Business

What is Income Tax? Understanding Income Tax Slabs, and Filing Process

Income tax is a type of direct tax levied by the Central government on the income of an individual or business during a financial year. Income tax is calculated on the gross total income of an individual or a business during the financial year. Central government utilizes this tax to develop infrastructure, healthcare services, education facilities, subsidies and other welfare schemes to the population. 

The tax is computed basis the income tax slab rates and the computation rules as per the Income tax Act. Here is a detailed explanation of tax slabs, and how to calculate income tax.

Who Needs to Pay Income Tax?

The different taxpayers as categorised by Income Tax Act:

  • Individuals
  • HUF (Hindu Undivided Family)
  • Firms 
  • Companies
  • Association of Persons (AOP)
  • Body of Individuals (BOI)

Further these individuals are classified as residents and non-residents. Residents individuals pay tax on the income earned globally, in India and abroad. While non residents pay taxes on income earned only in India. The residential status for that particular year needs to be determined to understand the status.

Tax slabs for individuals are further grouped under 3 categories-

  • Individuals less than 60 years of age
  • Individuals who are more than 60 years but less than 80 years
  • Individuals who are more than 80 years of age

The Income Earned Under Different Sources Are:

  • Income from other sources 
  • Income from House Property
  • Income from Capital Gains
  • Income from Business and profession 
  • Income from Salary

Income Tax Slabs:

The income tax slabs are for individuals, HUF, Association of Persons (AOP), Body of Individuals (BOI). For companies and firms the tax calculated is fixed and is on their tax profits. 

Tax slabs for Old Tax regime:

Income Range Tax Rate Tax to be Paid
Upto Rs. 2.5L 0 Nil
Between Rs 2.5L and Rs.5L 5% 5% of your taxable Income
Between Rs. 5L and Rs. 10L 20% Rs. 12,500 + 20% of income above Rs. 5L
Above 10L 30% Rs. 1,15,500 + 30% of income above Rs 10L

Explaining the above slab with an example:

So, for a person who is earning Rs. 12Lakhs, will pay Rs.1,72,500 Lakhs as tax i.e Rs. 1,15,500 + (30% of 2 lakhs i.e Rs. 60,000)

Deductions and Allowances:

  • Leave travel Allowances (LTC)
  • House Rent Allowance (HRA)
  • Deductions under Section 80C to Section 80U
  • Standard deduction of Rs.50000
  • Deduction of interest paid on home loan

Income Tax Under the New Regime:

New Regime Slab Rates New Regime Slab Rates
Income from Rs.2.5L to Rs.5L  

Income from Rs. 5L to Rs. 7.5L

Income from Rs. 7.5L to Rs. 10L

Income from Rs. 10L to Rs. 12.5L

Income from Rs. 12.5L to Rs. 15L

Income above Rs 15L

5%

10%

15%

20%

25%

30%

Deductions and Allowances:

Deductions and allowances are not allowed if the Taxpayers opt for the new regime. However, there are few deductions available such as:

Transport allowances in case of specially-abled person

Compensation allowed in case of travel on office tour or transfer

Income Tax Calculation:

The income of the individual should be calculated basis the tax slabs after deductions from the gross income in case of new regime. Incase of new regime as there are no deductions, individuals can directly calculate basis the income tax slab.

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