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Income tax

The percentage of the income which is paid to the government for funding of infrastructure development,for paying salaries of the employees which get employed by state or central government,etc is called Income tax.Income tax act,1961 administers the provision of levying,collecting and recovering income tax in India.

CBDT is responsible for regulation of Direct Tax laws via IT department and it comes under the revenue department of Ministry of Finance.Income tax department also takes care of detection of avoidance of tax.

Introduction About Income Tax:

Income tax is the percentage of the earned(salaries, wages, revenue) and unearned(dividends, rents, interests) income, except the agricultural income, levied by the central government consecutively to fund the infrastructural development of the country, pay the salaries of the state or central government employees, and providing goods to the citizens. All taxes are imposed with adherence to the Income Tax Act, 1961 which comes under the laws of income tax. The Income Tax Law includes Income Tax Rules 1962, Income Tax Act 1961, Notifications and the Circulars furnished by Central Board of Direct Taxes (CBDT), judicial pronouncements by the SC and High Courts and the Annual Finance Acts.

Income tax falls under the ambit of direct taxation such as capital gains tax, securities transaction tax; however, there are various indirect taxes as well that we pay such as sales tax, VAT, Octroi, service tax, and a few others.

The income tax paid by the individuals and businesses is the significant source of the revenue for the central government or Government of India. The revenue functions are regulated by the Ministry of Finance, who has delegated the responsibility of managing the direct taxes (like income tax, wealth tax) to the Central Board of Direct Taxes (CBDT).

How Does Income Tax Works?

Income tax is applicable for the individuals, businesses, corporations, and any other establishments that generate income. The Income Tax Act, 1961 administers the collection, recovery, and regulation of income tax in India. The government requires the tax revenue to fulfill various objectives. Income tax assists the government in spawning a steady source of income which is used for the development of the country. Though the income tax is paid on a monthly basis from the regular earnings, it is calculated on an annual basis. The amount of the income tax that an individual is required to pay depends on several factors.

Elaboration on Income Tax:

Every individual should mandatorily pay the Income-tax, Hindu Undivided Family (HUF), Association of Persons (AOP), the Body of Individuals (BOI), corporate firms, and all other establishments that produce income.
The taxes are determined from the annual income of a person in a yearly cycle as per the Income Tax law,  which starts from the 1st of April to 31st of March of the next calendar year. The law recognizes and classifies the year of annual tax cycle as the “Previous Yearâ€? and “Assessment Year.â€?
The year in which the income is generated is known as the previous year and the year in which the income tax is levied is called the assessment year.
For example, Income earned between April 1st, 2018 and 31st  March 2019 would be called as the previous year's income, and it will be levied an income tax in the assessment year or the next year that begins on 1st April 2019.
The government does tax collection in three significant ways:

  • As the voluntary payment by taxpayers into the allocated banks, such as through the advance tax and self-assessment tax.
  • Taxes Deducted at Source (TDS): It is deducted from the monthly salary, before coming in to hand.
  • Taxes Collected at Source(TCS).

Under the Department of Revenue, Ministry of Finance, the Income Tax Department (IT Department) is responsible for supervising the collection of Income Tax, Expenditure Tax, and various other financial acts that are declared in the Union Budget with each passing year. The Central Board of Direct Taxes (CBDT) monitors the policy and planning of taxes and the direct tax laws through the IT Department. Along with the collection of taxes, the IT department is also comprehending in the prevention and detection of tax avoidance.

Impact of Union Budget 2018 on Income tax:

In Union Budget 2018,five major changes have been introduced in Income Tax :

  1. Increase in the cess of personal and corporation income tax from 3% to 4% which will increase collection of Income Tax.

  2. Deduction of Rs 40,000 on the income of salaried individuals taking the place of present exemption in the form of medical cost reimbursements and other allowances.

  3. All the profits from mutual funds and stocks which are above Rs. 1 lakh will be charged at the rate of 10%.The long term capital gains which were invested in mutual funds and stocks till 31st January,2018 were exempted from deduction of tax.

  4. There had been lots of changes which has been introduced for senior citizens such as the exemptions has been increased from Rs 10,000 to 50,000 on prepayments which were made in banks.Deduction limit of premium to be paid for medical expenditures or health insurances had been increased from Rs 30,000 to 50,000.No TDS deduction under the 194A section and provision of benefits of interest which has been received from recurring and fixed deposits.

