Introduction to Income Tax in 40 Characters

Introduction of Income tax
An income tax is a tax imposed on individuals or entities (taxpayers) in respect of the

income or profits earned by them (commonly called taxable income). Income tax generally is
computed as the product of a tax rate times the taxable income. Taxation rates may vary by
type or characteristics of the taxpayer and the type of income.
The tax rate may increase as taxable income increases (referred to as graduated
or progressive tax rates). The tax imposed on companies is usually known as corporate
tax and is commonly levied at a flat rate. Individual income is often taxed at progressive
rates where the tax rate applied to each additional unit of income increases (e.g., the first
$10,000 of income taxed at 0%, the next $10,000 taxed at 1%, etc.). Most jurisdictions
exempt local charitable organizations from tax. Income from investments may be taxed at
different (generally lower) rates than other types of income. Credits of various sorts may be
allowed that reduce tax. Some jurisdictions impose the higher of an income tax or a tax on
an alternative base or measure of income.
Taxable income of taxpayers resident in the jurisdiction is generally total income less income
producing expenses and other deductions. Generally, only net gain from the sale of
property, including goods held for sale, is included in income. The income of a corporation's
shareholders usually includes distributions of profits from the corporation. Deductions
typically include all income-producing or business expenses including an allowance for
recovery of costs of business assets. Many jurisdictions allow notional deductions for
individuals and may allow deduction of some personal expenses. Most jurisdictions either
do not tax income earned outside the jurisdiction or allow a credit for taxes paid to other
jurisdictions on such income. Nonresidents are taxed only on certain types of income from
sources within the jurisdictions, with few exceptions.
Most jurisdictions require self-assessment of the tax and require payers of some types of
income to withhold tax from those payments. Advance payments of tax by taxpayers may
be required. Taxpayers not timely paying tax owed are generally subject to significant
penalties, which may include jail for individuals. Taxable income of taxpayers resident in the
jurisdiction is generally total income less income producing expenses and other deductions.
Generally, only net gain from the sale of property, including goods held for sale, is included
in income. The income of a corporation's shareholders usually includes distributions of
profits from the corporation. Deductions typically include all income-producing or business
expenses including an allowance for recovery of costs of business assets. Many jurisdictions
allow notional deductions for individuals and may allow deduction of some personal
expenses. Most jurisdictions either do not tax income earned outside the jurisdiction or
allow a credit for taxes paid to other jurisdictions on such income. Nonresidents are taxed
only on certain types of income from sources within the jurisdictions, with few exceptions.
History
Top marginal tax rate of the income tax (i.e. the maximum rate of taxation applied to the
highest part of income)
The concept of taxing income is a modern innovation and presupposes several things:
a money economy, reasonably accurate accounts, a common understanding of receipts,
expenses and profits, and an orderly society with reliable records.
For most of the history of civilization, these preconditions did not exist, and taxes were
based on other factors. Taxes on wealth, social position, and ownership of the means of
production (typically land and slaves) were all common. Practices such as tithing, or an
offering of first fruits, existed from ancient times, and can be regarded as a precursor of the
income tax, but they lacked precision and certainly were not based on a concept of net
increase.
Early examples
The first income tax is generally attributed to Egypt.[1] In the early days of the Roman
Republic, public taxes consisted of modest assessments on owned wealth and property. The
tax rate under normal circumstances was 1% and sometimes would climb as high as 3% in
situations such as war. These modest taxes were levied against land, homes and other real
estate, slaves, animals, personal items and monetary wealth. The more a person had in
property, the more tax they paid. Taxes were collected from individuals.[2]
In the year 10 AD, Emperor Wang Mang of the Xin Dynasty instituted an unprecedented
income tax, at the rate of 10 percent of profits, for professionals and skilled labor. He was
overthrown 13 years later in 23 AD and earlier policies were restored during the
reestablished Han Dynasty which followed.
One of the first recorded taxes on income was the Saladin tithe introduced by Henry II in
1188 to raise money for the Third Crusade.[3] The tithe demanded that each layperson
in England and Wales be taxed one tenth of their personal income and moveable property.[4]
In 1641, Portugal introduced a personal income tax called the décima.[5]
Modern era
United Kingdom
William Pitt the Younger introduced a progressive income tax in 1798.
The inception date of the modern income tax is typically accepted as 1799,[6] at the
suggestion of Henry Beeke, the future Dean of Bristol.[7] This income tax was introduced
into Great Britain by Prime Minister William Pitt the Younger in his budget of December
1798, to pay for weapons and equipment for the French Revolutionary War. Pitt's new
graduated (progressive) income tax began at a levy of 2 old pence in the pound (1⁄120) on
incomes over £60 (equivalent to £5,500 in 2019),[8] and increased up to a maximum of
2 shillings in the pound (10%) on incomes of over £200. Pitt hoped that the new income tax
would raise £10 million a year, but actual receipts for 1799 totalled only a little over £6
million.[9]
Pitt's income tax was levied from 1799 to 1802, when it was abolished by Henry
Addington during the Peace of Amiens. Addington had taken over as prime minister in 1801,
after Pitt's resignation over Catholic Emancipation. The income tax was reintroduced by
Addington in 1803 when hostilities with France recommenced, but it was again abolished in
1816, one year after the Battle of Waterloo. Opponents of the tax, who thought it should
only be used to finance wars, wanted all records of the tax destroyed along with its repeal.
Records were publicly burned by the Chancellor of the Exchequer, but copies were retained
in the basement of the tax court.[10]
Punch cartoon (1907); illustrates the unpopularity amongst Punch readers of a proposed
1907 income tax by the Labour Party in the United Kingdom.
In the United Kingdom of Great Britain and Ireland, income tax was reintroduced by Sir
Robert Peel by the Income Tax Act 1842. Peel, as a Conservative, had opposed income tax in
the 1841 general election, but a growing budget deficit required a new source of funds. The
new income tax, based on Addington's model, was imposed on incomes above £150
(equivalent to £16,224 in 2019).[11] Although this measure was initially intended to be
temporary, it soon became a fixture of the British taxation system.
A committee was formed in 1851 under Joseph Hume to investigate the matter, but failed to
reach a clear recommendation. Despite the vociferous objection, William
Gladstone, Chancellor of the Exchequer from 1852, kept the progressive income tax, and
extended it to cover the costs of the Crimean War. By the 1860s, the progressive tax had
become a grudgingly accepted element of the United Kingdom fiscal system.[12]
United States
Main article: History of taxation in the United States
The US federal government imposed the first personal income tax on August 5, 1861, to
help pay for its war effort in the American Civil War (3% of all incomes over US$800)
(equivalent to $18,600 in 2020).[13][14][15] This tax was repealed and replaced by another
income tax in 1862.[16][17] It was only in 1894 that the first peacetime income tax was passed
through the Wilson-Gorman tariff. The rate was 2% on income over $4000 (equivalent to
$110,000 in 2020), which meant fewer than 10% of households would pay any. The purpose
of the income tax was to make up for revenue that would be lost by tariff reductions. The US
Supreme Court ruled the income tax unconstitutional, the 10th amendment forbidding any
powers not expressed in the US Constitution, and there being no power to impose any other
than a direct tax by apportionment.
In 1913, the Sixteenth Amendment to the United States Constitution made the income tax a
permanent fixture in the U.S. tax system. In fiscal year 1918, annual internal revenue
collections for the first time passed the billion-dollar mark, rising to $5.4 billion by 1920. The
amount of income collected via income tax has varied dramatically, from 1% in the early
days of US income tax to taxation rates of over 90% during World War II.
Common principles
While tax rules vary widely, there are certain basic principles common to most income tax
systems. Tax systems in Canada, China, Germany, Singapore, the United Kingdom, and the
United States, among others, follow most of the principles outlined below. Some tax
systems, such as India, may have significant differences from the principles outlined below.
Most references below are examples; see specific articles by jurisdiction (e.g., Income tax in
Australia).
Taxpayers and rates

Individuals are often taxed at different rates than corporations. Individuals include only
human beings. Tax systems in countries other than the USA treat an entity as a corporation
only if it is legally organized as a corporation. Estates and trusts are usually subject to special
tax provisions. Other taxable entities are generally treated as partnerships. In the US, many
kinds of entities may elect to be treated as a corporation or a partnership. Partners of
partnerships are treated as having income, deductions, and credits equal to their shares of
such partnership items.
Separate taxes are assessed against each taxpayer meeting certain minimum criteria. Many
systems allow married individuals to request joint assessment. Many systems
allow controlled groups of locally organized corporations to be jointly assessed.
Tax rates vary widely. Some systems impose higher rates on higher amounts of income.
Example: Elbonia taxes income below E.10,000 at 20% and other income at 30%. Joe has
E.15,000 of income. His tax is E.3,500. Tax rates schedules may vary for individuals based on
marital status.[b] In India on the other hand there is a slab rate system, where for income
below INR 2.5 lakhs per annum the tax is zero percent, for those with their income in the
slab rate of INR 2,50,001 to INR 5,00,000 the tax rate is 5%. In this way the rate goes up with
each slab, reaching to 30% tax rate for those with income above INR 15,00,000.[40]
Residents and non-residents

