Tax lexicon

Tax Chanakya is here to give you the most comprehensive and exhaustive lexicons. The simplest versions of all the semantics are provided to help you get complete clarity of various tax and accounting related terminologies. Please click on the respective first letter to find the descriptions.

Accrual Accounting : In the case of accrual system of accounting, the income and expenses are recorded in the books when they become liable i.e., irrespective of whether they have been paid or not. Such a system of accounting is known as accrual accounting.

Advance Tax: Before the end of the financial year, an amount is paid by the assessee to the IT authorities on his estimated annual income. Such payment is known as advance tax. It is calculated by deducting the amount of TDS from the amount he is liable to pay.

Allowances::The employer pays an additional sum of money to the employee for meeting his various expenses. Such amounts paid to the employee is known as an allowance, which are usually taxable but are exempt in a few cases.

Annual Fair Value If a similar house is rented out, the amount arising from the rent of that house is known as the annual fair value.

Annual Rent Control Value Under the Rent Control Act, the amount which an owner can recover legally from the tenant is known as the annual rent control value.

Arrears of Rent If a tenant promises to pay but delays the payment of rent and pays during the current finanical year, this is known as arrears of rent.
Bonus share: If any shares or securities are allotted to you without making any payment, then such shares or securities are known as bonus shares.
Carry forward of loss: If there is loss in a particular year, it can be carried forward for subsequent years or it can be set off in the same or different head of Income.

Cash Credits: When there is credit in books for which explanation is not sufficient or there is no explanation, it is chargeable to Income tax of that year.

Casual income: Income which is inconsistent or less chance of occurring again is called Casual Income.

Clubbing of Income: Income of one person is added to income of other person for which other person will pay tax. E.g. Rental income is transferred without transfer of property. In this case rental income will be added to income of transferor.

Composite rent: Composite Rent means rent which includes rent for use of AC, furniture, generator, additional services like security, servant maid etc. If the rent is charged for property and other service separately, then rent from property is shown under Income from House property and rent regarding other services is shown under Income from other sources.

Compulsory Audit of Accounts: If the total turnover from business/receipts from service of a person exceeds Rs.100 Lakhs/Rs.25 Lakhs respectively during the previous year, then he must get his books of accounts audited by a Chartered Accountant. If a person is covered by Presumptive taxation, showing income less than the limit (8% of Gross turnover) then he must get the books of accounts audited.

Compulsory Maintenance of Accounts: Gross receipts of a person carrying specified profession exceeds Rs.1,50,000 in all the 3 years, immediately preceding the current year. Gross receipts/turnover of a person carrying non specified profession exceeds Rs.1,20,000/Rs.10,00,000 in all the 3 years, immediately proceeding the current year.

Contribution in Provident Fund: Employee’s contribution to Provident fund is exempt.

Conveyance/ Transport Allowance: Transport/Conveyance Allowance is given by employer to employee for commuting from home to office. Exemption limit Rs.800 pm (Rs.1600 pm I case of disabled employee).

Cost of Acquisition: Cost at which an asset is purchased or acquired. It includes all the cost that are incurred to put the asset into use e.g. installation, transport etc.

Cost of Improvement: Cost of improvement is a capital expenditure incurred to improve the useful life, productive capacity etc. of an asset.
Deduction: Certain investments or payment which can be deducted from Gross Total income to reduce tax liability of an assessee is called deduction.

Deemed Building: Capital expenditure incurred on a leased or rented building will be shown as deemed building for which depreciation can be claimed by assessee.

Deemed dividend: If a company gives amount to a shareholder as loan or advance otherwise than in ordinary course of business then amount so given is treated as deemed dividend and taxable under Income from other sources.

Deemed let out property: If an individual owns more than one house property, he can treat only one as self-occupied and other properties are treated as deemed to be let out property.

Deemed owner: In the following cases, though the person is not a real owner he will be deemed as owner: When property is transferred without adequate consideration to spouse or minor child (except minor married daughter), Holder of undividable property, Member of Co-operative society to whom land or building is allotted, Person having right in property for at least 12 years, Person paid or agreed to pay consideration and taken possession of property in part performance of contract from agreement to sell or power of attorney.

Dependent: A person who is dependent on someone for his support or maintenance is called dependent. Dependent brothers and sister of you or spouse are not treated as dependents u/s. 80D.

Depreciation: Depreciation is calculated on all assets except Land at a specific rates under different acts. It is anon cash expenditure which reduces the cost of assets. It is due to obsolescence, wear and tear, use of assets. For the purpose of Income tax act, if assets is put to use for 180 days or more then deprecation is charged at full rate, if assets is used for less than 180 days depreciation is allowed only to extent of 50% of the rate.

