Income Tax - Ii: Semester - VI

INCOME TAX -II
Semester – VI
B.com
TAX - II
Student Workbook
Edition: 2022
#44/4, District Fund Road, Behind Big Bazaar, Jayanagar 9th Block, Bengaluru, Karnataka 560069
FOR PRIVATE CIRCULATION ONLY Page 1

Program: B.COM Semester: VI
Subject: Tax - II
Total Lecture Hours: 60 Credits: 04
Course Objectives
1. Impart the basic information on income from business n profession.
2. Familiarize the student with different deductions and individual tax assessment.
3. Introduce the constitutional and structural changes in indirect taxation post GST Implementation.
4. Familiarize students on time of supply and compliance aspects of GST registration
5. Introduce the basics of custom laws and procedures in India
Module – 1.PROFITS AND GAINS FROM BUSINESS AND PROFESSION12 HOURS

Meaning of business, profession, profits of business or profession, features of assessment of profits and gains,
rules for adjustment of profit and loss account- Depreciation u/s 32.
Module – 2- DEDUCTIONS FROM GROSS TOTAL INCOME AND TAX LIABILITY OF

INDIVIDUALS 12 HOURS
(Provisions relating to individuals only) u/s 80 – Deduction in respect of certain payments and deduction in respect
of certain incomes- Carry forward and set off of losses - Computation of total taxable income and tax liability of
an individual.
Module – 3 – CONCEPT OF GST AND ITS PROCEDURES 12 HOURS

Introduction to GST and GST Act Constitution amendment-GST council, Structure, powers and functions-GST
Network- Objectives and basic scheme of GST- Meaning-Salient features of GST Subsuming of taxes-Benefits
of implementing GST - CGST-SGST-IGSTUGST, Definitions. Registration under GST: Procedure for
registration, Persons liable for registration, Persons not liable for registration, Compulsory registration, Deemed
registration, Special provisions for Casual taxable persons and Non-resident taxable persons. Exempted goods
and services - Rates of GST.
Module – 4 -TRANSACTION VALUE & LEVY OF GST 14 HOURS

Time and Value of Supply of goods, Time/ place of supply of services, Value of taxable supply-Procedure
relating to Levy: (CGST & SGST): Scope of supply, Tax liability on Mixed and Composite supply, Time of
supply of goods and services, Value of taxable supply. Computation of taxable value and tax liability.
Procedure relating to Levy: (IGST): Inter-state supply, intra-state supply, Zero rates supply, Value of taxable
supply – Computation of taxable value and tax liability. Input tax Credit: Eligibility, Apportionment, Inputs on
capital goods, Distribution of credit by Input Service Distributor (ISD) – Transfer of Input tax credit - Problems
on utilization of input tax credit.
Module – 5- CUSTOMS DUTIES 10 HOURS

Terminologies used under custom duty - Valuation, Customs Procedures, Import and Export Procedures,
Baggage, Exemptions- Anti-dumping Duty – Valuation under Customs Law.

Course Outcomes
1. Illustrate various allowed, disallowed expenses and provisions to calculate taxable income from business and
profession
2. Explain the use of various deductions to reduce the taxable income and enable the student to research ,analyze
and specifyincome Tax information and issues.
3. Paraphrase the basic principles underlying the GST Act Compute the taxable income of an assessed.
4. Analyse the assessment procedure and representation before appropriate authorities under the law.
5. Determine the application of valuation with respect to customs duty.
Reference Books:
1. Deloitte: GST Era Beckons, Wolters Kluwer.
2. Madhukar N Hiregange: Goods and Services Tax, Wolters Kluwer.
3. All About GST: V.S Datey - Taxman's.
4. Guide to GST: CA. Rajat Mohan,
5. Goods & Services Tax – Indian Journey: N.K. Gupta &SunnaniaBatia, Barat's Publication
6. Goods & Services Tax – CA. Rajat Mohan,
7. Goods & Services Tax: Dr.Sanjiv Agrawal & CA. Sanjeev Malhotra.
8. GST - Law & Practice: Dr. B.G. Bhaskara, Manjunath. N & Naveen Kumar IM,
9. Understanding GST: Kamal Garg, Barat's Publication.

Module – 1
INCOME FROM BUSINESS AND PROFESSION
Introduction
Income from Business or Profession is the third head of income, maximum number of assesses pertain to this
head. Section 22 to 44 of the Income Tax Act 1961 deals with the taxability of income either from business or
profession.
Objectives
1. Understand the meaning of ‘Business’ and ‘Profession’ and the scope of income chargeable to tax under
this head.
2. Identify the expenses, payments that are admissible as deduction and the conditions to avail the same.
3. Identify the expenditures which are not admissible as deduction.
4. Compute the capital gains from transfer of capital assets in the manner prescribed
5. Compute cost of acquisition and indexed cost of acquisition
6. Identify the income which are chargeable to tax under ‘Income from other sources’
7. Compute the tax on casual income
Chargeability (Section 28)

The following types of incomes are chargeable to tax u/s 28 under the head-profit and Gains of Business:
 Profits and gains of any business.
 Any compensation due or received by a person in connection with termination or modification of terms
and conditions relating to this head.
 Income derived by a trade, profession or similar association from specific services performed for its
members.
 Profit on sale of import licenses, incentives by way of cash compensatory support and draw-back of
duty.
 The value of any benefit or perquisite convertible into money or not arising from business or the
exercise of a profession.
 Any interest, salary, bonus, commission or remuneration received by a partner of a firm assessed as
such.
 Any some whether received or receivable in cash or in kind under an agreement for not carrying out any
activity in relation to any business or profession.
 Income from speculation business.
 Any amount (including bonus) received under a key man insurance policy.
 Interest on securities where such securities are held as stock in trade.
Business u/s 2(13)

Business includes any trade, commerce or manufacture or any adventure or concern in the nature of trade,
commerce or manufacture. In simple terms Business means buying, selling and manufacturing of goods to earn
profit.

It is not necessary that there should be a series of transactions in a business, neither repetition nor continuity of
similar transactions is necessary.
Profession u/s 2(36)

Profession means those activities for earning livelihood which requires, intellectual skill and specialized
knowledge e.g. Doctors, Lawyers, Engineers, Chartered Account profession also include vocation.
Vocation refers to any activity which a person practices to earn his livelihood e.g. practice of religion, painting
etc.
Under section 2(36) profession includes vocation.
Vocation means any type of activity in which a person is engaged and earns his livelihood from such activity.
The practice of religion and writing of articles in a magazine is also vocation.
In other words, Vocation is the inbuilt talent/skill which is not acquired or possessed by a systematic study.
Speculative Business
It means any business in which a contract for the purchase and sale of any commodity including stock and shares
are periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity.
Format of Computation of Taxable Income from Business for the AY 2022-22

Particulars Amount Amount
Net profit as per Profit and Loss A/c XXX
Add:
1) Inadmissible, Non-Business Expenses, Excess expenses XXX
debited to P/L A/c. (Expenses debited to P&L A/c but not
allowable as per IT act)
2) Business Incomes not credited to P&L A/c XXX
3) Over Valuation of opening Stock XXX
4) Under Valuation of Closing Stock XXX XXX
XXX
Less:
1) Allowed, Admissible Expenses not debited to P/L A/c XXX
(Expenses not debited to P/L A/c and allowed as per IT act)
2) Non-Business income credited to P/L A/c XXX
3) Undervaluation of Opening Stock XXX
4) Overvaluation of Closing stock XXX XXX
Taxable Income from Business XXX
Disallowed or Inadmissible Expenses

All expenses incurred either directly or indirectly related to business are allowed as business expenses. However,
the following expenses, are disallowed and hence to be added back to the net profit.
1) Personal expense like marriage expense, drawing, premium on life and medical insurance, proprietor salary,
rent paid for own building, saving made in NSC, PF, etc. household expenses like electricity, telephone uses
for residence.
2) Any payment made in excess of 10,000 either in cash or bearer cheque, the entire amount is inadmissible.
3) Income tax, Wealth Tax or Advance Income Tax paid.
4) Interest on loan, taken for personal purpose.
5) Provision for bad debts, doubtful debts, reserve for future losses.
6) Bonus and commission paid to employees not allowed it is paid after the due date of filing the returns, (in
case of individual 31st July 2021).

7) Sales tax, Customs Duty, Excises Duty, if it is not paid before the due date of filing the returns.
8) Any losses related to Capital in nature like loss on sale of assets.
9) Donation and Charities.
10) Any purchase of Capital Assets, renovation and extension of buildings.
11) Cost of sign board fixed on office premises.
12) Contribution to Staff Welfare Fund and political party.
13) Difference in trial balance.
14) Speculation losses
15) Preliminary expenses 4/5 are disallowed. E.g. Market survey, Discount on issue of shares
16) Interest on capital.
17) Employer’s contribution to URPF is not allowed.
18) Any gratuity not approved or given on ad-hoc basis is not allowed.
19) Expenses related to other heads of income
20) Theft at assesee residence
21) Family planning expenses of the employer is allowed only if the assesse is a company.
22) Personal gifts and presents.
23) Penalties and fines on excise and customs duty.
24) Any amount paid outside India without making TDS (30% of such payment is disallowed)
25) Salary paid to family members who are not professionally qualified.
26) Legal expenses incurred to defend criminal proceeding will not be allowed.
27) Any payment made to non-residents after deducting TDS, and if that TDS amount is not paid on or before the
due date of filing return (30% of such payment is disallowed).
Business Income
1) Bad debts recovered allowed earlier. 6) Profit on sale of import license.
2) Sundry income/sales/commission 7) Sales tax refund (allowed earlier).
received/discount received/brokerage. 8) Smuggling income.
3) Miscellaneous incomes. 9) Export incentive.
4) Interest from debtors.
5) Refund of customs duty.
Allowed Expenses
Expenses incurred for earning the business income are called as allowed expenses. Besides the regular and
common expenses, the following expenses are also treated as business expenses and they allowed to be deducted
from business incomes.
1) Repairs and renewals of business premises. 11) Pooja expenses at office.
2) Rent/taxes/rates related to business. 12) Employer contribution to RPF
3) Bad debts. 13) Revenue advertisement expenses will be allowed
4) Fire insurance paid for buildings and goods used in full.
for business. 14) Demurrage paid to railways.
5) Expenditure on scientific research. 15) Establishment expenses.
6) Any contribution to approved scientific research 16) Audit fees/salaries to employees/office expenses.
institution, colleges, universities 150% of the 17) Staff welfare expenses.
amount contributed is allowed as deduction. 18) Interest on loan, if loan is taken for business
7) Group insurance premium paid before the due purpose.
date. 19) Compensation to retrenched employees in the
8) Bonus commission paid before the due date. interest of the business.
9) Sales tax paid before the due date. 20) Salary to staff.
10) Theft in office premises. 21) Discount allowed.

22) Guest house and holiday homes expenses.
23) Electricity/telephone bill/water bill related to
business premises.
24) Printing/stationary.
25) Travelling expenses relating to business purpose.
26) Loss of goods or cash embezzled by an
employee.
27) Depreciation.
28) Legal expenses incurred to avoid business
liability and to defend the assesses title of
business.
29) Legal expenses for filing Income Tax appeal.
30) Deposits made under Tatkal Telephone Scheme
or Scheme own your telephone.

Non-Business Incomes
1) Interest on securities.
2) Agriculture income.
3) Rent received or income from house property.
4) Bad debts recovered but not allowed earlier.
5) Profit on sale of fixed assets and investments.
6) Dividend received.
7) Interest on Deposit, Dividend on UTI and Mutual Funds.
8) Life Insurance Policy amount received.
9) Gifts received from relatives.
10) Income tax refund.
11) Share of Incomes from HUF.
12) Winnings from lottery/cross word puzzles/horse race.
Depreciation
It is a continuous, gradual and permanent fall in the value of an asset due to wear and tear, passage of
time and obsolescence of technology and change of ownership etc.
Depreciation under income tax is to be claimed on the block of assets & not on individual asset.
Rate of depreciations prescribed according to Income Tax Act 1961

Particulars Rate %
p.a.
I. Buildings
Buildings which are used mainly for residential purposes except for 5%
hotels and Boarding House
Non-residential building like offices, factory, godown. 10%
Books owned by assessees carrying on business in running lending 40%

libraries
II. Furniture and fittings
Any Furniture and Fittings 10%
III. Plant and Machinery

Plant and machinery 15%
Motor cars, other than those used in a business of running them on 15%
hire
Motor buses, Motor lorries, and Motor used in a business of
running them on hire 30%
Motor buses, Motor lorries, and Motor used in a business of 45%
running them on hire acquired on or after 23rd August 2019 but
before 1st April 2021 and is put to use before 1st April 2021
Water pollution control equipment 40%
Lifesaving Medical equipment 40%

Computers 40%
Books (Annual publication or other than annual publication) owned 40%

by assessees carrying on a profession
Books owned by assessees carrying on business in running lending 40%
libraries
IV. Ships 20%
V. Intangible assets
Intangible assets: Patents, copyrights, technical know-how,

trademarks, licenses, franchises. Etc. 25%
Methods of depreciation
Only WDV Method of charging depreciation is recognized under the Act. However, Power Generation
units have option to claim depreciation on SLM.
1) If assets are newly purchased in the previous year and put to use for less than 180 days then 50%
of rate of depreciation will be given.
2) If the block of assets ceases to exist on the last date of the previous year then depreciation is
inadmissible.
3) Additional depreciation
 In case any new plant & machinery is acquiredand installedon or after 01-04-2005, it shall
qualify for additional depreciation.
 Rate of additional depreciation: 20% of actual cost.
 Undertakings set up in any backward area in State of Telangana/West Bengal/Andhra

Pradesh/Bihar during 1 April 2015 to 1 April 2021 : 35% of Actual Cost of New P&M
Eligibility: The Assessee must be engaged in the business of – (a) Manufacturing or production of
any article or thing, or (b) Generation, transmission or Distribution of Power
Essential Features of Profits and Gains of Business.
1. Business carried on by the Assessee: It is a must that the business should have been carried
on by the assessee himself during the previous year. It does not mean that an assessee should
physically carry on a business. What is more important is that he must have right to carry on
the business and the business must have been carried on in the exercise of that right by the
assessee either personally or through his agent or servant. A business may be carried on in
India or outside India. It is the residential status of an assessee which determines the
incidence of tax.
2. Business is carried on during the previous year: The business should have been carried on
during the previous year. The business may be carried on by the assessee at any time during
the previous year. Thus, it is not necessary that the business should be carried on throughout
the year. Sometimes some of the receipts are taxable as income from business even if no

business is carried on by the assessee in the year of receipt. Following are some of the
examples:
 Recovery against any excess payment.
 Sale of an asset used for scientific research.
 Bad debts recovered (allowed as expenditure in the earlier years).
 Any amount withdrawn from special reserve.
 Amounts received relating to a discontinued business.
3. Aggregate income of different businesses is assessed to tax: If an assessee has different
businesses, the profits of all of them will be aggregated and put to tax.
4. Speculation Profits: Profits from speculation business are taxed under the head – Profits and
Gains of Business. However, speculation loss cannot be set-off against the legal business
profits.
5. Income of previous year is put to tax in the following assessment year.
6. Any gain arising on the transfer of a capital asset used in the business cannot be treated as
business income. It can, however, be treated to tax under the head-Capital Gains.
7. Profit on the revaluation of capital assets is not to be taxed under this head.
8. Anticipated or future profits are not taxable in the current year. But, the real profits i.e. the
profits received or receivable during the year are taxed in the relevant assessment year.
9. Profits on winding up are not taxable as business income but are liable to tax under the head-
Capital Gains.
Computation of Profits and Gains {Section 29}
The profits and gains of a business or profession are to be computed in accordance with the
provisions of sections 30 to 43 D (sec 29). The list of provisions/allowances is not exhaustive. We
should apply ordinary commercial principles while determining real and true profits of a business
or profession. Sometimes there may be an expenditure or loss which may not be covered under the
above sections 30 to 43 D. Yet such losses would have to be allowed in order to determine true
profits. Some of the usually occurring types of trading losses are given below:
1. Loss of Stock in trade: Loss of stock- in- trade because of energy action, freezing of
stocks, leakages, by ravages of white ants, fire or negligence etc. are allowed as
deduction. However, any amount recovered shall be treated as revenue receipt.
2. Loss through embezzlement by employee or agent is allowed as deduction in computing
business income.
3. Loss by theft: If robbery or theft takes place during the normal working hours of the
business, it is allowed as expenditure. Any loss by theft should be incidental to the
operations of the business e.g. theft by a pretended customer, or loss of cash before being
deposited in the bank etc.
4. Loss incurred for standing as surety: Where a trader stands surety for the debts of another
and such guarantee is for the purpose of the trade, any payment made as a result of such
guarantee can be deducted as a business loss.
5. Loss incurred on account of insolvency of banker with which current account is
maintained by assessee.
6. Loss due to forfeiture of deposit made by the assessee for properly carrying out of
contract for supply of commodities.
7. Loss incurred due to devaluation of rupee in foreign country which is being utilized in the
course of business.

8. Loss due to exchange rate fluctuation of foreign currency held on revenue account.
General Principles Governing Admissibility of Deductions
Following are the general principles which should be taken into consideration while allowing
deduction in respect of allowances, expenses or losses. As has already been explained, these are
not exhaustive by nature but simply lay some guidelines which may help us arriving at a decision
while allowing or disallowing a particular deduction.
1. Expenditure must be incidental to the business.
2. Deduction must be in respect of an existing business.
3. Expenditure should relate to the previous year. This depends upon the method of accounting.
Under mercantile system of accounting expenditure is allowed only when it is related to the
previous year. However, under cash system of accounting, amount actually paid during the
year is allowed. There are certain exceptions with regard to sales tax, excise duty and bonus
etc.
4. Expenditure should be in relation to one’s own business.
5. Expenditure incurred should be in the commercial expediency. An expenditure sometimes
need not be for direct and immediate benefit of the business.
6. Expenditure once incurred may give extended benefit to the business, i.e. benefit of
expenditure may be extended beyond the year of expenditure viz. deferred revenue
expenditure.
7. No deduction of expenditure incurred before setting up of a business, except in the case of
preliminary expenses u/s 35 D.
8. Expenditure must have relationship with taxable profits.
9. Estimated losses are not allowed as deduction.
10. Expenditure incurred on wasting assets is not allowed.
11. Expenditure in relation to non-existing liability is not allowed.
12. Expenditure incurred in defending against the breach of law is not allowed e.g. fines and
penalties.
13. Depreciation on investment is disallowed.
14. Revenue expenses are allowed in full, while capital expenses are allowed over a period of
time.
Deduction expressly allowed
Section 30 to 37 contains a list of certain expenses/ deductions which are allowed in computing
the income under this head. While considering these deductions, the word ’paid’ means actually
paid or incurred depending upon the method of accounting. Under cash system, the word ’paid’
means ‘actually paid’, under mercantile system the word ’paid’ means ‘actually incurred’.
The following deductions are expressly allowed:
1. Rent, rates, taxes, repairs and insurance of building used for the business (Sec 30): The
building may be own building or rented one. As a tenant, any amount paid towards the
current repairs is also deductible. However, any premium paid towards rented house is
not allowed.
2. Repairs and insurance expenses paid in relation to plant and machinery and furniture are
allowed (sec.32): Any expenditure incurred to replace petrol engine by diesel engine in a
jeep to augment the profit is allowed.

3. Depreciation u/s 32: Under Section 32 depreciation on assets is allowed as deduction
while computing income from business or profession. To claim this deduction following
conditions should be satisfied: 1) Assessee should be owner of the asset. 2) Asset must be
used for the business. 3) Such use must be in the previous year.
4. Site restoration fund (sec. 33 ABA): Deduction in respect of prospecting for or extraction
or production of petroleum or natural gas or both in India and abroad is allowed. Amount
of deduction is- Amount deposited or amount deposited or 20% of profits, whichever is
lesser.
5. Expenditure on Scientific research (sec. 35): Scientific research means any activity for
the extension of knowledge in the fields of natural or applied science including for the
extension of knowledge in the fields of natural applied science including agriculture,
animal husbandry or fisheries. The following deductions are allowed in respect of
expenditure on scientific research:
a Revenue expenditure on in-house scientific research related to business [Sec.35 (1)
(i)]: Any expenditure of revenue nature incurred on scientific research related to
business is allowed in full. Any expenditure incurred for the payment of salaries,
material within three years immediately preceding the commencement of business is
also allowed.
b Contribution of outsiders [Sec 35 (1)(ii)]: Any amount paid to
 scientific research association which has object of undertaking scientific research
or
 To a university, college, or other institution to be used for scientific research is
deductible at 150% of the sum paid. The research programme may be related to
business or not related to business.
From financial year 2022-22 the rate will be 100%.
 Payment of research in social science to any approved institution, university or
college is deductible at 100% of the sum paid u/s 35 (1) (ii) & 35(1) (iii).
 Capital expenditure incurred by an assessee who carries on scientific research
himself is fully deductible u/s 35 (2) in that every year in which it is incurred.
Unabsorbed part of such expenditure will be carried forward and set off as
unabsorbed depreciation.
If the asset is sold without having been used for other purposes, the sale proceeds
or deduction allowed whichever is less is treated as business income if the previous
year in which the sale took place. The excess of sale proceeds over deduction
allowed however is taxed as capital gain.
 Contribution of National Laboratory [Sec.35 (2AA)]: Any amount paid to any
national laboratory will get a deduction at 150% of actual amount given. National
Laboratory means a scientific laboratory functioning at national level under the
aegis of the Indian Council of Agricultural Research, Indian Council of Medical
Research or Council of Industrial and Scientific Research, the Defense Research
and Development Organization, the Department of Electronics, the Department of
Bio-Technology, or the Department of Atomic Energy and which is approved by
the prescribed authority for this purpose.
From financial year 2022-22 the rate will be 100%.

