Income tax guides

The Income Tax Act specifies that every taxpayer has to file a return regarding the payment of his/her taxes with the IT department.

* An individual has to file a return by the 31st of July for a financial year ended 31st March.
* In case the individual is engaged in a business or profession and his books of accounts are subjected to audit, the last date of filing return is 30th September.
* Documents supporting any claims for deductions and relief have to be submitted along with the return.
* The individual has to ensure that he/she has paid the applicable tax before filing of the return.
* In case the return is not filed within the prescribed time limit, a simple interest of 1.25% is levied on the tax due.

In addition to their Salary incomes, there are other income avenues available to the salaried individual. Each of these has a different tax treatment. Some of these avenues are explained under:

* Interest income from investments There are different avenues available to an individual for investing his/her surplus funds. These avenues naturally generate return that has different tax implications. Given below are tax implications of 3 popular options:
o Public provident fund: The interest income from PPF investments is completely exempt from tax.
o National savings certificate: Interest income from NSC investments is taxable. However, since this interest is reinvested in the scheme, it qualifies for exemption under Section 80C and is part of the total exemption up to Rs. 1 lakh under that section.
o Tax-saving fixed deposits: Interest income from tax-saving fixed deposits is taxable.

Salaries paid in India are usually a mix of a number of allowances and perquisites, each having a separate tax treatment. As such the computation of an individual’s tax liability from his/her gross salary is a complicated task. The following are some common components of gross salary and their tax implications:

Component Taxable Income
Basic Fully taxable
House Rent Allowance Fully taxable
Supplementary allowance Fully taxable
Conveyance Partially exempt
Lunch coupons Fully Exempt
Medical reimbursement Partially exempt
Leave travel allowance Partially exempt
Company’s contribution towards PF Partially exempt
Telephone reimbursement Fully Exempt
Car reimbursement Fully Exempt
Annual bonus Fully taxable
Mediclaim contribution Fully Exempt
Gratuity Partially exempt

What is the precise mathematics of tax calculations? Given below are sample computations for three salary levels:

Salary – Rs. 4 lakh
Slabs Taxable Income Tax Rate (%) Tax Liability
Up to Rs 1,5,000 p.a. Rs 1,50,000 Nil 0
Rs 1,50,001 – Rs 3,00,000 p.a. Rs 1,50,000 10 Rs 15,000
Rs 3,00,001 – Rs 5,00,000 p.a. Rs 1,00,000 20 Rs 20,000
Total Rs 4,00,000 Rs 35,000
Education cess @ 3% Rs 1,050
Total tax payable Rs 36,050

How exactly does an individual stand to benefit from the new taxation structure? Consider a 30-year-old male assessee with an annual income of Rs 6 lakh. His tax liability under the two cases would be as follows:

Old structure
Slabs Taxable Income Tax Rate (%) Tax Liability
Up to Rs 1,10,000 p.a. Rs 1,10,000 Nil 0
Rs 1,10,001 – Rs 1,50,000 p.a. Rs 40,000 10 Rs 4,000
Rs 1,50,001 – Rs 2,50,000 p.a. Rs 1,00,000 20 Rs 20,000
Above Rs 2,50,000 p.a. Rs 3,50,000. 30 Rs 1,05,000
Total Rs 6,00,000 Rs 1,29,000
Education cess @ 3% Rs 3,870
Total tax payable Rs 1,32,870

The new budget has already brought good cheer to the average Indian by raising the taxation slabs. A comparison between the old and new tax slabs is as follows:

General slabs
Taxable Income (old slabs) Taxable Income (new budget) Rate of Tax (%)
Up to Rs 1,10,000 p.a. Up to Rs 1,50,000 p.a. Nil
Rs 1,10,001 – Rs 1,50,000 p.a. Rs 1,50,001 – Rs 3,00,000 p.a. 10
Rs 1,50,001 – Rs 2,50,000 p.a. Rs 3,00,001 – Rs 5,00,000 p.a. 20
Above Rs 2,50,000 p.a. Above Rs 5,00,000 p.a. 30

Women assessees
Taxable Income (old slabs) Taxable Income (new budget) Rate of Tax (%)
Up to Rs 1,45,000 p.a. Up to Rs 1,80,000 p.a. Nil
Rs 1,45,001 – Rs 1,50,000 p.a. Rs 1,80,001 – Rs 3,00,000 p.a. 10
Rs 1,50,001 – Rs 2,50,000 p.a. Rs 3,00,001 – Rs 5,00,000 p.a. 20
Above Rs 2,50,000 p.a. Above Rs 5,00,000 p.a. 30

Senior citizens (age above 65 years)
Taxable Income (old slabs) Taxable Income (new budget) Rate of Tax (%)
Up to Rs 1,95,000 p.a. Up to Rs 2,25,000 p.a. Nil
Rs 2,25,001 – Rs 3,00,000 p.a 10
Rs 1,95,001 – Rs 2,50,000 p.a. Rs 3,00,001 – Rs 5,00,000 p.a. 20
Above Rs 2,50,000 p.a. Above Rs 5,00,000 p.a. 30

The income tax rates in India increase in a staggered manner; this policy is known as the policy of progressive taxation. The logic behind this is that the maximum burden of tax should fall on those who can afford it the most. As a result, the effective tax rates keep increasing with an increase in income. The chart below illustrates the effective tax rate for different income levels between Rs 1 lakh-Rs10 lakh according to the new tax rates.