Derivatives: Derivate is a financial instrument whose price is dependent on one or more underlying securities e.g. Forwards, Futures, Options and Swaps.

Direct tax: Direct taxes are taxes which are borne by the person on whom it is levied. Burden of tax cannot be shifted. E.g., Income tax, Wealth Tax etc...

Disability: Disability is consequence impairment which may be physical (Blind), Mental (Mental retardation).

Donation: Donation means amount (cash or kind) voluntarily given to another person without any consideration.

Donation: Donation is anything in cash or in kind given to a needy without expecting anything in return.

Double Taxation Avoidance Agreement: Relief allowed on any income on which taxes have been paid in any other country whichhas entered into an agreement on double taxation with India. The relief allowed is either tax paid on such income in foreign country or tax liability on the income in India whichever is less.
Employee Stock Option Plan: Rights of an employee to hold shares in the company as an appreciation for his contribution and services for the growth of the company.

Employer: A recipient of services for which he pays some consideration known as salary.

Entertainment Allowance: An allowance exclusively provided only for government employees for their entertainment.

Equity Oriented Funds: When more 65% of the fund is invested in Equity, the fund is known as Equity oriented Fund.

Exemption: An income on which taxes need not be paid and it s not included in the computation.

Exemption under Capital Gain: Income arising under the head “Capital Gain” can escape taxes if such income is utilized in investments in fixed assets or other assets as prescribed under the Income Tax Act, 1961. This is termed as Exemption under Capital Gain.
Family Pension: An amount paid regularly by the employer to a family member of his deceased employee. This is taxable in the hands of the recipient under income from other sources after a deduction of 33.33% or Rs.15000 whichever is lower. When the event of death has occurred while in service in case of Armed forces personnel or Paramilitary Services, then the amount is not taxable.

Financial Institution: An institution that provides financial assistance to the general public like lending loans, accepting deposits like Bank or any other notified Institution.

Furnished Accommodation: An accommodation that is equipped with all amenities and that is ready to not just occupy but also to use.
Gain: Also known as profit sometimes, is an excess of cash inflow over cash outflow.

Gift: Anything that is received in cash or in kind for nil consideration or inadequate consideration generally as a token of appreciation or love.

Government Hospital: A hospital run by any government authority such as local authority or by the government itself for providing medical services to the people at no or low cost.

Gratuity: Gratuity, as the name implies is a token of gratitude by the employer to his retiring/deceased employee for rendering consistent services to the organization.
Higher Education: Any vocational course pursued post senior secondary examination or any equivalent, recognized by the Govt. of India or any professional course pursued post-graduation.

House Property: A house owned by the assessee out of which he may/may not derive income, which may/may not be occupied by him.

House Rent Allowance: It is an allowance which the employer provides for the rent paid by the employee. It is taxable depending on the conditions laid in section 10(13A) of the Income tax Act, 1961.
Income: Income is the anything earned by any person which may/may not be subject to tax.

Infrastructure: It is the basic amenities provided to the general public for the betterment of lives by way of good roads, proper sewage system, building bridges, buildings etc.

Installment: Periodical Repayment of amount borrowed and contains both Interest and Principal.

Insurer: Insurer is someone who is liable to make good the losses caused to the insured.

Interest on Home Loan: Interest is an amount charged on any loan lent as a reward for parting with the money. Interest when paid on home load is deductible u/s 24b in the hands of the Interest payer.

Irrevocable transfer: An irrevocable transfer is one which cannot be withdrawn or recollected by the transferor. The transferor should neither derive a direct nor indirect benefit from such transfer. This transfer is for the lifetime of the person to whom it is transferred.
Jointly owned property: When the possession of a property is shared by two or more people, such a property is called jointly owned property and the owners are called as co-owners. The amount of house property income in case of the property being a jointly owned property will be segregated based upon the share held by the co-owners.
Leave encashment salary: The rules regarding services rendered by an employee enables the employees to have few numbers of days as leave. It at the option for the employee to either use such a leave days or to work until there is a need to take one. At the time of retirement of the employee, as an appreciation for not availing those leaves, certain sum of amount will be calculated based upon the number of days of leave un-availed by the employee. Such a sum received by the employee is called leave encashment.

Leave Travel Concession: As per the provisions, the employees are eligible to get leave travel concession from their employer. The Income tax Act has provided that once in every four year block, the employees can claim the leave travel concession for two times. It is a mere reimbursement of expenses incurred by the employee during the period of leave. As per the Act, the period 1986-1989 is regarded as the first block and then it continues. If no such claim was made by the employee or if only one such claim was made, the remaining one claim can be transferred to the next block.

