Direct Tax Laws

Legal Aspects of Business

Group-4

Neha Singh-003
Deepali Arora- 005
Rittika Bali- 009
Chitra Agrawal-011
Sanyam Jain-042
Garvit Arora- 047
 Introduction

According to Prof. Seligman- A tax is a compulsory contribution from the person to the government to
defray the expenses incurred in the common interest of all without reference to the special benefits
conferred.

The basis of every legislation in India is rooted in the Constitution. As per Article 265 of the Constitution,
no tax must be levied or collected except by the authority of law.

Types of Taxes- Direct and Indirect

Income Tax
Corporate Tax Income Tax Act, 1961
Capital Gains Tax
Wealth Tax- Weath Tax Act, 1957
Estate Tax- The Estate Duty Act,1953

Direct Tax Code



Definitions

Income Tax
It is the tax that is collected by the Central Government for each financial year levied on the total taxable income of an
assessee during the previous year.

Concept of Income
The Income Tax Act does not define the term Income but section 2 (24) of the Act describes the various receipts which
are included under the ambit of income. The section is not exhaustive but only inclusive of the following-
1. Profits and gains.
2. Dividends
3. Voluntary contributions received by a charitable trusts
4. The value of any perquisite or profit in lieu of salary.
5. Any capital gains.
6. Any winnings from lotteries,
7. Value of benefit obtained from a company by a director/person having substantial interest in it.


Definitions

Heads of income
Income is classified under 5 main heads under section 14 of the Act-
1. Income from salary
2. Income from house property
3. Income from capital gains
4. Profit and gains from business and profession
5. Other sources of income

Assessee
As per Income Tax Act 1961, section 2(7), an assessee is a person who is liable to pay the taxes under any
provision of the Income Tax Act 1961. Assessee can also be a person with respect to whom any proceedings
have been initiated or whose income has been assessed under the Income Tax Act 1961. Assessee is any
person who is deemed assessee under any of the provisions of this act or an assessee in default under any
provisions of this Act.


Definitions

Assessment Year
Assessment year is the 12 months’ period commencing on 1st of April till 31st March of next year. It is the
year in which the income of the previous year is assessed.

Person
A person is defined under section 2(31) of the Act. The term ‘person’ includes –
1. An individual.
2. A Hindu Undivided Family.
3. A Company.
4. A Firm.
5. An association of persons or body of individuals whether incorporated or not;
6. A local authority; and
7. Every artificial juridical person not falling within any of the preceding heads.


Charging Section

Section 4 of the Income-Tax Act, 1961 is the charging section of the Act
Accordingly, the section provides that :
1.The rates are prescribed under the finance act of every assessment year. Income tax for the previous year is to
be charged according to the given rates.
2.The taxable income is that of the previous year not the assessment year.
3.The total income, computed according to the provisions of the act, is leviable
4.TDS or advance tax wherever applicable is to be charged.

Section 5
Scope of Total Income- The total income of any previous year of a person who is a resident/ non-resident
includes all income from whatever source derived which-
(a) is received or is deemed to be received in India in such year by or on behalf of such person ; or (b) accrues or
arises or is deemed to accrue or arise to him in India during such year.
In case of a resident it also includes income which accrues or arises to him outside India during such year.
Residential
Status
It is important for the Income Tax Department to
determine the residential status of a tax paying
individual or company. It becomes particularly
relevant during the tax filing season. In fact, this is
one of the factors based on which a person’s
taxability is decided.
 Residential
Status

Resident Non Resident

NRI
Ordinary Resident Non Ordinary Resident
 BASIC CONDITIONS U/S 6(1)
1st April 2020- 31st March 2021
1) Individual should stay in India for atleast 182 (PY)
days in the previous year 1st April' 19- 31st March'20 182 Days
1st April' 18- 31st March'19
2) Individual should stay in India for 365 days in 1st April' 17- 31st March'18
the preceeding four years and 60 days in the 1st April' 16- 31st March'17
previous year.

