Income Tax

The Government’s primary and largest source of revenue comes from taxes. Tax revenue is used by the government for a number of initiatives aimed at the growth of the country. The three-tier federal structure of the Indian tax system is well-designed.

The Central and State Governments, along with local municipal entities make up the tax structure. Income tax in India is in two different forms: Direct and indirect taxes.

What is Income Tax?

A tax levied against people or organizations (taxpayers) in relation to their income or profits is known as an Income Tax (commonly called Taxable Income). Tax rates multiplied by taxable income are typically used to calculate income taxes. Tax rates might change depending on the taxpayer’s attributes and source of income.

As taxable income rises, the tax rate can also (be referred to as graduated or progressive tax rates). The corporate tax, which is often assessed at a fixed rate, is the name given to the tax charged on businesses. Individual income is frequently taxed at progressive rates, meaning that the tax rate is increased for each subsequent unit of income (for example, the first INR 10,000 of income is taxed at 0%, the following INR 10,000 is taxed at 1%, etc.). The majority of tax laws exempt local charitable groups. Investment income may be subject to a different tax rate than other types of income, which rate is typically lower. Credits of all kinds that lower tax may be granted. Some jurisdictions impose a tax on an alternative base or measure of income in addition to income tax, whichever is higher.

Types of Taxes in India

The two main types of income tax in India are those levied by the Central and State Governments:

1. Direct Taxes
2. Indirect Taxes

Direct Tax

Individuals and corporate entities are subject to Direct Income Tax in India. There is no transferable right to these taxes. The income tax is the most effective form of direct tax for individual taxpayers. This charge is assessed each year (1st April to 31st March). If your annual income exceeds the minimum exemption limit, you must pay income tax, according to the Income Tax Act of 1961. Under the Act’s numerous parts, you can receive tax benefits.

Indirect Tax

An indirect tax is imposed on goods and services before the customer, who ultimately pays the indirect tax as part of the market price of the purchased goods or services. Indirect taxes include Sales Taxes, Per-Unit Taxes, Value Added Taxes (VAT), Goods and Services taxes (GST), Excise Taxes, Consumption Taxes, and Tariffs.

Direct Taxes	Indirect Taxes
It is levied on income and activities conducted.	It is levied on products or services.
The burden of tax cannot be shifted in the case of direct tax.	The burden of tax shifted to indirect taxes.
It is paid directly by the person concerned.	One person pays it but he recovers the same
It is paid after the income reaches the hands of the taxpayer;	It is paid before goods/service reaches the taxpayer.
Tax collection is difficult.	Tax collection is relatively easier.
Example Income tax, wealth tax etc.	Example GST, excise duty custom duty sale tax service tax

Who Pays Income Tax?

Any Indian citizen under 60 who earns more than 2.5 Lakh Rupees is required to pay income tax. An individual must also pay taxes to the Indian Government if they are above 60 and have an annual income of more than Rs. 3 lakh. In addition, the following businesses that earn money are subject to direct tax obligations:

• Hindu Undivided Family (HUF)
• Body of Individuals (BOI)
• Association of Persons (AOP)
• Local Authorities
• Corporate firms
• Companies
• All Artificial Juridical Persons

Taxpayers and Income Tax Slab Rates

Based on a specific set of criteria, the Indian Government assesses tax on the money of the taxpayer. Different income tax slab rates are established for various income groups under a slab system. Simply put, it indicates that you pay taxes in accordance with your income. You will be required to pay the government more taxes if your income is higher. This tax policy indirect taxa fair tax system.

The government releases a budget each year; this annual budget serves as the basis for changing the income tax slabs.

Advance Tax

Advance tax is payable by individuals with income sources other than their salary. This remains applicable to rent capital gains from shares, fixed deposits etc. This can be paid online or through certain banks. Advance tax is typically called ‘Pay as you earn’ and is payable if your tax liability increases over INR 10,000 in a financial year. This must be paid in instalments by the due dates established by the Income Tax Department.

“Advance tax” refers to the tax paid in advance for income received during a specific fiscal year. Typically, tax is due at the time income is earned. The payer must nonetheless estimate their revenue for the entire year in accordance with the tax regulations of advance tax. And the tax is paid at particular intervals depending on this estimation.

New and Old Regime- Income Tax Slab Rates for Fiscal Years 2021–2022

The new and old regimes of income tax slabs for the fiscal years of 2021-22 have been mentioned below for your convenience.

