100 Income Tax Definitions with Explanations & Examples (Complete
Guide)
Explanation (What’s
# Term Definition Example
Happening)
Govt collects money Ali earns $50,000,
A direct tax on income of
1 Income Tax from income to fund tax @20% =
individuals & businesses.
public services. $10,000.
Assessment Year in which previous Income earned one year FY 2023–24 → AY
2
Year (AY) year’s income is taxed. → taxed next year. 2024–25.
Previous Year The financial year in which Always year before PY 2023–24 → AY
3
(PY) income is earned. assessment year. 2024–25.
Gross Total Total income before Adds income from all Salary $40k + Rent
4
Income deductions. heads. $10k = $50k GTI.
GTI $50k –
Income after Final income subject to
5 Taxable Income Deduction $5k =
deductions/exemptions. tax.
$45k.
Income not taxed under Encourages Scholarship fully
6 Exempt Income
law. social/economic goals. exempt.
Amount reduced from Given for savings, ₹1.5L deduction
7 Deduction
income. charity, etc. for investments.
Tax ₹10,000 –
Direct reduction from tax Applied after tax
8 Rebate Rebate ₹2,000 =
liability. calculation.
₹8,000.
Tax benefit to reduce Prevents double/extra Relief u/s 89 for
9 Relief
hardship. tax. salary arrears.
Higher income = higher 0–2.5L = Nil, 2.5–
10 Slab Rate Progressive tax brackets.
% tax. 5L = 5%.
, Explanation (What’s
# Term Definition Example
Happening)
Tax paid in installments Businessman pays
11 Advance Tax Govt gets revenue early.
during year. 15% by June.
Self-Assessment Balance tax paid before Must be cleared before Tax ₹50k, TDS
12
Tax return filing. ITR. ₹40k → Pay ₹10k.
TDS (Tax
Tax deducted by payer Employer deducts
13 Deducted at Ensures tax at source.
before paying. 10% salary.
Source)
TCS (Tax
Tax collected by seller from Applies on specified Car dealer collects
14 Collected at
buyer. goods. 1% TCS.
Source)
Ali files ITR for FY
Return of Form declaring
15 Filed annually. 23–24 in AY 24–
Income (ITR) income/taxes.
25.
Unique 10-digit ID for Tracks all financial PAN needed for
16 PAN
taxpayers. activities. deposits > ₹50k.
Happens if TDS > Tax = 20k, TDS =
17 Refund Excess tax repaid by govt.
liability. 25k → Refund 5k.
Applied above tax Income > ₹1cr →
18 Surcharge Extra tax on high income.
amount. 10% surcharge.
Additional levy for specific Funds like health, 4% education
19 Cess
cause. education. cess.
Indian earns in
Same income taxed in 2
20 Double Taxation Avoided via DTAA. USA → taxed both
countries.
places.
India-USA DTAA
Double Tax Avoidance Treaty to avoid dual
21 DTAA exempts double
Agreement. taxation.
tax.
, Explanation (What’s
# Term Definition Example
Happening)
Not reporting
22 Tax Evasion Illegal non-payment of tax. Done by hiding income. foreign bank
account.
Legal reduction in tax Using loopholes, Investing in bonds
23 Tax Avoidance
liability. exemptions. to save tax.
Unaccounted, untaxed Earned illegally or Bribe income not
24 Black Money
income. unreported. shown in ITR.
Buying life
Systematic use of
25 Tax Planning Legal method of saving tax. insurance to claim
provisions.
deduction.
Business turnover
Audit of accounts for Required above certain
26 Tax Audit > ₹10cr → Tax
compliance. turnover.
audit compulsory.
Max ₹1.5L
Covers investments &
27 Section 80C Popular deduction section. deduction for
expenses.
PPF/LIC.
Deduction for medical Premium ₹20,000
28 Section 80D Encourages health cover.
insurance. → Deductible.
Scholarship
Includes gratuity,
29 Section 10 Lists exempt incomes. exempt under Sec
scholarship.
10.
Buy share ₹100,
Taxed under separate
30 Capital Gains Profit from sale of assets. sell ₹150 → ₹50
head.
gain.
Short-Term
Gain on asset held < Share sold within
31 Capital Gain Taxed at higher rate.
threshold period. 12 months.