Impact of Union Budget 2019 on Income tax:

The Interim Budget 2019 introduced these changes in the Income Tax norms:

  1. People earning up to Rs. 5 lakhs per annum will get full tax rebate after all deductions. A large number of young working professionals fall in this income segment.

  2. The TDS threshold on interests of bank and post office deposits have been increased from Rs. 10,000 to Rs. 40,000.

  3. The TDS threshold on rental income has been raised to Rs. 2.4 lakhs in 2019 from Rs. 1.8 lakhs in 2018.

  4. The standard tax deduction has also been increased from Rs 40,000 to Rs. 50,000.

  5. No substantial tax cuts have been announced for the large corporates. These companies might now have fewer incentives to create new jobs.

Income Tax Collection:

The annual cycle of tax starts from 1st of April and ends on 31st March of the next year.The previous year is the one in which income has been earned and assessment year is the one on which the tax is charged.

There are three ways by which tax is collected by the government:

  1. Taxes Collected

  2. Tax which is deducted from monthly salary (TDS).

  3. Advance tax and self assessment tax

Income Tax slab rates for 2018-19:

For individuals and Hindu Undivided Families( both men and women ) who are less than 60 yrs old:

Income Slab Tax Rate
Up to Rs 2,50,000 Nil
2,50,000-5,00,000 5%
5,00,000-10,00,000 20%
> 10,00,000 30%
Surcharge :
50 lakh - 1 crore or > 1 crore 15%
Cess 3% of total income tax + surcharge

For individuals and Hindu Undivided Families( both men and women ) who are more than 80 yrs old:

Income Slab Tax Rate
Up to 3,00,000 Nil
3,00,000-5,00,000 5%
5,00,000-10,00,000 20%
> 10,00,000 30%
For people > 80 years old, Income up to 5 lakh Nil
Surcharge and Cess will be same as above

Income Tax Return:

The income tax can be saved by making several investments under section 80C and 80D.The section 80C allows the individual to save up to Rs 1,50,000 through investments and 80D deals with deductions of tax on medical insurance of around Rs 25,000.Tax refund could be claimed through Form 16.HRA components such as investments, PF,insurance are need to be mentioned in Form 16 for declaring investments.

Refund status of Income Tax:

There are three ways to check the status:

  1. To check the income tax refund status,an individual should visit the official website www.incometaxefiling.gov.in

  2. Send the email to the IT department mentioning all the details of refund in it.

  3. Call on toll free number to check the status(1800-4250-0025).

Income Tax Return:

Following are the forms that needs to be filled based on the income group.For filing ITR, bank account statements,form 16 and previous year’s return copy will be required.

Form Description
ITR-1 The individuals who have income from one house property,salary and other sources like interest
ITR-2 Individuals and HUF who doesn’t have income from business and profession.
ITR-2A No income from business or profession,capital gains and foreign assets
ITR 3 Partners in firms but not carrying business under proprietorship
ITR 4 Individuals having income from proprietary business
ITR 4S Income tax return from Presumptive business
ITR 5 For person other than individual,HUF,company and person filing ITR-7
ITR 6 Companies claiming return under section 11
ITR 7 Companies which file return under section 139(4A),139(4B),139(4C),139(4D),139(4F)
ITR V Acknowledgement form of filing income tax return

How to save Income tax?

There are few sources to save income tax:

  1. Investment options

    1. Under section 80C, Income tax can be claimed by using mutual funds such as ELSS.As compared to fixed deposits and PPF’s, ELSS is more beneficial for making money.
    2. Unit linked Insurance Plans
  2. Insurance: Health and life insurance options

  3. House loans: Tax deductions up to Rs 1,50,000 can be claimed.

  4. Other options:

    1. PF or Provident Fund: By investing in PF account, a reasonable amount of tax can be saved.

    2. NSC or National Saving Certificate: In this a lower amount of Rs 100 can be saved even for a period of five years at least.

    3. Fixed Deposits: With a lock in period of five years a considerable amount of tax can be saved while earning interest.

Forms of Income Tax:
Some of the essential Income tax forms are:

Form                                         Description

Form No. 3CA:    This form is used to generate the audit report if the professional accounts of a person are audited under the Section 44AB of the Income Tax Act, 1961.

