Income Tax is a Tax on Income earned during the previous year by every person, computed as per rates prescribed under the Finance Act of the Income Tax Act, 1961, in India.
Income Tax
is a part of your earned income, paid to the Government, to run the Economy. The government collects around 20lac crores by way of Taxation out of which around 10.5lac crores, more than 51% is mainly from Income Tax/ Direct Tax.
Out of the total Indian population, only 1.5 crore people end up paying taxes.
Direct Tax is only paid by those who are capable of paying taxes on their own incomes.
Indirect taxes are paid by everyone on almost everything that you buy. Eg, GST
The power to levy and collect taxes comes from the constitution of India laid down by the authority of law, except on agriculture income. Income Tax Act is further supported and explained by Income Tax Rules, Finance Act, Circulars, Notifications & Case laws.
Income
includes all Revenue and Capital Receipts,
Salary Income- Income earned by the employee from the employer as a fixed payment, on a payroll, Perquisite, Allowance.
Income from House Property- Rental Income earned from letting out your property.
Profits & Gains from Business & Profession- Income from any form of trade, profession, or vocation earned with a Profit motive and based on assumptions of Going Concern, Consistency, and Accrual concept and includes Deemed Profits.
Income from Capital Gains- Income from Sale/ redemption of Shares, Stocks, Mutual Funds whether listed or unlisted. Income from the sale/transfer/exchange/relinquishment of any movable or immovable property or any other Capital asset.
Income from Other Sources- Income in the form of Bank Interest, Interest income on Investments, Dividend Income, or any other income, Voluntary contributions, Winnings from the lottery, crossword puzzles, any subsidy, grant, or duty drawback given by the Government.
Accelerated Assessments are done in cases where the incomes are taxed in the previous year itself in case of the shipping business, the person leaving India with no present intention of returning to India, AOP/BOI formed for a specific event or purpose, a person likely to transfer the property with an object to avoid tax payment, Discontinued business (at the discretion of the Assessing officer)
Financial Year
is a year comprising of 12 months.
The previous year is the year beginning on 01st April every year or the start date in case of a new enterprise and ending on 31st March every year. Assessment Year means the year immediately following the Previous Year.
Person
includes the following,
Individual. Eg, Proprietary Concern- Single Owner
Hindu Undivided Family Eg, At least 2 Family members earning income together.
The company, both domestic & Foreign company Eg, Private Limited, Inc, Public, Listed or Unlisted.
Firm, whether Partnership Firm or Limited Liability Partnership eg, Minimum 2 partners formed for the common purpose of doing business or any other income.
Association Of Persons /Body Of Individuals, whether incorporated or not eg, College/ University students forming AOP for some event.
A Local Authority eg, Political party
Co-operative Society eg, Co-operative Banks, Co-operative societies and any other artificial Jurisdiction Person eg, river, temple, church
Rates of Taxes for AY2021-22
Individual & HUF u/s 115BAC of the Income Tax Act,1961 for AY2021-22
| Total Income | New Tax Rates | Old Tax |
| Up to Rs.2,50,000/- | Nil | Nil |
| Rs.2,50,001/- to Rs.5,00,000/- | 5% | 5% |
| Rs.5,00,001/- to Rs.7,50,000/- | 10% | |
| Rs.7,50,001/- to Rs. 10,00,000/- | 15% | 20% |
| Rs.10,00,001/- to Rs.12,50,000/- | 20% | |
| Rs.12,50,001/- to Rs.15,00,000/- | 25% | |
| Above Rs.15,00,000 | 30% | 30% |
For Senior Citizens of 60 Yrs or more, The basic Exemption Limit is Rs.3,00,000/-
For Super Senior Citizens of 80 Yrs or more, The basic Exemption Limit is Rs.5,00,000/-
The surcharge is an additional tax on basic tax,
| Above Rs.50Lacs Up to Rs.1 Crore | 10% |
| Above Rs.1Crore Up to Rs.2 Crores | 15% |
| Above Rs.2Crores Up to Rs.5 Crores | 25% |
| Above Rs.5Crores | 37% |
Health & Education Cess at 4% is leviable on Basic Tax Plus Surcharge
Maximum Surcharge for Short Term Capital Gains, Long Term Capital Gains & Dividend Income u/s Sec 111A, Sec 112A, and dividend income is 15%.
