Gross receipts, whether in the form of cash
or property, of the taxpayer received as compensation for independent personal
services, and the gross receipts of the taxpayer derived from a trade, business
or services, including interest, dividends, royalties, rentals, fees or
otherwise.
Grandfather clause
Clause temporarily preserving legislation which exists at
the time a law is modified or a (tax) treaty is concluded (or modified).
Graduated rate
System where the rate of tax increases on
marginal amounts as the amount of taxable income rises. Synonym for progressive
rate.
Goods and sales tax vat
Style multi-stage sales tax
levied on purchases (and lessees). Sellers (and lessors) are generally
responsible for collection.
Global income tax
Income tax that aggregate income from all sources at the
individual (or family unit) level. The income is then taxed at a single
progressive rate.
Generation-skipping tax
Tax imposed to prevent the
avoidance of transfer tax (i.e. estate tax and gift tax) over successive
generations.
Fruit and tree doctrine
A judicial doctrine that an
individual who earns income from property of services may not assign such income
to another person for tax purposes.
Frontier workers
For tax purposes, a frontier worker is
a person who commutes across a border (e.g. on a daily basis) between his place
of residence and his place of employment.
Fringe benefits
Benefits supplementing normal wages or
salaries. Fringe benefits may be given in the form of a money allowance, e.g. a
holiday bonus or in the form of benefits in kind, e.g. free accommodation.
Although most countries tax the benefit of employer-provided automobiles and
accommodation, the tax treatment of other fringe benefits varies
considerably.
Fraud
Tax fraud is a form of deliberate evasion of tax
which is generally punishable under criminal law. The term includes situations
in which deliberately false statements are submitted, fake documents are
produced, etc.
Forfait
In a number of countries tax is sometimes levied
on an estimated taxable base (forfait), particularly in respect of the
imposition of income tax or turnover tax on small enterprises.
Foreign-source income
Generally income realized from
countries outside the country of residence of the taxpayer.
Foreign tax relief
Relief from domestic tax on income
from abroad which has already suffered foreign tax. Generally speaking, two
approaches are taken to foreign tax relief, i.e. the credit method or the
exemption method.
Foreign exchange tax
Special tax imposed on transactions
involving sales of foreign exchange by domestic banking institutions and
authorized exchange brokers.
Force of attraction
Concept under which a permanent
establishment is taxed by the country in which it is located not only on the
income and property, but also on all income derived by its foreign head office
from source in, and all property owned by the foreign head office situated in,
the country where the permanent establishment is located. The OECD model treaty
does not allow application of it.
Floors
The lower limits on tax benefits and detriments,
e.g. in medical expense. A taxpayer must spend more than the floor for a
deduction, and only the amount above the floor is deductible.
Flat tax
A tax applied at the same rate to all levels of
income. It is often discussed as an alternative to the progressive tax.
Fixed income
Income which does not fluctuate over a period of time, such as
interest on bonds and debentures, or dividends from preference shares as opposed
to dividend income from ordinary shares.
Fringe benefits
Benefits supplementing normal wages or
salaries. Fringe benefits may be given in the form of a money allowance, e.g. a
holiday bonus or in the form of benefits in kind, e.g. free accommodation.
Although most countries tax the benefit of employer-provided automobiles and
accommodation, the tax treatment of other fringe benefits varies
considerably.
Fraud
Tax fraud is a form of deliberate evasion of tax
which is generally punishable under criminal law. The term includes situations
in which deliberately false statements are submitted, fake documents are
produced, etc.
Forfait
In a number of countries tax is sometimes levied on an estimated
taxable base (forfait), particularly in respect of the imposition of income tax
or turnover tax on small enterprises.
Foreign-source income
Generally income realized from
countries outside the country of residence of the taxpayer.
Foreign tax relief
Relief from domestic tax on income
from abroad which has already suffered foreign tax. Generally speaking, two
approaches are taken to foreign tax relief, i.e. the credit method or the
exemption method.
Foreign exchange tax
Special tax imposed on transactions
involving sales of foreign exchange by domestic banking institutions and
authorized exchange brokers.
Force of attraction
Concept under which a permanent
establishment is taxed by the country in which it is located not only on the
income and property, but also on all income derived by its foreign head office
from source in, and all property owned by the foreign head office situated in,
the country where the permanent establishment is located. The OECD model treaty
does not allow application of it.
