PROJECT REPORT ON

“A STUDY ON TAXATION ON PROPRIETORSHIP AT

DOMESTIC LEVEL”
A PROJECT SUBMITTED TO

UNIVERSITY OF MUMBAI FOR COMPLETION OF THE DEGREE

MASTER IN COMMERCE

FACULTY OF COMMERCE

(ADVANCED ACCOUNTING)

BY

RAKHI KHEMRAJ SHARMA

ROLL NO. 11 YEAR:2019-2020
EXAM SEAT NO._______YEAR:2019-2020

UNDER THE GUIDANCE OF

PROF. MOHD.NISHAT SARFARAAZ AHMED ANSARI

GOVERNMENT OF MAHARASHTRA
ISMAIL YUSUF COLLEGE
OF ARTS SCIENCE & COMMERCE
JOGESHWARI (EAST)-400060
 PROJECT REPORT ON
“A STUDY ON TAXATION ON PROPRIETORSHIP AT
DOMESTIC LEVEL”
A PROJECT SUBMITTED TO

UNIVERSITY OF MUMBAI FOR COMPLETION OF THE DEGREE

MASTER IN COMMERCE

FACULTY OF COMMERCE

(ADVANCED ACCOUNTING)

BY

RAKHI KHEMRAJ SHARMA

ROLL NO. 11 YEAR:2019-2020
EXAM SEAT NO.______YEAR:2019-2020

UNDER THE GUIDANCE OF

PROF. MOHD.NISHAT SARFARAAZ AHMED ANSARI

GOVERNMENT OF MAHARASHTRA
ISMAIL YUSUF COLLEGE
OF ARTS SCIENCE & COMMERCE
JOGESHWARI (EAST)-400060
 ACKNOWLEDGMENT

To list who all have helped me is difficult because they are so numerous and the depth is so
enormous.

I would like to acknowledge the following as being idealistic channels and fresh dimensions
in the completion of this project.

I take this opportunity to thank the University of Mumbai for giving me chance to do this
project.

I would like to thank my principal Dr. Swati Wavhal for providing the necessary facilities
required for completion of this project.

I take this opportunity to thank our coordinator Shri.N.G.Gokani for her moral support and
guidance.

I would also like to express my sincere gratitude towards my project guide Mr. Mohd.
Nishant Sarfaraaz Ahmed Ansari whose guidance and care made the project successful.

Lastly, i would like to thank each and every person who directly and indirectly helped me in
the completion of the project especially my parents and peers who supported me
throughout my project.

Date:

RAKHI KHEMRAJ SHARMA

 CERTIFICATE

This is certify that Ms. RAKHI KHEMRAJ SHARMA has worked and duly completed her
project work for the degree of MASTER IN COMMERCE in the faculty of commerce in the
subject of ACCOUNTANCY on Title of project work to be written “A STUDY ON
TAXATION ON PROPRIETORSHIP AT DOMESTIC LEVEL’’ under my
supervision. It is her own work and facts reported by her personal findings and
Investigation.

MR. MOHD. NISHAT SARFARAAZ AHMED ANSARI

Name & Signature of Guide Date of submission

Name and signature of professor in charge/principal of the college.

Stamp of the college with Date.

 DECLARATION

I the undersigned Ms. RAKHI KHEMRAJ SHARMA here by, declare that this
project work titled “A STUDY ON TAXATION ON PROPRIETORSHIP
AT DOMESTIC LEVEL’’ is result of my own research work and has not
been previously submitted to any other university for any other examination.

I, here by further declare that all information of this document has been
obtained and presented in accordance with academic rules and ethical
conduct.

College Seat No. 11 Year 2019-2020

Exam Seat No.______________ Year2019-2020

Date: Name & Signature Of the Research.

Place:

Mumbai

Scholar:
 INDEX

SR. NO TITLE PG. NO

chapter Introduction 1- 61
1
1.1.Introductionofsoleproprietorship 2
1.2.Definitionsofsoleproprietorship 2
1.3.Brief profile of the study on taxation of
Sole proprietorship in India 3
1.4.The History of sole proprietorship 45
1.5.Characteristicsofsoleproprietorship 45
1.6.Advantages of taxation of sole 48
proprietorship
1.7.Disadvantages of taxation of sole 51
proprietorship
1.8.Objective of sole proprietorship 53
1.9.Scope of sole proprietorship 55
1.10 Documents required for sole proprietors 57

Chapter Research Methodology 63- 66

2
2.1.Introduction 64
2.2.Sample Design 64
2.3.Sample Technique 64
2.4.Method of Data 64
collection
2.5.Populatio 65
2.6. limitation of research 65
2.7.Objective 65
2.8.Hypotheis 66
Chapter Review of Literature 67- 71
3
3.1.Introduction 68
3.2.Purpose 68
3.3.Importance of review of literature 68
3.4.Sources of literature review 69
3.5.Review of literature 70
3.6.Research Gap 71
Chapter Data Presentation & Data Analysis 72-88
4

4.1.Introduction 73
4.2.Data Analysis, , Interpretation of research 73
Chapter Finding, Suggestions & Conclusion 89-91
5
5.1.Finding 90
5.2.Suggestions 91
5.3.Conclusion 91
Chapter Bibliography 92
6

Chapter Appendix 93-100

7
 CHAPTER 1

1. INTRODUCTION

1.1Introduction of Sole Proprietorship

1.2Definitions of Sole Proprietorship

1.3Brief Profile of the Study on Taxation of the

Sole Proprietorship at Domestic Level

1.4The History About Sole Proprietorship

1.5Characteristics of Sole Proprietorship

1.6Advantage of Sole Proprietorship

1.7Disadvantage of Sole Proprietorship

1.8Objective of the Sole Proprietorship

1.9Scope of the Sole Proprietorship

1.10 Document required for sole proprietorship

1
1.1 Introduction of Sole proprietorship
This form of organization is the oldest and functioning from times immemorial in one
form or the other. This is a ‘one man business’ in which an individual produces
independently with his own capital and assumes all the risk of ownership.

In other words, a business owned or controlled

by one man with or without the help of family individual

Members or few employees that is also known as proprietorship

or individual entrepreneurship.

Its leading feature is that the individual carries on business

exclusively by and for himself. He invests his own capital.

The full control of the business is with him. He bears all

the risks and is the master of all the profits.

He may engage in any business unless license is required under law. Suppose he wants
to open a shoes shop or a grocery store, he will do it but if he wants to open a restaurant,
he will have to obtain a license before opening the same.
Since he has limited capital and liabilities are too many, a sole trader must start his
activities to a small undertaking. It is also difficult for him to open a new enterprise.

Definitions of Sole Proprietorship

The following are the main definitions of sole proprietary
organization:

1. According to H.L. Haney, “The individual entrepreneur ship is the form of business
organization at the head of which stands an individual as the one who is responsible,
who directs its operations and who alone runs the risk of failure.”
2. According to James Stephenson, “A sole trader is a person who carries on business
exclusively by and for himself.”

2
3. According to Dr. John A. Shubin, “Under the sole proprietorship form of
ownership a single individual organizes, has title to, and operates the business in his
own name.”
4. According to James Lundy, “The proprietorship is an informal type of business
owned by one person.”
5. According to Kimball and Kimball, “The individual proprietor is the supreme judge
of all matters pertaining to his business; subject only to the general laws of the land and
to such special legislation as may affect his particular business.”
It is clear from the above definitions that sole proprietorship is a business started by one
person, with his own capital assuming all the risks and responsibilities arising from the
enterprise.

Brief Profile of the study on taxation on sole Proprietor at Domestic

Level

Sole proprietorship are small and independent service provides or resellers who work
for themselves in their own business. It’s a business owned by a single Individual.

Such business owners are either own name or with a given name which is not
registered in India.
Such business carry very low liability risk and therefore these owners are not required
liability protections like in case of private limited or public limited companies.

3
 Direct
Tax
Sole Proprietor
Taxation

Indirect Other
Tax Tax
I. Direct Tax
The Central Board of Direct Taxes is one of the bodies that takes care of direct taxes
and helps on with its support, duties, governing etc. Some of these are mentioned below.

Direct
Tax

Income Other
Tax Tax
(A) Income Tax Act

Following the IT Act of 1961, the government rules the income tax in India. It comes
from the sources such as owning of property or house, business, salaries, gains from
investment etc.

(B) Expenditure Tax Act

The expenditure tax was introduced in 1987 and concerns the expenses you incur when
availing services at a restaurant or hotel. It does not apply on Jammu and Kashmir but
rest of the India.

4
(C) Securities Transaction Tax

When you trade in stock market or securities, you gain some substantial amount of
money which becomes a source of income, and is levied with securities transaction tax.
The same is added to the share price, so when you sell or buy shares, you pay this tax
every time.

(D) Capital Gains Tax

The capitals gains tax is implied on sizeable earning from sale of property or
investments. There are two types: short term capital gains and long term capital gains.
The interest earned on investment is taxed.

(E) Interest Tax Act

This tax came into effect in 1974. It states the amount payable on interest earned from
specific situations. There was an amendment, which eliminated requirement of interest
tax on interests earned later to March 2000.

(F) Perquisite Tax

The privileges that employers bestow on employees are taxed as well. These come
under the perquisite tax. The perks can extend to compensations such as housing, cars,
phone and fuel bills etc. If these facilities are used for official purpose, then the costs
incurred may be exempted from such taxes.

(G) Wealth Tax Act

As per the budget 2015, the Wealth Tax stands abolished, but it was enacted in 1951. It
was meant to pose taxation as per the net wealth of the company, individual or a Hindu
Unified Family.

5
(H) Gift Tax Act
Since 1958, the Gift Tax came into being, which taxed people on receiving gifts worth
a value and shelling an amount up to 30% of the gift's expense. However, this tax was
done away with in 1998. Now if someone other than the exempted entities gives gift to
you, exceeding INR 50,000 then this gift amount will be taxed.

6
 II. Indirect Tax
Some of the taxes are levied on the facilities and services you enjoy and these come to
be taxed by the government. Here are few of the important indirect taxes.

Indirect
Tax

VAT GS Excise CD&

Sales Service T
Tax Duty O
Tax
(I)Value Added Tax (VAT)
VAT is a commercial tax but not levied on commodities with zero rates such as essential
drugs and food items or those that come under exports. However, value added tax comes
in play for supply chain where it is paid by dealers, distributors and manufacturers.

(J) Sales Tax

This tax was levied on sale of product and came under both central and state legislation.
The limitation of the sale tax is that it can be taken once for particular product. Thus if
the product is resold, this tax won't apply.

(K) Service Tax

The service tax as the name implies is a tax added on services provided in India. The
last ratio percentage for it was 14 and it is not applied on goods but firms that offer
services. Such amount is reflected in the bill to customers

7
(L) Goods and Services Tax (GST)
The most talked about tax is the Good and Services Tax, which has superimposed
several of the indirect taxes, which now stands defunct. GST is consumption based tax
and applies on value added services, goods at several stages of consumption in supply
chain. Merchants can pay the GST rate applicable and claim it through the tax credit
system.

(M) Excise Duty

This tax is imposed on things manufactured in India and called as Central Value Added
Tax or CENVAT. It is collected from the manufacturer of goods by the government.
No excisable goods that bear any payable duty are allowed to move without the payment
of duty to the destination where these are manufactured or produced.

(N) Custom Duty and Octroi (CD&O)

On making a purchase that has to be imported in India from another country, you may
have to pay custom duty and Octroi tax. The Octroi is for ensuring that goods from
across the borders and coming into the country are taxed properly.

III. Other Taxes

The other taxes are referred to as cess and are levied by the government with intention
of generating funds for specific purposes as decided by the Finance Minister.

(O) Swachh Bharat Cess

Starting from November 2015, the Swachh Bharat Cess is applicable on taxable services
of India and is accounted at 0.5% over and above service tax of 14%. This cess is not
implemented on services which are completely exempt from service tax or services
covered under negative services list. This is collected by the Consolidate Fund of India
and utilize in promoting and funding government campaigns related to Swachh Bharat
efforts.

8
(P) KrishiKalyanCess
Applicable since June 2016, the KrishiKalyanCess is levied on all services of India in
order to extend welfare to farmers and improve the agricultural facilities of the nation.
The rate for this tax is 0.5% and charged over and above the Swachh Bharat Cess and
service tax.

