Introduction
The Indian Income Tax system encompasses a wide array of concepts, procedures, and compliance requirements. To assist taxpayers and students of taxation in navigating this complex framework, the following is a formal glossary of essential terms and commonly used forms under the Income Tax Act, 1961. Each entry has been defined succinctly to enhance clarity and comprehension.
Important Terms in Indian Income Tax
Advance Ruling
A mechanism designed to provide clarity and certainty regarding the tax liability on a specific transaction before it is undertaken.
Advance Tax
A system requiring assessees to estimate their current income and pay tax in instalments during the same financial year, if the liability exceeds the prescribed threshold.
Agricultural Income
Income derived from agricultural land situated in India. It is generally exempt from income tax, subject to specific conditions.
Alternate Minimum Tax (AMT)
A minimum tax levied on non-corporate taxpayers if the tax payable under regular provisions is less than the AMT on adjusted total income.
AMT Credit
The excess amount paid as AMT over regular tax liability, which may be carried forward and claimed in subsequent assessment years.
Annual Information Statement (AIS)
A consolidated statement issued by the Income Tax Department containing details of income, financial transactions, tax payments, and proceedings relevant to a taxpayer for a given financial year.
Appeal
A legal recourse available to an assessee or the tax department to challenge an order passed by a lower authority before a higher judicial forum.
Arm’s Length Price
A price applied in transactions between unrelated parties under open market conditions, crucial in transfer pricing regulations.
Assessee
Any person liable to pay tax or any sum of money under the Income Tax Act. This includes individuals, firms, companies, and other entities.
Assessment
The examination of a taxpayer’s income, deductions, and taxes by the Assessing Officer post-return filing, to determine the correct tax liability.
Assessment Year (AY)
The twelve-month period (April 1 to March 31) immediately following the financial year in which income is assessed and taxed.
Assessing Officer (AO)
An income tax official authorized to carry out assessment and other proceedings for taxpayers under his or her jurisdiction.
Assessee-in-Default
A person who fails to fulfill obligations under the Income Tax Act, such as payment of taxes or filing of returns, and is treated as defaulting.
Belated Return
A return of income filed after the prescribed due date under the Act.
Best Judgment Assessment
An assessment made by the AO based on available information when the assessee fails to comply with assessment requirements.
Board (CBDT)
Refers to the Central Board of Direct Taxes, the apex authority responsible for administration of direct tax laws in India.
Books of Accounts
Includes ledgers, journals, and other financial records, maintained in physical or digital format, used for income computation and verification.
Calculation of Tax Payable
Taxable Income = Gross Income – Deductions
Income Tax = (Taxable Income × Applicable Rate) – Tax Rebate
Capital Asset
Includes all forms of property held by a taxpayer, including securities, immovable property, and specified insurance policies.
Capital Gain
Profit arising from the transfer of a capital asset. Categorized as short-term or long-term depending on the holding period.
Cess
An additional tax collected for a specific purpose such as education or health. It is levied over and above the base income tax and surcharge.
Carry Forward of Losses
Unadjusted losses from a financial year can be carried forward to subsequent years for set-off against future income, subject to conditions.
Compounding of Offences
An option for a taxpayer to pay a monetary sum to settle certain offences and avoid prosecution.
Deductions
Specific investments or expenditures allowed under the Act to reduce gross total income, thereby lowering taxable income.
Eco Tax
An environmental tax levied on activities that are harmful to the environment, intended to promote sustainability.
Exemption
A portion of income excluded from total taxable income by virtue of specific provisions in the Income Tax Act.
Financial Year (FY)
The accounting period from April 1 to March 31 during which income is earned. It precedes the Assessment Year.
Gross Total Income (GTI)
The total income from all heads (salary, house property, business/profession, capital gains, and other sources) before deductions.
Income Tax Return (ITR)
A formal declaration submitted by taxpayers detailing income earned, deductions claimed, and tax paid during a financial year.
