Income tax is a form of direct tax levied by the Government of India on the income earned by individuals, Hindu Undivided Families (HUFs), companies, firms, and other types of legal entities. The tax is charged under the provisions of the Income-tax Act, 1961. This Act, along with various rules and regulations framed under it, governs how income is computed, taxed, exempted, and reported. The Income-tax Act comprises several chapters that cover residential status determination, exemptions, income computation, deductions, tax liability, filing procedures, assessments, penalties, and prosecutions. The tax liability of an assessee is determined based on the total income earned during a financial year. This income is divided into two categories: normal income and special income. While normal income is taxed as per the applicable slab rates announced in the annual Finance Act, special income is taxed at fixed rates irrespective of the slab.
In recent years, the government has introduced alternative tax regimes that offer reduced tax rates in exchange for the foregoingg of certain deductions and exemptions. This has been done with a view to simplifying the tax structure and providing options to taxpayers.
Taxation Under the Normal Tax Regime for Individuals and HUFs
Under the normal tax regime, individuals and HUFs are taxed based on their age and income levels. The basic exemption limit, which is the income level up to which no tax is payable, varies depending on the age of the individual taxpayer. Individuals below 60 years of age, senior citizens aged 60 to 79 years, and super senior citizens aged 80 years and above are all taxed under different income slabs. HUFs are taxed similarly to individuals below 60 years of age.
Tax Rates for Individuals Below 60 Years and HUFs
Individuals who are less than 60 years old and all HUFs are subject to the following income tax rates under the normal regime. Income up to Rs. 2,50,000 is exempt from tax. Income from Rs. 2,50,001 to Rs. 5,00,000 is taxed at 5 percent. Income from Rs. 5,00,001 to Rs. 10,00,000 is taxed at 20 percent. Income above Rs. 10,00,000 is taxed at 30 percent. These taxpayers may also be eligible for tax rebates and deductions depending on their specific income situations.
Tax Rates for Senior Citizens
Senior citizens are defined as individuals who are 60 years or older but less than 80 years during the previous year. They enjoy a higher basic exemption limit. Income up to Rs. 3,00,000 is exempt from tax. Income from Rs. 3,00,001 to Rs. 5,00,000 is taxed at 5 percent. Income from Rs. 5,00,001 to Rs. 10,00,000 is taxed at 20 percent. Income above Rs. 10,00,000 is taxed at 30 percent. These rates apply only if the taxpayer has opted for the normal tax regime.
Tax Rates for Super Senior Citizens
Super senior citizens are those who are 80 years or older at any time during the previous year. They enjoy an even higher basic exemption limit. Income up to Rs. 5,00,000 is exempt from tax. Income from Rs. 5,00,001 to Rs. 10,00,000 is taxed at 20 percent. Income above Rs. 10,00,000 is taxed at 30 percent. These rates provide significant relief to elderly taxpayers under the normal regime.
Introduction to the Alternate Tax Regime under Section 115BAC
To simplify the tax system and reduce the burden of compliance, the government introduced Section 115BAC through the Finance Act, 2020. This section provides for an optional tax regime with reduced slab rates for individuals and HUFs. However, taxpayers opting for this regime must forgo certain deductions and exemptions such as house rent allowance, standard deduction, deductions under section 80C, 80D, and others. The alternate tax regime was revised in the Union Budget 2023, introducing changes in the tax slabs and the maximum exemption limit. Under this regime, salaried individuals can still avail the benefit of the standard deduction.
Revised Slab Rates under the Alternate Tax Regime for FY 2023-24
Under the alternate tax regime, the slab rates for the financial year 2023-24 are structured differently from the normal regime. The tax rate for income up to Rs. 3,00,000 is nil. Income from Rs. 3,00,001 to Rs. 6,00,000 is taxed at 5 percent. Income from Rs. 6,00,001 to Rs. 9,00,000 is taxed at 10 percent. Income from Rs. 9,00,001 to Rs. 12,00,000 is taxed at 15 percent. Income from Rs. 12,00,001 to Rs. 15,00,000 is taxed at 20 percent. Income above Rs. 15,00,000 is taxed at 30 percent. These rates are fixed and do not vary with age, as in the normal tax regime.
