Introduction to Basics of Income Tax in India – FY 2024–25 Guide for Beginners
Any citizen's first income tax payment is a significant event in their life. For newcomers, however, the procedure may seem overly difficult and time-consuming, and some of the terminology may be completely unfamiliar. This doesn't have to be the case. Here is a summary of the fundamentals of income tax for beginners to help you comprehend the tax implications of your income (depending on your income source). Everybody has to deal with income tax when it comes to their earnings. In essence, it is a tax that the government levies on the profits of people or companies. It is one of the primary means by which governments finance their operations and public services, such as roads, healthcare, and schools. Therefore, the government receives a percentage of every dollar you make, whether from investments, a business, or a job. Your income determines how much you pay, and most tax systems are progressive, meaning that the higher your income, the higher the tax rate. You can lower the amount of tax you owe by claiming certain exemptions and deductions that reduce your taxable income. Once you get the hang of it, it's not that bad, but it's one of those adulting things that we all need to learn. Let’s see some basic terms of Income Tax which may help you in the near future.
1. What is previous year
The 12-month period that starts on April 1st and ends on March 31st of the following year is known as the previous year, the fiscal year, or your tax year. Your tax year ends on March 31 and a new one begins on April 1st, regardless of when you begin working. Planning your taxes for each financial year is so crucial.
2. What is assessment year
This phrase is frequently used in connection with filing taxes. In the financial year that follows the previous year, you will “evaluate” and submit your previous year’s return. Therefore, for the prior year 2018–19, the assessment year is 2019–20. You will file your return for the prior year during the assessment year. For example, if you begin working on January 1, 2025, your tax year ends on March 31, 2025, and your previous year is 2024–2025; your assessment year is 2025–2026.
3. Five heads of Income
| SOURCE OF INCOME | PARTICULARS |
|---|---|
| Income from salary | Salary , allowance , gratuity , pension , leave encashment ,all the money which is received in the course of employment or after employment |
| Income from house property | Revenue from house or building , which may be owned or self-occupied or can be rented |
| Income from business or profession | Income that arises as a result of carrying business or profession |
| Income from capital gain | Income from gain or loss from sale of assets |
| Income from other sources | It include all types of income such as income from gambling , lottery , fixed deposits , gift received , family pension , basically it is a residual head |
2. What is assessment year
4. Income tax slabs
Tax slab under old regime
• Individuals aged below 60 years and HUF
| INCOME SLABS FY 2024-25 | TAX RATE |
|---|---|
| UP TO RS 2,50,000 | NIL |
| RS 2,50,001 –RS 5,00,000 | 5% |
| RS 5,00,001 TO RS 10,00,000 | 20% |
| RS 10,00,001 AND ABOVE | 30% |
• Individual aged above 60 years to 80 years
| INCOME SLABS FY 2024-25 | TAX RATE |
|---|---|
| UP TO RS 3,00,000 | NIL |
| RS 3,00,001 –RS 5,00,000 | 5% |
| RS 5,00,001 TO RS 10,00,000 | 20% |
| RS 10,00,001 AND ABOVE | 30% |
• Individual aged above 80 years
| INCOME SLABS FY 2024-25 | TAX RATE |
|---|---|
| UP TO RS 5,00,000 | NIL |
| RS 5,00,001 TO 10,00,000 | 20% |
| RS 10,00,001 AND ABOVE | 30% |
Tax slab under new tax regime
| TAX SLAB FOR FY 2024-25 | TAX RATE |
|---|---|
| UP TO RS. 3 LAKH | NIL |
| RS 3 LAKH TO 7 LAKH | 5% |
| RS 7 LAKH TO RS 10 LAKH | 10% |
| RS 10 LAKH to 12 LAKH | 15% |
| RS 12 LAKH TO RS 15 LAKH | 20% |
| ABOVE 15 LAKH | 30% |
5. Deductions
Your gross income is decreased by deductions. These are the sums that the Income Tax Department permits you to deduct from your income to lower your tax obligation.
Gross income is the sum of all income heads.
Taxable income = gross income – deductions.
Your tax will be reduced the more you utilize the permitted deductions. Section 80 of the Income Tax Act permits deductions (Sections 80C to 80U).
The old tax regime and the new tax regime were, however, implemented by the Indian government in 2020. Under the previous and current tax regimes, the percentage of income tax that you pay on your total income is different.
All deductions under Sections 80C to 80U were permitted under the previous tax system, subject to certain restrictions. However, only the deduction on the employer’s NPS payment and the deduction on let-out property under Section 24B are permitted under the new tax regime.
