As the September 15 deadline approaches, understanding terms like deductions, exemptions, and the New Tax Regime is vital for accurate ITR filing.
With the September 15 deadline to file Income Tax Returns (ITR) for FY 2024-25 fast approaching, Indian taxpayers are busy gathering documents. To ensure accurate filing, financial experts are highlighting ten crucial tax terms. Understanding these concepts is vital for all taxpayers, particularly young professionals and freelancers who often choose the Do-It-Yourself (DIY) route for their tax compliance.
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The tax calculation process begins with understanding your income and the benefits available to reduce it. The first step is calculating Gross Income, which is the "total income earned during the year," including salary, freelance earnings, and rental income. From this, taxpayers can subtract Deductions for specific investments or expenses, such as those under Section 80C for PPF. It's crucial not to confuse these with Exemptions, which refer to income that is not taxable at all, like agricultural income or interest from a PPF account.
Next, several key components affect the final tax amount. Capital Gains—profits from selling assets like property or stocks—are taxed separately and must be correctly reported. Taxpayers may also be eligible for a Rebate, a waiver on their tax liability, such as the one under Section 87A for those with income below ₹7 lakh in the new regime. Finally, a mandatory 4 percent Cess is levied on the total tax amount to fund health and education initiatives.
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The filing process itself has its own set of critical terms. Taxpayers must choose the correct ITR Form based on their income sources (e.g., salaried, business). A major decision is selecting between the Old and the New Tax Regime (NTR); the old regime has higher tax rates but more deductions, while the NTR offers lower rates with fewer benefits. Many taxpayers will also find that some tax has already been paid via TDS (Tax Deducted at Source) by their employer, which is reflected in their Annual Information Statement (AIS).
This guidance comes at a time when the Indian tax system offers a choice between two distinct frameworks: the Old and the New Tax Regimes. Introduced in 2020-21, the New Tax Regime offers lower tax rates but forgoes most deductions, making the choice a critical decision point for taxpayers. The growing trend of DIY tax filing, especially among salaried professionals, further underscores the importance of understanding these fundamental terms to avoid costly errors.
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Ultimately, understanding these terms culminates in calculating the Total Tax Payable—the final figure after all adjustments. This may even result in a tax refund if advance taxes, like TDS, exceed the liability. While seeking professional advice is always recommended for complex cases, mastering these ten terms empowers taxpayers to file their returns with greater confidence and accuracy before the September 15 deadline.
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