Form No. 3CB:    This form is used for a person who is falling under clause (b) of sub-rule (1) of rule 6G to generate the audit report under Section-44AB of the Income Tax Act, 1961.

Form No. 3CD:   It is used to state particulars as per the section-44AB of the Income-tax Act, 1961.

Form No. 3CEB: It is used to issue the report through an accountant under Section 92E in international transactions.

Form No. 10A:   This form is required if a charitable trust/institution has to be registered under Section-12A(1)(a) of the Income Tax Act, 1961, for which the application has to be made through Form No.10A.

Form No.10B:  It is required to generate the audit report of the charitable and religious trust/institution under the Section-12A(b) of the Income Tax Act.

Form No. 15CA: It is used to collect the information regarding payments made to a foreign company or a non-resident person.

Form No. 15CB:  It is required to get the certificate issued through an accountant.

Form No. 15G:    An individual who is not a firm or a company can register claims of specific receipts without the tax deductions via Form No. 15G. Such declarations should be made under sub-sections (1) and (1A) of Section 197A of the Income Tax Act, 1961.

Form No. 15H: If a 60 years old person has to file claims for a few receipts without the tax deductions, the declaration under sub-section (1C) of Section-197A of the Income Tax Act is required to be made through Form No. 15H.

Form No. 16: This form is used to certify the TDS (tax deducted at source) which is subtracted from the income reflects under the ‘Salaries’ head.

Form No.16A: The TDS under Section-203 of the Income Tax Act, 1961 is furnished through this form.

Form No.26AS: The annual tax statement is issued under section-203AA  through this form.

Form No. 35:  The Commissioner of Income Tax (Appeals) is notified through this form.

Form No. 36: It is used to inform the Appellate Tribunal.

Form No. 49A and 49AA: It is used to apply for the allotment of a Permanent Account Number (PAN). However, this form can be filed only by the Citizens of India, entities which have been established in India, Indian Companies, and the unincorporated entities that have been built in India.

Form No. 49B: It is used to apply for the Tax Deduction and Collection Account Number (TAN) allocation under Section-203A of the Income Tax Act.

Form No. 60: If a person performs a transaction, stipulated under Rule 114B and doesn't have a Permanent Account Number (PAN), then this form is required.

Types of Income or Taxable Heads of Income:

There can be various sources of income, and each kind of income is taxed accordingly. These sources are called as the heads of income.

  • Income from Salaries:
    The income received by an employee from the employer falls under this category. The employers should regulate the tax payment under Section-192 if their employee's income falls in taxable range. The employers must also provide a Form 16 to the employees, which is comprised of the details of tax deductions and the net paid income.
  • Income from House Rent:
    The rent is included in the taxable income, and it is charged from the owner of the property, but the condition is that property should not be used for commercial purposes if it falls under the residential category. The individuals and HUFs can claim the property as “self-occupied,� if they live there with their family, and are not required to pay taxes on this.
    Calculation of the income from house property is shown below:
    Gross Annual Value (GAV) from rent= x
    Municipal Taxes Paid = y
    Net Annual Value = x-y
    Deductions under Section 24 = z
    So Income from the house will be = (x-y) – z
  • Income from Business:
    The provisions for computing the tax on the business income is in adherence with Sections 30-43D.
  • Income from the Capital Gains:
    Capital assets include property such as land, buildings, equity shares, bonds, debentures, jewelry, art, and assets. The taxes are levied on the income generated by the transfer of these assets.
  • Income from Other Sources:
    Any source of income which cannot be classified under the sources as mentioned above of income falls under this category. These are as follows:
    1. Income through dividends.
    2. Winnings from horse races/lotteries.
    3. Employee’s contribution towards the staff welfare schemes, any fund set up under the ESIC Act which received by the employer through the employees.
    4. Interest on securities such as debentures, government securities, and the bonds.
    5. Interest on the compensation.
    6. Family pension received after the pensioner's death.
Articles that can help in filing income tax:

Income tax can be a tedious job for many people, and it is a fact that there are various details and nitty-gritty involved in the calculation and payment of income tax. However, if you want to get more clarity about filing taxes and the related subjects, read the pages given below.

