If you are at the threshold of your professional career and are wondering how to file your income tax returns, then this guide will be of considerable help. There are some basics related to income tax that all beginners should be abreast of.
Income tax return or ITR is the statement and proof of your having paid income taxes for a particular assessment year. It is the computation of your net taxes payable for the year in a manner of speaking.
Categories for Tax Liability
Income tax is the part of your income that will be payable to the Government for funding infrastructure, development and welfare throughout the country. You should first know about what is income tax return and the types of income that come under the purview of income tax. The Income Tax Act clearly defines income under the following categories for tax liability-
- Income from salary– The salary that you earn from your company or employer is within this category. This includes basic pay, transport allowance, advances, annuities, other allowances, retirement benefits and perquisites. The total makes up your gross salary after exemptions. Form 16 column 6 is where you will find all information about Income from Salary.
- Income from rentals– This covers income received as rentals from any commercial or residential property in your name. This comes under Income from House Property.
- Income from Profession/Business– Professionals, freelancers and businessmen will have to pay income tax in this category. The income that is taxable will be worked out minus expenditure.
- Income from Capital Gains– This refers to gains made by transferring a capital asset including jewellery, shares, real estate, bonds and so on. Assets receivable as gifts will not be taken in this segment unless sold.
- Income from Other Sources– Any income garnered and not in the above categories will come under this head. This may include interest from bank and post office deposits, interest from recurring deposits, income earned through various means like lotteries and so on.
Tax-free income and its implications
Income not liable to be taxed is tax-free income. This includes agricultural income, interest earned on Central Government notified bonds by NRIs, HUF receipts, gratuities, pension commutation, insurance proceeds upon the death of the policyholder, receipts from the provident fund and other sources.
The assessee- What it means
The assessee is the individual or entity liable for payment of taxes. This may be a HUF (Hindu Undivided Family), individual, company, partnership firm, AOP (association of persons) and Body of Individuals.
Concept of assessment and financial years
The year in which you earn the income and pay advance tax is the financial year. The assessment year is the year after the financial year when the income tax department will be assessing the income tax return filed by you. For example, for the financial year 2021-22, the assessment year will be FY2022-23.
Taxpayers are eligible for various deductions that they can avail, depending upon their investments and other factors. The deductions are provided under Section 80C of the Income Tax Act. Some of these deductions cover the following-
- Section 80C– This gives deductions on specific investments up to Rs. 1.5 lakh.
- Section 80CCD– This has deductions on contributions towards pension. This should not surpass 10% of salary or 20% of gross income.
- Section 80CCC– This covers deductions on premiums paid for insurance or servicing annuities.
- Section 80GG– This relates to deductions on house rent which is paid when HRA is not given.
- Section 80TTA– This covers deductions on the interest earned from savings accounts.
- Section 80CCG– This covers deductions upon investments made towards the RGESS or Rajiv Gandhi Equity Saving Scheme.
- Section 80E & Section 80EE– This covers deductions on interest that have been paid for education and home loans respectively.
- Section 80D, 80DDB & 80DD– This covers deductions for medical insurance, medical costs and rehabilitation for those who are differently-abled.
- Section 80TTB– This relates to deductions on interest-based income.
- Section 80G– This covers deductions made towards political parties and other eligible organizations.
- Section 80RRB– This covers deductions on royalty on any patent.
There are various other deductions that are available including the likes of Section 24 which offers deductions on payment of home loan interest and some others.
Standard Deduction- What it basically means
This is the cumulative deduction of Rs. 50,000 applicable for taxpayers who are salaried, irrespective of their investments and earnings. 30% of house rent income may be claimed under this head. This comes in place of transport and medical reimbursements and allowances which were previously eligible for standard deductions prior to FY2018-19.
Slab Rates for Financial Year 2020-21 and Assessment Year 2021-22
The tax structure in India works on calculation via an incremental basis. The rate at which income is taxed in the country depends upon the applicable tax slab. The Finance Ministry in the last Union Budget for FY2020-21 came up with a new tax structure as an option for citizens along with the existing taxation rates. Taxpayers opting for this new system will have to forego specific tax deductions and exemptions. These include the following:
- Daily employment expenses, relocation allowance, helper allowance
- Children’s education allowance
- Section 10 (14) special benefits
- Professional tax
- Standard deduction
- Interest on home loan under Section 24
- Deductions under Sections 80C, 80E, 80D and onwards
A shift to the new taxation regime should be implemented prior to filing ITR for Assessment Year 2021-22. Those with income from business may switch back once for the current tax regime from the new one.
Comparison of tax rates in both regimes
|Applicable Slab||New Regime||Current/Existing Regime|
|Up To Rs 2.5 Lakh||NIL||Nil|
|Rs 2.5 Lakh To Rs 5 Lakh||5% (For Net Taxable Income Up To Rs. 5 Lakh, A Tax Rebate Of Rs 12,500 Is Available Under Section 87A)||5% Of Total Income Exceeding Rs. 2.5 Lakh|
|Rs 5 Lakh To Rs 7.5 Lakh||10%||12,500 + 20% Of Total Income Surpassing ₹5,00,000|
|Rs 7.5 Lakh To Rs 10 Lakh||15%|
|Rs 10 Lakh To Rs 12.5 Lakh||20%||Rs. 1,12,500+30% Of Total Income Surpassing Rs. 10 Lakh|
|Rs 12.5 Lakh To Rs 15 Lakh||25%|
|Rs 15 Lakh And Above||30%|
The minimum taxable income in the pre-existing regime is Rs. 3 lakh and Rs. 5 lakh for senior and super senior citizens respectively. You will have to pay tax for health and education cess at 4%. Staying updated on these basic concepts will help you greatly while filing your income tax returns.