 Any amount of expenditure incurred up to 31-3-2012 on scientific research by a
company engaged in the business of bio-technology, drugs; pharmaceutical,
electronic equipment’s, computers, telecommunications etc. will get a weighted
deduction of 200% (sec. 35 2AA). (vii) Contribution to research & Development:
Sec. 35 2 AB provides for weighted deduction at the rate of 125% in respect of
contribution made to IIT, approved university college etc., towards research
activities. This weighted deduction is in addition to the special benefit available to
a person for in house research. In case of Biotechnology, Drugs Pharmaceutical
companies a weighted deduction of 200% is allowed.
6. Expenditure incurred on acquisition of patent rights or copy rights (sec. 35A):

Where capital expenditure is incurred by the assessee (after 1966 but before 1-4-1998) on
the acquisition of patent rights, copying for the purpose of business, the whole amount is
deductible in 14 equal instalments. Where the right became effective in any year prior to
the previous year in which expenditure is incurred, the number of completed years which
have elapsed since commencement of the patent shall be reduced from 14 years and the
deduction is allowed in remaining years. In the case of patent rights acquired on or after
1-4-1998, the expenditure incurred on the acquisition of such rights shall be capitalized
and depreciation u/s 32 is allowed.
7. Expenditure incurred on Technical know-how (Sec.35 AB) : Any sum paid before 1-
4-1998 on the acquisition of technical know-how for use for the purpose of his business
will be allowed as deduction by spreading it equally over six years, namely, the year in
which the lump-sum consideration is paid and the five immediately succeeding years.
Where the knowhow is developed in a government laboratory, or a laboratory owned by a
public sector company or university, the consideration will be spread over 3 years. But
the know-how acquired after 1-4-1998 will be treated as capital expenditure and will be
depreciated u/s 32.
8. Capital expenditure to obtain license to operate telecommunication services (Sec. 35
ABB) :Any capital expenditure incurred and actually paid by an assessee on the
acquisition of any right to operate telecommunication services by obtaining license will
be allowed as deduction in equal instalments over the period starting from the year in
which such payment has been made and ending in the year in which the license comes to
an end.
9. Expenditure on eligible project or scheme (Sec. 35 AC): No deduction will be allowed
from business income in respect of expenditure incurred for an eligible projector scheme
on or after 01-04-2018. Eligible project or scheme means such project or scheme which is
meant for promoting social and economic welfare or uplift of the public as may be
certified by the Government of India on the recommendation of National Committee
Constituted by Central Government consisting of persons of eminence in public life.
10. Payment of Rural Development Fund (Sec.35 CCA) : Any sum paid to Rural
Development Fund set up and notified by the central Government is fully deductible.
This section applies to the National Poverty Eradication Fund also. But once this
deduction is claimed and allowed u/s 35 CCA, the same is not allowed as a deduction
under any other provision of this Act.
11. Amortization of preliminary expense (Sec .35 AD) : Where any Indian Company or
resident non-corporate assessee incurs after 31st March 1998 any preliminary

expenditure, the assessee shall be allowed a deduction of an amount equal to one-fifth of
such expenditure of each of the five successive previous years beginning with the
previous year in which the business commences. Expenses incurred before 1-4-1998 are
to be spread over 10 years preliminary expenses include: expenditure in connection with
the preparation of feasibility report, project report conducting marketing survey,
engineering services, legal charges for drafting agreements, Memorandum of
Association, Printing of Memorandum of Association and registration expenses. The
maximum amount eligible for deduction under this section shall not exceed 5% of the
cost of the project. But in the case of Indian companies, it is at the option of the company,
whether 5% of cost of the project or 5% of the capital employed in the business of the
company.
12. Expenditure for amalgamation or demerger of an undertaking (sec. 35 DD): Where
an Indian Company incurred expenditure after 31-3- 1999. Wholly and exclusively for
the purpose of amalgamation of demerger of an undertaking 20% of such expenditure for
each of the five successive years beginning with the year in which amalgamation of
demerger takes place shall be allowed as deduction.
13. Expenditure on voluntary retirement (Sec. 35 DDA): The amount received by an
assessee in consequence of an employee’s voluntary retirement, the assessee shall be
allowed a deduction of 20% of such expenditure for each of the five successive previous
years beginning with the year in which such payment was made.
14. Expenditure on prospecting etc. for development of certain minerals (Sec. 35E) :
Any expenditure incurred by an Indian Company or Indian Resident non-Corporate
assessee wholly and exclusively on the prospecting of any mineral or on the development
of mines or other natural deposit of any such minerals the assessee shall be allowed a
deduction of an amount equal to 1/10th of he such expenditure for each of the ten
successive previous years beginning with the year of commercial production.
Other Deductions (Section 36). While computing profits and gains business or profession the
following other deduction are allowed:
1. The amount of any insurance premium paid in respect of insurance against risk of
damages or a destruction of stocks or stores used for the business is fully deductible
[Sec 36(1)(i)].
2. Insurance premium paid by a federal milk co-operative society is fully deductible
[Sec.36 (1) (ia)].
3. Insurance of health of employees [Sec.36 (1) (ib)]: Any premium paid under a
scheme framed in this behalf by the general Insurance Corporation of India and
approved by the Central Government, shall be fully deductible.
4. Bonus or commission paid to an employee [Sec.36 (1) (ii): Any bonus or
Commission paid to an employee for services rendered shall be deductible. But such
sum should not, in any way, be paid as profit or dividend.
5. Interest on borrowed capital [Sec.36 (1) (iii): Any interest paid in respect of capital
borrowed for the purpose of business/profession is fully deductible. Interest on own
capital is not deductible.
6. Employer’s contribution Provident Fund [Sec.36 (1) (iv) (v)]: Any amount paid by
an assessee as an employer by way of contribution towards Recognized Provident

Fund, or an approved superannuation Fund or approved Gratuity Fund shall qualify
for deduction .
7. Loss regarding animals [Sec.36 (1)(iv)] : In respect of animals which have been
used for the purpose of business (not as stock in trade) and have died or become
useless for such for such purpose, deduction is allowed to the extent of the amount
equal to the difference between the actual cost to the assessee and the amount, if any,
realized in respect of the carcasses of animals. If sale proceeds are Nil then the entire
cost will be allowed as loss.
8. Bad debts[Sec. 36 (1) (vii) and (2)]: Amount of any bad debts of part thereof, which
is written off as irrecoverable in the accounts of the assessee for the previous year is
allowed as deduction subject to the following conditions:
a The debt has been taken into account in computing the income of the assessee
of the previous year in which the amount is written off or of an earlier
previous year; or
b It represents money lent in the ordinary course of business of money lending
which is carried on by the assessee.
c There must be a debt.
d Debt must be incidental to the business.
e Debt must have been taken into account while computing business income.
f Debt must have been written off in the books of account of the assessee.
Notes:
 If the amount of any part thereof of bad debts is recovered at a later date, the same
will be treated as business income of the previous year during which such
recovery takes place.
 Bad debts of a discontinued business or to a successor of the business are not
deductible.
9. Provision for bad debts [Sec .36 (1) (iii a)]: Normally any provision for bad and
doubtful debts is not allowed as deduction. But the same may be allowed in the case
of rural branches of commercial banks.
10. Transfer to special reserve [Sec. 36 (1) (viii)] : The amount transferred to a special
reserve account and maintained by a financial corporation which is engaged in
providing long term finance for industrial or agricultural or infrastructure
development, in India or by a public company formed and registered in India with the
main object of carrying on the business of providing long term finance for
construction or purchase of houses in India for residential purposes is allowed to the
extent of 20% of its profits.
11. Family Planning Expenditure [Sec. 36 (1) (ix)]: Any bona fide expenditure incurred
by a company for the purpose of promoting family planning amongst its employees is
allowed as deduction. If such expenditure is of a capital nature. It shall be allowed as
a deduction in five equal annual instalments commencing from the precious year in
which the expenditure is incurred.
12. Contribution of |Exchange Risk Administration Fund [Sec. 36 (1)(x)]: The
contribution made by the public financial institutions to the Exchange Rick

Administration Fund will be allowed as business deduction while computing their
income.
Exercises
Section A – 2 Marks Questions
1. Define Business.
2. How to treat bad debts recovered but disallowed earlier?
3. Mention any four “inadmissible items” while calculating income from business.
4. What is depreciation U/S. 32 (1) of the act?
5. What do you mean by profession?
6. What do you mean by expressly admissible expenses?
Section B and Section C

Problems of Income from Business
1) Following is the Trading and Profit and Loss A/c of Manjunath Enterprises for the year ended 31st
March 2021.
Particulars Amount Particulars Amount
To opening Stock 1,24,000 By Sales 33,30,000
To Purchases 7,28,000 By Closing Stock 1,36,000
To Carriage 78,800
To Wages 52,000
To Manufacturing Expenses 63,000
To Gross Profit 24,20,200
34,66,000 34,66,000
To Salaries 2,28,000 By Gross Profit 24,20,200
To Interest on Capital 1,72,000 By Rent from House property 44,000
To Drawings 1,10,000 By Dividend from Tata Chemicals 10,600
To Rent and taxes 1,54,000 By Bad debts recovered 15,000
To Donation 25,000 By interest on debentures of M & 18,000
To repairs 61,000 M Ltd.
To Depreciation 73,000 By Miscellaneous income 8,000
To General Expenses 24,000 By Gifts from relatives 70,400
To Legal charges 6,000
To IT appeal expenses 10,000
To Audit fees 5,000
To LIC premium 46,900
To Fire insurance premium for good 23,300
To Daughter’s college fees 30,000
To travelling expenses 18,000
To Net profit 16,00,000
25,86,200 25,86,200
Additional Information:
1. Stocks are valued 10% below cost
2. Depreciation allowable as per I.T Rules Rs. 54,000
3. Legal charges are in connection with purchase of land.
4. Repairs include Rs. 6,000 related to house property
5. Salaries include Rs. 4,600 paid to a domestic servant
6. 40% of bad debts recovered were disallowed earlier

Compute taxable income from business for the A. Y. 2022-23.
2) Mr. Dhoni is the owner of a business. His profit and loss account for the year ending 31-03-2021
was as follows:
To salaries 5,000 By Gross profit 55,000
To Rent rates and taxes 2,900 By Interest on Investments 5,000
To Printing and stationery 750 By Rent received 6,000
To personal expenses 3,000 By Winning from lottery 10,000
To Commission 2,000
To Discount on allowance 450
To Provision for bad debts 1,200
To Postage and telegram 270
To law charge 450
To Advertisement 1,550
To Gifts and presents 150
To Fire insurance premium on stock 500
To Sales tax 1,250
To Repairs and renewal(not for 480
business)
To loss on sale of machinery 1,800
(used for private purpose)
To Life insurance premium 1,700
To Wealth tax 740
To Interest on capital 730
To Audit fee 300
To Interest on bank loan 1,380
To Provision for depreciation 2,500
To Provision for income tax 3,900
To Net Profit 43,000
76,000 76,000
1. Actual bad debts were Rs. 500.
2. Actual amount of income tax paid during the year Rs. 4,000.
3. Allowable depreciation as per IT. Rules Rs. 1,500
4. Advertisement expenses include Rs. 450 spent on special advertisement campaign to open a new
shop.
5. He carried out the business in a rented house, 40%(IA) of which is used for his residence.
6. Rent, rates and taxes include Rs, 2,400 paid as rent of the property during the year.
Compute taxable his income from business for the A. Y. 2022-23.
3) Shri Govind (age 55 years), a Resident of Mumbai submits the following Profit and Loss A/c for
the year ending 31st March 2021.

To opening Stock 1,10,000 By Sales 36,00,000
To Purchases 14,00,000 By Closing Stock 2,20,000
To Wages 3,00,000
To Gross profit 20,10,000

38,20,000 38,20,000
To Advertisement 2,00,000 By Gross Profit 20,10,000
To Salary to staff 6,60,000 By rent 2,40,000
To Govind ‘s salary 1,20,000 By Commission 1,50,000
To Audit fees 60,000 By Bad debts recovered 70,000
To Bad debts 40,000 (earlier disallowed)
To Reserve for bad debts 50,000 By Dividend on SRM Ltd. 30,000
To General expenses 2,50,000 Shares (Gross)
To Municipal tax 24,000
To Fire insurance Premium on goods 26,000
To Depreciation 78,000
To Patents rights 1,60,000
To Staff welfare fund 40,000
To Employees R.P.F 50,000
To Sales tax 1,90,000
To Donation to NDF 1,00,000
To premium on Govind’s Life 36,000
Insurance
25,00,000 25,00,000
1. Opening stock and closing stock were overvalued by 10%.
2. Advertisement includes Rs. 1,00,000 being cost of permanent sign board.
3. Business income of Rs. 70,000 was not recorded in the P&L A/c.
4. General expenses include Rs. 50,000 paid for securing business orders and Rs. 60,000 spent on
Govind’s birthday
5. Depreciation allowable on all assets including permanent sign board but excluding patent rights as
per IT rules was Rs. 90,000.
6. Patents rights were acquired on 11.10.2019 on which depreciation allowable at 25
7. Purchases include a cash payment of Rs. 30,000 towards purchase of raw materials. Compute
taxable his income from business for the A. Y. 2022-23.
4) Following is the P & L A/c of Mr. Shivaji, a Merchant, for the year ending 31st March 2021.
19/2 1 Particulars Amount Particulars Amount
To Rent 60,000 By Gross Profit 5,23,000
To Rates 6,00 By Interest from Debtors 28,000
To Salary to Staff 54,000 By Rent from Property 24,000
To Diwali Pooja Expenses 2,000 By Sundry Income 16,000
To Interest on Loan 1,25,000 By Commission 37,000
To Sundry Expenses 55,000 By Bad debts recovered (LESS) 10,000
To Bad debts 6,000 (Disallowed earlier)
To charity 1,000
To Reserve for Bad debts 2,000
To Entertainment 8,500
To Loss by theft 14,000

To Sales tax penalty 10,000
6,38,000 6,38,000
1. Salary to Staff includes Salary of Rs. 24,000of a son, who is a B. Com student and who casually
helps and proprietor salary Rs. 1,000 p.m
2. Rent includes Rs. 12,000 of a shop belonging to assessee himself
3. A Loan of Rs, 60,000 at 15% p.a. is taken from his wife out of funds advanced by him and interest
is included in Interest on Loan.
4. Sundry Expenses include Rs, 9,000 being expenses incurred on Pilgrimage to Haridwar
5. Entertainment includes Rs. 1,500 spent on tea of some guest of a local MLA
6. He earned Rs. 40,000 in gold smuggling and not shown in the books
7. Rates include Rs. 4,000 for property Let out
8. Loss by theft took place when somebody pretending to be a customer stolen a necklace worth R.
6,000 in his shop, Rs. 8,000 was stolen from his house.
9. Sales tax paid and depreciation not taken to P/L(LESS) A/c Rs. 8,000 and Rs. 5,000 respectively.
Compute taxable his income from business for the A. Y. 2022-23.
5) From the P &L A/c of Mr. Ramesh for the year ending 31/3/2021. Compute the Income from
22/215 business for the A.Y. 2022-23.
To Office Expenses 40,000 By Gross Profit B/d 6,40,000
To General Expenses 16,000 By Interest on Govt. Securities 11,200
To Interest on Bank Loan 4,000 By Discount received 16,000
To Audit Fees 4,000 By Bad debts recovered ( not 800
To Interest on Capital 12,000 Written of earlier year)
To Rent 20,000 By Sundry receipts 16,000
To Income Tax 16,000 By Dividends 16,000
To Charity 8,000
To Legal Expenses 4,000
To Compensation to Retrenched 20,000
Employee
To Extension of Building 36,000
To Sales Tax 8,000
To Net Profit 5,12,000
7,00,000 7,00,000
1. General Expenses included R. 8,000 towards purchase of Computer.
2. Legal Expenses include Rs. 1,600 penalty by Customs Authority.
3. Rent includes Rs. 8,000 paid as rent of House in which assessee lives.
4. Depreciation allowed Rs. 12,000 as per Income Tax Rules (excluding depreciation on
Computer purchased).
5. Income tax in excessive to the extent of Rs. 5,000.
6. Sales tax includes Ra. 1,000 paid as penalty.
6) From the below given P & L a/c and Additional information of Mr. David. Compute his taxable
business income for A.Y. 2022-2.
23/216

To opening Stock 40,000 By Sales 5,00,000
To Purchases 2,20,000 By Closing Stock 50,000
To Wages 15,000
To Freight 10,000
To Gross profit 2,65,000
5,50,000 5,50,000
To Establishment Expenses 15,000 By Gross Profit 2,65,000
To Salaries 25,000 By Dividend on Shares (Gross) 6,000
To Rent and Taxes 12,000 By Rent from House Property 15,000
To Income Tax 10,000 By Refund of Income Tax 2,000
To Household Expenses 14,000 By Interest on Govt. Securities 1,000
To reserve for Bad debts 5,000 By Bad Debts recovered 5,000
To Advertisement 15,000 (allowed earlier)
To Donation 6,000 By Profit of sale of machinery 3,000
To Sales Tax 20,000 By Miscellaneous income 9,000
To Provision for Income Tax 8,000
To Carriage outward 11,000
To Drawings 4,000
To General Expenses 16,000
To Interest on Capital 9,000
To Bad Debts 7,000
To Repairs 8,000
To Taxes and Insurances 2,500
To Car Expenses 11,000
To Audit Fees 12,000
To Net Profit 75,000
3,06,000 3,06,000
1. Salaries include payment to a relative employee, which is considered to be unreasonable up to Rs.
6,000.
2. Purchases include two payments of Rs. 30,000 and Rs. 10,000 paid in cash to a supplier.
3. Opening stock is valued at 10% above the cost.
4. Allowable depreciation is Rs. 22,500.
5. 60% of car expenses are for business purposes.
6. General expenses include Rs. 10,000 given to notified research institute for carrying on scientific
research.
7) From P &L A/c of Mr. X, a manufacture. Calculate the Taxable income from business for year
24/219 ending 31/03/2021.
To Salary to Employees 95,000 By Gross profit 3,00,000
To Advertisement expenses in cash 24,000 By Interest on securities 14,000
To General Expenses 16,000 By Income from HP 25,000
To Entertainment expenses 22,000 By Bad Debts recovered 12,000
To Bad Debts 1,500 (allowed earlier)
To Drawings by proprietor 24,000 By Profit on sale of Import License 80,000
To Sale Tax (due and paid on 6,000
01/07/2019)
To Interest on Proprietor’s Capital 7,000

To repairs 2,500
To Rent 21,000
To Legal Expenses 5,000
To Bonus (due) 6,000
To Bonus to Proprietor 4,000
To Motor Car purchases 72,000
To Expenses on car during the year 12,000
To Donations 2,000
To Provision for Bad debts 6,000
To Net profit 90,000
4,31,000 4,31,000
He gives you the additional information:
1. Rs. 3,000 was spent on the purchase of land and is include in legal expenses.
2. Half of repair expenses bear on let -out building.
3. Depreciation allowable on all assets including Motor Car is Rs. 14,400.
4. Bonus was paid to employees on 30/06/2019.
8) Following is the P & L A/c of Mr. Akash for year ending 31/3/2021. Compute taxable income
33/231 from business.
To Salaries 30,000 By Gross Profit 2,35000
To Depreciation 25,000 By Sundry profits 66,200
To Office expenses 18,000
To Travelling expenses 10,000
To Expenses on festival 3,000
To Embezzlement of cash by 10,000
Employee
To Interest 10,000
To Legal expenses 18,000
To Education expenses to his son 8,000
To Sundry expenses 16,500
3,01,200 3,01,200
Adjustment:
1. Salary includes a payment of Rs. 8,000 given to an employee outside India and no tax has
been deducted at source.
2. Written down value of plant and machine Rs. 80,000 as on 1-4-2019 new plant costing Rs.
80,000 has been installed during the month Nov. 2019. Provide depreciation at 15%
3. Festival expenses include a gift of Rs. 2,000 give to relative at the time of his marriage.
4. Sundry expenses include Rs. 5,000 on the maintenance of a guest house.
5. Legal expenses include a payment of Rs. 12,000 given to a tax consultant in connection with
an income tax appeal.
6. Furniture was sold for Rs. 600 and then WDV is Rs. 900.
7. Sundry profits include Rs. 10,000 withdrawn from his PPF.

