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  Tax Planning

 
home > Tax Planning > Glossary
logo   INCOME TAX GLOSSARY
   
 

A   B   C   D   E   F   G   H   I   J   K   L   M   N   O   P   Q   R   S   T   U   V   W   X   Y   Z
 

A

Assessment year: It refers to the financial year starting from 1st April.

Assessee: Any person who is required to pay tax or any other amount under the Income
Tax Act.

Assessment: The process of having the income scrutinized by the assessing officer is known as assessment.

Assessing officer: He is an Income tax officer or Assistant commissioner or Deputy Commissioner etc., who is vested with the relevant jurisdiction and assessment functions under relevant provisions of the act.

Allowances: These are certain payments made by the employer to the employee such as education allowance, travel allowance, house rent allowance etc. they are taxable under the head ‘Salary’

Aggregation of income: Income tax is levied on gross income earned by the individual Gross income is the sum of income under the 5 heads. Viz:- Income from salary, income from house property, income from business and profession, capital gains and income from other sources. This process of summing income under various heads of income is known as “aggregation of income”. This would also include agricultural income.

Appeals: In case the assessee is unhappy with an order given by the tax authorities, he can make a representation before the higher judicial authorities. This process of approaching the next rung of judicial hierarchy is known as “appeals”.Go to top

B

Best judgment assessment: When the assessee fails to file his return of income, the assessing officer is bound to assess the assessee’s income to the best of his judgment.

Budget: This is a statement highlighting the planned inflows and outflows of the economy. The Union Budget is generally presented on the last working day of February. The word is derived from the French word “bouget” which essentially means a bag.

Belated return: When an assessee fails to file his return of income within the relevant due date, he can file a belated return before 1 year from the end of the relevant Assessment year or before completion of best judgment assessment, which ever is earlier.Go to top

C

Capital asset: It means property of any kind, whether or not connected with business, but does not include stock-in-trade, raw materials, consumable stores held for business; personal effects of movable nature, agricultural land etc.

Capital gains: Any gain arising on the sale of a capital asset is a capital gain.

Carry forward of loss: If a loss arising in the current year cannot be set off against income of that year, the loss can be carried forward to the next years.

Clubbing of incomes: In some specified cases, income of a particular person is added to the income of another person. Therefore clubbing of income would result in a person paying tax on income of another person.

Capital gains account scheme (CGAS): If the capital gains, arising out of sale of capital asset is not invested in specific assets, the assessee can still claim exemptions by depositing the capital gain/ net consideration in a separate bank a/c, under the CGAS.

Culpable mental state: It includes intention, motive or knowledge of a fact, or reason to believe a fact.Go to top

D

Deductions: These are those payments or investments which would result in reduction of assessee’s taxable income.

Dividends: These are periodical payments received by share holders from companies or unit holders of mutual funds. Dividends are exempt in the hands of the receiver.

Deep discount bonds: These are bonds which are sold at significant discount from it’s par value.

Double taxation avoidance agreements: When a resident of a country derives income from a source in another country, he is likely to be taxed in both the countries i.e. the country of residence and the country of source. To avoid this situation of double taxation, many countries enter into agreements by which the assessee gets relief or exemption in respect of incomes earned outside the country of residence.Go to top

E

Exemptions: Exempted incomes are those incomes which are not taxed at all.

ESOPs: ESOP is an option given to the employee of the company to buy the stock of the company at a pre determined price. To make ESOPs more attractive ESOPs are given at a price that is lower than the market price.

ELSS: These are tax saving schemes of mutual funds. Contribution towards such schemes will be eligible for a deduction under section 80C up to a maximum of Rs.1,00,000. ELSS have a lock in period of 3 years.

Education loan: the assessee can claim deduction u/s 80E of the IT Act, with respect to interest payments of an educational loan. The principle payment towards education loan will not be eligible for any tax benefit.Go to top

F

Finance Bill: Finance Bill is formal document that is presented by the finance minister before the Parliament.

Fair market value: Fair market value of any asset is the value which the asset will fetch if sold in the market.

Fringe benefits: These are those benefits which are provided by the employer to the employees. Some examples of fringe benefits are medical facilities, motor car facilities, accommodation facilities etc.Go to top

G

Gross annual value: It is used to compute income from house property. Generally fair rent is adopted as gross annual value. Thus if the house is self-occupied, gross annual value is taken as nil.

Gratuity: It is a payment generally made by the employer on the death or retirement of the employee. Gratuity received by government employees is wholly exempt.Go to top

H

House property: House property is divided into self-occupied and let-out property for the purpose of valuation and tax is levied correspondingly. If the assessee has more than 1 house property, one is to be considered as let out & the other is to be treated as deemed let out.

HRA: This is an allowance paid by the employer to his employee for the rent paid by the employee. It is a pertly taxable allowance, taxable under the head ‘Salary’

HUF: A HUF is a separate legal entity which consists of male members lineally descended from a common male ancestor, together with their mothers, wives or widows & unmarried daughters bound together by a fundamental principle of family relationship.Go to top

I

Income: Income under the IT Act includes profits & gains, dividends, any interest, salary bonus, commission or remuneration, capital gains, export incentives, perquisites received, winnings from lotteries or from games of any sort or from gambling or betting, income from house property etc.

Interest: Interest means interest payable in any manner in respect of moneys borrowed or debt incurred.

Inadmissible expenditure: These are those expenses which are not allowed as a deduction from incomes under the IT Act. For example, illegal expenses are not allowed as a deduction from business income.

