Basic Tax Jargons

Basic Tax Jargons

Financial Year, Assessment Year and Previous Year, do these commonly used income tax jargons often confuse you? This is what they mean.

1. Financial Year (FY) – Duration of one year between 1st April to 31st March of the following year, in which all financial information are reported. The current financial year is 1st April 2010 to 31st March 2011.
2. Assessment Year (AY) – The income of a particular financial year is assessed in the following financial year, which is known as the assessment year. For the current financial year, income will be assessed in the assessment year 2011-2012.
3. Previous Year (PY) – The financial year preceding the assessment year, the income of which is assessed in the following assessment year. Assessment year 2011-2012 will assess income for previous year 2010-2011.

Income Tax Slabs

With the upward revision of the tax slabs, there would now be more savings for the consumers. Basic tax exemptions limits have been retained; however, the brackets have been broadened. Below are the income tax slabs and rates applicable for the current financial year 2010-11 and assessment year 2011-12.

Tax Slabs for Male Assesses(less than 65 years)

Income: up to 1.6 lakhs	No Tax
Income : 1.6 lakhs to 5 lakhs	10 %
Income : 5 lakhs to 8 lakhs	20 %
Income : above 8 lakhs	30 %

Tax Slabs for Women Assesses (less than 65 years)

Income : up to 1.9 lakhs	No Tax
Income : 1.9 lakhs to 5 lakhs	10 %
Income : 5 lakhs to 8 lakhs	20 %
Income : above 8 lakhs	30 %

Tax Slab for Senior Citizen

Income : up to 2.4 lakhs	No Tax
Income : 2.4 lakhs to 5 lakhs	10 %
Income : 5 lakhs to 8 lakhs	20 %
Income : above 8 lakhs	30 %

As a result of the widening of the tax brackets, for an individual in the bracket between Rs. 3 Lakhs to Rs. 5 Lakhs, there could now be a saving of up to Rs. 20,000. Earlier, this bracket of 10% tax rate was applicable only up to an income of Rs. 3 Lakhs. Similarly, for the tax slab of Rs.8 Lakhs and above, there could now be a saving of more than Rs.50, 000.

Additionally, the government has also introduced section 80CCF where investments in infrastructure funds could fetch an extra deduction of Rs 20,000.

5 Easy Steps to Calculate your Tax

Calculating income tax is not any rocket science. The following 5 steps give you an idea of the process.

1. Calculate your gross total income. This includes gross income from Form 16; and the taxable income from other sources.
2. Calculate your net deductions, which may include, donations, investments and savings such as provident fund subscriptions, Life Insurance Premiums etc.
3. Your net taxable income is gross total income minus net deductions.
4. Apply the appropriate income tax slab to calculate your tax payable on aggregate income.
5. Education Cess of 3% is applied on the tax payable to arrive at the total tax payable. Relief under various sections would be applied on this total tax.

For example: Let us consider a net taxable income of Ravi as Rs. 8, 00,000.

As a male assessee, here’s how his tax is calculated.

Calculation

Tax up to Rs. 1,60,000	Nil
Tax on Rs.1,60,000 to Rs.5,00,000 @ 10%	34,000
Tax on Rs. 5,00,000 to Rs. 8,00,000 @ 20%	60,000
Total	94,000
Educational Cess - 3% of Total Tax	2,820
Net Tax Payable	96,820