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Income Tax in India: All You Need to Know

  • Highlights

  • If you earn an income in India, you may pay income tax

  • Taxation is governed by the Income Tax Act, 1961

  • The last date to file revised/belated ITR for FY 18-19 is 31st March 2020.

  • In case of excess payment, you can claim a tax refund

As per the Income Tax Act, 1961, the Government of India levies income tax on eligible individuals. Technically speaking, income tax rules apply to any person, even an NRI, earning an income in India. This form of direct tax is calculated based on the income tax slab you fall under, which in turn is dependent on your total income, be it from your salary, savings account or even a lottery. If you earn more than the exemption limit in one financial year, submitting information pertaining to your earnings to the income tax department is mandatory through an income tax return form. With the last date to file revised/belated ITR for FY 18–19 extended to 31st March 2020, you have time in your hands to understand the nuances of income tax in India.

A Brief Introduction of Income Tax Act

Income Tax in India

Income tax, by definition, is a tax that a country levies on income generated by businesses and individuals. The concept of income tax first surfaced in the country in the year 1860.

At the time income tax served as a means to overcome financial deficits incurred due to the freedom movement.

At present, citizens pay taxes to the Income Tax Department of India in accordance to the rules and regulations written down in the Income Tax Act, 1961. Today, income tax, meaning a portion of your income that goes to the government, is a preeminent source of income for the government. Money earned via income tax goes towards maintaining government bodies and infrastructural development.

Income Tax Calendar 2020 – Important Dates

The Income Tax Department of India informs taxpayers of the important dates related to tax payment and return filing every year. Taxpayers must be mindful of these dates to avoid attracting any penal consequences.

Check out the Income Tax calendar 2020 listed below with all important dates for the year.

Income Tax Calendar for the Year 2020

Months Important Dates Details of Events and Tasks to Complete


January
15th Jan-2020 Filing of quarterly statement for Tax Collected at Source (TCS)quarter-ending
31st December 2019.
30th Jan-2020 Quarterly TCS certificate issue towards tax collections made for quarter-ending
31st December 2019.
31st Jan-2020 Quarterly Tax Deducted at Source (TDS) statement filing for quarter-ending
31st December 2019.
February 15th Feb-2020 Quarterly issue of TDS certificate towards payments (other than TDS on salary)
made quarter-ending 31st December 2019.


March
15th Mar-2020 Advance tax payment for Financial Year 2019-20 (fourth instalment).
31st Mar-2020 Last date for income tax return filing as per revised ITR for Financial Year 2018-19
April - -


May
15th May-2020 TCS statement quarterly filing tax deposited quarter ending 31st March 2020.
31st May-2020 Quarterly TDS return filing towards deductions made quarter-ending 31st March 2020.


June
15th Jun-2020 Advance tax payment for Financial Year 2020-21 (First instalment)
15th Jun-2020 Form 16 issue date from employers to employees. Quarterly TDS certificate issue for
deduction made from income other than salary quarter-ending 31st March 2020 (Form 16A).


July
30th Jul-2020 Quarter-ending 30th June 2020 TCS statement filing date.
31st Jul-2020 Quarterly TDS statement filing for deductions made quarter-ending 30th June 2020.
31st Jul-2020 Deadline for Income Tax Return filing for assesses falling under categories individuals,
HUFs and others not requiring an audit.
August 15th Aug-2020 Quarterly issue of TDS certificate for deductions towards income other than salary
quarter-ending 30th June 2020.

September
15th Sep-2020 Advance tax payment for Financial Year 2020-21 (second instalment).
30th Sep-2020 Income Tax Return filing date for assesses requiring an audit of account books.


October
15th Oct-2020 Quarterly TCS deposit statement filing quarter-ending 30th September 2020.
30th Oct-2020 Quarterly issue of TCS certificate for tax payments made quarter-ending 30th September 2020.
31st Oct-2020 Quarterly TDS statement filing for deductions made quarter-ending 30th September 2020.


November
15th Nov-2020 Quarterly issue of TDS certificate for income other than salary
quarter-ending 30th September 2020.
30th Nov-2020 Last date of Income Tax Return filing for assesses requiring
account books audits and undertaking international transactions.
December 15th Dec-2020 Last date for advance tax payment for Financial Year 2020-21
(third instalment).

Keeping the important dates of this Income Tax calendar 2020 in mind also helps in planning investments carefully to avail deductions during tax liability calculation and payment. Utilize the online income tax calculator to get a fair idea.

Types of Taxes in India

Taxes in India are broadly classified under two heads: Direct and Indirect. As a taxpayer you pay direct taxes directly to the government without involving any third-party. Direct taxes broadly comprise income tax and corporate tax. In both cases, the IT rules specify the rate at which you have to pay tax on your taxable income.

Indirect taxes, on the other hand, refer to taxes you indirectly pay to the Indian Government. An example of this is the goods and services tax you pay on a hotel reservation, a restaurant bill or when you purchase electronics.

What are the Income Tax Slabs?