Income Tax Slab	Existing Regime Slab Rates for FY 20-21 (AY 21-22)			New Regime Slab Rates for FY 20-21 (AY 21-22)
	Resident Individuals & HUF < 60 years of age & NRIs	Resident Individuals & HUF > 60 to < 80 years	Resident Individuals & HUF > 80 years	Applicable for All Individuals & HUF
Rs 0.0 – Rs 2.5 lakh	NIL	NIL	NIL	NIL
Rs 2.5 – Rs 3.00 lakh	5% (tax rebate u/s 87a is available)	NIL	NIL	5% (tax rebate u/s 87a is available)
Rs 3.00- Rs 5.00 lakh		5% (tax rebate u/s 87a is available)	NIL
Rs 5.00 – Rs 7.5 lakh	20%	20%	20%	10%
Rs 7.5 – Rs 10.00 lakh	20%	20%	20%	15%
Rs 10.00 – Rs 12.50 lakh	30%	30%	30%	20%
Rs 12.5 – Rs 15.00 lakh	30%	30%	30%	25%
> Rs 15 lakh	30%	30%	30%	30%

ITR Filing Procedures

There are two methods a user can submit the Income Tax Return (ITR):

Offline

• Save the created XML file
• fill out the form offline
• download the relevant ITR
• and then upload it

The user must download one of the following ITR utilities in order to submit the ITR by electronically utilising the upload XML method:

Utilising Excel

Useful Java

Follow these instructions to obtain the Excel or Java utility, then create and upload the XML:

1. Visit the official income tax e-filing website
2. Click “Downloads > IT Return Preparation Software” to access the appropriate ITR programme.
3. After downloading a utility ZIP file, unpack it and then launch the programme from the extracted folder. (Refer to the “Read me” document for more details and prerequisites.)
4. Validate all the tabs of the ITR form and Calculate the Tax.
5. Generate and Save the XML.
6. log in to the e-Filing portal by entering your user ID (PAN), Password, and Captcha code and click ‘Login’.
7. Click on the ‘e-File’ menu and click the ‘Income Tax Return’ link.
8. The “Income Tax Return” link can be found by selecting the “e-File” menu.
9. Steps to take on the Income Tax Return Page are as follows:

• PAN will automatically fill in.
• Choose “Assessment Year”
• Choose “ITR form Number”
• “Filing Type” should be set to “Original/Revised Return.”
• Choose “Upload XML” for “Submission Mode”

10. To confirm the income tax return, select one of the following options:

• Certificate for Digital Signature (DSC).
• OTP for Aadhaar.
• Using Prevalidated Bank Account Information for EVC.
• Using Prevalidated Demat Account Information for EVC.
• EVC that has already been created using My Account
• Create an ATM or EVC option. Such EVCs have a 72-hour validity window starting at the time of generation. Remind me, please.
• I would like to send a signed ITR-V to the “Centralized Processing Center, Income Tax Department, Bengaluru – 560500” however I do not want to e-verify this income tax return.
• Select “Continue”
• ITR XML file should be attached.
• When selecting the DSC verification option, attach the signature file that was produced by the DSC management tool.
• Aadhaar OTP is a method of verification, Enter the Aadhaar OTP that was sent to the UIDAI-registered mobile number.
• Enter the EVC obtained on the mobile number associated with the Bank or Demat Account as appropriate. EVC through Bank account, Demat account, or Bank ATM.
• The ITR will be submitted regardless of the other two verification options, but the filing procedure is not complete until the ITR is validated. Either the signed ITR-V should be forwarded to CPC, Bengaluru, or the submitted ITR should be e-Verified later by using the “My Account > e-Verify Return” option.
• Send the ITR in.
• See the ITR that was posted

Online

1. Go to the official website and access the Income Tax e-Filing portal.
2. Enter your user ID (PAN), password, and captcha code to log in to the e-Filing portal, then click “Login.”
3. The “Income Tax Return” link can be found by selecting the “e-File” menu.
4. On the tax return page:

• PAN will automatically fill in.
• Choose “Assessment Year”
• Choose “ITR Form Number”
• “Filing Type” should be set to “Original/Revised Return.”
• Submit the required online under “Submission Mode”

5. Select “Continue”
6. Read the instructions attentively and complete all the necessary fields on the online ITR form that apply to you.

Note: Click the “Save Draft” button regularly to save the input ITR details as a draught in order to prevent data loss or rework caused by session time out. The saved draught will be accessible for 30 days after it was saved, until the date the return was filed, or until the notified ITR’s XML schema did not change (Whichever is earlier).

7. In the “Taxes Paid and Verification” tab, select the appropriate Verification option.

Within 120 days after the filing date, I want to e-Verify.

