Income Tax in India: Guide, IT Returns, Process 2020

Income Tax in India: Taxes in India can be ordered as immediate and backhanded duties. Direct assessment is a duty you pay on your pay legitimately to the legislature. Circuitous duty is an expense that another person gathers for your sake and pays to the legislature eg cafés, theatres and internet business sites recoup charges from you on products you buy or assistance your benefit. This assessment is, thusly, passed down to the administration. Direct Taxes are comprehensively named :

Annual Tax – This is charges an individual or a Hindu Undivided Family or any citizen other than organizations, pay on the pay got. The law recommends the rate at which such salary ought to be burdened

Corporate Tax – This is the assessment that organizations pay on the benefits they make from their organizations. Here once more, a particular pace of expense for corporates has been endorsed by the personal assessment laws of India

Aberrant duties take numerous structures: administration charge on café bills and film tickets, esteem included expense or VAT products, for example, garments and hardware. Products and enterprises charge, which has as of late been presented is a brought together duty that has supplanted all the roundabout assessments that entrepreneurs need to manage.

Latest News and announcements Income Tax

Notification number & date Description
Press release dated 13 May 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.

 

31 January 31 March 31 July Oct – Nov
Deadline to submit your investment proofs Deadline to make investments under Section 80C Last date to file your tax return Time to verify your tax return

Income Tax Basics

Each and every individual who gains or gets a pay in India is dependent upon personal assessment. (Truly, be it an inhabitant or a non-occupant of India ). Additionally, read our article on Income Tax for NRIs. Your pay could be compensation, benefits or could be from an investment account that is discreetly gathering a 4% premium. Indeed, victors of ‘Kaun Banega Crorepati’ need to pay the charge on their prize cash. For more straightforward characterization, the Income Tax Department separates salary into five heads:

Head of Income Nature of Income covered
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 is rental income mostly
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 own practice, tuition teachers

Taxpayers and Income Tax Slabs

Taxpayers in India, for the purpose of income tax includes:

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

Each of these taxpayers is taxed differently under the Indian income tax laws. While firms and Indian companies have a fixed rate of tax of 30% of 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. In India, we have four tax brackets each with an increased tax rate.

  • Income earners of up to 2.5 lakhs
  • Income earners of between 2.5 lakhs and 5 lakhs
  • Income earners of between 5 lakhs and 10 lakhs
  • Those earning more than Rs 10 lakhs
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

This is the income tax slab for FY 2017-18 for taxpayers under 60 years. 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.

Exceptions to the Tax Slab

One must bear in mind that not all income can be taxed on a 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 a long term or short term. The holding period to determine the nature of an asset also differs for different assets. A quick glance of holding periods, nature of the 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 the slab rate
Debt mutual funds Holding more than 36 months – Long Term Holding less than 36 months – Short Term 20% Depends on the 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 the 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.