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Income Tax - Basics, IT Returns, E-filing, Tax Payment, Income Tax Department, Laws, FAQs - Complete Income Tax Guide

Updated on –

1. ITR Filing due date extension:
ITR filing by taxpayers not covered under audit is extended from 30th Sep 21 to 31st Dec 21

ITR filing for Tax audit cases is extended to 15th Feb 22

ITR filing for transfer Pricing is extended to 28th feb 22

ITR filing of Belated or Revised Return for Fy 20-21 is extended from 31st Dec 21 to 31st March 22.

2. Furnishing Audit Report:
Due date to furnish the audit report is extended to 15th Jan 22

Due date to furnish the audit report for transfer pricing cases is extended to 31st Jan 22.
Click here for the latest Press release on income tax due dates

What is Income Tax? - Income Tax Basics in India

Income tax is a type of tax that the central government charges on the income earned during a financial year by the individuals and businesses. Taxes are sources of revenue for the government. Government utilizes this revenue for developing infrastructure, providing healthcare, education, subsidy to the farmer/agriculture sector and in other government welfare schemes. Taxes are mainly of two types, direct taxes and indirect form of taxes. Tax levied directly on the income earned is called as direct tax, for example Income tax is a direct tax. The tax calculation is based on the income slab rates applicable during that financial year.

Who should pay Income Tax? - Types of Income Tax Payers

he Income tax Act has classified the types of taxpayers in categories so as to apply different tax rates for different types of taxpayers.
Taxpayers are categorized as below:

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

Further, Individuals are broadly classified into residents and non-residents.Resident individuals are liable to pay tax on their global income in India i.e. income earned in India and abroad. Whereas, those who qualify as Non-residents need to pay taxes only on income earned or accrued in India. The residential status has to be determined separately for tax purposes for every financial year on the basis of the individual tenor of stay in India.Resident Individuals are further classified into below mentioned categories for tax purposes-

Individuals less than 60 years of age
Individuals aged more than 60 but less than 80 years
Individuals aged more than 80 years

Types of Income / Heads of Income

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 ).For simpler classification, the Income tax department breaks down income into five main heads:

Head of Income	Nature of Income covered
Income from Other Sources	Income from savings bank account interest, fixed deposits, winning in lotteries is taxable under this head.
Income from House Property	Income earned from renting a house property is taxable under this head of income.
Income from Capital Gains	Surplus Income from sale of a capital asset such as mutual funds, shares, house property etc is taxable under this head of Income.
Income from Business and Profession	Profits earned by self employed individuals, businesses , freelancers or contractors & income earned by professionals like life insurance agents, chartered accountants, doctors and lawyers who have their own practice, tuition teachers are taxable under this head.
Income from Salary	Income earned from salary and pension is taxable under this head of income

Taxpayers and Income Tax Slabs

Each of these taxpayers is taxed differently under the Indian income tax laws. While firms and Indian companies have a fixed rate of tax calculated on their tax profits, the individual,HUF, AOP and BOI 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.Rate at which income is charged to tax increases with increase in income. Budget 2020 introduced a 'New tax regime' for the Individuals and HUF taxpayers :

What is the Existing / Old Income Tax Regime?

The old tax regime provides 3 slab rates for levy of income tax which are 5%, 20% tax rate and 30% for different brackets of income. The individuals have been given the option to continue with this Old tax regime and they can claim deductions of allowances like Leave Travel Concession (LTC), House Rent Allowance (HRA), and certain other allowances. Additionally, deductions for tax saving investments as per section 80C (LIC, PPF ,NPS etc) to 80U can be claimed. Standard deduction of Rs 50,000, deduction for interest paid on home loan.
Tax slab rates applicable for Individual taxpayer below 60 years for Old tax regime is as below:

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

There are two other tax slabs for two other age groups: those who are 60 and older and those who are above 80.A word of note: People often misunderstand that if they earn let's say Rs.12 lakhs, they will be paying a 30% tax on Rs.12 lakhs i.e Rs.3,60,000. That's incorrect. A person earning 12 lakhs in the progressive tax system, will pay Rs.1,12,500+ Rs.60,000 = Rs. 1,72,500. Check out the income tax slabs for previous years and other age brackets.

