Taxes help a nation develop its infrastructure and provide facilities to the citizen. The exact amount of tax that you are liable to pay depends on a person’s income. Paying your taxes for the first time can be an overwhelming experience. Understating your tax slab, knowing where you can save money, which income source is taxable, etc can be confusing. But before you start with the process you must be aware of technical terms used in this process. Hence in this article, we will be discussing the basic terminology used.
Financial year [FY]
The financial year is 12 monthly period used by government and businesses for accounting and budgeting. Ideally, a year begins on 1st Jan and ends on 31st Dec. But a financial year commencement date could be different for each country. In India, a financial year starts on 1st Apr and ends on 31st Mar of the proceeding year. A citizen is Taxed based on his earnings during this period. The financial year is commonly denoted as FY.
Assessment year [AY]
It is exactly 12 months proceeding the financial year. This means if the current financial year is from 1st Apr 2023 to 31st Mar 2024 then its assessment year would be from 1 Apr 2024- to 31st Mar 2025. Financial and Assement years start and end on the same dates with Assement year being a year ahead.
If this sounds confusing don’t worry. In simple terms, a financial year is the one where a person is making all his income. Whereas an assessment year is the proceeding year where your income is being assessed so that you can calculate the amount of tax you need to pay. So all the income you made in FY 23-24 will be assessed in AY 24-25.
Assessee
It simply refers to a person who is liable to pay income tax or any other amount under the Income tax act.
This might be a single person, a Hindu Undivided Family (HUF), an association of persons, a body of individuals (BOI), a company, a limited liability partnership (LLP), a municipal government, or any artificial juridical person (AJP) not falling under any of the aforementioned categories.
Gross Total Income [GTI]
This is the total amount of Income you generated in an FY. It could be from your salary, returns from the stock market, rent collected from your property, etc. It is the sum of all such incomes of a person in an FY. You can deduct all the nontaxable income sources to get an estimate of total taxable income.
Income tax return [ITR]
You may have head ITR many times especially while applying for a loan. In simple terms, it is a form or a summary of your income source which you need to submit to the income tax department. There are many different types of ITR forms available such as ITR 1, ITR 2, etc. The form you need depends on the type of income source. That is if it’s a salary or profits from the stock market etc.
Tax deduction at source [TDS]
If you are a salaried person then most likely a TDS is already deducted while handing your monthly salary. This simply means the government assumes a certain annual income that you are likely to earn in a given FA and it deducts taxes directly. TDS is not limited to salary but it can apply to various sources of income. After your Financial year has ended you can assess your net taxable amount. If you have already paid more tax than you are eligible, you will receive credit. While if the tax paid is still less than the amount you are eligible then you need to pay the pending tax amount.
Form 16
This certificate, which is issued by your employer, provides data that is necessary to file an income tax return. It consists of 2 parts. Part A mentions the personal details like name, address, PAN number, etc. Part B includes salary details and if any exemptions are there.
Conclusion
The list of terms used in taxes is not exclusive to those stated above. The ones that are provided are meant to provide someone new to filing taxes with a very basic understanding and exposure. You can refer to the income tax department website for more information.