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BASICS OF INCOME TAX |
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The Indian income tax act is like a maze - full of sections, provisions, exceptions, deductions etc. Before proceeding on any study of the law, it is critical to understand the fundamentals of the subject. |
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What is income tax ? |
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Income tax is a tax that is levied on income earned by the individual. It is governed by the 'Income Tax Act, 1961' |
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Who should pay income tax ? |
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All persons covered under the income tax act will have to pay income tax on the income earned by them. These persons are technically refered to as "assessees". The following are assessees under the Income Tax law: |
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- An individual
- A Hindu undivided family
- A company
- A firm
- An association of persons or body of individuals
- A local authority
- Other artificial juridical persons
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Is there any other term that I should know with reference to income tax ? |
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Lots of terms, but for the time being, there are 2 important terms - "previous year" and "assessment year." |
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'Assessment year' (A.Y) refers to the financial year starting from 1st of April to 31st of March |
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'Previous year' (P.Y) refers to the financial year preceding the 'assessment year'. The total income of every person earned during the previous year (mentioned above) shall be taxable in the assessment year. In other words, previous year is the same as the current financial year. |
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Example: Raju has income of Rs.1,00,000 on 1st September 2005. The P.Y is 1st April 2005 - 31st March 2006, the corresponding A.Y in which he would be liable to pay tax is 1st April 2006 - 31st March 2007 |
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What is my tax rate ? |
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The Income tax Act provides different rates for different classes of persons. The income would be taxable at rates specified for different individuals for that particular assessment year. |
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(Click here For tax rates) |
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I - Slab rates applicable for AY 2007-08
Rates for male individuals (less than 65 years), HUFs, AOP and BOI.
| Income upto Rs. 1,00,000 (Basic exemption limit) |
NIL |
| Income above Rs. 1,00,000 upto Rs. 1,50,000 |
10% |
| Income above Rs. 1,50,000 upto Rs. 2,50,000 |
20% |
| Income above Rs. 2,50,000 |
30% |
The rates for women assessees (less than 65 years)
| Income upto Rs. 1,35,000 (Basic exemption
limit) |
NIL |
| Income above Rs. 1,35,000 upto Rs. 1,50,000 |
10% |
| Income above Rs. 1,50,000 upto Rs. 2,50,000 |
20% |
| Income above Rs. 2,50,000 |
30% |
Rates for senior citizens (more than 65 years)
| Income upto Rs. 1,85,000 (Basic exemption limit) |
NIL |
| Income above Rs. 1,85,000 upto Rs. 2,50,000 |
20% |
| Income above Rs. 2,50,000 |
30% |
- Note 1 - Surcharge @10% (on tax) will be applicable when your total income exceeds Rs.10,00,000.
- Note 2 - Education cess @ 2% (on tax + surcharge) will be applicable on all levels of income.
Some of the other rates are:
| Long term capital gains on shares and securities listed
on a recognized stock exchange |
Nil% |
| Short term capital gains on the above |
10% |
| Long term capital gains on other assets |
10%+indexation OR 20% without indexation |
| Short term capital gains on other assets |
Normal rates |
Securities transaction rates
| Details of the transaction |
Person |
Rate |
| Delivery based purchase of an equity Share in a company or the units of an equity fund entered into a recognised stock exchange |
Buyer |
0.125% |
| Delivery based purchase of an equity share in a company or the units of an
equity fund entered into a recognised stock exchange |
Seller |
0.125% |
| Non delivery based sale of equity share in a company |
Buyer |
0.025% |
| Value of transaction in derivatives |
Buyer |
0.017% |
| Sale of units of an equity mutual fund to the fund |
Seller |
0.25% |
Special rates for other income
S.No. |
INCOME DETAILS |
RATES OF TAX |
1 |
Income arising from speculative activities |
30% |
2 |
Income earned from Betting, Horse races, Winnings from
Lotteries or Crossword puzzles etc. |
30% |
Rates of cost inflation index
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F.Y |
C.I.I |
| 1 |
1981 - 1982 |
100 |
| 2 |
1982 - 1983 |
109 |
| 3 |
1983 - 1984 |
116 |
| 4 |
1984 - 1985 |
125 |
| 5 |
1985 - 1986 |
133 |
| 6 |
1986 - 1987 |
140 |
| 7 |
1987 - 1988 |
150 |
| 8 |
1988 - 1989 |
161 |
| 9 |
1989 - 1990 |
172 |
| 10 |
1990 - 1991 |
182 |
| 11 |
1991 - 1992 |
199 |
| 12 |
1992 - 1993 |
223 |
| 13 |
1993 - 1994 |
244 |
| 14 |
1994 - 1995 |
259 |
| 15 |
1995 - 1996 |
281 |
| 16 |
1996 -1997 |
305 |
| 17 |
1997 - 1998 |
331 |
| 18 |
1998 - 1999 |
351 |
| 19 |
1999 - 2000 |
389 |
| 20 |
2000 - 2001 |
406 |
| 21 |
2001 - 2002 |
426 |
| 22 |
2002 - 2003 |
447 |
| 23 |
2003 - 2004 |
463 |
| 24 |
2004 - 2005 |
480 |
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When do I have to file my returns ? |
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As an individual under income tax law, you will have to file your return by 31st July. In case you are covered under the new economic criteria, you will have to file your return by 31st October |
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(Click here For new economic criteria) |
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NEW ECONOMIC CRITERIA This was introduced by the Finance Act 06-07. A person is said to be covered under this scheme under the following conditions:-
- If he is not required to file his ROI (i.e. does not have taxable income),
- Resides in notified area,
- Has incurred Rs. 50,000 or more as electricity expenses at any time during the previous year
- Fulfils any of the 5 criteria below:
- Occupation of an Immovable property exceeding a specified floor area by way of ownership, tenancy or otherwise.
- Possession of a motor vehicle as a owner or a lessee (other than 2 wheeled motor vehicle.)
- Incurring expenditure for self or any other person on travel to a foreign country.
- Holding of a Credit card, not being an Add-on card.
- Membership of a club where entrance fees charged is Rs. 25,000 or more.
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PAN |
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It is an acronym of Permanent Account Number. It is a 10 digit alphanumeric number that helps to identifies and tracks an individual in the taxman's database. Each individual can get one PAN in his name. He will be assigned a unique number, which he has to quote while filing his return of income. |
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Care to be taken while filing your return. |
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- You have to file your returns diligently by the due date applicable to you.
- Make sure you give correct details of your income.
- Do not forget to quote your correct PAN no.
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The I.T Law imposes penalties in certain cases: |
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- Non filing returns
- Concealing income which amounts to tax evasion
- Not quoting PAN or misquoting PAN
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