Income Tax in India

Guide to IT Returns, E-filing Process in the year 2021

Income Tax in India: Taxes in India can be categorized as direct and indirect taxes. Direct tax is a tax you pay on your income directly to the government. Indirect tax is a tax that somebody else collects on your behalf and pays to the government e.g. restaurants, theatres and e-commerce websites recover taxes from you on goods you purchase or a service you avail. This tax is, in turn, passed down to the government. Direct Taxes are broadly classified as:

  • Income Tax – This is taxes an individual or a Hindu Undivided Family or any taxpayer other than companies, pay on the income received. The law prescribes the rate at which such income should be taxed
  • Corporate Tax – This is the tax that companies pay on the profits they make from their businesses. Here again, a specific rate of tax for corporates has been prescribed by the income tax laws of India

Indirect taxes take many forms: service tax on restaurant bills and movie tickets, value-added tax or VAT on goods such as clothes and electronics. Goods and services tax, which has recently been introduced is a unified tax that has replaced all the indirect taxes that business owners have to deal with.

Income Tax Basics

Everyone who earns or gets an income in India is subject to income tax. (Yes, be it a resident or a non-resident of India). Your income could be salary, pension or could be from a savings account that’s quietly accumulating a 4% interest. Even, winners of a lottery, or even ‘Kaun Banega Crorepati’ have to pay tax on their prize money.

The Tax year begins from 1st April to 31st March every year and is called “Financial Year (F.Y.)” and for tax purposes since it is declared after the year end in the subsequent year, the returns are classified under the year in which they are filed hence that year is referred to as “Assessment Year (A.Y.)”

For simpler classification, the Income Tax Department breaks down income into five heads:

Head of Income Nature of Income covered
Income from Salary Income from salary and pension are covered under here
Income from Other Sources Income from savings bank account interest, fixed deposits, winning KBC
Income from House Property This is rental income from a house property whether residential or commercial.
Income from Capital Gains Income from sale of a capital asset such as mutual funds, shares, house property
Income from Business and Profession This is when you are self-employed, work as a freelancer or contractor, or you run a business. Life insurance agents, chartered accountants, doctors and lawyers who have their own practice, tuition teachers Taxpayers and Income Tax Slabs

Taxpayers and Income Tax Slabs

Taxpayers in India, for the purpose of income tax includes:

  • Individuals, Hindu Undivided Family (HUF), Association of Persons(AOP) and Body of Individuals (BOI)
  • Firms
  • Companies

Each of these taxpayers is taxed differently under the Indian income tax laws. While firms and Indian companies have a fixed rate of tax of 30% of profits, the individual, HUF, AOP and BOI taxpayers are taxed based on the income slab they fall under. People’s incomes are grouped into blocks called tax brackets or tax slabs. And each tax slab has a different tax rate. In India, we have four tax brackets each with an increasing tax rate.

Here is how the income tax slab will look for FY 2021-22:

Income Tax slab for individuals below 60 years:

Income Tax Slab for individuals between 60 years and 75 years:

Income Tax Slab for individuals who are non-residents:

Besides this, the income tax slab for HUF (Hindu Undivided Family), as well as AOP (Associations of Persons), BOI (Body of Individuals), and Artificial Juridical Person remains the same as for non-resident individuals.

Exceptions to the Tax Slab

One must bear in mind that not all income can be taxed on slab basis. Capital gains income is an exception to this rule. Capital gains are taxed depending on the asset you own and how long you’ve had it. The holding period would determine if an asset is long term or short term. The holding period to determine nature of asset also differs for different assets. A quick glance of holding periods, nature of asset and the rate of tax for each of them is given below.

Type of capital asset Holding period Tax rate
House Property Holding more than 24 months – Long Term Holding less than 24 months – Short Term 20% Depends on slab rate
Debt mutual funds Holding more than 36 months – Long Term Holding less than 36 months – Short Term 20% Depends on slab rate
Equity mutual funds Holding more than 12 months – Long Term Holding less than 12 months – Short Term Exempt (until 31 March 2018) Gains > Rs 1 lakh taxable @ 10% 15%
Shares (STT paid) Holding more than 12 months – Long Term Holding less than 12 months – Short Term Exempt (until 31 March 2018)Gains > Rs 1 lakh taxable @ 10% 15%
Shares (STT unpaid) Holding more than 12 months – Long Term Holding less than 12 months – Short Term 20% As per Slab Rates
FMPs Holding more than 36 months – Long Term Holding less than 36 months – Short Term 20% Depends on slab rate
Residents and non residents:

Levy of income tax in India is dependent on the residential status of a taxpayer. Individuals who qualify as a resident in India must pay tax on their global income in India i.e. income earned in India and abroad. Whereas, those who qualify as Non-residents need to pay taxes only on their Indian income. The residential status has to be determined separately for every financial year for which income and taxes are computed. For details please refer to “taxation of NRI” given separately.

Income tax Return Filing Due Dates

a. The due date to file income tax returns (non audit) is 31 July every year.

b. The due date for tax audit u/s 44AB is 30th September every year.

c. The due date for audit cases is 31st October every year.

d. The last date of making payment under Vivaad se Vishwas Scheme without additional amount stands extended to 31 December 2020.

e. For Salaried Employees below are the deadlines for submission of Investments for the purpose of appropriate tax deduction against your salary income.

Deadline to submit your investment proofs 31st January
Deadline to make investments under Section 80C 31st March
Last date to file your tax return 31st July
Time to verify your tax return 120 days from date of filing

Note: For AY 2021-22, CBDT extends the deadlines due to COVID 19 vide its circular No.9 dated 20th May 2021. Currently, last date to file tax returns has been extended to 30th September 2021. Similarly last date to file tax returns for tax audit cases and for audit cases have been extended to 31st October 2021 and 30th November 2021 respectively.

Union Budget 2021 Update:
Exemption from ITR filing to senior citizens aged 75 years and above, earning only pension and interest income.