Floors
The lower limits on tax benefits and detriments,
e.g. in medical expense. A taxpayer must spend more than the floor for a
deduction, and only the amount above the floor is deductible.
Flat tax
A tax applied at the same rate to all levels of
income. It is often discussed as an alternative to the progressive tax.
Fixed income
Income which does not fluctuate over a
period of time, such as interest on bonds and debentures, or dividends from
preference shares as opposed to dividend income from ordinary shares.
Fiscal transparency
"Looking through" an entity and
attributing profits and losses directly to the entity's members. The profits of
certain forms of enterprises are taxed in the hands of the members rather than
at the level of the enterprise. Often occurs in the case of a partnership for
example.
Final tax
Under tax treaties the withholding tax charged
by the country of source may be limited to a rate lower than the rate which
would be charged in other circumstances - this reduced rate is then the final
tax in the country of source.
Fee
Fees charged by central or local governments can be
distinguished from taxes when they are charged as payments for the supply of
particular services by the authorities. Fees are usually not considered taxes
when listing taxes to be included in a double tax treaty.
Extended limited tax liability
Principle according to
which certain taxpayers (i.e. those subject to individual income tax, net worth
tax and succession duty) who leave a tax jurisdiction and move to a low-tax
country are subject to taxation in the former country of residence for a certain
period of time after the move
Export duty
Tax levied on exports of basic commodities
entering into world trade, such as rubber, copper, palm oil, sisal, tea, cocoa
and coffee
Expenses
Costs that are currently deductible, as opposed
to capital expenditures, which may not be currently deducted but must be
depreciated or amortized over the useful life of the property.
Expatriation rules
Rules under which a taxpayer continues to be subject to
tax when he relinquishes his residence or his citizenship in order to avoid tax
Exemptions
Tax laws frequently provide specific
exemptions for persons, items or transactions, etc. which would otherwise be
taxed. Exemptions may be given for social, economic or other reasons.
Exclusions
Term used to describe income which is exempt,
i.e. not included, in the calculation of gross income for tax purposes.
Exchange of information
Most tax treaties contain a
provision under which the tax authorities of one country may request the tax
authorities of the other country to supply information on a taxpayer.
Information may only be used for tax purposes in the receiving country and it
must be kept confidential, i.e. it can only be disclosed to the persons or
authorities concerned with the assessment or collection of taxes covered by the
treaty.
Examination
The checking of a taxpayer's tax return, accounts,
self-assessment calculations, etc. The process may or may not include an audit
of the taxpayer's own books
Evasion
A term that is difficult to define but which is
generally used to mean illegal arrangements where liability to tax is hidden or
ignored, i.e. the taxpayer pays less tax than he is legally obligated to pay by
hiding income or information from the tax authorities.
Estimated assessment
For income tax purposes, where the
records kept, particularly by small traders, are inadequate for a precise
calculation of tax due, it may be necessary for the taxable income or profits to
be calculated by the tax authorities on the basis of an estimate.
Equal treatment
General principle of taxation that
requires that taxpayers pay an equal amount of tax if their circumstances are
equal.
Environmental tax
Tax imposed for environmental reasons, e.g. to provide an
incentive to reduce certain emissions to an optimal level or taxes on
environmentally harmful products.
Entity
n general for tax purposes, an organization, person or party that possesses separate existence. Options include corporations, partnerships, estates and trusts.
Effective tax rate
Effective tax rate
The rate at which a taxpayer would be taxed if his tax liability were taxed at a constant rate rather than progressively. This rate is computed by determining what percentage the taxpayer's tax liability is of his total taxable income.
The rate at which a taxpayer would be taxed if his tax liability were taxed at a constant rate rather than progressively. This rate is computed by determining what percentage the taxpayer's tax liability is of his total taxable income.
Earnings stripping
Earnings stripping
Practice of reducing the taxable income of a corporation by paying excessive amounts of interest to related third parties.
Practice of reducing the taxable income of a corporation by paying excessive amounts of interest to related third parties.
Earnings before taxes
Earnings before taxes
Sales revenue less cost of sales, operating expenses, and interest, before taxes have been paid
Sales revenue less cost of sales, operating expenses, and interest, before taxes have been paid
Dual residence
Dual residence
Person or company resident in two or more countries under the law of those countries, because the two countries adopt different definitions of residence.
Person or company resident in two or more countries under the law of those countries, because the two countries adopt different definitions of residence.
