Which law applies. Section numbers on this page are those of the Income-tax Act, 2025, which took effect on 1 April 2026 and governs tax year 2026-27 onwards. For earlier tax years the corresponding provisions of the Income-tax Act, 1961 (Section 80C, Section 80D, Section 80G) continue to apply. Section 24(b) of the Income-tax Act, 1961 corresponds to section 22(1)(b) of the 2025 Act, with the interest limit in section 22(2), and sections 111A, 112 and 112A correspond to sections 196, 197 and 198. Where an entry below still names a section of the 1961 Act, it describes that Act or an earlier tax year.
Indian tax terms, defined
Income tax, capital gains, TDS, GST, deductions and compliance. 106 terms with full definitions and the calculator that computes each one.
Every tax term attaches to one step of one calculation
Indian income tax looks like a mass of unrelated sections and is one calculation with five steps: add income from every head, subtract what the law allows, apply the slabs, add cess, then subtract what has already been collected. Every term below attaches to exactly one of those steps, and knowing which step is usually enough to understand it.
Two things complicate the picture. Capital gains are taxed under their own rates and holding periods rather than at slab, so an entire vocabulary — LTCG, STCG, indexation, cost inflation index, grandfathering — exists only for that head. And the choice between the old and new regimes changes which deductions exist at all, which is why many section numbers below carry a note about regime availability.
GST is a separate law that gets confused with income tax constantly. Income tax is charged on what you earn; GST is charged on what you supply, collected from your customer, and reduced by the tax you paid on your own purchases. Both vocabularies appear here because a business owner deals with both, on different calendars.
106 tax terms, A to Z
Definitions are unabridged. Rates and thresholds change with each Finance Act — always check the current year before relying on a figure.
Advance Ruling (Tax)
Advance Ruling is a binding pronouncement by the Authority for Advance Rulings (AAR) on the taxability of a proposed transaction — providing certainty before undertaking a major deal. In GST, the AAR gives state-specific rulings on tax rates, ITC eligibility, and classification of goods/services. Rulings are binding on the applicant and tax authorities.
Advance Tax
Advance Tax is income tax paid in instalments during the financial year itself, rather than as a lump sum at year-end. Any taxpayer whose tax liability exceeds ₹10,000 in a year must pay advance tax. It is paid in four instalments: 15% by June 15, 45% by September 15, 75% by December 15, and 100% by March 15.
Advance Tax Schedule →AIS (Annual Information Statement)
AIS is a comprehensive statement launched in 2021 showing a taxpayer’s financial information collected from multiple sources — salary, dividends, interest, stock transactions, mutual fund purchases, property registrations, and foreign remittances — all pre-filled from third-party reporting entities. It replaced the older Form 26AS for more comprehensive coverage.
Angel Tax
Angel Tax (Section 56(2)(viib)) is an income tax provision under which startups receiving equity investment above the fair market value (FMV) from resident investors must treat the excess amount as ‘income from other sources’ and pay tax. The government abolished angel tax in Budget 2024 to promote startup funding.
Assessed Income
Assessed income is the net income computed by the Income Tax Department after adding back disallowed deductions, unreported income, or adjustments made during assessment proceedings. If the assessed income is higher than declared income, additional tax demand is raised with interest and may attract penalty.
Assessment (Tax)
Tax assessment is the process by which the Income Tax Department determines the correct tax liability of a taxpayer. Types of assessment: Self-assessment (taxpayer files ITR and pays tax), Summary assessment (automated system check), Scrutiny assessment (detailed examination by an IT Officer), Best Judgment Assessment (when ITR not filed), and Reassessment (when income has escaped assessment).
Assessment Year (AY)
Assessment Year is the year in which your income from the previous financial year is assessed and taxed. For example, income earned in FY 2025-26 (April 2025 to March 2026) is assessed in AY 2026-27. You file your ITR during the Assessment Year.
Assessment Year vs Financial Year
Financial Year (FY) is the year income is earned (April 1 to March 31). Assessment Year (AY) is the year in which that income is assessed/filed with the income tax department — the following year. AY = FY + 1.
Black Money
Black money refers to income and assets that have not been declared to the government and on which taxes have not been paid. It circulates outside the formal economy and is often stored in cash, real estate, gold, or offshore accounts. India’s Benami Transactions Prohibition Act and PMLA target black money. Demonetisation in November 2016 was aimed at curbing black money.
Bonus (Employee)
The Payment of Bonus Act, 1965 mandates minimum bonus to employees earning up to ₹21,000/month basic salary, at 8.33% to 20% of annual salary. Bonus is fully taxable as salary income. The government also pays productivity-linked bonuses (PLB) to central government employees before major festivals — typically ₹5,000–₹7,000 per employee.
Bonus Stripping
Bonus stripping is a tax avoidance strategy (now blocked by Section 94(8)) where investors bought mutual fund units before bonus record date (to receive bonus units), then sold the original units at a loss (price fell post-bonus) to offset gains elsewhere, while retaining bonus units. SEBI and CBDT plugged this loophole — losses from bonus stripping are not allowed within 9 months.
Capital Gains
Capital gains is the profit earned from selling a capital asset — such as stocks, mutual funds, property, or gold — at a price higher than its purchase cost. In India, capital gains are classified as Short-Term (STCG) or Long-Term (LTCG) based on the holding period, and taxed accordingly under the Income Tax Act.
Capital Gains Calculator →Capital Gains Account Scheme (CGAS)
The Capital Gains Account Scheme allows taxpayers to park long-term capital gains in a designated CGAS account (at authorised banks) before the ITR filing deadline if they haven’t yet reinvested in the specified asset (house property, bonds). The amount in CGAS earns FD-like interest and is protected from capital gains tax until withdrawal/utilisation.
Capital Gains Tax (Short-term vs Long-term)
Capital gains tax in India is levied on the profit earned from the sale of a capital asset — such as land, building, shares, mutual funds, gold, or bonds. The tax rate and holding period threshold differ based on whether the gain is Short-Term Capital Gain (STCG) or Long-Term Capital Gain (LTCG). The classification depends on how long the asset was held before sale. For equity shares and equity mutual funds listed on a recognised stock exchange, STCG applies if held for less than 12 months and LTCG if held for 12 months or more. For debt mutual funds (after April 1, 2023), all gains are taxed as STCG at slab rates regardless of holding period, after the Finance Act 2023 removed the LTCG indexation benefit. For listed equity shares and equity-oriented mutual funds: STCG is taxed at a flat 20% (revised in Budget 2024 from 15%) under Section 196; LTCG exceeding ₹1,25,000 per year (raised from ₹1 lakh in Budget 2024) is taxed at 12.5% without the benefit of indexation under Section 198. For real estate (immovable property): STCG (held ≤ 24 months) is taxed at slab rates; LTCG (held > 24 months) was taxed at 20% with indexation benefit under Section 112, but Budget 2024 amended this to 12.5% without indexation (with grandfathering provision for properties acquired before July 23, 2024, where taxpayers can choose the old 20% with indexation method). LTCG on sale of land/property can be reinvested to claim exemption: under Section 54 (purchase of another residential property), Section 54F (sale of any capital asset other than residential property — purchase new home), Section 54EC (investment in specified bonds like NHAI or REC bonds within 6 months, up to ₹50 lakh). Losses from capital assets can be set off — STCL against STCG or LTCG; LTCL only against LTCG — and unabsorbed losses can be carried forward for 8 assessment years.
