Income Tax Glossary
Advance Ruling :
The Advance Ruling is a mechanism that helps in bringing certainty in the determination of tax liability on a particular transaction.
Advance tax :
The scheme of advance tax requires every assessee to estimate his current income, and if tax liability on such estimated income exceeds the specified limit, the assessee is required to pay the estimated tax in instalments during the financial year itself
Agriculture Income :
Agricultural income refers to income earned by a person from agricultural land situated in India.
Alternate Minimum Tax (AMT) :
Alternate Minimum Tax is the tax levied on income of non-companies at a prescribed rate in case the tax payable by them on normal income is less than AMT on adjusted total income.
Alternate Minimum Tax (AMT) Credit :
The tax paid by way of alternative minimum tax in excess of the amount of tax as per general provision is deemed as AMT Credit.
Annual Information System :
Annual Information Statement (AIS) is a statement that provides complete information about a taxpayer for a particular financial year. It contains information about taxpayers’ incomes, financial transactions, tax details, income-tax proceedings, etc.
Appeal :
Appeal is a process by which a person (assessee or revenue) aggrieved by an order passed by the tax authority or judicial authority, as the case may be, can challenge it before the higher judicial authorities.
Arm’s Length Price :
Arm’s length price means a price which is applied or proposed to be applied in a transaction between persons other than associated enterprises, in uncontrolled conditions.
Assessee :
Assessee means a person liable for payment of taxes or any other sum of money under the Income-tax Act. It also includes the person for whom any proceeding has been initiated under the Income-tax Act. The term ‘assessee’ also includes ‘deemed assessee’ and ‘assessee-in-default’.
Assessee-in-default :
The term assessee-in-default refers to a person who fails to discharge his obligations prescribed under the Income-tax Act such as failure to furnish return of income, failure in payment or deposit of tax, etc.
Assessing Officer :
“Assessing Officer” means the Assistant Commissioner or Deputy Commissioner or Assistant Director or Deputy Director or the Income-tax Officer who is vested with the relevant jurisdiction by virtue of directions or orders issued under section 120(1)/(2) or any other provision of the Income-tax Act.
AO also includes the Additional Commissioner or Additional Director or Joint Commissioner or Joint Director who is directed under section 120(4)(b) to exercise or perform all or any of the powers and functions conferred on, or assigned to, an Assessing Officer under the Income-tax Act.
Assessment :
The process of examining the return of income by the Income-tax department is called assessment.
Assessment Year :
Assessment Year means the period of twelve months commencing on the 1st day of April every year.
Belated Return :
A return of income is filed after the expiry of due date is called belated return of income
Best Judgement assessment :
Best Judgment Assessment means estimation of taxable income of an assessee by the Assessing Officer based on available information and resources. This assessment takes place if assessee does not cooperate in assessment proceedings or if correct profit cannot be calculated based on books of accounts maintained by the assessee.
Board :
Board means the Central Board of Direct Taxes (CBDT) constituted under the Central Boards of Revenue Act, 1963.
Books of Accounts :
“books or books of account” includes ledgers, day-books, cash books, account-books and other books, whether kept in the written form or in electronic form or in digital form or as print-outs of data stored in such electronic form or in digital form or in a floppy, disc, tape or any other form of electro-magnetic data storage device.
Capital Asset :
The term ‘capital asset’ means:
a) Property of any kind, held by an assessee, whether or not connected with his business or profession;
b) Any securities held by a FII which has invested in such securities in accordance with the SEBI Regulations;
c) Any unit linked insurance policy to which exemption under Section 10(10D) does not apply on account of applicability of the fourth and fifth proviso [High premium equity oriented ULIPs]
Carry forward of losses :
Carry forward of losses means carrying forward losses from current financial to next financial year in order to offset losses from future profits.
Compounding of Offences :
Compounding of an offence is a mechanism whereby the defaulter is reprieved of major legal consequences by affording him with an opportunity to pay a sum of money to escape prosecution.