Rebate u/s 87A for a resident individual can be claimed of Rs.12,500/- for income up to Rs.5 Lac.
New tax regime vs old tax regime is a benefit given to the assesses to decide the tax structure they wish to adopt, based on their incomes and deductions and tax liability computed.
In Case of AOP/BOI/AJP, the income tax slabs as per old scheme mentioned above applies and surcharge and SHC as above remains same for AOP/BOI/AJP.
Rates For Domestic Companies of The Income Tax Act,1961 for AY2021-22
| Total Income | Tax Rates |
| Any Domestic Company | 30% |
| If Opted for 115BA | 25% |
| If Opted for 115BAA | 22% |
| If Opted for 115BAB | 15% |
Surcharge
| Turnover or Gross Receipts Above 1Cr but <=10cr | 7% |
| Turnover or Gross Receipts Above 10CR | 12% |
| If opted for 115BAA or 115BAB | 10% |
Health & Education Cess at 4% is leviable on Basic Tax Plus Surcharge
Rates For Foreign Companies of The Income Tax Act,1961 for AY2021-22
| Total Income | Tax Rates |
| Any Foreign Company | 40% |
| Royalty From Government Or Indian Concern | 50% |
Surcharge
| Turnover or Gross Receipts Above 1Cr but <=10cr | 2% |
| Turnover or Gross Receipts Above 10CR | 5% |
Health & Education Cess at 4% is leviable on Basic Tax Plus Surcharge
Rates For Firms & Local Authority of The Income Tax Act,1961 for AY2021-22
Partnership Firms and Limited Liability Partnerships are taxable at 30%.
Surcharge at 12% if Taxable turnover exceeds 1 crore.
Health & Education Cess at 4% is leviable on Basic Tax Plus Surcharge
Exemptions u/s 10 as may be applicable on your income to be excluded from the total income and not chargeable to tax.
The income earned during the financial year from various heads of income is clubbed together and Deduction’s u/s 80 as may be applicable are reduced to arrive at the Total Income to compute the Tax Liability as per the tax slabs.
Tax is paid in advance in the form of Advance Tax and/or Tax is deducted at Source from Salary, Rent, Commission/Brokerage, Professional Fees, Contract.
Final Tax after any rebates is computed and paid.
If the total of the Advance Tax and/or Tax deducted at source is more than the total tax liability, the refund due is claimed back.
The Return of Income in ITR forms as applicable is duly filed in,
ITR-1, ITR-2, ITR-3, ITR-4, ITR-5, ITR-6, ITR-7
The return so filled in is validated, uploaded on the income tax site, and verified either online or by manual submission to the CPC Bangalore.
The Return can be filed within due dates u/s 139(1) or a Belated Return can be filed if the original due date for filing is missed.
The return so filed, be it original or belated, can be revised if there is any omission or material misstatements unintentionally, before the end of the relevant assessment year.
Once a return is filed, the same is assessed by the income tax department to confirm its correctness and completeness and report any irregularity for further correction, if any. This is called Intimation order u/s 143(1).
Tax deducted at Source (TDS)
TDS is an advance payment made to the government, which ensures accountability and avoids tax evasions later.
Deferred Tax on ESOP’s of employees of Start Up’s- Either after the expiry of 48 months from the AY when the ESOP was allotted, or On the sale of ESOP’s or on ceasing to be an employee of the company, whichever is earlier.