9) Mr. Krishna runs cement plant. His Profit and Loss A/c for the year ending 31/03/2021 is as
29/224follows:
To Opening stock 40,000 By Sale of cement 12,00,000
To purchase of materials 2,40,000 By Car sold 75,000
To Preliminary expenses 40,000 By Dividend received 82,000
To Wages 20,000 By Refund of excise duty 12,000
To Royalty 35,000
To Excise duty 30,000
To Manager’s salary 40,000
To Interest on loan 20,000
To Income Tax 22,000
To General Expenses 80,000
To Sales tax 35,000
To Salaries and wages 80,000
To Patent purchased 30,000
To Entertainment expenses 17,000
13,69,00 13,69,000
0
Adjustments:
1. Wages include Rs. 5,000 paid to domestic servant.
2. General expenses include Rs. 2,000 for clearing (Selling) machine.
3. Mr. Krishna is the manager of this business.
4. During the previous year he purchased a car for Rs. 1,20,000 which was sold for Rs. 75,000.
5. General expenses include the following:
a) Donation to public hospital Rs. 2,500.
b) Special advertising campaign undertaken in respect of product place in the market Rs. 30,000.
c) Subscription to cement syndicate Rs. 1,000.
d) Employee’s family planning expenses Rs. 9,000.
6. Guest house expenses Rs. 12,000 included in entertainment expenses.
7. Closing stock of finished cement Rs. 90,000 not included in profit and loss a/c.
Income from Profession
Format for computation of Profession Income

Particulars Amount
Professional receipt XXX
Less: Professional expenses XXX
Taxable Income from Profession XXX
Chartered Account/Auditor
Professional Receipt Professional Expense
1. Audit fees 1) Office expenses/rent/salaries
2. Financial consultancy service 2) Printing and Stationery
3. Income from Accountancy work 3) Depreciation on Professional books
4. Gifts and presents from clients 4) Depreciation on furniture/motor car/
5. Income from Appellate Tribunal Appearance office equipment
6. Tax consultation fees, Examiner’s fees 5) Expenses of motor car.

7. Tuition fees 6) Allowance to clerk
8. Fees from income tax appeal, Remuneration 7) Membership fees
from Articles published in professional 8) OYT expenses (own your Telephone)
journals 9) Stipends to trainees
10) Subscription to CA Institute
Lawyer
1) Legal Income/fees 1) Office rent/expenses/salaries
2) Special commission 2) Law journals
3) Cash gifts and presents from clients 3) Telephone expenses
4) Consultation fees 4) Magazines subscription
5) Remuneration from articles published in 5) Motor car expenses
Professional journals 6) Depreciation on motor car/ furniture/
6) Arbitration fees Office equipment
7) Purchase of professional books
8) Printing and stationery
9) Electricity charges
10) Miscellaneous /general/ office expenses
Doctor
1) Sale of medicines 1) Cost of medicines purchased
2) Consultation and visiting fees 2) Depreciation on surgical expenses
3) Gifts and presents from patients 3) Salaries paid to staff
4) Remuneration from articles published in 4) Rent of clinic/dispensary
Professional journal 5) Purchase of professional books
5) Retainer fees 6) Telephone charges
6) Examiner fees 7) Printing and stationery
8) Motor car expenses
9) Depreciation on motor car/office
equipment/furniture.
Treatment of Cost of Medicine

In case of calculation of cost of medicine, if the cash system of accounting is followed, then the actual
cost of purchases has to be taken as the cost of medicine. If mercantile system of accounting is
followed, then the cost of goods sold has to be taken as the cost of medicine and to be deducted as
professional expenses. (Cost of goods sold = Opening stock + Purchases – Closing stock)
Problems of Doctors
1) Dr. Rekha is a registered medical practitioner, she provides her Receipts and payments A/c for the
38/238 year ended 31st March 2022.
To Balance b/d 1,30,000 By Salaries 66,000
To Visiting fees 1,40,000 By Clinic rent 96,000
To Consultation fees 4,76,000 By Motor car expenses 70,000
To Special Medical camp By Driver’s salary 60,000
Remuneration 50,000 By Medical books 30,000
To Rent from H.P 1,20,000 By Motor car purchased 5,00,000

To Gifts 60,000 By Household expenses. 92,000
To Dividend from Sun By Telephone 29,000
Pharma Ltd. 11,600 By Travelling 20,000
To Interest on debentures of By Surgical equipment 33,000
Tata Power Ltd. 18,800 By Balance c/d 10,400
10,06,400 10,06,400
1. Remuneration received for special medical camp was donated to an orphanage.
2. 30% of motor car usage, 20% of travelling expenses and 25% of telephone bills relate to
personal use.
3. Allow depreciation as per IT rules.
4. 50% of gifts are from patients.
5. Medical books include annual publication worth Rs. 10,000 remaining are general medical
books. Compute taxable professional income for the A.Y. 2022-23.
2) Following is the Receipts and Payments of Doctor Hariprasad for the year ending 31-3-2022.

To Balance b/d 1,25,000 By Clinic rent 25,000
To Consultation fees 65,000 By Staff salary 80,000
To Visiting fees 80,000 By Rent and taxes 25,000
By Electricity and water
To Sale of medicine 45,000 14,000
charge
To Operation theater rent 25,000 By purchase of Medical books 14000
To Dividend 25,000 (annual publication)
By Purchase of surgical
40,000
equipments
By Motor car expenses 10,000
By Medical association
5,000
members fees
By Audit fees 20,000
By staff welfare expenses 12,000
By Diwali expenses 6,000
By Entertainment expenses 12,000
By Medicine purchase 30,000
By Balance c/d 67,000
3,60,000 3,60,000
1. Gift form patient Rs. 4,000 was given to him by a patient not included in the account.
2. ¼ of motor car expenses relate to personal use.
3. The rate of depreciation on surgical equipment is 40%.
4. Interest received on bank deposits.
5. Audit fee include income tax appeal expenses of Rs. 10,000.
6. Computer his taxable income from profession for the A.Y. 2022-23.
3) Dr. Usharani (age 46), a physician and resident of Mumbai submit the following receipts and
payments account for the year ending 31st March 2021.
To Balance b/d 1,40,000 By Balance c/d
To Consultation fees By Rent of Clinic
2020-21 25,000 2020-21 36,000
2021-22 5,25,000 2021-22 1,44,000 1,80,000
2022-23 30,000 5,80,000 By Surgical equipment 1,00,000
To Visiting fees 1,60,000 By Computer 50,000

To Winning from lottery By Interest on loan (for
1,00,000 40,000
(gross) Profession)
To Interest on post office
60,000 By Electricity and water 18,000
savings Bank a/c
By newspaper and 12,000
magazines
To gifts from patients 80,000 By Professional books 30,000
To Share from HUF 50,000 (Annual publication)
To Sale of medicines 2,40,000 By Purchase of medicines 1,00,000
To Loan from bank 3,00,000 By Household expenses 25,000
By Income tax 25,000
By Life insurance premium 36,000
By Gift to mother 24,000
By Subscription to AIMA 20,000

By Subscription to 10,000
professional journal
By Car expenses 60,000
By Telephone expenses 30,000

By Lottery tickets 50,000
By Staff salary 2,40,000
By Balance c/d 6,60,000
17,10,000 17,10,000
1. Written down value of car on 31-03-2021 was Rs. 2,00,000 on which 15% depreciation to be
charged. Car is used 60% for profession and 40% for private purpose.
2. Visiting fee due but not received for 2020-21 Rs. 36,000.
3. Closing stock due but not received for 2020-21Rs. 36,000.
4. Closing stock of medicines Rs. 30,000.
5. Surgical equipment and computers were bought and put to use on 10-09-2021.
Determine taxable income from profession of Dr. Usha rani for the Assessment year 2022-23.
4) Dr. Sharma is a renowned medical practitioner. He furnishes his Receipts and payment account
for the financial year 2021-22.
To Balance b/d 35,000 By Rent of clinic
To Consultation fees 2020-21 1,600
2020-21 50,000 2021-22 14,800
2021-22 70,000 2022-23 16,600
2022-23 12,000 By Electricity and water 12,000
To Visiting fees 30,000 By purchase of Professional Books 18,000
To Loan from bank for professional
1,75,000 By Household expenses 17,800
Purposes
By Municipal taxes paid on property 2,000
To Sale of medicines 70,000
To Sale tax on medicine 3,000 By Sales tax on medicine 2,800
To Gift from patient 50,000 By Purchase of motor car 1,45,000
By Fire insurance on property 2,000
To Remuneration from articles
16,000 By Surgical equipment 47,400
Published in professional Magazine
To Rent from house property 11,000 By Advance income tax 13,000
To Interest on post office 7,000 By salary to nurse 12,000
By Entertainment expenses 6,000
By Purchase X-ray machine 94,500
By Expenses of IT proceedings 15,000
By Life Insurance premium 15,000
By Gift to wife 5,000
By Interest on loan 2,000
By loan a/c – installment paid 15,000
By Donation to political party 500
By car expenses 15,000
By purchases of medicines 35,000
By balance c/d 21,000
5,29,000 5,29,000
Compute Dr. Sharma professional income for the A.Y. 2022-23 with the help of following
1. 1/3 of car expense is for personal use.
2. Surgical equipment were purchased and put to use on 10-09-2019.
3. Depreciation on motor car is at 15%, opening stock of medicine is valued Rs. 8,000.
5) From the following Income and Expenditure A/c and additional information of Dr. Patel. Who
maintains books of accounts under mercantile system of accounting, compute taxable income from
profession for the A.Y 2022-23

To Rent of clinic By Consultation fees
2017-18 1,000 2017-18 5,500
2018-19 20,000 2018-19 85,000
2019-20 2,000 2019-20 10,000
To electricity and water 2,200 By Visiting fees 65,000
By Loan from bank (for
15,000 1,25,000
To Household expenses profession)
To Municipal taxes on HP 3,000 By Loan from bank (for personal) 50,000
To Purchase of motor car 1,20,000 By Gift from patients 20,000
By Remuneration for articles
30,000 8,000
To Laptop purchased Published in professional journal
To Income tax 12,000
To Salary to Compounder 24,000 By Sale of medicines 60,000
To Purchase of books 6,000 By Operation theatre rent 15,000
To Expenses on IT
8,000 By Rent from house property 12,000
proceedings
To Life Insurance premium 15,000 By Interest on Post Office NSC 2,000
To Gift to wife 10,000 By Income from Horse Race 30,000
To Interest on loan
10,000
(profession)
To Interest on loan (personal) 4,000
To Loan Installment paid
25,000
(profession)
To Donation to a notified
10,000
temple
To Car expenses 20,000
To Purchase of Surgical
30,000
Equipment
To Purchase of Medicines 35,000
To Excess of Income over 85,300
4,87,500 4,87,500
1. 40% of car expenses are for personal use.
2. Depreciation on car and surgical equipment is at 40% and on laptop and a book is at 40%.
3. Income tax includes Rs. 2,000 profession tax paid to state government.
4. Gift from patients include Rs. 8,000 received on the occasion of marriage from friends.
5. Closing stock of the medicine is Rs. 7,500.
6) Mr. Natarajis a registered Medical Practitioner, he keeps his books on cash basis and summarized
cash a/c for the year ending 31/03/2022 is as follows:

To Balance b/d 5,850 By Cost of medicines 12,000
To Loan from bank 10,000 By General expenses 450
To Sale of medicines 26,500 By Motor car expenses 6,000
To Consultation fees 16,000 By Salaries 1,200
To visiting fees 3,000 By Rent of dispensary 2,400
To Interest in govt.
3,600 By Telephone expenses 500
securities
To Rent from HP 8,000 By Life insurance premium 1,600
To Gift from father-in-law 5,000 By Interest on loan from bank 2,500
To Gift and presents 2,000 By Office expenses 200
By Insurance premium:
Car
700
House property
1,200
500
By Local taxes 800
By Travel expenses (personal) 1,000
By charity 100
79,950 79,950
Adjustments:
1. Half of the motor car expenses are in respect of his personal use.
2. Consultation fees include a receipt of Rs. 6,000 as advance for attending a medical camp in April 2021.
4. The written down value of motor car on 01/04/2021 was Rs. 12,720 rate of depreciation 15%. Loan from
Bank at 2%.
5. Gifts and presents include Rs. 700 from patients and Rs. 300 received as birthday gifts from
relatives.
6. Closing stock of medicines amounted to Rs. 50,000 but its current market price is Rs. 10,000.
Problems on Chartered Accountants/Auditor
7) The following is the Receipts and Payments a/c of AB practicing Chartered Accountant for the
year ended 31/03/2022.
253 Particulars Amount Particulars Amount
To Audit fees 20,000 By Office expenses 10,000
To Consultation fees 10,000 By Office rent 15,000
To Appellate tribunal appearance 20,000 By Salaries and wages 12,000
To Miscellaneous income 12,000 By Printing and stationery 2,000
To Interest on govt. securities 12,000 By Subscription to CA Institute 3,600
To rent received 9,000 By Purchase of professional books 2,000
To Presents from clients 10,000 (Annual publication)
By Travelling expenses 6,000
By Interest on bank loan 12,000
By Donation to National Defense Fund 15,000
By Stipend to trainers 18,400
96,000 96,000
Adjustment:
1. Loan from banks was taken for construction of house in which he lives. The municipal value of
the house is Rs. 8,400 and local taxes Rs. 800.
2. ¼ of travelling expenses is not allowed.
Calculate income from profession for the AY 2022-23
8) The following is the Receipts and Payment A/c of Mr. Ramki a Chartered Accountant for the P.Y
ended on 31-03-2022.

To Balance b/d 1,50,000 By Staff salary 3,00,000
To Audit fee 2,00,000 By Stipend to Audit clerks 1,00,000
To Tax consultancy fee 2,50,000 By Office rent 90,000
By Software development
To Project report fee 2,50,000 10,000
expenses
To Accounting software
50,000 By Office expenses 1,25,000
charge
By Books
To Guest lectures in CA
25,000  Annual 30,000
institute
To Bank interest 25,000  Non - Annual 30,000
To Remuneration as
member tax Reform 20,000 By Car expenses 65,000
commission
By CA institute membership fees 5,000
By Contribution to PPF 50,000
9,70,000 9,70,000
Other information:
1. ¼ car usage is personal.
2. Depreciation on car Rs. 10,000.
3. Depreciation on office furniture Rs. 7,000.
Calculate income from profession for the AY 2022-23
9) Sri Krishna is a CA. He gives you the following Income and Expenditure A/cc for
the year ending 31-03-2022.
Income and Expenditure A/c
Expe Amount Income Amount
nditure
To Office expenses 15,000 By Audit fees 3,21,000
To Office rent 5,000 By Gift from father in law 10,100
To Books (other than
10,000 16,000
annual Publication) By Financial consultancy service
By Profit on sale on investments 12,900
To Employees salary 10,000 By Accountancy works 55,000
To Personal expenses 2,01,000 By Dividend on units of UTI 2,000
To Donation 4,000 By Interest on deposit in a bank 3,000
To Gifts to relatives 1,000 By Legal fees 20,000
To Subscription for
5,000
Journal
To Drawings 20,000
To Interest 1,400
To Income tax 20,000
To Car expenses 4,000
To Household expenses 1,600
To NSCs purchased 10,000
To Purchase of typewriter 5,000
To Purchase of furniture 20,000
To Surplus/Net Income 1,07,000
4,40,000 4,40,000
Adjustments:
1. The car is used equally for professional and personal purpose.
2. Allowable depreciation on car for official purpose Rs. 10,000.
3. Depreciate typewriter @ 15% and furniture @ 10%
4. Staff salaries include Rs. 4,000 paid to domestic servant.
5. Loan was taken for personal use.
6. Allowed depreciation on professional books @ 40%.
7. Office rent Rs. 3,000 though paid is not recorded.
Problems on Lawyers
10) Mr. Anand, an advocate residing in Delhi submits his receipts and payment
account for the previous year 2021-22.
Receipts and Payments A/c
Receipts Amoun Payments Amoun
To balance b/d t 5,000 By Staff salary t 28,000
To sitting fees 1,20,000 By Professional books 9,000
To Legal counseling fees 15,000 By Subscription to rnals 1,000
To Loan from bank 12,500 By Refreshment charges 2,000
To Rent from property 22,500 By Rent of office 7,500
To Interest on bank F D 10,500 By Telephone charges 9,000
To Dividend from ABC By Printing charges
4,000 1,500
Ltd.
To Share of income from By Electric charges
HUF 50,000 3,000
By Purchase of car 1,25,000
By Computer purchased 25,000
By Car expenses 3,500
By Contribution to PPF 5,000
By NSC purchased 7,000
By B.A.R association s 1,000
2,39,500 2,39,500
1. ½ of the car expenses pertain to personal use.
2. Depreciation rates – car 45%, computer 40%, books 40%.
3. 25% of telephone expenses pertain to personal use.
4. Half of the electric charges are for house property.
5. Gifts from clients Rs. 5,000 not included in above account.
6. Loan from bank is for personal use.
Compute his total income from profession for the A. Y. 2022-23.
11) Mr. Kishore lives in Bangalore. He is a lawyer; he gives you the following receipts
and payment account for the year ending 31-03-2022.
Receipts Amount Payments Amoun
By Books purchased (annual t
To opening balance 2,000 1,000
Publication)
To Arbitration fee 1,00,000 By Repairs of house 1,200
To Salary as part time
4,000 1,800
lecturer By Car expenses
To Fee received 1,05,000 By Local taxes 1,200
To Interest on bank
1,500 By Office expenses 3,000
deposit
To Exam remuneration
2,500 11,000
from University By Personal expenses
To Cash received on car
20,000 By Purchase of plant for office 1,000
sold
To Shares sold 10,000 By Car purchased 20,000
To Dividend received 1,500 By Life insurance premium 6,000
To Consultation fee 5,000 By Donations 1,100
To Special commission 2,000 By Gifts to daughter 500
To Presents from clients 5,000 By Income tax paid 3,000
To Remuneration from
article Published in 6,000 By Income tax appeal expenses 300
professional Journal
To Income from betting 2,000 By Bank deposit 12,000
By PPF deposit 3,000
By Balance carried forward 2,00,400
2,66,500 2,66,500
Adjustments:
1. 1/3rd of the building is used for profession and 2/3rd for self-residence.
2. The car is used for professional and personal work equally.
3. Books purchased for teaching Rs. 300 and
remaining for profession. Calculate income from
profession for the AY 2022-23
12. Mr. Ranganath is a leading tax consultant who maintains his books of account on cash
basis furnish the following receipts and payments account for the previous year 2019-20.
Compute his professional income.
Receipts Amount Payments Amoun

To Balance b/d 22,000 By books purchases ( annual t 12,000
To fees from clients Publication)
By Computer purchased 30,000
For 2021-22 1,50,000 By Car expenses 18,000
For 2020-21 33,000 By Office expenses 40,000
To gifts and presents 25,000 By Salary to staff
For 2021-22 32,000
To Interest free loan from
2,40,000 For 2020-21 8,000
a Client purchase of car
To Winning from lottery
46,000 By Car purchased 3,00,000
(Gross)
To Share from HUF 70,000 By Income tax 5,000
By Professional tax 3,000
To Bonus and
commission from the 14,000 By Medical insurance premium 2,000
partnership firm
6,00,000 6,00,000
Adjustments:
1. Car is partly used for official purposes 40%) and partly for personal purpose (60%).
2. Gifts and presents include Rs. 5,000 received from a client.
3. Office expenses include Rs. 5,000 paid as salary to his wife who casually helps him
in the office.
4. Depreciate car 45%.
13) Income & Expenditure A/c of Lawyers & Co. for the year ending March 31, 2022
To Expenses 1,50,000 By professional receipts 3,80,000
To Depreciation 20,000 By other fees 90,000
To Remuneration to partners 1,50,000
To Interest on Capital to
partners @ 20% 20,000
To Net Profit 1,30,000
4,70,000 4,70,000
Other Information: 1. Expenses include Rs. 18,000 and Rs. 12,000 paid in cash as
brokerage to a single party on a single day. 2. Depreciation calculated as per section
32 is Rs. 40,000 Compute the total income of the firm.
22
INCOME TAX -II
Semester – VI
B.com
TAX - II
Student Workbook
Edition: 2022
#44/4, District Fund Road, Behind Big Bazaar, Jayanagar 9th Block, Bengaluru, Karnataka 560069
1
Program: B.COM Semester: VI
Subject: Tax - II
Total Lecture Hours: 60 Credits: 04
Course Objectives
1. Impart the basic information on income from business n profession.
2. Familiarize the student with different deductions and individual tax assessment.
3. Introduce the constitutional and structural changes in indirect taxation post GST Implementation.
4. Familiarize students on time of supply and compliance aspects of GST registration
5. Introduce the basics of custom laws and procedures in India
Module – 1.PROFITS AND GAINS FROM BUSINESS AND PROFESSION12 HOURS

Meaning of business, profession, profits of business or profession, features of assessment of profits and gains,
rules for adjustment of profit and loss account- Depreciation u/s 32.
Module – 2- DEDUCTIONS FROM GROSS TOTAL INCOME AND TAX LIABILITY OF

