Commonly used Tax Glossary

To understand the subject of taxation very first of all we all have to understood the basic concepts relating to taxation just like we have to go through for driving rules before we learn to drive a Car or many times it happens we know the each and every concepts but still we lack somewhere in understanding the provision as the definitions and meaning of small concepts play an important role so here I have done a small attempt to clarify the same:-

• Tax: – In simple terms I would say Tax is a compulsory payment made by people to the government.

• Assessee: – Assessee means a person by whom any tax OR any other sum of money (i.e., penalty or interest) is payable under the Act.

• Previous Year: – The year in which Income is earned is known as ‘Previous Year’. A Previous year can be of a single day.

• Assessment Year: -The year in which Income which was earned is taxed is known as ‘Assessment Year’. Assessment Year is always of 12 months. The year plays role of both ‘Previous year’ and ‘Assessment Year’.

E.g.:- The Financial Year 2014-15 is the Assessment Year for the financial year 2013-14,at the same time it is an Previous Year for the financial year 2015-16.

• Gross Total Income: – Income of a person is computed under the heads of Salaries, Income from house property, Profits and gains of business or profession, Capital gains and Income from other sources. The aggregate income under these five heads is termed as ‘Gross Total Income’.

• Total Income: – Total income of an Assessee is gross total income as reduced by amount deductible under various sections.

• Exemption: – A deduction allowed by law to reduce the amount of income that would otherwise be taxed. An exemption is based on a status or circumstance rather than economic standing.
• Perquisites: – The term “perquisites” is defined as a gain or profit incidentally made from employment in addition to regular salary or wages, especially one of a kind expected or promised. Thus, the phrase “perquisites” signifies some benefit in addition to the amount that may be legally due by way of contract for services rendered.

• Allowance: – Allowance is generally defined as fixed sum of money or other incentives given regularly in addition to salary for the purpose of meeting some particular requirement connected with the services rendered by the employee or as compensation for unusual conditions of that service. It is fixed, pre-determined and given irrespective of actual expenditure.

• Income From Salary: – Income under the head ‘salary’ comprises of remuneration in any form (including perquisites) received by an employee from employer. Thus, there should be contractual employer-employee relationship. The contract may be express, oral or implied. Salary is chargeable on due or receipt basis. Arrears of salary paid or allowed are includible if not charged to income tax for any earlier previous year. ‘Salary’ includes wages, dearness allowance, Bonus. Gratuity, annuity or pension, advance of salary, Fees / Commissions perquisites/ profits received from employer in addition to salary, Leave encashment while in service, Employer’s contribution to provident fund in excess of 12% of salary of employee, profit in lieu of salary.

• Income From House Property: – The income from Houses, Building, Bungalows, God owns etc. is to be computed and assessed to tax under the head “Income From House Property”. The income under this head is not based upon the actual income from the Property but upon Notional Income or the Annual Value of the Building.

• Income From Business & Profession: – “Business” simply means any economic activity carried on for earning profits and Profession refers to those activities where the livelihood is earned by the persons through their intellectual or manual skill. So simply we can say, Income earned from business and profession is taxed under the head ‘Income From Business & Profession’

• Income From Capital Gain: – ‘Capital gains’ means any profit or gains arising from transfer of a capital asset. If any Capital Asset is sold or transferred, the profits arising out of such sale are taxable as capital gains under the head ‘Income From Capital Gains’ in the year in which the transfer takes place.

• Income From Other Sources: -The Income which is not charged under any other head of Income is chargeable under the head ‘Income From Other Sources’. So this head of income is also called as ‘Residuary Head’

As aforesaid elaborated Major Heads of Income Tax, in nutshell easier to understand and interpret said heads.

As the was the first article written by me, it was wonderful experience for me. I hope the same will be helpful to you and the same would inspire me to write another articles.