Deduction under section 80C
In essence, it permits you to deduct up to ₹1.5 lakh in specific investments and expenses during a fiscal year. In this section, you can invest in PPF (Public Provident Fund), ELSS (Equity-Linked Saving Scheme), life insurance premiums, and even contribute to your children’s tuition costs. It’s similar to a convenient small method of lowering your taxable income and saving money. Here are some important deductions which you may need to know about
PPF
Deposits to the Public Provident Fund, or PPF, are among the most common deductions under 80C. You must deposit a minimum of INR 500 and a maximum of INR 1,50,000 annually when you register a PPF account. Deposits made into a PPF account compound over time when you make further deposits to qualify for deductions in later financial years. PPF is a conventional and secure way to save your hard-earned cash. Opening a PPF account with a bank is simple.
Equity linked saving scheme
Because of its historically better performance in recent years, ELSS (Equity Linked Savings Scheme), one of the only mutual fund schemes permitted under 80C, is becoming more and more well-liked. The fact that ELSS has the shortest lock-in period—three years—is another benefit.
Fixed deposit
For investors, fixed deposits guarantee both significant interest income and capital protection. You must remain invested for a minimum of five years in order to receive tax benefits under 80C. Although the interest income from it is taxable, it is safe.
6. TDS
Tax Deducted at Source, or TDS, indicates that the individual making the payment deducts the tax. According to the guidelines set forth by the income tax department, the payer must deduct a certain amount of tax. For example, if an employee’s taxable income exceeds INR 2,50,000 under the old tax regime or INR 3,00,000 under the new tax regime, the employer will calculate the employee’s total yearly income and deduct tax from it. Each year, tax is withheld according to the tax slab you are in. TDS is also withheld by the bank if you get interest from a fixed deposit. Unless you haven’t stated your PAN, the bank will often deduct 10% TDS because they don’t know your tax slabs; otherwise, they may deduct 20%.
Overview of TDS rates for the FY 2024-25
| PARTICULAR | RATE |
|---|---|
| Payment of salary | Normal slab rate |
| Premature withdrawal from EPF | With PAN :10% |
| Without PAN : 20% | |
| Interest of securities | 10% |
| Payment of any dividend | 10% |
| Interest other than interest of securities ( from deposits with banks/post office/ co- operative society) | 10% |
| Income from lottery winning , card games , crosswords | 30% |
| Payment to contractor/ sub-contractor which is individual / HUF | 1% |
| Payment to contractor/ sub-contractor other than individual / HUF | 2% |
| Insurance commission to domestic companies | 10% |
| Insurance related to a life insurance policy | 2% |
| Payment to non- resident sportsmen/ sports association | 20% + surcharge + 4% cess |
| repurchase of the unit from Unit Trust of India(UTI) or a mutual fund | 20% |
| Payment , commission etc. on the sale of lottery tickets | 2% |
| Commission or brokerage | 2% |
| Rent on plant and machinery | 2% |
| Rent on land/building/ furniture /fitting | 10% |
| Payment amount on transfer of certain immovable property excluding agricultural land | 1% |
| Rent payment by an individual or HUF not covered u/s 194 | 2% |
| Payment under joint development agreements (JDA) | 10% |
| Fee for professional services | 10% |
| Sum paid by way of remuneration/ fees/ commission to director | 10% |
| Sum paid for abiding the person from not carrying out any activity concerning any business | 10% |
| Sum paid for any technical services | 2% |
| Payment of any income for units of a mutual fund | 10% |
| Payment in respect of infrastructure debt fund to non-resident | 5%+surcharge+ 4% cess |
| Interest payments on a foreign currency loan taken out by an Indian business or business trust in accordance with the terms of the loan agreement | 5% |
| Interest payments for a foreign currency loan taken out by an Indian business or business trust in connection with the issuance of long-term bonds listed on the IFSC | 4% |
| Payment of interest on bond to FII or a QFI | 5% |
| income divided by a business trust among its unit holder | 10% |
| Interest income of a business trust from SPV distribution to its unit holders | 5% |
| Dividend income of a business trust from SPV | 10% |
| Payment of rental income to business trust unit holders from assets owned by the business trust | 30% |
| Payment of rental income to business trust unit holders from assets owned by the business trust | 40% |
| Certain income paid to a unit holder in respect of units of an investment fund | 40% |
| Income obtained by an individual and HUF from an investment in a securitization fund | 25% |
| Revenue received by a domestic company from an investment in a securitization fund | 10% |
| Revenue from a securitization fund investment given to a foreign business | 40% |
| Receivable income for NRIs from investments in securitization funds | 10% |
| Cash withdrawal from a post office, cooperative organization that conducts banking operations, or a banking company | 2% |
| Filed ITR during the last 3 years and cash withdrawal exceeds Rs. 3 crore | 2% |
| Payment made by the e-commerce operator via its digital or electronic platform or facility for the sale of products or provision of services | 0.1% |
| Payment for the purchase of goods | 0.10% |
| Perquisite or benefits to a business or profession | 10% |
| TDS on the transfer of virtual digital assets | 1% |
| Income on investments made by NRI citizen | 20% |
| Income by way of LTCG referred in section 115E in the case of NRI | 10% |
| LTCG income as defined by section 112(1)(c)(iii) | 10% |
| Income by way of LTCG under section 112a | 10% |
| Income by way of STCG under section 111a | 15% |
| Any income by way of LTCG | 20% |
7. Standard TDS
Salaried workers are entitled to a standard deduction of Rs 40,000 from their gross pay as per the 2018 Budget. In a fiscal year, this standard deduction will take the place of the Rs. 19,200 transit allowance and the INR 15,000 medical reimbursement. In effect, the taxpayer will receive an extra Rs 5,800 in income exemption. In the 2019 Interim Budget, the Rs. 40,000 cap was raised to Rs. 50,000 starting in FY 2019–20. This 75,000 rupee deduction is available starting in FY 2024–2025 and can be claimed under both the old and new tax regimes.