Cost Inflation Index :
The Central Board of Direct Taxes (CBDT) notifies the Cost of Inflation Index (CII) every year. It is used to compute long-term capital gains/losses wherein the cost of acquisition/improvement is indexed with reference to the applicable CII of the relevant year.
Deductee :
A deductee is a person from whom tax is being deducted in accordance with the provisions of the Income-tax Act
Deductor :
A deductor is a person who is required to deduct tax at source as mandate by the various provisions of the Income-tax Act
Deemed assessee :
A deemed assessee is a person who is assessable in respect of income or loss or refund of any other person. It includes a representative assessee, a legal representative, an agent of a non-resident, etc.
Dividend :
Dividend is an appropriation of net profit that an entity pays out to its shareholders. Dividend received is treated as income by the receiver.
Double Taxation Avoidance Agreement (DTAA) :
Double Taxation Avoidance Agreements (DTAA) is an agreement entered into by the Central Government with the foreign countries or specified territory for granting relief, avoidance of double taxation, exchange of information for preventing evasion or avoidance of tax or for recovery of tax.
Eligible Startup :
An eligible start up is a company or a limited liability partnership which fulfils the conditions prescribed under section 80-IAC.
Fees for Technical Services :
As per section 9 of the Income-tax Act, Fees for technical services (FTS) means any consideration (including lump sum consideration) for the rendering of any managerial, technical or consultancy services (including provision for services of any technical or other personnel). However, it does not include the consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head ‘Salaries’.
Foreign Tax Credit :
Foreign Tax Credit (FTC) is a mechanism that allows taxpayers to claim credit for taxes paid in a foreign country against their tax liability in India.
Form 26AS :
Form 26AS is a tax passbook of an assessee which contains a complete record of tax deducted at source (TDS), tax collected at source (TCS), advance tax paid, self-assessment tax paid, and any other tax payment made by the taxpayer. It also contains details of tax refunds received by the taxpayer during the financial year.
Income Tax :
Income tax in India is governed by Entry 82 of the Union List of the Seventh Schedule to the Constitution of India, empowering the Central Government to tax the income. Income-tax law consists of Income-tax Act, 1961, Income-tax Rules 1962, circulars and notifications issued by the CBDT, annual Finance Acts, and judicial pronouncements by the Supreme Court, High Courts and Income-tax Appellate Tribunals.
Income Tax Appellate Tribunal :
The Income Tax Appellate Tribunal (ITAT) is a quasi-judicial body established under the Income Tax Act 1961. It is an independent body that hears appeals against the orders passed by the lower authorities, such as the Assessing Officer, Commissioner of Income Tax (Appeals), and Dispute Resolution Panel.
Income escaping assessment or Reassessment :
Income escaping assessment or reassessment is a process by which tax authorities re-examine the income tax returns of the taxpayers in order to verify whether any income has been understated or not reported.
Interest :
The term interest means interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) and includes any service fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilised.
International Transaction :
For the purpose of transfer pricing, international transaction means a transaction between two or more associated enterprises, either or both of whom are non-residents, in the nature of purchase, sale or lease of tangible or intangible property, or provision of services, or lending or borrowing money, or any other transaction having a bearing on the profits, income, losses or assets of such enterprises, and shall include a mutual agreement or arrangement between two or more associated enterprises for the allocation or apportionment of, or any contribution to, any cost or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided to any one or more of such enterprises.
Keyman Insurance Policy :
Keyman insurance policy is a life insurance policy generally taken by an employer on the life of his key employees.
Legal Representative :
Legal representative has the meaning assigned to it in clause (11) of section of the Code of Civil Procedure, 1908.
Liable to tax :
Liable to tax, in relation to a person and with reference to a country, means that there is an income-tax liability on such person under the law of that country for the time being in force and shall include a person who has subsequently been exempted from such liability under the law of that country.