Capital Gains Calculator →Capital Gains Tax on Property
Capital Gains Tax on property is the tax levied on the profit earned from the sale of an immovable property — the difference between the sale consideration and the cost of acquisition (adjusted for improvements and holding period). In India, capital gains from property are classified into two categories under the Income Tax Act, 1961: Short-Term Capital Gains (STCG) and Long-Term Capital Gains (LTCG), with different tax rates and indexation benefits applicable to each. As of the amendments applicable from FY 2024-25 (Budget 2024): If a property is held for 24 months or more (reduced from 36 months in Budget 2024), the gains are classified as Long-Term Capital Gains, taxed at 12.5% without the benefit of indexation (changed in Budget 2024 — previously LTCG was taxed at 20% with indexation). If held for less than 24 months, the gains are Short-Term Capital Gains, added to the seller’s total income and taxed at applicable slab rates (which can be as high as 30% plus surcharge and cess for high-income individuals). The removal of indexation benefit for LTCG was a significant change in Budget 2024 and sparked substantial debate, as inflation-adjusted cost computation had previously shielded many long-term property holders from tax entirely. The cost of acquisition includes not just the original purchase price but also stamp duty, registration charges, brokerage, and any improvement expenditure (renovation or reconstruction costs) with supporting bills. If a property is inherited, the cost to the original owner (or Fair Market Value as of April 1, 2001 if acquired before that date) is taken as the cost of acquisition. Sellers must file capital gains in their income tax return and, if applicable, pay advance tax. Property transactions above ₹50 lakh require TDS deduction at 1% by the buyer under Section 194-IA, with the TDS to be deposited within 30 days from the end of the month of transaction.
CGST (Central Goods and Services Tax)
CGST is the central government’s share of GST collected on transactions within a single state (intra-state supply). It is levied alongside SGST (State GST). The combined rate equals the total GST rate — for example, 18% GST = 9% CGST + 9% SGST. Revenue from CGST goes to the Union Government.
CGST Credit Utilisation
CGST credit (Input Tax Credit on CGST paid) can only be used to pay CGST output tax liability — it cannot be used to pay SGST liability (cross-utilisation between CGST and SGST is not allowed, except IGST credit which can set off both). Proper credit utilisation sequencing: IGST credit first against IGST, then CGST and SGST respectively.
Composition Scheme (GST)
The GST Composition Scheme allows small taxpayers with annual turnover up to ₹1.5 crore (₹75 lakh for special category states) to pay GST at a fixed lower rate (1–5%) without the need for complex monthly filings and input tax credit claims. They file returns quarterly instead of monthly.
Cost Inflation Index (CII)
CII is a government-notified index used to calculate indexed cost of acquisition for long-term capital gains (LTCG) on real estate, debt funds (pre-April 2023), and other non-equity assets. By inflating the purchase cost using CII, taxable LTCG is reduced. CII for FY 2026-27 is notified annually by the CBDT.
Capital Gains Calculator →Crypto Taxation in India (Section 115BBH)
Cryptocurrency and other Virtual Digital Assets (VDAs) — including NFTs (Non-Fungible Tokens), tokens, and digital currencies — were brought under a specific and stringent tax framework in India via the Finance Act 2022, effective from April 1, 2022 (FY 2022-23, AY 2023-24). Section 115BBH was inserted into the Income Tax Act, 1961, which taxes income from transfer of any VDA at a flat rate of 30% (plus applicable surcharge and 4% cess), without any deduction except for the cost of acquisition. This means no set-off of losses from VDA against any other income (including other VDA losses), and no benefit of capital gains exemption provisions like Sections 54, 54F, or 54EC. Key features of Section 115BBH: (1) Flat 30% tax on gains from VDA regardless of holding period — there is no distinction between short-term and long-term for VDAs; (2) No deduction allowed for any expenditure other than cost of acquisition — no trading fees, no transfer charges, no exchange fees can be deducted from gains; (3) Loss from one VDA cannot be set off against gain from another VDA or any other income head — unlike capital losses; (4) Loss from VDA cannot be carried forward to subsequent years. Additionally, Section 194S requires any person paying consideration for transfer of VDA to deduct TDS at 1% — for P2P transactions above ₹10,000, and above ₹50,000 for transactions through exchanges (for specified individuals). CBDT clarified via FAQs that airdropped tokens, mining income, staking rewards, and gifted VDAs are taxable: mining income (without corresponding cost) is taxed at 30%, airdrops are taxed at FMV as “Income from Other Sources,” and gifts of VDA above ₹50,000 FMV are taxable in the recipient’s hands. The VDA tax framework does not yet have provisions for DeFi (Decentralised Finance) protocols or wash sale rules, creating ambiguity. India also levies 18% GST on cryptocurrency exchange fees (classified as services). The high TDS rate of 1% significantly impacted trading volumes on Indian exchanges, leading many traders to shift to offshore platforms, which prompted government discussions on reducing TDS to 0.1% for registered exchanges.
DA (Dearness Allowance)
Dearness Allowance is a cost-of-living adjustment paid by the government to its employees and pensioners — linked to the Consumer Price Index and revised twice a year (January and July). DA is fully taxable. For private sector employees, the concept of DA exists in some industries but is absorbed into CTC in most modern pay structures.
Deemed Dividend
Deemed Dividend under Section 2(22)(e) of the Income Tax Act treats certain loans and advances given by a closely-held company to its shareholders (holding 10%+ shares) as dividend — taxable in the hands of the shareholder at applicable slab rates. This provision prevents companies from distributing profits as ‘loans’ to avoid dividend distribution tax.
Deemed Export
Deemed exports are transactions where goods are supplied domestically but are funded by foreign exchange or meet specified conditions — treated as exports for GST/DGFT benefits (zero-rated or refund eligible). Examples: supplies to EOUs (Export Oriented Units), projects funded by multilateral agencies, and supplies against Advance Authorisation under EXIM policy.
Dividend Stripping
Dividend stripping is a tax avoidance strategy (blocked by Section 94(7)) where investors buy mutual fund units or shares just before dividend/bonus record date, receive tax-free dividend (or bonus units), then sell at a loss (price falls post-dividend) and claim the loss to offset other gains. SEBI and CBDT have blocked this through specific anti-avoidance provisions.
Dividend Taxation (Post 2020)
Prior to FY 2020-21, dividends declared by Indian domestic companies were subject to Dividend Distribution Tax (DDT) — a tax paid by the company at source at an effective rate of approximately 20.35% (including surcharge and cess on 15% base rate), with dividends being tax-free in the hands of shareholders. This classical DDT system meant individual shareholders received net dividends after company-level tax, but did not include dividend income in their own ITR (except for dividends above ₹10 lakh per year, which attracted an additional 10% tax under Section 115BBDA for individuals). Budget 2020 (Finance Act 2020) abolished the DDT system with effect from April 1, 2020 (FY 2020-21, AY 2021-22). Post abolition, dividends are now taxable in the hands of the shareholder as “Income from Other Sources” at the applicable income tax slab rate, and companies are required to deduct TDS under Section 194 at 10% on dividends paid to resident shareholders if the total dividend per shareholder exceeds ₹10,000 in a financial year. For non-residents and foreign investors, TDS under Section 195 at the applicable DTAA rate or 20% (whichever is lower) applies. Mutual fund dividends (now called IDCW — Income Distribution cum Capital Withdrawal) are also taxable at slab rates post 2020, with TDS at 10% if IDCW exceeds ₹10,000. The abolition of DDT benefited companies (they now distribute higher gross dividends as DDT burden is removed) and lower-income shareholders (those in the 0–5% tax bracket now pay less than the 20.35% effective DDT rate). However, it adversely impacted high-income shareholders in the 30% bracket, who now pay more than the erstwhile DDT rate. Interest on loan taken to invest in shares/units is deductible against dividend income, but only up to 20% of the dividend income received. This provision prevents excessive interest deductions from leveraged dividend strategies.
DTAA (Double Tax Avoidance Agreement)
DTAA is a bilateral treaty between India and another country to prevent the same income from being taxed twice — in India and in the foreign country. India has DTAAs with 90+ countries. NRIs can avail DTAA benefits by submitting Tax Residency Certificate (TRC) to reduce or eliminate withholding tax on dividends, interest, or royalties.
Dual GST Structure
India’s dual GST structure imposes both Central GST (CGST) and State GST (SGST) on intra-state transactions, or Integrated GST (IGST) on inter-state transactions. This dual structure reflects India’s federal system — both Centre and states have concurrent taxation rights on the same transaction. All GST rates are decided by the GST Council (Centre + 28 states + 8 UTs).
