20 Essential Terms you should know before filing Taxes
1.Financial Year: The financial year is a 12 month period beginning the April 1st each year and ending on 31st of March the following year.
2.Assessment Year: The assessment year refers to your income earned in the previous financial year.
3.PAN Number: The Income Tax Department of India identifies you with this number. This is a 10 digit number given by the I-T department to each individual, Business, Firm, and Company, in the form of a laminated card (called the PAN card).
4.TAN Number: TAN or Tax deduction and collection account number is a 10 digit number given by the tax department to all individuals / companies, who make payments to others.
5.TDS: Tax Deducted at Source (TDS) is the amount deducted by a company/Individuals before making a payment to others. This is done as per the Income Tax Act so that the burden of payment of lump-sum tax does not fall upon the individual at the end of the financial year.
6.TDS on Salary: Tax is deducted at source by the employer before paying the wages and salary to the employees. This information is present in the Form-16. Form-16 is usually issued annually by the company to its employees.
7.TDS on Non Salary: The tax deducted at source on payments like Rent, Interest Income, Commission, Consultation fees, Freelancer charges,etc (essentially anything other than Salary). These are stated on Form 16A. The Form-16A has to be issued by the deductor to the deductee in the same quarter in which the deduction is made.
8.Advance Tax: According to income tax rules, if the tax liability of a taxpayer is more than Rs 10,000 in a financial year and one knows that in advance, one has to pay:
9.Self-Assessment Tax: An individual / company has to calculate one’s tax liability at the end of the financial year, on the earnings during that year. The taxpayer self-assesses (or gets the taxes assessed by an authorized expert) to find one’s tax liability after accounting for TDS and advance tax.
10.Form 16: An employer has to give its employee a form 16 stating:
12.Form 26AS: The Tax Credit Statement or Form 26AS, issued by the Income Tax Department gives you details like:
14.ITR-V: This income tax return verification form is issued by the tax department as an acknowledgement of receipt of your tax return when you file your return electronically. A print out of this ITR-V has to be taken out, signed in blue ink, and then sent to the central processing Unit (CPC Bangalore) only by ordinary post or speed post within 4 months of filing of your tax return electronically. The CPC at Bangalore on the receipt of this ordinary post /speed post will send an email / acknowledgement on the email id mentioned in your ITR form. Only when you receive this email, the process of the filing of the income tax return is complete.
15.Mutual Funds: A mutual fund aggregates investor money and invests on their behalf in the stock market, for buying shares, bonds, etc such that the investors benefit in the end. These types of funds are typically managed by a professional. Hence if the investor lacks knowledge of direct investment in shares, bonds etc. the investor can put in the money in a mutual fund after seeing the past performance of the fund. Note that the past performance is not a predictor of the future performance of the fund. Any investment has its risk and investors should choose funds after due diligence.
16.Dividends: When an individual buys a share of a company/mutual fund, he buys a unit of ownership in that company. And when the company makes profits, the profit is distributed to the company’s shareholders in a proportion that is decided by the management. This profit, earned by the shareholder is the dividend earned.
17.Salary: Money paid to an individual for services, as shown in Form 16 by an employer, has to be included in the total income for the year.
18.House Property: If you own property and have rented it out, the income you earn from this property has to be included in your total income for the year. Interest paid on a housing loan is tax deductible to a large extent.
19.Capital Gains: When you sell assets like property, shares, bonds, mutual funds, there is a difference in the purchasing price and the selling price. If the sale price is more than the purchase price we call it Capital gains. This income has to be included in the total income if it is gained in the financial year. If you sell an asset at a loss, you can set this loss off against other gains and income as per income tax laws.
20:Business and Profession: Income earned while running a Business or while rendering professional services come under this head. Profits or Losses while running a business or a service have to be declared under this head.
1.Financial Year: The financial year is a 12 month period beginning the April 1st each year and ending on 31st of March the following year.
2.Assessment Year: The assessment year refers to your income earned in the previous financial year.