8. Rebate (Section 87A)
Individual taxpayers can receive tax relief through Section 87A, which offers a rebate of the tax owed by an assessee who resides in India.
Rebate for residents who pay taxes under the new tax system
The rebate will be equal to the amount of income tax due on the individual’s total income for any assessment year or Rs. 25,000, whichever is less, provided that the individual’s total income does not exceed Rs. 7, 00,000.
Rebate to a citizen who paid taxes under the old tax regime
The rebate will be equivalent to the amount of income tax due on the individual’s entire income for any assessment year, or Rs. 12,500, whichever is less, if the individual’s total income is less than Rs. 5, 00,000.
9. Gross total income
Income tax returns are calculated and filed using gross total income (GTI) as the starting point. It encompasses all forms of income, including capital gains, earnings from a business or profession, income from property, salaries, and other sources. These figures are determined after taking into account any applicable exclusions or deductions, such as the Housing Rent Allowance (HRA) exemption and eligible allowances.
10. Net total income
After taking into account deductions allowed by the Income Tax Act (such as those specified in various Section 80s), net taxable income is the amount of money that is liable to income tax. On this sum, tax is paid.
11. Income tax return
ITR-1, ITR-2, ITR-3, ITR-4, ITR-5, ITR-6, and ITR-7 are the seven different income tax return forms that the income tax department has announced. All taxpayers must submit their ITRs by the deadline, which is July 31 of the assessment year, at the latest. Depending on the taxpayer’s category (individuals, HUF, corporations, etc.), income sources, and income amount, different ITR forms are applicable.
Documents required
Before submitting the Income Tax Return (ITR), a number of documents must be kept on hand. As mentioned below, these documents differ according on the source of income:
Before submitting the Income Tax Return (ITR), a number of documents must be kept on hand. As mentioned below, these documents differ according on the source of income:
Forms 16/16A, 26AS, pay slips, HRA rent receipts, and investments made under Sections 80C, 80E, 80D, and 80G are all required for salaried individuals.
Capital gains include the following: ELSS statement, mutual fund statement, equity/debt fund sale and purchase, house purchase and sale price, registration information if any real estate is sold, and a capital gains statement that details share sales and stock trading.
Details about the house, including the address, co-owner information, PAN card information, and home loan interest certificate. Additional sources include information about bank FDs and interest earned on business or tax-saving bonds.
12. Important income tax due dates
| PARTICULARS | DUE DATE |
|---|---|
| Due date for fourth instalment of advance tax for FY 2024-25 | 15th March , 2025 |
| Due date for first instalment of advance tax for the FY 2025-26 | 15TH June , 2025 |
| Income tax filing for FY 2024-25 for individual and entities not liable for tax audit | 31ST July , 2025 |
| Due date of second instalment of advance tax for FY 2025-26 | 15th September , 2025 |
| Submission of audit report (Section 44AB) | 30TH September , 2025 |
| ITR filing for taxpayer requiring audit | 31st October , 2025 |
| Submission of the audit report for taxpayers having transfer pricing and specified domestic transactions | 31st October , 2025 |
| ITR filing for business requiring transfer pricing ( in case of international/ specified domestic transactions) | 30th November ,2025 |
| Due date for third instalment of advance tax for the FY 2025-26 | 15th December ,2025 |
| Last date for filing a belated return or revised return for AY 2025-26 | 31st December , 2025 |
13. Income tax department
The Department of Income Tax is a government organization. The Act gives the Income Tax Department the authority to collect direct taxes on behalf of the Indian government. The Ministry of Finance oversees the Government of India’s income operations. Direct tax administration, including income tax, has been delegated to the Central Board of Direct Taxes (CBDT) by the finance minister. One division of the Ministry of Finance’s Department of Revenue is the CBDT. The IT Department is used by the CBDT to administer direct tax regulations.
