Thread by @AbhishekPonia

7 Basic terms you should know about INCOME TAX:
(A brief introduction to Income Tax, for beginners)

A THREAD
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If you’ve just landed your first job or recently started earning, Congratulations!

And welcome to the world of “Income Tax”.

While you’ve always been paying indirect taxes - while going to the movies, dining out, etc… now you will have to share a part of your earnings / revenue with the govt.

Indian govt has done a Great Job in making every aspect of taxation extremely complicated & confusing…. What’s easy is making mistakes!

Maybe that’s their plan.

So here are terms you need to learn & understand:

1. INCOME TAX SLABS:
Each year the govt announces Income Tax Slabs - meaning ranges of income & the tax applicable for each.
Up to a certain amount you don’t have to pay any tax. & thereafter the tax increases with your income.

2. INCOME TAX RETURN:
ITR is a form which you are required to fill & submit to the govt every year. In the ITR, you need to provide data on ALL your income including salary, interest, rental income, profits from share market & so on.

This determines your total tax liability.

Even if you fall in the zero tax category, it is good practice to file your Income Tax return, every year.

3. TAX EXEMPTIONS:
Since the govt has a Very Big Heart, they’ve allowed us to claim certain deductions/ exemptions in our taxable income!
The most popular being ‘80C’. Others include HRA, 80G, Health Insurance, etc.

You need to understand & take full advantage of these allowances.

These are more important in the initial years where you get into the taxable income range.
Do not miss!

4. TDS:
TAX DEDUCTED AT SOURCE - By law it is required that a person / entity making payments to another person / entity should deduct a percentage of the amount as TDS & pay the rest.

The paying party is required to give this deducted amount directly to the govt, on your behalf

This is applicable to all payment - salary, consulting fees, commissions, interest, etc. Ofcourse, there are exemptions too (thanks to our kind-hearted govt).

Btw this is one of the reasons you will never get your full salary in your bank account.

5. FINANCIAL YEAR & ASSESSMENT YEAR:
A Financial Year begins on 01 April & ends on 31 March of the subsequent year. You need to file Income Tax Return for this period.

Assessment Year - you will hear this in context to ITR. AY is the year following the FY, in which you file ITR.

Example:
If you are filing taxes for Financial Year 20-21, then your Assessment Year is 21-22.

6. HRA - HOUSE RENT ALLOWANCE:
This is an important component of your salary…. & guess what, you can claim this as an exemption in your IT returns.

BUT, as usual, nothing is straightforward. Calculating the exempted amount is a bit of a treasure hunt at the beginning.

7. CAPITAL GAINS:
Whenever you invest, if you make a profit, the profit is referred to as Capital Gains. And you need to pay from this profit too - Capital Gains Tax.

This applies to all investments - equity, debt, real estate, startup investments & so on.

Capital Gains is further divided into Short Term Capital Gains & Long Term Capital Gains.
The definition of short & long term is different for each type of investment.

Both have different percentages of taxation applicable.

Personal Finance is an important aspect of your life & will remain so.
When you start earning money, no one teaches you these things & we end up losing money.

I lost money & then learnt all this. Hope you don’t make the mistakes I did.

I have only provided a brief introduction to the important terms related to Income Tax. There are more, & each needs to be properly studied.

END.