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Tax Basics: Every new taxpayer must know the meaning of these 14 terms

by Shatakshi Gupta

The procedure by which a taxpayer must submit a report of all income generated during a fiscal year is known as income tax return (ITR) filing. By submitting an ITR for that year, a person can request a refund of any excess tax that was paid or deducted during the fiscal year.

Planning your taxes and filing returns might be made easier by understanding tax jargon. Before submitting an ITR, you should be familiar with the following terms.

Income Tax Return

This form is used to report income obtained during the Previous Year or the relevant Assessment Year (under several heads: salary, house property, business & profession, capital gain, and other sources). Depending on the sources of income earned, the amount of income earned, and the type of assessee, different forms (namely ITR 1, ITR 2, ITR 3, ITR 4, ITR 5, ITR 6, and ITR 7) are available (viz. Individual, Hindu Undivided Family, Firm, Company, etc.).

 Gross Total Income

The first step in submitting tax returns is calculating your gross total income (GTI). This comprises salary income, rental income, business and professional profits, capital gains, and other types of income. These are calculated after taking into account the pertinent exclusions for each head, such as HRA, house loan interest paid, applicable allowances, etc.

Net taxable income

It is the amount of income that is subject to income tax and is calculated after any deductions permitted by the Income Tax Act (i.e. various Section 80s). On this sum, tax is due.

Assessee

A “person” who is required by the Income Tax Act to pay income tax or any other type of debt. An individual, a Hindu Undivided Family (HUF), an association of persons (AOP), a body of individuals (BOI), a company, a limited liability partnership (LLP), a local government, or any artificial juridical person (AJP) that doesn’t fall under one of the aforementioned categories could all fall under this category.

Assessment

The procedure by which the Income Tax Department examines the returns submitted by the Assessee.

Assessment Year

The 12-month period that always starts on April 1 and ends on March 31 and comes after the relevant Financial Year. For instance, the AY for FY 2019–20 is 2020–21. Income tax returns for each AY must be filed by the assessee.

TDS (Tax Deduction at Source)

Tax Deducted at Source, also known as TDS, is the tax that is subtracted from the payment before it is given to the recipient (the deductee). According to the provisions of the Income Tax Act, TDS may be applied to items like salary, interest on bank accounts, commission, consulting fees, professional fees, rent payment, etc. The Form 26AS or TDS certificate produced by the deductor, or the person making the payment, includes this deduction. The assessee may utilise this certificate to claim a tax credit for amounts already paid when completing their income tax return.

Form 16

This certificate, which was given out by the employer, has all the details required to compile and file your income tax return. The Tax Deduction Account Number (TAN) of the employer, the Permanent Account Number (PAN) of the employee, the amount of tax withheld and deposited by the deductee for the applicable Assessment Year, and challan numbers are all listed in Part A of the form. Part B includes information on the pay received, any additional income, exemptions and deductions used, and the tax deducted.

Form 26AS

 This document details a tax credit. Form 26AS of the associated Permanent Account Number contains information about the tax that an entity has deducted or collected (PAN). Form 26AS is a statement that combines the tax withheld from all sources (in Parts A, A1 and A2 of the Form), details of tax collected at source (in Part B of the Form), advance tax paid by the assessee, self-assessment tax paid, regular assessment tax (in Part C of the Form), details of refund (if any) in the financial year (in Part D of the Form), and information about specific high-value financial transactions (in Part E of the Form).

Surcharge

For assessees having a higher tax bracket, it is the additional tax that must be paid on top of the appropriate tax rate. Consequently, it is a tax on tax.

Advance tax

The tax that must be paid in advance, in four instalments rather than all at once at the end of the fiscal year (on or before the 15ths of June, September, December, and March). This applies to taxpayers who have chosen the presumptive taxation system under Section 44AD or 44ADA, as applicable, and to anyone whose tax burden is Rs 10,000 or more in a fiscal year.

Self Assessment Tax

Following the deduction of Advance Tax and Tax Deduction at Source, the amount of income tax paid by the assessee is known as Self-Assessment Tax. Before filing income tax returns, self-assessment tax must be paid in the assessment year. (If one chooses the New Tax Regime U/S 115BAC, they are not available.)

Section 80C

By investing in a variety of financial instruments, you can claim a deduction under Section 80C of the Income Tax Act of up to Rs 1.5 lakh every year. Under Section 80C, contributions to the Employees’ Provident Fund, principal payments on house loans, and tuition payments for children’s education are also eligible for deductions, subject to a total cap of Rs 1.50 lakh.

Section 80D

According to Section 80D of the Income Tax Act of 1961, the premium paid for a health insurance policy qualifies you for a deduction of up to Rs 25,000 for non-senior citizens and up to Rs 50,000 for senior persons. An individual or Hindu Undivided Family may use this deduction.

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