Income Tax Filing

Its is mandatory for individuals, NRIs, partnership firms, LLPs, Companies, Trust to file income tax returns each year. Individuals and NRIs are required to file income tax return, if their income exceeds the exemption limit.

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Income Tax in India

There are two types of taxes in India – direct and indirect.

A direct tax is a tax you pay on your income directly to the government. Indirect tax is a tax that restaurants, theatres and e-commerce websites charge you on for goods or a service. This tax is, in turn, passed down to the government. Indirect taxes take many forms: service tax on restaurant bills and movie tickets, value added tax or VAT on goods such as clothes and electronics.

Goods and services tax, which has recently been introduced is a unified tax that has replaced all the indirect taxes that business owners have to deal with.

Let us discuss the entire process of income tax in India.

31 January31 March31 JulyOct – Nov
Deadline to submit your investment proofsDeadline to make investments under Section 80CLast date to file your tax returnTime to verify your tax return

Income Tax Basics

Everyone who earns or gets an income in India is subject to income tax. (Yes, be it a resident or a non-resident of India ). Also read our article on Income Tax for NRIs. Your income could be salary, pension or could be from a savings account that’s quietly accumulating a 4% interest. Even, winners of ‘Kaun Banega Crorepati’ have to pay tax on their prize money.

For simpler classification, the Income Tax Department breaks down income into five heads:

Head of IncomeNature of Income covered
Income from SalaryIncome from salary and pension are covered under here
Income from Other SourcesIncome from savings bank account interest, fixed deposits, winning KBC
Income from House PropertyThis is rental income mostly
Income from Capital GainsIncome from sale of a capital asset such as mutual funds, shares, house property
Income from Business and ProfessionThis is when you are self-employed, work as a freelancer or contractor, or you run a business. Life insurance agents, chartered accountants, doctors and lawyers who have their own practice, tuition teachers

Tax Slabs

People’s incomes are grouped into blocks called tax brackets or tax slabs. And each tax slab has a different tax rate.

In India, we have four tax brackets each with an increasing tax rate.

  • Income earners of up to 5 lakhs
  • Income earners of between 5 lakhs and 10 lakhs
  • And those who make more than 10 lakhs per year
Income RangeTax rateTax to be paid
Up to Rs.2,50,000 0No tax
Between Rs 2.5 lakhs and Rs 5 lakhs5%5% of your taxable income
Between Rs 5 lakhs and Rs 10 lakhs20%Rs 12,500+ 20% of income above Rs 5 lakhs
Above 10 lakhs30%Rs 1,12,500+ 30% of income above Rs 10 lakhs

This is the income tax slab for FY 2017-18 for taxpayers under 60 years. 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.

Exceptions to the Tax Slab

Capital gains are taxed depending on the asset you own and how long you’ve had it.

Type of capital assetHolding periodTax rate
House PropertyHolding more than 24 months
Holding less than 24 months
20% Depends on slab rate
Debt mutual fundsHolding more than 36 months
Holding less than 36 months
20% Depends on slab rat
Equity mutual fundsHolding more than 12 months
Holding less than 12 months
Exempt 15%
Shares (STT paid)Holding more than 12 months
Holding less than 12 monthsHolding more than 12 months
Holding less than 12 months
Exempt 15%
Shares (STT unpaid)Holding more than 12 months
Holding less than 12 monthsHolding more than 12 months
Holding less than 12 months
20% As per Slab Rates
FMPsHolding more than 36 months
Holding less than 36 months
20% Depends on slab rate

Indians living abroad or Indians earning foreign income are also taxed differently based on their residential status and their income in India.

If you are a NRI, only your income earned or accrued in India is taxable.

If you are resident Indian for that financial year, then your global income is taxable.

Check your residential status on ClearTax.

Calculating Income Tax

You’ll just need your payslip. The government provides plenty of tax benefits and credits that taxpayers you can take advantage of. Read our article on Section 80C to know more. The government keeps introducing and altering tax slabs, schemes and tax benefits, so it’s a good idea to keep up with the Budget.

