Does tax jargon boggle you?

7 MinsSep 25, 2020

Decoding tax terminology can help you when it comes to planning your taxes and filing returns . Here are some key terms explained.

tax terms

1. Gross Total Income – The process of filing tax returns begins with the computation of your Gross Total Income (GTI). GTI includes salary income; income from house property; profit and gains of business & profession; capital gain and income from other sources. These are computed after adjusting for the relevant exemptions under each head, such as HRA, interest paid on home loan, eligible allowances, etc. 

2. Net taxable income – This is the income chargeable to income tax and is computed after deductions that are allowed under Income Tax Act (i.e. various Section 80s). You pay tax on this amount. 

3. Assessee – A ‘person’ who is liable to pay income-tax or any other sum of money under the Income Tax Act. This could be an Individual, Hindu Undivided Family (HUF), Association of Persons (AOP), Body of Individuals (BOI), Companies firms, Limited Liability Partnerships (LLPs), local authority, and any artificial juridical person (AJP) not covered under any of the above categories. 

4. Assessment – The process of examining the returns filed by the assessee by the Income Tax Department.

5. Assessment Year (AY) – The period of twelve months commencing on the 1st day of April every year and ending on March 31 and succeeds the respective Financial Year. For example, for FY 2019-20 the AY is 2020-21. An assessee is required to file income tax returns for the respective AYs.  

6. Previous Year (PY) – It refers to the financial year immediately preceding the Assessment Year. To put it simply, PY is the same as the Financial Year.

7. Income Tax Return – This is the form to report to the Income Tax Department the income earned (under various heads: salary, house property, business & profession, capital gain, and other sources) during the Previous Year or the applicable Assessment Year. To do so, there are various forms (viz. ITR 1, ITR 2, ITR 3, ITR 4, ITR 5, ITR 6 and ITR 7) depending on the sources of incomes earned, the amount of income earned and type of assessee (viz. Individual, Hindu Undivided Family, Firm, Company, etc.).    

8. Tax Deduction at Source (TDS) – The tax that is deducted before the payment is made to the receiver (the deductee), is called Tax Deducted at Source or TDS. Salary, interest on bank deposits, commission, consultation fees, professional fees, rent payment, etc, are subject to TDS as per the provision of the Income Tax Act. This deduction is captured in the Form 26AS or TDS certificate issued by the deductor, or the one making the payment. The assesse can use this certificate while filing income tax to get claim credit for the tax paid.

9. Form 26AS – This is a tax credit statement. The tax deducted or collected by an entity is reflected in Form 26AS of the respective Permanent Account Number (PAN). Form26AS is a statement that consolidates the tax deducted from all sources (in Part A, A1 and A2 of the Form), details of tax collected at source (in Part B of the Form), advance tax paid by the assessee, self-assessment tax paid, regular assessment tax (in Part C of the Form), details of refund (if any) in the financial year (in Part D of the Form), and details of certain high-value financial transactions (in Part E of the Form).  

10. Form 16 – This is a certificate issued by the employer and contains the information necessary to prepare and file your Income Tax Return. Part A of the form mentions the employer and employees full address, their Permanent Account Number (PAN), the Tax deduction Account Number (TAN) of the employer, the amount of tax deducted and deposited by the deductee for relevant Assessment Year and challan numbers. Part B mentions details of salary paid, any other income, exemptions & deductions availed and tax deducted. 

11. Surcharge – It is the additional tax payable over and above the applicable tax rate for assessees with a higher taxable income slab. It is, therefore, a tax on tax. 

12. Advance Tax – The tax that needs to paid in advance, in four instalments (on or before 15th June, 15th September, 15th December, and 15th March) instead of in lump sum at the end of the financial year. This applies to any person whose tax liability is Rs 10,000 or more in a financial year, those in business, and taxpayers who have opted for presumptive taxation scheme under Section 44AD or 44ADA, as the case may be. 

[Also Read: The early tax filer gets benefits galore]

13. Self-Assessment Tax – This is the income tax paid by the assessee after taking into account Advance Tax and Tax Deduction at Source. Self-Assessment Tax is to be paid in the assessment year before filing the Income Tax Returns. 

(The following deductions are not available if one opts for New Tax Regime U/S 115BAC)

14. Section 80C – You can claim deduction up to Rs 1.5 lakh, annually, under Section 80Cof the Income Tax Act by investing in several financial instruments. Some of these include Public Provident Fund, Sukanya Samriddhi Yojana, National Saving Certificate, 5-Year tax-saver term deposits, Senior Citizens Savings Scheme, National Pension System, Equity Linked Savings Schemes, life insurance policies, and pension plans. Moreover, contribution to the Employees’ Provident Fund, principal repayment on housing loans, and tuition fees paid for children’s education are also entitled to deduction subject to the overall limit of Rs 1.50 lakh, under Section 80C. 

15. Section 80D – The premium paid for a health insurance policy makes you eligible for a deduction up to Rs 25,000 in case of non-senior citizen and up to Rs 50,000 in case of senior citizens as per Section 80D of the Income Tax Act, 1961. This deduction can be availed by an individual and Hindu Undivided Family.

16. Section 80E – This deduction is available only to individuals for interest repayment on an education loan. The loan should be taken from a bank/financial institution or any other approved charitable institution to pursue higher studies -- in India or abroad. The deduction is available for a maximum of 8 years (beginning the year the assessee starts repaying the interest) or till the interest is paid, whichever is earlier. There is no restriction on the amount that can be claimed. 

17. Section 80EE – This deduction is available only for individuals availing a home loan for the first time, subject to certain conditions. The deduction is available on the interest. The conditions include: the individual owns no other house property; the value of the house should be Rs 50 lakh or less; the loan amount should not exceed Rs 35 lakh; the loan must have been sanctioned between 1st April 2016 and 31st March 2017. The deduction is Rs 50,000 per annum from the Gross Total Income until the loan is repaid in full. Over and above that the assessee can claim deduction under Section 24(b) for interest payment on the home loan, subject to the maximum permissible limit of Rs 2 lakh per annum. 

18. Section 80EEA – This deduction is for interest paid on home loan taken in the affordable housing segment and available only to individuals. The deduction can be availed provided, the borrower does not own any other house property on the date of the sanction of the loan; the loan is taken from a bank/financial institution. The individual cannot claim deduction under the existing Section 80EE. The individual can claim deduction under Section 24(b) for interest payment on the home loan, subject to the maximum permissible limit of Rs 2 lakh per annum.  

19. Section 80TTA – This Section allows individuals and HUF to avail a deduction for interest earned on a savings account (with a bank, co-operative society and post office) to the extent actual interest or Rs 10,000, whichever is lower.

20. Section 80TTB – A similar deduction is available for senior citizens for interest earned on savings account (with a bank, co-operative society and post office) to the extent of Rs 50,000 or lower.

Disclaimer: This article has been authored by PersonalFN, a Mumbai based Financial Planning and Mutual Fund research firm. Axis Bank doesn't influence any views of the author in any way. Axis Bank & PersonalFN shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision