Introduction

Taxation is one of the key ways for a government to generate revenue for societal welfare operations. Among the various taxes in the system, income tax in India is the one that is dealt with by everyone, including people, businesses, and organizations.

As a result, here are a few fundamentals you should be aware of to simplify your financial life and income tax in India.

What Is Income Tax In India?

The term “income tax” refers to the tax levied by a government to fund its different operations for the welfare of citizens. There are two kinds of taxes:

  • Indirect taxes, such as service tax, and VAT, have now been into Goods and Services Tax (GST).
  • Individuals, the Body of Individuals (BOI), the Association of Persons (AOP), the Hindu Undivided Family (HUF), and enterprises must pay it to the national government.
  • The amount of tax you pay is determined by your income and the tax slabs.

When Does The Income Tax Calculate?

Income tax is calculated on the yearly basis. However, you must first comprehend the distinction between the Financial Year and the Assessment Year.

1) The Financial Year:

The Financial Year or the Tax Year starts from the 1st of April to the 31st of March of the next year. No matter when you start your job, the tax year closes on 31st March and a new tax year begins on the 1st of April.

2) Assessment Year:

It is the year followed by the Financial Year and the year in which you file a return for the income tax paid. As a result, the tax paid for the tax year that started on 1 April 2020 and ended on 31 March 2021 is assessed in the year 2021-22, which is why the assessment year is the same.

Easy Guide For Income Tax Calculation For Individuals

What Are The Income Categories In India That Are Subject To Income Tax?

In India, income tax regulations are enacted under the provisions of the Income Tax Act. The following are the many income categories that are deemed taxable by the laws:

  1. Salaries
  2. Income from House Property
  3. Profits and Gains from Business or Profession
  4. Capital Gains
  5. Income from other sources

The income from all of the above heads is combined to determine taxable income.

What Is An Income Tax Return?

The tax form or forms used to file income tax with the Tax Authority are known as income tax returns. In other words, it is a record that states your income and the taxes you have paid and serves as a confirmation of your payments.

What Is The Purpose Of Filing An Income Tax Return (ITR)?

Filing ITR is a requirement imposed by the Government of India since it allows you to seek a refund if you have paid too much tax. Furthermore, failure to file an ITR results in penalties or legal consequences.

How To Calculate Income Tax?

To calculate tax, multiple tax slabs or rates are used, and the total tax payable is calculated. In general, income is taxable if it exceeds Rs 2,50,000 in the case of an individual, Rs 3 lakh in the case of a senior citizen, and up to Rs 5 lakh in the case of a super senior citizen.

Budget 2020 has provided an opportunity to choose between the current income tax regime and a new regime for the fiscal year 2021-22.

According to the finance minister, the new tax regime provides lower tax rates and new tax slabs while simultaneously eliminating tax exemptions, resulting in a smaller tax outlay for the taxpayer.

How Can You Know Which Tax Regimes Are Beneficial For You?

As a taxpayer, you have two choices available:

New Income Tax Structure- 

Forego all exemptions and deductions to benefit from lower tax rates.

Old Income Tax Structure- 

Take advantage of the exemptions and tax incentives available at the current income tax rates.

To determine which tax regime would be beneficial, i.e., result in lower tax due for an individual, consider his or her income composition and investments for the financial year 2021-22.

The following is the Income Tax Slab for the Financial Year 2021-22. (Both New and Old Regime)

Taxable Income (Rs.)Existing Tax RateNew Tax Rate*
Up to ₹2.5 LakhNilNil
₹2.5 – ₹5 Lakh5%5%
₹5 – ₹7.5 Lakh20%10%
₹7.5 – ₹10 Lakh20%15%
₹10 – ₹12.5 Lakh30%20%
₹12.5 – ₹15 Lakh30%25%
₹15 Lakh and above30%30%
*Applies to taxpayers under the age of 60.
Easy Guide For Income Tax Calculation For Individuals

Exemptions And Deductions From Income Taxes

It is now time for some positive news. You are well aware that the government grants tax deductions and exemptions. These tax breaks reduce your taxable income, resulting in fewer taxes. However, these are only available if you choose to pay taxes as per India’s previous income tax slabs.

1. Exemptions

Salary earners are eligible for exemptions. If you carefully examine the paycheck slip, you will notice that it has components such as base pay, travel allowance, House Rent Allowance (HRA), and others. Some of these earnings are not subject to taxation.

If you live in a rented residence, for example, you will receive HRA from your job. Even though it is a source of income, there is no need to pay taxes on it.

2. Deductions

Deductions are determined based on your overall income for the financial year. It includes all your investments and salary. 

To begin, salaried individuals are entitled to a standard deduction of ₹50,000 from their pay.

Section 80D: 

This section allows for a yearly tax deduction of up to ₹25,000 on premiums paid for health insurance coverage. If you purchase Mediclaim for your parents, you will be eligible for an additional deduction of up to ₹25,000.00.

Section 80E:

It allows for a tax deduction for interest paid on educational loan repayment.

Section 80G:

It allows for a tax deduction for donations made to certain charitable organizations and humanitarian funds.

Section 80EE:

It enables a yearly tax deduction of up to ₹50,000 for interest paid on a home loan repayment.

Section 80C: 

It allows a yearly tax deduction of up to 1.5 lakhs for investments in National Saving Certificates (NSC), Public Provident Funds (PPF), Sukanya Samriddhi Yojana (SSY), Unit-Linked Insurance Plans (ULIPs), life insurance, Employee Provident Fund (EPF), principal payment towards home loan, Equity-Linked Savings Scheme (ELSS), Senior Citizen Savings Scheme (SCSS), and many other schemes.

E-filing Of Income Tax Returns

You can complete the process online by using income tax e-filing. You can register with your Permanent Account Number by going to the Income Tax Portal (PAN). Following that, you must select the appropriate ITR form and complete the required sections. Then you can submit it and file the tax online.

How Did You Know About Your Tax Payment Information?

Once you have deposited the tax or another individual has deducted and deposited the tax on your behalf, the total amount of tax deposited against your PAN will be reflected in Form 26AS. The statement is available, download it from your account on the income tax e-filing website.

You can complete the process online by using income tax e-filing. You can register with your Permanent Account Number by going to the Income Tax Portal (PAN). Following that, you must select the appropriate ITR form and complete the needed parts. Then you can submit it and file the tax online.

Conclusion

You can easily calculate the due amount and pay it on time now that you understand the fundamentals of income taxation. It is usually suggested that you extensively investigate all potential tax benefits to obtain the greatest feasible deduction.

Finaxis is the most convenient way to file your income taxes. You don’t have to worry about keeping up with all of the changes or being confused about which regime to choose. Contact us and our professionals will walk you through the process and file your returns for you.