Multiple Sources of Income: Types, Deductions and Tax Rates in India

Coverage of this article

1. Introduction
- It provides financial stability, security, and wealth building.

2. Types of Income in India Employment Income
- Employment income is subject to tax under the income tax slab rates as prescribed by the government.

3. Business or Professional Income
- Business or professional income is also taxed as per the applicable slab rates.

4. Rental Income
- After deducting these expenses, the net income is subject to tax as per the slab rates.

5. Capital Gains
- When you sell assets like stocks, mutual funds, real estate, or other capital assets, the profit earned is known as capital gains.

6. Dividend Income

7. Interest Income

8. Royalty and Commission Income
- It falls under this category if you earn income from royalties, patents, copyrights, or commissions.

9. Standard Deduction

10. Tax Rates
- A cess of 4% called the Health and Education Cess, is also applicable to the total tax amount.

11. Conclusion
- It is essential to note that tax rates and deductions are subject to change with amendments in the Income Tax Act.

Introduction

In today's changing environment, reliance on one revenue source is risky. Many revenue streams are essential due to rising costs and economic uncertainty. It provides financial stability, security, and wealth building. This page discusses Indian income sources, deductions, and tax rates to keep in mind while itr filing.

Types of Income in India

Employment Income

The most common source of income for individuals is employment. Whether a salaried employee or a self-employed professional, your income from your primary occupation falls under this category. Employment income is subject to tax under the income tax slab rates as prescribed by the government.

Business or Professional Income

The income generated from these activities is considered business or professional if you are engaged in a business or profession. This includes income from self-employment, freelancing, consultancy, or any other entrepreneurial venture. Business or professional income is also taxed as per the applicable slab rates.

Rental Income

Owning and renting out properties is a popular investment avenue in India. Rental income received from residential or commercial properties is taxable. However, you are eligible for deductions on expenses related to the property, such as maintenance, repairs, property taxes, and home loan interest. After deducting these expenses, the net income is subject to tax as per the slab rates.

Capital Gains

When you sell assets like stocks, mutual funds, real estate, or other capital assets, the profit earned is known as capital gains. In India, capital gains are classified into short-term (STCG) and long-term (LTCG). STCG is taxed at your applicable slab rates, while LTCG on certain assets may be taxed at special rates. However, you can claim exemptions or deductions under various sections of the Income Tax Act to reduce your tax liability.

Dividend Income

If you hold shares of a company and receive dividends, it is considered dividend income. Dividends up to Rs. 10 lakhs are tax-free for individuals. However, any dividends received above this threshold are subject to a flat tax rate of 10%.

Interest Income

Interest earned from savings accounts, fixed deposits, recurring deposits, and other financial instruments is categorized as interest income. Interest income is subject to tax as per the slab rates applicable to the individual. It's important to note that some interest income may be subject to tax deduction at source (TDS), depending on the investment type.

Royalty and Commission Income

It falls under this category if you earn income from royalties, patents, copyrights, or commissions. Royalty and commission income are taxed as per the applicable slab rates.

Deductions and Tax Rates

While earning income from multiple sources is beneficial, understanding deductions and tax rates is equally important to optimize your tax liability. Here are some key deductions available in India:

Standard Deduction

Salaried individuals and pensioners can claim a standard deduction of Rs. 50,000 from their salary or pension income.

Deduction under Section 80C

Investments made in instruments like Employee Provident Fund (EPF), Public Provident Fund (PPF), National Savings Certificates (NSC), Life Insurance Premiums, and certain fixed deposits are eligible for a deduction of up to Rs. 1.5 lakhs under Section 80C.

Deduction under Section 80D

Premiums paid for medical insurance policies for self, spouse, children, and parents are eligible for deduction under Section 80D. The deduction limits vary based on the age and category of individuals.

Deduction under Section 24(b)

Interest paid on home loans is eligible for a deduction of up to Rs. 2 lakhs per year under Section 24(b). This deduction applies to both self-occupied and rented properties.

Deduction under Section 80E

Interest paid on education loans taken for higher education can be claimed as a deduction under Section 80E. This deduction has no maximum limit, and it can be claimed for up to eight years.

Deduction under Section 80G

Donations made to specified charitable organizations and funds are eligible for deduction under Section 80G. The deduction amount varies depending on the type of organization and the limit specified under the section.

Deduction under Section 10(14)

Certain allowances provided by employers, such as house rent allowance (HRA), leave travel allowance (LTA), and medical allowances, are exempt up to certain limits specified by the government.

Tax Rates

For Individuals below 60 years of age:

• Income up to Rs. 2.5 lakhs: No tax
• Income between Rs. 2.5 lakhs and Rs. 5 lakhs: 5% tax
• Income between Rs. 5 lakhs and Rs. 10 lakhs: 20% tax
• Income above Rs. 10 lakhs: 30% tax

For Senior Citizens (60 years and above but below 80 years):

• Income up to Rs. 3 lakhs: No tax
• Income between Rs. 3 lakhs and Rs. 5 lakhs: 5% tax
• Income between Rs. 5 lakhs and Rs. 10 lakhs: 20% tax
• Income above Rs. 10 lakhs: 30% tax

For Super Senior Citizens (80 years and above):

• Income up to Rs. 5 lakhs: No tax
• Income between Rs. 5 lakhs and Rs. 10 lakhs: 20% tax
• Income above Rs. 10 lakhs: 30% tax

A cess of 4% called the Health and Education Cess, is also applicable to the total tax amount.

Conclusion

It is essential to note that tax rates and deductions are subject to change with amendments in the Income Tax Act. To stay updated and ensure accurate tax filing, individuals should refer to the latest tax laws and consult tax professionals.

Having multiple sources of income provides financial stability and diversification. Understanding the different types of income and their tax implications is crucial for effective tax planning. By leveraging deductions and optimizing tax rates, individuals can maximize their savings and ensure compliance with Indian tax laws.