Income tax: Many words related to income tax like – Financial Year, Assessment Year, TDS, Deduction, Examination etc. come to hear often, but the common people do not understand the difference between them properly. It is necessary to know the meaning of these words to fill the right tax planning and return. So that, every person can understand their income and tax without confusion.
Many words related to income tax seem to listen to the same, but they have different meanings. Here we are explaining some such words in easy language so that you do not have any problem in understanding tax.
1. Financial Year and Assessment Year
Financial Year (FY): This is the year when you earn and pay taxes. It starts from 1 April every year and ends on 31 March. For example, if you have earned between 1 April 2017 to 31 March 2018, then it will be your financial year 2017-18.
Assessment Year (Ay): This is a post -financial year year, which contains your income and ITR is filed. Like FY will be AY 2018-19 for 2017-18.
2. Gross Total Income and Total Income
Gross total income: This is the sum of all your earnings. This includes salary, rental income, business or profession income, interest or income from other sources.
Total Income (or Taxable Income): When you reduce the exemption from Gross Total Income from Section 80C to 80U, then the last income left is your total income, which is taxed.
3. Advance Tax and Self-Assessment Tax
Advance tax: If your year’s tax liability is more than ₹ 10,000 (after cutting TDS), then you have to pay in tax installments in the financial year itself. The dates are – 15 September, 15 December, and 15 March. Late payment is imposed 1% monthly fine.
Self-Assessment Tax: When you calculate your tax before filing the return and see that some tax is left, you pay it yourself. It has to be filled before filing returns in the assessment year.
4. Tax Deed at Source (TDS) and Total Tax
TDS: When tax is already deducted on your earnings like job salary or from bank interest, it is called TDS. The rate of deduction on different income sources is different.
Total tax: This is the total tax on all your earnings. It also adds tax that was not deducted from TDS. You pay this remaining tax as advance tax or self-assessment tax.
5. Examination and Deduction
Exemption (exemption): It excludes any particular type of income from you. Such as HRA, LTA, or interest from tax-free bonds. It usually falls under Section 10 or 54.
Deduction (deduction): It is cut from your total taxable income. Such as LIC under 80C, investment in PPF or spending on medical insurance under 80D. All these tax words have their own importance. If you know their true meaning, then it will be easy to plan tax and you will also be able to save your money.