What is Income Tax?

Income tax is a tax imposed by the government on the income earned by individuals and businesses. The tax is calculated based on various income slabs, with different rates applied to different levels of income. In India, income tax is calculated annually, and taxpayers are required to file their returns at the end of each financial year.

Key Components of Income Tax Calculation

1. Gross Income: This includes your salary, income from other sources (like interest, dividends), rental income, and capital gains.
2. Deductions: Certain deductions are allowed under the Income Tax Act, such as:
   • Section 80C: Deductions up to ₹1.5 lakh for investments in ELSS, PPF, NSC, etc.
   • Section 80D: Deductions for medical insurance premiums.
   • Other Deductions: Under various sections like 80G (donations), 24(b) (home loan interest), etc.
3. Taxable Income: Gross Income minus deductions gives the taxable income.
4. Tax Slabs: The taxable income is taxed according to the applicable tax slabs. In India, tax slabs vary based on age (normal, senior citizen, and super senior citizen) and the type of income tax regime (old vs. new regime).

Income Tax Slabs for FY 2023-24 (AY 2024-25)

Under Old Regime

• Up to ₹2.5 lakh: Nil
• ₹2.5 lakh - ₹5 lakh: 5%
• ₹5 lakh - ₹10 lakh: 20%
• Above ₹10 lakh: 30%

Under New Regime

• Up to ₹2.5 lakh: Nil
• ₹2.5 lakh - ₹5 lakh: 5%
• ₹5 lakh - ₹7.5 lakh: 10%
• ₹7.5 lakh - ₹10 lakh: 15%
• ₹10 lakh - ₹12.5 lakh: 20%
• ₹12.5 lakh - ₹15 lakh: 25%
• Above ₹15 lakh: 30%

Example of Income Tax Calculation

Let's say your gross income is ₹12 lakh, and you claim ₹1.5 lakh under Section 80C.

1. Gross Income: ₹12,00,000
2. Deductions (80C): ₹1,50,000
3. Taxable Income: ₹12,00,000 - ₹1,50,000 = ₹10,50,000
4. Tax Calculation:
   • For the first ₹2.5 lakh: Nil
   • Next ₹2.5 lakh (₹2.5 lakh to ₹5 lakh): 5% = ₹12,500
   • Next ₹5 lakh (₹5 lakh to ₹10 lakh): 20% = ₹1,00,000
   • Remaining ₹50,000 (₹10 lakh to ₹10.5 lakh): 30% = ₹15,000
   • Total Tax = ₹12,500 + ₹1,00,000 + ₹15,000 = ₹1,27,500