(STCG)
Guide)
Explanation (What’s
# Term Definition Example
Happening)
Govt collects money Ali earns $50,000,
A direct tax on income of
1 Income Tax from income to fund tax @20% =
individuals & businesses.
public services. $10,000.
Assessment Year in which previous Income earned one year FY 2023–24 → AY
2
Year (AY) year’s income is taxed. → taxed next year. 2024–25.
Previous Year The financial year in which Always year before PY 2023–24 → AY
3
(PY) income is earned. assessment year. 2024–25.
Gross Total Total income before Adds income from all Salary $40k + Rent
4
Income deductions. heads. $10k = $50k GTI.
GTI $50k –
Income after Final income subject to
5 Taxable Income Deduction $5k =
deductions/exemptions. tax.
$45k.
Income not taxed under Encourages Scholarship fully
6 Exempt Income
law. social/economic goals. exempt.
Amount reduced from Given for savings, ₹1.5L deduction
7 Deduction
income. charity, etc. for investments.
Tax ₹10,000 –
Direct reduction from tax Applied after tax
8 Rebate Rebate ₹2,000 =
liability. calculation.
₹8,000.
Tax benefit to reduce Prevents double/extra Relief u/s 89 for
9 Relief
hardship. tax. salary arrears.
Higher income = higher 0–2.5L = Nil, 2.5–
10 Slab Rate Progressive tax brackets.
% tax. 5L = 5%.
, Explanation (What’s
# Term Definition Example
Happening)
Tax paid in installments Businessman pays
11 Advance Tax Govt gets revenue early.
during year. 15% by June.
Self-Assessment Balance tax paid before Must be cleared before Tax ₹50k, TDS
12
Tax return filing. ITR. ₹40k → Pay ₹10k.
TDS (Tax
Tax deducted by payer Employer deducts
13 Deducted at Ensures tax at source.
before paying. 10% salary.
Source)
TCS (Tax
Tax collected by seller from Applies on specified Car dealer collects
14 Collected at
buyer. goods. 1% TCS.
Source)
Ali files ITR for FY
Return of Form declaring
15 Filed annually. 23–24 in AY 24–
Income (ITR) income/taxes.
25.
Unique 10-digit ID for Tracks all financial PAN needed for
16 PAN
taxpayers. activities. deposits > ₹50k.
Happens if TDS > Tax = 20k, TDS =
17 Refund Excess tax repaid by govt.
liability. 25k → Refund 5k.
Applied above tax Income > ₹1cr →
18 Surcharge Extra tax on high income.
amount. 10% surcharge.
Additional levy for specific Funds like health, 4% education
19 Cess
cause. education. cess.
Indian earns in
Same income taxed in 2
20 Double Taxation Avoided via DTAA. USA → taxed both
countries.
places.
India-USA DTAA
Double Tax Avoidance Treaty to avoid dual
21 DTAA exempts double
Agreement. taxation.
tax.
, Explanation (What’s
# Term Definition Example
Happening)
Not reporting
22 Tax Evasion Illegal non-payment of tax. Done by hiding income. foreign bank
account.
Legal reduction in tax Using loopholes, Investing in bonds
23 Tax Avoidance
liability. exemptions. to save tax.
Unaccounted, untaxed Earned illegally or Bribe income not
24 Black Money
income. unreported. shown in ITR.
Buying life
Systematic use of
25 Tax Planning Legal method of saving tax. insurance to claim
provisions.
deduction.
Business turnover
Audit of accounts for Required above certain
26 Tax Audit > ₹10cr → Tax
compliance. turnover.
audit compulsory.
Max ₹1.5L
Covers investments &
27 Section 80C Popular deduction section. deduction for
expenses.
PPF/LIC.
Deduction for medical Premium ₹20,000
28 Section 80D Encourages health cover.
insurance. → Deductible.
Scholarship
Includes gratuity,
29 Section 10 Lists exempt incomes. exempt under Sec
scholarship.
10.
Buy share ₹100,
Taxed under separate
30 Capital Gains Profit from sale of assets. sell ₹150 → ₹50
head.
gain.
Short-Term
Gain on asset held < Share sold within
31 Capital Gain Taxed at higher rate.
threshold period. 12 months.
(STCG)
