Basic terms of Income Tax in simple words!

Basic terms of Income Tax in simple words- 

1. Assessee: An individual or entity (like a company) that is required to pay taxes or file a tax return.

2. Assessment Year: The year following the financial year in which the income is assessed and taxed. For example, if the financial year is 2023-24, the assessment year is 2024-25.

3. Financial Year (FY): The year in which you earn the income. In India, it starts from April 1st and ends on March 31st of the next year.

4. Gross Total Income: The sum of all incomes received by an assessee from different sources such as salary, business, property, etc., before any deductions are applied.

5. Total Income (Taxable Income): The income on which tax is calculated after subtracting allowable deductions from the gross total income.

6. Deductions: Specific amounts that can be subtracted from your gross total income to reduce the taxable income, such as contributions to savings schemes, insurance premiums, etc.

7. Exemptions: Specific incomes that are not included in the total income and are not taxable, such as agricultural income.

8. Rebate: A refund of a part of the tax paid, granted under certain conditions. For example, under Section 87A, an individual can get a rebate up to a certain amount if their total income is below a specified limit.

9. Perquisites: Benefits that employees receive from their employer in addition to their regular salary, such as company cars, free housing, etc. These are also called 'perks'.

10. House Property Income: Income earned from owning a house property. This can include rental income or the value of a house if it is self-occupied.

11. Capital Gains: Profit from the sale of a capital asset, like property or stocks. These are classified into short-term and long-term based on the holding period of the asset.

12. Income from Other Sources: Any income that doesn’t fall under the categories of salary, business, capital gains, or house property. This can include interest from bank deposits, lottery winnings, etc.

13. Tax Deducted at Source (TDS): A certain percentage of income is deducted by the payer before making the payment to the recipient, and this amount is deposited with the government as tax.

14. Advance Tax: Tax that is paid in installments throughout the financial year instead of a lump sum payment at the end. This is usually required for individuals who have significant income not subject to TDS.

15. Self-Assessment Tax: The balance tax that an assessee pays on their total income after accounting for TDS and advance tax before filing the tax return.

16. Return of Income: A form in which an assessee declares their total income, deductions, and the tax payable or refundable for a financial year. This is filed with the Income Tax Department.

17. Refund: If the tax paid by an assessee (through TDS, advance tax, etc.) exceeds the actual tax liability, the excess amount is refunded by the tax authorities.

18. Tax Audit: An examination of accounts by a chartered accountant to ensure they comply with the provisions of the Income Tax Act. This is mandatory for businesses exceeding certain turnover thresholds.

19. HRA (House Rent Allowance): A part of salary given by an employer to an employee to meet rental expenses. It is partially exempt from tax under certain conditions.

20. PAN (Permanent Account Number): A unique 10-digit alphanumeric code issued by the Income Tax Department to every tax-paying entity in India. It is used for tracking tax-related information.