Tax deductions

There are broad themes to what the government incentivizes. These are covered under Section 80 of the Income Tax Act. Here they are:

FAQs on Tax Deduction

Taxes in depth – Forms of taxes

The Government collects income tax from three channels:

  • TDS
  • Advance tax
  • Self Assessment tax

TDS

  • TDS exists to help government get tax throughout the year. There’s a prescribed table on how much tax deducted under what circumstances.
  • Your employer cuts TDS based on the information available to him about you. So if you’ve made investments, but have not declared or if you live in a rented house, but have not shared rent receipts, your finance department will have no choice but to deduct tax based on only thing they know – your CTC.
  • This is why the investment proofs deadline in your office is super important. Save yourself some headache and submit your investment proofs on time.
  • Banks don’t know if you’re working in a company or if income from fixed deposits is what you solely rely on. So they deduct a standard 10% tax before they give away the interest. Now if you fall in the 20% or 30% bracket, it’s on you to pay the remainder of the income tax. That’s why sometimes you may find yourself paying some tax at the time of filing a tax return.
  • Make sure banks have your PAN number. They deduct 20% tax if they don’t have your PAN in their records.
  • Anyone who’s receiving an income will have some percentage of tax withheld as prescribed by the government.

Advance Tax

Self-employed people must do the calculation themselves and pay the tax to the Government periodically every quarter.

The deadlines are:

Due DateAdvance Tax Payable
On or before 15th June15% of advance tax
On or before 15th September45% of advance tax
On or before 15th December75% of advance tax
On or before 15th March100% of advance tax

To calculate your advance tax:

  • Add up all the invoices received and include future payments you will be receiving till March 31 to estimate your taxable income.
  • Deduct expenses directly related to your business, and any investments you have made under Section 80C in order to arrive at your taxable income.
  • Use the ClearTax calculator to find out your tax liability.

Self Assessment Tax

When you are filing a tax return and you find out that you need to pay additional tax, you’d be paying self assessment tax. Another way to think about this would be.

  • if you are paying tax for a financial year after the deadline has ended, you will pay self assessment tax.
  • if you are paying tax for a financial year during the financial year, you will pay advance tax.

Tax Glossary

Form 26AS

Form 26AS is a tax summary statement that contains all the tax payments you’ve made yourself (self-assessment tax/ advance tax) or tax someone deducted (TDS) on your behalf. You’re going to need this document when you are doing your income tax e-filing. Form 26AS can be downloaded from www.incometaxindiaefiling.com.

Form 16

If you need to know whether or not your company has given you some tax allowance like your offer letter says, or want to see how much tax has been deducted throughout the year, or need to see EPF contributions, wouldn’t it be easier if you could see them all in one place? That’s your Form 16.

Form 16 has:

  • a summary of all the tax deducted by each quarter
  • all the tax benefits and allowances you’ve availed as a salaried individual
  • Section 80C deductions you’ve claimed through your employer
  • and your taxable income after allowances and Section 80C deductions

This is a super important document for all salaried individuals. And having a Form 16 makes e-filing your income tax return very simple. You can upload your Form 16 and e-file your income tax return. No income tax login required.

Form 16A

Form 16A is very similar to a Form 16 in that it contains how much tax was deducted over what income. So how’s Form 16A different?

Form 16A will never be issued by an employer. They’re usually given to you by a bank that’s deducting TDS, or a company that’s deducted tax on your freelancing service.

Investment submission proof deadline

Depending on how large your company is, you might have two deadlines related to investment proofs. There’s one in the beginning of the year (April) that needs you to just declare how much money you’re planning to invest in Section 80C. This will give an indication on how much they need to deduct in TDS.

Again in the last quarter (roughly between December and February), you will be asked to submit investment proofs. This is when you need to submit all your rent receipts, medical bills (if you’re getting medical reimbursement), investments under Section 80C, 80D.

Assessment Year/ Financial Year

Financial Year runs between April 1 and March 31 of each year. Income tax is calculated for this period. Income tax returns are assessed the year after the financial year has finished. So that’s your Assessment Year. During the assessment year, taxpayers file their income tax return. Income tax return and refunds are processed by the I-T Department that year.

ITR-V

ITRV stands for Income Tax Return – Verification. After filing your tax return online, you must print and sign a 1-page document and send it to the Income Tax Department.

Challan 280

Challan 280 is the slip that you will use for online income tax payment.

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