PREVIOUS YEAR (60 DAYS)

1st April 2020- 31st March 2021

(PY)
1st April' 19- 31st March'20 PRECEEDING YEARS (365 DAYS)
1st April' 18- 31st March'19
1st April' 17- 31st March'18
1st April' 16- 31st March'17

 ADDITIONAL CONDITIONS U/S 6 (6) (a)

2 times, any 1 basic condition must
be fulfilled in the past 10 years.
1) Individual should be a resident for 2 years out
of 10 years.

2) He should be staying in India for 730 days out

of 7 years.

1st April 2020- 31st March 2021

(PY)
1st April' 19- 31st March'20
1st April' 18- 31st March'19
1st April' 17- 31st March'18
1st April' 16- 31st March'17 730 Days
1st April' 15- 31st March'16
1st April' 14- 31st March'15
1st April' 13- 31st March'14

 Indian Income Foreign Income

Income Received in India but accrued Taxable only for Ordinary resident but
Outside India an exception is:

Earned/ accrued in India, but received If business/ profession is set up in

outside India India, then foreign income will be
taxable for NOR also.

How to decide the Residential Status

Few Exemptions
based on the two conditions?
Dividend from Indian Company is exempted U/S
0 Basic = NRI
10(34) , if the amount is less than 15 lakhs.
1 Basic = Resident
Agriculture income also exempted U/S 10(1)
Profits from partnership firm are exempted
Additional conditions:
Past untaxed income is exempted from all
Both Additional Conditions = Ordinary Resident
1 Additional Condition = Non Ordinary Resident
Mr. X left India for the first time on 17th December 2012 and returned back to
India on 5th Feb 2013.

Purpose: To identify his residential status for the assessment year 2013-14 and
2020-21.

AY: 2013-14 (1st April'13 - 31st March'14)

PY: 2012-13 (1st April'12 - 31st March'13)

left India in 2012 (17th December) , thus in this financial year, he was staying in India for the following
months:
April (30) + may (31)+ june (30) + July (31) + August (31) + September (30) + October (31) + November (30)
+ December (16) = Therefore, total days in PY = More than182 Days
(1st Basic Condition U/S 6(1) Satisfied.

And similarly, the rest of the one basic and two additional would also satisfy, as before this date, Mr X
was residing in India itself.

Deductions Section 80C

under Sec. 80 Section 80D
Section 80E
Section 80G
Section 80GG
 Section 80C
Section 80C is one of the most popular and favourite sections amongst the taxpayers as it allows
to reduce taxable income by making tax saving investments or incurring eligible expenses. It
allows a maximum deduction of Rs 1.5 lakh every year from the taxpayers total income.
The benefit of this deduction can be availed by Individuals and HUFs. Companies, partnership
firms, LLPs cannot avail the benefit of this deduction.
Investment in PPF, Employee’s share of PF contribution, Life Insurance Premium payment,
Children’s Tuition Fee, Principal Repayment of home loan, Five year deposit scheme, Senior
Citizens savings scheme, etc. Investment made in any of these things can help you claim
deductions under sec 80c.
Section 80C includes subsections , 80CCC, 80CCD (1) , 80CCD (1b) and 80CCD (2).
 Section 80D
Deduction for the premium paid for Medical Insurance

a deduction of Rs.25,000 under section 80D
You (as an individual or HUF) can claim
on insurance for self, spouse and dependent children.
An additional deduction for insurance of parents is available up to Rs 25,000, if they
are less than 60 years of age.
If the parents are aged above 60, the deduction amount is Rs 50,000, which has been
increased in Budget 2018 from Rs 30,000.
In case, both taxpayer and parent(s) are 60 years or above, the maximum deduction
available under this section is up to Rs.1 lakh.
Example: Rohan’s age is 65 and his father’s age is 90. In this case, the maximum
deduction Rohan can claim under section 80D is Rs. 100,000.
 Section 80E
Deduction for Interest on Education Loan for Higher Studies

