Income tax
Also called: Personal income tax · Topic: Taxation: Direct and Indirect Taxes, GST and Global Tax Issues · NCERT: Class 11, Ch 3 "Liberalisation, Privatisation and Globalisation: An Appraisal"; Class 12, Ch 2 "National Income Accounting"; Class 12, Ch 5 "Government Budget and the Economy"
Meaning
Income tax (personal income tax) is a direct tax on individual incomes, charged at progressive rates: the rate rises as income rises. This makes it the government's main tool for redistribution, taking more from the rich to fund services for all. It was introduced in 1860 by James Wilson. The Income-tax Act 2025 replaces the 1961 Act from 1 April 2026 (verify current). The new regime (Sec. 115BAC) has lower rates and almost no deductions, and has been the default since FY 2023-24. Its slabs from FY 2025-26 are:
- ₹0-4 lakh: nil
- ₹4-8 lakh: 5%
- ₹8-12 lakh: 10%
- ₹12-16 lakh: 15%
- ₹16-20 lakh: 20%
- ₹20-24 lakh: 25%
- Above ₹24 lakh: 30%
Example
A rebate makes income up to ₹12 lakh tax-free. A salaried person also gets a ₹75,000 standard deduction, so earning up to ₹12.75 lakh means no tax. Someone with ₹20 lakh of taxable income pays ₹20,000 + ₹40,000 + ₹60,000 + ₹80,000 = ₹2 lakh, before cess.
Don't confuse with
- Corporate tax: charged on company profits at a flat, proportional rate, not on individuals at rising rates.
Related concepts
- Corporate tax
- Minimum Alternate Tax
- Capital gains tax
- Securities Transaction Tax
- Angel tax
- Wealth tax and inheritance tax
- Paper taxes
- Tax deducted at source
- Faceless assessment