INCOME TAX GUIDE

Income Tax

Income tax is a type of direct tax the central government charges on the income
earned during a financial year by the individuals and businesses. It is calculated based
on the tax slabs defined by Income Tax Department.

Types of Income

Everyone who earns or gets an income in India is subject to income tax. For
simpler classification, the Income tax department breaks down income into five main
heads:-

Head of Income Nature of Income covered

Income from Other Income from savings bank account interest, fixed
Sources deposits, winning in lotteries is taxable under this
head.
Income from House Income earned from renting a house property is
Property taxable under this head of income.
Income from Capital Surplus Income from sale of a capital asset such as
Gains mutual funds, shares, house property etc is taxable
under this head of Income.
Income from Business Profits earned by self employed individuals,
and Profession businesses, freelancers or contractors & income
earned by professionals like life insurance agents,
chartered accountants, doctors and lawyers who
have their own practice, tuition teachers are taxable
under this head.
Income from Salary Income earned from salary and pension is taxable
under this head of income
Income Tax Slabs Under Existing/ Old Tax Regime

The old tax regime provides 3 slab rates for levy of income tax which are 5%,
20% tax rate and 30% for different brackets of income. The individuals have been
given the option to continue with this Old tax regime and they can claim deductions of
allowances like Leave Travel Concession (LTC), House Rent Allowance (HRA), and
certain other allowances. Additionally, deductions for tax saving investments as per
section 80C (LIC, PPF ,NPS etc) to 80U including standard deduction of Rs 50,000,
deduction for interest paid on home loan can be claimed. Tax slab rates applicable for
individual taxpayer below 60 years for ‘old tax regime’ are as follows:-

Income Range Tax rate Tax to be paid

Up to Rs.2,50,000 NIL
Rs. 2.5 lakh to Rs. 5 lakh 5% 5% of income above Rs. 2.5 lakhs
Rs. 5 lakh to Rs. 10 lakh 20% Rs. 12,500+ 20% of income above
Rs. 5 lakhs
Above Rs. 10 lakhs 30% Rs. 1,12,500+ 30% of income above
Rs. 10 lakhs
There are two other tax slabs for those who are 60 years old and those who
are above 80 years.

Income Tax Slabs Under New Tax Regime

From the FY 2020-21, a new tax regime is available for individuals and HUFs with
lower tax rates and zero deductions/exemptions. Individuals and HUF have the option
to choose the new regime or continue with the old regime. The new tax regime is
optional and the choice should be made at the time of filing the ITR. The comparison of
income tax slabs under the new and old tax regimes are as follows:

Income Range Tax Rate

New regime Old regime
Up to Rs.2,50,000 0
Rs 2.5 lakh to Rs 5 lakh 5% 5%
Rs 5 lakh to Rs 7.5 lakh 10%
20%
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% 30%
Above Rs 15 lakh 30%
 Most of the deductions like deductions and exemptions are not allowed if the
taxpayers opts 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

expenditure you incur on account of absence from his regular place of duty.

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, for the financial
year starting from 1st April 2021 and ending on 31st March 2022, it can be written as
FY 2021-22.

Assessment year

The one year period from 1st April to 31st March starting immediately after the
financial year is termed as assessment year. This period is called the assessment year
because all the taxpayers have to evaluate their income earned in the financial year and
pay taxes in this year. For example, for incomes earned during the FY 2021-22, the
assessment year will be AY 2022-23.

Income Tax Payments

Tax Deducted at Source (TDS) - For specified payments, tax is deducted at

source by the payer when making payment to the recipient of income. The
recipient of income can claim the credit of the TDS amount by adjusting it with
the final tax liability.

Advance Tax - The taxpayer must pay tax in advance when his estimated income
tax liability for the year exceeds Rs 10,000. The government has specified due
dates for payment of advance tax installments
 Self-Assessment Tax - It is the balance tax that the taxpayer has to pay on the
assessed income. The self-assessment tax is calculated after reducing the
advance tax and TDS from the total income tax calculated on the assessed
income.

e-Payment of Taxes - The taxpayers can pay advance tax, self-assessment tax
online from the NSDL website. However, the taxpayer should have a net banking
facility with an authorised bank.

How can I calculate my income tax?

Individuals should calculate income tax depending on the nature of 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.
Therefore, here is a quick guideline you can probably follow to compute taxes due on
your income:

(a) List down all your income, be it salary, rental income, capital gains,
interest income or profits from your business or profession.

(b) Remove incomes that are exempt under law.

(c) Claim all applicable deductions available under every source of income,
for example claim standard deduction of Rs 50,000 from salary income, claim
municipal taxes from rental income, claim business related expenses from your
business turnover etc.

(d) Claim all applicable exemptions under every head of income eg. amount
reinvested in another house property can be claimed as exemption from capital
gains income etc.

(e) Claim applicable deductions from your total income eg. the 80 deductions
like 80C, 80D, 80TTA, 80TTB etc.