(Q) Professional Tax

Employment or professional tax is a tax levied by the state governments. As per the
norms, individuals practicing a profession such as lawyer, doctor, company secretary,
chartered accounted or earning etc. must pay this tax. Not every state levy professional
tax, whose rate also differs as per the state government's discretion.

(R) Property Tax

Real estate tax or property tax is levied by the local municipal bodies of all cities. These
are levied to make funds for maintaining basic civic services. The owners of
commercial and residential properties are subject to the Municipal tax.

(S) Entertainment Tax

The entertainment tax is levied by the government on television series, amusement,
feature films and recreational parlours. Such tax is taken into account as the business
entity's total collection of earnings from film festival earnings, commercial shows and
audience participation.

(T) Stamp Duty, Registration Fee, Transfer Tax

The mentioned taxes supplement property tax and are incurred at specific such as
charges of stamp duty, property registration or transfer of ownership to another person
or entity.

(U) Infrastructure Cess

The infrastructure cess came into effect on 1st June 2016. A cess of 1% is eligible on
motor vehicles driven on LPG/CNG/Petrol. The vehicles accounted for such cess must
be 4 meters or less in length and 1200cc or lower engine capacity. 2.5% tax has to be
paid for diesel motor vehicles that do not exceed the mentioned length and

9
contain engines with capacities lower than 1500cc. 4% cess is applicable on vehicle's
overall cost for big SUVs and sedans.

(V) Education Cess/Surcharge

The Education Cess helps to cover the cost by government for sponsoring educational
programs. The tax is collected independently and applicable on all Indian corporations,
citizens and other people residing in the country. Currently, the cess amount is 2% of
individual's income.

(W) Entry Tax

Under entry tax, select states in India such as Madhya Pradesh, Assam, Gujarat,
Uttarakhand, and Delhi account for tax payable on items that enter this state via e-
commerce establishments.

(Y) Road Tax and Toll Tax

This form of tax is paid for the infrastructure developed by the government for roads
and bridges. The amount of such tax is rather negligible and utilized for maintenance
of particular roadway projects.

A. Income tax for sole proprietorship

Sole proprietorship business is not taxed as a separate legal entity, but rather, the owner
file their business taxes on their personal tax returns.
Business income of a sole proprietorship business gets added to the owner’s individual
income, after taking our related business expenses, tax deductions and other income if
any.
From gross receipt, all business expenses are deducted to find out the business income.
This income has been considered as” income under the head of profit and gains of
business or profession “ and with this, other income like interest from bank, salary,
house rent are get added to find out the gross total income.
Sole proprietorship business is entitled to all IT deduction applicable to the individual
assesse being the owner of such business.

10
From the gross total income, IT Dedication as applicable to the owner are allowed to
find out the taxable income. On that taxable income, sole proprietors pay tax based on
the slab rates as applicable to the owner.
Income tax as calculated has to be paid before the due Date of filling IT return. If income
tax liability amount in excess of Rs.10000 then such amount has to be paid advance
otherwise interest at the rate of 1% per month will be charged on income tax that are
not paid to IT department.

Permanent Account Number (PAN)

Before filling IT returns for your business income, you need to obtain a permanent
account number (PAN).
Permanent Account Number is required for all income tax related matters of your dole
proprietorship business.
As proprietorship business has no separate legal identify they cannot be issued a
separate PAN for their business. So Pan as allotted to the owner is to be used for all
income tax purposes related to the proprietorship business i.e. Pan of the
proprietor/owner Is the Pan for the proprietorship business.

Income tax return form (ITR)

ITR 4S is specially prescribed for those sole proprietorship business whose main
business is playing, hiring or leasing goods carriage and who owns not more than 10
goods carriage at any time during the year.
Those persons who want to avail section 44AD benefit for their income taxcalculation
can also use ITR 4S for filling their IT return.
ITR 4 has been prescribed for all other sole proprietorship business.
Details such as PAN Number, Date of Birth, Name, and Current address are required
tobe provide along with all other details that are required as per IT act.

11
12
Books of accounts

If such proprietorship business’s gross receipt or income have exceeded Rs.10,00,000

or Rs.1,20,000 respectively in any of the 3 preceding previous year for which you are
filling your IT return, then you have to maintain books of account as specified under
the IT act.
If the sole proprietorship business is newly set up and such business’s gross receipt or
income are likely to exceed Rs.10,00,000 or Rs.1,20,000 respectively during the
previous year, then such sole proprietorship business has to maintain books of accounts
as per prescribed in IT act.
Proprietorship business can also get covered under Section 44AD of the IT act if their
turnover or gross receipt are up to Rs.1 crore and they have disclosed their taxable
income as greater than equal to 8% of the gross receipt or turnover. In such Case,
proprietorship business are not required to maintain books of account as required under
section 44AA of the IT act.

Income tax Audit

As per the law, those sole proprietorship business whose turnover is in excess of Rs.1
Crore during the financial statement are required to get their books of the account
audited from the Chartered Accountant in practice.
Such Audit report along with the income tax return is required to be filled with income
tax department on or before 30th September of the assessment year for the financial year
for which audits are conducted.
For 3CB and 3CD are two additional reports that are required to be filled as tax audit
report of the proprietorship business along with the income tax return. These two reports
has to be uploaded online by the chartered accountant who has conducted tax audit for
the your business.

Recommended Read: Income tax audit under section 44AB of the IT act.

13
Income tax Slab rates
Slab rates are same as applicable to an individual. Bassed on the taxable income, taxes
are calculated and paid to the IT Department.

Due date of Filling income tax return

Due dates for sole proprietorship business is the same that are applicable to individual.
For the financial year 2017-2018 due date of filling IT return is 31st July 2018.
However if such individual’s proprietorship business are required to be audited under
section 44AB of IT act then due date of filling income tax return is 30th September of
the assessment year i.e. for financial year 2017- 2018 last due date is 30th September
2018.

14
B. Expenditure Tax Act
The Expenditure Tax Act, 1987 governs the taxation process associated with the
chargeable expenditure incurred by an individual in a certain hotel or restaurant.

The Act applies to chargeable expenditure provided the following criteria are fulfilled

1. If the charges are incurred in a hotel where the room charges for an
accommodation is INR 3000 per day or in excess of this amount
2. The charges are incurred in a restaurant

In case of the rooms charges the Assessing Officer of the Income Tax Department has
the freedom to decide whether the charges are mentioned in the right manner along with
other respective charges such as food, drinks, and other services. In the event that a
discrepancy is found in the breakup of charges the Assessing Officer is given the right
to decide on the amount required to be charged as room charges.

Value of Expenditure Tax Applicable

The Expenditure Tax taxable under this Act is charged at

• 10% (Ten percent) of the charges incurred at a hotel as long as the hotel is as per
Clause (1) of Section 3 of the Income Tax Act of 1961
• 15% (Fifteen percent) on charges incurred in a restaurant as long as the
restaurant is as per Clause (2) of Section 3 of the Income Tax Act of 1961.

Collection of expenditure tax

In the event that a hotel provides the services mentioned in Sub Clauses (a) to (d) of
Clause (1) of Section 5, the amount of Expenditure Tax is to be recovered from the
person carrying on the business.

In the event that a hotel provides the services mentioned in Sub Clause (b) or Sub Clause
(d) Of Clause (1) of Section 5, the amount of Expenditure Tax will be recovered from
the other person referred to

In the event that a restaurant as per Clause (2) of Section 3 and the services it renders
are as per Clause (2) of Section 5. And said services are provided by the restaurant or

15
the person carrying on business in the restaurant or by the other person,
the Expenditure Tax will be collected at the rate specified in Clause (b) of Section4

C. Securities Transaction Tax (STT)

Securities transaction tax (most commonly known as STT) was introduced in the
Budget of year 2004 and the same was made applicable from October, 2004. The main
objective behind implementation of STT is to avoid tax evasion as the same is taxed at
the source.

In simple terms, STT is a kind of turnover tax where the investor is liable to pay
specified tax on the total consideration paid or received in a share transaction. Stock,
options, futures, mutual funds and exchange traded funds come under the purview of
STT.

Tax on Securities

Securities Transaction Tax is a type of direct tax payable in India on the value of taxable
securities transacted through a recognized stock exchange. Securities Transaction Tax
is applicable on following securities, as per criteria set by Securities Contracts
(Regulation) Act:

• Shares, bonds, debentures, debenture stock or other marketable securities,

scripts, stocks of a like nature in or of any incorporated company or other body
corporate.
• Derivatives;
• Units or any other instrument issued by any collective investment scheme to the
investors in such schemes;
• Security receipt as defined in section 2(zg) of the Securitization and
Reconstruction of Financial Assets and Enforcement of Security Interest Act,
2002;
• Government securities of equity nature;
• Rights or interest in securities;

16
 • Equity oriented units of mutual funds;
• Securitized debt instruments.

In case of off-market transactions, Securities Transaction Tax is not applicable.

Securities Transaction Tax (STT) Due Date & Return Filing

Every person who is liable to pay Securities Transaction Tax (STT) is required to
deposit the same on or before 7th of the month following the month in which such
Securities Transaction Tax is collected / deducted.

Also, Recognized Stock Exchange should file annual return in prescribed format on or
before 30th June of the Financial Year succeeding the Financial Year in which such
Securities Transaction Tax is collected.

Finally, all Recognized Mutual Fund should file annual return in prescribed format on
or before 30th June of the Financial Year succeeding the Financial Year in which such
Securities Transaction Tax is collected.

Securities Transaction Tax Treatment under Income Tax

Treatment of STT under Income Tax is depended on its classification. If purchase of

share are treated as investment activity than income from securities would be taxable
under the head ‘Income from Capital Gains’, however, if the purchase of shares are
treated as business activity than income from such securities would be taxable under
the head ‘Profits and Gains of Business or Profession’.

If the income is taxable under the head ‘Income from Capital Gains’ than gain or loss
on sale of such securities are taxable as Short Term Capital Gain or Long Term Capital
Gain depending upon the holding period of such shares / securities.

If the holding period is less than 1 year than the same would be treated as Short Term
Capital Gain and any equity share which has been sold through recognized stock
exchange and on which STT has been paid, sale of such shares shall be taxed @15%.

17
 If the holding period is more than 1 year than the same would be treated as Long Term
Capital Gain and any equity share which has been sold through recognized stock
exchange and on which STT has been paid, sale of such shares shall be taxed @10%.

If the income is taxable under the head ‘Profits and Gains of Business or Profession’,
than in such case income from sale of such share or securities would be taxed at regular
rate of income tax, however, the STT paid in respect of such shares would ballowed as
deduction under section 36 of the Income Tax Act, 1961.

Securities Transaction Tax Rate

Particulars STT Value on Which STT is Paid

Rate
Purchaser or seller of equity 0.10% Value of buy or sale of security
shares on purchase or

sale of equity share through

recognized stock
exchange.
Purchaser of equity oriented unit 0.10% Buying value of equity oriented unit
of mutual fund of mutual fund
Seller of equity oriented unit of 0.03% Sale value of equity oriented unit
mutual fund of mutual fund
Option contract (seller) – On sale 0.02% Value of option premium
of option contract in securities
through
recognized stock exchange received on sale of option

contract in securities
Option contract (seller) – On sale 0.13% Value of settlement price received on
of option contract which is
exercised by buyer

18
of option in securities through sale of option contract in securities
recognized stock exchange

Futures – 0.01% Value of sale of future in securities

On sale of futures in securities
through recognized

stock exchange
Mutual fund – 0.03% Value of sale of equity oriented unit of mutual fund
Every seller of equity oriented
unit of mutual fund on

sale of such equity oriented unit

of mutual fund through

recognized stock exchange

D. Capital Gains Tax (CGT)

A capital gains tax (CGT) is a tax on capital gains, the profit realized on the sale of a
non-inventory asset that was greater than the amount realized on the sale. The most
common capital gains are realized from the sale of stocks, bonds, precious metals, and
property. Not all countries implement a capital gains tax and most have different rates
of taxation for individuals and corporations.

For equities, an example of a popular and liquid asset, national and state legislation
often has a large array of fiscal obligations that must be respected regarding capital
gains. Taxes are charged by the state over the transactions, dividends and capital gains
on the stock market. However, these fiscal obligations may vary from jurisdiction to
jurisdiction.

