logo

Menu Display

Breadcrumb

wrp-slide wrp-mobile

A Complete Guide to Income Tax in India

Want to save on your taxes³?

We present you a fultoosh guide to help you understand anything and
everything about your taxes. 

Product Enquiry

Take a step ahead to save taxes

Get Started

Income Tax Sticky Menu

What Is Income Tax?


Income Tax is a Direct Tax that is levied on the net income earned by an individual, company or any other person. The amount that is calculated as income tax is calculated as a percentage on the earnings of the said person or entity. Each person is required to declare their earnings to the government by way of an annual income tax return and pay their taxes due as per the applicable laws. Non-payment of tax and non-filing of tax returns is punishable by the law.
 

In India – income tax is levied by the Government of India under the Income Tax Act, 1961. The money collected into the government coffers is used to pay for expenses on infrastructure, development, fund other public services and other such expenses needed to perform the government tasks and obligations that are required to run a country.
 

India, like most other countries, employs a progressive system of taxation, where the rate of tax is higher for high income earners. There are a series of deductions available on the tax payable in respect of certain expenses or investments. The savvy taxpayer makes note of these and does adequate tax planning to minimize their tax liability.

An Overview of The Income Tax Act Of 1961

 

In 1860, income tax was introduced in India for the first time by Sir James Wilson, the pre-independence finance minister of India. He enforced the Income Tax Act, 1860 to
cover up for the losses sustained by the government due to the military mutiny of 1857. From time to time, the act was replaced with different licence taxes. In 1886, a
separate Income Tax Act was passed, which was further amended by the Income Tax Act of 1918 and 1922. The Income Tax Act of 1922 became highly complicated due to
several changes. Hence, the Income Tax Act of 1961 was introduced on April 1, 1962.

 

Presently, the Income Tax Act of 1961 is applicable in India. Over the years, the act has undergone several changes, even those of far-reaching nature, as proposed by the
Union Budget every year. Currently, the act levies income tax under the following five heads: 

  • Income from Salary 
  • Income from House Property 
  • Income from Profits and Gains of Profession 
  • Income from Capital Gains 
  • Income from Other Sources
 

The Income Tax Act, 1961 was introduced for the sole purpose of governing and administering income tax in the country. However, in 1962, specific Income Tax Rules were
laid down to ensure proper enforcement and application of the Income Tax Act, 1961. The Income Tax Rules cannot overrule the provisions of the Income Tax Act and must
be read in combination with the act. 

What Are the Common Terms Related to Income Tax?

 
  • Previous Year (PY) - The previous year, also known as PY, refers to the financial year immediately preceding the assessment year. In other words, the previous year is      equivalent to the financial year.
  • Assessment Year (AY) - The assessment year, or AY, is the period of 12 months starting on April 1st and ending on March 31st of the following year. It follows the                   financial year. For example, the assessment year for the financial year 2021-2022 would be 2022-2023. During the assessment year, individuals and businesses are             required to file their income tax returns for the corresponding financial year.
  • Assessment - Assessment is the process of reviewing and evaluating the returns filed by individuals or businesses with the Income Tax Department.
  • Assessee - An assessee is a person or entity that is required to pay income tax, or any other sum of money as specified by the Income Tax Act. This includes                    individuals, Hindu Undivided Families (HUFs), Association of Persons (AOPs), Body of Individuals (BOIs), companies, firms, Limited Liability Partnerships (LLPs), local    authorities, and any artificial juridical persons (AJPs) that do not fit into any of the other aforementioned categories.
  • Self-Assessment Tax - Self-assessment tax is the income tax paid by the assessee after accounting for advance tax and tax deduction at source. It is required to be paid during the assessment year before the individual or business files their income tax returns.
  • Income Tax Return - An income tax return is a form that individuals and businesses use to report their income to the Income Tax Department for a specific financial year. There are several different forms that can be used, depending on the sources of income, the amount of income earned, and the type of assessee (such as an individual, HUFs, firm, or company). These forms include ITR 1, ITR 2, ITR 3, ITR 4, ITR 5, ITR 6, and ITR 7.
  • Tax Deduction at Source (TDS) - It refers to the tax that is withheld before payment is made to the recipient (the deductee). Under the provisions of the Income Tax Act, TDS may be applied to salary, interest on bank deposits, commission, consulting fees, professional fees, and rent payments, among others. The deductors, or the party making the payment, is responsible for reporting this deduction in appropriate form which will reflect in Form 26AS and TDS certificate shall also be available by deductors. The assessee, or the individual or business responsible for paying the tax, can use this certificate when filing their income tax return to claim credit for the tax paid.
  • Net Taxable Income - Net taxable income is the income that is subject to income tax, calculated after considering deductions that are permitted under the Income Tax Act (such as those outlined in various Section 80s). Tax is paid on this amount.
  • Gross Total Income - Gross Total Income (GTI) is the starting point for calculating and filing income tax returns. It includes all sources of income, such as salary, income from property, profits from a business or profession, capital gains, and income from other sources. These amounts are calculated after considering any exemptions or deductions that may be applicable, such as the exemption for Housing Rent Allowance (HRA) and eligible allowances.
  • Form 16 - Form 16 is a certificate issued by an employer that contains the information necessary to prepare and file an income tax return. Part A of the form includes the employer and employee's full address, their Permanent Account Number (PAN), the Tax Deduction Account Number (TAN) of the employer, the amount of tax deducted and deposited by the employee for the relevant assessment year, and the challan numbers. Part B provides details on salary paid, any other income, exemptions and deductions claimed, and tax deducted.

