Introduction:

Income tax is levied on the income earned by the taxpayer in the relevant financial year. Income tax is a financial and legal obligation in India. All individuals earning above a certain amount are required to pay income tax on their earned income. The income tax rates, income slabs, and rules are regulated by the government and are subject to change from time to time. However, all taxpayers are responsible for accurately reporting their income and filing their taxes on time. Failure to do so can result in penalties and fines.

Income tax is a tax charged on the annual income of an individual or a business earned in a financial year. The income tax in India is govern by the income tax Act 1961, which lays out the rules and regulation for income tax calculation, assessment and collection. All income tax payers are mandated to submit an Income tax return (ITR) every year by respective dates as per the law to report their income and claim a tax refund if applicable for Tax Return can be filed online or offline on the income tax department official website or through verified third party websites.

The Indian Income Tax system also includes various deductions and exemptions that can be used to lower the tax liability for a given financial year.

Income Tax Act:

The Income Tax Act, 1961 is the primary law governing the collection, computation, and administration of income tax in India. The act lays down all the rules and regulations as well as the rights and responsibilities of taxpayers. It also underlines the Income Tax Department's role in the collection of tax and tax returns.

The Income Tax Act, 1961 includes various sections and sub-sections, like Section 80C, Section 80D, Section 80G, Section 10(10D), and several others highlighting the exemptions, deductions, as well as limits to help taxpayers reduce their taxable income and compute their tax liabilities accurately.

Who is eligible to pay Income Tax

Any individual earning more than 2.5 Lakh Annually in a financial year is required to pay income tax to the Government of India different types of taxpayers in India:

Individuals: (Further divided as individuals under 60 years, individuals between the ages of 60 and 80 years, and individuals aged over 80 years) 

  1. Hindu Undivided family
  2. Association of a person  
  3. Artificial Juridical Person
  4. Firms
  5. Companies

For the purpose of Income-tax Law, an individual may have any one of the following residential statuses:

  1. Resident and ordinarily resident in India (ROR)
  2. Resident but not ordinarily resident in India (RNOR)
  3. Non-resident (NR)

Under Indian tax laws, the scope of taxation differs as per the residential status of an individual:

  1. RORs are subject to tax in India on their global income, wherever received
  2. RNORs are subject to tax in India only in respect to income that accrues/arises or is deemed to accrue/arise in India, or is received or deemed to be received in India, or is from a business controlled from India or from a profession set up in India
  3. NRs are subject to tax in India only in respect to income that accrues/arises or is deemed to accrue/arise or is received or deemed to be received in India

Important to file Income Tax

Proof of Income

  1. Proof of Income
  2. Tax returns serve as official proof of your income.
  3. They're often needed for:
    1. Loan applications
    2. Visa processing
    3. Scholarships
    4. Rental agreements

Access to Government Benefits

  1. Some government welfare programs and subsidies (like education benefits or healthcare assistance) require filed tax returns as proof of eligibility

Carrying Forward Losses

  1. Filing on time allows you to carry forward losses (like business or capital losses) to future years, which can reduce future tax bills.

Promotes National Development

  1. Taxes fund public infrastructure, education, healthcare, and security.
  2. By paying taxes, you contribute to the economic growth and development of your country.

Types of Income Tax

Individual Income Tax:

Individual income tax is also referred to as personal income tax. This type of income tax is levied on an individual’s wages, salaries, and other types of income. This tax is usually a tax that the state imposes. Because of exemptions, deductions, and credits, most individuals do not pay taxes on all of their income.

Business Income Tax:

Businesses also pay income taxes on their earnings; the IRS taxes income from corporations, partnerships, self-employed contractors, and small businesses.

Depending on the business structure, the corporation, its owners, or shareholders report their business income and then deduct their operating and capital expenses. Generally, the difference between their business income and their operating and capital expenses is considered their taxable business income.

State and Local Income Tax

The taxes imposed by the State Government, like taxes on agricultural income, state excise duty, stamp duty, land revenue tax, professional tax, etc., are State government taxes. Local bodies are permitted to collect taxes like property taxes and taxes for using various services like water, drainage supply, etc.

Income Tax rate FY-2024-25

Slabs in Rs.

Individuals below 60years

Individuals below 60 & 80

Individuals 80 years and above

Up to 3,00,000

Nil

Nil

Nil

3 Lakh to 7 Lakh

5%

Nil

Nil

7 Lakh t0 10 Lakh

10%

Nil

Nil

10 Lakh to 12 Lakh

15%

5%

Nil

12 Lakh to 15 Lakh

20%

20%

20%

15 Lakh Above

30%

30%

30%

Income Tax rate FY-2025-26

Slabs in Rs.

