What is Income Tax?

Income Tax is a direct tax levied by the Government of India on an individual's income. If your total income exceeds the basic exemption limit, you're required to pay tax on the excess amount as per the applicable slab rates.

Income Tax is governed by the Income Tax Act, 1961 and is collected by the Income Tax Department.

What are the Types of Taxable Income?

Income tax is levied on income from the following five heads:

• Salary Income - Wages, bonuses, allowances, perquisites
• House Property - Rental income, deemed rent
• Capital Gains - Profit from sale of shares, property, etc.
• Business or Profession - Self-employed or business income
• Other Sources - FD interest, savings interest, lottery winnings, etc.

How is Income Tax Calculated?

Income tax is calculated in 5 steps:

Step 1: Calculate Gross Total Income

Add all income under the five heads. For most salaried people:

• Basic Salary
• HRA (after exemption)
• Special Allowance
• Bonus/Commission
• Interest Income, etc.

Step 2: Subtract Exemptions and Allowances

Common exemptions include:

• HRA (House Rent Allowance)
• LTA (Leave Travel Allowance)
• Reimbursements (if exempt)
• Standard Deduction: ₹50,000 (automatic for salaried)

Step 3: Subtract Deductions under Chapter VI-A

Popular deductions:

Section	Deduction Type	Max Limit
80	LIC, PPF, ELSS, EPF, Tax-saving FD	₹1,50,000
80D	Medical insurance premium (self/family)	₹25,000–₹1,00,000
80TTA	Savings bank interest	₹10,000
80E	Education loan interest	No limit
24(b)	Home loan interest (self-occupied property)	₹2,00,000

Step 4: Calculate Taxable Income

Taxable Income = Gross Total Income – Exemptions – Deductions

Step 5: Apply Income Tax Slab Rates

You can choose between:

• Old Regime: With deductions (80C, 80D, HRA, etc.)
• New Regime: Lower tax rates but no major deductions

What is Form 16?

Form 16 is a certificate issued by your employer containing details of:

• Salary paid
• TDS (Tax Deducted at Source)
• Taxable income
• HRA and other exemptions

You’ll need Form 16 while filing your income tax return.

Common Income Tax Mistakes to Avoid

• Not declaring all income (interest, freelance, etc.)
• Choosing wrong ITR form
• Missing deductions like 80C/80D
• Not comparing new vs old regime
• Filing after due date (results in penalty & loss of refund interest)

Income Tax Refund

If you’ve paid more tax than required (via TDS or advance tax), you can claim a refund while filing ITR.

Refund is directly credited to your bank account after verification.

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