Personal Income Tax
Introduction
Taxation is an integral part of financial planning, and understanding personal income tax is crucial for every taxpayer. Filing Income Tax Returns (ITR) is a financial responsibility for every eligible taxpayer in India. Whether it’s a salaried employee, business owner, freelancer, or investor, for compliance, as a responsible citizen or a financial advisor, it is important to understand the nuances of this tax system, tax savings, and financial planning.
What is Personal Income Tax ?
Personal Income Tax is a direct tax imposed by the Government of India on individuals’ earnings. While calculating the Income Tax, Income is classified under separate head, as detailed hereunder:-
- Salaries (Income received from employment)
- House Property Income (Rental Income from House Property received by Landlord)
- Business or Profession Income
- Capital Gains (Income arising on sale of Capital assets)
- Other Sources (interest, dividends, etc.)
Who Needs to Pay ?
- Every person who is liable to pay any tax or any other sum of money under the Income Tax Act, 1961 is required to pay such tax and is called an ‘Assessee’.
- Section 2(31) of the Income Tax Act provides an inclusive definition of the term ‘Person’.
- As per Section 2(31), a Person includes:
- An Individual
- A Hindu Undivided Family (HUF)
- A Company
- A Firm
- An Association of Persons (AOP) or a Body of Individuals (BOI), whether incorporated or not
- A Local Authority
- Every Artificial Juridical Person, not falling within any of the preceding categories
- An association of persons or a body of individuals or a local authority or an artificial juridical person shall be deemed to be a person, whether or not such person or body or authority or juridical person was formed or established or incorporated with the object of deriving income, profits or gains
Rate of Taxes
The rates and slabs differ based on the Individual’s age, Residential Status and the tax regime opted for by the Tax Payer (old vs. new regime).
Income Tax Slabs for FY 2024-25
Under the New tax regime (default), there are simplified slab rates with lower tax rates but with fewer deductions as compared to old regime. In contrast, the old regime offers multiple exemptions and deductions under sections like 80C, 80D, and more.
New Tax Regime
| AY 2025–26 – Income Range | Tax Rate | AY 2026–27 – Income Range | Tax Rate |
|---|---|---|---|
| Up to ₹3,00,000 | Nil | Up to ₹4,00,000 | Nil |
| ₹3,00,001 – ₹7,00,000 | 5% | ₹4,00,001 – ₹8,00,000 | 5% |
| ₹7,00,001 – ₹10,00,000 | ₹20,000 + 10% | ₹8,00,001 – ₹12,00,000 | ₹20,000 + 10% |
| ₹10,00,001 – ₹12,00,000 | ₹50,000 + 15% | ₹12,00,001 – ₹16,00,000 | ₹60,000 + 15% |
| ₹12,00,001 – ₹15,00,000 | ₹80,000 + 20% | ₹16,00,001 – ₹20,00,000 | ₹1,20,000 + 20% |
| Above ₹15,00,000 | ₹1,40,000 + 30% | ₹20,00,001 – ₹24,00,000 | ₹2,00,000 + 30% |
| — | — | Above ₹24,00,000 | ₹3,20,000 + 30% |
Important Note – Tax Rebate
| Particulars | Details |
|---|---|
| Rebate u/s 87A | Rebate up to ₹25,000 is available if total income does not exceed ₹7,00,000 (not applicable to NRIs). |
| Maximum Rebate (New Regime) | Rebate allowed up to ₹60,000 under Section 87A. |
| Nil Tax up to ₹12 Lakh | Under the revised tax structure, individuals earning up to ₹12,00,000 will have no tax liability. |
| Salaried Individuals | Tax liability will be Nil up to ₹12.75 lakh due to ₹75,000 standard deduction. |
Old Tax Regime – Assessment Year 2025–26 (All Age Groups)
| Income Range | Below 60 Years | Age 60–80 Years | Above 80 Years |
|---|---|---|---|
| Up to ₹2,50,000 | Nil | Nil | Nil |
| ₹2,50,001 – ₹3,00,000 | 5% | Nil | Nil |
| ₹3,00,001 – ₹5,00,000 | 5% | 5% | Nil |
| ₹5,00,001 – ₹10,00,000 | ₹12,500 + 20% | ₹10,500 + 20% | 20% |
| Above ₹10,00,000 | ₹1,12,500 + 30% | ₹1,10,000 + 30% | ₹1,00,000 + 30% |
Resident Individual having ‘Net Taxable Income’ less than or equal to Rs.5 lakh will be eligible for tax rebate u/s 87A under the old tax regime, i.e. tax liability will be NIL.
Rebate u/s 87A
- Rebate is the ‘Tax relief for resident individuals, earning income lower than threshold’
- Rebate is allowed to Resident Individual only. Non-residents, Companies, HUF, and other Assesses are not eligible for rebates.
- Rebate for FY 2024 – 25 is as follows:
- Under New Regime, Individuals having Taxable Income up to ₹7 lakhs are eligible for a rebate of ₹ 25,000.
- Under Old Regime, individuals with taxable income up to ₹ 5 lakhs are eligible for a rebate of ₹ 12,500.
- Rebate for FY 2025 – 26 is as follows:
- Under New Regime, Individuals having Taxable Income up to ₹ 12 lakhs are eligible for a rebate of ₹ 60,000.
