A Complete Guide to Income Tax in India

Income Tax in India is something that every earning individual and legal entity must pay. The government uses the amount you pay as income tax to meet expenses related to the welfare of society. If you are new to income tax and are paying it for the first time, you may be overwhelmed by looking at the tedious process of filing returns. However, this following guide will help you understand the important concepts regarding income tax in India using which you can file your returns easily.

Financial Year

This year begins on the 1st April of the present year and ends on the 31st March of the next year. For instance, 1 April 2018 to 31 March 2019 is the current financial year.

Assessment Year

An assessment year is the year succeeding the financial year. It is the year in which your income is evaluated. This means that for the financial year 1 April 2018 to 31 March 2019, the assessment year will be 1 April 2019 to 31 March 2020.

Heads of Income

According to the laws of income tax in India, following are the 5 heads of income for tax purposes.

  1. Income from salary: It is the money that you receive for rendering services to your employer.
  2. Income from house property: It is the money that you receive from your house or building, whether self-occupied or let out.
  3. Income from capital gain: It is the gain or loss resulting from selling a capital asset like property or shares.
  4. Income from business or profession: Also known as profits and gains from business or profession, it is the income or loss you incur from your business or as a professional.
  5. Income from other sources: This includes income from residual sources such as interest from savings accounts and/or fixed deposits, as well as pension, gifts, and the lottery.

The income from all the aforementioned heads is added to arrive at your total taxable income.

When is Income Tax Calculated in India?

Income tax in India is calculated annually. The income tax for a previous year is calculated, paid and assessed during the assessment year. It is the year in which you file your income tax return of a previous year. To reiterate, for the financial year 1 April 2018 to 31 March 2019, the assessment year will be 1 April 2019 to 31 March 2020.

Deductions

Based on the investments you make during a financial year and the expenses you incur, as per the Income Tax Act you can claim home loan tax deductions for them under certain Sections to bring down your tax liability. Some of these are Section 80C, 80D, 80U, 80E, 80DDB, 24(b), etc. However, in order to claim the deductions you must fulfil the conditions stated for the sections. Section 80EE, for example, allows first-time homebuyers to get an extra deduction of Rs.50,000 each year on home loan interest payment. However, the conditions here are:

  • The value of the loan must not exceed Rs.35 lakh
  • The value of the home must be within Rs.50 lakh
  • You should have taken the home loan by 31 March 2017

Income Tax Slabs

In India, individuals and HUFs have to pay income tax based on a slab system. Every income slab has a different tax rate, which increases as you go up the rungs. Income tax slabs are reviewed and changed during the Union Budget.

Currently, the income tax slab and the rates are different for different assesses:

For individuals and HUFs (below the age of 60 years), the income tax rates are as follows.

  • Income of up to Rs.2.5 lakh = Nil
  • Income between Rs.2.51 lakh and Rs.5 lakh = 5%
  • Income between Rs.5 lakh and Rs.10 lakh = 20%
  • Income over Rs.10 lakh = 30%

For senior citizens (between 60 years and 80 years of age), the income tax slabs rates are as follows.

  • Income of up to Rs.3 lakh = Nil
  • Income between Rs.3 lakh and Rs.5 lakh = 5%
  • Income between Rs.5 lakh and Rs.10 lakh = 20%
  • Income over Rs.10 lakh = 30%

For super senior citizens (80 years and above), the income tax slabs rates are as follows.

  • Income of up to Rs.5 lakh = Nil
  • Income between Rs.5 lakh and Rs.10 lakh = 20%
  • Income over Rs.10 lakh: 30%

Due Date for Paying Tax

  • The due date to pay tax for non-audit cases is 31st July of the assessment year.
  • The due date to pay tax for audit cases is 31st September of the assessment year.

Now that you understand the basics of income tax in India, start your tax planning in advance so you’re not scrambling come 31 March 2019, and you can do your best to save taxes. One of the simplest ways to do this is by availing a home loan and making the most of the tax deductions allowed as per the rules. Here Section 80C allows you to claim a tax deduction of up to Rs.1.5 lakh on home loan principal repayment and Section 24(b) allows a deduction of up to Rs.2 lakh on interest repayment.

So start by evaluating your home needs, draw a budget for home purchase, and then search for the right home. Also, avail an affordable Home Loan offered by leading financial institutions.

Avail in-person search assistance and make your search for an ideal home a delightful experience. Moreover, benefit from the property dossier and learn about the financial and legal aspects of buying a home.