10 Budget Terms You Must Know
3. Exemption
There are certain incomes for which you are given an option of not paying any tax if it meets the conditions applied. This is called an exemption. The word exemption means free from an obligation from doing something.
4. Deduction
All of you know the meaning of the word "deduct". In case of income tax the term "deduction" is used to refer the amount which is reduced or subtracted from the total taxable amount. This is usually done to encourage savings or investments and hence lower your taxable income by that extent.
5. Service Tax
Take a look at any of your restaurant bills; the amount which you pay for apart from the food is due to service tax. Service tax is a type of indirect tax which you need to pay for any kind of service you avail. In the last union budget 2012-13 the finance minister decided that service tax will be charged on all the services except few negative lists of services. At present the effective service tax is 12.36 percent.
6. Value Added Tax
Value Added Tax is another form of indirect tax which you pay. Unlike service tax, VAT is collected on goods that you consume. For example, a manufacturer that produces soap, pays VAT when he buys raw materials, the retailer pays VAT to manufacturer when he buys the finished product. And you, the consumer, pay VAT when you buy the item for the retailer.