E-Invoice
E-Invoice (Electronic Invoice) is a GST invoice generated through the GST portal’s Invoice Registration Portal (IRP), which assigns a unique IRN (Invoice Reference Number) and QR code to each invoice. E-invoicing is mandatory for businesses with turnover above ₹5 crore from August 2023, with plans to extend to smaller businesses.
E-Way Bill
An E-Way Bill is an electronic document required for movement of goods worth more than ₹50,000 between states (inter-state) or within states (intra-state, threshold varies). Generated on the GST portal, it contains details of goods, origin, destination, and transporter. It is valid for 1 day per 100 km (up to 200 km for ODC cargo).
ELSS Lock-in Period
ELSS (Equity Linked Savings Scheme) has a mandatory 3-year lock-in — shortest among Section 123 instruments. PPF: 15 years. NSC: 5 years. 5-year FD: 5 years. SIP investments in ELSS: each instalment has its own 3-year lock-in — not the first SIP date.
Expense Claim (Corporate)
Corporate expense claims are business expenditures deducted from taxable profit — travel, entertainment, professional fees, marketing, etc. Under the Income Tax Act, only expenses that are ‘wholly and exclusively’ for business are deductible. Personal expenses disguised as business claims are disallowed during assessment and attract penalty.
Financial Year
India’s financial year (also called fiscal year or assessment year) runs from April 1 to March 31. This differs from the calendar year. Most financial reporting, tax filing, budgeting, and regulatory compliance follows this April-March cycle. India’s unique April-March cycle dates to British colonial administration — there have been proposals to align with calendar year but none implemented.
Form 15G / 15H
Forms 15G (for individuals below 60) and 15H (for senior citizens above 60) are self-declaration forms submitted to banks and institutions to request that no TDS be deducted on interest income — if your total income is below the taxable limit. Submitting a false 15G/15H to avoid TDS when income is actually taxable attracts prosecution under Section 277.
Form 16
Form 16 is a TDS certificate issued by an employer to an employee at the end of the financial year, certifying the amount of tax deducted at source from salary payments. It has two parts: Part A (TDS details from TRACES) and Part B (salary breakdown, deductions, and tax computation). It is essential for filing ITR.
Form 26AS
Form 26AS is a consolidated annual tax statement available on the income tax portal showing all tax credits against a taxpayer’s PAN — including TDS deducted by employers, banks, and others; advance tax paid; and self-assessment tax paid. It is the primary document to reconcile before filing ITR.
Fringe Benefit
A fringe benefit is any non-cash perquisite provided by an employer to employees — company car, accommodation, LTA, meal vouchers, club memberships, or ESOP. Under the Income Tax Act, certain perquisites are taxable in the hands of the employee at prescribed rates. Employers must calculate and deduct TDS on perquisite value.
Gift Tax (Informal)
While India abolished the Gift Tax Act in 1998, gifts received are still taxable under Income Tax as ‘Income from Other Sources’ if the aggregate exceeds ₹50,000 in a year — unless received from specified relatives (parents, siblings, spouse, children), on marriage, or through will/inheritance. Cash gifts from non-relatives above ₹50,000 are fully taxable.
Gift Tax in India
India abolished gift tax in 1998 but reintroduced it under Income Tax Act. Gifts received exceeding ₹50,000/year from non-relatives are taxable as ‘Income from Other Sources.’ Gifts from relatives (spouse, parents, siblings) are fully exempt regardless of amount.
Goods and Services Tax Council
The GST Council is a constitutional body comprising the Union Finance Minister (Chair), Union Minister of State for Finance, and Finance/Taxation Ministers of all 28 states and 8 UTs. It decides GST rates, exemptions, threshold limits, and disputes between Centre and states. Council decisions require 75% majority, with Centre’s vote carrying 1/3 weight.
Gross Annual Value (GAV)
Gross Annual Value is the annual value of a property for income tax purposes — the higher of actual rent received/receivable, or the fair market rent (expected rent based on municipal valuation or similar properties in the area). GAV is the starting point for computing ‘Income from House Property.’ Municipal taxes paid are deducted from GAV to arrive at Net Annual Value.
GST (Goods and Services Tax)
GST is India’s comprehensive indirect tax levied on the supply of goods and services, replacing a complex web of central and state taxes (VAT, excise, service tax, etc.) from July 1, 2017. It follows a dual structure — CGST (Centre) and SGST (State) for intra-state, and IGST (Centre) for inter-state transactions. From 22 September 2025 GST has two main rates, 5% and 18%, plus a 40% special rate on a few sin and luxury goods; the earlier 12% and 28% slabs were removed.
GST Calculator →GST Composition Scheme
The GST Composition Scheme is a simplified tax compliance option for small businesses with annual turnover below ₹1.5 crore (₹75 lakh for services). Instead of regular GST (filing monthly GSTR-1 and GSTR-3B, maintaining invoice-level records, and paying GST on each transaction), composition scheme businesses pay a flat rate on their quarterly turnover: 1% for traders (0.5% CGST + 0.5% SGST), 5% for restaurants (2.5% each), and 6% for manufacturers and select service providers. A single quarterly return (GSTR-4) replaces monthly compliance. Trade-off: composition dealers cannot claim Input Tax Credit (ITC) on their purchases and cannot charge GST on their invoices to buyers. This makes composition suitable for: businesses with predominantly retail/end-consumer customers (who don’t need ITC); businesses with low input tax claims (service providers with minimal GST-paid inputs); and businesses for whom compliance simplicity is more valuable than ITC credits. The composition limit has evolved: ₹20 lakh (original launch July 2017) → ₹75 lakh (October 2017) → ₹1 crore (April 2018) → ₹1.5 crore (April 2019). Service providers (except restaurants) were excluded until 2019 — included subsequently up to ₹50 lakh turnover. Businesses crossing the threshold mid-year must switch to regular registration from the following quarter. Composition businesses must display “Composition Taxable Person, not eligible to collect tax on supplies” on every invoice and signboard.
Composition vs Regular →GST Input Tax Credit
GST Input Tax Credit (ITC) is the mechanism under the GST framework that allows a registered taxpayer to reduce the GST already paid on purchases (inputs, input services, or capital goods) from the GST collected on sales (output tax), thereby ensuring that GST is effectively levied only on the value addition at each stage of the supply chain. Section 16 of the CGST Act, 2017 lays down the conditions for claiming ITC: the taxpayer must be registered under GST, must possess a valid tax invoice or debit note, must have received the goods/services, the supplier must have filed their GSTR-1 reflecting the supply, and the tax must have been paid to the government by the supplier. Certain credits are blocked (ineligible) under Section 17(5): ITC is not available on motor vehicles used for personal purposes (subject to exceptions for transport businesses), food and beverages, membership of clubs, goods/services used for personal use, construction of immovable property, and works contract services related to immovable property. ITC must be claimed within the due date of September return (GSTR-3B) of the following year or before filing the annual return (GSTR-9), whichever is earlier. From October 2022, ITC claims are restricted to 110% of eligible credits appearing in GSTR-2B (auto-populated ITC statement based on supplier’s GSTR-1), meaning taxpayers can no longer freely claim ITC for invoices that don’t reflect in GSTR-2B. ITC is applied in a prescribed order: IGST credit first against IGST, then against CGST and SGST; CGST credit against CGST, then IGST; SGST credit against SGST, then IGST. Cross-utilisation (CGST credit against SGST) is not permitted. When goods are used partly for taxable and partly for exempt supplies, ITC is available only proportionately (Rule 42/43). Exporters can claim refund of accumulated ITC under Section 54 on zero-rated supplies, making ITC central to the economic design of GST.
GSTIN
GSTIN (Goods and Services Tax Identification Number) is a 15-digit alphanumeric code assigned to every GST-registered business in India. The first 2 digits represent the state code, followed by the 10-digit PAN, an entity number, a check digit, and a default letter ‘Z.’ Every B2B invoice must display the supplier’s and buyer’s GSTIN for ITC claims.