What Are The Different Types of Income?


The Income Tax Act, 1961 levies taxes on income from the following sources:
 
  • Income from salaries: Income received by an employee from an employer is categorised in this head. If the employee is above the taxable income limit, the  employer will withhold taxes. All deductions made from the salary, all exemptions granted, and the net income paid are mentioned in Form 16 generated by the  employer.
  • Income from capital gains: All income earned from the sale of capital assets owned by the taxpayer are categorised in this head. Capital assets include land,                      building, bonds, stocks, debentures, jewellery, etc.
  • Income from house property: Rental income received by the taxpayer from their house property falls in this category. However, the house property must not be                       used for business or professional purpose.
  • Income from business: All profits earned from a business or by providing professional services are included in this category. Such income is taxed as per applicable tax slab rates. 
  • Income from other sources: Any income earned by the taxpayer from sources other than the ones mentioned above is listed in this category. Some of these incomes include:
    • Winning from horse race or lottery
    • Dividends
    • Pension after the pensioner’s death
    • Rental income (other than house property)
    • Gifts
    • Interest on government bonds, securities, etc.

What Are the Different Types of Income Tax Levied in India?

 

Broadly, there are two kinds of taxes:

  • Direct tax. And
  • Indirect tax.

Direct Taxes are taxes levied directly on the person who is ultimately bearing the cost of the tax. Income Tax is the most prominent form of Direct Tax.

Indirect Tax are taxes that are levied indirectly on goods/ services such as Goods and Service Tax on production of goods, transport of goods, sales of goods and services  etc. These taxes are levied on the person providing these goods/ services but are borne by the ultimate user of the goods and services. GST, Professional Tax, Customs Duty etc. are examples of Indirect taxes.

Within the purview of Income Tax (IT) which is a Direct Tax, there are certain terms to be understood with respect to taxation. Some of these are:

 

Long term Capital Gain Tax and Short-Term Capital Gain Tax

 

Assets are considered long term or short term on the basis of what they are and how long they are held.

Shares and securities of a company that are listed on a recognized stock exchange, mutual funds, units of equity oriented mutual funds and zero-coupon bonds are       
considered long term when they are held for a period greater than 12 months.

Immovable property such as land, building, house etc. are considered long term when they are held for a period greater than 24 months.

Movable property such as jewellery and other assets are considered long term when they are held for a period greater than 36 months.

This distinction is important as the income tax rates applied to capital gains differ greatly.

Where short term capital gains are taxed at 15% or the rate of the individuals slab as applicable, long term capital gains are taxed at 10%/ 20%. Also, the long-term capital            gains provides the option of indexation benefit, which is basically the cost of the asset adjusted for inflation so that only real gains are taxed.

What Is TDS: Tax Deducted At Source?

 

TDS means that the person who is responsible for making payments to you will deduct tax before paying you the balance amount. In this way, tax is deducted at the                source of income itself. On deducting the tax, this amount has to be paid by the person deducting into the governments account within the stated time period and they              will issue you a TDS certificate.

This TDS certificate is proof of the tax having been deducted from your income and the proof you need to claim the same as credit.

Examples of payments on which Tax is deducted at source is Salary, interest on fixed deposits in banks, other payments to vendors exceeding the limits specified etc.

TDS is applicable to various types of income, such as salary, interest, rent, commission, etc. It is the responsibility of the person making the payment to deduct TDS and           deposit it with the government. The individual whose income is being taxed can then claim credit for the TDS that was paid by presenting a TDS certificate or Form 26AS.

What Are the Different TDS Slabs?

Particulars Limit (in ₹) TDS Rate (in %)
Salaries   Normal slab rate
Premature EPF withdrawals 50,000 10
Interest on securities 10,000 7.5
(8% Taxable Savings Bonds, 2003, 7.75% Taxable Savings Bonds, 2018)
Interest on securities 5,000 10
(local authority, listed debentures, others)
Dividends 5,000 10
Interest from a banking co., a co-operative society or a post office 40,000 10
Interest others 5,000 10
Lottery winning 10,000 30
Horse race winning 10,000 30
Contractor (one-time) 30,000  
Individual/HUF 1
Others 2
Contractor (consolidated annual payment) 1,00,000  
Individual/HUF 1
Others 2
Insurance commission 30,000  
Company 5
Other than company 10
Life insurance maturity 1,00,000 5
NSS 2,500 10
Repurchase mutual funds   20
Lottery commission 15,000 5
Brokerage 15,000 5
Rent 2,40,000  
Plant/Machinery/Equipment 2
Land/Building/Furniture 10
Transfer of immovable property except agricultural land 50,00,000 1
Rent by Individual or HUF 50,000/month 5
Joint development agreement   10
Professional fees 30,000 10
Technical fees 30,000 2
Call centre operator fee 30,000 2
Director fee   10
Payment of income for units of: 5,000 10
mutual fund
Administrator
specified company
Compensation on transfer of immovable property except agriculture land 2,50,000 10
Income from business trust   10
Distribution of rental earnings   10
Investment fund income   10
Individual/HUF 25  
Company 30
Others 30

