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 Terminology & Tax Rates

Terminology & Tax Rates


Sources of Income Tax Law in India

1. Income tax Act, 1961 (Amended up to date)

2. Annual Amendments

  • Income tax Act has undergone several amendments from the time it was originally enacted through the Union Budget. Every year, a Finance Bill is presented before the Parliament by the Finance Minister. The Bill contains various amendments which are sought to be made in the areas of direct and indirect taxes levied by the Central Government.
  • When the Finance Bill is approved by both the Houses of Parliament and receives the assent of the President, it becomes the Finance Act. The provisions of such Finance Act are thereafter incorporated in the Income Tax Act.
  • If on the 1st day of April of the Assessment Year, the new Finance Act has not been enacted, the provisions in force in the preceding Assessment Year or the provisions proposed in the Finance Bill before the Parliament, whichever is more beneficial to the assessee, will apply until the new provisions become effective [Sec. 294]

Note: Besides these amendments, whenever it is found necessary, the Government introduces amendments in the form of various Amendment Acts and Ordinances.

3. Income tax Rules, 1962 (Amended up to date)

4. Circulars and Clarifications by CBDT

5. Judicial Decision

Basic principles for charging Income Tax [Sec. 4]

1. Income of the previous year of a person is charged to tax in the immediately following assessment year.

2. Rate of tax is applicable as specified by the Annual Finance Act of that year or in some cases as prescribed in the Act itself.

3. In respect of income chargeable to tax, tax shall be deducted at source, or paid in advance (wherever applicable).

Assessment Year (A.Y.) [Sec. 2(9)]

Assessment year means the period of 12 months commencing on the 1st day of April every year.

It is the year (just after previous year) in which income earned in the previous year is charged to tax.

Previous Year [Sec.3]

Previous Year means the financial year (April - March) immediately preceding the Assessment Year. Income earned in a year is assessed in the next year. The year in which income is earned is known as Previous Year and the next year in which income is assessed is known as Assessment Year.

Determination of the first previous year in case of a new business or profession or for a new source of income

In case of

Previous year is the period

Business or profession being newly set-up

Beginning with the date of setting up of the business & ending on 31st March of that financial year.

A source of income newly coming into existence

Beginning with the date on which the new source of income comes into existence & ending on 31st March of that financial year.

Exception to the rule that income of a previous year is taxed in its assessment year
This is the general rule that income of the previous year of an assessee is charged to tax in the immediately following assessment year. However, in the following cases, income of the previous year is assessed in the same year in order to ensure smooth collection of income tax from the taxpayer who may not be traceable, if assessment is postponed till the commencement of the Assessment Year:

1.  Income of a non-resident assessee from shipping business (Sec. 172)

2.  Income of a person who is leaving India either permanently or for a long period (Sec. 174)

3.  Income of bodies, formed for a short duration  (Sec. 174A)

4.  Income of a person who is likely to transfer property to avoid tax (Sec. 175)

5.  Income of a discontinued business (Sec. 176). In this case, the Assessing Officer has the discretionary power i.e. he may assess the income in the same previous year or may wait till the Assessment year.

Person [Sec. 2 (31)]

The term person includes the following:

i)

an Individual;

ii)

a Hindu Undivided Family (HUF);

iii)

a Company;

iv)

a Firm (including LLP);

v)

an Association of Persons (AOP) or a Body of Individuals (BOI), whether incorporated or not;

vi)

a Local authority; &

vii)

every artificial juridical person not falling within any of the preceding categories

Company [Sec. 2(17)]

Company means:

a. any Indian company; or

b.  any body corporate, incorporated under the laws of a foreign country; or

c. any institution, association or body which is or was assessable or was assessed as a company for any assessment year on or before April 1, 1970; or

d. any institution, association or body, whether incorporated or not and whether Indian or non-Indian, which is declared by general or special order of the Central Board of Direct Taxes to be a company.

Indian Company [Sec. 2(26)]

An Indian company means a company formed & registered under the Companies Act, 1956 & includes

a.  a company formed and registered under any law relating to companies formerly in force in any part of India other than the state of Jammu & Kashmir and the Union territories specified in (c) infra;

b.  a company formed and registered under any law for the time being in force in the State of Jammu & Kashmir;

c. a company formed and registered under any law for the time being in force in the Union territories of Dadar & Nagar Haveli, Goa, Daman & Diu and Pondicherry;

d.  a corporation established by or under a Central, State or Provincial Act;

e.  any institution, association or body which is declared by the Central Board of Direct Taxes (CBDT) to be a company u/s 2(17).

