Income Tax – Latest Updates, Basics, Tax Slabs, Income Tax Department & Laws – Income Tax Guide 2023-24

Financial year

The financial year is a one-year period that the taxpayers use for accounting and financial reporting purposes. It is the year in which the income is earned. According to the Income Tax Act, such a period begins from 1st April of the calendar year to 31st March of the next calendar year. It is abbreviated as “FY”. For example, for the financial year starting from 1st April 2022 and ending on 31st March 2023, it can be written as FY 2022-23.

Assessment year

The one year period from 1st April to 31st March starting immediately after the financial year is termed as assessment year. This period is called the assessment year because all the taxpayers have to evaluate their income earned in the financial year and pay taxes in this year. For example, for incomes earned during the FY 2022-23, the assessment year will be AY 2023-24.

Assessed

The assesses is a person or a group who assesses his/her income and pays tax as per the Income Tax Act. The assessee can be an individual, a partnership firm, a company, an Association of Persons (AOP), trust, etc.

What is PAN?

PAN is an abbreviation for the Permanent Account Number. It is a unique 10-digit alphanumeric digit issued by the Income Tax Department to Indian taxpayers. All the tax-related transactions and information of a person are recorded against their unique permanent account number. When the person has to pay advance tax or self assessment tax, he/she needs to mention the PAN number. Also, where the person submits his PAN to certain entities like banks, mutual fund companies, etc. The financial information from such entities goes to the income tax department via PAN. This allows the taxman to link all tax-related activities with the department. Hence, just by putting a permanent account number the taxman can identify all your financial transactions.

What is TAN?

TAN is an abbreviation for Tax Deduction and Collection Account Number. It is a unique 10 digit alpha numeric digit allotted by the Income Tax Department of India. All persons responsible for deduction (TDS) or collection of tax (TCS) are responsible for obtaining TAN. It is compulsory to quote the TAN in TDS/TCS return, any TDS/TCS payment challan, and TDS/TCS certificates.

Residents and non residents

Levy of income tax in India is dependent on the residential status of a taxpayer. Individuals who qualify as a resident in India must pay tax on their global income in India i.e. income earned in India and abroad. Whereas, those who qualify as Non-residents need to pay taxes only on their Indian income. The residential status has to be determined separately for every financial year for which income and taxes are computed.

Income Tax Payment

Tax Deducted at Source (TDS)

For specified payments, tax is deducted at source by the payer when making payment to the recipient of income. The recipient of income can claim the credit of the TDS amount by adjusting it with the final tax liability.

Advance Tax

The taxpayer must pay tax in advance when his estimated income tax liability for the year exceeds Rs 10,000. The government has specified due dates for payment of advance tax installments.

Self-Assessment Tax

It is the balance tax that the taxpayer has to pay on the assessed income. The self-assessment tax is calculated after reducing the advance tax and TDS from the total income tax calculated on the assessed income.

e-Payment of Taxes

The taxpayers can pay advance tax, self-assessment tax online from the NSDL website. However, the taxpayer should have a net banking facility with an authorised bank.

Filing your ITR

Filing of income tax return online has been made mandatory for all classes of taxpayers barring few exceptions :

• Taxpayers aged 80 and above need not filed return online
• Taxpayers having an income less than Rs 5 lakhs and not claiming a refund need not file return online

For the rest, online filing is mandatory. Do note that deadlines for filing of returns have also been prescribed. For most individual taxpayers, the due date for filing return of income is 31 July immediately following the concerned financial year. If you do not file on time, here are some disadvantage:

• You will be denied carry forward of losses (except house property loss) to future years
• Delay processing of refund claims if any
• Difficulty on getting home loans
• Levy of late filing fee upto Rs 10,000 under Section 234F
• Levy of interest under 234A if there are taxes due as on 31 July.

E-filing online is a more complete and better alternative to filing on the income tax website. Also it is for more than just e-filing your income tax return. Clear helps you claim all the deductions you’re eligible for and helps you invest. Once you file your return online, you either e-verify the same or take a print of the ITR V and send it to CPC, Bengaluru for processing of your return.
Read our detailed article on e-verification of return of income.
Here’s a guide to e-filing your first tax return on Clear.

Income Tax Return

The taxpayer shall file an income tax return every year via ITR forms prescribed by the income tax department. The government has prescribed seven ITR forms through which the taxpayer can file his income tax return. The taxpayer has to choose the appropriate ITR forms and file his income tax return.

Income Tax Forms List

The seven ITR forms are:

• ITR-1: Individuals (residents) having income from salary, one house property, other sources, agricultural income less than Rs 5,000 and with a total income of up to Rs 50 lakh
• ITR-2: Individuals/HUFs not having any business or profession under any proprietorship
• ITR-3: Individuals/HUFs having income from a proprietary business or profession
• ITR-4: Individuals/HUFs having presumptive income from business or profession
• ITR-5: Partnership firms or LLPs
• ITR-6: Companies
• ITR-7: Trusts

Documents Required for ITR Filing

Form 16, Form 26AS, Form 16A, proof of tax saving investments made, bank account details etc are some of the crucial details / documents that you need to be ready with before filing your return. Further the documents you are going to need to file your tax return are largely going to depend on your source of income. Here is our detailed article on documents you need for filing of your return of income.