INDIVIDUALS 12 HOURS
(Provisions relating to individuals only) u/s 80 – Deduction in respect of certain payments and deduction in respect
of certain incomes- Carry forward and set off of losses - Computation of total taxable income and tax liability of
an individual.
Module – 3 – CONCEPT OF GST AND ITS PROCEDURES 12 HOURS

Introduction to GST and GST Act Constitution amendment-GST council, Structure, powers and functions-GST
Network- Objectives and basic scheme of GST- Meaning-Salient features of GST Subsuming of taxes-Benefits
of implementing GST - CGST-SGST-IGSTUGST, Definitions. Registration under GST: Procedure for
registration, Persons liable for registration, Persons not liable for registration, Compulsory registration, Deemed
registration, Special provisions for Casual taxable persons and Non-resident taxable persons. Exempted goods
and services - Rates of GST.
Module – 4 -TRANSACTION VALUE & LEVY OF GST 14 HOURS

Time and Value of Supply of goods, Time/ place of supply of services, Value of taxable supply-Procedure
relating to Levy: (CGST & SGST): Scope of supply, Tax liability on Mixed and Composite supply, Time of
supply of goods and services, Value of taxable supply. Computation of taxable value and tax liability.
Procedure relating to Levy: (IGST): Inter-state supply, intra-state supply, Zero rates supply, Value of taxable
supply – Computation of taxable value and tax liability. Input tax Credit: Eligibility, Apportionment, Inputs on
capital goods, Distribution of credit by Input Service Distributor (ISD) – Transfer of Input tax credit - Problems
on utilization of input tax credit.
Module – 5- CUSTOMS DUTIES 10 HOURS

Terminologies used under custom duty - Valuation, Customs Procedures, Import and Export Procedures,
Baggage, Exemptions- Anti-dumping Duty – Valuation under Customs Law.
2
Course Outcomes
1. Illustrate various allowed, disallowed expenses and provisions to calculate taxable income from business and
profession
2. Explain the use of various deductions to reduce the taxable income and enable the student to research ,analyze
and specifyincome Tax information and issues.
3. Paraphrase the basic principles underlying the GST Act Compute the taxable income of an assessed.
4. Analyse the assessment procedure and representation before appropriate authorities under the law.
5. Determine the application of valuation with respect to customs duty.
Reference Books:
1. Deloitte: GST Era Beckons, Wolters Kluwer.
2. Madhukar N Hiregange: Goods and Services Tax, Wolters Kluwer.
3. All About GST: V.S Datey - Taxman's.
4. Guide to GST: CA. Rajat Mohan,
5. Goods & Services Tax – Indian Journey: N.K. Gupta &SunnaniaBatia, Barat's Publication
6. Goods & Services Tax – CA. Rajat Mohan,
7. Goods & Services Tax: Dr.Sanjiv Agrawal & CA. Sanjeev Malhotra.
8. GST - Law & Practice: Dr. B.G. Bhaskara, Manjunath. N & Naveen Kumar IM,
9. Understanding GST: Kamal Garg, Barat's Publication.
3
MODULE 2:
DEDUCTIONS FROM GROSS TOTAL INCOME AND TAX LIABILITY OF
NDIVIDUALS
Introduction
Income tax is levied on the total income of the previous year of an assessee. Hence, it is necessary to
ascertain his total income. Sometimes an assessee may incur loss from particular sources of income
and unless such loss is set off against other incomes, the net result of the assessee’s activities during a
particular previous year cannot be ascertained and consequently the tax payable also cannot be
determined. For this purpose, the Income-Tax Act provides certain specific provisions for set-off and
carry forward of losses.
Objectives
 Understand the procedure of set off and carry forward
 Identify the assesses eligible for deductions under various sections
 Compute the deductions in respect of various payments and incomes.
 Comprehend the calculation of tax liability and the applicable tax slabs.
Scheme of Set-off and carry forward and set off

The procedure of set off and carry forward operate as follows, subject to the conditions as prescribed:
1. Intra-head or inter source set-off
2. Inter-head set –off
3. Carry forward of unadjusted losses
4. Order of set-off
Intra –head or inter source set-off (Sec 70):
If there is loss under one source, the same can be set-off against the income under other source in the
same head of income. It is known as Intra head or inter source set off.
Examples:
a. Loss from a Self-Occupied Property can be set off against income from any other house
properties.
b. Loss from one business can be set off against any other business income.
c. STCL can be set off against both STCG and LTCG.
Exception: Intra head set off of losses is allowed for all losses except the following
1. Loss from speculation business cannot be set-off against income from other business. This
can be set-off only against the income from speculation business.
2. Loss from owning and maintaining race horses shall be set-off against income from horse
races only and not against any other income under the head other sources.
3. Loss from an exempted source of income cannot be set-off against any taxable income.
4. Long term capital losses can be set off only against long term capital gain.
5. Loss on account of lottery cannot be set off against income from lottery, cross word puzzle,
card games, etc.
6. Loss from any source or any head cannot be set off against casual incomes such as winnings
from lottery, horse race, gambling, etc.
FOR PRIVATE CIRCULATION ONLY

Inter-head set-off Sec 71:
Any loss, if it cannot be set off against the same head of income, it can be set off against the income
from other head in same year, it is known as inter head set off.
Examples:
a. Any loss arising under the head income from house property can be set off against income from any
other heads of income including salary income in the same A.Y.
b. Losses arising from business or profession can be set off against any other heads of income except
salary income
Exceptions: Inter head set off is allowed subject to the following exceptions
1. Loss from speculation business cannot be set off against other heads.
2. Loss under the head capital gains cannot be set off against other heads of income.
3. Losses on a/c of lottery or card games cannot be set off against other heads of income..
4. Loss from owning and maintaining race horse shall be set-off against income from horse races
only and not against any other income under the head other sources.
Carry forward and set off losses:

Losses which cannot be set off under the same head or against income from other heads during the
same assessment year can be carried forward to the subsequent assessment years and set-off; it is
known as carry forward and set off losses.
1) Unabsorbed loss from house property can be carried forward for 8 subsequent A.Y. to set off
under the head house property.
2) Unabsorbed business loss can be carried for 8 A.Ys. to be set-off only from business income
provided the business whose loss is being carried forward continues. Unabsorbed depreciation can
be carried forward till it is fully adjusted from any income during the succeeding years.
3) Unadjusted capital losses can be carried forward for 8 succeeding A.Ys. to be set off only against
capital gains. If it is short-term, it can be set off either against short-term or long-term capital gain
and in case of long-term capital loss; it can be carried forward and set off only against long-term
capital gain.
4) Unabsorbed loss from the business of owning and maintaining of race horses can be carried
forward for 4 A.Ys.
5) Speculation losses can be carried forward for 4 A.Ys.
Order of Set off:

1) Current year depreciation
2) Current year expenditure on scientific research
3) Brought forward business loss of earlier year
4) Unabsorbed depreciation of earlier year
5) Brought forward scientific research expenditure
Filing of Returns [Losses]

Unless the assessee files the returns of loss U/S 139(3) and gets the loss determined by the assessing
officer, assessee will not be entitled to carry forward and set-off any loss as per the provisions.

Total Income
In computing the total income of an assessee, the deductions specified under section 80c to 80u shall
be allowed from his gross total income.
The aggregate amount of the deductions allowable under this section shall not in any case exceed the
gross total income of the assessee.
Sections 80 C to 80 U specifies the deductions to be made from the Gross Total Income.
Deductions applicable to individual assesses are as follows:
Sl. I.T. Amount of Categories of
Allowance/Perks Allowed
No Sec deduction Assessees
Savings and investments made:
The following qualify for deduction:
 Contribution to SPF, RPF, PPF (up to
Rs.1,50,000) & approved superannuation fund.
 Contribution made for deferred annuity for
Govt. employees.
 LIC premium paid on the life of the assessee,
spouse and children.
Policy issued before 01-04-2012: (Actual
premium paid or 20% of the sum assured WEL)
Policy issued on or after 01-04-2012: (Actual
premium paid or 10% of the sum assured WEL)
Policy issued on or after 01-04-2013 0n a life of
a disabled : (Actual premium paid or 15% of
the sum assured WEL)
 Payment made by the employer towards
employee’s group insurance.
1. 80C
 Deposits made in Deposits in Unit Linked
Insurance Plan.
 Amount invested in NSC – VIII issue including
interest accrued thereon.
 Amount invested in National Saving Scheme.
 Amount paid to LIC under JeevanDhara,
JeevanAkshay. Aggregate
 Amount invested in notified Pension Fund set amount –
Individuals
up by Mutual Fund or UTI or NHB. 650,000
or
 Amount deposited with an authority engaged in or
HUF
Housing Development or Town or Rural Rs.1,50,000
Development. (whichever
 Amount deposited or invested in Equity Linked is less)
Savings Scheme.
 Repayment of House Building Loan (only
principal)
 Tuition fees paid for two children only.

 Amount paid as subscription to equity shares or
debentures of any eligible issue.
 Amount paid as subscription to any units of
mutual fund.
 Investment in notified bonds issued by
NABARD.
 5-year time deposit in an a/c under post office
time deposit rules.
 Deposit in an a/c under senior citizens savings
scheme rules.
Amount
invested in a
pension
Contribution to any pension fund: fund set up Individuals
80C
2 by LIC or or
CC
another HUF
insurer or
Rs.1,50,000
WEL.
Actual Allowed to
amount individuals
Contribution to pension scheme of central deposited or employed by
80C
3 government employee: 10% of the the central
CD
employee’s government
salary on or after 1-
WEL 1-2004.
Note: The maximum overall deductions u/s 80C, 80CC & 80CCD shall not exceed Rs.1,50,000
as per Section 80CCE
An Additional
deduction of
Rs.50000 is
80CC Additional Deduction for contribution made allowed over
4 Individuals
D(1B) to New Pension Scheme and above the
limit of
1,50,000 u/s
80CCE
Upto to a
80CC In respect of investment made in Rajiv
5 Individual Maximum of
G Gandhi Equity Saving Scheme
25,000
Medical insurance premium:
a) Premium paid by cheque on the health a) Actual
of self, spouse or dependent parents or Premiu
dependent children or Rs.25,000 WEL is m or Individuals
6 80D allowed. 25,000 or
b) For senior citizens (who have attained WEL HUF
the age of 65 years) b) Rs.50,
Preventive health check ( see note-1 given 000.
below)
6 80DD Medical treatment of a dependent relative: Individuals

a) Any expenditure for medical treatment, Rs.75, 000 or
nursing and rehabilitation of a handicapped for normal HUF
dependent relative disability
b) Deposits under LIC, UTI’s Scheme & other &
IRDA approved insurers for the benefits of Rs.1, 25,000
physically handicapped dependent in case of
(e.g.LIC’sJeevanAadhar) severe
(Dependent means the spouse, children, parents, disability.
brothers and sisters of the assessee)
Medical treatment of notified diseases of a
dependent:
Actual
a) Actual expenditure incurred on medical
amount paid
treatment of self or dependent relative or
or 40,000 Individuals
a member of HUF suffering from
7 80DDB W.E.L or
terminal disease like, cancer Aids, renal
HUF
failure etc.
b) In case of senior citizen.
Up to
The deduction is available only if the expenses
Rs.1,00,000
are actually spent.
Interest on loan taken for higher studies:
The loan can be taken for his own, spouse or Individuals
8 80E children from any financial institution. Any amount or
The deduction is available for 7 years or until HUF
the loan is repaid whichever is earlier
Payment of interest of Home Loan: an
assessee can be subjected to deduction
subject to.
 this deduction would be allowed provided
that the total value of the loan is not more
than 35,00,000
9 80EE Individual Rs.50,000
 the total value of the house is not more than
50,00,000
 The loan must be sanctioned between
01.04.2016 to 31.03.2017 (Deduction would
be over and the above the Rs.2,00,000
deduction u/s 24)
Payment of interest on home loans:
 This will now be allowed for the loans
sanctioned till the 31st of March 2021.
10 80EEA Individual Rs. 1,50,000
 The individual taxpayer should be a
first-home buyer and should not be
entitled to deduction under section 80EE
Refer the
Donations to approved funds and charitable
11 80G note 2- All Assessee
institutions
below*
Payment of house rent: This deduction is Individuals
Least of the
12 80GG allowed for individuals only for rent paid or
following is
without receiving HRA. HUF

 The assessee must be living in a rented allowed as
house due to his employment, business or deduction:
profession.  Statutor
 He or his spouse should not have any self- y limit
occupied house in India or should not own a Rs.5,
house at the place where the tax payer 000 p.m.
resides.  Rent
Adjusted GTI = GTI – (LTCG + STCG from paid –
shares subject to STT + Rebatable Income + All 10% of
other deductions u/s 80 except 80 GG) adjusted
STT – SECURTITIES TRANSACTION GTI
TAX  25% of
adjusted
GTI
Payment to institutions having rural

Individuals
80GG development program as its object: 100%
13 or
A Whole amount contributed is allowed as deduction
HUF
deduction.
Individuals
80GG Contributions given by any person to 100%
14 or
C political parties: deduction
HUF
Actual
royalty
Individuals
80QQ Royalty Income of authors: received or
15 or
B Rs.3,00,000
HUF
WEL
Actual
royalty Individuals
16 80RRB Royalty on patents: received or or
Rs.3,00,000 HUF
WEL
Actual
Individuals
80 Interest on savings Bank Deposits in Banks, interest or
17 or
TTA Co-operative Banks, Post Office 10,000 p.a
HUF
W.E.L
Fixed
deduction of
Rs.75, 000
is allowed. Individuals
Handicapped assesse
18 80U In case of or
severe HUF
disability it
is
Rs.1,25,000
Rebate of income tax in case of certain individuals u/s 87A,

Note-1
The payment eligible for deduction includes any premium paid on health insurance contribution made
to Central Government Health Scheme. W.E.F AY 2013-14, any payment on account of preventive
health checkup is also available to the extent of Rs. 5,000 (which is within the overall maximum limit
of Rs.15,000 and 20,000 in case of senior citizen) any mode of payment for preventive health checkup
is eligible for deduction.
Note: Deductions for Donations to Approved Institutions and Funds Section 80G
Donations Qualifying Rate of
Amount deduction
A: No Limit Donations:
 Prime Minister National Relief Fund 100% 100%
 Africa Fund 100% 100%
 Armenia Earthquake Relief Fund 100% 100%
 University of National Eminence 100% 100%
 National Foundation for Communal Harmony 100% 100%
 CM Earthquake Relief Fund, Maharashtra 100% 100%
 AP Chief Minister’s Cyclone Relief Fund 100% 100%
 ZilaSakshartaSamiti 100% 100%
 National Blood Transfusion Council 100% 100%
 Army Central Welfare Fund 100% 100%
 National Illness Assistance Fund 100% 100%
 National Sports Fund 100% 100%
 National Cultural Fund 100% 100%
 Technology Development and Application Fund 100% 100%
 National Defence Fund 100% 100%
 PM National Drought Relief Fund 100% 50%
 National Children’s Relief Fund 100% 100%
 JawaharLal Nehru Memorial Fund 100% 50%
 Indira Gandhi Memorial Fund 100% 50%
 Rajiv Gandhi Foundation 100% 50%
B: With Limit Donation:
1. State Government Actual total Out of Q.A.
2. Local Authority of 1 to 10 or 100% of
3. Educational Institutions 10% of donations
4. Charitable Institutions Adjusted GTI for
5. Sports Institutions WEL is Q.A. promotion of
6. Corporation setup to protect the interest of minorities family
7. Authority constituted for development and housing and planning and
planning of cities and towns sports and
8. Place of art, public worship or historical importance balance at
9. An institution or association engaged in promotion of family 50%
planning in India
10. Any sum paid by a company to Indian Olympic Association
for development of infrastructure and sponsorship of sports
and games in India
Note:
1) Donation must not be given in kind or to a political party or to a particular person.
2)
Adjusted GTI = GTI – (Deductions u/s 80C to 80U except 80G + LTCG +

STCG from shares subject to STT + Rebatable incomeComputation of Total income
and Tax Liability:
Gross Total Income:

It refers to the aggregate of Income received from all five heads of income before allowing
deductionsunder sections 80c to 80 U.
Total Income:
It is the total income which is earned from all five heads after making all the deduction under
section80C to 80U is known as the Total income.
Tax on total income is divided into the following parts:

a) Tax on STCG on shares subject to securities transaction tax is at 15%
b) Tax on LTCG on all assets [except on shares subject to STT which is fully exempted
u/s10(38)] is at 20%
c) Tax on casual income is at 30%
d) On balance total income, tax is calculated at scheduled slab rates.
Section A – 2 Marks Questions

1. What do you mean by set-off and carry forward of losses?.
How is speculation loss treated?
2. Mention any two losses which cannot be set-off against income under other head.
3. What do you mean by Inter head Set off?
4. What do you mean by Intra head Set off?
5. Write any four deductions available to an individual assessee.
6. What are the deductions in respect of 80CCC?
7. What is Gross total income?
8. What is total income?
9. List any four items deducted under section 80C.
10. State the provisions of section 80DDB.
Section B – 5 Marks Questions

1. State the provision regarding set-off and carry forward of losses under the head of income
fromother sources.
2. List the losses which can be carried forward and losses which cannot be carried forward.
3. Explain in brief the provision relating to deductions u/s 80G.
4. Write any 10 investments and deposits which are eligible for deduction u/s 80C.
Section C – 14 Marks
QuestionsPractical Questions
1) The gross total income of Mrs. Rashmi amounted to Rs. 6, 00,000 in the previous year ended 0n
31-3-2020. She has made the following donations to:
PM Gujarat Earthquake Relief Fund 40,000
Africa (Public Contributions India) Fund 10,000
Approved Educational Institutions 15,000
Approved Temples 35,000
Clothes distributed to the poor 5,000
Municipal Corporation for promotion of family planning 20,000
Compute the amount of deduction admissible u/s 80G for the assessment year 2022-23.
Private circulation only 11
2) Mr. Naveen gross total income is Rs.5, 00,000 in the previous year 2021-22 made the
followingdonations during the year:
 Rs. 10,000 to Chief Minister’s Earthquake Relief Fund Gujarat.
 Rs. 15,000 to National Foundation for Communal Harmony
 Rs. 40,000 to Corporation approved for promotion of family planning.
 Rs. 25,000 to approved educational institutions.
Compute the amount of deduction admissible to him u/s 80G for the assessment year 2022-23.
3) Mr. Varun whose gross total income is Rs. 40, 00,000 (includes Rs.10, 00,000 as LTCG)
makesthe following donations during the previous year 2021-22.
Rs.
P.M. National Relief Fund 1,00,000
National Defence Fund 2,00,000
Municipal Corporation 1,00,000
C.M.C. Ludhiana for promotion of Family Planning 50,000
To temple of public worship for repairs (notified) 2,00,000
To a college for construction of Commerce Block 1,00,000
To a poor student 10,000
To CM Earthquake Relief Fund, Maharashtra 20,000
Compute his total income for the assessment year 2022-23
4) Mr.Ramesh has income of Rs. 5, 60,000 for the year 2021-22. He gave the following
donations,during the year-:
Rs.
To Andhra Pradesh Chief Minister’s Cyclone Fund 10,000
To an approved fund set up for rural development 15,000
To a University engaged in scientific research 20,000
Compute his total income if:
i) His income consists of Rs. 3,00,000 taxable under the head ‘income from profits and gains’
ii) He does not have any income under the head ‘income from profits and gains’
5) Mr. Raman, a CA living at Kanpur and is carrying his profession there, furnishes the
followinginformation for the year 2021-22:
a. Professional gain 52,400
b. Rent received from house at Delhi 18000 p.a
c. Municipal taxes 1500 p.a
d. Long term Capital gain 10,000
e. Part-time salary as lecturer 25,000
f. Rent paid at Kanpur 2,000 p.m.
g. Interest on Govt securities 19,000
h. He deposited Rs. 15,000 in PPF a/c Compute his total income for A.Y 2022-23
6) Mr. X had a GTI of Rs.5, 00,000 which included Rs.10,000 as LTCG for the PY 2021-22.
Duringthe year he made the following donations:
National Defence Fund 10,000
PM National Relief Fund 1,00,000
To Family Planning Association of India 10,000
All India Congress Committee 1,00,000
University of Allahabad (Notified as National 50,000
Eminence)
Notified Charitable Hospital 50,000
In addition to the above he paid LIC premium of Rs.25, 000 on a policy of Rs.1, 00,000. Compute
hisTotal Income.
7) Mr. A furnishes the following information for the A.Y. 2022-23:

a. Computed salary income Rs.2,27,900
b. Bank interest Rs.1,040
c. Interest on cum. term deposit with post office Rs.20,000
d. Interest in units of mutual funds Rs.10,000
e. LIC premium on a joint life policy with his wife Rs.7,240
f. Investment in PPF Rs.25,200
g. Investment in Equity linked Saving Scheme Rs.10,000
h. He paid Rs.3,000 by cheque as medical insurance premium to GIC for assuring the health of
hisfamily & Rs.2,000 in cash as premium under Mediclaim for his dependent father.
i. His mother is suffering from cancer & he spent 50,000 during the year. For her
treatment.Compute his total income.
8) Compute the deduction u/s 80C and total income from the following information submitted
byAshok for the P.Y. 2021-22:
a) Gross salary 2,70,000
b) Royalty 27,000
c) Expenses for the royalty received 5,000
d) Interest on bank deposit 13,000
e) Life insurance premium on his own life (sum assured 20,000) 6,000
f) Life insurance premium on the life of his wife 2,000
g) Life insurance premium on the life of his major son (not dependent on 2,500
Ashok)
h) Life insurance premium on the life of his dependent brother 2,000
i) Contribution to RPF 20,000
j) Amount deposited in PPF 15,000
k) Contribution to ULIP 3,000
l) Repayment of housing loan (principal 23,000 & interest 40,000) 63,000
m) Subscription to units of eligible mutual fund 45,000
n) Amount incurred on education of:
 Child Akshata 14,000
 Child Anitha 7,000
 Child Sindhu 5,000 26,000
He had taken a loan from SBM for construction of a residential house
property which was completed in 2010 and using it as SOP
9) The following are the particulars of the income of a Prof. Mahindra.

