Income Tax in India

Income Tax in India

31 January – Deadline to submit your investment proofs

31 March – Deadline to make investments under Section 80C

31 July – Last date to file your tax return

Oct – Nov – Time to verify your tax return

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 is scheduled to roll out in July 2017, is going to be a unified tax that will replace all the indirect taxes that business owners have to deal with.

Income Tax Basics

Everyone who earns or gets an income in India is subject to income tax. (Yes, Indians living abroad too). Tell me more. Your income could be salary, pension or could be from a savings account thats 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:

Income from Salary Income from salary and pension are covered under here
Income from House Property This is rental income mostly
Income from Capital Gains Income from sale of a capital asset such as mutual funds, shares, house property, agricultural land
Income from Business and Profession This is when you are self-employed, work as a freelancer or contractor, or you run a business. Life insurance agents, doctors and lawyers who have their own practice, tuition teachers,
Income from Other Sources Income from savings bank account interest, fixed deposits, winning KBC

Tax Slabs

Peoples 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 Range Tax rate Tax to be paid
up to Rs.2,50,000 No tax No tax
Between Rs.2.5 lakhs and Rs.5 lakhs 10% 5% of your taxable income
Between Rs.5 lakhs and Rs.10 lakhs 20% Rs.12,500+ 20% of income above Rs. 5 lakhs
Above 10 lakhs 30% 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 lets say Rs.12 lakhs, they will be paying a 30% tax on Rs.12 lakhs i.e Rs.3,60,000. Thats incorrect. A person earning 12 lakhs in the progressive tax system, will pay Rs.1,25,000+ Rs.60,000 = Rs. 1,85,000.

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 youve had it.

Type of capital asset Holding period Tax rate
House Property Holding more than 36 months

Holding less than 36 months

20%

Depends on slab rate

Debt mutual funds Holding more than 36 months

Holding less than 36 months

20%

Depends on slab rate

Equity mutual funds Holding more than 12 months

Holding less than 12 months

Exempt

15%

Shares Holding more than 12 months

Holding less than 12 months

Exempt

15%

FMPs Holding 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.