19
India
As of 2018, equities listed on recognized stock exchange are considered long term
capital if the holding period is one year or more. Until 31 January 2017, all Long term
capital gains from equities were exempt as per section 10 (38) if shares are sold through
recognized stock exchange and Securities Transaction Tax(STT) is paid on the sale.
STT in India is currently between 0.017% and 0.1% of total amount received on sale of
securities through a recognized Indian stock exchange like the NSE or BSE. Now, from
F.Y 18-19, exemption u/s 10(38) has been withdrawn and section 112A has been
introduced. The long term capital gain shall be taxable on equities @ 10% if the gain
exceeds Rs. 1,00,000 as per the new section.

However, if equities are held for less than one year and are sold through recognized
stock exchange then short term capital gain is taxable at a flat rate of 15% u/s 111A and
other surcharges, educational cess are imposed. (w.e.f. 1 April 2009.)

20
In respect of Immovable property, the holding period has been reduced to 2 years to be
eligible to Long term capital gain. Whereas, many other capital investments like
Jewellery etc. Are considered long term if the holding period is 3 or more years and
are taxed @ 20% u/s 112.

In equity mutual funds or stocks which are held more than 12 months are considered a
long-term capital asset and the profit arises on a sale of these assets are called as long-
term capital gain. Govt. introduced in BUDGET 2018 LTCG TAX of 10% if the gain
exceeds Rs 100,000 without allowing the benefit of indexation.

However, all gains until 31 January 2018 will be grandfathered and short-term capital
gains remain unchanged at 15 percent.

For example, If the equity share/mutual fund is purchased 6 months before 31 January
2018 (i.e. 31 July 2017) at Rs 10,000 and the highest price quoted on 31 January 2018
is Rs 12000. There will be no tax on the sale if the stock or fund sold after 1 year.

However, any gains in excess of Rs 2000 earned after 31 January 2018 will be taxed at
10% if this share /Mutual fund (equity) is sold after 31 July 2018.

Capital Gains Tax Rates for Fiscal Year 2017-18 (Assessment Year 2018-19)

Short
Duration Term Long Term
Duration (Long Capital Capital
Assets (Short Term) Term) Gains Tax Gains Tax
10%
Listed Less than 12 More than exceeding
Stocks/shares months 12 months 15% Rs. 1,00,000
Equity 10%
oriented Less than 12 More than exceeding
mutual funds months 12 months 15% Rs. 1,00,000
Debt oriented Less than 36 More than 20% with
mutual funds months 36 months Slab rate indexation
10%
Less than 12 More than without
Bonds months 12 months Slab rate indexation

Real Less than 24 More than 20% with

estate/property months 24 months Slab rate indexation
Less than 36 More than 20% with
Gold months 36 months Slab rate indexation

21
E. Interest Tax Act
The Interest Tax Act of 1974 governs the tax process associated with the imposition
and collection of Interest Tax in situations specified under its various sections.

The Act applies to all Scheduled Banks that are required to pay tax on the chargeable
interest amounts they have on their deposits.

This Interest Tax is required to be charged at the rate of 7% (Seven percent) of the
amount of chargeable interest. This was modified to 3.5% (Three and a half percent)
for Interest accrued since 31 March 1983, 3% (Three percent) subject to certain
conditions since 31 March 1992, 2% (Two percent) since 31 March 1997, and no
Interest Tax accruing or arising after 31 March 2000.all over India in govt. tax 15.5%
total act of 1974 adhiniyam to in India

Chargeable Interest
As per the Interest Tax Act, the chargeable interest that applied to a credit institution
was the total amount of interest apart from interest charged on loans and advances made
to different credit institutions.

The Interest Tax Act also does not apply to any Cooperative Society engaged in the
Banking business.

Penalty for concealment of chargeable interest

The Interest Tax Act has specified a penalty for concealment of the details regarding
chargeable interest or the furnishing of incorrect details regarding the amount of
chargeable interest.

In such circumstances, the Assessing Officer or the Commissioner of Appeals may

impose, in addition to payment of the interest tax payable, a penalty up to three times
of the total Interest Tax that has been either concealed or furnished incorrectly.

22
E. Value Added Tax(VAT)

A value-added tax (VAT), known in some countries as a goods and services tax
(GST), is a type of tax that is assessed incrementally, based on the increase in value of
a product or service at each stage of production or distribution. VAT essentially
compensates for the shared services and infrastructure provided in a certain locality by
a state and funded by its taxpayers that were used in the elaboration of that product or
service. Not all localities require VAT to be charged and goods and services for export
may be exempted (duty free). VAT is usually implemented as a destination-based tax,
where the tax rate is based on the location of the consumer and applied to the sales
price. Confusingly, the terms VAT, GST, consumption tax and sales tax are
sometimes used interchangeably. VAT raises about a fifth of total tax revenues both
worldwide and among the members of the Organization for Economic Co-operation and
Development (OECD). As of 2018, 166 of the world's approximately 193 countries
employ a VAT, including all OECD members except the United States, which uses a
sales tax system instead.

There are two main methods of calculating VAT: the credit-invoice or invoice-based
method, and the subtraction or accounts-based method. Using the credit-invoice
method, sales transactions are taxed, with the customer informed of the VAT on the
transaction, and businesses may receive a credit for VAT paid on input materials and
services. The credit-invoice method is the most widely employed method, used by all
national VATs except for Japan. Using the subtraction method, at the end of a reporting
period, a business calculates the value of all taxable sales then subtracts the sum of all
taxable purchases and the VAT rate is applied to the difference. The subtraction method
VAT is currently only used by Japan, although subtraction method VATs, often using
the name "flat tax", have been part of many recent tax reform proposals by US
politicians. With both methods, there are exceptions in the calculation method for
certain goods and transactions, created for either pragmatic collection reasons or to
counter tax fraud and evasion.

VAT was introduced value added tax (VAT) into the Indian taxation system from 1
April 2005. The existing general sales tax laws were replaced with the Value Added
Tax Act (2005) and associated VAT rules.

23
A few states
(Gujarat, TamilNadu, Rajasthan, Madhya Pradesh, Chhattisgarh, Jharkhand, Uttarakha
nd and Uttar Pradesh) opted to stay out of VAT taxation system during the initial
introduction of VAT but adopted it later.

As of 2 June 2014, VAT has been implemented in all the states and union territories
of India except Pondicherry Andaman and Nicobar Islands and Lakshadweep Island.

India
VAT was introduced into the Indian taxation system from 1 April 2005. Of the then 28
Indian states, eight did not introduce VAT at first instance. There is uniform VAT rate
of 5% and 14.5% all over India. The government of Tamil Nadu introduced an act by
the name Tamil Nadu Value Added Tax Act 2006 which came into effect from the 1
January 2007. It was also known as the TN-VAT. Under the BJP government, a new
national Goods and Services Tax was introduced under the One Hundred and First
Amendment of the Constitution of India.

Maharashtra
The system of Value Added Tax (VAT) has been implemented, in the State of
Maharashtra, w.e.f. 1 April 2005. Every dealer, who becomes liable to pay tax under
the provisions of MVAT, shall apply electronically for registration, within 30 days from
the date of such liability. VAT is implemented by Department of Sales Tax.
Their site address is: Department Of Sales Tax - Govt. of Maharashtra.

24
Rate of tax:
Schedule ‘A’ – Essential Commodities (Tax free)- Nil
Schedule ‘B’ – Gold, Silver, Precious Stones, Pearls etc. - 1.2%
Schedule ‘C' – Declared Goods and other specified verry goods - 6%
(Rates for items other than declared goods changed to 6%)
Schedule ‘D’ – Foreign Liquor, Country Liquor, Motor Spirits, etc. - 20% and above
Schedule ‘E’ – All other goods (not covered by A to D) - 13.5% with EFF CT from
17.09.2016

25
F. Sales Tax

A sales tax is a tax paid to a governing body for the sales of certain goods and services.
Usually laws allow (or require) the seller to collect funds for the tax from the consumer
at the point of purchase. When a tax on goods or services is paid to a governing body
directly by a consumer, it is usually called a use tax. Often laws provide for the
exemption of certain goods or services from sales and use tax.

Most countries in the world have sales taxes or value-added taxes at all or several of the
national, state, county, or city government levels.

G. Service Tax

Service tax was a tax levied by Central Government of India on services provided or
agreed to be provided excluding services covered under negative list and considering
the Place of Provision of Services Rules, 2012 and collected as per Point of Taxation
Rules, 2011 from the person liable to pay service tax. Person liable to pay service tax is
governed by Service Tax Rules, 1994 he may be service provider or service receiver
or any other person made so liable. It is an indirect tax wherein the service provider
collects the tax on services from service receiver and pays the same to government of
India. Few services are presently exempt in public interest via Mega Exemption
Notification 25/2012-ST as amended up to date and few services are charged service
tax at abated rate as per Notification No. 26/2012-ST as amended up to date. Presently
from 1 June 2016, service tax rate has been increased to consolidated rate at 14%
+0.5%+0.5%= 15% of value of services provided or to be provided. The service tax
rate now is consolidated rate as education cess and secondary higher education cess are
subsumed with 2% of "Swach Bharat Cess(0.50%)" has been notified by the
Government.

From 15 November 2015, the effective rate of service tax plus Swachh Bharat Cess,
post introduction of Swachh Bharat Cess, was 14.5%. Currently, Swachh Bharat Cess
and KrishiKalyan Cess would also be levied on all services on which Service Tax is
being levied and therefore, the Service Tax (including Swachh Bharat Cess and
KrishiKalyan Cess) applicable from 1 June 2016 has become 15%.

26
During the 2015 budget, the Finance Minister had incremented the service tax rate from
12.36% to 14%, which had been applicable from June 1, 2015. Further, from November
15th, 2015, an additional Swachh Bharat Cess got added at the rate of 0.5%, which left
the service tax at 14.5%. After the new proposal brought in during the 2016 Union
Budget, the applicable service tax from June 1, 2016 will be "15%"

27
History of Service Tax Rates in India

01/07/1994 – 13/05/2003 – 5%

14/05/2003 – 09/09/2004 – 8%

10/09/2004 – 17/04/2006 – 10.20%

18/04/2006 – 10/05/2007 – 12.24%

11/05/2007 – 23/02/2009 – 12.36%

24/02/2009 – 31/03/2012 – 10.30%

01/04/2012 – 31/05/2015 - 12.36%

01/06/2015 – 14/11/2015 – 14%

15/11/2015 – 31/05/2016 – 14.5% [14% Service Tax + 0.50% SwachBharathCess]

01/06/2016 – 30/06/2017 – 15% [14% Service Tax + 0.50% SwachBharathCess +

0.50% KrishiKalyanCess]

H. Excise Duty

An excise or excise tax is any duty on manufactured goods which is levied at the
moment of manufacture, rather than at sale. Excises are often associated with customs
duties (which are levied on pre-existing goods when they cross a designated border in
a specific direction); customs are levied on goods which come into existence – as
taxable items – at the border, while excise is levied on goods which came into existence
inland.

Although sometimes referred to as a tax, excise is specifically a duty; tax is technically

a levy on an individual (or more accurately, the assessment of what that amount might
be), while duty is a levy on particular goods. An excise is considered an indirect tax,
meaning that the producer or seller who pays the levy to the government is expected to
try to recover their loss by raising the price paid by the eventual buyer of the goods.
Excises are typically imposed in addition to an indirect tax such as a sales tax or
value- added tax (VAT). Typically, an excise is distinguished from a sales tax or VAT
in three ways:

28
 1. an excise is typically a per unit tax, costing a specific amount for a volume or
unit of the item purchased, whereas a sales tax or value-added tax is an ad
valorem tax and proportional to the price of the goods,
2. an excise typically applies to a narrow range of products, and
3. an excise is typically heavier, accounting for a higher fraction of the retail price
of the targeted products.

Typical examples of excise duties are taxes on gasoline and other fuels, and taxes on
tobacco and alcohol (sometimes referred to as sin tax).

In India, almost all products are subject to excise duty, provided the following four
conditions are fulfilled:

• There should be a manufacture

• The manufacture was in India (excluding special economic zone)
• The manufacture should result in goods
• The goods thus manufactured must be excisable (means the goods must be specified
in central excise tariff act,1985)

In India, the Government has produced an automatic centralized system for paying
excise. With this, manufacturers can easily pay their excise online on every 5th of the
following month through GAR-7.

