The content provides comprehensive information on the Indian income tax system, including updates and changes in tax regimes. It covers the specifics of income tax such as taxes levied, types of taxpayers, income classifications, tax slabs, old and new tax regimes, exemptions, computation of income, rebates, and important income tax dates for 2024. Additionally, it mentions the types of income tax return forms, documents required for filing returns, tax-saving instruments, and their benefits. The content serves as a detailed guide for individuals and entities in understanding and managing their income tax responsibilities.
What’s New in Income Tax
Interim Budget 2024 –
- The budget maintained the existing tax rates for both direct and indirect taxes.
- Taxpayers with income up to Rs 7 lakh have no tax liability.
- Finance Minister Nirmala Sitharaman also withdraws ‘tax dispute’ up to Rs 25,000 for the period up to the financial year 2009-10, Rs 10,000 for financial years 2010-11 to 2014-15.
Budget 2023 Updates
- For individuals with income up to Rs 7 lakh, a tax rebate has been introduced in the New Tax Regime. This implies that you do not have to pay tax if your taxable income is below Rs 7 lakh under the new tax regime.
- The new tax slabs under the new tax regime will be:
| Income Slabs | Tax Rates |
| up to Rs 3 lakh | Nil |
| Rs 3 lakh- Rs 6 lakh | 5% |
| Rs 6 lakh-Rs 9 lakh | 10% |
| Rs 9 lakh-Rs 12 lakh | 15% |
| Rs 12 lakh- Rs 15 lakh | 20% |
| Above Rs 15 lakh | 30% |
- Under the new tax regime, salaried employees and pensioners can claim a standard deduction of Rs 50,000.
- Under the new tax regime, the highest surcharge has been reduced to 25% from 37% for people earning more than Rs 5 crore. This move brings down their tax rate from 42.74% to 39%.
- The new IT regime will be the default tax regime. However, taxpayers can opt out of the new regime before the due date for filing the IT returns for the respective assessment year.
- Leave encashment for non-government employees has been increased to Rs 25 lakh from Rs 3 lakh.
- TDS rate reduced to 20% from 30% on withdrawal of EPF.
What is Income Tax?
Income tax is a type of tax that the central government charges on the income earned during a financial year by individuals and businesses. Taxes are sources of revenue for the government. The government utilises this revenue for developing infrastructure, providing healthcare, education, subsidies to the farmer/agriculture sector and other government welfare schemes.
Taxes are mainly of two types: direct taxes and indirect taxes. Tax levied directly on the income earned is called a direct tax; for example, Income tax is a direct tax. The tax calculation is based on the income slab rates applicable during that financial year.
Direct Taxes are broadly classified as :
- Income Tax – This is taxes an individual, a Hindu Undivided Family (HUF), or any taxpayer other than companies pay on the income received. The law prescribes the rate at which such income is taxable.
- Corporate Tax – This is the tax paid on the company’s taxable income. Here again, a specific tax rate for corporations has been prescribed by the income tax laws of India.
Who should pay Income Tax? – Types of Taxpayers
According to the Income Tax Act, everyone in India, whether resident or nonresident, has to file income tax returns. Currently, tax is payable if the income exceeds Rs 3 lakh in a financial year. The Income Tax Act has classified taxpayers into various categories. Different tax rules apply to different types of taxpayers.
Below are the categories of taxpayers:
- Individuals
- Hindu Undivided Family (HUF)
- Firms
- Companies
- Association of Persons(AOP)
- Body of Individuals (BOI)
- Local Authority
- Artificial Judicial Person
Further, Individuals and HUFs are classified as residents and nonresidents. Resident individuals are liable to pay tax on their global income in India, i.e. income earned in India and abroad. Meanwhile, those who qualify as nonresidents must only pay taxes on income earned or accrued in India. The residential status has to be determined separately for tax purposes for every financial year based on the individual tenure of stay in India. Resident Individuals are further classified into the mentioned categories for tax purposes:
- Individuals less than 60 years of age
- Individuals aged more than 60 but less than 80 years
Types of Income – What are the 5 heads of income?
