Tax is of two types one is a direct tax and the other is an indirect tax.
Direct tax is a tax that is paid by taxpayers directly to the government and it is taxable on income & profit.
Indirect tax is a tax that is paid by taxpayers through the other person to the government and it is taxable on goods & services.
Income tax is a direct tax which is paid by taxpayer itself at the time of return filling.
Previous Year or Financial year is 12 month period that begins with 1st April and ends on the 31st march of next year. This does not depend whether the assessee doing any job or business.
Assessment year is a year in which the income gets assessed of previous year and its the next year of the previous year. In assessment years assessee files the Income-tax return. For instance, if you start your job on 1 January 2021, your tax year closes on 31 March 2021. 2020-21 is your previous year and your AY is 2021-22.
Rates of Tax :
For Individual, HUF, AOP, BOI, Artificial Judicial Person
|>250000 (Basic Exemption Limit)||Nil|
|>250000 upto 500000||5%|
|>500000 upto 1000000||20%|
For senior citizen basic exemption limit is 300000 and for super senior citizen it is 500000.
@10% of tax if NTI (Total Income) > 50 lakhs but upto 1crore
@15% of tax if NTI (Total Income) > 1crore but upto 2 crore
@25% of tax if NTI (Total Income) > 2 crores but upto 5 crores
@37% of tax if NTI (Total Income) > 5 crores
Domestic Co. Foreign Co.
>1 core but upto 10 Crores 7% 2%
>10 crore 12% 5%
For Partnership Firm/LLP
Tax Rate is 30% and surcharge @12% of tax if NTI (Total Income) > 1Crore
There is one more slab rate is available for individual & HUF subject to certain conditions (Added by Finance Act-20 w.e.f. AY 21-22)
|Income||Rate of Tax|
|250000 – 500000||5 %|
|500000 – 750000||10 %|
|750000 – 1000000||15 %|
|1000000 – 1250000||20%|
|1250000 – 1500000||25 %|
|Above 1500000||30 %|
5 Heads of Income Tax
There are 5 heads in Income tax and every income comes under on of the 5 heads.
5 Heads are:-
- Income from Salary
- Income from House Property
- Income from Profit and gain of Business & Profession
- Income from capital gains
- Income from Other sources
1. Income from Salary:-
Income from salary is the income or remuneration received by an individual for services he is rendering or a contract undertaken by him.
2. Income from House property:-
Income arising out of a house property either in the form of rental income or on its transfer is referred to as ‘income from house property’.
3. Income from Profit and Gain of Business & Profession:-
Income earned through your profession or business is charged under this head. The income chargeable to tax is the difference between the credits received on running the business and expenses incurred.
4. Income from Capital Gain:-
Any profit that is received through the sale of capital assets is comes under this head.
5. Income from Other Sources:-
Any other income which does not covered under any of the above head comes under this head.
Total Income of all these 5 heads called Gross total Income.
A deduction can be considered as tax benefit that can be used to decrease your taxable income. A deduction is an amount that income tax department allows you to diminish your income, which ultimately reduces your tax liability. Examples of deduction are investment in mutual fund, public provident fund, medical insurance, children tuition fees etc.
After reducing deduction from gross total income what we get is known as Net Taxable Income
Gross Total Income – deduction = Net Taxable Income
Tax Deducted at source (TDS)
Tax deducted at sources is tax deducted by employer and deposit to the government on behalf of employee/taxpayer. Tax is deducted on the basis of estimated income in previous year. Tax rate is applicable as per the slab rate.
On income other than salary there are some specified rates to deduct tax on those income. Example In case of interest on saving bank account bank deduct tax @10%.
Advance tax is tax that is paid in advance instead of lump-sum payment at the time of return filling. Assessee is liable to pay advance tax if his tax liability for advance tax is 10000 or more.
advance tax is payable in four installment during the previous year and due dates for paying these installment are fixed by Income tax Department.
Due dates are:
|upto 15th June of Previous year||upto 15% of advance tax liability|
|upto 15th Sep of Previous year||upto 45% of advance tax liability|
|upto 15th Dec of Previous year||upto 75% of advance tax liability|
|upto 15th Dec of Previous year||upto 100% of advance tax liability|
A standard deduction of Rs. 50000 is allowed to every salaried employee. Employee can reduce this amount from gross total income.
Rebate is allowed to Resident individual having NTI upto Rs. 500000.
a. 100% of tax payable
b. Rs. 12500
Whichever is lower
You may refer to this video if you want the explanation in Hindi