Paying the first income tax is a watershed moment in every citizen’s life. However, for a first-timer, the procedure can appear overwhelming and repetitive, and some of the words can be confusing. This does not have to be the case. Here is a list of income tax basics for newcomers to help you understand the tax ramifications of your income
Financial Year
The financial year is the calendar year in which you have earned your money. The time frame for financials is April 1st of each calendar year till March 31st of the next calendar year. The word “financial year” is sometimes abbreviated as “F.Y.”
Assessment Year
The assessment year (AY) follows the fiscal year (FY). This is where the money received during the fiscal year or the financial year is assessed and taxed. Both the FY and the AY begin on April 1 and end on March 31.
Who is required to pay income tax?
Anyone earning more than the basic exemption limit as per the income tax act. A person, an artificial entity or a group of persons, is required to pay income tax return filing.
Sources of income on which you pay tax
Allowed u/s 80C
Section 80C of the Income Tax Act of India is a clause that points to various expenditures and investments that are exempted from ITR filing. It allows for a maximum deduction of up to Rs.1.5 lakh every year from an investor’s total taxable income. Section 80C is applicable only for individual taxpayers and Hindu Undivided Families. Corporate bodies, partnership firms, and other businesses are not qualified to avail tax exemptions under Section 80C.
Some of the u/s 80C deductions are mentioned below:
1) Tax saving Fixed Deposits: –
FDs are a good investment opportunity because of their structure. If you invest in a tax-saving FD scheme with a minimum lock-in term of five years, you will get a tax deduction of up to Rs. 1.5 lakh under Section 80C.
2) Public Provident Fund (PPF): –
A limit of 1.5 lakh can be invested in a financial year by PPF account holders. PPF (Public Provident Fund) is a common investment scheme that provides a haven for money while also provides ITR filing. Per financial year, PPF account holders can spend up to 1.5 lakh.
3) Sukanya Samriddhi Yojana: –
Sukanya Samriddhi Yojana is a government of India small deposit scheme designed specifically for girls and launched as part of the Beti Bachao Beti Padhao campaign. The program is designed to cover the costs of a girl’s schooling and marriage.
4) Insurance plans: –
Investing in life insurance policies to protect the family’s security is also a tax-deductible contribution under Section 80C of the Income Tax Act of 1961.
5) Equity oriented Mutual Funds: –
An equity-oriented combination fund spends at least 65 percent of the portfolio on equities. On the other hand, a debt-oriented hybrid fund spends more than 65 percent of its assets in debt securities and the rest in shares.
Allowed u/s 80D
Section 80D of the tax code allows a person to exclude the cost of medical treatment for themselves, their partners, their dependent parents, and their dependent children. For premiums provided for parents under the age of 60, a deduction of Rs 25000 is possible, and for parents above 60, a deduction of Rs 50,000 is available.
Allowed u/s 80TTA
Individuals (other than senior citizens) and HUF will exclude interest on savings account deposits under Section 80TTA. Interest revenue is eligible for a deduction of Rs 10,000 under Section 80TTA. This deduction is available to Resident Individual or HUF.
Allowed u/s 80GG
The deduction under Section 80GG of the Income Tax Act of 1961 is found in Chapter VI-A. It was introduced to deliver relief to those who do not get a house rent payment but one must pay rent to stay in their house also to be eligible for a deduction under this provision, a person must be self-employed or salaried.
Allowed u/s 80E
Just the interest charged on your education loan during a financial year is eligible for tax deductions under Section 80E of the Income Tax Act. The repayment of the principal balance would not result in a tax benefit. As a result, you will take Rs. 48,000 as a tax deduction on the gross EMI paid on the loan for the financial year.
TDS
TDS, or “Tax Deducted at Source”, is a certain percentage of one’s monthly income which is taxed for the purpose of payment. In keeping with the revenue enhancement Act, 1961, every individual or organization is vulnerable to pay taxes if their income is above a specific threshold.
The Tax Deducted at Source must be deposited to the govt by the 7th of the next month. In detail, TDS deducted within June must be paid to the govt by 7th July. However, the TDS deducted within March will be deposited till 30th April.
A person making specified payments mentioned under the Tax Act is required to deduct TDS when creating such specified payment. But no TDS needs to be deducted if the person making the payment is a private or HUF whose books don’t seem to be required to be audited.
Standard Deduction
A standard deduction is a one-time deduction made for people who are salaried or get a pension. It was first proposed in Budget 2018 as a replacement for the transportation allowance exemption and reimbursement of miscellaneous medical expenditures. The standard deduction is Rs 50,000 for the fiscal years 2019-20 and 2020-21.
