written by Khatabook | July 2, 2021

Income Tax in India: Basics, Slabs and E-filing Process 2021

Let us understand about Direct Tax and Indirect Tax:

  • Direct Tax - The wealth or income of an individual directly attracts the Direct Tax. You cannot shift the burden of Direct Tax to someone else. Example - Income Taxes.
  • Indirect Tax - The price of goods or services attracts the Indirect Tax. Here, you can shift the burden of payment of tax to another person. The consumer has to pay the final payment of tax. Example of indirect tax - Goods and Services Tax (GST) or Customs Duty. 

Basics of Income Tax in India

The Income Tax Act, 1961 governs the levy of Income Tax in India. There are certain classifications made under this Act for different persons or assessee. A person or assessee under this Act includes:

  • An individual
  • Hindu Undivided Family (HUF)
  • Association of Persons (AOP)
  • Body of Individual (BOI)
  • A firm
  • A company
  • Any other assessee as described under this Act

Determination of Residential Status

For an individual, the duration of days in which he stayed in India determines his residential status. The days of his stay are computed for the previous financial year or previous year.

  • Assessment year - This is the year in which the income earned during the previous financial year is both assessed and taxed.

  • Previous Year - The year for which the income is chargeable to tax.
  • An assessee is classified into two main categories:
  • Resident - They are liable to pay tax on their global income. This includes the income earned from both India and outside India.
  • Non-residents - They are liable to pay taxes on the income accrued or deemed to be accrued in the previous financial year.
  • Resident individuals are further classified as under:
    • Individuals under 60 years of age.
    • Individuals aged 60 years or more but under 80 years.
    • Individuals aged 80 years or more.

Classification of Income Under Different Heads

There are five sources of Income:

  1. Salaries - Salaries, pensions, etc are taxable under this head.
  2. Income from House Property - Rental income earned from house property is taxable under this head.
  3. Profits and Gains from business or profession - Income from any business operation or profession is taxable under this head.
  4. Capital Gains - Profit from the sale of capital assets like mutual funds, land, house property, etc are taxable under this head.
  5. Income from Other Sources - Income which is chargeable to tax, but is not chargeable under the first four heads is taxable under this head. Example - interest from fixed deposits, saving bank account interest, winning from lotteries, etc.

An individual may have more than one source of income. In that case, compute his income first under the individual heads of income. The figures under the summary of all the sums computed under these heads are 'Gross Total Income'. 

Exemptions- There are some incomes that are wholly exempted from income tax (e.g. - agricultural income). Exclude these incomes completely as they will not form part of the 'Total Income'. 

Deductions - There are some deductions and allowances prescribed under each head of income. Consider them before reaching your net income chargeable to tax. Examples of these deductions are - 

  • municipal taxes and interest on loan under income from house property.
  • interest earned from PPF, etc.

Computation of Tax As Per Income Tax Slab

Income Tax Slabs: Old Regime

In the case of individual (resident or non-resident), HUF, AOP, BOI or any other artificial juridical person who is:

Under 60 years of age:

Income Range

Rate of Income Tax

up to Rs 250000

Nil

Rs 250001 to Rs 500000

5%

Rs 500001 to Rs Rs 1000000

20%

Above Rs 1000000

30%

60 years of age and above but less than 80 years of age:

Income Range

Rate Of Income Tax

up to Rs 300000

Nil

Rs 300001 to Rs 500000

5%

Rs 500001 to Rs 1000000

20%

Above Rs 1000000

30%

80 years of age and above:

Income Range

Rate of Income Tax

up to 500000

Nil

Rs 500001 to Rs 1000000

20%

Above 1000000

30%

The above slabs belonged to the old regime. Individuals and HUFs, now, have an option to pay tax at certain concessional rates, if they do not avail of certain exemptions/ deductions. Example - Leave Travel Concession, Standard deduction under 'Salaries', interest on housing loan on a self-occupied property, etc. The rates of the new regime are as follows:

Income Tax Slabs: New Regime

Income Range

Rate of Income Tax

Up to Rs 250000

Nil

From Rs 250001 to Rs 500000

5%

From Rs 500001 to Rs 750000

10%

From Rs 7500001 to Rs 1000000

15%

From Rs 1000001 to Rs 1250000

20%

From 1250001 to Rs 1500000

25%

Above 1500000

30%

Some of the deductions or exemptions allowed under the new regime are as follows:

  • Transport allowance for specially-abled individual
  • Conveyance allowance (incurred as a part of employment)
  • The Compensation received to meet the cost of travel
  •  Daily allowance

Surcharge - Surcharge is the amount of income tax charged at a certain rate if the income of an individual exceeds a certain limit. The following list is the rate of surcharge applicable to Individual/ HUF/ AOP/ BOI/ Artificial Juridical Person:

Range of Income

Rate of Surcharge

Total Income exceeds Rs 50 lakhs but less than Rs 1 Crore

10%

Rs 1 Crore and above, but less than Rs 2 Crore

15%

Rs 2 Crore and above, but less than Rs 5 Crore

25%

Rs 5 Crore and above

37%

 

Health and Education Cess - Health and Education cess is levied at the rate of 4% on the total amount of income tax plus surcharge. 

A resident individual (whose income does not exceed Rs 5,00,000), can avail rebate under section 87A under the Act. Deduct this rebate from the income tax before the calculation of health and education cess. The amount of rebate will be 100% of the income tax or Rs 12,500, whichever is lower. 

The exception to the above slabs:

Certain incomes are not taxable as per the slab presented above. One such income is income under the head 'Capital Gains'. Capital Gains are taxable as per the following:

  • Tax on Short Term Capital Gains (STCG) as per Section 111A:

Nature

Rate of Tax

Transfer of listed equity shares, units of equity-oriented fund and unit of business trust

15%, if Securities Transaction Tax (STT) is paid for such sale

Transactions arising in foreign currency on a recognized stock exchange located in an International Financial Services Centre (IFSC)

15%, even if STT is not paid

Transfer of other Short term Capital Assets

Normal rates of tax

  • Tax on Long Term Capital Gains (LTCG) under Section 112A:

Nature

Rates of Tax

The transfer of:
-listed equity shares, if STT is paid on acquisition and transfer of such shares.
-units of equity oriented fund and unit of business trust, if STT has been paid on such transfer
 

If Amount exceeds Rs 1000000, then @10%

Transaction arising on a recognized stock exchange located in an International Financial Services Centre (IFSC)

10%, even if STT not paid

  • In the above transactions under section 112A, the benefit of indexation and currency fluctuation is not available.
  • Tax on Long Term Capital Assets under Section 112:

Nature

Rate of Tax

Unlisted securities or shares of a closely held company

Non-corporate, non-resident/ foreign-company - 10% without the benefit of indexation and currency fluctuation
Other Assessees - 20% with indexation benefit

Listed securities (other than a unit) or a zero-coupon bond

10% without indexation, 20% with indexation benefit

Other Assets

20%
 

How To Calculate The Holding Period of An Asset?

Nature

Time

  • Security (other than unit) listed in a recognized stock exchange 
  • Unit of equity-oriented fund/ unit of Unit Trust Of India
  • Zero-Coupon Bond

Short term- If held for up to 12 months

Long term - If held for more than 12 months

  • Unlisted shares
  • Land or Building or both

Short Term - If held for up to 24 months

Long Term - If held for more than 24 months

  • Unit of debt-oriented fund
  • Unlisted securities other than shares
  • Other Capital assets

Short Term - If held for up to 36 months

Long Term - If held for more than 36 months

What is Income Tax Return?

Return of Income is a format where an individual furnishes the details of his income. The details include his total income and tax payable. Central Board of Direct Taxes (CBDT) notifies the format for filing of returns for different individuals. The details declared are classified as income under different heads, gross total income, deductions, exemptions, total income, and tax payable. For every Individual/ AOP/ BOI/ HUF/ Artificial Juridical Person, the ITR-V must be filed.

