What is Income Tax in India? A Beginner’s Guide

 

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Meta Description (SEO): Learn what income tax is in India, how it works, income tax slabs, who should pay it, and key basics every beginner must know.

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Introduction

If you earn money in India—whether through a salary, business, freelancing, or investments—you are required to pay income tax. It’s one of the most important responsibilities of every earning citizen. But if you’re just starting out, the concept of income tax can feel confusing.

This guide will explain income tax in India in simple terms: what it is, why it exists, who has to pay, and how it is calculated.

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1. What is Income Tax?

Income tax is the tax you pay to the Government of India on the money you earn during a financial year (April 1 – March 31).

• Direct tax: Income tax is a direct tax, meaning it is paid directly by you to the government.

• The government uses this money to build infrastructure, fund public services, run welfare schemes, and develop the country.

💡 Example: If you earn ₹8 lakh in a year, you will pay a certain portion of it as income tax based on your income slab.

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2. Who Should Pay Income Tax?

In India, income tax must be paid by:

• Salaried employees

• Business owners & freelancers

• Professionals (doctors, lawyers, consultants, etc.)

• Investors (on capital gains, dividends, etc.)

✅ Individuals below a certain income limit don’t need to pay tax. For FY 2025–26 (under the new regime), income up to ₹3 lakh is tax-free.

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3. Types of Income Tax Payers in India

The Income Tax Department classifies taxpayers into different categories:

• Individuals (Resident & Non-Resident Indians)

• Hindu Undivided Families (HUFs)

• Companies

• Firms/Partnerships

• Trusts

This blog focuses mainly on individual taxpayers.

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4. Income Tax Slabs in India (FY 2025–26)

India follows a progressive tax system – the higher your income, the higher the percentage of tax you pay.

🔹 New Tax Regime (default from FY 2025–26)

Annual Income	Tax Rate
0 – ₹3,00,000	Nil
₹3,00,001 – ₹7,00,000	5%
₹7,00,001 – ₹10,00,000	10%
₹10,00,001 – ₹12,00,000	15%
₹12,00,001 – ₹15,00,000	20%
Above ₹15,00,000	30%

(Surcharge & cess apply on higher incomes.)

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5. How is Income Tax Calculated?

Your total taxable income =
Income from all sources – Exemptions – Deductions (like 80C, 80D, HRA, etc.)

Example:

• Salary Income = ₹8,00,000

• Deduction under Section 80C (e.g., ELSS, PPF) = ₹1,50,000

• Deduction under 80D (Health Insurance) = ₹25,000

👉 Taxable Income = ₹8,00,000 – ₹1,50,000 – ₹25,000 = ₹6,25,000

Now apply the relevant slab rate to calculate tax.

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6. Why Should You Pay Income Tax?

1. It’s your legal responsibility.

2. Helps in nation building (roads, hospitals, schools).

3. Necessary for loans, visas, and financial proof.

4. Avoids penalties, notices, and legal issues.

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7. Key Terms Beginners Must Know

• PAN (Permanent Account Number): Your unique ID for paying taxes.

• ITR (Income Tax Return): Form to declare your income and pay/refund tax.

• TDS (Tax Deducted at Source): Tax automatically deducted by your employer or bank.

• Assessment Year (AY): The year after the financial year when you file your tax return.

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Conclusion

Income tax in India might look complicated at first, but once you understand the basics of slabs, deductions, and filing, it becomes simple.

✅ Start by checking your income, see which slab you fall into, and make use of deductions to save tax legally.

In the next guide, we’ll cover “Best Tax Saving Options Under Section 80C” to help you reduce your tax bill.