Everyone who earns or gets an income in India is subject to income tax (Yes, be it a resident or a non-resident of India). For simpler classification, the Income tax department breaks down income into five main heads:
| Head of Income | Nature of Income covered |
| Income from Other Sources | Income from savings bank account interest, fixed deposits, and winning in lotteries is taxable under this head of income. |
| Income from House Property | Income earned from renting a house property is taxable under this head of income. |
| Income from Capital Gains | Surplus Income from the sale of a capital asset such as mutual funds, shares, house property, etc, is taxable under this head of Income. |
| Income from Business and Profession | Profits earned by self-employed individuals, businesses, freelancers or contractors and income earned by professionals like life insurance agents, chartered accountants, doctors and lawyers who have their own practice, and tuition teachers are taxable under this head. |
| Income from Salary | Income earned from salary and pension is taxable under this head of income. |
Taxpayers and Tax Slabs
Each of these taxpayers is taxed differently under the Indian income tax laws. While firms and Indian companies have a fixed rate of tax calculated on taxable income, the individual, HUF, AOP and BOI taxpayers are taxed based on the income slab they fall under. People’s income grouped into blocks are called tax brackets or tax slabs. And each tax slab has a different tax rate. The rate at which the tax is charged increases as the taxable income increases.
What is the Existing/Old Income Tax Regime?
The old tax regime provides three slab rates for income tax levy, which are 5%, 20%, and 30% for different income brackets. Individuals can continue with the old taxation regime, and they can claim the following deductions:
- Deductions of allowances like Leave Travel Concession (LTC), House Rent Allowance (HRA), and specific other allowances.
- Deductions for tax-saving investments as per Section 80C (LIC, PPF, NPS, etc) to 80U can be claimed.
- Standard deduction of Rs 50,000.
- Deduction for interest paid on home loan.
Tax slab rates applicable for Individual taxpayers below 60 years for the Old tax regime are as below:
| Income Range | Tax rate | Tax to be paid |
| Up to Rs 2,50,000 | 0 | No tax |
| Rs 2.5 lakhs – Rs 5 lakhs | 5% | 5% of your taxable income |
| Rs 5 lakhs – Rs 10 lakhs | 20% | Rs 12,500+20% on income above Rs 5 lakh |
| Above 10 lakhs | 30% | Rs 1,12,500+30% on income above Rs 10 lakh |
There are two other tax slabs for two other age groups: those 60 and older and those above 80.
A word of note: People often misunderstand that if they earn, let’s say, Rs12 lakh, they will be paying a 30% tax on Rs.12 lakh, i.e. Rs 3,60,000. This is incorrect. A person earning Rs 12 lakh in the progressive tax system will pay Rs 1,12,500 + Rs 60,000 = Rs 1,72,500.
Income Tax Slabs Under New Tax Regime
In the 2020 budget, a new tax regime was introduced with lower tax rates and limited deductions/exemptions for Individuals and HUFs. Hence, many taxpayers did not opt for the new tax regime. However, to encourage taxpayers to adopt the new tax regime in Budget 2023, the income tax slabs under the new tax regime for FY 2023-24 (AY 2024-25) are revised as follows:
| New tax regime FY 2023-24 (After budget) | New tax regime FY 2022-23 (Before budget) | ||
| Income up to Rs 3 lakh | Nil | Up to Rs 2.5 lakh | Nil |
| Rs 3 lakh to Rs 6 lakh | 5% | Rs 2.5 lakh to Rs 5 lakh | 5% |
| Rs 6 lakh to Rs 9 lakh | 10% | Rs 5 lakh to Rs 7.5 lakh | 10% |
| Rs 9 lakh to Rs 12 lakh | 15% | Rs 7.5 lakh to Rs 10 lakh | 15% |
| Rs 12 lakh to Rs 15 lakh | 20% | Rs 10 lakh to Rs 12.5 lakh | 20% |
| Income above Rs 15 lakh | 30% | Rs 12.5 lakh to Rs 15 lakh | 25% |
| Income above Rs 15 lakh | 30% | ||
Most of the deductions and exemptions are not allowed if the taxpayers opt for the New Tax regime. However, the exemptions and deductions available under the new regime are:
- Transport allowances in case of a specially-abled person.
- Conveyance allowance received to meet the conveyance expenditure incurred as part of the employment.
- Any compensation received to meet the cost of travel on tour or transfer.
- Daily allowance received to meet the ordinary regular charges or expenditures you incur on account of absence from his regular place of duty.
Exceptions to the Income Tax Slab
One must remember that not all income can be taxed on a slab basis. Capital gains income is an exception to this rule. Capital gains are taxed depending on your asset and how long you’ve owned it. The holding period would determine if assets are long-term or short-term. The holding period to determine the nature of assets differs for different assets. A glance at the holding period, the nature of the assets and the tax rate for each are given below.
