Basic Income Tax Terms for Beginners in India

Have you just finished your studies and are looking for a desired job? Or have you just ended up joining your Dream Company and are about to file the income tax for the first time ever in your life?

If you are filing the income tax for the first time in your life it is important for you to understand some of the important basic terms related to income tax so that it becomes easier for you to file your tax.

WealthGuruji is here to help you learn the basic Income tax terms for your knowledge.

In India, anybody with an income is required to file for an income tax return.

Here are some of the basic income tax terms for you:

1. Previous Year:

Previous Year also known as financial year or tax year is a period of 12 months like a calendar year but begins on 1^st April and closes on 31^st March. Irrespective of the date of starting your job the financial year will always be from 1^st April to 31^st March and hence you need to plan your taxes for a given financial year.

• Assessment Year:

It is the year in which you assess and file for your income tax. The assessment year follows the previous year. For instance if you have to file income tax return for the job you joined in May 2019, then the Assessment year will be year 2019-20 and Previous Year will be 2018-19.

• Salary:

When you join the company do visit the HR or the payroll department of your organization and get your salary slip or pay slip. You can also ask for the tax statement to understand about the various components in your salary and what amount of tax will be deducted in your case based on those components.

• Sources of Income:

Apart from salary there are various other sources through which an income is generated. The total income on which you pay tax is a sum of the below mentioned heads of income:

1. Income from Salary:

It comprises of the money you receive while doing your job in a company and is a part of your employment agreement like salary, leave encashment etc.

• Income from Capital Gains:

Income generated on account of gain or loss during sale of a capital asset.

• Income from House Property:

Income generated from a self-occupied or rented house or building.

• Income from Business or Profession:

It is the income or loss derived from carrying out a business or a profession.

• Income from Other Sources:

It includes all the other sources of income like income from fixed deposits, bank accounts, gifts received etc.

• Deductions:

It is the amount that is deducted from your gross income to arrive at the taxable income. Deductions are the amounts allowed by the Income Tax Department to reduce the tax-payers tax liability. Deductions are allowed under Section 80 of the Income Tax Act.

• Section 80C- Your Best Friend:

Section 80C of the Income Tax mentions all the investment vehicles on which deduction are allowed and the amount of deductions can be up to INR 1, 50,000. Let’s learn what these investment vehicles are:

1. PPF:

PPF is eligible for tax deduction under Section 80C and is a popular investment vehicle. You can easily open a PPF account with any bank with a minimum deposit of INR 500 and a maximum deposit of INR 1,50,000.

• ELSS:

Equity Linked Saving Schemes are gaining popularity among people who wish to invest in mutual funds as they are allowed deduction under Section 80C, are performing better than other mutual funds and have the lowest lock-in period of just 3 years.

• Tax-Savings FD:

People having Fixed Deposits not only earn an interest on their deposits but also a safer investment options paired with the benefit of deduction under Section 80C.

• TDS:

Tax Deductible at Source (TDS) is the tax which is deducted by the person making the payment for a taxable income above INR 2,50,000. The rules for amount to be deducted as TDS are prescribed by the Income Tax Department itself. The amount deducted as tax depends on the tax slabs to which a person belongs to in a given year.

• Standard Deductions:

The salaried persons are entitled for a deduction of INR 40,000 as per the Budget of 2018, which has been increased to INR 50,000 from Financial Year 2019-20 in the Interim Budget. These standard deductions are supposed to replace the medical reimbursements and transport allowances.

• Calculating the amount of Tax Payable:

The amount of tax payable is arrived at after applying the rates for different tax slabs and by reducing the amount of TDS that has been deducted already.

We hope that with this article we are successful in clearing your doubts about some of the basic terms related to Income Tax and hope that you will be a bit confident now while filing for your ITR.

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