Taxpayers
Each of these taxpayers is taxed differently under the Indian income tax laws. While firms and Indian companies have a fixed rate of tax calculated on their tax 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.Rate at which income is charged to tax increases with increase in income. Budget 2020 introduced a ‘New tax regime’ for the Individuals and HUF taxpayers :
The old tax regime provides 3 slab rates for levy of income tax which are 5%, 20% tax rate and 30% for different brackets of
income. The individuals have been given the option to continue with this Old tax regime and they can claim deductions of allowances like Leave Travel Concession (LTC), House Rent Allowance (HRA), and certain other allowances. Additionally, deductions for tax saving investments as per section 80C (LIC, PPF ,NPS etc) to 80U can be claimed. Standard deduction of Rs 50,000, deduction for interest paid on home loan.
Tax slab rates applicable for Individual taxpayer below 60 years for Old tax regime is as below:
| 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 |
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
Most of the deductions like deductions and exemptions are not allowed if the taxpayers opts for the New Tax regime. However he exemptions and deductions available under the new regime are:
- Transport allowances in case of a specially-abled person.
- Conveyance allowance received to meet the conveyance expenditure incurred as part of the employment.
- Any compensation received to meet the cost of travel on tour or transfer.
- Daily allowance received to meet the ordinary regular charges or expenditure you incur on account of absence from his regular place of duty.
Income Tax Slabs Under New Tax Regime
From the FY 2020-21, a new tax regime is available for individuals and HUFs with lower tax rates and zero deductions/exemptions. Individuals and HUF have the option to choose the new regime or continue with the old regime.The new tax regime is optional and the choice should be made at the time of filing the ITR. If the old regime is continued than all the deductions/exemptions as available can be availed by the taxpayer. The income tax slabs under the new tax regime are:
| New regime slab rates | Existing regime slab rates | ||
| Income from Rs 2.5 lakh to Rs 5 lakh | 5% | Income from Rs 2.5 lakh to Rs 5 lakh | 5% |
| Income from Rs 5 lakh to Rs 7.5 lakh | 10% | Income from Rs 5 lakh to Rs 10 lakh | 20% |
| Income from Rs 7.5 lakh to Rs 10 lakh | 15% | Income above Rs 10 lakh | 30% |
| Income from Rs 10 lakh to Rs 12.5 lakh | 20% | ||
| Income from Rs 12.5 lakh to Rs 15 lakh | 25% | ||
| Income above Rs 15 lakh | 30% |
Most of the deductions like deductions and exemptions are not allowed if the taxpayers opts for the New Tax regime. However he exemptions and deductions available under the new regime are:
- Transport allowances in case of a specially-abled person.
- Conveyance allowance received to meet the conveyance expenditure incurred as part of the employment.
- Any compensation received to meet the cost of travel on tour or transfer.
- Daily allowance received to meet the ordinary regular charges or expenditure you incur on account of absence from his regular place of duty.
Exceptions to the Income 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 |
Financial year
The financial year is a one-year period that the taxpayers use for accounting and financial reporting purposes. It is the year in which the income is earned. According to the Income Tax Act, such a period begins from 1st April of the calendar year to 31st March of the next calendar year. It is abbreviated as “FY”. For example, for the financial year starting from 1st April 2021 and ending on 31st March 2022, it can be written as FY 2021-22.
Assessment year
The one year period from 1st April to 31st March starting immediately after the financial year is termed as assessment year. This period is called the assessment year because all the taxpayers have to evaluate their income earned in the financial year and pay taxes in this year. For example, for incomes earned during the FY 2021-22, the assessment year will be AY 2022-23.
Assessee
The assessee is a person or a group who assesses his/her income and pays tax as per the Income Tax Act. The assessee can be an individual, a partnership firm, a company, an Association of Persons (AOP), trust, etc.
Income Tax Return Due Date
The due date for income tax return filing is 31st July of every year for individual taxpayers. The due date for income tax return filing for companies and taxpayer requiring tax audit is 30th September. Section 44AD of the Income Tax Act deals with tax audit under Income Tax Act.
Business
In case of a business, tax audit would be required if the total sales turnover or gross receipts in the business exceeds Rs.1 crore in any previous year.
Professional
In case of a profession or professional, tax audit would be required if gross receipts in the profession exceeds Rs.50 lakhs in any of the previous year.
Presumptive Taxation Scheme
If a person is enrolled under the presumptive taxation scheme under section 44AD and total sales or turnover is more than Rs. 2 crores, then tax audit would be required.
Penalty for late filing income tax return has been increased to Rs.5000 for returns filed between 1st August and 31st December.
Tax audit is mandatory for most businesses having a turnover of more than Rs.1 crore and professionals having more than Rs.50 lakhs income.
ITR-1 is the most widely used income tax form in India. ITR-1 is filed by individuals whose source of income is limited to salary and one house property.