Key Income‑Tax Definitions under Section 2 of the Income‑tax Act, 1961

Discover essential definitions—Person, Business, Capital Asset, Income, Financial Year, Gross Total Income, Agricultural Income, Firm, HUF, Dividend, TDS—plus every other term defined in Section 2 of the Income‑tax Act, 1961, to file returns accurately and understand your obligations.

Accurate tax compliance in India depends on understanding every term the Act defines. Section 2 of the Income‑tax Act, 1961 contains over 40 definitions that set the groundwork for all subsequent provisions. Below is a complete, consolidated article you can publish directly—covering each definition in turn, followed by practical FAQs and a clear call to action.

Introduction

Section 2 of the Income‑tax Act, 1961 lays out every term—legal, procedural, financial—that appears elsewhere in the law. From “Advance Tax” through “Yield” (where defined), mastery of these definitions ensures precise interpretation of liability, computation, exemptions, and enforcement.

1. Legal Entities & Statuses

1. Assessee
   Any person liable to pay tax or in respect of whom proceedings have been taken under the Act.
2. Assessee in Default
   An assessee who fails to comply with any obligation imposed by the Act (e.g., non‑payment of tax, failure to furnish return).
3. Person
   Includes individual, HUF, company, firm, AOP, BOI, local authority, and any artificial juridical person.
4. Firm
   Association of persons carrying on business under a common name.
5. Hindu Undivided Family (HUF)
   Family unit governed by Hindu law (including Jains, Sikhs, Buddhists), treated as a separate taxable entity of lineal descendants, their wives, and unmarried daughters.
6. Company
   As per Companies Act—public or private entity incorporated under that Act.
7. Local Authority
   Municipal corporation, cantonment board, or any authority legally entitled to or entrusted by law with the control or management of a municipal or local fund.
8. Government Company
   Company in which not less than 51% of paid‑up share capital is held by the Central Government, or by any State Government(s), or partly by the Central Government and partly by one or more State Governments.
9. Authority
   Income‑tax Authorities (as defined separately), Central Board of Direct Taxes, or any other authority empowered by the Act.

2. Timing & Periods

1. Previous Year (PY)
   Financial year immediately preceding the Assessment Year (1 Apr–31 Mar) in which income is earned.
2. Assessment Year (AY)
   The 12‑month period commencing 1 April immediately after the PY, during which that income is assessed.
3. Financial Year
   Synonym for Previous Year.
4. Assessment
   Computation and determination of tax liability under the Act by the Assessing Officer.
5. Assessment Month
   Any month included in the Assessment Year.

3. Computation & Liability

1. Total Income
   Income on which tax is charged after deductions and exemptions.
2. Gross Total Income (GTI)
   Aggregate of incomes under all five heads before deductions under Chapter VI‑A.
3. Income
   Profits and gains under heads (Salary; House‑Property; Business/Profession; Capital Gains; Other Sources), dividends, voluntary contributions to certain funds, and any amount chargeable under the Act.
4. Capital Gains
   Profit or gain arising from the transfer of a capital asset, computed per the capital gains provisions.
5. Capital Asset
   Property of any kind held by an assessee, whether or not connected with business or profession, excluding stock‑in‑trade, consumables, personal effects (non‑business), and rural agricultural land.
6. Agricultural Income
   Rent/revenue from land used for agriculture; income from agricultural operations (including processing to make produce market‑ready); farm‑house income; income from saplings or seedlings in a nursery.
7. Income from Salaries
   Any payment received by an employee—including perquisites, allowances, bonuses—under the employer‑employee relationship.
8. Income from House Property
   Net annual value of property, determined per the Act’s rules, less municipal taxes paid.
9. Income from Business or Profession
   Profits and gains of any business or profession carried on by the assessee.
10. Income from Other Sources
    Income not chargeable under the other heads (e.g., dividends, interest, gifts).

4. Payments & Deductions

1. Advance Tax
   Tax payable in installments as per the prescribed schedule on estimated total income for the year.
2. Tax Deducted at Source (TDS)
   Mechanism where a payer deducts tax on specified payments (salary, interest, professional fees, dividends, etc.) and remits it to the Government; creditable to the payee.
3. Tax Collected at Source (TCS)
   Tax collected by a seller on specified receipts (e.g., sale of scrap, minerals) and remitted to the Government.
4. Deduction
   Amount allowable under the Act (e.g., Chapter VI‑A deductions) subtracted from GTI to arrive at Total Income.
5. Relief
   Exemption or rebate allowed under specific sections (e.g., Section 87A rebate, double taxation relief).

5. Financial Instruments & Transactions

1. Dividend
   Distribution of accumulated profits by a company to its shareholders, including bonus shares to the extent of profits.
2. Securities
   Shares, scrips, stocks, bonds, debentures, or other marketable instruments of a like nature.
3. Royalty
   Consideration for use of, or right to use, any patent, invention, design, trademark, or copyright.
4. Interest
   Income from lending of money or deposits with banks/financial institutions.
5. Fees for Technical Services
   Payment for managerial, technical, or consultancy services.

6. Special Provisions & Miscellaneous

1. Charitable Purpose
   Relief of the poor; education; medical relief; advancement of any other object of general public utility.
2. Political Party
   As defined under the Representation of the People Act, 1951.
3. Specified Entity
   Designated entities (e.g., Infrastructure Debt Fund) notified by the Central Government.
4. International Financial Services Centre (IFSC)
   Jurisdiction notified under the SEZ Act for carrying out financial services.
5. Block of Assets
   Group of assets falling within a class specified for depreciation computation.
6. Associated Person
   Relatives, enterprises under common control, or entities with significant ownership/control ties—defined for certain disallowance provisions.
7. Amalgamation
   Merger of two or more companies per section governing tax neutrality.
8. Form
   Any form prescribed under the Act for returns, statements, certificates, etc.
9. Fund
   Any fund or institution to which voluntary contributions are made and eligible for deduction.
10. Audit
    Examination of accounts by an accountant under Section 44AB.

Conclusion

Section 2’s definitions are the bedrock of the Income‑tax Act. From knowing who qualifies as an “assessee” to understanding “advance tax” schedules, every term shapes your obligations and entitlements. Ensure you reference each definition precisely when preparing returns or advising clients. For tailored assistance—whether filing, planning, or disputing assessments—contact our tax experts or explore our comprehensive Income‑tax resources today.

Frequently Asked Questions

1. Why are all these definitions in Section 2?
   Section 2 centralizes every term so they carry a uniform meaning across the Act’s 298 sections and 23 chapters.
2. How do I apply the definition of “Previous Year”?
   Use the 1 April–31 March period immediately before the AY to determine which income falls in which return.
3. What if a term isn’t in Section 2?
   If undefined there, it takes its ordinary meaning unless a specific section provides its own definition.
4. Where can I see the full text of each definition?
   Refer to the official Income‑tax Act PDF on the Government of India’s legislative website for verbatim wording of every clause in Section 2.