Individual Taxation

Individual Taxation

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Individual Taxation

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. For simpler classification, the Income Tax Department breaks down income into five heads:

Heads of Income                                       
  • Income from Salary – Income from salary and pension are covered under here
  • Income from Other Sources – Income from savings bank account interest, fixed deposits etc
  • Income from House Property – Rental income earned from house property
  • Income from Capital Gains – Income from sale of a capital asset such as mutual funds, shares or any other non-financial property.
  • Income from Business and Profession – Whether you are self-employed, working as a freelancer, contractor, or you run a business. Life insurance agents, chartered accountants, doctors and lawyers who have their own practice, tuition teachers etc

Each of these taxpayers is taxed differently under the Indian income tax laws. While firms and Indian companies have a fixed rate of tax of 30% of profits, the individual, HUF, AOP and BOI taxpayers are taxed based on the income slab they fall under. People’s incomes are grouped into blocks called tax brackets or tax slabs. And each tax slab has a different tax rate.

The Union Budget 2020 introduced a new income tax regime with reduced tax rates for those willing to forego tax-exemptions and deductions. This new tax system has been made optional and continues to co-exist with the old one that comprises of three tax rates and various tax exemptions and deductions available to a taxpayer. The new income tax slabs and rates have come into effect from April 1, 2020 for FY 2020-21.

Individuals with a net taxable income of up to Rs 5 lakh in a financial year will be able to avail tax rebate of Rs 12,500 under section 87A in both the existing and new tax regimes. Effectively, this means that individual taxpayers with net taxable income of up to Rs 5 lakh will continue to pay zero tax in both the tax regimes.

However, individuals who have opted for the new tax regime would not be able to avail common tax breaks such as deductions under section 80C for maximum of Rs 1.5 by investing in specified instruments, section 80D for medical insurance paid, house rent allowance, leave travel allowance etc.

If you are looking for professional to support determining your personal income tax, and to help you identifying the available benefits for you, we are there for you. Get in touch with our expert team to know more.

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