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Income Tax: Types, Slab Rates and Heads

Income Tax is a type of tax that you directly pay to the government depending upon the income or profit you have earned during a financial year. The government further utilizes the received income tax amount in maintaining and developing the country’s infrastructure such as schools, hospitals etc.

Income Tax India

 

1. Types of Taxes

In India, there are two types of taxes in India and they are:

i. Direct Taxes

Direct taxes are those taxes that are directly borne and paid by the individual person to the government. One common example of direct tax is Income tax. These taxes are known as direct taxes as there is no involvement of intermediary source and it is directly paid to the government.

ii. Indirect Taxes

Indirect taxes are those taxes that are passed on to the intermediary sources for the payment.

GST is one such Indirect tax. For Example: Such as Taxes paid by Customer at the time of buying the goods to Retailer, Retailer to Manufacture and Manufacture to Govt.

2. Definition of a person under the Income Tax Act

As per Section 2(31) of Income Tax Act a person includes:

  • Individual
  • BOI (Body of Individuals)
  • HUF (Hindu Undivided Family)
  • AOP (Association of Persons)
  • Companies
  • Firms
  • Any Local Authorities
  • All Artificial Juridical Persons

3. What are the Different Income Tax Slab Rates?

Age and Income are the two factors that define Income tax slab rates. Here is the income slab rate:

i. Individuals and HUFs below 60 years of age

Income Tax Slab Income Tax Rates
Less than 2.5 lakhs INR Not applicable
Greater than 2.5 lakhs INRbut less than 5 lakhs INR 5% of the amount exceeding 2.5 lakhs INR
Greater than 5 lakhs INR but less than 10 lakhs INR 20% of the amount exceeding 5 lakhs INR
Greater than 10 lakhs INR 30% of the amount exceeding 10 lakhs INR

ii. Individuals above 60 years of age (Senior Citizen)

Income Tax Slab Income Tax Rates
Less than 3 lakhs INR Not Applicable
Greater than 3 lakhs INR but less than 5 lakhs INR 5% of the amount exceeding 3 lakhs INR
Greater than 5 lakhs INR but less than 10 lakhs INR 20% of the amount exceeding 5 lakhs INR
Greater than 10 lakhs INR 30% of the amount exceeding 10 lakhs INR

iii. Individuals above 80 years of age

Income Tax Slabs Income Tax Rates
Less than 5 lakhs INR Not Applicable
Greater than 5 lakhs INR but less than 10 lakhs INR 20% of the amount exceeding 5 lakhs INR
Greater than 10 lakhs INR 30% of the amount exceeding10 lakhs INR

iv. Co-operative Societies

Income Tax Slabs Income Tax Rates
Less than 10,000 INR 10% of the income
Greater than 10,000 INR but less than 20,000 20% of the amount exceeding 10,000 INR.
Greater than 20,000 INR 30% of the amount exceeding 20,000 INR.

v. Foreign Companies

On any income received by a foreign company 40% income tax is applicable according to the Income-tax department.

vi. Domestic Companies

There are two tax slab rate for domestic companies, they are:

Turnover Income Tax Rates
Less than 50 Crore INR 25% of Income
More than 50 Crore INR 30% of Income

vii. Local authorities

The Income tax rates on local authorities is 30% as per Income Tax Rules1962.

4. How Income Tax is collected by the government?

The government of India uses the below-mentioned three ways to collect the Income tax:

5. Different Heads under Income Tax

Below listed are the major income heads under Income Tax from which the taxes are deducted.

i. Income from Salaries

This head will be applicable to those employees who are falling under section 15 of the Income Tax Act. It is important for an employer to disclose every single detail regarding the tax deductions and the net paid income to his/her employees in Form 16.

ii. Income from Capital Gains

According to this head, any amount of income earned by a taxpayer from the sale of capital assets is taxable.
Note: For the purpose of Income Tax act capital assets includes lands, buildings, bonds, debentures, equities, jewellery, etc.

iii. Income from House Property

According to this head, the income tax will be levied on the rental income earned by a taxpayer by renting out his house. It shall be noted that the property cannot be used for professional/business purposes under this head.

iv. Income (Profits) from Business

According to section 30 to 43D of the Income Tax Act, any profits earned by a taxpayer either from business or through rendering professional services are considered to be taxable under this head. This is the reason why this head is also known as Profits and Gains from Business or Profession.

v. Income from Other Sources

Any income received by a taxpayer other than the above-listed sources falls under this head. Here is the list of income sources that comes under the head of other sources (This List is not exhaustive):

  1. Lottery
  2. Horse race winnings
  3. Dividend Income
  4. Pension received after the death of the pensioner
  5. Gifts received
  6. Interest earned and accrued