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 for calculation, assessment, and collection.
All taxpayers must submit an Income Tax Return (ITR) every year by the respective due dates to report their income and claim a tax refund if applicable.
Income tax in India is a direct tax levied on individuals and entities based on their income. Here’s a quick overview:
Purpose: Major source of government revenue to fund public services and infrastructure.
Residential Status: Tax liability depends on whether the taxpayer is resident, non-resident, or not ordinarily resident.
Income Categories: Salary, house property, business/profession, capital gains, and other sources.
Tax Slabs: Different rates based on income slabs; higher income = higher tax rates.
Filing: Filing the ITR annually is mandatory to avoid penalties.
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.
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/-
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.
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.
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/-
For persons other than individual, HUF, company and person filing Form ITR-7
For companies that have not claimed a tax exemption under Section 11 need to use ITR 6.
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 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.
Fixed Deposit
Tax-saving fixed deposits are a low-risk savings tool with a guaranteed# return. Fixed deposits are time deposits that have a lock-in period of five years. The rate of interest can also differ from bank to bank. Five-year fixed deposits are the only type of savings deposit that is covered under Section 80C for tax* deductions.
Public Provident Fund
The Public Provident Fund is a government-backed savings scheme. It has a maturity period of 15 years. However, account owners are allowed to make withdrawals every year from the seventh financial year onward. It is suitable for long-term goals because of the lock-in periods. Moreover, it offers low risk and can be ideal for conservative investors. It also offers tax* deductions under Section 80C.
Unit Linked Insurance Plan (ULIP)
A Unit Linked Insurance Plan is a type of insurance product. However, apart from life insurance, it also allows investors to invest their money in the funds of their choice. This unique product secures the life insured financially while enabling them to fulfil various financial goals by investing in equity, debt, and hybrid funds. ULIPs have a five-year lock-in period, and their returns can vary based on the choice of funds and prevailing market conditions. However, they can be the most suitable for long-term goals like your child’s higher education, your retirement, and more. ULIPs offer tax* deductions under Section 80C and proceeds are exempt subject to conditions under Section 10(10D).
National Savings Certificate
The National Savings Certificate is another one of the Government of India-backed savings schemes. However, it can only be opened in a post office. It is primarily aimed at encouraging small to mid-income investors to save for their future needs. It is a low-risk plan with a guaranteed# return and tax* deductions under Section 80C.
Senior Citizen Savings Scheme
The Senior Citizen Savings Scheme is a special savings scheme for senior citizens. Only people over the age of 60 can use it to save for their retirement needs. Since it is aimed at senior citizens, it contains low risk. It also offers deductions subject to conditions prescribed under Section 80C*.
Life Insurance
Life insurance is a financial tool that offers financial protection against loss of life during the policy tenure. Life insurance offers guaranteed# payouts to the insured’s beneficiary in the case of an unfortunate event. There are several types of life insurance plans, such as term insurance, endowment insurance, annuity insurance, ULIPs, and more. All of these offer tax* benefits subject to conditions prescribed under Section 80C* and Section 10(10D)*.
Pension plans
Pension plans are a type of life insurance tool that offers dual benefits. These plans offer financial protection against loss of life during the policy term while allowing investors to build a retirement nest egg for their future needs. Pension plans also offer a guaranteed# return and can be used to create an assured stream of income after retirement. Additionally, they offer deductions subject to conditions prescribed under Section 80C* & 80CCC.
Health Insurance or Mediclaim
Health insurance is a type of insurance that offers financial protection against the treatment of illnesses and injuries. It can also be used to cover supplementary costs like ambulance expenses, pre- and post-hospitalisation care, preventative health check-ups, medicines, room rent at the hospital, and more. The premiums paid towards a life insurance plan qualify for deductions subject to conditions prescribed under Section 80D*. These deductions can be made for a policy for self, spouse, dependent children, and parents.
New Pension Scheme
The New Pension Scheme is a voluntary defined pension plan. The scheme has two accounts- Tier 1 and Tier 2. Tier 1 is mandatory for all government servants who joined the service on or after January 1, 2004. Tier 2 is an optional account. The scheme qualifies for deductions subject to conditions prescribed under Section 80C* and Section 80CCD*.
Tax-Saving Mutual Funds
Some mutual funds, like the Equity-Linked Savings Scheme (ELSS), also qualify for deductions subject to conditions prescribed under Section 80C*. ELSS funds invest in equity and equity-related securities and have lock-in period of three years. They can be ideal for high-risk investors with a long investment horizon as they are subject to market volatility. There is no guarantee of a return. However, they have delivered high gains over the long term.
