All about Income Tax in India: Basics, tax slabs and e-filing process

24 May 2021|

3 min read |

by ICICI Securities Team

It can be safely said that income tax is a concept that most of us are aware of. But before we delve into the topic in detail, it is important to understand what all comes under the ambit of the word INCOME.

Section 14 of the Income Tax Act, 1961, lists the five heads of income for the calculation of an individual's tax liability. The five heads of income are:

Income from salary
Income from house property
Profits and gains of business or profession
Capital gains Income from other sources

The income under any of these heads is subject to Income Tax at the specified rates. In this article, we try and explain the basics of Income Tax in India, the various tax slabs applicable to taxpayers belonging to different income groups and the e-filing process. Read on to find out more.

What is Income Tax?

The taxes we pay can be divided into two broad categories: Direct Tax and Indirect Tax. Indirect Tax comprises the taxes we pay to the government every time we purchase any goods or services. Say, you go to your nearby mom-and-pop store and pick up a packet of chips or a chocolate. Of the price that you pay for the item, a certain portion is paid to the government in indirect taxes. Again, when you dine at a restaurant, the service tax you pay is a form of indirect tax.

Direct Tax, on the other hand, is that which the government imposes on our income. Our earnings from various sources are subject to taxation, and we pay this amount directly to the government. The Income Tax Act, 1961, is the central piece of legislation that contains the provisions pertaining to income tax in India.

Who all are supposed to pay Income Tax?

As per the Act, individuals, Hindu Undivided Families (HUFs), companies, firms, association of persons, body of individuals and local authorities are required to pay taxes. There are tax slabs outlined according to the different income categories. Those people with an income below Rs. 2.5 lakh are not required to pay Income Tax. Beyond this basic exemption limit, people are taxed as per their total taxable incomes. Again, there are several tax deductions and exemptions one can avail of to further bring down their taxable income.

Different Tax Slabs

From the financial year 2020-21 onward, taxpayers have to choose between the old or existing tax regime and the new one (as introduced in Budget 2020). The old tax regime continues to have three tax slabs with the option to avail of tax deductions and exemptions under sections of the Income Tax Act. Meanwhile, the new tax regime has six tax slabs and lower rates, but taxpayers have to forego most of the tax benefits available under the old regime.

Here are the tax slabs for FY 2021-22 under the two Income Tax regimes.

Tax slabs under old and new regime (for individual taxpayers under the age of 60 years, NRIs and HUFs):

Total income (in Rs)	Tax rates under old regime	Tax rates under new regime
Up to Rs 2.5 lakh	Nil	Nil
Rs 2.5 lakh to Rs 5 lakh	5%	5%
Rs 5 lakh to Rs 7.5 lakh	20%	10%
Rs 7.5 lakh to Rs 10 lakh	20%	15%
Rs 10 lakh to Rs 12.5 lakh	30%	20%
Rs 12.5 lakh to Rs 15 lakh	30%	25%
Above Rs 15 lakh	30%	30%

E-filing process

Nowadays, you can file your income tax returns (ITR) online, using the tax department's e-filing portal. This makes the tax filing process quicker, simpler and more convenient. You can enter the relevant data directly on the e-filing portal and submit it to complete your ITR filing process. To file your ITR online, you need to be registered on the I-T Department's e-filing portal. Here is a step-by-step guide on how to proceed with the ITR e-filing process.

Visit the Income Tax Department's e-Filing portal (www.incometaxindiaefiling.gov.in).
If you are a first-time user, make sure you register on the portal. Once registered, login to the e-filing portal by using your user ID (PAN) and password.
Enter the captcha code and log in.
Select the 'e-file' tab and click on the 'Income Tax Return' link.

On the Income Tax Return Page:

PAN will be auto-populated.
Select 'Assessment Year'.
Select 'ITR Form Number'.
Select 'Filing Type' as 'Original/Revised Return'.
Select 'Submission Mode' as 'Prepare and Submit Online'.
Click on 'Continue'.
Go through the instructions carefully and fill all the applicable and mandatory fields of the online ITR form.
Choose the appropriate verification option in the 'Taxes Paid and Verification' tab.
Click on the 'Preview and Submit' button and verify all the data entered in the ITR.
'Submit' the ITR.
Once the ITR is submitted, e-verification has to be completed by entering EVC/OTP. This can be done using Aadhaar OTP, pre-validated bank or demat account.
The EVC/OTP should be entered within 60 seconds else, the Income Tax Return (ITR) will be auto-submitted. The submitted ITR should be verified later by using 'My Account > e-verify Return' option.