Whether you are filing your own income tax or handing it to others, you must know a few basic terms and functions before filing for taxes. Better to understand the concepts to avoid hassle due to lack knowledge. Here are a few things you should know.
1) Financial Year
The financial year starts from1st April and ends on 31st March,where the income pertaining to the whole year or part of the year is taken into account.
Example: You pay taxes for the duration from April 1st 2014 to March 31st 2015 which is referred to as financial year 2014-15.
2) Assessment Year
The assessment year refers to your income earned in the previous financial year.
Example: Assessment Year 2014-15 refers to the income earned in the financial year 2013-14. Click to know the more differences between financial year and assessment year.
3) Tax Deducted at Source (TDS)
As per the Income Tax Act, Tax Deducted at Source (TDS) is the amount deducted by company/Individuals before making a payment to others. TDS is one of the modes of collection of taxes, by which a certain percentage of amounts are deducted by company or individual at the time of making/crediting certain specific nature of payment to the other person and deducted amount is remitted to the Government account. Click to know more on TDS.
4) Form 16
If you are employed in an organization, you will obviously receive a salary after your employer deducts the tax. The process is called tax deduction at source. Form 16 is needed for the purpose of filing returns, as it will help you file your salary income. Click to know more on Form 16.
Form 16 is very necessary as it acts as salary proof and tax paid to the government at the end of the every financial year.
5) Direct Taxes
The direct tax is a mandatory tax payable by individuals on income or profits that cannot be avoided and is not passed on to other individual or entity . In case of direct taxes (income tax, wealth tax, etc.), the burden directly falls on the taxpayer. Click to know the difference between direct tax and indirect tax.
According to Income Tax Act 1961, every person, who is an assessee and whose total income exceeds the maximum exemption limit, shall be chargeable to the income tax at the rate or rates prescribed in the Finance Act. Such income tax shall be paid on the total income of the previous year in the relevant assessment year. Click to know more on different types of taxes in India.
7) Taxable Income
Incomes which form part of total income and are fully taxable. These are Salaries, Rent, Business Profits, Professional Gain, Capital Gain, Interest, Dividend, Winning from Lotteries, Races etc.
8) Exempted Incomes
These incomes do not from part of total income either fully or partially. Hence, no tax applicable on such incomes.
9) Advance Tax
Advance Tax is part payment of one's tax liability before the end of the fiscal year, on 31st March. The provisions of the Income Tax Act make it obligatory for every individual, self-employed professional, businessman and corporate to pay Advance Tax, on any income on which TDS is not paid.
Assessee is a person by whom any Tax or any other sum of money is payable under this Act.