A deduction is allowed to an individual for interest on loans taken for pursuing

higher education.
This loan may have been taken for the taxpayer, spouse or children or for a
student for whom the taxpayer is a legal guardian.
80E deduction is available for a maximum of 8 years (beginning the year in
which the interest starts getting repaid) or till the entire interest is repaid,
whichever is earlier. There is no restriction on the amount that can be claimed.
 Section 80G
Deduction for donations towards Social Causes

in u/s 80G are eligible for deduction up to either 100%
The various donations specified
or 50% with or without restriction.
From FY 2017-18 any donations made in cash exceeding Rs 2,000 will not be allowed as
deduction. The donations above Rs 2000 should be made in any mode other than cash
to qualify for 80G deduction.
Donations with 100% deduction without any qualifying limit: National Defence Fund set
up by the Central Government, Prime Minister’s National Relief Fund, National
Foundation for Communal Harmony, etc.
Donations with 50% deduction without any qualifying limit: Jawaharlal Nehru Memorial
Fund, Prime Minister’s Drought Relief Fund, Indira Gandhi Memorial Trust, The Rajiv
Gandhi Foundation.
 Section 80GG
Deduction for House Rent Paid Where HRA is not Received

Section 80GG deduction is available for rent paid when HRA is not received. The
taxpayer, spouse or minor child should not own residential accommodation at the
place of employment
The taxpayer should not have self-occupied residential property in any other place
The taxpayer must be living on rent and paying rent
The deduction is available to all individuals
Deduction available is the least of the following:
a. Rent paid minus 10% of adjusted total income
b. Rs 5,000/- per month
c. 25% of adjusted total income
 Calculation of
Taxable Income
Once we have calculated GTI (Gross
taxable Income), all the deductions are
taken into consideration as mentioned by
garvit in the previous slide then we arrive
at NTI (Net Taxable Income) from which
tax is deducted
Suppose someone has
a 15 lakhs of gross
taxable income and
different deductions
summing up to 5 lakhs
then the Net taxable
Income will be 10 lakhs
Timeline

2005-06 2010-11 2012-13 2017-18 2021

Those earning up to Rs 1 Those earning up to Rs 1.6 Those earning up to Rs 2 Those earning up to Rs 2.5 Explained in the
lakh would pay no tax, lakh would pay zero tax, lakh a year did not have lakh a year did not have further slides
those earning Rs 1 lakh to those in the income to pay tax, those earning to pay tax, those earning
Rs 1.5 lakh were taxed at bracket of Rs 1.6 lakh to between Rs 2 lakh and Rs between Rs 2.5 lakh and
10 percent, Rs1.5 lakh to Rs 5 lakh would pay 10 5 lakh would now pay 10 Rs 5 lakh would now pay 5
Rs2.5 lakh were to be percent, those in the per cent, those earning Rs per cent, those earning Rs
taxed at 20 per cent, and bracket Rs 5 lakh to Rs 8 5 lakh-Rs10 lakh would 5 lakh-Rs10 lakh would
those earning over Rs2.5 lakh would pay 20 pay a tax of 20 per cent, pay a tax of 20 per cent,
lakh were to pay 30 per percent, and anyone those earning above Rs 10 those earning above Rs 10
cent as tax earning more than Rs 8 lakh would pay 30 per lakh would pay 30 per
lakh would pay 30 per cent cent
cent
 Tax Slabs in India
(Current vs Previous)
Suppose someone has a 10 lakhs as Net Taxable Income,
for 2.5 lakh, 0 tax then for another 2.5 lakh, 12500rs tax
then for another 2.5 lakh, 25000rs tax and then lastly for
another 2.5 lakh, 37500 tax which makes a total of
75000rs. Therefore net amount would be 9.25 lakhs

https://www.incometaxindia.gov.in/Pages/tax-calculators.aspx
How to file ITR?
Direct Tax reform –faceless assessment in income tax
Residential

The Central Government introduced the Faceless Assessment Scheme in Union Budget
2019 to provide greater transparency, efficiency and accountability in Income Tax

Status
assessments.
All provisions introduced under Faceless Assessment, under the Income Tax Act, 1961,
are introduced to:

