Basics of Income Tax for Beginners

Tax in India:

In India Taxes are categorised into two types i) Direct Tax and ii) Indirect Tax

i) Direct Tax: Direct Tax is a Tax you pay on your income directly to the Government eg: Income Tax

ii) Indirect Tax: Indirect tax is a tax that someone else collects on your behalf and pays to the Government eg: Restaurants collects GST from you and pay to government on behalf of you.

Income Tax:

Everyone who earns/gets an income in India is subject to Income Tax. In simple Income Tax Department has classified all the income into five heads:

Head of Income	Nature of Income Covered
Income from Salary	Income from salary and Pension are covered here.
Income from House Property	Income by way of House rental
Income from Business and Profession	Self-Employed, Freelancer, consulting or when you run a Business and Doctors, Chartered Accountants, Lawyers etc who have their own practice, Tuition Teachers and LIC Agents are covered here.
Income from Capital Gain	Income from sale of Capital Asset such as Land, Building, Machinery, Motor Vehicles, Mutual Funds and Shares.
Income from Other Sources	Any other income which are not classified on the above four heads will come under this head… such as Savings Bank Interest, FD Interest, Winnings/Lottery etc.

 

Financial Year(FY) and Assessment Year(AY):

An FY starts on 01^st April and ends on 31^st March. Suppose, if you have earned income from 01 April 2019 to 31 March 2020 will be called as Financial Year (FY) 2019-20.

On the other hand, Assessment year(AY) is the year following the FY, in which your income is assessed. For example, AY for the income earned during FY 2019-20 will be AY 2020-21.

Tax Payer in India?

As per Income Tax Act, 1961 “PERSON” includes:

Individuals, Hindu Undivided Family (HUF), Association of Persons(AOP) and Body of Individuals (BOI), Trust, Partnership Firm/LLP and Companies.

Does Everyone Need Pay Income Tax?

No, Each of the Tax Payers is taxed differently in Indian Income tax laws. While firms and Indian Companies have a fixed rate of Tax @30% of Profits.

The Individuals, HUF, AOP and BOI taxpayers are taxed based on the ‘INCOME SLAB’ they fall under. And each slab has a different tax rate, which is given below:

Income Range	Rate of Tax	Tax to be paid
Upto Rs. 250000	0	No tax
250000 to 500000	5%	5% of your Taxable income i.e income above 250000
500000 to 1000000	20%	12,500 + 20% of Income above 500000
Above 1000000	30%	112500 + 30% of Income above 1000000

 (This the Income Tax Rates for the FY 2019-20 for taxpayers under 60 years’ subject to Rebate and deductions)

So, if an Individual (Indian Citizen) who earns Below Rs.2,50,000/- in a Financial Year Need not to pay any Income tax.

Statistics from Income Tax Department:

Official Website - https://www.incometaxindiaefiling.gov.in/home

Individual Registered Users	:	87664669
Registered and Aadhaar Linked	:	72121718
Not-Registered but Aadhaar Linked	:	39417140