Tax Rebate under Section 87A
To provide relief to taxpayers in the lower income brackets, Section 87A allows a rebate on tax liability up to a specified limit. Under the normal regime, a resident individual whose total income does not exceed Rs. 5,00,000 is eligible for a rebate of up to Rs. 12,500. This effectively means that if the calculated tax liability is Rs. 12,500 or less, the entire amount can be claimed as a rebate, resulting in zero tax liability. Under the alternate tax regime, this rebate is available to resident individuals whose total income does not exceed Rs. 7,00,000. In this case, the maximum rebate allowed is Rs. 25,000. However, no rebate is available if the total income exceeds Rs. 7,00,000 under the alternate regime.
Taxation of Associations of PersonsBodiesdy of Individuals, and Artificial Juridical Persons
Entities such as joint ventures, trusts, societies, and other associations are taxed under the classification of Association of Persons or Body of Individuals. An Artificial Juridical Person refers to an entity like a Bar Council that is recognized by law and has rights and responsibilities. The tax rates applicable to these entities under the normal regime mirror those applicable to individual taxpayers who are below 60 years of age. Income up to Rs. 2,50,000 is not taxed. Income from Rs. 2,50,001 to Rs. 5,00,000 is taxed at 5 percent. Income from Rs. 5,00,001 to Rs. 10,00,000 is taxed at 20 percent. Income above Rs. 10,00,000 is taxed at 30 percent.
Alternate Tax Regime for AOP, BOI, and AJP under Section 115BAC
The Finance Act, 2020, introduced Section 115BAC, initially for individuals and HUFs. The applicability was later extended to AOPs, BOIs, and AJPs by the Union Budget 2023. These entities, if opting for the alternate regime, will be taxed as follows for FY 2023-24. Income up to Rs. 3,00,000 is not taxed. Income from Rs. 3,00,001 to Rs. 6,00,000 is taxed at 5 percent. Income from Rs. 6,00,001 to Rs. 9,00,000 is taxed at 10 percent. Income from Rs. 9,00,001 to Rs. 12,00,000 is taxed at 15 percent. Income from Rs. 12,00,001 to Rs. 15,00,000 is taxed at 20 percent. Income above Rs. 15,00,000 is taxed at 30 percent. These rates make the alternate regime an attractive option for entities willing to forgo deductions.
Taxation of Domestic Companies
A domestic company refers to a company registered under Indian laws. The Income-tax Act provides different tax regimes for domestic companies based on their nature of operations, date of incorporation, and whether they claim specific exemptions and deductions. A company may choose from different taxation provisions, each offering a fixed rate based on certain eligibility criteria.
Under section 115BA, domestic companies that are incorporated on or after March 1, 2016, and are engaged in the manufacture or production of goods and do not claim specified exemptions or incentives, are eligible to be taxed at 25 percent.
Section 115BAB applies to companies registered on or after October 1, 2019, and engaged in manufacturing or production activities. The company must commence manufacturing between October 1, 2019, and March 31, 2024, and must not claim any specified exemptions or incentives. Under this provision, income from manufacturing and short-term capital gains from depreciable assets are taxed at 15 percent. Income from non-manufacturing activities and capital gains from non-depreciable assets are taxed at 22 percent.
Section 115BAA applies to domestic companies that choose not to claim specified deductions or exemptions. These companies are taxed at a flat rate of 22 percent.
If none of the above provisions apply, the general tax rate for domestic companies depends on their turnover. Companies with a turnover not exceeding Rs. 400 crores during FY 2021-22 are taxed at 25 percent. All other domestic companies are taxed at 30 percent.
Taxation of Foreign Companies
A foreign company is taxed in India on the income it earns or accrues in India or is deemed to accrue or arise in India. Such companies are liable to pay tax at a flat rate of 40 percent on their normal taxable income. This higher rate reflects the principle that income earned in India by foreign entities must contribute to the domestic economy. Additional surcharges and cesses may apply based on the level of income.