In the aforesaid cases, a company, corporation, institution, association or body will be treated as an Indian company only if its registered office or principal office, as the case may be, is in India.

Domestic Company [Sec. 2(22A)]

Domestic company means:

i)  an Indian company; or

ii) any other company, which in respect of its income liable to tax under the Act, has made prescribed arrangements for the declaration and payment of dividends (including dividend on preference share), payable out of such income, within India.

Foreign Company [Sec. 2(23A)]
Foreign company means a company which is not a domestic company.

Exemption, deduction and relief

Exemption: Every income of the assessee is charged to tax unless specifically exempted under the Act. Sec. 10 provides list of incomes which are not to be included in the total income of the assessee for tax purpose. In other words, these incomes are out of the purview of income tax and for tax purpose, total income is computed without taking these incomes into consideration.

Deduction: From the gross total income of the assessee, deductions are allowed on fulfillment of conditions as prescribed in the various sections of chapter VIA. Chapter VIA of the Act (comprises of sections 80C to 80U) provides for various deductions from gross total income. Apart from deduction under chapter VIA, several sections of the Act also provide for deduction while computing income under each head of income E.g. Sec. 24(a) allows Standard Deduction to compute income under the head Income from House Property.

Relief: Income tax liability of assessee is computed on the total income after allowing various exemptions & deductions under several sections of the Act. Relief are reduced from the amount of income-tax liability so computed on fulfillment of conditions as prescribed in Sec. 86, 89, etc.

Heads of Income [Sec. 14]

According to Sec.14 of the Act, all income of a person shall be classified under the following five heads:

1. Salaries;

2. Income from house property;

3. Profits and gains of business or profession;

4. Capital gains;

5. Income from other sources. 

For computation of income, all taxable income should fall under any of the five heads of income as mentioned above. If any type of income does not become part of any one of the above mentioned first four heads, it should be part of the fifth head, i.e. Income from other sources, which may be termed as the residual head.

Gross Total Income (GTI) [Sec. 80B(5)]

Gross total income is the aggregate of income under all the five heads of income after adjusting the set-off & carry forward of losses. Deductions under chapter VIA is provided from GTI, to arrive at Total income or taxable income.

Computation of Total Income for the A.Y.___

Particulars

Amount

1. Salaries

***

2. Income from house property

***

3. Profits and gains of business or profession

***

4. Capital gains

***

5. Income from other sources

  ***

Total [(1) + (2) +(3) + (4) + (5)]

****

Less: Adjustment on account of set-off and carry forward of losses

  ***

Gross Total Income

****

Less: Deduction u/s 80C to 80U

****

Total Income

****

Rounding-off of total income [Sec.288A]

The total income so computed will have to be rounded off to the nearest multiple of 10, i.e., if the last figure in the rupee element is 5 or more, it should be rounded off to the next higher amount, which is a multiple of 10. The paise element should be ignored.

Rounding-off of tax [Sec.288B]

The tax calculated on the total income should be rounded off to the nearest ten rupee. Amount of tax (including TDS or advance tax), interest, penalty, etc. and refund shall be rounded off to the nearest ten rupee.


Tax Rates for various Assessment Years

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Individual/HUF/Association of Persons/Body of Individuals/Artificial Juridical Person

In case of Senior citizen
Total Income Range
Rates of Income Tax
Up to Rs.2,50,000
Nil
Rs.2,50,001 to Rs.5,00,000
10% of the amount by which the total income exceeds Rs.2,50,000
Rs.5,00,001 to Rs.10,00,000
Rs.25,000 + 20% of the amount by which the total income exceeds Rs.5,00,000
Rs.10,00,001 and above
Rs.1,25,000 + 30% of the amount by which total income exceeds Rs.10,00,000
Senior Citizen means an individual who is resident in India and is of at least 60 years of age (and below 80 years) at any time during the relevant previous year.

In case of Very Senior citizen
Total Income Range
Rates of Income Tax
Up to Rs.5,00,000
Nil
Rs.5,00,001 to Rs.10,00,000
20% of the amount by which the total income exceeds Rs.5,00,000
Rs.10,00,001 and above
Rs.1,00,000 + 30% of the amount by which total income exceeds Rs.10,00,000
Very Senior Citizen means an individual who is resident in India and is of at least 80 years of age at any time during the relevant previous year.

