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    All About Taxes That are Applied to Personal Income

    Last Updated On 27-05-2021

    Personal Income is subject to Income Tax in India. Every individual is required to exhibit their income and file Income Tax in India. As a taxpayer, it is necessary to understand the taxes applied on personal income and about income tax saving options.

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    What is Income Tax?

    Income Tax is the tax levied by the Government of India on the gross income earned by every individual. It is in accordance with the Income Tax Act, 1961. Resident Indians have to pay taxes for Income earned from India and abroad. Non - Resident Indians have to pay taxes on the Income generated only in India.

    Financial Year and Assessment Year

    Financial Year is the period from 1st April to 31st March. The following year when the Income Tax is calculated is the Assessment year. For example, the Financial Year is from 1st April 2020 - 31st March 2021, and the Assessment Year is from 1st April 2021 - 31st March 2022.

    Sources of Income

    Various sources of Income are accountable for Income Tax. Income from the following sources is considered:

    1. Salary - Salary, leave encashment, etc

    2. House Property - Income generated from a house or any building in the form of rents

    3. Capital Gains - Income from profit earned from capital assets

    4. Business

    5. Other sources

    Deductions

    Expenses towards the following investments and savings are eligible for tax benefits from the income tax. The details are elaborated in Section 80C of the Income Tax Act, 1961. Here are a few expenses that qualify for deductions based on certain terms and conditions.

    1. Investments made on savings schemes such as Equity Linked Savings Scheme, National Savings Certificate, Life Insurance, a guaranteed income plan, Public Provident Fund, etc., qualify for deduction up to ₹1,50,000.

    2. Medical insurance premium

    3. Interest on home loans

    4. Donations made for social welfare

    There are different income tax saving schemes and investments that help you avail of tax benefits under the Income Tax Act.

    Exemptions

    Exemptions include the type of income that is excluded from the Gross Income while calculating Income Tax. It is enlisted in Section 10 of the Income Tax Act. Here are a few examples:

    1. House Rent Allowance

    2. Leave Travel Allowance

    3. Relocation Allowance

    Income Tax Rates

    Tax payers are classified into different categories called Tax Slabs. Each Tax Slab has different tax rates. The Income Tax Department has introduced a ‘New Tax Regime’ for the Assessment Year, AY21-22.

    As per the Old Tax Regime, the tax rates were as follows:

    Income Tax Payable
    Up to ₹2.5 Lakhs Nil
    From ₹2.5 Lakhs to 5 Lakhs 5% of taxable Income+4% Cess
    From ₹5 Lakhs to 10 Lakhs 20% of Income above ₹5 lakhs+4% Cess
    Above ₹10 Lakhs 30% of Income above ₹10 lakhs +4% Cess

    As per the New Tax Regime, the Tax Rates are as follows:

    Income Tax Payable
    From 2.5 Lakhs to 5 Lakhs 5% of taxable Income + 4% cess
    From 5 Lakhs to 7.5 Lakhs 10% of taxable income + 4% cess
    From 7.5 Lakhs to 10 Lakhs 15% of taxable income + 4% cess
    From 10 Lakhs to 12.5 Lakhs 20% of taxable income + 4% cess
    From 12.5 Lakhs to 15 Lakhs 25% of taxable income + 4% cess
    Above 15 Lakhs 30% of taxable income + 4% cess

    However, according to the New Tax Regime, which offers lower rates, the Tax Payer cannot avail of certain deductions and exemptions.

    In addition to the income tax, a surcharge is levied when the total income exceeds ₹5 million. There is also the Health and Education Cess charged at 4% of the Income Tax and Surcharge if applicable.

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    Disclaimer:

    The above note prepared based on our understanding of Income tax laws at broad level. Clients are advised to consult their tax consultant before taking any tax position.

    Tax benefits under sec 80(c) & 80(d). Tax benefits are as per the Income Tax Act, 1961, & are subject to amendments made thereto from time to time. Please consult your tax consultant for more details. Cash payment is not eligible for tax benefit under Sec 80D of Income Tax Act, 1961.

    The aforesaid article presents the view of an independent writer who is an expert on financial and insurance matters. PNB MetLife India Insurance Co. Ltd. doesn’t influence or support views of the writer of the article in any way. The article is informative in nature and PNB MetLife and/ or the writer of the article shall not be responsible for any direct/ indirect loss or liability or medical complications incurred by the reader for taking any decisions based on the contents and information given in article. Please consult your financial advisor/ insurance advisor/ health advisor before making any decision.

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