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Understanding Income Tax in India: A Simple Guide for Every Citizen
- Bhagya Lakshmi
- Jun 25, 2025
- 3 min read
Updated: Jun 26, 2025
Understanding income tax is crucial for every citizen in India. It’s a direct tax levied by the government on income earned by individuals, HUFs, and corporations. This revenue funds public infrastructure, welfare schemes, and national development. In this guide, we break down the essentials of income tax and help you navigate your obligations smartly.
Income Tax Basics India
Income tax is governed by the Income Tax Act, 1961, and is administered by the Central Board of Direct Taxes (CBDT). Every individual or business earning income in India is required to pay tax based on applicable slabs.
India follows a progressive tax structure, which means the higher your income, the higher the tax rate you pay.
Key Aspects of Income Tax in India
1. Different Types of Income
Income, for tax purposes, is classified into five categories:
Salary Income: Earnings from employment.
House Property Income: Income earned from letting out property.
Profit and Gains of Business or Profession: Income from business activities.
Capital Gains: Profit from the sale of capital assets like stocks or real estate.
Other Sources: This includes interest, dividends, and lottery winnings.
Understanding the different types of income can help taxpayers identify their tax liabilities more accurately and optimize their returns.
2. Tax Regimes – Old vs New
From FY 2023–24 onwards, new regime is the default, but taxpayers can still opt for the old regime each year.
🔹 Old Regime:
Allows all deductions and exemptions (80C, 80D, HRA, LTA, etc.)
Standard Deduction: ₹50,000
🔹 New Regime (Default):
Lower tax rates but limited deductions
Standard Deduction (FY 2024-25): ₹75,000 (for salaried/pensioners only)
New Regime Slab | Tax Rate |
0 – ₹3,00,000 | Nil |
₹3,00,001 – ₹6,00,000 | 5% |
₹6,00,001 – ₹9,00,000 | 10% |
₹9,00,001 – ₹12,00,000 | 15% |
₹12,00,001 – ₹15,00,000 | 20% |
Above ₹15,00,000 | 30% |
Which Regime is Better?
Let’s compare both regimes assuming deductions under the old regime:
Old Regime Deductions Used:
Standard Deduction: ₹50,000
Section 80C: ₹1,50,000
Section 80D: ₹25,000
Total Deductions = ₹2.25 lakh
At ₹8,00,000 annual income, both regimes result in the same tax:₹28,600 (incl. cess)
📌 If your total deductions exceed ₹2.25 lakh, the old regime may save you more tax.
Tax on ₹10 Lakh Salary (FY 2024-25)
Regime | Taxable Income | Tax Payable (incl. cess) |
Old Regime | ₹7.75L (after deductions) | ₹66,600 approx |
New Regime | ₹9.25L (after ₹75k SD) | ₹54,600 approx |
🟢 New regime may be better if you don’t claim many deductions.
3. ITR Filing Deadline (Updated)
🗓️ Due Date for AY 2025–26 (Non-Audit cases): Extended to September 15, 2025
Visit: www.incometax.gov.in
Link PAN with Aadhaar (mandatory)
Review AIS (Annual Information Statement) and TIS before filing
5.Late Filing Penalties
₹1,000: Income < ₹5 lakh
₹5,000: Income > ₹5 lakh
Interest under Sections 234A/B/C may apply
Advance tax required if liability > ₹10,000
For Better Financial Health – Consult a CA
For your regular health check, you wouldn’t go to a compounder, right? You’d go to a qualified doctor.
💡 Similarly, your financial health deserves expert care. Consult a Chartered Accountant (CA) – not just to file returns, but to:
Optimize tax planning
Claim rightful deductions
Avoid penalties
Stay compliant and stress-free
🩺 Think of your CA as your financial physician. Don’t ignore your money’s well-being.
Conclusion
Income tax is not just about compliance; it’s about understanding your rights, duties, and financial potential.
✅ Choose the right tax regime
✅ Stay updated with deadlines
✅ Keep documents organized
✅ Consult a professional
Be a responsible taxpayer. Be smart with your finances.
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