Individuals below 60years

Up to 4,00,000

Nil

4 Lakh to 8 Lakh

5%

8 Lakh t0 12 Lakh

10%

12 Lakh to 16 Lakh

15%

16 Lakh to 20 Lakh

20%

20 Lakh to 24 Lakh

25%

24 Lakh Above

30%

Income Tax e-Filing process

Step 1: Calculate Income and Tax. ...

Step 2: TDS Certificates and Form 26AS. ...

Step 3: Select the Suitable Income Tax Form. ...

Step 4: Download ITR utility from Income Tax Portal. ...

Step 5: Fill Out the Downloaded File. ...

Step 6: Validate the Information Entered. ...

Step 7: Convert the File to XML Format.

Income Tax Forms List

Along with the knowledge of what is income tax, you should also be aware of the various income tax forms applicable for different income types and the nature of employment. 

1. ITR 1

For resident individuals with income up to Rs. 50.00 lakhs from salary, one house property and other income sources like interest and agricultural income.

2. ITR 2

For individuals and HUFs with income above Rs. 50.00 lakhs from capital gains, income from abroad, assets abroad, directorship in a company, unlisted equity shares, crypto income (if reported as capital gains) and more than one house property.

3. ITR 3

This return is for individuals and HUFs who have income from profits or gains from business/profession and who are not eligible to file forms ITR 1, ITR 2, or ITR 4

4. ITR 4

For resident individuals and HUFs and Firms (other than LLP) having a total income up to Rs. 50.00 lakhs with income from profession/business computed under Sections 44AD, 44ADA, or 44AE, Income from Salary/Pension, one House Property, Other sources income such as bank interest, FD interest etc and agricultural income up to Rs. 5000/-.

5. ITR 5

For persons other than individuals, HUF, companies and the ones filing returns with ITR 7 form.

6. ITR 6

For Companies, not claiming tax exemption under Section 11.

7. ITR 7

Individuals and companies filing returns under Section 139(4A), Section 139(4B), Section 139(4C), Section 139 (4D), Section 139(4E), and Section 149(4F) should use ITR 7.

8. ITR V

This is the acknowledgement form for tax return verification. It has to be e-verified or signed and sent to the IT Department, Centralized Processing Centre (CPC), Bangalore.

How to File Income Tax Returns (ITR)

  1. Pre-requisites for E-Filing:
  2. PAN (Permanent Account Number)
  3. Aadhaar Card (mandatory for linking with PAN)
  4. Bank Account Details (for tax refunds)
  5. Form 16 (for salaried employees)
  6. Investment & Deduction Proofs
  7. E-Filing on Government Portal:
  8. Visit Income Tax Department Website → https://www.incometax.gov.in
  9. Download ITR Software for the relevant assessment year.
  10. Enter Income Details – Salary, business income, capital gains etc.
  11. Pre-fill Tax Information – Portal auto-fills the details from tax records.
  12. Compute Tax – System will calculate tax payable/refund based on the entries.
  13. Pay Tax (if applicable) – If tax is due, pay online.
  14. Generate & Upload XML – Save the form and upload to the portal.
  15. E-Verify – Verify through Aadhaar OTP, net banking or digital signature.
  16. Submit – A confirmation email/SMS is sent after submission After Filing:
  17. Refund: If excess tax is paid, a refund will be processed wit

Consequences of Not Filing ITR

For most individual taxpayers, the due date for filing the return of income is 31 July, immediately following the financial year. If you do not file on time, here are some disadvantages:

  1. You will be denied carry forward of losses (except house property loss and loss brought forward from preceding previous years) to future years.
  2. Delay processing of refund claims if any.
  3. Difficulty in getting home loans.
  4. Levy of late filing fee up to Rs 5,000 (if the total income is above Rs 5 lakh) and Rs 1,000 (if the total income is below Rs 5 lakh) under Section 234F.
  5. Will not be allowed to file the tax return under the Old Tax Regime.
  6. Levy of interest under Section 234A if there are taxes due as on 31 July.
  7. Once you file your return online, you either e-verify the same or take a print of the ITR V and send it to CPC, Bengaluru, for processing your return. However, the procedure is different if e-filing is made for the first time

Conclusion

India's tax system is based on the Income Tax Act, 1961, which offers a comprehensive and organised framework for the levy, computation, collection, and control of income tax. While permitting a range of deductions, exemptions, and incentives to promote saving and investment, it guarantees that people and organisations make equitable contributions to the growth of the country. The Act is essential to the nation's budgetary stability and economic prosperity because it encourages responsibility, openness, and compliance. It is kept current and adaptable to shifting economic demands through frequent revisions made possible by Finance Acts.