Income Tax Slabs Under New Tax Regime

From the FY 2020-21, a new tax regime is available for individuals and HUFs with lower tax rates and zero deductions/exemptions. Individuals and HUF have the option to choose the new regime or continue with the old regime.The new tax regime is optional and the choice should be made at the time of filing the ITR. If the old regime is continued than all the deductions/exemptions as available can be availed by the taxpayer. The income tax slabs under the new tax regime are:

New regime slab rates		Existing regime slab rates
Income from Rs 2.5 lakh to Rs 5 lakh	5%	Income from Rs 2.5 lakh to Rs 5 lakh	5%
Income from Rs 5 lakh to Rs 7.5 lakh	10%	Income from Rs 5 lakh to Rs 10 lakh	20%
Income from Rs 7.5 lakh to Rs 10 lakh	15%	Income above Rs 10 lakh	30%
Income from Rs 10 lakh to Rs 12.5 lakh	20%
Income from Rs 12.5 lakh to Rs 15 lakh	25%
Income above Rs 15 lakh	30%

Most of the deductions like deductions and exemptions are not allowed if the taxpayers opts for the New Tax regime. However he exemptions and deductions available under the new regime are:

Transport allowances in case of a specially-abled person.
Conveyance allowance received to meet the conveyance expenditure incurred as part of the employment.
Any compensation received to meet the cost of travel on tour or transfer.
Daily allowance received to meet the ordinary regular charges or expenditure you incur on account of absence from his regular place of duty.

Exceptions to the Income Tax Slab

One must bear in mind that not all income can be taxed on slab basis. Capital gains income is an exception to this rule. Capital gains are taxed depending on the asset you own and how long you've had it. The holding period would determine if an asset is long term or short term. The holding period to determine nature of asset also differs for different assets. A quick glance of holding periods, nature of 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 slab rate
Debt mutual funds	Holding more than 36 months – Long Term Holding less than 36 months – Short Term	20% Depends on 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 slab rate

Residents and non residents:

Levy of income tax in India is dependent on the residential status of a taxpayer. Individuals who qualify as a resident in India must pay tax on their global income in India i.e. income earned in India and abroad. Whereas, those who qualify as Non-residents need to pay taxes only on their Indian income. The residential status has to be determined separately for every financial year for which income and taxes are computed.

Income Tax Calculation

Individuals should calculate income tax depending on the nature of income. The salaried individual can take the eligible exemptions available for various allowances received. Individuals/HUF can take a deduction under Sections 80C to 80U, deduct it from the gross total income, and calculate the income tax liability. Also, the total income tax liability should be adjusted by the taxes paid, such as advance tax, TDS, etc. Also, the taxpayer should apply the effect of rebate under Section 87A and relief under Section 89, Section 90, and Section 91 to arrive at the net amount of income tax payable.

Income Tax Payment

Tax Deducted at Source (TDS)

For specified payments, tax is deducted at source by the payer when making payment to the recipient of income. The recipient of income can claim the credit of the TDS amount by adjusting it with the final tax liability.

Advance Tax

The taxpayer must pay tax in advance when his estimated income tax liability for the year exceeds Rs 10,000. The government has specified due dates for payment of advance tax installments.

Self-Assessment Tax

It is the balance tax that the taxpayer has to pay on the assessed income. The self-assessment tax is calculated after reducing the advance tax and TDS from the total income tax calculated on the assessed income.

E-Payment Facility

The taxpayers can pay advance tax, self-assessment tax online from the NSDL website. However, the taxpayer should have a net banking facility with an authorised bank.

Income Tax Return Filing

Income Tax Return

The taxpayer shall file an income tax return every year via ITR forms prescribed by the income tax department. The government has prescribed seven ITR forms through which the taxpayer can file his income tax return. The taxpayer has to choose the appropriate ITR forms and file his income tax return.