Let out property: When a property is not used by its owner and the owner has given the rights to use that property to someone else, for a consideration, then the property is called as let out property. In other words, a property which is rented is called a let out property.

Life Insurance premium: A certain sum of money paid towards an insurance policy subject to its terms is called premium. Premium amount paid towards the life insurance policy is the life insurance premium.

Listed securities: When the securities of a company are listed in one or more stock exchanges, then such securities are said to be listed securities.

Long Term Capital Asset: When an asset is held by a person continuously for more than 36 months, then the asset is said to be a long term capital asset. But some assets like shares will be treated as a long term capital asset if it held continuously for a period exceeding 12 months.

Long Term Capital Gain: When a long term capital asset is sold at a value more than its book value, then the difference between the sale value and its book value is said to be long term capital gain.

Lottery: Lottery can be said to be a type of gambling. The winner of the contest will be selected by draw of lots. The winner will get some amount as the prize money.
Medical authority: The government notifies only some medical institutions to certify that an individual was suffering from one or more diseases. In this context, the medical institution which was notified by the government to certify the illness is called a medical authority.

Municipal Taxes: An amount levied by a Government on a person which is payable by him is said to be tax. The municipality collects tax from the person who owns a property within its limit. The amount of tax so collected will be calculated based on the municipal value of the property. This amount payable by the person is called municipal taxes. Municipal taxes paid by the owner during the period for the house property is eligible for deduction.
Non Maintenance of accounts: According to the Income Tax Act of 1961, every tax payer is maintaining books of accounts. But there is relief for some people from maintaining books of accounts. The category of people who need not maintain books of accounts is said in the Act.

Non-Resident: The Income Tax Act of 1961 has given some criteria regarding classification of a person as a resident or non-resident. A person who does not satisfy such conditions will be declared as a non- resident.

NSC VIII issue: NSC expands as National Savings Certificate. It is a saving option available for long term investors. The Government issues the NSC which is purchased by the people. An investment in this is eligible for deduction.
Owner: A person who has all the rights in a property is called as the owner of that property. In other words a person who has the property in goods is said the owner of that good.
PAN: Every person pays tax on his income. The list of taxpayers and their history will be maintained by the tax department. Identifying a tax payer by his name will not be possible. The Income Tax department has allotted a unique Permanent Account Number (PAN) for every taxpayer. It is a ten digit alphanumerical code.

Partly let out and partly self-occupied: In some cases, the owner of a house property would himself occupy a part of his property and let out the other part for some other person for rent. This property will be said to be partly let out and partly self-occupied.

Part of the year let out part of the year vacant: If a house property was not occupied for some part of a year and if it is then given for rent, the property is said to be let out for part of a year and vacant for the other months.

Patentee: Whenever an invention is made, that idea will be registered by its inventor and he will acquire the patent rights. No one can make use of such an idea without his consent. The person in whose name the patent is so registered is called the patentee.

Perquisites: Perquisites are casual emoluments given by the employer to his employee. Perquisites are benefits given to the employee. This will be added up with the salary income.

Person: The Income Tax Act of 1961 defines that, the term person includes: An individual A Hindu Undivided Family A company A firm An association of persons or a body of individuals A local authority and An artificial juridical person.

Person with disability: If a person is suffering from 40% or more from a disease and if it is certified by a medical authority, he is said to be a person with disability. Such an explanation was given to enable one to calculate deduction under section 80DD.

Person with severe disability:If a person is suffering from 80% or more of one or more diseases and only if it is certified so by any medical authority or institution, he is said to be a person with severe disability. This explanation was given to enable one to calculate deduction under section 80DD.
Senior Citizen: A senior citizen is a person who is a resident of India and he should be of age greater than 60 years.

Set off of losses: Set off loss means adjusting losses incurred in one head against the income earned in other heads. This subject to the provisions contained in the act.

Shares and Debentures: Shares are a part of scrip issued by a company to raise share capital. Equity share holders are the owners of the company. Debentures are issued to raise capital but the debenture holders are treated as creditors for the company.

Short Term Capital Asset: Short Term capital Asset is an asset held for less than or equal to three years before they are sold. But if the assets are shares,debentures,mutual funds the period of holding required is less than or equal to one year.

Short Term Capital Gain (STCG): STCG is a gain upon sale of an Short term capital asset.

Slump sale: If any unit/portion of business is sold as a separate entity with all its Assets and liabilities is known as Slump sale.

Solely Owned Property: If the property is wholly owned by a person (100% ownership) then such property is a solely owned property. Entire income/loss from such property should be reported in the return of the person holding it.