Residents are generally taxed differently from non-residents. Few jurisdictions tax non-
residents other than on specific types of income earned within the jurisdiction. See, e.g., the
discussion of taxation by the United States of foreign persons. Residents, however, are
generally subject to income tax on all worldwide income.[c] A handful of jurisdictions
(notably Singapore and Hong Kong) tax residents only on income earned in or remitted to
the jurisdiction. There may arise a situation where the tax payer has to pay tax in one
jurisdiction he or she is tax resident and also pay tax to other country where he or she is
non-resident. This creates the situation of Double taxation which needs assessment of
Double Taxation Avoidance Agreement entered by the jurisdictions where the tax payer is
assessed as resident and non-resident for the same transaction.
Residence is often defined for individuals as presence in the jurisdiction for more than 183
days. Most jurisdictions base residence of entities on either place of organization or place of
management and control.
Defining income
Most systems define income subject to tax broadly for residents, but tax nonresidents only
on specific types of income. What is included in income for individuals may differ from what
is included for entities. The timing of recognizing income may differ by type of taxpayer or
type of income.
Income generally includes most types of receipts that enrich the taxpayer, including
compensation for services, gain from sale of goods or other property, interest, dividends,
rents, royalties, annuities, pensions, and all manner of other items. [d] Many systems exclude
from income part or all of superannuation or other national retirement plan payments.
Most tax systems exclude from income health care benefits provided by employers or under
national insurance systems.
Deductions allowed
Nearly all income tax systems permit residents to reduce gross income by business and
some other types of deductions. By contrast, non residents are generally subject to income
tax on the gross amount of income of most types plus the net business income earned
within the jurisdiction.
Expenses incurred in a trading, business, rental, or other income producing activity are
generally deductible, though there may be limitations on some types of expenses or
activities. Business expenses include all manner of costs for the benefit of the activity. An
allowance (as a capital allowance or depreciation deduction) is nearly always allowed for
recovery of costs of assets used in the activity. Rules on capital allowances vary widely, and
often permit recovery of costs more quickly than ratably over the life of the asset.
Most systems allow individuals some sort of notional deductions or an amount subject to
zero tax. In addition, many systems allow deduction of some types of personal expenses,
such as home mortgage interest or medical expenses.
Business profits
Only net income from business activities, whether conducted by individuals or entities is
taxable, with few exceptions. Many countries require business enterprises to prepare
financial statements[41] which must be audited. Tax systems in those countries often define
taxable income as income per those financial statements with few, if any, adjustments. A
few jurisdictions compute net income as a fixed percentage of gross revenues for some
types of businesses, particularly branches of non residents.
Credits
Nearly all systems permit residents a credit for income taxes paid to other jurisdictions of
the same sort. Thus, a credit is allowed at the national level for income taxes paid to other
countries. Many income tax systems permit other credits of various sorts, and such credits
are often unique to the jurisdiction.
Alternative taxes
Some jurisdictions, particularly the United States and many of its states and Switzerland,
impose the higher of regular income tax or an alternative tax. Switzerland and U.S. states
generally impose such tax only on corporations and base it on capital or a similar measure.
Administration
Income tax is generally collected in one of two ways: through withholding of tax at source
and/or through payments directly by taxpayers. Nearly all jurisdictions require those paying
employees or non residents to withhold income tax from such payments. The amount to be
withheld is a fixed percentage where the tax itself is at a fixed rate. Alternatively, the
amount to be withheld may be determined by the tax administration of the country or by
the payer using formulas provided by the tax administration. Payees are generally required
to provide to the payer or the government the information needed to make the
determinations. Withholding for employees is often referred to as "pay as you earn" (PAYE)
or "pay as you go."
Income taxes of workers are often collected by employers under a withholding or pay-as-
you-earn tax system. Such collections are not necessarily final amounts of tax, as the worker
may be required to aggregate wage income with other income and/or deductions to
determine actual tax. Calculation of the tax to be withheld may be done by the government
or by employers based on withholding allowances or formulas.
Nearly all systems require those whose proper tax is not fully settled through withholding to
self-assess tax and make payments prior to or with final determination of the tax. Self-
assessment means the taxpayer must make a computation of tax and submit it to the
government. Some countries provide a pre-computed estimate to taxpayers, which the
taxpayer can correct as necessary.
The proportion of people who pay their income taxes in full, on time, and voluntarily (that
is, without being fined or ordered to pay more by the government) is called the voluntary
compliance rate.[42] The voluntary compliance rate is higher in the US than in countries like
Germany or Italy.[42] In countries with a sizeable black market, the voluntary compliance rate
is very low and may be impossible to properly calculate.[42]
State, provincial, and local
Income taxes are separately imposed by sub-national jurisdictions in several countries with
federal systems. These include Canada, Germany, Switzerland, and the United States, where
provinces, cantons, or states impose separate taxes. In a few countries, cities also impose
income taxes. The system may be integrated (as in Germany) with taxes collected at the
federal level. In Quebec and the United States, federal and state systems are independently
administered and have differences in determination of taxable income.
Wage-based taxes
Retirement oriented taxes, such as Social Security or national insurance, also are a type of
income tax, though not generally referred to as such. In the US, these taxes generally are
imposed at a fixed rate on wages or self-employment earnings up to a maximum amount
per year. The tax may be imposed on the employer, the employee, or both, at the same or
different rates.
Some jurisdictions also impose a tax collected from employers, to fund unemployment
insurance, health care, or similar government outlays.
Economic and policy aspects
Multiple conflicting theories have been proposed regarding the economic impact of income
taxes.[e] Income taxes are widely viewed as a progressive tax (the incidence of tax increases
as income increases).
Some studies have suggested that an income tax doesn't have much effect on the numbers
of hours worked.
Criticisms
Tax avoidance strategies and loopholes tend to emerge within income tax codes. They get
created when taxpayers find legal methods to avoid paying taxes. Lawmakers then attempt
to close the loopholes with additional legislation. That leads to a vicious cycle of ever more
complex avoidance strategies and legislation.[44] The vicious cycle tends to benefit large
corporations and wealthy individuals that can afford the professional fees that come with
ever more sophisticated tax planning,[45] thus challenging the notion that even a marginal
income tax system can be properly called progressive.
The higher costs to labour and capital imposed by income tax causes dead weight loss in an
economy, being the loss of economic activity from people deciding not to invest capital or
use time productively because of the burden that tax would impose on those activities.
There is also a loss from individuals and professional advisors devoting time to tax-avoiding
behaviour instead of economically productive activities.[46]
Criticism within Entrepreneurship

Income
Whether this is the earnings a firm receives, or an individual receives, it is subject to tax in
many countries in the world. This tax subjection sometimes hinders the process of venturing
into entrepreneurship. While this is not surprising since one of the “unconstituted
constituted” rules of thumb for entrepreneurship is that there needs to be self-financing
especially at the early stages of the new business. This tax burden on the income of a
potential entrepreneur contributes to the lack of drive since there is a self-dependency with
financing the business idea. In other cases, it can lead to withdrawal of pursuing that idea
since someone else might have been able to overtake them and execute their idea in the
project as time passes by Haufler et al. (2014, 28). Another way tax affects entrepreneurial
entry through income rises from the fact that there is no guarantee of how well the business
does. So, if the entrepreneurs are being taxed both for their business and their personal pay
off from the business, they might end up making less or not enough to even re-invest in the
business.
Additionally, if entrepreneurs are able to jump through the scales of starting and running a
business the next phase is typically employing people to work for their business. To be able
to employ people, they have to be able to afford to pay them and this is normally hard for
entrepreneurs especially at the early stages of the business. Djankov et al. (2010) explained
that when the income tax is imposed on businesses it discourages entrepreneurs from hiring
workers. And this cycle is detrimental to the economy of that region because the reason
they might have encouraged innovative entrepreneurs to locate might have been to create
jobs in their area which interprets to economic growth. But if they are unable to create jobs
and hire workers to join the business, it ultimately counters the initial goal that was meant
to be attained by the policymakers of the area.
Additionally, Campodonico, Bonfatti and Pisan (2016) suggest that entrepreneurs should be
discouraged from incurring debt by borrowing money. Ironically this aforementioned seems
to be a source of financing most start-up entrepreneurs go through. Most entrepreneurs
turn to debt financing since it is largely available, attainable, and highly recommended by
their counterparts Henrekson and Sanandaji (2011, 10). When entrepreneurs are forced to
incur debt financing it might be sustainable for a while but on a larger scale, if more
entrepreneurs take this up, it leads to increased systemic risk and makes the economy more
precarious to crash Henrekson et al. (2010, 9). This logically makes sense because it is
something that has occurred before in the United States, i.e., the financial crisis in the
United States.
Apart from the income tax affecting the number of entrepreneurs entering the market,
Hedlund (2019) argues that it also affects the quality of ideas of the entrepreneurs entering
the market. Hedlund expressed how there are entrepreneurs who partake in innovation to
contribute to the social impact rather than just for monetary gain. Therefore, when there
are suppressants in the entry policies specifically tax policies it causes a 9.4% - 12.5%
reduction in the quality of innovation.
Tax credits are part of the incentives that business owners get from the government as a
form of subsidy to help curb the costs associated with starting and running a business. Tax
credits are simply the upgrade from getting a tax deduction or the better deal given in place
of a tax deduction. They are typically granted to businesses rather than individuals except in
special situations. A general example of how tax credits work is, if I received a tax credit of
$1000 on my $5000 salary, I would not be taxed anymore, thereby saving $1000. While if I
earned $5000 and received a tax deduction of $1000, my net income becomes $4000 and I
am still taxed on that $4000 compared to $5000 which would have been more expensive.
The explanation above describes how beneficial this tax credit could be if it is granted to
entrepreneurs. The possible outcomes will benefit both the entrepreneurs in attaining their
goals, as well as the policyholders in increasing economic growth. Evidence from Fazio et al.
(2020) contributes to this conclusion by expressing that these tax credits not only positively
influence the innovators at the beginning of their businesses but in the long run too.
Furthermore, there is an argument that when tax credits are given to bigger firms, there is
an in-balance in the business ecosystem, which often leads to a crowding-out effect rather
than a spillover effect Fazio et al. (2020). Some might dispute the argument by suggesting
that when tax credits are granted to firms in general, there should be a higher amount given
to smaller start-up firms compared to the bigger or incumbent firms to level the playing
field.
These few reasons explained above are why taxes on income should be imminently reduced
or completely dissolved to encourage people to participate in entrepreneurial activity within
regions. Evidence from the research done has shown the effectiveness of reducing income
taxes and how it played a role in the entrepreneurial growth of the region and on a larger
scale, how it helped with the economic growth of that region. The persistence of high-
income tax both for the entrepreneur prior to starting a business and the workers employed
after the business starts seems to be a major issue to the hindrance of entrepreneurial
activity in a location. A possible solution to this problem will be to cut the marginal taxes on
the income as suggested by Carrol et al. (2000). Although this is a potential solution it
should be carried out with a grain of salt to ensure that there is an even playing field for
both entrepreneurs and incumbent innovative businesses.
Corporate income tax