In case of other Individual (including resident woman below 60 years of age) / HUF AOP / BOI /Artificial Juridical Person
Total Income Range
Rates of Income Tax
Up to Rs.2,00,000
Nil
Rs.2,00,001 to Rs.5,00,000
10% of the amount by which the total income exceeds Rs.2,00,000
Rs.5,00,001 to Rs.10,00,000
Rs.30,000 + 20% of the amount by which the total income exceeds Rs.5,00,000
Rs.10,00,001 and above
Rs.1,30,000 + 30% of the amount by which total income exceeds Rs.10,00,000

Rebate u/s 87A

Applicable to: Resident Individual

Conditions to be satisfied: Total income of the assessee does not exceed Rs.5,00,000.

Quantum of Rebate: Lower of the following:

•  100% of tax liability as computed above; or

•  Rs.2,000/-

Surcharge: 10% of income-tax (if total income exceeds Rs.1 crore otherwise Nil)

Marginal Relief:

Condition: Total income exceeds Rs.1,00,00,000

Relief: Marginal relief is provided to ensure that the additional income tax payable including surcharge on excess of income over Rs.1,00,00,000 is limited to the amount by which the income is more than Rs.1,00,00,000

Marginal relief = [(Income tax + surcharge) on income] - [(Income tax on Rs.1,00,00,000) + (Income Rs.1,00,00,000)]

Education Cess and Secondary and Higher Education Cess (SHEC)
Applicable on:  All assessee.
Rate of education cess:  2% of Tax and surcharge
Rate of Secondary and Higher Education Cess:  1% of Tax and surcharge

 

Firm or Limited Liability Partnership (LLP)
A partnership firm (including limited liability partnership) is taxable at the rate of 30%
Surcharge: 10% of income-tax (if total income exceeds Rs.1 crore otherwise Nil) subject to marginal relief

Education Cess and SHEC: 2% of tax and surcharge and 1% of tax and surcharge respectively.

 
Company
In the case of Domestic Company
30%
In the case of Foreign Company
40%

Surcharge (subject to marginal relief)

Total Income

Domestic Company

Foreign Company

If total income exceeds Rs.10 crore

10%

5%

If income exceeds Rs.1 crore but does not exceed Rs.10 crore

5%

2%

If income does not exceed Rs.1 crore

Nil

Nil

Education Cess and SHEC: 2% of tax and surcharge and 1% of tax and surcharge respectively.

Individual/HUF/Association of Persons/Body of Individuals/Artificial Juridical Person
In case of Senior citizen
Total Income Range
Rates of Income Tax
Up to Rs.250000
Nil
Rs.250001 to Rs.500000
10% of the amount by which the total income exceeds Rs.250000
Rs.500001 to Rs.800000
Rs.25000 + 20% of the amount by which the total income exceeds Rs.500000
Rs.800001 and above
Rs.85000 + 30% of the amount by which total income exceeds Rs.800000
Senior Citizen means an individual who is resident in India and is of at least 60 years of age (and below 80 years) at any time during the relevant previous year.

In case of Very Senior citizen
Total Income Range
Rates of Income Tax
Up to Rs.500000
Nil
Rs.500001 to Rs.800000
20% of the amount by which the total income exceeds Rs.500000
Rs.800001 and above
Rs.60000 + 30% of the amount by which total income exceeds Rs.800000
Very Senior Citizen means an individual who is resident in India and is of at least 80 years of age at any time during the relevant previous year.
 
In case of other Individual (including resident woman below 60 years of age) / HUF AOP / BOI /Artificial Juridical Person
Total Income Range
Rates of Income Tax
Up to Rs.200000
Nil
Rs.200001 to Rs.500000
10% of the amount by which the total income exceeds Rs.200000
Rs.500001 to Rs.800000
Rs.30000 + 20% of the amount by which the total income exceeds Rs.500000
Rs.800001 and above
Rs.90000 + 30% of the amount by which total income exceeds Rs.800000
 
Education Cess and Secondary and Higher Education Cess (SHEC)
Applicable on:  All assessee.
Rate of education cess:  2% of Tax liability
Rate of Secondary and Higher Education Cess:  1% of Tax liability

 

Firm or Limited Liability Partnership (LLP)
A partnership firm (including limited liability partnership) is taxable at the rate of 30%
Education Cess and SHEC: 2% of tax liability and 1% of tax liability respectively.

 
Company
In the case of Domestic Company
30%
In the case of Foreign Company
40%
Surcharge: 5% (2% in case of non domestic company) of income-tax (if total income exceeds Rs.1 crore otherwise Nil)
Education Cess and SHEC: 2% of tax liability and 1% of tax liability respectively.

