The Income Tax Glossary
A to Z of Tax Terms

Advance tax refers to income tax paid in instalments during the financial year, rather than as a lump sum at the end. It is also called "pay-as-you-earn" tax. If your total tax liability exceeds ₹10,000 in a financial year, you are required to pay advance tax.

Due dates for advance tax payment are: 15% by June 15, 45% by September 15, 75% by December 15, and 100% by March 15 of the assessment year. Failure to pay advance tax attracts interest under Section 234B (for non-payment) and Section 234C (for deferment of instalments).

The Assessment Year is the 12-month period immediately following the Financial Year, during which income earned in the previous year is assessed and taxed. For example, income earned in FY 2024–25 (April 1, 2024 to March 31, 2025) is assessed in AY 2025–26.

When filing an ITR, you always select the Assessment Year, not the Financial Year. The tax department processes your return and issues refunds based on the AY.

AIS is a comprehensive statement introduced by the Income Tax Department that provides detailed information about taxpayer transactions as reported by third parties such as banks, employers, mutual fund houses, registrars, and others. It includes details of salary, interest, dividends, securities transactions, GST turnover, and more.

Unlike Form 26AS (which mainly shows TDS), AIS is broader in scope and captures almost all financial transactions. Taxpayers can view their AIS on the income tax e-filing portal and provide feedback if any information is incorrect.

Allowances are payments made by an employer to an employee to meet specific expenses. Some allowances are fully exempt from tax, some are partially exempt, and others are fully taxable. Key allowances include:

• House Rent Allowance (HRA): Partially exempt under Section 10(13A) if the employee pays rent
• Leave Travel Allowance (LTA): Exempt for actual travel expenses twice in a block of 4 years
• Children's Education Allowance: ₹100 per month per child (max 2 children)
• Conveyance / Transport Allowance: Fully taxable under new regime
• Special Allowance: Fully taxable

Section 44AB mandates a tax audit of the accounts of certain businesses and professionals. A business is required to get its accounts audited if the total sales, turnover, or gross receipts exceed ₹1 crore (or ₹10 crore if cash transactions are below 5% of total). For professionals, the threshold is ₹50 lakh in gross receipts.

The audit must be conducted by a Chartered Accountant, and the audit report (Form 3CA/3CB and 3CD) must be filed before the ITR due date, which is typically September 30 for audit cases.

The basic exemption limit is the minimum income threshold below which an individual is not required to pay income tax. For FY 2024–25:

• New Tax Regime: ₹3,00,000 (effectively ₹7,00,000 after rebate u/s 87A)
• Old Tax Regime: ₹2,50,000 for individuals below 60 years
• Senior Citizens (60–79 years): ₹3,00,000 under old regime
• Super Senior Citizens (80+ years): ₹5,00,000 under old regime

Non-resident individuals do not enjoy the higher limits for senior and super senior citizens — their basic exemption is always ₹2,50,000 under the old regime.

Black money refers to funds earned through illegal means or legally earned money on which income tax has not been paid. The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, specifically targets foreign black money, imposing tax at 30% plus a penalty of 90% of the tax (i.e., 120% effective penalty) on undisclosed foreign assets.

Domestic black money is tackled through the Benami Transactions (Prohibition) Amendment Act, 2016, which allows confiscation of benami properties and provides for imprisonment of up to 7 years.

BTST is a trading strategy where shares bought today are sold the next trading day, before the delivery of shares actually occurs (T+2 settlement). Since the shares are sold before actual delivery to your demat account, BTST is technically a speculative transaction from a settlement standpoint.

For tax purposes, gains from BTST are treated as Short-Term Capital Gains (STCG) under Section 111A if the transaction is delivery-based and STT has been paid, taxed at 20% (post Budget 2024). However, if treated as speculative, it is taxed at slab rates. Many tax experts consider BTST gains as STCG in practice.

A capital asset is any property held by a taxpayer, whether or not connected with their business or profession. This includes land, buildings, shares, securities, gold, jewellery, vehicles, machinery, patents, and more.

What is NOT a capital asset: Stock-in-trade, personal effects (excluding jewellery and art), agricultural land in rural India (as defined), 6.5% Gold Bonds, and special bearer bonds.

Capital assets are classified as Short-Term or Long-Term based on the holding period, which determines the tax rate applicable on gains from their sale.

