Income tax is nothing but a certain percentage of the income that taxpayers pay to the government so that this money can be used for development projects and for the betterment of the public overall. The division of income tax into categories and sub-categories, based on the amount of income and the age of the taxpayer is known as the income tax slab. Income tax may be charged at different rates for people of different ages. This is governed by the Income Tax Act of 1961.
Subject to revision
The income tax rates slab is subject to revision each year when the budget is prepared, and various deductions or increments are incorporated into the existing slabs, governed by Section 80C and 80D. The income tax department oversees gathering income taxes from all the people across the country. An individual can calculate the amount of income tax that he must pay for the current year, based on the existing rates for that year.
Factors affecting the calculation of income tax
Over the years, the calculation of income tax has gotten rather complicated and takes various factors into consideration. Some of these factors include:
The surcharge, as the name suggests, is an additional charge over the normal income tax that an individual taxpayer pays. For example, if a person must pay tax on Rs. 5,00,000 at a surcharge of 10%, then this means that he will be paying 10% extra on Rs. 5,00,000, that is, he must pay Rs. 5,50,000.
- Rate of surcharge
Depending on the budget, the rate of surcharge changes every year. For example, the rate of surcharge for the Annual Years 2018-19 and 2019-20 is 10% for an individual who is earning anywhere between Rs. 50 lakh and Rs. One Crore. And is 15% for any individual whose income exceeds Rs. One Crore. However, there has been an upper limit that is capped on this surcharge. This upper limit is called the marginal relief.
The marginal relief cannot exceed the income tax as well as the surcharge that is payable for an income greater than Rs.50 lakh, when the surcharge is 10%, and cannot exceed Rs. One Crore, if it is 15%.
- Surcharge for a partnership firm or local authority
According to the income tax slabs for the Annual Years 2018-19 and 2019-20, the rate of surcharge applicable is at 12%, in case the income is greater than Rs. One Crore. However, the marginal relief, that is, the upper limit for surcharge payable when the income is Rs. One Crore cannot be greater than the amount of income exceeding Rs. One Crore.
- Surcharge for a domestic company
The rate of surcharge for a domestic company is fixed at seven percent for the Annual Years, 2018-19 and 2019-20, in case the income for the said company lies anywhere between Rs. One Crore and Rs. 10 Crore. In this case, too, there is the marginal amount or the upper limit, which cannot be greater than the amount exceeding Rs. One Crore, in case the income lies between Rs. One Crore and Rs. 10 Crore.
However, if the income tends to exceed Rs. 10 Crore, then the rate of surcharge will be five percent. For this too, there is the case of the marginal relief, wherein the income tax paid along with the surcharge cannot exceed the amount of income which is more than Rs. 10 Crore.
- Education and higher and secondary higher education cess
In terms of income tax, the Education and higher and secondary education cess are the extra tax charged over and above the surcharge. They are levied for a specific use or purpose by the government. Applicable for the Annual Year 2018-19, this additional cess will be replaced by health and education cess for the Annual Year 2019-20.
To calculate the total tax, after adding the education and higher and secondary higher education cess, let us take an example. Suppose, Rs. 5,00,000 is the taxable income of an individual. Then, the total amount of tax that the said individual must pay after the levy of surcharge amounts to Rs. 5,50,000.
If the education cess and secondary higher education cess are levied at one percent and two percent respectively, then the education cess the individual must pay is two percent of Rs. 5,50,000, which will amount to Rs. 11,000, and the higher secondary education cess he must pay will be one percent of Rs. 5,50,000, which will amount to Rs. 11,000.
PersonalIncome tax slabs and rates for the year 2018-19
The budget has for the Annual Year 2018-19 was announced recently. According to this year’s budget, there will no change in the income tax slabs, as far as individuals are concerned. Also, no modifications have been done regarding the surcharge and rebate, which is levied under Section 87A.
The income tax slab for individuals whose age is less than 60 years is the same, and those with an income of less than or up to Rs. 2,50,000 will not be taxed. However, for all those individuals whose income tends to go beyond 2,50,000, but does not exceed 5,00,000 will be taxed at five percent on an annual basis.
Also, those whose income is higher than Rs. 5,00,000, but lower than Rs. 10,00,000 will be charged income tax at a rate of 20 percent annually. And finally, for all those individuals whose income exceeds Rs. 10,00,000, a 30 percent tax will be levied.
Also, for all those people who are aged 60 and above, there is no income Tax charged for income up to Rs. 3,00,000. However, they will be charged an income tax of 5% in case this amount exceeds Rs. 3,00,000 but does not exceed Rs. 5,00,000. And, a tax of 20% will be levied if the income is above Rs. 5,00,000, but does not exceed Rs. 10,00,000. Finally, if the income of the said taxpayer is above Rs. 10,00,000, then an income tax of 30% will be charged.
For taxpayers who are of the age 80 and above, there is no income tax levied for an income of up to Rs. 5,00,000. Thereafter, that is, in case the income exceeds Rs. 5,00,000, but doesn’t go beyond Rs. 10,00,000, a 20% of income tax is levied. And finally, in case the income of the said super senior citizen is above Rs. 10,00,000, then an income tax of up to 30% is levied.
Now, let us look at the factors that affect the personal income tax slabs for the current year.
- Standard Deduction
The standard deduction has been reintroduced in the financial year 2018-19, and an individual can claim up to Rs. 40,000 as Tax savings. But what exactly is the standard deduction? The standard deduction is that portion of your income, which is not taxable.
In other words, there is a certain portion of your income will be deducted by your employer. This portion of income cannot be subjected to any further taxes, thereby saving on tax. The standard deduction is available to both employees as well as those who are retired from service. The standard deduction is available for a claim for any income from rent as well. This rate is fixed at 30 percent.
- Gross income
Income tax deductions also depend on the gross income of the individual taxpayer, which is nothing but the total pay the individual gets before the taxes are deducted. The gross income is not limited to salary alone and can include income from other sources such as rent, investment, etc.
- Residential Status
The residential status, that is, whether the taxpayer is residing in his own country, or whether he is outside is also one of the key factors for calculating income tax. In general, a person who is residing in his own country and has never gone outside is a permanent resident. As far as India is concerned, an income taxpayer is a permanent resident if he or she resides in India for a period of 182 days or more in a year. Or, the condition is satisfied even if he resides in India for a period of more than 365 days in a four-year span.
- Assessment Year
A tax payer’s income taxes are evaluated in an assessment year. Whereas, the taxpayer gets his income in a financial year. This is one of the major differences between the assessment year and the financial year, pertaining to income tax calculations. Both the assessment and financial years begin from the first of April of a year and end at the end of March of the next year.
Income taxes are collected by governments across nations for the betterment of society. With that said, people should strive to pay their taxes regularly. Of course, you can save some portion of your income which is not taxable and thus save on taxes, if it is permitted and as per the requirements. But as a citizen of any country and as an earning individual, company or civic authority, it is the duty and responsibility of each one of you to pay your taxes.