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Lesson 2 of 4Tax & Compliance

Income Tax Basics

Income tax is a direct tax — it's levied directly on the income of individuals and businesses, unlike GST which is an indirect tax on consumption. Every country has its own income tax system, but the core concepts are universal: taxable income, deductions, slabs, and filing.

Five Heads of Income (India)

Under the Indian Income Tax Act, all income is classified under five heads:

1

Salary

Income from employment — basic salary, allowances, perquisites, pension

Examples: Basic pay, HRA, DA, bonus, leave encashment

2

House Property

Income from property owned — rental income or deemed rental for vacant property

Examples: Rent received, annual value of self-occupied property

3

Business / Profession

Profits from business or professional practice

Examples: Trading profit, freelance income, consulting fees

4

Capital Gains

Profit from selling capital assets — shares, property, gold, mutual funds

Examples: Share sale profit (STCG/LTCG), property sale gain

5

Other Sources

Income that doesn't fit other heads — interest, dividends, gifts

Examples: FD interest, savings interest, lottery winnings, dividends

India Tax Slabs — FY 2025–26

New Regime (Default)

Income SlabTax Rate
Up to ₹4,00,000Nil
₹4,00,001 – ₹8,00,0005%
₹8,00,001 – ₹12,00,00010%
₹12,00,001 – ₹16,00,00015%
₹16,00,001 – ₹20,00,00020%
₹20,00,001 – ₹24,00,00025%
Above ₹24,00,00030%

+ 4% Health & Education Cess on tax amount

Old Regime (Optional)

Income SlabTax Rate
Up to ₹2,50,000Nil
₹2,50,001 – ₹5,00,0005%
₹5,00,001 – ₹10,00,00020%
Above ₹10,00,00030%

+ Deductions: 80C (₹1.5L), 80D, HRA, LTA, etc.

Common Deductions (Old Regime)

Section 80C₹1,50,000

EPF, PPF, ELSS, Life Insurance, NSC, Tuition Fees, Home Loan Principal

Section 80D₹25,000–₹1,00,000

Health Insurance — Self ₹25K + Parents ₹25K (₹50K if senior citizen)

Section 24(b)₹2,00,000

Home Loan Interest for self-occupied property

Section 80ENo limit

Education Loan Interest (for 8 years from start of repayment)

Section 80G50%–100%

Donations to approved charities and funds

Section 80TTA₹10,000

Interest on savings bank account

Note:Most deductions are NOT available under the New Regime. Choose your regime carefully — use Laabam.One's income tax calculator to compare both.

Income Tax Across Countries

CountryTop RateTax-Free ThresholdFiling Deadline
India30%₹4L (New) / ₹2.5L (Old)July 31
Australia45%A$18,200October 31
Ireland40%€18,000 (single)October 31 (Nov 15 online)
UK45%£12,570January 31 (online)
USA37%$14,600 (single)April 15

Key Takeaways

Income tax is a direct tax on earnings — individuals and businesses pay based on progressive slab rates

India has five heads of income: Salary, House Property, Business/Profession, Capital Gains, Other Sources

New Regime (default from FY 2023-24) has lower rates but fewer deductions; Old Regime allows 80C, 80D, HRA etc.

File ITR by July 31 (individuals). Pay advance tax quarterly if annual tax exceeds ₹10,000

TDS is prepaid income tax — deducted at source and credited to your account in Form 26AS