Double taxation, economic and juridical
Double taxation, economic and juridical
Double taxation is juridical when the same person is taxed twice on the same income by more than one state. Double taxation is economic if more than one person is taxed on the same item.
Double taxation is juridical when the same person is taxed twice on the same income by more than one state. Double taxation is economic if more than one person is taxed on the same item.
Double taxation, domestic and international
Double taxation, domestic and international
Domestic double taxation arises when comparable taxes are imposed within a federal state by sovereign tax jurisdictions of equal rank. International double taxation arises when comparable taxes are imposed in two or more states on the same taxpayer in respect of the same taxable income or capital, e.g. where income is taxable in the source country and in the country of residence of the recipient of such income.
Domestic double taxation arises when comparable taxes are imposed within a federal state by sovereign tax jurisdictions of equal rank. International double taxation arises when comparable taxes are imposed in two or more states on the same taxpayer in respect of the same taxable income or capital, e.g. where income is taxable in the source country and in the country of residence of the recipient of such income.
Direct tax
Direct tax
Direct taxes are taxes imposed on income, capital gains and net worth. Gift tax, death duties and property tax are also considered direct taxes.
Direct taxes are taxes imposed on income, capital gains and net worth. Gift tax, death duties and property tax are also considered direct taxes.
Direct charge method a
Direct charge method a
Method of charging directly for specific intra-group services on a clearly identified basis.
Method of charging directly for specific intra-group services on a clearly identified basis.
Destination principle
Destination principle
Principle under a VAT regime which mandates that VAT on goods be paid in the country where the purchaser is resident (i.e. the country of consumption) at the rate that would have applied had the goods been purchased from a domestic supplier.
Principle under a VAT regime which mandates that VAT on goods be paid in the country where the purchaser is resident (i.e. the country of consumption) at the rate that would have applied had the goods been purchased from a domestic supplier.
Depletion
Depletion
Deductible expense which reflects the decrease of a natural resource due to extraction of the resource
Deductible expense which reflects the decrease of a natural resource due to extraction of the resource
Dependent personal services
Dependent personal services
The OECD model tax treaty provides rules for the treatment of salaries, wages and other similar remuneration (i.e. employment income) under the heading "dependent personal services". As a general rule, with some exceptions, the right to tax income from dependent personal services is allocated to the country where the employment activities are exercised.
The OECD model tax treaty provides rules for the treatment of salaries, wages and other similar remuneration (i.e. employment income) under the heading "dependent personal services". As a general rule, with some exceptions, the right to tax income from dependent personal services is allocated to the country where the employment activities are exercised.
Deficiency
Deficiency
The excess of a taxpayer's correct tax liability for the taxable year over the amount of taxes previously paid for that year.
The excess of a taxpayer's correct tax liability for the taxable year over the amount of taxes previously paid for that year.
Deferred income
Deferred income
Term used to describe income which will be realized at a future date, thus delaying any tax liability.
Term used to describe income which will be realized at a future date, thus delaying any tax liability.
Deferment of tax
Deferment of tax
The postponement of tax payments from the current year to a later year. A number of countries have introduced legislation to counter the kind of tax avoidance whereby a taxpayer obtains a deferment of tax which is not intended by law. Ex) CFC legislation
The postponement of tax payments from the current year to a later year. A number of countries have introduced legislation to counter the kind of tax avoidance whereby a taxpayer obtains a deferment of tax which is not intended by law. Ex) CFC legislation
Deductions
Deductions
Deduction denotes, in an income tax context, an item which is subtracted (deducted) in arriving at, and which therefore reduces, taxable income.
Deduction denotes, in an income tax context, an item which is subtracted (deducted) in arriving at, and which therefore reduces, taxable income.
Current assets
Current assets
The cash, accounts receivable, inventory, and other assets that are likely to be converted into cash, sold, exchanged, or expensed in the normal course of business, usually within a year.
The cash, accounts receivable, inventory, and other assets that are likely to be converted into cash, sold, exchanged, or expensed in the normal course of business, usually within a year.
Credit, withholding tax
Credit, withholding tax
Various kinds of income (such as dividends, interest, royalties) are taxed at source by requiring the payer to deduct tax and account for it to the tax authorities (abroad). The taxpayer recipient is entitled to credit the tax withheld at source against his final tax liabilities determined by (domestic) tax law of the country in which he is resident.