The income tax slabs in India are different for regular, senior and super senior citizens. Senior citizens are those who have completed 60 years of age and super senior citizens are persons equal to or over the age of 80 years.

New, optional Income Tax slabs for Financial Year 2020-21

Budget 2020 allows taxpayers to forgo 70 deductions and exemptions and pay taxes at concessional rates. The revised Income Tax slabs are do not change with the taxpayer’s age.

Income bracket Tax calculator for FY 2020-21
Not exceeding Rs.2.5 lakh Nil
Not exceeding Rs.5 lakh 5%
Not exceeding Rs.7.5 lakh 10%
Not exceeding Rs.10 lakh 15%
Not exceeding Rs.12.5 lakh 20%
Not exceeding Rs.15 lakh 25%
Exceeding Rs.15 lakh 30%
  • The taxes are further subject to the 4% health and education cess

  • The rebate of up to Rs.12,500 through Section 87A is available

  • The option of a pre-filled ITR will be made available for those opting for the new tax regime

  • You can use the Tax calculator for FY 2020-21 to pick between the two tax regimes

Income Tax Rules

While the Income Tax Act of 1961 governs tax payments in the country, the income tax rules, 1962 aids in its enforcement. The income tax rules can be found on the Income Tax Department’s website. These rules work within the framework set by the income tax act and must be interpreted in light of it.

Who are the Taxpayers in India?

In India, taxpayers can be classified as individuals, Hindu Undivided Families (HUFs), Bodies of Individuals (BOIs), Associations of Persons (AOPs), firms and companies. However, not all individuals are taxed. For an individual to have to pay tax, he or she must have a taxable income that falls within an income tax slab. For instance, regular citizens earning up to Rs.2.5 lakh do not need to pay tax. The exemption limit for senior citizens and super senior citizens is Rs.3 lakh and Rs.5 lakh respectively. That said, the new income tax rules allow for a tax rebate of up to Rs.12,500 under Section 87A, thus enabling regular citizens with a net taxable income of up to Rs.5 lakh to have nil tax liability.

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Dates to Remember for Paying Income Tax

At the beginning of a financial year, you must remember a handful of dates related to income tax filing. Knowing these dates helps you file ITR on time, make investments that qualify for deductions, and leave you with enough time to verify your income tax details comfortably.

Dates Tasks that must be accomplished
31st January Date by which you must submit the proof of your investments
31st March Date by which you should make investments that qualify for a deduction under Section 80C
31st July Date by which you must file ITR. This year, the last date to file returns for FY 18–19 has been extended to 31 August 2019
Between October - November The time during which you must verify your ITR

What is Advance Tax?

Advance tax is the tax you pay on income accumulated from various sources. In India, earnings like salary, rent, business profits, capital gains, dividends, royalties, interest and income from other sources all classify as ‘income.’ Advance tax comes into play when your tax liability goes over Rs.10,000 for a given financial year. However, if you are a salaried individual, then you need not worry about advance tax payments. This is because your employer typically deducts tax at source (TDS) from your monthly salary and pays it to the government on your behalf. Knowing what is tax deducted at source and how it works will help you file your ITR.

Income Tax Deductions

Income tax deductions help you reduce your tax liability as they lower your net taxable income. For instance, if you invest in an ELSS mutual fund, you qualify for a deduction of up to Rs.1.5 lakh under Section 80C. This amount is then deducted from your gross income to give you your net taxable income.

The Income Tax Act allows you to claim deductions under a number of Sections when you make certain investments or expenditures. For instance, Section 80D allows you to claim up to Rs.15,000 for health insurance premiums, and Section 24B allows you to claim up to Rs.2 lakh on the basis of home loan interest repayment.

Income Tax Return

Income tax return is the mode via which you can file returns at the close of the financial year. Through this form you provide tax details such as your gross income, annual deductions, and net liability. Depending on your profile, you will have to choose the right one from the 7 ITR forms available. For instance, individuals earning less than Rs.50 lakh can use ITR-1, proprietors can use ITR-3 and those under the presumptive tax scheme can use ITR-4.

E-filing of Income Tax

There are two modes of carrying out income tax e-filing: online and offline.

Offline method of e-filing

This involves downloading the correct ITR form, filling it offline, saving the XML file generated, and finally, uploading it.

Below are the steps to follow:

To file taxes by uploading the XML file, you will need to use the Excel or Java ITR utilities.