Eliminate the interface between the Assessing Officer and the assessee during the
It iscourse
important for the Income Tax Department
of proceedings, to the extent that is technologically feasible;
to determine the residential status of a tax
Optimize
paying the utilization
individual of resources
or company. through the economies of scale and functional
It becomes
specialization; and
particularly relevant durin the tax filing season.
Introduce
In fact, this aisteam-based
one of thedetermination
factors based of arm’s
on length price with dynamic
whichjurisdiction.
a person’s taxability is decided.
In the Union Budget 2019, the Finance Minister proposed the introduction of a
scheme of faceless e-assessment. The scheme seeks to eliminate the human
interface between the taxpayer and the income tax department. The scheme lays
down the procedure to carry out a faceless assessment through electronic mode.
From 13 August 2020, the e-assessment scheme of 2019 stands amended and hence
known as the Faceless Assessment scheme.

 Structure of Faceless assessment

A faceless assessment will be as per the Income Tax Act and Income Tax Rules. . For the
purpose of faceless assessment, the CBDT would set up the below ‘centres’ and ‘units’
and specify their respective jurisdiction:

A ‘National e-Assessment Centre’ to facilitate e-assessment.

‘Regional e-Assessment Centres’ under jurisdiction of the regional Principal Chief

Commissioner for making assessment.

‘Assessment units’ for identifying points for determination of any liability , analyzing
information, and such other functions.

‘Verification units’ for enquiry, cross verification, examination of books of accounts.

‘Technical units’ for technical assistance including any assistance or advice on legal,
accounting and forensic.

‘Review units’ for reviewing the draft assessment order to check whether the facts,
relevant evidence and law and judicial decisions have been considered in the draft
order.

 Benefits of Faceless Assessment

No need to visit tax office: Taxpayers neither need to go to the tax office either
himself nor through an AuthoriseRepresentative, they can represent their case
to the tax officer themselves by submitting their submission online.
Specialised team of officers:The assessment will be done by the team rather
than a single officer even that team will be supported by the technical experts,
verification experts, etc, it appears that now assessment will be completed on
merit.
Transparent Environment:Now taxpayers will have the record of each hearing
including the noting of the assessment team which earlier is not available with
the taxpayers.
Clarity on Jurisdiction:Now, under Faceless Assessment, govt. is talking about
jurisdiction less assessment which only leads to unwarranted tax litigation in
future.
Information Technology Infrastructure: Government must consider providing
such information technology-based tools at free of cost along with proper
guidance to use it so that taxpayers do not face any challenges while submitting
the requisite documents and information.
Tax Consession for foreign investment

Tax concession for foreign investments:

100% tax exemption to the interest, dividend and capital gains income on investment made in
infrastructure and priority sectors before 31st March 2024 with a minimum lock-in period of 3
years by the Sovereign Wealth Fund of foreign governments.

Source :
https://cleartax.in/s/e-assessment-scheme-2019
https://www.financialexpress.com/money/income-tax/faceless-assessment-the-benefits-and-
challenges-taxpayers-may-experience/2090915/


Demerits of Direct taxes:

Possibility of evasion: A direct tax is a tax of honesty and it cannot be evaded only when
the tax payer is honest. It can be evaded through fraudulent practices.

Inconvenience: Taxpayers have to submit statement of income with sources of income,

thus they have to reveal their private affairs which can be little inconvenient. Also
payment of a lumpsum amount at a time may also be inconvenient.

Arbitrariness: Tax rates are generally arbitrary as there is no scientific method to decide
tax rate.

Complexity : Direct tax laws are usually complex with a lot of exemptions, procedures and
provisions which are not understandable by common citizens.
Possibilities of injustice

It is difficult to assess the income of all classes

accurately.
Therefore direct taxes may not fall with equal weight on
all classes.

Unsuitable to under developed countries:

Rich people are in insignificant minority compared to

mass of poor in under developed countries. So revenue
collection from direct taxes may not be as productive
and economical as it is in developing and developed
countries.

