Income Tax Basics for Beginners
Income Tax Basics for Beginners Paying income tax for the first time is a significant milestone in any individual’s financial journey. However, the process can seem complicated and overwhelming, especially with the technical jargon and numerous tax provisions. But don’t worry—we are here to simplify it for you!
Whether you are a fresh graduate entering the workforce or someone filing taxes for the first time, this guide will break down Income Tax Basics in an easy-to-understand manner. Income Tax Basics for Beginners By the end of this blog, you’ll know everything from how tax is calculated to what deductions you can claim to how to file your tax return.
Budget 2025 Updates
Income Tax Basics for Beginners The Income Tax Bill 2025 has been introduced in the Lok Sabha by the Honorable Finance Minister, aiming for simplification and better clarity in tax provisions.
A new concept of “Tax Year” has been introduced to streamline the tax filing process.
Revised Tax Slabs under the New Tax Regime (FY 2025-26 / AY 2026-27)
| Annual Income Slab | Income Tax Rate |
| Up to ₹4,00,000 | NIL |
| ₹4,00,001 – ₹8,00,000 | 5% |
| ₹8,00,001 – ₹12,00,000 | 10% |
| ₹12,00,001 – ₹16,00,000 | 15% |
| ₹16,00,001 – ₹20,00,000 | 20% |
| ₹20,00,001 – ₹24,00,000 | 25% |
| Above ₹24,00,000 | 30% |
Tax Relief Under the New Regime
✅ Income up to ₹12,00,000 will have zero tax liability due to an increased rebate of ₹60,000.
✅ For salaried individuals, those earning up to ₹12,75,000 will have zero tax liability due to the standard deduction of ₹75,000. Income Tax Basics for Beginners
✅ Marginal relief on rebate is still applicable.
✅ The rebate does not apply to income taxed at special rates (such as capital gains under Section 112A).
Understanding Income Tax: Key Terms & Concepts
- What is the Previous Year (PY)?
The previous year (PY) or financial year (FY) is the 12-month period from April 1 to March 31. Regardless of when you start earning, your tax year ends on March 31.
Example:
If you start working on January 1, 2024, your previous year is 2023-24 (April 1, 2023, to March 31, 2024).
- What is the Assessment Year (AY)?
The assessment year (AY) is the year after the previous year, in which you file your tax return and assess your income.
Example:
For the previous year 2023-24, the assessment year is 2024-25.
- Understanding Your Salary Components
When you start earning, ask your employer for your Salary Slip or Form 16. This will help you understand how much tax is deducted. Income Tax Basics for Beginners
Common salary components:
- Basic Salary
- House Rent Allowance (HRA) (exemption available if you live in a rented house)
- Special Allowance
- Provident Fund (PF) Contribution
Sources of Income on Which You Pay Tax
Your total taxable income is the sum of earnings from different sources:
| Source of Income | Details |
| Income from Salary | Salary, Allowances, Pension, Gratuity, Leave Encashment |
| Income from House Property | Rental income or self-occupied property |
| Income from Business/Profession | Profits from business, freelancing, consultancy work |
| Income from Capital Gains | Profits from selling assets like property, stocks, mutual funds |
| Income from Other Sources | Interest from savings accounts, fixed deposits, gifts, dividends |
Income Tax Slabs Under Old and New Regimes
Old Tax Regime (With Age-Based Exemptions)
| Income Slab | Individuals Below 60 | Senior Citizens (60-80) | Super Senior Citizens (80+) |
| Up to ₹2,50,000 | NIL | NIL | NIL |
| ₹2,50,001 – ₹5,00,000 | 5% | 5% | NIL |
| ₹5,00,001 – ₹10,00,000 | 20% | 20% | 20% |
| ₹10,00,001 and above | 30% | 30% | 30% |
New Tax Regime (No Age-Based Exemptions)
| Income Slab | Tax Rate |
| Up to ₹3,00,000 | NIL |
| ₹3,00,001 – ₹6,00,000 | 5% |
| ₹6,00,001 – ₹9,00,000 | 10% |
| ₹9,00,001 – ₹12,00,000 | 15% |
| ₹12,00,001 – ₹15,00,000 | 20% |
| Above ₹15,00,000 | 30% |
Deductions to Reduce Your Taxable Income
Deductions help reduce your taxable income.
Common Deductions Under the Old Tax Regime
| Section | Deduction Type | Maximum Limit |
| 80C | PPF, ELSS, Life Insurance, NSC | ₹1,50,000 |
| 80D | Health Insurance Premium | ₹25,000 (₹50,000 for senior citizens) |
| 80TTA | Interest on Savings Account | ₹10,000 |
| 80G | Donations to Charitable Organizations | Varies |
📌 Note: Under the new tax regime, only the NPS employer contribution (Section 24B) and deduction on let-out property interest are allowed.
Tax Deducted at Source (TDS) Explained
TDS is deducted at the source of income.
- Employers deduct TDS from salary if income exceeds ₹3,00,000 (new regime) or ₹2,50,000 (old regime).
- Banks deduct 10% TDS on fixed deposit interest (20% if PAN is not provided).
https://www.incometax.gov.in/iec/foportal/
Example: Aditya’s Salary & Tax Calculation
Aditya is a 25-year-old software engineer earning ₹6,60,000 annually.
Tax Calculation (Old Regime):
- Gross Income: ₹5,82,000
- Deductions: ₹1,52,500
- Taxable Income: ₹4,29,500
- Tax Payable: ₹8,975
- Rebate under Section 87A: ₹8,975
- Final Tax Liability: Nil
📌 Aditya gets a refund of ₹29,880 as TDS was deducted.
Filing Your Income Tax Returns (ITR)
The due date for ITR filing is July 31 of the assessment year.
Documents Required:
- Form 16 (for salaried employees)
- Investment proofs (PPF, ELSS, insurance, etc.)
- Bank statements, rental receipts
- Capital Gains statements (if applicable)
Conclusion
Filing income tax is not just a responsibility—it’s an opportunity to optimize your savings through deductions and rebates. Income Tax Basics for Beginners The new tax regime offers simplified slabs, while the old regime provides higher deductions.
✅ Plan early, save more, and file on time to avoid penalties!
For More Information : https://taxgyany.com/