The corporate income tax is a levy that is imposed on the net profits of corporations,
computed as the excess of receipts over allowable costs.
Rationale for taxation

The separate taxation of the incomes of corporations and their shareholders follows the
legal principle that corporations and shareholders are distinct entities. Some scholars argue
that it also accords with economic reality, particularly for large corporations with many
shareholders who do not participate actively in controlling the enterprise. They consider a
corporation income tax justified as a charge for the privilege of doing business in the
corporate form, as a means of covering the costs of public services that especially benefit
business, and as a way of capturing part of the profits of large enterprises.
Other scholars maintain that corporations act on behalf of shareholders and should be taxed
like a large partnership or, alternatively, only to the extent that their profits are not reached
by the individual income tax. Most economists concede that a tax may have to be assessed
on corporations to prevent shareholders from escaping current taxation on undistributed
profits and, as their shares appreciate in value, converting this income into capital gains,
which in many countries either are taxed at lower rates than ordinary income or are free of
income tax. (See capital gains tax.) A corporation income tax also enables a country,
province, or state to tax the profits earned within its borders by corporations whose
shareholders reside elsewhere.
Corporate income taxes are mainly flat-rate levies, rather than extensively graduated taxes
(which means that rates rise according to income—as in the typical individual income tax).
An acceptable schedule of progressive rates could hardly be devised for corporations,
because they differ greatly in scale of operations and numbers of shareholders. (See
progressive tax.) Moreover, the shareholders themselves may have either high incomes or
(as is the case with corporate pension funds) low incomes.
A number of industrialized countries have corporate income tax rates on the order of 50
percent, sometimes with reduced rates for small corporations. Where the latter feature
exists, safeguards may be instituted to prevent its abuse by enterprises that split into
nominally independent corporations without giving up unified control. More significant are
corporate mergers or acquisitions motivated by the possibility of saving taxes through
offsetting the losses of some against the profits of others.
Corporate taxes may be graduated according to the rate of return on invested capital rather
than the absolute size of profits. This is accomplished by an excess-profits tax on profits
above a certain “normal” rate of return, sometimes further graduated according to the
degree to which actual profits exceed the exempt level. The excess-profits tax has been
used widely during wars and other national emergencies and to a much lesser extent under
other conditions. There are serious difficulties involved in determining accurately the value
of invested capital and in selecting an appropriate normal rate of return.
Economic effects
Sharp differences of opinion exist concerning the economic effects of the corporate income
tax, partly because it is difficult to determine who actually bears it. The traditional
conclusion of economic theory is that the tax is not reflected in prices in the short run and
hence must be paid out of profits. If firms try to maximize their profits, the tax will give
them no reason to change their prices. The price and output that yield maximum profits
before tax will yield maximum profits after tax. Although the tax must be covered by sales
receipts, it is not a cost of production in the same sense as, for example, wages but a share
of profits that can be computed only after gross receipts and production costs are known.
This reasoning applies equally to competitive and to less-competitive or wholly monopolized
industries. Certain qualifications have always been made, but they are fairly minor in nature.
More important, the theory relates only to the determination of prices and output given the
existing stock of capital. (The technical definition of short run in economics is a period of
time over which the capital stock does not change.) The theory does not predict what the
long-run effects of the tax will be, although it indicates that they will mirror those of a tax on
profit recipients rather than on consumers.
This view of the incidence of the corporate income tax has been increasingly challenged. Its
opponents argue that in many industries prices are decisively influenced by the actions of a
few leading firms, which have as their objective not maximum profits in the short run but a
target rate of return over a period of years. When the rate of corporate income tax is
increased, they say, the leading firms will raise their selling prices in order to maintain the
target return, and other firms will follow. According to this hypothesis, prices are not
competitively determined but are generally at levels lower than those that would yield
maximum profits in the short run. Another qualification of the traditional view is that labour
unions may share the burden of the tax through lower wage settlements.
The debate among economists and businessmen over the question has not been resolved by
empirical research. Some studies in the United States, Canada, and Germany indicate that
the corporate income tax is largely shifted to consumers through short-run price rises, while
other studies support the opposite conclusion.
If the tax is not shifted to consumers through price increases, it will tend to reduce the
return on corporate-equity capital. (Because interest payments are nearly always deductible
in determining taxable profits, the return on borrowed capital is not subject to the
corporation tax.) The returns on capital in unincorporated enterprises and on bonds and
mortgages will tend to fall over time as investors try to avoid the corporate tax by shifting to
untaxed areas. In this way the corporation income tax may actually burden all capital, rather
than only that invested in the corporate sector. A general reduction in rates of return may
curtail investment by cutting the reward for success and by reducing the quantity of
resources available in the form of retained corporate profits and personal savings. This will
tend to reduce the rate of growth of national product. Ultimately, however, the effect may
not be dramatic. Capital investment is only one factor influencing growth rates, and some
analyses indicate that it is less important than other phenomena, such as technological
innovation and education, that influence the growth rate.
If the corporate income tax reduces either the return on corporate-equity capital or the
returns on all capital, it will be broadly progressive in the aggregate; that is, it will reduce
disposable income proportionately more for high-income persons than for low-income
persons. This is because the fraction of total income represented by returns from ownership
of corporate stock and other capital assets rises with income. This effect holds, however,
only in the aggregate, because some low-income people, including many retirees, depend
heavily on investment income and on the capital that has accumulated in pension funds.
On the other hand, when the corporate income tax is passed along to consumers through
higher prices, it will—like a sales tax—act as a regressive tax, reducing disposable income
proportionately more for people with low incomes than for those with high incomes. A
corporation tax that has been shifted to consumers will not be especially harmful to
investment, but it may have an adverse effect on resource allocation and a company’s
competitive position in foreign markets.
Moreover, the effects of taxes imposed by a subnational government will differ from the
effects of taxes imposed by a national government. A state tax, for example, is more likely to
be borne by consumers residing in the state, by employees who work in the state, or by
those who own land in the state.
Policy issues
Integration
A major policy issue concerns the question of integrating income taxes on corporations and
shareholders. Partial integration (or dividend relief) may be attained by lessening or
eliminating the so-called double taxation of distributed profits resulting from separate
income taxes on corporations and shareholders. Full integration could be achieved only by
overlooking the existence of the corporation for income tax purposes and taxing
shareholders on undistributed profits as well as on dividends, as if the income had been
earned by a partnership. This approach may be suitable for corporations having few
shareholders. It is allowed on an optional basis in the United States for certain corporations
having only one class of stock and no more than 10 shareholders. Full integration has
generally been conceded to be impracticable for corporations with large numbers of
shareholders.
One method of partial integration is to apply a reduced rate of corporate tax to the
distributed part of profits, as is the case in a split-rate system. With a zero rate on
distributed profits, the corporate tax would apply only to undistributed profits. The same
effect could be achieved by allowing corporations a deduction for dividends it has paid. The
split-rate system offers a tax incentive for distribution of profits and sometimes has been
advocated as an instrument for curtailing internal financing of corporations. In support of
such a policy, it has been argued that liberal payouts of dividends will strengthen the capital
market, improve the allocation of investment funds, and lessen the concentration (or
monopolization) of industry. Critics have questioned whether these objectives will be
attained and have pointed out that larger dividend distributions would tend to reduce
savings and investment, because shareholders would consume part of the additional income
received.
Another approach to integration involves granting shareholders a credit (offset against their
individual tax liability) for the corporate tax allocable to dividends they have received. Such
a method functions much like the withholding system on an individual’s wage and salary
earnings. In the late 20th and early 21st centuries, a variety of approaches were undertaken
in different countries. Germany combined a credit with its split-rate system to eliminate the
added burden of the corporate tax on dividends. To encourage people to save, Chile opted
to levy a tax rate of only 15 percent on an individual’s undistributed earnings while taxing
distributed earnings at much higher rates (up to 45 percent). The systems employed in the
United Kingdom and France have provided resident shareholders a credit for about half of
the corporate tax. A Canadian credit lacked two important components of the French and
British systems—the inclusion in dividends of the credit and refunds for shareholders whose
individual tax rate was less than the corporate rate. The omission of these features favours
high-income shareholders who are subject to high individual tax rates compared with those
having lower incomes.
Opinions on the desirability of tax integration differ widely, as do judgments about the
economic effects of the corporation tax and the nature of the relationship between
corporations and their shareholders. A key question concerns the revenue that is forgone
when distributed profits are not subject to the so-called double taxation (i.e., the
corporation’s income tax and the shareholder’s dividend income tax). Could that revenue be
taxed in ways that are preferable from the standpoint of equity and economic effects?
Various approaches to dividend tax relief have the potential to compensate for any revenue
loss.
Investment incentives
The adverse effect of the corporate income tax on investment can be lessened by
accelerating the rate at which the cost of new machinery and buildings is written off against
taxable income through depreciation allowances. Accelerated depreciation may take the
form of an additional deduction in the first year—an “initial allowance”—or may be spread
over several years. Although the increase in early years in depreciation allowances for any
one asset will be matched by a reduction in allowances for this asset in future years—the
total being limited to 100 percent of cost—the acceleration is advantageous to the taxpayer.
It postpones payment of tax, facilitates financing of investment out of internal funds, saves
interest costs, and reduces risk. Another form of incentive, the investment allowance,
permits investors to deduct from taxable income a certain percentage of the cost of eligible
assets in addition to depreciation allowances. The total deductions thus may exceed the
cost of an eligible asset over its lifetime. A related approach, the tax credit, reduces the
income tax payable by a certain percentage of the cost of eligible forms of new investment.
Alternatively, an investment grant, in the form of a payment from the government to those
making certain kinds of new investment, may be provided. Investment allowances, tax
credits, and investment grants reduce the cost of new equipment and plants and thus make
investment more attractive.
Many industrialized countries, including the United States, Canada, and the United
Kingdom, have used accelerated depreciation and other special incentives to promote
commerce. These incentives reduce tax revenues but may be considered preferable to an
outright cut in tax rates because they are selective, being extended to firms that make new
investments. In an effort to attract investment by both foreign and domestic companies,
less-developed countries (and countries making a transition from socialism) sometimes offer
accelerated depreciation or investment allowances and—despite opinions that such policies
are likely to be ineffective—“tax holidays,” which provide full exemption from income tax
for new firms for the first several years of operation.
Outlays for research and development (R and D), such as purchases of a plant and
equipment, are intended to yield returns over a period of years and are frequently given
special tax treatment. In the United States, corporations and individual taxpayers may
choose between deducting R and D expenditures in full or capitalizing them and writing
them off over their useful life—or over five years if the useful life is indeterminable. Canada
allows corporations to immediately deduct current and capital expenditures for scientific
research related to the business. In addition, government grants to corporations for R and D
are exempt from taxation in Canada.
Accelerated depreciation allowances and current deductions of R and D outlays will result in
accounting losses (when they exceed net income) if they are computed without regard to
these deductions. The incentive effects of the provisions can be enhanced (and the
drawbacks of investment risk reduced) by permitting net operating losses suffered in one
year to be offset against taxable income of other years. Tax laws commonly allow such
losses to be carried back against income of prior years (which thus gives rise to refunds of
income taxes previously paid) or carried forward to future years. If, however, accounting
losses that do not reflect economic reality can be “passed through” to the owners of a
business, perhaps by the use of a partnership, the losses can offset income from other
sources and therefore provide a tax shelter.
The extent to which investment incentives should be offered is a major policy issue. It is
related to the large question of how much emphasis should be placed on present
consumption (private and public) rather than on future consumption that would result from
increased investment. This raises philosophical and political questions as well as technical
and economic ones.
Timing and inflation adjustment

