Tax & Finance Glossary
A comprehensive collection of 47 tax and finance terms with clear, concise definitions to help you navigate India's financial landscape.
Income Tax and Direct Tax Terms
Advance Tax
Income tax paid in installments throughout the financial year based on estimated income, rather than as a lump sum at year-end. Required for certain taxpayers (like self-employed or businesses) to avoid interest penalties.
Assessment Year (AY)
The 12-month period (April 1st to March 31st) immediately following a Financial Year, during which the income earned in that Financial Year is assessed and taxed. For example, income earned in FY 2024-25 is taxed in AY 2025-26.
Capital Gains
Profit earned from selling a capital asset (e.g., property, stocks, mutual funds). Gains are classified as Short-Term Capital Gains (STCG) or Long-Term Capital Gains (LTCG) based on the holding period, with different tax rates applicable. Indexation benefits may apply to LTCG on certain assets to adjust for inflation.
Cess (Education and Health Cess)
An additional levy on the income tax amount (and surcharge, if applicable) designated for specific government initiatives like health and education. Currently, a 4% Health & Education Cess applies to the total income tax liability.
Deduction (Tax Deduction)
An amount subtracted from Gross Total Income to arrive at Net Taxable Income, thereby reducing tax liability. Deductions are allowed for specific investments or expenditures under various sections of the Income Tax Act (e.g., Section 80C for investments, Section 80D for health insurance).
Exemption (Tax Exemption)
Income that is legally not subject to tax or is excluded from the calculation of taxable income. Examples include agricultural income or House Rent Allowance (HRA) up to certain limits. Exempt income is typically defined under Section 10 of the Income Tax Act.
Financial Year (FY) / Previous Year (PY)
The 12-month period from April 1st to March 31st during which income is earned. For tax assessment purposes, this period is referred to as the Previous Year (PY), preceding the Assessment Year (AY).
Form 16
A certificate issued by an employer to an employee detailing the salary paid and Tax Deducted at Source (TDS) during the financial year. It serves as proof of tax deduction and is crucial for filing Income Tax Returns.
Form 26AS (Annual Tax Statement)
A consolidated statement available on the tax portal showing all taxes credited against a taxpayer's PAN. It includes details of TDS, TCS, advance tax paid, self-assessment tax, and high-value transactions, helping taxpayers verify tax credits.
House Rent Allowance (HRA)
An allowance provided by employers to employees for rent expenses. A portion of HRA is tax-exempt under Section 10(13A) based on salary, rent paid, and location (metro/non-metro), provided the employee lives in rented accommodation.
Income Tax
A direct tax levied by the government on the income earned by individuals and entities during a financial year. India follows a progressive slab system for individuals, where higher income levels are taxed at higher rates.
Income Tax Return (ITR)
A prescribed form filed with the Income Tax Department to report annual income, deductions, exemptions, and calculate tax liability or refund eligibility. Filing is mandatory if income exceeds the basic exemption limit or to claim a refund. Different ITR forms apply based on the taxpayer's category and income sources.
Income Tax Slab (Tax Bracket)
Predefined income ranges subject to specific tax rates under the progressive tax system. As income increases and crosses slab thresholds, the higher rate applies to the income falling in that slab.
Leave Travel Allowance (LTA)
An allowance from an employer for domestic travel expenses incurred by an employee (and family) while on leave. It is tax-exempt under Section 10(5) for the actual fare cost for two journeys in a block of four calendar years, subject to conditions.
PAN (Permanent Account Number)
A unique 10-character alphanumeric identifier issued by the Income Tax Department to taxpayers in India. It is mandatory for various financial transactions, filing tax returns, and serves as a primary identification for tax purposes.
Rebate (Section 87A Rebate)
A reduction in the income tax payable available to resident individuals with taxable income below a specified threshold (e.g., ₹5 lakh under the old regime, ₹7 lakh under the new regime as per recent updates), effectively reducing their tax liability, potentially to zero.
Section 80C
A popular section of the Income Tax Act allowing deductions up to ₹1.5 lakh per financial year for investments in specified instruments like PPF, EPF, ELSS, NSC, life insurance premiums, home loan principal repayment, etc.
Section 80D
Allows deduction for premiums paid for health insurance policies for self, family, and parents, as well as expenses for preventive health check-ups, subject to specified limits based on age.
Standard Deduction
A flat deduction allowed from salary and pension income, currently ₹50,000 per year, without the need for submitting proof of expenses. It simplifies tax calculation for salaried individuals and pensioners.
