Filing your income tax return (ITR) can be a daunting task, especially if you are not familiar with the various terminologies used in the process. Understanding these basic terms is crucial for accurate and efficient tax filing.
This guide will explain the essential terminologies you need to know before filing your ITR.
1. Assessment year (AY): This is the year in which your income from the previous financial year is assessed and taxed. For instance, if you are filing your tax returns for the income earned between April 1, 2023, and March 31, 2024, the assessment year would be 2024–25.
2. Financial year (FY): It is the period during which you earned the income you are reporting. It starts on April 1 and ends on March 31 of the next year. For example, the financial year 2023–24 would cover income earned between April 1, 2023 and March 31, 2024.
Also read: Your one-stop guide to filing income tax returns for FY 2023-24
3. Permanent account number (PAN): PAN is a unique 10-character alphanumeric identifier issued by the income tax department to all taxpayers in India. It is mandatory to quote your PAN while filing your ITR.
4. Form 16: This is a certificate issued by an employer to their employees, providing details about the salary paid and the tax deducted during the financial year. It is an essential document for salaried individuals when filing their ITR.
5. Form 26AS: Form 26AS is a consolidated tax statement that contains details of the tax deducted at source (TDS), tax collected at source (TCS) and advance tax paid during the financial year. It is available on the income tax e-filing portal and is crucial for cross-verifying your tax details.
Also read: Check your Form 26AS, AIS carefully for error-free income tax return filing
6. Tax deducted at source (TDS): TDS is the tax deducted by the payer (such as an employer, bank, etc) from your income (such as salary, interest, etc) and deposited directly with the government. The deducted amount is reflected in Form 26AS.
7. Gross total income: This is the sum of all your income before any deductions under Chapter VI-A, Section 24(b) of the Income-tax Act and so on. It includes income from salaries, house property, capital gains, business or profession and other sources.
8. Deductions: Deductions are specific amounts that you can subtract from your gross total income to reduce your taxable income. Common deductions include those under Section 80C (for investments in public provident fund, equity-linked saving schemes (ELSS), payment of life insurance premiums etc), Section 80D (for health insurance premiums) and Section 24 (for home loan interest).
9. Exempt income: This is the income that is not taxable under the Income-tax Act. Examples include agricultural income up to a certain limit, certain allowances such as house rent or leave travel allowances and dividends from specified companies.
10. Taxable income: This is the portion of your income that is subject to tax after accounting for all deductions and exemptions. It is calculated as gross total income minus deductions.
11. Self-assessment tax: It is the balance tax you pay on your assessed income after accounting for TDS and advance tax. It is paid before filing your ITR.
12. Tax refund: This is issued when the taxes you have paid exceed your actual tax liability. You can claim a refund by filing your ITR, and it will be credited to your bank account after processing by the income tax department.
13. Verification: It is the process of confirming the authenticity of the information provided in your ITR. After filing your return, you must verify it using methods such as Aadhaar OTP, net banking or by sending a signed ITR-V form to the Centralised Processing Centre (CPC) in Bengaluru.
By familiarising yourself with these terms, you can ensure that you meet your tax obligations correctly and efficiently. Remember, the deadline for filing your ITR for the assessment year 2024–25 (financial year 2023-24) is July 31, 2024. Make sure you file your returns on time to avoid any penalties.
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