Income Tax is a direct tax levied by the government on a person’s income. It is paid by individuals, companies, or entities based on the amount of income earned during a financial year.
Example:
If a person earns ₹10,00,000 in a year, income tax is calculated as per the applicable tax slab. Suppose under the old regime:
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No tax on income up to ₹2.5 lakh
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5% on next ₹2.5 lakh = ₹12,500
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20% on next ₹5 lakh = ₹1,00,000
Total tax = ₹12,500 + ₹1,00,000 = ₹1,12,500 + 4% cess = ₹1,17,000 (approx.)
This is the income tax the person has to pay.