Various kinds of income (such as dividends, interest, royalties) are taxed at source by requiring the payer to deduct tax and account for it to the tax authorities (abroad). The taxpayer recipient is entitled to credit the tax withheld at source against his final tax liabilities determined by (domestic) tax law of the country in which he is resident.
Debt/equity ratio
Debt/equity ratio
Relationship of total debt of a company to its ordinary share capital. If a corporate debt is disproportionately high in comparison with its equity, the debt may be recharacterised as equity, resulting in a disallowance of the interest deduction and taxation of the funds as dividends.
Relationship of total debt of a company to its ordinary share capital. If a corporate debt is disproportionately high in comparison with its equity, the debt may be recharacterised as equity, resulting in a disallowance of the interest deduction and taxation of the funds as dividends.
Debt dumping
Debt dumping
Transferring a bad debt to a group company located in a higher-tax rate country in order to write off the debt in that country.
Transferring a bad debt to a group company located in a higher-tax rate country in order to write off the debt in that country.
De minimis
De minimis
Phrase used in connection with circumstances in which the full rigour of the tax law is not enforced because, in particular, of the small amount or minor breach which may be involved, particularly in the context of under-assessed or underpaid tax which are not pursued on "de minimis" grounds.
Phrase used in connection with circumstances in which the full rigour of the tax law is not enforced because, in particular, of the small amount or minor breach which may be involved, particularly in the context of under-assessed or underpaid tax which are not pursued on "de minimis" grounds.
Credit, withholding tax
Credit, withholding tax
Various kinds of income (such as dividends, interest, royalties) are taxed at source by requiring the payer to deduct tax and account for it to the tax authorities (abroad). The taxpayer recipient is entitled to credit the tax withheld at source against his final tax liabilities determined by (domestic) tax law of the country in which he is resident.
Various kinds of income (such as dividends, interest, royalties) are taxed at source by requiring the payer to deduct tax and account for it to the tax authorities (abroad). The taxpayer recipient is entitled to credit the tax withheld at source against his final tax liabilities determined by (domestic) tax law of the country in which he is resident.
Credit, underlying (indirect) tax
Credit, underlying (indirect) tax
In relation to a dividend, credit for underlying tax is credit for the tax levied on the profits of the company out of which the dividends have been paid. Such relief may be given either under a tax treaty or in accordance with unilateral provisions.
In relation to a dividend, credit for underlying tax is credit for the tax levied on the profits of the company out of which the dividends have been paid. Such relief may be given either under a tax treaty or in accordance with unilateral provisions.
Credit, tax
Credit, tax
Allowance of deduction from or a direct offset against the amount of tax due as opposed to an offset against income.
Allowance of deduction from or a direct offset against the amount of tax due as opposed to an offset against income.
Credit, foreign tax
Credit, foreign tax
A method of relieving international double taxation. If income received from abroad is subject to tax in the recipient's country, any foreign tax on that income may be credited against the domestic tax on that income. The theory is that this means foreign and domestic earnings of an entity will as far as possible be similarly taxed, although usually the credit allowed is limited to the amount of domestic tax, with no carry over if tax is higher abroad.
A method of relieving international double taxation. If income received from abroad is subject to tax in the recipient's country, any foreign tax on that income may be credited against the domestic tax on that income. The theory is that this means foreign and domestic earnings of an entity will as far as possible be similarly taxed, although usually the credit allowed is limited to the amount of domestic tax, with no carry over if tax is higher abroad.
Corresponding adjustment
An adjustment to the tax liability of the associated
enterprise in a second jurisdiction made by the tax administration of that
jurisdiction, corresponding to a primary adjustment made by the tax
administration in a first tax jurisdiction, so that the allocation of profits by
the two jurisdictions is consistent
Corporation shopping
Term sometimes used in addition to
treaty shopping to denote the use of tax treaty provisions by interposing a
company instead of a different form of association for which tax relief would
not been available.
Control
The capacity of one person to ensure that
another person acts in accordance with the first person's wishes, or the
exercise of that capacity. The exercise of control by one person over another
could enable individuals and corporations to avoid or reduce their tax
liability. A company is usually regarded as controlling another company if it
holds more than 50% of the latter company's voting shares. However, the
definitions vary according to country and situation.
Constructive ownership
A taxpayer may be considered to own property or stock
which he only indirectly owns.
