Income tax is a major source of revenue for governments around the world, and the Indian government is no exception. Income taxes, by definition, are collected on income from various sources that an individual may earn during a fiscal year. In India, income tax is controlled by the Central Board of Direct Taxes (CBDT), which in turn falls under the Indian Revenue Services (IRS). IRS is the administrative services arm of the Department of Revenue, Ministry of Finance.
Who has to pay income tax?
Income tax is collected on a yearly basis as a percentage of an entity’s income in a fiscal year (April to March). The maximum rate of income tax is capped at 30% in India, though surcharge and educational cess are also applicable, which may increase this upper limit by some percentage. Taxpayers are broadly categorized into:
- Individuals and Hindu Unified Families (HUF) entities:
- Individuals (both male and female) up to the age of 60 years.
- Senior citizens above 60 years and up to 80 years of age.
- Super senior citizens above 80 years old.
- Business Entities
- Domestic company, firms and local authority.
- Co-operative societies.
- Foreign companies.
Income tax rates are levied according to the divisions given above. For the first category of individual taxpayers, the tax slabs and rates are applicable as per following.
Income Tax Slabs and Rates
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- Individual Taxpayers:
For HUF and individuals (less than 60 years old):
| Tax Slabs | Tax Rates |
| Income up to Rs.2.5 lakhs | Nil |
| Income between Rs.2.5 lakhs and Rs.5 lakhs | 10% of amount exceeding Rs.2.5 lakhs |
| Income between Rs.5 lakhs to Rs.10 lakhs | 20% of amount exceeding Rs.5 lakhs |
| Income above Rs.10 lakhs | 30% of amount exceeding Rs.10 lakhs |
Senior citizens (individuals over 60 years old):
| Tax Slabs | Tax Rates |
| Income up to Rs.3 lakhs | NIL |
| Income between Rs.3 lakhs and Rs.5 lakhs | 10% of amount exceeding Rs.3 lakhs |
| Income between Rs.5 lakhs to Rs.10 lakhs | 20% of amount exceeding Rs.5 lakhs |
| Income above Rs.10 lakhs | 30% of amount exceeding Rs.10 lakhs |
Super senior citizens (individuals over 80 years old):
| Tax Slabs | Tax Rates |
| Income up to Rs.5 lakhs | NIL |
| Income between Rs.5 lakhs to Rs.10 lakhs | 20% of amount exceeding Rs.5 lakhs |
| Income above Rs.10 lakhs | 30% of amount exceeding Rs.10 lakhs |
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- A point to note here is that if an individual touches the age of 60 or 80 during a fiscal year, then his/her income is taxable under the senior citizen/super senior citizen category for the whole fiscal, whichever is applicable.
- Surcharge is applicable at 10% of income above Rs.1 crore in a fiscal year.
- Educational cess is levied as 2% and SHEC (secondary and higher secondary education cess) is levied at 1%.
- Businesses:
For the second category of taxpayers, namely business entities, the following tax rates and slabs are applicable.
Co-operative societies:
| Tax Slabs | Tax Rates |
| Income up to Rs.10,000 | 10% of income |
| Income between Rs.10,000 to Rs.20,000 | 20% of amount exceeding Rs.10,000 |
| Income above Rs.20,000 | 30% of amount exceeding Rs.20,000 |
Domestic Company, Firms and Local Authority:
This category of tax payers aren’t levied taxes on the basis of income brackets but rather as a collective percentage of overall earnings. Taxes are collected as flat 30% of overall declared income.
Foreign Companies:
Foreign companies are required to pay taxes at 40% of overall operating income out of India.
- Educational cess is levied at 2%, while SHEC is levied at 1% of taxable income.
- Surcharge is collected at 10% of income exceeding Rs.1 crore.
- Domestic companies have to pay 5% surcharge on income exceeding Rs.1 crore but less than Rs.10 crores. 10% surcharge is levied on domestic companies on income above Rs.10 crores.
All the data listed above is for the FY 2014-15 and AY 2015-16. Same slabs and rates are expected for FY 2015-16 and AY 2016-17. FY denotes fiscal year and lasts from April to March, while AY stands for assessment year which denotes the year you actually pay your previous year’s taxes in. For instance FY 2014-15 has just ended and you are required to pay taxes for this FY in AY 2015-16.
TDS Deductions:
TDS, or Tax Deducted at Source, is a type of direct tax levied by the government wherein taxes are deducted at the source of payments. For instance, the salary you receive from your employer will be released every month only after deducting the applicable TDS on the amount. As such, it becomes important to report your income for the coming fiscal to the respective tax authorities.
However, if you have wrongly paid taxes during a fiscal, you can claim refunds from the IT department for the excess funds. You have to ensure that your tax filings are in order so that you can spot excess deductions, if any. Also, make it a habit to report all your incomes and expenditures to the best of your knowledge to the tax authorities. False or withheld information can potentially cause you to pay heavy penalties as well as other legal issues.