Income Tax in India
Income Tax is imposed on anybody who earns income in India, whether they are resident or non-resident. Every individual person, HUF (Hindu Undivided Family), AOP (Association of Persons), BOI (Body of Individuals), corporate firms, companies, local authorities and all other artificial juridical persons who/which have earned income are required to pay Income tax in India. It is charged on the Total Income of a Previous Year at the rates prescribed for the Assessment Year.
- Salaried Person: In an Individual receives anything from an employer in cash, kind or as a facility is considered as income.
- Businessman: His/Her net profits will constitute income.
- Income may also arise from investments in the form of Interest, Dividend, and Commission etc.
Assessment Year: It is the period of 12 months commencing on April 1, every year. Simply, the year in which income is charged to tax is known as Assessment year.
Previous Year: It is the financial year immediately preceding the assessment year. Simply, the year in which Income is earned in known as Previous Year.
Let us take the Income of Previous Year, i.e the income earned in between 1st April 2014 and 31st March 2015. For this income, the tax should be paid in the Assessment Year (Next Year) that is from 1st April 2015.
Residents and Nonresidents:
Generally, residents are taxed differently from nonresidents.
- Regardless of his citizenship, if any individual stays in India for 182 days or more in a year, he/she is treated as resident in that year. He/She is charged income tax on his/her global income, subject to a double taxation relief in respect of foreign incomes taxed abroad.
- If an individual stays in India for less than 182 days he/she is a non-resident. In the case of a non-resident, income tax is charged only on incomes received in India or which are deemed to be received in India.
Heads of Income
Heads of Income are nothing but different sources of income that are taxed differently. The 5 sources that are called as Heads of Income are mentioned below.
- Income from Salaries.
- Income from House Property.
- Profits and Gains of business or profession.
- Income from Capital Gains.
- Income from Other Source.
The aggregate income under these heads is termed as “Gross Total Income”.
Gross Total Income: It means total income computed in accordance with the provisions of the Act before making any deduction. Deductions are available under sections 80C to 80U of the Income Tax Act, 1961.
Gross Total Income = Income from Salaries + Income from House Property + Profits and Gains of business or profession + Income from Capital Gains + Income from Other Source.
Using this Gross Total Income, Total Taxable income is calculated.
Total Taxable Income: It is the income that is taxable from lessening the “Deductions allowable from Income” from “Gross Total Income”.
Total Taxable Income = Gross Total Income – Deductions.
For the detailed information regarding Deductions under sections 80C to 80U, refer Deductions from Gross Total Income.
What are Receipts?
A receipt is an entire income before tax deductions. All receipts are not considered as Income. There are two types of Receipts that are considered as Income, they are
- Revenue Receipt
- Capital Receipt
1. Revenue Receipt:
Income from the source i.e., Salary from employment, Interest or Divided from Investments, Rent from property, Profits from business is termed as Revenue Receipt.
2. Capital Receipt:
Income earned by selling the source or asset is called as Capital Receipt. For example, income earned from selling land and building, gold, business, investment, property etc.
Limit of Income
There is a Limit of Income below which we need not pay taxes. This limit varies based on the category.
- For an Individual, HUF, AOP (Association of persons), and BOI (Body of Individuals) having income below Rs. 2,00,000/- need not pay any income tax in India.
- But no such exempted limits exists for other categories like co-operatives societies, companies, firms, and local authorities. They have to pay taxes on their entire income based on Income Tax Slab Rates.
Income Tax Slab Rates for FY 2016-2017 (AY 2017-18)
According to the latest Budget 2016 Update, the Slab Rates of Income Tax in India for the Financial Year 2016-17 are same as that of 2015-16 Income Tax Slabs. That is, there is no change in the Income Tax Slab Rates for 2016-17.
For the detailed information regarding these rates, refer Income Tax Slab Rates for FY 2016-17.