Constructive dividend
A variety of payments whether in
cash or in kind made by companies to shareholders or associated persons, which
are not expressed as dividends, may nevertheless be regarded by the tax law as
distributions of profits and treated for tax purposes as if they were
dividends.
Consolidated tax return
A combined tax return in the
name of the parent company filed by companies organized as a group.
Competent authority (ca)
Forum to resolve disputes
arising from the application and/or interpretation of a double tax treaty. Both
treaty countries appoint a representative (frequently the Ministry of Finance or
its authorized representative) as the CA to assist aggrieved taxpayers by acting
as the official liaison with the foreign CA. The CA is generally indicated in
the definitions sections of tax treaties.
Compensating adjustment
An adjustment in which the
taxpayer reports a transfer price for tax purposes that is, in the taxpayer's
opinion, an arm's length price for a controlled transaction, even though this
price differs from the amount actually charged between the associated
enterprises. This adjustment would be made before the tax return is filed.
Comparable uncontrolled price (cup) method
A transfer
pricing method that compares the price for property or services transferred in a
controlled transaction to the price charged for property or services transferred
in a comparable uncontrolled transaction in comparable circumstances.
Central management and control
Where the central
management and control is located is a test for establishing the place of
residence of a company. Broadly speaking, it refers to the highest level of
control of the business of a company.
Cash basis (cash method)
The accounting method which
recognizes income and deductions when money is received or paid.
Carryover
A process by which the deductions or credits
of one taxable year that cannot be used to reduce tax liability in that year are
applied against a tax liability in subsequent years (carryforward) or previous
years (carryback).
Captive bank
Wholly owned subsidiary of a multinational
group of companies whose purpose is to provide banking service to the group and
those with whom the group deals. A captive bank is generally located in a tax
haven in order to avail itself of the low capital requirements and freedom from
exchange control.
Capital expenditure
Expenditure on improvement rather
than repair. Where expenditure is more closely connected with the business
income-earning structure than its income earning capacity, it is capital
expenditure.
Buy-out payment
Compensation that a participant who
withdraws from an already active CCA may receive from the remaining participants
for an effective transfer of its interests in the results of past CCA
activities.
Buy-in payment
A payment made by a new entrant to an
already active CCA (Cost Contribution Arrangements) for obtaining an interest in
any results of prior CCA activity.
Business purpose test
Test used as a weapon against tax
avoidance schemes. Artificial schemes which create circumstances under which no
tax or minimal tax is levied may be disregarded if they do not serve a "business
purpose".
Branch tax
Tax imposed on branches of foreign companies in addition to the
normal corporate income tax on the branch's income. This is equivalent to the
tax on dividends which would be due if the branch had been a subsidiary of the
foreign company and had distributed its profit as dividends
Brackets
Term used in connection with graduated system of taxation to
refer, for example, to the slabs or slices of taxable income subject to
particular rates of income tax.
Book value
The value of individual asset as recorded in
the accounting records of a taxpayer, calculated as actual cost less allowances
for any depreciation.
Best method rule
Transfer pricing rule requiring that a
taxpayer use the transfer pricing method that results in the most reliable
measure of an arm's length price. This rule doesn't prescribe priorities between
various methods.
Benefits in kind
Term which refers to earnings, usually
from employment, other than in cash, as part of compensation for services
rendered.
Benefit test
In considering whether a company may be allowed to deduct, as an
expense, payments made to a related company in a multinational group on account
of expenses incurred by that related company in providing intra-group services,
tax authorities would refuse a deduction unless a real benefit had been
conferred on the company claiming the deduction.
Beneficial owner
A person who enjoys the real benefits of ownership, even
though the title to the property is in another name. Often important in tax
treaties, as a resident of a tax treaty partner may be denied the benefits of
certain reduced withholding tax rates if the beneficial owner of the dividends
etc is resident of a third country.
Bearer securities
Stocks, bonds, etc. in which ownership can be transferred
from one holder to another without registration of the transaction by the
issuing company, that is, title passes with delivery.
Base company
Company situated in a low-tax or non-tax
country (i.e. tax haven), which is used to shelter income and reduce taxes in
the taxpayer's home country. Base companies carry on certain activities on
behalf of related companies in high-tax countries (e.g. management services) or
are used to channel certain income, such as dividends, interest, royalties and
fees.
Bank secrecy provisions
Provisions which require that a
bank refuse to disclose information about its customers to third parties,
including the tax authorities.
