Financial responsibility has various aspects. For example, when making sound wealth creation choices, one should always ensure to pay their dues - which includes your taxes.
All you need to do is understand the basics of income tax, and you can get started with online Indian income tax calculators to experiment and understand approximately how much you will need to pay.
Essential Income Tax Terms To Know About
There are some terms you may come across during your journey of filing income tax. Knowing these terms well can help you smoothen your ITR filing. Here are some income tax terms you should know about.
- Gross Total Income
Also called gross pay, this is a person’s total income before paying any taxes or considering any deductions. How much they earn annually or monthly from all sources, when combined, gives Gross Total Income amount. Apart from salary, sources could include interest on savings, rental income, and other similar particulars.
- Taxable Income
Taxable income is the amount on which you will incur and pay taxes. This amount is reached after subtracting your exemptions and deductions from your gross income. You can use an income tax calculator to estimate your taxable income.
- Income Tax Return
You have probably heard the term income tax returns multiple times. This is the part of the process where you report your income earned from various sources. Depending on your categorisation as a taxable entity (such as Individual, HUF, or Company), you will be required to do so through relevant forms.
- TDS
TDS refers to Tax Deduction at Source. Some sources of income are required to deduct a percentage of your payment as tax. It could apply to consultation fees, bank deposit interests, and more. This is documented through a certificate issued by the authority that deducted TDS or through Form 26AS. The form or certificate helps with TDS refunds.
- Defective Return
If there are any mistakes in your IT return filing, or if the filing was not done in accordance with the prevalent regulations, your return may be deemed defective. You may receive a notice informing you of this. You will be then be required to rectify and ensure that a proper return is filed. Failing to do so will lead to your IT returns for the term being treated as invalid.
- Form 16
If you are a salaried individual, Form 16 is issued by your employer. It is composed of two parts – A and B. Part A mentions your employee details and the tax details that pertain to you. Part B includes your details, such as salary, exemptions, and deductions. The form is an important part of your ITR process.
- Advance Tax
Advance tax is an opportunity to pay your taxes in instalments, rather than in lump sum at the end. Advance tax windows for each instalment close on the 15th of June, September, December, and March. This applies to entities whose tax obligations are Rs. 10,000 or more annually.
- Self-assessment tax
This refers to any remainder tax that needs to be paid after the TDS and advance tax has been considered. After deducting the TDS as well as the advance tax amount, an individual can calculate their final tax liabilities. This pending tax, if any, is to be paid and included in the final income tax return filing.
- Charitable contribution
This is one of the many itemised tax deductions. If you make a monetary contribution to any NGO or a cause, it can give you a receipt of the charity or donation. You could count it as a deduction. While usually monetary, this could include property, assets, and other particulars as well. This is different from tax-saving investments.
- Assessment Year
This is the year in which your earnings for the financial year are taxed. An assessment year is synchronous with the Financial Year, but not the same. It starts on April 1 and ends on March 31st. An assessment year follows its related financial year. For example, the assessment year 2021-22 is related to the financial year 2020-21. The term previous year corresponds with the financial year.