Income tax is a form of direct tax that is paid on the income that you earn in a financial year1. If any Individual, HUF/ AOP/ BOI/ Artificial Juridical Person earns more than Rs.2.5 lakhs2 in a financial year, as per applicable laws, they might have a tax liability and are required to pay tax on the taxable income.
If your gross total income is above the threshold limit you are surely required to file your income tax return (“ITR”), with the income tax department3. However, some individuals might have confused that income tax and income tax return are the same concepts, though they are different. So, let’s understand what these terms mean and the difference between the two.
What is Income Tax?
As mentioned earlier, income tax is a tax paid on the income earned. The income tax department has specified five heads of income4, under which your income is categorised. They are as follows –
- Income from salary
- Income from business or profession
- Income from house property
- Income from capital gains
- Income from other sources
In a financial year that starts on 1st April and ends on 31st March5, the income that you earn from all the aforementioned heads is aggregated together. Then, the income is taxed based on the tax slab in which your income falls.
The current tax slab6 for the financial year 2022-2023, under the old regime, for individuals who are below the age of 60 years and HUFs, i.e. Hindu Undivided Families, is as follows –
| Income level | Tax rate |
|---|---|
| Up to Rs.2,50,000 | Nil |
| Rs.2,50,001 to Rs.5,00,000 | 5% but a rebate is available under Section 87A which makes your tax liability Nil10 |
| Rs.5,00,001 to Rs.10,00,000 | 20% |
| Rs.10,00,001 and above | 30% |
For individuals in the 60-to-80-year age group, the tax slab is as follows6 –
| Income level | Tax rate |
|---|---|
| Up to Rs.3,00,000 | Nil |
| Rs.300,001 to Rs.5,00,000 | 5 % but a rebate is available under Section 87A which makes your tax liability Nil10 |
| Rs.500,001 to Rs.10,00,000 | 20% |
| Rs.10,00,001 and above | 30% |
For super senior citizens, aged 80 years and above, the tax slab is as follows6 –
| Income level | Tax rate |
|---|---|
| Up to Rs. 5,00,000 | Nil |
| Rs.5,00,001 to Rs. 10,00,000 | 20% |
| Rs.10,00,001 and above | 30% |
A new tax regime was also introduced in the Union Budget 20206 which offers lower tax rates for higher incomes but disallows specific exemptions and deductions available under the existing regime.
The Union Budget 20236,$ made changes to the New Tax Regime and its slabs. The tax slabs under the new regime for individuals of all ages and HUFs from the financial year 2023-24 are as follows6 –
| Income level | Tax rate |
|---|---|
| Up to Rs.3,00,000 | Nil |
| Rs.300,001 to Rs. 6,00,000 | 5% |
| Rs.600,001 to Rs. 9,00,000 | 10% |
| Rs.900,001 to Rs. 12,00,000 | 15% |
| Rs.12,00,001 to Rs. 15,00,000 | 20% |
| Rs.15,00,001 and above | 30% |
Furthermore, the Union Budget 2023$ also extended the income tax rebate limit. Per the latest changes, taxable incomes up to Rs.7 lakhs would be exempt from tax through the rebate available under Section 87A6.
So, depending on which regime you choose, your age and your income, you pay income tax on your income.
What is Income Tax Return?
To pay income tax, you have to file your tax with the income tax department in an applicable specified format. The formats are, available in different forms for different taxpayers with the income tax department. These forms are called income tax returns and they contain a format of statement in which you may input your income, tax already paid, and deductions and exemptions availed.
There are different types of ITR forms used for the different types of sources of income. You have to choose the suitable ITR form and file your income tax return using it.
Income Tax vs Income Tax Return
As per the definition of both the terms, income tax and income tax returns are two different concepts. Here are some of the differences8 between the two –
| Income tax: | Income Tax Return (ITR): |
|---|---|
| It is the tax paid on your aggregate income | It is the form used for filing the details of income tax paid on the income earned. |
| The income tax is levied under five different heads, basis the source of Income. | There are seven9 main types of ITRs available with the income tax department. |
| You can choose between the old and the new tax regime to calculate your tax liability. | The ITR does not change based on the tax regime that you choose. |
| It is a part of the income that you pay to the Government. | It is a record of the tax paid to the Government. |
| Your tax liability might be ‘Nil’ if you claim the available deductions, exemptions and tax rebates. In such cases, no income tax is payable. | Even though you might not need to pay income tax, you have to file your ITR if your gross total income exceeds Rs.2.5 lakhs (or Rs.3 lakhs6 in the new regime) in the financial year10. |
Importance of Income Tax Filing:
Income tax filing is an important task that taxpayers have to undertake if their gross total income is more than Rs.2.5 lakhs10 in a financial year, under the old regime or Rs.3 lakhs6 in the new regime as per Union Budget 2023$. Here are some of the benefits of filing income tax returns and why filing is important11–
1. Record of your income:
The ITR serves as proof of your income and the tax that you paid on the same. This acts as a record for future years and you can also check the segregation of the income that you earned and the deductions or exemptions that you claimed on the same.
