Your First Income Tax Filing: A Simple Guide for Beginners
Paying taxes for the first time? It might seem complicated, but we’re here to make it easy! Here’s a quick breakdown of the basics of income tax, so you can file your returns confidently.
1. What is the ‘Previous Year’?
In tax terms, the “previous year” is the 12-month period from April 1st to March 31st. It doesn’t matter when you started working – the tax year always ends on March 31st.
2. What is the Assessment Year?
The assessment year is the year after the previous year, when you file your tax returns. For example, if your previous year is 2023-24, your assessment year will be 2024-25.
3. Understanding Your Salary
Your salary slip or tax statement from your employer is key to understanding your taxable income. For example, if you get House Rent Allowance (HRA), you can save tax if you live in rented accommodation.
4. Types of Income
Your income could come from several sources:
Salary
Interest from savings or Fixed Deposits
Rental income
Dividends and more All these add up to your total income, which determines your tax.
5. Income Tax Slabs
Tax rates depend on your income level. For those earning below Rs. 2.5 lakhs annually, no tax is levied. Tax is calculated based on the slab you fall into, ranging from 5% to 30% depending on your total income.
6. Deductions: How to Save on Tax
Deductions reduce your taxable income, which means lower taxes! Popular deductions are under Section 80C, including:
PPF (Public Provident Fund)
Tax-saving Fixed Deposits
ELSS (Equity-linked Savings Scheme) These can reduce up to Rs. 1.5 lakh from your taxable income.
7. TDS (Tax Deducted at Source)
TDS is the tax automatically deducted from your salary or interest income by your employer or bank. For example, your employer might deduct tax from your salary based on your income bracket. If you earn interest from a Fixed Deposit, the bank may also deduct TDS.
Example: Aditya’s Tax Journey
Aditya, a 25-year-old software engineer, earns Rs. 6.6 lakh per year. He’s unsure about taxes but discovers that his employer has been deducting Rs. 2,988 as TDS monthly. He also earned Rs. 2,500 in savings account interest and Rs. 3,500 from a fixed deposit, but he’s not sure if TDS was deducted for those.
He lives in rented accommodation and pays Rs. 10,000 rent. By submitting the rent receipts, he can claim HRA exemptions to reduce his taxable income.
Wrapping Up
Whether you’re just starting your job or filing taxes for the first time, understanding these basics will simplify the process. For more details, visit ClearTax, where we help make tax filing easier for you!
This guide takes you through the essentials, so next time tax season comes around, you’ll be prepared and confident to file!