Everyone who earns or gets an income in India is subject to income tax. (Yes, be it a resident or a non-resident of India ). Also read our article on Income Tax for NRIs. Your income could be salary, pension or could be from a savings account that’s quietly accumulating a 4% interest. Even, winners of ‘Kaun Banega Crorepati’ have to pay tax on their prize money.
For simpler classification, the Income Tax Department breaks down income into five heads:
| Head of income | Nature of income covered |
|---|---|
| Income from Salary | Income from salary and pension are covered under here |
| Income from Other Sources | Income from savings bank account interest, fixed deposits, winning KBC |
| Income from House Property | This is rental income mostly |
| Income from Capital Gains | Income from sale of a capital asset such as mutual funds, shares, house property. |
| Income from Business and Profession | This is when you are self-employed, work as a freelancer or contractor, or you run a business. Life insurance agents, chartered accountants, doctors and lawyers who have their own practice, tuition teachers |
The calculation of income tax in India is done based on applying different tax rates to different annual income groups, which are called slabs. For calculating income tax, first of all, actual annual taxable income is calculated as per the provisions of various sections in the Income Tax Act, providing for different income inclusions and exclusions for the same.
| Income range per annum | New Slabs for FY 2020-21, AY 2021-22 | Old Slabs, mandatory upto FY 2019-20 and optional from FY2020-21 |
|---|---|---|
| Up to Rs. 2.5 lakhs | No tax | No tax |
| Above Rs. 2.5 lakhs to Rs. 5 lakhs | 5% | 5% |
| Above Rs. 5 lakhs to Rs. 7.5 lakhs | 10% | 20% |
| Above Rs. 7.5 lakhs to Rs. 10 lakhs | 15% | 20% |
| Above Rs. 10 lakhs to Rs. 12.5 lakhs | 20% | 30% |
| Above Rs. 12.5 lakhs to Rs. 15 lakhs | 25% | 30% |
| Above Rs. 15 lakhs | 30% | 30% |
| Rebate under section 87(A) | 100% tax rebate subject to maximum of Rs. 2,500 available to resident individual whose total income does not exceed Rs. 3.5 lakhs | 100% tax rebate subject to maximum of Rs. 2,500 available to resident individual whose total income does not exceed Rs. 3.5 lakhs |
Cess at 4% of tax applicable in all cases. Surcharge at 10% for income above Rs. 50 lakhs and at 15% for income above Rs. 1 crore.
A rebate of Rs. 12,500 is available under the old income tax regime, whereas the same rebate is available in the new income tax regime if the annual taxable income does not exceed Rs. 5 lakhs.
The total reduction in tax liability will range from Rs. 25,000 for a person earning Rs. 7.5 lakhs per annum to Rs. 75,000 for a person earning Rs 15 lakhs or more per annum under the new tax slabs. However, the actual savings will be lower if one were to include the impact of fore-going exemptions under the new tax regime.
| Income range per annum | New Slabs for FY 2020-21, AY 2021-22 | Tax Rate FY 2019-20, AY 2020-21 |
|---|---|---|
| Up to Rs. 3 lakhs | No tax | No tax |
| Above Rs. 3 lakh to Rs. 5 lakhs | 5% | 5% |
| Above Rs. 5 lakhs to Rs. 7.5 lakhs | 10% | 20% |
| Above Rs. 7.5 lakhs to Rs. 10 lakhs | 15% | 20% |
| Above Rs. 10 lakhs to Rs. 12.5 lakhs | 20% | 30% |
| Above Rs. 12.5 lakhs to Rs. 15 lakhs | 25% | 30% |
| Above Rs. 15 lakhs | 30% | 30% |
| Rebate under section 87(A) | 100% tax rebate subject to maximum of Rs. 2,500 available to resident individual whose total income does not exceed Rs. 3.5 lakhs | 100% tax rebate subject to maximum of Rs. 2,500 available to resident individual whose total income does not exceed Rs. 3.5 lakhs |
Cess at 4% of tax applicable in all cases. Surcharge at 10% for income above Rs. 50 lakhs and at 15% for income above Rs. 1 crore.
The rebate of Rs. 12,500 is applicable for all income under the old income tax regime. Whereas, it is available only for the income upto Rs. 5 lakhs under the new income tax regime.
| Income range per annum | New Slabs for FY 2020-21, AY 2021-22 | Tax Rate FY 2019-20, AY 2020-21 |
|---|---|---|
| Up to Rs. 2.5 lakhs per annum | No tax | No tax |
| Up to Rs. 5 lakhs per annum | No Tax | No Tax |
| Above Rs. 5 lakhs to Rs. 7.5 lakhs | 10% | 20% |
| Above Rs. 7.5 lakhs to Rs. 10 lakhs | 15% | 20% |
| Above Rs. 10 lakhs to Rs. 12.5 lakhs | 20% | 30% |
| Above Rs. 12.5 lakhs to Rs. 15 lakhs | 25% | 30% |
| Above Rs. 15 lakhs | 30% | 30% |
Cess at 4% of tax applicable in all cases. Surcharge at 10% for income above Rs. 50 lakhs and at 15% for income above Rs. 1 crore.
| Tax Head | Firms | Domestic Companies |
|---|---|---|
| Income Tax for turnover upto Rs. 400 crores | 30% | 25% |
| Income Tax for turnover above Rs. 400 crores | 30% | 30% |
| Surcharge as % of income tax | 12% of tax in case the total income exceeds Rs. 1 crore |
|
| Cess as % of tax and surcharge | 3% of tax plus surcharge | 3% of tax plus surcharge |
The above table highlights the latest tax slabs for the firms and domestic companies. The tax treatment in both the cases differs from the tax treatment of individuals and HUFs.
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