Capital gain is the profit earned when a capital asset is sold at a price higher than its purchase price (cost of acquisition). The gain is taxable under the head "Capital Gains" in your Income Tax Return.

If the asset is a long-term capital asset, the cost can be adjusted for inflation using the Cost Inflation Index (CII), except in specific cases (e.g., property sold after 23 July 2024 where indexation was removed).

The Capital Gains Account Scheme (CGAS), 1988, allows taxpayers to temporarily park their long-term capital gains in a designated bank account when they are unable to immediately reinvest the proceeds to claim exemptions under Sections 54, 54B, 54D, 54F, or 54G.

The amount deposited must be utilised for the specified purpose (e.g., purchasing a new residential property) within the stipulated time. If not utilised, the amount becomes taxable in the year in which the time limit expires.

The Cost Inflation Index is a government-notified index used to adjust the purchase price of an asset for inflation over the holding period. This reduces the taxable capital gain. CII is used to calculate "indexed cost of acquisition" and "indexed cost of improvement."

The base year is 2001–02 (CII = 100). For FY 2024–25, the CII is 363. Note: Post Budget 2024, indexation benefit on property has been removed for properties sold on or after July 23, 2024 (LTCG taxed at 12.5% without indexation).

Clubbing of income refers to the provision in the Income Tax Act (Sections 60–64) under which income earned by one person is included in the income of another person for tax purposes. This is to prevent tax avoidance through transfers of income to family members with lower tax liability.

Common examples of clubbing include: income from assets transferred to a spouse without adequate consideration, income of a minor child (clubbed with the higher-earning parent, with a deduction of ₹1,500 per minor child per year), and income from assets transferred to a daughter-in-law.

Chapter VI-A of the Income Tax Act provides for various deductions from gross total income to arrive at net taxable income. These deductions are available only under the old tax regime and are not available if you opt for the new tax regime.

Key deductions include:

• Section 80C: Up to ₹1,50,000 for investments in PPF, ELSS, LIC, NSC, home loan principal, etc.
• Section 80D: Medical insurance premium — up to ₹25,000 (₹50,000 for senior citizens)
• Section 80E: Interest on education loan (no upper limit)
• Section 80G: Donations to approved charitable institutions (50% or 100% deduction)
• Section 80TTA / 80TTB: Interest on savings account — ₹10,000 (₹50,000 for senior citizens)
• Section 80CCD(1B): Additional ₹50,000 for NPS contributions

A DTAA is a bilateral tax treaty between two countries that prevents the same income from being taxed twice — once in the country where it is earned and again in the country of the taxpayer's residence. India has DTAAs with over 90 countries, including the USA, UK, Canada, UAE, and Singapore.

Under a DTAA, relief can be provided either through the exemption method (income taxed only in one country) or the credit method (tax paid in one country is credited against tax payable in the other). NRIs earning income in India can benefit from DTAA provisions to reduce their tax burden.

A return of income is treated as a defective return under Section 139(9) if it is incomplete or has inconsistencies — such as not enclosing the required documents, not computing tax on the right income, or not paying self-assessment tax before filing. The Assessing Officer sends an intimation (usually via email/SMS) specifying the defect.

The taxpayer must rectify the defect within 15 days of receiving the intimation (extendable by the AO). If not rectified, the return is treated as if it was never filed.

Certain types of income are completely exempt from income tax under Section 10 of the Income Tax Act. These incomes are not included in the gross total income and are not taxable even if they are received by a resident individual. Common exempt incomes include:

• Agricultural income (Section 10(1))
• Share of profit from a partnership firm (Section 10(2A))
• Leave Travel Allowance — subject to conditions (Section 10(5))
• Gratuity received — up to ₹20 lakh (Section 10(10))
• Leave encashment on retirement — up to ₹25 lakh (Section 10(10AA))
• Amount received from life insurance (Section 10(10D)), subject to conditions
• LTCG on equity shares up to ₹1.25 lakh per year (Section 10(38) — now under 112A threshold)

An ESOP is a benefit plan that gives employees the right to purchase company shares at a predetermined price (exercise price), usually after a vesting period. ESOPs have two-stage taxation in India:

Stage 1 — At Exercise: The difference between the Fair Market Value (FMV) on the date of exercise and the exercise price is treated as perquisite and taxed as salary income. TDS is deducted by the employer.

