Taxes are the government’s way of earning an income which can then be used for various projects that the government needs to indulge in to help boost the country’s economy or its people. Taxes in India are decided on by the central and state governments with local governments, such as municipalities, also deciding on smaller taxes that can be levied within their jurisdiction.
A tax that governments impose on financial income generated by all entities within their jurisdiction. By law, businesses and individuals must file an income tax return every year to determine whether they owe any taxes or are eligible for a tax refund.
The Income Tax Department is the biggest revenue mobilizer for the Government. Income tax is a key source of funds that the government uses to fund its activities and serve the public.
| New Tax Regime (Default Option) | |
|---|---|
| Income Tax Slab (Net Taxable Income) | Tax Rate |
| Up to ₹4,00,000 | NIL |
| ₹4,00,001 to ₹8,00,000 | 5% |
| ₹8,00,001 to ₹12,00,000 | 10% |
| ₹12,00,001 to ₹16,00,000 | 15% |
| ₹16,00,001 to ₹20,00,000 | 20% |
| ₹20,00,001 to ₹24,00,000 | 25% |
| Above ₹24,00,000 | 30% |
Key Features of New Tax Regime:
• Tax Rebate (Sec 87A): Resident individuals with taxable income up to ₹12,00,000 pay NIL tax (Rebate up to ₹60,000).
• Standard Deduction: ₹75,000 standard deduction for salaried taxpayers and pensioners (making salaried income up to ₹12.75 Lakh effectively tax-free).
• Uniform slab rates apply to all individuals regardless of age (Individual, Senior Citizen, Super Senior Citizen).
| Old Tax Regime (Optional - Allows Chapter VI-A Deductions like 80C, 80D, HRA, etc.) | |||
|---|---|---|---|
| Income Tax Slab | Individuals (< 60 Yrs) & HUF | Senior Citizens (60 to < 80 Yrs) | Super Senior Citizens (80+ Yrs) |
| Up to ₹2,50,000 | NIL | NIL | NIL (Exempt up to ₹5,00,000) |
| ₹2,50,001 to ₹3,00,000 | 5% | NIL | |
| ₹3,00,001 to ₹5,00,000 | 5% | 5% | NIL |
| ₹5,00,001 to ₹10,00,000 | 20% | 20% | 20% |
| Above ₹10,00,000 | 30% | 30% | 30% |
Key Features of Old Tax Regime:
• Tax Rebate (Sec 87A): Tax rebate up to ₹12,500 available for resident individuals with taxable income up to ₹5,00,000.
• Standard Deduction: ₹50,000 available for salaried individuals.
• Taxpayers can claim deductions under Section 80C (up to ₹1.5L), 80D, 80CCD(1B), HRA, LTA, Home Loan Interest (Sec 24b), etc.
Additional Tax Notes:
• Health & Education Cess: 4% applies on the total calculated income tax plus surcharge in both regimes.
• Surcharge Rates: Applicable if total income exceeds ₹50 Lakhs (Surcharge under New Regime is capped at 25%).
Taxability of capital gains and income in the hands of the investor is as follows:
| Dividend Distribution Tax (DDT): Abolished (Dividends are taxed in unitholder's hands at applicable slab rates) | |||
|---|---|---|---|
| Capital Gain Taxation applicable to Equity Oriented Schemes | |||
| Resident Individual / HUF $ | Domestic Corporates @ | NRI $/# | |
| Long Term Capital Gains (Units held for more than 12 months) | 12.5% (Exempt up to ₹1.25 Lakh per financial year) | 12.5% | 12.5% |
| Tax deducted at Source = NIL | Tax deducted at Source = NIL | Tax deducted at Source = 12.5% + applicable Surcharge + 4% Cess | |
| Short Term Capital Gains (Units held for 12 months or less) | 20% + Surcharge as applicable + 4% Cess | 20% + Surcharge as applicable + 4% Cess | 20% + Surcharge as applicable + 4% Cess |
| Tax deducted at Source = NIL | Tax deducted at Source = NIL | Tax deducted at Source = 20% + applicable Surcharge + 4% Cess | |
Securities transaction tax (STT) will be deducted on equity-oriented schemes at the time of redemption/switch to other schemes/sale of units. Mutual Fund would also pay securities transaction tax wherever applicable on the securities sold.