Long-term Capital Asset :
In general, a capital asset is considered as ‘long-term’ if it is held by an assessee for a period of more than 36 months, immediately preceding the date of its transfer. The general rule has a few exceptions wherein an asset, held for not more than 36 months but more than 12 or 24 months, is treated as long-term capital asset.
However, Unlisted Shares of a company (equity shares or preferences shares) and an immovable property, being land or building or both are treated as long-term capital asset if they are held for more than 24 months immediately preceding the date of transfer.
Further, listed shares of a company (equity shares or preference shares), Listed securities (debentures, bonds, derivatives, etc.), Units of UTI (listed or unlisted), Units of equity-oriented fund (listed or unlisted) and Zero Coupon Bonds (Listed or Unlisted) are treated as long-term capital asset if they are held for more than 12 months immediately preceding the date of transfer.
Long-term capital gains :
Gain arising on transfer of long-term capital asset is termed as long-term capital gain.
Maximum Marginal Rate (MMR) :
The Maximum Marginal Rate (MMR) is the rate of income tax (including surcharge and health & education cess) for the highest slab of income applicable to an individual, AOP or BOI.
Minimum Alternate Tax (MAT) :
Minimum Alternative Tax (MAT) is a provision under the Income-tax Act that requires companies to pay a minimum amount of tax computed on book profit. ‘Book profit’ is computed by making specified additions and deletions to the profits determined as per statement of profits of the company.
Minimum Alternate Tax (MAT) Credit :
The tax paid by way of minimum alternate tax in excess of the amount of tax as per general provision is deemed as MAT Credit.
Misreporting of income :
Misreporting of income refers to the act of providing inaccurate or false information to the tax authorities. The scenario of under reporting of income is mentioned under section 270A.
Non-Resident :
A person is said to be a non-resident if he is not a resident in India as per Section 6 of the Income-tax Act.
Penalty :
Penalty is a punitive action imposed by the tax authorities for non-compliance with the provisions of the Income-tax Act. The penalty may be levied for various reasons, including failure to pay taxes, failure to maintain books of account, etc.
Permanent Account Number (PAN) :
The Permanent Account Number (PAN) is a ten-digit alphanumeric number, issued for the purpose of identification of a taxpayer. PAN has to be mentioned in all communications with the Income-tax Dept. and in specified financial transactions which exceed the threshold limit.
Perquisite :
Perquisite means emoluments made available to an employee for his personal benefits or use which is in addition to regular salary or wages. The perquisite may be in cash or in kind or in money or money’s worth, and also amenities which are not convertible into money.
Person :
Person includes an individual, a Hindu undivided family, a company, a firm, an association of persons or a body of individuals, whether incorporated or not, a local authority, and every artificial juridical person, not falling within any of the preceding sub-clauses.
Prescribed :
Prescribed means prescribed by rules made under the Income-tax Act.
Previous Year :
Previous Year means the financial year immediately preceding the assessment year.
In the case of a business or profession newly set up or a source of income newly coming into existence in a financial year, the previous year shall be the period beginning with the date of setting up of the business or profession or the date on which the source of income newly comes into existence and ending with the said financial year.
Profits in lieu of salary :
Any payment received or due in addition to employee’s salary or wages received from employer is referred to as Profit in lieu of salary. It includes compensation paid for termination of employment, payment from provident fund, payment under keyman insurance policy, etc.
Prosecution :
Prosecution is legal action against a taxpayer who has committed an offence under the Income-tax Act. The Income-tax Act specifies various offences, such as failure to file tax returns, pay taxes, provide false information, etc.
Rectification :
Rectification is a process of correcting errors or mistakes in the order passed by the Income-tax authorities. The power to rectify the mistake may be exercised by the authority concerned on his own initiative or when mistake is brought to his notice by the assessee concerned.
Relative :
Relative, in relation to an individual, means the husband, wife, brother or sister or any lineal ascendant or descendant of that individual.
