Income Tax Basics: What Young Professionals Need To Know

Paying income tax for the first time can be a daunting task. For many, the process feels complex, filled with technical terms and paperwork that can be overwhelming. Understanding a few key points can make the process smoother.

Basics of Income Tax for Beginners

What is the Previous Year?

The previous year refers to the 12-month period from April 1 to March 31. This is the time frame used to calculate your income and taxes. For example, if you started your job in July 2024, your income from July 2024 to March 2025 would be counted in the financial year 2024-25.

Even though you might start working at any point, the financial year always ends on March 31.

What is the Assessment Year (AY)?

The assessment year is the year after the previous year when you file your income tax return. It’s the year you assess your income from the previous year. For instance, if you worked between April 2023 and March 2024 (the previous year), you will file your taxes in the assessment year 2024-25.

Simply put, the assessment year is when you do your paperwork for the previous year’s earnings.

Understanding your salary

When you start your job, ask your HR or payroll department for your pay slip or tax statement. This will show you how your salary is divided and how much tax will be deducted.

Common Salary Components:

• Basic Salary – Fully taxable
• House Rent Allowance (HRA) – If you pay rent, you can get tax benefits on HRA
• Provident Fund (PF) – A small part of your salary goes here; it’s a savings tool and reduces taxable income
• Tax Deducted at Source (TDS) – Tax your employer deducts based on your income

For example, if your salary is ₹50,000 and HRA is ₹15,000, you can save on taxes if you pay rent.

Types of income you pay tax on

Your total taxable income includes more than just your salary. Here are the main sources:

• Salary income – Earnings from your job, including salary, bonuses, allowances, and pension.
• Income from property – Money earned from renting out a house or building.
• Business or professional income – Profits (or losses) from running a business or offering professional services.
• Capital gains – Money made from selling assets like property, stocks, or mutual funds.
• Other income – Includes interest from savings accounts, fixed deposits, family pension, or gifts received.

Income tax slabs for FY 2025-26

Your tax rate depends on the income slab you fall into. There are two tax regimes: new tax regime and old tax regime.

New Tax Regime

• Up to ₹4,00,000 – No tax
• ₹4,00,001 to ₹8,00,000 – 5%
• ₹8,00,001 to ₹12,00,000 – 10%
• ₹12,00,001 to ₹16,00,000 – 15%
• ₹16,00,001 to ₹20,00,000 – 20%
• ₹20,00,001 to ₹24,00,000 – 25%
• Above ₹24,00,000 – 30%

Old Tax Regime (Based on Age)

For individuals below 60 years

• Up to ₹2,50,000 – No tax
• ₹2,50,001 to ₹5,00,000 – 5%
• ₹5,00,001 to ₹10,00,000 – 20%
• Above ₹10,00,000 – 30%

For senior citizens (60-80 years)

• Up to ₹3,00,000 – No tax
• ₹3,00,001 to ₹5,00,000 – 5%
• ₹5,00,001 to ₹10,00,000 – 20%
• Above ₹10,00,000 – 30%

For super senior citizens (80+ years)

• Up to ₹5,00,000 – No tax
• ₹5,00,001 to ₹10,00,000 – 20%
• Above ₹10,00,000 – 30%

Choosing between the old and new regime depends on your income, deductions, and exemptions.

Deductions in income tax

• Standard deduction: For salaried employees and pensioners opting for the new tax regime, the standard deduction has been increased to ₹75,000.
• Section 80CCD (1B) deduction: Contributions made to the NPS Vatsalya accounts are eligible for a deduction of up to ₹50,000.
• Section 87A rebate: A rebate of up to ₹60,000 is available for income up to ₹12 lakh.
• Exemption for withdrawals from National Savings Scheme: Withdrawals made by individuals from the National Savings Scheme are exempt from taxation.
• Deductions for self-occupied properties: The annual value of self-occupied properties can be claimed as nil without any conditions, for up to two properties.

What is TDS (Tax Deducted at Source)?

TDS means tax is deducted at the source of income itself. It applies to salaries, fixed deposit interest, and other earnings.

For salaried employees, TDS details should be matched with Form 16A and 26AS to find out any discrepancies.

This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.