Taxation Glossary

Aadhaar: A 12‑digit identification number issued by UIDAI, based on biometric and demographic data. It is often linked to PAN and bank accounts and is required for many tax and compliance processes.

Advance Tax: Tax paid in installments during the financial year itself rather than as a lump sum at year-end. This applies when your tax liability exceeds ₹10,000 after TDS deductions.

AMT (Alternate Minimum Tax): A similar concept to MAT but generally applied to non‑corporate taxpayers claiming certain deductions. It ensures that taxpayers using generous deductions still pay a minimum level of tax.

Annual Information Statement (AIS): A detailed statement that expands on Form 26AS, displaying information about various financial transactions reported to the tax department. It may include savings interest, securities transactions, foreign remittances, and more, helping you avoid missing any income while filing.

Assessment Year (AY): The twelve-month period following the financial year during which income earned is assessed and taxed. If you earn income between April 2025 and March 2026, the assessment occurs in AY 2026-27.

Capital Gains: Profits realized from selling assets like stocks, property, mutual funds, or jewelry. Short-term gains (assets held under specified periods) face different tax rates than long-term gains.

Composition Scheme: A simplified GST scheme for small taxpayers with turnover below a specified threshold. They pay tax at a fixed low rate on turnover and file fewer returns but cannot charge GST on invoices or claim input tax credit.

Capital Expenditure: Capital expenditure relates to spending on assets or improvements that generate benefits over multiple years, often eligible for depreciation instead of immediate deduction.

Deduction: Specific expenses or investments that reduce your taxable income. Common deductions include Section 80C investments, health insurance premiums under 80D, and home loan interest under 24(b)

Depreciation: A systematic reduction of the cost of tangible or intangible assets over their useful life for tax purposes. Businesses claim depreciation as an expense each year, lowering taxable profits.

Dividend Distribution Tax (DDT): Historically, a tax payable by companies on the dividends distributed to shareholders, instead of taxing shareholders directly. While the regime has changed over time, the term is still used when referring to earlier rules or similar concepts.

Exemption: Income that the tax laws exclude from your total income calculation. Examples include agricultural income, certain allowances like HRA, and gifts from relatives.

E‑waybill: An electronic document generated on the common portal for the movement of goods beyond a certain distance and value. It contains details of the consignment and serves as proof of compliant goods transport.

ESOPs (Employee Stock Options): Stock‑based compensation plans that give employees the right to buy company shares at a predetermined price after a vesting period. The benefit at exercise and any later gains on sale can be subject to tax under different heads.

Financial Year (FY): The period from April 1st to March 31st during which you earn income. Also called the Previous Year in tax terminology.

Form 16: The annual TDS certificate issued by an employer to an employee. It lists your salary details, exemptions, deductions, and the tax deducted and deposited during the year.

Form 26AS: A consolidated statement tied to your PAN showing TDS, TCS, advance tax, and self‑assessment tax paid, along with certain high‑value transactions. It helps you cross‑check that the tax credited in your name matches what you claim in your return.

Goods and Services Tax (GST): The unified indirect tax levied on the supply of goods and services throughout India, replacing multiple previous taxes.

Gross Total Income: The sum of all your income heads—salary, house property, business or profession, capital gains, and other sources—before applying deductions under Chapter VI‑A. It is the starting point for arriving at taxable income.

GSTIN (Goods and Services Tax Identification Number): A 15‑digit registration number assigned to GST‑registered businesses and professionals. It is used to identify the taxpayer in all GST returns, invoices, and communications.

GSTR‑1 / GSTR‑3B: Key GST return forms: GSTR‑1 reports details of outward supplies (sales) for a tax period, while GSTR‑3B is a summary return in which you declare outward and inward supplies and pay net GST liability.

HRA (House Rent Allowance): A salary component paid to employees to meet rental expenses for accommodation. Part of this allowance can be claimed as exempt from tax if you actually pay rent and satisfy the rule‑based conditions.

HSN Code (Harmonised System of Nomenclature): A standardized numeric code used to classify goods in GST. Using correct HSN codes helps determine applicable GST rates and ensures uniform classification in invoices and returns.

Income Tax Return (ITR): The form through which taxpayers report their income, deductions, and tax payments to the Income Tax Department. Different ITR forms exist for various income types and taxpayer categories.