Resident :
Section 6 lays down the rules for determining of residential status of a person. The residential status depends upon various conditions such as:
a) Period of Stay in India in Current Year;
b) Period of Stay in India Previous Years;
c) Whether the assessee is liable for tax in any other country; and
d) Other conditions as specified said section.
Return of income :
Return of income is the format in which the assessee furnishes information related to his total income and tax payable. It is a declaration of income by the assessee in the prescribed format.
Revised Return :
A return filed to remove the error or omissions made in the original return is treated as revised return.
Scrutiny Assessment :
Scrutiny Assessment is a thorough examination of the income-tax return submitted by the assessee. It is done to ensure that the assessee has not understated the income or under-paid the tax. An opportunity is provided to the assessee to produce evidences and prove the correctness of particulars disclosed by him.
Self-assessment tax :
‘Self-Assessment’ means calculation of total income and tax liability thereon by the assessee himself. It is after 31st March but before filing of return of income.
Senior Citizen :
‘Senior citizen’ means an individual whose age is 60 years or more at any time during the relevant previous year but less than 80 years on the last day of the previous year.
Set off of Losses :
Set off of losses refers to the practice of offsetting losses incurred in one source of income against profits earned in another source of income.
Short-term Capital Asset :
In general, a capital asset is deemed as ‘short-term’ if it is held by an assessee for a period of not more than 36 months, immediately preceding the date of its transfer. The general rule has a few exceptions wherein an asset, held for not more than 12 months or 24 months, is treated as short-term capital asset.
However, unlisted shares of a company (equity shares or preferences shares) and an immovable property, being land or building or both are treated as short-term capital asset if they are held for not more than 24 months immediately preceding the date of transfer.
Further, listed shares (equity shares or preference shares), Listed securities (debentures, bonds, derivatives, etc.), Units of UTI (listed or unlisted), Units of equity-oriented fund(listed or unlisted) and Zero Coupon Bonds (Listed or Unlisted) are treated as short-term capital asset if they are held for not more than 12 months immediately preceding the date of transfer.
Short-term Capital Gains :
Gain arising on transfer of short-term capital asset is termed as short-term capital gain.
Significant Economic Presence :
Significant economic presence shall mean:
a) Any transaction in respect of any goods, services or property carried out by a non-resident with any person in India, including provision of download of data or software in India if the aggregate of payments arising from such transaction or transactions during the previous year exceeds Rs. 2 crores; or
b) Systematic and continuous soliciting of business activities or engaging in interaction with 3 lakh users in India.
Speculative Transaction :
Speculative transaction means a transaction in which a contract for the purchase or sale of any commodity including stock and shares is periodically or ultimately settled otherwise than through actual delivery or transfer of the commodity or scrips.
Statement of Financial Transaction :
Statement of Financial Transaction (SFT) is a reporting mechanism wherein specified entities are required to provide information about material financial transactions entered into by certain person to the Income-tax Dept.
Summary Assessment :
Summary Assessment refers to processing of return by the Centralized Processing Centre (CPC). A return is processed automatically to verify the correctness of arithmetical calculations, deductions claimed, etc.
Super-senior Citizen :
‘Super senior citizen’ means an individual whose age is 80 years or more at any time during the relevant previous year.
TDS Certificates :
TDS certificate is certificate issued by the person who is required to deduct tax at source. TDS certificate specifies the rate of TDS, TDS amount and such other particulars as may be prescribed related to taxpayer.
TDS Return :
A TDS statement (TDS return) is statement of TDS filed by a person responsible for deduction of tax source. It contains particulars related to all deduction of tax made by person during a quarter.
Tax Collected at Source :
Tax Collected at Source is the amount of tax collected by specified person in specified transactions from the buyer or licensee or lessee, etc.
Tax Deducted at Source :
The concept of “Tax Deducted at Source”, commonly known as TDS ensures regular flow of revenue to the Government. The payer of income is required to deduct tax from certain payments at the prescribed rates and deposit it to the credit of the Central Government within the prescribed time.
