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Income Tax System In India - Complete Guide, Types, Rules, IT Returns, Slabs, e Filing


December 05, 2019

Indian Income Tax System

Indian Tax System in India is ages old and has undergone several modifications on a timely basis and has molded into the form it is in today! The Tax System in India is one of the most incomes generating section for the government body and under this system; every person who earns an income is taxable. Only, the taxable amount varies depending on the income and source of income of each person.

In this article, various features of Indian Income Tax are addressed for the readers:

  • What is Income Tax?
  • What does the Income Tax act imply?
  • What are the different Income Tax rules?
  • Who are liable to pay Income Tax?
  • What is the procedure for online Income Tax payment?
  • How to E-file Income Tax Return?
  • What are the Income Tax slabs for FY 2019-20?
  • How to calculate Income Tax?

What is Income Tax?

Tax is imposed on individuals or organizational entities and this imposition of tax is based on income or taxable income (profit) of these parties. Each category of taxpayer has corresponding tax imposition scheme too.

Tax rate is directly proportional to the income generated i.e. when the taxable income increases, so does the tax rate. However, taxable amount of each person or entity depends on the tax spectrum under which they belong.

Income Tax remitted to the government is solely used for funding public services and amenities fulfill government commitments, provide things for the public and everything that contribute to the splendor of both nation and its people.   

What does the Income Tax Act imply?

The Income Tax Act comes under Section 1, Income Tax Act, 1961-2019 (No. 2). As per the Income Tax Department, the Income Tax Act, 1961 (43 of 1961) (as amended by act no. 23 of 2019) is defined as:

“An act to consolidate and amend the law relating to income-tax and super-tax.”

What are the different Income Tax rules?

The Income Tax Act passed in 1961 is the Legislative Act under which the administration and governance of the country’s income tax system and laws are applied and enforced. Every represented or amended Income Tax rule strictly works in conjuncture with the Income Tax Act. The Income Tax rules can never overpower the Income Tax Act.  

Who are Liable to Pay Income Tax?

The liability of remitting the Income Tax applies to the following parties:

  • Artificial Juridical Individuals
  • Hindu Undivided Family (HUF)
  • Companies
  • Corporate Firms
  • Association of Persons (AOPs)
  • Body of Individuals (BOIs)
  • Local Authorities

If we consider the income on which tax is imposed, the following are the main criteria:

  • Salary
  • Business
  • Profession
  • Capital gains
  • Income from house properties
  • Other sources that generate income

What is the procedure of Online Income Tax payment?

Income Tax department has made it easy for the taxpayers to make online remittance of Income Tax. The user should have net banking facility with a registered bank. The user will be asked to submit the Permanent Account Number (PAN) and Tax Deduction & Collection Number (TAN) for validation.

Paying direct taxes through an e-payment facility includes the following steps:

  1. Visit the Income Tax Return (ITR) E-filing website
  2. Select Challan 280
  3. Enter your personal details
  4. Choose the payment mode
  5. Cross-verify the information entered
  6. Receipt of Challan 280 (Taxpayer Counterfoil) is generated (the copy of which is to be saved as customer’s proof of payment)

How to E-file Income Tax Return?

The process of E-filing ITR involves the following steps:

  1. From the download page, the user can download the ITR preparation software for the relevant valuation year
  2. Using the downloaded IT preparation software, the user can start preparing the return
  3. The user has to be ready with the file with information about your income, tax payments, deduction, form 16 (provided by the employer) etc.
  4. Use the Pre-fill button to prepopulate personal details and TDS and ensure that nothing is left out after critically comparing the entered information
  5. After entering the data, then user can click on Calculate to calculate the tax and interest liability and arriving at the final result of Tax payable or refund
  6. If there is any tax payable pending, the user should enter the details in the appropriate schedule until the tax payable totals to zero
  7. Log-in to E-filing website with the user credentials like User ID, Password, Date of Birth/ Date of Incorporation along with the Captcha code
  8. Go to E-file and select Upload Return 
  9. Select the apt ITR, Assessment Year and previously saved XML file
  10. Upload the E-file registered Digital Signature Certificate (DSC), if applicable
  11. Select Submit button
  12. On submission, ITR-V will be generated, if DSC is not used. The user will receive ITR-V through registered mail id. If ITR is uploaded with DSC, Return Filing Process is completed.

