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Income Tax in India (Basics)

By Nirbhay Mehta September 27, 2019


Income Tax in India

by Nirbhay Mehta

“Nothing is certain except for death and taxes”

Some say it was mentioned by Ben Franklin, others say Mark Twain or Daniel Defoe

 

Whosoever quoted this has rightly put the words in place. Tax is not taught in schools or colleges, it is something a person learns while earning a regular income. A layman has no clue as to why he is bound to share his income with the government. Taxes seem inevitable and never-ending; tax system in India is frowned upon due to the complicated tax slabs, sections and compliances.

 

With the right amount of knowledge and understanding the basic structuring of income tax in India may help you save your income.

 

According to the Income tax Act, 1961 (hereinafter referred as the Act), section 2(24) defines the meaning of Income in India, with the broad understanding of the definition it mentions:

 

  • A salaried person, amount received from employer, in cash or kind is considered as income
  • Businessman, with the profits and income
  • Professionals
  • Rental income
  • Capital gains from sale of shares, property etc.
  • Investments

 

By understanding the meaning of income mentioned in the Act, one may ask as to how one can reduce the tax burden. There are two ways of reducing the tax burden.

  1. Tax avoidance and;
  2. Tax evasion

 

These two methods may sound similar but there are key differences between the two.

 

 

S.no.

Tax Avoidance

Tax Evasion

1.

Minimising tax liability by taking means which do not violate the rules and section of Income tax

Minimising tax liability by incorporating

illegal ways

2.

Immoral in nature, it involves bending the law without breaking the law

Illegal and objectionable in script and moral

3.

It is legal in India

It is illegal in India and is a criminal offence

4.

Deferment of tax liability

Penalty or imprisonment

 

 

Income tax returns are filed under section 139 of the Act. Individuals, companies, NGOs, International companies with income incurring in India; all have different dates of filing income tax returns.

 

According to the current financial year, the tax slab is as under*: -

 

S.No

Income tax Slab (Amount in Rs.)

Tax rate for individuals below 60 years (Amount in Rs.)

1.

Up to 2,50,000/-

Nil

2.

2,50,001 to 5,00,000/-

5%

3.

5,00,001/- to 10,00,000/-

12,500/- + 20% for income exceeding 5,00,000/-

4.

Above 10,00,000/-

1,12,500/- + 30% for income exceeding 10,00,000/-

 

*The above rates do not include surcharge and cess.  

 

  • 10% surcharge is applicable on income tax if income exceeds Rs. 50,00,000/- but it is up to Rs.1,00,00,000/-
  • 15% surcharge is applicable on income tax if income exceeds Rs.1,00,00,000/-
  • 4% health and education cess is applicable on the income tax and applicable surcharge.

Individuals having total income below Rs.5,00,000/- are eligible for full tax rebate under section 87A of the Act.

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