INCOME TAX

There are two types of taxes in India – direct and indirect.

A direct tax is a tax which you pay on your income directly to the government. Indirect tax is a tax that you pay through the products and services you use, like restaurants, theatres and e-commerce websites charge you on for goods or a service. This tax is, in turn, passed down to the government. Indirect taxes take many forms: service tax on restaurant bills and movie tickets, value added tax or VAT on goods such as clothes and electronics.

Goods and services tax, rolled out in July 2017, is a unified tax that will replace all the indirect taxes that business owners have to deal with.

Everyone who earns or gets an income in India is subject to income tax. (Yes, Indians living abroad too). Your income could be salary, pension or could be from a savings account that’s quietly accumulating a 4% interest. Even, winners of prize money on Television Shows have to pay taxes on their prize money.

Income from Salary	Income from salary and pension are covered under here
Income from House Property	This is rental income mostly.
Income from Capital Gains	Income from sale of a capital asset such as mutual funds, shares, house property, agricultural land.
Income from Business and Profession	This is when you are self-employed, work as a freelancer or contractor, or you run a business. Life insurance agents, doctors and lawyers who have their own practice, tuition teachers.
Income from Other Sources	Income from savings bank account interest, fixed deposits, winning KBC.

Tax Slabs
People’s incomes are grouped into blocks called tax brackets or tax slabs. And each tax slab has a different tax rate.

In India, we have four tax brackets each with an increasing tax rate.

Income earners of up to 5 lakhs
Income earners of between 5 lakhs and 10 lakhs
And those who make more than 10 lakhs per year

Income Range	Tax rate	Tax to be paid
up to Rs.2,50,000	No tax	No tax
Between Rs.2.5 lakhs and Rs.5 lakhs	5%	5% of your taxable income
Between Rs.5 lakhs and Rs.10 lakhs	20%	Rs.12,500+ 20% of income above Rs. 5 lakhs
Above 10 lakhs	30%	Rs.1,12,500+ 30% of income above Rs.10 lakhs

This is the income tax slab for FY 2017-18 for taxpayers under 60 years. There are two other tax slabs for two other age groups: those who are 60 and older and those who are above 80.

A word of note: People often misunderstand that if they earn let’s say Rs.12 lakhs, they will be paying a 30% tax on Rs.12 lakhs i.e Rs.3,60,000. That’s incorrect. A person earning 12 lakhs in the progressive tax system, will pay Rs.1,12,500+ Rs.60,000 = Rs. 1,72,500.
Exceptions to the Tax Slab
Capital gains are taxed depending on the asset you own and how long you’ve had it.

Type of capital asset	Holding period	Tax rate
House Property	Holding more than 36 months, Holding less than 36 months	20% Depends on slab rate
Debt mutual funds	Holding more than 36 months, Holding less than 36 months	20% Depends on slab rate
Equity mutual funds	Holding more than 12 months, Holding less than 12 months	Exempt 15%
Shares	Holding more than 12 months, Holding less than 12 months	Exempt 15%
FMPs	Holding more than 36 months, Holding less than 36 months	20% Depends on slab rate

Indians living abroad or Indians earning foreign income are also taxed differently based on their residential status and their income in India.

If you are a NRI, only your income earned or accrued in India is taxable.
If you are resident Indian for that financial year,
then your global income is taxable.

At Anant Finvest, our Tax experts are here to help you file your taxes in time.