Income Tax: Definition, Classification, Types, Slabs,

What is Income Tax?

The government levied income tax on an individual’s or an entity’s income earned within a financial year. The income can be in the form of salaries, wages, profits, gains from business or profession, rental income, capital gains, and any other sources of income. The tax is calculated based on the applicable tax rates, which depend on the income slab in which the individual or entity falls. The government uses income tax revenues to fund public services and infrastructure projects, such as education, healthcare, defense, and transportation. The income tax department administers and enforces income tax laws and regulations. They require individuals and entities to file their income tax returns by a specified due date every year, and failure to do so may result in penalties or legal action. Income tax rates may vary depending on the country or region. In some countries, the income tax rates may be progressive, meaning that the tax rate increases as the income level increases. In other countries, the tax rates may be flat, meaning that the same tax rate applies to all income levels. The government may also provide tax exemptions and deductions to certain categories of taxpayers to promote investments and economic growth.

new tax slabs under the new tax regime 

Income Slabs	Tax Rates
up to Rs 3 lakh	Nill
Rs 3 lakh- Rs 6 lakh	5%
Rs 6 lakh-Rs 9 lakh	10%
Rs 9 lakh-Rs 12 lakh	15%
Rs 12 lakh- Rs 15 lakh	20%
Above Rs 15 lakh	30%

Direct Taxes are classified as follows: 

Direct taxes are taxes directly levied on individuals or entities by the government and are usually not transferable to another person or entity. In India, direct taxes are broadly classified into the following categories:

1. Income Tax: Income tax is a tax levied on the income earned by an individual or entity during a financial year.
2. Corporate Tax: Corporate tax is levied on the profits earned by companies and other entities.
3. Capital Gains Tax: Capital gains tax is a tax levied on the profits earned from selling capital assets such as property, stocks, and bonds.
4. Securities Transaction Tax: Securities transaction tax (STT) is a tax levied on transactions involving shares, derivatives, and equity-oriented mutual funds.
5. Dividend Distribution Tax: Dividend distribution tax (DDT) is a tax levied on the dividend companies pay to their shareholders.
6. Fringe Benefits Tax: Fringe benefits tax (FBT) is a tax levied on the value of certain fringe benefits companies provide to their employees.

These are the major types of direct taxes in India, levied and collected by the Income Tax Department of India. The tax rates and rules may vary depending on the category of the taxpayer and the nature of the income or transaction.

Types of Tax Payers

In general, anyone who earns income must pay income tax to the government. The types of taxpayers in India are as follows:

1. Individual Taxpayers: Individuals who earn income from various sources such as salaries, wages, profits, gains from business or profession, rental income, capital gains, and other sources are required to pay income tax.
2. Hindu Undivided Family (HUF): HUFs are a type of joint family structure under Hindu law that can earn income and pay income tax separately.
3. Association of Persons (AOP): AOPs are groups of individuals or entities that jointly carry out a business or profession. They are required to pay income tax on their collective income.
4. Body of Individuals (BOI): BOIs are groups of individuals who come together for a common purpose but do not constitute a business or profession. They are required to pay income tax on their collective income.
5. Partnership Firms: Partnership firms are individuals who conduct business jointly. They are required to pay income tax on their profits.
6. Companies: Companies are separate legal entities that can earn income and pay income tax as a separate entity.

The tax rates and rules may vary depending on the category of the taxpayer and the nature of the income earned. The Income Tax Department of India has specified rules and guidelines for each category of taxpayer, and failure to comply with these rules may result in penalties or legal action.

 Types of Incomes:

In India, the Income Tax Act recognizes five heads of income, which are as follows:

1. Income from Salaries: This head includes income received by an individual in the form of salaries, wages, bonuses, commissions, pensions, and other benefits received from an employer.
2. Income from House Property: This head includes income received from owning a house or building, such as rent received from tenants, or if the property is self-occupied, the amount that would have been received as rent is considered income.
3. Profits and Gains of Business or Profession: This head includes income earned by individuals or businesses engaged in any profession, trade, or business. The income may be in profits, gains, or losses from business or profession.
4. Capital Gains: This head includes income earned from the sale or transfer of capital assets, such as land, buildings, securities, mutual funds, and other investments.
5. Income from Other Sources: This head includes income earned from any other source not covered under the other four heads. It includes interest earned from savings bank accounts, fixed deposits and other investments, lottery or gambling winnings, and other sources.

Each of these heads has its own rules and guidelines for calculation and taxation purposes. Taxpayers must declare their income under the appropriate head or heads of income while filing their income tax returns. The income tax department may conduct audits and investigations to ensure taxpayers comply with the relevant rules and guidelines.

