Millions of taxpayers around the country are eagerly awaiting Feb 1 when Finance Minister Nirmala Sitharaman will present the last (interim) Budget before the 2024 general elections. Taxpayers’ expectations include slashing of tax rate, rollout of tax exemptions and slashing of TDS (tax deducted on source) on virtual digital assets (VDA), among others.
Before listing out more expectations, it is vital to first decode some key terms for the lay taxpayer to understand.
10 key terms to understand:
1. Tax deduction: As the term suggests, it refers to the amount to be deducted from taxable income to lower the amount of tax that you owe. For instance, taxpayers are entitled to claim a standard deduction of ₹50,000. This means total income is reduced by ₹50,000 to arrive at taxable income.
Likewise, when you invest in PPF, NSC, tax-saving FD, you can claim tax deduction (under section 80C) up to a maximum of ₹1,50,000.
2. Rebate: Rebate is a reduction in the total income tax. Just as deduction allows reduction in the taxable income, rebate enables tax payers to reduce their tax component by the amount of rebate. It is generally given to stimulate economic activity by lowering the tax burden of tax payers.
3. Surcharge on tax: Surcharge is applicable on those persons whose income is more than ₹50 lakh. It applies to the tax payable and not the total income. A surcharge of 10 percent is levied on tax rate of 30 percent, thus raising the total tax liability to 33 percent.
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4. Cess on tax: This is a levy and a form of tax imposed on income tax to raise funds for specific purposes such as health and education. Currently, the cess rate is 4 percent and is applicable on all income slabs at this flat rate. Cess is charged on tax liability including surcharge.
This will be discontinued only after the government accumulates enough money to meet its objectives.
5. New tax regime: This is the latest tax regime with seven tax slabs, which was introduced in 2022 offering concessional tax rates. The highest tax rate of 30 percent is applicable on incomes above ₹15 lakh but it does away with most of the tax deductions.
In financial year 2023-24, the new tax regime became the default tax regime.
6. Old tax regime: This is the previous tax regime with four tax slabs and the highest tax rate of 30 percent is applicable on incomes above ₹10 lakh. This regime continues to offer all tax deductions which have been phased out in the new tax regime.
7. TDS (Tax deducted at source): This is the way of collecting tax at the origin of income; for example, banks at the time of transferring interest income, and companies while transferring dividend income.
8. Tax saving instruments: These are saving instruments that entitle taxpayers to claim deduction in their income tax such as PPF, NSC and NPS. It is vital to remember that several of these deductions are no longer permitted in the new tax regime.
9. Tax collection at source (TCS): Tax collection at source is an additional amount collected as tax by a seller from the buyer at the time of sale over and above the sale amount and is deposited with the tax authority.
For instance, those who want to remit more than ₹7 lakh in a financial year are supposed to pay a TCS of 20 percent except in certain circumstances.
10. Virtual digital assets (VDAs): These are the digital assets that come under tax framework introduced in 2022 including one percent TDS on sale and purchase and 30 percent on capital gains. VDAs include digital currencies such as bitcoin, ethereum, dogecoin and others.
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Published: 26 Jan 2024, 09:33 AM IST