Understand what income tax is in India, why it’s collected, who pays it, and how it works in 2025. A beginner’s guide with simple examples and tips.
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Introduction: Why Income Tax is not Just for the Rich
Imagine earning a salary of ₹50,000/month and still thinking – “Do I even need to pay tax?” You are not alone. Over 7.8 crore Indians filed income tax returns in FY 2023-24, many with modest incomes. But here is the thing: income tax is not just for high-net-worth individuals or big businesses. It applies to most working citizens – yes, even salaried employees, freelancers, and pensioners.
Let’s simplify this tax concept once and for all.
What is Income Tax?
Income Tax is a direct tax you pay to the Government of India on the income you earn.
It is governed by the Income Tax Act, 1961, (It will changed to Income Tax Act,2025 from FY 2025-26) and administered by the Central Board of Direct Taxes (CBDT).
- Income = salary, business profits, house rent, stock profits, Capital Gain etc.
- Tax = a portion of that income paid to the government.
The more you earn, the more you contribute – this is called a progressive tax system.
Why Do We Pay Income Tax?
Let’s be honest – no one loves paying taxes. But without them, there would be:
- No roads, railways, or metros
- No free schooling or mid-day meals
- No public hospitals or government schemes
Your income tax will generate essential services like defence, education, infrastructure, and social welfare programs (like PMAY, MNREGA, etc.).
Types of Taxes in India: Direct vs Indirect
| Type | Paid By | Collected On | Examples |
|---|---|---|---|
| Direct Tax | You (individuals, firms) | Income or profit | Income Tax, Capital Gains |
| Indirect Tax | Everyone (you + sellers) | Spending/purchase | GST, Customs, Excise |
Income tax is direct – you pay it directly based on what you earn.
Who Collects Income Tax in India?
- CBDT (Central Board of Direct Taxes) under the Ministry of Finance oversees it.
- Filed through the Income Tax Department Portal: incometax.gov.in
How is Income Tax Calculated?
- Income tax is calculated on “Total Taxable Income”, which is:
- Total Income – Deductions – Exemptions = Net Taxable Income
- Then apply the applicable tax slab (Old or New regime).
Conclusion: Start with Awareness, Grow with Knowledge
Income tax may seem complicated at first, but it’s really about understanding your income, claiming your benefits, and contributing to the nation’s progress.
Further Reading:
Questions? Answers.
FY 2025–26 (AY 2026–27)
Only if your income is below the basic exemption limit or you invest smartly under 80C, 80D, etc.
Generally 31st July every year (unless extended)
This year Last date extended to 15 Sept 2025 for FY 24-25
Yes, PAN is essential for filing ITR and receiving refunds.
You may face penalties up to ₹5,000 (u/s 234F) and even prosecution in extreme cases.
