Income Tax in India : Guide, IT Returns, E-filing Process 2019

by Supriti Chatterjee 2019-04-23 13:49:57

There are two major categories of taxes in India- direct tax and indirect tax. A direct tax is paid on your income, directly to the government. Indirect tax is collected by somebody on your behalf and then paid to the government like in case of theatres, restaurants and e-commerce websites incur taxes from its customers on goods or services that are availed by them.

Further, the tax is passed on to the government. Direct Taxes are mainly classified as :

Income Tax – This is the tax paid by any individual other than the companies on the income received. The law recommends the rate at which a particular set of income is to be taxed
Corporate Tax – This is the tax paid by companies on the profit made in that particular fiscal year. The law recommends the rate of tax for corporate.

Indirect taxes are availed by the businesses in the form of service tax on movie tickets, restaurant bills and n the form of VAT (value-added tax) on products like clothes or electronic items. The recently introduced GST (Goods and services tax) is a combined tax that has substituted all the indirect taxes that company owners had to deal with.

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Basics for Income Tax

Every individual who earns an income in India is subject to income tax. Your income can be in the form of pension, salary or from a savings account. Even the winners of reality shows like ‘Kaun Banega Crorepati’ are liable to pay tax on the prize money. The Income tax department breaks down income into five main categories:

Income Type	Nature of Income to be covered
Income from Salary	Income from both salary and pension and covered under it
Income from Other Sources	Income from fixed deposits, savings bank account interest or winning KBC are covered under it
Income from Property	Income from rentals are covered under it
Income from Capital gains	Income generated from the sale of a capital asset like shares, mutual funds or house property
Income from Self employment or Businesses	If you are self-employed or a freelancer, contractor or if you run your own business you are subject to income tax under this category. For instance, life insurance agents, doctors, chartered accountants, and tuition teachers fall under this category.

Taxpayers and Income tax slabs

Almost all individuals that earn some or the other form of revenue fall under the list of taxpayers. These include-

Individuals, Association of Persons(AOP), Hindu Undivided Family (HUF), and Body of Individuals (BOI)
Firms and
Companies

Every taxpayer is taxed under differently based on their tax brackets as per the income tax law in India. In the case of firms and companies, they are liable to a fixed rate of tax of 30% of profits but the individuals, AOP, HUF, and BOI taxpayers are taxed depending on their income slab. Each tax slab or tax bracket has a particular tax rate. In India, there are four tax brackets-

Individuals earning up to 2.5 lakhs
Individuals earning between 2.5 lakhs and 5 lakhs
Individuals earning between 5 lakhs and 10 lakhs
Individuals earning more than Rs 10 lakhs

Income	Tax Rate	Tax Payable
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

Exceptions to the Tax Slab

Capital gains are not taxed based on a slab basis. They are taxed based on the asset and the term for which you’ve had it. The holding period determines if a particular asset is a long term or short term. Here is a table to make you understand better.

Type of capital asset	Holding period	Rate of Tax
House Property	Long term holding- more than 24 months –Short Term Holding-less than 24 months	20% According to Slab Rates
Debt mutual funds	Long term holding- more than 36 months –Short Term Holding-less than 36 months	Gains > Rs 1 lakh taxable @ 10% 15%
Equity mutual funds	Long term holding- more than 12 months –Short Term Holding-less than 12 months	Gains > Rs 1 lakh taxable @ 10% 15%
Shares (STT paid)	Long term holding- more than 12 months –Short Term Holding-less than 12 months	Gains > Rs 1 lakh taxable @ 10% 15%
Shares (STT unpaid)	Long term holding- more than 12 months –Short Term Holding-less than 12 months	20% According to Slab Rates
FMPs	Long term holding- more than 36 months –Short Term Holding-less than 36 months	20% According to Slab Rates

Income Tax Calculation

Any income that you earn or receive must be a part of the income tax return. However, the law provides an exemption of particular incomes like LTCG over listed equity shares up to 1 lakh in a financial year, dividend income, etc. Here are some guidelines to calculate taxes on your income:

Make a list of all your income like salary, capital gains, rental income, interests gains or profits from one’s company or occupation
Withdraw incomes that are exempted as per law
Claim all valid deductions for every income source. Claim for Rs 40,000 standard deduction from salary, claim municipal taxes, claim business expenses etc.
Claim all valid deductions under each income head eg. amount reinvested in some other house property can be claimed as an exemption.
Claim valid deductions like 80C, 80D, 80TTA, 80TTB etc
Once you calculate your taxable income, check your tax slab and consequently calculate your payable income tax.

Income Tax Return

Income Tax Return is a process (form) where a taxpayer reveals his income details, claims for valid exemptions and deductions and taxes that are to be paid on the income. Details of taxes paid are also available in the return. Any extra tax paid will be claimed in the form of a refund in the return.

Income Tax Return Filing

It is mandatory for a taxpayer to file income tax return online. There are only a few exceptions in the case-

Taxpayers falling in the age group of 80 and above are not required to file the return online

Taxpayers with an income of less than Rs 5 lakhs (not filing return) are not required to file return online.

Taxpayers can now start filing their income tax returns (ITR) for the last fiscal year

2018-19 as the Income Tax department has started issuing ITR forms 1 and 4 from

9th April onwards.

You can download ITR-1 (Sahaj) and ITR-4 (Sugam) from the income tax e-filling

website and at the same time can also fill your tax returns online. ITR-1 form is

intended for resident and salaried taxpayers with total earnings of up to a

maximum of â‚¹50 lakh and the ITR-4 form is for individual professionals and

businessmen with overall earnings of up to a maximum of â‚¹50 lakh. Firms (other

than LLP) and HUFs with total earnings of up to a maximum of â‚¹50 lakh too can

use this form for ITR filing.

People holding director positions in both listed and unlisted companies are liable

to file their returns in ITR-2. It is also compulsory for them to reveal the details

like Permanent Account Number (PAN), Director Identification Number (DIN) and

equity holding as well as the company names.

Also one must keep in mind that it is mandatory to cite Aadhaar number in the

ITR forms. There will be no processing of tax returns without the Aadhaar

number.

It is better to start filing your tax returns on a priority basis in order to steer clear of any penalties for delay. Further it also helps you in getting early tax refunds.