Understanding Income Tax in India: A Comprehensive Guide

Income tax is a direct tax levied by the government on the income earned by individuals, Hindu Undivided Families (HUFs), firms, and other entities. It is an important source of revenue for the government and plays a crucial role in the economic development of the country.

In this article, we will delve into the various aspects of income tax in India, including the latest income tax slabs, deductions, exemptions, and the process of filing income tax returns.

Also Read-Comparison of New vs Old Income Tax Regimes: Which One to Choose?

What is Income Tax?

Income tax is a tax imposed by the government on the income earned by individuals and other entities during a financial year. The tax is calculated based on the tax slab rates applicable to the individual’s income. The income tax system in India follows a progressive tax structure, which means that the tax rate increases as the income increases.

The Income Tax Act, 1961, governs the taxation of income in India. It defines the various types of income, the tax rates applicable, and the deductions and exemptions available to taxpayers.

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Income Tax Slabs and Rates for FY 2023-24 (AY 2024-25)

The Union Budget 2023 introduced changes to the income tax slabs and rates under the new tax regime. The new tax regime offers lower tax rates but with fewer deductions and exemptions compared to the old tax regime. Taxpayers have the option to choose between the old and new tax regimes based on their income and investment patterns.

Here are the income tax slabs and rates for individuals under both the old and new tax regimes for the financial year 2023-24:

New Tax Regime (Section 115BAC).

Old Tax Regime.

It’s important to note that the tax rates mentioned above are exclusive of the applicable surcharge and cess. The surcharge rates vary based on the total income, while the health and education cess is levied at 4% on the income tax and surcharge.

Deductions and Exemptions.

The Income Tax Act provides various deductions and exemptions to taxpayers to reduce their taxable income and lower their tax liability. Some of the commonly claimed deductions include:

Section 80C.

Section 80C allows a deduction of up to Rs. 1.5 lakh for investments made in specified instruments such as Public Provident Fund (PPF), Equity Linked Savings Scheme (ELSS), National Savings Certificate (NSC), life insurance premiums, and more.

Section 80D.

Section 80D provides a deduction for the payment of health insurance premiums for self, spouse, dependent children, and parents. The maximum deduction allowed is Rs. 25,000 for individuals below 60 years of age and Rs. 50,000 for senior citizens.

Section 80TTA and 80TTB.

Section 80TTA allows a deduction of up to Rs. 10,000 on the interest earned from savings accounts. For senior citizens, Section 80TTB provides a higher deduction limit of Rs. 50,000 on interest income from deposits.

Section 24.

Section 24 allows a deduction on the interest paid on a home loan. For self-occupied properties, the maximum deduction is limited to Rs. 2 lakh per annum. For let-out properties, the entire interest amount can be claimed as a deduction.

Apart from these, there are several other deductions available under various sections of the Income Tax Act, such as Section 80E for education loan interest, Section 80G for donations, Section 80GG for rent paid, and more.

Filing Income Tax Returns.

Every individual whose total income exceeds the basic exemption limit is required to file an income tax return (ITR) annually. The due date for filing ITR for individuals is usually July 31 of the assessment year. However, the government may extend the deadline in certain circumstances.

The process of filing ITR has been simplified with the introduction of e-filing. Taxpayers can file their returns online through the Income Tax Department’s e-filing portal or through authorized third-party websites.

Here are the steps involved in filing ITR online:

1. Gather necessary documents: Collect all the relevant documents such as Form 16, Form 26AS, bank statements, investment proofs, etc.
2. Login to the e-filing portal: Access the Income Tax Department’s e-filing portal using your PAN and password. If you are a new user, register yourself on the portal.
3. Select the appropriate ITR form: Choose the applicable ITR form based on your sources of income and filing status. The commonly used forms are ITR-1 (for individuals with salary income and one house property) and ITR-2 (for individuals with capital gains or multiple house properties).
4. Fill in the details: Enter your personal information, income details, deductions claimed, taxes paid, and other relevant information in the ITR form.
5. Verify and submit: Review the information entered for accuracy and completeness. Verify the return using any of the available methods such as Aadhaar OTP, EVC, or by sending a signed physical copy of ITR-V to the CPC, Bengaluru.
6. Acknowledgment: Upon successful submission and verification, you will receive an acknowledgment from the Income Tax Department.

It’s essential to file your ITR accurately and within the due date to avoid any penalties or legal consequences.

Tax Deducted at Source (TDS).

Tax Deducted at Source (TDS) is a mechanism where the payer deducts tax at the time of making payment to the payee and deposits it with the government. TDS is applicable on various payments such as salary, interest, rent, professional fees, and more.

Employers are required to deduct TDS on the salary paid to their employees based on the applicable tax slab rates. The deducted tax is credited to the employee’s PAN, and they can claim it while filing their ITR.Form 16, issued by the employer, contains the details of the salary paid and the TDS deducted during the financial year. It serves as a proof of tax payment and is required while filing ITR.

Advance Tax.

Advance tax is the tax paid by an individual in installments during the financial year if their estimated tax liability exceeds Rs. 10,000. It is applicable to taxpayers who have income from sources other than salary, such as business income, capital gains, rental income, etc.Advance tax is payable in four installments:

• 15% by June 15
• 45% by September 15
• 75% by December 15
• 100% by March 15

Failure to pay advance tax or paying less than the required amount may result in interest charges under Section 234B and 234C of the Income Tax Act.

Tax Planning.

Tax planning involves taking advantage of the various deductions, exemptions, and tax-saving investments available under the Income Tax Act to reduce your tax liability. It is a legitimate way to optimize your taxes within the framework of the law.Some effective tax planning strategies include:

• Investing in tax-saving instruments under Section 80C, such as PPF, ELSS, NSC, etc.
• Claiming deductions for health insurance premiums under Section 80D.
• Availing the benefits of home loan interest deduction under Section 24.
• Investing in the National Pension System (NPS) for additional tax benefits under Section 80CCD.
• Making donations to eligible charitable organizations and claiming deductions under Section 80G.

It’s important to consult with a tax expert or financial advisor to devise a personalized tax planning strategy based on your income, investments, and financial goals.

Final Thought.

Understanding income tax in India is crucial for every taxpayer to ensure compliance with the law and to optimize their tax liability. The income tax system in India offers various deductions and exemptions that can help reduce the tax burden on individuals.

By staying updated with the latest income tax slabs, rates, and provisions, taxpayers can make informed decisions about their investments and tax planning. Filing income tax returns accurately and within the due date is a legal obligation and helps maintain transparency with the tax authorities.

It’s advisable to seek professional guidance from a tax expert or chartered accountant for complex tax matters and to ensure proper compliance with the Income Tax Act. With the right knowledge and planning, individuals can navigate the income tax system effectively and fulfill their tax obligations responsibly.

C.K. Gupta

Hello, I am C.K. Gupta Founder of Taxgst.in, a seasoned finance professional with a Master of Commerce degree and over 20 years of experience in accounting and finance. My extensive career has been dedicated to mastering the intricacies of financial management, tax consultancy, and strategic planning. Throughout my professional journey, I have honed my skills in financial analysis, tax planning, and compliance, ensuring that all practices adhere to the latest financial regulations. My expertise also extends to auditing, where I focus on maintaining accuracy and integrity in financial reporting. I am passionate about using my knowledge to provide insightful and reliable financial advice, helping businesses optimize their financial strategies and achieve their economic goals. At Taxgst.in, I aim to share valuable insights that assist our readers in navigating the complex world of taxes and finance with ease.