Income Tax is a direct tax levied by the government on individuals and entities based on their income. It is governed by the Income Tax Act, 1961 and administered by the Central Board of Direct Taxes (CBDT).
“Income Tax is a mandatory financial charge imposed by the government to fund public services.”
The year in which income is earned. It usually starts from 1st April and ends on 31st March.
The year following the previous year in which tax is assessed and paid.
Any person who is liable to pay tax or any other sum under the Income Tax Act.
The total income computed under different heads before deductions.
Income earned from agricultural land in India. It is exempt from tax but considered for rate determination.
The basis of charge determines who is liable to pay tax and at what rates. Income tax slabs vary based on individual categories.
| Income Range | Tax Rate |
|---|---|
| Up to ₹2,50,000 | Nil |
| ₹2,50,001 - ₹5,00,000 | 5% |
| ₹5,00,001 - ₹10,00,000 | 20% |
| Above ₹10,00,000 | 30% |
Residents are taxed on their global income, whereas Non-Residents are taxed only on income earned in India.
The salary income includes basic salary, allowances, and perquisites. The taxable salary is calculated after applicable deductions.
Final taxable salary is computed after deducting these amounts.
Understanding the basics of Income Tax is crucial for individuals and businesses to comply with legal requirements and manage their finances effectively.
Income from house property is taxable under the Income Tax Act if the property is owned by the taxpayer and is not used for business purposes.
| Particulars | Amount (₹) |
|---|---|
| Gross Annual Value (GAV) | 6,00,000 |
| Less: Municipal Taxes Paid | (40,000) |
| Net Annual Value (NAV) | 5,60,000 |
| Less: Standard Deduction @ 30% | (1,68,000) |
| Less: Interest on Home Loan | (2,00,000) |
| Taxable Income from House Property | 1,92,000 |
Profits and gains from business or profession are taxable under the Income Tax Act after deducting allowable expenses.
| Particulars | Amount (₹) |
|---|---|
| Net Profit as per Profit & Loss A/c | 9,00,000 |
| Add: Disallowed Expenses | 80,000 |
| Less: Allowable Deductions | (1,50,000) |
| Taxable Income from Business | 8,30,000 |
Depreciation is allowed on assets used for business purposes at prescribed rates.
| Asset Type | Depreciation Rate |
|---|---|
| Building (Commercial) | 10% |
| Plant & Machinery | 15% |
| Furniture & Fixtures | 10% |
Capital Gain refers to the profit earned from the sale of a capital asset such as property, stocks, bonds, etc.
"Capital Gains arise when a capital asset is sold at a price higher than its cost of acquisition."
| Particulars | Amount (₹) |
|---|---|
| Full Value of Consideration | 10,00,000 |
| Less: Cost of Acquisition | (5,00,000) |
| Less: Cost of Improvement | (50,000) |
| Less: Expenses on Transfer | (30,000) |
| Capital Gain | 4,20,000 |
Some exemptions are available under Sections 54, 54B, 54EC, etc.
Income not taxable under any other head is classified under "Income from Other Sources."
Clubbing of income refers to the inclusion of another person's income in the taxpayer's total income under certain conditions as per the Income Tax Act.
Set-off of losses allows taxpayers to reduce taxable income by adjusting losses against profits.
Some losses that cannot be set off in the same year can be carried forward for future years.
Exempted incomes are not included in total taxable income. Some common examples are:
| Nature of Income | Exemption Limit |
|---|---|
| Agricultural Income | Fully Exempt |
| Gratuity (Government Employees) | Fully Exempt |
| Gratuity (Private Employees) | ₹20 Lakh |
| Provident Fund Withdrawals (after 5 years) | Fully Exempt |
| Gifts from Relatives | Fully Exempt |
TDS is a mechanism where tax is deducted at the source of income itself. It ensures tax collection in advance.
| Nature of Payment | TDS Rate |
|---|---|
| Salary | As per slab rates |
| Interest from Banks | 10% |
| Contractor Payments | 1% for individuals, 2% for companies |
| Rent (above ₹50,000/month) | 5% |
This unit covers crucial aspects of taxation, including income clubbing, loss set-offs, exemptions, and tax deductions at source, all of which significantly impact tax planning.
This section covers the taxation of individuals and Hindu Undivided Families (HUFs), deductions available, and tax computation.
Total income is computed after deducting applicable exemptions and deductions.
| Particulars | Amount (₹) |
|---|---|
| Income from Salary | 7,00,000 |
| Income from House Property | 1,50,000 |
| Income from Business/Profession | 3,00,000 |
| Income from Capital Gains | 2,50,000 |
| Gross Total Income | 14,00,000 |
| Less: Deductions under Chapter VI-A | (2,00,000) |
| Net Taxable Income | 12,00,000 |
Tax is computed based on slab rates.
HUF is a separate entity for tax purposes and has the same tax slabs as individuals.
Individuals and HUFs must pay advance tax if their tax liability exceeds ₹10,000 in a financial year.
| Due Date | Percentage of Tax Payable |
|---|---|
| 15th June | 15% |
| 15th September | 45% |
| 15th December | 75% |
| 15th March | 100% |
Understanding tax deductions, computation methods, and advance tax payment ensures proper tax compliance and savings for individuals and HUFs.