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As a responsible citizen, paying taxes is one of your most elementary duties. And if you are paying your taxes for the first time, it is nothing short of a milestone. Though some people consider filing taxes to be a herculean task, it really doesn’t have to be so. In this article, we are going to discuss everything you need to know about Income Tax and its filing.

The Basics
You must know by now that the income tax is a tax that the government of India levies on the people who earn an income during a financial year, which begins from 1st April to 31st March. This revenue that the government collects is further utilised for providing healthcare, developing the infrastructure, offering education, welfare schemes and much more. Taxes can be direct as well as indirect. Income tax is a kind of direct tax that we pay to the government directly and is levied as per a person’s income. 

Understand your Income
To understand your income you need to go through your Salary Statement or your Pay Slips. This would give you an idea of the basic components of the salary that you get, how much is the taxable income. If along with your salary you are receiving any other income, that too would be included in your annual income.

The sources of income are:

Income from Salary, Business, House property (owned and/ or rented), Capital gains, and other sources (FDs, gifts received etc).

What are Deductions?
Deductions are the amounts that the Income Tax department allows you in order to reduce your income. This helps you to reduce your tax liability. Deductions are allowed Under Section 80 of the Income Tax Act, from section 80C to Section 80U.

Your Taxable Income = Sum of All Income - Deductions. 
Under Section 80C, Rs. 1.5 lakhs can be deducted from your Gross Income.

Investment options for Tax deductions:

1. Public Provident Fund (PPF): A traditional and risk-free avenue where you can park your money

2. Tax Saving Fixed Deposits: You need to stay invested for a minimum of 5 years

3. Tax Saving Mutual Funds: Equity Linked Saving Schemes have a lock-in of 3 years

4. Other deductions: Insurance Premium, Pension Contribution, RGESS (Rajiv Gandhi Equity Savings Scheme), Interest on Home Loan, Disabled Dependent, Medical Insurance, Medical Expenditure, Donations, Contribution to Political Parties etc.

Income Tax Slabs
Under the Indian tax laws, every taxpayer is taxed in a different way. Companies and firms have a specific rate of tax that is collected on the basis of their profits, individuals, Body of Individuals, Hindu Undivided Family and Association of Persons are charged as per the tax brackets or slabs or categories that they fall into. While presenting the Budget 2020, Finance Minister Smt Nirmala Sitaraman introduced a “New Tax Regime” for individuals and HUF taxpayers. The people have the choice to carry on with the Old regime or follow the New Regime.

The Old Tax Regime
In the old tax regime, there were three tax slabs where the tax rate was 5%, 20% and 30% as per the income bracket. In the old tax regime, they can make a claim of their allowance such as House Rent Allowance, Leave Travel Concession etc.  the tax slab rates are as follows:

For people who are above 60 years and less than 80 years and the people who are above 80, there are two other slabs. 

The New Tax Regime
The financial year 2020-21, will see the new tax regime and as discussed earlier HUFs and individuals have the choice between the two regimes and can pick the one they prefer. The deductions and exemptions have also been changed. The new Income Tax Slabs are as follows:

Filling your Income Tax Return

If you have just started working and are now about to file your first ITR, that is the income tax return, it is natural to feel confused.  Following the ITR filing steps carefully will save you time and effort:

1. Gather the required documents: Collect all the necessary documents such as Form 16, your salary slips, interest certification. You would be in a better position to calculate your gross income.

2. Form 26AS: Form 26AS is like your passbook of taxes, it contains all the details of the taxes that have been deducted from your income during the financial year.

3. Look for Errors: In case the TDS certificate and Form 26AS do not match, rectify the errors at the earliest.

4. Calculate the Gross Income: As discussed earlier you need to compute the income from all different heads and then reduce the deductions. 

5. Calculate the Tax Liability and Tax Payable: Apply the tax rates in force as per your income slab. You can select any out of the Old and the New Tax Regime. If your annual income is below Rs. 2.5 lakhs you would not be required to pay any income tax.

6. File the ITR: Once all calculations are made, start the filing process. Even if your income is not taxable, filing the ITR is mandatory. You can file the claim if any. 

7. Verification: This is the last step of filing ITR. you can verify the ITR electronically or physically. 120 days are given for this verification.

Once the return filing is complete, the Income Tax Department will communicate the same to you via the registered email address. In case of any discrepancies, you will be asked for an explanation. Just follow the given instructions and filing the ITR will be a piece of cake.

Write to us at [email protected] for any queries with regard to this and we will get back to you with all the help you need.