Income Tax (Updated for FY 2023-24)
Income Tax in India is a direct tax levied on the income earned by individuals, businesses, and other entities. It is governed by the Income Tax Act, 1961, and administered by the Central Board of Direct Taxes (CBDT), under the Department of Revenue, Ministry of Finance, Government of India.
Here are some key aspects of Income Tax in India:
- Taxable Income: Income Tax is calculated on the total income earned by an individual or entity during a financial year, which includes income from various sources such as salary, business/profession, capital gains, house property, and other investments.
- Income Tax Slabs and Rates: The tax rates applicable to individuals vary based on their income level and are divided into different income tax slabs. The rates are revised by the government from time to time.
- Income Tax Deductions and Exemptions: The Income Tax Act provides various deductions and exemptions that individuals can claim to reduce their taxable income. These include deductions for expenses like investment in specified schemes (e.g., Provident Fund, National Pension Scheme), payment of insurance premiums, tuition fees, home loan interest, etc.
- Filing of Income Tax Returns: Individuals and entities whose income exceeds the specified threshold are required to file income tax returns. The income tax return (ITR) needs to be filed annually with the Income Tax Department, providing details of income earned, deductions claimed, and tax paid. The due date for filing ITR varies based on the type of taxpayer and their income level.
- Tax Deducted at Source (TDS): TDS is a mechanism through which tax is deducted by the payer (employer, bank, etc.) at the time of making certain payments (salary, interest, rent, etc.). The deducted tax is then remitted to the government. The recipient can claim credit for the TDS while filing their income tax return.
- Advance Tax: Advance Tax is the payment of income tax in installments, as per the prescribed due dates, during the financial year. It is applicable to individuals and entities with a certain level of tax liability, and failure to pay advance tax can attract interest and penalties.
- Tax Assessment and Appeals: The Income Tax Department conducts assessments to verify the accuracy and completeness of the income tax returns filed. If there are any discrepancies or issues, the taxpayer may be subject to scrutiny or audit. In case of disputes, taxpayers have the option to file appeals with the Appellate Authorities or the Income Tax Appellate Tribunal (ITAT).
Financial Year and Assessment Year
Understanding the distinction between the Financial Year and the Assessment Year is crucial when filing income tax returns and complying with the timelines and provisions specified by the Income Tax Department in India.
In the case of Indian Income Tax, the Financial Year refers to the period starting from April 1st of a calendar year and ending on March 31st of the following calendar year. It is also commonly referred to as the “Previous Year” in income tax terminology.
- Financial Year 2021-2022: It starts on April 1, 2021, and ends on March 31, 2022.
- Financial Year 2022-2023: It starts on April 1, 2022, and ends on March 31, 2023.
During the financial year, individuals and entities earn income, which is then assessed and taxed in the subsequent year known as the Assessment Year. The Assessment Year is the year immediately following the Financial Year in which the income is assessed, and income tax returns are filed for that period.
- Financial Year 2021-2022: The corresponding Assessment Year is 2022-2023, during which income tax returns for the financial year 2021-2022 are filed.
Deductions allowed from Income (Updated for FY 2023-24)
The Indian Income Tax Act provides several deductions that individuals can claim to reduce their taxable income. These deductions are aimed at promoting savings, investments, and specific expenditures. Here are some commonly used deductions available under the Income Tax Act in India:
- Section 80C: This is one of the most widely used deductions. It allows individuals to claim deductions for certain investments and expenses up to a maximum of Rs. 1.5 lakh per financial year. Some eligible investments/expenses under Section 80C include:
- Life Insurance Premiums
- Employee Provident Fund (EPF)
- Public Provident Fund (PPF)
- National Savings Certificates (NSC)
- Tax-saving Fixed Deposits
- Equity-linked Saving Scheme (ELSS)
- Principal Repayment of Home Loan
- Tuition Fees for Children’s Education
- Section 80D: This section allows deductions for premiums paid towards health insurance policies for self, spouse, children, and parents. The maximum deduction limit varies depending on the age of the insured individuals and whether they are senior citizens.
- Section 80E: This section allows deductions for interest paid on loans taken for higher education. The deduction is available for a maximum of 8 years or until the interest is fully paid, whichever is earlier. There is no maximum limit specified for this deduction.
- Section 80G: This section provides deductions for donations made to specified charitable institutions. The amount eligible for deduction varies depending on the organization and can be either 100% or 50% of the donated amount.
- Section 24(b): This section allows deductions for the interest paid on home loans. The maximum deduction limit for self-occupied properties is Rs. 2 lakh per financial year.
- Section 10(14): This section allows deductions for house rent allowance (HRA) received by salaried individuals. The deduction amount is calculated based on certain conditions and the actual HRA received.
- Section 80TTA: This section provides deductions for interest earned on savings bank accounts up to a maximum of Rs. 10,000 per financial year.
These are just a few examples of deductions available under the Indian Income Tax Act. There are several other sections and provisions that provide deductions for specific investments, expenditures, and contributions. It is important to review the latest provisions of the Income Tax Act or consult with tax professionals to understand and utilize the available deductions accurately.