What Is Income Tax? Who Has to Pay It in India (2025 Guide)
Income tax is a vital part of a nation’s economic structure. It helps the government fund public services like infrastructure, healthcare, education, and defense. In India, understanding income tax is essential for every earning individual to ensure compliance and make smart financial decisions. This guide explains what income tax is, who needs to pay it, how it’s calculated, and what changes are relevant in 2025.
What Is Income Tax?
Income tax is a direct tax imposed by the government on the income earned by individuals, businesses, and other entities. In India, it is governed by the Income Tax Act, 1961, and administered by the Central Board of Direct Taxes (CBDT).
Why Do We Pay Income Tax?
The income tax collected is used to:
- Develop and maintain public infrastructure (roads, bridges, railways)
- Fund education and healthcare systems
- Support welfare schemes and subsidies
- Strengthen national defense and security
Who Needs to Pay Income Tax in India?
The obligation to pay income tax depends on your residential status and total annual income. The following entities are required to pay income tax:
- Individuals – Salaried or self-employed persons
- Hindu Undivided Families (HUFs)
- Companies and Firms
- Associations of Persons (AOPs) and Bodies of Individuals (BOIs)
- Local Authorities and Trusts
Residential Status Criteria Residents are taxed on their global income, while non-residents are taxed only on income earned or received in India.
Income Tax Slabs for FY 2024–25 (AY 2025–26)
As of 2025, taxpayers can choose between the Old Regime and the New Regime. Each has its own tax slabs and exemptions.
New Regime (No major exemptions):
| Income Range | Tax Rate |
|---|---|
| Up to ₹2.5 lakh | Nil |
| ₹2.5 lakh to ₹5 lakh | 5% |
| ₹5 lakh to ₹7.5 lakh | 10% |
| ₹7.5 lakh to ₹10 lakh | 15% |
| ₹10 lakh to ₹12.5 lakh | 20% |
| ₹12.5 lakh to ₹15 lakh | 25% |
| Above ₹15 lakh | 30% |
Old Regime (With exemptions like 80C, HRA, etc.):
| Income Range | Tax Rate |
| Up to ₹2.5 lakh | Nil |
| ₹2.5 lakh to ₹5 lakh | 5% |
| ₹5 lakh to ₹10 lakh | 20% |
| Above ₹10 lakh | 30% |
Note: Senior citizens (60+ and 80+) enjoy higher exemption limits.
Types of Income Taxpayers in India
- **Individual (Male/Female)
- Senior Citizen (60–79 years)
- Super Senior Citizen (80+ years)
- Business or Corporate Entities
Each category has its own set of exemptions and filing requirements.
How Is Income Tax Calculated?
Income tax is calculated based on your gross total income minus eligible deductions under various sections like 80C, 80D, etc. The net taxable income is then taxed as per the applicable slab.
Example: If your annual income is ₹8,00,000 and you claim deductions worth ₹1,50,000 under Section 80C, your taxable income becomes ₹6,50,000.
Due Dates for Income Tax Filing (AY 2025–26)
- Individuals (Non-audit cases): 31st July 2025
- Businesses (Audit cases): 31st October 2025
Late filing may attract a penalty of up to ₹10,000.
Conclusion
Income tax is not just a legal obligation but a civic responsibility. Understanding who needs to pay it, how it’s calculated, and staying compliant with due dates ensures financial health and avoids legal issues. Use this guide to stay informed and make tax-smart decisions in 2025.
Related Articles:
- Income Tax Slabs in India Explained
- Common Tax Deductions Everyone Should Know
- How to File Income Tax Returns Step-by-Step