Measurements of taxable income must reflect changes in the value of assets and liabilities.
If deductions are taken too quickly or if the recognition of income is unduly postponed, the
present value of tax liability is reduced. Tax shelters are based on the creation of artificial
accounting losses that result from acceleration of deductions and the deferral of recognition
of income; such losses arise from partnership investments and are used to offset income
from other sources. Depreciation is the most obvious and most important timing issue, but
it is not unique. Industries in which timing issues (and therefore the possibility of tax
shelters) are especially important include oil and gas, timber, orchards and vineyards, and
real estate. The timing rules that are required for preventing the mismeasurement of
income can add considerable complexity to the tax system.
The tax systems of most countries are based on the implicit assumption that prices are
stable. If, instead, there is inflation, real (inflation-adjusted) income is mismeasured, and
distortions and inequities occur. For example, tax is paid on (or deductions are allowed for)
the full amount of interest earned (or paid), even though inflation is eroding the principal.
(Part of interest can be seen as merely offsetting this erosion; it is neither income nor an
expense.) Tax is also paid on capital gains, with no allowance for inflation; thus, fictitious
gains are taxed, and a tax may even be levied when no real gain has occurred. Finally,
business is not allowed to recover tax-free its investment in depreciable (and similar) assets
and inventories.
Although many less-developed countries that have experienced high rates of inflation
provide for inflation adjustment in the measurement of income, no industrialized country
does so. As long as inflation is expected to be low, the benefits of inflation adjustment are
generally thought not to be great enough to justify the increased complexity that would be
involved.
Consumption-based direct taxation

It has been argued that one way to avoid the complexities of both timing issues and inflation
adjustment is to switch from a tax system based on income to one based on consumption.
Under such a system all business purchases would be deducted immediately, or “expensed.”
Borrowing in excess of investment would be added to income, and lending would be
subtracted; the resulting tax base would be consumption. Through the tax saving resulting
from expensing, the government, in effect, becomes a partner in all investments; the
revenues it subsequently receives are best seen as the return on its investment. A
consumption-based tax imposes no burden on income from marginal investments, because
the private investor keeps all of the income relating to his share of the investment. As a
result, such a tax does not favour present consumption over saving for future consumption,
as the income tax does. Advocates of consumption-based taxation believe that simplicity—
the lack of timing issues and the fact that inflation would have no chance to distort the
measurement of consumption—may be even more important than the economic
advantages they envision from such a tax.
Some economists view the flat tax as an alternative that is even simpler than consumption-
based taxation but would achieve similar economic effects. It works by exempting most
capital income from taxation at the individual level; that is, only labour income is taxed. This
proposal, like consumption-based taxation, suffers from the loss of progressivity that results
when the tax on most capital income is eliminated. No country uses either of these
consumption-based direct taxes, but Croatia has employed a system that has similar effects.
Open economy issues

Determination of income source
Major corporations operate across state and national boundaries. Because most
jurisdictions tax income that is earned within their boundaries, it is necessary to determine
the source of income of a multijurisdictional entity. The states of the United States follow a
practice that is quite distinct from that in the international sphere. National governments
commonly resort to the convention of “arms-length” prices—the prices that would prevail in
trade between unrelated entities—to determine the split of income resulting from
transactions between related parties. The states, by comparison, employ formulas to divide
the income of a multistate corporation or a group of related corporations engaged in a
“unitary business” between in-state and out-of-state income. Neither of these approaches is
totally satisfactory.
International double taxation

Some countries (including the United States) exercise the right to tax the whole income of
their nationals, even if it is earned abroad. Almost all countries consider it their right to tax
income arising within their borders, whether or not the income is earned by individuals or
corporations having their residence or exercising their management and control in the
country. Increasing attention has therefore been given to the prevention of double taxation
between countries, especially in response to the continuing rise in the number of
corporations operating in more than one country and the number of stockholders of a
corporation residing outside the country in which it operates.
To illustrate how double taxation may come about, consider a corporation A that has its
headquarters in country X and a manufacturing plant in country Y. Country X may tax the
profits earned in Y and so may Y. Further complications may arise if some of the
shareholders of A live in country Z and are subject to income tax there on dividends
received from A, which may also be subject to a withholding tax in X. Relief from double
taxation can be provided unilaterally or by treaty. Country X may allow corporation A a
foreign tax credit for income tax paid in Y; this is done by, for example, the United States,
the United Kingdom, Canada, and Germany. Alternatively, country X might unilaterally give
up its right to tax certain profits earned abroad; this approach is followed by, for example,
France and the Netherlands. Countries X and Z might enter into a tax treaty relieving
dividends paid by corporations in X to shareholders residing in Z from withholding tax and
providing some compensating advantages for X. A network of tax treaties exists among the
industrialized countries, but they apply only sketchily to the less-developed countries. There
are doubts as to whether the standard provisions found in agreements between rich
countries are suitable for agreements between industrialized countries and those at earlier
stages of economic development.
The varying national tax policies can also be used to avoid paying taxes. Many developed
countries do not actually tax the majority of investment income (especially interest) that
originates within their borders and flows to foreigners. They may thus attract capital from
less-developed countries that either do not or cannot tax such income when it is received by
their residents, but this worsens problems of capital shortages. Investment and the related
income sometimes are channeled through “tax haven” countries in order to take advantage
of tax treaties. To illustrate how this approach can be used to avoid taxes, consider the case
of a resident of country R who wishes to invest in country I, with which country R has no tax
treaty. If the funds flow through country T, which has a treaty with I, and if income is not
reported to R, tax due to I, as well as tax due to R, can be avoided. (It might more properly
be said that this involves illegal evasion rather than legal avoidance.)
The rise of e-commerce (the electronic sale of goods and services over the Internet) has
posed new questions of tax policy and administration. E-commerce makes it easier for
business to be conducted in a country without creating a “permanent establishment,” which
would subject the seller to income taxes. It blurs the distinctions between the sale of goods,
the provision of services, and the licensing of intangible assets, each of which is subject to
taxation. Equally problematic is a reliance on arms-length methods of income measurement.
Tax codes continue to be revised as governments determine reasonable approaches to the
taxation of electronic transactions.
Types of Income Tax

Individual Income Tax
Individual income tax is also referred to as personal income tax. This type of income tax is
levied on an individual’s wages, salaries, and other types of income. This tax is usually a tax
that the state imposes. Because of exemptions, deductions, and credits, most individuals do
not pay taxes on all of their income.
The IRS offers a series of income tax deductions and tax credits that taxpayers can use to
reduce their taxable income. While a deduction can lower your taxable income and the tax
rate that is used to calculate your tax, a tax credit reduces your income tax by giving you a
larger refund of your withholding.
9
The IRS offers tax deductions for healthcare expenses, investments, and certain education
expenses. For example, if a taxpayer earns $100,000 in income and qualifies for $20,000 in
deductions, the taxable income reduces to $80,000 ($100,000 - $20,000 = $80,000).
9
Tax credits exist to help reduce the taxpayer’s tax obligation or amount owed. They were
created primarily for those in middle-income and low-income households. To illustrate, if an
individual owes $20,000 in taxes but qualifies for $4,500 in credits, their tax obligation
reduces to $15,500 ($20,000 - $4,500 = $15,500).
Taxable income is your adjusted gross income (AGI) minus any itemized deductions or your
standard deduction.
Business Income Tax
Businesses also pay income taxes on their earnings; the IRS taxes income from corporations,
partnerships, self-employed contractors, and small businesses.
Depending on the business structure, the corporation, its owners, or shareholders report
their business income and then deduct their operating and capital expenses. Generally, the
difference between their business income and their operating and capital expenses is
considered their taxable business income.
State and Local Income Tax

