Guide to Income Tax

Income Tax in India

The two types of taxes in India are Direct Tax and Indirect Tax.

A direct tax is a tax which you pay on your income directly to the government. Indirect tax is a tax that is levied for goods or a service. This tax is, in turn, paid to the government. Indirect taxes take many forms in India such as service tax, value added tax or VAT .

Goods and services tax (GST), which has recently been introduced is an Indirect Tax which is levied in India on sale of goods and services.

Basics of Income Tax

In India, Income Tax is payable by every person on the total income, earned during the previous year at the rate of tax applicable for assessment year. There are five sources for income classified as:

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Head of IncomeNature of Income
Income from Salary/PensionSalary and pension income is covered under the head of Salary
Income from House PropertyRental Income
Income from Capital GainsIncome from sale of capital asset e.g house property, shares etc.
Income from Business and ProfessionSelf employed Income, Running own business, freelancer, Doctors, Chartered Accountants etc.
Income from Other SourcesInterest income from Saving Bank Account, Fixed Deposits.

Income Tax Slab Rates

One of the key announcements from Interim Budget 2019 was the increase the in the TAX REBATE (under Section 87A) to Rs.12,500 for Individuals with income up to Rs.5 lakhs.

This has certainly led to confusion that all Individuals will get a tax benefit on their income upto Rs.5 Lakhs. Unfortunately that is not the case.

First lets understand that there are no changes in the Tax Slabs and Rates for AY 2020-21

Income Tax Slab applicable for FY 2019-20 (AY 2020-21)- Proposed in Budget 2019

Net IncomeTax Rate for Resident Individuals (Less than 60 Years)Tax Rate for Resident Senior Citizen (More than 60 Years but less than 80 Years)Tax Rate for Resident Senior Citizen (More than 80 Years)
Upto Rs.2.5 LakhsNilNilNil
Rs.2.5Lakhs– Rs.3Lakhs5%NilNil
Rs.3Lakhs- Rs.5Lakhs5%5%Nil
Rs.5Lakhs- Rs.10Lakhs20%20%20%
Above Rs.10Lakhs30%30%30%

* Health & Education Cess of 4%
* Surcharge will be levied at 10% on high taxpayers with income between Rs.50 Lakhs and Rs.1 Crore. The rate of surcharge for super high taxpayers, with income above Rs.1 Crore will remain same at 15%.

Income Tax Slab for FY 2018-19 (AY 2019-20):

Net IncomeTax Rate for Resident Individuals (Less than 60 Years)Tax Rate for Resident Senior Citizen (More than 60 Years but less than 80 Years)Tax Rate for Resident Senior Citizen (More than 80 Years)
Upto Rs.2.5 LakhsNilNilNil
Rs.2.5Lakhs– Rs.3Lakhs5%NilNil
Rs.3Lakhs- Rs.5Lakhs5%5%Nil
Rs.5Lakhs- Rs.10Lakhs20%20%20%
Above Rs.10Lakhs30%30%30%

* Health & Education Cess has been introduced and effective rate shall be 4% (Earlier Secondary & higher Education cess was 3%).
* Surcharge will be levied at 10% on high taxpayers with income between Rs.50 Lakhs and Rs.1 Crore. The rate of surcharge for super high taxpayers, with income above Rs.1 Crore will remain same at 15%.

Income Tax Slab for FY 2017-18 (AY 2018-19):

(I) For Resident Individual (Less than 60 years)/HUF/AOP/BOI

Net IncomeTax RateSurchargeEducation CessSecondary & higher Education cess
Upto Rs.2.5 LakhsNilNilNilNil
Rs.2.5Lakhs – Rs.5L5%Nil2%1%
Rs.5Lakhs- Rs.10L20%Nil2%1%
Rs.10Lakhs- Rs.50L30%Nil2%1%
Rs.50Lakhs- Rs.1Cr30%10%2%1%
More Than Rs.1Cr30%15%2%1%

(II) For Resident Senior Citizen (Whose age is 60 years or more but less than 80 years)

Net IncomeTax RateSurchargeEducation CessSecondary & higher Education cess
Upto Rs.3 LakhsNilNilNilNil
Rs.3Lakhs – Rs.5Lakhs5%Nil2%1%
Rs.5Lakhs- Rs.10Lakhs20%Nil2%1%
Rs.10Lakhs- Rs.50Lakhs30%Nil2%1%
Rs.50Lakhs- Rs.1Crore30%10%2%1%
More Than Rs.1Crore30%15%2%1%

(II) For Resident Super Senior Citizen (Whose age is 60 years or more but less than 80 years)

Net IncomeTax RateSurchargeEducation CessSecondary & higher Education cess
Upto Rs.5 LakhsNilNilNilNil
Rs.5Lakhs- Rs.10Lakhs20%Nil2%1%
Rs.10Lakhs- Rs.50Lakhs30%Nil2%1%
Rs.50Lakhs- Rs.1Crore30%10%2%1%
More Than Rs.1Crore30%15%2%1%

Income Tax Slab for Domestic Companies for FY 2017-18 (AY 2018-19) – The companies with an annual turnover of up to Rs 50 crore in FY.2015-16, tax rate of them has been brought down to 25% from 30%. Other rates remains the same as were in the previous year.

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