I.Custom Duty and Octroi

Customs is an authority or agency in a country responsible for collecting tariffs and for
controlling the flow of goods, including animals, transports, personal, and hazardous
items, into and out of a country. The movement of people into and out of a country is
normally monitored by migration authorities, under a variety of names and
arrangements. Immigration authorities normally check for appropriate documentation,
verify that a person is entitled to enter the country, apprehend people wanted by
domestic or international arrest warrants, and impede the entry of people deemed
dangerous to the country. Compare illegal emigration.

Each country has its own laws and regulations for the import and export of goods into
and out of a country, which its customs authority enforces. The import or export of

29
some goods may be restricted or forbidden. In most countries, customs are attained
through government agreements and international laws. A customs duty is a tariff or
tax on the importation (usually) or exportation (unusually) of goods. Commercial
goods not yet cleared through customs are held in a customs area, often called a
bonded store, until processed. All authorized ports are recognized customs areas.

At airports, customs functions as the point of no return for all passengers; once
passengers have cleared customs, they cannot go back.

Octroi is a local tax collected on various articles brought into a district for consumption.

Octroi was still in use in the 1990s by local authorities in Pakistan for domestic goods
movements. Although abolished for general trade in 1997, octroi was still being charged
on certain commodities such as electricity as late as 2006. As of 2013, octroi is levied
in Ethiopia.

Cities in the Indian state of Maharashtra briefly abolished octroi in 2013 and replaced
it with local body tax. However, octroi was re-established there in 2014, due to
decreased revenues from the local body tax. As of 1 July 2017, with the introduction of
GST country-wide, the octroi has been abolished.

30
J. Goods And Service Tax(GST)

Goods and Services Tax (GST) is an indirect tax (or consumption tax) levied in
India on the supply of goods and services. GST is levied at every step in the production
process, but is meant to be refunded to all parties in the various stages of production
other than the final consumer.

Goods and services are divided into five tax slabs for collection of tax - 0%, 5%,
12%,18% and 28%. However, Petroleum products, alcoholic drinks, electricity,are not
taxed under GST and instead are taxed separately by the individual state governments,
as per the previous tax regime.There is a special rate of 0.25% on rough precious and
semi-precious stones and 3% on gold. In addition a cess of 22% or other rates on top of
28% GST applies on few items like aerated drinks, luxury cars and tobacco products.
Pre-GST, the statutory tax rate for most goods was about 26.5%, Post-GST, most goods
are expected to be in the 18% tax range.

The tax came into effect from July 1 2017 through the implementation of One Hundred
and First Amendment of the Constitution of India by the Indian government. The tax
replaced existing multiple cascading taxes levied by the central and
state governments.

31
The tax rates, rules and regulations are governed by the GST Council which consists of
the finance ministers of center and all the states. GST is meant to replace a slew of
indirect taxes with a unified tax and is therefore expected to reshape the country's 2.4
trillion dollar economy, but not without criticism.Trucks' travel time in interstate
movement dropped by 20%, because of no interstate check posts.

The reform of India's indirect tax regime was started in 1986 by VishwanathPratap
Singh, Finance Minister in Rajiv Gandhi’s government, with the introduction of the
Modified Value Added Tax (MODVAT). Subsequently, Prime Minister P V
NarasimhaRao and his Finance Minister ManmohanSingh, initiated early discussions
on a Value Added Tax (VAT) at the state level.A single common "Goods and Services
Tax (GST)" was proposed and given a go-ahead in 1999 during a meeting between the
Prime Minister AtalBihari Vajpayee and his economic advisory panel, which included
three former RBI governors IG Patel, BimalJalan and C Rangarajan. Vajpayee set up
a committee headed by the Finance Minister of West Bengal, AsimDasgupta to
design a GST model.

The Ravi Dasgupta committee which was also tasked with putting in place the back-
end technology and logistics (later came to be known as the GST Network, or GSTN,
in 2017). it later came out for rolling out a uniform taxation regime in the country. In
2002, the Vajpayee government formed a task force under Vijay Kelkar to recommend
tax reforms. In 2005, the Kelkar committee recommended rolling out GST as suggested
by the 12th Finance Commission.

After the defeat of the BJP-led NDA government in the 2004 LokSabha election and
the election of a Congress-led UPA government, the new Finance Minister P
Chidambaram in February 2006 continued work on the same and proposed a GST
rollout by 1 April 2010. However, in 2011, with the Trinamool Congress routing
CPI(M) out of power in West Bengal, AsimDasgupta resigned as the head of the GST
committee. Dasgupta admitted in an interview that 80% of the task had been done.

In the 2014 LokSabha election, the BharatiyaJanata Party-led NDA government was
elected into power. With the consequential dissolution of the 15th LokSabha, the GST
Bill – approved by the standing committee for reintroduction – lapsed. Seven months
after the formation of the Modi government, the new Finance

32
Minister ArunJaitley introduced the GST Bill in the LokSabha, where the BJP had a
majority. In February 2015, Jaitley set another deadline of 1 April 2017 to implement
GST. In May 2016, the LokSabha passed the Constitution Amendment Bill, paving way
for GST. However, the Opposition, led by the Congress, demanded that the GST Bill
be again sent back for review to the Select Committee of the RajyaSabha due to
disagreements on several statements in the Bill relating to taxation. Finally in August
2016, the Amendment Bill was passed. Over the next 15 to 20 days, 18 states ratified
the Constitution amendment Bill and the President Pranab Mukherjee gave his assent
to it.

A 21-member selected committee was formed to look into the proposed GST laws.
After GST Council approved the Central Goods and Services Tax Bill 2017 (The CGST
Bill), the Integrated Goods and Services Tax Bill 2017 (The IGST Bill), the Union
Territory Goods and Services Tax Bill 2017 (The UTGST Bill), the Goods and Services
Tax (Compensation to the States) Bill 2017 (The Compensation Bill), these Bills were
passed by the LokSabha on 29 March, 2017. The RajyaSabha passed these Bills on 6
April, 2017 and were then enacted as Acts on 12 April, 2017. Thereafter, State
Legislatures of different States have passed respective State Goods and Services Tax
Bills. After the enactment of various GST laws, Goods and Services Tax was launched
all over India with effect from 1 July 2017.The Jammu and Kashmir state legislature
passed its GST act on 7 July 2017, thereby ensuring that the entire nation is brought
under an unified indirect taxation system. There was to be no GST on the sale and
purchase of securities. That continues to be governed by Securities Transaction Tax
(STT).

Launch

The GST was launched at midnight on 1 July 2017 by the President of India, Pranab
Mukherjee, and the Government of India. The launch was marked by a historic midnight
(30 June – 1 July) session of both the houses of parliament convened at the Central Hall
of the Parliament. Though the session was attended by high-profile guests from the
business and the entertainment industry including Ratan Tata, it was boycotted by the
opposition due to the predicted problems that it was bound to lead for the middle and
lower class Indians. It is one of the few midnight sessions that have

33
been held by the parliament - the others being the declaration of India's independence
on 15 August 1947, and the silver and golden jubilees of that occasion. [13] After its
launch, the GST rates have been modified multiple times, the latest being on 18 January
2018, where a panel of federal and state finance ministers decided to revise GST rates
on 29 goods and 53 services.

Members of the Congress boycotted the GST launch altogether. They were joined by
members of the Trinamool Congress, Communist Parties of India and the DMK. The
parties reported that they found virtually no difference between the GST and the
existing taxation system, claiming that the government was trying to merely rebrand the
current taxation system.They also argued that the GST would increase existing rates on
common daily goods while reducing rates on luxury items, and affect many Indians
adversely, especially the middle, lower middle and poorer income groups.

Tax
Taxes subsumed The single GST subsumed several taxes and levies which included: central
excise duty, services tax, additional customs duty, surcharges, state-level value added tax and
Octroi.Other levies which were applicable on inter-state transportation of goods have also been
done away with in GST regime. GST is levied on all transactions such as sale, transfer, purchase,
barter, lease, or import of goods and/or services.

34
India adopted a dual GST model, meaning that taxation is administered by both the
Union and State Governments. Transactions made within a single state are levied with
Central GST (CGST) by the Central Government and State GST (SGST) by the State
governments. For inter-state transactions and imported goods or services, an Integrated
GST (IGST) is levied by the Central Government. GST is a consumption- based
tax/destination-based tax, therefore, taxes are paid to the state where the goods or
services are consumed not the state in which they were produced. IGST complicates tax
collection for State Governments by disabling them from collecting the tax owed to
them directly from the Central Government. Under the previous system, a state would
only have to deal with a single government in order to collect tax revenue.

HSN code in GST

HSN (Harmonized System of Nomenclature) is an 8-digit code for identifying the

applicable rate of GST on different products as per CGST rules. If a company has
turnover up to Rs.1.5 Crore in the preceding financial year then they need not mention
the HSN code while supplying goods on invoices. If a company has turnover more than
Rs.1.5 Crore but up to Rs.5 Cr then they need to mention the 2 digit HSN code while
supplying goods on invoices. If turnover crosses Rs.5 Cr then they shall mention the 4
digit HSN code on invoices.

Rates

The GST is imposed at variable rates on variable items. The rate of GST is 18% for
soaps and 28% on washing detergents. GST on movie tickets is based on slabs, with
18% GST for tickets that cost less than Rs. 100 and 28% GST on tickets costing more
than Rs.100 and 5% on readymade clothes. The rate on under-construction property
booking is 12%.] Some industries and products were exempted by the government and
remain untaxed under GST, such as dairy products, products of milling industries, fresh
vegetables & fruits, meat products, and other groceries and necessities.

35
Check posts across the country were abolished ensuring free and fast movement of
goods.

The Central Government had proposed to insulate the revenues of the States from the
impact of GST, with the expectation that in due course, GST will be levied on petroleum
and petroleum products. The central government had assured states of compensation
for any revenue loss incurred by them from the date of GST for a period of five years.
However, no concrete laws have yet been made to support such action.GST council
adopted concept paper discouraging tinkering with rates.

E-Way Bill

An e-Way Bill is an electronic permit for shipping goods similar to a waybill. It was
made mandatory for inter-state transport of goods from 1st June 2018. It is required to
be generated for every inter-state movement of goods beyond 10 kilometres (6.2 mi)
and the threshold limit of Rs.50,000 (US$700).

36
It is a paperless, technology solution and critical anti-evasion tool to check tax leakages
and clamping down on trade that currently happens on a cash basis. The pilot started on
1st February 2018 but was withdrawn after glitches in the GST Network. The states are
divided into four zones for rolling out in phases by end of April 2018.

A unique e-Way Bill Number (EBN) is generated either by the supplier, recipient or the
transporter. The EBN can be a printout, SMS or written on invoice is valid. The
GST/Tax Officers tally the e-Way Bill listed goods with goods carried with it. The
mechanism is aimed at plugging loopholes like overloading, understating etc. Each e-
way bill has to be matched with a GST invoice.

The official Android mobile app can be used for generating an e-way bill, with powerful
features for easy generation and for maintaining records. The e-way bill can also be
generated or cancelled through an SMS.

Transporter ID and PIN Code now compulsory from 01-Oct-2018.

It is a critical compliance related GSTN project under the GST, with a capacity to
process 75 lakh e-way bills per day.

37
Intra-State e-Way Bill

The five states piloting this project are Andhra Pradesh, Gujarat, Kerala, Telangana and
Uttar Pradesh, which account for 61% of the inter-state e-way bills, started mandatory
intra-state e-way bill from 15th April 2018 to further reduce tax evasion.

It was successfully introduced in Karnataka from 1st April 2018. The intra-state e- way
bill will pave the way for a seamless, nation-wide single e-way bill system. Six more
states Jharkhand, Bihar, Tripura, Madhya Pradesh, Uttarakhand and Haryana will roll
it out from 20th April 18. All states are mandated to introduce it by May 30th, 2018.

Reverse Charge Mechanism

Reverse Charge Mechanism (RCM) is a system in GST where the receiver pays the tax
on behalf of unregistered, smaller material and service suppliers. The receiver of the
goods is eligible for Input Tax Credit, while the unregistered dealer is not.

The Payment of Tax under RCM (Reverse Charge Mechanism) on Purchase from
unregistered dealer is suspended due to pressure from the industry till 30th September
2019.

Goods kept outside the GST

• Alcohol for human consumption.

• Petrol and petroleum products (GST will apply at a later date) viz. Petroleum
crude, High speed diesel, Motor Spirit (petrol), Natural gas, Aviation turbine fuel.

