Taxable and Nontaxable Income in India
Beyond a certain annual income, you need to pay a percentage of tax on your income. This differs with differing gender, age, whether you are a businessman or salaried and other matters.
However, there are also investments and charitable allowances that are exempted from tax, and that you either do not pay, or get returned after filing your IT return form.
If that sounds confusing, read this simple explanation of what is how to figure taxable incomes and whether you need to talk to an accountant.
Taxable Income Table
Annual income tax slab for individual tax payers & Hindu Undivided Families (less than 60 years old) (both men & women):
- Income up to Rs 2,50,000 is completely tax-free
- Income between Rs 2,50,000 and Rs 5,00,000 has a new reduced tax rate of 5 per cent (down from 10 per cent previously)
- Income between Rs 5,00,000 and 10,00,000 is taxable income at 20 per cent p.a.
- Income above Rs 10,00,000 is taxable income at 30 per cent p.a.
- Surcharge: Ten percent of income tax, where total income is more than Rupees fifty lakh up to Rupees one crore.
- Surcharge: 15% of income tax, where the total income exceeds Rs.1 crore.
- For senior citizens between the ages of 60 and less than 80 years, income up to 3 lacs or 3,00,000 is tax-free. The 10 per cent tax slab starts from 3 lacs.
- Senior citizens at or above the age of 80 years have five lacs or Rs. 5,00,000 tax exempt income. The next two tax slabs remain the same, but there is no surcharge on income exceeds Rs.50 lakh up to Rs.1 crore
- Income received from Housing Assets are also taxable. The tax calculation is not simple. Interest paid on housing loans allow for some tax exemption (up to Rs 200000 for self-occupied property.)
- Business income tax calculation: what is considered taxable income can become more complicated and should ideally be done by someone trained. Otherwise, taxable income may be written in as exempt or vice versa.
There is a portion of your salary, (if you are a salaried individual) which is exempted from tax.
- Housing and Residential Allowance: If you receive HRA as part of your salary and you live in a rented accommodation (not in an owned resident) then you can claim full or partial HRA exemption. Some portion of your HRA may be taxable, as the exempt allowance is the least of the following:
- Actual HRA received
- Actual rent paid reduced by 10% of salary
- 50% of basic salary if you live in a metro city
- 40% of basic salary if you live in a non-metro city
- Transport Allowance: Exempt to the extent of expenditure incurred for official purposes on the provision of bills; but the maximum exempt amount is Rs 19200 p.a, and anything beyond that is taxable income.
- Medical Reimbursement: An annual amount of Rs. 15000 is tax exempt if reimbursed by the employer on the establishment of medical bills. This is not the medical allowance that many salaried individuals receive as part of their salary—that is entirely taxable income.
There are several cases where income is exempt, and this is only a brief overview of a possible list of non-taxable income
Received or inherited money as a member of a Hindu Undivided Family (HUF) is exempted from any income tax obligation so in case you were wondering ‘is inheritance income taxable,’ you now know.
Interest earned on savings account up to a maximum of Rs 10,000 in a year is allowed as non-taxable. When shown as ‘income from other sources’ in the ITR it can be claimed as a deduction. The cap of Rs 10000 is for interest received from all banks.
A gratuity paid by an employer (to acknowledge an employee’s long-standing meritorious service) is fully exempted from income tax.
Any kind of scholarship or award granted to any deserving student to meet the cost of education is exempted from tax.
Any donation made to entities in scientific research or rural development is applicable for 100% tax deduction, provided it is donated by tax payers with no business income.
100 per cent tax deduction towards contribution to a political party listed under section 29A of the 1951 Representation of the People Act (43 of 1951) or an electoral trust.
Donations made to charitable trusts and organizations are also eligible for tax exemption, but there are some organizations which are eligible for 100 per cent exemption, and some which allow only 50 per cent exemption.
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