What is the income tax in India?

Written by : Knowledge Centre Team

2024-08-02

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Every country requires financial resources to carry out essential functions, make public expenditures and launch new initiatives for the welfare of its public. One of the primary ways in which these financial resources are accumulated is through the process of levying taxes on the income generated by the people of the country. This tax is known as income tax.

The specific income tax levied by each country depends on the specific regulations and guidelines it places around the taxation process. Income tax in India is no different. It is subject to the regulations specified by the government of the country and is applicable to the people who qualify as taxpayers.

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Let us take a closer look at this topic and more, regarding income tax in India:

Categories of Taxpayers

The first point to consider about income tax in India is the matter of who qualifies as taxpayers. Here are the primary categories of income taxpayers:

Citizens of India under 60 years of age whose annual income is higher than Rs 2.5 lakhs.
Citizens of India over the age of 60 but below 80 whose annual income exceeds Rs 3 lakhs.
Citizens of India over the age of 80 whose annual income exceeds Rs 5 lakhs.
Hindu Undivided Families (HUF)
Body of Individuals (BOI)
Association of Persons (AOP)
Corporate Firms
Companies

Types of Income Tax in India

Income tax in India is collected from its citizens by the Government in one of three primary ways:

Voluntary payments filed for and made by taxpayers into banks
Taxes Deducted at Source, or TDS
Taxes Collected at Source, or TCS

What Is Subject To Income Tax in India?

The other important point to consider about income taxes in India is how the term ‘income’ is defined. Here are the categories of income generated by a person, that are subject to income taxation:

Income generated through salaries or pension
Income generated from capital gains, such as earnings from sale of capital assets
Income from house property, which typically refers to rental income
Income from business/profession, such as earnings of freelancers and business owners
Income from other sources

Income Tax Rates - Old Regime

The rate of income tax in India paid by a taxpayer is dependent on the amount of income he or she earns in the course of a financial year. These income amounts are categorised in ranges or slabs, and an income tax rate is applicable to each of these slabs. Based on the income tax slab a taxpayer falls under, he or she is subject to pay that rate of income tax.

In order to lower one’s tax burden, a taxpayer can make certain tax-saving investments and opt for the appropriate tax deductions that apply to them. If that is the case, the taxpayer’s income will be subject to the old tax regime (explained later) and the applicable rates for an individual (less than 60 years of age) are as follows:

Income tax slab	Applicable tax rate
0 to 2,50,000	Nil
2,50,001 to 5,00,000	5% of total income
5,00,001 to 10,00,000	20% of total income
Above 10,00,000	30% of total income

Income Tax Rates - New Regime

During Budget 2020, income tax in India introduced a new form of optional tax regime, which means taxpayers can file their income taxes as per these new rates or the old tax rates (mentioned above), at their own discretion. It incorporates new tax slabs and offers lower tax rates, but comes with the condition that taxpayers cannot opt for various deductions.

Here are the tax slabs and rates as per the new tax regime:

Income tax slab	Applicable tax rate
0 to 2,50,000	Nil
2,50,001 to 5,00,000	5% of total income
5,00,001 to 7,50,000	10% of total income
7,50,001 to 10,00,000	15% of total income
10,00,001 to 12,50,000	20% of total income
12,50,001 to 15,00,000	25% of total income
Above 15,00,000	30% of total income

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