38
GST Council

Dr. Hasmukh Adhia, IAS unveiling the plaque to inaugurate the New GST Council
Office

GST Council is the governing body of GST having 33 members. It is chaired by the
Union Finance Minister.

Goods and Services Tax Network (GSTN)

The GSTN software is developed by Infosys Technologies and the Information
Technology network that provides the computing resources is maintained by the NIC.
"Goods and Services Tax" Network (GSTN) is a nonprofit organization formed for
creating a sophisticated network, accessible to stakeholders, government and taxpayers
to access information from a single source (portal). The portal is accessible to the Tax
authorities for tracking down every transaction, while taxpayers have the ability of
connect for their tax returns.

The GSTN’s authorized capital is ₹10 crore (US$1.4 million) in which initially the
Central Government held 24.5 percent of shares while the state government held 24.5
percent. The remaining 51 percent were held by non-Government financial institutions,
HDFC and HDFC Bank hold 20%, ICICI Bank holds 10%, NSE Strategic Investment
holds 10% and LIC Housing Finance holds 11% .

However, later it was made a wholly owned government company having equal shares
of state and central government.

39
K. Property Tax

A property tax is an ad valorem tax on the value of a property, usually levied on real
estate. The tax is levied by the governing authority of the jurisdiction in which the
property is located. This can be a national government, a federated state, a county or
geographical region or a municipality. Multiple jurisdictions may tax the same
property. This tax can be contrasted to a rent tax which is based on rental income or
imputed rent, and a land value tax, which is a levy on the value of land, excluding the
value of buildings and other improvements.

Under a property-tax system, the government requires or performs an appraisal of the

monetary value of each property, and tax is assessed in proportion to that value.

India

Property tax or 'house tax' is a local tax on buildings, along with appurtenant land. It is
and imposed on the Possessor (not the custodian of property as per 1978, 44th
amendment of constitution). It resembles the US-type wealth tax and differs from the
excise-type UK rate. The tax power is vested in the states and is delegated to local
bodies, specifying the valuation method, rate band, and collection procedures. The tax
base is the annual rental value (ARV) or area-based rating. Owner-occupied and other
properties not producing rent are assessed on cost and then converted into ARV by
applying a percentage of cost, usually four percent. Vacant land is generally exempt.
Central government properties are exempt. Instead a 'service charge' is permissible
under executive order. Properties of foreign missions also enjoy tax exemption without
requiring reciprocity. The tax is usually accompanied by service taxes, e.g., water tax,
drainage tax, conservancy (sanitation) tax, lighting tax, all using the same tax base. The
rate structure is flat on rural (panchayat) properties, but in the urban (municipal) areas
it is mildly progressive with about 80% of assessments falling in the first two brackets.

40
L. Stamp Duty

Stamp duty is a tax that is levied on documents. Historically, this included the majority
of legal documents such as cheques, receipts, military commissions, marriage licenses
and land transactions. A physical stamp (a revenue stamp) had to be attached to or
impressed upon the document to denote that stamp duty had been paid before the
document was legally effective. More modern versions of the tax no longer require an
actual stamp.

M. Professional Tax

Profession tax the tax by the state governments in India. A person earning an income
from salary or anyone practicing a profession such as chartered accountant, company
secretary, lawyer, doctor etc. are required to pay this professional tax. Different states
have different rates and methods of collection. In India, profession tax is imposed
Lived. However, not all states impose this tax. The states which impose professional
tax are Punjab, Karnataka, Bihar, West Bengal, Andhra Pradesh, Telangana,
Maharashtra, Tamil Nadu, Gujarat, Assam, Kerala, Meghalaya, Odisha, Tripura,
Madhya Pradesh, and Sikkim. Business owners, working individuals, merchants and
people carrying out various occupations come under the purview of this tax.

Profession tax is levied by particular Municipal Corporations and majority of the Indian
states impose this duty. It is a source of revenue for the government. The maximum
amount payable per year is INR 2,500 and in line with tax payer's salary, there are
predetermined slabs. It is also payable by members of staff employed in private
companies. It is deducted by the employer every month and sent to the Municipal
Corporation. It is mandatory to pay professional tax. The tax payer is eligible for income
tax deduction for this payment.

Applicability of Profession Tax as per the Constitution of India: Article 276 of the
Constitution of India provides that “there shall be levied and collected a tax on
professions, trades, callings and employments, in accordance with the provisions of this
Act. Every person engaged in any profession, trade, calling or employment and falling
under one or the other of the classes mentioned in the second column of the Schedule
shall be liable to pay to the State Government tax at the rate mentioned

41
against the class of such persons in the third column of the said Schedule. Provided that
entry 23 in the Schedule shall apply only to such classes of persons as may be specified
by the State Government by notification from time to time.”

Article 276 in Constitution of India, 1949

• Notwithstanding until provisions to the contrary is made by Parliament by law, and
any law so made by Parliament may be made either generally or in relation to any
specified States, municipalities, boards or authorities
• The power of the Legislature of a State to make laws as aforesaid with respect to
taxes on professions, trades, callings and employments shall not be construed as
limiting in any way the power of Parliament to make laws with respect to taxes on
income accruing from or arising out of professions, trades, callings and
employments

Amount
The professional tax is a slab-amount based on the gross income of the professional and
salaried and as well as the other states as may be decided employees. It is deducted from
salary of the employee every month. In case of a company, directors of a company,
partnerships, individual partners, self-employed professional or owners of any business
undertaken in the state, it is to be submitted depending upon their gross turnover in the
preceding year. In some cases, the payment of tax is fixed and is to be paid irrespective
of turnover. For example in state of West Bengal, owner of a factory has to pay
professional tax only if the preceding year turnover is greater than 5 lac rupees and in
case of companies there is a mandatory payment of rupees 2,500 /- each year as
professional tax irrespective of turnover. For west bengal professional tax slabs and
rates on employee or otherwise click here

Slab for professional tax varies across different states in India. For example: In
Karnataka, PT rate is Rs. 200 for employees who earn more than Rs. 15000 of Basic +
DA. Likewise, you can find a complete list of PT rates for different states here. Click
here to calculate PT based on your state.

42
Responsibility of Deduction
The owner of a business is responsible to deduct professional tax from the salaries of
his employees and pay the amount so collected to the appropriate government
department. He/she has to furnish a return to the tax department in the prescribed form
within the specified time limit.

Registration
Employers have to apply for the Registration Certificate of their respective State Tax
Department within 30 days of employing the staff. In case the place of work spans
multiple states or place, application for the Registration Certificate has to be done
separately to each authority with respect to the place of work coming under the
jurisdiction of that authority.

Deposit of Amount Deducted

Professional tax is collected by the Commercial Tax Department. The commercial tax
department of the respective states collects it which ultimately reaches the fund of
Municipality Corporation.

• Employers covered under the jurisdiction of “State Government” as Designated

authority shall pay in the treasury by Challan through the bank. Other employers
shall pay at the place of payment declared by the Designated Authorities concerned.
• If an employer has employed more than 20 employees, he is required to make
payment within 15 days from the end of the month. However, if an employer has
less than 20 employees, he is required to pay quarterly(i.e. by the 15th of next
month from the end of the quarter).

Source - Professional Tax in India all Details

Person responsible to pay professional tax

In case of employees, an employer is the person responsible to deduct and pay

professional tax to the State Government subject to monetary threshold if any provided
by respective State’s legislation. Additionally, employer (corporate, partnership firms,
sole proprietorship etc) also being a person carrying on trade/profession is also required
to pay professional tax on his trade/profession again

43
subject to monetary threshold if any provided by respective State’s legislation. In such
case, employer needs to register and obtain both professional tax registration certificate
to be able to pay professional tax on his trade/profession and professional tax enrolment
certificate to be able to deduct the tax from his employees and pay. Further, separate
registration may be required for each office depending on respective State’s legislation.

Persons who are carrying on freelancing business without any employees also required
to register themselves subject to monetary threshold if any provided by respective
State’s legislation.

However, professional tax levy is subject to exemption provided by respective State to

certain categories. For example: Parents or guardian of any person who is suffering
from mental retardation, blind persons are exempted among others from levy of
Karnataka Professional tax.

Penalties for Non-Compliance on Professional Tax Payment

A penalty of Rs. 5/- per day is charged on .Delays in obtaining Registration Certificate,
In case of non/late payment of profession tax, penalty will be 10% of the amount of tax.
In case of late filing of returns, a penalty of Rs. 1000 per return will be imposed if you
filed after due date in 1 month. After 1 month, a penalty of Rs. 2000 will be imposed.

44
 The History About Sole Proprietorship

It is such type of business in which a person himself is the owner of all the assets of the
company and it is totally opposite of corporation and partnership, and such a person
who does such kind of business is called as sole proprietorship. And in terms of business
such a person who does business without officially making a company or business
organization is known as sole proprietor. A sole proprietorship is a type of company
which is not legally bounded to be registered with the state as a "limited liability
company (LLC)" or as a corporation. It does not work as a separate legal entity and
there are no legal formalities or any other licensing are necessary to create this business
because it is not itself a legal entity or we called as a taxable entity. For this it is
necessary to account all the income and expenses from the business being done on
"Schedule C" of her or his private federal income tax return. In generally a sole trader
gives the minimum protection because the private liability of the owner of this business
is generally unlimited. In this case both the business and the personal assets of the sole
trader are subject to claims of the sole trader's account payables or creditors. For
working capital, this type of business is usually limited to the personal funds of the sole
trader, and with the borrowings from outsiders willing to offer additional investment or
capital. In this business the owner himself is also individually liable for all amounts
outstanding and liabilities incurred by the business, and the time duration for this
business are not fixed like a sole trader can have the business for any period of time and
sell it when he or she sees it as reasonable. Like the proprietor, a sole trader can even
transfer a business down to his or her family or heirs by his or her own wish. In sole
proprietorship, there are no definite sole trader business taxes paid by the business or
company. During the lifetime of this person, a sole trader can sell or give away any
asset for the reason that the business is not lawfully separate from the sole trader. In the
case of demise of the sole trader, the business is automatically dissolved. However, as
this business is not a separate legal entity, it eventually finished as soon as the sole trader
becomes disabled, retires, or dies. So because of this, a sole trader ownership structure
lacks business permanence and does not have a continuous existence as does a company
or any other business such as partnership.

45
 Characteristics of a Sole Proprietorship

A sole proprietorship is the most common type of business structure, and the simplest.
It is used by businesses that are owned, and usually operated, by one primary individual.
You can start a sole proprietorship business without the help or advice of a lawyer. You
simply need to get the necessary business licenses and start operating. Although it's
possible to start a sole proprietorship business with little paperwork or planning, you'll
increase your odds of success if you take the process seriously and do your homework
before launching

A. Business Income Is Owner Income

If you own a sole proprietorship business, your company's net profit is taxed as
your personal income. Net profit is the amount left over after subtracting
operating expenses from gross revenue – the amount your business takes in
from the sale of products or services. You are liable for taxes on business
earnings regardless of how much you actually pay yourself. If you keep your
profits in the business to use as operating capital, you still must pay taxes on
the money. Conversely, if you pay yourself a salary but your sole
proprietorship business loses money, you don't have to pay taxes directly on
that salary, although you will have to figure out how to make ends meet while
operating at a loss.

B. Business Capital Is Owner Capital

You aren't legally required to open and use a dedicated business bank account
for your sole proprietorship. However, you are required to track every purchase
you make for business purposes, whether the funds come from your personal
bank account, your business account or the change in your pocket. Similarly, if
you operate the business under your own name rather than a trade name, you
can deposit checks for business earnings into your personal account, although
you must still track and record them as income. If your

46
 company is short on cash, you can transfer personal funds to your business
account to make up for the shortfall. It's a good idea to keep track of these
transfers for accounting purposes but, as far as the Internal Revenue Service is
concerned, it's all your money.

C. Close Management

Sole proprietors tend to manage their businesses closely, knowing the details of
different departments and products. Although they may have employees and even
managers, sole proprietorship businesses are usually closely identified with their
owners, who get to know customers personally. This hands-on management isn't a legal
requirement for operating as a sole proprietorship. However, the choice of a sole
proprietorship business structure rather than a more complex corporate structure signals
a desire for simplicity and directness, which often manifests in a business that is closely
held and run.

D. Sole Proprietorship:
The individual carries on business exclusively by and for himself. He invests his own
capital and controls the whole business. He bears all the risks and is the master of all
the profits.

