Introduction
Understanding income tax in India is crucial for both individuals and businesses to ensure compliance and optimize financial planning. The Income Tax Act, 1961, governs the taxation framework, detailing provisions for various income sources and applicable tax rates. This article delves into the income tax slabs for the Financial Year (FY) 2025-26 (Assessment Year 2026-27), distinctions between individual and business taxation, categories of taxable income, penalties for non-compliance, and addresses frequently asked questions.
1. Income Tax Slabs & Calculation
Income tax in India is levied based on slabs that specify the rate at which income is taxed. The government periodically revises these slabs to reflect economic conditions. As of the Assessment Year (AY) 2026-27 (Financial Year 2025-26), the tax slabs are structured as follows:
New Tax Regime
The new tax regime offers concessional tax rates with fewer exemptions and deductions:
| Income Slab (₹) | Tax Rate (%) |
| Up to 4,00,000 | Nil |
| 4,00,001 to 8,00,000 | 5 |
| 8,00,001 to 12,00,000 | 10 |
| 12,00,001 to 16,00,000 | 15 |
| 16,00,001 to 20,00,000 | 20 |
| 20,00,001 to 24,00,000 | 25 |
| Above 24,00,000 | 30 |
Note: Individuals with net taxable income up to ₹12 lakh are eligible for a rebate under Section 87A, effectively reducing their tax liability to zero.
Old Tax Regime
The old tax regime provides higher tax rates but allows various exemptions and deductions:
| Income Slab (₹) | Tax Rate (%) |
| Up to 2,50,000 | Nil |
| 2,50,001 to 5,00,000 | 5 |
| 5,00,001 to 10,00,000 | 20 |
| Above 10,00,000 | 30 |
Note: Senior citizens (aged 60-80 years) have an exemption limit up to ₹3,00,000, and super senior citizens (above 80 years) up to ₹5,00,000.
Example Calculation:
Consider an individual with a gross income of ₹10,00,000 opting for the new tax regime:
- Income up to ₹4,00,000: Nil
- Next ₹4,00,000 (₹4,00,001 to ₹8,00,000) at 5%: ₹20,000
- Next ₹2,00,000 (₹8,00,001 to ₹10,00,000) at 10%: ₹20,000
- Total Tax Payable: ₹40,000
Note: The choice between the old and new tax regimes depends on individual financial scenarios, especially regarding available deductions.
Under the new tax regime introduced under Section 115BAC of the Income Tax Act, several deductions and exemptions available in the old regime are no longer permitted. Below is a table highlighting key deductions and exemptions not available under the new tax regime:
| Section | Deduction/Exemption | Description |
| 80C | Investments in PPF, EPF, NSC, Life Insurance Premium |
Deductions up to ₹1.5 lakh for specified investments and expenses. Not available under the new regime. |
| 80D | Health Insurance Premiums | Deductions for premiums paid for medical insurance for self, family, and parents. Not available under the new regime. |
| 80E | Interest on Education Loan | Deduction on interest paid on loans for higher education. Not available under the new regime. |
| 80G | Donations to Charitable Institutions | Deductions for donations made to specified charitable institutions. Not available under the new regime. |
| 10(13A) | House Rent Allowance (HRA) | Exemption for HRA received as part of salary. Not available under the new regime. |
| 10(5) | Leave Travel Allowance (LTA) | Exemption for expenses on domestic travel for self and family. Not available under the new regime. |
| 24(b) | Interest on Home Loan (Self- Occupied Property) |
Deduction up to ₹2 lakh on interest paid for housing loan. Not available under the new regime. |
| 80TTA/80TTB | Interest on Savings/Fixed Deposits | Deductions on interest income from savings accounts and fixed deposits. Not available under the new regime. |
| 80DD/80DDB | Medical Treatment for Disabled Dependent/Specified Diseases |
Deductions for expenses on medical treatment of disabled dependents or specified diseases. Not available under the new regime. |
| 80EEA | Additional Interest on Home Loan for First-Time Buyers |
Additional deduction for interest on loan taken for affordable housing. Not available under the new regime. |
| 80EEB | Interest on Loan for Electric Vehicle Purchase |
Deduction on interest paid on loan for purchasing electric vehicles. Not available under the new regime. |
| 80GGA/80 GGC |
Donations for Scientific Research/ Political Parties |
Deductions for donations made towards scientific research or to political parties. Not available under the new regime. |
2. Individual vs. Business Taxation
The taxation principles differ for individuals and businesses:
Individual Taxation
- Tax Base: Total income from all sources.