Most U.S. states also levy personal income taxes. But eight states don’t impose personal
income taxes on residents: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas,
Washington, and Wyoming. Tennessee repealed its Hall tax, which taxed dividends and
interest, on Jan. 1, 2021.
New Hampshire also has no state tax on income, but residents must pay a 5% tax on any
dividends and interest that they earn.
The state passed a bill in 2018 that would phase out the state 5% tax on interest and
dividends on Jan. 1, 2024.This will bring the number of states with no income tax to nine by
2024.Keep in mind, though, that it may not necessarily be cheaper to live in a state that
does not levy income taxes. This is because states often make up the lost revenue with
other taxes or reduced services. What's more, other factors determine the affordability of
living in a state, including healthcare, cost of living, and job opportunities. For instance,
Florida residents pay a 6% sales tax on goods and services, while the state sales tax in
Tennessee is 7%.
To further complicate matters, states continually tinker with their tax systems in ways both
large and small, making it impossible to predict what sort of tax burden their residents will
face in the years to come. In the 2022 U.S. midterm elections, for example, Massachusetts
voters narrowly approved (51.9% yes) an additional 4% tax on taxable income over $1
million—a so-called Millionaires Tax.
California voters, meanwhile, rejected a measure that would have raised their state's
highest marginal tax bracket from 13.3% to 15.05% to raise money to subsidize the electric
vehicle industry.
How to File Income Tax Return?



Filing income tax returns is no longer the hassle it used to be. Gone are the long queues and endless
anxiety of making the tax-filing deadline
With online filing, also called e-filing, it is convenient to file returns from the confines of
your home/office and at very short notice.
Mentioned below are the broad steps to file your income tax returns online:
Sr No. Step Guide To File ITR Online
Log on to the Income Tax Department portal (www.incometaxindiaefiling.gov.in) for filing

Step 1 Log on to the returns online. Register using your Permanent Account Number (PAN), which will serve as the
portal user ID.
Download Under 'Download', go to e-filing under the relevant assessment year and select the appropriate
Step 2 Income Tax Return (ITR) form. Download ITR-1's (Sahaj) return preparation software if you are a
appropriate ITR
salaried individual.
form
Step 3 Enter details in Open the Return Preparation Software (excel utility) that you have downloaded,
Form 16 follow the instructions and enter all details from your Form 16.
Compute all
Step Compute tax payable, pay tax and enter relevant challan details in the tax return. If
relevant tax
4 you do not have a tax liability, you can skip this step.
details
Step Confirm the Confirm the details entered by you and generate an XML file, which is automatically saved on
your computer.
5 above details
Step 6
Submit return Go the 'Submit Return' section and upload the XML file.
Step You can digitally sign the file on being prompted. If you do not have a digital
Digital signature
7 signature, you can skip this step
Step Confirmation A message confirming successful e-filing is flashed on your screen. The
8 from ITR acknowledgement form - ITR-Verification is generated and the same can be
verification downloaded. It is also emailed to your registered email id.
You can e-verify the return through any one of the below six modes: 1) Net banking, 2) Bank
ATM, 3) Aadhaar OTP, 4) Bank Account Number, 5) Demat Account Number, 6) Registered
Step 9 E-verify Return Mobile Number & E-mail id. E-verification eliminates the need to send a physical copy of the ITR-
5 acknowledgement to CPC, Bengaluru

How to Download Income Tax Return?
It is important to how to file ITR on time, to avoid last minute stress and penalties. Once you
have filed your ITR, the income tax verification form is generated by the IT department so
that taxpayers can verify the validity and legitimacy of e-filing. These are applicable only if
you have filed your returns without a digital signature.
The income tax return verification form can be downloaded in easy steps.
1.) Log in to the Income Tax India website https://portal.incometaxindiaefiling.gov.in/e-

Filing/UserLogin/LoginHome.html?lang=eng
2.) View e-filed tax returns by clicking on 'View Returns/ Forms' option
Select option Income tax returns
Details of all the years for which returns are filed will be displayed
1.) Click on the acknowledgement number to download the ITR-V.
2.) Begin the download by selecting 'ITR-V Acknowledgment'
3.) To open the downloaded document, enter your password to open the document. The
password is your PAN number in lower letters along with your birthdate.
For example-
PAN - ASIJP2345P
Birthdate - 31/12/1980
Password - asijp2345p31121980
 You need to send the printed and signed document to CPC Bangalore within 120 days of the
e-filing. There is also an option of E verification of Income tax return by generating aadhar
otp, through net banking, through ATM etc.
Documents required to fill ITR
It is important to have all the relevant documents handy before you start your e-filing
process.
 Bank and post office savings account passbook, PPF account passbook
 Salary slips
 Aadhar Card, PAN card
 Form-16
- TDS certificate issued to you by your employer to provide details of the salary paid to you
and TDS deducted on it, if any
Interest certificates from banks and post office
 Form-16A
, if TDS is deducted on payments other than salaries such as interest received from fixed
deposits, recurring deposits etc. over the specified limits as per the current tax laws
 Form-16B
from the buyer if you have sold a property, showing the TDS deducted on the amount paid
to you
 Form-16C
from your tenant, for providing the details of TDS deducted on the rent received by you, if
any
 Form 26AS
- your consolidated annual tax statement. It has all the information about the taxes
deposited against your PAN
 a) TDS deducted by your employer
 b) TDS deducted by banks

 c) TDS deducted by any other organisations from payments made to you
 d) Advance taxes deposited by you
 e) Self-assessment taxes paid by you
 Tax saving investment proofs
 Proofs to claim deductions under section 80D to 80U (health insurance premium for self and
family, interest on education loan)
 Home loan statement from bank
How to check ITR status online?
Once you have filed your income tax returns and verified it, the status of your tax return is
'Verified'. After the processing is complete, the status becomes 'ITR Processed'.
If you wish to know which stage your tax return is after filing it and want to check your ITR
status online, here's how you can do it in easy steps.
Option One
Without login credentials
You can click on the ITR status tab on the extreme left of the e-filing website.
You are then directed to a new page where you have to fill in your PAN number, ITR
acknowledgement number and the captcha code.
Once this is done, the status of your filing will be displayed on the screen.
Option Two
With login credentials
Login to the e-filing website.
Click on the option 'View Returns/Forms'
From the dropdown menu, select income tax returns and assessment year
Once this is done, the status of your filing (whether only verified or processed) will be
displayed on the screen.
Keeping the Income Tax Department informed about your income and taxability will keep
you on the right side of the law and prevent any blocks in your financial competency. Now
that you know whether or not you compulsorily have to file your ITR, you need to ensure
that you complete the process before the deadline every year.
How to use Income Tax Calculator

You firstly would need to enter your birth details.
1. Further ahead, there will be sections that would require information about your income
details such as:
 Basic salary
 HRA
 Interest income
 Profits from business, etc.
2. Enter the details as per applicable to you.
3. Once that is done, you need to add your income from house property
4. Moving on, you need to add the details of your 80C deductions.
5. After that, you need to add the details of your 80D deductions.
6. Then the Calculator will ask you to add the details of any other deductions that you may
have.
7. Once that is done, you shall be able to calculate your income tax as per the latest tax
regimes and calculations.
How to Calculate Income Tax FY 2022-23

To understand your potential tax liability, you first need to figure out your tax slab. People
have to pay taxes based on their annual taxable income. By dividing individuals under
income tax slabs, the Government ensures that people do not pay very heavy taxes.
Currently, there are two tax regimes available in India, each with different taxations for each
slab. Let’s take a look at what they are:
Income Tax Slab for New & Old Regime
Income Tax Slab for Old Regime (FY 2022 – 2023)

For Individuals Below the age of 60 years
Annual Income Rate of Tax
Up to INR 2,50,000 per year None
5% on the amount above INR 2,50,000 (with a

INR 2,50,001 to INR 5,00,000 per
full rebate under Section 87A) + 4% cess on
year
income tax
INR 5,00,001 to INR 10,00,000 per INR 12,500 + 20% on the income over INR
year 5,00,000 + 4% cess on income tax
INR 1,12,500 + 30% on the income over INR

INR 10,00,001 or more per year
10,00,000 + 4% cess on income tax
For Individuals Between the age of 60 and 80 years (Senior Citizens)
5% on the amount above INR 3,00,000 (With a

INR 3,00,001 to INR 5,00,000 per
full rebate under Section 87A)+ 4% cess on
year
income tax
INR 5,00,001 to INR 10,00,000 per INR 10,000 + 20% on the income over INR
year 5,00,000 + 4% cess on income tax

For Individuals Above the age of 80 years (Super Senior Citizens)
INR 5,00,001 to INR 10,00,000 per 20% on the amount above INR 5,00,000 + 4%
year cess on income tax

Income Tax Slab for New Regime (FY 2022 – 2023)
5% on the amount above INR 2,50,000 (with a

Between INR 2,50,001 and INR
total rebate under Section 87A) + 4% cess on
5,00,000 per year
income tax
Between INR 5,00,001 and INR INR 12,500 + 10% on the income over INR
7,50,000 per year 5,00,000 + 4% cess on income tax
Between INR 12,50,001 and INR INR 1,25,000 + 25% on the income over INR

Surcharge (applicable for Old & New Tax Regime):
Surcharge is levied over and above the tax subject to marginal relief at following rates if
total income exceeds specified limits:
Total Income Rate of surcharge*
Exceeding INR 50 lakhs but not exceeding

