Income Tax Act

08-Apr-2021
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What is Income Tax?

Income earned through a job, business or any other sources doesn’t belong to the owner completely. If you earn income beyond a certain limit, then you are liable to pay the income tax on an annual basis for a financial year beginning from 1st April to 31st March. Income Tax is a kind of tax that the government imposes on the income generated by the individuals and businesses within their jurisdiction. Income tax is the source of revenue for Government. The amount of income tax pay government obligations, funds public services, and provides goods for citizens. The Government utilizes the tax to discharge innumerable responsibilities. This includes health care, infrastructure development, education, public transport, subsidies and carrying out other welfare programmes like employment programmes. 

Now, let’s understand the Income tax Act 1961?

Income Tax Act 1961 comprises all the details about Indian Tax systems. The Act explains the levy, collection as well as recovery of income tax. Income Tax Act is a comprehensive statute which focuses on various rules and regulations which are being governed within the country. 

Parties who are liable to pay Income Tax

According to the Indian Income Tax Act, 1961, the parties who are liable to pay the income tax, meaning that their annual income falls into one of the income slabs prescribed in the Act are companies, firms, individuals, Hindu Undivided Families (HUFs), local authority, artificial judicial persons, association of persons and body of individuals. Income tax is levied on an annual basis, at the end of every financial year (April - March).

What kinds of income are taxable under Income Tax Act 1961?

The incomes which are taxable under Income Tax Act 1961 are:

  • Salary
  • Profit/gains from a business or a profession
  • Capital gains
  • Income from house property
  • Income from other sources

Income Tax Slab applicable to Individuals (Resident / Non Resident) for the financial year 2021-22

1. Individuals (Other than seniors and super senior citizen)

Income Tax Slab Income Tax Rate
Upto Rs. 2,50,000                                         Nil
Rs. 2,50,000 to Rs. 5,00,000 5%
Rs. 5,00,000 to Rs. 10,00,000 20%
Above Rs. 10,00,000 30%

2. Individuals (Senior Citizen)

Income Tax Slab Income Tax Rate
Upto Rs. 3,00,000                                         Nil
Rs. 3,00,000 to Rs. 5,00,000 5%
Rs. 5,00,000 to Rs. 10,00,000 20%
Above Rs. 10,00,000 30%

3. Individuals (Super Senior Citizen)

Income Tax Slab Income Tax Rate
Upto Rs. 5,00,000                                         Nil
Rs. 5,00,000 to Rs. 10,00,000 20%
Above Rs. 10,00,000 30%

Surcharge: Surcharge is levied on the amount of income-tax at the following rates:

Range of Income Surcharge Rate
Rs. 50 Lakhs to Rs. 1 Crore 10%
Rs. 1 Crores to Rs. 2 Crores 15%
Rs. 2 Crores to Rs. 5 Crores 25%
Rs. 5 Crores to Rs. 10 Crores 37%
Exceeding 10 Crores 37%

                        Existing deductions under the Income Tax Act

80C Investment in PPF
– Employee’s share of PF contribution
– NSCs
– Life Insurance Premium payment
– Children’s Tuition Fee
– Principal Repayment of home loan
– Investment in Sukanya Samridhi Account
– ULIPS
– ELSS
– Sum paid to purchase deferred annuity
– Five year deposit scheme
– Senior Citizens savings scheme
– Subscription to notified securities/notified deposits scheme
– Contribution to notified Pension Fund set up by Mutual Fund or UTI.
– Subscription to Home Loan Account scheme of the National Housing Bank
– Subscription to deposit scheme of a public sector or company engaged in providing housing finance
– Contribution to notified annuity Plan of LIC
– Subscription to equity shares/ debentures of an approved eligible issue
– Subscription to notified bonds of NABARD
Rs. 1,50,000
80CCC Amount  deposited in annuity plan of LIC  -
80CCD(1) Employee’s contribution to NPS account (maximum up to Rs 1,50,000) -
80CCD(2) Employer’s contribution to NPS account Maximum up to 10% of salary
80CCD(1B) Additional contribution to NPS Rs. 50,000
80TTA(1) Interest Income from Savings account Maximum up to 10,000
80TTB Exemption of interest from post office, banks etc. Applicable only to senior citizens Maximum up to 50,000
80GG For rent paid when HRA is not received from employer Least of :
– Rent paid minus 10% of total income
– Rs. 5000/- per month
– 25% of total income
80E Interest on education loan Interest paid for a period of 8 years
80EE Interest on home loan for first time home owners Rs 50,000
80CCG Rajiv Gandhi Equity Scheme for investments in Equities Lower of
- 50% of amount invested in equity shares; or
- Rs 25,000
80D Medical Insurance - Self, spouse, children
Medical Insurance - Parents more than 60 years old or (from FY 2015-16) uninsured parents more than 80 years old
- Rs. 25,000
- Rs. 50,000
80DD Medical treatment for handicapped dependent or payment to specified scheme for maintenance of handicapped dependent
– Disability is 40% or more but less than 80%
– Disability is 80% or more
- Rs. 75,000
- Rs. 1,25,000
80DDB Medical Expenditure on Self or Dependent Relative for diseases specified in Rule 11DD
– For less than 60 years old
– For more than 60 years old
- Lower of Rs 40,000 or the amount actually paid
- Lower of Rs 1,00,000 or the amount actually paid
80U Self-suffering from disability:
– An individual suffering from a physical disability (including blindness) or mental retardation.
– An individual suffering from severe disability
- Rs. 75,000
- Rs. 1,25,000
80GGB Contribution by companies to political parties Amount contributed (not allowed if paid in cash)
80GGC Contribution by individuals to political parties Amount contributed (not allowed if paid in cash)
80RRB Deductions on Income by way of Royalty of a Patent Lower of Rs 3,00,000 or income received

