Taxes in India are of two types – Direct and Indirect. Taxes that cannot be collected from third parties and whose burden directly falls on the tax payer are called Direct Taxes. Personal Income Tax, Corporate Tax and Wealth tax are examples of Direct Taxes. Indirect Taxes are those whose burden can generally be passed on to third parties and can be rightfully collected from them. The principal Indirect Taxes levied in India are Customs Duty, Excise Duty, Service Tax and Sales Tax.
Personal Income Tax
Personal Income Tax is levied on the incomes of individuals, Hindu Undivided Families (HUFs), firms, bodies of individuals and other associations of persons. Personal income tax is progressive – the rate of tax rises as the level of income rises.
Personal Income Tax slab for financial year 2009 – 2010
For Individual / HUF / AOP / BOI
Taxable Income up to Rs. 1,60,000 – NIL
From Rs. 1,60,001 to Rs. 3,00,000 – 10%
From Rs. 3,00,001 to Rs. 5,00,000 – 20%
Above Rs. 5,00,000 – 30%
For Women ( < 65 years of age)
Taxable Income up to Rs. 1,90,000 – NIL
From Rs. 1,90,001 to Rs. 3,00,000 – 10%
From Rs. 3,00,001 to Rs. 5,00,000 – 20%
Above Rs. 5,00,000 – 30%
For Senior Citizen ( >= 65 years of age)
Taxable Income up to Rs. 2,40,000 – NIL
From Rs. 2,40,001 to Rs. 3,00,000 – 10%
From Rs. 3,00,001 to Rs. 5,00,000 – 20%
Above Rs. 5,00,000 – 30%
Personal Income Tax slab for financial year 2010 – 2011
For Individual / HUF / AOP / BOI
Taxable Income up to Rs. 1,60,000 – NIL
From Rs. 1,60,001 to Rs. 5,00,000 – 10%
From Rs. 5,00,001 to Rs. 8,00,000 – 20%
Above Rs. 8,00,000 – 30%
For Women ( < 65 years of age)
Taxable Income up to Rs. 1,90,000 – NIL
From Rs. 1,90,001 to Rs. 5,00,000 – 10%
From Rs. 5,00,001 to Rs. 8,00,000 – 20%
Above Rs. 8,00,000 – 30%
For Senior Citizen ( >= 65 years of age)
Taxable Income up to Rs. 2,40,000 – NIL
From Rs. 2,40,001 to Rs. 5,00,000 – 10%
From Rs. 5,00,001 to Rs. 8,00,000 – 20%
Above Rs. 8,00,000 – 30%
Income Tax Calculation
Following are the five steps for personal income tax calculation:
Step I – Calculate Gross Total Income
Step II – Calculate Total Income after deduction of the eligible deductions
Step III – Calculate taxes on total income according to the applicable tax slab
Step IV – Calculate Tax Payable
Step V – Calculate Net Tax Payable
Income Tax Deductions
Deduction is the amount, which is reduced from the gross total income before computing tax. The Income Tax Act provides for a number of deductions from the Gross Total Income for certain investments and contributions. The brief details of some important deductions are:
(i) Rent paid minus 10% of assessee’s total income; or
(ii) Rs. 2,000 per month; or
(iii) 25% of total income
Income Tax Exemptions
Income tax exemptions means income exempt from tax or tax free income described in Section 10 of Income Tax Act, 196, out of which, some important provisions are described in brief as follows:
(i) Any sum received from key man insurance scheme and other insurance scheme eligible for deduction U/s 80 DD/DDA.
(ii) Any sum received from life insurance policy issued after 1.4.2003 whose annual premium is more than 20% of sum assured and if insured person
is alive.
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