Tax Deduction and Collection Number (TAN) :
Tax Deduction & Collection Account Number (TAN) is a 10 digit alpha numeric number to be obtained by all persons who are responsible for deducting or collecting tax.
Total Income :
The total income of a person shall include all income which is received or is deemed to be received in India or which accrues or arises or is deemed to accrue or arise in India to the assessee in a particular year. Further, income accruing or arising outside India shall also be included in the total income but only in case of a person resident in India. However, if the person is not ordinarily resident in India, income accruing or arising outside India shall be included in the total income only if it is derived from a business controlled in or a profession set up in India.
Transfer Pricing :
The purpose of transfer pricing is to ensure that transactions between related parties are conducted at arm’s length, meaning the price should be similar to what would be paid in a transaction between unrelated parties.
Under reporting of income :
Underreporting of income means an act of intentionally or unintentionally reporting a lower income or not reporting income at all in the income tax return. The scenario of under reporting of income is mentioned under section 270A.
Unit Linked Insurance Plan :
Unit Linked Insurance Plan is a hybrid investment option which consists of a mix of insurance and investment to serve the needs of the respective investors. The amount of premium of a ULIP scheme is partly towards the insurance of the policyholder and partly towards the investment. The investable portion of the premium is invested in equity, debt, money market or a mix of all based on the goals and risk appetite of the investor.
Updated Return :
An updated return is a return of income that can be filed by a person even after the expiry of time limits specified for the filing of original, belated or revised return of income.
Virtual Digital Assets :
“virtual digital asset” means—
a) any information or code or number or token (not being Indian currency or foreign currency), generated through cryptographic means or otherwise, by whatever name called, providing a digital representation of value exchanged with or without consideration, with the promise or representation of having inherent value, or functions as a store of value or a unit of account including its use in any financial transaction or investment, but not limited to investment scheme; and can be transferred, stored or traded electronically;
b) a non-fungible token or any other token of similar nature, by whatever name called;
c) any other digital asset, as the Central Government may, by notification in the Official Gazette, specify:
Provided that the Central Government may, by notification in the Official Gazette, exclude any digital asset from the definition of virtual digital asset subject to such conditions as may be specified therein.
Tax Audit Glossary
Assessment Year :
Assessment Year means the period of twelve months commencing on the 1st day of April every year.
Books of Accounts :
“Books or books of account” includes ledgers, day-books, cash books, account-books and other books, whether kept in the written form or in electronic form or in digital form or as print-outs of data stored in such electronic form or in digital form or in a floppy, disc, tape or any other form of electro-magnetic data storage device.
The following books of accounts are required to be maintained by a person engaged in a business or profession:
For specified professions other than company secretary and information technology (where gross receipts exceed Rs. 1,50,000 in any of the 3 years immediately preceding the previous year) –
a) Cash book
b) Journal, if books of accounts are maintained according to the mercantile system of accounting
c) Ledgers
d) Carbon copies of bills and carbon copies or counterfoil of receipts issued by the assessee of value exceeding Rs. 25 (must be machine numbered or serially numbered)
e) Original bills issued to the assessee and receipts in respect of the expenditures incurred by him.
f) Signed vouchers, if bills and receipts are not issued and the amount of expenditure does not exceed Rs. 50 if the cash book does not contain adequate particulars in respect of these expenditures.
However, for medical professions, the following additional books are required to be maintained:
a) Daily case register in Form 3C
b) Inventory under broad heads of stock of drugs, medicines, and other consumable accessories used for the purpose of profession, as on the first and last day of the previous year.
For specified professions (in every case), and non-specified professions & businesses where income or gross turnover exceeds the limit – such books of account which may enable the Assessing Officer to compute the taxable income.
