Income Tax in India

       Income Tax in India

There are two types of taxes in India – direct and indirect.

A direct tax is a tax you pay on your income directly to the government. Indirect tax is a tax that restaurants, theatres and e-commerce websites charge you on for goods or a service. This tax is, in turn, passed down to the government. Indirect taxes take many forms: service tax on restaurant bills and movie tickets, value added tax or VAT on goods such as clothes and electronics.
Goods and services tax, which has recently been introduced is a unified tax that has replaced all the indirect taxes that business owners have to deal with.

Let us discuss the entire process of income tax in India.

31 January	31 March	31 July	Oct – Nov
Deadline to submit your investment proofs	Deadline to make investments under Section 80C	Last date to file your tax return	Time to verify your tax return

Income Tax Basics

Everyone who earns or gets an income in India is subject to income tax. (Yes, be it a resident or a non-resident of India ). Also read our article on Income Tax for NRIs. Your income could be salary, pension or could be from a savings account that’s quietly accumulating a 4% interest. Even, winners of ‘Kaun Banega Crorepati’ have to pay tax on their prize money.
For simpler classification, the Income Tax Department breaks down income into five heads:

Head of Income	Nature of Income covered
Income from Salary	Income from salary and pension are covered under here
Income from Other Sources	Income from savings bank account interest, fixed deposits, winning KBC
Income from House Property	This is rental income mostly
Income from Capital Gains	Income from sale of a capital asset such as mutual funds, shares, house property
Income from Business and Profession	This is when you are self-employed, work as a freelancer or contractor, or you run a business. Life insurance agents, chartered accountants, doctors and lawyers who have their own practice, tuition teachers

Tax Slabs

People’s incomes are grouped into blocks called tax brackets or tax slabs. And each tax slab has a different tax rate.

In India, we have four tax brackets each with an increasing tax rate.

• Income earners of up to 5 lakhs
• Income earners of between 5 lakhs and 10 lakhs
• And those who make more than 10 lakhs per year

Income Range	Tax rate	Tax to be paid
Up to Rs.2,50,000	0	No tax
Between Rs 2.5 lakhs and Rs 5 lakhs	5%	5% of your taxable income
Between Rs 5 lakhs and Rs 10 lakhs	20%	Rs 12,500+ 20% of income above Rs 5 lakhs
Above 10 lakhs	30%	Rs 1,12,500+ 30% of income above Rs 10 lakhs

This is the income tax slab for FY 2017-18 for taxpayers under 60 years. There are two other tax slabs for two other age groups: those who are 60 and older and those who are above 80.

A word of note: People often misunderstand that if they earn let’s say Rs.12 lakhs, they will be paying a 30% tax on Rs.12 lakhs i.e Rs.3,60,000. That’s incorrect. A person earning 12 lakhs in the progressive tax system, will pay Rs.1,12,500+ Rs.60,000 = Rs. 1,72,500.

Check out the income tax slabs for previous years and other age brackets.

Exceptions to the Tax Slab

Capital gains are taxed depending on the asset you own and how long you’ve had it.

Type of capital asset	Holding period	Tax rate
House Property	Holding more than 24 months Holding less than 24 months	20% Depends on slab rate
Debt mutual funds	Holding more than 36 months Holding less than 36 months	20% Depends on slab rate
Equity mutual funds	Holding more than 12 months Holding less than 12 months	Exempt 15%
Shares (STT paid) Shares (STT unpaid)	Holding more than 12 months Holding less than 12 monthsHolding more than 12 months Holding less than 12 months	Exempt 15%  20% As per Slab Rates
FMPs	Holding more than 36 months Holding less than 36 months	20% Depends on slab rate

Indians living abroad or Indians earning foreign income are also taxed differently based on their residential status and their income in India.

If you are a NRI, only your income earned or accrued in India is taxable.
If you are resident Indian for that financial year, then your global income is taxable.
Check your residential status on ClearTax.

Calculating Income Tax

You’ll just need your payslip. The government provides plenty of tax benefits and credits that taxpayers you can take advantage of. Read our article on Section 80C to know more. The government keeps introducing and altering tax slabs, schemes and tax benefits, so it’s a good idea to keep up with the Budget.

Income Tax Calculator

Filing your Income Tax Return

• Filing income tax return online: The process
  • E-file online at www.cleartax.in
    • ClearTax is a more complete and better alternative to filing on the income tax website — www.incometaxindiaefiling.com
    • ClearTax is for more than just e-filing your income tax return. ClearTax helps you claim all the deductions you’re eligible for and helps you invest.
  • Send ITR V or e-verify your tax return  
  • Get income tax refund

• The deadline to e-file your income tax return is 31 July.

• There’s income tax return form ranging from ITR 1 to ITR 7 for different types of income. Some income tax forms are longer than the others and they may need additional disclosures such balance sheet and a profit and loss statement.

• The documents you are going to need to file your tax return are largely going to depend on your source of income. The only documents you are going to need is your Form 26AS and Form 16 if you are salaried.

• Here’s a guide to e-filing your first tax returnon ClearTax.

Tax deductions

There are broad themes to what the government incentivizes. These are covered under Section 80 of the Income Tax Act. Here they are:

Home ownership

• Stamp duty and Registration under Section 80C
• Home loan principal and interest
• First time homeowner benefit of Rs.50,000 under Section 80EE

Tax deduction on home purchase with a home loan in FY 2017-18

Deduction on	Maximum allowed (for self-occupied house property)	Maximum allowed (for property on rent)
Stamp duty and registration + principal	Rs.1,50,000 within the overall limit of Section 80C	Rs.1,50,000 within the overall limit of Section 80C
Deduction on home loan interest under Section 24	Rs.2,00,000	No cap (but rental income must be shown in the income tax return)
Deduction for first-time homeowners under Section 80EE *certain conditions apply	Rs.50,000	–

Home renting

• House Rent Allowance or HRA (for salaried only)
  Given how many Indians move cities for work, this is a common allowance most salaried individuals can find in their payslips. If you are renting an apartment, be sure to claim this in your tax return.
• Section 80GG (if you are renting and don’t get HRA)
  If you are not salaried, or you are still salaried, but don’t get HRA, then you can claim deduction for rent under Section 80GG. Learn more.