Introduction to Income Tax Act
Income tax as a concept has been present in India for many
years, but James Wilson who became India’s first finance (British) member
introduced the first modern Income Tax Act in 1860.
What is Income Tax?
Income tax in India is a tax you pay to the government based
on your income (and profit, in the case of companies). The government uses this
tax money for various purposes including public services, infrastructure
development, defiance spending and subsidies among other options. If you earn
income beyond a certain limit, it is mandatory to pay income tax every year.
Income Tax Act 1961
The Income Tax Act is a comprehensive statute that
focuses on the different rules and regulations that govern taxation in the
country. It provides for levying, administering, collecting and recovering
income tax for the Indian government. It was enacted in 1961.
The Income Tax Act contains a total of 23 chapters and
298 sections according to the official website of the Income Tax Department of
India. These different sections deal with various aspects of taxation in India.
The various heads for which you have to pay income tax include:
• Salary
• Income
from house property
• Capital
gains
• Profit
and gains from business or profession
• Income
from other sources
Every year, the Indian government presents a finance
budget during the month of February. The budget brings in various amendments to
the Income Tax Act. This includes changes in tax slabs wherever applicable. For
example, the Finance Minister announced that the tax rate for individuals in
the lowest tax bracket of Rs. 2.5 lakh to 5 lakh would be cut from 10% to 5% in
FY2017. Similarly, tax on Long Term Capital Gains (LTCG) was re-introduced
during the FY2018 budget. As a result, all gains greater than Rs. 1 lakh from
shares and equity mutual funds held longer than one year is now eligible for
LTCG tax at 10%.
The most recent budget presented by the current Finance
Minister Nirmala Sitharaman included the introduction of a new optional system
of taxation that comes with reduced income tax rates. These new rates shall be
available as an option from the financial year 2020-21.
Such amendments become a part of the Income Tax Act from the following financial year (beginning from 1st April) following the approval from the President of India.
Person [section 2(31)
• Individual
• Hindu
Undivided Family (HUF)
• A
Company
• A
Firm
• An
Association of Person (AOP)
• Body
of Individual (BOI)
• A
local Authority
• Artificial
person
Concept of Previous Year
2020-2021
Concept of Financial Year
2020-2021
Concept of Assessment Year
2021-2022
IT starts
from 1st April and ends on 31st March
Income tax slabs
Calculation
Of Taxes
Below 60 years
|
Income
Tax Slab |
Tax
Rate |
|
Up to Rs
2,50,000 |
Nil |
|
Rs
2,50,001 to Rs 5,00,000 |
5% of
total income exceeding Rs 2,50,000 |
|
Rs
5,00,000 to Rs 10,00,000 |
Rs 12,500
+ 20% of total income exceeding Rs 5,00,000 |
|
Above Rs
10,00,000 |
Rs
1,12,500 + 30% of the total income exceeding Rs 10,00,000 |
Note:
Additional 4% Health and education cess
For senior citizens (60-80 years old)
|
Income
Tax Slab |
Tax
Rate |
|
Up to Rs
3,00,000 |
Nil |
|
Rs
3,00,001 to Rs 5,00,000 |
5% |
|
Rs
5,00,000 to Rs 10,00,000 |
20% |
|
Above Rs
10,00,000 |
30% |
Note:
Additional 4% Health and education cess
For Super
Senior Citizens (80 years old or more)
|
Income
Tax Slab |
Tax
Rate |
|
Up to Rs
5,00,000 |
Nil |
|
Rs
5,00,000 to Rs 10,00,000 |
20% |
|
Above Rs
10,00,000 |
30% |
Note:
Additional 4% Health and education cess
New Tax Regime
• Introduced in 2020
• In this any individual who is paying
tax have to give up some certain exemptions the exemptions and deduction which
can be LTA , HRA, CA, SD, etc.
For every individual (no age limit)
|
Income
Tax Slab |
Tax
Rate |
|
Up to Rs
2.5 Lakh |
Nil |
|
Rs 2.5
lakh to Rs 5 Lakh |
5% |
|
Rs 5 lakh
to Rs 7.5 lakh |
10% |
|
Rs 7.5
lakh to Rs 10 lakh |
15% |
|
Rs 10
lakh to Rs 12.5 Lakh |
20% |
|
Rs 12.5
lakh to Rs 15 lakh |
25% |
|
Rs 15
lakh and above |
30% |
Note:
Additional 4% Health and education cess
Surcharge
|
Income
|
Surcharge
Rate on the amount of income tax |
|
Net
income above Rs 50 lakh but does not exceed Rs 1 crore |
10% |
|
Net
income above Rs 1 crore but does not exceed Rs 2 crore |
15% |
|
Net
income above Rs 2 crore but does not exceed Rs 5 crore |
25% |
|
Net
income exceeds Rs 5 crore and above |
37% |
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