Income Tax In India: How To E-File, Tax Collection, Advance Tax & More
Income tax is a direct tax that is imposed on the income earned during an FY by individuals or businesses. Earnings subject to income tax can come from different sources such as salaries, interest, rent, etc.
The rate of income tax and the income slabs are decided by the Government of India. Oftentimes, the Central Government offers income tax rebates to help the lower-income group of the country. Furthermore, to collect long-term funds, taxpayers are provided with income tax incentives.
Who Should Pay Income Tax?
Individuals with a gross annual income of more than Rs. 2,50,000 in a financial year are required to file income tax returns. For senior citizens, this limit exceeds Rs. 3,00,000, and for super senior citizens, it exceeds Rs. 5,00,000.
Here are the entities that need to pay taxes and file their ITR:
- Artificial Juridical Persons
- Association of Persons (AOPs)
- Companies
- Corporate firms
- Hindu Undivided Families (HUFs)
- Local authorities
- Body of Individuals (BOIs)
The Finance Minister of India announced the updated income tax slab in the Union Budget 2020. However, it is completely up to the taxpayers whether they want to opt for the new regime or file their taxes according to the old one.
Income Tax Slab for FY 2020-21
| Income Tax Slabhttps://navi.com/blog/income-tax-slabs/ | Tax Rate |
| Up to Rs. 2,50,000 | Nil |
| From Rs. 2,50,001 to Rs. 5,00,000 | 5% |
| From Rs. 5,00,001 to Rs. 7,50,000 | 10% |
| From Rs. 7,50,001 to Rs. 10,00,000 | 15% |
| From Rs. 10,00,001 to Rs. 12,50,000 | 20% |
| From Rs. 12,50,001 to Rs. 15,00,000 | 25% |
| Income above Rs. 15,00,001 | 30% |
Advance Tax
The amount of income tax a taxpayer pays in advance rather than making a lump-sum payment at the end of a year is called advance tax. The Income Tax Department decides the due dates for paying the installments of advance tax, and one has to pay strictly according to that.
Find the tabular representation of the due dates below:
| Due dates | Advance Tax Payable |
| On or before 15th June | 15% of advance tax |
| On or before 15th September | 45% of advance tax |
| On or before 15th December | 75% of advance tax |
| On or before 15th March | 100% of advance tax |
Income Tax Returns
Taxpayers need to file income tax returns each year via one of the ITR forms prescribed by the Income Tax Department. However, to compute the tax payable or refunds, one needs Form 16 provided by the employer and any proof of investment.
In order to claim an income tax refund, every taxpayer is required to file the ITR first. It is essential to choose the right income tax return form as per the income assessment group you belong to. Listed below are different ITR forms you need to choose from:
ITR 1
For those who have income from salaries, one house property, and other sources, for instance, income from interest.
ITR 2
For individuals and HUFs who do not have income from any profession or business
ITR 2A
For individuals and HUFs who do not have income from a business, profession, and capital gains and who do not possess foreign assets
ITR 3
For individuals or HUFs earning income by carrying out a proprietary business or by practising a profession
ITR 4
For taxpayers who have chosen presumptive income scheme under sections 44AE, 44ADA and 44AD and whose income does not exceed Rs. 50 lakh
ITR 5
For firms, limited liability partnerships, co-operative societies, association of persons, body of individuals, artificial juridical persons, and local authorities
ITR 6
For all companies except the ones that claim tax exemption as per Section 11
ITR 7
For persons that need to submit their returns under Section 139(4A), 139(4B), Section 139(4D), or 139 (4C)
ITR-V
The Income Tax Department generates this form to verify whether the e-filing of taxpayers is legitimate or not. ITR-V is short for Income Tax Return Verification.
Apart from one of the forms from the abovementioned list, an individual has to submit bank statements, Form 16, along with a copy of the previous year’s tax return to file the ITR.
E-Filing of Income Tax
With the advent of technological advancements, taxpayers can easily e-file their income tax returns using the online portal of the IT Department. By using the online facility, you can avoid the tedious documentation procedure and save your time as well. All you have to do is log in to the online portal using your credentials and e-file your income tax return.
Other than filing ITR, you can also use the website for checking outstanding tax demand, ITR – V receipt status, CPC refund status, etc. You will also find the income tax calculator over there to calculate your tax liability.
