There are 2 types of taxes i.e., Direct tax and Indirect tax. Income Tax is a direct tax. Under an Income tax, assessed has to deposit the tax to the government which he has earned by himself. Income tax is charged on Income. An Assessment is a person from whom the tax is payable under the Income Tax Act, 1961.
A person can be an individual or company, AOP, BOI, firm, LLP, Local Authority, and Artificial Judicial Person.
The Income-tax Act is made in 1961 and its rules are made in 1962. Although in each financial year there are certain amendments came in the budget which makes the additions deletions or make changes in the Income tax law.
The year in which an Assesse earned the income is called a previous year and the next year in which he is liable to pay tax on such income is called Assessment Year. For Example, Mr. A has earned Rs.400000 as a salary in the financial year is 2018-19. So, for Mr. A, the previous year is 2018-19 and the Assessment year 2019-20 in which he would be liable to pay tax on such income.
Under the Income-tax Act, there are 5 heads that have been defined under which a person can be taxed. These are:
- Income from Salary (Section 15 to 17)
- Income from House property (Section 22 to 27)
- Income from Profit and gains from business and profession (Section 28 to 44)
- Income from capital gain (Section 45 to 55)
- Income from Other Sources (Section 56 to 59)
Let’s take a glance of each head one by one
Income under the head Salary: Sections 15 to 17 of the income tax act, 1961 explains the treatment of the income received as salary. It includes the treatment of components of the salary like Basic Salary, Dearness allowance, perquisites, etc. It also defines the treatment of exemptions from the salary. For Example: if any person is receiving a house rent allowance then under section 10(13A) he will get the exemption of the amount under the specified limit. Similarly, a salaried employee an ad hoc deduction of Rs. 40000 which increases in AY 20-21 to Rs. 50,000
Income under the head House property: This head provides the details of rental income from the house property. It defines how a person can calculate its income from house property. If a person has let out his house property then like salary, under house property, it also provides certain deductions like municipal taxes or an ad hoc deduction of Rs. 24,000 under section 24(b). It also explains other concepts like deemed owner or deductions of interest on the home loan.
Income under the head Profit and gains from business and profession: This is the most comprehensive head in the entire income tax act. It defines the treatment of income under the business and professions. Section 28 of the income tax act 1961 provides the list of various incomes that are chargeable under this head. A person can be engaged in different types of incomes and hence the act tries to define the tax treatment of all kinds of income like income from trading or manufacturing or speculation business etc. To increase the business in India, the government has also provided various deductions under different sections like 35D, 36 or 37 of the income tax act, 1961.
Income under the head capital Gain: Under this Head, assesse can calculate the tax on the transfer of his capital assets. In this head, first of all, assessed have to understand the meaning of Transfer and capital assets. Capital assets can be long term or short term. Like other head, this head also includes various deductions under section 54 to 54EC of this act.
Income under the head Other Sources: There is no limit under which a person can earn the income. So the income which does not come in the above heads would be taxed here. For Example, Interest in saving bank interest or commission income, etc.
Till now, we have understood about 5 heads. Now we will learn the income tax rates applicable to different assesses for the financial year 2018-19 (the Assessment year 2019-20).
For Individual, HUF, AOP, BOI, AJP (Resident or Non-Resident)
|Upto Rs. 250000 (Basic Exemption Limit)||Nil|
|> Rs. 250000 up to Rs. 500000||5%|
|> Rs. 500000 up to Rs. 1000000||20%|
For Senior Citizen (Resident Individual age 60 years or more in the previous year)
|Upto Rs. 300000 (Basic Exemption Limit)||Nil|
|> Rs. 300000 up to Rs. 500000||5%|
|> Rs. 500000 up to Rs. 1000000||20%|
For Super senior citizen (Resident Individual age 80 years or more in the previous year)
|Upto Rs. 500000 (Basic Exemption Limit)||Nil|
|> Rs. 500000 Rs. 1000000||20%|
- Total income or Net taxable income means the income after allowing all the deductions under chapter VI-A
- For above assessed an additional amount would be added in the tax amount as “Surcharge” if his total income exceeds the following limit:
|> Rs. 50 lakhs up to Rs. 1 Crore||10%|
|> Rs. 1 Crore||15%|
The surcharge shall be levied on the Tax amount and not on the total income. That means for the applicability of the surcharge, assessed has to check the total income limit but once he is liable to pay surcharge then it would be chargeable on the tax amount.
|Domestic company||25%||If the total turnover or the gross receipt in FY 2016-17 is up to 250 crore|
|Domestic company||30%||If the total turnover or the gross receipt in FY 2016-17is exceeds 250 crore|
Note: For Company, the surcharge shall be levied at the following rates:
|Total Income||Domestic Company||Foreign Company|
|> Rs. 1 Crore but up to Rs. 10 Crore||7%||2%|
|> Rs. 10 Crore||12%||5%|
Here also, the surcharge shall be calculated on the tax amount and not on the total income.
For Partnership Firms, LLP, Local Authority
Tax Rate: 30%
Surcharge: 12% of Tax amount if the total income exceeds Rs. 1 Crore
NOTE: For all the above assesses, Health and Education Cess is applicable @ 4% (Include Surcharge).
