Budget 2024: Essential Terms You Should Be Familiar With

Tax deduction

Tax deduction involves reducing the taxable income to decrease the owed tax amount. For instance, individuals can claim a standard deduction of Rs. 50,000, reducing their total income by that amount for taxable income calculation. Similarly, investing in PPF, NSC, and tax-saving FD allows individuals to claim tax deductions (under Section 80C) up to a maximum of Rs. 1,50,000.

Surcharge on tax

A tax surcharge applies to individuals with an income exceeding Rs. 50 lakh. This additional charge applies to the tax payable, not the total income. A surcharge of 10 percent is imposed on the tax rate of 30 percent, resulting in a total tax liability of 33 percent.

Rebate

A rebate refers to a decrease in the overall income tax. Similar to deductions that reduce taxable income, rebates allow taxpayers to lower their tax amount by the specified rebate value. Typically, rebates are granted to stimulate economic activity by alleviating the tax burden on taxpayers.

New tax regime

The new tax regime, introduced in 2022, features seven tax slabs and concessional tax rates. The highest tax rate of 30 percent applies to incomes exceeding Rs. 15 lakh, but this regime eliminates most tax deductions. In the financial year 2023–24, the new tax regime became the default taxation system.

Cess on tax

Cess on tax is an additional tax imposed on income tax to generate funds for specific purposes like health and education. At present, the cess rate is 4 percent, applying uniformly to all income slabs. Cess is calculated on the total tax liability, including surcharge. The cessation of this levy is contingent on the government accumulating sufficient funds to meet its specified objectives.

Tax collection at source (TCS)

Tax collection at source (TCS) is an extra amount collected as tax by a seller from the buyer during a sale, in addition to the sale amount. This collected amount is then deposited with the tax authority.

Tax-saving instruments

Tax-saving instruments are financial tools that enable taxpayers to qualify for deductions in their income tax, including options like PPF, NSC, and NPS. It's important to note that many of these deductions are no longer applicable in the new tax regime.

Tax Deducted at Source

TDS (Tax Deducted at Source) is a method of collecting tax at the source of income. For instance, banks deduct tax when transferring interest income, and companies do the same when transferring dividend income.

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Old tax regime

The old tax regime refers to the previous tax structure featuring four tax slabs, with the highest tax rate of 30 %  applying to incomes exceeding Rs.10 lakh. This regime retains all tax deductions that have been phased out in the new tax regime.