Basics of Income Tax Structure And Taxation System In India

Tax structure

The proportion of key taxes to total tax revenue is used to evaluate tax arrangements. While tax rates have usually been growing, the tax structure, or “mix,” or the proportion of primary taxes in overall revenues, has remained surprisingly consistent throughout time. An economy’s tax system is determined by its tax base, tax rate, and the degree to which the tax rate fluctuates. The sum to which a tax rate is applied is known as the tax base. The percentage of the tax base that must be paid in taxes is known as the tax rate. The tax base and the tax rate must be known in order to determine the majority of taxes. In this case, the tax is 9 if the tax base is 100 and the tax rate is 9%.

Tax structure in India

The Central Government and the State Governments each levy their own taxes under India’s system of taxation. Local governments like the Municipality and Local Governments also impose a few small levies.

The Central Government and numerous State Governments have implemented numerous policy reforms and process simplification efforts over the past few years in an effort to increase process predictability, fairness, and automation. India jumped 79 ranks from 142nd in 2014 to 63rd in 2019 in the “World Bank’s Ease of Doing Business Ranking 2020” as a result, propelling India to the top 100 in the World Bank’s Ease of Doing Business (EoDB) ranking in 2019. One such change to simplify India’s complicated multiple indirect tax system is the Goods and Services Tax.

The taxation system in India

The government’s primary and largest source of revenue comes from taxes. Tax revenue is used by the government for a number of initiatives aimed at advancing the country. The three-tier federal structure of the Indian tax system is well-designed.

The national govt, state governments, and local municipal entities make up the tax structure. In India, there are two different forms of taxes: direct tax and indirect tax. Indirect taxes include value-added tax, service tax, goods and services tax, customs duty, etc. while direct taxes include income tax, gift tax, capital gain tax, etc.

Customs charge, central excise duty, income tax, and service tax are just a few of the taxes that the Indian central government imposes. Agriculture-related income is subject to income tax, as is state excise tax, professional tax, land revenue, and stamp duty. The collection of octroi, property tax, and other taxes on a variety of services like water and drainage delivery is permitted by municipal authorities.

Income tax structure in India

Individual taxpayers are subject to taxation under the Indian Income Tax based on a slab structure. Different tax rates are established for various income groups under a slab system. It indicates that when a taxpayer’s income rises, so do their tax rates. This kind of taxation helps the nation to have progressive and equitable tax systems. These income tax slabs frequently vary with each budget. These slab rates vary depending on the type of taxpayer. Three categories of “individual” taxpayers under the income tax system include:

• individuals under the age of 60, including residents and non-residents
• Residents who are seniors (60 to 80 years of age)
• Super old citizens that live there (aged more than 80 years)

Tax structure

The taxpayers’ options under this new system are:

To continue paying taxes at the current tax rates, or to pay income tax at reduced rates under the new tax regime in exchange for giving up some allowable exemptions and deductions.

By sticking with the previous system and paying tax at the current higher rate, the assessee is eligible for discounts and exemptions.

What is the Income Tax Structure?

Income tax slab rates for FY 2021-22 (AY 2022-23) – New tax regime & Old Tax regime

Basic concepts of taxation

Few key basic concepts of taxation are:

• Please be aware that under the new tax regime, the tax rates are the same for all categories of individuals, including Individuals and HUF under the age of 60, Senior Citizens between the ages of 60 and 80, and Super Senior Citizens over the age of 80. Therefore, under the New Tax regime, senior and super elderly citizens will not receive the enhanced basic exemption limit benefit.
• Individuals who qualify for a tax rebate under Section 87A have net taxable incomes of less than or equal to Rs. 5 lakh, meaning that their tax obligations under the new and previous tax laws are zero.
• No of their age, NRIs are only eligible for a basic exemption of Rs 2.5 lakh.
• In every situation, an additional 4% Health and Education Cess will be added to the income tax obligation. (up 4% from FY 18-19; previously 3%)

Surcharges are applied to all of the aforementioned categories at the following tax rates:

• 10% of income tax if total income is greater than Rs. 50 lakh
• 15% of income tax is due if the total income exceeds Rs.
• 25% of income tax if total income is greater than Rs. 2 crore
• 37% of income tax if total income is greater than Rs. 5 crore

For Individuals, HUF below 60 years aged:

• For individuals, HUFs under 60 years of age, and NRIs, the maximum amount of income tax exemption is Rs 2,50,000.
• The tax amount determined as above will be subject to an extra 4% health and education cess.

Surcharge:

• if the total income is between Rs. 50 lakh and Rs. 1 crore, 10% of income tax.
• where the total income exceeds Rs. 1 crore, 15% of income tax.

Requirements for choosing the new tax regime.

The taxpayer who chooses the New Tax regime’s concessional rates will have to give up some of the exemptions and deductions that were previously accessible. There are a total of 70 deductions & exemptions that are prohibited, with the following list of the most popular ones:

List of common Exemptions and deductions “not allowed” under New Tax rate regime 

1. Leave Travel Allowance
2. House Rent Allowance
3. Conveyance allowance
4. Daily expenses in the course of employment
5. Relocation allowance
6. Helper allowance
7. Children education allowance
8. Other special allowances [Section 10(14)]
9. Professional tax
10. Interest on housing loan (Section 24)
11. Standard deduction on salary
12. Deduction under Chapter VI-A deduction (80C,80D, 80E and so on) (Except Section 80CCD(2))

List of deductions “allowed” under new Tax rate regime 

1. Transport allowance for specially abled people
2. Conveyance allowance for expenditure incurred for travelling to work
3. Investment in Notified Pension Scheme under section 80CCD(2)
4. Deduction for employment of new employees under section 80JJAA
5. Depreciation u/s 32 of the Income-tax act except additional depreciation.
6. Any allowance for travelling for employment or on transfer