Financial year
The financial year is a one-year period that the taxpayers use for accounting and financial reporting purposes. It is the year in which the income is earned. According to the Income Tax Act, such a period begins from 1st April of the calendar year to 31st March of the next calendar year. It is abbreviated as “FY”. For example, the financial year starting from 1st April 2022 and ending on 31st March 2023 can be written as FY 2022-23.
Assessment year
The one year from 1st April to 31st March starting immediately after the financial year is termed an assessment year. This period is the assessment year because all the taxpayers have to evaluate their income earned in the financial year and pay taxes this year. For example, for incomes earned during the FY 2022-23, the assessment year will be AY 2023-24.
Assessee
The assessee is a person or a group who assesses his/her income and pays tax as per the Income Tax Act. The assessee can be an individual, a partnership firm, a company, an Association of Persons (AOP), a Trust, etc.
Income Tax Return
The taxpayer shall file an income tax return every year via ITR forms prescribed by the income tax department. The government has prescribed seven ITR forms through which the taxpayer can file his income tax return. The taxpayer has to choose the appropriate ITR forms and file his income tax return.
Income Tax Forms List
The seven ITR forms are:
- ITR-1: Individuals (residents) having income from salary, one house property, other sources, agricultural income less than Rs 5,000 and with a total income of up to Rs 50 lakh.
- ITR-2: Individuals/HUFs not having any business or profession under any proprietorship, more than one house property.
- ITR-3: Individuals/HUFs having income from a proprietary business or profession, income of a person as a partner in a firm.
- ITR-4: Individuals/HUFs having presumptive income from business or profession, one house property.
- ITR-5: Partnership firms or LLPs.
- ITR-6: Companies.
- ITR-7: Trusts.
Documents Required for ITR Filing
Form 16, Form 26AS, AIS, TIS, Form 16A, proof of tax saving investments made, bank account details, etc, are some of the crucial information/documents you need to be ready with before filing your return. Further, the documents you will need to file your tax return will largely depend on your source of income. Here is our detailed article on documents you need for filing of your return of income.
How can I calculate my income tax?
Individuals should calculate income tax depending on the nature of their income. The salaried individual can take the eligible exemptions available for various allowances received. Individuals/HUF can take a deduction under Sections 80C to 80U, deduct it from the gross total income, and calculate the income tax liability. Also, the total income tax liability should be adjusted by the taxes paid, such as advance tax, TDS, etc.
Also, the taxpayer should apply the effect of rebate under Section 87A and relief under Section 89, Section 90, and Section 91 to arrive at the net amount of income tax payable.
Any income that you receive should form part of your income tax return. Of course, the law provides exemptions for certain incomes, e.g. LTCG on listed equity shares up to Rs 1 lakh in any financial year, agricultural income, etc. Therefore, here is a quick guideline you can probably follow to compute taxes due on your income:
- List down all your income – be it salary, rental income, capital gains, interest income or profits from your business or profession.
- Remove incomes that are exempt under the law.
- Claim all applicable deductions available under every source of income. E.g., claim a standard deduction of Rs 50,000 from salary income, claim municipal taxes from rental income, claim business-related expenses from your business turnover, etc.
- Claim all applicable exemptions under every head of income, e.g., amount reinvested in another house property can be claimed as exemption from capital gains income, etc.
- Claim applicable deductions from your total income, e.g. the Section 80 deductions like 80C, 80D, 80TTA, 80TTB, etc.
- You will now arrive at your taxable income. Check the tax slab you fall under and accordingly arrive at your income tax payable.
The government keeps introducing and altering tax slabs, schemes and tax benefits, so it’s a good idea to keep up with the Budget.
What is the computation of income?
The process of calculating taxable income after taking into account the income from all the five heads (salary, house property, capital gains, business or profession, and other sources), exemptions, deductions, rebates, set off of losses, etc., is called computation of income. After the computation of income, the taxpayer can compute the income tax liability as per the Income Tax Act.
Rebate u/s 87A
Rebates under Section 87A allow taxpayers to reduce their income tax liability. If you are a resident individual and the amount of your total income after reducing Chapter VI-A deductions (Section 80C, 80D, 80U, etc) does not exceed Rs 5 lakh in a financial year, you can claim a tax rebate up to Rs 12,500. This means if your total tax payable is less than Rs 12,500, then you will not have to pay any tax.
In Budget 2023, a tax rebate on income of Rs 7 lakhs has been introduced under the new tax regime, and no changes have been made in the 2024 interim budget. Therefore, you do not have to pay tax if your taxable income is up to Rs 7 lakhs under the new tax regime.
e-File Returns
The taxpayer shall electronically file the income tax return through the e-filing platform of the IT department. To file the income tax return, the taxpayer should register at www.incometax.gov.in. After that, the taxpayer can log in to the website and file his ITR. Also, there is no need to manually send the acknowledgement of the return to the income tax department. The income tax department now allows e-verification of the ITR in different ways, which completes the income tax return process.