Capital Asset: :
The term ‘capital asset’ means:
a) Property of any kind, held by an assessee, whether or not connected with his business or profession;
b) Any securities held by a FII which has invested in such securities in accordance with the SEBI Regulations;
Any unit linked insurance policy to which exemption under Section 10(10D) does not apply on account of applicability of the fourth and fifth proviso [High premium equity oriented ULIPs]
Contingent Liability: :
A contingent liability is a potential liability that may or may not occur, depending on the result of uncertain future events.
Cost of Acquisition: :
The cost of acquisition in respect to a capital asset refers to the cost incurred in acquiring such capital asset. It includes the purchase consideration and any expenditure incurred exclusively for acquiring the capital asset.
Deemed Dividend: :
A deemed dividend is a type of dividend that is not actually paid to the shareholders but is deemed or considered as a dividend. It includes the following:
a) Distribution entailing release of company’s assets
b) Distribution of debentures, or deposit certificates
c) Distribution of bonus shares to preference shareholders;
d) Distribution on liquidation
e) Distribution by company on reduction of its capital; and
f) Loan or advance to shareholders.
Dividend :
Dividend is an appropriation of net profit that an entity pays out to its shareholders. Dividend received is treated as income by the receiver.
Impermissible Avoidance Arrangement: :
An impermissible avoidance arrangement means an arrangement, the main purpose of which is to obtain a tax benefit, and it—
a) creates rights, or obligations, which are not ordinarily created between persons dealing at arm’s length;
b) results, directly or indirectly, in the misuse, or abuse, of the provisions of this Act;
c) lacks commercial substance or is deemed to lack commercial substance under section 97, in whole or in part; or
d) is entered into, or carried out, by means, or in a manner, which are not ordinarily employed for bona fide purposes
Income Computation and Disclosure Standards (ICDS): :
ICDS stands for Income Computation and Disclosure Standards. It is issued by the Central Government in the exercise of the powers conferred by Section 145(2) of the Income-tax Act, 1961 to bring uniformity in the accounting policies and provisions of the Income-tax Act and to reduce litigations.
Interest: :
The term interest means interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) and includes any service fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilised.
Permanent Account Number (PAN) :
The Permanent Account Number (PAN) is a ten-digit alphanumeric number, issued for the purpose of identification of a taxpayer. PAN has to be mentioned in all communications with the Income-tax Dept. and in specified financial transactions which exceed the threshold limit.
Previous Year :
Previous Year means the financial year immediately preceding the assessment year.
In the case of a business or profession newly set up or a source of income newly coming into existence in a financial year, the previous year shall be the period beginning with the date of setting up of the business or profession or the date on which the source of income newly comes into existence and ending with the said financial year.
Receipts: :
Receipts can be classified into two kinds: A) Revenue receipt, B) Capital receipt. Revenue receipts are recurring in nature which includes sales revenue, interest income, rent received, etc. Capital receipts are not earned from regular business operations but result from the disposal of long-term assets. It includes sale of land, buildings, machinery, and investments, etc.
Speculative Transaction: :
Speculative transaction means a transaction in which a contract for the purchase or sale of any commodity including stock and shares is periodically or ultimately settled otherwise than through actual delivery or transfer of the commodity or scrips.
Stamp Duty Value :
“Stamp duty value” means the value adopted or assessed or assessable by any authority of the Central Government or a State Government for the purpose of payment of stamp duty in respect of an immovable property.
Statement of Financial Transaction :
Statement of Financial Transaction (SFT) is a reporting mechanism wherein specified entities are required to provide information about material financial transactions entered into by certain person to the Income-tax Dept.
TDS Return :
A TDS statement (TDS return) is statement of TDS filed by a person responsible for deduction of tax source. It contains particulars related to all deduction of tax made by person during a quarter.
Tax Collected at Source :
Tax Collected at Source is the amount of tax collected by specified person in specified transactions from the buyer or licensee or lessee, etc.
