Income Tax Guide for Students
Here is a guide on Indian income tax. Continue reading to learn the fundamentals of income tax, its calculation, and income classification. In accordance with the money that these individuals and enterprises earn or the profits they create, the government imposes income taxes on them. To determine how much income tax must be paid, both individuals and corporations are obliged to file an income tax return each year.
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How the income tax system works
- The term “taxable income” refers to earnings that must be taxed. Taxable income is total income less all allowed deductions and exemptions. According to the applicable income tax rate, the income tax is computed.
- At various levels, different income tax rates might be applicable. The rate of taxation varies from taxpayer to taxpayer. In other words, the rates and rules that apply to income taxes for businesses and individual taxpayers may vary. In most nations, businesses typically pay a fixed tax rate known as corporate tax.
- The amount of taxable income a person earns in a given year determines how much income taxes they are required to pay. An individual’s income tax rate varies based on how much money they make annually. The various ranges of an individual’s income that determine the proper income tax rate are known as tax brackets.
- The personal tax rate is typically progressive in that it only applies to a new unit of income and increases in line with income.
- Along with taxes on income earned by individuals and organizations, investment income is additionally subject to capital gains taxes. Lower capital gains taxes encourage investment.
Basics of Indian income tax
The Income Tax Act of 1961 sets the rules for income tax collection in India. This Act establishes a number of classes for various people or assesses. A person or assesses for purposes of this Act includes:
- One individual
- The Hindu Undivided Family (HUF)
- Association of Persons [AOP]
- Any additional assesses as defined by this Act
- A business
Income classification under income tax
- Taxes are levied on salaries, benefits, and pensions.
- Rental revenue from residential property falls under this type of taxation.
- Profits and gains from business or profession – This tax bracket applies to income from any type of business or profession.
- Gains from the sale of capital assets, including mutual funds, property, homes, and so on, are taxable.
- earnings from unrelated sources Income that is taxable but not subject to taxation under the other four categories is subject to this category of taxation. For instance, interest on savings accounts, fixed deposit interest, lottery prizes, etc.
2023–24 income tax rates
| The new tax system’s income tax brackets for the fiscal years 2023–24 | |
| Income tax slabs (In Rs) | Income tax rate (%) |
| Between 9,00,001 and 12,00,000 | 15% |
| Between 0 and 3,00,000 | 0 |
| Between 6,00,001 and 9,00,000 | 10% |
| Between 12,00,001 and 15,00,000 | 20% |
| Between 3,00,001 and 6,00,000 | 5% |
| Above 15,00,001 | 30% |
The following differences exist between the proposed new tax regime for FY 2023–2024 and the current new tax regime (which is in place until FY 2022-23):
- The fundamental exemption amount has gone enhanced from Rs 2.5 lakh to Rs 3 lakh.
- Instead of the previous six income tax slabs, there are now only five.
- The Section 87A tax credit’s taxable income cutoff point has increased from Rs. 5 lakhs to Rs. 7 lakhs. Tax refund increased from Rs 12,500 to Rs 25,000 by a factor of four.
- The maximum surcharge rate was reduced from 37% to 25% under the new tax structure. A standard deduction of Rs. 50,000 was introduced for employees and pensioners beginning in the fiscal year 2023–2024.
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