Income Tax Basics

How income tax is structured

Indian income tax is levied on a person's total income for a financial year (FY), taxed in the following assessment year (AY). Income is classified under five heads, and the rules differ for each.

The five heads of income

1. Salaries — income from employment. 2. Income from House Property — rental income. 3. Profits and Gains of Business or Profession — business/freelance income. 4. Capital Gains — profit on sale of capital assets. 5. Income from Other Sources — interest, dividends, gifts and residual income.

Old vs new tax regime

Individuals can choose between the old regime (higher rates but many deductions) and the new regime (lower slab rates but most deductions removed, with a higher default standard deduction). The right choice depends on how many deductions you can claim.

Residential status

Tax liability also depends on residential status — resident, resident-but-not-ordinarily-resident, or non-resident — which determines whether global or only Indian income is taxed. Getting the basics right frames every later filing decision.