Income Tax

Introduction

Income tax in India is imposed by the Government of India. Everyone who is earning in India has to pay income tax. The income could be pension, salary, interest earned on a savings account or from any other source. Income tax is a tax you pay directly to the government based on your income or profit. It is collected by the Government of India.

Understanding Direct and Indirect Taxes

Taxes in India are of two major types - direct tax and indirect tax. Direct tax is the tax you pay on your income directly to the government and is levied on profits and income. Indirect tax is the tax charged on goods and services and is collected by someone else on your behalf and is paid to the government like theatres, restaurants, etc. For example, service tax is what you pay in a restaurant and is an indirect tax, whereas income tax that is deducted from your salary every month in the form of TDS, is an example of direct tax.

Definition of Income Tax

Income tax is defined as the tax levied on the annual income earned by a person. The amount of tax applicable to you will depend on how much money you earn as income over a financial year. Taxpayers can make their income tax payment, TDS/TCS payment, and Non-TDS/TCS payments online or offline. All relevant details must be filled by taxpayers to make these payments. The process to make the payments online is simple and can be completed quickly.

Latest Announcements and Deadlines on Income Tax for 2020

Following are some of the key takeaways from announcements about the deadline on Income Tax in India for 2020:

(a) The due date to file income tax returns for AY 2020-21 stands extended from 31 July to 30 November 2020. The due date for tax audit stands extended from 30 September 2020 to 31 October 2020. Similarly, the income tax returns filed upon a tax audit are now due by 30 November 2020.

(b) Reduction in TDS and TCS rates by 25% of the present rates, for payments from 14 May till 31 March 2021.

(c) All pending income-tax refunds to be released to non-corporate entities immediately.

(d) The last date for completion of assessments which are getting time-barred on 30 September 2020 stands extended to 31 December 2020. In the case of assessments which get time-barred on 31 March 2021, the time stands extended to 30 September 2021.

(e) The last date of making payment under Vivaad se Vishwas Scheme without additional amount stands extended to 31 December 2020.

Who Is Required to Pay Income Tax?

As per the Income Tax Act, the entities listed below are required to pay tax and file their income tax returns. The amount of tax that must be paid depends on the individual’s age and the income they make.

• Artificial Judicial Persons
• Corporate firms
• Association of Persons (AOPs)
• Hindu Undivided Families (HUFs)
• Companies
• Local Authorities
• Body of Individuals (BOIs)

Any individual who earns or gets an income in India is subject to income tax. This applies to residents as well as non-residents. Income could be from salary, pension or could be from a savings account that’s quietly accumulating a 4% interest. The Income Tax Department breaks down income into five heads:

• 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 covers rental income
• 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 practice, tuition teachers

What is Taxable Income?

Taxable income means the income which is chargeable to income tax, and it is calculated to decide how much tax an individual or a company owes to the government in a particular tax year. It is generally described as the gross total income or total income. To arrive at the total income, you have to consider any deductions or exemptions allowed in that tax year.

Taxable income includes salaries, pensions, capital gains, rental income, business income, investment income, and unearned income.

Under existing rules of the Income Tax Act 1961, the following are the key types of income that are subject to taxation as per the applicable rates:

• Income from Salary
• Income from Capital Gains
• Income from House Property
• Income from Business

Other income such as lottery and other legal gambling, dividend income, etc.

Income Tax Slabs

The income tax slabs in India are different for regular, senior and super senior citizens. Senior citizens are those who have completed 60 years of age and super senior citizens are persons equal to or over the age of 80 years. New, optional Income Tax slabs for Financial Year 2020-21 are as below:

• The taxes are further subject to the 4% health and education cess
• The rebate of up to Rs. 12,500 through Section 87A is available
• The option of a pre-filled ITR will be made available for those opting for the new tax regime
• You can use the Tax calculator for FY 2020-21 to pick between the two tax regimes

Important Dates Pertaining to Income tax

Some of the important dates to remember for individuals who fall under the bracket to pay Income Tax for the year (FY 2019-20 & AY 2020-21) is mentioned in the table below:

• Before January 31 - Individuals must submit their proof of investment
• Before March 31 - It is the deadline before which any investments under Section 80C of the Income Tax Act, 1961 must be made
• Before 31 July - Due date to file an income tax return
• Between October and November - Tax returns must be verified

Income Tax Deductions and Returns

Income tax deductions help you to reduce your tax liability as they lower your net taxable income. For example, if you invest in an ELSS mutual fund, you qualify for a deduction of up to Rs. 1.5 lakh under Section 80C. This amount is then deducted from your gross income to give you your net taxable income.