Income Tax Slabs & Rates AY 2023-24 (FY 2022-23)
For Individuals Below 60 Years, NRIs and HUFs

New Tax Structure 
Annual Income New Tax Slab Old Tax Slab
Up to ₹2.5 lakhs NIL NIL
₹2.5 – ₹5 lakhs 5% 5%
₹5 – ₹7.5 lakhs 10% 20%
₹7.5 – ₹10 lakhs 15% 20%
₹10 – ₹12.5 lakhs 20% 30%
₹12.5 – ₹15 lakhs 25% 30%
Above ₹15 lakhs 30% 30%

The new tax regime allows individuals and HUFs to pay lower taxes without claiming deductions under different sections. Unlike the old tax regime, the new tax regime
does not differentiate taxpayers into age groups.  

Additionally, new tax regime has not replaced the old tax structure; it is an option available to the taxpayers. 

India follows a progressive system of taxation. This basically means that the income tax rates are determined as per threshold amounts set by the government and for
lower amounts a lower rate of tax is levied and as the income slab goes higher the rate of tax levied is greater.

What is Applicable Under Income Tax For FY 2022-23?

 
  • Interest accrued in Provident Fund account for contributions of more than Rs. 2.5 lakhs per financial year will become taxable.
  • State Government employees can claim deduction up to 14% of their base salary plus dearness allowances for contributions towards National Pension Systems               payments from their employers. This is line with the deductions available to Central Government employees.
  • Gains accrued through transfer of virtual digital assets is taxed @ 30%. Further, no set off of losses will be available against the gains made.
  • New provision is inserted to allow taxpayers to file updated ITR within two years from the end of applicable assessment year. This provision cannot be used for                  reporting additions losses or reducing tax liability.
  • No extra tax incentive for affordable homebuyers from current financial year. Earlier, additional tax relief of 1.5 lakhs was available for interest paid on home loans                   taken by first home buyers owning a house costing up to 45 lakhs.

What Is Proposed Under Income Tax For FY 2023-24?


  • New tax regime has been enhanced and made the default tax regime. However option is provided to taxpayers to opt for old tax regime (with deductions). Proposed slab rates under new tax regime (from 1st April, 2023) are as follows:
Total Income Rate of tax
Up to Rs. 3,00,000 Nil
3,00,001- 6,00,000 5%
6,00,001- 9,00,000 10%
9,00,001-12,00,000 15%
12,00,001-15,00,000 20%
Above 15,00,000 30%
  • Further to above, rebate has been increased from Rs. 12,500 to Rs. 25,000. Hence, an individual is not required to pay tax income tax under New Tax Regime where total income is upto Rs 7,00,000/-
  • Reduction of highest rate of surcharge from 37% to 25% under New Tax Regime where income of such person exceeds Rs 5 crore.
  • Introduction of standard deduction of Rs 50,000 under New Tax Regime
  • No tax changes has been proposed for Old Tax Regime
  • Limit of tax exemption on leave encashment has been increased from Rs. 3,00,000/- to Rs. 25,00,000/- on retirement for non-government employees
  • Tax exemption on long term capital gains arising out of transfer of long-term residential property or capital asset has been restricted to Rs.10 crores. Earlier there was no such restriction and entire amount of capital gain being exempt if gains amount is invested in residential house property.
  • TDS @ 20% capped on taxable component of withdrawal of accumulated balance due to an employee under Employees’ Provident Fund Scheme on non-furnishing of PAN. Earlier TDS was deducted at maximum marginal rate (MMR) upto 34.608%

Key Changes In Tax Proposal For Life Insurance Sector

 
  • The current Budget proposes to amend section 10(10D) criteria, whereby it is proposed to tax proceeds received from non-ULIP policies issued on or after 1 April 2023, where aggregate premium for one or more policy exceeds Rs 500,000 in any year during the term of policy. The said income will taxed under income from other sources.
  • Proceeds received on death will continue to be exempt.
  • Non-ULIP policies issued prior to 1 April 2023 continue to be exempt (subject to satisfaction of section 10(10D) criteria).

How to Calculate Your Income Tax?

 

For calculating your Income Tax Payable, there are certain broad steps to be undertaken.

  • Step 1: Calculate your total income.
  • Step 2: Deduct all allowable deductions from Income as a good tax planning practice.
  • Step 3: Apply the appropriate rate of tax as per category of taxpayer and the slab rates of tax applicable.
  • Step 4: Deduct the Tax Rebates allowable under the Income Tax Act.
  • Step 5: Deduct taxes already paid by way of TDS, TCS and advance taxes from the Tax amount calculated. The balance amount is either the Tax payable or tax refund receivable.

Let’s understand the steps in some detail.

Step 1: Calculate your Total income

Income is calculated under the following heads:
 

Income from Salary – All income from an employer that is received as salary is to be offered as Salary income earned. This is detailed in the Form 16 given by the employer to the employee.

