If you’re new to paying income tax in India, don’t worry – it’s not as complicated as it seems! Let me walk you through everything you need to know to get started.
Who Needs to Pay Income Tax?
First things first: you only need to worry about income tax if you earn more than ₹4 lakh per year. This is called the basic exemption limit, and it was recently increased from ₹3 lakh, which means fewer people now need to file tax returns. Think of it as the government’s way of saying “if you earn less than this amount, you’re good to go!”
The Two Tax Regimes: Old vs New
Here’s where it gets interesting. India currently has two tax systems running side by side, and you get to choose which one works better for you.
The New Regime (Default Choice) This is now the standard option for everyone. It’s simpler because it has fewer deductions to worry about, but here’s the best part – if your total taxable income is up to ₹12 lakh, you might end up paying zero tax! This happens because of something called the Section 87A rebate, which can give you up to ₹60,000 back.
As a salaried employee, you also get a standard deduction of ₹75,000, which automatically reduces your taxable income. No paperwork needed – it’s applied automatically.
The Old Regime (Opt-in Choice) If you want to use the old system, you need to specifically choose it. Why would you do that? Because it allows you to claim various deductions like:
- House Rent Allowance (HRA)
- Section 80C investments (like PPF, ELSS, life insurance)
- Home loan interest
- Medical insurance premiums
If you’re someone who invests heavily in tax-saving instruments or pays significant rent, the old regime might save you more money despite having higher base tax rates.
Understanding Your Tax Calculation
Let’s say you’re a salaried employee earning ₹8 lakh per year under the new regime:
- Gross salary: ₹8,00,000
- Less standard deduction: ₹75,000
- Taxable income: ₹7,25,000
Since this falls under ₹12 lakh, you’ll likely pay zero tax due to the rebate!
Additional Charges You Should Know About
Beyond the basic tax, there are two additional charges:
- Health and Education Cess: 4% on your total tax
- Surcharge: Only kicks in for very high earners (above ₹50 lakh)
Don’t let these worry you if you’re just starting out – they only matter once you’re in higher income brackets.
Which Regime Should You Choose?
Here’s a simple way to decide:
- Choose the new regime if you don’t have many deductions to claim and want simplicity
- Consider the old regime if you pay substantial rent, invest heavily in tax-saving schemes, or have a home loan
You can switch between regimes each year, so there’s no permanent commitment.
The Big Picture
India’s tax collection has been growing strongly, reaching ₹27.02 lakh crore in FY 2024-25, which shows the system is working well. The government has made several taxpayer-friendly changes recently, including raising the exemption limit and increasing rebates.
Remember, paying taxes isn’t just a legal obligation – it’s how we contribute to building better infrastructure, healthcare, and education systems for everyone.
Making Smart Financial Decisions
As your income grows, tax planning becomes just one piece of a larger financial puzzle. Whether you’re a working professional climbing the career ladder or running a small business, the right financial guidance can save you thousands while helping you build wealth systematically.
Many small business owners and professionals find themselves juggling multiple financial decisions – from choosing the right tax regime to planning investments, managing business expenses, or structuring their finances for maximum efficiency. This is where having experienced accountants by your side makes all the difference.
Ready to File Your Return?
Filing your income tax return doesn’t have to be stressful. Whether you’re an individual taxpayer or managing business finances, our team of qualified accountants can help you navigate everything from ITR filing to comprehensive financial planning.
We specialize in working with professionals and small businesses who want to optimize their tax strategy while making informed financial decisions for long-term growth.
Need expert assistance with your ITR filing and financial planning?
📞 Call: +91 9892713797
📧 Email: info@ghogaleassociates.com
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Let our experienced team help you make the most of your hard-earned money!