8. I choose to send my signed ITR-V to the “Centralized Processing Center, Income Tax Department, Bengaluru – 560 500” within 120 days of the filing date instead of using e-Verification.
9. Verify all of the information submitted in the ITR, then click the “Preview and Submit” button.
10. Submit the ITR.
11. When selecting the “I would want to e-Verify” option, you can e-Verify using any of the following procedures by providing the EVC/OTP when prompted.

EVC produced by a bank ATM or using the Generate EVC option in My Account

• Aadhaar OTP
• Prevalidated Bank Account
• Prevalidated Demat Account

Although the ITR will be submitted if the other two verification choices are selected, the ITR filing procedure is not complete until the ITR is confirmed. Either the signed ITR-V should be forwarded to CPC, Bengaluru, or the submitted ITR should be e-Verified later by using the “My Account > e-Verify Return” option.

12. In the event that the EVC/OTP is not input within 60 seconds, the Income Tax Return (ITR) will be submitted automatically. The submitted ITR needs to be confirmed later by emailing a signed ITR-V to CPC or using the “My Account > e-Verify Return” option.

How to File an ITR Electronically

The ability to file an income tax return electronically (e-filing) is made available by the Income Tax Department. Before going over the procedures for filing an income tax return electronically, it is crucial for a taxpayer to maintain the records needed for data reporting and calculation.

1. Tax and income calculation
2. Form 26AS and Tax Deducted at Source (TDS) Certificates
3. Select the appropriate income tax form.
4. ITR software download from the Income Tax Portal

1. Put your information in the downloaded file.
2. Verify the Data You’ve Entered
3. Change the file’s format to XML
4. Upload XML file to the Income Tax Portal.

Benefits and Uses of Filing an Income Tax Return

Most people frequently consider filing income tax returns to be a laborious task. Because of this, many people choose not to file their taxes. You must make sure to file your returns each year as a responsible citizen. Every working Indian has a moral obligation to do this.

You can benefit from filing an ITR as well. Here are some of the numerous advantages of submitting an income tax return for you.

It serves as legal documentation

Income Tax Return is of great legal significance. It is noted with the authorities. It serves as evidence in two ways:

• Identity Proof

The return that you complete may be required as identification in a number of circumstances, including when requesting an AADHAR card or any other document. It is also recognised by the government as valid proof of residence.

• Income Proof

The ITR form includes a thorough list of all of your incomes and spending, as was previously mentioned. The tax you need to file is determined based on this. Since some transactions, like the acquisition of property, do need you to present proof of income, ITR can also be utilised as such.

Can aid in your deduction claims

The government permits you to take various deductions in order to lighten the burden on taxpayers and motivate more individuals to pay their taxes.

• By taking advantage of certain exemptions and deductions, you can lower the amount of tax you ultimately owe by making certain investments.
• Rebates and TDS can also be reclaimed.

However, you must file an income tax return in order to be eligible for these tax breaks. You are not eligible to make a deduction if your ITR has not been filed.

Important Document for Loan Applications

Financial institutions request certain paperwork from you when you decide to apply for a loan to buy something, such as a car or a new home for your family or your business.

• Adhaar card
• Driver’s license
• Photo ID
• PAN card

Your income proof is one vital document that is requested. ITR for the previous three years was frequently requested by banks. This is done to determine if you will be able to repay the loan given your history and present financial circumstances.

ITR is helpful not only when requesting bank loans, but it can also help you apply for a credit card. Before providing you with a card, credit card issuers also inquire about your previous earnings and tax returns.

Aids Travel Plans Abroad

There are several formalities to fulfil when travelling abroad. Your plans to travel overseas may be thwarted if you fail to file your ITR. ITR forms are one of the paperwork that is needed to enter the nations you intend to go to.

This is due to the following reasons:

• A history of timely filing income tax returns strengthens your application and increases your chances of being granted a visa.
• It provides the embassy with information about your financial situation.

Avoid Punishment and Penalties

The Income Tax Act of 1961 governs the taxes that are applicable to you. So, if you earn more than the exempted amount, you must pay taxes. Therefore, if you are qualified to pay taxes on your income but do not file your income tax returns, you will be penalised.

A fine of up to Rs 5000 might be assessed by the income tax officer. You may also face further severe penalties if you fail to file your returns. To avoid these fines and penalties, you should file an ITR.

Losses are transferable

The Income-tax Act of 1961 has provisions for carrying over losses from one year to the next in sections 70 and 71. This indicates that your loss may be carried over to the following evaluation year.

Here are a few instances:

• Losses from the residential property may be carried over for the subsequent eight assessment years and deducted from residential property income.
• Business losses may be carried over and compensated with upcoming revenue. Losses cannot be carried forward or offset if an income tax return is not filed.