The Income Tax Act allows you to claim deductions under several Sections when you make certain investments or expenditures. For instance, Section 80D allows you to claim up to Rs. 15,000 for health insurance premiums and Section 24B allows you to claim up to Rs. 2 lakhs based on home loan interest repayment.

An income tax return is a mode via which you can file returns at the close of the financial year. Through this form, you provide tax details such as your gross income, annual deductions, and net liability. Depending on your profile, you will have to choose the right one from the 7 ITR forms available. For instance, individuals earning less than Rs. 50 lakhs can use ITR-1, proprietors can use ITR-3 and those under the presumptive tax scheme can use ITR-4.

Income Tax Exemption

Salaried employees form the major percentage of the overall taxpayers in the country and the contribution they make to the tax collection is quite significant. Income tax deductions offer a wide range of opportunities for saving tax for the salaried class. Deductions and exemptions can help one to reduce his/her tax substantially.

There are many great ways to save income tax. All it takes is, for you to make use of the tax-saving instruments wisely, to minimize your tax payments. There are several income tax exemptions available under the income tax act and here we will discuss all of the same.

Exemptions as Per Income Tax Act Section 10

House Rent Allowance (HRA) - Many people relocate from one city to another to seek new job opportunities. Consequently, they need to rent accommodation. As a result, the rent paid by the tenant is exempted from taxes by the India Government. On the other hand, the employer needs to offer a house rent allowance. A minimum of the following is the income tax exemption that one gets from the House Rent Allowance:

• Total HRA received from the employer
• If rent is less than 10% of the income (Basic salary +Daily Allowance)
• 40% of the income (Basic + Daily Allowance) and 50% of income (Basic + DA) in metropolitan cities.

Transportation Allowance - You may have to spend money to commute from your house to your workplace. Transport allowances of up to Rs.19,200 per annum or Rs. 1,600 per month can be exempted from being subject to income tax by the Indian Government if your employer provides you with an allowance for commuting which is known as the transport allowance. For this, you do not need to provide any receipt of the expenditure that you make on commuting to the office. On the other hand, Rs. 1,600 is the monthly income which needs to be paid. Before the exemption limit was capped at Rs. 9,600 per year and Rs. 800 per month.

Education Allowance for Children - Children Education Allowance is another form of expenditure on which income tax exemption is applicable. This benefit is given by the employer to their employees so that they can make use of them to get the income tax exemptions. The monthly limit of this plan is Rs. 100, only for 2 children.

Income Tax Exemption on Housing Loan - This type of income tax exemption is applicable because you need to change your place due to the job. After relocating you might opt to purchase a house on loan rather than renting one. In case of a home loan, the payment of interest is exempted from tax. This helps the person to get a maximum income tax exemption for about Rs 2 Lakh on interest levied on housing loan.

On top of this, certain conditions apply to this type of income tax exemption. One of them is that the house needs to be occupied by the owner. This exemption is applicable only if your house is still under construction. But the construction must be completed within 3 years. Moreover, an individual can also claim the principal component of the repayment of housing loan as a deduction under section 80C of IT Act up to the maximum limit of Rs.1.5 lakh.

List Of Ten Income Tax Exemptions and Deductions That You Can Claim Under the New Tax Regime for FY 2020-21 (AY 2021-22)

1) Withdrawal by an employee from the Employees' Provident Fund (EPF) is not taxable after 5 years of continuous service.

2) The amount received on the maturity of PPF (Public Provident Fund) account and the yearly interest credited to the PPF balance.

3) Withdrawal from National Pension Scheme (NPS) on maturity or premature closure up to 40% of the amount received on such withdrawal remains tax-free for all. In case of partial withdrawal from NPS, up to 25% of the contributions made by the individual will be tax-free. Employer’s contribution to NPS up to 10% of their basic salary and dearness allowance also remains tax-free.

4) Under Section 10 (10D) of the Income Tax Act, the sum assured and any bonus paid on maturity or surrender of the life insurance plan is tax-free. Maturity proceeds continue to be exempt under Section 10(10D) even in the new regime.

5) The maturity amount including interest received on the Sukanya Samriddhi Yojana will not attract any tax.

6) Conveyance Allowance granted to meet expenditure incurred on conveyance in performance of duties of an office and any allowance granted to an employee to meet the cost of travel on tour or transfer (including relocation) is tax-free.

7) Interest received from post office savings account balances up to Rs. 3,500 annually per individual will remain free from tax.

8) Any scholarship granted to meet education costs is tax-exempt under Section 10 (16) of the Income Tax Act.

9) Gratuity received from the employer up to Rs. 20 lakhs after rendering 5 years of continuous service.

10) Leave encashment received at the time of resignation or retirement up to Rs. 3 lakhs.