10%
INR 1 Cr.
Exceeding INR 1 Cr. but not exceeding INR 2

15%
Cr.
Exceeding INR 2 Cr. but not exceeding INR 5

25%
Cr.
Exceeding INR 5 Cr. 37%
*In case where total income includes any income by way of dividend and capital gains
chargeable under section 111A and section 112A of Income Tax Act, the rate of surcharge
on the amount of income tax computed in respect of that part of income is restricted to
15%.
Health and education cess at 4% is to be applied on amount of surcharge also.
Once you understand your tax slab based on your income, age and eligible tax deductions,
you can use the figures given above to calculate your tax. Let’s assume a 50-year-old man
earns INR 9,60,000 per year. He invests in the PPF and purchased life insurance for himself
with a premium of INR 2,55,000. Since he falls under the old tax regime, he first needs to
calculate his taxable income. After making the eligible deductions, his taxable income works
out to INR 8,10,000. Based on his age and taxable income, he needs to pay INR 12,500 +
20% of (8,10,000 – 5,00,000) as income tax. The amount works out to INR 74,500 plus
Health and Education cess of INR 2,980 (74,500*4%)
Let’s assume the man did not make any investments or deductions. His taxable income
would be the entire INR 9,60,000. As per the income tax slabs in the new regime, he would
have to pay INR 37,500 + 15% of (9,60,000 – 7,50,000). In this scenario, the income tax
amount works out to INR 69,000 plus Health and Education cess of INR 2,760
Calculate Income Tax for the Old Regime
Under the old tax regime, individuals can claim eligible deductions as per the provisions
outlined in Section 80C of the Income Tax Act#. So, money they invest for their future in
funds such as the NPS or PPF can get deducted from their taxable income. Before calculating
their income tax liability, these individuals must calculate their taxable income. Once they
make the deductions, they arrive at the taxable income amount. Based on their age and
their taxable income, they can understand which tax bracket they fall under and pay the
requisite taxes accordingly.
Calculate Income Tax for the New Regime
The new tax regime does not allow any deductions. It’s helpful for individuals who have not
made too many investments, since the tax amount is lower. Here, individuals do not have to
work out their taxable income. They simply need to understand which tax bracket they fall
under and they can calculate their tax liability with ease.
Income Tax Calculation
We can understand how to calculate an individual’s income tax liability by using an example.
Amit, a 45-year-old, earns INR 12,00,000 per year. As per his income break-up, he gets HRA
of INR 45,000 per month even though he pays monthly rent of INR 60,000. Additionally, he
purchased a life insurance policy for himself, with a premium of INR 3,00,000. He also pays
the premiums for health insurance plans for himself and his mother, who is 70. Let’s take a
look at how Amit should calculate his income:
Total Income – INR 12,00,000

Standard Deduction – INR 50,000
HRA – INR 45,000
Deduction against Life Insurance Premium – INR 1,50,000
Deduction against Health Insurance Premium – INR 75,000
So, Amit’s total taxable income works out to INR 8,80,000.
His income tax liability is INR 12,500 + 20% of the taxable income above INR 5,00,000
= INR 12,500 + 20% (8,80,000 – 5,00,000)
= INR 12,500 + 20% of 3,80,000
= INR 12,500 + 76,000
=INR 88,500+ INR 3,540 (88,500*4%)
So, the total tax Amit has to pay works out to INR 92,040.
Now, let’s take a look at Varun’s situation. Varun earns INR 12,00,000 per year. He does not
make any investments, so he follows the new tax regime. He forgoes the standard
deduction and his HRA deduction. His taxable income is INR 7,50,000.
As per the new tax regime, his income tax liability is INR 75,000 + 20% of the income above
INR 10,00,000
= INR 75,000 + 20% (12,00,000 – 10,00,000)

= INR 75,000 + 20% of 2,00,000
= INR 75,000 + 40,000
=INR 1,15,000 + INR 4,600 (1,15,000* 4%)
So, the total tax Varun has to pay works out to INR 1,19,600.
Benefits of Filing Income Tax Online
Every individual who earns more than the basic exemption limit must file their Income Tax
Returns (ITR). Even if your taxable income is less than the exemption limit, you need to file a
nil return. Today, you can file your ITR online. Let’s take a look at the benefits of filing your
ITR online:
 You can complete the process quickly at your convenience
 Online filing allows faster electronic refunds
 You can get instant confirmation of filing and real-time updates on your ITR status
 The process is completely safe and very secure
 ITR serves as income and address proof and can be used to apply for visas, loans and
insurance
 Online ITR filing helps you avoid any late fee or penalty since you can do it well before the
cut-off date by yourself
Eligibility Criteria to File Income Tax
The individuals who are eligible to file income tax returns in India include:
 Hindu Undivided Family (HUF)
 Associations of Persons (AOP)
 Resident citizens
 Local authorities
 Corporate firms
 Companies
 Body of Individuals (BoI)
 Artificial Juridical Persons
 Charitable and Religious Trusts
Income Tax Exemptions for Salaried Individuals

Let’s take a closer look at the income tax exemptions salaried individuals can enjoy under
the old tax regime:
 Standard deduction or INR 50,000

 House Rent Allowance or HRA
 Leave Travel Allowance or LTA for domestic travel only
 Work-related expenses including telephone bills
 Deductions under various sections of the Income Tax Act, 19611, such as:
 Sections 80C and 80CCD(1) for contributions to NPS, life insurance premium,
ELSS, tuition fee, tax-saving FDs, etc.
 Section 80D for health insurance premiums
 Sections 80C, 24B and 80EEE or 80EEA against repayments for their home
loan
 Section 80E for education loan interest payments
 Section 80G for contributions to valid charitable organisations
 Section 80TTA for the interest accrued on a savings account
r
INCOME TAX RETURN FILLING PROCESS

e-Filing of ITR
e-Filing of ITR
The user can file the Income Tax Return (ITR) in two ways:
1. Offline: Download the applicable ITR, fill the form offline, save the
generated XML file and then upload it.
To e-File the ITR using the upload XML method, the user must download either of the
following ITR utility:
 Excel Utility
 Java Utility
Perform the following steps to download the Java Utility or Excel Utility, then to generate
and Upload the XML:
1. Go to the Income Tax e-Filing portal https://www.incometax.gov.in/iec/foportal/

2. Download the Appropriate ITR utility under 'Downloads > IT Return Preparation
Software'.
3. Extract the downloaded utility ZIP file and Open the Utility from the extracted
folder. (For more information and prerequisites, refer the 'Read me' document).
Note : System Requirements

Excel Utilities: Macro enabled MS-Office Excel version 2007/2010/2013 on
Microsoft Windows 7 / 8 /10 with .Net Framework (3.5 & above)
Java Utilities: Microsoft Windows 7/8/10, Linux and Mac OS 10.x with JRE (Java
Runtime Environment) Version 8 with latest updates.
To Enable Macros in Excel Go to > File > Options > Trust Centre > Trust Centre
Settings > Macro Settings > Enable All Macro > Click ‘OK’ button twice to save these
settings.
4. Fill the applicable and mandatory fields of the ITR form.
Note :
Pre-filled XML can be downloaded post login to the e-Filing portal from 'My
Account > Download Pre-Filled XML' and can be imported to the utility for prefilling
the personal and other available details.
5. Validate all the tabs of the ITR form and Calculate the Tax.
6. Generate and Save the XML.
7. Login to e-Filing portal by entering user ID (PAN), Password, Captcha code and click
'Login'.
8. Click on the 'e-File' menu and click 'Income Tax Return' link.
9. On Income Tax Return Page:
o PAN will be auto-populated
o Select 'Assessment Year'
o Select 'ITR form Number'
o Select 'Filing Type' as 'Original/Revised Return'
o Select 'Submission Mode' as 'Upload XML'
10. Choose any one of the following option to verify the Income Tax Return:
o Digital Signature Certificate (DSC).
o Aadhaar OTP.
o EVC using Prevalidated Bank Account Details.
o EVC using Prevalidated Demat Account Details.
o Already generated EVC through My Account  Generate EVC Option or Bank
ATM. Validity of such EVC is 72 hours from the time of generation.
o I would like to e-Verify later. Please remind me.
o I don’t want to e-verify this Income Tax Return and would like to send
signed ITR-V through normal or speed post to "Centralized Processing
Center, Income Tax Department, Bengaluru – 560500"
11. Click 'Continue'
12. Attach the ITR XML file.
On choosing,
o DSC as verification option, Attach the signature file generated from DSC
management utility.
o Aadhaar OTP as verification option, Enter the Aadhaar OTP received in the
mobile number registered with UIDAI.
o EVC through Bank account, Demat account or Bank ATM as verification
option, Enter the EVC received in the mobile number registered with Bank
or Demat Account respectively.
o Other two verification options, the ITR will be submitted but the process of
filing the ITRs is not complete until it is verified. The submitted ITR should
be e-Verified later by using 'My Account > e-Verify Return' option or the
signed ITR-V should be sent to CPC, Bengaluru.
13. Submit the ITR.
14. To view the uploaded ITRs
2. Online: Enter the relevant data directly online at e-filing portal and submit
it. Taxpayer can file ITR 1 and ITR 4 online.
1. Go to the Income Tax e-Filing portal, https://www.incometax.gov.in/iec/foportal/