The deductor is not deemed to be an assessee in default if he doesn’t deduct, deducts but doesn’t pay, doesn’t pay at all, when the payee has filed his returns and paid all taxes and issues a declaration from a Chartered Accountant in the form 26A.
| Section | Nature Of Payment | Threshold/Basic Exemption Limit | Rate of TDS | Payer | Payee | Time of Deduction | Certificate |
| 192 | Salary | Rs,2,50,000/- or Rs.3,00,000/- whichever is applicable | As per Tax Rates in force, based on employee average rate of Tax calculated on his Total Income. | Employer | Employee | At the time of Payment | Form 16 |
| 192A | Premature Withdrawal from Employee Provident Fund | Aggregate Payment of Rs.50,000 | 1.10% or 2. If No Pan provided, then Maximum Marginal Rate @ 42.744% | Provident Fund | Employee | At the time of Payment | Form 16A |
| 193 | Interest On securities | >Rs.10,000 Per FY(Interest On Bonds) >Rs.5,000 per FY (Interest on Debentures of Public Company) paid to Individual/HUF | 10% | Any person paying such income | Any resident | At the time of Payment or at the time of credit, whichever is earlier | Form 16A |
| 194 | Dividend | >Rs.5,000/-only if paid to Resident Individual by a/c Payee Crossed Cheque | 10% | Principal Officer of Domestic Company | Resident Shareholder | Before Paying dividend | Form 16A |
| 194A | Interest Other Than Interest On securities | >Rs.40,000 in a FY paid by a Banking company >Rs.50,000 for resident senior citizens (>=60 yrs) >Rs.5,000 other cases | 10% | Banks, Or Any person making interest payment | Any resident | At the time of Payment or at the time of credit, whichever is earlier | Form 16A |
| 194B | Winning from Lottery, Crossword Puzzle or Card games | >Rs.10,000/- | Flat 30% for Residents, 30%+SC+SHEC for NR. | The person responsible for making the Payment | Any Person | At the time of Payment | Form 16A |
| 194BB | Winnings from Horse Races | >Rs.10,000/- | 30% | Any person who owns the Race Course | Any Person | At the time of Payment | Form 16A |
| 194C | Payments made to contractors | Single Pay> Rs.30,000 or Aggregate Pay > Rs.1Lac | 1%(If the contractor is Individual/HUF), 2% (If the contactor is any Other Person) | All Government organizations and Individual/HUF having Gross Receipts of more than Rs.50Lacs(Professionals 44ADA) and Rs.1cr (Sec 44AD and 44AE) | Any Resident Contractors | At the time of Payment or at the time of credit, whichever is earlier | |
| 194D | Insurance Commission | >Rs.15,000/- in a FY | 5% | Insurance Company | Any Resident | At the time of Payment or at the time of credit, whichever is earlier | Form 16A |
| 194DA | Any sum under Life Insurance Policy | >Rs.1,00,000/- in a FY | 5% | Any person responsible for making the Payment under ULIP | Any Resident | At the time of payment | Form 16A |
| 194E | Payment to NR sportsperson | NA | 20.8% | Any person responsible for making the Payment | NR sports person or entertainer | At the time of payment | Form 16A |
| 194EE | Payment under National Saving scheme | >Rs.2,500 in a FY | 10% | Any person responsible for making the Payment | Individual or HUF | At the time of payment | |
| 194F | Repurchase of Units by Mutual Funds | NA | 20% | Any person responsible for making the Payment under Equity Linked Savings Scheme | Any person who made a contribution | At the time of payment | |
| 194G | Commission on sale of Lottery Tickets | >Rs.15,000 in a FY | 5% | Any person responsible for making the Payment for commission, remuneration or prize on lottery tickets | Trader of Lottery Tickets | At the time of Payment or at the time of credit, whichever is earlier | Form 16A |
| 194H | Commission or Brokerage | >Rs.15,000 in a FY | 5% | Any Person responsible for paying commission or brokerage and Individual/HUF having Gross Receipts more than Rs.50Lacs(Professionals 44ADA) and Rs.1cr (Sec 44AD and 44AE) | Any resident (Commission agents except Stock Brokers) | At the time of Payment or at the time of credit, whichever is earlier | Form 16A |
| 194I | Rent paid for any Land, Building, Machinery, Furniture whether or not owned by the payee | >Rs.2,40,000 in a FY | Plant& Machinery=2%,Land,Building,Furniture=10% | Landlord | Any Resident(Tenant) | At the time of Payment or at the time of credit, whichever is earlier | Form 16A |