The nation benefits as much as you when you file your income tax return. The government uses the taxes you pay to strengthen the nation’s infrastructure and other services like healthcare and defence.

The more people who register, the more money the government can spend to give us a good country.

Calculating Tax Obligations

The amount of tax due depends on factors such as the type of income, the source, the taxpayer’s age, and any qualified investments or exemptions.

India’s taxation is governed by the comprehensive Income Tax Act, of 1961. Tax collection is based on a taxpayer’s residency status during each tax year (April through March). Indian citizens are required to pay taxes on their worldwide income, which includes both domestic and foreign income. Only the income from India must be taxed for non-residents.

Step 1: Determine your annual gross revenue

Five sources of revenue are as follows:

Head of income	Income covered
Salary	Included in wage and pension income are items like housing rent assistance and gratuities, among others. Certain exemptions and perquisite valuations are subject to established rules.
Business and Profession	Profits made by independent contractors, attorneys, etc.
House Property	Getting a property to rent
Capital Gains	Income from the sale of shares, mutual funds, real estate, etc.
Other Sources	Income from savings accounts, fixed deposit interest, etc.

Step 2- Identify your net taxable income.

Your taxable income is decreased by saving and investing during certain tax deductions. Here are a few illustrative examples:

Type	Eligibility P.A.
Standard Deduction	No matter what investments or expenses they make, all salaried taxpayers are eligible to get Rs. 50,000.
Section 80C	For investments and expenses like PPF, PF, home loans, term insurance premiums, kid tuition fees, etc., you may claim up to Rs. 1.5 lakh.
Section 80CCD(1B)	Over and beyond the Rs. 1.5 lakh limit under section 80C, you may deduct Rs. 50,000 for investments in NPS.
Section 80D	Premiums paid for your family’s and parent’s health insurance policies
Section 80TTA	Interest on savings accounts up to Rs. 10,000.
Section 24	For home loans, the interest component of the annual EMI paid can be written off up to a maximum of Rs. 2 lakh.

Step 3: Calculating your total tax liability and arriving at your net taxable income

You obtain the net taxable income on which tax is due based on your tax slab by deducting all allowable deductions from your gross taxable income. The following tax slabs are available: – 

Total income in Rs.	Tax rates
Up to 250,000	NIL
250,001 to 500,000	5%
500,001 to 1,000,000	20%
1,000,001 and above	30%

New tax regime:

As an alternative, a person may choose to compute their taxes under the new tax system. For individuals who do not want to use numerous deductions and exemptions like HRA, Standard deduction, LTA, etc., a new tax system is advantageous. Depending on the benefits, an individual may select a different tax regime each year. While the former tax system had a higher tax rate but allowed for more deductions, the new system has a lower tax rate but fewer deductions.

Total Income in Rs.	Tax Rates
Up to 250,000	NIL
250,001 to 500,000(c)	5%
500,001 to 750,000	10%
750,001 to 1,000,000	15%
1,000,001 to 1,250,000	20%
1,250,001 to 1,500,000	25%
1,500,001 and above	30%

1. The baseline exemption cap for residents who are sixty years of age or older but under eighty is Rs. 300,000.
2. The baseline exemption threshold for residents who are 80 years of age or older is Rs. 500,000.
3. Residents with total incomes up to Rs. 500,000 are eligible for a tax rebate of up to Rs. 12,500 or 100% of the tax, whichever is less.
4. The following Health and Education Cess (the “Cess”) and relevant Surcharge (subject to marginal reduction) will further raise tax rates:

A tax slab exception:

Not all income is subject to slab taxation. The exception is capital gains, which are taxed based on the asset you possess and how long you’ve held it. An asset’s holding time, which varies depending on the asset, defines whether it is long-term or short-term.

Step 4: Calculate your net tax obligation

The health and education cess of 4% must be added to your tax if your taxable income exceeds Rs. 5 lakhs in order to determine the total amount due. High incomes will be charged a fee as follows:

Total income in Rs.	Surcharge*
Exceeds 5,000,000 but less than 10,000,000	10%
Exceeds 10,000,000 but less than 20,000,000	15%
Exceeds 20,000,000 but less than 50,000,000	25%
Exceeds 50,000,000	37%

Step 5: Subtract taxes already paid.

Subtract advance tax payments made for the year, such as TDS and TCS. Before completing the income tax return, the total tax due will be rounded up and paid as self-assessment tax.

