Taxation is a crucial aspect of financial planning and management for individuals and businesses alike in India. However, navigating through the complex world of taxes can be daunting, especially with the myriad of terms and concepts involved. To help you better understand and manage your taxes, here are some essential tax terms every Indian should be familiar with:
Income Tax:
Income tax is a direct tax levied by the government on the income earned by individuals and entities within its jurisdiction. It is calculated based on various sources of income, such as salaries, investments, and business profits.
PAN (Permanent Account Number):
PAN is a unique 10-digit alphanumeric code issued by the Income Tax Department to individuals and entities. It serves as a universal identification key for tracking financial transactions and filing income tax returns.
Aadhaar Card:
Aadhaar is a 12-digit unique identification number issued by the Unique Identification Authority of India (UIDAI). While it is primarily used for identity verification purposes, it is also linked to various financial services, including filing income tax returns.
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GST (Goods and Services Tax):
GST is an indirect tax levied on the supply of goods and services at each stage of the production and distribution chain. It has replaced multiple indirect taxes, such as VAT, excise duty, and service tax, simplifying the tax structure in India.
Tax Deducted at Source (TDS):
TDS is a system of tax collection where the payer deducts a certain percentage of tax from the payments made to the payee and remits it to the government. It applies to various income sources, such as salaries, interest, rent, and professional fees.
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Advance Tax:
Advance tax, also known as pay-as-you-earn tax, is the tax paid by taxpayers on their income throughout the year, rather than in a lump sum at the end of the year. It is mandatory for individuals and entities with tax liabilities exceeding a specified threshold.
Tax Return:
A tax return is a form filed with the tax authorities that reports the taxpayer’s income, deductions, and other relevant information to calculate tax liability or claim refunds. It is typically filed annually by individuals and entities.
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Taxable Income:
Taxable income refers to the portion of an individual’s or entity’s income that is subject to taxation after accounting for deductions, exemptions, and allowances allowed under the tax laws.
Exemptions and Deductions:
Exemptions and deductions are provisions in the tax laws that allow taxpayers to reduce their taxable income, thereby lowering their tax liability. Common examples include deductions for investments in tax-saving instruments, expenses incurred for specific purposes, and exemptions for certain types of income.
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Assessment Year:
The assessment year is the year following the financial year in which the taxpayer’s income is assessed, and tax liability is determined. It is the year in which taxpayers file their income tax returns for the previous financial year.
Capital Gains Tax:
Capital gains tax is a tax levied on the profit earned from the sale of capital assets, such as stocks, real estate, and mutual funds. It is categorized into short-term capital gains tax (for assets held for less than three years) and long-term capital gains tax (for assets held for more than three years).
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Tax Credit:
The tax credit is a reduction in the amount of tax payable by a taxpayer, directly offsetting their tax liability. It is usually provided for specific purposes, such as investments in certain sectors, donations to charitable organizations, or payment of taxes in foreign jurisdictions.
Tax Evasion:
Tax evasion refers to the illegal act of deliberately underreporting income, inflating expenses, or concealing assets to reduce tax liability. It is punishable by law and can result in penalties, fines, and imprisonment.
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Tax Planning:
Tax planning is the process of arranging financial affairs in a manner that minimizes tax liability within the legal framework. It involves analyzing income sources, investments, expenses, and tax-saving opportunities to optimize tax efficiency.
Tax Audit:
A tax audit is an examination of a taxpayer’s financial records and transactions by the tax authorities to ensure compliance with tax laws and regulations. It may be conducted randomly or based on specific criteria, such as high-value transactions or discrepancies in tax returns.
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Taxable Event:
A taxable event is an occurrence or transaction that triggers a tax liability. It could be the receipt of income, sale of assets, transfer of property, or any other activity subject to taxation under the relevant tax laws.
Double Taxation:
Double taxation occurs when the same income or transaction is taxed twice by two or more jurisdictions. To avoid double taxation, countries may enter into double taxation avoidance agreements (DTAA) or provide tax credits for taxes paid in foreign jurisdictions.
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Tax Residency:
Tax residency refers to the status of an individual or entity as a resident for tax purposes in a particular jurisdiction. It determines the tax obligations, filing requirements, and eligibility for tax benefits available to residents under the tax laws of that jurisdiction.
Tax Tribunal:
A tax tribunal is a quasi-judicial body established to adjudicate disputes between taxpayers and tax authorities regarding tax assessments, appeals, and other tax-related matters. It provides an independent forum for resolving tax disputes outside the regular court system.
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Tax Amnesty:
Tax amnesty is a temporary relaxation of tax laws or forgiveness of penalties and interest offered by the government to encourage taxpayers to disclose previously undeclared income or assets voluntarily. It aims to increase tax compliance and revenue collection.
By familiarizing yourself with these additional tax terms, you can enhance your understanding of the tax system in India and make informed decisions regarding tax planning, compliance, and management.