E. Free from Legal Formalities:

A sole trade business is not expected to meet any legal requirement. A sole trader may
engage in any business unless license is required under law. Suppose, he wants to open
a cloth shop or a grocery store, he will do it but if he wants to open a restaurant he will
have to obtain a license before opening the same.

F. Unlimited Liability:
In sole trade business, liability is unlimited. The proprietor bears all the losses arising
from the business. His private property is also liable for the business obligations.

G. Sole Management:

47
The sole trader manages the whole business himself. He prepares the plans and executes
them under his own supervision. He is not required to consult anyone else in taking
decisions. The ultimate authority to manage and control rests with the proprietor.

H. Secrecy:
It is also an important characteristic of sole proprietorship. All the decisions are taken
by the proprietor himself. He is in a position to keep his affairs to him self and
maintain perfect secrecy in all matters.

I. Freedom regarding Selection of Business:

A sole trader is at freedom to select any business of his choice. He has not to depend on
others.

Advantages of Sole Proprietorship:

The main advantages of sole proprietorship are discussed as follows:

1. Ease in Formation:
Sole proprietorship is the only form of organization which is easy to form and
simple to run. No legal formalities are required to be faced by such as registration,
etc. He may, however, obtain license where required under government rules such
as opening of restaurants.

2. Perfect Control:
As the sole proprietor is himself the master of the business he maintains a perfect
control. He takes his own decisions and is to face the consequence. As the
employees are very few he maintains personal contact with them and creates a team
work. The golden rule of capitalism is ‘where the risk lies, control must lie’. There
is no wastage because of his perfect control.

3. Flexibility in Operations:
As he is the sole master he is in a position to introduce any change he considers
necessary. Hence, there is a great deal of flexibility in the policy making of this type
of organization.

48
4. Direct Motivation:
The proprietor takes a personal interest in the business as all the profits are his own.
He is keen to run the business efficiently and economically because the success of
business is his own success and failure is his own failure. The direct relationship
between the efforts and reward acts as a great stimulus for working hard and making
the enterprise successful.

5. Maintenance of Secrecy:
Secrecy, is of great importance for the success of a small business and being a sloe
trader, he is in a position to keep all his affairs to himself and maintain perfect
secrecy in all matters.

6. Prompt Decision:
As he himself is to consider the problem and to give decisions. He takes prompt
decisions which promote efficiency. Being the sole master, he takes prompt
decision and makes advantage of the opportunity. Since his decisions are not to be
challenged by anyone, he does not hesitate to take decisions.

7. Catering for Individual Tastes:

As a sole proprietor, he is in a position to have close contacts with his customers
and can cater for the customers’ tastes. This helps him to build goodwill which
naturally results in the flourishing of business. The individual owner flourishes in
all enterprises where the personal element is important.

8. Minimum Government Regulations:

The activities of the sole trader are regulated by government and law to the
minimum extent. In fact, his right and obligations are the same as of any other
citizen, except that he is to pay income- tax and sales tax, there is hardly any other
interference of law in his affairs. The formation and dissolution of the business is
not subject to any law or regulation in this form of organization.

9. Easy to Raise Finance:

A sole proprietor is able to create goodwill for his business. This helps him to
establish his creditworthiness in the market. And being his liability unlimited the

49
 Creditors can have a claim on his private property also. The creditors
feel secure in extending credit to the sole proprietors.

10. Social Advantages:

By doing small business, he is rendering service to the society and at the
same time maintaining independent way of life.

The general advantages are given below:

(i) Independent Way of Life:
This form of organization provides a way of life for those who take
pride in ownership and control of what they are masters. They are
obviously of independent spirit and would not care to serve under
others. Such persons are in a position to utilize their capacity to full
extent and enjoy freedom of action. He is both the master and manager
and this fact gives the greatest possible satisfaction.

(ii) Generation of Social Values:

This form of organization affords a high degree of self-determination, the
enjoyment of purposeful work, the warmth of social contact, a well-
integrated family and respectable life. This develops the qualities of
self-reliance, responsibilities and initiative which are of great social
significance.

(iii) Diffusion of Business Ownership:

Under this form of organisation, a very large number of people
must own and manage vast number of small business units. It
makes for diffusion of business ownership as against concentration
of power in few hands offered by a joint stock company.

Disadvantages of Sole Proprietorship

Notwithstanding so many advantages, both economic and social,

the sole ownership suffers from various disadvantages or
limitations which are discussed below:

1. Limited Capital:

50
The sole proprietor has got the serious handicap of limited capital.
Except very few, generally no one is rich enough to expand his
business. Since the sole proprietor determines his own policy and
conducts his business, no one else is prepared to invest his money
into the business of sole proprietorship. Thus, this form of
organization cannot expand his business even if there is chance for
doing so.

2. Limited Managerial Ability:

An individual however capable cannot be expected to passes all the
knowledge of all branches of a business and is bound to waste his
energies in doing things which would have been left to experts in a
joint stock company. Since being alone, he has to bear a great
responsibility which may crush him unless he is a giant in
judgment, intelligence and intellect. He may at time give wrong
directions resulting in loss.

3. Unlimited Liability:
The liability of the sole proprietor is unlimited. It is not only the
assets of the business which are liable but his private property is
also liable for the debts of his business. The advantage of personal
control is counterbalanced by the risk which is inherent in this from
of organisation. Limited capital, limited managerial capital and
unlimited liability of sole proprietor act as brakes to the
development and expansion of the business.

4. Uncertainty of Continuity:
There is no guarantee that sole-trading concern will be continued,
because it may close down in the case of loss or the death of the
proprietor. There may be no one after him who may keep on the
business. It may also be that there

51
may be no heir or there may be legal conflicts. In most of the cases, the business
ends with the death of sole proprietor.

5. Hasty Decision:
In sole proprietorship, the decisions are taken by owner. So there is a possibility
of taking a worse decision and it may be of great harm to the business. It is well
known fact that “Haste makes waste”.

6. No Large Scale Economies:

Since the scale of operation is relatively small, the sole proprietor cannot avail
the benefits of large scale production. A small scale concern cannot economise
in purchases, production and marketing.

In conclusion, it may be said that one man control is the best from the point of
view of efficiency, economy and profitability, provided one man is big enough
to manage everything.

52
1.8 Objectives of taxation on sole proprietorship
The primary purpose of taxation is to raise revenue to meet huge public expenditure.
Most governmental activities must be financed by taxation. But it is not the only goal.
In other words, taxation policy has some non-revenue objectives.
Truly speaking, in the modern world, taxation is used as an instrument of economic
policy. It affects the total volume of production, consumption, investment, choice of
industrial location and techniques, balance of payments, distribution of income, etc.

Economic Development
Objective

Full
Employment
Price Stability
Control of
Cyclical
Fluctuations
Reduction of
s

BOPDifficulties
Non-Revenue
Objective

1. Economic Development:

One of the important objectives of taxation is economic development. Economic

development of any country is largely conditioned by the growth of capital
formation. It is said that capital formation is the kingpin of economic
development. But LDCs usually suffer from the shortage of capital.
To overcome the scarcity of capital, governments of these countries mobilize
resources so that a rapid capital accumulation takes place. To step up both public
and private investment, government taps tax revenues. Through proper tax planning,
the ratio of savings to national income can be raised. By raising the existing rate of
taxes or by imposing new taxes, the process of capital formation can be made
smooth. One of the important elements of economic development is

53
 the raising of savings- income ratio which can be effectively raised through taxation
policy. However, proper care has to be taken, regarding investment. If financial
resources or investments are channelized in the unproductive sectors of the
economy the economic development may be jeopardized, even if savings and
investment rates are increased. Thus, the tax policy has to be employed in such a
way that investment occurs in the productive sectors of the economy, including the
infrastructural sectors.

2. Full Employment

Second objective is the full employment. Since the level of employment depends
on effective demand, a country desirous of achieving the goal of full employment
must cut down the rate of taxes. Consequently, disposable income will rise and,
hence, demand for goods and services will rise. Increased demand will stimulate
investment leading to a rise in income and employment through the multiplier
mechanism.

3. Price Stability

Thirdly, taxation can be used to ensure price stability—a short run objective of
taxation. Taxes are regarded as an effective means of controlling inflation. By
raising the rate of direct taxes, private spending can be controlled. Naturally, the
pressure on the commodity market is reduced.

But indirect taxes imposed on commodities fuel inflationary tendencies. High

commodity prices, on the one hand, discourage consumption and, on the other hand,
encourage saving. Opposite effect will occur when taxes are lowered down during
deflation.

4. Control of Cyclical Fluctuations

Fourthly, control of cyclical fluctuations—periods of boom and depression—is

considered to be another objective of taxation. During depression, taxes are

54
 lowered down while during boom taxes are increased so that cyclical fluctuations
are tamed.

5. Reduction of BOP Difficulties

Fifthly, taxes like custom duties are also used to control imports of certain goods
with the objective of reducing the intensity of balance of payments difficulties and
encouraging domestic production of import substitutes

6. Non-Revenue Objective

Finally, another extra-revenue or non-revenue objective of taxation is the reduction

of inequalities in income and wealth. This can be done by taxing the rich at higher
rate than the poor or by introducing a system of progressive taxation.

Scope and Prospects of Sole Proprietorship:

In the modern business world the scope of sole proprietorship is very limited.

A The sole proprietorship form of organization is more suitable in

following cases:
1. The business in which small amount of capital is required.
2. Where the risk involved is not much.
3. Where the extent of liability is not more.
4. Where the size of business is small.
5. When the market for a product is limited only to a particular place, scale of
business operations will be small.
6. When personal contact with customers is required, sole proprietorship form of
organization will be suitable.
7. If one man is big enough to manage everything.
When the scale of operations is small, then capital requirements will be less and
sole proprietorship is the most suitable form of organization.

55
B “One-Man Control is the Best in the World, if One Man is Big
Enough to Manage Everything.”:
The sole proprietorship or one-man business is a form of organisation in which an
individual produces independently with his own capital, skill and intelligence and
is entitled to receive all profits and equally assumes all risks of ownership.
Despite its disadvantages and limitations, sole proprietorship form of organization
is very popular.

C. William R. Basset, in his book, The Organization of Modern

Business says that:
“The one-man control is the best in the world if that one man is big enough to
manage everything. But a business must be small indeed to permit one man
actually to know and to supervise everything. The danger is always present that he
thinks he knows when really he does not know and naturally there is no
permanency in this kind of management if the one man is away or ill, the business
stops and of course when he dies, business vanishes or has to be re-built.”
According to William R. Basset, one-man controlled business is the best provided
that man is able to manage all activities efficiently and effectively. The sole
proprietorship is easy to form and is also free from legal formalities. The sole
proprietor can take prompt decisions to avail all business opportunities.
In sole proprietorship being one man the owner of the business, the secrecy,
economy, prompt decision and direct contact with customers, etc. are found.

56
Documents Required for Sole Proprietorship Registration in India
Sole Proprietorship is the easiest form of business done in India since it isn’t governed
by any specific laws. Under sole proprietorship’s, the compliance’s are minimal and
easy to fulfill.

To register a sole Proprietorship, the following documents are required:

• Aadhar Card

• PAN Card
• Bank Account
• Registered office proof

Although sole proprietor doesn’t require any specific registrations, he is advised to

obtain a few registrations to make his business function smoothly.

• Registering as SME
• Shop and Establishment Act License
• GST Registration

1. Aadhar Card

Aadhar number is now a necessity for applying for any registration in India. Also,
income tax return can only be filed if the person has linked his PAN card with Aadhar
number. Contact nearest E-Mitra or AadharSeva Kendra if you haven’t got an Aadhar

57
number yet. After applying for Aadhar card, a hard copy of the same is received at the
registered address in around 15-20 days.

2. PAN Card

You can’t file your income tax return until you get a PAN. So if you don’t have a PAN
number, apply for it at the earliest.

PAN card can be applied online and it costs Rs. 110, approximately. For applying, you
need a scanned photograph, identity proof, and address proof. The form can be
submitted online by verifying it through Aadhar e-KYC.Once PAN card application is

submitted, it is checked at NSDL for verification, and if NSDL finds the information
correct, it allots the PAN number within 7-8 days. Further, a hard copy of PAN card is
received at the registered address within 15-20 days.