- Under Old Regime, individuals with taxable income up to ₹ 5 lakhs are eligible for a rebate of ₹ 12,500.
- Marginal Relief on rebate is available under the new regime.
- If Income crosses the Rebate limit and the tax to be paid exceeds the extra income earned, to pay tax equal to that additional income – not more than that
Income tax Return
Understanding Income Tax Returns
Who Needs to File ITR?
Mandatory Filing Criteria
✔ Individuals with income > ₹2.5 lakh (₹3 lakh under New Regime)
✔ Senior Citizens (60+) with income > ₹3 lakh
✔ Super Senior Citizens (80+) with income > ₹5 lakh
✔ All Companies & Firms, regardless of profit or loss
✔ NRIs with Indian-sourced income > ₹2.5 lakh
Special Cases Requiring ITR Filing
✔ If you deposited > ₹1 crore in bank accounts
✔ Spent > ₹2 lakh on foreign travel
✔ Paid > ₹1 lakh in electricity bills
✔ Paid > ₹1 lakh in electricity bills
Even if not mandatory, filing ITR is advisable for financial credibility.
Special Cases Requiring ITR Filing
Comprehensive ITR Form Comparison
| Form | Applicability | Income Sources Covered | Not Allowed For |
|---|---|---|---|
| ITR-1 (Sahaj) | Salaried Individuals (income < ₹50L) | Salary, 1 House Property, Other Income | Capital Gains, Business Income, Lottery or Racehorse income |
| ITR-2 | Non-Business Individuals / HUFs | Multiple House Properties, Capital Gains | Business Income |
| ITR-3 | Individuals / HUFs with Business | Business / Profession Income | – |
| ITR-4 (Sugam) | Individuals / HUFs under Presumptive Taxation | Business under 44AD/44ADA/44AE | Loss Claims |
| ITR-5 | Firms / LLPs / AOPs | Partnership Income | – |
| ITR-6 | Companies | Corporate Income | Section 11 Exemptions |
| ITR-7 | Trusts / Charities | Tax-Exempt Entities | – |
Choosing the wrong form may leads to rejection of ITR filed. It’s better to consult a CA if unsure.
Key Benefits of Filing ITR
Financial Advantages
✔ Tax Refunds: Claim back excess TDS deducted
✔ Loan Approvals: Banks require 2-3 years of ITRs
✔ Visa Processing: Embassies demand ITR copies
✔ Carry Forward Losses: Business/capital losses for 8 years
Compliance Benefits
✔ Avoid penalties up to ₹10,000
✔ Reduce scrutiny risk from tax department
✔ Builds transparent financial history
✔ Mandatory for government tenders/contracts
Essential Documents for ITR Filing
Complete Checklist
| Category | Documents Required |
|---|---|
| ✔ Personal | PAN, Aadhaar, Bank Details |
| ✔ Salary | Form 16, Payslips, HRA Proof |
| ✔ Investments | 80C/80D Proofs, Interest Certificates |
| ✔ Property | Home Loan Statements, Rent Receipts |
| ✔ Business | P&L Statement, Balance Sheet |
| ✔ Other | Form 26AS, Capital Gains Reports |
Step-by-Step ITR Filing Process
Detailed Filing Guide
- Register on [incometax.gov.in](https://www.incometax.gov.in/)
- Download relevant ITR form (based on income sources)
- Fill Details – Personal, Income, Deductions
- Calculate Tax – Use built-in calculator
- Verify Data – Cross-check with Form 26AS
- Submit Return – Digital Signature or EVC
- E-Verify – Via Aadhaar OTP within 120 days
Important Deadlines
Critical Dates to Remember
| Filing Type | Due Date | Consequences of Delay |
|---|---|---|
| ✔ Normal Filing (Non-Auditable) | 31st July | Late fees apply |
| ✔ Audit Cases | 31st October | Higher penalties |
| ✔ Revised ITR | 31st December | Limited corrections |
| ✔ Belated ITR | 31st December | Loss carry-forward not allowed |
Penalties for Late Filing
Cost of Non-Compliance
✔ Late Fee (Sec 234F): ₹1,000-10,000
✔ Interest (Sec 234A): 1% monthly on due tax
✔ Prosecution Risk: For Will-full evasion
✔ Financial Blacklisting: Impacts credit score
Common Mistakes to Avoid
Top 5 ITR Filing Errors
- Choosing wrong ITR form
- Not reconciling Form 16 with 26AS
- Missing interest income from savings accounts
- Incorrect HRA claims without rent receipts
- Forgetting to e – verify after submission
Solution: Use pre-filled JSON option for accurate auto-filling of details.
Professional Assistance for ITR Filing
When to Consult a CA?
✔ Complex capital gains calculations
✔ Business income with depreciation claims
✔ NRI taxation matters
✔ Tax notice resolution
✔ Advanced tax planning strategies
Conclusion: Master Your Taxes with Confidence
Filing Income Tax Returns doesn’t need to be stressful. With proper understanding and planning, a Taxpayer can :-
✔ Maximize tax savings
✔ Avoid penalties
✔ Build strong financial records
✔ Secure future loan approvals