| 194IA | Payment on transfer of Immovable Property, Includes all incidental expenses to transfer the property | >= Rs.50,00,000/- | 1% | Buyer | Resident Transferor(No Requirement for TAN) | At the time of Payment or at the time of credit, whichever is earlier | Form 16B/26QB |
| 194IB | Payment of Rent by small Individuals and HUF for use of Land/Building or both. | >Rs.50,000/-pm or part thereof | 5% (No TAN requirement by the Tenant) | Individual/HUF responsible for paying Rent | Any Resident | Last month of PY or tenancy, which is earlier | Form 16C/26QC |
| 194IC | Payment under a specified agreement under Capital Gains | NA | 10% | Developer, Any person paying a sum in cash, not in kind, for development of a land/building or both for real estate project. | Owner of Land/Building or Both, Any Resident | ||
| 194J | Fees for Professional Fees or technical services/Royalty/Directors’ remuneration, non compete Fee | >Rs.30,000/-in a FY | 10%(all other payments), 2%(call center, technical services fees, royalty for sale, distribution, and exhibition of films) | Any Person except Small Individual/HUF ie, Turnover or Gross Receipts > 50L or 1cr in case of Individual and HUF in the immediately preceding FY, are covered only for Professional & Technical fees. | Any Resident | At the time of Payment or at the time of credit, whichever is earlier | Form 16A |
Professional services like legal, medical, engineering, architecture, accountancy, technical consultancy, interior decoration, advertising, All professionals notified u/s 44AA as authorized representatives, film artist, CS, Information technology, Sportspersons, umpires & referrers, coaches & trainers, team physicians & physiotherapist, event managers as defined u/s 44AA for Presumptive Taxation U/s 44ADA.
Technical -managerial services, technical services, consultancy services, provision of services of technical or other personnel.
Not include construction, mining, assembly, salaries
Consideration to use or right to use of computer software is royalty.
| 194K | Income or units other than in the nature of capital gains | >Rs.5,000 | 10% | Any person responsible for paying any income in respect of units of MF | Any resident | At the time of Payment or at the time of credit, whichever is earlier | Form 16A |
| 194LA | Compensation of acquisition of immovable property other than agricultural land(Rural & Urban Both) | >Rs.2,50,000 in a FY | 10% | Any person is responsible for paying any sum in the nature of compensation, enhanced compensation on compulsory acquisition of immovable property. | Any Resident | At the time of Payment. | Form 16A |
| 194M | Payments to Contractors/Commission or brokerage, fees for professional services | >Rs.50,00,000 in a FY | 5% | Individual or HUF not required to deduct u/s 194C, 194H 194J and also covers for personal purposes | Any resident | No TAN required | Form 16D/Form 26QD |
| 194N | Cash Withdrawals | Filer of Return>Rs.1cr Non Filer of Return>Rs.20Lacs | 2%>1cr- filer,non filer=2%>20Lacs, exceeding 1cr=5% | Banking Co, Co-operative Bank, Post Office paying in cash exceeding Rs.1Cr in PY from 1 or more accounts maintained by the payee | Any Person | At the time of Payment. | Form 16A |
| 194O | Payment by E-Commerce operator to E-commerce Participant | >Rs.5Lacs in a FY for Payee participant being Individual/HUF having Pan/Aadhaar, Others= No threshold limit | 1% of the gross amount of sale of goods or service or both, failure to furnish PAN= 5%Max TDS | E-commerce operator, who facilitates the sale of goods or services of e-commerce participants through the digital or electronic facility | E-commerce Participant eg, the seller of goods or services | At the time of Payment or at the time of credit, whichever is earlier | Form 16A |
Sec 195A- Income is Payable Net Of Tax
Eg, You have billed Rs.100000 to your client for the work done, TDS of Rs.11,111/- is paid by the client net of taxes. You have received your full amount of Rs.1,00,000/- which is 90% inclusive of taxes.
Sec 196- NO TDS for Any Payment made to government/RBI/certain corporations by way of Interest/Dividend in respect of any securities, any other income accruing or arising to it.