How can I calculate my income tax?

Individuals should calculate income tax depending on the nature of income. The salaried individual can take the eligible exemptions available for various allowances received. Individuals/HUF can take a deduction under Sections 80C to 80U, deduct it from the gross total income, and calculate the income tax liability. Also, the total income tax liability should be adjusted by the taxes paid, such as advance tax, TDS, etc. Also, the taxpayer should apply the effect of rebate under Section 87A and relief under Section 89, Section 90, and Section 91 to arrive at the net amount of income tax payable.

Every income that your receive should form part of your income tax return. Of course, the law does provide for exemption of certain incomes eg. dividend income from an Indian company, LTCG on listed equity shares upto Rs 1 lakh in any financial year etc. Therefore, here is a quick guideline you can probably follow to compute taxes due on your income:

• List down all your income – be it salary, rental income, capital gains, interest income or profits from your business or profession
• Remove incomes that are exempt under law
• Claim all applicable deductions available under every source of income . eg claim standard deduction of Rs 50,000 from salary income, claim municipal taxes from rental income, claim business related expenses from your business turnover etc
• Claim all applicable exemptions under every head of income eg. amount reinvested in another house property can be claimed as exemption from capital gains income etc
• Claim applicable deductions from your total income eg the 80 deductions like 80C, 80D, 80TTA, 80TTB etc
• You will now arrive at your taxable income. Check the tax slab you fall under and accordingly arrive at your income tax payable.

The government keeps introducing and altering tax slabs, schemes and tax benefits, so it’s a good idea to keep up with the Budget.

What is computation of income?

The process of calculating taxable income after taking into account the income from all the five heads (salary, house property, capital gains, business or profession, and other sources), exemptions, deductions, rebate, set off of losses, etc., is called computation of income. After computation of income, the taxpayer can compute the income tax liability as per the Income Tax Act.

Rebate u/s 87A

Rebate under Section 87A allows taxpayers reduce their income tax liability. If you are a resident individual and the amount of your total income after reducing Chapter VI-A deductions (Section 80C, 80D, 80U, etc) does not exceed Rs 5 lakh in a financial year, you can claim a tax rebate up to Rs 12,500. This means, if your total tax payable is less than Rs 12,500, then you will not have to pay any tax.

In Budget 2023, a tax rebate on income of Rs 7 lakhs has been introduced under the new tax regime. Therefore, you do not have to pay tax if your taxable income is below 7 lakhs under the new tax regime.

e-File Returns

The taxpayer shall electronically file the income tax return through the e-filing platform of the IT department. To file the income tax return, the taxpayer should first register himself at www.incometax.gov.in. Thereafter, the taxpayer can log in to the website and file his ITR. Also, there is no need to manually send the acknowledgement of the return to the income tax department. The income tax department now allows e-verification of the ITR in different ways, which completes the income tax return process.

What is ITR –V?

Form ITR-V is an income tax return verification form generated after the taxpayer submits files income tax return and submits it to the income tax department. The ITR-V should be e-verified or must be sent to CPC Bangalore at “Income Tax Department – CPC, Post Box No – 1, Electronic City Post Office, Bangalore – 560100, Karnataka” for verification. The ITR processing takes place only if its verification is completed.

Did you e-file your Tax return for this year?

You can file your Income Tax Return on Clear Tax. Even if you don’t know anything about taxes, we will take you step-by-step and help you e-file. Check Clear Tax Income Tax E Filing.

Income Tax Saving Instruments

The taxpayer can save tax by tax planning. A taxpayer can do tax planning by investing in tax-saving instruments. It helps in reducing the income tax liability. Section 80C to 80U of the Income Tax Act allows a deduction for certain expenditures and investments from the total computed income. Some of the popular Section 80C investments are:

*ELSS and NSC have no upper investment limit. However, you get tax benefits under Section 80C only up to Rs 1.5 lakh per financial year.

Health Insurance and Medical Expense Deduction

Apart from the 80C deduction, a taxpayer can also take a tax benefit under Section 80D for health insurance premium and medical expenditure incurred for self, family and parents.

Education Loan Deduction

Under Section 80E, the taxpayer can claim a deduction for the interest paid on a loan taken for higher education. There is no limit to claim such a deduction in the income tax return.

Home Loan Deduction

Under Section 24, the taxpayer can claim a deduction for interest paid on a housing loan during the relevant financial year. The amount of deduction will depend upon whether the house is self-occupied or let out. The taxpayer can also claim a deduction of the principal amount of loan under Section 80C up to Rs 1.5 lakh.

Deduction for Interest Income

The taxpayer can also claim a deduction for interest on deposits from banks under Section 80TTA of the Income Tax Act. The individuals can claim up to Rs 10,000 deduction under the said section.