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Income Tax in India : Guide, IT Returns, E-filing Process 2018

Taxes in India can be categorized as direct and indirect taxes. Direct tax is a tax you pay on your income directly to the government. Indirect tax is a tax that somebody else collects on your behalf and pays to the government eg restaurants, theatres and e-commerce websites recover taxes from you on goods you purchase or a service you avail. This tax is, in turn, passed down to the government. Direct Taxes are broadly classified as :

Income Tax – This is taxes an individual or a Hindu Undivided Family or any taxpayer other than companies, pay on the income received. The law prescribes the rate at which such income should be taxed.

Corporate Tax – This is the tax that companies pay on the profits they make from their businesses. Here again, a specific rate of tax for corporates has been prescribed by the income tax laws of India.

Indirect taxes take many forms: service tax on restaurant bills and movie tickets, value-added tax or VAT on goods such as clothes and electronics. Goods and services tax, which has recently been introduced is a unified tax that has replaced all the indirect taxes that business owners have to deal with.

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

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 ). Also read our article on Income Tax for NRIs. Your income could be salary, pension or could be from a savings account that’s quietly accumulating a 4% interest. Even, winners of ‘any Big Shows ’ have to pay tax on their prize money. For simpler classification, the Income Tax Department breaks down income 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 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 increasing 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

ncome 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

Income Tax Slab & Rate for FY 2018-19, 17-18 & 16-17

No tax for individuals with income less than ₹ 2,50,000
0%-5% tax with income ₹ 2.5 lacs to 5 lacs for different age groups
20% tax with income ₹ 5 lacs to 10 lacs
Investments upto ₹ 1.5 lacs under Sec 80C can save ₹ 45,000 in taxes

In India, income tax is levied on individual taxpayers on the basis of a slab system where different tax rates have been prescribed for different slabs and such tax rates keep increasing with an increase in the income slab.

Such tax slabs tend to undergo a change during every budget.

Further, since the budget 2018 has not announced any changes in income tax slabs this time, it remains the same as that of last year.

There are three categories of individual taxpayers:
1.Individuals (below the age of 60 years) which includes residents as well as non-residents
2.Resident Senior citizens (60 years and above but below 80 years of age)
3.Resident Super senior citizens (above 80 years of age)

Exceptions to the 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

Income Tax Rules

While the Income Tax Act, 1961 is the law enacted by the legislature for governing and administering income taxes in India, Income Tax Rules, 1962 has been framed to help apply and enforce the law contained in the Act. Further, the Rules cannot be read independently. They must be read in conjunction with the Act only. Further, the Rules must be within the framework of the Act and cannot override the provisions of the Act. For example, the Act lays down the law with regard to taxability of perquisites given by the employer to his employees as “salary”. However, it does not discuss how the perquisites must be valued. Such valuation is in turn prescribed under Rule 3 of the Income-tax Rules.

Income Tax Calculation

Every income that your receive should form part of your income tax return. Of course, the law does provide for exemption of certain incomes eg. dividend income from an Indian company, LTCG on listed equity shares upto Rs 1 lakh in any financial year etc. Therefore, here is a quick guideline you can probably follow to compute taxes due on your income:

List down all your income – be it salary, rental income, capital gains, interest income or profits from your business or profession
Remove incomes that are exempt under law
Claim all applicable deductions available under every source of income . eg claim standard deduction of Rs 40,000 from salary income, claim municipal taxes from rental income, claim business related expenses from your business turnover etc
Claim all applicable exemptions under every head of income eg. amount reinvested in another house property can be claimed as exemption from capital gains income etc
Claim applicable deductions from your total income eg the 80 deductions like 80C, 80D, 80TTA, 80TTB etc
You will now arrive at your taxable income. Check the tax slab you fall under and accordingly arrive at your income tax payable.

The government keeps introducing and altering tax slabs, schemes and tax benefits, so it’s a good idea to keep up with the Budget.