What is Income Tax? A Beginner’s Guide for Indian Taxpayers
Income tax is a crucial aspect of financial and legal obligations in India. If your annual income exceeds a certain limit, you're required to pay income tax on your earnings. The Government regulates income tax rates, income slabs, and rules, which may change over time. Learn more about income tax from this guide by EximPe.
Understanding Income Tax
Income tax is a direct tax levied by the government on the income earned by i
ndividuals, businesses, and other entities during a financial year. It is a primary source of revenue for the central and state governments in India. The Income Tax Act of 1961 governs the income tax system, outlining the rules and regulations for income tax calculation, assessment, and collection.
Definition of Income Tax
Income tax is a tax charged on the annual income of an individual or business earned in a financial year. The Income Tax system in India is governed by the Income Tax Act, 1961, which lays out the rules and regulations for income tax calculation, assessment, and collection. All taxpayers are mandated to submit an Income Tax Return (ITR) every year by respective due dates as per the law to report their income and claim a tax refund if applicable. An income tax return can be filed online or offline on the Income Tax Department's official website or through verified third-party websites.
The Indian Income Tax system also includes various deductions and exemptions that can be used to lower the tax liability for a given financial year.
Income Tax Structure in India
The income tax structure in India is governed by the Income Tax Act, 1961. It outlines the framework for tax calculation, collection, and compliance for individuals, HUFs (Hindu Undivided Families), firms, companies, and other entities. It also has laid out laws for tax calculation, collection, and compliance.
India follows a progressive tax system, meaning the tax rate increases with the rise in income. The income tax structure is categorized into different slabs, with varying rates for income. There are also two different regimes for Income Tax in India.
- Old Regime
- New Regime
Types of Income Tax in India
1. Personal Income Tax
Levied on individual earnings, including salary, rent, interest, and capital gains.
2. Corporate Tax
Corporate tax is a tax that is applied to the profits of companies and corporations.
What Are the Sources of Taxable Income?
The Income Tax Act categorizes income under five heads:
1. Income from Salary
Wages, pensions, bonuses, and perks from employment.
2. Income from House Property
Rental income from owned property.
3. Profits and Gains of Business or Profession
Earnings from self-employment, business, or freelancing.
4. Capital Gains
Profits from selling property, mutual funds, shares, or other capital assets.
5. Income from Other Sources
Interest from savings accounts, fixed deposits, dividends, lottery winnings, etc.
Deductions and Exemptions
You can reduce your taxable income by claiming deductions under the old regime:
- Section 80C: Investments in ELSS, PPF, LIC, etc. (limit ₹1.5 lakh)
- Section 80D: Health insurance premiums
- Section 80TTA: Savings account interest (up to ₹10,000)
- HRA and LTA: For salaried employees
What is Income Tax Filing?
Income tax filing is the process of declaring your income and tax liability to the Income Tax Department by submitting an Income Tax Return (ITR).
Key Benefits of Filing Income Tax:
- Legal compliance
- Claiming tax refunds
- Visa applications
- Proof of income
- Carry-forward of losses
Income Tax Filing
Filing an Income Tax Return (ITR) is a yearly mandate for all taxpayers in India. This involves reporting your income, calculating taxes owed, and claiming any applicable refunds. You can file your ITR online through the Income Tax Department's official website or via authorized third-party platforms.
Steps for Online ITR Filing
E-filing income tax returns involves several steps that can be completed online.
- Calculate Income and Tax: The first step while e-filing income tax is to calculate the income and applicable tax with respect to the tax provisions. The income tax calculation should be done by considering income from every source and computed after claiming the valid deductions.
- TDS Certificates and Form 26AS: The next crucial step is to summarize the TDS amount from the TDS certificates received. Note a Form 26AS can be used to compute the summary of TDS and tax paid during a certain financial year.
- Select the Suitable Income Tax Form: In step 3, a taxpayer is required to select the ITR Form before filing the returns.
- Choose Your Status: Choose your status, such as Individual, Hindu Undivided Family, or Firm/Limited Liability Partnership.
- Review and Validate: Review the tax computation summary to check if you owe tax or are eligible for a refund. Correct any errors and move to verification.
- Verification: Choose a verification option: e-Verify, e-Verify later, or send ITR-V by post5. If you choose to e-verify, generate an EVC or OTP via ATM, Aadhaar, pre-validated bank, or Demat account.
