Latest Update
The last date of income tax return filing for FY 2020-21 (AY 2021-22) is extended to 31st March 2022. For audit cases, the last due date is 15th February 2022.
Hello, in this post we will discuss about the Income Tax Act.
We will cover the following.
- What is the Income Tax?
- Who can pay income tax?
- Taxability for different heads of salary income
- Income tax slab for salary
- Points to note as an employer calculating IT
- Sample calculation of income tax for salaried income
- Types of Income-tax collection in India
- List of income tax deduction
What is the Income Tax?
It is the tax levied on the source or income of any individual or entity having earned the income in India, according to the Income Tax Act of 1961. It is applicable to all residents or non-residents who earn an income within the country.
Who can pay income tax?
It is classified into different categories, who can pay –
- Hindu undivided family (HUF)
- Firms
- Companies
- Associations of persons
- Individuals
- Artificial judicial persons
- Local authorities
- Body of individuals
The income tax return is necessary to file for individuals whose gross income is over Rs.2.5L every financial year. And the limits exceed up to Rs.3L for senior citizens, and for super senior citizens Rs.5L. Non – residential persons are also liable to pay tax on their income, i.e, earned in India.
Taxability for different heads of salary income
| Heads of salary | Taxability |
|---|---|
| Basic | Fully taxable |
| Dearness Allowance (DA) | Fully taxable |
| House rent allowance (HRA) | Partially taxable |
| Conveyance | Fully taxable |
| Other Allowance | Partially taxable |
Income tax slab for salary
| General (<60 yrs) | Senior Citizen (60-80Yrs) | Super Senior citizen( 80yrs and above) | |
|---|---|---|---|
| Exempt | 0-2.5 lakh | 0-3 lakh | 0-5 lakh |
| 5% | 2.5 – 5 lakh | 3-5 lakh | Nil |
| 20% | 5-10 lakh | 5-10 lakh | 5-10 lakhs |
| 30% | >10 lakh | >10 lakh | >10Lakhs |
Additional Cess of 4% to calculate the above amount.
Points to note as an employer calculating Income Tax
As an employer, you will be calculating income tax and deducting TDS for employees for their salaried income. If they have declared any other source of income, then you have to consider that for IT calculation and TDS deduction as well.
In order to ensure you are properly doing the processes, here are a few things you have to keep in mind:
- You should be aware of the various limits and exemptions provided for Salary income (and others) and calculate tax accordingly.
- You have to provide proper income and exemption details so that it matches with the employees’ actual salary.
- Need to collect declaration and proof of investment from employees for any investment declared by the employees.
- You have to maintain the declaration provided by employees in Form 12BB.
- You have to deduct the correct TDS from the employees based on their income (From salary or other declared sources)
- TDS deduction has to be shown from the very first month of the financial year (or employee joining) even if the TDS amount is zero to show proof of income.
- You have to credit the deducted TDS to proper PAN. I.e., you have to verify the PAN of each employee so that there is no mismatch.
- Once TDS filing is done, you have to provide Form 16 for your employees so that they will be able to get credit for their income and exemptions.
Sample Income Tax calculation for salaried income:
Let us consider an employee who is living in Bangalore and paying a rent of Rs. 7500 per month.
| Heads of salary | Income | Taxable income |
|---|---|---|
| Basic | 25000 | 25000 |
| Dearness Allowance (DA) | 15000 | 15000 |
| House rent allowance (HRA) | 10000 | 6500* |
| Conveyance | 5000 | 5000 |
| Special Allowance | 5000 | 5000 |
* HRA calculation is based on rent paid and place of living.
calculation:
- 40% of (Basic + DA) = 16000
- Rent – 10% of (Basic + DA) = 3500
- Actual HRA = 10000
Consider the least value for exemption.
So, taxable HRA = Actual HRA – Least value
= 10000 – 3500 = 6500
Taxable income = 56,500.
Now, we will consider statutory deductions as applicable. Ex: PF = 1800; PT = 200.
Total taxable income after deduction = 56,500 – 200 (PT) = 56,300.
Yearly taxable income = 56,300*12 = 6,75,600
A standard deduction of 40,000 (FY 2018-19) is given for all employees.
6,75,600 – 40000 = 6,35,600
Now, we will consider PF under 80C.
6,35,600 – (1800*12)[PF]
= 6,14,000
Now, we will calculate tax by applying the Income Tax slab.
| Tax slab | Taxable Amount | Tax |
|---|---|---|
| 0 – 2.5L (0%) | 250000 | 0 |
| 2.5 – 5L (5%) | 250000 | 12500 |
| 5 – 6.14L (20%) | 1,14,000 | 22800 |
| Total | 6,14,000 | 35300 |
Income Tax = 35,300
Cess = 4% of IT = 1412
Total Income Tax = 36,712 (Income Tax + Cess)
TDS = 36, 712 / No. of TDS deduction months
Ex: 36, 712 / 12 = 3060 (considering the entire financial year).
TDS = 3060 per month.
Types of Income-tax collection in India
Income tax is collected by the Indian government in three parts are-
- TDS (Tax Deducted at Source) is deducted from your monthly income before paying you.
- Voluntary payment such as – Advance tax and Self-assessment tax.
- TCS (Tax Collected at Sources) is collected by the seller at the time of sales of goods.
List of income tax deduction
Section 80C –
Deduction only for individuals and HUF. This section allows for some investments. Such as NSC (National Saving Certificate), and it is exempted from taxation up to Rs. 1.5 Lakh.
Section 80D –
Deduction on health insurance premium paid, in case of individuals, spouse, dependent child or parents. Up to Rs.15,000 and in addition deduction of Rs.5000 is applicable if the insured person is a senior citizen.
Section 80E –
Deduction on interest paid on education loan for in India.
Section 80U –
Deduction on income tax. That applies to disabled people when they show the desirable certificate. Up to Rs. 1 Lakh can be exempted, but it depends upon the disability.
Section 80G –
This section allows taxpayers to claim a deduction for various contributions, which are made as a donation, or donated to any charity.
For more details you can go through our (TCS) Tax Collected at Sources blogs.
Well, this brings us to the end of this post on the Income Tax Act. If you have any questions, drop them in the comment section below.