$ - Surcharge on LTCG u/s 112A and STCG u/s 111A is capped at 15% for Individuals, HUFs, AOPs, and BOIs.
@ - Surcharge for domestic corporate unitholders is 7% where income exceeds ₹1 crore but is less than ₹10 crores, and 12% where income exceeds ₹10 crores (10% under concessional regime Sec 115BAA/115BAB).
# - Capital gains tax / TDS will be deducted at the time of redemption of units in case of NRI investors only.
| Capital Gain Taxation applicable to Schemes other than Equity Oriented Schemes | |||
|---|---|---|---|
| Category / Holding Period | Resident Individual / HUF | Domestic Corporates | NRI |
| Specified Mutual Funds (Debt schemes with equity ≤ 35% acquired on or after April 1, 2023 - irrespective of holding period) |
Taxed as per applicable Income Tax Slab Rates | Taxed at applicable Corporate Tax Rate (22% / 25% / 30%) | Taxed as per applicable Income Tax Slab Rates |
| Tax deducted at Source = NIL | Tax deducted at Source = NIL | Tax deducted at Source = Applicable Slab Rate + Cess | |
| Long Term Capital Gains (Other Non-Equity/Hybrid schemes held for more than 24 months) |
12.5% without indexation + Surcharge + 4% Cess | 12.5% without indexation + Surcharge + 4% Cess | 12.5% without indexation + Surcharge + 4% Cess |
| Tax deducted at Source = NIL | Tax deducted at Source = NIL | Tax deducted at Source = 12.5% + Surcharge + 4% Cess | |
| Short Term Capital Gains (Other Non-Equity/Hybrid schemes held for 24 months or less) |
Taxed as per applicable Income Tax Slab Rates | Taxed at applicable Corporate Tax Rate | Taxed as per applicable Income Tax Slab Rates |
| Tax deducted at Source = NIL | Tax deducted at Source = NIL | Tax deducted at Source = Applicable Slab Rate + Cess | |
Note: Tax implication on Dividend received by Unitholder:
Dividends distributed by mutual funds are added to the unitholder's total income and taxed at their applicable slab rates. TDS @ 10% is applicable on dividend income exceeding Rs 5,000 in a financial year for resident unitholders.
* - Surcharge rates apply based on total income level.
# - Short term/long term capital gains tax will be deducted at source at the time of redemption in case of NRI investors only.
Health and Education Cess at the rate of 4% applies on tax plus surcharge.
DISCLAIMER: The information set out is neither a complete disclosure of every material fact of the Income-tax Act, 1961 nor does it constitute tax or legal advice. In view of the individual nature of tax consequences, each investor is advised to consult his/her own professional tax advisor.
Capital Gains Calculation Example:
Suppose an investor purchases non-equity/hybrid mutual fund units eligible for long-term capital gains at Rs. 11 per unit and sells them after 24 months at Rs. 14 per unit.
The capital gain per unit is Rs. 14 minus Rs. 11 = Rs. 3 per unit.
Tax is calculated at the statutory rate of 12.5% (without indexation) on the capital gain:
Rs. 3 × 12.5% = Rs. 0.375 per unit (plus applicable surcharge and 4% health & education cess).
The capital gains tax, if applicable, is not deducted by the scheme when paying the redemption proceeds to investors who are resident in India. Resident investors must pay the capital gains tax to the income tax authorities on a self-assessment basis.
The government of India imposes an Income tax on taxable Income of all persons including individuals, Hindu Undivided Families (HUFs), companies, firms, association of persons, body of individuals, local authority and any other artificial judicial person.
Many jurisdictions tax the Income of individuals and business entities, including corporations. Generally the tax is imposed on net profits from business, net gains, and other Income.
An Indian Citizen who stays abroad for employment/ carrying on business or vacation outside India or stays abroad under circumstances indicating an intention for an uncertain duration of stay abroad is a non-resident.
Liability to pay tax in India does not depend on the nationality or domicile of the Tax payer but on his residential status. Residential Status is determined on the basis of physical presence i.e. the number of days of stay in India in any year.
Every person having taxable income and whose accounts are not liable to audit must file an Income Tax Return. If total income exceeds Rs. 5 lakh, it is mandatory to file the return online.