Income Tax Calculation
The calculation of income tax can be completed manually or using an income tax calculator. Remember, the tax amount you will be paying depends on the tax slab you belong to. For salaried individuals, salary income basically includes the basic pay, transport and house rent allowance, and special or any other allowances.
You must note that certain components of the salary are tax exempt, such as reimbursement of telephone bills, leave travel allowance, etc. If the house rent allowance is a part of your salary, and you are staying in a rented property, you can claim tax exemption. Furthermore, every individual is eligible for a standard deduction of up to Rs.50,000.
Income Tax Collection
The government collects these taxes in three main ways:
- Taxes deducted at source (TDS) which gets deducted from the monthly salary
- Voluntary payment by taxpayers into allotted banks. Such payments include self-assessment tax and advance tax
- Taxes collected at source (TCS)
From the collection of income tax to expenditure tax, everything is monitored by the IT Department. Apart from that, the IT Department also takes part in the prevention and detection of tax avoidance and monitors different Finance Acts. Note that the policy and planning of taxes are mainly regulated by the Central Board of Direct Taxes (CBDT).
Also read: https://navi.com/blog/best-tax-saver-investments/
Income Tax Refund
In case an individual pays (as income tax) more than what he/she is liable for, the excess amount can be claimed. This additional amount is known as an income tax refund. For instance, your TDS liability is Rs. 40,000 for a particular FY, and the employer has deducted Rs. 45,000 instead. In that case, you can claim a refund of Rs. 5000 by filing ITR.
Note that income tax refund can also be claimed in case one forgets to mention his/her tax-saving investments. In order to check the refund status, individuals can use the official website of the Income Tax Department.
Income Tax Saving Investments
To reduce your tax liability as much as possible, make sure you declare all your tax-saving investments. These may include your Life Insurance premiums, investments in ELSS Mutual Funds, PPF, etc.
In order to encourage savings amongst individuals and reduce their tax liability, the Income Tax Department extends various deductions from their taxable income. Have a look at some of the deductions available:
Section 80C
- Available to individuals and HUF
- Allows a maximum deduction of Rs. 1.5 lakh.
Section 80CCC
- Taxpayers can claim deductions for payments made to a Life Insurance company under an approved pension plan.
- The pension policy should be up to Rs. 1.5 lakh.
Section 80CCD
- Deductions are for contributions towards the New Pension Scheme by the employer and the taxpayer.
- Generally, the total deduction available is Rs. 1.5 lakh plus Rs. 50,000 under Section CCD(1b) in case of self-contribution to NPS or Atal Pension Yojana.
Apart from these, there are deductions available under Section 80D, 80DDB, 80E, 80U, etc. To reap benefits, individuals need to mention these deductions in the ITR form while e-filing their income tax returns.
Final Word
With the Central Government’s Digital India initiative, the entire process of tax collection, return filing, checking refund status, etc., has become much more convenient. Even if you are new to this, you can easily obtain relevant information from the official portal of the Income Tax Department. Make sure to go through the tax slabs before filing your ITR.
Frequently Asked Questions
Ans: Yes, you can claim double taxation relief if your income is taxed in India as well as abroad. Double taxation relief under Section 90 is available to help individuals avoid paying too much tax for the same income. Note that an agreement has to be signed by both countries, and there are two methods through which the relief may be granted- the tax relief method and the exemption method.
Ans: You can find out if the tax amount deposited by you is received by the bank via the official site of the Income Tax Department. Use your Form 26AS and check your tax credit using the site. Alternatively, visit the Tin – NSDL website and click on ‘Challan Status Enquiry’ for the same.
Ans: No, agricultural income is not taxable as per Section 10(1) of the IT Department since it is not considered a part of a person’s total income. However, if the agricultural income exceeds Rs. 50,000 on a yearly basis, the state government might impose a tax on it.
Ans: Yes, the income tax will be imposed even on income earned in cash. The tax is charged at a flat rate of 60% if the cash is unexplained. Furthermore, you will be able to avail of tax benefits in that case.
Ans: Taxable income is the adjusted gross income or the income of a person that is used to calculate the taxes owed by him/her. Exempt income can be defined as the amount of income that is not subject to income tax. According to Section 10 of the ITA, 1961, certain types of income like HRA, travel allowance, etc., are not subject to income tax.
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This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
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