Surcharge
An additional tax levied on top of the income tax for individuals and entities with income exceeding specified high thresholds (e.g., above ₹50 lakh for individuals). The rate increases progressively with higher income levels.
TCS (Tax Collected at Source)
Tax collected by the seller from the buyer at the time of sale for certain specified transactions (e.g., sale of scrap, minerals, high-value cars, overseas remittances under LRS). The seller deposits this tax with the government, and the buyer can claim credit for it.
TDS (Tax Deducted at Source)
Tax deducted by the payer (e.g., employer, bank) at the time of making certain payments (e.g., salary, interest, rent, professional fees) above specified limits. The deducted amount is deposited with the government, and the recipient gets credit for it against their total tax liability.
Virtual Digital Assets (Crypto Taxation)
Refers to cryptocurrencies, NFTs, etc. Profits from the transfer of VDAs are taxed at a flat 30% (plus cess/surcharge) with no deductions allowed except the cost of acquisition. Additionally, a 1% TDS applies to payments for VDA transfers above certain thresholds.
Goods and Services Tax (GST) and Indirect Taxes
CGST, SGST & IGST
Components of GST. CGST (Central GST) and SGST (State GST) apply to intra-state (within the same state) supplies, with the revenue shared between the Centre and the State. IGST (Integrated GST) applies to inter-state (between different states) supplies and imports/exports, with revenue appropriately apportioned later.
Composition Scheme (GST)
A simplified GST scheme for small businesses (turnover below a prescribed limit, e.g., ₹1.5 crore) allowing them to pay tax at a fixed, low rate on their turnover and file simpler returns, but without the ability to claim Input Tax Credit (ITC) or collect tax from customers.
Customs Duty
Tax levied on goods imported into India (and occasionally on exports). It includes Basic Customs Duty (BCD) and other duties, aimed at revenue generation and protecting domestic industries. Rates vary based on the goods and government policies.
E-invoicing (GST E-invoice)
A system where B2B invoices generated by businesses above a certain turnover threshold must be electronically registered on the government's Invoice Registration Portal (IRP) to get a unique Invoice Reference Number (IRN) and QR code. This standardizes invoicing and facilitates auto-population of GST returns.
E-Way Bill
An electronic document required for the movement of goods exceeding a certain value (typically ₹50,000) under the GST regime. It contains details of the goods, consignor, consignee, and transporter, and must be generated on the GST portal before transport begins.
Excise Duty
An indirect tax levied on the manufacture or production of specific goods within India. While largely subsumed under GST, it still applies to certain items like petroleum products (petrol, diesel) and alcohol for human consumption.
GST (Goods and Services Tax)
A comprehensive, destination-based indirect tax levied on the supply of goods and services across India, replacing multiple earlier taxes (like VAT, Service Tax, Excise). It operates on a value-added principle with Input Tax Credit available at each stage. Standard tax slabs are 0%, 5%, 12%, 18%, and 28%.
GSTIN (GST Identification Number)
A unique 15-digit PAN-based registration number assigned to businesses registered under GST, specific to each state. It must be quoted on invoices and used for all GST-related compliance.
GST Return
Periodic statements filed by GST-registered taxpayers detailing their outward supplies (sales), inward supplies (purchases), tax collected, and Input Tax Credit claimed. Key returns include GSTR-1, GSTR-3B, and the annual GSTR-9.
Input Tax Credit (ITC)
The credit that businesses can claim for the GST paid on their purchases (inputs, input services, capital goods) used for business purposes. This credit can be used to offset the GST liability on their sales (output tax), ensuring tax is levied only on the value added.
Reverse Charge Mechanism (RCM)
A GST provision where the liability to pay tax falls on the recipient of goods or services, instead of the supplier. This applies to specific notified supplies or when receiving supplies from unregistered persons in certain cases.
VAT (Value Added Tax)
A state-level tax on the sale of goods that was prevalent before GST. It was levied at each stage of sale with credit for tax paid on purchases. Though replaced by GST for most goods, states still levy VAT on items outside GST, like alcohol and petroleum products.
Investment and Savings Instruments
Bonds (Fixed Income Securities)
Debt instruments where an investor lends money to a borrower (government or corporation) for a fixed period in return for regular interest payments (coupons) and repayment of the principal amount at maturity. Generally considered lower risk than equities.
Equity (Stock/Shares)
Represents ownership in a company. Buying shares makes the investor a part-owner. Equities offer potential for capital appreciation and dividends but carry higher market risk. They are traded on stock exchanges.
Equity-Linked Savings Scheme (ELSS)
A type of mutual fund that invests primarily in equities and qualifies for tax deduction under Section 80C up to ₹1.5 lakh. It has a mandatory lock-in period of 3 years, the shortest among 80C options.
