Income Tax India Basis for Beginner-Slabs, Sections, Guide

What is Income Tax?

Income tax is a type of tax that governments impose on income tax India generated by businesses and individuals within their jurisdiction.1 2 Income taxes are a source of revenue for governments. They are used to fund public services, pay government obligations, and provide goods for citizens.

While firms and Indian companies 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. People’s incomes are grouped into blocks called tax brackets or tax slabs. And each tax slab has a different tax rate.

Income Tax Slab 2019-20, AY 2020-21

Income rage per annum Tax Rate

  • up to Rs. 2.5 lakhs – NIL
  • Above Rs. 2.5 lakhs to Rs. 5 lakhs -5% + 4% cess
  • Above Rs. 2.5 lakhs to Rs. 5 lakhs -20% + 4% cess
  • Above Rs. 10 lakhs to Rs. 50 lakhs -30% + 4% cess

Income Tax Slab 2020-21, AY 2021-22

Income rage per annum Tax Rate

  • Up to Rs 2.5 lakh -NIL
  • 2.5 lakh to Rs 5 lakh – 5% (Tax rebate of Rs 12,500 available under section 87A)
  • 5 lakh to Rs 7.5 lakh -10%
  • 7.5 lakh to Rs 10 lakh -15%
  • 10 lakh to Rs 12.5 lakh -20%
  • 12.5 lakh to Rs 15 lakh -25%
  • 15 lakh and above -30%

Read also Tax Planning in 2020 or Save Money live Better in India

How Income Tax Works?

Previous year or the financial year or your tax year is the 12 month period that begins on 1st April and ends on the 31st March of the next year. No matter when you start your job, your tax year closes on 31st March and a new tax year starts on 1st April. So, it is important to plan your taxes for each financial year.

Each of these taxpayers is taxed differently under the Indian income tax laws. While firms and Indian companies 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. People’s incomes are grouped into blocks called tax brackets or tax slabs. And each tax slab has a different tax rate. In India, we have four tax brackets each with an increasing tax rate.

What is Section 10 of Income tax Act?

The Income Tax Act, 1961 specifies that every individual who earns an income in India should pay income tax on such income earned. That is why the income that you generate in a financial year from all possible sources is taxed at specified tax rates. Though the income earned is taxable, the Act also allows for different types of exemptions which help you in lowering your taxable income. These exemptions allow specific incomes to be tax-free in nature. As such, the exempted income is not added to your gross total income which reduces your tax liability.

There are different types of income tax exemptions which you can claim. Section 10 of the Income Tax Act allows a list of exemptions which are available to tax-payers, both salaried as well as non-salaried individuals. You can claim an exemption under Section 10 for different types of incomes that you earn in a financial year. Section 10 contains various subsections which allow exemptions on different types of incomes. 

These exemptions can be claimed by the following types of assessees- 

  • Individuals, salaried as well as non-salaried 
  • Hindu Undivided Families (HUFs)
  • Trusts
  • Associations
  • Body of Persons
  • Companies
  • Foreign Companies, etc.

What is section 54 of the Income tax Act, 1961?

We all know that on selling or transferring a capital asset like property, capital gains arise which are taxable in the hands of the assessee / taxpayer. Under Section 54 of the Income Tax Act, an individual or HUF selling a residential house property can claim exemption from such capital gains if they invest the proceeds in acquisition i.e. purchase or construction of another residential house property. For claiming this tax benefit, there are certain prescribed conditions which needs to be satisfied. The same has been explained one by one in this guide further.

What are the different types of capital assets under income tax?

  • Short term capital assets –Capital assets which are held by the individual for not more than 36 months are called short term capital asset. The gains from the sale of these assets are called short term capital gains.
  • Long term capital assets –Capital assets that are held by the assessee for more than 36 months are called long term capital assets. The gains from selling these assets is called long term capital gains.

What is form 16 under Income tax act?

Form 16 is the certificate issued under section 203 of the Income tax India Act for tax deducted at source (TDS) from income under the head ‘salary’. … An employee can use Form 16 to source information for filling up his/her income tax return (ITR) and should be retained as backup proof for TDS.

What is Section 24 under income tax act?

Becoming a home owner comes with its own share of benefits. The main benefit of becoming a home owner is that you have lifelong financial security. The value of the property also continues to increase with every passing year, which means the return of investment is always on an upward trajectory. If you have purchased the home by taking on a home loan, you can also avail several tax deductions on loan repayment; whether it is on the principal loan amount or the interest component. In this article, we shall look at the tax deductions under Section 24 of Income Tax Act.

Section 24 of the IT Act refers to the income accrued from house property. This section specifically relates to the exemptions you can get on the interest component of the home loan you are repaying. Purchasing a home is regarded as a great investment that also facilitates tax savings. The Government of India offers tax deductions on various kinds of investments including the repayment of a home loan since purchasing a property is considered an investment.

What is Section 80d of Income tax act?

Budget 2018 has amended Section 80D of the Income Tax India act, which allows deduction for medical expenditure incurred on senior citizens. This deduction can be claimed by the senior citizen himself/herself or by his/her children, if the latter are incurring medical expenditure for their senior citizen parents.

Deductions on Section 80d of Income Tax act

  • Health Insurance Premium Paid
  • Preventive Healthcare Chekup
  • Health Insurance Premium Payment for Parents

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