Income Tax in India

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Income tax in India is levied by the Government of India on taxable income of individuals, companies, Hindu Undivided Families (HUFs), co-operative societies, firms, and trusts (recognized as association of persons and body of individuals) and any other artificial person.

Imposition of tax is different for every individual. Income tax imposition is regulated by the Indian Income Tax Act, 1961. The Central Board of Direct Taxes (CBDT) has the overall responsibility of regulating the Income Tax Department in India. It is a division of the Department of Revenue under the Ministry of Finance, Government of India.

Overview of Income Tax in India

Charge to income tax

Every individual whose overall income surpasses the highest amount that is not chargeable under the Income Tax Act becomes an assessee. His income is subject to taxation at the rate, which has been stipulated by the Income Tax Act, 1961 for the pertinent assessment year. This is also dependent on the residential status of that particular individual.

Income tax is a type of tax, which has to be paid at the rate prescribed by the Finance Act under the Union Budget for each assessment year. This tax is calculated on the overall income made in the past year by every individual.

The variance is dependent on the type of income, whether it is capital gains or revenue income.

Given below are the Income Tax Rates/Slabs for various ranges of income:
  • Up to 1,60,000 = Nil
  • Up to 1,90,000 (for women)= nil
  • Up to 2,40,000 (for resident individual of 65 years or above)= Nil
  • For men 1,60,001 - 5,00,000 = 10%
  • 5,00,001 - 8,00,000 = 20%
  • 8,00,001 upwards = 30%
Education cess is imposed @3% on income tax.

Residential status

The three residential statuses are as follows:
  • Ordinarily Residents (Residents)
  • Resident but not Ordinarily Residents and
  • Non Residents.
Many steps are required to ascertain the residential status of an individual.

All residents are liable to pay tax for their overall income, which includes income received away from India. Nonresidents are liable to pay tax only for the income obtained in India or income accumulated in India. Not Ordinarily Residents are liable to pay tax with regard to income obtained in India or income accumulated in India and income received from profession or business regulated from India.

Heads of income

For calculating income tax in India, the heads of income of an individual are categorized into the following:
  • Income from salary
  • Income from business or profession
  • Income from residential property
  • Income from capital gains
  • Income from other sources
Income from other sources includes the following types of income:
  • Income from horse racing
  • Income by means of dividends
  • Any amount obtained from key man insurance policy and gift.
  • Income from winning bull races
  • Income from shares or dividend
Tax deductions available in India

You can enjoy the following tax deductions on your income:
  • Medical bill reimbursement
  • House rent allowance
  • Conveyance allowance
  • Professional taxes
  • Deductions u/s 80C of the Income Tax Act, 1961
  • Deduction u/s 80CCF: Investment in infrastructure bonds
  • Deduction u/s 80D: Medical insurance premiums
  • Interest on housing loans
Income tax rates in India

Individual income tax is a form of progressive tax in India and there are three slabs. Approximately 10% of the people attain the minimum limit of taxable income

New tax slabs are applicable since April 1, 2010 and they are as follows:
  • No tax will be imposed on total income of up to ` 1,60,000 per year. (` 190,000 for women and ` 2,40,000 for senior citizens aged 65 and over. All of them should be residents of India.)
  • From 1,60,001 to 5,00,000: 10% of amount above ` 1,60,000 (Lower limit varies suitably for women and senior citizens)
  • From 5,00,001 to 8,00,000: 20% of amount above ` 5,00,000 + 34,000 (` 26,000 for senior citizens and ` 31,000 for women)
  • Greater than 8,00,000: 30% of amount above ` 8,00,000 + 94,000 (` 86,000 for senior citizens and ` 91,000 for women)
No surcharge would be imposed from the assessment year 2010-11.

Last Updated on 6/15/2011

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