Balancing payment
A payment, normally from one or more participants to
another, to adjust participants' proportionate shares of contributions, that
increases the value of the contributions of the payer and decreases the value of
the contributions of the payee by the amount of the payment, in the context of
CCA (Cost Contribution Arrangements).
Bad debt
Debt which is unlikely to be paid. Bad debts may usually be treated
as losses and written off against a reserve for such debts.
Avoidance
A term that is difficult to define but which
is generally used to describe the arrangement of a taxpayer's affairs that is
intended to reduce his tax liability and that although the arrangement could be
strictly legal it is usually in contradiction with the intent of the law it
purports to follow. Cf. evasion
Auxiliary company
Company which is part of a group of
companies and which supplies auxiliary services to group companies.
Auxiliary activities
A fixed place of business through
which an enterprise exercises solely an activity which has, for the enterprise,
a preparatory or auxiliary character, is, under tax treaties generally, deemed
not to be a permanent establishment. The decisive criterion is whether the
activity of the fixed place of business in itself forms an essential and
significant part of the activity of the enterprise as a whole.
Audit
Examination and verification carried out by an
outside agency (such as an accountancy firm or the tax authorities) of a
taxpayer's books and accountants and/or the general accuracy of returns and
declarations, either as a routine operation, or where evasion is
suspected.
Arbitrage, tax
Process of entering into a tax motivated
transaction (i.e. to obtain profit from the application of tax rules).
Amortization method
Method of computing a credit under a
VAT regime where investment goods are purchased which have a useful life in the
business for a period exceeding one year. The tax embodied in the price paid for
the assets may be credited to the trader over a period of years corresponding to
the life of the assets.
Allowance
Deduction or exemptions generally made in
computing income taxes, inheritance and gift taxes and some forms of sales
taxes
Alienation of income
Term generally used to describe the transfer of the
right to receive income from a source while not necessarily transferring the
ownership of that source to the same person
Alien, tax treatment of
A person who is not a citizen of
the country in which he or she lives. In general, most countries do not
distinguish between nationals and aliens for tax purposes; rather tax liability
is based on residence and/or domicile
Aggregation
Term used to denote the adding together of
the taxpayer's income from all sources in order to determine the applicable tax
rate for income tax purposes.
Agency
A business that provides a particular service to
a company (that are outside of the country where the agency is located).
Dependent agency constitutes a permanent establishment for the other company and
the income achieved through the agency is taxed on the income earned from the
country where the agency is located whereas independent agency does not.
Affiliation privilege
Tax relief or exemption accorded
to dividend distributions made by a resident subsidiary company to its parent
company which owns a certain minimum percentage of shares, in order to mitigate
double taxation of such dividends.
Affiliation privilege
Tax relief or exemption accorded
to dividend distributions made by a resident subsidiary company to its parent
company which owns a certain minimum percentage of shares, in order to mitigate
double taxation of such dividends.
Advance ruling
A letter ruling, which is a written
statement, issued to a taxpayer by tax authorities, that interprets and applies
the tax law to a specific set of facts
Advance pricing arrangement (apa)
An arrangement that
determines, in advance of controlled transactions, an appropriate set of
criteria (e.g. method, comparables and appropriate adjustments thereto, critical
assumptions as to future events) for the determination of the transfer pricing
for those transactions over a fixed period of time. An advance pricing
arrangement may be unilateral involving one tax administration and a taxpayer or
multilateral involving the agreement of two or more tax administrations.
Administrative expenses
Expenses that are not as easily
associated with a specific function as are the direct costs of manufacturing and
selling. It typically includes expenses of the headquarters office and
accounting expenses.
Accrual basis (accrual method)
An accounting method
whereby income and expense items are included in taxable income or expense as
they are earned or incurred, rather than when they are received or paid
Accounts receivable
A list of the money owed on current
account to a creditor, which is kept in the normal course of the creditor's
business and represents unsettled claims and transactions
Accounts payable
A list of the debts currently owed by a
person or business, mainly for the purchase of services, inventory, and
supplies
Accounting records
All documents and books used in the preparation of the tax
return and all financial statements, including general ledger, subsidiary
ledgers, sales slips, and invoices
Accounting basis
Method of calculating amounts subject
to income tax and VAT. In respect of VAT, tax would be computed as a percentage
levy on the excess of sales over purchases. This is a theoretical concept and no
country uses it.
