Latest Income Tax slabs, rates, deductions, tips.

Here you will find easy to read information income tax system in india for the latest financial year 2008-2009. The following topics are discussed in this post and you may scroll down directly to the topic you are looking for.
You may also read my latest posts on Indian Income Tax Act - Tax deductions under various sections OR Section 80C: How to save upto Rs. 33000?

If you are interested in knowing how to pay your income tax online, click on How to pay your income tax online.

Income Tax Slabs - India (2008/2009)

For Men
upto 1.5 lacs NO TAX
1.5 lacs to 3 lacs
10 %
3 lacs to 5 lacs
20 %
above 5 lacs
30 %

For Women

upto 1.8 lacs NO TAX
1.8 lacs to 3 lacs
10 %
3 lacs to 5 lacs
20 %
above 5 lacs
30 %

For Senior Citizen
upto 2.25 lacs NO TAX
2.25 lacs to 3 lacs
10 %
3 lacs to 5 lacs
20 %
above 5 lacs
30 %

In addition to above, a 3% of Education cess will be charged on the total Income tax paid (not on the total taxable income). If the taxable income exceeds Rs. 10 lacs, a 10% surcharge on the total income tax (not on the total taxable income) is also charged.


Exemptions / Deductions for Income Tax 2008/2009

Type of Exemption / Deduction
Maximum allowed deduction
Deduction under section 80C:
Pension + Provident Fund + ELSS (tax saving mutual funds) + Life Insurance
Maximum: Rs. 1,00,000
Deduction under section 80D:
Medical Insurance or Mediclaim policies
Maximum: Rs. 15,000
For senior citizen, Maximum : Rs. 20,000.
Deduction under section 80DD:Medical expenditure, insurance for treatment of a disabled dependant.
Maximum: Rs. 50,000
If disability is server (>80%) then Rs. 75,000.
Deduction under section 80DDB:
Medical treatment of spouse, parents, sibblings, dependants.
Maximum: Rs. 40,000.
Deduction under section 80E:
Interest on loan taken for higher education.

Maximum: Rs. 40,000.

Interest paid on Housing Loan
Maximum: Rs. 1,50,000 per year.



Income tax on Interest earned on Fixed deposits- 2008/2009

It is mandatory to pay income tax on interest earned on fixed deposits. To calculate your income tax, simply add the amount of interest earned to your total annual income and use the above tax slabs to calculate your tax. If the interest earned on a fixed deposit exceeds Rs.10,000/- then income tax will be deducted at source. It is possible to avoid TDS (TDS means Tax deducted at source) by splitting the amount in a number of fixed deposits. However, one will still have to pay tax.


Capital Gains Tax 2008/2009

Long term capital gain: Gain or Profit that you make after holding (i.e. buying and then without doing any trade) shares, equity, Futures and Options(F&O), bonds, mutual funds for more than one year. Currently you do not have to pay income tax on Long term capital gain.

Short term capital gain: Gain or Profit that results from trading equities, F&O, mutual funds, etc. within a span of less than one year. (i.e. profits which dont qualify for long term capital gains come under short term capital gains. Currently, i.e. in 2008/2009, short term capital gain tax is 15%.

Click here to read more about Capital Gains and Capital gain tax.


Other Types of Taxes for Investors - 2008/2009

Type of Tax / Description
Limit / Details
STT: Securities Transaction Tax :
Tax charged while trading securities like equities, options, etc. (stt is directly charged by your broker)
Equities: 0.02% of the transaction amount
Options premium: 0.017% , charged to the seller
Service Tax:
Charged on brokerage amount directly by the broker.
12.5% of the brokerage amount.
DDT: Dividend Distribution Tax :
Tax charged to institutions distributing dividend (Investor's do not pay DDT)
Equity Funds: 0% (no DDT)
Money market and Liquid Funds: 25%
Debt Funds: 12.5%