Rebate under section 87A
The income tax act has provided a big relief as a rebate to the individual resident assessee whose total income in the previous year is up to Rs. 350000 of the lower of the following:
100% of the tax payable or Rs. 2500
Note: This rebate shall be reduced before adding an education cess of 4%.
For Example: If the total income of the individual is Rs. 3,40,000 (Age 28 years)
First Calculate the tax amount on Rs. 3,40,000
|Total Income||Rate||Tax Amount|
|Less: Tax relief U/s 87A|
|Tax amount: 4500|
|Tax Amount after Rebate U/s 87A||2,000|
This is all about the tax rate and now we will try to understand the ITR Return.
ITR return is the form in which assessed have to disclose his income and pay tax in accordance with the information filled in the ITR return.
The government has specified 7 kinds of return and it is very important for them to understand which forms he should have to file because the return in the wrong form, would not be accepted in the department.
ITR-1 or Sahaj Form
That Indian resident will use this form who are earning the income from the following sources:
- Income from salary
- Income from house property from one house
- Having Agriculture income up to Rs. 5000
- The total income of the assessee is up to Rs. 50 lakhs
- Income from Other Sources.
This form can be used by the HUF or the individual who is earning from the following sources:
- Income from salary
- Income from house property from more than one house.
- The total income of the individual exceeds Rs. 50 lakhs
- If the individual is a director of the company
- The agriculture of the individual exceeds Rs. 5000
- Investments in the unlisted equity shares of the company
- Income from foreign income or foreign assets.
- Income from capital gains
- Income from lottery or winning horse races
This is to be filed by those individuals who earn their income from proprietorship business or from their profession. The following individual can use this return:
- Who is earning from proprietorship business or from the profession
- All income as specified in ITR-2
- The individual is a partner in a firm
- Turnover exceeds Rs. 2 Crore
ITR-4 or Sugam
Currently, ITR-4 is applicable for resident individuals, HUF, Partnership firms having income from business or profession. This form is also used for that assesse who has opted for presumptive income scheme under section 44AD, 44DA, 44E of the income tax act. Although, if the turnover of the business exceeds 2 Crore then the assesse will have to file ITR-3.
This form is applicable for the following assesses:
- Investment Funds
- Business Trusts
- Artificial Judicial Person (AJP)
- Estate of Deceased
- Estate of insolvent
- AOP/ BOI
- Partnership firms/LLP
This form is to be filed by the companies who have not to opt for section 11 deductions. In simple words, Companies other than charitable companies will have to file their return in this form.
That asset is specified under section 139(4A), 139(4B), 139(4C), 139(4D), 139(4E) and 139(4F).
|139(4A)||Assessee engaged in the charitable or religious concerns|
|139(4C)||Scientific research association, Association covered U/s 10(23A) or 10(23B) or Medical Institution|
|139(4D)||Every university, college or other institution, are not required to file their return under any other section of this act|
|139(4E)||Every business trust, which is not required to file their return under any other section of this act|
|139(4F)||Any investment fund referred to in section 115UB, which are not required to file their return under any other section of this act|
In the following summary chart, I have tried to cover all the cases that states which return would be applicable for which assessed:
|ITR Form||ITR 1 / Sahaj||ITR 2||ITR 3||ITR 4||ITR 5||ITR 6||ITR 7|
|Applicable to||Resident Individual, HUF||Individual, HUF||Individual or HUF, a partner in a Firm||Individual, HUF, Firm/LLP||Partnership Firm/ LLP||Company other than trust||others|
(One House Property)
(One House Property)
|Business Income||🗴||🗴||✓||Presumptive Business Income||✓||✓||✓|
(Agricultural Income < Rs 5,000)
|Carry Forward Loss||🗴||✓||✓||🗴||✓||✓||✓|
|Foreign Assets/Foreign Income||🗴||✓||✓||🗴||✓||✓||✓|
ITR Filing Procedure
Now we will see the ITR filing process with a pictorial chart:
Step 1: Go to the website and type https://incometaxindiaefiling.gov.in
Step 2: Login to your account by entering your PAN Number as User ID and password
If you have not registered yet then first you have to register yourself by entering the following details:
- PAN Number
- Date of Birth
- Residential Status
- 2 Secret Questions (IF you forgot your password then you can reset your password by answering these secret questions)
- Mobile number
- Email ID
- Your Current and permanent address
After that, your account will be activated and you can log in the first time by entering the link sent by the department on your ID.
We can see the above information in the following pictorial charts:
Step 3: Once you log in to your account then you have to go the “e file” button and press on the “Income Tax Return”
Step 4: The next step is entering the assessment year for which you want to file the return and ITR form. Also, you will have the option to prepare the return offline or online
Step 5: This is the last step. Now, the ITR return form shall be open. Fill all the relevant details showing in the form. Once you have filled all the information in the ITR, then the last step came i.e. Preview and submit.
After reading this article, a layman person can understand
- The glance about the income tax act;
- 5 heads of the income tax act and in which head he would have to calculate his income;
- Which Rate of income tax would be applicable to him for the AY 19-20;
- ITR form to be filed by him and
- The ITR Procedure.