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Basics of Income Tax for Beginners

Income tax – is a tax that you are required to pay on your income.

Investment plans also act as tax-planning tools, as many avenues help reduce tax liability. There are different types of investment plans, and by choosing the right one, you can invest according to your needs and grow your savings.Read Less

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Written ByPalak Bagadia
AboutPalak Bagadia
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Palak Bagadia, Associate – Digital Marketing at Bajaj Allianz Life, with experience spanning content and performance marketing, recruitment, employee engagement in the BFSI industry.
Reviewed ByRituraj Singh
AboutRituraj Singh
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Rituraj Singh,With over 6.5 years of experience in the insurance industry, Rituraj Singh, Manager- Product & Brand Marketing at Bajaj Allianz Life Insurance overlooks new product launches, compliance, and brand projects, leveraging artificial intelligence and technology to enhance outcomes.
Written on: 7th July 2024
Modified on: 7th July 2024
Reading Time: 15 Mins
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In a financial year, starting from 1st April and ending on 31st March, any income that you earn is subject to income tax as per the provisions stated in the Income Tax Act, 1961 (the Act), if your annual income exceeds Rs.2.5 lakhs. Every year, you are required to file your income tax returns with the income tax department. However, income tax aspects and its filing are a little technical in nature. If you don’t understand the technicalities, you might end up making errors in your returns that might cost you dearly.

So, here’s a basic beginner’s guide to understanding the common income tax concepts.

 

The concept of slab rates

 

In India, the annual income is taxed in a progressive manner. The tax rates keep increasing with increasing income. There are different slabs for different income levels. This is called slab rates. Depending on which slab your income falls in, your income would be taxed.

The slab rates for the financial year 2022-23¹ (if opted under old regime) for taxpayers below 60 years of age and Hindu Undivided Families (HUFs) are as follows –

Income levelSlab rates
Up to Rs.250,000Nil. No tax is levied on incomes up to Rs.2.5 lakhs
Rs.250,001 to Rs.500,0005% of income exceeding Rs.250,000
Rs.500,001 to Rs.10,00,000Rs.12,500 + 20% of income exceeding Rs.500,000
Rs.10,00,001 and aboveRs.112,500 + 30% of income exceeding Rs.10,00,000

 

New regime tax slab, pre-Budget 20238

 

Income levelTax rate
Up to Rs.2,50,000Nil
Rs.2,50,001 to Rs.5,00,0005%
Rs.5,00,001 to Rs.7,50,00010%
Rs.7,50,001 to Rs.10,00,00015%
Rs.10,00,001 to Rs.12,50,00020%
Rs.12,50,001 to Rs.15,00,00025%
Rs.15,00,001 and above30%

However, in the Union Budget 2023$, the tax slab has been changed and is as follows –

 

New regime tax slab, post-Budget 20238

 

IncomeTax rate
Up to Rs.3,00,000Nil
Rs.3,00,001 to Rs.6,00,0005%
Rs.9,00,001 to Rs.12,00,00015%
Rs.12,00,01 to Rs.15,00,00020%
Rs.15,00,001 and above30%

 

Deductions under the Income Tax Act, 1961²

 

The Income Tax Act, 1961 offers different types of deductions that help in reducing your taxable income. Most of these deductions are contained in Chapter VI A of the Act.

Some of the popular deductions are as follows –

Deduction sectionDeduction details
Section 80CAllowed against eligible tax saving investments and expenses like ELSS, life insurance premium, PPF, 5-year fixed deposits, children tuition fees, home loan principal repayment, among others. The maximum limit is Rs.1.5 lakhs for all tax saving investments and expenses combined.
Section 80DAllowed for health insurance premiums for your family. The maximum limit is Rs.25,000 if you are below 60 years. If you or your spouse is above 60 years, maximum deduction available is Rs. 50,000. Further Additional deduction is available if health insurance premium paid for parents. The limit is Rs.25,000 if parents are below 60 else Rs.50,000. In case, both taxpayer and parent(s) are 60 years or above, the maximum deduction available under this section is up to Rs.1,00,000.
Section 80EAllowed for the interest paid on education loan
Section 80TTAAllowed for savings account interest earned. The exemption limit is up to Rs.10,000
Section 80TTBAllowed for interest earned by senior citizens on their deposits. The exemption limit is up to Rs.50,000
Section 80GAllowed for donations specified u/s 80G of Income Tax Act 1961. Donations made in cash above Rs. 2,000 shall not be allowed as exemption.