Income from Capital Gains – Income earned on sale of capital assets is taxable under the head of Capital Gains. Capital Assets include assets such as land, building, jewellery, stocks, bonds, etc.

Income from house property – Rental income earned from owned house property is taxable under this head.

Income from business / profession – The profits and gains earned from any business or profession are taxable under this head.

Income from other sources – All other income that is not included under the other heads of income fall under this residual head of income. This includes interest income,
pensions received, dividend received, winnings from lottery or gambling, gifts received etc. The classification of income is important from the perspective of filing returns.
All income is calculated on the basis of the financial year as defined in the Income Tax Act as the twelve-month period from April 1st of a year to March 31st of the
following year. For example, financial year 2022-23 would mean the period between 1st April 2022 to 31st March 2023.

 

Step 2: Deductions from Taxable Income

 

The Income Tax Act allows some deductions from the Income that has to be taxed. This is the step that can help you save a lot of tax on your income for the year. Sections
80C to 80U of the Income Tax Act, 1961 specifies these deductions. In addition, there are other deductions under Section 16, 24 etc which could be availed.

So what are these deductions from taxable income and how can a person get the income tax benefits³ of these?

Spend on a good life insurance policy – Not only does a good life insurance policy provide coverage to your loved ones in the event of your death, but it makes for good
financial planning as well. The premium paid for life insurance policies of the taxpayer for self and for his dependent wife and children are deductible from tax under
Section 80C. This amount is deductible if the annual premium is less than 10% of the sum assured if the policy has been issued after 1st April 2012. For policies issued prior
to 1 April 2012, in order to claim this deduction, the premium paid should not exceed 20% of the sum assured. Section 10(10D) of the Income Tax Act, 1961 provides for
certain exemptions with respect to proceeds from life insurance policies. When the premium paid on the policy does not exceed 10% of the sum assured for policies
issued after 1 April 2012 and 20% of sum assured for policies issued before 1 April 2012– any amount received on maturity of a life insurance policy or amount received as
bonus is fully exempt from Income Tax under Section 10(10D). Also covered here are policies taken after 1 April 2013, on the life of a person with a disability or a disease
specified under Sections 80U and 80DDB respectively, where the amount received on maturity is tax-free provided the premium paid does not exceed 15% of the 
sum assured.

As per Union Budget 2023, proceeds from life insurance premium over the annual premium of ₹5 lakh would be taxable from new financial year i.e. from 1st April 2023.
However, the new income tax rule will keep death benefit on such premium would continue to remain tax exempted. Also, the new income tax rule won't be applicable
on ULIP (Unit Linked Insurance Plan).. So as you can see payments paid towards life insurance policies have a twofold income tax benefit – for the years while paying the
premium as well as for the maturity proceeds.

Tax Saving³ Investments under Section 80C - There are certain financial investments which has been listed by the Income tax laws as deductible from your taxable
income. The key motive of this incentive seems to incentivize people to perform proper financial planning and structuring for present and future. The key point to be
noted is that you are creating investments for yourself and receiving income tax benefits³ on them. However, this benefit is given to individuals and Hindu Undivided
Families only.

Investments can be made under section 80C to the extent of Rs 1,50,000. Apart from this, investment in notified pension schemes provide additional benefit to the extent of Rs 50,000 under section 80CCD(1B). This total of Rs.2,00,000/- in investments can save you an amount of Rs.60,000/- if you fall under the 30% tax bracket.

Some of the key tax-saving investments provided under Section 80C are:

  • Premiums paid towards Life Insurance (for self, spouse or dependent children),
  • ULIP or deferred annuity plan deposit (for self, spouse, or dependent children)
  • Fixed Deposits made for a period of five years,
  • Public Provident Fund (PPF) contributions or contributions made by employee to approved Superannuation Fund
  • Investments in NABARD Bonds,
  • Investments with Post Office in their post office saving schemes for tax benefit, or senior citizen savings schemes (SCSS)
  • Investments in National Savings Certificates – for current year investment and the accrued interest.
  • Investment in tax saving mutual fund schemes which are linked to equity markets such as ELSS funds, notified pension funds or others.
  • Certain expenses are also included such as for:
    • Tuition fees paid for two children
    • Repayment of Principal component of housing loan
    • Stamp duty, Registration expense or other expenses for residential house

Spend on a great health insurance policy for self and family: The health care costs have left no doubt in anyone’s mind that medical insurance is an absolute necessity for
every single person. The lack of adequate medical insurance has brought many an unfortunate to the brink of financial ruin. The Government in its efforts to encourage
the purchase of medical insurance has offered a tax exemption under section 80D.

Under Section 80D an amount of Rs.25,000/- is allowed as a deduction from taxable income when this amount is paid for medical insurance of self, spouse and children.
In case of tax payer being above the age of 60 years the higher deduction is shall be available for Rs.,50,000/-.

For a person who pays for health insurance of dependent parents an additional Rs.25,000/- is allowed as deduction. In case the parents are aged above 60 years then a
deduction of Rs.50,000/- is allowed.

In total a maximum deduction of Rs.1,00,000/- can be claimed under this section which gives a tax saving³ of over 30,000/- in the 30%slab. As you can see these savings
can be quite substantial. Using an income tax calculator will help you know the benefit you can gain.

