Income tax is an essential part of the financial system in India. It is a direct tax that is levied on the income earned by individuals, companies, and other entities. The income tax system in India is governed by the Income Tax Act, 1961, and is administered by the Central Board of Direct Taxes (CBDT). In this blog, we will take a closer look at the basics of income tax in India, including its types, rates, and other important aspects.
Types of Income Tax
There are two types of income tax in India – direct tax and indirect tax. Direct tax is levied on the income of individuals and companies, while indirect tax is levied on goods and services.
Direct Tax: Direct tax is a tax that is levied directly on the income of individuals and businesses. It includes income tax, corporate tax, wealth tax, and gift tax. Income tax is the most common type of direct tax and is paid by individuals on their earnings.
Indirect Tax: Indirect tax is a tax that is not levied directly on the income of individuals and businesses but is passed on to them through the prices of goods and services. It includes goods and services tax (GST), value-added tax (VAT), and customs duty.
Income Tax Rates
Income tax rates in India vary depending on the income of an individual. The government of India has classified taxpayers into different categories based on their income, and different tax rates apply to each category. The tax rates for the financial year 2021-22 (assessment year 2022-23) are as follows:
- For individuals with an annual income of up to Rs. 2.5 lakh, there is no tax.
- For individuals with an annual income of Rs. 2.5-5 lakh, the tax rate is 5%.
- For individuals with an annual income of Rs. 5-7.5 lakh, the tax rate is 10%.
- For individuals with an annual income of Rs. 7.5-10 lakh, the tax rate is 15%.
- For individuals with an annual income of Rs. 10-12.5 lakh, the tax rate is 20%.
- For individuals with an annual income of Rs. 12.5-15 lakh, the tax rate is 25%.
- For individuals with an annual income of more than Rs. 15 lakh, the tax rate is 30%.
It is important to note that the tax rates are subject to change from year to year, and individuals must check the latest rates before filing their tax returns.
Income Tax Returns
All individuals and businesses that earn income in India are required to file income tax returns (ITRs) with the Income Tax Department. ITRs are filed online or offline, depending on the preference of the taxpayer. The deadline for filing ITRs is July 31 for individuals and September 30 for businesses.
ITRs must contain details of the income earned during the financial year, deductions claimed, and taxes paid. The ITR form that a taxpayer needs to file depends on the type and amount of income earned during the financial year. There are different ITR forms for salaried individuals, business owners, professionals, and other taxpayers.
Taxpayers in India are eligible for various tax deductions and exemptions under the Income Tax Act. These deductions and exemptions are meant to encourage savings, investments, and donations for social causes. Some of the common tax deductions available to individuals are:
- Deduction of up to Rs. 1.5 lakh under Section 80C of the Income Tax Act for investments in tax-saving instruments such as Public Provident Fund (PPF), National Pension System (NPS), and Equity-Linked Saving Scheme.