Input Tax Credit (ITC): The credit a registered person claims for GST paid on purchases of goods and services used in the course of business. This credit can be set off against the GST you must pay on your outward supplies, reducing the net tax outflow.

Indexed Cost of Acquisition: An adjusted purchase price of certain assets, calculated using official cost inflation indices. Indexation increases the original cost to reflect inflation, thereby reducing taxable long‑term capital gains.

LTA (Leave Travel Allowance): A benefit that covers travel expenses incurred on leave journeys within India. Subject to specific conditions and limits, employees can claim tax relief on eligible travel costs for specified trips over a block of years.

MAT (Minimum Alternate Tax): A special tax applied to companies that show low or zero taxable income under normal provisions but report substantial book profits. MAT requires such companies to pay a minimum percentage of their book profits as tax.

PAN (Permanent Account Number): A ten-character alphanumeric identifier issued to all taxpayers. This number tracks all financial transactions and tax payments linked to an individual or entity.

Presumptive Taxation: A simplified tax scheme for small businesses and professionals where income is calculated as a percentage of turnover, eliminating the need for detailed bookkeeping. Available under Sections 44AD, 44ADA, and 44AE.

Perquisites: Non‑cash or additional benefits received by an employee from an employer, such as rent‑free accommodation, a company car, or interest‑free loans. Many perquisites are taxable and must be valued according to prescribed rules.

Refund: The amount the tax department returns when your tax payments (through TDS, advance tax, or self-assessment) exceed your actual tax liability for the year.

Reverse Charge Mechanism (RCM): A situation under GST where the recipient of goods or services, instead of the supplier, is responsible for paying the tax. It commonly applies to certain notified supplies and imports of services.

Revenue Expenditure: Revenue expenditure is routine, recurring spending like salaries or repairs, usually allowable as a full deduction in the year incurred.

SAC Code (Services Accounting Code): A coding system similar to HSN but used for services under GST. Each type of service is mapped to a specific SAC code for accurate tax classification and reporting.

Section 80C (PPF, ELSS, life insurance): A popular deduction section allowing you to reduce taxable income by investing or spending on specified items such as Public Provident Fund (PPF), Equity‑Linked Savings Schemes (ELSS), life insurance premiums, and principal repayment on home loans, up to the prescribed limit.

Section 80D (health insurance): A deduction for premiums paid on medical insurance for self, family, and parents. Additional benefits may apply for senior citizen parents or preventive health check‑ups within the permitted limits.

Section 80E (education loan): A deduction for interest paid on loans taken for higher education for yourself, your spouse, children, or a student for whom you are a legal guardian. There is no upper monetary cap, but the deduction is available only for a fixed number of years.

Section 80G (donations): A deduction for eligible donations made to specified funds, charities, and institutions. Depending on the donee, donations may qualify for 50% or 100% deduction, with or without a qualifying cap.

Securities Transaction Tax (STT): A tax levied on the value of taxable securities trades carried out through recognized stock exchanges. It applies to transactions in equities, derivatives, and certain other financial instruments.

Standard Deduction: A flat deduction available to salaried individuals and pensioners from their salary income. It replaces several small allowances and reduces taxable salary without the need to submit detailed bills.

Tax Deducted at Source (TDS): Tax collected by the payer before disbursing income to the recipient. Employers deduct TDS from salaries, while banks deduct it from interest income exceeding threshold limits.

Taxable Income: Your gross total income minus all eligible deductions and exemptions. Tax rates apply to this final figure.

Tax Audit: A mandatory examination of accounts by a chartered accountant for businesses and professionals whose turnover exceeds specified limits. This ensures accurate income reporting and tax calculation.

Taxpayer: Any individual or entity legally obligated to pay taxes to the government based on their income or transactions.

Tax Liability: The final amount of tax you are required to pay for a financial year after considering TDS, TCS, advance tax, and any reliefs. If the tax already paid is higher than this amount, you become eligible for a refund.

TCS (Tax Collected at Source): Tax collected by a seller from the buyer at the time of sale of specific goods or services. The seller then deposits this collected tax with the government and it appears in the buyer’s tax records.

Transfer Pricing: Rules that govern pricing of transactions between associated enterprises, especially in cross‑border situations. The aim is to ensure that profits are not shifted artificially and that such transactions take place at arm’s length prices.