Section 80C* of the Income Tax Act, 1961 allows for tax deductions on several types of investments and expenses, such as contributions to fixed deposits, PPF, NPS, life insurance premiums, and more. The section allows a deduction of up to a maximum limit of ₹ 1.5 lakh per annum.
Section 80CCC offers tax deductions of up to ₹ 1.5 lakh per annum for contributions towards pension funds offered by a life insurance company. Taxpayers can claim the money spent on the purchase, renewal, and continuation of such pension plans.
Section 80CCD offers tax deductions on contributions made to the National Pension Scheme (NPS) and Atal Pension Yojana (APY). Taxpayers can claim a tax deduction of up to ₹ 1.5 lakh in a financial year under Section 80CCD(1) and an additional deduction of ₹ 50,000 under Section 80CCD(1B) per annum. The aggregate amount of deductions under Section 80C, Section 80CCC & Section 80CCD(1) shall not be more than ₹ 1.5 lakh per annum.
Section 80D* pertains to tax deductions for medical insurance premiums. It offers a deduction of up to a maximum limit of ₹ 25,000 in a financial year for a policy bought for self, spouse, and dependent children. It further offers a tax deduction up to ₹ 50,000 per annum if any of the insured is a senior citizen. Hence, the maximum tax deduction under this section can be extended to ₹ 1 lakh in a financial year.
This section offers a tax deduction on the expenses incurred on the treatment of specified diseases and ailments. It includes neurological diseases where the disability level is 40% and above, malignant cancers, chronic renal failure, haematological disorders, and others. The section offers a tax deduction of ₹ 40,000 per annum, or the amount actually spent, whichever is less. For senior citizens, the amount is increased to ₹ 1,00,000 per annum, or the amount actually spent, whichever is less.
This section offers tax deductions on interest paid for education loans. The deductions are available for a maximum period of 8 years or till the interest is paid, whichever is earlier. There is no limit on the amount of tax deduction.
Section 80EE* of the Income Tax Act, 1961 offers a tax deduction on the interest paid for a loan for a residential property. The maximum tax deduction can be up to ₹ 50,000 in a financial year.
Residents in India earning income from royalty from a patent registered on or after April 1, 2003, under the Patents Act, 1970, can claim a tax deduction of up to ₹ 3 lakh per annum or the whole income earned from royalty, whichever is less.
Section 80TTA* of the Income Tax Act, 1961 offers a tax deduction of up to ₹ 10,000 per annum on the income earned from interest on savings account deposits of a bank, post office, or co-operative society.
Section 80U* offers tax deductions to disabled persons with at least 40% disability, as declared by a certified medical authority. The maximum tax deduction limit is ₹ 75,000 or ₹ 1,25,000 in a financial year if the disability is certified as 80%.
This section allows house owners to claim a tax deduction of up to ₹ 2 lakh in a financial year on the interest paid for a home loan.
| Income Range | Old Regime Tax Rate | New Regime Tax Rate |
|---|---|---|
| Up to ₹2.5 lakh | Nil | Nil |
| ₹2,50,001 to ₹3 lakh | 5% | 5% |
| ₹3,00,001 to ₹5 lakh | 5% | 5% |
| ₹5,00,001 to ₹6 lakh | 20% | 5% |
| ₹6,00,001 to ₹9 lakh | 20% | 10% |
| ₹9,00,001 to ₹12 lakh | 30% | 15% |
| ₹12,00,001 to ₹15 lakh | 30% | 20% |
| Above ₹15 lakh | 30% | 30% |
| Annual Income (₹) | Old Regime Tax Rate | New Regime Tax Rate |
|---|---|---|
| 0 – 2,50,000 | Nil | Nil |
| 2,50,001 – 4,00,000 | 5% | Nil |
| 4,00,001 – 5,00,000 | 5% | 5% |
| 5,00,001 – 8,00,000 | 20% | 5% |
| 8,00,001 – 10,00,000 | 20% | 10% |
| 10,00,001 – 12,00,000 | 30% | 10% |
| 12,00,001 – 15,00,000 | 30% | 15% |
| 15,00,001 – 20,00,000 | 30% | 20% |
| 20,00,001 – 24,00,000 | 30% | 25% |
| Above 24,00,000 | 30% | 30% |
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