2. Login to e-Filing portal by entering user ID (PAN), Password, Captcha code and click
'Login'.
3. Click on the 'e-File' menu and click 'Income Tax Return' link.
4. On Income Tax Return Page:
o PAN will be auto-populated
o Select 'Assessment Year'
o Select 'ITR Form Number'
o Select 'Filing Type' as 'Original/Revised Return'
o Select 'Submission Mode' as 'Prepare and Submit Online'
5. Click on 'Continue'
6. Read the Instructions carefully and Fill all the applicable and mandatory fields of
the Online ITR Form.
Note :
To avoid loss of data/rework due session time out, Click on ‘Save Draft’ button
periodically to save the entered ITR details as a draft. The saved draft will be
available for 30 days from the date of saving or till the date of filing the return or
till there is no change in the XML schema of the notified ITR (Whichever is earlier).
7. Choose the appropriate Verification option in the 'Taxes Paid and Verification' tab.
Choose any one of the following option to verify the Income Tax Return:
o I would like to e-Verify

o I would like to e-Verify later within 120 days from date of filing.
o I don't want to e-Verify and would like to send signed ITR-V through normal
or speed post to "Centralized Processing Center, Income Tax Department,
Bengaluru - 560 500" within 120 days from date of filing.
o Click on 'Preview and Submit' button, Verify all the data entered in the ITR.
o 'Submit' the ITR.
o On Choosing 'I would like to e-Verify' option, e-Verification can be done
through any of the following methods by entering the EVC/OTP when asked
for.
 EVC generated through bank ATM or Generate EVC option under My
Account
 Aadhaar OTP
 Prevali dated Bank Account
 Prevali dated Demat Account
Note
On Choosing the other two verification options, the ITR will be submitted
but the process of filing the ITRs is not complete until it is verified. The
submitted ITR should be e-Verified later by using 'My Account > e-Verify
Return' option or the signed ITR-V should be sent to CPC, Bengaluru.
o The EVC/OTP should be entered within 60 seconds else, the Income Tax
Return (ITR) will be auto-submitted. The submitted ITR should be verified
later by using 'My Account > e-Verify Return' option or by sending signed
ITR-V to CPC.
o To view the uploaded ITRs
Go to https://www.incometax.gov.in/iec/foportal/
Consequences of delay in filing the return of income
Delay in filing the return of income may attract certain adverse consequences. Following are
the consequences of delay in filing the return of income:
 Loss (other than loss under the head “Income from house property”) cannot be carried
forward.
 Levy of interest under section 234A.Levy of fee under section 234F*
 Exemptions under sections 10A, 10B, are not available.
 Deduction under Part-C of Chapter VI-A shall not be available.
* Fee for default in furnishing return of income shall be Rs. 5,000. However, where the total
income of the person does not exceed Rs. 5,00,000, the fee payable shall not exceed Rs.
1,000.
Revision of return
Sometimes the taxpayer may omit to include certain information in the return or may
commit
any mistake at the time of filing the return of income. In such case any unintentional
mistake
or error or omission in the return of income filed by the taxpayer can be corrected by filing a
revised return.
A return can be revised at any time 3 months before the end of the relevant assessment
year or
before the completion of the assessment, whichever is earlier. It should be noted that only a
return filed under section 139(1) or belated return filed under section 139(4) can be revised.
A return of income filed pursuant to notice under section 142(1) of Act cannot be revised
under section 139(5).
Defective return
Section 139(9) provides the list of situations in which the return of income filed by the
taxpayer can be treated as defective return. If the Assessing Officer finds the return of
income
to be defective under section 139(9), then he may intimate such defect to the taxpayer and
may
give an opportunity to him to rectify such defect.
The taxpayer shall rectify such defect in the return of income within a period of 15 days of
such intimation or within such further period as the Assessing Officer may allow.
If the defect is not rectified within the period of 15 days or the further period so allowed (as
the case may be), then, notwithstanding anything contained in any other provision of the
Act,
the return shall be treated as an invalid return and the provisions of the Act shall apply as if
the taxpayer had failed to furnish the return.
A return of income shall be regarded as defective, unless all the following conditions are
fulfilled:
 The annexures, statements and columns in the return of income relating to computation
of income chargeable under each head of income, computation of gross total income
and total income have been duly filled in.
 The return is accompanied by a statement showing the computation of the tax payable
on the basis of the return.
[As amended by Finance Act, 2022]
 The return is accompanied by the report of the audit referred to in section 44AB, or,
where the report has been furnished prior to the furnishing of the return, by a copy of
such report together with proof of furnishing the report.
 The return is accompanied by proof of the tax, if any, claimed to have been deducted
or collected at source and the advance tax and tax on self-assessment, if any, claimed
to have been paid. Where the return is not accompanied by proof of the tax, if any,
claimed to have been deducted or collected at source, the return of income shall not be
regarded as defective if :
1. A certificate for tax deducted or collected was not furnished under section 203 or
section 206C to the person furnishing his return of income.
2. Such certificate is produced within a period of two years specified under subsection (14)
of section 155.
 Where regular books of account are maintained by the taxpayer, the return is
accompanied by copies of :
1. Manufacturing account, trading account, profit and loss account or, as the case may
be, income and expenditure account or any other similar account and balancesheet.
2. In the case of a proprietary business or profession, the personal account of the
proprietor; in the case of a firm, association of persons or body of individuals,
personal accounts of the partners or members and in the case of a partner or member
of a firm, association of persons or body of individuals, also his personal account in
the firm, association of persons or body of individuals.
 Where the accounts of the taxpayer have been audited, the return is accompanied by
copies of the audited profit and loss account and balance sheet and the auditor's report
and, where an audit of cost accounts of the taxpayer has been conducted under section
233B of the Companies Act, 1956 [now Section 148 of Companies Act, 2013], also the
report under that section.
 Where regular books of account are not maintained by the taxpayer, the return is
accompanied by a statement indicating the amounts of turnover or, as the case may be,
gross receipts, gross profit, expenses and net profit of the business or profession and the
basis on which such amounts have been computed, and also disclosing the amounts of
total sundry debtors, sundry creditors, stock-in-trade and cash balance as at the end of
the previous year.
Note: As per the current norms prescribed by CBDT vide Income-tax Rules, 1962 for filing
return of income, no documents shall be attached along with the Return of Income. Hence,
documents like computation of income, balance sheet and accounts, audit report, TDS
certificate, tax payment challan, proof of investment, etc., are not to be attached along with
the
return of income. No penalty will be levied for non-submission of these documents along
with
the return of income and the return will not be treated as defective due to non-attachment
of
aforesaid documents, statements, etc.
Return to be verified by whom
As per section 140, the return of income is to be verified by:
In the case of an individual :
i. by the individual himself;
ii. where he is absent from India, by the individual himself or by some person duly
authorised by him in this behalf;
iii. where he is mentally incapacitated from attending to his affairs, by his guardian or
any other person competent to act on his behalf; and
iv. where, for any other reason, it is not possible for the individual to verify the
return, by any person duly authorised by him in this behalf:
It should be noted that in a case referred to in (ii) or (iv) above, the person verifying the
return
holds a valid power of attorney from the individual to do so, which shall be attached to the
return.
b) in the case of a Hindu undivided family, by the karta, and, where the karta is absent
from India or is mentally incapacitated from attending to his affairs, by any other adult
member of such family;
c) in the case of a company, by the managing director thereof, or where for any
unavoidable reason such managing director is not able to verify the return, or where
there is no managing director, by any director thereof.
It should be noted that where the company is not resident in India, the return may be
verified by a person who holds a valid power of attorney from such company to do so,
which shall be attached to the return. Following points should be noted in this regard :
 where the company is being wound up, whether under the orders of a court or
otherwise, or where any person has been appointed as the receiver of any assets of the
company, the return shall be verified by the liquidator referred to in section 178(1);
 where the management of the company has been taken over by the Central Government
or any State Government under any law, the return of the company shallbe verified by
the principal officer thereof;
 With effect from Assessment Year 2018-19, where an application for corporate
insolvency resolution process has been admitted by the Adjudicating Authority under
Section 7 or 9 or 10 of the Insolvency and Bankruptcy Code, 2016, the return shall be
verified by the insolvency professional appointed by such adjudicating authority.
(cc)in the case of a firm, by the managing partner thereof, or where for any unavoidable
reason such managing partner is not able to verify the return, or where there is no
managing partner as such, by any partner thereof, not being a minor;
(cd)in the case of a limited liability partnership, by the designated partner thereof, or where
for any unavoidable reason such designated partner is not able to verify the return, or
where there is no designated partner as such, by any partner thereof;
(d) in the case of a local authority, by the principal officer thereof;
(dd) in the case of a political party referred to in section 139(4B), by the chief executive
officer of such party (whether such chief executive officer is known as secretary orby any
other designation);
(e) in the case of any other association, by any member of the association or theprincipal
officer thereof; and
(f) in the case of any other person, by that person or by some person competent to acton
his behalf.
Note:
W.e.f., Assessment Year 2020-21, the Finance Act, 2020 has empowered the Central Board
of
Direct Taxes (CBDT) to enable any other person, as may be prescribed, to verifythe return of
income in the cases of a company and an LLP.
In exercise of such power, the CBDT has inserted a new Rule 12AA to prescribe the other
person who can verify a company's return and an LLP. This rule provides that any other
person shall be the person, appointed by the National Company Law Tribunal (NCLT), for
discharging the duties and functions of an interim resolution professional, a resolution
professional, or a liquidator, as the case may be, under the Insolvency and Bankruptcy Code,
2016 and the rules and regulations made thereunder.
Updated Return
The Finance Act 2022, has inserted subsection (8A) in section 139 to enable the filing of an
updated return. The section provides that an updated return can be filed by any person
irrespective of the fact whether such person has already filed the original, belated or revised
return for the relevant assessment year or not.
An updated return can be filed at any time within 24 months from the end of the relevant
assessment year. However, an updated return cannot be filed in the following three
situations:
Situation 1: An updated return cannot be filed if such updated return:
a) is a return of a loss; or
b) results in lower tax liability determined on the basis of original, revised or belated
return filed by assessee; or
c) results in or increasing the refund due on the basis of original, revised or belated
return filed by assessee.
Situation 2: A person cannot file updated return wherein:
a) A search has been initiated under section 132 or books of account or other
documents or any assets are requisitioned under section 132A in the case of such
person; or
b) A survey has been conducted under section 133A, other than section 133A(2A), in
the case such person; or
c) A notice has been issued to the effect that any money, bullion, jewellery or valuable
article or thing, seized or requisitioned under section 132 or section 132A in the case
of any other person belongs to such person; or
d) A notice has been issued to the effect that any books of account or documents,
seized or requisitioned under section 132 or section 132A in the case of any other
person, pertain or pertains to, or any other information contained therein, relate to,
such person.
In the this situation, an updated return cannot be filed for the assessment year relevant to
the
previous year in which such search is initiated or survey is conducted or requisition is made
and any assessment year preceding such assessment year.
Situation 3: An updated return cannot be filed for the relevant assessment year wherein:
a) An updated return has been furnished by him;
b) Any proceeding for assessment or reassessment or recomputation or revision of
income is pending or has been completed;
c) The Assessing Officer has information in respect of such person under:
 The Smugglers and Foreign Exchange Manipulators (Forfeiture of Property)
Act, 1976;
 The Prohibition of Benami Property Transactions Act, 1988;
 The Prevention of Money-laundering Act, 2002; or
 The Black Money (Undisclosed Foreign Income and Assets) and Imposition of
Tax Act, 2015.
And the same has been communicated to him, prior to the date of furnishing of
updated return
d) Information has been received under an agreement referred to in section 90 or section
90A in respect of such person and the same has been communicated to him, prior to
the date of furnishing of return of updated return;
e) Any prosecution proceedings have been initiated in respect of such person, prior to the
date of furnishing of updated return.
f) Assessee is such person or belongs to such class of persons, as may be notified by the
Board.
Note:
1. Where a person has furnished a return of loss under section 139(3), he can furnish an
updated return. However, such an updated return should be a return of income. In other
words, the updated return should not be a return of loss.
2. If as a result of furnishing of an updated return for a previous year, the following is
reduced for any subsequent year, then the person shall be required to file the updated
return for each such subsequent year:
 loss or any part thereof carried forward under Chapter VI; or
 unabsorbed depreciation carried forward under Section 32(2); or
 tax credit carried forward under Section 115JAA; or
 tax credit carried forward under Section 115JD.
Tax on updated return
Section 140B provides for payment and computation of tax, interest, fee, and additional
income-tax on updated return. It contains the following six provisions:
(a) Computation of tax on the updated return where no original or belated return was filed.
(b) Computation of tax on the updated return where original, revised or belated earlier
(‘earlier return’) was filed.
(c) Computation of additional tax payable at the time of furnishing of updated return.
This provision also contains an explanation that provides for computation of interest under
section 234A, section 234C and interest on additional tax payable at the time of furnishing
of
updated return.
1. Computation of tax, interest, and fee on the updated return where no return was filed
earlier
[As A
Where a person has not filed the original or belated return for the relevant assessment year,
the
tax payable on the updated return (self-assessment tax) shall be paid along with interest
and
fee for delay in furnishing the return of income and interest for any default or delay in
payment of advance tax.
Further, an additional income tax shall be paid before filing of an updated return. Such tax,
interest, fee, and additional income tax shall be computed in the following manner:
(a) Self-assessment tax
Self-assessment tax on income reported in updated return shall be computed after taking
into
account the following:
 Advance tax;
 Tax deducted at source (TDS);
 Tax collected at source (TCS);
 Relief under section 89;
 Foreign tax credit; and
 MAT or AMT credit.
(b) Interest under Section 234A for late filing of return
At the time of furnishing of updated return, the interest under section 234A shall be
computed
on the self-assessment tax payable on updated return.
The interest shall be charged for the period commencing from the date immediately
following
the due date for filing the original return of income and ending with the date on which the
updated return is furnished.
However, this interest shall not be charged on the amount of additional income-tax payable
on
updated return.
(c) Interest under section 234C for default in payment of advance tax instalments
Section 234C interest is computed with reference to ‘tax due on the returned income’. Thus,
in
the case of an updated return, the total income reported in updated return is to be
considered as
returned income. Total income reported in updated return shall be treated as returned
income
even in cases where the assessee has already filed an original, belated or revised return for
the
relevant assessment year before filing the updated return.
(d) Fee under section 234F for default in furnishing return
The fee for default in furnishing of return shall be levied as per the extant provisions on
furnishing of belated return.
2. Computation of tax, interest and fee on updated return where a return was filed earlier
Where a person has already filed the original, belated or revised return for the relevant
assessment year, then the tax payable on the updated return (self-assessment tax) shall be
paid
along with interest for any default or delay in payment of advance tax as reduced by the
amount of interest paid in an earlier return.
Further, an additional income tax shall also be required to be paid before filing of updated
return. The tax, interest and additional income tax that is required to be paid before filing of
updated return shall be computed in the following manner:
(a) Self-assessment tax
The self-assessment tax shall be computed after taking into account the following:
 Tax or relief, the credit of which has already been taken in earlier return; and
 Tax or relief, the credit of which has not been claimed in earlier return.
Further, the amount of tax so computed shall be increased by the amount of refund, if any,
issued in respect of such an earlier return.
(b) Interest under section 234B for delay in payment of advance tax
Where a person has already filed return of income, interest payable under section 234B at
the
time of furnishing of updated return shall be computed on the amount of assessed tax or on
the
amount by which the advance tax paid falls short of the assessed tax, as the case may be.
The
amount of interest computed shall be reduced by the amount of interest paid in an earlier
return.
(c) Interest under section 234C for default in payment of advance tax instalments
Interest under section 234C shall be computed after taking into account the income
furnished
in the updated return as the returned income. The amount of interest computed shall be
reduced by the amount of interest paid in an earlier return.
(d) Fee under section 234F for default in furnishing return
A person shall not be required to pay the fee at the time of furnishing of updated return if
he
has already filed the original, revised, or belated return for the relevant assessment year.
3. Payment of additional tax on updated return
Tax on the updated return shall be paid along with interest, fee, and additional income tax.
The additional tax shall be equal to 25% of the aggregate of tax and interest payable by a
person on the filing of the updated return where such return is furnished after the expiry of
the
due date of filing of belated or revised return but before completion of a period of 12
months
from the end of the relevant assessment year.
Where the updated return is furnished after the expiry of 12 months from the end of the
relevant assessment year but before completion of the period of 24 months from the end of
the
relevant assessment year, the additional tax payable shall be 50% of the aggregate of tax
and
interest payable.
4. Proof of payment
The updated return shall be accompanied by the proof of tax payment, i.e., normal tax (if
any),
additional tax, interest and fee as required under section 140B; otherwise, it shall be treated
as
a defective return.
Filing the return through Tax Return Preparers
For the purpose of enabling any specified class or classes of persons (*) in preparing and
furnishing returns of income, the Board has notified the Tax Return Preparers Scheme
providing that such persons may furnish their returns of income through a Tax Return
Preparer
(TRP)* authorised to act as such under the Scheme
In other words, a specified person**can file his return of income through Government
authorised return prepares i.e. TRPs.
*“Tax Return Preparer” means any individual, [not being a person referred to in section
288(2)(ii)/(iii)/(iv) or an employee of the “specified class or classes of persons”], who
hasbeen
authorised to act as a Tax Return Preparer under the Scheme framed in this behalf.
**“Specified class or classes of persons” means any person, other than a company or a
person,
whose accounts are required to be audited under section 44AB or under any otherlaw for
the
time being in force, who is required to furnish a return of income under the Act.
Form of return and mode of filing the return
The provisions relating to form of return and mode of filling the return are discussed in
separate topic under heading “Filing the return of Income”.