Tax Saving Tips to minimize your Income Tax
  • Take full advantage of deductions allowed under 80C : If you find it hard to balance between savings for avoiding tax and your current expenses, try to invest in ELSS (Equity Linked Savings Scheme) Mutual Funds (or tax saving mutual funds) with dividend pay out option. With dividend option, you will also get part of your money back. For example, if you invest Rs.50,000 and get Rs.10,000 back at dividend, then effectively you invest only Rs.40,000 but get full tax benefit for 50,000/-. The dividend paid out is also currently tax free. However mutual fund investments carry a risk factor.
  • Use deductions allowed under 80DDB, 80E, 80DD whenever applicable.
  • Invest part of your Liquid cash in Liquid Funds: Liquid funds offer tax advantage over short term fixed deposits, especially when your total taxable income is in the highest bracket. The income tax one would have to pay on interest earned on short term in this case would be roughly 33% while the dividends paid out Liquid funds are subject to only 25% of DDT (Dividend distribution tax). This tax is paid by the fund itself before distributing the dividend and the dividends in the hands of the Investor are tax free.
  • Plan for a Housing Loan: It makes sense to take a housing loan even if you have the money to buy a house. A simple calculation would show that once your taxable income is in the highest bracket, this strategy is beneficial.
  • Cutting down Short term Capital Gain Tax: I will mention one standard and well known method for traders to cut down your short term capital gain tax. For example, if a company declares a dividend, you can buy its shares just early enough to get the dividend and immediately sell the shares after the dividend is declared. Since price of the share would fall after the dividend, that would show as a loss of capital and reduce the amount of your capital gain. The dividend you get will be tax free. This strategy would work best in a stable market and the risk involved would considerably increase if the markets are volatile.
  • Leave travel allowance (LTA): This is one more way of getting tax exemption on part of your income. I will add more about LTA later in this post.


Which form should I use for filing IT returns?

Form
Description
ITR1 (most popular)
(download ITR1, download instructions)
for Individuals having income from Salary, Interest (e.g. Fixed Deposits), Pension, Agricultural Income
ITR2
(download ITR2, download instructions)
for Individuals and HUF* having income from above sources and/or House Property, Capital Gains but not having income from business.
ITR3
(download ITR3, download instructions)
for Individuals and HUF who are partners in firms but not carrying out any business of profession under propreitorship.
ITR4
(download ITR4, download instructions)
for Propreitary Business Owners
*HUF=Hindu Undivided Family.

This single page post has answer to all your questions : What are the latest income tax slabs for 2008/2009? What the the latest income tax rates? How can I take benefit under different types of income tax deductions and exemptions in India? What are tips for income tax planning in order to save or minimize income tax? Which forms should I use to file my income tax returns? What are different types of taxes like STT, DDT, Capital Gains tax? Where can I download Income Tax returns forms and instructions?

If you have any other questions regarding Income tax in India or tax planning, deductions etc. plesae ask your questions in the comments section.

Sep 8, 2008

6 comments:

lp October 1, 2008 at 8:40 AM  

thanks!

सजीव सारथी December 6, 2008 at 12:45 PM  

thanx for the info i want to know will the tax slabs r same for a physically challenged person. or is there any benifit in it kindly mail me sajeevsarathie@gmail.com, my no. is 09871123997 new delhi, thanx in adavance

arghya December 18, 2008 at 5:35 PM  

Thanks .. Great Post..

I have heard that nowadays you can file your return online. It would be great if you could write something on – How to do it? What are the steps? ….

iinvestor December 19, 2008 at 3:07 PM  

@arghya will give it a thought. I am actually interested in finding the detailed info myself. Once I try things out i'll post my experience/knowledge.

karthick March 7, 2009 at 10:56 PM  

Thanks for your information. i want to now more thing in it pls forward a mail about income for me MY E:MAIL KARTHICK_DHINA@YAHOO.CO.IN

Anonymous April 21, 2009 at 5:03 PM  

i received late payment in april 2009 (current financial year) for one of my freelance assignments i submitted in february 2009 (last financial year). there was no written contract. will my income from this project be taxable in current year or last year?

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