GSTR-1
GSTR-1 is a monthly or quarterly GST return filed by registered suppliers showing details of all outward supplies (sales) made during the period. It is used by buyers to auto-populate their GSTR-2B (purchase register) and claim Input Tax Credit. Quarterly GSTR-1 filing (QRMP scheme) is available for taxpayers with turnover up to ₹5 crore.
GSTR-3B
GSTR-3B is the monthly self-declaration return filed by GST-registered businesses summarising total outward supplies, eligible ITC, and net GST payable or refundable. It is filed by the 20th of the following month (or 22nd/24th for composition dealers). Delay attracts late fees of ₹50/day (₹20/day for nil returns).
Hindu Undivided Family (HUF)
HUF is a separate legal and tax entity available to Hindu, Jain, Sikh, and Buddhist families. It has its own PAN, can hold assets, and file ITR separately — providing an additional ₹2.5L–₹3L basic exemption and 80C deduction. Karta manages HUF affairs.
HRA (House Rent Allowance)
HRA is a salary component given by employers to help employees meet rental accommodation expenses. It is partially or fully exempt from income tax under Section 10(13A) if the employee lives in a rented house. Exemption = minimum of (actual HRA received / rent paid minus 10% of basic / 50% of basic for metro, 40% for non-metro).
Hra Calculator →HRA Exemption
House Rent Allowance (HRA) exemption is one of the most commonly claimed tax benefits by salaried employees who live in rented accommodation. HRA is a component of the salary package provided by employers to cover the employee’s rental expenses. Under Section 10(13A) of the Income Tax Act, 1961, read with Rule 2A, the amount of HRA received from the employer is partially or wholly exempt from tax, depending on the least of three conditions — the actual HRA received, actual rent paid minus 10% of Basic Salary, or 50% of Basic Salary for metros (Delhi, Mumbai, Kolkata, Chennai) / 40% of Basic Salary for non-metros. The formula for HRA exemption gives the minimum of three amounts: (1) Actual HRA received from employer; (2) Actual rent paid minus 10% of (Basic Salary + Dearness Allowance); (3) 50% of Basic Salary (for metro cities) or 40% of Basic Salary (for non-metro cities). The remaining amount of HRA, after exemption, is added back to taxable salary. Employees must submit rent receipts and, if annual rent exceeds ₹1 lakh, the PAN of the landlord is mandatorily required to claim the exemption. This exemption is available only under the Old Tax Regime and cannot be claimed by self-employed individuals (who may claim deduction under Section 134 instead, up to ₹60,000 per year). A nuanced aspect often overlooked: HRA exemption can be claimed even when the employee is living in a rented property in a different city while also paying EMI on a self-owned home in another city. Both HRA exemption and Section 22(1)(b) home loan interest deduction can be claimed simultaneously, provided the employee genuinely resides in rented premises. However, if rent is paid to a parent, the parent must declare such rental income in their own ITR. Recent Budgets have not changed HRA rules, but increased scrutiny on fake rent receipts and landlord PAN non-disclosure has risen.
HSN Code
HSN (Harmonised System of Nomenclature) Code is a 6–8 digit internationally standardised code used to classify goods under GST. Every product on a GST invoice must have an HSN code to determine its applicable GST rate. Businesses with turnover above ₹5 crore must mandatorily mention 6-digit HSN codes on invoices.
IGST (Integrated Goods and Services Tax)
IGST is levied on inter-state supply of goods and services and imports into India. The IGST revenue is collected by the Central Government and then apportioned to the destination state. It eliminates the cascading effect of multiple taxes on cross-state trade that existed under the pre-GST regime.
Income from House Property
Rental income from property is taxed under ‘Income from House Property’ in India. Gross Annual Value (actual rent or standard rent) is reduced by municipal taxes, then 30% standard deduction on Net Annual Value, and then home loan interest (unlimited for let-out property, up to ₹2L for self-occupied). Net result is taxed at applicable slab rate.
Income from Other Sources
‘Income from Other Sources’ is the residual head of income under the Income Tax Act — covering all income not classifiable under Salary, House Property, Business/Profession, or Capital Gains. Typical items: FD/RD interest, savings account interest (above ₹10,000 in 80TTA), dividends (above ₹10 lakh for domestic companies pre-2020), gifts, winnings from lottery/game shows, and cryptocurrency gains.
Income Tax
Income Tax is a direct tax levied by the Central Government on the income earned by individuals, HUFs, companies, and other entities in a financial year. India has two tax regimes — Old Regime (with deductions) and New Regime (lower slabs, fewer deductions). Tax is calculated on net taxable income after all allowed deductions and exemptions.
Income Tax Calculator →Income Tax Slabs (Old vs New Regime)
Income tax slabs in India determine the rate at which individual taxpayers are liable to pay tax on their total income in a given Financial Year (FY). As of tax year 2026-27, India operates under two parallel tax regimes: the Old Regime and the New Regime introduced under Section 115BAC of the Income Tax Act, 1961. The New Regime became the default regime from FY 2023-24 onwards, requiring taxpayers who wish to use the Old Regime to explicitly opt in at the time of filing their ITR. Under the Old Regime, the tax slabs are: nil tax up to ₹2.5 lakh (₹3 lakh for senior citizens aged 60–80, ₹5 lakh for super senior citizens above 80), 5% from ₹2.5 lakh to ₹5 lakh, 20% from ₹5 lakh to ₹10 lakh, and 30% above ₹10 lakh. The key advantage of the Old Regime is that it allows taxpayers to claim a wide range of deductions and exemptions — including Section 123 (up to ₹1.5 lakh), Section 126 (health insurance), HRA exemption, LTA, standard deduction of ₹50,000, and home loan interest under Section 22(1)(b) — which can significantly reduce taxable income. Under the New Regime (slabs revised in Budget 2025 and unchanged for tax year 2026-27), the slabs are: nil up to ₹4 lakh, 5% from ₹4–8 lakh, 10% from ₹8–12 lakh, 15% from ₹12–16 lakh, 20% from ₹16–20 lakh, 25% from ₹20–24 lakh, and 30% above ₹24 lakh. A standard deduction of ₹75,000 (increased from ₹50,000 in Budget 2024) is now available under the New Regime too. Additionally, a rebate (Section 156 of the Income-tax Act, 2025; earlier Section 87A) ensures zero tax liability for income up to ₹12 lakh under the New Regime (and ₹5 lakh under the Old Regime). Surcharge rates of 10%, 15%, 25%, and 37% apply on income above ₹50 lakh, ₹1 crore, ₹2 crore, and ₹5 crore respectively, in addition to a 4% Health and Education Cess on total tax.
Indexation Benefit
Indexation Benefit refers to the adjustment of the original cost of acquisition of an asset (such as property) for inflation, using the government-notified Cost Inflation Index (CII), to arrive at an inflated cost of acquisition before computing capital gains. The rationale is that gains purely attributable to inflation are not genuine economic gains and should not attract income tax — only real gains above and beyond inflation should be taxed. This benefit, when applied, can significantly reduce long-term capital gains and the resultant tax liability for property sellers. The Cost Inflation Index is notified annually by the Central Board of Direct Taxes (CBDT) under the Income Tax Act. It takes 2001-02 as the base year with a CII of 100 and increases annually to reflect cumulative inflation. For FY 2024-25, the CII is 363. To compute indexed cost, the formula is: Indexed Cost = Actual Cost × (CII of Year of Sale / CII of Year of Purchase). For properties purchased before April 1, 2001, the Fair Market Value as on April 1, 2001 is used as the base cost, and indexation is applied from the 2001-02 base. However, as a critical change from Budget 2024 (Finance Act, 2024), the indexation benefit has been withdrawn for computing LTCG on sale of immovable property by resident individuals and HUFs for properties sold on or after July 23, 2024. The tax rate on LTCG from property is now a flat 12.5% without indexation (compared to 20% with indexation earlier). For properties acquired before July 23, 2024, the government provided a one-time grandfather option allowing taxpayers to compute tax under both regimes and choose the lower of the two — but this transitional protection is limited and subject to specific conditions. This change significantly alters the tax planning landscape for long-term property holders, particularly those in lower inflation-adjusted gain brackets.