a. Taxable salary income 2,57,720
b. 8% dividend on 50 shares of Rs.100 each in a Ltd Co.
c. 10% interest on Govt. loan of Rs.25,000
d. Income from interest on bank deposits 400
e. Income from HP (computed) 7,200
f. Profit on sale of shares (STCG covered under STT) 1,500
g. Income from royalty 9,000
h. Examiner ship remuneration 3,700
i. Donation to family planning association of India 30,000
j. He paid by cheque Rs. 12,000 to GIC under Mediclaim
k. He paid Rs. 3,950 as LIC premium.
l. Find out his total income for the A.Y. 2022-23
10) From the following particulars compute total income of Mr.B, a physically handicapped
personfor the A.Y 2020-21:
a. Salary received from employer 1,60,000
b. Annual rental value of LOP 15,000
c. Interest on loan taken to purchase another house which is SOP 20,000
d. He had sold a residential house on 01-04-2021 for 20,00,000. It’s FMV on 01-04-21 was 2,
00,000.Out of capital gains he invested 3, 00,000 in bonds of NABARD notified u/s 54EC.
e. He won Rs. 40,000 in race course betting & 2,000 in a lottery.
f. He paid 6,000 by cheque as premium to secure health insurance policy of GIC.
g. His mother who is dependent on him is suffering from cancer & he spent 46,500 on her treatment.
h. His minor son is mentally retarded on whose special education; he spent 15,000 during the yr.
i. He donated 10,000 to Karnataka state C. M’s relief fund.
j. He gave Rs. 2,000 for repair of a notified temple &Rs. 1,500 to family planning association of India.
11) Total income of Mrs. X for the A.Y. 2022-23 is 10,66,500 which includes LTCG of 7,30,000
andlottery prize of 1,00,000 (TDS deducted 30,000). Calculate her tax liability for the A.Y. 2022-
23:
12) The following are the particulars of income of Mr. X for the P.Y 2021-22:
a) Income from H.P. (computed) Rs.61,200
b) Business income Rs.80,000
c) Dividends from co-operative society Rs.500
d) LTCG – from land Rs.1,000, from shares Rs.800
e) He paid Rs.28,000 as LIC premium on his own life on a policy of 2,00,000
f) He gave 20,000 as donation to a charitable institution approved under sec 80G
g) During the year he deposited 10,000 in an equity linked savings scheme
h) He deposited 12,500 in
NSSCompute taxable income.
13) From the following particulars determine the total income and tax liability of Mr. Rohit for
theP.Y 2021-22
a) Salary computed (computed) Rs.4,50,000
b) H.P. income (computed) Rs.30,000
c) Business income (80,000)
d) STCG Rs. 20,000
e) LTCG Rs. 12,000
f) Winnings from lottery Rs. 50,000
g) Winnings from card games Rs. 16,000
f) Interest on securities Rs. 10,000
g) His savings are:
 Contribution to RPF Rs 1,000 p.m.
 LIC premium paid Rs. 20,000
 LIC premium of major son Rs. 10,000
 LIC premium of father Rs. 10,000
 Contribution towards pension fund of LIC Rs. 12,000
 Own medical insurance premium paid by cheque Rs. 16,000
 Medical claim insurance premium of his father Rs. 8,000 paid in cash
h) His father is handicapped and he spent Rs. 30,000 on his treatment during the year.
He is suffering from a specified disease and during the year spent Rs. 60,000 on the treatment
i) His son is studying in a management college and he took a loan of Rs 2,00,000 at 12% from
aNationalized Bank in 2019 for doing MBA
14) From the following particulars compute the total income for the P.Y 2021-22:
a. Royalty on books from Kalyani Publishers Rs.1,65,000
b. STCG Rs. 10,000
c. LTCG Rs. 80,000
d. Interest on bank deposits Rs.18,450
e. Interest on government securities Rs.9,000
f. Dividend from Indian Companies Rs.3,450
g. He paid Rs. 12,000 to LIC under a pension fund
h. He spent Rs. 18,000 on the treatment of his mentally retarded sister who is dependent on him
i. He paid Rs. 25,000 to UTI to secure an annuity for the benefit of his dependent
handicappedsister.
15) Ms. Revathy from Coimbatore furnishes her details of income for the PY 2021-2022. Compute
her total taxable income as per section 175BAC for the AY 2021-2022. Advise Ms. Revathy
whethershe should opt for section 115BAC.
Particulars Amount
Bonus 11,000
Uniform Allowance 20,000
Salary of servant provided by the employer 12,000
Rent paid for her accommodation 40,500
Bills paid by the employer for gas, electricity and water provided 11,000
free of cost for the above flat
Revathy owns a residential house which she constructed by taking a loan from Bangalore housing
finance society and loan is yet to be repaid. She paid Rs.25,000 during the PY and the property is
let out at a monthly rent of Rs.5,000 per month.
Municipal tax paid by Ms. Revathy is Rs.3,000 per annum. She has insured her house and premium
paid for the PY was Rs.950
She incurred a net loss of Rs.2,500 from a speculative business transaction during the year
She received a gift of Rs.1,10,000 from her friends and neighbors during her birthday celebration
during the year
She received a royalty income of Rs.15,000 and Rs.4,000 during the year for an article published in
ajournal
She contributed Rs.40,000 to PPF and paid Rs.10,000 as insurance premium to LIC.
16) Mr. Vijay an employee of Oracle, Bangalore. He furnishes the following details of his income
from various sources for the PY 2020-2021. Compute his total taxable income for the AY 2022-
2023and give your inputs on whether he would opt for section 115BAC
 Gross Salary – Rs. 9,65,000
 HRA computed and exempted upto – Rs. 2,40,000
 Interest on house loan taken – Rs. 2,00,000
 Interest on savings bank account – Rs. 20,000
 80C Investments – Rs. 1,50,000
 Medical insurance of family – Rs. 25,000
MODULE – 03
CONCEPT OF GST & ITS PROCEDURES
Introduction to GST and GST Act: Constitution amendment-GST council, Structure, powers
and functions-GST Network- Objectives and basic scheme of GST- Meaning-Salient features
of GST Subsuming of taxes-Benefits of implementing GST - CGST-SGST-IGSTUGST,
Definitions. Registration under GST: Procedure for registration, Persons liable for registration,
Persons not liable for registration, Compulsory registration, Deemed registration, Special
provisions for Casual taxable persons and Non-resident taxable persons. Exempted goods and
services - Rates of GST.
INTRODUCTION:
The first known system of taxation was in Ancient Egypt around 3000 BC - 2800 BC in the
first dynasty of the Old Kingdom. Records from that time show that the pharaoh would conduct
a biennial tour of the kingdom, collecting tax revenues from the people. Other records are
granary receipts on limestone flakes and papyrus. Early taxation is also described in the Bible.
In Genesis2, it states "But when the crop comes in, gives a fifth of it to Pharaoh. The other
four-fifths you may keep as seed for the fields and as food for yourselves and your households
and your children.
In India, the tradition of taxation has been in force from ancient times. It finds its references in
many ancient books like 'Manu Smriti '4 and 'Arthasastra'. The Islamic rulers imposed jizya. It
was later on abolished by Akbar. However, Aurangzeb, the last prominent Mughal Emperor,
levied jizya on his mostly Hindu subjects in 1679. Reasons for this are cited to be financial
stringency and personal inclination on the part of the emperor.
1.1 Indirect Tax before introduction of GST:
Before the introduction of GST, State Government were levying and/or collecting taxes such
as sales tax called as VAT, entry tax, Entertainment Tax, Luxury Tax etc. Similarly Union
Government were levying and collecting taxes such as Central Excise Duty, Service Tax,
Additional Customs Duty and various types of cesses in the nature of Excise duties. Among
them the major types of taxes charged on business entity can be tabulated as follows:
Tax Levied on Collected by
State VAT Sales or purchases effected Respective State
within the State Governments
Central Sales Tax Sales or purchases effected in State Government from
(CST) interstate trade or commerce where sales are done.
State Excise Manufacture of Alcoholic State Government where
brewages in the state manufacture happens.
Central Excise Manufacture of Excisable Union government
Goods In India.
Service Tax Providing of taxable service Union government
in taxable territory (India
excluding J & K)
Additional Customs On goods imported into Union government
Duties India.
1.2 GST in India:
GST was first recommended by Kelkar Task Force on implementation of Fiscal Reforms and
Budget Management Act 2004 but the First Discussion Paper on Goods and Services Tax in
India was presented by the Empowered Committee of State Finance Ministers dtd.10th
Nov.10th, 2009.
In 2011, the Constitution (115th Amendment) Bill, 2011 was introduced in Parliament to
enable the levy of GST. However, the Bill lapsed with the dissolution of the 15th Lok Sabha.
Subsequently, in December 2014, the Constitution (122nd Amendment) Bill, 2014 was
introduced in Lok Sabha. The Bill was passed by Lok Sabha in May 2015 and referred to a
Select Committee of Rajya Sabha for examination.
Under the GST scheme, no distinction is made between goods and services for levying of tax.
In other words, goods and services attract the same rate of tax. GST is a multi-tier tax where
ultimate burden of tax fall on the consumer of goods/ services. It is called as value added tax
because at every stage, tax is being paid on the value addition. Under the GST scheme, a person
who was liable to pay tax on his output, whether for provision of service or sale of goods, is
entitled to get input tax credit (ITC) on the tax paid on its inputs.
1.3 History of GST in India:
The journey of the GST started in a modest way back in 1986-1987, when the then finance
minister VP Singh introduced Modified Value Added Tax (MODVAT) in 1986 in Parliament.
Since then, various governments at the Centre under the leadership of different finance
ministers worked towards the final shape of the present GST,
The GST, an indirect tax system throughout India, will replace various taxes levied by the
central and state governments. The GST is said to simplify a web of taxes, regulations and
border levies by subsuming an array of central and state levies including excise duty, service
tax and VAT. It is expected to gradually re-shape India's business landscape, making the
world's fastest-growing major economy an easier place to do business.
The following is the list of major chronological events that have led to the launch of the GST
in India on 1st July 2017. The GST was first discussed in the report of the Kelkar Task Force
on indirect taxes. In 2003, the Kelkar Task Force on indirect tax had suggested a comprehensive
GST based on VAT principle.
1.4 Meaning of GST:
Goods and Services Tax (GST) is a comprehensive, destination based indirect tax levy on
supply and consumption of good and service tax. It extended to whole of India including
Jammu and Kashmir.
Tax is levied on value addition on each stage, credit of tax paid on earlier stage will be available
on next stage as input tax credit subject to fulfilment of certain conditions, and input tax credit
can be adjusted against output tax by a Registered Taxable person. The burden of tax to be
borne by the final consumer
1.5 Definition of GST:

As per amended article 366(12A) of the constitution of India, Goods and Service Tax means
any tax on supply of goods or services or both expect taxes on the supply of the alcoholic liquor
for human consumption.
According to Central Goods and Services Tax Act 2017 “Goods” means every kind of movable
property other than money and securities but include actionable claim, growing crops, gross
and things attached to or forming per of the land which are agreed to be severed before supply
or under a contract of supply.
According to Central Goods and Services Tax Act 2017 “Services” means anything other than
goods, money and securities but includes activities relating to the use of money or its
conversion by cash or by any other mode, from one form, currency or denomination, to another
form, currency or denomination for which a separate consideration is charged.
1.6 Tax Structure in India with GST:
Direct Tax Income Tax
Inter State IGST (Central)
1.7 Present Indirect Tax Structure:
1.8 Objectives of GST:
1. To achieve One Nation, One Tax and One Market.

2. To Consumption based tax instead of Manufacturing
3. To Uniform GST Registration, payment and Input tax Credit
4. To eliminate the cascading effect of Indirect taxes on single transaction
5. To Subsume all indirect taxes at Centre and State Level under
6. To Reduce tax evasion and corruption
7. To Increase productivity
8. To Increase Tax to GDP Ratio and revenue surplus

9. To Increase Compliance
10. To Reducing economic distortions
1.9 Salient Feature of GST:
a) GST is based on the principle of value added tax and either “input tax method” or
“subtraction” method, with emphasis on voluntary compliance and accounts based system.
b) It is a comprehensive levy and collection on both goods and services at the same rate with
benefit of input tax credit or subtraction of value of penultimate transaction value.
c) Minimum number of floor rates of tax, generally, not exceeding two rates.
d) No scope for levy of cess, re-sale tax, additional tax, special tax, turnover tax etc.
e) Zero rating of exports and inter State sales of goods and supply of services.
f) Taxing of capital goods and inputs whether goods or services relatable to manufacture at
lower rate, so as to reduce inventory carrying cost and cost of production.
g) A common law and procedures throughout the country under a single administration.
h) GST is a destination based tax and levied at single point at the time of consumption of
goods or services by the ultimate consumer.
1.10 Benefits of GST in General:
a) GST would result in abolition of multiple types of taxes on goods and services.
b) It reduces effective rates of tax to one or two floor rates.
c) Minimizes compliance cost and increases voluntary compliance.
d) Eradicates cascading effect of taxation and also distortion in the economy.
e) Enhances manufacturing and distribution efficiency, reduces cost of production of goods
and services, increases demand and production of goods and services.
f) As it is neutral to business processes, business models, organization structure, geographic
location, product substitutes, it promotes economic efficiency and sustainable long term
economic growth.
g) Decreases litigation, and corruption, with an impact in widening tax base and increased
revenue to the Center and State.
h) Reduces administrative cost for the Government.
GST Stakeholder
1.11 Benefits of GST to its Stake holders:

(a) For Manufacturer, Wholesaler and Retailer
(1) Easy compliance: A robust and comprehensive IT system would be the foundation
of the GST regime in India. Therefore, all tax payer services such as registrations,
returns, payments, etc. would be available to the taxpayers online, which would make
compliance easy and transparent.
(2) Uniformity of tax rates and structures: GST will ensure that indirect tax rates and
structures are common across the country, thereby increasing certainty and ease of
doing business. In other words, GST would make doing business in the country tax
neutral, irrespective of the choice of place of doing business.
(3) Removal of cascading: A system of seamless tax-credits throughout the value-chain,
and across boundaries of States, would ensure that there is minimal cascading of taxes.
This would reduce hidden costs of doing business.
(4) Improved competitiveness: Reduction in transaction costs of doing business would
eventually lead to an improved competitiveness for the trade and industry.
(5) Gain to manufacturers and exporters: The subsuming of major Central and State
taxes in GST, complete and comprehensive set-off of input goods and services and
phasing out of Central Sales Tax (CST) would reduce the cost of locally manufactured
goods and services. This will increase the competitiveness of Indian goods and
services in the international market and give boost to Indian exports. The uniformity
in tax rates and procedures across the country will also go a long way in reducing the
compliance cost.
(b) For Central and State Governments

(1) Simple and easy to administer: Multiple indirect taxes at the Central and State levels
are being replaced by GST. Backed with a robust end-to-end IT system, GST would
be simpler and easier to administer than all other indirect taxes of the Centre and State
levied so far.
(2) Better controls on leakage: GST will result in better tax compliance due to a robust
IT infrastructure. Due to the seamless transfer of input tax credit from one stage to
another in the chain of value addition, there is an inbuilt mechanism in the design of
GST that would incentivize tax compliance by traders.
(3) Higher revenue efficiency: GST is expected to decrease the cost of collection of tax
revenues of the
(4) Government, and will therefore, lead to higher revenue efficiency.
(c) For the consumer:

(1) Single and transparent tax proportionate to the value of goods and services: Due
to multiple indirect taxes being levied by the Centre and State, with incomplete or no
input tax credits available at progressive stages of value addition, the cost of most
goods and services in the country today are laden with many hidden taxes. Under
GST, there would be only one tax from the manufacturer to the consumer, leading to
transparency of taxes paid to the final consumer.
(2) Relief in overall tax burden: Because of efficiency gains and prevention of leakages,
the overall tax burden on most commodities will come down, which will benefit
consumers.

Need for GST in India
1.12 Constitutional Amendments:
In order to implement GST there was a requirement of amendment to Constitution whereby the
powers to levy GST concurrently by both Union and States had to be provided for. Accordingly
101st Constitution Amendment Act was enacted by Presidential assent on 8th of September
2016. With the changes made in the constitution under the GST regime, concurrent jurisdiction
for levy and collection was given both Centre and State to tax the supply of goods and/or
services within the state, whereas Centre would have jurisdiction to tax inter-state supply of
goods and/or services.
After the enactment of the constitution amendment, the same should be given effect to by
notification. On issue of such notification, the constitution would get effectively amended.
Accordingly the notification was issued on 16th of September 2016 whereby the changes were
made effective from that date. On such changes the existing taxes like sales tax, service tax
etc., being levied would be out of the powers of Union and States. As a transitional measure,
the constitution amendment act has provided a time frame of one year, whereby the existing
taxes can be continued to be collected. Therefore unless further amendment is made or some
other legal changes are brought out, the present system of taxation has to come to an end latest
by 15th of September 2017 giving way for introduction of GST.
Further as a part of the constitutional amendment, for the introduction of GST there was a
requirement of constitution of GST Council wherein all the states along with Union have
representation and the matters relating to GST are discussed and decided therein before being
recommended or implemented. The said GST Council was constituted on 15th September
2017.
The said constitution amendment is only enables the Union and States to enact a law for
implementation of GST. The actual implementation of GST has to happen with the enactment
of GST law (GST Acts) by Union and States along with corresponding rules and regulations to
be framed there under. In that direction, Central Goods and Services Tax Act, 2017, Integrated
Goods and Services Tax Act, 2017, Union Territory Goods and Services Tax are already

enacted and it will be enacted and will come into effect from the notified date.
Similarly all the states are required to enact the respective State Goods and Services Tax Acts
in their respective states. These laws to be enacted by states are based on the model SGST law
given by the GST Council in similar line with CGST Act. As on date except few states all states
have passed their respective SGST Bills in their legislature.
1.13 Structure of GST (Dual Model):
GST in India will be levied on the basis of Dual model, India is a federal country where both
the Central Government and the state Governments have been assigned the powers of levy and
collect taxes thorough appropriate legislation. Both the levels of Governments have distinct
responsibilities to perform according to the division of powers prescribed in the constitution
for which they need to raise resources.
Under the dual GST system the Central Government and State Governments are
simultaneously levying the taxes on supply of goods and services
� SGST and CGST for intrastate transaction: In the GST system, both Central and State
taxes will be collected at the point of sale. Both components (the Central and State GST)
will be charged on the manufacturing cost. This will benefit individuals as prices are likely
to come down. Lower prices will lead to more consumption, thereby helping companies.
� IGST for Interstate transaction: ‘IGST Model’ will be in place for taxation of inter State
transaction of Goods and Services. The scope of IGST Model is that Central would levy
IGST which would be CGST plus SGST on all inter State transactions of taxable goods and
services with appropriate provision for consignment or stock transfer of goods and services.
� The GST paid on the purchase of goods and services, to be paid on the supply of goods and
services.
� There should be no distinction between raw materials and capital goods in allowing input
tax credit. The tax base should comprehensively extend over all goods and services up to
final consumption point on value addition.
� Assessable value for all the taxes will be same.
1.14 Central Goods and Services Tax:
The GST to be levied by the Centre on intra-State supply of goods and/or services is Central
GST (CGST) and that by the States is State GST (SGST).
On inter-state supply of goods and services, Integrated GST (IGST) will be collected by Centre.
IGST will also apply on imports.
GST is a consumption based tax i.e. the tax should be received by the state in which the goods
or services are consumed and not by the state in which such goods are manufactured. IGST is
designed to ensure seamless flow of input tax credit from one state to another. One state has to
deal only with the Centre government to settle the tax amounts and not with every other state,
thus making the process easier.
For e.g.: – Rajesh, a dealer in Karnataka sold goods to Ravi in Karnataka worth ` 10,000.
The GST rate is 18% comprising of CGST rate of 9% and SGST rate of 9%, in such case the
dealer collects ` 1800 and ` 900 will go to the central government and ` 900 will go to the
Karnataka government.
1.15 State or Union Territory GST:

State GST would replace State VAT, Entry tax, Octroi, Luxury tax, Entertainment tax etc.
SGST would be levied on services as well. To enable taxing of services by the State, the
Constitutional Amendment Act, 2016 contains suitable provisions. SGST is to be administered
by the State Governments. SGST could be at a rate bit higher than CGST as per press reports.
The SGST payable could be set off from the SGST credit or the IGST credit available. The
closing input VAT balance available under VAT Act would also be made available to the
dealer, as on the date of transition into GST, and could be set off towards SGST (State GST)
liability. Further it is expected that the duty and tax paid on closing stock would also be
available as credit, which may not have been claimed as set off in the VAT regime.
1.16 Integrated Goods and Services Tax:
Integrated GST (IGST) would be levied and collected by the Centre on inter-State supply of
goods and services. Under Article 269A of the Constitution, the GST on supplies in the course
of inter- State trade or commerce shall be levied and collected by the Government of India and
such tax shall be apportioned between the Union and the States in the manner as may be
provided by Parliament by law on the recommendations of the Goods and Services Tax
Council.
IGST (expected to be equal to CGST + SGST) would be levied on all supplies of goods and/or
services in the course of inter-state trade or commerce. IGST would be applicable to import of
goods or services from outside country as well, which is indicated in the Constitutional
Amendment Act, 2016. Further it is expected that the duty and tax paid on closing stock would
also be available as credit, which may not have been claimed as set-off.
1.17 Goods and Service Tax Model:
The highlight of the changes considering, GST model would be as follows:

(a) There will be four types of Tax as follows:
Type of Leviable on Supply of Goods or Levied by
Tax Services or both
SGST Supply within the state. Respective State
Government
UTGST Supply within the Union Territory. Central Government
CGST Supply within the state. Central Government
IGST Supply in the course of interstate trade or Central Government
commerce.
(b) In other words going by the types of transactions –
Type of Transaction Type of Tax Levied by
(Supply of Goods or Services or both)
Supply within the state (Same transaction will suffer SGST Respective
both types of tax) SG
CGST CG
Supply within the Union Territory (Same transaction UTGST CG
will suffer both types of tax)
CGST
Supply in course of interstate trade or commerce IGST CG
Import of Goods or Services or Both IGST CG

(c) There will be mechanism between the State Government and Central Government for
distribution of the IGST collected by Centre as per the recommendation by GST
council (constitutional body to be created after amendment to constitution). From the
business entity perspective this may not have direct implications.
(d) Subsumed in GST:
Central tax/levies State taxes / levies
 Central Excise Duty  VAT/Sales tax
 Additional Excise Duties  Entertainment tax
 Excise Duty levied under Medicinal  Luxury tax
& Toiletries Preparation Act  Taxes on lottery, betting & gambling
 Service Tax  State Cesses& Surcharges in so far as
 Additional Customs Duty - CVD they relate to supply of goods and
 SAD of Customs – 4% (SAD) services
 CST (Administered by states)  Entry tax
 Surcharges
 Cesses
(e) In addition to the CGST, SGST, UTGST, IGST as the case may be, there is an
additional levy in the form of compensation Cess on the above taxes for providing the
compensation to states for loss of revenue due to implementation of revenue. The said
cess is proposed to be levied on certain goods like aerated waters, pan masala, tobacco
and its products including Cigarettes and few types of Motor Vehicles.
(f) The levy of GST will be based on supply of goods, or of services, or both. This will
replace the levy and its concepts like manufacture and removal of goods; sale of
goods; provision of service; luxuries; betting and gambling, entertainment etc., by the
concept of ‘Supply’ of goods or services or both.
1.18 Commodities kept Outside the Purview of GST:
As per definition of Goods and Services Tax given only alcohol for human consumption will
be out of purview of GST but due to lack of consent between Central and State Governments,
the following commodities are proposed to be kept outside of the purview of GST:
 Alcohol for human consumption
 Petroleum products, Petroleum crude, motor spirit, high speed diesel, natural gas and
aviation turbine fuel,
 Electricity
GST related to Specific Products:

Though GST is to consolidate tax code on all products considering various political aspects of
our country, certain specific products are dealt separately. The highlights of the same are as
follows:
(a) Manufacture of alcoholic beverages for human consumption are kept out of GST. State
Excise duty and Sales Tax/VAT would continue to be levied by the respective state
Government.
(b) On the other hand on Tobacco and Tobacco products Central Government would continue
to levy Central Excise Duty (or under some other name) in addition to GST.
(c) Levy of GST on specified Petroleum products are postponed till that time the GST council
recommends for its inclusion in GST. Till then States would continue to levy Sales tax and
Centre would continue to levy Central Excise duty. The specified petroleum products are as
follows :–

(a) Crude petroleum;
(b) Diesel (HSD);
(c) Petrol (motor spirit);
(d) Natural gas; and
(e) Aviation turbine fuel
Note: All other fuels and petroleum products other than these five would be covered under
GST.
Enactments under GST

As per the proposed scheme law for levy of CGST and IGST will be formulated by Parliament
for levy and collection of CGST and IGST respectively. The tax also will be levied and
collected by the Central Government. There will be common enactment of CGST, IGST,
UTGST and Compensation Cess for entire country. However from administration perspective
the CGST or IGST credits of the states is said to be maintained separately registration wise
(which will be one per state unless a person opts to have more than one registration if he has
separate business vertical).
As regards to levy of SGST each state has to enact law for the respective states based on the
law formulated by GST council. The levy and collection will be by the respective state
legislation. Unless the states follow the GST law in its true spirit, it may create disparities in
the laws of different states, leading to different treatment of tax in different states.
Rate of GST and threshold exemption limit

One of the essential aspects of GST is rate of GST. As per the present status, tentative rates for
majority products are announced subject to minor changes based on four digits HS Coding
System. The rate (both SGST & CGST together and IGST, as the case may be) are Nil, 5%,
12%, 18%, 28% plus compensation cess on certain goods. For exports and supply to SEZ the
same are called as zero rated whereby no tax is payable however the benefit of input tax and
refund of accumulated credit will be available in those cases.
As regards to thresh old exemption limit, it would be 20 Lakhs on all India basis and for the
states of Arunachal Pradesh, Assam, J&K, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim,
Tripura, Himachal Pradesh & Uttarakhand it is fixed as10 Lakhs. In cases where an entity has
a business both under those specific states and others, they will be getting only 10 lakhs
exemption.
Composition Scheme:
( 1. Meaning 2. How the rates are being classified? 3. Threshold limit 4. Part of the country )
For the person who has taxable turnover equal or less than fifty lakhs is proposed to be given
a composition scheme wherein the composition tax rate as may be prescribed, which shall not
be more than 2% in case of a manufacturer (1% of CGST & 1% of SGST) and 5% (2.5 + 2.5)
in case if supply of foods and beverages 1% (0.5+0.5) in any other case(other than supply of
service) of the turnover in State or turnover in Union territory . The scheme will be subject to
conditions which the law will provide for the same.
Following are important points to be kept in mind in respect of composition scheme:
(a) who affects any inter-state supplies is not entitled for the scheme;
(b) Person having business in different places and separately registered all of them should opt

for composition scheme. In other words a person cannot be in composition in one
registration and outside composition in another registration.
(c) person opting for composition scheme cannot collect tax;
(d) Person opting for composition scheme is not entitled to any input tax credit.
1.19 GST Council:
A Council set up by Government of India named as ‘GST Council’. GST Council constituted
w.e.f. 12.09.2016 to monitor the entire GST regime and the council is also empowered with
statutory powers to make recommendations from time to time to make GST implementation
more effective.
Composition of the Council
a) The Union Finance Minister is the Chairman/Chairperson for the Council.
b) The Union Minister of State in-charge of Revenue will be a member.
c) The Council will have a total of 33 members (29 state ministers, two representatives from
two union Territories, and two Union ministers).
d) The Centre will have one-third vote, states together will have a two-third say. To adopt a
resolution, three-fourth majority would be required.
Responsibilities of the GST Council

a. It will finalize the tax base by recommending the goods and services to be exempted, the
threshold for taxation, the revenue-neutral rate (RNR) and the rate structure. These are far
reaching issues which will impact the economic interest of all the States and the Centre.
b. It will also have to finalize the number of slabs the GST will be pegged at for different
categories of goods and services. Besides the standard rate, there could be a lower rate for
wage goods consumed by the poor and another one for demerit or luxury goods, also called
‘sin goods’.
c. Parliament has to make a law to provide for compensation for revenue losses to state
governments, based on the recommendations of the Council.
d. The Council will finalize the model Central, State and Integrated GST laws for their
recommendation to and enactment by the Parliament and State Legislatures.
e. Article 269A mandates the Council to make recommendations on three issues. These are:
1. Special rates to deal with natural disasters.
2. Special provisions for the North-Eastern States.
3. The date on which petroleum products will be subjected to GST.
Sectoral Groups under GST Council

GST Council has set up 18 Sectoral Groups to look into the issues of specific sectors of the
economy. These Sectoral grouping is made for the effective administration of the GST in India.
1. Banking, Financial and Insurance
2. Exports (Including Export Oriented Undertakings and Special Economic Zones)
3. Transport and Logistics
4. Micro, Small and Medium Enterprises (Including Job work)
5. Food Processing
6. Media and Entertainment
7. Drugs and Pharmaceuticals
8. Oil and Gas (Upstream and Downstream)
9. Services received and provided by Government
10. Telecom
11. Information Technology and Information Technology enabled Services

12. Textiles
13. Gems and Jewellery
14. e-Commerce
15. Travel and Tourism
16. Handicrafts
17. Mining
18. Big Infrastructure (Airport, Sea Ports including Maintenance, Repair and Overhaul, Power
Sector, Housing and Construction)
1.20 Powers and Functions of GST Council:
The Council has legislative, executive and judicial powers. It will recommend GST legislation,
oversee implementation of the GST in the country, and set up a mechanism to adjudicate
disputes between its members. As per Article 279A (4), the Council will make
recommendations to the Union and the States on important issues related to GST, like
a) Taxes, cesses, and surcharges to be subsumed under the GST;
b) Goods and services which may be subject to, or exempt from GST;
c) The threshold limit of turnover for application of GST;
d) Rates of GST;
e) Model GST laws, principles of levy, apportionment of IGST and principles related to
place of supply;
f) Special provisions with respect to the eight north eastern states, Himachal Pradesh,
Jammu and Kashmir, and Uttarakhand; and
g) Other related matters.
Provisions for amendments

Any change in the given Act, if made it is called as Amendments to the concerned Act. In GST
Act, which is just introduced in the Indian economy may undergo many amendments in the
days to come as and when new unexplored situation arises while executing the Act.
Integrated Goods and Services (IGST)

IGST shall mean the tax levied under the IGST Act on the supply of any goods and services in
the course of Inter-State Trade or Commerce. IGST Act shall apply to whole of India. Central
government would levy IGST (which would be CGST + SGST) on all Inter-State transactions
of taxable goods and services with appropriate provisions for consignment or stock transfer of
goods and services. The Inter-State seller will pay IGST on value addition after adjusting
available credit of IGST, CGST and SGST on his purchases. The exporting state will transfer
to the centre the credit of IGST while discharging his output tax liability in his own state. The
centre will transfer to the importing state the credit of IGST used in payment of SGST.
The scope of IGST model is that centre would levy IGST which would be CGST plus SGST
on all inter-state transactions of taxable goods and services. The inter-state on his purchases.
The exporting state will transfer to the centre the credit of SGST used in the payments of IGST.
The importing dealer will claim credit of IGST while discharging his output tax liability in his
own state. The centre will transfer to the importing state the credit of IGST used in the payment
of SGST. The relevant information is also submitted to the central agency which will act as a
clearing house mechanism, verify the claims and inform the respective government to the
transfer the funds.
The inter-state adjustment will be made by central clearing agency and the assesses will not be

concerned with such adjustment at all. Under IGST, a dealer can establish hub and spoke
approach for distribution of his final products. He can maintain depots at few strategic locations
in country and from those locations; he can distribute goods to nearby states. This will be very
cost effective distribution network for assesses. Revenue from IGST will be apportioned among
Union and States by the parliament on basis of recommendation of Goods and Service Tax
Council.
Features of IGST
a) Central Government would administer and levy taxes on IGST
b) Seller in the origin state will charge IGST on Inter – State supply of goods and services
c) Inter - state seller shall use his input CGST and input SGST for payment of IGST.
d) Interstate buyer shall avail input tax credit on the basis of tax invoice for payment of his
own IGST, CGST or SGST.
e) Both, the seller and buyer shall report these transaction in their respective e-returns
f) Exporting state will transfer the SGST porting to Central Government and Central
Government will transfer that SGST to importing State.
g) Stock transfer / to branch/depot will attract IGST.
h) On inter-state and cross border transactions.
i) Centre would levy and collect IGST in lieu of CGST and SGST;
j) To be shared between centre/states
k) Single IGST rate.
l) IGST would be levied on all inter-state transactions of taxable goods and services with
appropriate provisions for consignment or stock transfer of goods and services.
m) Inter-state dealer will pay IGST after adjusting available, input IGST, CGST and SGST
on purchases.
The major advantages of IGST Model are as follows.

a) Maintenance of uninterrupted ITC chain on inter-state transactions.
b) No upfront payment of tax or substantial blockage of funds for the interstate seller or
buyer.
c) No refund claim in exporting state, as ITC is used up while paying the tax.
d) Self-monitoring model.
e) Level of computerization is limited to inter-state dealers and central and state government
should be able to computerize their process expeditiously.
f) As all inter-state dealers will be e-registered and correspondence with them will be by e-
mail the compliance level will improve substantially.
g) Model can take business to business as well as business to consumer transactions into
account.
CGST – Central Goods and Service Tax Act.

CGST is the tax levied and collected by the central government on every supply of goods and
services within the state. Under GST, there are three components, namely
1. CSGT or Central Goods and Service Tax
2. SGST or State Goods and Service Tax
3. IGST or Integrated Goods and Service Tax
CGST and SGST are applicable on the supply of goods and service within the state. Further,
IGST is applicable on the supply of goods and services outside the state. The combined rate of
CGST and SGST is equal to IGST rate.
Features of the CGST Act

1. It is levied by Central government to replace the existing tax like Service Tax, Excise,
etc.
2. It is applicable only within the state.
3. The credit of CGST is available only against CGST and IGST.
4. The exemption limit of `20 Lakhs is applicable.
5. The dealer can use the benefit of composition scheme up to turnover of 50 lakhs.
The present GST model have been amended with various articles in constitution of India under
122nd constitutional amendment to provide power to both the central government and state
government to levy tax on supply which include Sales of goods and Service. The GST Act
provides for levy of central goods and service tax on Intra-State supply of goods or services.
The state GST act provides for levy of state GST on Intra–state supply of goods or services.
The integrated GST act provides for levy of IGST on inter-state supply of goods and services.
In other words CGST and SGST will be levied on intrastate supply of goods or services where
as IGST will be levied Inter-state supply of goods and service. Each state government will
enact statute for levy on supply of goods and services.
Karnataka GST (K-SGST)

Karnataka GST act is passed on 16th June 2017. Karnataka GST Act an Act to make a
provision for levy and collection of tax on intra-State supply of goods or services or both by
the State of Karnataka and the matters connected therewith or incidental thereto. This Act may
be called the Karnataka Goods and Services Tax Act, 2017. It extends to the whole of the
State of Karnataka.
Classes of officers under the State Goods and Services Tax Act
(1)There shall be the following classes of officers and persons under the State Goods and
Services Tax Act namely.
a) Commissioner of SGST,
b) Special Commissioners of SGST,
c) Additional Commissioners of SGST,
d) Joint Commissioners of SGST,
e) Deputy Commissioners of SGST,
f) Assistant Commissioners of SGST, and
g) Such other class of officers and persons as may be appointed for the purposes
of this Act.
(2)The Commissioner shall have jurisdiction over the whole of the State of Karnataka All other
Officers shall have jurisdiction over the whole of the State or over such areas as the
Commissioner may, by notification as specified.
1.23 Meaning and Definitions of important terms in GST Act:
Aggregate turnover U/S 2(6)

Aggregate turnover means the aggregate value of all taxable supplies (excluding the value of
inwards supplies on which tax is payable by a person on reverse charge basis), exempt supplies
export of goods or services or both and interstate supplies of persons having the same
permanent account number to be computed on all India basis but excludes Central Tax (CGST),
State Tax (SGST) , Union Territory Tax (UTGST), Integrated tax (IGST) and Cess i.e., except
GST tax all other taxes will be included in turnover for computing aggregate turnover.
Adjudicating authority U/S 2(4)

Adjudicating authority Means any authority appointed or authorized to pass any order or

decision under this Act, but does not include the central board of excise and customs ,the
provisional authority, Authority for advance ruling ,Appellate authority for Advance ruling ,the
first appellate Authority and the appellate tribunal.
Agent U/S 2 (5)

Agent means a person, including a factor, broker, commission agent, arhatia, del credere
agent, an auctioneer or any other mercantile agent, by whatever name called, who carries on
the business of supply or receipt of good or service or services on behalf of another. Example
– Government ration distribution by ration dealers. Where dealer act as a agent on behalf of
Govt.
Business U/S 2(17)

According to sec 2(17) a trade commerce, manufacturer, profession, vocation or any other
similar activities whether or not it is for a pecuniary benefit. In other words any trade,
Manufacturing, professional service which are done on receipt of cash or free will be
considered as business.
Capital goods U/S 2(19)

“Capital goods” means: Goods, the value of which is capitalized in the books of accounts of
the person claiming input tax credit and which are used or intended to be used in the course or
furtherance of business.
Taxable person U/S 2(107)

Taxable person means a person who is registered or liable to be registered U/S 22 or 24 of
CGST Act. A person who carries a business in India or in any state of India, he would be
taxable person or he is required to take registration in terms of liability to be registered. He
could be taxable person. Or a person who is already registered under excise, service tax & vat,
they are taxable person too. Even Central Government, State Government and local authorities
are taxable person except for the activities which are specified in schedule 4.
Casual taxable person U/S 2(20)
“Casual taxable person” means a person who occasionally undertakes transactions involving
supply of goods or services or both in the course or furtherance of business, whether as
principal, agent or in any other capacity, in a State or a Union territory where he has no fixed
place of business. Example- Selling of crackers by putting temporary sheds at the time of
Diwali who doesn’t have permanent shop in the state.
Composite supply U/S 2(30)

Composite supply means a supply made by a taxable person to a recipient consisting of two or
more taxable supplies of goods or services or both, or any combination thereof, which are
naturally bundled and in conjunction with each in the ordinary course of business, one of which
is a principal supply. For example where goods are packed and transported with insurance, the
supply of goods, packing materials, transport and insurance is a composite supply and supply
of goods is a principal supply.
Mixed supply U/S 2(74)
Mixed supply means two or more individuals supplies of goods or services or any combinations
thereof, made in conjunction with each by a taxable person for a single price where such supply
does not constitute a composite supply. For example, getting meals in hotel is a mixed supply
where you will get roti, rice, sweet together in a fixed price and roti rice are not depend each
other can purchase and eat separately.

