Tax Filing: Understanding Key Terminologies

27 June 2024 5 min read

Filing your Income Tax Return (ITR) in India can feel confusing at first. There are a lot of new terms and abbreviations to learn. This guide is here to help you understand some key words you might come across so you can file your ITR without any errors.

Unveiling the Basics:

PAN (Permanent Account Number): Your unique 10-digit alphanumeric identity card in the world of Indian taxes.
Assessment Year (AY): Don’t get confused by the dates! This refers to the year for which your income is assessed for taxation. It runs from April 1st of one year to March 31st of the next year. For example, for the income earned in the financial year 2022-23, the assessment year would be 2023-24. You will be required to file the Income Tax Return for the same by July 31, 2024.
Gross Total Income (GTI): Imagine a basket holding all your income sources before any deductions or exemptions. This is the sum of all your income, including salary, profits from business and profession, rental income, interest earned on investments, and profits from selling assets (capital gains).
Taxable Income: This is the final figure the government considers for calculating your tax liability. It’s arrived at by subtracting allowable deductions and exemptions from your Gross Total Income, essentially filtering out the “untaxable” portions.
Tax Deducted at Source (TDS): Like an advance payment, this is the tax deducted by the source of your income, such as your employer, bank, or mutual fund. This amount is deposited with the government on your behalf, reducing your final tax burden.
Tax Payable: This is the total amount of income tax you owe to the government after considering the TDS already deducted and any applicable tax credits. Think of it as the final bill you need to settle with the tax authorities.

Exploring Your Income Sources:

Salary Income: This is the most common source of income for many, encompassing your basic salary, allowances, and any perquisites (benefits) provided by your employer.
House Property Income: If you’re a proud owner of a rental property, this income refers to the rent you receive from tenants, whether residential or commercial.
Business or Professional Income: This category caters to entrepreneurs and professionals. It’s the income generated from your business or professional activities, minus any allowable business expenses incurred.
Capital Gains: Ever sold a stock, a mutual fund unit, or even a property? The profit you earn from such sales is called capital gains and also contributes to your taxable income. Basically it includes gains from sale of any capital asset.
Other Sources of Income: This diverse category encompasses income from various sources like interest earned on fixed deposits, dividends received from shares, and income generated from agricultural activities.

Demystifying Deductions and Exemptions:

Deductions: Think of these as lifelines thrown to you by the taxman. They are expenses allowed to be subtracted from your Gross Total Income, thereby reducing your taxable income and consequently, your tax liability. Popular deductions include investments under Section 80C (e.g., Public Provident Fund, Equity Linked Savings Schemes, Employee Provident Fund, etc), medical insurance premium under Section 80D, and donations made to charitable organizations under Section 80G.
Exemptions: Certain types of income are completely exempt from taxation, offering a welcome tax holiday. Examples include agricultural income up to a specific limit, income from long-term capital gains on the sale of residential property if the gains are invested in another residential property, and scholarship income received by students.

Navigating ITR Forms:

The Income Tax Department offers various ITR forms, each catering to specific taxpayer profiles and income sources. Choosing the correct form is crucial for accurate and compliant ITR filing. Here are some commonly used forms:

- ITR-1 (Sahaj): Designed for individuals with income solely from salary, pension, interest income, and house property.
- ITR-2: This form caters to individuals and Hindu Undivided Families (HUFs) with income from various sources, including business or profession, capital gains, and other income sources.
- ITR-3: This form is for individuals and HUFs with income from business or profession, including those required to maintain detailed financial accounts under the Income Tax Act.
- ITR 4: This form is for individuals, HUFs, and firms (including Limited Liability Partnerships) with income from a presumptive business or profession, with a total turnover of up to ₹2 crore for the business and ₹50 lakh for the profession.

Mastering E-filing Terminology:

E-filing Portal: This is your one-stop online shop for filing your ITRs electronically. No more lengthy paper forms and queues! The Income Tax Department provides a user-friendly platform for e-filing.
Pre-filled Data (continued): The e-filing portal pre-populates your ITR form with information collected from sources like your Form 16 (provided by your employer), Tax Deducted at Source (TDS) statements, and previous ITR filings. However, it’s crucial to carefully review all pre-filled data for accuracy and completeness. Don’t hesitate to edit or add any missing details to ensure everything is correct.

Verification

This final step ensures the authenticity of your ITR filing. You can verify your return through various methods:

- Aadhaar OTP: If you’ve linked your Aadhaar card with your PAN, you can use the one-time password (OTP) received on your registered mobile number for verification.
- EVC (Electronic Verification Code): This code is generated on the e-filing portal and needs to be entered within 72 hours to verify your return. You can generate the EVC using different methods, such as your pre-validated bank account, demat account, or net banking.
- Sending a signed ITR-V form: If you don’t have Aadhaar or prefer not to use it, you can download and print the ITR-V form generated after submitting your return online. Sign it and mail it to the Central Processing Centre (CPC) in Bengaluru for verification.

Beyond the Basics:

This guide provides a foundation for understanding essential income tax filing terminology. However, the world of taxes can be nuanced and subject to changes. Here are some additional tips for a smooth filing experience:

Stay Updated: Tax laws and regulations are subject to revisions. Familiarize yourself with any recent updates or amendments before filing your ITR to avoid any discrepancies or errors.
Seek Professional Help: If you have complex income sources, deductions, or tax calculations, consider consulting a registered tax professional. They can offer personalized guidance and ensure your ITR is filed accurately and efficiently.
Start Early: Don’t wait until the last minute to file your ITR. Starting early allows ample time to gather necessary documents, review information carefully, and resolve any issues that might arise.

Remember, filing your ITR on time and accurately is your civic duty and contributes to the nation’s development. By understanding the key terminology and following these helpful tips, you can navigate the income tax filing process confidently and ensure a hassle-free experience.

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