Income Tax Slab
A progressive tax structure that categorizes taxpayers based on income levels and applies differential rates accordingly.
Income from House Property
Rental income or deemed income from owned property. Governed by Sections 22–27 of the Income Tax Act.
Previous Year (PY)
The financial year during which income is earned. It precedes the Assessment Year in which tax liability is determined.
Profits from Business or Profession
Income earned through business activities or a profession. Taxable under Section 28 of the Income Tax Act.
Salary Income
Compensation received by an employee from an employer, including allowances and perquisites, subject to tax under the head ‘Salaries.’
Standard Deduction
A flat deduction allowed on salary income: ₹50,000 under the old regime and ₹75,000 under the new regime (as of FY 2025–26).
Surcharge
An additional tax on high-income earners, calculated on the tax payable amount and not the income itself.
Tax slab system
Income Tax in India follows a tax slab system. Here, taxpayers’ income is categorised as ranges or slabs and certain tax rates are assigned to them. This is a progressive system of taxation where people earning more income are taxed at higher income tax slabs in proportion to their higher income.
Tax Deducted at Source (TDS)
A mechanism to collect tax at the point of income generation. The payer deducts tax before making payment to the payee.
Taxable Income
The portion of income after deductions and exemptions on which tax is computed.
Common Income Tax Returns and Forms
ITR-1 (Sahaj)
For individuals with income from salary, one house property, and other sources (interest, pension, etc.), and agricultural income up to ₹5,000.
ITR-2
For individuals and HUFs not having income from business or profession, and who are not eligible to file ITR-1.
ITR-3
For individuals and HUFs having income from business or profession.
ITR-4 (Sugam)
For resident individuals, HUFs, and firms (other than LLPs) with presumptive income under Sections 44AD, 44ADA, or 44AE.
Form 10E
Used for claiming relief under Section 89(1) when salary is received in arrears or advance.
Form 10- IEA
Form 10-IEA is a declaration made by the return filers for choosing the ‘Opting Out of New Tax Regime’. An Individual, HUF, AOP (not being co-operative societies), BOI or Artificial Juridical Person with business or professional income must submit Form 10-IEA if they wish to pay income tax as per the old tax regime. On the other hand, taxpayers who do not have income from business or profession can simply tick the “Opting out of new regime” in the ITR form without the need to file Form 10-IEA. Simply put, only those who file ITR-3, ITR-4 or ITR-5 have to submit Form 10-IEA if they have business income (other than coop societies). Individuals and HUFs filing their returns in Forms ITR-1 or 2 are not required to submit Form 10-IEA.
Form 15G
A declaration under which individuals below 60 years, HUFs, or trusts can request exemption from TDS on interest income.
Form 15H
A similar declaration as Form 15G, but for senior citizens (60 years or older).
Form 16
A TDS certificate issued by an employer to an employee, summarizing salary and tax withheld.
Form 16A
TDS certificate for tax deducted on non-salary income.
Form 12BB
Submitted by employees to claim deductions and tax benefits from employers.
Form 26AS
A consolidated tax credit statement detailing TDS, TCS, and other tax-related information.
Form 67
For claiming foreign tax credit and reporting overseas income.
Section 87A Rebate
For AY 2026–27, taxpayers with income up to ₹12 lakh under the new regime are eligible for a tax rebate of up to ₹60,000.
For FY 2024–25, the rebate was ₹25,000 for income up to ₹7 lakh.
Other sections:
To know about various Income Tax sections which offer rebate and deductions click: Rebate and deductions
Legal Basis
Under Article 265 of the Constitution of India:
“No tax shall be levied or collected except by the authority of law.”
This constitutional mandate ensures that taxation is governed solely by legally enacted provisions.
Disclaimer
The information provided herein is intended solely for informational and educational purposes. It does not constitute financial or legal advice. Readers are advised to consult qualified tax professionals before making any decisions based on this content.
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