Exempt supply U/S 2(47)
Exemption supply means supply of any goods and services or both which attracts nil rates of
tax or which may be wholly exempted from tax under sec11 or under sec of the integrated good
and service tax act and includes nontaxable supply.
Intermediary
Intermediary means a broker, an agent or any other person, by whatever name called, who
arranges or facilitates the supply of goods or services or both, or securities, between two or
more persons, but does not include a person who supplies such goods or services or both or
securities on his own account.
Outward supply U/S 2(83)

In relation to taxable person, means supply of goods or services or both, whether by sales,
transfer, barter, exchange, license, rental, lease or disposal or any other mode, made or agreed
to be such persons in the course or furtherance of business.
Principle supply U/S 2(90)

The supply means the supply of goods or service which constitutes the predominant elements
of a composite supply and to which any other supply forming part of that composite supply is
ancillary. Example- In foreign air travel supply of food is not principle supply but travelling to
destination will be the principle supply.
a) Supply of goods or services includes all forms of supply made or agreed to be made for a
consideration by a person in the course of business, Sale, transfer, barter, exchange,
license, rental, lease or disposal.
b) Importation of services for a consideration, whether or not in the course of business.
c) Supply specified in schedule I, made or agreed to be made without consideration.
d) Schedule II defines specified transactions as supply of services.
1.24 Activities or transactions which shall be treated neither as a supply of Goods nor a
Supply of Services: Schedule III:
a) Government to specify activities or transactions undertaken by the Central Government,

a state Government or any local authority in which they are engaged as public authorities
will be neither supply of goods nor supply of services, as may be notifies by the
Government on the recommendations of the Council, shall be treated neither as a supply
of goods nor a supply of services.
b) Government to notify transactions which will be treated as supply of goods and not a
supply of service and vice versa.
c) Permanent transfer or disposal of business assets where input tax credit has been availed
o such assets.
d) Supply of goods or services or both between related persons or between distinct persons
as specified in section 25, when made in the course business
e) Gifts of Employees by Employer exceeding `50,000 treated as supply of goods or services
or both
f) Supply of Goods
(i) by a principal to his agent where the agent undertakes to supply such goods on behalf
of the principal
(ii) by agent to this principal where the agent undertakes to receive such goods on behalf
of the principal

Place of supply U/S 2(86)
For goods except import or export place of supply will be whether by the supplier or the
recipient or by any other person, the place of supply of such goods shall be the location of the
goods at the time at which the movement of goods terminates for delivery to the recipient;
Supplier U/S 2(105)

In relation to any goods or service or both, shall mean the person supplying the said goods or
service or both and shall include an agent acting as such on behalf of such supplier in relation
to the goods or services or both supplied. The person who sells the goods or giving service is
called supplier.
Goods U/S 2(52)

Goods means every kind of moveable property other than money and securities but includes
actionable claims ,growing of crops ,grass and thing attached to or forming part of the land
which are agreed to served before supply or under a contract of supply.
Input service distributor U/S 2(61)

It a means an officer of the supplier of goods or services or both which receives tax invoice
issued under section 31 towards the receipt of input services and issues a prescribed documents
for the purpose of distributing the credit of central tax ,state tax ,integrated tax or union territory
paid on the said services to a supplier of taxable goods or services or both having the same
permanent account number as that of the said office. Input tax credit (CGST, SGST, IGST,
UGST) accumulated in one state can be distributed to the other sates branches of the same
company. Example – Advertisement expenses paid to BABA Ramdev will increase in all India
sales, Hence tax paid on the above advertisement will be distributed to other locations by
booking same in corporate office.
Job Work U/S 2(68)

Job work means any treatment or process undertaken by a person on goods belonging to another
registered person is called Job Work. In CCR it only covers processing on goods supplied to
job worker. This definition is different from existing definition in CCR as it now specifies job
work on goods of registered taxable person. Unregistered persons sending goods for job work
would not to be considered as job work under GST.
Manufacture U/S 2(72)

It means processing of raw material or inputs in any manner that results in emergency of a new
product having a distinct name ,character and use and term “manufacturer “shall be constructed
accordingly. Example – Getting saree from silk. The input is raw silk and we get saree.
Input tax U/S 2(62)

“Input tax “ in relation to a registered person ,means the central tax ,state tax, integrated tax or
union territory tax charged on any supply or goods or services or both made to him. OR "Input
tax" in relation to a taxable person, means the IGST, including that on import of goods, CGST
and SGST or UTGST charged on any supply of goods or services or both to him and includes.
a) IGST charged on import of goods
b) the tax payable under sub-section (3) and (4) of section 9;
c) the tax payable under sub-section (3) and (4) of section 5 of IGST Act;
d) the tax payable under sub-section (3) and (4) of section 9 of SGST Act; or
e) the tax payable under sub-section (3) and (4) of section 7 of UTIGST Act

f) ,but does not include the tax paid under composition levy;
Input Tax Credit Section U/S 2(63)

“Input tax credit” means credit of ‘input tax’ Section 2(17) - Business is defined in inclusive
manner as under:
a) any trade, commerce, manufacture, profession, vocation, adventure, wager or any other
similar activity, whether or not it is for a pecuniary benefit,
b) any activity or transaction in connection with or incidental or ancillary to sub-clause
(a);
c) any activity or transaction in the nature of sub-clause (a), whether or not there is volume,
frequency, continuity or regularity of such transaction
d) supply or acquisition of goods including capital goods and services in connection with
commencement or closure of business;
e) provision by a club, association, society, or any such body (for subscription or any other
consideration) of the facilities or benefits to its members;
f) admission, for a consideration, of persons to any premises; and
g) services supplied by a person as the holder of an office which has been accepted by him
in the course or furtherance of his trade, profession or vocation
h) services provided by a race club by way of to talisator or a license to book maker in
such club; and
i) any activity or transactions undertaken by Central Government , a State Government or
any local authority in which they are engaged as public authorities;
Person U/S 2(73)

“Person” includes
a) An individual
b) A Hindu undivided family
c) A company
d) A firm
e) A limited company
f) Government
g) A local authority
h) An association of persons or a body of individual ,whether incorporated or not ,in India
or outside India
i) Anybody corporate incorporated by or under the laws of a country outside India,
j) A co-operative society registered under any laws relating to co-operative society
k) Society as defined under the societies registration act ,1860(21 of 1860)
l) Trust
m) Any Corporation established by or under any Central, State or Provincial Act or a
Government Company as defined in section 2(45) of the Companies Act, 2013. etc.
n) Every artificial juridical person ,not falling within any of the preceding sub-clauses
Place of business U/S 2(85)

A place from where the business the business is ordinarily carried on, and includes a
warehouse, a godown or any other place where a taxable person stores his goods, supplies or
receives goods or services or both. OR “Place of business” includes:
a) A place from where the business is ordinarily carried on, and includes
 a warehouse,
 a godown or
 any other place where a taxable person stores his goods, provides or receives

goods and/or services or both; or
b) A place where a taxable person maintains his books of account; or
c) A place where a taxable person is engaged in business through an agent, by whatever
name called.
Reverse charge U/S 2(98)
The liability to pay tax by the person receiving goods or services instead of the supplier of such
goods or services under section 9 (3) or (4). Normally tax is payable by the supplier of goods
or services or both. However in some cases, the recipients are made liable to pay tax. This is
termed as Reverse Charge.
Works contract U/S 2(119)

Work contract means a contract for building, construction, fabrication, completion, erection
installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration,
or commissioning of any immovable property where in transfer of property in goods is involved
in the execution of such contract.
Non- resident taxable person U/S 2(77)

Any person who occasionally undertakes transactions involving supply of goods or services or
both, whether as principal or agent in any other capacity, but has no fixed place of business or
residence in India.
Export of goods under GST Section U/S 2(5)

“Export of goods” with its grammatical variations and cognate expressions, means taking
goods out of India to a place outside India;
a) The Concept of Export of Goods under GST is similar to concept of Export of Goods
under Present law also.
b) Export will not be liable to tax under GST law.
c) There is no requirement for receipt of foreign exchange currency in case of export of
goods.
d) Input Credit related to Export of Goods can be availed and also can go for refund or rebate
to the extent credit utilized, also on deemed exports.
1.25 Import of goods and Services:
Import of goods U/S 2(10)

Import of goods with its grammatical variations and cognate expressions, means bringing
goods into India from a place outside India. Under GST law, supply of goods or services in the
course of import into India shall be deemed to be a supply of goods or services in the course of
inter-State trade or commerce.
Import of Services
Under present service tax law, in respect of any taxable services provided or agreed to be
provided by any person located in a non-taxable territory and received by any person who is
located in taxable territory, the service receiver is liable to make payment of service tax. Service
tax is payable by recipient of service in respect of services received in taxable territory of India.
We determine location of place of provision of service, whether within or outside India, by
referring to the Place of Provision of service Rules.
Applying the principles laid down in the said rules, if the place of provision of service happens
to be outside the taxable territory. Then there is no taxability in hands of service receiver on

the payments/remittances done to outside India, under reverse charge mechanism.
Import of Services under GST

Supply of services in the course of import into the territory of India shall be deemed to be a
supply of services in the course of inter-State trade or commerce.
Section 2(11) of IGST act: “import of service” means the supply of any service, where
a) the supplier of service is located outside India,
b) the recipient of service is located in India, and
c) the place of supply of service is in India;
The fundamental principle is that tax is payable on the supply of services which is supplied to
recipient in India. The establishment of a person in India and any of his other establishment
outside India shall be treated as establishments of distinct persons. The effect is that though
two persons may not be different, yet by this fiction they are recognized as separate person and
any transaction between them, if it satisfies elements of taxability would be liable to service
tax. For example, transaction of supply of service between branch located in non-taxable
territory, say Singapore and Indian HO is treated as transaction between 2 persons.
Under GST, tax under reverse charge on services provided from outside and received in India
cannot be paid out of input tax credit. Tax to be paid by e-payment on services supplied from
outside India and received in India. After making payment of GST, the credit can be availed to
extent attributed to taxable supply of goods or services
Supply of goods /services in the course of imports or exports shall be considered as inter-state
trade or commerce ant taxes shall be levied under Integrated Goods and Services Tax” (IGST)
of this Act. The provisions of IGST act shall be applicable to supply of goods/services in the
course of import and export. Inter-State supply of goods shall be subjected to the levy of IGST.
However, the import of goods shall continue to attract Basic Customs Duty (BCD) in addition
to IGST. The manufacturer, service provider and trader of goods who imports goods/services
shall be eligible to set off the IGST paid on import of goods/services against his output liability.
However, the credit of BCD will not be available under proposed GST law as well.
Section 2(15) of IGST Act “location of supplier of services” means:

i. Where a supply is made from a place of business for which registration has been obtained,
the location of such place of business;
ii. Where a supply is made from a place other than the place of business for which registration
has been obtained, a fixed establishment elsewhere, the location of such fixed
establishment;
iii. Where a supply is made from more than one establishment, whether the place of business
or fixed establishment, the location of the establishment most directly concerned with the
provision of the supply; and
iv. In absence of such places, the location of the usual place of residence of the supplier
Section 2(14) of IGST Act “location of recipient of services” means:
i. Where a supply is received at a place of business for which registration has been obtained,
the location of such place of business.
ii. Where a supply is received at a place other than the place of business for which registration
has been obtained,, a fixed establishment elsewhere, the location of such fixed
establishment.
iii. Where a supply is received at more than one establishment, whether the place of business

receipt of the supply and
iv. In absence of such places, the location of the usual place of residence of the recipient;
Section 2(15) of IGST Act “location of supplier of services” means

(i) Where a supply is made from a place of business for which registration has been obtained,
the location of such place of business.
(ii) Where a supply is made from a place other than the place of business for which registration
has been obtained, a fixed establishment elsewhere, the location of such fixed
establishment.
(iii) Where a supply is made from more than one establishment, whether the place of business
provision of the supply and
(iv) In absence of such places, the location of the usual place of residence of the supplier
Example:
Sl. No. Scenario Place of Location of
Service Provider
1 Supply of Consulting Services from Bangalore Bangalore
location of CA firm
2 Supply of Consulting Services made from Hyderabad
Hyderabad location of CA firm
3 Where consulting services assignment obtained by Gurgaon[the location
Gurgaon location of multi-location CA firm, but most directly
part of consulting services provided from Vizag concerned with the
[where a supply is made from more than one provision of the
establishment] supply]
General points to consider:

 As per Section 2(23) of IGST Act, definition of Zero Rated Supply assigned in section
16.
 It has been clarified that the Export shall be treated as “Zero Rated Supply” and credit
related to same can be availed or alternately go for refund.
Section 16 of the Draft IGST Act contains the provisions relating to zero-rated supplies:
 “Zero rated supply” means any of the following supplies of goods or services, namely
 Export of goods or services or both or
 Supply of goods or services to a SEZ developer or an SEZ unit.
 Subject to provisions of section 17(5) of CGST Act credit of input tax may be availed
for making zero-rated supplies, notwithstanding that such supply may be an exempt
supply.
 A registered person making zero rated shall be eligible to claim refund under one of
the following two options, namely –
(a) A registered person may supply goods or services under bond or Letter of
Undertaking, subject to such conditions, safeguards and procedure as may be
prescribed in this regard, without payment of IGST and claim refund of unutilized
input tax credit in accordance with provisions of section 54 of the CGST Act, 2017
read with rules made there under;
(b) A registered person may supply goods or services, subject to such conditions,
safeguards and procedure as may be prescribed in this regard, on payment of IGST
and claim refund of IGST paid on goods or services supplied in accordance with

provisions of section 54 of the CGST Act, 2017 read with rules made there under.
Thus, GST shall not be charged on goods/services exported from India. In case the supply of
goods qualifies as export out of India as per the Place of Supply Rules the transaction shall be
treated as “zero-rated supply”. The supplier shall be allowed to export the goods/services
without charging any tax and can avail the CGST/SGST and IGST credits paid on inputs and
input services. If he is unable to utilize the credit then he can go for refund of credits as per
section 54 of Central GST Act, 2016. In a nutshell, imports and exports are going to be covered
in IGST. Exports will be zero rated and refund of ITC shall be allowed. IGST as well as Basic
Custom Duty shall be leviable on imports of goods and or services.
Goods and Services Tax Network (GSTN)

Goods and Services Tax Network (GSTN) is a non-Government, private limited company. It
was incorporated on March 28, 2013. The Government of India holds 24.5% equity in GSTN
and all States of the Indian Union, including NCT of Delhi and Puducherry, and the
Empowered Committee of State Finance Ministers (EC), together hold another 24.5%. Balance
51% equity is with non-Government financial institutions. The Company has been set up
primarily to provide IT infrastructure and services to the Central and State Governments, tax
payers and other stakeholders for implementation of the Goods and Services Tax (GST). The
Authorized Capital of the Company is ` 10 Crores.
Design and Implementation of GST

Tax payer's convenience will be a key in success of GST regime. The tax payer should have a
choice to use third party applications which can provide varied interfaces on desktops, laptops
and mobiles and can connect with GST System. The GSP developed apps will connect with
the GST system via secure GST system APIs. Majority of GST system functionalities related
to taxpayer's GST compliance requirements shall be available to the GSP through APIs. GSPs
may use GST APIs and enrich and enhance the tax payer's experience. GST System will not
be available over the Internet for security reasons. The production API end points can only be
consumed via MPLS lines. All APIs will be accessed over HTTPS protocol.
The benefits of API based integration are:
(a) Consumption across technologies and platforms (mobile, tablets, desktops, etc.) based
on the individual requirements
(b) Automated upload and download of data
(c) Ability to adapt to changing taxation and other business rules and end user usage
models.
(d) Integration with customer software (ERP, Accounting systems) that tax payers and
others are already using for their day to day activities
Selected GST Suvidha Providers

The list of GST Suvidha Provider (GSP) already selected and enlisted by GSTN is given below.
Tax payers who need to avail of the services of GSPs may contact them. GSTN has on-boarded
these GSP basis a selection process that involved evaluating their financial ability and IT
capability to deliver the necessary services to tax payers for becoming GST compliant in the
new GST regime. Businesses may avail of the services of the GSP as per their need.
Guidelines for GSPs and ISPs to Integrate with GST System

GSP will need to connect to GST System through telecom service providers (ISP). The GSP
may choose and partner with one or more ISP to integrate with GST System. Please refer
the guidelines and methodology for the integration document for further details.

GST Compliance requirements by the Tax Payer
The taxpayer under GST Regime will have to provide following information at regular
intervals:
a) Invoice data upload (B2B and large value B2C)
b) Upload GSTR-1 (return containing supply data) which will be created based on
invoice data and some other data provided by the taxpayer.
c) Download data on inward supplies (receipts or purchase) in the form of Draft GSTR-
2 from GST Portal created by the Portal based on GSTR-1 filed by corresponding
suppliers.
d) Do matching of purchases made and that downloaded from GST portal. Finalize the
same based on his own purchase (inward supply data) and upload GSTR-2
e) File GSTR-3 created by GST Portal based on GSTR-1 and 2 and other info and tax
paid.
f) Similarly there are other returns for other categories of taxpayers like casual taxpayer
or composition taxpayers.
Goods and Service Tax Suvidha Providers (GSP)

The Goods and Services Tax constitutional amendment having been promulgated by the
Government of India, the rollout of the GST Bill will be a collective effort of the Central and
State Governments, the tax payers and the IT platform provider i.e. GSTN, CBEC and State
Tax Departments. Besides these main participants there are going to be other stakeholders e.g.
Central and States tax authorities, RBI, the Banks, the tax professionals (tax return preparers,
Chartered Accountants, Tax Advocates, STPs etc.), financial services providing companies like
ERP companies and Tax Accounting Software Providers etc.
Overview of GSP Ecosystem

GST System is following a platform approach for providing services to Tax Payers.
a) All GST System functionalities like registration of entities, uploading of invoices, filing
of returns will all be available through APIs.
b) GSTN believes in creating an ecosystem of Service Providers viz GST Suvidha Provider
(GSP) providing innovative solutions (Portal, Mobile App, Enriched API) either
themselves or through its third party partners for making tax filing more easy and
convenient to tax payers.
c) GSTN envisages a very important role of GSPs in making GST rollout easy and
convenient for tax payers.
Registration under GST:

Section 22 provides for registration of every supplier effecting the taxable supplies.
Registration of a business with the tax authorities implies obtaining a unique identification
code from the concerned tax authorities so that all the operations of, and data relating to the
business can be agglomerated and correlated. In any tax system, this is the most fundamental
requirement for identification of the business for tax purposes and for having any compliance
verification mechanism. A registration from the concerned tax authorities will confer among
others the following advantages to the registrant.
a) legally recognized as a supplier of goods and/or services;
b) proper accounting of taxes paid on the input goods and / or services;
c) utilization of input taxes for payment of GST due on supply of goods and / or services or

both;
d) Pass on the credit of the taxes paid on the goods and / or services supplied to purchasers
or recipients.
Procedure for registration under GST:
The procedure for registration under GST is dealt in provisions of section 25 of the CGST Act,
2017. As per the said section every person liable to be registered shall apply for registration in
every state in which he is liable within 30 days from the date he becomes liable to register. In
case of casual and non-resident taxable person, the registration is required to be applied at
least 5 days prior to commencement of business. Before applying for the registration, the
assessee should have valid PAN, mobile number and e-mail id.
(a) The Application shall be submitted in the following manner:
(i) The said details are required to be declared in the part A of FORM GST REG-01 on
common portal. The said details would get validated as follows:
(a) The PAN will get validated by the database maintained by the CBDT;
(b) Mobile number and e-mail id would get validated by way of OTPs.
(ii) On successful verification a temporary reference number shall be generated and
communicated to assessee by way of message to mobile number and also to e-mail
provided in PART A of REG-01.
(iii) The assessee is required to fill the part B of the REG-01 by using the reference
number provided by the common portal and submit the same electronically.
(iv) On receipt of the application acknowledgement shall be issued electronically in
REG-02.
(v) Person applying for registration as a casual dealer or non-resident taxable person,
the temporary reference number would be provided for making payment of
advance deposit of estimated tax.
(b) The application submitted in REG-01 would be verified by the proper officer and if the
application found to be in order, then the registration would be approved and granted
within 3 working days from the date of submission of application in form REG-06.
(c) If the application is not in order, then the proper officer within 3 working days is required
to be issue REG-03 requesting for such further information or documents required.
(d) On receipt of such notice, the assessee is required to provide the clarification, information
or document within 7 working days in REG-04.
(e) On receipt of such additional information, if the proper officer is satisfied is required to
grant the registration certification within 7 working days.
(f) If assessee fails to provide the documents within 7 working days or proper officer is not
satisfied with the data given by the assessed. The proper officer can reject the application
by recording the reason in writing in form REG-05.
(g) In case proper officer does not seek additional information and not even granted the
certification of registration within 3/7 working days, then the registration is deemed to be
approved.
(h) The effective date of the registration would be as follows:
i. Date when the person becomes liable to registration - Where application is made
within 30 days from the date he becomes liable to register.
ii. Date of grant of registration – Where application is not submitted within 30 days from
becoming liable to register.

Other aspects of registration:
1. In case assessed having multiple business verticals within a state, as option to obtain
separate registration for each such business verticals. However if the assessed opts to pay
the tax under composition scheme, then each vertical should be under the same scheme
or visa – versa.
2. If the proper officer during the investigation, audit etc., finds that assessed is failed to
register under GST, the issue such order for obtaining registration under GST. In this case,
the assessed has the option to obtain registration as per the above procedure or challenge
the order passed by the proper officer.
3. The assessed after obtaining registration should display the registration certificate at his
principal place of business and at additional place of business.
4. Even the GSTIN number need to display on the name board exhibited at the entry of
principal and additional place of business.
5. In case of any amendment the taxable person is required to furnish the same in REG-14.
6. The taxable person can apply for cancellation on closure of business or any other situation
as prescribed or proper officer on his own issue cancellation order in certain situation.
7. If the proper officer issue cancellation order, the taxable person has the option to for
revocation of such order within 30 days of time.
The registration procedure would be same for all the assessees as explained above, however
use of forms would be different. The same is provided in the below taxable:
S. Form
No. Particulars prescribed Remarks
1. Application for GST Reg-01 Applicable for persons other than

registration non-resident taxable person,
special entities to whom UIN is
issued and persons liable to
deduct / collect tax u/s 51& 52.
2. Acknowledgment of GST Reg-02
submission of application
for registration
3. Any clarification GST Reg-03 Within 3 working days of
/information required by submission of application either:
proper officer
4. Furnishing by assessed of GST Reg-04 Provide within 7 common working
the information, days from date of receipt of GST
clarification or document Reg-03.
sought for above.
5. Reject if proper officer GST Reg-05 Within 7 common working days of
not satisfied with receipt of information,
information, clarification clarification or document in GST
or document Reg-04
6. Approve grant of GST Reg-06 Within
registration

a. 3 common working days of
submission of application
where no further information,
clarification or document is
required, or
b. 7 common working days of
receipt of information,
clarification or document
7. Application for GST Reg-07 Grant of registration in Form Reg-
registration by person 06 mentioned above in S. No. 6
who is required to within 3 common working days.
deduct / collect tax at
source u/s 51 & 52
respectively
8. Grant of registration to GST Reg-09 At least 5 days prior to the
non-resident taxable commencement
person
9. Application for GST Reg-10
registration of person
supplying online
information and data
base access or retrieval
services from a place
outside India to a person
in India, other than a
registered person
10. Application for extension GST Reg-11 Shall be acknowledged only on
of registration period by payment of amount specified
casual / non-resident
taxable person
11. Issue of order of Grant of GST Reg-12 within 90days from the date of the
Temporary Registration/ grant of such registration file an
Suo Moto Registration application for registration
12. Application/Form for GST Reg-13 Assign UIN in Form Reg-06
grant of Unique Identity mentioned above in S. No. 6
Number (UIN) to UN within 3 common working days.
Bodies/
Embassies /others
AMENDMENT TO REGISTRATION
13. Application for GST Reg-14 Within 15 days of such change
Amendment in apply for amendment of legal
Registration Particulars name of business, PAN, address of
(For all types of principal / additional place of
registered persons) business, addition, deletion,
retirement of partners etc., To
also give details of closing stock
and liability thereon.

