As Union finance minister Nirmala Sitharaman is set to present the last interim budget before the 2024 general elections on February 1, taxpayers are hopeful for favorable changes. But in order to understand the budget better, let’s look at key terms that are used in the document.
Think of tax deduction as a discount on your tax bill. For example, a standard deduction of ₹50,000 lowers your total income, which thereby reduces the taxable amount. Investments in PPF, NSC, and tax-saving FDs can fetch deductions under section 80C.
This is a reduction in total income tax that stimulates economic activity by lessening the tax burden for taxpayers.
This applies to taxpayers earning more than ₹50 lakh as surcharge is an extra tax applied to the existing tax rate. A 10 percent surcharge on a 30 percent tax rate will raise the total tax liability to 33 percent.
Cess on tax
This is an additional tax put on income tax to fund specific objectives like health and education. This is charged on the total tax liability, including surcharge and is currently at 4 per cent.
New tax regime
The new tax regime was introduced in 2022 and has seven slabs with concessional rates. In the financial year 2023-24, it became the default regime, replacing the old tax regime.
Old tax regime
The old tax regime had four slabs with the highest tax rate at 30 percent for incomes above ₹10 lakh.
This is a way of collecting tax at the source of income, such as banks deducting tax when transferring interest income.
Tax saving instruments
These include PPF, NSC, and NPS which allow taxpayers to claim deductions in their income tax.
Tax collection at source (TCS)
This is an extra amount collected as tax by a seller from the buyer at the time of sale. It is deposited with the tax authority.