So, you are all set to join your first job, and you can’t be more excited. Now, since you are ready to join the workforce and have a steady monthly income, it is important to have some idea about income tax. You must have already come across terms like ‘TDS,’ ‘financial year,’ and more. Here’s clarifying things for you!
Previous year and assessment year
One of the first things you need to understand is the distinction between the previous year (also called the financial year) and the assessment year.
Previous year
The previous year or financial year refers to a cycle of twelve months that starts in April and concludes in March of the following year. Regardless of when you landed the job, your tax year is set from April to March. This is the year or the time duration for which you pay the tax.
For instance, say you joined the company on July 10, 2022. Your tax year would be April 2022 to March 2023.
Assessment year
It is the year that comes after the financial year. So, you file the returns of the previous year in this year. So, if you go by the example mentioned earlier, then your tax year or financial year was 2022-23, and your assessment year would be 2023-24.
Understanding income tax slab
You pay taxes based on the income tax slab you come under. Your income determines which tax slab applies to you. The general idea is to have parity and a fair taxation system where the ones who earn more also pay more taxes.
The Latest Income Tax Slab changes from one budget announcement to another. So, if you want to know how much tax is going to be deducted from your account, then you need to have an idea about which tax slab you are currently coming under.
Tax exemptions
You can considerably reduce your tax liability by opting for certain monetary tools that reduce the taxable income. You can get tax relief through such exemptions or make sure that tax applies only to certain parts of the income.
An important section of the Income Tax Act that you need to be aware of in this regard is 80C. Under this Section, you get to reduce up to INR 1,50,000 from the gross income. Here are some of the investments that you can go for to leverage this benefit.
- Life or health insurance
- Equity-linked savings
- Fixed deposits
- Employee Provident Fund
- Public Provident Fund
Tax Deducted at Source
You must have heard the term ‘TDS’ (Tax Deducted at Source) now that you are joining a company. So, TDS is basically the money that your employer deposits with the Income Tax Department on your behalf. The rate of TDS deduction depends on the income tax slab of the employee.
The endnote
That’s all! Hopefully, you have a better idea about things now that you know the meaning of these terms.
