What is income tax?
An income tax is a tax that governments impose on income generated by businesses and individuals within their jurisdiction. By law, taxpayers must file an income tax return annually to determine their tax obligations. Income taxes are a source of revenue for governments. They are used to fund public services, pay government obligations, and provide goods for citizens.
Understanding Tax Calculations
The Indian government annually announces tax obligations in their annual budget. For the Financial Year 2019-2020, the following obligations were defined in the Budget:
| Taxable income slabs | Age < 60 years |
| Up to ₹ 2.5 lakh | Nil |
| ₹ 2,50,001 to ₹ 5,00,000 | 5% of (Total income minus ₹ 2,50,000) + 4% cess |
| ₹ 5,00,001 to ₹ 10,00,000 | ₹ 10,000 + 20% of (Total income minus ₹ 5,00,000) + 4% cess |
| ₹ 10,00,001 and above | ₹ 1,10,000 + 30% of (Total income minus ₹ 10,00,000) + 4% cess |
| Taxable income slabs | 60 years - 80 years | Above 80 years |
| Up to ₹ 3 lakh | NIL | NIL |
| ₹ 3,00,001 to ₹ 5,00,000 | 5% of (Total income minus ₹ 3,00,000) + 4% cess | NIL |
| ₹ 5,00,001 to ₹ 10,00,000 | ₹ 12,500 + 20% of (Total income minus ₹ 5,00,000) + 4% cess | ₹ 10,000 + 20% of (Total income minus ₹ 5,00,000) + 4% cess |
| ₹ 10,00,001 and above | ₹ 1,12,500 + 30% of (Total income minus ₹ 10,00,000) + 4% cess | ₹ 1,10,000 + 30% of (Total income minus ₹ 10,00,000) + 4% cess |
About Capital Gains Tax
The tax that is levied on long term and short term gains starts from 10% and 15%, respectively. Capital gain can be defined as any profit that is received through the sale of a capital asset. The profit that is received falls under the income category. Therefore, a tax needs to be paid on the income that is received. The tax that is paid is called capital gains tax and it can either be long term or short term.
Under the Income Tax Act, capital gains tax in India need not be paid in case the individual inherits the property and there is no sale. However, if the person who has inherited the property decides to sell it, tax will have to be paid on the income that has been generated from the sale. Some of the examples of capital assets are jewellery, machinery, leasehold rights, trademarks, patents, vehicles, house property, building, and land.
Long Term Capital Gain Tax Rate
| Condition | Tax Rate |
|---|---|
| Sale of equity shares | 10% of the amount which is more than ₹ 1 lakh |
| Except for sale of equity shares | 20% |
Short Term Capital Gain Tax Rate
| Condition | Tax Rate |
|---|---|
| When the transaction tax is based on securities | 15% |
| When transaction tax is not based on securities | The gain is added to the income tax returns that must be filed, and the amount will be based on the income tax slab |
What do you mean by Cost Inflation Index?
Cost Inflation Index is a measure of inflation, used to calculate long-term capital gains from sale of capital assets. Cost inflation index is an index started in FY 1981-82 with 100 as the base.
On 5th June, 2017, the government changed the base year of cost inflation index from 1981 to 2001.
Also, if you hold the immovable property for 2 years and then sell it, the gains from the sale of land or building will qualify as long-term capital gains.
| Financial Year | CII Number |
| 2001-02 | 100 |
| 2002-03 | 105 |
| 2003-04 | 109 |
| 2004-05 | 113 |
| 2005-06 | 117 |
| 2006-07 | 122 |
| 2007-08 | 129 |
| 2008-09 | 137 |
| 2009-10 | 148 |
| 2010-11 | 167 |
| 2011-12 | 184 |
| 2012-13 | 200 |
| 2013-14 | 220 |
| 2014-15 | 240 |
| 2015-16 | 254 |
| 2016-17 | 264 |
| 2017-18 | 272 |
| 2018-19 | 280 |