Indexation – Cost inflation index(CII): It means such index as the Central Government may notify, having regard to 75% of average rise in consumer price index for urban non-manual employees for the year immediately preceding the previous year. This figure is generally used in the computation of capital gains.Go to top

J

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K

Keyman insurance policy: It is a policy taken on the life of one person by another person in whose organization the first person plays a key role. The premiums payable on a keyman insurance policy is an admissible business expenditure.Go to top

L

Long term capital asset: A long term capital asset is an asset which is held for more than 36 months before it is transferred. However in case of shares held in a company, securities listed in a recognized stock exchange in India, units of UTI or any mutual fund or a zero coupon bond, the period of holding should be more than 12 months to be considered as a long term capital asset.

Long term capital loss/gain: Any loss or gain arising from the transfer of long term capital asset is a long term capital loss/ gain.

Leave encashment: At the end of the year the assessee will have the option of encashing the leaves that he/she has accumulated. This is known as encashment of earned leave. It refers to the cash equivalents of the leaves accumulated by the employee.Go to top

M

Mens rea: Mens rea is the short for “actus non facit ream nisi means sit rea.” In any prosecution for any offence under the IT Act which requires culpable mental state on the part of the accused, the court shall presume the existence of such mental state, but it shall be the defense for the accused to prove the fact that he had no such mental state.

MAT: It stands for Minimum Alternate tax. It refers to the minimum amount of tax, which is payable by companies, if 10% of book profits exceed tax on total income.Go to top

N

Net annual value (NAV): With reference to house property, NAV Is obtained by reducing municipal taxes from the gross annual value.

Non resident individual: It refers to an individual who satisfies both the 2 following basic conditions:

  1. Period of residence in India is less than 182 days
  2. Period of residence in India is less than 60 days in the previous year and less than 365 days during the 4 years preceding that financial year.
  3. Go to top

O

Offences: Some offences punishable under the IT Act are non filing of returns, non payment of tax, removal, concealment, transfer or delivery of property to thwart tax recovery etc.Go to top

P

Perquisites: Perquisites include value of the rent free accommodation provided by the employer, value of concession in any matter of rent in respect of accommodation provided by the employer, value of any benefit provided free of cost or at a concessional rate etc.

Provident funds: These are one of the investment options available to the assessee to claim deduction u/s 80C of the IT Act.

Previous year: It is the financial year which precedes the assessment year. In other words it refers to the current year.

Public trust: This is a trust that is created where the beneficiaries are the general public at large.

Private trust: It means a trust created for the benefit of ascertained individuals or families. It is also called as a private discretionary trust.

Pension funds: They are investment options, to avail deduction u/s 80C of the IT Act.

PAN: It is an acronym of Permanent Account Number. It is a 10 digit alphanumeric number that helps to identifies and tracks an individual in the taxman’s database. He will be assigned a unique number, which he has to quote while filing his return of income.Go to top

Q

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R

Revised return: It is a corrected return which is filed, when the original return filed had apparent errors.

Resident: It refers to an individual who satisfies any of the 2 following basic conditions:

  1. Period of residence in India is 182 days or more.
  2. Period of residence in India is 60 days or more in the previous year and 365 days or more during the 4 years preceding that financial year.

Resident but not ordinarily resident: It refers to an individual who satisfies any of the 2 following basic conditions:

  1. Period of residence in India is 182 days or more.
  2. Period of residence in India is 60 days or more in the previous year and 365 days or more during the 4 years preceding that financial year.
  3. AND satisfies any of the following additional conditions
    1. He has been a nonresident in 2 or more years out of the 10 preceding previous years
    2. He has been in India for a period not exceeding 729 days during the 7 preceding years.

Rental income: Income that the individual receives from letting out a house property is known as rental income.

Residential house: It refers to the house property which is used for self occupation.Go to top

S

Standard deduction: With reference to income from house property, a fixed deduction of 30% would be available for repairs. Standard deduction under the head of salaries has been abolished.

Speculation business: It refers to the business which is speculative in nature. Income from speculative business is taxable at 30% (This does not include education cess and surcharge).

Short term capital asset: A capital asset that has been held for a period of less than 36 months or 12 months ( in case of shares or units of mutual funds).

Short term capital gain/loss: Gain or loss incurred on the sale of short term capital asset.

Set off of loss: In case the assessee incurs any loss, then the loss can either be set off against another source within the same head or the loss can alternatively be set off against loss under some other head. This has certain exceptions. Refer classroom section for more details on the exceptions.Go to top

T

Tax planning: Judicious use of the various sections of the income tax law to optimize the overall tax liability. This is a perfectly legal exercise.

Tax evasion: Using fraudulent methods to minimize the tax outflow. This is an illegal exercise. (McDowell Case)

Tax avoidance: Not filing of income returns tantamounts to tax avoidance. This is charcterised by a passive approach to the issue of filing tax returns.Go to top

U

Uncommuted pension: The periodic payments from a pension plan in the form of annuities is known as uncommuted pension. Such periodic payments are taxed in the hands of the recipient under the head Income From salaries – (annuities)Go to top

V

Voluntary contribution: The amount that is paid voluntarily by the assessee towards provident fund is known as voluntary provident fund. This plays an important role in accumulating the funds for retirement years.Go to top

W

Winnings from lottery: Income that the individual earns from lottery is winnings from lottery. It is taxed at 30% (This does not include education cess and surcharge).

Written down value: Cost of the asset less depreciation.Go to top

X

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Y

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Z

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