- Submit: After verification, select 'Preview and Submit', then click 'Submit'. You will receive an income tax acknowledgement via email.
Income Tax Forms List
There are different ITR forms to pay income tax in India that taxpayers can choose from, based on the type of income and nature of employment.
- ITR 1: For individuals being a resident (other than not ordinarily resident) having total income up to ₹ 50 lakh, having Income from Salaries, one house property, other sources (Interest etc.), and agricultural income up to ₹ 5,000/
- ITR 2: For individuals and HUFs having a total income of more than ₹ 50 lakh. Also, Individuals and HUFs not having income from profits and gains of business or profession can opt for this form. Individuals and Non-Resident Indians (NRIs) not having income from profits and gains of business or profession can also use this form.
- ITR 3: For individuals and HUFs having a total income of more than ₹ 50 lakh. Also, Individuals and HUFs not having income from profits and gains of business or profession can opt for this form. Individuals and Non-Resident Indians (NRIs) not having income from profits and gains of business or profession can also use this form.
- ITR 4: For Individuals, HUFs and Firms (other than LLP) being a resident having total income up to ₹ 50 lakh and having income from business and profession which is computed under sections 44AD, 44ADA or 44AE and agricultural income up to ₹ 5,000/
- ITR 5: For persons other than individual, HUF, company and person filing Form ITR-7
- ITR 6: For companies that have not claimed a tax exemption under Section 11 need to use ITR 6.
- ITR 7: For Persons including companies who need to file their tax returns under Section 139(4A), Section 139(4B), Section 139(4C), Section 139(4D), Section 139(4E), and Section 139(4F) must use ITR 7.
- ITR V: ITR V is the acknowledgement form that is used for the verification of a tax return. This should be duly e-verified In case e-verification is not possible, it is to be signed and sent to the Income Tax Department, Centralised Processing Centre (CPC) in Bangalore.
Key Points to Remember While Filing ITR
- Carefully select the tax regime.
- Download AIS and Form 26AS and check the actual TDS / TCS / tax paid. If you see any discrepancy, you should reconcile it with the Employer / Tax Deductor / Bank.
- Compile and carefully study the documents to be referred to when filing your ITR, like bank statement / passbook, interest certificates, receipts to claim exemptions or deductions, Form 16, Form 26AS (Annual Information Statement), investment proofs, etc.
- Ensure details like PAN, permanent address, contact details, bank account details, etc. are correct in the pre-filled data.
- Identify the correct return for you (from ITR-1 to ITR-7). Provide all the details in the return such as total income, deductions (if any), interest (if any), taxes paid / collected (if any), etc. No documents are to be attached along with ITR-1.
- e-File the return of income on or before the due date. The consequences of delay in filing returns include late filing fees, losses not getting carried forward, deductions and exemptions not being available.
- After e-Filing the return, e-Verify it. If you want to manually verify your return, send the signed physical copy of ITR-V Acknowledgement (by speed post) within appropriate timelines of filing the return to Centralized Processing Center, Income Tax Department, Bengaluru 560500 (Karnataka)
FAQs About Income Tax in India
1. What is income tax?
Income tax is a tax levied by the government on the income earned by individuals and entities in a financial year.
2. Who is Required to Pay Income Tax?
As per the Income Tax Act, any individual who earns more than Rs. 4 lakh (under the new regime) and Rs. 2.5 lakh (under the old regime) in a financial year, must pay income tax to the government.
3. What are the types of income taxable in India?
Income from salary, house property, business or profession, capital gains, and other sources.
4. What documents are needed to file an ITR?
PAN, Aadhaar, Form 16, investment proofs, and bank details.
5. Can I file ITR without Form 16?
Yes, you can file using your salary slips and other income details.
6. What happens if I miss the ITR filing deadline?
You may be charged a late fee and lose the chance to carry forward losses or claim refunds.
7. What is the new tax regime?
A simplified system with lower rates but without most deductions.
8. Which ITR form should I use?
Depends on your income type—ITR-1 for salaried, ITR-3 for business/profession, etc.
9. What is TDS in income tax?
Tax Deducted at Source—an advance tax collected on behalf of the government on your income.
10. When to file income tax for 2025?
Accordingly, to facilitate a smooth and convenient filing experience for taxpayers, it has been decided that the due date for filing of ITRs, originally due on 31st July, 2025, is extended to 15th September, 2025
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