Therefore, under the direction and authority of the CBDT, the Income Tax Department is a government organization that enforces the income tax law. The authority to collect direct taxes on behalf of the Indian government has been delegated to the Income Tax Department.
14. Form 16
Form 16 is an employer-issued certificate that includes the data required to create and submit an income tax return. The complete address of the employer and employee, their Permanent Account Number (PAN), the employer’s Tax Deduction Account Number (TAN), the amount of taxes withheld and deposited by the employee for the applicable assessment year, and the challan numbers are all included in Part A of the form. Details on the salary paid, any additional income, claimed exemptions and deductions, and taxes withheld are included in Part B.
1. What is the Income Tax Act, 1961?
India’s income tax laws are governed by the Income Tax Act, 1961. It offers the legal foundation for determining, collecting, and administering income taxes. All people, Hindu Undivided Families (HUFs), businesses, and other organizations that generate revenue in India are covered by it.
2. Who does the Income Tax Act, 1961 apply to?
All Indian citizens and foreign nationals who get income, directly or indirectly, from domestic or foreign sources are covered by the Act. It includes people, companies, corporations, and other entities.
3. What is the scope of income under the Income Tax Act?
The Income Tax Act considers income from all sources, including:
- Income from Salary
- Income from House Property
- Income from Business or Profession
- Income from Capital Gains
- Income from Other Sources (e.g., dividends, interest, etc.)
4. What are the different types of taxpayers under the Income Tax Act?
The following categories are used by the Income Tax Act to categorize taxpayers:
- Individuals: Single individuals (including married individuals, minors, etc.)
- A Hindu Undivided Family (HUF): is a type of family where members share income.
- Companies : Public, private, and international enterprises are all included in this category
- Firms/LLPs: Partnerships or limited liability partnerships
Other persons: Contains societies, trusts, and other organizations.
5. What is the meaning of "Gross Total Income"?
The term Gross Total Income (GTI) describes a taxpayer’s whole income prior to any deductions made under different sections (such as Section 80C, Section 80D, etc.). It is the total of all sources of revenue.
6. What are deductions under the Income Tax Act?
Deductions are allowed to reduce the taxable income. Some common deductions are:
- Section 80C: Investments in life insurance, PPF, ELSS, etc.
- Section 80D: Premium on health insurance policies.
- Section 80G: Donations to charitable organizations.
- Section 80E: Interest on education loans.
7. What is the tax structure under the Income Tax Act?
Because the tax system is progressive, your tax rate will increase as your income increases. Individual, corporate, and other taxpayer types have different rates, and for individuals, the rates also depend on age (regular, senior citizens, and super senior citizens). The Union Budget contains an annual revision to the Income Tax Slabs for individuals.
8. What is the concept of "Taxable Income"?
The amount of your income that is subject to taxation is known as your taxable income. It is determined by subtracting the gross total income from exemptions, allowances, and deductions. This sum is used to calculate your income tax obligation.
9. What are the provisions for TDS (Tax Deducted at Source)?
Under the TDS method, taxes are withheld at the point of income, such as a commission, pay, or rent. Before making a payment, the payer deducts the tax and deposits it with the government. Tax evasion is less likely because to TDS, which makes sure taxes are collected at the source.
10. What is "Advance Tax"?
The tax that is paid in advance rather than all at once at the conclusion of the financial year is known as the Advance Tax. If the overall tax liability surpasses a specific level, it becomes applicable. It must be paid by taxpayers in instalments, often in March, June, September, and December.
11. What is a "Tax Return" and when should it be filed?
A Tax Return is a statement of your earnings, taxes paid, and deductions. Income tax returns for individuals, businesses, and corporations must be filed by a specific deadline, which is typically July 31st of the assessment year, though this might change. Penalties may be imposed for late filing.
12. What are the consequences of not filing an income tax return?
Failing to file an income tax return on time can lead to:
- Penalties for late filing.
- Interest on unpaid taxes.
Prosecution for severe cases of tax evasion.
13. What is "Tax Audit"?
To verify that the revenue and spending listed in tax returns are correct, a Tax Audit examines the financial records of a taxpayer, typically a business. Section 44AB of the Income Tax Act governs the audit.
14. What is the "Double Taxation Avoidance Agreement (DTAA)"?
An agreement between two nations to prevent double taxation of income is known as the Double Taxation Avoidance Agreement (DTAA) . By enabling them to claim a tax credit or exemption, it helps citizens of one nation who may have income in another.
