Terms and definition related to Income Tax
Income tax is an essential component of the financial system of any country. It is a tax levied on the income earned by individuals, businesses, and other entities. Understanding the terms and definitions related to income tax is crucial for taxpayers as it helps them to comply with tax regulations and make informed financial decisions. In this blog post, we will discuss some of the essential terms and definitions related to income tax.
Income Tax Return (ITR)
Income Tax Return (ITR) is a document that taxpayers use to report their income, deductions, and taxes paid to the government. It is filed every year by individuals, businesses, and other entities. The ITR is used by the government to assess the tax liability of the taxpayer and ensure compliance with tax regulations.
Taxable income is the income earned by an individual or entity that is subject to tax. It is calculated by subtracting the deductions and exemptions from the gross income. The taxable income is used to determine the tax liability of the taxpayer.
Tax Deduction at Source (TDS)
Tax Deduction at Source (TDS) is a tax that is deducted at the source of income by the payer before making the payment to the payee. It is deducted to ensure that the tax liability of the payee is met. TDS is applicable to various sources of income such as salary, interest, rent, and commission.
Advance tax is a tax that is paid by taxpayers in advance based on the estimated income for the financial year. It is paid in installments during the year and is applicable to individuals who have a tax liability of Rs. 10,000 or more.
Tax exemption refers to the income or expenses that are exempted from tax. It is a provision in the income tax law that allows taxpayers to reduce their taxable income and, hence, their tax liability.
Assessment Year (AY)
Assessment Year (AY) refers to the year in which the income earned during the previous year is assessed and taxed. It is the year immediately following the financial year in which the income was earned. The Assessment Year is significant because it is the year in which the taxpayer has to file their ITR.
Tax credit is a provision in the income tax law that allows taxpayers to reduce their tax liability by the amount of tax paid in the previous years. It is applicable to taxpayers who have paid excess tax in the previous years and can claim a refund or carry forward the tax credit to the next financial year.
In conclusion, understanding the terms and definitions related to income tax is essential for taxpayers as it helps them to comply with tax regulations and make informed financial decisions. By knowing these terms, taxpayers can file their ITR correctly, reduce their tax liability, and avoid penalties or late fees.