Income Tax Forms

The seven ITR forms are:

ITR-1: Individuals (residents) having income from salary, one house property, other sources, agricultural income less than Rs 5,000 and with a total income of up to Rs 50 lakh
ITR-2: Individuals/HUFs not having any business or profession under any proprietorship
ITR-3: Individuals/HUFs having income from a proprietary business or profession
ITR-4: Individuals/HUFs having presumptive income from business or profession
ITR-5: Partnership firms or LLPs
ITR-6: Companies
ITR-7: Trusts

e-Filing Return

The taxpayer shall electronically file the income tax return through the e-filing platform of the income tax department. To file the income tax return, the taxpayer should first register himself at www.incometax.gov.in. Thereafter, the taxpayer can log in to the website and file his income tax return. Also, there is no need to manually send the acknowledgement of the return to the income tax department. The income tax department now allows e-verification of the ITR in different ways, which completes the income tax return process.

Income Tax Saving Instruments

The taxpayer can save tax by tax planning. A taxpayer can do tax planning by investing in tax-saving instruments. It helps in reducing the income tax liability. Section 80C to 80U of the Income Tax Act allows a deduction for certain expenditures and investments from the total computed income. Some of the popular Section 80C investments are:

Popular Section 80C Investments
	ELSS	PPF	NSC	5-Year Tax Saving FD	SCSS
Section 80C Benefit	Yes	Yes	Yes	Yes	Yes
Type of InvestmentType of Investment	Equity	Fixed Income	Fixed Income	Fixed Income	Fixed Income
Lock-in Period	3 Years	15 Years	5 Years	5 Years	5 Years
Maximum Investment	No Max Limit	Rs 1.5 lakh	No Max Limit	Rs 1.5 lakh	Rs 15 lakh

*ELSS and NSC have no upper investment limit. However, you get tax benefits under Section 80C only up to Rs 1.5 lakh per financial year.

Health Insurance and Medical Expense Deduction

Apart from the 80C deduction, a taxpayer can also take a tax benefit under Section 80D for health insurance premium and medical expenditure incurred for self, family and parents.

Education Loan Deduction

Under Section 80E, the taxpayer can claim a deduction for the interest paid on a loan taken for higher education. There is no limit to claim such a deduction in the income tax return.

Home Loan Deduction

Under Section 24, the taxpayer can claim a deduction for interest paid on a housing loan during the relevant financial year. The amount of deduction will depend upon whether the house is self-occupied or let out. The taxpayer can also claim a deduction of the principal amount of loan under Section 80C up to Rs 1.5 lakh.

Deduction for Interest Income

The taxpayer can also claim a deduction for interest on deposits from banks under Section 80TTA of the Income Tax Act. The individuals can claim up to Rs 10,000 deduction under the said section.

Income Tax Law

Income Tax Act

The Income Tax Act includes all the provisions that govern the country's taxation. Every year, the Finance Minister presents a budget in February. The Union Budget brings in various amendments to the Income Tax Act. The most recent Union Budget presented by the current Finance Minister included the introduction of a new tax regime.

Apart from the Income Tax Act, the other components of the income tax law are income tax rules, circulars, notifications and case laws. All of these help in the implementation of income tax law and collection of taxes.

Income Tax Department

The income tax department is a government agency. The Act empowers the income tax department to collect direct tax on behalf of the Government of India.

Income Tax – FAQs

When it is mandatory to file return of income?

The companies and firms are mandatorily required to file an income tax return (ITR). However, individuals, HUF, AOP, BOI should file ITR if the income exceeds the basic exemption limit of Rs 2.5 lakh. This limit is different for senior citizens (Rs 3 lakhs) and super senior citizens (Rs 5 lakh).
Can i file return of income even if my income is below taxable limits?

Yes, you can file return of income voluntarily even if your income is less than basic exemption limit
What documents are to be enclosed along the return of income?

There is no need to enclose any documents with the return of income. However, one should retain the documents to produce before any competent authority as and when required in future.
Should I disclose all my income in the return even if it is exempt?

Yes. Income from every source including exempt income must be disclosed. The same can be shown under the Schedule EI.
Should I e-verify to get the IT refund?

e-Verification of the income tax return filed electronically is mandatory to complete the process of ITR filing. One should e-verify income tax returns within the stipulated time. Non-verified ITR will be treated as invalid. You can e-verify ITR by Aadhaar OTP, bank ATM, Electronic Verification Code (EVC), and net-banking.