3 Most Confusing Pairs of Income Tax Terms Explained

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a)      Advance Tax Vs Self-Assessment Tax

Self-Assessment Tax
When you calculate your tax liability and you realize that tax is due even after TDS and advance tax, then you pay self assessment tax. Self-assessment tax is paid is the assessment year before you file your income tax returns.
Advance tax
Advance tax is payable in case of salaried taxpayer. It is the income tax that should be paid in advance instead of lump sum payment at the end of year.

b)      Assessment Year Vs Financial Year
Many taxpayers often confuse between Financial Year and Assessment Year. Let’s understand it.
Financial Year
Financial Year is the period of April 1 to March 31 in which you earn the income.
Assessment Year
Assessment Year always come after Financial Year. It is the year when income earned during financial Year is assessed and taxed. For example, if financial year is 2018-19 then, AY is 2019-20. It also starts on April 1 and ends on March 31. It is the year in which you evaluate your previous year’s income and pay taxes on it.

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c)       Exemption Vs Deduction

Exemption
Exemption is the amount that is excluded from gross total income and is available under section 10 or 54. Some of the examples of exemption include leave travel allowance, interest from tax-free bonds etc. Exemptions are deducted from the income before calculation of taxes. The amount of exemption is removed from total income before tax.
Deduction
Deduction is the reduction in total taxable income such as by availing benefits under Section 80 of Income Tax Act. It is firstly added to the gross total income and is then deducted from it. For example, if you have invested Rs. 150000 in PPF or SSY, then you will get deduction for the same.
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