3. Bank Account

After you have got Aadhar Number and PAN, you can visit any bank for opening an
account with them. Apart from Aadhar Number and PAN, you need to carry identity
proof and address proof. For opening a current account, you need to submit GST
registration document to the bank officials too.

58
4. Registered office proof

If it is a Rented Property: a) Rent agreement and NOC from a landlord.

If it is a Self-owned Property: Electricity bill or any other address proof

.In addition to the above, there are few registrations required in order to establish the
existence of the firm:

59
1. Registering as SME

You can get yourself registered as Small and Medium Enterprise (SME) under
the MSME Act. The application can be filed electronically. Although it isn’t
compulsory to register as an SME, it is highly beneficial, especially at the time

of taking loan for the business. The Government runs various schemes for SMEs
where loans are provided at the concessional rate of interest.

60
2. Shop and Establishment Act License

This license isn’t mandatory at all places, but it is required to be obtained

according to the local laws. It is issued by the municipal party and is issued on
the basis of the number of employees.

61
 3. GST Registration

You can get yourself registered under GST if your annual turnover is more than
Rs. 20 lakhs. Also, if you are doing online business (selling through amazon,
flipkart etc.), you are required to get a GST number. For registering under GST,
you need the following documents –

a. PAN card, Photo and Aadhar Card of the proprietor

b. Proof of business place (Electricity bill/ rent agreement)

c. Bank statement copy (first page for verifying bank account number, address
and IFSC code)

GST registration is easy and can be done via the GST portal. Normally GST
number is received within 3-4 days of submitting the application

62
 CHAPTER 2

2. RESEARCH METHODOLOGY

2.1Introduction

2.2Sample Design

2.3Sampling Technique:

2.4Method of Data Collection

2.5Population

2.6Limitation of Research

2.7Objectives

2.8Hypothesis

63
 Introduction

The word "research" is used to describe a number of similar and often overlapping
activities involving a search for fact. A search concerned with information rather than
knowledge or analysis and answers can normally be found in a single source. This is
A study on taxation of sole proprietorship, mainly sole proprietorship category into
three parts i.e. wholesalers, manufacture, and retailers .Also, for a sole proprietorship
to survive in this cut-throat competition it is important to offer the best products, with
quick and best service at reasonable monetary factor.

SAMPLE DESIGN:

The sample size of this study is 50 and questionnaire method is used for data collection.
We personally met the respondents inside and outside the business place. For secondary
data we take into consideration the journals and publication issued at different sites on
internet. For latest information we also visited business place personally. The
information was collected and analysis according to respondent socio economic
background included the factor of education, age, income etc.

Sampling Technique:

Random sampling method technique is been used for collection of data.

Method of Data Collection

• Primary data:
Primary data has been collected with the help of respondents of sole
proprietors
• Secondary data:
It is collected through newspapers, magazines, websites, online repots etc.

64
Population:

Respondents from suburban area specifically Andheri ,Jogeshwari, Vile parle, Malad,
Kandivali and Borivali, Vasai, Bhiwandi

Limitation of Research

The sector is very vast and it was not possible to cover every nook and corner of this
sector. Some of the limitations of the study are:

1. Study is conducted only in some selected business place of Mumbai suburbanarea.

2. Authenticity of the collected data from different interviewees.

3. Not possible way the researcher can ensure that the interviewees always understood
the true context of each question.

Objective
1. To find direct taxes on sole proprietor

2. To find indirect taxes on sole proprietor

3. To understood the benefits of taxation to sole proprietor

4. To study the various taxation which are applicable to sole proprietor

65
Hypothesis

Hypothetical Question 1:

(Ho) There is no significance difference between the benefit of taxation to sole

proprietor

(H1) There is a significance difference between the benefit of taxation to sole

proprietor

Hypothetical Question 2:

(Ho) There is no significance difference between the various taxation which is

applicable to sole proprietor.

(H1) There is a significance difference between the various taxation which is

applicable to sole proprietor

66
 CHAPTER 3
3. Review of Literature

3.1Introduction

3.2Purpose

3.3Importance of Review of Literature

3.4sources of Literature Review

3.5Review of Literature

3.6 Research Gap

67
 Introduction

Literature review provides an overview and a critical evaluation of a body of literature

relating to a research topic or a research problem .Analyzes a body of literature in
order to classify it by themes or categories rather than simply discussing individual
work after another. A literature review often forms part of a large research projects,
such as within a thesis or it may be an independent written work. Review of literature
is one of the essential tasks when a research study is undertaken is to go through the
existing literature in order to acquaint oneself with the available body of knowledge in
the area of interest. The literature review is the integral part of the entire research
process and makes available contribution to almost every operational step. In this
study, related literature has been studies through books, journals that could provide a
good foundation and help crystallize the idea.

Purpose

A literature review situates your topic in relation to previous research and illuminates
a spot for your research. It accomplishes several goals:

• It provides background for your topic using previous research.

• It shows you are familiar with previous, relevant research.
• It evaluates the depth and breadth of the research in regards to your topic.
• It determines remaining questions or aspects of your topic in need of research.

Importance of Review of Literature

• Identification of a research problem and development or refinement of

research question.
• Generation of useful research questions or projects activities for the discipline.
• Orientation to what is known and not known about an area of inquiry to
ascertain what research can best contribute to knowledge.
• Determination of any gaps or inconsistencies in a body ofknowledge.
• Discovery of unanswered questions about subject, concept or problems.

68
 • Determination of a need to replicate a prior study in different study settings or
different samples or size or different study populations.

sources of Literature Review

Literature can be reviewed from two sources:

1. Primary Sources
• Literature review mostly relies on primary sources, i.e. research reports,
which are description of studies written by researchers who conducted
them.
• A primary source is written by a person who developed the theory or
conducted the research or is the description of an investigation written
by the person who conducted it.
• Most primary sources are found in published literature.

2. Secondary Sources:
• Secondary source research documents are description of studies prepared
by someone other than original researcher.
• They are written by the people other than the individual who developed
the theory or conducted the research.
• The secondary source maybe used when primary sources are not
available.

3. The main sources from where literature can be searched as

• Magazines & Newspaper

• Electronic database
• Books
• Journals
• Conference papers
• Theses

69
 • Research reports
• dictionary

Review of Literature

The research has gone through various database to locate literature related to this study
the relevant studies found various source such as research journals, Books, other
sources information which the researchers has come across is mention in this chapter.

Indian Taxation Enquiry Committee (1924)

The committee recommended the following measures for improvement in taxation of

income:

• Loss sustained in one year should be allowed to carry forward and setoff in the
subsequent year.

• The income of married couples should be taxed at the rates applicable to their
aggregate income.

• In case private companies are formed just for tax avoidance by withholding
dividends, then such companies should be treated as firm.

Dipankor et al. (2001) evaluated the relative tax performance of a group of 16 states of
India for the period 1986-87 to 1996-97. The performance was measured by the tax-
state domestic product (SDP) rate and analyzed by using the technique of Quintile
Regression. The study revealed that states could be classified into four categories on
the basis of tax performance. First the consistently best performing states were the south
western states viz. Goa, Gujarat, Karnataka, Kerala, Rajasthan and Tamil Nadu. The
next category of states (the worst performing states) was eastern states of Assam,
Orissa and West Bengal. The study also revealed that the position of these two
categories remained same over the period of study. The third category of states was
with medium level performance throughout the period under study, which included
the states of Bihar, Haryana, Madhya Pradesh and Uttar Pradesh. The fourth category
of states which started out at the medium / top level in term of performance

70
showed a declining trend later on were the states of Andhra Pradesh, Maharashtra and
Punjab.

Literature review has exposed that the entrepreneurial activities have been going on
since the last several decades. Historical evidences throw light on the extent of
entrepreneurship development which has contributed to the economic growth of the
ancient countries. The introduction of PURA Scheme was a noble way of inspiring the
villagers, who have been cut off from the urban world. This initiative has indeed
prompted many entrepreneurs to begin with creative and innovative way of doing
business. The literature review has revealed that the entrepreneurship development has
been a source of economic growth, rural development, job opportunity and business
enhancement and provides a source of livelihood for villagers under poverty line. The
researchers of Western and Eastern countries have illustrated that entrepreneurial
activities are a supplement to the progress of their nations. Likewise, the development
of entrepreneurship in India has also shown uptrend 44 and many researchers have
examined the progress of entrepreneurial growth across the states of India. As for Tamil
Nadu, the entrepreneurship development has been on rise since the introduction of
government policies, which have encouraged many local businesspeople to venture into
business. The literature made available by various researchers has given the investigator
the scope of understanding entrepreneurship development and its effectiveness. One of
the highlights was the training of entrepreneurs which is an important aspect of fostering
entrepreneurs. Several researchers have concluded that training has built-up the
entrepreneurial culture and also enabled the growth of an individual. Generally, the
under- developed countries have taken up entrepreneurship as a tool to eliminate
poverty and to provide poor people a source of income. Among the Asian countries as
per our literature review, China has been prominently exposing entrepreneurial
development. India has also been promoting entrepreneurship in rural sector to make it
on a par with the urban sector.

Research Gap

Research was done on sole proprietor and taxation. this two were not looked at together.
Therefore my research focuses on brig ding this gap. To make it interesting I have
focused only on the domestic level, dealing with the topic’ A study on sole
proprietorship on domestic level’

71
 CHAPTER 4
4. DATA ANALYSIS, INTERPRETATION AND PRESENTATION

4.1Introduction

4.2Data Analysis, Interpretation of research

72
 Introduction

The most important of any research exercise is the data presentation, analysis and
interpretation, for reaching to conclusions and extracting important findings. Having
reached so far through a systematic literature review and data collection, it is attempted
here to present the collected data in a tabulated form and graphical form, for easy
reading and analysis. In this chapter researcher has analyzed the data collected on the
basis of the frame of reference of this study. Chi square test are applied for analyzing
the collected data.

Sole proprietor’s perception about taxation at domestic level

The total numbers of respondents from these some are wholesaler, manufacturerand
retailer of sole proprietors. I had made an attempt to make a study on taxation on sole
proprietorship at domestic level.

1. Nature of the business

Schedule

Sr.No Particular No. of Respondent

1 Wholesaler 6

2 Retailer 38

3 Manufacturer 6

Total 50

73
Diagram

Nature of
business

Wholesale
r
Retailer

Interpretation

• The above pie chart divided into 3 categories i.e. wholesaler, retailer And
Manufacturer.

• From the interpretation of the diagram given it is concluded that more then
70% respondent are retailers.

• From the above diagram it can be understood that there are more number of
retailers in the market then the wholesaler, and manufacturer.

74
2. Gender
Schedule

Sr.No. Particular No. of Respondent

1 Male 39
2 Female 11
Total 50

Diagram

Gender
respondent

Male
No of

Femal
e

Male Femal
e
Gende
r

Interpretation:

• As per my research, I found more number of male retailer then the female in
the market.

75
Age
Schedule:

Sr.No. Categories No. of Respondent

1 25 & 30 years 5

2 30 to 35 years 28

3 35 to above year 17

Total 50

Diagram:

age

35 to above
year
cotegory

30 to 35 25 & 30 years
years 30 to 35 years
Age

35 to above
25 & 30 year
years

10 15 20 25 30
No. of Respondent

Interpretation:

• As per my research there are more number of respondent involve into that in
the age group of 30 to 35 years.

• Whereas very less people are involve in the sole proprietorship in the
age group of 25 to 30 year.

76
 • Very less people are their in the age group of 25 to 30 year who are actually
involve in their own idea of sole business where as I found many people who
all are continuing the same family business of sole proprietor

• I also found very unique ideas about the business In the age group of 25 to 30
years.

Education

Schedules:

Sr.No. Particular No. of Respondent

1 High School 35

2 Intermediate 12

3 Degree 6

Total 50

Diagrams:

Education

High
School

Degre
e

High Intermediat Degre

School e e

77
Interpretation:

• In my research I have many respondent who comes under the category of

retailers who have just done with their high schooling and having a such a good
amount of profit in their pocket.

• Thus, I found personal skills are more important in business rather than high
education.

Turnover
Schedules:

Sr.No. Particular No. of Respondent

1 Below 20 lakhs 5

2 20 lakhs to 1.5 crore 38

3 Above 1.5 Crore 7

Total 50

Diagrams:

78
 Turnover
4
5

4
0

3
5

3 Below 20 lakhs
0 20 lakhs to 1.5
crore
2
5 Above 1.5 Crore
1
2
0
0

1
5
-5 0. 1. 2. 3.
0 5 5 5 5

Interpretation

• In the above diagram the yellow boll representing the turnover of proprietor
above 1.5 crore. In this category the respondent have to follow all the guideline
given by the government body.