Tax Deducted at Source :
The concept of “Tax Deducted at Source”, commonly known as TDS ensures regular flow of revenue to the Government. The payer of income is required to deduct tax from certain payments at the prescribed rates and deposit it to the credit of the Central Government within the prescribed time.
Tax Deduction and Collection Number (TAN) :
Tax Deduction & Collection Account Number (TAN) is a 10 digit alpha numeric number to be obtained by all persons who are responsible for deducting or collecting tax.
Written Down Value:
The written-down value is the depreciated value of an asset for purposes of computation of depreciation. The WDV of any block of asset is adjusted with the actual cost of asset acquired during the previous year and sale proceeds realised from sale of asset during that year.
Trust Glossary
Accreted Income :
As per Section 115TD, a trust or institution is liable to pay additional income-tax on the accreted income, which arises on conversion of a trust into non-charitable form or on transfer of assets of a charitable trust on its dissolution to a non-charitable institution. The tax on accreted income shall be levied at maximum marginal tax rate and this tax is in addition to income-tax chargeable in hands of trust or institution.
The accreted income is the fair market value (FMV) of the total assets of trust as reduced by the total liability as on the specified date.
Accumulation of Income :
If income applied during the previous year for charitable or religious purpose in India falls short of 85%, the unspent amount is still deemed to be applied for charitable or religious purposes in India if the trust submits a declaration to the Assessing Officer and invest the surplus amount in the modes specified under section 11(5). This setting aside or retaining a part of the income earned by the trust is called accumulation of income.
Anonymous donation :
Anonymous Donation means any voluntary contribution where the person receiving such contribution does not maintain a record of the identity of the donor indicating his name, address, and such other particulars as may be prescribed.
Application of income :
The application of income includes all payments and expenditures for the purpose of charitable and religious purposes in India. Exemption under Section 11 is available to a trust with respect to the income applied for charitable or religious purposes in India. If the income is applied for purposes other than religious or charitable purposes, it shall be taxable under Section 115BBI.
Charitable purpose :
Section 2(15) of the Income-tax Act provides an inclusive definition of ‘charitable purpose’. It includes the following:
a) Relief of Poor;
b) Education;
c) Yoga;
d) Medical Relief;
e) Preservation of the environment (including watersheds, forests, and wildlife);
f) Preservation of monuments or places or objects of artistic or historic interest; and
g) Advancement of any other object of general public utility.
Compliances required for tax audits :
Where assessee is required to get his books of accounts audited under any other law, it is sufficient for him to get his accounts audited under that law and furnish a report of such audit and a report in Form 3CA and 3CD by a chartered accountant by the prescribed due date. In case of others, report in Form 3CB and 3CD shall be furnished.
It is mandatory to file the tax audit report one month prior to the due date of furnishing the return of income under section 139(1) i.e. by the following dates:-
| Situations | Due date for filing of tax audit report |
| If assessee is required to furnish a report of transfer pricing (TP) in Form No. 3CEB | On or Before 31st October of the relevant assessment year |
| In any other case | On or Before 30th September of the relevant assessment year |
Corpus donation :
Corpus donation means any voluntary contributions received by a trust or an institution, created wholly for charitable or religious purposes, with a specified direction that they shall form part of the corpus of the trust or institution.
Deduction :
The income chargeable to tax due to withdrawal of exemption shall be computed after allowing a deduction for expenditure (other than capital expenditure) incurred in India for the objects of the institution. The deduction is allowable subject to the satisfaction of the following conditions:
a) The expenditure is not from the amount of corpus donations credited in the books of account up to the end of the financial year immediately preceding the relevant previous year;
b) The expenditure is not from any loan or borrowing;
c) Depreciation shall not be allowed in respect of an asset whose full cost has been claimed as an application of income;
d) The expenditure is not in the form of a contribution or donation to any person.