You can also avail deduction of Rs. 5,000 for the cost incurred for preventive health check-ups for self, spouse, children or parents. The limit of Rs.25,000/50000 includes
Rs.5,000 on preventive health check-up. 

Make a note of any expenses incurred for a disabled dependent relative. Under Section 80DD – any expenses incurred for a disabled dependent – depending on the extent
of their disability is allowed to be claimed as a deduction from taxable income. The expenditure incurred for their treatment as well as maintenance can be claimed under
sections 80DD and 80DDB respectively.

Under Section 80DDB - If persons for whom medical treatment is taken are:
Upto 60 years – a deduction of Rs.40,000/- is allowed. Over 60 years – the deduction allowed is Rs.1,00,000/-.

Under Section 80DD - If the disability if more than 40% but less than 80% then the deduction allowed is Rs.75,000 For disability of 80% or more – which is classified as a
severe disability – a deduction of Rs.1,25,000/- is allowed.

Interest paid on loan taken for higher education: In another case we see tax deductions being held out as an incentive for reform, under Section 80E of the Income Tax
Act, 1961. In case of loans taken for higher education of self or spouse or children from approved financial institutions, the interest paid thereon is allowed as deduction. It
is better to plan your finances and take a loan for education for the period where the benefit is available.

Interest paid on loans taken for purchasing a single residential property is also deductible from tax under Section 80EE. So it might be better to take a housing loan if you
don’t already have a house property in your name as a tax planning measure.

Donations made to a recognized institution under 80G: If you donate an amount every year – finding a recognized institution that you can donate to makes your donation
amount deductible from Taxable income. The deduction is available depending on the charity chosen. The deduction allowed can be 50% or 100% of the amount donated depending on the charity donated to and the qualifying amounts. The qualifying limit is 10% of the gross total income of the person.
For example donation to the Prime Minister’s relief fund is eligible for 100% deduction without any qualifying limit whereas donation to associations to promote family
planning or sports allows 100% deduction subject to a maximum limit. In some examples donations to certain charities gives you 50% of the amount donated as
deduction. For example donation to PM’s drought relief fund gives 50% deduction without any qualifying limits and the donation to some other approved charity gives
50% deduction with qualifying limit.

Interest received on savings bank account held by an individual: Section 80TTA allows interest income from saving bank account/s to be taken as a deduction subject to a maximum amount of Rs.10,000/-. This is only for Individuals and HUF’s.

Specific Deductions: There are many sections that allow specific deductions for example for an author on royalty income or to a patent holder or some other such. It is a
good idea to consult a tax practitioner with full details of the sources of income so they might guide you on all possible tax saving³ measures that can be taken.

Section 24 allows deduction of interest paid for purchase of house property: in case of house property bought the interest expense paid on the purchase of it can be
claimed as a deduction upto Rs. 200000 under Section 24.

 

Step 3: Appropriate rate of tax as per category of taxpayer and the slab rates of tax applicable.

As per the slab rates and basic rates discussed for all kinds of assessee’ s each person’s tax liability will be calculated on the basis of slab rate as applicable. Once the list of sources of income are ready and the deductions have been claimed. However, income from Long term capital gain and Income from gambling would be taxed at different rates of tax and the remaining income is taxed as per the slab rates given.

 

Step 4: Deduction of the Income Tax Rebates allowable under the Income Tax Act.

Tax rebate is a deduction allowed from the tax calculated as payable to government. This rebate is given under Section 87A of the Indian Income Tax Act, 1961. Under Section 87A a tax rebate is allowable to those Individuals whose total annual income falls below Rs.5,00,000. This rebate is limited to a maximum of Rs.12,500/-.
This in effect causes that - no tax is payable for income under Rs.5,00,000/- of Income but it is important to note that it is still essential to file a return of income. Individuals with income exceeding Rs.5,00,000/- do not get the benefit of any rebate under section 87A.

 

Step 5: Deduct the Taxes already paid:

By way of TDS, TCS and advance taxes has to be deducted from the Tax amount calculated. The balance amount is either the Tax payable or tax refund receivable. All certificates of Tax deducted at source, tax collected at source and challans of advance tax paid have to be maintained securely. Once the tax liability is determined the prepaid sums of tax has to be deducted from the payable amount and the balance amount is either the amount left to be paid or they may be a refund due to you, which will be claimed at the time of filing of the Tax Return.

Income Tax Calculator

 

A taxpayer can calculate their income tax manually or use an online income tax calculator. The rate of income tax is determined as per the annual income in the income
tax slab. For instance, for a salaried taxpayer, the income from salary is calculated by including:

 

  • Basic income 
  • House rent allowance (HRA) 
  • Transportation allowance 
  • Special allowance 
 

Further, salary components like leave travel allowance (LTA), telephone bills, etc., are exempt from taxes subject to conditions. The taxpayer can claim HRA deduction,
provided they live in rented accommodation.

Tax Deductions Under Income Tax Act

 

The Income Tax Act, 1961 allows several deductions under different Sections to help you reduce your taxable income.

 

Section 80C:

This Section offers deduction up to ₹1.5 lakhs for payment towards life insurance, provide fund or superannuation.