• I found very less respondent who comes under the category below 20 lakhs.

• There are good amount of respondent having a good amount of turnover comes
under the category of 20 lakhs to 1.5 crore

79
Minimum capital required for your business

Schedule:

Sr.No. Particular No. of Respondent

1 Below 5 Lakhs 14

2 5 Lakhs to 10 Lakhs 28

3 Above 10 Lakhs 8

Total 50

Diagram:

Minimum capital required for

yourbusiness

Below 5 Lakhs
5 Lakhs to 10
Lakhs
Above 10 Lakhs

Interpretation:

• As per my survey I found in the category of 5 lakhs to 10 lakhs people are

invest their capital into their business.

• As we show in above diagram where we show in the category of 25 to 30 age

of group are specially started their business below 5 lakhs

80
Nature of business Property

Schedule:

Sr.No. Particular No. of Respondent

1 Owner 34

2 rented 16

Total 50

Diagram

Nature of business
Property

3
5
3
0

2 Owne
5 r
rented
2
0

Owne rented
r

Interpretation

• In the above diagram as showing more number of respondent using their own
property for their business.

• Very few respondent are go for the rented property

81
Tax paid (Current year)

Schedule

Sr.No. Particular No. of Respondent

1 Below 10,000 32

2 10,000 to 20,000 13

3 Above 30,000 5

Total 50

Diagram

Tax paid (Current

year)

Below 10,000
10,000 to
20,000
Above 30,000

Interpretation

• In my survey as we show in the earlier diagram which is turnover is to directly

related to my tax paid based on the amount of profit earning in the current year

• As my current diagram is showing number of taxpayer are more in below 10,000

categories.

• Very less respondent are paying above 30,000

82
Tax Paid (last year)

Schedule:

Sr.No. Particular No. of Respondent

1 Below 10,000 35
2 10,000 to 20,000 11
3 Above 30,000 4
Total 50

Diagram

Tax Paid (last

year)

Below 10,000
10,000 to
20,000
Above 30,000

Interpretation

• In my survey as we show in the earlier diagram which is turnover is to directly

related to my tax paid based on the amount of profit earning in the last year.

• As my current diagram is showing number of taxpayer are more in

below 10,000 categories.

• Very less respondent are paying above 30,000

83
Tax Audit applicability

Schedule

Sr.No. Particular No. of Respondent

1 Turnover will be below 2 crore 41

2 Turnover will be above 2 crore 9

Total 50

Diagram

Tax Audit
applicability
5
0
40
30
20
10
0 Series
1

below 2 Turnover will

crore be
above 2 crore

Interpretation

• In my survey my respondent belongs only category of 1.5 crore, so there is

not compulsory audit for them.

• But I found respondent whose turnover is around 1.5crore are also doing audit
adjust their profit margin

84
GST Applicability

Schedule:

Sr.No. Particular No. of Respondent

1 Turnover should be below 20 lakhs 6

2 Turnover should be 20 lakhs to 1.5 crore 36

3 Turnover should be above 1.5 crore 8

Total 50

Diagram;

GST
Applicibility
3
5

3
0
Turnover should be below
2 20
5 lakhs

2 Turnover should be 20 lakhs

0 to
1.5 crore
1
Turnover should be above
5
1.5
1 crore
0 Turnover should be Turnover should be Turnover
should
belowbe
20 20 lakhs to above 1.5
lakhs 1.5 crore
crore

Interpretation:

• In the above diagram it showing GST applicability means who are actually
involve into the GST system.

• In which I found number if respondent comes under the turnover i.e. 20 lakhs
to 1.5 crore is applicable for regular scheme

85
In GST, Which scheme is applicable for you?

Schedule:

Sr.No. Particular No. of Respondent

1 Regular Scheme 39

2 Composition Scheme 7

3 None of the above 4

Total 50

Diagram

GST
4 Scheme
5
4
0

Regular Scheme
Composition
Scheme
None of the above

Regular Scheme Composition Scheme None of the

above

Interpretation

• In the above diagram the number of respondent are mainly comes under the
regular scheme which is calculated on monthly basis.

86
 • Very few respondent are their in composition scheme category which is
calculated as quarterly basis.

In GST, Which return has respondent filed ?

Schedule:

Sr.No. Particular No. of Respondent

1 GSTR1 39
2 GSTR3B 39
3 GSTR4 7
4 None of the above 4
Total 50

Diagram

GST Return
Type
Respondent
No of

GST GSTR GST None of the

R1 3B R4 above
Return of
GST

87
Interpretation

• As the earlier above diagram I found many respondent are comes under the
scheme of regular scheme which indicate GSTR1 and GSTR3B as their
Outward and inward record.

• Very few respondents are comes under the category of GSTR4 which indicate
only for the composition scheme.

88
 CHAPTER 5

5. FINDINGS, SUGGESSIONS & CONCLUSION

5.1Findings

5.2Suggestions

5.3Conclusion

89
 Findings

Results of this study proves sole proprietorship decision makers an insight into the
perception about taxation among Mumbai suburban area and this research shows
practical aspects of the same. Based on the findings of this study the following
suggestions could be arrived:

1. Majority respondents were aware about Taxation. It can also be concluded that
respondents are more aware about the taxation schemes at domestic level i.e. Income
tax, Goods and Service Tax(GST) in recent times due to internet facilities compared to
the older times.

2. More than 70% of the respondents do their taxation work on the regularbasis.

3. Respondents are aware more about GST compared to Income Tax. The overall
inference which could be drawn from this is respondents are more aware of the different
business schemes i.e. Partnership, Company and so on.

5. From the above study I found that most of retailer respondents do their GST returns
on a monthly basis.

90
 Suggestions

After finishing my research on the topic entitled “A Study on Taxation on

Proprietorship at Domestic Level”, I realized there are other related topics which can
be worked upon. Some of them are mentioned below:

• A study on taxation on proprietorship at International Level.

• A study on taxation on Partnership firms at Domestic/ International Level.

Conclusions

• In the research, I found that the GST is good tax system as compared to the
VAT and Service Tax in indirect tax.

• As per the research GST system filing returns is easy.

• In the direct taxes as usual the tax slaps are the same.

• The respondents have udyod aadhar which is a better option than shop
establishment license.

91
6. BIBLIOGRAPHY

➢ https://www.incometaxindiaefiling.gov.in/home

➢ https://www.gst.gov.in/

➢ https://mahagst.gov.in/

➢ http://yourfinancebook.com/tax-on-sole-proprietorship-business/

➢ https://en.wikipedia.org/wiki/Securities_Transaction_Tax

➢ https://en.wikipedia.org/wiki/Value-added_tax

➢ https://en.wikipedia.org/wiki/Goods_and_Services_Tax_(India)

➢ https://en.wikipedia.org/wiki/Service_Tax

➢ https://en.wikipedia.org/wiki/Interest_Tax_Act,_1974

➢ https://en.wikipedia.org/wiki/Capital_gains_tax

➢ https://en.wikipedia.org/wiki/Expenditure_Tax_Act,_1987

➢ https://en.wikipedia.org/wiki/Aadhaar

➢ https://en.wikipedia.org/wiki/Permanent_account_number

BOOKS:

Income tax law & practice (author Dr.S.P.GOYAL)

Income tax including GST (author Dr.VINOD K SINGHANIA)

Taxation law and practice (author V.BALACHANDRAN)

NEWSPAPERS:

THE ECONOMICS TIMES

THE BUSINESS LINES

92
 7. APPENDIX

• Questionnaire

Dear Sir / Madam,

I am RAKHI KHEMRAJ SHARMA pursuing Bachelor of (advanced

accounting) from Ismail Yusuf College of Art Science And Commerce
Jogeshwari East. As part of our curriculum I have to do project work in the area of
marketing. Therefore, I am working on the project titled “A Study on Taxation on
Sole Proprietorship at Domestic Level” under the supervision of faculty. I assure
you that data will be used for academic purpose only and strict secrecy will be
maintained. I would also request to share only relevant information relating to my topic.

Thanking You

1. Name of the Respondent:-

2.Nature of the business:-

 Wholesaler
 Retailer
 Manufacturer
 Other

3. Gender:-

 Male
 Female

93
 4. Age

 25 to 30 years
 30 to 35 year
 35 to above year

5. Education:-

 Illiterate
 High school
 Intermediate
 Degree

6.Turnover:-

 below 20 lakhs
 20 lakhs to 1.5 crore
 Above 1.5 crore

7.Minimum capital required for your business

 Below 5 lakhs
 5 lakhs to 10 lakhs
 Above 10 lakh

8.Nature of business

property

 Owner
 Rented

9.Tax Paid (current year)

 Below 10,000
 10,000 to 20,000
 Above 30,000

94
10.Tax paid (last year )

 Below 10,000
 10,000 to 20,000
 Above 30,00

11.Tax Audit applicability

 Turnover will be below 2 crore

 Turnover will be above 2 crore

12.GST Applicability

 Turnover should be above 20 lakhs

 Turnover should be 20 lakhs to 1.5 crore
 Turnover should be above 1.5 crore

13.In GST, Respondent was under which scheme?

 Regular Scheme
 Composition Scheme

14.In GST, which returns has filed respondent?

 GSTR 1
 GSTR 3B
 GSTR 4

15.Does your tax consultancy timely notify you the various provisions submissions of all taxes?

 YES

 NO

16.whether your tax consultant reminds you regarding tax obligation ?

 YES
 NO

95
17.what is impression about the fees charged by your tax consultant?

Higher

Lowest

Reasonable

Any other information

18.Do you discuss government’s annual budget provision with your tax consultant before hand?

YES



19.Does your tax consultant help you in understanding the impact of budget provision on your tax
liability and Planning tax accordingly?

YES



 Has any penalty being levied by income tax authority for filing up tax returns late ?

YES



If yes , who was at real default?

yourself

your tax consultant

any other reason

22.whether you have faced misplacement of any documents regarding income tax by your tax
Consultant?

YES



96
Does your tax consultant discuss the financial matters of someone else with you?

YES



re are sure that your tax consultant keeps all the information regarding your income tax matter
confident ?

YES



If these years ,whether you have changed your tax consultant ?

YES



26.Have you faced any penalties regarding income tax ?

YES



27.Whether your case was selected for scrutiny?

YES



Difficulties faced by you in getting services from tax consultant?

YES



re you satisfied with the service provided by your tax consultant?

YES



97
Does your tax consultant co-operated the matter ?

YES



 Under which heads of income, your income becomes taxable?

a. Income from salary

b. Income from house property

c. Profits and gains of business, profession

d. Capital gain

e. Income from other sources

32. How do you get the information about taxation?

• Through tax consultant

• Through friends and relatives

• Through media
(journals, magazines, books, televisions etc.,)

33. When the income of other persons included in assessee's total income?
Yes

 NO

34. Deductions permissible under chapter VI-A of Income Tax Act,1961?

 YES

 NO

35. How income tax is charge?

YES

 NO

36. At which rate income tax is to be charged?

YES

 NO

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 37. Reasons for filing the first return ?
• Regular provision

• Refund claim

• Carry forward of loss

• Notice from Income Tax Department

 Generally when you do prepare for filing of return?

• 1 month before due date

• 1week before due date

• 2-3 days before due date

• After due date

39. After providing required documents, in how much time your tax consultant files the return?
• Within 1 day

• Within a week

• After a week

• Other (mention

40. Since how many years you are filing returns?

• 0-5 years

• 5-10 years

• 10-15 years

• 15-20 years

• More than 20 years

41. Since how many years you are filing returns with the current tax consultant?
• 0-5 years

• 5-10 years

• 10-15 years

• 15-20 years

• More than 20 years

99
 42. Income Tax Act undergoes change every year with additions and deletions brought about by the
Finance Act passed by the Parliament (Government’s Annual Budget)?

YES

 NO

43. The various items of income that are exempt from tax?

 YES

 NO

44. How the taxable income is computed?

 YES

 NO

45. If yes, reason for such change-

a. Change of office place

b. High charges

c. Dissatisfaction

d. Inconvenience

e. Death/retirement of consultant

f. Conflicts with consultant

g. Any other reason (mention )

100
101