To do so:

  • Visit the official e-filing portal: https://www.incometaxindiaefiling.gov.in/home

  • Click on ‘IT Return Preparation Software’ from the ‘Download’ tab on the right-hand side of the screen

  • Download the Excel/ Java file, corresponding to the ITR form you wish to fill

  • Access the utility from the ZIP file downloaded, and use the extracted file to prepare your Income Tax Return

Here’s how you can do so:

  • Fill out the fields, the mandatory ones and those applicable to you, in the ITR form

  • ‘Validate’ the data entered in the various tabs and ‘Calculate Tax’, to know your tax liability and refund

  • Generate the XML file using the ‘Generate XML’ option

  • Visit the e-filing portal and login using your PAN (used ID) and password

  • Select ‘e-file’ and then ‘Income Tax Return’

On the ITR page:

  • Select the Assessment Year and ITR form number

  • Choose 'Original/Revised Return’ as the Filing type

  • Pick 'Upload XML' for the ‘Submission Mode’

Then:

  • Select an option to verify your ITR

  • Select ‘Continue’

  • Attach the XML file

  • Provide data as per the verification mode chosen

  • Submit your ITR

Online method of e-filing

This involves entering data in ITR 1 or ITR 4 via the e-filing portal online and submitting your ITR.

Below are the steps to follow:

On the ITR page:

  • Choose the Assessment Year and ITR form number

  • Pick ‘Original/Revised Return’ as the ‘Filing Type’

  • Choose ‘Prepare and Submit Online’ as the ‘Submission Mode’

Then:

  • Select ‘Continue’

  • Fill out the ITR form online, reading instructions and entering data into the mandatory and applicable fields

  • Select the mode of verification through the tab called ‘Taxes Paid and Verification’

  • Select the ‘Preview and Submit’ option and verify the data entered into your ITR

  • Click on ‘Submit’

ITR Forms

ITR form Details
ITR-1 (Sahaj) Applicable to resident individuals with a total income not exceeding Rs.50 lakh, and possessing Income from Salary, Income from One House Property, Income from Other Sources, and Agricultural Income not exceeding Rs.5,000
ITR-2 Applicable to Individuals and Hindu Undivided Families not possessing income from profits and gains of profession or business
ITR-3 Applicable to individuals and HUFs who have income from profits and gains of profession or business
ITR-4 (Sugam) Applicable to Individuals, HUFs, and Firms (apart from LLP), being a resident having total income not exceeding Rs.50 lakh and possessing income from profession and business, computed under Sections 44AD/ 44ADA/ 44AE
ITR-5 Applicable to persons not classified as individuals/ HUF/ company. Not applicable to those using ITR-7
ITR-6 Applicable to Companies barring those claiming an exemption through Section 11
ITR-7 Applicable to persons and companies who must furnish return under sections 139(4A)/ 139(4B)/ 139(4C)/ 139(4D) only
Acknowledgement Acknowledgement

For the Assessment Year 2020-21, ITR-1 and ITR-4 have been notified. You can find them online at the ITR forms page.

Claiming Income Tax Refund

In case you have paid the government excess tax, you can claim an income tax refund online. To do so file your ITR and verify it. A refund is issued after your case is scrutinised by the Central Processing Team. You may check your income tax refund status online, at the e-filing website or the TIN NSDL portal.

Now that you know what is income tax as well as how to determine your liability, file ITR and claim refunds, submit your ITR well before 31 August, and undertake tax planning for the next financial year to be able to hold on to a greater portion of your income.

FAQs

1. What is standard deduction in income tax?

Under Section 16 of the I-T Act 1961, salaried individuals can claim a standard tax deduction on their gross salary. It was re-introduced in the 2018 Union Budget. Salaried individuals can opt for a flat deduction of Rs.40,000 on their gross salary during income tax calculation. This deduction has replaced medical and transport allowance.

2. Do I have to pay income tax?

Income tax liability is subject to an annual income threshold. Individuals earning beyond this threshold will be liable to pay taxes as per different slab rates. If your total income falls within the basic exemption limit of Rs.2.5 lakh, you are not liable to pay tax. For income between Rs.2.5 lakh and Rs.5 lakh, tax is applicable at the rate of 5%. The tax slab is 20% for income between Rs.5 lakh and Rs.10 lakh, and 30% for total income above Rs.10 lakh.

3. What is the minimum salary to pay income tax?

As per the basic exemption limit rule of the IT Act 1961, a salaried individual earning annual income above Rs.2.5 lakh is liable to pay taxes at 5%. Therefore, your annual salary income shall be above the limit to pay income tax. Utilise the online income tax calculator to a fair idea.

4. What is non-taxable income?

Non-taxable income is defined as earnings or monetary benefits that do not fall under the ambit of taxability. Section 10 of the Income Tax Act 1961 lists down various income sources that are non-taxable like money received or inherited as a member of HUF, interest income from a savings account, income earned by partners in a partnership firm, etc.

5. What is the exemption limit for income tax?

As per the I-T Act 1961, the basic exemption limit for income tax is Rs.2.5 lakh. In the case of senior citizens within the age of 60 years, the basic exemption limit stands at Rs.3 lakh. For super senior citizens, i.e., individuals above 80 years of age, the basic exemption limit for tax liability calculation is Rs.5 lakh.

6. How can I pay income tax?

You can pay the self-assessment tax online via the e-payment facility available on the official website of the IT Department. Validate your details via PAN or TAN to make applicable challan payment through the net banking facility. Alternatively, pay your taxes offline via cheque submission in favour of the ‘Income Tax Department’ at your nearest bank branch.

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