The Indian Income Tax Act is the legal framework for taxation of income in India. It was introduced in 1961 and has been amended several times since then. The Income Tax Act imposes a tax on all income earned by individuals, companies, and other entities in India. The income tax is one of the primary sources of revenue for the Indian government. In this blog, we will discuss the various provisions of the Indian Income Tax Act, the tax rates, and exemptions available.

Overview of Income Tax in India

The Indian Income Tax Act, 1961, is the primary law governing the taxation of income in India. The Act applies to all individuals, Hindu Undivided Families (HUFs), companies, firms, Limited Liability Partnerships (LLPs), Association of Persons (AOPs), and Body of Individuals (BOIs) that earn income in India. The Act is administered by the Central Board of Direct Taxes (CBDT), which is a part of the Department of Revenue, Ministry of Finance, Government of India.

The Income Tax Act is based on the principles of territoriality and residence. This means that income earned by a resident in India is taxable in India, while income earned by a non-resident in India is taxable only if it is received or deemed to be received in India.

The income tax is levied on the total income earned during the previous year. The previous year is the financial year immediately preceding the assessment year. For example, for the assessment year 2023-24, the previous year would be 2022-23.

Tax Rates

The tax rates for individuals and HUFs are as follows:

Income Tax Rates for Individuals and HUFs Income Tax Rates Up to Rs. 2,50,000 Nil Rs. 2,50,001 to Rs. 5,00,000 5% Rs. 5,00,001 to Rs. 10,00,000 20% Above Rs. 10,00,000 30%

For senior citizens (aged 60 years or more) and super senior citizens (aged 80 years or more), the following tax rates apply:

Income Tax Rates for Senior and Super Senior Citizens Income Tax Rates Up to Rs. 3,00,000 Nil Rs. 3,00,001 to Rs. 5,00,000 5% Rs. 5,00,001 to Rs. 10,00,000 20% Above Rs. 10,00,000 30%

For companies, the tax rate is a flat 25%. However, for companies with a turnover of up to Rs. 400 crore in the previous year, the tax rate is 15%.

Exemptions and Deductions

The Income Tax Act provides for various exemptions and deductions that reduce the tax liability of taxpayers. Some of the significant exemptions and deductions are discussed below:

1.      Standard Deduction: A standard deduction of Rs. 50,000 is available for salaried individuals and pensioners.

2.      Leave Travel Allowance: An exemption is available for the amount spent on travel within India for the employee and their family.

3.      House Rent Allowance: An exemption is available for the rent paid by the employee for accommodation.

4.      Deduction under Section 80C: An individual can claim a deduction of up to Rs. 1.5 lakh by investing in specified instruments such as Public Provident Fund (PPF), Equity-Linked Savings Scheme (ELSS), National Savings Certificate (NSC), and life insurance premiums.

5.      Deduction under Section 80D: A deduction of up to Rs. 25,000 is available for medical insurance premiums paid for self, spouse, and dependent children.