For understanding tax treatment, you need to know tax structure of India, In India Income tax is leviable on Slab Wise Basis. It means if your income falls within particular slab than you need to pay tax at the rate applicable to the slab in which your income falls. However, before taxing your income, there are certain expenses & investments of which you can claim deduction & your balance income after such deductions will be taxed. Such tax can be paid at the time of Return filing as well during the year in the form of Advance Tax if your Tax Liability exceeds certain specified limit to avoid interest charges.
This article will help you to understand tax treatment if you are in the capacity of Sole Proprietor, tax treatment for Partnership Firm & Company are different.
Let’s understand Income tax related aspects in details:
Gross Total Income:
It is important to understand about Gross Income as it is the base on which your income tax liability will be calculated. As per Section 14 of the Income Tax Act,1961 there are total 5 heads of Incomes under Income tax act, 1961 and sum of each head of Income will be your Gross total Income before deductions which are as follow:
| Heads of Income | Description |
| Salary | If you are under employment than Income from it will taxed under the head salary |
| Income from house property | If you are having more than one house and other houses are let out than rent received from such houses will be taxed under this head. |
| Profit & Gain from Business & Profession | If you are in any business or profession at your own in the capacity of Sole – Proprietor than income from such business or profession will be taxed under this head |
| Capital Gains | If you are having any capital assets i.e. Any property, Jewelry, archaeological collection, drawings, paintings, sculptures or any work of art and if you sell than Short – term or Long – Term capital gain will be leviable depending upon the duration of holding & selling of such capital assets |
| Income from other sources | Income which does not forms parts of any of the above head will be taxed under this head |
From the above bifurcation, you can easily allocate your income depending upon the nature of the income and now it will be the easy task for you, right?
Deductions available:
In income tax, you can claim deductions of expenditures & Investments (As per limits given in the Income Tax Act,1961) from your Gross total Income to reduce tax liability.
As per the Income Tax Act, 1961 if you have incurred any expenditure wholly & exclusively for the purpose of your business & profession which is not in the nature of Personal or Capital in Nature shall be allowed in computation of Income from “Profits & Gains from Business & Profession”
Here are some of the examples of expenses which you can claim as a deduction:
1. Telephone / Internet Charges,
2. Marketing & Advertising Expenses such as cost of pamphlet, business card, website charges.
3. Domain Hosting Expense, Domain Purchase Expense, Site Maintenance Charges
4. Electricity Expense
5. Rent Expense in case you are working on rented premises
6. Salary to employees.
7. Payment to Freelance Consultant,
8. Petrol/ Diesel Expenses.
9.Travel Expenses (Business Related Travelling)
10. Depreciation on assets like laptop, Mobile or Camera.
Now let us know Investment side deduction available through the below table:
| Section | Brief description | Deduction Amount |
| 24 | Home Loan Interest | ₹ 2,00,000 |
| 80C | LIC/PPF/SSY/NSC/Home Loan Interest/ School Fees etc. | ₹ 1,50,000 |
| 80DD | Expenditure of disabled dependent | ₹75,000/₹ 1,25,000 |
| 80U | Own Physical Disability | ₹75,000/₹ 1,25,000 |
| 80TTA | Interest on Saving Account, available to person other than Senior citizens | ₹ 10,000 |
| 80D | Mediclaim for self, spouse and dependent children, Parents (Only if paid by cheque/ Bank Mode) | ₹25,000/₹50,000(Senior citizen) |
| 16(ia) | In case you are salaried person Standard deduction | ₹ 50,000 |
Note: Above list of sections are not exhaustive, only some of the selective sections have been highlighted.
Taxable Income:
After deducting expenses & investment side deductions your taxable income will be as follow on which you will have to pay tax:
| Particulars | Amount |
| Gross Total Income | (XXX) |
| Less: Expenses | (XXX) |
| Income before deductions | XXX |
| Less: Deductions | (XXX) |
| Taxable Income | XXX |
Tax Rates:
After arriving at taxable income, now it’s time to understand the tax rate at which your income will be taxed which we will understand from below table: (For F.Y. 2019-2020):
| Income Tax Slabs | Tax Rate |
| Up to ₹ 2,50,000 | NIL |
| ₹2,50,000 to ₹5,00,000 | 5% of total income exceeding ₹2,50,000 |
| ₹5,00,001 to ₹10,00,000 | ₹12,500 + 20% of total income exceeding ₹5,00,000 |
| Above ₹10,00,000 | ₹1,12,500 + 30% of total income exceeding ₹10,00,000 |
If you are senior citizen than Up to ₹ 3,00,000 will be zero, as well as if you are super senior citizen (80 years or above) than up to ₹ 5,00,000 tax will be Nil.
- A tax rebate under section 87A is allowable to individual taxpayers up to
₹ 12,500/- if the total income is up to ₹ 5,00,000/- meaning there if your income is up to ₹ 5,00,000 than tax there will be no tax liability up to ₹ 12,500.
- Over and above these rates, surcharge will be also leviable as per rules.
Due date of Filing of Income tax return:
- As per section 139(1) of income tax act,1961, every person who has a total income that exceeds maximum amount not chargeable to tax is liable to furnish Income Tax Return within due date i.e. 31st July 2020. However, due to Covid- 19 due date for filing income tax return has been extended as per blow table:
| Type of return | Original Due date | Revised due date |
| Assessee whose books are not liable to tax audits | 31st July 2020 or 31st October, 2020 | 30th November 2020 |
| Assessee required to get books of accounts audited | 30th September, 2020 | 31st October 2020 |
Penalty for Non-filing of Income Tax Return:
In case you are compulsorily required to file your Income tax return but fail within the due date then penalties for non-filing of Income tax returns shall be as follow:
1. A penalty of Rs. 5000 is applicable if the return for F.Y. 2019 – 2020 is filed after due date but before 31st December 2020.
2. A penalty of Rs 10,000 is applicable if the return for FY 2019-2020 is filed after 31 December 2020 but before 31 March 2021.
Note: Penalty is limited to Rs 1,000 for those with income up to Rs 5 lakhs. These provisions are covered under Section 234F.
Type of Return to be filed:
| Type of return | For whom it is applicable |
| ITR – 1 | For individuals being a resident (other than not ordinarily resident) having total income up to Rs.50 lakh, having Income from Salaries, one house property, other sources (Interest etc.), and agricultural income up to Rs. 5 thousand [Not for an individual who is either Director in a company or has invested in unlisted equity shares] |
| ITR – 2 | For Individuals and HUFs not having income from profits and gains of business or profession. |
| ITR – 3 | For individuals and HUFs having income from profits and gains of business or profession. |
| ITR – 4 | For Individuals, HUFs and Firms (other than LLP) being a resident having total income up to Rs.50 lakh and having income from business and profession which is computed under sections 44AD, 44ADA or 44AE
[Not for an individual who is either Director in a company or has invested in unlisted equity shares] |
| ITR – 5 | For persons other than- (i) individual, (ii) HUF, (iii) company and (iv) person filing Form ITR-7 |
| ITR – 6 | For Companies other than companies claiming exemption under section 11 |
| ITR – 7 | For persons including companies required to furnish return under sections 139(4A) or 139(4B) or 139(4C) or 139(4D) only. |
Central board of direct taxes recently notify forms for Income tax return for the F.Y. 2019-2020 which are as follow:
From the above bifurcation you can file your income tax return based on category in which you are covered.
Disclaimer:
This article is for understanding purpose and it does not constitute legal or expression of opinion.
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