Interim Budget 2024: Decoding key terms for taxpayers
Team Udayavani, Jan 30, 2024, 10:43 AM IST
Representative image (Source: Pexels)
As the nation awaits the presentation of the interim budget before the 2024 general elections by Union Finance Minister Nirmala Sitharaman on February 1, understanding key terms in the document becomes crucial for taxpayers.
Here’s a simple guide to help you navigate through the budget jargon:
Tax Deduction – Like a Discount on Taxes:
Think of tax deduction as a discount on your tax bill. For instance, a standard deduction of ₹50,000 lowers your total income, reducing the taxable amount. Investments in PPF, NSC, and tax-saving FDs can fetch deductions under section 80C.
Rebate – Lessening the Tax Burden:
A rebate in the context of income tax refers to a reduction in total income tax, effectively lessening the tax burden for taxpayers. It operates as a stimulus for economic activity by providing individuals with a decrease in their overall income tax liability. This reduction is applied after the calculation of the total tax amount, providing financial relief to eligible taxpayers.
Tax Surcharge – Extra Tax for High Earners:
Tax surcharge is an additional tax imposed on high-income earners, typically those earning more than a specified threshold, as a percentage of their existing tax rate. For instance, a 10 percent surcharge on a 30 percent tax rate would increase the total tax liability to 33 percent. This surcharge is designed to contribute additional revenue from wealthier individuals to support government initiatives.
Cess on Tax – Additional Tax for Specific Objectives:
Cess on tax is an additional levy imposed on the income tax amount, aiming to fund specific objectives such as health and education. Currently set at 4 percent, this extra tax is applied to the total tax liability, including any applicable surcharge. The revenue generated from this cess is earmarked for designated purposes outlined by the government.
New Tax Regime:
Old Tax Regime:
The old tax regime, in existence before the Union Budget 2020-21, featured higher tax rates, with the maximum rate reaching 30 percent for incomes exceeding a specified threshold. This traditional system allowed taxpayers to avail various exemptions and deductions, contributing to a complex tax structure. Individuals could plan their taxes using a range of deductions under this regime.
TDS – Collecting Tax at the Source:
TDS, or Tax Deducted at Source, is a method of collecting income tax directly from the source of income. For example, banks may deduct tax when transferring interest income to ensure that the government receives its share upfront. This mechanism streamlines tax collection by collecting a portion of the tax liability at the source of income, providing a more efficient means of revenue collection.
Tax Saving Instruments – PPF, NSC, NPS:
Tax-saving instruments such as PPF (Public Provident Fund), NSC (National Savings Certificate), and NPS (National Pension System) enable taxpayers to claim deductions in their income tax. These financial tools are designed to encourage savings and investments while providing a benefit in the form of reduced taxable income. Contributions to PPF, NSC, and NPS are eligible for deductions under specified sections of the income tax laws, offering individuals a means to optimize their tax liabilities.
Tax Collection at Source (TCS) – Extra Amount Collected at Sale:
Tax Collection at Source (TCS) is a mechanism where an additional amount of tax is collected by the seller from the buyer during a sale transaction. This collected amount is then deposited with the tax authority. TCS serves as a means for the government to collect taxes at the point of sale, ensuring a more direct and efficient method of revenue collection.
Understanding these terms will empower taxpayers to navigate the intricacies of the interim budget, fostering a clearer comprehension of the fiscal landscape. Stay tuned for the latest updates on the budget’s impact.
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