 

Exemptions under the Income Tax Act, 1961

 

Just like deductions, tax exemptions also give you a tax benefit on your income and expenses. Some of the popular exemptions include the following –

Exemption sectionExemption detail
Section 24(b)3Exemption for the interest paid on a home loan. The limit is Rs.2 lakhs
Section 10(10A)5Exemption for the commuted amount of pension.
Section 10(10D)4Exemption for any benefit received from a life insurance policy provided that the premium is up to 10% of the sum assured and policy is issued after 31 March 2012. In the case of ULIPs, the aggregate annual premium should be up to Rs.2.5 lakhs for policies taken on or after 1st February 2021.
Section 10(13A)6Exemption for the House Rent Allowance (HRA) that you receive from your employer. This deduction is available only if you are paying house rent.
Section 10(5)7Exemption for the Leave Travel Allowance (LTA) that you receive from your employer. This deduction is available for 2 years out of block of 4 calendar years.

 

The basic exemption limit for tax filing

 

If your income is within Rs.2.5 lakhs in a financial year, you are not required to file your ITR because Rs.2.5 lakh is the basic exemption limit for tax filing.

Moreover, if your income is more than Rs.2.5 lakhs but less than Rs.5 lakhs, you get a tax rebate under Section 87A. The rebate is up to Rs. 12,500 or your tax liability in an assessment year, whichever is lower, before adding cess. Through the rebate, your tax liability becomes nil.

 

Gross income v/s taxable income – the meaning and difference

 

When filing your tax returns, you would come across two terms – gross income and taxable income. Both these terms have different meanings. Let’s understand –

 

1. Gross income

 

Gross income means your aggregate income during the financial year. It the amount before considering any deductions or exemptions that you might be eligible for. The gross income is the overall summation of all sources of income that you might have earned in a financial year.

 

2. Taxable income

 

The eligible deductions and exemptions are deducted from the gross income to find your taxable income. The taxable income is the income on which the slab rates apply and tax is computed.

The gross income can be higher or equal to the taxable income. However, the taxable income cannot be higher than the gross income.

 

The bottom line

 

These are some of the basics of income tax that you, as a taxpayer, need to know about. So, understand these tax aspects and use them when calculating your tax liability. Also, use deductions and exemptions during your tax planning to be tax efficient and save more. Income tax calculators help you calculate your estimated tax liability. One may use these income tax calculators to make the job of filing the returns easier. Also, file your ITR on time to avoid penalties.

Ref:

1. https://www.incometax.gov.in/iec/foportal/help/individual/return-applicable-1

2. https://cleartax.in/s/80c-80-deductions

3. https://cleartax.in/s/deductions-under-section24-income-from-house-property

4. https://incometaxindia.gov.in/communications/circular/circular-2-2022.pdf

5. https://incometaxindia.gov.in/Tutorials/11.Tax%20free%20incomes%20final.pdf

6. https://incometaxindia.gov.in/rules/income-tax%20rules/103120000000006868.htm

7. https://incometaxindia.gov.in/rules/income-tax%20rules/103120000000006903.htm

8. https://cleartax.in/s/income-tax-slabs

BJAZ-WEB-ECNF-02422/23

Tax Saving Guide

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Disclaimers:
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#Survey conducted by brand equity – Nielsen in March 2020

~Tax benefits as per prevailing Income tax laws shall apply. Please check with your tax consultant for eligibility.

**Past performance is not indicative of future performance.

$ Subject to the passing of the Finance bill in the Parliament

The above information is for general understanding and is meant to educate the general public at large. The reader will have to verify the facts, law and content with the prevailing tax statutes and seek appropriate professional advice before acting on the basis of the above information.

The views stated in this article is not to be construed as investment advice and readers are suggested to seek independent financial advice before making any investment decisions. For more details on risk factors, terms and conditions please read sales brochure & policy document (available on www.bajajallianzlife.com) carefully before concluding a sale. Tax benefits as per prevailing Income tax laws shall apply. Please check with your tax consultant for eligibility.