Fixed Deposit (FD)
A deposit made with a bank or company for a fixed tenure at a predetermined interest rate. Considered a safe investment option offering stable returns. Interest earned is generally taxable. Tax-saver FDs with a 5-year lock-in qualify for Section 80C benefits.
Initial Public Offering (IPO)
The process by which a private company first offers its shares to the public, usually leading to listing on a stock exchange. Investors can apply to buy shares during the IPO subscription period.
Kisan Vikas Patra (KVP)
A government savings certificate available at post offices, where the invested amount doubles in a specified period (determined by the prevailing interest rate). Interest is taxable, and there's no tax deduction on investment.
Mutual Fund
An investment vehicle that pools money from multiple investors to invest in a diversified portfolio of securities (stocks, bonds, etc.), managed by professional fund managers. Offers diversification and various scheme types (equity, debt, hybrid). Investments can be made via lump sum or SIP.
National Savings Certificate (NSC)
A government-backed savings bond with a 5-year tenure, offering a fixed interest rate compounded annually but paid at maturity. Investments qualify for Section 80C deduction. The accrued annual interest is taxable but deemed reinvested and eligible for 80C (except in the final year).
Public Provident Fund (PPF)
A long-term (15-year maturity) government savings scheme offering tax benefits under Section 80C for contributions. Interest earned and maturity proceeds are tax-free (EEE status). Contributions are subject to annual limits.
Senior Citizens' Saving Scheme (SCSS)
A government-backed savings scheme for individuals aged 60 years and above (or 55+ under certain conditions), offering higher interest rates paid quarterly. Investment limit applies, and deposits qualify for Section 80C. Interest is taxable. Tenure is 5 years, extendable by 3 years.
Sukanya Samriddhi Yojana (SSY)
A government savings scheme for the girl child, offering high interest rates and EEE tax status (contribution deductible under 80C, interest and maturity amount tax-free). Account can be opened for a girl below 10 years, with deposits allowed for 15 years.
Systematic Investment Plan (SIP)
A method of investing a fixed amount regularly (e.g., monthly) in a mutual fund scheme. It promotes disciplined investing and benefits from rupee cost averaging.
Alphabetical Term Index
A
Advance Tax
Income tax paid in installments throughout the financial year based on estimated income, rather than as a lump sum at year-end. Required for certain taxpayers (like self-employed or businesses) to avoid interest penalties.
Assessment Year (AY)
The 12-month period (April 1st to March 31st) immediately following a Financial Year, during which the income earned in that Financial Year is assessed and taxed. For example, income earned in FY 2024-25 is taxed in AY 2025-26.
B
Bonds (Fixed Income Securities)
Debt instruments where an investor lends money to a borrower (government or corporation) for a fixed period in return for regular interest payments (coupons) and repayment of the principal amount at maturity. Generally considered lower risk than equities.
C
Capital Gains
Profit earned from selling a capital asset (e.g., property, stocks, mutual funds). Gains are classified as Short-Term Capital Gains (STCG) or Long-Term Capital Gains (LTCG) based on the holding period, with different tax rates applicable. Indexation benefits may apply to LTCG on certain assets to adjust for inflation.
Cess (Education and Health Cess)
An additional levy on the income tax amount (and surcharge, if applicable) designated for specific government initiatives like health and education. Currently, a 4% Health & Education Cess applies to the total income tax liability.
CGST, SGST & IGST
Components of GST. CGST (Central GST) and SGST (State GST) apply to intra-state (within the same state) supplies, with the revenue shared between the Centre and the State. IGST (Integrated GST) applies to inter-state (between different states) supplies and imports/exports, with revenue appropriately apportioned later.
Composition Scheme (GST)
A simplified GST scheme for small businesses (turnover below a prescribed limit, e.g., ₹1.5 crore) allowing them to pay tax at a fixed, low rate on their turnover and file simpler returns, but without the ability to claim Input Tax Credit (ITC) or collect tax from customers.
Customs Duty
Tax levied on goods imported into India (and occasionally on exports). It includes Basic Customs Duty (BCD) and other duties, aimed at revenue generation and protecting domestic industries. Rates vary based on the goods and government policies.
D
Deduction (Tax Deduction)
An amount subtracted from Gross Total Income to arrive at Net Taxable Income, thereby reducing tax liability. Deductions are allowed for specific investments or expenditures under various sections of the Income Tax Act (e.g., Section 80C for investments, Section 80D for health insurance).