Accelerated depreciation
Method of depreciation under
which taxpayers may allocate larger depreciation deductions to the first year or
first few years of useful business assets, such as plant and machinery
Abuse of law
The doctrine which allows the tax
authorities to disregard a civil law form used by the taxpayer which has no
commercial basis
Abatement
Abatement
A reduction in the assessment of tax, penalty or interest when it is determined the assessment is incorrect
A reduction in the assessment of tax, penalty or interest when it is determined the assessment is incorrect
Why should I pay income tax?
When your income exceeds
the limit set by the income tax department (scroll down for more details), you
will have to pay tax on the excess income you earn. It is calculated for the
period from April 1 to March 31. This period is referred to as a financial or
previous year. The tax money garnered is used for the country's
development.
Why should I file income tax returns?
If you have earned
income, which is more than the minimum exempt slab during the year then you must
pay tax. For men the minimum exempt slab is Rs 150,000 and Rs 180,000 for
women.
Who is a resident of India?
If you have spent more than
182 days in India then you are considered as a resident irrespective of your
citizenship.
Who are my relatives?
• Your wife or husband
• Your brother or sister
• Your wife or husband's brother or sister
• Your parents
• Your wife or husband's parents
• Your parents' brothers and sisters
• Your wife or husband's parents' brothers and sisters
• Legal heir, if any
• Your brother or sister
• Your wife or husband's brother or sister
• Your parents
• Your wife or husband's parents
• Your parents' brothers and sisters
• Your wife or husband's parents' brothers and sisters
• Legal heir, if any
Which ITR Form is applicable to me?
There are four forms listed below. Choose
your category, accordingly.
If your income is from salary, pension, family pension and interest > ITR 1
Individuals and HUFs* with income from any source other than business or profession > ITR 2
Individuals and HUFs who are partners in a partnership firm and do not have any proprietary business or profession > ITR 3
Individuals and HUFs who have a proprietary business or profession > ITR 4
If your income is from salary, pension, family pension and interest > ITR 1
Individuals and HUFs* with income from any source other than business or profession > ITR 2
Individuals and HUFs who are partners in a partnership firm and do not have any proprietary business or profession > ITR 3
Individuals and HUFs who have a proprietary business or profession > ITR 4
Where do I file my income tax returns?
Normally, there
are separate wards (sub offices of the regional income tax office) assigned for
filing your tax returns. Within these wards are circles or divisions (sub
offices of wards) for separate classes of people. For instance, if you are a
salaried person, you will have to file your returns in a separate ward or
circle, which will be different from a government or a private employee filing
his returns. Similarly, if your income is less than Rs 10 lakh, a separate ward
will be assigned to you and if it's more than Rs 10 lakh it will again be
different ward
What should I keep in mind while filing my returns?
• Avoid overwriting and
correction on the form.
• The form must be properly signed.
• The document should be filled in block letters.
• Enter the correct PAN number.
• Proof of investment to be attached.
• Original TDS certificates and challans for payments of advance tax and self assessment tax.
• Mention the date, correctly.
• The form must be properly signed.
• The document should be filled in block letters.
• Enter the correct PAN number.
• Proof of investment to be attached.
• Original TDS certificates and challans for payments of advance tax and self assessment tax.
• Mention the date, correctly.
What is the period for which my income is calculated?
Income earned during the financial year i.e. from April 1 to
March 31 is taken into account while calculating tax. Financial year is known as
previous year under Income Tax Act.
Can anyone else sign the form on my behalf?
Yes, in
certain situations. For instance, if you have been away from India and want to
file your tax returns, somebody else can sign on your behalf provided you have
authorised him (or her) to do so.
What is considered as income?
If you are a salaried person, your salary from
your employer will be treated as income. On the other hand for a businessman,
the net profit will be considered as income.
In all there are five heads for income as follows:
Salary
Property rental income
Income from business/profession: This applies for entrepreneurs and small business people who don't get a regular salary income. Some examples are doctors, lawyers, etc
Capital gains such as profit from sale of house, land, gold, etc
Income from other sources such as interest received on bank deposits, winnings from lotteries or game shows, etc
In all there are five heads for income as follows:
Salary
Property rental income
Income from business/profession: This applies for entrepreneurs and small business people who don't get a regular salary income. Some examples are doctors, lawyers, etc
Capital gains such as profit from sale of house, land, gold, etc
Income from other sources such as interest received on bank deposits, winnings from lotteries or game shows, etc
What is assessment year? What is the difference between assessment and previous year?
