Close

Buy a Life Insurance Plan in a few clicks

Now you can buy life insurance plan online.

Kotak e-Invest

Insurance and Investment in one plan.

Kotak e-Term

Protect your family's financial future.

Kotak Guaranteed Fortune Builder

A plan that offers guaranteed income for your future goals.

Kotak T.U.L.I.P

A plan that works like a term plan, and Earns like ULIP Plan.

Kotak Assured Savings Plan

A plan that offer guaranteed returns and financial protection for your family.

Kotak Assured Pension

A plan that offers immediate or deferred stream of income

Kotak Lifetime Income Plan

Retirement years are the golden years of life.

Kotak Guaranteed Savings Plan

A plan that offers long term savings and life cover.

Close

Get a Call

Enter your contact details below and we will get in touch with you at the earliest.

  • Select your Query

Thank you

Our representative will get in touch with you at the earliest.

Basics of Income Tax for Beginners

The basics of income tax for beginners encompass various important terms for filing tax returns, ensuring transparency, and compliance with tax regulations.

  • 2,975 Views | Updated on: Aug 21, 2024

People reach different milestones in life, including graduation, landing their initial job, getting married, starting a family, and more. Alongside these commonplace achievements, many individuals face a significant event in navigating the process of paying income tax for the first time.

As the deadline for filing income tax returns looms, there is a noticeable sense of unease among individuals, with many finding the process somewhat daunting. If you are a first-time taxpayer, the prospect might seem particularly intimidating.

For those initiating their first venture into tax filing, here are some foundational details about income tax.

What is Income Tax?

The primary purpose of income tax is to generate revenue for the government. The funds collected through income tax contribute to financing essential public services, infrastructure development, and various welfare programs, fostering economic growth and societal well-being.

Terms Related to Income tax

Financial Year

The Financial Year, alternatively referred to as the Previous Year, encompasses a 12-month period beginning in April and concluding in March of the following year. The tax year maintains consistency from April to March, irrespective of when you start employment.

Assessment Year

The assessment year succeeds the previous year. In simpler terms, it is the year you submit your return for the year that just passed. For instance, for the Financial Year 2023, 2024 will be the Assessment Year.

Person

The term ‘person’ is defined in Section 2(31) of the Income Tax Act, 1961. According to this provision, a person encompasses entities such as an Association of Persons (AOP), Body of Individuals (BOI), Artificial Juridical Person, Local Authority, Firm, Individual, Hindu Undivided Family (HUF), and Company.

Assessee

An assessee is regarded as a person by whom or to whom a sum of money is payable under the Income Tax Act.

Income

The term “income” is explicitly defined in Section 2(24) of the Income Tax Act, 1961. On an individual level, it refers to the money received for services rendered or investments made in the financial market. However, the concept takes on a distinct meaning in the context of businesses.

For businesses, income signifies the revenue a company or firm generates through the sale of goods and services in the market. It represents the earnings acquired by an organization through its operational activities. This differentiation in interpretation is a fundamental aspect of income tax basics that should be comprehended by all individuals receiving a salary or generating revenue.

Previous Year

Two fundamental concepts in income tax basics are the “previous year” and the “assessment year.” The previous year corresponds to a financial year that begins on April 1st and concludes on March 31st.

For instance, if an assessee files income tax in 2023-24, the previous year would be 2022-23. Taxes are paid by an individual in the current year for the last financial year, commonly referred to as the previous year.

Additionally, according to section 3 of the Income Tax Act of 1961, the previous year is defined as the immediately preceding year.

Heads of Income

Understanding the heads of income is a fundamental aspect of income tax for employers, employees, and individuals filing tax returns. These heads represent the various sources from which an individual earns income.

There are five heads of income defined under the Income Tax Act:

Income from Salary

Income from Salary” applies to individuals relying wholly or partially on their income for sustenance. This category encompasses compensation paid by an employer to an employee. Therefore, income is categorized under this head only when establishing a relationship between an employer and an employee. This basic understanding of income tax is essential for every employee.

Income from House Property

Income from house property is another key income tax basic. It is the income earned from a rental property. The tax under this head is estimated based on assumption.

Income from Capital Gains

Any income that arises from the sale of capital goods or investments shall come under income from the capital gains head.

Income from Profit and Gains of Business/Profession

An income generated from a business or self-employees shall come under this head.

Income from Other Sources

An earning that does not belong from any of the aforementioned heads shall be construed as income from other sources.

What is Income Tax Returns?

An Income Tax Return is a formal declaration of an individual’s or entity’s income, deductions, and tax liability within a specific financial year. It serves as a comprehensive document that enables taxpayers to report their financial activities to the tax authorities.

Documents for Filing ITR

Income tax basic allows an individual to learn about the process of filing an ITR. An assessee should produce the following documents to file an ITR:

  • The individual should have his PAN and Aadhaar cards for filing ITR.
  • If the assessee wishes to claim a rebate on the taxable income, he must produce the documents of the loan.
  • The assessee must maintain the financial year’s balance sheet to show the business’s liability, assets, income, and expenditures.
  • They must produce the record of the audit if applicable.
  • They must show the certificate of tax deduction, such as TDS.
  • They must produce the challan copy of the tax he has paid in advance.

Wrapping Up

Understanding the basics of income tax is an essential step toward financial literacy. As a beginner, taking the time to comprehend these fundamental concepts will empower you to navigate the tax system confidently and ensure compliance with regulatory requirements. Remember, knowledge is the key to making informed financial decisions and securing your financial well-being.

Key Takeaways

  • Understand the distinction between the previous year, the financial year in which income is earned, and the assessment year, when taxes are evaluated.
  • Familiarize yourself with the five heads of income: Salary, House Property, Business or Profession, Capital Gains, and Other Sources.
  • Comprehend that income from salary pertains to earnings from employment, emphasizing the employer-employee relationship.
  • Obtain a PAN card, a unique identifier mandatory for financial transactions and filing income tax returns.

- A Consumer Education Initiative series by Kotak Life

Amit Raje
Written By :
Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.

Amit Raje
Reviewed By :
Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors

Kotak Guaranteed Fortune Builder

Download Brochure

Pay 10,000/month for 10 years, Get 1,65,805/Year* for next 15 years.

  • Guaranteed@ Income Benefit for upto 25 years
  • Flexibility to choose income period
  • Premium break for females on child birth or any listed specific illnesses
  • Life cover for the premium payment period
  • Enhance your life cover with rider offerings

ARN. No. KLI/23-24/E-BB/1201

T&C

Download Brochure

Features

  • Increasing Life Cover*
  • Guaranteed^ Maturity Benefits
  • Enhanced Protection Through Riders
  • Tax Benefits
  • Dual Benefits: Guaranteed^Maturity + Death benefits

Ref. No. KLI/22-23/E-BB/999

T&C