E
E-invoicing (GST E-invoice)
A system where B2B invoices generated by businesses above a certain turnover threshold must be electronically registered on the government's Invoice Registration Portal (IRP) to get a unique Invoice Reference Number (IRN) and QR code. This standardizes invoicing and facilitates auto-population of GST returns.
E-Way Bill
An electronic document required for the movement of goods exceeding a certain value (typically ₹50,000) under the GST regime. It contains details of the goods, consignor, consignee, and transporter, and must be generated on the GST portal before transport begins.
Equity (Stock/Shares)
Represents ownership in a company. Buying shares makes the investor a part-owner. Equities offer potential for capital appreciation and dividends but carry higher market risk. They are traded on stock exchanges.
Equity-Linked Savings Scheme (ELSS)
A type of mutual fund that invests primarily in equities and qualifies for tax deduction under Section 80C up to ₹1.5 lakh. It has a mandatory lock-in period of 3 years, the shortest among 80C options.
Excise Duty
An indirect tax levied on the manufacture or production of specific goods within India. While largely subsumed under GST, it still applies to certain items like petroleum products (petrol, diesel) and alcohol for human consumption.
Exemption (Tax Exemption)
Income that is legally not subject to tax or is excluded from the calculation of taxable income. Examples include agricultural income or House Rent Allowance (HRA) up to certain limits. Exempt income is typically defined under Section 10 of the Income Tax Act.
F
Financial Year (FY) / Previous Year (PY)
The 12-month period from April 1st to March 31st during which income is earned. For tax assessment purposes, this period is referred to as the Previous Year (PY), preceding the Assessment Year (AY).
Fixed Deposit (FD)
A deposit made with a bank or company for a fixed tenure at a predetermined interest rate. Considered a safe investment option offering stable returns. Interest earned is generally taxable. Tax-saver FDs with a 5-year lock-in qualify for Section 80C benefits.
Form 16
A certificate issued by an employer to an employee detailing the salary paid and Tax Deducted at Source (TDS) during the financial year. It serves as proof of tax deduction and is crucial for filing Income Tax Returns.
Form 26AS (Annual Tax Statement)
A consolidated statement available on the tax portal showing all taxes credited against a taxpayer's PAN. It includes details of TDS, TCS, advance tax paid, self-assessment tax, and high-value transactions, helping taxpayers verify tax credits.
G
GST (Goods and Services Tax)
A comprehensive, destination-based indirect tax levied on the supply of goods and services across India, replacing multiple earlier taxes (like VAT, Service Tax, Excise). It operates on a value-added principle with Input Tax Credit available at each stage. Standard tax slabs are 0%, 5%, 12%, 18%, and 28%.
GST Return
Periodic statements filed by GST-registered taxpayers detailing their outward supplies (sales), inward supplies (purchases), tax collected, and Input Tax Credit claimed. Key returns include GSTR-1, GSTR-3B, and the annual GSTR-9.
GSTIN (GST Identification Number)
A unique 15-digit PAN-based registration number assigned to businesses registered under GST, specific to each state. It must be quoted on invoices and used for all GST-related compliance.
H
House Rent Allowance (HRA)
An allowance provided by employers to employees for rent expenses. A portion of HRA is tax-exempt under Section 10(13A) based on salary, rent paid, and location (metro/non-metro), provided the employee lives in rented accommodation.
I
Income Tax
A direct tax levied by the government on the income earned by individuals and entities during a financial year. India follows a progressive slab system for individuals, where higher income levels are taxed at higher rates.
Income Tax Return (ITR)
A prescribed form filed with the Income Tax Department to report annual income, deductions, exemptions, and calculate tax liability or refund eligibility. Filing is mandatory if income exceeds the basic exemption limit or to claim a refund. Different ITR forms apply based on the taxpayer's category and income sources.
Income Tax Slab (Tax Bracket)
Predefined income ranges subject to specific tax rates under the progressive tax system. As income increases and crosses slab thresholds, the higher rate applies to the income falling in that slab.
Initial Public Offering (IPO)
The process by which a private company first offers its shares to the public, usually leading to listing on a stock exchange. Investors can apply to buy shares during the IPO subscription period.
Input Tax Credit (ITC)
The credit that businesses can claim for the GST paid on their purchases (inputs, input services, capital goods) used for business purposes. This credit can be used to offset the GST liability on their sales (output tax), ensuring tax is levied only on the value added.
J
No terms starting with this letter.
K
Kisan Vikas Patra (KVP)
A government savings certificate available at post offices, where the invested amount doubles in a specified period (determined by the prevailing interest rate). Interest is taxable, and there's no tax deduction on investment.