Section 80CCC:

This Section grants tax deduction for the payment made on insurance companies and LICs approved as pension plans. The policy should be in the individual’s name and must be up to ₹1.5 lakhs out of taxable income.
 

Section 80CCD:

This Section offers an exemption on contributions made by the employee and employer towards the new pension scheme. The tax exemption cannot be more than 10% of the salary.

 

Section 80D:

This Section provides an exemption from taxes on premiums paid on health insurance for self, spouse and dependent children.

 

Section 80DDB:

This Section grants deduction on medical expenses incurred in the treatment of any disease or illness specified in rule (11DD). This benefit is available for self, family member or any member of HUF.

 

Section 80E:

The interest paid on an education loan is exempt from tax under this Section.

 

Section 80EE:

This benefit is applicable for people who buy their first home with a value of less than ₹50 lakhs. Loans up to ₹35 lakhs or less are eligible for this exemption.

 

Section 80RRB:

Income from royalties and patents is exempt from taxes. Patents registered under the Patent Act, 1970 up to ₹3 lakhs can be saved.

 

Section 80TTA:

Interest income earned up to ₹10,000 from the post office, cooperative society and saving banks account is free from tax.

 

Section 80U:

This Section offers disability benefit up to ₹1 lakhs, provided a disability certificate is presented.

 

Section 24:

Interest on a home loan is tax-exempt under this section. Apart from deduction under Section 80C, 80CCF and 80D, an exemption up to ₹2 lakhs can be taken under this Section. 

Tax Exemptions Under Income Tax Act

 

Section 10(10D):

Under Section 10(10D) of the Income Tax Act, any amount received under a life insurance plan is exempt from taxes. This is inclusive of bonus, interest, or any other grant received in the plan. However, this rule is not applicable for:

 

  • Sum received under Section 80DD (3) 

  • Sum received under a Keyman Insurance Policy 

  • Sum received other than death benefit under a life insurance plan issued on or after April 1, 2003, but before March 31, 2012. In this case, the premium payable in any                    of the policy years should not be more than 20% of the sum assured. For plans issued on or after April 01, 2012, the exemption is allowed                  on policies with premiums lower than 10% of the sum assured.  

  • For ULIPs, the maturity payout will be tax-free if the total annual premium in the given fiscal year is under ₹2.5 lakhs. 

Tax Benefits On Purchasing A Life Insurance Policy

 

Life insurance is a great investment because it protects you and your family as well as helps you save tax. As per the Income Tax Act, 1961, the premiums you pay
towards a life insurance policy are exempt from taxes up to ₹1.5 lakh under Section 80C. Taxation relief is allowed on life insurance policies purchased for self, spouse, or dependent children.


However, you must pay premiums against these policies from your income. Moreover, the total policy premiums must not exceed 10% or 20% of the sum assured for
policies purchased after April 1, 2012, and before April 1, 2012, respectively. 

 

Life insurance policies purchased for a disabled family member are free from taxes under Section 80C, provided the premiums do not exceed 15% of the sum assured.  

 

Payment of premium on life insurance policy not only gives insurance cover to a taxpayer but also offers certain tax benefits. Various life insurance plans offer tax benefits
under Section 80C of the Income Tax Act against the premiums paid including: 

 

Maturity proceeds and death benefits received from life insurance plans with maturity benefits are also exempt from taxes under Section 10(10D) if the premiums do not exceed 10% of the sum assured.  

 
For ULIPs, the maturity payouts are tax-free under Section 10(10D) if the total annual premium in a financial year does not exceed ₹2.5 lakhs. If the total premium exceeds ₹2.5 lakhs, the maturity payouts will be considered as capital gains and taxed accordingly. 
 

Our Plans That Help You Save Tax

 

Edelweiss offers various life insurance plans that help you save on taxes. These include: 

Asset Publisher

More Products You'd Love to Explore

Savings Ke Liye Effective Solution!

The affordable way to start growing your wealth, fulfilling your goals and protection needs.

  • All you need to start is Rs. 1000 p.m.

  • Life cover till you’re 100

  • Option to get maturity benefits in just 5 years

  • Tax Benefits³ u/s 80(C) on premiums paid & u/s 10(10D) on maturity benefit

BUY NOW

A Gains-Full Zindagi Awaits!

Helps you grow your wealth so you can experience zindagi unlimited

  • Wealth Accumulation + Protection in one plan

  • 100% Return of Mortality Charges which will be added to your fund value

  • Choice to invest in 7 diverse funds

  • Nil Premium Allocations Charge

BUY NOW

Future Guaranteed¹ Income, now possible!

Makes sure nothing gets in the way of you and your dreams.

  • Guaranteed¹ Income + Protection + Tax Benefits³ in one plan

  • Pick from 4 plan options basis life goals – Lumpsum, Short Term Income, Long Term Income & Retirement Income

  • Family Income Benefit option ensures your family doesn’t have to compromise dreams

  • 6 Riders available to enhance your plan⁹

BUY NOW

What Are Income Tax Returns?

 

All Indian citizens with a source of regular or irregular income need to file their income tax
return (ITR) every financial year. Even if the person falls below the taxable limit, they
should file their ITR. There are different ITR forms for individuals and HUFs as per their income
sources and tax-paying status such as individual, HUF, BOIs, AOPs, etc. 