Consider a guy who makes an income of Rs. 12 lacs and invests Rs. 1.5 lacs in mutual funds that reduce taxes. We can determine the person’s tax obligation as follows:

Note: The above tax liability has been calculated assuming that the individual is below the age of 60 years.

Particulars	Tax under old regime (Rs.)	Tax under new regime (Rs.)
Gross taxable income	12,00,000	12,00,000
Less:
Deductions under Chapter VI-A – 80C	(1,50,000)	–
Taxable Income	10,50,000	12,00,000
Tax amount for Rs. 0 – 2.5 lacs	0	0
Tax amount for Rs. 2.5 lacs – Rs. 5 lacs	Tax @5% = 0.05*(500000- 250000) = 12,500	12,500
Tax amount for Rs. 5 lacs – Rs. 7.5 lacs	Tax @20% = 0.2* (7,50,000 -5,00,000) = 50,000	Tax @10% = 0.1* (7,50,000 -5,00,000) = 25,000
]Tax amount for Rs. 7.5 lacs – Rs. 10 lacs	Tax @20% = 0.2* (10,00,000 -7,50,000) = 50,000	Tax @15% = 0.1* (10,00,000 -7,50,000) = 37,500
Tax amount for Rs. 10 lacs – Rs. 10.5 lacs	Tax @30% = 0.3* (10,50,000 -10,00,000) = 15,000
Tax amount for Rs. 10 lacs – Rs. 12 lacs		Tax @20% = 0.2* (12,00,000 -10,00,000) = 40,000
Total Tax amount	127,500	115,000
Add: Education cess	5,100	4,600
Total Tax Liability	132,600	119,600

Sidenote: The calculation of the aforementioned tax liability made the assumption that the individual was under the age of 60.

Key Takeaways:

India has progressive tax rates so that people with higher incomes pay more in taxes.

By making approved investments or expenditures in accordance with different sections like 80 C, 80 D, etc., one can lower their tax obligation. If you are legally required to pay taxes, make sure you do so and file your returns on time to avoid interest, fines, and other repercussions.

Sidenote:

Please be aware that while we have taken into account the tax rates that will be in effect for the financial year 2021–2022 the rates and clauses could change in the future. The information in this chapter is only provided for informational purposes. We’d encourage you to speak with a tax professional before making any transaction.

Important Tax Dates for 2022

The ITRS can penalise you severely with interest and fines if you miss a tax deadline. As an illustration, the typical fine for failing to submit your annual tax return by the deadline is 5% of the total amount payable for each month that your return is late.

• For individuals and salaried workers whose accounts do not need to be audited, the deadline to file an income tax return is July 31.
• The Income Tax Rules state that July 31 is also the deadline for filing ITRs for Hindu Undivided Families (HUF), whose accounts do not need to be audited.
• Some taxpayers’ accounts require an audit. These taxpayers are given additional time to submit their ITRs. Such taxpayers must file their ITRs by October 31, 2022. (unless extended by the Government). A company, a working partner of a firm, an individual, and other entities like a proprietorship, firm, etc. that must have their accounts audited are included among these taxpayers.
• When taxpayers engage in overseas transactions within the applicable financial year, Section 92E requires them to file a report. Such taxpayers have until November 30, 2022, to file their ITRs.

Details of Income Tax Payment

How to pay your taxes online –

Step-1

Log in to http://www.tin-nsdl.com > Services > e-payment to pay taxes online. Pay Taxes Online or click here to see the website’s “e-pay taxes” feature. provide the appropriate e-payment link

Step-2

Choose the appropriate challan, such as Form 26 QB demand payment (only for TDS on sale of the property) or ITNS 280, ITNS 281, ITNS 282, ITNS 283, or ITNS 284, if applicable.

Step-3

Enter your PAN or TAN (as appropriate) and any necessary challan information, such as the accounting head under which the payment is made, the taxpayer’s address, the bank where the payment is to be made, etc.

Step-4

When taxpayers engage in overseas transactions within the applicable financial year, Section 92E requires them to file a report. Such taxpayers have until November 30, 2022, to file their ITRs.

Step-5

After the data entered has been verified, the taxpayer will be taken to the bank’s net banking website.

Step-6

The taxpayer must enter payment information on the bank’s website after logging in to the net-banking site using the user ID and password issued by the bank for net-banking purposes.

Step-7

A challan counterfoil including the CIN, payment information, and bank name used to make the e-payment will be displayed following a successful transaction. This counterfoil demonstrates that the payment was made.

Related Resource

Deductions Under Section 80c

Income Tax Slabs and Rates

Income Tax Refund Status

Income Tax e-filing

ITR – Income Tax Return