3.PAN Number: The Income Tax Department of India identifies you with this number. This is a 10 digit number given by the I-T department to each individual, Business, Firm, and Company, in the form of a laminated card (called the PAN card).
4.TAN Number: TAN or Tax deduction and collection account number is a 10 digit number given by the tax department to all individuals / companies, who make payments to others.
5.TDS: Tax Deducted at Source (TDS) is the amount deducted by a company/Individuals before making a payment to others. This is done as per the Income Tax Act so that the burden of payment of lump-sum tax does not fall upon the individual at the end of the financial year.
6.TDS on Salary: Tax is deducted at source by the employer before paying the wages and salary to the employees. This information is present in the Form-16. Form-16 is usually issued annually by the company to its employees.
7.TDS on Non Salary: The tax deducted at source on payments like Rent, Interest Income, Commission, Consultation fees, Freelancer charges,etc (essentially anything other than Salary). These are stated on Form 16A. The Form-16A has to be issued by the deductor to the deductee in the same quarter in which the deduction is made.
8.Advance Tax: According to income tax rules, if the tax liability of a taxpayer is more than Rs 10,000 in a financial year and one knows that in advance, one has to pay:
- 30% of the liability by September 15th
- 60% of the liability by 15th December (less advance tax already paid)
- Remaining liability by 15th March (less advance tax already paid) of the financial year.
9.Self-Assessment Tax: An individual / company has to calculate one’s tax liability at the end of the financial year, on the earnings during that year. The taxpayer self-assesses (or gets the taxes assessed by an authorized expert) to find one’s tax liability after accounting for TDS and advance tax.
10.Form 16: An employer has to give its employee a form 16 stating:
- The employee’s salary
- The tax deducted at source (TDS)
- Tax paid to the tax department.
12.Form 26AS: The Tax Credit Statement or Form 26AS, issued by the Income Tax Department gives you details like:
- Tax deducted at source.
- Tax collected at source.
- Tax paid (advance tax, self-assessment tax).
- Refund received by the assesse.
- All high value financial transactions as per Income Tax rules.
- Earn income from salary and
- Earn other income from fixed deposits (and not from horse race and lottery)
- Have up to one house property.
14.ITR-V: This income tax return verification form is issued by the tax department as an acknowledgement of receipt of your tax return when you file your return electronically. A print out of this ITR-V has to be taken out, signed in blue ink, and then sent to the central processing Unit (CPC Bangalore) only by ordinary post or speed post within 4 months of filing of your tax return electronically. The CPC at Bangalore on the receipt of this ordinary post /speed post will send an email / acknowledgement on the email id mentioned in your ITR form. Only when you receive this email, the process of the filing of the income tax return is complete.
15.Mutual Funds: A mutual fund aggregates investor money and invests on their behalf in the stock market, for buying shares, bonds, etc such that the investors benefit in the end. These types of funds are typically managed by a professional. Hence if the investor lacks knowledge of direct investment in shares, bonds etc. the investor can put in the money in a mutual fund after seeing the past performance of the fund. Note that the past performance is not a predictor of the future performance of the fund. Any investment has its risk and investors should choose funds after due diligence.
16.Dividends: When an individual buys a share of a company/mutual fund, he buys a unit of ownership in that company. And when the company makes profits, the profit is distributed to the company’s shareholders in a proportion that is decided by the management. This profit, earned by the shareholder is the dividend earned.
17.Salary: Money paid to an individual for services, as shown in Form 16 by an employer, has to be included in the total income for the year.
18.House Property: If you own property and have rented it out, the income you earn from this property has to be included in your total income for the year. Interest paid on a housing loan is tax deductible to a large extent.
19.Capital Gains: When you sell assets like property, shares, bonds, mutual funds, there is a difference in the purchasing price and the selling price. If the sale price is more than the purchase price we call it Capital gains. This income has to be included in the total income if it is gained in the financial year. If you sell an asset at a loss, you can set this loss off against other gains and income as per income tax laws.
20:Business and Profession: Income earned while running a Business or while rendering professional services come under this head. Profits or Losses while running a business or a service have to be declared under this head.
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