. Compare to fixed deposits and PPF’s, the ELSS offers a shorter lock-in period and more benefits when it comes to making money.

Unit Linked Insurance Plans (ULIP) are insurance schemes that are linked to the market. The investment made under ULIP qualifies for tax deductions.

Insurance

Life insurance and health insurance - The money paid towards life insurance and health insurance policies are considering for tax deductions under Section 80C.

Home Loans

When we take a loan for buying a house or for renovation purposes, we are eligible for tax deductions up to Rs.1.5 lakh for a financial year. However, there are no tax exemption allowed on personal loans.

You can also consider the following options for reducing tax amount on your income.

Fixed Deposits (FD) - An FD with a lock-in period of five years can help you save on tax while earning the interest on the deposited amount.

National Saving Certificate (NSC) - The NSC offers a safe and reliable method of investing money. You can deposit as low as Rs.100 for a 5-10 year lock-in period. The investments made under NSC are eligible for tax deductions.

Provident Fund (PF) - You can also choose to invest more amount towards your PF account that will help you reduce your taxable amount.