Input Tax Credit (ITC)
Input Tax Credit allows GST-registered businesses to deduct the GST paid on inputs (purchases) from the GST payable on outputs (sales), preventing the cascading effect of tax-on-tax. ITC can be claimed only if the supplier has filed their GSTR-1, the invoice is reflected in GSTR-2B, and goods/services are used for business.
ITR (Income Tax Return)
ITR is the form filed with the Income Tax Department declaring income, deductions, and taxes paid for a financial year. There are 7 ITR forms depending on income type — ITR-1 for salaried individuals, ITR-4 for presumptive income, ITR-6 for companies, etc. The standard due date for individuals is July 31 of the Assessment Year.
ITR Filing
Income Tax Return (ITR) Filing refers to the process by which a taxpayer declares their total income, deductions, tax paid, and tax liability for a given Financial Year (FY) to the Income Tax Department of India through a prescribed form submitted on the Income Tax e-filing portal (incometax.gov.in). ITR filing is mandatory for individuals whose gross total income exceeds the basic exemption limit (₹2.5 lakh under Old Regime, ₹4 lakh under New Regime), and also for those with foreign assets, high-value transactions, or those seeking TDS refunds, even if income is below the exemption limit. The Assessment Year (AY) is the year following the FY — so for FY 2024-25, the AY is 2025-26. There are seven ITR forms: ITR-1 (Sahaj) for salaried individuals with income up to ₹50 lakh and one house property; ITR-2 for individuals with capital gains, more than one house property, or foreign assets; ITR-3 for individuals/HUFs with business/professional income; ITR-4 (Sugam) for presumptive taxation under Sections 44AD, 44ADA, 44AE; ITR-5 for firms, LLPs; ITR-6 for companies; ITR-7 for trusts and political parties. Filing can be done online (mandatory for most taxpayers) in XML/JSON format or via the portal’s guided interface. The due date for most individual taxpayers is July 31 of the AY (i.e., July 31, 2025 for AY 2025-26). Belated ITR can be filed till December 31 of the AY under Section 139(4), attracting a late filing fee under Section 234F: ₹1,000 if total income is below ₹5 lakh, else ₹5,000. An updated ITR (ITR-U) under Section 139(8A) can be filed within 2 years from the end of the AY to correct omissions, with additional tax of 25–50% of tax + interest. Filing a timely ITR is also essential for carrying forward losses (business losses, capital losses), obtaining bank loans, visa applications, and establishing income proof.
Leave Encashment Tax
Leave encashment received at retirement from central/state government service is fully tax-exempt. Private sector employees get exemption up to ₹25 lakh (revised in 2023). During service, leave encashment is fully taxable as salary income.
Look-through Taxation
Look-through taxation treats the income of investment vehicles (trusts, AIFs) as if earned directly by underlying investors, preventing tax arbitrage through intermediaries. India applies it to Category I and II AIFs — income flows through to investors retaining its original character (capital gains, dividend).
LTCG (Long-Term Capital Gains)
LTCG is the profit from selling a capital asset held beyond the prescribed long-term holding period — 1 year for listed equities and equity mutual funds (post Budget 2024 taxed at 12.5% above ₹1.25 lakh), and 2 years for real estate and debt funds. LTCG on property is taxed at 12.5% without indexation (post Budget 2024).
LTCG vs STCG →Marginal Tax Rate
Marginal tax rate is the rate applied to the last rupee of income — not the average rate. India’s progressive slab system means different portions of income are taxed at different rates (0%, 5%, 10%, 15%, 20%, 25%, 30% under new regime). Marginal rate matters for investment decisions.
MAT (Minimum Alternate Tax)
MAT ensures that companies with significant book profits cannot avoid paying taxes through deductions and exemptions. Companies must pay MAT at 15% (plus surcharge and cess) on book profit if this exceeds their regular tax liability. MAT credit can be carried forward for 15 years and offset against future regular tax liability.
New Tax Regime vs Old Tax Regime
India offers two ITR regimes from FY 2020-21: Old Regime has higher tax slabs but allows deductions (80C, HRA, LTA, 80D). New Regime has lower slabs but no deductions (except NPS employer contribution, 80CCD(2)). Default from FY24 is New Regime.
Old vs New Regime →Notional Income
Notional income is imputed income that the Income Tax Department deems you to have earned — even if you haven’t actually received it. Classic example: if you own a let-out house property, the Gross Annual Value is based on actual rent OR expected market rent (whichever is higher) — meaning you’re taxed on notional rent if actual rent is below market rate.
Old Tax Regime
The Old Tax Regime (pre-2020) allows taxpayers to claim various exemptions and deductions — HRA, LTA, 80C, 80D, 80G, home loan interest (Section 24), and more — but has higher base tax slabs. It is beneficial for taxpayers with high deductible expenses. Taxpayers must choose between Old and New regime every year when filing ITR.
Old vs New Regime →PAN (Permanent Account Number)
PAN is a 10-character alphanumeric identifier issued by the Income Tax Department to every taxpayer — individuals, companies, trusts. It is mandatory for financial transactions above ₹50,000, opening bank accounts, filing ITR, buying property, and mutual fund investments above ₹50,000. All income tax records are linked to PAN.
PAN-Aadhaar Linking
Linking PAN with Aadhaar was made mandatory by the government from 2022. If PAN is not linked to Aadhaar by the deadline, the PAN becomes inoperative — making it impossible to file ITR, open bank/Demat accounts, or make financial transactions above ₹50,000. Reactivation requires paying a ₹1,000 fee plus linking. As of 2024, 44+ crore PANs have been linked.
Presumptive Taxation
Presumptive Taxation is a simplified tax scheme under the Income Tax Act, 1961 designed to ease the compliance burden for small businesses and professionals by allowing them to declare income at a prescribed flat percentage of their gross turnover or receipts, without the need to maintain detailed books of accounts or undergo a tax audit. The three main provisions are Section 44AD (for small businesses), Section 44ADA (for specified professionals), and Section 44AE (for transport operators owning up to 10 vehicles). Section 44AD applies to resident individuals, HUFs, and firms (not LLPs) engaged in any business (excluding businesses earning commission or brokerage income, or agency businesses) with gross turnover up to ₹2 crore (raised to ₹3 crore from FY 2023-24 if cash receipts do not exceed 5% of total receipts). Income is presumed at 8% of turnover (6% for digital/banking mode receipts). Section 44ADA applies to specified professionals — doctors, lawyers, engineers, architects, accountants, interior designers, film artists, technical consultants — with gross receipts up to ₹50 lakh (extended to ₹75 lakh from FY 2023-24 if cash receipts do not exceed 5%). Income is presumed at 50% of gross receipts. Under both sections, no deduction under Sections 30–38 is allowed separately, as they are deemed to have been already considered. Section 44AE covers owners of goods carriages with up to 10 trucks, presuming income at ₹1,000 per ton per month for heavy goods vehicles (above 12 MT) and ₹7,500 per month per vehicle for lighter vehicles. Taxpayers opting for presumptive taxation are exempt from maintaining books of accounts (Section 44AA) and tax audit (Section 44AB). However, if they declare income lower than the prescribed percentage, they must maintain books and get a tax audit done. Under Section 44AD, once opted for, if the taxpayer exits within 5 years, they are barred from using the scheme again for 5 subsequent years.
Advance Tax Schedule →Professional Tax
Professional Tax is a state government tax levied on income from profession, trade, or employment — collected by employers from employee salaries and deposited with the state government. Maximum ₹2,500 per year (constitutionally capped). States like Maharashtra, Karnataka, Gujarat, and West Bengal levy professional tax; many states do not. Professional tax is deductible from taxable income.
