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Income Tax in India: Guide, IT Returns, E-filing Process Information
Income Tax in India: Guide, IT Returns, E-filing Process Information

Income Tax in India:

Taxes in India can be categorized as direct and indirect taxes. Direct tax is a tax you pay on your income directly to the government. Indirect tax is a tax that somebody else collects on your behalf and pays to the government eg restaurants, theatres, and e-commerce websites recover taxes from you on goods you purchase or a service you avail. This tax is, in turn, passed down to the government. Direct Taxes are broadly classified as :

  • Income Tax – This is taxes an individual or a Hindu Undivided Family or any taxpayer other than companies, pay on the income received. The law prescribes the rate at which such income should be taxed

 

  • Corporate Tax – This is the tax that companies pay on the profits they make from their businesses. Here again, a specific rate of tax for corporates has been prescribed by the income tax laws of India 

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.

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 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 the 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

Taxpayers and Income Tax Slabs

Taxpayers in India, for the purpose of income tax includes:

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

 

While firms and Indian companies have a fixed rate of tax of 30% of profits, the individual taxpayers are taxed based on the income slab they fall under. 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 increased tax rate.

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

 

Exceptions to the Tax Slab

A quick glance at holding periods, nature of the asset, and the rate of tax for each of them is given below.

Type of capital asset

Holding period

Tax rate

House Property

Holding more than 24 months – Long Term Holding less than 24 months – Short Term  

20% Depends on the slab rate

Debt mutual funds

Holding more than 36 months – Long Term Holding less than 36 months – Short Term

20% Depends on the slab rate

Equity mutual funds

Holding more than 12 months – Long Term Holding less than 12 months – Short Term

Exempt (until 31 March 2018) Gains > Rs 1 lakh taxable @ 10% 15%

Shares (STT paid)

Holding more than 12 months – Long Term Holding less than 12 months – Short Term

Exempt (until 31 March 2018)Gains > Rs 1 lakh taxable @ 10% 15%

Shares (STT unpaid)

Holding more than 12 months – Long Term Holding less than 12 months – Short Term

20% As per Slab Rates

FMPs

Holding more than 36 months – Long Term Holding less than 36 months – Short Term 

20% Depends on the slab rate


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