Starting your first job is exciting. You receive your salary, plan your expenses, maybe even start investing. But one important responsibility that many young Indians ignore in the beginning is Income Tax.
Understanding income tax early can help you save money legally, avoid penalties, and build strong financial discipline. This guide explains income tax basics in simple English so that every young Indian can understand and manage it confidently.
What is Income Tax?
Income tax is the tax you pay to the Government of India on the income you earn. The government uses this money to develop infrastructure, healthcare, education, defense, and other public services.
Income tax in India is governed by the Income Tax Act, 1961, and managed by the Income Tax Department.
If your income crosses a certain limit in a financial year, you are required to pay tax.
What is a Financial Year (FY)?
In India, the financial year runs from:
1st April to 31st March
Example:
FY 2025-26 means income earned from 1 April 2025 to 31 March 2026.
The year in which you file tax return is called the Assessment Year (AY).
Who Needs to Pay Income Tax?
You need to pay income tax if your total income exceeds the basic exemption limit set by the government.
For most young salaried individuals:
- If income is above the basic exemption limit (as per new or old regime), tax is applicable.
- Even if tax is deducted (TDS), you may still need to file a return.
Important: Filing Income Tax Return (ITR) is mandatory if your income crosses the threshold limit.
What is TDS (Tax Deducted at Source)?
If you are a salaried employee, your company deducts tax every month from your salary. This is called TDS.
Your employer calculates estimated yearly tax and deducts it monthly. At the end of the year, you receive:
- Form 16 – It shows total salary and tax deducted.
Always check Form 16 carefully.
Income Tax Slabs (Basic Idea)
India currently has two tax regimes:
- Old Tax Regime (with deductions)
- New Tax Regime (lower tax rates but fewer deductions)
Young professionals must compare both regimes before choosing.
If you invest and claim deductions (like LIC, PPF, ELSS), Old regime may help.
If you don’t invest much, New regime may be simpler.
Five Heads of Income
Income in India is classified under five categories:
- Income from Salary
- Income from House Property
- Income from Business or Profession
- Capital Gains
- Income from Other Sources
For most young earners, income mainly falls under Salary and sometimes Capital Gains (from stocks, crypto, etc.).
Important Deductions You Should Know
Under Old Tax Regime, you can reduce taxable income using deductions.
Section 80C (Most Popular)
Maximum limit: ₹1.5 lakh per year
Includes:
- EPF
- PPF
- ELSS mutual funds
- Life insurance premium
- Tuition fees
- Tax saving FD
Section 80D
Health insurance premium for:
- Self
- Parents
Section 24(b)
Home loan interest deduction.
Understanding these can save thousands of rupees every year.
Why Filing ITR is Important (Even If No Tax)
Many young Indians think: “Company already deducts tax, so why file ITR?”
Here’s why filing is important:
- Required for visa applications
- Needed for home loan or car loan
- Helps claim tax refund
- Avoids penalty
- Builds financial record
Even if your tax is zero, filing return is good practice.
What is Form 26AS and AIS?
Form 26AS shows:
- TDS deducted
- Advance tax paid
- Refund received
AIS (Annual Information Statement) shows:
- Bank interest
- Stock transactions
- High value transactions
Always cross-check before filing ITR.
Tax Saving Tips for Young Indians
Here are smart strategies:
1. Start Investing Early
Use Section 80C investments like ELSS or PPF.
2. Buy Health Insurance
Section 80D gives tax benefit.
3. Track Capital Gains
If you invest in stocks or crypto, capital gains tax applies.
4. Avoid Last-Minute Investments
Plan at the beginning of financial year.
5. Keep Documents Safe
Salary slips, rent receipts, investment proofs.
What Happens If You Don’t File Tax?
- Penalty under Section 234F
- Interest on unpaid tax
- Legal notices
- Difficulty in getting loans
So always file on time.
Basic Documents Required for ITR Filing
- PAN Card
- Aadhaar Card
- Form 16
- Bank statements
- Investment proof
- Rent receipts (if applicable)
You can file ITR online through the Income Tax portal or take help from a CA.
Common Mistakes Young People Make
- Not choosing correct tax regime
- Ignoring capital gains
- Not checking Form 26AS
- Forgetting to claim refund
- Filing return at last minute
Avoid these mistakes to stay financially safe.
Final Thoughts
Income tax may look complicated, but once you understand basics, it becomes simple. As a young Indian, learning tax rules early gives you financial confidence and independence.
Remember:
Earn Smart
Save Smart
Invest Smart
File Smart
The earlier you understand taxes, the stronger your financial future will be.
Frequently Asked Questions (FAQ)
Is it compulsory to file ITR if my salary is below taxable limit?
Not mandatory in most cases, but filing helps in building financial record and claiming refunds.
What is the last date to file Income Tax Return?
Usually 31st July for salaried individuals (unless extended by government).
Can I switch between old and new tax regime?
Yes, salaried individuals can choose every financial year.
What if I miss filing deadline?
You can file belated return with penalty.
Do freelancers also pay income tax?
Yes. Income from freelancing comes under business or profession.
Is crypto taxable in India?
Yes. Currently taxed at 30% on gains (subject to government rules).
Can I claim HRA and 80C together?
Yes, under old tax regime.