Introduction to Income Tax in 40 Characters

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Introduction to Income Tax in 40 Characters

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Introduction of Income tax

An income tax is a tax imposed on individuals or entities (taxpayers) in respect of the

William Pitt the Younger introduced a progressive income tax in 1798.

Main article: History of taxation in the United States

Taxpayers and rates

Residents and non-residents

Economic and policy aspects

Criticism within Entrepreneurship

Corporate income tax

Rationale for taxation

Timing and inflation adjustment

Consumption-based direct taxation

Open economy issues

International double taxation

Types of Income Tax

State and Local Income Tax

How to File Income Tax Return?

Sr No. Step Guide To File ITR Online

Log on to the Income Tax Department portal (www.incometaxindiaefiling.gov.in) for filing

How to Download Income Tax Return?

1.) Log in to the Income Tax India website https://portal.incometaxindiaefiling.gov.in/e-

Select option Income tax returns

1.) Click on the acknowledgement number to download the ITR-V.

2.) Begin the download by selecting 'ITR-V Acknowledgment'

Documents required to fill ITR

 Aadhar Card, PAN card

Interest certificates from banks and post office

 a) TDS deducted by your employer

 b) TDS deducted by banks

 d) Advance taxes deposited by you

 e) Self-assessment taxes paid by you

 Tax saving investment proofs

 Home loan statement from bank

How to check ITR status online?

Without login credentials

With login credentials

Login to the e-filing website.

Click on the option 'View Returns/Forms'

How to use Income Tax Calculator

 Profits from business, etc.

2. Enter the details as per applicable to you.

4. Moving on, you need to add the details of your 80C deductions.

5. After that, you need to add the details of your 80D deductions.

Income Tax Slab for New & Old Regime

Income Tax Slab for Old Regime (FY 2022 – 2023)

Annual Income Rate of Tax

Up to INR 2,50,000 per year None

5% on the amount above INR 2,50,000 (with a

INR 1,12,500 + 30% on the income over INR

For Individuals Between the age of 60 and 80 years (Senior Citizens)

Annual Income Rate of Tax

Up to INR 3,00,000 per year None

5% on the amount above INR 3,00,000 (With a

INR 1,10,000 + 30% on the income over INR

For Individuals Above the age of 80 years (Super Senior Citizens)

Annual Income Rate of Tax

Up to INR 5,00,000 per year None

INR 1,00,000 + 30% on the income over INR

Income Tax Slab for New Regime (FY 2022 – 2023)

Annual Income Rate of Tax

Up to INR 2,50,000 per year None

5% on the amount above INR 2,50,000 (with a