Taxes in India

The government of India makes a part of its revenue from taxes in two ways, direct and indirect.

1. Direct Taxes – As you can guess from the name itself, it is the tax that one has to pay on his/her income directly to the government. Income Tax and Corporate Tax falls into this category.
2. Indirect Taxes – It is the kind of tax that is priced on products and services used by the consumer. The tax is transferable from person to person but ultimately it the consumer who pays. The company then pays the collected tax to the government. GST (Goods and Services Tax) is one such indirect tax.

What is Income Tax?

In simple language, income tax is the tax charged by the government from the income of every taxable person, earned during a financial year. The taxability of the person is decided based on a monetary limit set by the government. However, this monetary limit keeps changing from time to time, considering factors like inflation and other economic events. Also, the income tax charged varies from person to person, thus the more you make, the more you pay.

Heads of Income

The income earned has been broadly categorised into five heads. Any income earned to be taxed must fall under any of these –

1. Income from salary
   This taxes the income earned as salary from a firm or organisation or as pension from banks.
2. Income from house property
   This taxes the income earned as a rental from immovable property.
3. Income from business or profession
   This taxes the income earned from a business or a professional set-up by him/her. Self-employed individuals, freelancers, contractors and businesses owners come under this head.
4. Income from capital gain
   This taxes the income earned from the sale of investment in the form of shares, commodities, immovable property, etc.
5. Income from other sources
   This taxes income earned from any source that does not comes under the above heads such as, lottery, gambling, bank interests, horse races, etc.

Taxpayers

The taxpayers are categorised as –

1. Individuals
2. HUFs (Hindu Undivided Family)
3. AOPs (Association of Persons)
4. BOIs (Body of Individuals)
5. Firms
6. Companies

Income Tax Rates

For non-individual assesses like companies, firms, LLPs, local authorities and co-operative societies, Income Tax is charged at a flat rate. As per Finance Act, 2020, following are the income tax rates incomes for FY 2020-21 (AY 2021-22):

*Special Tax*

In an attempt to reduce the tax burden on not-so-rich taxpayers of the country and to answer to the demands of a reduced tax rate, the government of India introduced sections 115 BAC and 115 BAD which apply to individuals / HUFs and resident co-operative societies respectively. With effect from Previous Year (PY) 2020-21 relevant to Assessment Year (AY) 2021-22 in the financial act of 2020. The newly inserted section 115 BAC provides the reduced tax rates, known as tax rates under new regime compared to the already persisting tax rates system, known as tax rates under the old regime.

LLP and Local Authority

Co-operative Society

Special Tax – 

In the newly added section 115 BAD, co-operative societies can opt to pay tax at a lower tax rate only if the total income of co-operative society is computed without claiming specified exemptions, deductions or incentives. The option once exercised under this section cannot be subsequently withdrawn for the same or any other previous year.

Domestic Companies

Income tax rates for assessment year 2020-21 and 2021-22 are as follows,

Special Tax –

* The rate of surcharge in case of a company opting for taxability under Section 115BAA or Section 115BAB

** The domestic company who has opted for special taxation regime under Section 115BAA and 115BAB is exempted from provision of MAT. However, no exemption is available in case where section 115BA has been opted.

Foreign Companies

Special Tax Rate for Individuals and HUFs under New Regime

Income tax slabs under the new regime for all individuals for FY 2020-21 (AY 2021-22),

Individuals opting to be taxed according to the new tax regime has to give up the following exemptions and deductions,

• • Leave Travel Allowance (LTA)
  • House Rent Allowance (HRA)
  • Conveyance
  • Daily expenses in the course of employment
  • Relocation allowance
  • Helper allowance
  • Children education allowance
  • Other special allowances [Section 10(14)]
  • Standard deduction
  • Professional tax
  • Interest on housing loan (Section 24)
  • Chapter VI-A deduction (80C,80D, 80E and so on) (Except Section 80CCD(2) and 80JJA)

Income Tax Rates under Old Regime for Individuals, NRIs, HUFs, AOPs and BOIs

For Individuals less than 60 Years Old (including HUFs, AOPs and BOIs).

*Scroll down to the last table of this section for Surcharge and Cess.

For Senior Citizens who is 60 years or more at any time during the previous year.

*Scroll down to the last table of this section for Surcharge and Cess.

Super Senior Citizen who is 80 years or more at any time during the previous year.

Surcharge and Cess

Note :

A resident individual (whose net income does not exceed Rs. 5,00,000) can avail rebate under section 87A. It is deductible from income-tax before calculating education cess. The amount of rebate is 100 per cent of income-tax or Rs. 12,500, whichever is less.

The enhanced surcharge of 25% & 37%, as the case may be, is not levied, from income chargeable to tax under sections 111A, 112A and 115AD. Hence, the maximum rate of surcharge on tax payable on such incomes shall be 15%.

This is same under both the tax regimes.