What is Income Tax and How it is Charged
Income Tax is a Tax that is imposed on Individual or entities (Tax-Payer) on their income or profits earned during a particular tax period. Income Tax is charged as a percentage of taxable income that varies on the basis income of the tax-payer. The Financial year (April to March in India) in which the income is earned by the tax-payer is known as previous year and the next financial year in which such income is taxed or assessed is known as assessment year. For the financial or previous year 2018-19 the assessment year is 2019-20.
Every individual tax payer & HUF whose income during a previous year exceeds the basic exemption limit (currently Rs.250000/-) is required to file Income Tax Return, in case of other tax payers filing of return is mandatory irrespective of their income.
Type of Taxpayers:
For the classification purpose,Tax payers are divided into following categories under income tax: –
- Individual
- Hindu Undivided Family
- Company
- Firm
- An Association of persons or a body of individuals
- A Local Authority
Mode of Filing of Return
Every person is required to file his Income Tax Return electronically except following:
Individuals of the age of 80 years or more whose income does not exceed 5 lakh rupees and who does not claim any refund in his return may file return in paper form, if he is filing his return in Form ITR-1 & Form ITR-4. Everyone else is required to file his return electronically.
Heads of Income
Income earned by a tax payer is divided into following five categories or heads under income tax:-
- Salary: – Existence of relationship of employer and employee is must between the payer and payee to tax the income under this head. Income under the head salaries includes the following;
- Wages
- Annuity
- Pension
- Gratuity
- Fees, Commission, Perquisites, Profits in lieu of or in addition to Salary or Wages
- Advance of Salary
- Leave Encashment
- Annual accretion to the balance of Recognized Provident Fund
- Transferred balance in Recognized Provident Fund
- Contribution by Central Government or any other employer to Employees Pension Account
- House Property: The Income is taxable under this head if the tax-payer ownsa house property consisting of any building or land appurtenant thereto and the house property is not being used for the purpose of business or profession carried on by the tax-payer.
- Capital Gains: The Income is taxable under this head if the tax-payer earns any profit or gains by the transfer of a Capital Asset during the previous year. Capital Asset includes the following:
- Any kind of property held by tax-payer, whether or not connected with business or profession of the tax-payer.
- Any securities held by a FII which has invested in such securities in accordance with the regulations made under the SEBI Act, 1992.
- Income from Business or Profession:The Income is taxable under this head if it is earned by the tax-payer as a result of his Business (trading, manufacturing etc.) or profession (Doctor, Engineer, Advocate, Company Secretary etc.).
- Income from other sources: Any income which cannot be charged under any of above heads will be charged under this head. Dividend Income, Interest on securities,Composite rental income from letting of plant, machinery or furniture with buildings if such income is not chargeable under the head business or profession are some example of such income.
Slab of Income:
For individual tax-payers tax is levied on the basis of slab system where different rates have been provided for different slabs and such tax slabs may change during every union budget. Income tax slab for all the tax-payers for the assessment year 2019-20 are summarized in below table: –
Income tax slab for Financial Year 2018-19
Type of Taxpayer | Income Slab | Tax Rate | Health & Education Cess |
Individual & HUF below 60 years of Age | Upto Rs.2.5 Lakh | Nil |
|
Rs.250000 to 500000 | 5% | 4% of tax | |
Rs. 500000 to 1000000 | 20% | 4% of tax | |
Above 1000000 | 30% | 4% of tax | |
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Individual & HUF of age above 60 Years but Less than 80 Years. | Up to Rs 300000 | Nil |
|
Rs.300000 to 500000 | 5% | 4% of tax | |
Rs. 500000 to 1000000 | 20% | 4% of tax | |
Above 1000000 | 30 % |
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Individual & HUF of age above 80 Years. | Up to Rs 5,00,000 | Nil |
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500000 to 1000000 | 20% | 4% of tax | |
Above 1000000 | 30% | 4% of tax | |
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Domestic Companies | Gross Turnover Upto Rs. 250 Cr. | 25% | 4% of tax
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Gross Turnover exceeding 250 Cr. | 30% | 4 % of tax
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Due Dates for Filing Return of Income for AY 2018-19
Due dates for filing Income tax return are as follows:
| S.No. | Type of Taxpayer | Due Date |
| 1 | Individuals, HUF, BOI, AOP. (Taxpayers with no audit requirement.) | 31st July of relevant Assessment Year |
| 2 | Company, Taxpayers whose accounts need to be Audited, working partner (whose firm’s books need to be Audited) | 30th September of the relevant Assessment Year |
| 3 | Individuals, HUF, BOI, AOP (Taxpayers with audit requirement) | 30th September of the relevant Assessment Year |