(f) You will now arrive at your taxable income. Check the tax slab you fall
under and accordingly arrive at your income tax payable.

Rebate u/s 87A

Rebate under Section 87A allows taxpayers reduce their income tax liability. If
you are a resident individual and the amount of your total income after reducing
deductions under Chapter VI-A (Section 80C, 80D, 80U, etc) does not exceed
Rs. 5 lakh, then you will not have to pay any tax.
e-File Returns

To file the income tax return, the taxpayer should first register himself at
www.incometax.gov.in. Thereafter, the taxpayer can log in to the website and file his
ITR. The income tax department now allows e-verification of the ITR in different ways,
which completes the income tax return process.

Income Tax Saving Instruments

A taxpayer can do tax planning by investing in tax-saving instruments. It helps in

reducing the income tax liability. Some of the popular Section 80C investments are:

• ELSS(equity)
• PPF
• Employee’s contribution to NPS account under 80CCD(1).
• NSC
• 5 years tax saving FD
• Senior Citizens savings scheme (SCSS)
• Employee’s share of PF/NPS contribution
• Life Insurance Premium payment
• Children’s Tuition Fee
• Principal Repayment of home loan
• Investment in Sukanya Samridhi Account.
• ULIPS.
• Sum paid to purchase deferred annuity.
• Subscription to notified securities/notified deposits scheme.
• Contribution to notified annuity Plan of LIC.
• Subscription to notified bonds of NABARD.
• Employer’s contribution to NPS account. The contribution is above the
limit of 1.5 Lakh under Sec 80C.

• Employee’s contribution to NPS account upto Rs. 50000/-. The

contribution is above the limit of 1.5 Lakh under Sec 80C.
Health Insurance and Medical Expense Deduction

Apart from the 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 Maximum deduction 60

Below 60 years years or older
Self, spouse, 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 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 claim 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 amount of deduction will depend
upon whether the house is self-occupied or let out. The taxpayer can also claim a
deduction of the principal amount of loan under Section 80C up to Rs 1.5 lakh.

Deduction on Maximum allowed (for self- Maximum allowed (for

occupied house property) property on rent)
Stamp duty/ Rs. 1,50,000 within the Rs. 1,50,000 within the
registration principal overall limit of Section 80C overall limit of Section 80C
Home loan interest Rs. 2,00,000 No cap, but rental income
under Section 24 must be shown in the
income tax return.Maximum
loss from house property
capped at Rs. 2 lakhs
First-time Rs. 50,000 –
homeowners
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. The individuals can claim up to Rs 10,000
deduction under the said section.

Income Tax – FAQs

(a) When it is mandatory to file return of income?

Individuals, HUF, AOP, BOI should file ITR if the income exceeds the basic
exemption limit of Rs 2.5 lakh. This limit is different for senior citizens (Rs 3
lakhs) and super senior citizens (Rs 5 lakh).

(b) Can I file return of income even if my income is below taxable limits?

Yes, you can file return of income voluntarily even if your income is less
than basic exemption limit

(c) What documents are to be enclosed along the return of income?

There is no need to enclose any documents with the return of income.

However, one should retain the documents to produce before any competent
authority as and when required in future.

(d) Should I disclose all my income in the return even if it is exempt?

Yes. Income from every source including exempt income must be

disclosed. The same can be shown under the Schedule EI.

(e) Should I e-verify to get the IT refund?

e-Verification of the income tax return filed electronically is mandatory to

complete the process of ITR filing. One should e-verify income tax returns within
the stipulated time. You can e-verify ITR by Aadhaar OTP, bank ATM, Electronic
Verification Code (EVC), and net-banking.
 (f) Can I take Section 87A rebate from tax on long-term and short-term
capital gains if there is no other income?

You can take rebate under Section 87A from tax on long-term and short-
term capital gains. However, if there is long-term capital gain from sale of equity
shares or equity oriented funds (Section 112A), you cannot adjust rebate under
Section 87A from tax on such LTCG.

Some advices

• Invest in tax saving instruments (e.g. LIC and FD etc.) upto 1,50,000/- a year.

• Employer’s contribution to NPS account is exempted. The contribution is above

the limit of 1.5 Lakh under Sec 80C.

• Employee’s contribution to NPS account upto Rs. 50000/- The contribution is

above the limit of 1.5 Lakh under Sec 80C.

• Buy a property, plot, flat and take a home loan to avail of benefits from IT
deductions on home loan. It will also be a good investment.

• Study any scheme well before investing. There are NO FREE LUNCHES.

• FDs also fall under Sec 80 C.

• You may invest in Sec 80 CCG- Rajiv Gandhi Equity Scheme for investments in
Equities- for savings upto Rs. 25000/- over and above Sec 80 C.

Disclaimer The above information are only for guidance and should be referred to in
conjunction with relevant Rules and Regulation of Income Tax Act available on income
tax department website i.e. www.incometax.gov.in.