 

Uses And Benefits of Filing Income Tax
Returns


All Indian citizens should file their ITR because of the following uses and benefits: 

▶ Tax refund: ITR forms are used to file for a tax refund in case of additional advance tax payment.

▶ Carry forward of losses: Losses such as speculation loss, capital loss, business loss, etc., can be carried forward only if the ITR is filed.

Types of Income Tax Returns³

 

Income Tax Return is an income tax declaration which is filed by all taxpayers stating the income – sources of income, tax due and tax paid during the year. There are
seven ITR form types notified by the Income Tax Department – they are ITR 1Sahaj Form, ITR 2, ITR 3, ITR 4, ITR 5, ITR 6, and ITR 7. An Income taxpayer must know which
form they should fill in for filing their income tax returns. Form applicable dependents on the individual entity and their sources of income. 
 

A simplistic guide is that:
 

ITR 1 form

- For individuals being a resident (other than not ordinarily resident) having total income up to Rs.50 lakh, having Income from Salaries, one house property, other sources
(Interest etc.), and agricultural income up to Rs. 5000.

 

ITR 2

- is used by all who would file ITR 1 but have income greater than 50 lakhs. Also people who have Income from capital gains, Income from house property, Hold
directorships in a company or hold unlisted equity assets, or foreign assets and/or have foreign income. Basically it is for Individuals and HUFs not having income from
profits and gains of business or profession.

 

ITR 3

- In case Individual has Income from Business / Profession or is a partner in a firm then ITR 3 must be filed.

 

ITR 4

- is for Individuals, HUFs and Firms (other than LLP) being a resident having total income upto Rs.50 lakh and having Presumptive income from business and profession and agricultural income upto Rs.5000. 

 

ITR 5

- Is to be used by LLP’s, AOP’s and BOI’s.

 

ITR 6

- is to be used by Companies who are not claiming exemption under Section 11 .

 

ITR 7

- is to be used by Persons and companies who claim exemption under Sections 139 of the Income Tax Act, 1961.

 

There are no separate ITR form for housewife or senior citizens. The forms are the same and based on sources of income. You can look up your sources of income and
decide to file ITR for housewife, senior citizens or any other categories. You should file an income tax return³ if your income is above the exempt income tax limit, or you
have lottery winnings, or you wish to claim income tax refund on tax paid, to create a proper financial base which helps with obtaining loans and visa etc. and if the tax
payer is a company or firm then irrespective of profit or loss it is mandatory to file ITR.

 

By adhering to these rules you will find it easy to comply with the requirements of the income Tax Act, 1961 and build a good financial base for yourself. You will find
online income tax calculators to assist you and you may file ITR return online easily as well. There are detailed instructions on how to file income tax returns online for
salaried employees and non-salaried taxpayers.

 

Income Tax Filing are an important part of the government process. Not only would you be fulfilling your responsibility by you would create a solid base with your
declared income. In case you have missed filing your return you can get income tax extension and there are also instructions on how to file income tax returns³ for last 3
years if you would like to right an earlier wrong.

 

Filing your tax returns³ is a good idea and one to be embraced to get the income tax benefit. There is an income tax helpline available for various general tax issues as well
as other helplines for specific issues. You can click here to find the one that suits your query/question. 

Form 16 – Form 16A & Its Importance

 

Form 16 is the form given to a salaried employee by his employer. This form contains all information about the employee such as his name, address, his PAN number, his
TAN and other details such as details of employment such as a period of employment, etc. In Part B of Form 16 the form mentions the basic salary, all allowances given,
HRA calculation for income tax and other deductions allowed. It includes details of payments in EPF, tax deducted and paid into government account as TDS and balance
salary paid to employee. Form 16 is the only document a salaried employee needs to be able to prove income and claim TDS.

 

Form 16A is what the income taxpayer receives from person who deducts TDS. This form contains details such as name and address, PAN details, nature of payment,
amount of payment, TDS deducted and paid along with income tax challan details and signature of person responsible for deducting and paying tax into government
account.

 

This is the form that is required to claim the tax deducted at source as tax paid against any dues. The Form 16 online availability is now a convenient form for taxpayers.
The traces form 16 can be generated from the TRACES website where all details of TDS and TCS are input by the deductors. The person has to put in their TAN number
and other details as required and request the Form 16 data to be downloaded.

 

Pensioners whose pension exceeds the taxable limit can ask the disbursing bank to provide form 16 for pensioner’s certificates to make it easy to file their returns of
income. Both these forms are important for you to file your return of income smoothly and easily.

How To File ITR?

Income tax returns³ have to be filed by person whose annual income exceeds minimum
amount not subject to tax. Companies and firms have to file their income tax return³ without
fail and regardless of profits or losses incurred. Filing an income tax return³ is also necessary
even if you have no tax to pay but need to claim your tax refund for taxes deducted at source.

 

So how do you file your Income Tax Return³. You need to first create your computation of
Income Tax. You have to file your Income tax return³ online or by using Tax utilities. The
correct form as applicable should be use for filing returns.

 

All details have to be filled out in all the requisite columns of the forms. Be sure that all the
fields are filled out carefully. At the time of online filling, TDS section will get auto populated
and you will have to verify that it is correct.