L
Leave Travel Allowance (LTA)
An allowance from an employer for domestic travel expenses incurred by an employee (and family) while on leave. It is tax-exempt under Section 10(5) for the actual fare cost for two journeys in a block of four calendar years, subject to conditions.
M
Mutual Fund
An investment vehicle that pools money from multiple investors to invest in a diversified portfolio of securities (stocks, bonds, etc.), managed by professional fund managers. Offers diversification and various scheme types (equity, debt, hybrid). Investments can be made via lump sum or SIP.
N
National Savings Certificate (NSC)
A government-backed savings bond with a 5-year tenure, offering a fixed interest rate compounded annually but paid at maturity. Investments qualify for Section 80C deduction. The accrued annual interest is taxable but deemed reinvested and eligible for 80C (except in the final year).
O
No terms starting with this letter.
P
PAN (Permanent Account Number)
A unique 10-character alphanumeric identifier issued by the Income Tax Department to taxpayers in India. It is mandatory for various financial transactions, filing tax returns, and serves as a primary identification for tax purposes.
Public Provident Fund (PPF)
A long-term (15-year maturity) government savings scheme offering tax benefits under Section 80C for contributions. Interest earned and maturity proceeds are tax-free (EEE status). Contributions are subject to annual limits.
Q
No terms starting with this letter.
R
Rebate (Section 87A Rebate)
A reduction in the income tax payable available to resident individuals with taxable income below a specified threshold (e.g., ₹5 lakh under the old regime, ₹7 lakh under the new regime as per recent updates), effectively reducing their tax liability, potentially to zero.
Reverse Charge Mechanism (RCM)
A GST provision where the liability to pay tax falls on the recipient of goods or services, instead of the supplier. This applies to specific notified supplies or when receiving supplies from unregistered persons in certain cases.
S
Section 80C
A popular section of the Income Tax Act allowing deductions up to ₹1.5 lakh per financial year for investments in specified instruments like PPF, EPF, ELSS, NSC, life insurance premiums, home loan principal repayment, etc.
Section 80D
Allows deduction for premiums paid for health insurance policies for self, family, and parents, as well as expenses for preventive health check-ups, subject to specified limits based on age.
Senior Citizens' Saving Scheme (SCSS)
A government-backed savings scheme for individuals aged 60 years and above (or 55+ under certain conditions), offering higher interest rates paid quarterly. Investment limit applies, and deposits qualify for Section 80C. Interest is taxable. Tenure is 5 years, extendable by 3 years.
Standard Deduction
A flat deduction allowed from salary and pension income, currently ₹50,000 per year, without the need for submitting proof of expenses. It simplifies tax calculation for salaried individuals and pensioners.
Sukanya Samriddhi Yojana (SSY)
A government savings scheme for the girl child, offering high interest rates and EEE tax status (contribution deductible under 80C, interest and maturity amount tax-free). Account can be opened for a girl below 10 years, with deposits allowed for 15 years.
Surcharge
An additional tax levied on top of the income tax for individuals and entities with income exceeding specified high thresholds (e.g., above ₹50 lakh for individuals). The rate increases progressively with higher income levels.
Systematic Investment Plan (SIP)
A method of investing a fixed amount regularly (e.g., monthly) in a mutual fund scheme. It promotes disciplined investing and benefits from rupee cost averaging.
T
TCS (Tax Collected at Source)
Tax collected by the seller from the buyer at the time of sale for certain specified transactions (e.g., sale of scrap, minerals, high-value cars, overseas remittances under LRS). The seller deposits this tax with the government, and the buyer can claim credit for it.
TDS (Tax Deducted at Source)
Tax deducted by the payer (e.g., employer, bank) at the time of making certain payments (e.g., salary, interest, rent, professional fees) above specified limits. The deducted amount is deposited with the government, and the recipient gets credit for it against their total tax liability.
U
No terms starting with this letter.
V
VAT (Value Added Tax)
A state-level tax on the sale of goods that was prevalent before GST. It was levied at each stage of sale with credit for tax paid on purchases. Though replaced by GST for most goods, states still levy VAT on items outside GST, like alcohol and petroleum products.
Virtual Digital Assets (Crypto Taxation)
Refers to cryptocurrencies, NFTs, etc. Profits from the transfer of VDAs are taxed at a flat 30% (plus cess/surcharge) with no deductions allowed except the cost of acquisition. Additionally, a 1% TDS applies to payments for VDA transfers above certain thresholds.
W
No terms starting with this letter.
X
No terms starting with this letter.
Y
No terms starting with this letter.
Z
No terms starting with this letter.