What is the Income Tax in India

What is the Income Tax in India?

Understand what Income Tax in India is, how it's calculated, who pays it, and tips to reduce your tax burden effectively.

Written by : Knowledge Centre Team

2024-12-23

5329 Views

14 minutes read

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Every country requires financial resources to carry out essential functions, make public expenditures and launch new initiatives for the welfare of its public. One of the primary ways in which these financial resources are accumulated is through the process of levying taxes on the income generated by the people of the country. This tax is known as income tax.

The specific income tax levied by each country depends on the specific regulations and guidelines it places around the taxation process. Income tax in India is no different. It is subject to the regulations specified by the government of the country and is applicable to the people who qualify as taxpayers.

Click here to use - Income Tax Calculator

Let us take a closer look at this topic and more, regarding income tax in India:

Categories of Taxpayers:

The first point to consider about income tax in India is the matter of who qualifies as taxpayers. Here are the primary categories of income taxpayers:

  • Citizens of India under 60 years of age whose annual income is higher than  ₹4 lakh.
  • Citizens of India over the age of 60 but below 80 whose annual income exceeds ₹ 3 lakhs.
  • Citizens of India over the age of 80 whose annual income exceeds ₹4 lakh.
  • Hindu Undivided Families (HUF)
  • Body of Individuals (BOI)
  • Association of Persons (AOP)
  • Corporate Firms
  • Companies

Types of Income Tax in India 2026

Income tax in India is collected from its citizens by the Government in one of three primary ways:

  • Voluntary payments filed for and made by taxpayers into banks
  • Taxes Deducted at Source, or TDS
  • Taxes Collected at Source, or TCS

Also Read about - Corporate Tax

What Is Subject To Income Tax in India?

The other important point to consider about income taxes in India is how the term ‘income’ is defined. Here are the categories of income generated by a person, that are subject to income taxation:

  • Income generated through salaries or pension
  • Income generated from capital gains, such as earnings from sale of capital assets
  • Income from house property, which typically refers to rental income
  • Income from business/profession, such as earnings of freelancers and business owners
  • Income from other sources

Income Tax Rates - Old Regime

The rate of income tax in India paid by a taxpayer is dependent on the amount of income he or she earns in the course of a financial year. These income amounts are categorised in ranges or slabs, and an income tax rate is applicable to each of these slabs. Based on the income tax slab a taxpayer falls under, he or she is subject to pay that rate of income tax.

In order to lower one’s tax burden, a taxpayer can make certain tax-saving investments and opt for the appropriate tax deductions that apply to them. If that is the case, the taxpayer’s income will be subject to the old tax regime (explained later), and the applicable rates for an individual (less than 60 years of age) are as follows:

Income tax slabApplicable tax rate
0 to 2,50,000Nil
2,50,001 to 5,00,0005% of total income
5,00,001 to 10,00,00020% of total income
Above 10,00,00030% of total income

Income Tax Rates - New Regime 

During Budget 2024, income tax in India introduced a new form of optional tax regime, which means taxpayers can file their income taxes as per these new rates or the old tax rates (mentioned above), at their own discretion. It incorporates new tax slabs and offers lower tax rates, but comes with the condition that taxpayers cannot opt for various deductions.

Here are the tax slabs and rates as per the new tax regime for FY (2025-2026) i.e AY 2026-27: 

Income tax slabApplicable tax rate
0 to 2,50,000Nil
2,50,001 to 5,00,0005% of total income
5,00,001 to 7,50,00010% of total income
7,50,001 to 10,00,00015% of total income
10,00,001 to 12,50,00020% of total income
12,50,001 to 15,00,00025% of total income
Above 15,00,00030% of total income

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Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.

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