Income Tax Slabs & Rates 2020-2021

The Finance Minister introduced a new tax regime in Union Budget, 2020 wherein there is an option for individuals and HUF (Hindu Undivided Family) to pay taxes at lower rates without claiming deductions under various sections. The following Income Tax slab rates are notified in new tax regime vs old tax regime:

Income Tax Exemption

New tax regime slab rates are not differentiated based on the age group. However, under the old tax regime, the basic income threshold exempts from tax for senior citizen (aged 60 to 80 years) and super senior citizens (aged above 80 years) is Rs. 3 lakhs and Rs. 5 lakhs respectively.

However, under the new tax regime, a person cannot claim up to 70 income tax deductions while calculating taxes. Hence, every person has to make his/her calculation as per old and new tax regime and calculate which one is beneficial based on the type of investments made and returns earned on those investments.

• The tax calculated based on such rates will be subject to health and education cess of 4%.
• Any individual opting to be taxed under the new tax regime from FY 2020-21 onwards will have to give up certain exemptions and deductions.
• Here is the list of exemptions and deductions that a taxpayer will have to give up while choosing the new tax regime.
  • Leave Travel Allowance (LTA)
  • House Rent Allowance (HRA)
  • Conveyance
  • Daily expenses in the course of employment
  • Relocation allowance
  • Helper allowance
  • Children education allowance
  • Other special allowances [Section 10(14)]
  • Standard deduction
  • Professional tax
  • Interest on housing loan (Section 24)
  • Chapter VI-A deduction (80C,80D, 80E and so on) (Except Section 80CCD(2) and 80JJA)

Advance Tax

Advance tax is the tax you pay on income accumulated from various sources. In India, earnings like salary, rent, business profits, capital gains, dividends, royalties, interest and income from other sources all classify as ‘income.’ Advance tax comes into play when your tax liability goes over Rs. 10,000 for a given financial year. However, if you are a salaried individual, then you need not worry about advance tax payments. This is because your employer typically deducts tax at source (TDS) from your monthly salary and pays it to the government on your behalf. Knowing what is tax deducted at source and how it works will help you file your ITR.

Calculation of Advance Tax:

• Step – 1: An individual will be required to find his/her estimated total income by finding out the sum of all the invoices which have been received along with the future payments which he/she will be receiving till the end of the financial year, i.e. 31 March.
• Step – 2: The direct expenses related to the business and the investments under Section 80C are to be deducted from the estimated total income to derive the total taxable income.
• Step – 3: The next step is to determine the total tax liability for the financial year.
• Step – 4: The TDS or tax deducted at source should be deducted from the total tax liability.
• Step – 5: In case the amount of tax liability after deducting the TDS is more than Rs.10,000, the individual will be required to pay advance taxes on or before the due dates which are mentioned above.

Income Tax Refund

In case you have paid the government excess tax, you can claim an income tax refund online. To do so file your ITR and verify it. A refund is issued after your case is scrutinised by the Central Processing Team. You may check your income tax refund status online, at the e-filing website or the TIN NSDL portal.

ITR Forms List

How to Pay Income Tax Online

Following steps will help you with the online Self – Assessment tax procedure.

• Step 1: Log on to the official website of Income-tax department i.e.: www.incometaxindia.gov.in
• Step 2: After signing-in an option for “e-Pay taxes” is visible.
• Step 3: You will then be directed to the National Securities Depository Ltd (NSDL) website.
• Step 4: Select challan no /ITNS 280 followed by (0021) Income-tax (other than companies).
• Step 5: Fill in details such as PAN card, name, residential address, email address and mobile number.
• Step 6: Select the appropriate year for assessment that you will be making the payment for.
• Step 7: Post the year of assessment, you select the “type of payment”, which in this case will be “(300) Self-Assessment Tax”.
• Step 8: Choose the bank for payment from the drop-down menu available.
• Step 9: Enter the ‘tax payable amount’.
• Step 10: After making the payment, a challan will be displayed and this will include CIN and payment details along with the bank’s name through which the payment has been made.

Important points to remember while paying income tax online:

• It is important to enter the correct PAN number.
• It is essential to double-check if the form is correctly filled.
• The challan generated after the tax reduction must be kept safe if required by the income tax in future or you can keep a hard copy.

Some of the key advantages of paying income tax online are:

• Convenience: Everyone has the convenience of paying online at any time (24*7)
• You can pay on behalf of the company, firm, and others from anywhere in the country.
• One may get an immediate acknowledgement of payment in form of a challan.

FAQ

End Note

It is important to know some of the basic rules and announcements on Income Tax if you fall under the taxpayer category. This will enable you to pay your taxes on time and as per the regulations. It will also help you in claiming relevant tax refunds, deductions, and rebates, applicable.