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Disclaimer

*Tax benefits as per prevailing Section 10(10D) and Section 80C of the Income Tax Act shall apply. You are requested to consult your tax consultant and obtain independent advice for eligibility before claiming any benefit under the policy.

~Individual Death Claim Settlement Ratio for FY 2023-2024

1Premium Holiday has to be selected at inception to avail this benefit and also depends on other policy terms & conditions


Bajaj Allianz Life Insurance Co. Ltd. | IRDAI Reg. No. 116

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Terms & Conditions

I hereby authorize Bajaj Allianz Life Insurance Co. Ltd. to call me on the contact number made available by me on the website with a specific request to call back. I further declare that, irrespective of my contact number being registered on National Customer Preference Register (NCPR) or on National Do Not Call Registry (NDNC), any call made, SMS or WhatsApp sent in response to my request shall not be construed as an Unsolicited Commercial Communication even though the content of the call may be for the purposes of explaining various insurance products and services or solicitation and procurement of insurance business

 

Please refer to BALIC Privacy Policy

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%%Above illustration is for Bajaj Allianz Life eTouch- A Non Linked, Non-Participating, Individual Life Insurance Term Plan (UIN: 116N172V03) considering Male aged 25 years | Non-Smoker | Policy Term (PT)– 30 years | Premium Payment Term (PPT) – 30 years | Sum Assured opted is Rs. 1,00,00,000 | Online Channel | Standard Life | 1st Year Premium is Rs. 6,238. 2nd Year onwards premium is Rs. 6,659. Total Premium Paid is Rs. 1,99,349 | Medical Rates | Yearly Premium Payment Mode | Death benefit opted is lumpsum payout and monthly installments (Lumpsum Payout Percentage : 45, Income Payout Percentage : 55) | Premium shown above is exclusive of Goods & Service Tax/any other applicable tax levied, subject to changes in tax laws, and any extra premium and is for illustrative purpose only. This is inclusive of all the discounts mentioned above.

##Tax benefits as per prevailing Section 10(10D) and Section 80C of the Income Tax Act shall apply. You are requested to consult your tax consultant and obtain independent advice for eligibility before claiming any benefit under the policy.Above Tax benefit is calculated considering deduction of Rs. 150,000 and applicable tax rate of 31.20%.

@Term Insurance plan bought online directly from Bajaj Allianz Life Insurance has no commissions involved.

^^The Return of Premium amount is total of all the premiums received, exclusive of extra premium, rider premium and GST & /any other applicable tax levied, subject to changes in tax laws
Bajaj Allianz Life Insurance Co. Ltd. | IRDAI Reg. No. 116

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Disclaimer

Bajaj Allianz Life eTouch- A Non Linked, Non-Participating, Individual Life Insurance Term Plan (UIN: 116N172V04)

*Tax benefits as per prevailing Section 10(10D) and Section 80C of the Income Tax Act shall apply. You are requested to consult your tax consultant and obtain independent advice for eligibility before claiming any benefit under the policy.Above Tax benefit is calculated considering deduction of Rs. 150,000 and applicable tax rate of 31.20%.

~Individual Death Claim Settlement Ratio for FY 2023-2024

1Premium Holiday has to be selected at inception to avail this benefit and also depends on other policy terms & conditions


Bajaj Allianz Life Insurance Co. Ltd. | IRDAI Reg. No. 116


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Disclaimer

^Subject to Section 10 (10D) conditions i.e. aggregate annual premium for ULIP policies issued on or after 1st February 2021 does not exceed Rs. 2.5 Lakhs.

1Minimum premium mentioned is applicable for Bajaj Allianz Life Goal Assure IV - A Unit-linked Non-Participating Individual Life Savings Insurance Plan (UIN: 116L204V01) and is subject to policy terms and conditions.

#Source: https://economictimes.indiatimes.com/investments-marts/eight-crucial-numbers-to-ensure-financial-success/10-times-the-annual-income-is-your-life-insurance/slideshow/16699748.cms . Subject to availability in Bajaj Allianz Life ULIP Plans. For more details on risk factors, terms and conditions please read sales brochure & policy document (available on www.bajajallianzlife.com ) carefully before concluding a sale.