 

Also Read: Challan 280 : How To Pay Your Income Tax Online With Challan 280

Steps for E-filing of Income Tax Return for an Individual

  1. Visit the portal of https://www.incometaxindiaefiling.gov.in/home
  2. If you are not registered, then register to the portal by filling in the required details. Registration has four steps - 
    • Entering your basic details like PAN, residential status, name, date of birth, etc.
    • Fill up the registration form.
    • The portal will verify your details for registration purposes.
    • After verification, your registration will be successful.
  3. If you are already registered, then log in to the portal. Log in requires entering your user ID (PAN), Password, Captcha Code. Then press the login button.
  4. Click on the E-file menu and then click on the 'Income Tax Return' link.
  5. Then on the Income Tax Return Page:
    • PAN is auto-populated.
    •  Select the Assessment Year and ITR Form number.
    • Select the Filing type as 'Original or Revised Return'.
    • Select 'Submission Mode' as 'Prepare and Submit Online'.
  6. Click on continue.
  7. Read the instructions and fill in the required fields of the e-ITR Form. To avoid any loss of data, click on the 'Save Draft' button periodically. 
  8. Select the appropriate Verification option in the 'Taxes Paid and Verification' Tab. Choose any one of the following option to verify the Income Tax Return:
    • I would like to e-verify
    • I would like to e-verify later within 120 days from the date of filing.
    • I would not like to e-verify and would send the signed ITR-V through speed post or normal post to the address - 'Centralized Processing Center (CPC), Income Tax department, Bengaluru - 560500', within 120 days of filing.
  9. Click on the 'Preview and Submit Button'. Then verify all the data entered in the e-ITR.
  10. Submit the e-ITR form.
  11. If you chose the 'I would like to e-verify' option then e-verification is done through any of the following after entering Electronic Verification Code (EVC) or One Time Password (OTP). This EVC or OTP is valid only for 60 seconds. If you choose the other two options then the ITR will be submitted online but it is not verified. To complete the verification process, you need to send the signed ITR-V form to CPC.
  12. View the uploaded ITRs on the website of https://www.incometaxindiaefiling.gov.in/home

Details Required While Filing The Return

  • Personal details like name, address, contact details, etc.
  • Bank account details.
  • Income details.
  • Tax calculation.
  • Tax paid.

Conclusion

The above tax guide presents you with the basic concepts of Income Tax in India. It also gives a description of the slab rates, the process of e-filing of the income tax return for an individual. There can be mistakes incurred while filing the return. You can revise that return and rectify the mistake. You can also file a belated return if there is a delay in filing a return.

FAQs

How is advance tax calculated?

If your tax liability is Rs 10,000 or more in the previous financial year, then you are liable to pay advance tax. It is paid every quarter.

What if I do not file the return?

You will have to pay interest under section 234A for default in furnishing the return. 

Is the Income Tax applicable for residents of India?

No, this Act is also applicable for certain non-residents.

Is return mandatory where Income is Nil?

If you filed returns in the previous financial years, then you are required to file return in the current financial year. You must file a NIL return.

Is PAN mandatory while filing of return?

Yes, PAN is mandatory while filing the return.

How much fee is to be paid at the time of default in furnishing the return of income?

If the return is furnished on or before 31st December of the assessment year, then you have to pay Rs 5000. In any other case, it is Rs 10000.

How do I know if Government has received my amount of tax?

You can check it in the form 26AS under the self-assessment tab. The details of the tax deposited are shown here.

How to claim a refund in income tax?

To claim a refund, you need to log in to the income tax website. Go to 'My Account', then go to the 'Refund re-issue request' tab.

Who is a TRP?

You can hire a Tax Return Preparer (TRP) to assist you in filing ITR. The Income Tax Department conducts examination for TRPs. The one who qualifies it is authorized to act as a TRP.

How to locate a TRP?

You can visit www.trpscheme.com to locate your nearby TRPs.

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