🧾Module 1: Introduction to Income Tax in India
📌 Table of Contents:
- What is Income Tax?
- Why is Income Tax Important?
- Who is Liable to Pay Income Tax in India?
- What is the Financial Year and Assessment Year?
- Residential Status and Its Impact on Taxation
- Income Tax Slabs for FY 2024–25 (AY 2025–26)
- Conclusion
- FAQs
✅ What is Income Tax?
Income Tax is a direct tax levied by the Government of India on the income earned by individuals, businesses, and other entities. It is governed by the Income Tax Act, 1961 and is administered by the Central Board of Direct Taxes (CBDT).
If you earn any form of income—whether from a job, business, property, or investments—you may be liable to pay income tax, depending on your earnings and applicable exemptions.
📈 Why is Income Tax Important?
Income tax is not just a legal obligation—it’s also a vital contribution toward:
- Nation building (infrastructure, healthcare, defense, etc.)
- Funding government programs
- Maintaining public services
Additionally, paying tax and filing returns can help you:
- Avail loans easily
- Claim refunds
- Build financial credibility
- Avoid penalties and notices
👤 Who is Liable to Pay Income Tax in India?
Income tax must be paid by the following persons if their income crosses the basic exemption limit:
- Individual taxpayers (Salaried, Self-employed, Professionals, Freelancers)
- Hindu Undivided Families (HUFs)
- Firms, LLPs, Companies, and Trusts
- NRIs (Non-Resident Indians) – depending on their income and residential status
📅 What is Financial Year and Assessment Year?
This is a concept that often confuses beginners, so let’s simplify it:
- Financial Year (FY): The year in which income is earned. (e.g., FY 2024–25 means 1 April 2024 to 31 March 2025)
- Assessment Year (AY): The year in which income is assessed and tax returns are filed. (e.g., AY 2025–26)
You file your income tax return in the Assessment Year, for the income earned in the Financial Year.
🌍 Residential Status and Its Impact on Taxation
Your residential status determines the scope of your taxable income. It’s based on the number of days you’ve stayed in India during the financial year.
There are three categories:
- Resident and Ordinarily Resident (ROR)
- Resident but Not Ordinarily Resident (RNOR)
- Non-Resident Indian (NRI)
Only RORs are taxed on global income. RNORs and NRIs are taxed only on income earned or received in India.
📊 Income Tax Slabs for FY 2024–25 (AY 2025–26)
India follows a progressive tax system, which means higher income attracts higher tax rates. You can choose between the Old Regime and New Regime.
New Tax Regime (Default Regime)
| Income 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% |
Old Tax Regime (with Deductions)
| Income Slab | Tax Rate |
|---|---|
| ₹0 – ₹2,50,000 | Nil |
| ₹2,50,001 – ₹5,00,000 | 5% |
| ₹5,00,001 – ₹10,00,000 | 20% |
| Above ₹10,00,000 | 30% |
Under the Old Regime, taxpayers can claim deductions such as:
- Section 80C (Investments)
- Section 80D (Health Insurance)
- HRA, LTA, etc.
But in the New Regime, these deductions are not allowed (except a few like NPS and EPF employer contribution).
🧾 Conclusion
Understanding income tax is the first step toward becoming financially literate. Whether you're a salaried employee, a freelancer, or a budding entrepreneur — being aware of your tax obligations helps you make informed decisions, stay compliant, and even optimize your tax outgo.
In the next module, we’ll explore the five heads of income under the Income Tax Act and how your earnings are classified and taxed.
❓ FAQs
1. Do I need to pay income tax if I earn less than ₹2.5 lakh?
👉 No, if you're under the basic exemption limit, you're not liable to pay tax. But filing returns might still be beneficial.
2. Can I switch between old and new tax regime every year?
👉 Yes, salaried individuals can switch every year. For those with business income, switching is restricted.
3. Is income earned abroad also taxable in India?
👉 Yes, but only if you're classified as a Resident and Ordinarily Resident (ROR).
