Want to understand taxes better? Learn about key terms like taxpayer obligations, assessment and financial years, exemptions, taxable income, gross total income, and deductions to navigate the tax landscape with confidence.
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1.     Taxpayer
A taxpayer, whether an individual or organization, is legally obligated to contribute a specified sum of money known as tax to the government. These taxes actively contribute to society, funding essential government services and programs ensuring smooth functioning of the state.
2.     Assessment Year and Financial Year
The financial year commences on April 1st of one year and concludes on March 31st of the following year. For instance, in the financial year 2024-25, it begins on April 1st, 2024, and concludes on March 31st, 2025. This period signifies when income is earned and becomes subject to taxation. However, taxes on this income are assessed (calculated) in the subsequent year, specifically in the year 2025-26. Therefore, the financial year 2024-25 and the assessment year 2025-26 denote the same period from April 1st, 2024, to March 31st, 2025.
3.     Exemptions
When computing taxes, certain sources of income are excluded from taxation, thereby reducing the overall income tax burden. These sources are exempted from taxation to alleviate financial obligations. Section 10 specifies the provisions of these exemptions and outlines the necessary terms and conditions to avail their benefits.
4.     Taxable Income
It refers to an individual or organization’s sum of all earnings, revenues or incomes received by an individual, organization or entity within a financial year which are liable to tax. Income which is exempted from tax is not included here. Also, deductions are also subtracted from Gross Total Income to arrive at Taxable Income.
5.     Gross Total Income
It refers to the sum total of all income earned by an individual or organization before deducting any deductions or tax. It is the total of income under 5 heads of income under income tax act, 1961. 5 heads of income are –
i.                Income from Salaries
ii.               Income from House Properties
iii.              Profits and gains of Business and Profession
iv.              Capital Gains
v.               Income from Other Sources
6.     Deductions
Deductions helps to reduce the amount of taxable income. They are deducted from gross total income to arrive at taxable income. They help to reduce income tax liability.
It is a tax benefit that helps to save your tax. They are claimed under sections 80C to 80U depending whether you are under new tax regime or old tax regime.
DISCLAIMER: The information provided in this blog is intended for general informational purposes only. While efforts have been made to ensure the accuracy and reliability of the information presented, it may not be comprehensive, and it is subject to change without notice. Readers are advised to consult with experts in the relevant field and verify the information for accuracy and currency. The views expressed are those of the author and may not represent the views of others.