Individual/HUF/Association of Persons/Body of Individuals/Artificial Juridical Person
In case of Senior citizen
Total Income Range
Rates of Income Tax
Up to Rs.250000
Nil
Rs.250001 to Rs.500000
10% of the amount by which the total income exceeds Rs.250000
Rs.500001 to Rs.800000
Rs.25000 + 20% of the amount by which the total income exceeds Rs.500000
Rs.800001 and above
Rs.85000 + 30% of the amount by which total income exceeds Rs.800000
Senior Citizen means an individual who is resident in India and is of at least 60 years of age (and below 80 years) at any time during the relevant previous year.

In case of Very Senior citizen
Total Income Range
Rates of Income Tax
Up to Rs.500000
Nil
Rs.500001 to Rs.800000
20% of the amount by which the total income exceeds Rs.500000
Rs.800001 and above
Rs.60000 + 30% of the amount by which total income exceeds Rs.800000
Very Senior Citizen means an individual who is resident in India and is of at least 80 years of age at any time during the relevant previous year.
 
In case of resident women aged below 60 years
Total Income Range
Rates of Income Tax
Up to Rs.190000
Nil
Rs.190001 to Rs.500000
10% of the amount by which the total income exceeds Rs.190000
Rs.500001 to Rs.800000
Rs.31000 + 20% of the amount by which the total income exceeds Rs.500000
Rs.800001 and above
Rs.91000 + 30% of the amount by which total income exceeds Rs.800000
 
In case of other Individual/HUF/Association of Persons/Body of Individuals/Artificial Juridical Person
Total Income Range
Rates of Income Tax
Up to Rs.180000
Nil
Rs.180001 to Rs.500000
10% of the amount by which the total income exceeds Rs.180000
Rs.500001 to Rs.800000
Rs.32000 + 20% of the amount by which the total income exceeds Rs.500000
Rs.800001 and above
Rs.92000 + 30% of the amount by which total income exceeds Rs.800000
 
Education Cess and Secondary and Higher Education Cess (SHEC)
Applicable on:  All assessee.
Rate of education cess:  2% of Tax liability
Rate of Secondary and Higher Education Cess:  1% of Tax liability

 

Firm or Limited Liability Partnership (LLP)
A partnership firm (including limited liability partnership) is taxable at the rate of 30%
Education Cess and SHEC: 2% of tax liability and 1% of tax liability respectively.

 
Company
In the case of Domestic Company
30%
In the case of Foreign Company
40%
Surcharge: 5% (2% in case of non domestic company) of income-tax (if total income exceeds Rs.1 crore otherwise Nil)
Education Cess and SHEC: 2% of tax liability and 1% of tax liability respectively.

Individual/HUF/Association of Persons/Body of Individuals/Artificial Juridical Person
In case of Senior citizen
Total Income Range
Rates of Income Tax
Up to Rs.240000
Nil
Rs.240001 to Rs.500000
10% of the amount by which the total income exceeds Rs.240000
Rs.500001 to Rs.800000
Rs.26000 + 20% of the amount by which the total income exceeds Rs.500000
Rs.800001 and above
Rs.86000 + 30% of the amount by which total income exceeds Rs.800000
Senior Citizen means an individual who is resident in India and is of at least 65 years of age at any time during the relevant previous year.
 
In case of resident women aged below 65 years
Total Income Range
Rates of Income Tax
Up to Rs.190000
Nil
Rs.190001 to Rs.500000
10% of the amount by which the total income exceeds Rs.190000
Rs.500001 to Rs.800000
Rs.31000 + 20% of the amount by which the total income exceeds Rs.500000
Rs.800001 and above
Rs.91000 + 30% of the amount by which total income exceeds Rs.800000
 
In case of other Individual/HUF/Association of Persons/Body of Individuals/Artificial Juridical Person
Total Income Range
Rates of Income Tax
Up to Rs.160000
Nil
Rs.160001 to Rs.500000
10% of the amount by which the total income exceeds Rs.160000
Rs.500001 to Rs.800000
Rs.34000 + 20% of the amount by which the total income exceeds Rs.500000
Rs.800001 and above
Rs.94000 + 30% of the amount by which total income exceeds Rs.800000
 
Education Cess and Secondary and Higher Education Cess (SHEC)
Applicable on:  All assessee.
Rate of education cess:  2% of Tax liability
Rate of Secondary and Higher Education Cess:  1% of Tax liability

 

Firm or Limited Liability Partnership (LLP)
A partnership firm (including limited liability partnership) is taxable at the rate of 30%
Education Cess and SHEC: 2% of tax liability and 1% of tax liability respectively.

 
Company
In the case of Domestic Company
30%
In the case of Foreign Company
40%
Surcharge: 7.5% (2.5% in case of non domestic company) of income-tax (if total income exceeds Rs.1 crore otherwise Nil)
Education Cess and SHEC: 2% of tax liability and 1% of tax liability respectively.