Are you confused about what Income Tax is and how it works? Read on to understand what it is, what are the income tax slabs, and how to file income tax.
Primarily, taxes applicable in India are divided into two categories- indirect and direct taxes. Indirect taxes are levied on the purchase of any goods and services. Meanwhile, direct taxes are levied on an individual’s annual income. Income tax is classified as a direct tax.
Types of Income
Income tax is levied based on the source of income. The Income Tax department has categorised income into five heads.
- Income from Salary
Income received from an employer is categorised under this head.
- Income from Business
Income earned by providing professional services or from a business is categorised under this head.
- Income from Capital Gains
Profits generated by selling capital assets fall under this category. Capital assets refer to equities, buildings, jewellery, land, etc.
- Income from House Property
Money earned by giving the house on rent is categorised under this head.
- Income from Other Sources
Income generated from any sources other than the four heads mentioned above falls under this category. A few types of income under this head are interest earned from fixed deposits or savings accounts, income from dividends, bonds, etc.
Income Tax Slabs
The finance minister of India introduced a new tax regime in the Budget 2020. The tax rates as per the new regime are lower. But to opt for this tax regime, taxpayers must forgo most of the deductions and exemptions. However, taxpayers who don’t wish to forgo exemptions can opt for the old tax regime.
Here is a comparison between the old and the new tax regime-
|Annual Income||Tax Rate as per the Old Regime||Tax Rate as per the New Regime|
|Up to Rs. 2.5 Lakhs||0%||0%|
|Between Rs. 2.5 Lakhs and Rs. 5 Lakhs||5%||5%|
|Between Rs. 5 Lakhs and Rs. 7.5 Lakhs||20%||10%|
|Between Rs. 7.5 Lakhs and Rs. 10 Lakhs||20%||15%|
|Between Rs. 10 Lakhs and Rs. 12.5 Lakhs||30%||20%|
|Between Rs. 12.5 Lakhs and Rs. 15 Lakhs||30%||25%|
|Above Rs. 15 Lakhs||30%||30%|
Income Tax Filing Process
- Visit the Income Tax Department’s website to file returns online. (www.incometaxindiaefiling.gov.in)
- Under ‘Download’, choose the ITR form. If you are a salaried individual, then you need to download ITR-1’s (Sahaj) Return Preparation Software.
- Once you download the Return Preparation Software, open it, and fill the details from your Form 16.
- Compute tax payable. After that, pay tax and fill the challan details in the tax return.
- Confirm the details submitted by you. Then generate an XML file. This file will be saved on your computer.
- Go to the ‘Submit Return’ section and upload the XML file.
- You can digitally sign the file. However, you can skip this step if you don’t have a digital signature.
- You will see a message confirming successful e-filing on your screen. Then the ITR-Verification form is generated. This form will also be emailed to your registered email id.
- You can e-verify the return via Aadhaar OTP, Net banking, Bank account number, Registered mobile number and email id, Demat account number, Bank ATM.