Section 10 of Income Tax Act

This section includes all those incomes that do not form the part of total for an individual for a year, for example - allowance for children education, rent allowance, travel allowance, gratuity and so on. The incomes covered under this section are excluded from the calculation, hence known as exempted incomes. 

Section 24 of Income Tax Act

Section 24 of the Income Tax Act 1961 offers leverage to homeowners to claim a deduction of Rs. 2 Lakhs. The amount is Rs. 1, 50, 000 if you are filing returns for the last financial year on the home loan interest, in case the owner or the family resides in the house property. 

Section 54 of Income Tax Act

Under Section 54 the Income Tax Act 1961, HUF or an individual sells a residential property to avail tax exemptions from Capital Gains. The section applies if the capital gains are invested in purchase or construction of the residential property. Taxpayers such as LLP’s, partnership firms, companies or any other association or body cannot claim tax exemption under section 54.

In order to avail the benefit of Section 54 of Income Tax Act 1961, following conditions must be satisfied:

  • Asset should be a long - term capital asset.
  • The asset which is sold should be a residential house. 
  • The seller must purchase a residential house within 1 year before the date of sale.
  • The new residential house must be in India and seller cannot purchase a new residential house abroad and claim exemption.

Section 80 D of Income Tax Act

Two kinds of payments are covered under Section 80D - Medical insurance premium and medical expenditure. Amount paid towards medical insurance or amount paid for the health check - up to the assessee or the whole family (spouse and dependent children) is exempt upto INR 25,000. Similarly, amount paid towards medical insurance premium or preventive health for check - up to parents of the assessee is also exempted upto INR 25,000. 

FAQ about Income Tax Act 1961

  • What is income tax under income tax act 1961?

Ans. Income Tax in India is a tax that you pay to the government on the basis of your income and profit.

  • Who first introduced the Income Tax Act in India?

Ans. Income Tax 1961 was first introduced by James Wilson. 

  • When was Income Tax 1961 passed? 

Ans. Income Tax Act 1961 was passed in India on 1st April 1962. 

  • How many chapters are there in the Income Tax Act 1961?

Ans. According to the official website of the Income Tax Department of India, Income Tax Act 1961 contains a total of 23 chapters and 298 sections. These different sections deal with various aspects of taxation in India.

  • How many sections are there in Income Tax Act 1961?

Ans. According to the official website of the Income Tax Act 1961, Income Tax comprises 298 sections.

  • What is exempted from income tax?

Ans. Any income earned not subjected to income tax is known as exempt income. According to Income Tax Act 1961, there are certain types of income that are exempted from income tax within a financial year. For example - House Rent Allowance, Housing Loan exemption, Leave & Travel Allowance, Transportation Allowance etc. 

  • How is total tax liability calculated?

It is quite easy to calculate: 

Taxable income - tax deductions = Gross tax liability

Then, Gross tax liability - tax credits = Total income tax liability.

  • Define income according to Income Tax Act 1961.

Income includes profits & gains, dividend, voluntary contributions received by a trust, any special allowance or benefit, profits & gains through co-operative society, any winnings from lotteries, puzzles, card games and gifts received.

Basically, this term simply means something that comes in. It doesn’t include the monetary return, but also the value of benefits and perquisites. Anything which can be converted into income is regarded as a source of accrual of income.