Basic Tax Jargon
Financial Year, Assessment Year and Previous Year, do these commonly used income tax jargons often confuse you? This is what they mean.
- Financial Year (FY) – Duration of one year between 1st April to 31st March of the following year, in which all financial information are reported. The current financial year is 1st April 2011 to 31st March 2012.
- Assessment Year (AY) – The income of a particular financial year is assessed in the following financial year, which is known as the assessment year. For the current financial year, income will be assessed in the assessment year 2012 -2013.
- Previous Year (PY) – The financial year preceding the assessment year, the income of which is assessed in the following assessment year. Assessment year 2012 -2013 will assess income for previous year 2011 -2012.
5 Easy Steps to Calculate your Tax
Calculating income tax is not any rocket science. The following 5 steps give you an idea of the process.
- Calculate your gross total income. This includes gross income from Form 16; and the taxable income from other sources.
- Calculate your net deductions, which may include, donations, investments and savings such as provident fund subscriptions, Life Insurance Premiums etc.
- Your net taxable income is gross total income minus net deductions.
- Apply the appropriate income tax slab to calculate your tax payable on aggregate income.
- Education Cess of 3% (2% education cess and 1% Higher education cess) is applied on the tax payable to arrive at the total tax payable. Relief under various sections would be applied on this total tax.
For example: Let us consider a net taxable income of Ravi as Rs. 8, 00,000.
As a male assessee, here’s how his tax is calculated.
Calculation (Please click to see the attached chart for tax rates and surcharge)
Tax up to Rs. 1,80,000: Nil
Tax on Rs.1,80,000 to Rs.5,00,000 @ 10%: 32,000
Tax on Rs. 5,00,000 to Rs. 8,00,000 @ 20%: 60,000
Educational Cess - 3% of Total Tax: 2,760
Net Tax Payable: 94,760