Specified Profession: Specified Profession includes legal, medical, Engineering, Architectural, Accountancy, Technical consultancy, interior decoration, authorized representative (not being an employee of the person carrying on legal or accounting profession), information technology, film artist(a person engaged in the production of the film as an actor, cameraman, director, music /art/dance director editor, singer, lyricist, story /dialogue/screen play writer, dress designer) , company secretary profession. All other professions are Non Specified Professions.

Speculation Business: A speculation business means any business in which a contract for the purchase and sale of any commodity including stock and shares are periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity, except trading in derivatives.

Stamp Duty Value: Stamp duty value means any value adopted by any authority of the Central government or a state Government for the purpose of payment of stamp duty for the immovable property.

Standard deduction: Standard deduction is an Ad hoc deduction allowed irrespective of the actual expenses incurred for the house property @ 30% of the Net Annual Value (NAV).

Standard Rent: Standard rent is the rent fixed under the Rent Control Act or even a provision made for the fixation of rent under the Act.

Sub Lease of property:When any property is obtained by a person on rental basis which is further let out to some other person on rent, then this is known as Sublet/ sub lease of property and income received from such sublet is treated as income from other sources. And the rent amount paid for that property can be claimed as expenses.
Tax: A tax is a charge levied by government upon a person.

Tax on Employment: This is an amount paid to the State Government as a tax on profession/employment. Only a few states levy this tax. This is termed as professional tax and the same is allowed as deduction while computing the taxable salary for an individual.

TDS (Tax Deducted at Source): When a payer pays money to the assessee above certain limits as prescribed in the act, then the person making payment is liable to deduct tax on such payment, then the tax so deducted is called Tax Deducted at Source (TDS) and this tax is deposited with the Government. If the person making payment fails to deduct TDS, he will be asked to disallow that expenditure while computing his Income from business. However the said disallowance does not attract for salary.

Temporary structures: Any structure which is created for a limited or short period just to carry on the activities related to business or profession is known as temporary structure. E.g. stalls at various places to promote or sell products

Term Deposit: A deposit held at a financial institution for a fixed period. These are generally short-term deposits and money can be withdrawn after the term has ended or by giving a predetermined notice. Interest will be paid at higher percentage for these term deposits by those financial institutions.

Transfer: Transfer includes sale, exchange, relinquishment of the asset, extinguishment of any rights, compulsory acquisition and conversion of asset into stock in trade of a business

Tuition Fees: Tuition fees means Payments (other than donation , development fees or any other similar payment) made to any university, school, college or other education institution situated in India at the time of admission or at any time after that for the purpose of full time education. This is eligible for deduction under section 80C.
Unexplained expenditure: Where in any financial year an assessee has incurred any expenditure and he offers no explanation about the source of such expenditure or part thereof, or the explanation offered by him is in the opinion of the Assessing officer is not satisfactory, the amount covered by such expenditure or part thereof, may be deemed to be the income of the assessee for such financial year.

Unexplained investments: Where any investments has been made by assessee and the same has not been recorded in the books of account of the assessee and the assessee offers no explanation about the nature and source of investments or the explanation offered by him in the opinion of the assessing officer is not satisfactory, the value of such investments may be deemed to be the income of the assessee of such financial year.

Unexplained money: Where in any financial year the assessee is found to be the owner of any money,bullion,jewelry or other valuable article and such articles are not recorded in the books of accounts of the assessee, and the assessee offers no explanation about the nature and source of acquisition of such articles, or the explanation offered by him, in the opinion of the Assessing officer is not satisfactory, the money and the value of such article may be deemed to be the income of the assessee for the financial year

Unrealized Rent: Unrealized Rent means the amount of rent which could not be realized for any property. The same can be reduced while computing rental income subject to conditions prescribed.
Vacant Property: If the property is neither self-occupied nor let out then it is a vacant property.

Vacant Property: A property which is not used for the purpose of self-residence and is ready to be let out any time as soon as someone approaches the owner or agent for that property.

Very Senior Citizen: Very Senior Citizen is a Person who is of the age of 80 years and above. The maximum limit for taxing income for such persons is rs.500,000/-.

Voluntary Retirement Scheme (VRS): Voluntary Retirement Scheme is a scheme in which a person takes retirement voluntarily. It is also known as golden hand shake policy.
Wholly let out property: A wholly let out property is the one which remains occupied by a tenant for some consideration for whole of the year. In simple terms a property which is let out for the whole year.
Zero Coupon Bonds: Zero coupon Bonds are the bonds issued by any infrastructure company or infrastructure capital fund or public sector company in respect of which no payment and benefit is received before maturity or redemption. These bonds do not fetch interest, however the same will be issued at a price lesser than Face value and the same will be redeemed at face value or at a higher price. The difference premium is considered as income.

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