Property Tax
Property Tax is a recurring annual or semi-annual tax levied by Urban Local Bodies (ULBs) — Municipal Corporations, Municipalities, and Panchayats — on owners of immovable property (land and/or buildings) within their jurisdiction. It is the primary source of revenue for local governments and funds essential civic services such as road maintenance, sewage systems, public lighting, parks, and solid waste management. Unlike stamp duty (a one-time transaction tax), property tax is an ongoing obligation that accrues throughout the period of ownership. The method of calculating property tax varies across Indian cities. The most common approaches are the Capital Value System (CVS), used in Mumbai (where property tax is a percentage of the market value as per government-notified rates), the Annual Rental Value System (ARVS), used in Chennai and Hyderabad (where tax is based on the property’s estimated annual rental value), and the Unit Area System (UAS), used in Delhi and Bengaluru (where tax is computed by multiplying the unit area value — determined by locality category — with the property’s floor area and applicable multiplication factors). The tax rate, once the value is computed, typically ranges from 5% to 20% depending on the local body and property use (residential vs. commercial). Property tax assessments are not always updated in real-time with market values, creating situations where property tax on older properties in prime localities is far below what might be expected given current market prices. This is why municipal bodies periodically conduct general revisions of property tax rates. Failure to pay property tax in time results in penalties and interest (typically 1–2% per month on overdue amounts), and non-payment over extended periods can result in the local body seizing the property through a legal process. Property tax receipts are critical documents in any property transaction — buyers routinely verify that all property tax dues are cleared before completing a purchase, and banks may require the latest property tax paid receipt as part of home loan documentation.
Ready Reckoner Rate
The Ready Reckoner Rate (RRR), also called the Circle Rate, Guidance Value, or District Registration Value (depending on the state), is the minimum value at which the state government requires property transactions to be registered. It is notified annually by the state’s stamp duty authorities and varies by locality, property type (residential, commercial, industrial), and sometimes by floor in a building. The primary purpose of the Ready Reckoner Rate is to prevent undervaluation of property transactions for tax evasion — ensuring that stamp duty and registration charges are computed on a realistic base value even if the declared transaction price is lower. In Maharashtra, the Ready Reckoner Rate is published as an annual schedule by the Inspector General of Registration and Controller of Stamps (IGR). In Delhi, it is called the Circle Rate and is notified by the Delhi government in eight categories (A through H) based on locality type. In Karnataka, it is known as the Guidance Value and is maintained by the Department of Stamps and Registration. When the actual transaction value exceeds the circle rate, stamp duty is paid on the transaction value. When the transaction value is below the circle rate, stamp duty is still paid on the circle rate — and the buyer may also attract income tax scrutiny under Section 56(2)(x) of the Income Tax Act, which deems the difference between the circle rate and transaction price as income in the buyer’s hands if it exceeds ₹50,000. For developers, the Ready Reckoner Rate has critical implications: it determines stamp duty on property purchases, the pricing floor for project launches, and the calculation base for premiums paid to urban local bodies. Buyers who negotiate below-circle-rate deals must understand both the stamp duty implications and the potential income tax addition. The RRR also impacts capital gains calculations — when a property sold below the circle rate, the seller’s capital gains are computed on the circle rate value rather than the actual sale price, per Section 50C of the Income Tax Act, potentially resulting in a higher tax liability than the actual proceeds received.
Rebate (Tax)
A tax rebate under Section 87A directly reduces tax payable (not taxable income). Under the New Regime, individuals with net income up to ₹12 lakh get full rebate — making their total tax liability zero. Under Old Regime, the rebate is ₹12,500 for income up to ₹5 lakh. Rebate cannot exceed total tax payable.
Round Tripping
Round tripping is an illegal practice where money is sent abroad (often through shell companies) and returns as foreign direct investment (FDI) — appearing as foreign capital but actually being domestic black money recycled through overseas jurisdictions. FEMA, PMLA, and the Income Tax Department have joint jurisdiction to detect and prosecute round tripping.
SAC Code (GST)
SAC (Services Accounting Code) is a 6-digit code used to classify services under GST — similar to HSN codes for goods. Every service invoice must include the relevant SAC code to determine the applicable GST rate. SAC codes for key services: Legal services (998211), Accounting services (998222), IT software services (998313), Education services (999200).
Safe Harbour Rules
Safe Harbour Rules in transfer pricing (Section 92CB) provide predetermined acceptable profit margins for specified categories of international transactions — reducing disputes between multinationals and Indian tax authorities. If a company stays within the safe harbour profit margin for IT services (17% or above), no transfer pricing adjustment is made by the tax officer.
Salary Structuring
Salary structuring involves legally optimizing compensation components to minimize tax liability. Key tax-efficient components: HRA (if rented accommodation), LTA (2 times in 4 years tax-free), food coupons (up to ₹2,200/month tax-free under Old Regime), reimbursements (fuel, telephone, books), and NPS employer contribution (80CCD(2) benefit in both regimes).
Section 10(10D) — Life Insurance Maturity
Section 10(10D) of the Income Tax Act, 1961 provides an income tax exemption on the amount received under a life insurance policy — including the sum assured on maturity, survival benefits, bonus, and any other amount — on the life of any person. This exemption makes the maturity/death proceeds of traditional life insurance plans (endowment plans, money-back plans, whole life plans) tax-free in the hands of the policyholder or nominee, making it a key reason insurance products were historically used as tax-saving instruments alongside investment. However, Section 10(10D) has specific exclusions and conditions. Death claims are always exempt, regardless of premium-to-sum-assured ratio or any other condition. For maturity proceeds: the exemption is denied if the annual premium paid in any year exceeds 10% of the sum assured (for policies issued on or after April 1, 2012) or 20% for policies issued before that date. For persons with disability (Section 154) or critical illness, the threshold is 15%. Budget 2021 introduced a significant restriction: for ULIPs (Unit Linked Insurance Plans) where the annual premium exceeds ₹2.5 lakh, maturity proceeds are not exempt under 10(10D) — instead, they are taxed as capital gains (equity ULIP taxed like equity funds, debt ULIP like debt funds). Budget 2023 introduced the most significant amendment: for traditional non-ULIP life insurance policies (endowment, money-back, etc.) issued on or after April 1, 2023, where the total annual premium across all such policies exceeds ₹5 lakh, the maturity proceeds are no longer exempt under Section 10(10D). They are taxable under “Income from Other Sources.” However, the death claim remains fully exempt regardless of premium amount. This effectively ended the use of high-premium traditional insurance as a tax-exempt wealth accumulation tool for the wealthy, while preserving the benefit for regular policyholders with moderate premium amounts.
Section 24(b) — Home Loan Interest
Section 24(b) of the Income Tax Act, 1961 governs the deduction of interest paid on a home loan (housing loan) from the income computed under the head “Income from House Property.” This is one of the most significant tax benefits for homeowners in India and is available under the Old Tax Regime. The deduction is applicable to interest paid on loans taken from banks, housing finance companies, or even private lenders, provided the loan is used for the purchase, construction, repair, renewal, or reconstruction of a house property. For a self-occupied property, the maximum deduction under Section 24(b) is ₹2,00,000 per financial year. However, this limit applies only if the construction or purchase of the property is completed within 5 years from the end of the financial year in which the loan was taken. If the construction is not completed within 5 years, the deduction is restricted to only ₹30,000. For a let-out property (rented out), the entire amount of interest paid is deductible without any upper cap, though the resulting loss from house property can only be set off against other income up to ₹2 lakh per year, with any excess carried forward for up to 8 assessment years. The pre-construction interest — i.e., interest paid during the period before the property is handed over — can be claimed in five equal instalments starting from the year of completion of construction, subject to the overall ₹2 lakh cap for self-occupied property. It is important to note that Section 24(b) covers only the interest component of the EMI; the principal repayment qualifies for deduction under Section 123. For first-time homebuyers, Section 80EEA provided an additional deduction of ₹1.5 lakh on interest (now discontinued from FY 2022-23 onwards), while Section 80EE (for loan sanctioned between April 2016–March 2017) offered ₹50,000.