Sec 197-
Certificate for deduction at lower Rate,
Where TDS is required to be deducted, but total income is lower or no deduction of TDS is required, then the AO on an application by the assessee, give him a certificate as may be appropriate for lower deduction of TDS by the payer or the deductor.
The deductor shall deduct at such rates as rates specified in the certificate until it is canceled.
The payee can apply for lower deduction certificate in respect of Sections 192,193,194,194A,194C,194D,194G,194HI,194J,194K,194LA,194M,194O only.
Sec197A-only for the resident individual- No Deduction declaration, is given by the assessee himself, when the Tax Liability is NIL, in Form 15G/15H, where his/her total income is below exemption limit in respect of Sec 192A,193/194A,194D,194DA,194I,194K, by persons other than companies & firms.
Senior citizen Tax is Nil even in case of Dividend in addition to above.
Interest by offshore banking /NPS TRUST NO TDS provisions are applicable.
Sec 199- Credit for tax deducted is available only if paid by the deductor after collecting the tax.
Rule 37BA- Credit of TDS for the purpose of Sec 199 only in the year in which he offers the income to Tax. Exception u/s 194N in the same year of deduction. Pro-Rata credit is also available for incomes assessable in different Assessment years.
TDS can be transferred to another person (co-owners), when the income is also transferred to that other person.
Sec 200- Deductor deducts, pays, and files TDS statement and files TDS returns.
Rule- On or before 07Th from the end of the month in which deduction is made.
Sec 194IA/194IB/194M- Return cum challan in 26QB/26QC/26QD within 30 days from the end of the month of deduction.
Sec 192- Form 24Q is to be filed for Salary TDS.
For Due Date of TDS Return Filing, kindly go through the schedule linked.
Sec 234E-Rs.200 per day for late TDS return filing. Late fees can’t exceed the amount of TDS.
The statement will be processed u/s 200A and any shortfall or excess will be computed accordingly by the department.
Sec 201- Consequences of Failure to deduct or pay—shall be deemed to be assessee in default-
But if the payee files his Return of Income, Declares the Income, Pays Tax on it, and the same is certified by a CA by issuing Form 26A, then the deductor will not be deemed to be an assessee in default.
Interest is 1% or part of the month from the date tax was deductible to the date when the tax was actually deducted.
Deducted but not paid- Interest @ 1.5% is applicable from the date of TDS deductible to the date when the TDS is actually Paid.
Deducted but not paid is assessed in default indefinitely.
7 years’ time limit from the end of the FY in which deduction is made for the assessee in default.
Sec 206AA-Deductor needs to submit PAN to the deductor. If not submitted, then deductor will deduct @ 20% instead of 2%( if regular TDS rate is 30%, then 30% or 20% whichever is higher will apply ie, 30%), except In Sec 194O- maximum TDS will be 5%.
NO PAN, can’t apply for Sec 197 or 197A. If the wrong PAN, then equivalent to PAN not being furnished, the higher rate will be applicable.
Sec 207 & Sec 208- Advance Tax to be paid during the continuation of FY only if >= Rs.10,000 except senior citizens provided he doesn’t have any profits and gains from business and profession.
Advance Tax Due Date
| Due Date | Tax Percentage to be paid |
| 15th June | 15% of Tax Liability |
| 15Th Sept | 45% of Tax Liability |
| 15Th Dec | 75% Of Tax Liability |
| 15Th March | 100% Of Tax Liability |
Sec 44AD & 44ADA– only last installment of Advance Tax to be paid.
Sec 44AE- all 4 installments to be paid.
Tax Due on Returned Income- All Advance Tax, TDS & TCS, Relief u/s 89(1) will be deducted to compute the final tax liability.
Sec 234B- 1% per month from 01st April till actual payment of final Tax liability. If 90% tax is paid before 31st March, then 234B will not be leviable.
Conculsion: The total income is charged to Tax, based on the residential status of a person, Sources of Income, Slab Rates applicable and Advance Tax is Paid quarterly, Tax is deducted at source and final tax liability is computed and paid accordingly. If Advance Tax paid and TDS deducted is more than Tax computed, Refund is claimed back while filing Income Tax Return.
Great content! Keep up the good work!