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Understanding Basic Terms of Indian Income Tax



Rajesh Goyal 

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What is the difference between Financial Year and Assessment Year :

Financial Year (also called FY) is the  year in which you have earned the income.   In the next year, you are required to submit your income tax return.  This following year is called Assessment Year (also called AS).  Thus, when in the month of July 2015, we are filing income tax return based on our earnings in the year from 1st April, 2014 to 31st March, 2015,  the years will be

(a)  Financial Year is 2014-15

(b)  Assessment Year is 2015-16

Thus, in nut shell we can say that  year in which you have earned the income is the Financial Year (beginning 1st April and ending 31st March)..   The year following (i.e. next) when you submit the income tax return is the Assessment Year.

Remember, Income Tax Returns are always labelled according to Assessment Years.  Thus, a return for AY 2015-16, is actually for the income you have earned during FY 2014-15.  Therefore, when we  look at the ITR form, only one year is mentioned, for example, AY2015-16. To avoid confusion, you can remember that  your income is always assessed only after the year of earning has ended.


Types of Incomes in  Indian Income Tax Act :

Indian  Income Tax Act divides the various types of income that one can receive, into five broad categories

(a)                Salaries,

(b)               Income from house property,

(c)                 Profits or gains from business or profession,

(d)               capital gains, and

(e)               other sources.

 Each type of income is treated differently under the Income Tax Act. The kind of income you receive determines the Income Tax Return form you have to file. The more composite your total income, the more tortuous the form — if you receive a combination of incomes, it is a good idea to engage a chartered accountant. 


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What is TDS? What is Advance Tax, and  What is Self Assessment Tax:

An beginner for income tax is frequently confused by these terms and thus is afraid to handle the issue of income tax returns.  Here we will try to clear some of the confusions associated with these terms.

(a)  TDS means “Tax Deducted at Source”.  This is the amount of the tax that is deducted by the person who is providing you the income.   Thus employers often deduct income tax from the salary paid.  Similarly, bank deduct tax while paying interest on fixed deposits (now even on Recurring Deposits) if the amount exceeds Rs10,000/- in a year.   Usually, the amount deducted is  a percentage of the amount accrued / paid by bank during the financial year.    However, in case of salaries, the employer is supposed to deduct tax based on the total amount of salary paid / to be paid in the said FY.   The Forms 16 and 16A are nothing but statements issued by these deductors of the amount of tax that they have deducted, and is lying to your credit. The total amount of TDS that lies in your credit is compiled into a single form called the 26 AS, which is available in the Income Tax India E-filing website.


(b)  Advance Tax is part payment of one's tax liability before the end of the fiscal year i.e. 31 March.   In terms of the provisions of Income Tax Act, it is  obligatory for every individual ( salaried/ self-employed professional, businessman and corporate ) to pay Advance Tax, on any income on which TDS is not paid..  Thus, we can say that Advance Tax, is a scheme where you pay the bulk of the taxes you owe during the financial year itself, instead of waiting till the time you file your income tax return.  It was introduced to ensure a steady income for the government, and taxpayers who don’t scrupulously adhere to it face additional interest at the time of filing the income tax return.

Thus, as per Section 208,  any tax payer whose estimated tax liability for the year exceeds Rs 10,000/- has to pay tax in advance by the due dates prescribed (see below) in this regard.


Payment of advance tax: Self employed and businessmen


Due date of installment

Amount payable

On or before 15th September

Not less than 30% of the advance tax liability

On or before 15th December

Not less than 60% of the advance tax liability

On or before 15th March

100% of the advance tax liability

Exemption for Senior Citizens (age 60 years and above) – Section 207 for Advance Tax :   A resident Senior citizens, who do not have any income from head Profit and Gain from  business or  profession, 
can pay the entire net tax on interest income after the end of the Financial Year.   The same will be termed as “self assessment tax” and same should be paid before filing your personal tax return.

 Payment of advance tax: Companies


Due date of installment

Amount payable

On or before 15th June

Not less than 15% of the advance tax liability

On or before 15th September

Not less than 45% of the advance tax liability

On or before 15th December

Not less than 75% of the advance tax liability

On or before 15th March

100% of the advance tax liability


(c)    Self Assessment Tax :  Once an assessee has paid tax through TDS as well as Advance Tax, he has to himself / herself assess as to how much tax still needs to be paid.  Such amount of  balance tax has to be deposited with income tax department before filing the tax return.   This situation arises as TDS may have been deducted at lesser rate.  This is called Self Assessment Tax.(SAT). Latest Income Tax Slabs in India - FY 2015-16 or AS 2016-17



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