Navigating the complexities of income tax can be daunting, especially with frequent updates and changes in tax laws. Whether you’re a salaried individual, a business owner, or a freelancer, understanding the basics of income tax, tax slabs, and new rules for the financial year 2025-26 is crucial for effective financial planning. This comprehensive guide will walk you through everything you need to know about income tax for 2025-26, ensuring you stay compliant and make informed decisions.
In this article, we will explain- what is Income Tax , income tax basics, types of taxpayers, types of income, ITR, etc.
What is Income Tax?
Income tax is a type of direct tax levied by the central government on the income earned by individuals, businesses, and other entities during a financial year. It is one of the primary sources of revenue for the government, enabling it to fund essential public services and welfare programs.
Purpose of Income Tax
The revenue generated from income tax is utilized by the government for various developmental and welfare initiatives, including:
- Building and maintaining infrastructure (roads, railways, airports, etc.).
- Providing healthcare and education facilities.
- Offering subsidies to the agriculture and farming sector.
- Implementing government welfare schemes for the benefit of citizens.
Types of Taxes
Taxes are broadly categorized into two types:
- Direct Taxes:
These are taxes levied directly on the income or wealth of an individual or entity. Examples include:- Income Tax (tax on personal or business income).
- Wealth Tax (though abolished in India, it was a tax on net wealth).
- Indirect Taxes:
These are taxes levied on goods and services rather than directly on income. Examples include:- Goods and Services Tax (GST).
- Customs Duty (on imports and exports).
Why is Income Tax Important?
As a direct tax, income tax plays a crucial role in:
- Ensuring a fair distribution of the tax burden based on an individual’s or entity’s ability to pay.
- Generating revenue for the government to fund public services and economic development.
- Promoting economic stability and growth through targeted investments in key sectors.
Income Tax Basics for 2024-25
Before diving into the tax slabs and new rules, let’s cover some fundamental concepts:
1. Financial Year (FY) and Assessment Year (AY)
- Financial Year (FY): The period from April 1 to March 31 during which income is earned. For 2024-25, the FY is 2024-25.
- Assessment Year (AY): The year following the financial year when income is assessed and taxed. For FY 2024-25, the AY is 2025-26.
2. Types of Income
Income is categorized into five heads under the Income Tax Act:
- Income from Salary: Wages, bonuses, allowances, and other benefits from employment.
- Income from House Property: Rental income from owned property.
- Income from Business or Profession: Profits earned from business or professional activities.
- Income from Capital Gains: Profits from the sale of assets like property, stocks, or mutual funds.
- Income from Other Sources: Interest income, dividends, lottery winnings, etc.
3. Tax Deductions and Exemptions
Taxpayers can reduce their taxable income by claiming deductions under various sections of the Income Tax Act, such as:
- Section 80C: Investments in PPF, ELSS, life insurance premiums, etc. (up to ₹1.5 lakh).
- Section 80D: Health insurance premiums.
- Section 24(b): Interest on home loans.
- Section 10(14): Allowances like HRA, LTA, etc.
Who Should Pay Income Tax? – Types of Taxpayers
According to the Income Tax Act, anyone in India earning taxable income is required to file income tax returns. The individual or entity whose income is assessed for tax is called an assessee. The Income Tax Act categorizes assessees into different types, each subject to specific tax rules.
Categories of Taxpayers
The following are the main categories of taxpayers:
- Individuals
- Hindu Undivided Family (HUF)
- Firms
- Companies
- Association of Persons (AOP)
- Body of Individuals (BOI)
- Local Authority
- Artificial Judicial Person
Types of Income – What are the 5 Heads of Income?
In India, anyone earning income—whether a resident or non-resident—is subject to income tax. To simplify classification, the Income Tax Department categorizes income into five main heads:
1. Income from Salary
- Includes income earned from salary, wages, and pension.
2. Income from House Property
- Covers rental income from owned property.
3. Income from Business and Profession
- Applies to profits earned by self-employed individuals, businesses, freelancers, contractors, and professionals like doctors, lawyers, and tuition teachers.
4. Income from Capital Gains
- Includes income from the sale of capital assets such as property, shares, mutual funds, and jewellery.
5. Income from Other Sources
- Covers income not falling under the above heads, such as interest from savings accounts, fixed deposits, and lottery winnings.
Filing Income Tax Returns (ITR) for 2024-25
Filing your ITR is mandatory if your income exceeds the basic exemption limit. Here’s a quick overview of the process:
- Gather Documents: PAN, Aadhaar, Form 16, investment proofs, and bank statements.
- Choose the Correct ITR Form: ITR-1 (Sahaj) for salaried individuals, ITR-2 for capital gains, etc.
- File Online: Use the Income Tax Department’s e-filing portal or authorized platforms.
- Verify ITR: Use Aadhaar OTP or EVC to complete the verification process.
Important Income Tax Dates for 2025
Stay updated with the key income tax deadlines for FY 2024-25:
- 15th March 2025: Fourth instalment of advance tax for FY 2024-25.
- 15th June 2024: First instalment of advance tax for FY 2024-25.
- 15th September 2024: Second instalment of advance tax for FY 2024-25.
- 15th December 2024: Third instalment of advance tax for FY 2024-25.
- 31st July 2025: ITR filing deadline for individuals and entities not requiring a tax audit.
- 30th September 2025: Submission of audit report (Section 44AB) for taxpayers liable for audit.
- 31st October 2025: ITR filing for taxpayers requiring audit (excluding international/specified domestic transactions).
- 31st October 2025: Audit report submission for taxpayers with transfer pricing/specified domestic transactions.
- 30th November 2025: ITR filing for businesses requiring transfer pricing reports.
- 31st December 2025: Last date for filing belated or revised returns for FY 2024-25.
Income Tax Law in India
The Income Tax Act governs the taxation system in India. Key components include:
- Income Tax Rules: Detailed provisions for implementing the Act.
- Circulars and Notifications: Guidelines issued by the tax department.
- Case Laws: Judicial interpretations of tax laws.
The Union Budget, presented annually in February, introduces amendments to the Income Tax Act. For instance, the recent budget introduced the new tax regime.
About the Income Tax Department
The Income Tax Department is a government agency responsible for collecting direct taxes on behalf of the Government of India. Key points:
- It operates under the Central Board of Direct Taxes (CBDT), a part of the Ministry of Finance.
- The CBDT administers direct tax laws, including income tax, through the Income Tax Department.
- The department ensures compliance with tax laws and facilitates revenue collection for national development.