Taxation of Co-operative Societies
Co-operative societies in India are subject to a different tax structure. Generally, they are taxed on a slab basis. The tax rate for income up to Rs. 10,000 is 10 percent. For income between Rs. 10,001 and Rs. 20,000, the tax rate is 20 percent. For income above Rs. 20,000, the tax rate is 30 percent.
To promote ease of doing business and boost rural and manufacturing activities, alternate tax regimes have been introduced for co-operative societies.
Under section 115BAD, resident co-operative societies may choose to be taxed at a flat rate of 22 percent. In this case, a surcharge of 10 percent applies regardless of income levels. However, the society must forgo several exemptions and deductions to avail of this reduced rate.
Further, section 115BAE was introduced in the Finance Act 2023 for new manufacturing co-operative societies. It applies to societies set up on or after April 1, 2023, that begin manufacturing activities by March 31, 2024. Under this section, income from manufacturing is taxed at 15 percent. Non-manufacturing income and short-term capital gains on non-depreciable assets are taxed at 22 percent. Short-term capital gains on depreciable assets are taxed at 15 percent. In cases where excess profits arise due to artificial arrangements, a 30 percent rate is applicable. Additionally, a 10 percent surcharge is levied on the total tax liability. The final tax payable includes a 4 percent health and education cess on the total of income tax and surcharge.
Taxation of Partnership Firms, LLPs, and Local Authorities
Partnership firms, including Limited Liability Partnerships (LLPs), and local authorities are taxed at a flat rate of 30 percent on their taxable income. These entities do not have the benefit of slab-based taxation. The flat rate simplifies the calculation process but may result in a higher effective tax burden for firms with relatively low income. However, such entities are also subject to surcharge and cess based on the amount of income.
Surcharge on Income Tax
Surcharge is an additional charge on the amount of income tax payable. The rate of surcharge varies depending on the type of assessee and the amount of total income. It is levied before applying the health and education cess.
For individuals, HUFs, AOPs, BOIs, and Artificial Juridical Persons, the surcharge rate structure is based on income levels. There is no surcharge if the total income is up to Rs. 50 lakhs. A surcharge of 10 percent is applied if the income is more than Rs. 50 lakhs but up to Rs. 1 crore. A 15 percent surcharge applies for income between Rs. 1 crore and Rs. 2 crores. If the income is between Rs. 2 crores and Rs. 5 crores, a 25 percent surcharge is applicable. For income above Rs. 5 crores, the surcharge is 37 percent. However, for those opting under the alternate tax regime of section 115BAC, the maximum surcharge is capped at 25 percent. In cases of short-term capital gains under section 111A, long-term capital gains under section 112A, and dividend income, the surcharge does not exceed 15 percent, regardless of the total income. For unexplained income taxable under section 115BBE, a flat 25 percent surcharge is applied across all income slabs. Additionally, in the case of an AOP where all members are companies, the surcharge rate is limited to 15 percent.
Surcharge on Domestic and Foreign Companies
For domestic companies, the surcharge rate depends on the tax regime chosen and the total income. Companies opting for section 115BA pay a 7 percent surcharge if income exceeds Rs. 1 crore but does not exceed Rs. 10 crores. If the income exceeds Rs. 10 crores, a 12 percent surcharge applies. Companies under sections 115BAA and 115BAB are subject to a flat 10 percent surcharge regardless of income level. Companies that do not opt for these special provisions are subject to a 7 percent surcharge for income between Rs. 1 crore and Rs. 10 crores, and 12 percent for income above Rs. 10 crores. For foreign companies, the surcharge is 2 percent if the total income exceeds Rs. 1 crore but is up to Rs. 10 crores. A 5 percent surcharge applies to income above Rs. 10 crores. If the foreign company has unexplained income taxable under section 115BBE, the surcharge is 25 percent, irrespective of the income level.
