Below are some common and frequently used terms related to taxation and their definitions in layman's language as per the Income Tax Act in India.
What is Inclusive Income?
The money you earn or get from different sources in a year. Salary, business profit, rent, interest, dividends, etc. All are considered income.
What is Tax Deductible
Tax deductible refers to the amount of money you can subtract from your total income, which helps lower the amount of income that is subject to taxation. These deductions are allowed according to the Income Tax Act and may include expenses like medical costs, donations to specific funds, and more.
An Overview of GST (Goods and Services Tax)
GST is a comprehensive indirect tax applied to the supply of goods and services tax. It is brought in place of various other indirect taxes like service tax, excise duty, and VAT. GST applies different tax rates to different types of goods and services.
Advance Pricing Agreement (APA)
APA is a special agreement between government tax authorities and taxpayers that outlines how to determine the prices of transactions when dealing with related parties. Its main purpose is to provide clarity and minimize the chances of arguments regarding these prices.
Understanding Long-Term Capital Gains (LTCG)
If you hold onto a valuable asset for a long time, usually more than a year, and then sell it for a profit, that profit is known as a long-term capital gain. The tax rate for long-term capital gains is lower compared to short-term gains.
Exploring Short-Term Capital Gains (STCG)
When you sell a valuable asset that you've owned for a short period, typically less than a year, and make a profit, it's called short-term capital gain. The tax rate for short-term capital gains depends on your regular income tax terms.
Tax Audit to Ensure Compliance with Provisions
A tax audit is a process where the books of accounts and financial statements of a taxpayer are examined and verified by a qualified chartered accountant to ensure compliance with the provisions of the income tax audit reports.
Tax Evasion
Tax evasion is illegal practice performed by taxpayers intentionally to evade taxes by concealing income, inflating expenses, or providing fake details in tax returns.
Tax Planning
Tax planning is about systematically arranging or managing your financial transactions in a way that can lower your tax burden legally. It can be done by taking advantage of deductions, exemptions, and other tax-saving methods.
What is Advance Tax?
Advance tax is the payment of taxes on your expected income in installments throughout the fiscal year rather than all at once at the end of the year. This applies if your tax liability surpasses a specific amount.
What is Tax Return?
A tax return is a document or form that is filed with the tax authorities that provides information about your income, deductions, and tax responsibilities for a given fiscal year. Individuals and corporations use it to report their taxable income and settle their tax liabilities.
What are Exemptions?
Exemptions are specific categories of income that are not taxed. Agricultural income, certain government employee allowances, and income from defined sources may be excluded from taxation in various North-Eastern states under exemptions.
What is Taxable Income?
Taxable income is the share of your income that is liable to be taxed after considering applicable deductions, exemptions, and allowances.
What is Tax Credit?
A tax credit is a decrease in tax burden offered directly by the government as an incentive. It lowers the amount of tax owed. For example, if you qualify for a Rs. 5,000 tax credit, it will be deducted directly from your tax liability.
What are Deductions?
Deductions are expenses or investments that can be deducted from your total income. These exemptions lower your taxable income. For example, contributions to the Public Provident Fund (PPF), life insurance premiums, college fees, and so on.
What is Assessment Year?
The assessment year is the year in which your income for a specific fiscal year is assessed and your income tax return for that time is filed. For example, the assessment year for the fiscal year 2022-23 would be 2023-24.
What is Tax Deducted at Source (TDS)?
TDS is a process by which taxes are deducted by the payer (such as an employer or bank) at the time of making various payments, such as salary, interest, rent, and so on. The deducted amount is subsequently deposited with the government on the recipient's behalf.
What is Capital Gain?
When you sell something valuable like real estate, stocks, or mutual funds and make a profit, that profit is called capital gain. It's the difference between what you paid for the asset and what you sold it for.
Tax Residency
Your tax residency decides which country you must pay taxes in. It is calculated in India based on the number of days an individual spends in the country within a fiscal year.
Read also: 14 Most Common Errors While e-Filing an ITR By Taxpayers
Overview of Penalties and Interests
Penalties and interest are costs applied by tax authorities for noncompliance or late payment of taxes. These fees are levied to promote timely and accurate tax filing and payment.
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