Income Tax Slabs Under Old Tax Regime

Income Range	Tax rate	Tax to be paid
Up to Rs.2,50,000	0	No tax
Rs 2.5 lakhs – Rs 5 lakhs	5%	5% of your taxable income
Rs 5 lakhs – Rs 10 lakhs	20%	Rs 12,500+20% on income above Rs 5 lakh
Above 10 lakhs	30%	Rs 1,12,500+30% on income above Rs 10 lakh

Income Tax Slabs Under New Tax Regime

Income Range	old tax regime slab rates (FY 2022-23)	New tax regime slab rates (FY 2022-23)
Up to Rs.2,50,000	Nil	Nil
Rs 2.5 lakhs – Rs 5 lakhs	5%	5%
Rs 5 lakhs – Rs 10 lakhs	20%	10%
Above 10 lakhs	30%	15%
Rs 10 lakh to Rs 12.5 lakh		20%
Rs 12.5 lakh to Rs 15 lakh		25%
Income above Rs 15 lakh		30%

Income Tax Forms List

In India, the Income Tax Department requires taxpayers to file income tax returns (ITRs) for a financial year, usually from April 1st to March 31st of the following year. The following is a list of income tax forms used for various categories of taxpayers:

1. ITR-1 (Sahaj): For individuals having income up to Rs. 50 lakh from salary, one house property, and other sources like interest income, pension income, etc.
2. ITR-2: For individuals and Hindu Undivided Families (HUFs) not having income from business or profession.
3. ITR-3: For individuals and HUFs having income from a proprietary business or profession.
4. ITR-4 (Sugam): For presumptive income from business or profession, where total income is up to Rs. 50 lakh.
5. ITR-5: For firms, LLPs (Limited Liability Partnerships), AOPs (Association of Persons), and BOIs (Body of Individuals).
6. ITR-6: For companies not claiming exemption under section 11 of the Income Tax Act.
7. ITR-7: For persons and companies required to furnish returns under section 139(4A) or section 139(4B) or section 139(4C), or section 139(4D) (i.e., trusts, political parties, institutions, and colleges).

Apart from these forms, there are other forms and annexures that taxpayers may be required to file, depending on their specific income sources or transactions. It is important to note that incorrect or incomplete filing of income tax returns may lead to penalties and legal action by the Income Tax Department.

Documents Required for ITR Filing

In India, taxpayers must file their income tax returns (ITRs) annually with the Income Tax Department. The following is a list of documents and information required for ITR filing:

1. PAN (Permanent Account Number) card: A mandatory requirement for filing income tax returns.
2. Form 16: This form is issued by your employer and contains details of your salary income, taxes deducted, and other deductions.
3. Form 16A/16B/16C: These forms are issued by banks and other financial institutions for tax deducted at source (TDS) on income other than salary, such as interest income, rental income, etc.
4. Bank statements: It is important to have bank statements for the financial year for which the income tax return is filed.
5. Investment-related documents: This includes documents related to investments made during the financial year under various sections of the Income Tax Act, such as Section 80C, Section 80D, etc.
6. Property-related documents: This includes documents related to any property owned by the taxpayer, such as a sale deed, purchase deed, etc.
7. Other documents: Other documents, such as proof of medical expenses, charitable donations, etc., may also be required depending on the nature of the income and deductions claimed.

It is important to ensure that all the documents are accurate and up-to-date and that all the necessary information is included in the income tax return. Filing accurate and complete income tax returns is important to avoid penalties and legal action by the Income Tax Department.

How can I calculate my income tax?

You can calculate your income tax in India using the following steps:

1. Determine your total gross income: This includes income from all sources such as salary, house property, business or profession, capital gains, and other sources.
2. Calculate your deductions: Deductions under various sections of the Income Tax Act, such as Section 80C, Section 80D, etc., are available to reduce your taxable income.
3. Calculate your taxable income: Subtract the deductions from your total gross income to arrive at your taxable income.
4. Determine your income tax slab: The income tax rates applicable to you will depend on your income tax slab, which is determined based on your taxable income.
5. Calculate the income tax payable: Use the applicable income tax rates to calculate the tax liability for each income tax slab. Add up the tax liability for each slab to arrive at your total income tax payable.

It is important to note that various income tax calculators are available online to help you calculate your income tax liability more accurately. You can also consult a tax professional for assistance in calculating your income tax. Additionally, filing your income tax returns accurately and on time is important to avoid penalties and legal action by the Income Tax Department.

Income Tax Act law

The Income Tax Act is the primary legislation governing income taxation in India. It was first enacted in 1961 and has been amended several times. The Act lays down the provisions related to the computation, assessment, and collection of income tax in India.

The Income Tax Act is divided into several chapters, each dealing with a specific aspect of income taxation. Some of the key provisions of the Act include:

1. The determination of taxable income for different categories of taxpayers, including individuals, companies, and partnerships.
2. The income tax rates and slabs are applicable to different categories of taxpayers.
3. The provisions related to tax deductions and exemptions, including investments, insurance premiums, and charitable donations.
4. The tax collection provisions include payment methods, penalties for non-payment or late payment, and recovery of tax dues.
5. The tax evasion and avoidance provisions include penalties and prosecution for non-compliance.
6. The provisions related to tax appeals, including the process for filing appeals and the powers of the Income Tax Appellate Tribunal and other authorities.

The Income Tax Act is an important piece of legislation that impacts the finances of individuals, businesses, and the government. Taxpayers need to be aware of the provisions of the Act and comply with its requirements to avoid penalties and legal action by the Income Tax Department.