All About Taxes That are Applied to Personal Income

Personal Income is subject to Income Tax in India. Every individual is required to exhibit their income and file Income Tax in India. As a taxpayer, it is necessary to understand the taxes applied on personal income and about income tax saving options.

What is Income Tax?

Income Tax is the tax levied by the Government of India on the gross income earned by every individual. It is in accordance with the Income Tax Act, 1961. Resident Indians have to pay taxes for Income earned from India and abroad. Non - Resident Indians have to pay taxes on the Income generated only in India.

Financial Year and Assessment Year

Financial Year is the period from 1st April to 31st March. The following year when the Income Tax is calculated is the Assessment year. For example, the Financial Year is from 1st April 2020 - 31st March 2021, and the Assessment Year is from 1st April 2021 - 31st March 2022.

Sources of Income

Various sources of Income are accountable for Income Tax. Income from the following sources is considered:

1. Salary - Salary, leave encashment, etc

2. House Property - Income generated from a house or any building in the form of rents

3. Capital Gains - Income from profit earned from capital assets

4. Business

5. Other sources

Deductions

Expenses towards the following investments and savings are eligible for tax benefits from the income tax. The details are elaborated in Section 80C of the Income Tax Act, 1961. Here are a few expenses that qualify for deductions based on certain terms and conditions.

1. Investments made on savings schemes such as Equity Linked Savings Scheme, National Savings Certificate, Life Insurance, a guaranteed income plan, Public Provident Fund, etc., qualify for deduction up to ₹1,50,000.

2. Medical insurance premium

3. Interest on home loans

4. Donations made for social welfare

There are different income tax saving schemes and investments that help you avail of tax benefits under the Income Tax Act.

Exemptions

Exemptions include the type of income that is excluded from the Gross Income while calculating Income Tax. It is enlisted in Section 10 of the Income Tax Act. Here are a few examples:

1. House Rent Allowance

2. Leave Travel Allowance

3. Relocation Allowance

Income Tax Rates

Tax payers are classified into different categories called Tax Slabs. Each Tax Slab has different tax rates. The Income Tax Department has introduced a ‘New Tax Regime’ for the Assessment Year, AY21-22.

As per the Old Tax Regime, the tax rates were as follows:

As per the New Tax Regime, the Tax Rates are as follows:

However, according to the New Tax Regime, which offers lower rates, the Tax Payer cannot avail of certain deductions and exemptions.

In addition to the income tax, a surcharge is levied when the total income exceeds ₹5 million. There is also the Health and Education Cess charged at 4% of the Income Tax and Surcharge if applicable.

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The income tax is levied on all earning individuals who fall under a taxable income bracket. The income tax is paid to the Government of India and is charged annually. However, there are several tax deductions and exemptions that you can claim to lower your tax liability. The Income Tax Calculator helps you ascertain your tax output for a financial year based on your taxable income. This can help you plan well and save tax using the tax-saving deductions and exemptions, if possible.