Income Tax in India 2025 – Slabs, Deductions, Filing & FAQs

Anekant Capital September 07, 2025

 

Income Tax in India 2025 – Slabs, Deductions, Filing & FAQs

📘 Income Tax in India: A Complete Guide for 2025

Income tax is one of the most important financial responsibilities for every individual and business in India. Whether you are a salaried employee, freelancer, business owner, or investor, understanding income tax laws is essential for financial planning, compliance, and wealth creation.

In this blog, we will break down Income Tax in India in simple yet professional language. From basics, types, tax slabs, exemptions, deductions, filing procedures, and penalties, to FAQs—this post covers everything you need to know.

📌 Table of Contents

  1. What is Income Tax?
  2. Types of Income Tax in India
  3. Who Should Pay Income Tax?
  4. Income Tax Slabs in India (2025)
  5. Exemptions and Deductions
  6. Income Tax Return (ITR) Filing Process
  7. Importance of PAN and Aadhaar in Taxation
  8. Penalties for Non-Compliance
  9. Common Myths About Income Tax
  10. FAQs on Income Tax in India
  11. Final Thoughts

1. What is Income Tax?

Income Tax is a direct tax imposed by the Government of India on the income earned by individuals, Hindu Undivided Families (HUFs), firms, companies, and other entities. The amount of tax payable depends on:

  • The income slab of the taxpayer
  • The source of income (salary, business, capital gains, etc.)
  • The exemptions and deductions claimed

The income tax collected is used by the government for:

  • Infrastructure development
  • Healthcare and education
  • National defense
  • Public welfare programs

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2. Types of Income Tax in India

India follows a structured taxation system where income is classified into five heads:

  1. Income from Salary

    • Earnings from employment including salary, allowances, bonuses, and pension.

  2. Income from House Property

    • Rent earned from owned property minus deductions like municipal tax and housing loan interest.

  3. Profits and Gains from Business or Profession

    • Income from business, freelancing, or professional practice.

  4. Income from Capital Gains

    • Profit from sale of assets such as stocks, real estate, mutual funds, or gold.
    • Sub-divided into:
      • Short-Term Capital Gains (STCG)
      • Long-Term Capital Gains (LTCG)

  5. Income from Other Sources

    • Any income not covered under the above heads, such as lottery winnings, interest income, or gifts.

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3. Who Should Pay Income Tax?

As per the Income Tax Act, 1961, the following entities are liable to pay income tax:

  • Individuals (residents & non-residents)
  • HUFs (Hindu Undivided Families)
  • Firms and LLPs
  • Companies (Private/Public)
  • Associations of Persons (AOPs) and Bodies of Individuals (BOIs)

📌 Every individual earning more than the basic exemption limit must file and pay income tax.

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4. Income Tax Slabs in India (2025)

Under New Tax Regime (FY 2024–25)

Annual Income Tax Rate
Up to ₹3,00,000 Nil
₹3,00,001 – ₹6,00,000 5%
₹6,00,001 – ₹9,00,000 10%
₹9,00,001 – ₹12,00,000 15%
₹12,00,001 – ₹15,00,000 20%
Above ₹15,00,000 30%

Under Old Tax Regime (with deductions)

Annual Income Tax Rate
Up to ₹2,50,000 Nil
₹2,50,001 – ₹5,00,000 5%
₹5,00,001 – ₹10,00,000 20%
Above ₹10,00,000 30%

✅ Taxpayers can choose between the old and new regime based on which offers better savings.

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5. Exemptions and Deductions

One of the biggest advantages of the old tax regime is the availability of exemptions and deductions.

Commonly Used Sections:

  • Section 80C: Investments in PPF, ELSS, Life Insurance, etc. (Limit: ₹1.5 lakh)
  • Section 80D: Medical insurance premium deduction
  • Section 80TTA/80TTB: Interest on savings bank deposits
  • Section 24(b): Home loan interest deduction up to ₹2 lakh
  • Section 10(14): House Rent Allowance (HRA)

📌 Example: If your income is ₹8,00,000 and you invest ₹1,50,000 under 80C, your taxable income reduces to ₹6,50,000.

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6. Income Tax Return (ITR) Filing Process

Filing an ITR is mandatory for individuals above the exemption limit.

Steps to File ITR Online:

  1. Register on the Income Tax Portal.
  2. Link PAN with Aadhaar.
  3. Choose the correct ITR form (ITR-1, ITR-2, ITR-3, etc.).
  4. Report your income under respective heads.
  5. Claim deductions and exemptions.
  6. Verify your return via OTP, Aadhaar, or Net Banking.
  7. Save the acknowledgment (ITR-V).

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7. Importance of PAN and Aadhaar in Taxation

  • PAN (Permanent Account Number): Essential for filing ITR, opening bank accounts, and high-value transactions.
  • Aadhaar: Mandatory for ITR verification and government subsidy benefits.

📌 Linking PAN with Aadhaar is compulsory; failing to do so may attract penalties.

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8. Penalties for Non-Compliance

Failure to comply with income tax laws can result in:

  • Late Filing Fee (Sec 234F): Up to ₹5,000
  • Interest on Late Payment (Sec 234A/B/C): 1% per month
  • Prosecution: In extreme cases, imprisonment up to 7 years for tax evasion

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9. Common Myths About Income Tax

❌ Myth: Only salaried people pay tax
✔️ Fact: Business owners, freelancers, investors also pay tax

❌ Myth: Gifts are tax-free
✔️ Fact: Gifts above ₹50,000 (other than from relatives) are taxable

❌ Myth: I don’t need to file ITR if my employer deducts TDS
✔️ Fact: Filing ITR is mandatory if income crosses exemption limit

10. FAQs on Income Tax in India

Q1. Who is exempted from paying income tax?
➡️ Senior citizens earning below ₹3 lakh and individuals earning below the basic exemption limit.

Q2. Can I switch between the old and new regime every year?
➡️ Yes, salaried individuals can choose annually. Business owners can switch only once.

Q3. What happens if I don’t file ITR?
➡️ You may face penalties, interest, and even legal action.

Q4. Is cryptocurrency income taxable in India?
➡️ Yes, crypto gains are taxed at 30% under the new rules.

Q5. How can I reduce my income tax legally?
➡️ By investing in 80C options, taking health insurance, home loans, and using NPS.

11. Final Thoughts

Income tax is not just a legal responsibility but also an opportunity to manage finances wisely. By understanding tax laws, using deductions, and filing returns on time, taxpayers can reduce liabilities and build long-term wealth.

India’s taxation system is evolving with AI-driven assessment, digital filing, and blockchain-powered transparency. Whether you are a salaried person or an entrepreneur, being tax-smart is the key to financial success.

👉 Start early, plan wisely, and consult a professional tax advisor if needed.


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