However, the income shall be computed without deduction of the following expenditures:
a) No deduction shall be allowed for the capital expenditure;
b) Disallowance shall be made under Section 40(a)(ia) for the default made in deduction of tax;
c) Disallowance shall be made Section 40A(3)/40A(3A) for the payment made in cash;
d) No deduction shall be allowed for the expenditure not incurred in India.
Exemption :
Section 11 provides an exemption to trust or institution in respect of income derived from property held under trust and voluntary contribution subject to various conditions:
a) The property from which the income is derived should be held under the trust;
b) The property should be held for charitable or religious purposes;
c) No part of the income or the property of the trust should be used or applied directly or indirectly for the benefit of certain specified persons;
d) The trust should be registered with the Commissioner within the prescribed time under Section 12AB;
e) Where the income of trust consists of a business income, the business should be incidental to the attainment of the objectives of the trust, and separate books of account are maintained in respect of such business;
f) The accounts of the trust should be audited and the audit report should be furnished in Form 10B or 10BB at least one month prior to the due date of submission of return of income; and
g) The funds of the trust should be invested or deposited in the permissible forms and modes only.
Interested Person :
Section 13 of the Income-tax Act restricts exemption to a charitable or religious trust to the extent of the income applied for the benefit of an interested person. The following persons are categorised as ‘interested person’:
a) The author of the trust or the founder of the institution;
b) Any person who has made a total contribution up to the end of the relevant previous year of an amount exceeding Rs. 50,000;
c) Where the author, founder, or substantial contributor is a HUF, a member of the HUF;
d) Any trustee of the trust or manager of the institution;
e) Any relative of such author, founder, substantial contributor, member, trustee, or manager as aforesaid; and
f) Any concern in which any of the persons referred to above has a substantial interest.
Permissible mode :
“Permissible mode” refers to the ways in which a charitable or religious trust can utilize its income without losing its tax-exempt status. The permissible mode has been specified under section 11 of the Income-tax Act
Public charitable trusts :
Public charitable trusts is a trust whose beneficiaries are the public at large.
Registration :
Any trust or institution can claim exemption under Sections 11 and 12 if it is registered with the Commissioner of Income-tax. Registration under the new provision is allowed for a maximum of 5 years. The application for registration in such cases shall be filed in Form 10AB. After making necessary enquiries, the Commissioner is required to pass an order granting the registration or refusing to grant the registration within 6 months from the end of the month in which the application for registration was received.
Relative :
For the purpose of section 13, relative in relation to an individual means:
(a) Spouse of the individual;
(b) Brother or sister (and their spouses) of the individual;
(c) Brother or sister (and their spouses) of the spouse of the individual;
(d) Any lineal ascendant or descendant (and their spouses) of the individual;
(e) Any lineal ascendant or descendant (and their spouses) of the spouse of the individual;
(f) Any lineal descendant of a brother or sister of either the individual or of the spouse of the individual.
Section 8 Companies :
Section 8 companies are registered under the Company Act, 2013. These companies are formed for a charitable purpose.
Specified Violation :
Section 12AB defines the meaning of ‘Specified Violation’ which is as follows:
a) Application of income other than for the objects;
b) Income from business not incidental to the objects;
c) Separate books not maintained for business incidental to the objects;
d) Application of income not for benefit of the public;
e) Application of income for the private religious community;
f) Activities of trust are not genuine; and
g) Non-compliance with requirements of other law.
Substantial Interest :
For the purpose of section 13, a person is deemed to have a substantial interest in concern if he (or along with ‘interested persons’ as mentioned above) at any time during the previous year:
(a) Holds at least 20% of equity share capital, in case of a company; or
(b) Entitled to at least 20% of profits in the case of any other concern.
Tax Audit :
A taxpayer is required to maintain books of accounts and get them audited. The requirement to maintain the books of accounts is prescribed under Section 44AA and the requirement to get them audited is mentioned in Section 44AB. An assessee shall get the books of accounts audited if its gross turnover or receipts during the relevant previous year exceeds the prescribed threshold limit.