(OR)

If the return is not uploaded with DSC, the ITR-V should be printed, signed and submitted to the CPC within 120 days of date of E-filing. Only once the user submits the signed ITR-V, will the return be processed. The user has to regularly check the reminder mails and messages for about the non-receipt of ITR-V

What are the Income Tax slabs for the AY 2019-20?

  • Tax slab for Individual (resident or non-resident) or HUF or BOI or any other artificial juridical person:

 Taxable Income

 Tax Rate

 Up to RS.2,50,000

 Nil

 RS.2,50,000 to RS.5,00,000

 5%

 RS.5,00,000 to RS.10,00,000

 20%

 Above RS.10,00,000

 30%

  • Tax slab for resident senior citizen (60 years to 80 years)

 Taxable Income

 Tax Rate

 Up to RS.3,00,000

 Nil

 RS.3,00,000 to RS.5,00,000

 5%

 RS.5,00,000 to RS.10,00,000

 20%

 Above RS.10,00,000

 30%

                 

  • Tax slab for resident super senior citizen (80 years or more)

     Taxable Income

     Tax Rate

     Up to RS.5,00,000

     Nil

     RS.5,00,000 to RS.10,00,000

     20%

     Above RS.10,00,000

     30%

     

  • A partnership firm

A partnership firm including LLPs is taxable at 30%. The amount of income tax will increase by a surcharge at the rate of 12% for income exceeding RS.1Cr. The amount of income tax and applicable surcharge shall further increase by Health & Education Cess calculated at the rate of 4% of such income tax and surcharge.

  • Local Authority

Local Authority is taxable at 30%. The amount of income tax will increase by a surcharge at the rate of 12% for income exceeding RS.1Cr. The amount of income tax and applicable surcharge shall further increase by Health & Education Cess calculated at the rate of 4% of such income tax and surcharge.

  • Partnership firm

               Domestic Company

 Domestic Company

 AY 2019-20

 Where its total turnover or gross receipt during the previous year 2016-17 does not exceed Rs.250Cr

 25%

 Where its total turnover or gross receipt during the previous year 2017-18 does not exceed Rs.400Cr

 NA

 Where it opted for Section 115BA

 25%

 Where it opted for Section 115BAA

 NA

 Where it opted for Section 115BAB

 NA

 Any other domestic company

 30%

Additionally, the amount of income tax shall be subjected to Surcharge and Health & Education Cess.

  • Foreign company

 Nature of Income

 Tax Rate

 Royalty received from Government or an Indian concern in pursuance of an agreement made with the Indian concern after March 31, 1961, but before April 1, 1976, or fees for rendering technical services in pursuance of an agreement made after February 29, 1964 but before April 1, 1976 and where such agreement has, in either case, been approved by the Central Government

 50%

 Any other income

-

Additionally, the amount of income tax shall be subjected to Surcharge and Health & Education Cess.

  • Co-operative society

 Taxable Income

 Tax Rate

 Up to RS.10,000

 10%

 RS.10,000 to RS.20,000

 20%

 Above RS.20,000

 30%

Additionally, the amount of income tax shall be subjected to Surcharge and Health & Education Cess.

How to calculate Income Tax?

Calculating Income Tax depends on a number of factors as mentioned below:

  • The tax slab under which the taxpayer falls
  • Salaried or non-salaried
  • If you are a salaried taxpayer, what are the allowances that make you tax-exempted?

For a variety of taxpayers, there are tax exemptions and tax deductions based on the nature of their income. The calculation of Income Tax varies for salaried person and unsalaried persons. The main steps involved for a salaried person to calculate the Income Tax are:

  1. Calculation of taxable HRA
  2. Calculation of taxable income from salary
  3. Calculation of total deductions
  4. Calculation of gross income that is taxable
  5. Calculation of income tax liability

Income Tax rule is one legislative rule that applies to a large proportion of the Indian population. Anyone with an income is liable to pay the government a tax. This tax paid to the government is employed for the benefit of the citizens in the form of amenities and other planning. Income Tax is one of the strong pillars of the Indian legislature.

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