In simple terms, assessment year means the current year and previous
year means the last or financial year. For example, if you are filing your tax
now, year 2007-08 will be considered as previous year and 2008-09 will be
considered as assessment year.
What documents do I need to file my income tax return?
Form 16: Your employer will give you this form. It has information
about the income earned and the tax deducted from your salary during the
year.
Form 16A: This form is also called a TDS certificate and is for tax deducted at source on other income such as interest on bank deposit. It is given to you by financial institutions such as banks or companies, which deduct tax at source every month or year.
Summary of all bank accounts or passbooks: You need a summary of all bank transactions carried out during the financial year, which include income earned, investments made, expenses etc.
Property details: If you have purchased or sold any property during the year, you will need the details. If the property bought is on loans, do keep a copy of the home loan details with you. If you sold your property then you may be eligible for capital gain tax.
Interest certificate: You need this certificate if you have taken a loan from a bank or financial institution, to buy a house.
Broker contract notes: Bills for sale and purchase of shares and dividends.
Investment details that have not been disclosed in form 16. For example if you have invested in tax-saving tools such as life insurance, Public Provident Fund and it is not mentioned in form 16 issued by your employer, you need the proof of investment.
Tax payment challan, if any: If you have paid advance tax, you need to attach the proof.
Form 16A: This form is also called a TDS certificate and is for tax deducted at source on other income such as interest on bank deposit. It is given to you by financial institutions such as banks or companies, which deduct tax at source every month or year.
Summary of all bank accounts or passbooks: You need a summary of all bank transactions carried out during the financial year, which include income earned, investments made, expenses etc.
Property details: If you have purchased or sold any property during the year, you will need the details. If the property bought is on loans, do keep a copy of the home loan details with you. If you sold your property then you may be eligible for capital gain tax.
Interest certificate: You need this certificate if you have taken a loan from a bank or financial institution, to buy a house.
Broker contract notes: Bills for sale and purchase of shares and dividends.
Investment details that have not been disclosed in form 16. For example if you have invested in tax-saving tools such as life insurance, Public Provident Fund and it is not mentioned in form 16 issued by your employer, you need the proof of investment.
Tax payment challan, if any: If you have paid advance tax, you need to attach the proof.
What are the charges if I file income tax returns after the due date?
You may have to pay a penalty up to Rs 5,000
What are the benefits of filing my income tax returns?
One, it's your obligation to file your income tax returns. There may
be legal consequences for not doing so.
Two, tax paid is utilised for the development of the nation. Last but not the least, it will help you to be in the good books of the financial institutions such as banks. It's useful when you apply for a loan since you need to submit a copy of your income tax returns when applying for a loans.
Two, tax paid is utilised for the development of the nation. Last but not the least, it will help you to be in the good books of the financial institutions such as banks. It's useful when you apply for a loan since you need to submit a copy of your income tax returns when applying for a loans.
What are receipts? Are all receipts considered as income?
A receipt is your entire income before tax deductions. Not all
receipts are considered as income. Basically, they are of two kinds:
1. Capital receipt: This is the income earned by selling the source or asset. For example, income earned from selling a property, gold, etc.
2. Revenue receipt: Income from source such as salary, interest accrued on deposits, rent from property is termed as revenue receipt.
1. Capital receipt: This is the income earned by selling the source or asset. For example, income earned from selling a property, gold, etc.
2. Revenue receipt: Income from source such as salary, interest accrued on deposits, rent from property is termed as revenue receipt.
Is the income tax act applicable only to residents?
It
is applicable to both residents and non-residents. If you earn income in India
then you would have to pay more taxes even if you are a non-resident of the
country.
If I have paid more tax when filing my returns, will it be refunded?
Yes, the excess amount will be refunded by cheque or direct credit
into your bank account.
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Disclaimer: While we have made efforts to ensure the accuracy of our content (consisting of articles and information), neither this website nor the author shall be held responsible for any losses/ incidents suffered by people accessing, using or is supplied with the content.
Do I need to pay tax on gifts received?
Gift received in cash, which exceed
Rs 50,000, are taxable. However, gift tax is not applicable in the following
situations:
• Cash received from a relative
• Cash received on the occasion of marriage
• Cash received through a will or inheritance
• Cash received from a relative
• Cash received on the occasion of marriage
• Cash received through a will or inheritance
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