This document defines key terms related to taxation in India. It discusses direct and indirect taxes, with direct taxes imposed directly on individuals and organizations, and indirect taxes imposed on goods and services where the burden is transferred to consumers. It also defines important tax-related terms like assessee, residential status, income tax return, tax deduction at source, and the different heads of income including salary, house property, business, capital gains, and other sources.

2. • A compulsory contribution to state revenue,
levied by the government on workers' income
and business profits, or added to the cost of
some goods, services, and transactions
• Types of tax:
– Direct taxes
– Indirect taxes

3. • Direct Taxes: as the name suggests, are taxes that
are directly paid to the government by the
taxpayer. It is a tax applied on individuals and
organizations directly by the government .
• A tax is said to be direct ‘when impact and
Incidence of a tax are on one and same person.
• Direct tax is imposed on the individual
organisation and burden of tax cannot be shifted
to others.
• Example: income tax, corporation tax,
wealth tax etc.

4. • Indirect Taxes: They are imposed on goods/ services.
The Immediate liability to pay is of the manufacturer/
service provider/ seller but its burden is transferred to
the ultimate consumers of such goods/ services. The
burden is transferred not in form of taxes, but, as a
part of the price of goods/ services.
• If impact of tax is on one person and incidence on the
another, the tax is called ‘indirect’
• Indirect tax is imposed on commodities and allows the
tax burden to shift.
• Example: Customs Duty Customs duty refers to the tax
imposed on goods when they are transported across
international borders. In simple terms, it is the tax that
is levied on import and export of goods.
• , GST

5. Direct Tax
Direct taxes are taxes imposed on income,
capital gains and net worth. Gift tax, death
duties and property tax are also considered
direct taxes.

6. The Income-tax Act, 1961
• The Income-tax Act, 1961 is the charging
statute of Income Tax in India. It provides for
levy, administration, collection and recovery
of Income Tax.

7. Assessment Year (AY)
The period of twelve months commencing
on the 1st day of April every year and ending on
March 31 and succeeds the respective Financial
Year. For example, for FY 2021-22 the AY is 2022-
23. An assessee is required to file income tax
returns for the respective AYs.

8. Previous Year (PY)
It refers to the financial year immediately
preceding the Assessment Year. To put it
simply, PY is the same as the Financial Year.
PY-2021-2022

9. Assessee
A ‘person’ who is liable to pay income-tax
or any other sum of money under the Income
Tax Act. This could be an Individual, Hindu
Undivided Family (HUF), Association of
Persons (AOP), Body of Individuals (BOI),
Companies firms, Limited Liability
Partnerships (LLPs), local authority, and any
artificial juridical person (AJP) not covered
under any of the above categories.

10. Representative Assessee
A representative assessee is considered
deemed to be an assessee by virtue of section
160(2). These assessee's are liable to pay
taxes not for income earned by themselves
but for other persons also. Example Agents of
NRI or Guardian of Minors etc

11. Assesse in Default
Assessee-in-default is a person who has
failed to fulfill his statutory obligations as per
the income tax act such as not paying taxes to
the government or not file his income tax
return. ... If the employer fails to deposit the
tax deducted, he will be considered as an
assessee-in-default

12. Person
The term 'person', under Section 2(31) of
Income Tax, includes Individual, Hindu
Undivided Families [HUFs], Association of
Persons [AOPs], Body of individuals [BOIs],
Firms, LLPs, Companies, Local authority and
any artificial juridical person.

13. Residential Status
According to the Income Tax Act, 1961,
residential status of a person is one of the
important criteria in determining the tax
implications. The residential status of a
person can be categorised into Resident and
Ordinarily Resident (ROR), Resident but Not
Ordinarily Resident (RNOR) and Non- Resident
(NR).

14. Income Tax Return
This is the form to report to the Income
Tax Department the income earned (under
various heads: salary, house property,
business & profession, capital gain, and other
sources) during the Previous Year or the
applicable Assessment Year.

15. Assessment
• The process of examining the returns filed by
the assessee by the Income Tax Department.

16. Self-Assessment Tax
This is the income tax paid by the assessee
after taking into account Advance Tax and Tax
Deduction at Source. Self-Assessment Tax is to
be paid in the assessment year before filing
the Income Tax Returns.

17. Exempted income
Exempt Incomes are the incomes that are
not chargeable to tax as per Income Tax law
i.e. they are not included in the total income
for the purpose of tax calculation while
taxable Incomes are chargeable to tax under
the Income Tax law. Exempt income are those
on which tax is not likely to be paid. Some
examples are - dividend income, agricultural
income etc.

18. • Surcharge – It is the additional tax payable
over and above the applicable tax rate for
assessees with a higher taxable income slab. It
is, therefore, a tax on tax.
• Education Cess - An education cess is an
additional levy that is applied on the basic tax
liability by the Government to generate
additional revenue to fund primary,
secondary and higher education.

19. Rebate
• A rebate under section 87A
• In the most generic sense, a tax rebate is a
refund that you are eligible for in case the
taxes you pay exceed your liability. For
instance, if your tax liability amounts to Rs.
30,000, but your FD issuer pays the
Government a TDS amounting to Rs. 40,000
on your behalf, you qualify for a rebate or
refund.

20. Advance Tax
The tax that needs to paid in advance, in
four instalments (on or before 15th June, 15th
September, 15th December, and 15th March)
instead of in lump sum at the end of the
financial year. This applies to any person
whose tax liability is Rs 10,000 or more in a
financial year, those in business, and taxpayers
who have opted for presumptive taxation
scheme under Section 44AD or 44ADA, as the
case may be.

21. Gross Total Income
GTI includes salary income; income from
house property; profit and gains of business
& profession; capital gain and income from
other sources. These are computed after
adjusting for the relevant exemptions under
each head, such as HRA, interest paid on
home loan, eligible allowances, etc.

22. Deductions from GTI
Income tax department with a view to
encourage savings and investments amongst
the taxpayers have provided various
deductions from the taxable income under
chapter VI A deductions
EX:POST OFFFICE SAVINGS SCHEME

23. Net taxable income
This is the income chargeable to income tax and
is computed after deductions that are allowed under
Income Tax Act (i.e. various Section 80s). You pay tax
on this amount.

24. Tax Deduction at Source (TDS)
The tax that is deducted before the
payment is made to the receiver (the
deductee), is called Tax Deducted at Source or
TDS.

25. Tax Collected at Source
Tax collected at source (TCS) is the tax
payable by a seller which he collects from the
buyer at the time of sale. Section 206C of the
Income-tax act governs the goods on which the
seller has to collect tax from the purchasers.

26. Heads of Income
As per the income tax act 1961, one's
income is divided into 5 categories — income
from Salary, income from house property,
income from business profit, income from
investments/capital assets and income from
other sources.

27. Business Income
Business income is a type of earned
income and is classified as ordinary income for
tax purposes. It encompasses any income
realized as a result of an entity’s operations.
In its simplest form, it is a business entity’s net
profit or loss, which is calculated as its
revenue from all sources minus the costs of
doing business.

28. Professional Income
Professional Income is income from
exercise of any profession or vocation which
calls for an intellectual or manual skill. It
covers doctor, lawyers, accountants,
consulting engineers, artists, musicians,
singers etc.

29. Capital Gain
Capital gain refers to an increase in a
capital asset's value and is considered to be
realized when the asset is sold. A capital gain
may be short-term (one year or less) or long-
term (more than one year) and must be
claimed on income taxes.

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