 

Thereafter in case of online filing of ITR - you should check all details and if there is any tax
payable immediately pay the same and enter the details of tax paid. Your tax liability should
show as nil. Upload the digital signature if needed. And as a last step e verify your return filed.

What Is Classified As Tax Evasion?

 

Tax Evasion is covered under Chapter XXII of the Income Tax Act, 1961 and is considered a criminal offence. While filing the return of tax it is important to abide by the
intent as well as the letter of the law. There are several acts that are specifically mentioned in the Income tax Act that are considered offences and carry severe fines,
penalties as well as prosecution.

 

These offences may arise on failure to fulfill basic requirements – such as not filing return of income in a timely and honest manner, failure to pay taxes on time, failure to
pay tax deducted at source or tax collected at source on time, and such. Or maybe willful – such as a willful attempt to evade tax, failure to comply with notices, failure to
produce books of accounts, false statements in return, falsification of books, abetment in filing wrongful return etc.

 

What is important to know is that all such acts carry a heavy fine and penalty with the possibility of prosecution.

 

So whether it be a simple error or deliberate falsification – the returns if scrutinized would likely to result to applicability of provisions as mentioned in Sections 275A to
Section 280C of the Income Tax Act, 1961.

Income Tax Penalty

Penalties are payable under the Indian Income Tax Act, 1961 in certain cases. There is Penalty for late filing of income tax return³, penalty for late filing of TDS return, penalty for non-filing of return of income and also penalties payable for:

 

  • Default in making the payment of taxes in full or in part. Maximum Penalty levied shall be equal to the amount of tax in arrears.
  • In cases where income has been under reported – penalty may be to the extent of 50% of the income under reported and 200% if underreporting is wilful
  • For failure to maintain books of accounts the penalty is 25,000/-.
  • There are other penalties for taking payments in excess of prescribed amounts by ways other than bank transfer, bank draft or account payee cheque; for failure to furnish
  • information when asked; for non-compliance with department notices, quoting wrong PAN or TAN, etc. 

Income Tax FAQs

Fire Away Queries

Like teachers say, there are no silly questions

What is a financial year in the context of income tax calculations?

For tax calculations, the financial year begins on the 1st of April of a year and ends on the 31st of March of the next calendar year. 

Was this helpful?

An individual, group of persons or an artificial body who has received an income during the previous financial year should pay income tax. The Income Tax Department classifies taxpayers in these categories: 

 

  • Individual 
  • HUF (Hindu Undivided Family) 
  • Association of Person (AOP) 
  • Companies 
  • Body of Individuals (BOI) 
  • Firms 
  • Local Authority  
  • Artificial Judicial Person 

Was this helpful?

PAN stands for Permanent Account Number. This is a unique ten-digit code issued by the Income Tax Department for each taxpayer. The taxes paid, refunds received, or penalties are issued against the PAN.  

Was this helpful?

The Department of Income Tax in India does not levy any tax on individuals and other eligible entities with an annual income below ₹2.5 lakhs. Above the minimum threshold, there is a different tax rate charged per annual income slabs.  

Was this helpful?

Income under these five heads is taxed in India: 

  • Salaries 

  • Capital gain 

  • Income from house property 

  • Gain or profits of profession or business 

  • Income from other sources 

Was this helpful?

We are always there for you! with Online Sales

mail-info

We are always there for you!

For queries, write to onlinesales@edelweisstokio.in

Income Tax benefits would be available as per the prevailing income tax laws, subject to fulfilment of conditions stipulated therein. Income Tax laws are subject to change from time to time.

Edelweiss Tokio Life Insurance Ltd. does not assume responsibility on tax implications mentioned anywhere in this document. Please consult your own tax consultant to know the tax benefits available to you. While every attempt has been made to provide the latest data included in this document at the time of its release, Edelweiss Tokio Life Insurance Ltd. is not responsible for any form of damages (including, but not restricted to, errors and omissions) connected with this content.

 

3 - As per provisions of Income Tax Act, 1961. Tax benefits are subject to changes in tax laws.

5 - If declared, Cash Bonus is a non-guaranteed bonus which may be payable based on the performance of the participating fund of the Company.


Source of Information:
https://incometaxindia.gov.in/news/finance-bill-2023-highlights.pdf

https://www.indiabudget.gov.in/doc/Finance_Bill.pdf

The Linked Insurance Products do not offer any liquidity during the first five years of the contract. The policyholder will not be able to surrender/withdraw the monies invested in Linked Insurance Products completely or partially till the end of the fifth year.

Unit Linked Life Insurance products are different from the traditional insurance products and are subject to the risk factors. The various funds offered under this contract are the names of the funds and do not in any way indicate the quality of these plans, their future prospects and returns. Please know the associated risks and the applicable charges from your Personal Financial Advisor or the Intermediary or policy document of the Insurer. The premium paid in unit linked life insurance policies are subject to investment risk associated with capital markets and the unit price of the units may go up or down based on the performance of investment fund and factors influencing the capital market and the policyholder is responsible for his/her decisions. 

For more details on risk factors and terms and conditions, please read sales brochure carefully before concluding a sale.

 

 

ARN: WP/3234/Mar/2023