Income Tax 101: Essential Terms Every Beginner Should Know

Filing your income tax for the first time? Don’t worry—it’s not as complicated as it seems! You could easily navigate the process with the right understanding of key terms. Let’s go over them.

Your Gross Total Income includes your salary, capital gains, property income, business profits, and other sources like lottery winnings or investment earnings. Next, we’ll touch upon Deductions, which help lower your taxable income. These can be house rent allowance, health and life insurance, interest on education loans, and more. Finally, you will learn about your Net Taxable Income. This is what’s left after tallying the deductions from your gross total income.

In this video, we’ll also talk about what’s known as the Previous Year and the Assessment Year. For example, if you’re filing taxes in FY2023-24, that is the assessment year, while the previous year is FY2022-23. Next, you’ll learn about TDS (Tax Deducted at Source) and how it applies to certain payments, such as salary or bank interest. Finally, we will discuss your Income Tax Return (ITR) and how you could report your income and taxes with the help of Form 16.

Now that you know these tax terms, you might be able to file your ITR without breaking a sweat!

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Key Takeaways

Previous year: The one that precedes the year of assessment; if you file your taxes on the 15th of July 2023, then your previous year would be 2022-23

Assessment year: The one that succeeds the previous year during which your returns will be assessed and filed accordingly

Gross total income: A sum of your salary, income from property, capital gains, profits from any business, as well as any income earned from other sources

Deductions: These are provisions made by the government to help reduce your overall tax liability

Net taxable income: Derived when you subtract deductions from your gross total income

TDS: When you receive your salary, this is the amount deducted at the source by your employer as tax

Income Tax Return: ITR is when you file for a return after having reported your income and having paid your tax dues

Frequently Asked Questions
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No, you don't need Form 16 as it's only mandatory for salaried employees. Your employer issues this document containing your salary details and tax deductions. As a freelancer, you'll need different income proofs like client invoices and bank statements to file your taxes.
Tax deductions allow you to reduce your taxable income, which in turn lowers your tax liability. For example, if you've taken an education loan, you can claim a tax deduction on the interest paid under Section 80E of the Income Act of 1961. This deduction reduces your taxable income, resulting in a lower tax output.
TDS applies to various types of income you receive. Your salary, interest from fixed deposits, rental income, and professional commissions will have tax deducted at source. The exact rate depends on your income type and amount. Understanding where TDS applies helps you keep track of your tax obligations and plan your finances better.
Gross total income is the total income you earn from various sources, including salary, capital gains, rental income, and other sources. It's the starting point for calculating your tax liability. Net taxable income is the amount you're liable to pay taxes on. It's calculated by subtracting eligible deductions from your gross total income.
You can claim several deductions to lower your tax burden. Common deductions include house rent allowance (HRA), deductions for life insurance premiums under Section 80C, health insurance premiums, education loan interest, and donations to eligible charities. Remember to keep proper documentation for all claims you make.
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