2. Possibility of claiming a tax refund:
Some incomes are paid after deducting a TDS (Tax Deducted at Source). TDS is the tax that the payer pays on your behalf. If your actual tax liability is lower than the TDS already paid, you become eligible for a tax refund. To claim this refund, you need to file your income tax return showing the calculation of the tax liability and stating that the liability is less than the TDS already deducted and paid.
3. Useful when availing of loans:
Lenders look at your financial status before granting loans to assess your repayment capacity. Proof of income is usually required when getting loans. The ITR serves as proof of income and proves to be an important document during loan application.
4. Useful for availing Visas:
While processing your Visa applications, immigration authorities ask for your previously filed tax returns. The ITR usually serves as an important document to assess your income in the past years and helps in smoother processing of your visa applications as immigration authorities then deem you as tax compliant.
5. To carry forward losses to the next financial years:
If you suffer a loss in a financial year, there are provisions wherein you can carry forward the loss to the subsequent financial years and use it to offset your tax liability. This carry-forward is, however, possible when you file your income tax return and claim it.
6. To avoid penalty on non-filing of Income Tax Returns:
As mentioned earlier, earning income above the threshold limit requires filing the ITR. You might incur penalties and fines if you don’t file the return. So, filing the return timely, is important for avoiding such penalties.
Conclusion
As a taxpayer, understand the meaning of income tax and income tax return and their differences too. Pay income tax on your income if there’s a tax liability, and then file your returns with the income tax department on time. Keep a copy of your income tax return to maintain a record of your income over the years, and you may also use them as income proofs as and when required.
FAQs
1. Is there a tax liability if my income is Rs.3 lakhs annually under the old tax regime?
No, there is no tax liability if your income is Rs.3 lakhs under the old tax regime. This is because, for incomes from Rs. 250,000 to Rs. 500,000, there’s a rebate under Section 87A12. The section allows a rebate of the tax liability calculated on the income up to a maximum of Rs.12,50012 or the total tax liability before cess, whichever is lower.
When you apply the rebate, the tax liability becomes nil. So, since your income is below Rs.5 lakhs, you are eligible for the rebate, and there will be no tax liability.
2. Is there any surcharge payable on income tax?
Yes, the surcharge is applicable on the income tax provided the income is more than Rs.50 lakhs13. The surcharge rates are as follows13 –
| Income level | Surcharge rate |
|---|---|
| Rs.50 lakhs to Rs.1 crore | 10% |
| Rs.1 crore to Rs.2 crores | 15% |
| Rs.2 crores to Rs.5 crores | 25% |
| More than Rs.5 crores | 37% for old tax regimes for FY 2022-23 and FY 2023-24 37% for New tax regimes for FY 2022-23 25% under new tax regime for FY 2023-24 |
3. How many types of income tax returns are available?
There are seven9 types of ITR available for taxpayers. These include ITR form 1, ITR form 2, ITR form 3, ITR form 4, ITR form 5, ITR form 6 and ITR form 7.
References
1. https://www.business-standard.com/about/what-is-income-tax
2. https://cleartax.in/s/income-tax-slabs
3. https://economictimes.indiatimes.com/wealth/tax/who-has-to-file-income-tax-return-mandatorily/articleshow/78965134.cms
4. https://cleartax.in/s/5-heads-of-income-tax
5. https://cleartax.in/s/what-is-financial-year-assessment-year
6. https://cleartax.in/s/income-tax-slabs
7. https://economictimes.indiatimes.com/wealth/tax/how-income-tax-slabs-have-changed-since-independence/2020-21/slideshow/84229546.cms
8. https://www.bajajfinservmarkets.in/markets-insights/income-tax/articles/difference-between-income-tax-and-income-tax-return.html
9. https://cleartax.in/s/which-itr-to-file
10. https://www.financialexpress.com/money/income-tax/itr-filing-for-ay-2022-23-when-is-it-mandatory-to-file-tax-return-for-an-individual-or-huf/2602536/#:~:text=According%20to%20tax%20rules%2C%20filing,if%20he%20meets%20some%20conditions.
11. https://www.financialexpress.com/money/income-tax/income-tax-return-filing-5-benefits-of-filing-itr-even-if-your-income-is-not-taxable/2289106/
12. https://cleartax.in/s/income-tax-rebate-us-87a
13. https://cleartax.in/s/marginal-relief-surcharge
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