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Pay 10,000/month for 10 years, Get 1,65,805/Year* for next 15 years.
ARN. No. KLI/23-24/E-BB/1201
Features
Ref. No. KLI/22-23/E-BB/999
The basics of income tax for beginners encompass various important terms for filing tax returns, ensuring transparency, and compliance with tax regulations.
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.
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.
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.
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.
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.
An assessee is regarded as a person by whom or to whom a sum of money is payable under the Income Tax Act.
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.
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.
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.
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.
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:
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.
Pay 10,000/month for 10 years, Get 1,65,805/Year* for next 15 years.
ARN. No. KLI/23-24/E-BB/1201
Features
Ref. No. KLI/22-23/E-BB/999