1. What is income tax and its importance?
Income tax is a direct tax levied by the government on the income earned by individuals and businesses. The Income Tax Act, 1961, is the legislative framework that governs all aspects of taxation in India. This act outlines the rules for computing, applying, and collecting income tax.
Income tax is crucial for the country’s economic development for several reasons:
- It’s a primary source of revenue for the government
- It helps in wealth redistribution
- It’s used to fund public services and infrastructure
- It’s an economic tool to influence saving, spending, and investment behaviours.
2. Income Tax Calculator
While nuances of tax calculations and actual final taxes will vary from one person to another, here’s a simple calculator to estimate your tax liability:
Basic Steps to Calculate Income Tax
- Determine your total income from all sources before deductions.
- Apply relevant exemptions and deductions
- Arrive at your taxable income
- Apply the tax slab rates to your taxable income (check the below table for accurate tax rate)
- Add applicable surcharge and cess
- Subtract any tax already paid or deducted (TDS)
- The result is your final tax liability
Income Tax Slab FY 2024-25 as per which the taxes are deducted
| Tax Slab for FY 2023-24 | Tax Rate | Tax Slab for FY 2024-25 | Tax Rate |
| Up to ₹ 3 lakh | Nil | Up to ₹ 3 lakh | Nil |
| ₹ 3 lakh – ₹ 6 lakh | 5% | ₹ 3 lakh – ₹ 7 lakh | 5% |
| ₹ 6 lakh – ₹ 9 lakh | 10% | ₹ 7 lakh – ₹ 10 lakh | 10% |
| ₹ 9 lakh – ₹ 12 lakh | 15% | ₹ 10 lakh – ₹ 12 lakh | 15% |
| ₹ 12 lakh – ₹ 15 lakh | 20% | ₹ 12 lakh – ₹ 15 lakh | 20% |
| More than 15 lakh | 30% | More than 15 lakh | 30% |
3. Types of Taxes in India
Governments collect various types of taxes. Here are the main taxes that are applicable to individuals in India:
| Category | Tax Type |
| Direct Taxes | Income Tax |
| Capital Gains Tax | |
| Property Tax | |
| Indirect Taxes | Goods and Services Tax (GST) |
| Customs Duty | |
| Excise Duty | |
| Deducted/Collected Taxes | Tax Deducted at Source (TDS) |
| Tax Collected at Source (TCS) | |
| Prepaid Taxes | Advance Tax |
| Self-Assessment Tax | |
| Transaction-based Taxes | Securities Transaction Tax (STT) |
| Equalisation Levy | |
| Professional Taxes | Professional Tax |
| Additional Levies | Cess |
| Surcharge | |
| Corporate Taxes | Minimum Alternate Tax (MAT) |
| Local Taxes | Toll Tax |
| Entertainment Tax |
4. Types of taxable income:
Taxable income refers to various types of earnings that are subject to income tax. Here’s a brief overview:
Salary Income:
Earnings received from employment, It’s the most common type of income and is taxed based on income slabs.
Income from House Property:
Revenue generated from renting out property or owning house property. Deductions may apply for interest on home loans and property taxes.
Business or Professional Earnings:
Profits from running a business or providing professional services. Tax is calculated on net profit after deducting allowable expenses.
Capital Gains:
Profit earned from the sale of assets like stocks, real estate, or gold. The tax rate depends on whether the gain is long-term or short-term.
Income from Other Sources:
Includes interest income, dividends, and winnings from lotteries or gambling. This type of income is generally taxed at the individual’s applicable rate (income bracket).
5. Types of Tax Collection and Taxpayers
Taxes are collected through various methods, We’ve discussed about few of them below:
TDS (Tax Deducted at Source)
This is a method where tax is deducted at the source of income. TDS is a method of tax collection where the payer (e.g., an employer or financial institution) deducts tax from the payment made to the recipient (e.g., employee or contractor) is commonly applied to salaries paid to employees. In this case, an employer deducts the applicable tax from an employee’s salary before disbursing the remaining amount to the employee.
Advance Tax
This refers to paying tax in advance, in instalments, based on estimated income for the year. It’s typically applicable to those with income sources other than salary. refers to the process of forecasting your total income for the financial year based on your current and expected earnings. This estimate includes all sources of income such as salary, business profits, rental income, and any other earnings. Advance tax is paid in four instalments in a ear. Individuals and businesses need to estimate their annual income and pay tax in four instalments (June 15, September 15, December 15, and March 15).
Self-Assessment Tax
This is the tax paid by the taxpayer after calculating their total tax liability, considering TDS and advance tax already paid. Self-assessment tax is the tax paid by an individual or entity on their total income after calculating the final tax liability at the end of the financial year, adjusting for TDS and advance tax already paid.
Typical Tax Payers include:
- Individuals – This includes all individual taxpayers, whether salaried, self-employed, or those with income from other sources.
- Hindu Undivided Families (HUFs) – This is a unique entity recognized under Indian tax law, representing families that jointly own property.
- Companies – This category includes both domestic and foreign companies operating in India.
- Firms – This refers to partnerships and limited liability partnerships (LLPs).
- Local Authorities - This includes municipal corporations, panchayats, and other local governing bodies.
- Association of Persons (AOPs) – This is a group of persons who join for a common purpose or a common action to produce income.
6. Important dates to remember for Income Tax Return (ITR) Filing
- For individuals not requiring an audit: 31st July
- For taxpayers requiring an audit: 31st October
- For taxpayers with international transactions: 30th November
- Belated ITR Filing: 31st December
7. Essential documents that are required for Income Tax Return (ITR) Filing:
- PAN Card
- Aadhaar Card
- Form 16 (for salaried individuals)
- Bank statements
- Investment certificates (proofs)
- Rent receipts (if applicable)
8. The Ease of E-Filing: Simplifying Tax Returns
E-filing has revolutionised the tax filing process:
- Online submission of returns
- Pre-filled forms with available data
- Instant acknowledgment
- Faster processing and refunds
- Reduced paperwork and errors
- Available from any location at any time
E-filing has significantly simplified the tax filing process by enabling online submission of returns from anywhere at any time. The system automatically populates forms with available data, reducing the need for manual entry and minimising errors. The digital approach not only cuts down on paperwork but also ensures greater accuracy and convenience, making tax filing more efficient and user-friendly.
9. A Smart Investment Strategy
As part of a comprehensive financial strategy, investing in fixed income products such as bonds can offer a stable and reliable source of income with slightly higher risk adjusted returns compared to traditional fixed deposits (FDs). Bonds are issued by companies, governments, or other organisations to raise funds, providing investors with periodic interest payments and the return of the principal amount upon maturity.
Jiraaf is a platform that simplifies bond investments, offering a variety of government and corporate bonds through an easy-to-use interface. It stands out for its transparency, with detailed bond information and efficient tools for managing investments.