Surcharge on Other Entities
Firms, including LLPs and local authorities, are not subject to a surcharge if their income is up to Rs. 1 crore. If the income exceeds Rs. 1 crore but does not exceed Rs. 10 crores, the surcharge rate is 12 percent. For income above Rs. 10 crores, the rate remains at 12 percent. Co-operative societies that do not opt for the alternate regime are taxed at a 7 percent surcharge for income between Rs. 1 crore and Rs. 10 crores, and 12 percent for income above Rs. 10 crores. Co-operative societies that opt for the alternative tax regimes under section 115BAD or 115BAE are taxed at a flat 10 percent surcharge irrespective of their total income.
Health and Education Cess
After calculating income tax and surcharge, taxpayers must also pay health and education cess. This is charged at a uniform rate of 4 percent on the total of income tax and surcharge. This cess applies to all categories of taxpayers, including individuals, firms, companies, co-operative societies, and others. The funds collected through this cess are used to finance health and educational initiatives by the government.
Income Tax Rates for Senior Citizens (Age 60 Years or More but Less Than 80 Years) – Old Regime
For resident individuals aged 60 years or more but less than 80 years during the financial year, the basic exemption limit is higher under the old regime.
Tax rates applicable are:
- Up to ₹3,00,000: Nil
- ₹3,00,001 to ₹5,00,000: 5% of income exceeding ₹3,00,000
- ₹5,00,001 to ₹10,00,000: ₹10,000 + 20% of income exceeding ₹5,00,000
- Above ₹10,00,000: ₹1,10,000 + 30% of income exceeding ₹10,00,000
Income Tax Rates for Super Senior Citizens (Age 80 Years or More) – Old Regime
For resident individuals aged 80 years or more during the financial year, the tax rates are even more beneficial.
Tax rates applicable are:
- Up to ₹5,00,000: Nil
- ₹5,00,001 to ₹10,00,000: 20% of income exceeding ₹5,00,000
- Above ₹10,00,000: ₹1,00,000 + 30% of income exceeding ₹10,00,000
Rebate under Section 87A
Under both the old and new regimes, a rebate under section 87A is available to resident individuals whose total income does not exceed the specified threshold.
For A.Y. 2024-25:
- Under the new regime: If total income does not exceed ₹7,00,000, the rebate is 100% of income tax or ₹25,000, whichever is less.
- Under the old regime: If total income does not exceed ₹5,00,000, the rebate is 100% of income tax or ₹12,500, whichever is less.
Effectively, this means no tax is payable for individuals with income up to ₹7,00,000 under the new regime and ₹5,00,000 under the old regime.
Surcharge Rates
A surcharge on income tax is applicable if the total income exceeds certain thresholds. For A.Y. 2024-25, surcharge rates under both regimes are as follows:
- 10% of income tax if total income exceeds ₹50 lakh but does not exceed ₹1 crore
- 15% of income tax if total income exceeds ₹1 crore but does not exceed ₹2 crore
- 25% of income tax if total income exceeds ₹2 crore but does not exceed ₹5 crore
- 37% of income tax if total income exceeds ₹5 crore (only undethe r the old regime)
- Under the new regime, the maximum surcharge rate is capped at 25%
This step was taken to reduce the maximum marginal rate of tax under the new regime.
Health and Education Cess
Health and Education Cess at the rate of 4% is levied on the total of income tax and applicable surcharge in all cases, irrespective of the regime opted.
Marginal Relief
Marginal relief is available to ensure that the additional tax payable due to surcharge does not exceed the amount of income that exceeds the surcharge threshold. It prevents undue hardship in cases where income slightly exceeds the surcharge limit.
Tax on Capital Gains and Special Incomes
Different tax rates apply to certain types of income,, such as capital gains and winnings from lotteries, game shows, and gambling. These are taxed at special rates as per the Income Tax Act. Such income is taxed separately and not under the general slab rates.
