As the tax filing season approaches, many individuals grapple with the complexities of income tax. Whether you’re a first-time taxpayer or a seasoned filer, understanding the basics of income tax is essential for compliance and financial planning. In this comprehensive guide, we’ll delve into the intricacies of income tax, covering everything from key terms to filing requirements and tax-saving strategies.
The previous year, or the financial year or tax year, spans 12 months from April 1 to March 31 of the following year. Regardless of when you commence your job, your tax obligations conclude on March 31, with a new tax year commencing on April 1. Hence, you must plan your taxes for each financial year accordingly.
A term commonly associated with tax filing, the assessment year follows the previous year and is when you ‘assess’ and file your return for the preceding year. For example, the assessment year 2019-20 corresponds to the previous year, 2018-19. If you begin employment on January 1, 2023, your tax year ends on March 31, 2023. Subsequently, 2022-23 becomes your previous year, and your assessment year is 2023-24.
| Sources of Income | Particulars |
| Income from Employment | This includes all the money you receive as part of your job, including salary, allowances, and any leave encashment. |
| Rental Income | Income generated from owning and renting out a house or building, whether it’s self-occupied or rented to others. |
| Capital Gains | Income derived from the sale of a capital asset, resulting in either a gain or loss. |
| Business Income | Income or loss incurred from running a business or carrying out a profession or trade. |
| Other Income | This encompasses various sources such as interest earned from savings bank accounts, income from fixed deposits, family pension, or gifts received. |
An Income Tax Return (ITR) is a form for taxpayers to report their income and tax liabilities to the tax authorities. India has 7 ITR forms, each with specific criteria. Taxpayers must file their ITR by the due date.
Mandatory filing conditions:
| Form | Applicable To | Income Sources / Conditions |
| ITR-1 | Resident individuals with income ≤ ₹50 lakhs | – Salary/Pension
– One House Property- Other Sources |
| ITR-2 | Individuals with income > ₹50 lakhs and other cases | – Every income from ITR > ₹50 lakhs
– Capital gains – More than one house property – Foreign income/assets – Crypto income (if reported as capital gains) – Directorship in a company- Holding unlisted equity shares |
| ITR-3 | Individuals with business or professional income | – Every income from ITR-2
– Business/Professional Income – Crypto income (if reported as Business Income)- Partner in a firm |
| ITR-4 | Resident Individuals and HUFs with income ≤ ₹50 lakhs | – Every income from ITR-1
– Presumptive income |
| ITR-5 | Firms, LLPs, AOPs, BOIs | – Applicable to businesses and organisations other than companies |
| ITR-6 | Companies not claiming exemption under section 11 | – Required for companies not claiming certain tax exemptions |
| ITR-7 | Certain persons/companies | – Under Sections 139(4A), 139(4B), 139(4C), 139(4D) |
Deductions are specific amounts the Income Tax Department allows you to subtract from your Gross Income. This reduction helps in lowering your overall tax liability.
Income Calculation:
Maximising your allowable deductions can significantly reduce the amount of tax you owe. Deductions are primarily covered under Section 80 of the Income Tax Act, which includes sections from 80C to 80U.
In 2020, the Indian government introduced two tax regimes: the old and the new. Each regime has different tax rates and allowable deductions:
| Section | Eligible Investments and Payments | Maximum Deduction |
| 80C | Investments in Equity Linked Saving Schemes (ELSS), Public Provident Fund (PPF), Senior Citizen Savings Scheme (SCSS), National Savings Certificate (NSC), Sukanya Samriddhi Yojana (SSY), and payments towards life insurance premiums and principal repayment of home loans. | ₹1,50,000 |
| 80CCC | Contributions to pension funds. | ₹1,50,000 |
| 80CCD(1) | Contributions towards Atal Pension Yojana and other notified pension schemes. | Employed: 10% of basic salary plus Dearness Allowance (DA) Self-employed: 20% of gross total income |
| 80CCE | Total deduction for the sums invested or paid under Sections 80C, 80CCC, and 80CCD(1). | ₹1,50,000 |
| 80CCD(1B) | Additional investments in the National Pension Scheme (NPS), over and above the limit in Section 80CCE. | ₹50,000 |
| 80CCD(2) | Employer’s contribution to NPS is over the limit set under Section 80CCE. | Central government employees: 14% of basic salary + DA Other employees: 10% of basic salary + DA |
TDS is a method where tax is automatically deducted by the payer at the time of making payment, such as by employers or banks. For instance, an employer deducts tax from an employee’s salary based on applicable tax slabs if the taxable income exceeds ₹2,50,000. Banks deduct TDS on interest from fixed deposits, usually at 10% or 20% if PAN is not provided.
The final tax payable is calculated by applying the appropriate tax slabs to your taxable income. Any TDS already deducted can be subtracted from this tax payable.
Introduced in Budget 2018 for salaried employees, replacing medical reimbursement and transport allowance. Initially set at ₹40,000, it was increased to ₹50,000 from FY 2019-20 and remains applicable in both tax regimes from FY 2023-24.
When preparing to file your Income Tax Returns, various documents are needed depending on your source of income:
Tax rates are determined by the income slab under which an individual’s income falls. Below is a table illustrating the tax slabs and applicable rates under both the old and new tax regimes:
| Income Slab (₹) | Old Tax Regime | New Tax Regime (until March 31, 2023) | New Tax Regime (from April 1, 2023) |
| 0 – 2,50,000 | – | – | – |
| 2,50,000 – 3,00,000 | 5% | 5% | – |
| 3,00,000 – 5,00,000 | 5% | 5% | 5% |
| 5,00,000 – 6,00,000 | 20% | 10% | 5% |
| 6,00,000 – 7,50,000 | 20% | 10% | 10% |
| 7,50,000 – 9,00,000 | 20% | 15% | 10% |
| 9,00,000 – 10,00,000 | 20% | 15% | 15% |
| 10,00,000 – 12,00,000 | 30% | 20% | 15% |
| 12,00,000 – 12,50,000 | 30% | 20% | 20% |
| 12,50,000 – 15,00,000 | 30% | 25% | 20% |
| >15,00,000 | 30% | 30% | 30% |
Filing your first income tax return in India can feel complex. Here’s a simplified guide to help you through the process:
Before you start, check the official website for the latest requirements and ensure you understand your tax obligations. This will help avoid any issues during filing.
Filing taxes is essential for every responsible citizen in India. Services like Quicko and ClearTax are designed to streamline this process, making it efficient and user-friendly. You can access both services on your Angel One app.
Stay updated with the latest financial insights by following the Angel One blog or joining our community page if you are interested in investing. Consider opening a Demat account with Angel One to start trading stocks, commodities, and currencies.
Disclaimer: This article has been written for educational purposes only. The securities quoted are only examples and not recommendations.
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