Basics of Income Tax in Indian explaining about TDS, PAN, TAN, Deduction and Income Tax Forms
Every one of us goes through life with certain milestones. Graduation, first job, marriage, family, first car, first house, to name a few. Similarly, paying income tax for the first time is a significant milestone.
When we hear the word income tax in India, we become conscious and nervous, believing it to be a daunting task. While we agree that the lack of a standard flat rate makes the process appear somewhat complicated, it is not a nightmare as many believe.
This isn't necessary. Here is a compilation of income tax basics for beginners to help you understand them.
Are you fresh out of college and looking for work? Have you already gotten the job and are about to file your first income tax return? If you're confused about income taxes and investments, Jordensky is here to help.
In general, anyone who earns money is required to file income tax returns. Today, we'll go over the fundamentals of income tax, which will help you understand what the concepts of income tax in India are.
The previous year, also known as the fiscal year or the tax year, is a 12-month period that begins in April and ends in March of the following year.
The tax year begins in April, regardless of when you start working.
Assume you joined a company on April 10, 2021. Your first tax year would be April 2021 to March 2022. You will be taxed on your income from April 10, 2021, until March 31, 2022.
Thus, the tax year or previous year is the year for which the tax is paid i.e. FY 2021-22.
This phrase is frequently used in taxation. The assessment year is the year following the previous year.
Using the preceding example, your PY or tax year was 2021-22. As a result, because you will file your income tax return between April 1, 2021, and July 31, 2022, your assessment year will be 2022-23. (generally).
Exempt income is not taxable under Income Tax law, so it is not included in the total income for the purpose of tax calculation. Exempt income is income that is tax-free. For example, interest earned from a PPF, etc.
While taxable income, such as salary, house property, capital gains income, income from other sources, and so on, is taxed and called as Taxable Income.
PAN is an abbreviation for Permanent Account Number, which is a ten-digit unique alphanumeric number issued by the Income Tax Department that serves as our unique identification.
It is a one-of-a-kind identification number used to identify the entity and individuals. Our PAN identifies whether we are an Individual, HUF, Company, Firm, or any other assessee. PAN is required for ITR filing; the tax department tracks all communications, returns, refunds, and other Income Tax-related activities through our PAN.
How PAN numbers are generated
The first five digits will always be Alphabetic, the next four digits will always be Numeric, and the last digit will always be Alphabetic. However, the fourth letter is significant because it denotes the type of assessee (Individual ,Company, Firm Etc.)
Tax Deduction Number (TAN) is a 10-digit alphanumeric number assigned to those who are required to deduct TDS and deposit it with the Income Tax Department.
TAN Format- JPRD00234F
How TAN numbers is devised
First Four digit Alphabetic, then after Five digit Numeric and last digit is Alphabetic.
The income on which you will pay taxes is classified as follows:
When filing your income tax, the income tax department allows you to claim a variety of deductions. Deductions are given to encourage people to save. Deductions reduce gross income, which in turn reduces income tax liability.
As a result, it can be shown mathematically as -
Total income = Gross income
Deductions - Gross Income = Taxable Income
As a result, the greater your deduction, the lower your tax liability. Deductions are permitted under Section 80 of the Income Tax Act (sections 80C to 80U).
An income tax is a tax levied by the central government on your earnings. Income tax is a major source of funds for the government, which it uses to fund its operations and provide services to the public.
For the purpose of paying income tax, various income tax slabs are defined.
Is it necessary for me to file my income tax return?
A number of factors influence whether or not you must file an income tax return. One such fundamental requirement is that if your income exceeds Rs. 2,50,000 in a fiscal year, you must file an ITR.
Even if your income is below the taxable limits, it is always advisable to file your income tax return.
According to the Income Tax Act, certain payments, such as salary and interest, have tax deducted at the source, which is known as Tax Deducted at Source.
TDS is finally adjusted with taxes payable at the time of final income computation.
These are prescribed forms that a person can use to provide the Income Tax Department with information about their earnings and taxes paid.
When the ITR forms are successfully submitted to the tax department, they become the Income Tax Return.
Section 80C allows you to save up to Rs 150,000 from your gross income. Section 80C investment vehicles that are commonly used include:
• Public Provident Fund
• Employee Provident Fund
• Tax saving fixed deposit
• Equity-linked savings scheme
• Insurance premium
The Finance Minister announced in the 2021 Union Budget that all salaried individuals would be entitled to a standard deduction of Rs 50,000 from their gross salary.
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