Home Loan EMI →Section 54 (Capital Gains Exemption)
Section 54 of the Income Tax Act provides exemption on Long-Term Capital Gains from sale of a residential house property if the gains are reinvested in purchasing or constructing another residential house within specified timelines (buy within 2 years, construct within 3 years). The exemption amount cannot exceed ₹10 crore from Budget 2023.
Section 54EC Bonds
Under Section 54EC, long-term capital gains from property sale can be invested in specified bonds (NHAI, REC) within 6 months to claim full LTCG exemption. Maximum investment: ₹50L per financial year. Lock-in: 5 years. These are low-yield (5.25%) but save significant capital gains tax.
Section 54F
Section 54F of the Income Tax Act, 1961 provides a valuable capital gains exemption to individuals and HUFs on long-term capital gains (LTCG) arising from the sale of any long-term capital asset other than a residential house property, provided the entire net sale consideration (not just the capital gain) is reinvested in the purchase or construction of a new residential house property in India. This is distinct from Section 54 (which applies only when the original asset sold is a residential house), and more broadly applicable — covering sale of equity shares, commercial property, jewellery, debt mutual funds (before April 2023), land, or any other long-term capital asset. The conditions for Section 54F exemption are: (1) The taxpayer must not own more than one residential house property on the date of sale of the original asset (other than the new house being purchased). If the taxpayer owns more than one house at the time of sale, Section 54F exemption is denied. (2) The new residential house must be purchased within 1 year before or 2 years after the date of transfer, or constructed within 3 years after the date of transfer. (3) The entire net sale consideration must be invested — if only a portion is reinvested, the exemption is proportionate (Exemption = LTCG × Amount invested / Net Sale Consideration). (4) The new residential house must not be sold within 3 years of purchase/construction; if sold earlier, the exempted LTCG is taxed in the year of sale. The Capital Gain Account Scheme (CGAS), 1988 allows taxpayers who cannot complete the reinvestment before the ITR due date to deposit the unutilized sale proceeds in a CGAS account with a designated bank and claim the exemption provisionally. Budget 2023 introduced a cap of ₹10 crore on the reinvestment amount eligible for exemption under Sections 54 and 54F — meaning gains on ultra-high-value property reinvestments are capped, ending the practice of wealthy taxpayers claiming unlimited exemption by purchasing luxury bungalows.
Section 123
Section 123 is the most widely used tax deduction provision under the Income Tax Act (Old Regime), allowing deductions up to ₹1.5 lakh per year on specified investments and payments. Eligible instruments include EPF, PPF, ELSS, life insurance premium, NSC, tax-saving FDs, home loan principal, tuition fees, and SSY contributions.
Income Tax Calculator →Section 126
Section 126 allows deduction on health insurance premiums paid for self, spouse, children, and parents. Deduction limit is ₹25,000 for self/family (₹50,000 if senior citizen) + ₹25,000 for parents (₹50,000 if parents are senior citizens). Maximum deduction possible is ₹1 lakh (if both self and parents are senior citizens).
Income Tax Calculator →Section 133 (Charitable Donations)
Section 133 of the Income Tax Act, 1961 provides a deduction to taxpayers (individuals, companies, firms, HUFs) for donations made to specified funds and charitable institutions. The deduction encourages philanthropy by reducing the donor’s taxable income. Section 133 is available under the Old Tax Regime only and is not available to those opting for the New Regime under Section 202. Donations to qualify must be made in cash (only up to ₹2,000 per donation — above ₹2,000 must be made by cheque, bank transfer, or digital payment) and must be to institutions registered under Section 354 by the Commissioner of Income Tax. Donations under Section 133 are classified into four categories based on the deduction rate and whether the qualifying amount is capped: (1) 100% deduction without any qualifying limit — e.g., PM National Relief Fund, National Defence Fund, National Children’s Fund, donations to government for scientific research; (2) 50% deduction without qualifying limit — e.g., Jawaharlal Nehru Memorial Fund, Indira Gandhi Memorial Trust, PM’s Drought Relief Fund; (3) 100% deduction subject to 10% of Adjusted Gross Income (AGI) — donations to approved local authorities, development authorities; (4) 50% deduction subject to 10% of AGI — most charitable trusts, religious trusts, NGOs. The qualifying limit means only donations up to 10% of the Adjusted Gross Income (gross total income minus long-term capital gains, short-term gains u/s 111A, and deductions under 80C to 80U) are eligible. From FY 2021-22, the government introduced a unique registration and pre-approval system: all charitable institutions claiming 80G status must re-register with the IT Department for 5-year validity, and donors must report donation details on Form 10BD filed by the institution. The institution issues a donation certificate (Form 10BE), which the donor must reference in their ITR. For cash donations to political parties, Section 137 (individuals) and 136 (companies) provide deductions, but only through banking channels post-Electoral Bonds scheme.
Securities Transaction Tax (STT)
STT is a tax levied on purchase and sale of securities (equity shares, derivatives, equity mutual funds) on Indian stock exchanges. Introduced in 2004 to replace the capital gains tax structure at the time. Key rates: equity delivery buy/sell 0.1%, intraday sell 0.025%, F&O sell 0.02% (options). STT is a business expense for traders.
Standard Deduction
Standard Deduction is a flat deduction available to salaried individuals and pensioners in India, reducing their gross salary income for tax computation purposes without requiring any bills, proofs, or documentation to be submitted. It was reintroduced in the Union Budget 2018 (after being abolished in 2005) at ₹40,000 per financial year, replacing the earlier transport allowance exemption of ₹19,200 and medical reimbursement exemption of ₹15,000. From FY 2019-20, the Standard Deduction was enhanced to ₹50,000, where it remained until FY 2023-24 under the Old Regime. From Budget 2024 (FY 2024-25), the Standard Deduction was extended to and enhanced under the New Tax Regime as well. Under the New Regime, the Standard Deduction for salaried individuals was raised to ₹75,000 (from ₹50,000 in the previous year), while for family pensioners it was increased from ₹15,000 to ₹25,000. Under the Old Regime, the Standard Deduction remains at ₹50,000 for salaried individuals. This means taxpayers under the New Regime now enjoy a higher flat deduction, making it more attractive for those without large 80C/80D investments. Standard Deduction is claimed at the employer level via Form 16 and is automatically reflected in the pre-filled ITR. It applies uniformly regardless of the number of employers an employee works with in a year; however, if a person switches jobs within the same financial year, each employer may grant the deduction, but the total deduction is capped at the permissible limit (₹50,000 or ₹75,000) when filing the final ITR. For pensioners receiving pension from former employers (not annuity from LIC), the income is treated as salary and Standard Deduction is available. This makes Standard Deduction one of the simplest and most universally beneficial provisions, particularly for low-to-mid income earners.
Income Tax Calculator →STCG (Short-Term Capital Gains)
STCG is the profit from selling a capital asset held for a period shorter than the prescribed long-term threshold. For listed equities and equity mutual funds, STCG applies if held for less than 1 year — taxed at 20% (post Budget 2024). For debt funds and property held less than 2 years, STCG is taxed at the applicable slab rate.