Capital Gains
- Short-term capital gains under section 111A: 15%
- Long-term capital gains exceeding ₹1 lakh on listed equity shares and equity-oriented mutual funds: 10% without indexation under section 112A
- Other long-term capital gains: 20% with indexation
- In certain cases (e.g., unlisted securities or property), the applicable rates and exemptions may vary.
These rates apply regardless of whether the taxpayer chooses the old or new regime.
Taxation for Hindu Undivided Families (HUFs)
HUFs are taxed similarly to individuals under the old regime, with the same slab rates:
- Up to ₹2,50,000: Nil
- ₹2,50,001 to ₹5,00,000: 5% of income exceeding ₹2,50,000
- ₹5,00,001 to ₹10,00,000: ₹12,500 + 20% of income exceeding ₹5,00,000
- Above ₹10,00,000: ₹1,12,500 + 30% of income exceeding ₹10,00,000
HUFs cannot opt for the new tax regime under section 115BAC unless specifically permitted by notification.
Income Tax for Partnership Firms and LLPs
Partnership firms, including Limited Liability Partnerships (LLPs), are taxed at a flat rate of 30%. Additionally, the following surcharges and cesses apply:
- Surcharge: 12% of income tax if total income exceeds ₹1 crore
- Health and Education Cess: 4% on income tax plus surcharge
These entities do not benefit from slab rates or rebates under section 87A.
Tax Rates for Companies
Domestic Companies
For domestic companies, tax rates depend on turnover and specific sections availed:
- If turnover does not exceed ₹400 crore in F.Y. 2021-22: 25%
- Otherwise: 30%
- If opted under section 115BAA: 22% (plus applicable surcharge and cess)
- If opted under section 115BAB (manufacturing companies): 15% (for companies registered on or after October 1, 2019, and commencing production before March 31, 2024)
Surcharge:
- 7% of income tax if total income exceeds ₹1 crore but does not exceed ₹10 crore
- 12% if the total income exceeds ₹10 crore
- For companies under section 115BAA or 115BAB: Flat 10% surcharge regardless of income
Cess: 4% on total tax and surcharge
Foreign Companies
Foreign companies are taxed at:
- 40% flat rate
- Surcharge: 2% if income exceeds ₹1 crore but does not exceed ₹10 crore; 5% if income exceeds ₹10 crore
- Health and Education Cess: 4%
Alternate Minimum Tax (AMT)
Applicable to non-corporate taxpayers (individuals, HUFs, AOPs, BOIs, firms) claiming certain deductions under Chapter VI-A or section 10AA.
- AMT rate: 18.5% (plus surcharge and cess)
- For units located in International Financial Services Centres (IFSC) deriving income solely in convertible foreign exchange: 9%
Minimum Alternate Tax (MAT)
Applicable to companies (except those opting for section 115BAA or 115BAB):
- MAT rate: 15% of book profit (plus surcharge and cess)
- For companies in IFSC: 9%
- MAT provisions do not apply to companies opting for section 115BAA or 115BAB
Tax Deducted at Source (TDS) and Advance Tax
TDS is deducted at specified rates on payments such as salary, interest, rent, and professional fees. Taxpayers with tax liability exceeding ₹10,000 in a financial year are required to pay advance tax in four installments during the year. Senior citizens not having income under the head “Profits and gains of business or profession” are exempt from advance tax.
Filing Income Tax Returns
Filing of Income Tax Returns (ITRs) is mandatory for individuals with gross total income exceeding the basic exemption limit before claiming deductions. The due date for individuals (not subject to audit) is July 31 of the assessment year. Belated and revised returns can be filed by December 31 of the assessment year, with interest and penalties applicable as per the provisions.
Conclusion
For A.Y. 2024-25, taxpayers have the flexibility to choose between the old and new tax regimes. While the old regime offers deductions and exemptions, the new regime offers lower slab rates with fewer deductions. The right choice depends on the taxpayer’s income structure, deductions, and financial planning. Understanding applicable slab rates, surcharge, cess, and exemptions is crucial for effective tax planning and compliance.