What is ITR–V?
Form ITR-V is an income tax return verification form generated after the taxpayer files income tax return and submits it to the income tax department. The ITR-V should be e-verified or must be sent to CPC Bangalore at “Income Tax Department – CPC, Post Box No – 1, Electronic City Post Office, Bangalore – 560100, Karnataka” for verification. The ITR processing takes place only if its verification is completed.
Income Tax Saving Instruments
A taxpayer can save tax by tax planning. A taxpayer can do tax planning by investing in tax-saving instruments. It helps in reducing the income tax liability. Section 80C to 80U of the Income Tax Act allows a deduction for certain expenditures and investments from the total computed income. Some of the popular Section 80C investments are:
| Popular Section 80C Investments | |||||
| Particulars | ELSS | PPF | NSC | 5-Year Tax Saving FD | SCSS |
| Section 80C Benefit | Yes | Yes | Yes | Yes | Yes |
| Type of Investment | Equity | Fixed Income | Fixed Income | Fixed Income | Fixed Income |
| Lock-in Period | 3 Years | 15 Years | 5 Years | 5 Years | 5 Years |
| Maximum Investment | No Max Limit | Rs 1.5 lakh | No Max Limit | Rs 1.5 lakh | Rs 15 lakh |
*ELSS and NSC have no upper investment limit. However, you get tax benefits under Section 80C only up to Rs 1.5 lakh per financial year.
Health Insurance and Medical Expense Deduction
Apart from the Section 80C deduction, a taxpayer can also take a tax benefit under Section 80D for health insurance premium and medical expenditure incurred for self, family and parents.
| Person insured | Maximum deduction Below 60 years | Maximum deduction 60 years or older |
| You, your spouse, your children | Rs. 25,000 | Rs. 50,000 |
| Your parents | Rs. 25,000 | Rs. 50,000 |
| Preventative health checkup | Rs. 5,000 | Rs. 5,000 |
| Maximum deduction (includes preventive health checkup) | Rs. 50,000 | Rs. 1,00,000 |
Education Loan Deduction
Under Section 80E, the taxpayer can claim a deduction for the interest paid on a loan taken for higher education. There is no limit to claiming such a deduction in the income tax return.
Home Loan Deduction
Under Section 24, the taxpayer can claim a deduction for interest paid on a housing loan during the relevant financial year. The deduction amount will depend upon whether the house is self-occupied or let out. The taxpayer can also claim a deduction of the principal amount of the loan under Section 80C up to Rs 1.5 lakh.
| Deduction on | Maximum allowed (for self-occupied house property) | Maximum allowed (for property on rent) |
| Stamp duty and registration + principal | Rs 1,50,000 within the overall limit of Section 80C | Rs 1,50,000 within the overall limit of Section 80C |
| Deduction on home loan interest under Section 24 | Rs 2,00,000 | No cap (but rental income must be shown in the income tax return). Further, the maximum loss from house property is capped at Rs 2 lakhs |
| Deduction for first-time homeowners under Section 80EE *certain conditions apply | Rs 50,000 | – |
Deduction for Interest Income
The taxpayer can also claim a deduction for interest on deposits from banks under Section 80TTA of the Income Tax Act. Individuals can claim up to Rs 10,000 deduction under the said section.
Important Income Tax Dates 2024
- 15th March 2024 – Due date for the fourth installment of advance tax for the FY 2023-24.
- 15th June 2024 – Due date for the first installment of advance tax for the FY 2024-25.
- 31st July 2024 – Income tax return filing for FY 2023-24 for individuals and entities not liable for tax audit and who have not entered into any international or specified domestic transaction.
- 15th September 2024 – Due date for the second installment of advance tax for the FY 2024-25.
- 30th September 2024 – Submission of audit report (Section 44AB) for AY 2024-25 for taxpayers liable for audit under the Income Tax Act.
- 31st October 2024 – ITR filing for taxpayers requiring audit (not having international or specified domestic transactions).
- 31st October 2024 – Submission of the audit report for AY 2024-25 for taxpayers having transfer pricing and specified domestic transactions.
- 15th December 2024 – Due date for the third installment of advance tax for the FY 2024-25.
- 31st December 2024 – Last date for filing a belated return or revised return for FY 2023-24.