Complete Guide on Income Tax in India – Old vs New | AU Small Finance Bank
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Know About Income Tax in India

    Income tax is the percentage of your income, which you are liable to directly pay to the Government. The Government uses such tax to make developments in the field of infrastructure, health, rural, defence, etc.  and pay central and state government employees.

    The Income Tax Act of India passed in 1961 governs the provisions for income tax and applicable deductions. The law regulating income tax in India has been amended multiple times since 1961 to take care of inflation and socio-economic situations.

     

    Taxpayers and tax rates:

    Income tax slab rates are defined as per the earnings of the taxpayers. The tax rule applies to all residents whose income exceeds INR 2.5 lakh annually. The highest tax rate is 30% plus 4% education cess if the income is more than INR 10 lakh p.a.

    The tax is payable by the following:

    • Individuals
    • Hindu Undivided Families (HUFs)
    • Body of Individuals (BOI)
    • Association of Persons (AOP)
    • Companies
    • Firms

    During the Union Budget 2020, the finance minister announced a new tax slab, which is optional. It is completely a taxpayer’s choice whether he/she wants to opt for a new or old tax regime. The Taxpayer can evaluate both the regimes and then make a choice.

     

    The following table shows the applicable tax slab rates as per the new and old tax regime

    Income Tax Slabs

    Old Tax Regime

    New Tax Regime

    Individuals and HUF under the age of 60 years

    Individuals & HUF above the age of 60 years but less than 80 years

    Individuals above the age of 80 years

    Applicable for all Individuals and HUF

    INR 0.0 - INR 2.5 lakh

    0

    0

    0

    0

    INR 2.5 - INR 3.00 lakh

    5%

    0

    0

    5%

    INR 3.00- INR 5.00 lakh

    5%

    5%

    0

    5%

    INR 5.00 - INR 7.5 lakh

    20%

    20%

    20%

    10%

    INR 7.5 - INR 10 lakh

    20%

    20%

    20%

    15%

    INR 10.00 lakh - INR 12.50 lakh

    30%

    30%

    30%

    20%

    INR 12.5 lakh - INR 15.00 lakh

    30%

    30%

    30%

    25%

    More than INR 15 lakh

    30%

    30%

    30%

    30%

    With the New Tax Regime, several exemptions and deductions have been removed. Some of them include house rent allowance, leave travel allowance, professional tax, deductions u/s 80TTA and 80TTB, among others. On the other hand, taxpayers can avail offers, deductions and exemptions under the Old Tax regime.

    Surcharge at below rates is also applicable under old and new regime if income exceeds INR 50 lakh p.a.

    Income tax Slab

    Surcharge Rate

    INR 50 lakhs to INR 1 crore

    10%

    INR 1 crore to INR 2 crore

    15%

    INR 2 crore to INR 5 crore

    25%

    INR 5 crore to INR 10 crore

    37%

    More than INR 10 crore

    37%

     

    Example of Income Tax Computation as per the New and Old Tax Regime

    Let’s understand the income tax computation as per the Old and New Tax regime. Suppose an individual’s annual income is INR 10,00,000, so here’s how the tax calculation would be:

    Particulars

    Old Tax Regime (Rs)

    New Tax Regime (Rs)

    Gross Income

    10,00,000

    10,00,000

    Deductions:

       

    U/Sec: 80C

    1,50,000 

    -

    U/Sec: 80D

    25,000 

    -

    U/Sec: 24(b)

    75,000 

    -

    Taxable Income

    7,50,000

    10,00,000

     
     

    Old Tax Regime

    New Tax Regime

    Income Tax slab

    Tax Rate

    Tax

    Tax Rate

    Tax

    Up to INR 2,50,000

    0

    0

    0

    0

    Froom INR 2,50,000 to INR 5,00,000

    5%

    12,500

    5%

    12,500

    From INR 5,00,000 to INR 7,50,000

    20%

    50,000

    10%

    25,000

    From INR 7,50,000 to INR 10,00,000

    -

    -

    15%

    37,500

    Education Cess

    4%

    2500

    4%

    3000

    Total Tax Payable

     

    65,000

     

    78,000

    Whether you want to opt for a New or Old Tax Regime, it is recommended that you do a comparative analysis before you file your taxes.

     

    How is the income tax collected?

    The Government collects income tax in India in majorly three ways:

     

    1. Taxes Deducted at Source or TDS

    TDS, as the name implies, is the tax deducted at the source itself. For example, if you are a salaried employee, TDS will be deducted from your salary and given to the government as per your income tax slab.

    Apart from salary, TDS is also deducted from rent income, interest payments, commission, professional fees, etc. Depending on the entity deducting TDS, you will receive Form 16 or Form 16A with information about the deducted tax, which you will need while filing your income tax returns.

     

    2. Taxes Collected at Source or TCS

    Sellers of goods collect TCS from buyers. Section 206C of the IT Act details all the goods for which TCS is applicable. The TCS rates are dependent on the product sold.

    Note that here the seller is not paying any tax but collecting it from the buyers and passing it on to the government. Post collection of TCS, Sellers are required to issue the certificate in Form 16A with information about the collected tax, which you will need while filing your income tax returns.

     

    3. Online or offline tax payments

    While the TDS is deducted at source and TCS collected by goods sellers, there are other types of taxes like Regular Assessment Tax, Self-Assessment Tax, and Advance Tax that you might be required to pay to the government online or offline using Challan 280.

    You can visit the TIN NSDL website to pay these taxes online or pay the same offline at one of the designated bank branches enlisted by the IT department.


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