Stage 2 — At Sale: The difference between the sale price and the FMV on the date of exercise is treated as capital gain (STCG or LTCG depending on holding period from exercise date).

Form 16 is a TDS certificate issued by an employer to an employee, certifying the amount of tax deducted from salary during the financial year. It has two parts:

Part A: Contains details of the employer and employee, PAN and TAN, summary of TDS deposited quarterly with the government.

Part B: Contains a detailed salary breakup — basic salary, HRA, LTA, perquisites, all deductions claimed under Chapter VI-A, and the tax computation.

Employers must issue Form 16 by June 15 after the end of the financial year. It is a key document for filing your ITR and reconciling your TDS. If you have more than one employer in a year, you will receive separate Form 16s from each.

Form 26AS is a consolidated annual tax statement available on the income tax e-filing portal. It shows all TDS/TCS deducted and deposited against your PAN by various deductors (employers, banks, tenants, etc.), advance tax and self-assessment tax payments, refunds received, and high-value financial transactions.

It is a critical document that helps you verify whether TDS deducted by your employer or bank has actually been deposited with the government. Any mismatch in Form 26AS can result in a tax demand or notice.

The Financial Year in India runs from April 1 to March 31 of the following year. Income earned during this period is subject to tax in the subsequent Assessment Year (AY). For example, income earned in FY 2024–25 (April 1, 2024 to March 31, 2025) is filed and assessed in AY 2025–26.

It is important not to confuse the Financial Year with the Assessment Year — when asked for the "previous year" in ITR forms, it always refers to the FY in which the income was earned.

When LTCG tax on equity was reintroduced in Budget 2018 (effective April 1, 2018), a grandfathering clause was included to protect gains already accrued before January 31, 2018. Under this clause, the cost of acquisition for equity shares/units held before February 1, 2018 is deemed to be the higher of:

• The actual cost of acquisition; or
• The lower of: (a) the fair market value (usually closing price) on January 31, 2018, and (b) the sale price

This ensures that gains accrued up to January 31, 2018 are not taxed. The grandfathering applies regardless of when you sell these shares.

Gross Total Income is the total of all income computed under the five heads of income — Salaries, House Property, Profits and Gains of Business or Profession, Capital Gains, and Other Sources — after applying the set-off and carry-forward of losses provisions. Deductions under Chapter VI-A are applied to the GTI to arrive at the Net Taxable Income.

HRA is an allowance given by employers to employees to help cover rental accommodation expenses. The exemption on HRA is calculated as the least of the following three amounts:

• Actual HRA received from employer
• Rent paid minus 10% of basic salary
• 50% of basic salary (for metros: Delhi, Mumbai, Chennai, Kolkata) or 40% (for non-metros)

HRA exemption is available only under the old tax regime. If you opt for the new tax regime, HRA is fully taxable. Self-employed individuals cannot claim HRA but can claim deduction for rent paid under Section 80GG (up to ₹5,000 per month).

An HUF is a distinct taxable entity recognised under Indian income tax law, comprising all persons lineally descended from a common ancestor, along with their wives and unmarried daughters. An HUF can earn income, hold property, and file its own ITR.

The HUF is managed by its eldest male member, called the Karta. Since an HUF is a separate entity, it gets its own basic exemption limit (same as an individual), PAN card, and can claim deductions under Chapter VI-A. This allows a family to effectively split income across the individual and the HUF, reducing overall tax liability.

An ITR is a form filed with the Income Tax Department declaring total income earned during a financial year, taxes paid, and claiming refunds or fulfilling tax dues. The ITR form applicable depends on the type of income:

• ITR-1 (Sahaj): Salaried individuals with income up to ₹50L, one house property, and other sources
• ITR-2: Individuals/HUF with capital gains, foreign income, or multiple house properties
• ITR-3: Individuals/HUF with income from business or profession
• ITR-4 (Sugam): Presumptive income under Sections 44AD, 44ADA, 44AE

The due date for individuals (non-audit) is July 31 of the assessment year. Belated returns can be filed by December 31 with a late fee of ₹5,000 (₹1,000 if income is below ₹5 lakh).

Indexation is the process of adjusting the cost of acquisition and improvement of a long-term capital asset for inflation, using the Cost Inflation Index (CII), to arrive at the indexed cost. This reduces the capital gain and thereby lowers the tax liability.