APPEALS to Direct tax

APPEAL BEFORE COMMISSIONER (APPEALS)
Aggrieved tax payer can file appeal before the Commissioner (Appeals) having,
jurisdiction over the tax payer.
Appeal shall be filed within 30 days of the service of the notice or the date of
payment of tax.
FORM OF APPEAL AND HOW TO FILL THE SAME
Every appeal to the Commissioner (Appeals) is to be filed in Form No. 35. In this
form, details such as name and address of the tax payer, Permanent Account
Number (PAN), assessment year, details of the order against which appeal is filed
etc. are to be filled in.
E- Form is used in these day for filing appeal , no Physical documents are
accepted in the department.
Against the column “Relief claimed in appeal”, amount of reductions sought in
income or any other relief sought in appeal is to be mentioned
Against column “Grounds of appeal”, points on which relief is sought in appeal
are to be mentioned in narrative form
India's Income Tax Appellate Tribunal (ITAT) was set up on 25 January 1941. It is
second appellate authority under the direct taxes and first independent forum in
its appellate hierarchy. The ITAT is constituted by the Central Government and
functions under the Ministry of Law.
Appealable orders

The following orders are appealable before the ITAT:

1. Orders passed by the Commissioner of Income Tax (Appeals) [CIT(A)].

2. Orders passed by the Assessing Officer as per the directions of the Dispute
Resolution Panel.
3. Orders passed by the Assessing Officer.
4. Penalty order passed by the Commissioner.
5. Application for stay of tax demands.
TIME AVAILABLE FOR FILLING AN APPEAL TO ITAT
The time allowed to file an appeal is 60 days from the date of communication of the
order, which is the subject matter of the appeal

Monetary limits applicable to the filing of appeals

The Central Board of Direct Taxes (CBDT) can issue orders or instructions
or directions to the income-tax authorities. The CBDT can also fix the
monetary limits to regulate the filing of appeal or application or
reference to the ITAT, jurisdictional High Court or Supreme Court.
1. Before the ITAT – Rs 50 lakh.
2. Before the High Court – Rs 1 crore.
3. Before the Supreme Court – Rs 2 crore.
 Trends and Way Ahead
To support the start-up ecosystem, the tax holiday has been extended by one year by
including start-ups incorporated till March 31, 2022 to be eligible for the tax holiday

To promote digital transactions and reduce the burden of tax compliance on small and
medium business enterprises, it has been proposed to increase the turnover limit for
tax audit from current Rs 5 crore to Rs 10 crore in cases where cash receipts or
payments do not exceed 5 per cent of total receipts / payments.

In order to provide quick and early resolution of tax disputes to small and medium
business owners and settling them at an early stage as against the current long drawn
appellate proceedings, the Government has proposed to setup Dispute Resolution
Committee (‘DRC’). Disputes where returned income is less than Rs 50 lakh and the
variation proposed is less than Rs 10 lakh shall be considered by DRC.

In line with the objective of reducing human interface, a faceless Appellate scheme for
ITAT proceedings with dynamic jurisdiction to impart greater efficiency, transparency,
and accountability.
 1.The direct taxes in India are levied in accordance
with the Income Tax Act,1961.
2. Calculation of residential status is imperative to
calculate net taxes.
Key 3. The tax slabs are introduced by the government

Learnings and they vary in accordance with income accrued to

that individual.
4.Certain deductions should be known by a tax payer
so that you can save your income.
5. Faceless assessment helps prevent tax terrorism.
6. Proceedings under the Income Tax Act are carried
by the Income Tax Tribunal.

 What can be learnt

1. What is Direct Tax Code and why the government wants to
introduce it?
2. How to prevent tax evasion?
3. Provisions in case of default
4. Vodafone Tax Case- Permanent Court of Arbitration at The Hague
ruled that the demand made by India for Rs 22,100 crore by
retrospective amendment as capital gains and withholding of
imposition of tax for a 2007 deal on Vodafone Company was
breaching the provision of agreement regarding fair and
equitable treatment.