*Benchmark: Nifty 500 Multicap Momentum Quality 50 Index past 5 CAGR Returns, as on 31st December 2024. Past returns of a fund are not necessarily indicative of the future performance of the fund. | Please consult the financial advisor before investing.

The Unit Linked Insurance Products do not offer any liquidity during the first five years of the contract. The policyholder will not be able to surrender or withdraw the monies invested in Unit Linked Insurance Products completely or partially till the end of the fifth year.

ULIPs are different from the traditional insurance products and are subject to the risk factors. The premium paid in ULIPs are subject to investment risks associated with capital markets and the NAVs of the units may go up or down based on the performance of fund and factors influencing the capital market and the insured is responsible for his/her decisions. Bajaj Allianz Life Insurance Company Limited is only the name of the Life Insurance Company and Bajaj Allianz Life Future Wealth Gain IV - A Unit- linked Non- Participating Individual Life Savings Insurance Plan (UIN:116L202V01), Bajaj Allianz Life Goal Assure IV - A Unit-linked Non-Participating Individual Life Savings Insurance Plan (UIN: 116L204V01), Bajaj Allianz Life LongLife Goal III is A Unit-linked Non-Participating Whole Life Insurance Plan (UIN:116L203V01), Bajaj Allianz Life Invest Protect Goal III - A Unit-linked Non-Participating Individual Life Savings Insurance Plan (UIN: 116L205V01), Bajaj Allianz Life Magnum Fortune Plus III - A Unit-linked Non-Participating Individual Life Savings Insurance Plan (UIN: 116L207V01), Bajaj Allianz Life Goal Based Saving III - A Unit-linked Non-Participating Individual Life Savings Insurance Plan (UIN:116L206V01) and Bajaj Allianz Life Smart Wealth Goal V - A Unit-linked Non-Participating Individual Life Savings Insurance Plan (UIN: 116L201V01) are only the name of the unit linked insurance contracts and does not in any way indicate the quality of the contract, its future prospects or returns. Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document issued by the insurance company. The various funds offered under this contract are the names of the funds and do not in any way indicate the quality of these plans, their future prospects and returns. For more details on risk factors, terms and conditions please read sales brochure & policy document (available on www.bajajallianzlife.com ) carefully before concluding a sale.

Nifty 500 Multicap Momentum Quality 50 Index Fund is available Bajaj Allianz Life Future Wealth Gain IV - A Unit- linked Non- Participating Individual Life Savings Insurance Plan (UIN:116L202V01), Bajaj Allianz Life Goal Assure IV - A Unit-linked Non-Participating Individual Life Savings Insurance Plan (UIN: 116L204V01), Bajaj Allianz Life LongLife Goal III is A Unit-linked Non-Participating Whole Life Insurance Plan (UIN:116L203V01), Bajaj Allianz Life Invest Protect Goal III - A Unit-linked Non-Participating Individual Life Savings Insurance Plan (UIN: 116L205V01), Bajaj Allianz Life Magnum Fortune Plus III - A Unit-linked Non-Participating Individual Life Savings Insurance Plan (UIN: 116L207V01), Bajaj Allianz Life Goal Based Saving III - A Unit-linked Non-Participating Individual Life Savings Insurance Plan (UIN:116L206V01) and Bajaj Allianz Life Smart Wealth Goal V - A Unit-linked Non-Participating Individual Life Savings Insurance Plan (UIN: 116L201V01)

In addition to the already existing funds, Nifty 500 Multicap Momentum Quality 50 Index Fund is now available with the above mentioned products. Customer has an option to choose from other available funds apart from Nifty 500 Multicap Momentum Quality 50 Index Fund.

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Terms & Conditions

I hereby authorize Bajaj Allianz Life Insurance Co. Ltd. to call me on the contact number made available by me on the website with a specific request to call back. I further declare that, irrespective of my contact number being registered on National Customer Preference Register (NCPR) or on National Do Not Call Registry (NDNC), any Call made, including via Voice over Internet Protocol & WhatsApp, SMS or WhatsApp messages, in response to my request shall not be construed as an Unsolicited Commercial Communication even though the content of the call may be for the purposes of explaining various insurance products and services or solicitation and procurement of insurance business

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