Post-Budget 2024 Update: For immovable property sold on or after July 23, 2024, taxpayers must pay LTCG tax at 12.5% without indexation. However, for property acquired before July 23, 2024 and sold to an individual/HUF, a transitional option exists to choose between 20% with indexation or 12.5% without indexation (for properties acquired before that date).

PAN is a 10-character alphanumeric identifier allotted by the Income Tax Department to every taxpayer (individual, company, HUF, trust, etc.). The PAN card is mandatory for filing ITR, opening a bank account, making investments above specified thresholds, and many financial transactions above ₹50,000.

PAN is permanent and does not change even if you move to a different city or change your name. Quoting an incorrect PAN or failing to link PAN with Aadhaar (where required) results in TDS being deducted at higher rates under Section 206AA.

Perquisites (or "perks") are benefits provided by an employer to an employee in addition to salary. They are taxed as part of "Salary" income. Common perquisites include:

• Rent-free accommodation: Value is 10%/15% of salary depending on city size (or actual lease amount for non-govt employers)
• Company car: Fixed perquisite value based on engine capacity
• ESOP gains at exercise
• Club membership fees, credit card expenses paid by employer
• Interest-free or concessional loans

Employers compute the perquisite value and include it in Form 16, Part B. The employer is required to deduct TDS on perquisites as well.

Under the presumptive taxation scheme, small businesses and professionals can declare income at a prescribed rate of their gross receipts/turnover without maintaining detailed books of accounts.

Section 44AD: For small businesses — income is presumed at 8% of turnover (6% for digital receipts). Applicable if turnover ≤ ₹3 crore (enhanced from ₹2 crore if digital receipts exceed 95%).

Section 44ADA: For specified professionals (doctors, lawyers, CAs, architects, engineers, etc.) — income is presumed at 50% of gross receipts. Applicable if gross receipts ≤ ₹75 lakh (75 lakh enhanced, if 95% receipts are digital).

TDS is a mechanism by which the payer of income deducts tax at the time of making a payment and deposits it to the government on behalf of the recipient. The recipient's tax liability is adjusted against TDS already deducted. TDS is applicable on salary, interest from banks, rent, professional fees, contractor payments, lottery winnings, and more.

The payer must file quarterly TDS returns (Form 24Q for salary, 26Q for others) and issue TDS certificates (Form 16 for salary, Form 16A for others). TDS credit can be claimed in the ITR against total tax liability.

India offers two income tax regimes for individuals. The new tax regime (default from FY 2023–24) offers lower tax rates but no major deductions and exemptions. The old tax regime offers higher rates but allows deductions like HRA, 80C, 80D, and standard deduction of ₹50,000.

New Regime Tax Slabs (FY 2024–25):

• Up to ₹3 lakh: Nil
• ₹3L – ₹7L: 5%
• ₹7L – ₹10L: 10%
• ₹10L – ₹12L: 15%
• ₹12L – ₹15L: 20%
• Above ₹15L: 30%

Salaried individuals get a standard deduction of ₹75,000 under the new regime (enhanced from ₹50,000 in Budget 2024). The choice of regime can be changed every year for salaried individuals; business income earners can switch back to old regime only once.

TCS is a tax collected by the seller from the buyer at the time of sale of specified goods or services, and deposited with the government. Common TCS applicability includes: sale of alcohol, timber, tendu leaves, scrap, motor vehicles above ₹10 lakh, remittances under LRS (Liberalised Remittance Scheme), and overseas tour packages.

From October 1, 2023, TCS on LRS remittances exceeding ₹7 lakh per year (other than for education and medical) is 20%. This TCS can be adjusted against your total tax liability when filing ITR.

Under Section 115BBH, introduced in Finance Act 2022, any income from the transfer of a Virtual Digital Asset (VDA) — including cryptocurrencies like Bitcoin, Ethereum, and NFTs — is taxable at a flat rate of 30% (plus 4% health and education cess), regardless of the holding period.

Key rules for VDA taxation:

• No deduction is allowed except cost of acquisition
• Losses from VDA cannot be set off against any other income, including other VDA gains
• VDA losses cannot be carried forward
• TDS @ 1% under Section 194S is deducted on VDA transactions exceeding ₹50,000 per year (₹10,000 for specified persons) on exchanges and P2P trades