- Applicable Rates: Progressive tax slabs as detailed above.
- Deductions: Sections like 80C (investments in PPF, ELSS), 80D (health insurance premiums), and others provide avenues to reduce taxable income.
Business Taxation
- Tax Base: Net profit computed after deducting allowable business expenses from gross receipts.
- Applicable Rates: Flat corporate tax rates, which may vary based on turnover and type of company.
- Deductions: Expenses wholly and exclusively incurred for business purposes are deductible.
Key Differences:
| Aspect | Individual Taxation | Business Taxation |
| Income Sources |
Salary, house property, capital gains, etc. |
Business profits, professional income. |
| Tax Rates | Progressive slabs. | Flat rates; subject to specific provisions. |
| Deductions | Investments, insurance premiums, etc. |
Business-related expenses, depreciation, etc. |
3. Categories of Taxable Income
The Income Tax Act, 1961, classifies income into five categories:
- Income from Salary: Remuneration received by an individual for services rendered under an employer-employee relationship.
- Income from House Property: Earnings from owning and letting out property.
- Profits and Gains from Business or Profession: Income derived from trade, commerce, manufacturing, or any profession.
- Capital Gains: Profits from the transfer of capital assets such as property, stocks, or bonds.
- Income from Other Sources: Residual category covering income not classified under the other heads, including interest income, dividends, and winnings from lotteries.
4. Penalties for Non-Compliance
Non-adherence to tax regulations can lead to:
- Interest on Late Payment: Charged under Sections 234A, 234B, and 234C for delays.
- Fines: Penalties for late filing, underreporting income, or failure to deduct TDS.
- Imprisonment: In severe cases of tax evasion, imprisonment ranging from three months to seven years, along with fines, can be imposed under Section 276C of the Income Tax Act.
Recently Samsung Electronics faced a $601 million tax demand from the Indian Tax Authorities for allegedly evading tariffs on imported telecom equipment.
FAQs (Frequently Asked Questions)
- Who needs to file an Income Tax Return (ITR)?
Any individual earning above the exemption limit of Rs. 2.5 lakh (old regime) or Rs. 4 lakh (new regime) per year must file an ITR. Businesses, professionals, and companies must also file ITR irrespective of income. - What is the deadline for filing ITR in India?
The general due date is 31st July for individuals and 31st October for companies and firms subject to audit. - Can a salaried employee claim deductions?
Yes, salaried employees can claim deductions under Section 80C (PPF, ELSS, etc.), 80D (health insurance), and HRA for rent paid, among others. - What is the penalty for not filing ITR?
A late filing fee of up to Rs. 5,000 (before 31st December) and Rs. 10,000 (beyond that) under Section 234F. Additionally, interest and penalties may apply for unpaid taxes. - How is GST different from Income Tax?
GST is an indirect tax levied on the sale of goods and services, whereas income tax is a direct tax imposed on earnings. - What is the corporate tax rate in India for FY 2025-26?
The standard corporate tax rate is 22% (for domestic companies without exemptions) and 15% for new manufacturing companies. MSMEs with turnover below Rs. 400 crore are taxed at 25%. - What is Minimum Alternate Tax (MAT)?
The MAT is a provision under the Income Tax Act that ensures companies pay a minimum tax even if they claim exemptions and deductions, preventing zero-tax liability cases. It applies to companies whose tax payable under normal provisions is less than 15% of book profits ( + applicable surcharge & cess). - What is the tax treatment of cryptocurrency in India?
A 30% tax is levied on gains from cryptocurrency transactions, along with 1% TDS on transfers above a certain threshold. - Is there an option to switch between the old and new tax regimes?
Yes, individuals (salaried) can opt for either regime every year. Businesses/professionals must make a one-time choice and stick to it. - What happens if I don’t pay my taxes?
The government can impose fines, charge interest, seize assets, and even initiate legal proceedings under Section 276C of the Income Tax Act.
Conclusion
The Indian income tax system is structured to ensure fair taxation for both individuals and businesses. Understanding tax slabs, deductions, and compliance requirements can help taxpayers optimize their tax liability and avoid penalties. Staying informed about the latest changes in tax laws is crucial for effective financial planning. When in doubt, consulting a tax expert can provide valuable guidance tailored to your specific income sources and financial goals.
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