  • Income Tax Slabs and Impact of Union Budget 2018
  • E-Filing
  • Income Tax Login
  • Income Tax Forms

    Income Tax Notices:

  • The notices and warnings from the Income Tax department are mainly sent across either to the tax defaulters or the people who have provided wrong information about their incomes with the intention to evade tax. To give you more clarity on the gravity of such situations, a list of notices have been provided below. These notices are issued to the people after the income tax filing.

    1. Notice Furnished Under Section-139(9): In case the person gets the notice under Section-139(9), it implies that there is a discrepancy in filing the income tax return. There might be a mistake in some form while filing. The person might have made use of an inappropriate form or might not have paid the total due, there might be an error in the PAN details, or the person might have filed a deduction claim without stating the source of income. In such cases,  log in to https://incometaxindiaefiling. gov.in/e-Filing/ and click on ‘’In response to notice u/s 139(9)’’ option. After which, you have to make the changes as stated in the notice and put the accurate information as required.
    2. Notice Granted Under Section-148: In case the person has missed out on mentioning a certain source of income or have miscalculated the total taxes due, he or she will receive a notice under Section-148. In case the amount specified is more than Rs.1 lakh, then expect the notice anytime in the following six months.
    3. Notice Issued Under Section 143(1): It is usually issued as a response to the income tax return filed by the person in a financial year. However, it is essential and confirms the taxpayer whether the tax return filed by the person is in accordance with the assessment of Income Tax Officer or any further action is required. The taxpayer will also receive the notice if he or she has ended up paying more taxes than the required amount. In this regard, the taxpayer will be eligible for a tax refund which will be refunded in the provided bank account details.
    4. Notice Granted Under the Section-143(1A): It is unique and essentially a computer-generated notice. It provides a 30-day time frame to the taxpayer to rectify the mistake made by the concerned person regarding the information provided in the Form 26AS. Obligatory clarification will be demanded by the taxpayer involved. The person will essentially have the next 30 days to understand and solve the problem on the portal of the income tax department.
    Apart from the notices as mentioned earlier, the salaried individuals can also receive penalties if they delay in filing their income tax returns. A total fine of Rs.5,000 will be imposed if the person has not submitted the tax returns by 31 July. In case if the person is extending the deadline of filing income tax return till 31st December, then he will be penalized for an amount of Rs.10,000.

    FAQs:

    Q1. What is ITR?
    ITRs are the documents that taxpayers provide to the Income Tax Department. An ITR consist of the details regarding the income and the tax payable on it.

    Q2. Who are all applicable to file for the income tax returns(ITR)?
    All the individuals whose gross income or annual income exceeds Rs.2.5 lakh are required to file the income tax returns.

    Q3. How many ITR forms are there and where they can be used?
    Here are eight ITR forms used in India:

    1. ITR-1: It must be used by the individuals who earn a salary or get income through pension or rent from single house property or income from other sources apart from racehorses and lottery winnings.
    2. ITR-2: All the individuals or HUFs who cannot file through ITR-1 will have to use ITR-2. Additionally, those who earn income who fall under “Income from business or profession� through interest, bonus, remuneration, salary or commission from partnership firms will be required to use ITR-2.
    3. ITR-3: All the individuals or HUFs who have their own business can use ITR-3.
    4. ITR-4: All the individuals, HUFs and the partnership firms apart from limited liability firms who have chosen the presumptive taxation scheme under Section-44AD / Section-44ADA / Section-44AE of the Income Tax Act will have to file through ITR-4.
    5. ITR-5: Any firm, BOI, AOP, LLP, local authority, co-operative society, and the artificial judicial person mentioned in Section 2(31)(vii) of the Income Tax Act will have to file ITR-5.
    6. ITR-6: All the companies, who claim exemption under Section 11, will have to register through this form.
    7. ITR-7: All the individuals, inclusive of companies, who are mandated to submit returns under Section-139(4A) or Section-139(4B) or Section 139(4C) or Section-139(4D) or Section-139(4E) or Section 139(4F), such as investment funds, political parties, colleges, trusts, and institutions will be required to use this form.
    8. ITR-V: It is an acknowledgment form of filing the income tax returns.

    Q4. How can I file the income tax returns?
    It can be filed in a few ways:
    a. Manually submit in the paper form.
    b. Submit it electronically using digital signature.
    c. Transmit the information electronically and then the verification through Form ITR-V.
    d. Submit the info electronically under EVC (electronic verification code).

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