Glossary of Terms for the Indian Income Tax Act

This glossary provides an explanation of some key terms you’ll encounter in the Indian Income Tax Act:

A

• Advance Tax: Tax liability paid in installments during the financial year based on estimated income.
• Assessee: An individual or entity liable to pay income tax.
• Assessment: The process of determining the amount of income tax payable by an assessee.

B

• Basic Exemption Limit: The minimum income amount exempt from income tax.
• Business Connection: A connection that allows a foreign company to be taxed in India.
• Capital Gains: Profit earned from the sale of capital assets like property or investments.

D

• Deduction: An amount subtracted from gross income to arrive at taxable income.
• Double Taxation Relief Agreement: An agreement between countries to avoid taxing the same income twice.

E

• Exemption: A complete or partial relief from paying income tax on certain types of income.

G

• Gross Total Income: Total income before claiming deductions and exemptions.

H

• House Property Income: Income earned from renting out residential property.

I

• Income Tax Return (ITR): A form filed by individuals and entities to declare their income and tax liability for the financial year.

L

• Long-Term Capital Gains (LTCG): Capital gains arising from the sale of a capital asset held for more than 24 months.
• Loss: An expense exceeding income in a particular financial period.

P

• Permanent Account Number (PAN): A unique 10-digit alphanumeric number issued by the Income Tax Department.
• Previous Year: The financial year preceding the assessment year.

R

• Resident: An individual or entity considered a resident of India for income tax purposes.
• Return of Income: Another term for Income Tax Return (ITR).

S

• Salary: Income earned from employment.
• Surcharge: An additional tax levied on income tax in certain circumstances.

T

• Tax Deducted at Source (TDS): Tax deducted at the source of income by the payer and deposited to the government on behalf of the payee.
• Taxable Income: Income remaining after claiming deductions and exemptions from gross total income.

W

• Wealth Tax: A tax levied on the net wealth of an individual or entity (abolished in India since 2015).

The key differences between TIN, TAN, VAT, PAN, DSC, and DIN:

Purpose:

• TIN (Tax Identification Number): This is a generic term for a taxpayer identification number. In India, TIN has largely been replaced by GSTIN (Goods and Services Tax Identification Number) which is required for businesses to register for GST.
• TAN (Tax Deduction and Collection Account Number): This 10-digit alphanumeric number is required for any entity deducting or collecting tax at source (TDS) on certain payments. (e.g., TDS on salary, rent)
• VAT (Value Added Tax): This was an indirect tax levied on goods and services in India. It has been replaced by the Goods and Services Tax (GST) since 2017.
• PAN (Permanent Account Number): This is a 10-digit alphanumeric number issued by the Income Tax Department to individuals and entities. It serves as a unique identifier for income tax purposes.
• DSC (Digital Signature Certificate): This electronic certificate acts as a digital signature for individuals or entities. It verifies the authenticity and integrity of a document signed electronically.
• DIN (Director Identification Number): This unique number is issued by the Ministry of Corporate Affairs (MCA) and is mandatory for any individual who is a director of a company registered in India.

Issuing Authority:

• TIN/GSTIN: Issued by the Commercial Tax Department of the respective state (previously) or Goods and Services Tax Network (GSTN) now.
• TAN: Issued by the Income Tax Department.
• PAN: Issued by the Income Tax Department.
• DSC: Issued by licensed Certifying Authorities (CAs) in India.
• DIN: Allotted by the Central Government (Ministry of Corporate Affairs).

Applicability:

• TIN/GSTIN: Required for businesses registering for GST (previously VAT).
• TAN: Required for businesses or entities required to deduct or collect tax at source (TDS).
• VAT: This tax is no longer applicable in India, replaced by GST.
• PAN: Mandatory for individuals and entities filing income tax returns or undertaking certain financial transactions.
• DSC: Required for various e-filing processes with the government or for digital signing of documents.
• DIN: Essential for any person appointed as a director of a company registered in India.

In essence:

• TIN/GSTIN and VAT are related to taxes on goods and services, with GST being the current system.
• PAN is a universal identifier for income tax purposes.
• TAN is specific to entities deducting or collecting tax at source.
• DSC is a digital security tool used for e-filing and document signing.
• DIN is a unique identifier for company directors in India.