LTCG vs STCG →STT (Securities Transaction Tax)
Securities Transaction Tax (STT) is a direct tax levied on the purchase and/or sale of securities listed on recognised Indian stock exchanges such as BSE and NSE. Introduced by the Finance Act, 2004 (effective from October 1, 2004) under Chapter VII, STT was brought in as a simplified alternative to the then-proposed capital gains tax on equity, to curb tax evasion and bring capital market transactions under a broader tax net. Unlike income tax, STT is levied on the total transaction value (turnover), not on the profit, and is collected by the stock exchange or broker at the time of execution of the trade. STT rates vary by instrument and transaction type. For equity delivery trades: 0.1% on both buy and sell transactions. For equity intraday trades (settled without delivery): 0.025% on the sell side only. For equity futures: 0.0125% on sell side (revised upward in Budget 2024 from 0.01%). For equity options: 0.0625% on sell side (on premium value for buying options; on option premium for selling). For mutual fund units (equity-oriented, on sale): 0.001%. For equity options exercised: 0.125% on the settlement price. Budget 2024 increased STT on F&O from 0.01% to 0.02% for futures and 0.0625% to 0.1% for options to curb retail speculation in derivatives. STT paid on the purchase of equity shares or equity mutual funds that qualify for LTCG under Section 198 is relevant because LTCG exemption under 112A is available only if STT was paid at the time of both purchase and sale. For traders, STT paid is a deductible business expense if trading is treated as business income (speculative or non-speculative). However, for investors (capital gains taxation), STT is not a deductible expense from capital gains. STT is automatically collected and deposited by the exchange, and its amounts are visible in the broker’s contract notes and tax P&L statements.
Surcharge on Income Tax
Surcharge is an additional tax on income tax itself for high-income earners. Rates: 10% surcharge for income ₹50L–₹1 crore, 15% for ₹1–2 crore, 25% for ₹2–5 crore, 37% for >₹5 crore (reduced to 25% for New Regime from FY24).
TAN (Tax Deduction Account Number)
TAN is a 10-character alphanumeric identifier required by entities responsible for deducting or collecting tax at source (TDS/TCS). Employers, banks, and businesses that deduct TDS must quote TAN on all TDS returns, certificates, and challans. Failure to obtain TAN attracts a penalty of ₹10,000.
Tax Audit
A tax audit under Section 44AB of the Income Tax Act is mandatory for businesses with gross turnover exceeding ₹1 crore (₹10 crore if 95%+ transactions are digital) and professionals with gross receipts above ₹50 lakh. A Chartered Accountant conducts the audit and submits Form 3CA/3CB and Form 3CD with specified financial details.
Tax Deduction
A tax deduction reduces your taxable income — unlike a rebate (which reduces tax payable). Deductions under Chapter VI-A (80C, 80D, 80G, etc.) of the Income Tax Act are available only under the Old Tax Regime. The New Regime offers limited deductions (only 80CCD(2) for NPS employer contribution and standard deduction for salary).
Tax Evasion vs Tax Avoidance vs Tax Planning
These three concepts represent a spectrum of taxpayer behaviour in relation to their tax obligations, and understanding the distinction is crucial for compliance and ethical tax management in India. Tax Planning is the legal and legitimate arrangement of one’s financial affairs in a manner that takes full advantage of all deductions, exemptions, and relief provisions available under the Income Tax Act, 1961 — within the framework and intent of the law. Examples include investing in PPF to claim Section 123 deduction, buying health insurance for Section 126 benefit, or taking a home loan to claim Section 22(1)(b) interest deduction. The Supreme Court of India, in CIT vs Raman & Co. (1967), upheld the legitimacy of tax planning, stating that a taxpayer is entitled to arrange their affairs to pay minimum tax. Tax Avoidance involves exploiting loopholes or grey areas in tax law to reduce tax liability in ways that are technically legal but contrary to the legislative intent. It is sometimes called “aggressive tax avoidance.” The Indian Income Tax Act has responded with the General Anti-Avoidance Rule (GAAR), introduced under Sections 95–102, effective from April 1, 2017. GAAR allows tax authorities to declare an “impermissible avoidance arrangement” — one that lacks commercial substance, is not at arm’s length, abuses a tax treaty provision, or is entered into primarily to obtain a tax benefit — and recharacterise it to deny such benefits. GAAR is invoked only for tax benefits above ₹3 crore per arrangement. Tax Evasion is outright illegal — it involves deliberate concealment, misrepresentation, or suppression of income, falsification of books, underreporting of turnover, claiming bogus deductions, or maintaining undisclosed foreign assets. Tax evasion is punishable under Sections 276B (failure to deduct/pay TDS — up to 7 years), 276C (wilful evasion — 6 months to 7 years imprisonment), 277 (false statements), and 277A (falsification of books). The distinction between avoidance and evasion is that evasion involves fraud, while avoidance uses legal means (even if aggressive). Post-2017 GAAR, some previously “legal” avoidance strategies can now be recharacterised, making the line between permissible planning and impermissible avoidance more nuanced.
Tax Harvesting
Tax harvesting (especially Tax Loss Harvesting) involves intentionally selling investments at a loss to offset capital gains — reducing tax liability. In equity funds, after holding 12 months, the first ₹1.25 lakh LTCG per year is tax-free — investors can ‘harvest’ up to ₹1.25 lakh annually by selling and repurchasing to reset cost basis without tax.
Tax Residency Certificate (TRC)
A TRC is issued by a country’s tax authority to certify that a person or entity is a tax resident of that country. Required to avail DTAA benefits and claim treaty rates on withholding tax. Indian residents need TRC from their home country when claiming DTAA.
Tax Treaty
A tax treaty (DTAA — Double Taxation Avoidance Agreement) is a bilateral agreement between India and another country to prevent income from being taxed in both countries simultaneously. India has DTAAs with 90+ nations, covering dividends, interest, royalties, capital gains, and employment income. Some treaties (like Mauritius, Singapore) have been modified to remove capital gains exemptions that were misused.
Taxable Income
Taxable income is the net income on which income tax is calculated — after deducting all allowed exemptions, deductions, and allowances from gross total income. Taxable Income = Gross Total Income − Deductions under Chapter VI-A (Old Regime) or just minus Standard Deduction (New Regime). The applicable tax rate depends on which tax regime is chosen.
TCS (Tax Collected at Source)
TCS is tax collected by a seller from the buyer at the time of sale for certain specified goods and transactions. The seller deposits TCS with the government. Budget 2023 significantly expanded TCS scope — overseas remittances above ₹7 lakh under LRS, foreign travel packages, and credit card spending abroad now attract 20% TCS.
TDS (Tax Deducted at Source)
TDS is a mechanism where tax is deducted by the payer at the time of payment and deposited with the government on behalf of the recipient. TDS applies to salaries, interest income, rent, professional fees, and more. Rates vary (1–30%) by income type. TDS paid is reflected in Form 26AS and can be claimed as credit while filing ITR.
Tds Calculator →TDS on Rent
Under Section 194-IB, individuals paying rent above ₹50,000/month must deduct TDS at 2% and deposit it with the government (using Form 26QC). The landlord can claim this TDS as credit while filing their ITR. Non-deduction results in disallowance of the rent expense and penalty for the tenant.
Transfer Pricing
Transfer pricing refers to the prices at which transactions occur between related parties (parent-subsidiary, associated enterprises). Indian tax law (Section 92) mandates that cross-border transactions between related parties be at arm’s length price — as if between unrelated parties. The Transfer Pricing Officer (TPO) scrutinises intra-group transactions to prevent profit shifting to low-tax jurisdictions.
Under-Construction Property Tax Implications
Interest paid on home loans for under-construction properties cannot be claimed as deduction under Section 24 during the construction period. However, the accumulated pre-construction interest is allowed in 5 equal instalments starting from the year of possession (along with the current year’s interest, subject to ₹2 lakh cap for self-occupied property).
Wealth Tax
Wealth Tax was a direct tax levied on net wealth above ₹30 lakh (assets minus debts) at 1% annually. It was abolished from FY 2016-17 and replaced by a 2% surcharge on ‘super rich’ taxpayers. Though no longer applicable, understanding it helps explain why wealthy families shifted to trust structures and insurance-linked investments pre-2015.
Withholding Tax
Withholding tax is tax deducted at source (TDS/TCS) from payments made to non-residents — on dividends, interest, royalties, and fees for technical services. Withholding tax rates in India typically range from 10–40% but can be reduced under DTAA. The payer is responsible for deducting and depositing withholding tax with the government.
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