Person who has applied for
registration voluntarily cannot
apply before completion of 1 year
14. Order of Amendment GST Reg-15
CANCELLATION OF REGISTRATION
15. Application for GST Reg-16 To be passed within 30 days from
Cancellation of application date/date of reply of
Registration notice to show cause.
16. Proper officer on his own GST Reg-17 To be filed within 7 working days
for cancellation issue a from the date of such notice
Show Cause Notice for
Cancellation of
Registration
17. Show Cause Notice for GST Reg-17 To be filed within 7 working days
Cancellation of from the date of such notice
Registration
18. Reply to the Show Cause GST Reg-18 To be submitted within the
Notice issued for prescribed time.
Cancellation
19. Order for Cancellation of GST Reg-19 Within 30 days of receipt of
Registration application
20. Order for dropping the GST REG-20
proceedings for
cancellation of
registration
REVOCATION OF CANCELLATION
21. Application for GST Reg-21 To be applied within 30 days from
Revocation of the date of service of the order of
Cancellation of cancellation of registration.
Registration
22. Order for revocation of GST Reg-22 To be passed within 30 days of
cancellation of receipt of application for
registration. revocation.
Applicant to follow procedure
stated for GST Reg-03 & GST Reg-
04
23. Show Cause Notice for GST Reg-23
rejection of application
for revocation of
cancellation
of registration
24. Reply to the notice for GST Reg-24 Reply within 7 working days
rejection of application
for revocation of
cancellation of
registration

Person liable to obtain registration:
The Sections 22 to 25 specifies the various persons who are liable to registration the
procedures obtaining registration is specified in the rule. The registration rules describe the
procedures which will be followed for granting of registration, format of application and nature
of document required to be attached with application. This provision made in registration rule
are very helpful for obtaining registration or for conversion of provisional registration into final
registration the provisions given in sections 22 to 25 are discussed in the following
1. Aggregate turnover
2. Transfer due to succession, arrangement for amalgamation etc.
3. Distinct person
4. Specified person to obtain registration.
(i) Aggregate turnover of ` 20 Lakhs or 10 Lakhs (U/S 22)

When aggregate turnover in the financial year of taxable supply of goods or services exceeds
40 Lakhs it is required to obtain registration. However the limit is reduced to 10 Lakhs if the
person is located in a special category states. i.e North eastern states (Assam, Arunachal
Pradesh, Jammu And Kashmir, Sikkim, Manipur, Tripura, Nagaland, Meghalaya, Mizoram,
Himachal Pradesh, and Uttarakhand)
“Aggregate “turnover means the aggregate value of all taxable supplies (excluding the value of
inwards supplies on which tax is payable by a person on reverse charge basis), exempt supplies,
export supplies, export of goods or services or both and inter –state supplies of persons having
the same permanent account number, to be computed on all India basis but excludes central
tax, state tax, union territory, integrated tax and Cess.
(ii) Transfer due to succession, arrangement for amalgamation etc. (U/s 23)
(a) On account of succession
Where a business is transferred on account of succession or otherwise to another
person as a going concern the successor or the transferee will be liable to obtain
registration from the date of such transfer or succession.
(b) Transfer of business
The transferee shall be liable to obtain registration for date on which the Registrar of
the companies issues a certificate of in-corporation giving effect to such order of high
court when the transferred pursuant to
 Sanction of scheme
 Arrangement for amalgamation
 Demerger of one or more companies
(iii) Distinct person (U/s 25)

The following persons are considered as distinct person
(a) A person who as obtained or his require to obtain more than one registration whether
in one state OR more than one state in respect of each such registration be treated
as distinct persons
(b) Where a person who as obtained or is to obtain registration in a state in respect of an
establishment has an establishment in another State ,then such establishment shall
be treated as establishment of distinct for the persons

(iv) Specified person to obtain registration (U/s 24)
The following persons shall obtain registration specifically.
 Persons making any interstate taxable supply
 Causal taxable persons making taxable supply
 Person who are required to pay tax under reverse charge
 Person who are required to pay tax under on intra state supplies of which shall be paid
by the electronic commerce operator
 Nonresident taxable persons making taxable supply
 Person who supply goods or services or both , other than electronic commerce supply
 Every electronic commerce operator
 Every person supplying online information and data base access.
 Such other person or class of persons as may be notified by the government on the
recommendation of the council.
NOTE: These persons must obtain the registration even if their turnover is less than `20 Lakhs
or 10 Lakhs as the case may be .The natures of activities of each of the persons are briefly
specified below.
Person not liable for registration:
The following persons shall not be consider for liable of registration under GST
(a) Agriculturist
An Agriculturist to the extent of supply of produce out of cultivation of land.
“Agriculturist “means an individual or HUF who under take cultivation of land
 By own labour
 By labour of family
 By servant on wages payable in cash or kind or by hired labour under personal
supervision or the supervision of any member of family.
(b) Turnover less than specified limit
Any person having aggregate turnover in financial year is less than 40 lakhs, but in case of
specified states in article 279A (4) the turn over limit is 10 Lakhs.
“Specified states “in clause (g) of article 279A are
 Assam
 Arunachal Pradesh
 Jammu And Kashmir
 Sikkim
 Manipur
 Tripura
 Nagaland
 Meghalaya
 Mizoram
 Himachal Pradesh
 Uttarakhand
(c) Person engaged in business of exempted supply
Any person who is engaged exclusively in the business if supply the goods or services that are
not liable to tax under GST are wholly exempt from tax under GST.

Compulsory registration:
The sub section 25(8) of the GST act provides that where a person who is liable to be registered
and has not obtained registration, the proper officer shall proceed to register such person in a
manner as may be prescribed. As per rule 8 of the registration rule were during course of any
survey , any inspection , search enquiry or any other proceedings under the act, the proper
officer finds that a person liable for registration under the act as failed to apply , such officer
may grant registration on temporary basis and issue an order in form GST REG-11. The
registration will be affected from the date of order.
Compulsory registration in certain cases:
Notwithstanding anything contained in sub-section (1) of section 22, the following categories
of persons shall be required to be registered under this Act, ––
1. Persons making any inter-State taxable supply;
2. Casual taxable persons making taxable supply;
3. Persons who are required to pay tax under reverse charge;
4. Person who are required to pay tax under sub-section (5) of section 9;
5. Non-resident taxable persons making taxable supply;
6. Persons who are required to deduct tax under section 51, whether or not separately
registered under this Act;
7. Persons who make taxable supply of goods or services or both on behalf of other taxable
persons whether as an agent or otherwise;
8. Input Service Distributor, whether or not separately registered under this Act;
9. Persons who supply goods or services or both, other than supplies specified under sub-
section (5) of section 9, through such electronic commerce operator who is required to
collect tax at source under section 52;
10. Every electronic commerce operator;
11. Every person supplying online information and database access or retrieval services from
a place outside India to a person in India, other than a registered person; and
12. Such other person or class of persons as may be notified by the Government on the
recommendations of the Council.
Deemed registration:
The provisions between the Central Goods and Services Tax and State/Union Territory Goods
and Services Tax Act are interconnected, by enabling these provisions, the burden of taking
registrations under various Acts has been removed. Thus, if a supplier takes a registration
under one act it shall be deemed that the registration has also been obtained under the other
Act and vice-versa. Even otherwise the registration must be taken on the common portal and
is based on the PAN hence the registration will remain common across various Acts.
However, if the registration is rejected under the Central Goods and Services Tax, then such
rejection will be treated as if the registration has not been obtained under the Central Goods
and Services Tax even though it has been obtained in State/Union Territory Goods and Services
Tax Act. If an application for registration has been rejected under State/Union Territory Goods

and Services Tax Act then it shall be deemed that the same has been rejected under the Central
Goods and Services Tax.
Special provision to casual taxable person and non-resident taxable person:
In section 27 of CGST Act 2017 explains about special provision relating to casual taxable
person and non-resident taxable person as below.
27. (1) the certificate of registration issued to a casual taxable person or non-resident taxable
person shall be valid for the period specified in the application registration or 90 days from the
effective date of registration , whichever is earlier & person shall make taxable supplies only
after the insurance of registration: provided that the proper may , on sufficient cause being
shown by the said taxable person, extended the said period of 90 days by a further period not
exceeding 90 days.
(2) A casual taxable person or non-residential taxable person shall, at the time of submission
of application for registration under sub section (1) of section 25 , make an advance deposits
of tax in an amount equivalent to the estimated tax liability of such person for the period for
which the registration sought: provide that where any extension of time is sought under sub
section 1 such taxable person shall deposit an additional amount of tax equivalent to the
estimate tax liability of such person for the period for which the extension is sought
(3) Under sub section 2 shall be credited to the electronic cash ledger of such person and shall
be utilizes in the manner provided under sec 49. The above information clarifies about special
provision relating to casual taxable person and non-resident taxable person under section 27
CGST act of 2017.
Transfer of Business and Registration:
If registered taxable person transfers business on account of succession or otherwise, to

another person as a going concern, the transferee, or the successor, as the case may be, shall
be liable to be registered with effect from the date of such transfer or succession. This means
that the Registration Certificate issued under Section 22 of the Act is not transferable to any
other person. In a case of transfer pursuant to sanction of a scheme or an arrangement for
amalgamation or, as the case may be, de-merger of two or more companies by an order of
High Court, the transferee shall be liable to be registered with effect from the date on which
the Registrar of Companies issues a certificate of incorporation giving effect to such order of
the High Court.
RATE OF GST AND THRESHOLD EXEMPTION LIMIT

 One of the essential aspects of GST is rate of GST. As per the present status, tentative
rates for majority products are announced subject to minor changes based on four digits
HS Coding System.
 The rate (both SGST & CGST together and IGST, as the case may be) are Nil, 5%,
12%, 18%, 28% plus compensation cess on certain goods. For exports and supply to
SEZ the same are called as zero rated whereby no tax is payable however the benefit of
input tax and refund of accumulated credit will be available in those cases.

 As regards to threshold exemption limit, it would be 40 Lakhs on all India basis and
for the states of Arunachal Pradesh, Assam, J&K, Manipur, Meghalaya, Mizoram,
Nagaland, Sikkim, Tripura, Himachal Pradesh & Uttarakhand it is fixed as 10 Lakhs.
In cases where an entity has a business both under those specific states and others, they
will be getting only 10 lakhs exemption.

MODULE-4
TRANSACTION VALUE & LEVY OF GST
Structure:
4.1 Introduction
4.2 Time of supply of goods
4.3 Place of Supply of Goods
4.4 Transaction Value
4.5Meaning of ‘supply’
4.6 Scope of supply
4.7 Definition of Supply under GST Act
4.8 SCHEDULE II of GST Act, where matters as treated as supply of goods or services
4.9 Tax liability on composite and mixed supply
4.10 Time of supply of foods and service
4.11 Value of taxable supply
4.12 Determination of Value of Supply
4.13 Procedure relating to Levy IGST
4.14 Apportionment of Tax and settlement of dues
4.15 Intra-State supply
4.16 Input Tax Credit
4.17 Capital goods – Section 2(19)
4.18 Apportionment of Credit and Blocked Credits
4.19 Availability of credit in special circumstances
4.20 Taking input tax credit in respect of inputs sent for job work – Section 19
4.21 Distribution of Credit by Input Service Distributor
4.22 Input Service Distributor
4.23 GST Illustrations and Practice Problems
4.24 Terminal Questions
4.1 Introduction:
Supply has been understood to hold the key to the incidence of GST, but it is the ‘time of
supply’ that dictates the occasion when this incidence will come to rest. Taxable supply has
been defined to mean a supply of goods and/or services which is chargeable to tax under this
Act. It is interesting to note the use of the expression ‘chargeable to tax’ as opposed to ‘leviable
to tax’. It has been held that ‘chargeable to tax’ encompasses not only the incidence of tax but
also its assessment.
The opening words in section 12(1) are very interesting and forceful as it is here that the liability
to pay GST arises. The subject matter of levy – goods or services – becomes encumbered with
the tax upon occurrence of the taxable event – supply. But the tax levied in terms of section 9,
comes to reside only at the time determined by section 12 and 13. Accordingly, these sections
play a stellar role in the imposition of GST.
The provisions state that the time of supply “shall be” and as such is a “must” to be examined
closely. It signifies that “time of supply” is not a fact to be inquired by the taxable person but
one that is to be admitted as the time of supply appointed by the will of legislature as declared
in the section. In order to not allow any opportunity for a suggestion by the taxable person or
even the tax administration as to any alternative to what could be the time of supply, the
legislature retains for itself the exclusive authority to appoint the time of supply by employing
the words “shall be”. Therefore, the time of supply is what is stated in the law to be the time
of supply and nothing else.
Invoice is commonly understood as ‘proof of sale’ but this common understanding is far from
the truth. Invoice is a document recording the terms of an arrangement already entered - the
underlying arrangement. Lease agreement, as an analogy, is a document in present evidencing
the agreement reached between two parties is for the lease of property for certain duration in
exchange for a certain consideration. A lease arrangement verbally entered into previously
when documented by an indenture or deed does not bring into existence the lease when the
document is prepared. Verbal arrangements are no less agreements in the eyes of law.
Similarly, an invoice does not bring into existence a sale agreement but merely records the
terms of whatever arrangement that may have been entered into by the parties, involving the
subject matter. Tax laws require the preparation of an invoice not as if the absence of an
invoice defeats the levy but prescribes an unambiguous occasion when the tax may become
recoverable with a proper record of the terms of the underlying arrangement. Therefore, an
invoice can evidence not only a sale but every other form of supply such as transfer, barter,
exchange, license, rental, lease or disposal.
4.2 Time of supply of goods:
Time of supply means the point in time when goods/services are considered supplied’. When
the seller knows the ‘time’, it helps him identify due date for payment of taxes.
CGST/SGST or IGST must be paid at the time of supply. Goods and services have a separate
basis to identify their time of supply.
Time of Supply of Goods
Time of supply of goods is earliest of:
1. Date of issue of invoice
2. Last date on which invoice should have been issued
3. Date of receipt of advance/ payment
CGST/SGST or IGST must be paid at the time of supply. Goods and services have a separate
basis to identify their time of supply.
Example:
Mr. X sold goods to Mr. Y worth Rs 1,00,000. The invoice was issued on 15th January. The
payment was received on 31st January. The goods were supplied on 20th January.
*Note: GST is not applicable to advances under GST. GST in Advance is payable at the time of
issue of the invoice. Notification No. 66/2017 – Central Tax issued on 15.11.2017
Let us analyze and arrive at the time of supply in this case.
Time of supply is earliest of –
1. Date of issue of invoice = 15th January
2. Last date on which invoice should have been issued = 20th January
Thus the time of supply is 15th January.

Time of Supply for Services
Time of supply of services is earliest of:
1. Date of issue of invoice
2. Date of receipt of advance/ payment.
3. Date of provision of services (if invoice is not issued within prescribed period)
Example:
Mr. A provides services worth Rs 20000 to Mr. B on 1st January. The invoice was issued on 20th
January and the payment for the same was received on 1st February.
In the present case, we need to 1st check if the invoice was issued within the prescribed time.
The prescribed time is 30 days from the date of supply i.e. 31st January. The invoice was issued
on 20th January. This means that the invoice was issued within a prescribed time limit.
The time of supply will be earliest of –
1. Date of issue of invoice = 20th January
2. Date of payment = 1st February
This means that the time of supply of services will be 20th January.
Place of supply
It is very important to understand the term ‘place of supply’ for determining the right tax to be
charged on the invoice.
Here is an example:
Location of Service Receiver Place of supply Nature of Supply GST Applicable
Maharashtra Maharashtra Intra-state CGST + SGST
Maharashtra Kerala Inter-state IGST
.3 Place of Supply of Goods:
Usually, in case of goods, the place of supply is where the goods are delivered.
So, the place of supply of goods is the place where the ownership of goods changes.
What if there is no movement of goods. In this case, the place of supply is the location of goods
at the time of delivery to the recipient.
For example: In case of sales in a supermarket, the place of supply is the supermarket itself.
Place of supply in cases where goods that are assembled and installed will be the location
where the installation is done.
For example, A supplier located in Kolkata supplies machinery to the recipient in Delhi. The
machinery is installed in the factory of the recipient in Kanpur. In this case, the place of supply
of machinery will be Kanpur.
B. Place of Supply for Services
Generally, the place of supply of services is the location of the service recipient.

In cases where the services are provided to an unregistered dealer and their location is not
available the location of service provider will be the place of provision of service.
Special provisions have been made to determine the place of supply for the following services:
 Services related to immovable property
 Restaurant services
 Admission to events
 Transportation of goods and passengers
 Telecom services
 Banking, Financial and Insurance services.
In case of services related to immovable property, the location of the property is the place of
provision of services.
Example 1:
Mr. Anil from Delhi provides interior designing services to Mr. Ajay(Mumbai). The property is
located in Ooty(Tamil Nadu).
In this case, place of supply will be the location of the immovable property i.e. Ooty, Tamil
Nadu.
Example 2:
A registered taxpayer offers passenger transport services from Bangalore to Hampi. The
passengers do not have GST registration. What will be the place of supply in this case?
The place of supply is the place from where the departure takes place i.e. Bangalore in this
case.
4.4 Transaction Value:
 Value of supply of goods and / or services on which CGST/SGST is to be discharged shall

be the ‘Transaction Value’, where
 Supplier and recipient of supply are unrelated
 Price is actually paid / payable – AND price is the sole consideration for the supply
Transaction Value INCLUDES:

 Amounts charged by supplier to recipient in respect of any taxes, duties, cesses, fees and
charges levied under any statute, other than taxes paid under GST regime;
 Amount incurred by Recipient which is liable to be paid by the Supplier;
 Charges by Supplier to Recipient being:
 Incidental expenses (e.g: packing, commission)
 Charges for anything done by the Supplier at the time or before the supply, in
respect thereof
 Interest/ late fee/ penalty for delayed payment of consideration
 Subsidies directly linked to price – for supplier receiving the subsidy (excluding
Central and State Govt subsidies; i.e., Government subsidies will not be included
in transaction value)
Transaction Value EXCLUDES discount:

 Before / at the time of supply
 Single condition: Such discount is duly recorded in the invoice
 After the supply: Cumulative conditions:
 Agreement establishing discount entered into before / at the time of supply
 Discount specifically linked to relevant invoices
 ITC reversed by the recipient to the extent of discount
1. Determine the time of supply of goods in each of following independent cases in
accordance with provisions of section 12of the CGST Act, 2017 in case supply involves
movement of goods.
Sl.no Date of Date of invoice Date when goods made Date of receipt
removal available to recipient of payment
1 01-07-2017 02-07-2017 03-07-2017 15-05-2017

2 03-07-2017 01-07-2017 04-04-2017 25-08-2017
3 04-08-2017 04-08-2017 06-08-2017 01-07-2017
Solution:
Time of supply of goods in each of the above cases has been given in following table:
Sl.no Time of supply Reason
1 01-07-2017 Since, invoice is not issued on or before the date of removal of
goods and payment is received after the date of removal,
hence time of supply is date of removal of goods.
2 01-07-2017 TOS is date of issuance of invoice since invoice is issued prior
to date of removal of goods and payment is received after the
date of invoice
3 01-07-2017 TOS is date of receipt of payment since invoice is issued after
the date of receipt of payment.
2. Determine the time of supply of services in each of following independent cases in

accordance with provisions of CGST Act, 2017:
Sl.no Date of actual provision of Time (Date) of invoice, Date of receipt of payment
service bill challan as the case
may be
1 10-11-2017 30-11-2017 15-12-2017
2 10-11-2017 30-11-2017 15-11-2017
3 10-11-2017 30-11-2017 15-11-2017(part) and
10-10-2017 (remaining)

4 10-11-2017 30-11-2017 06-11-2017(part)And
09-11-2017(remaining)
Solution:
Time of supply in each of the above cases has been given in following table-
Sl.no Time of supply Reason
1 30-11-2017 Invoice is issued within 30 days and before receipt of payment.
2 15-11-2017 Invoice is issued within 30 days but payment received before

invoice
3 15-11-2017 and Invoice is issued within 30 days. Part payment received before
invoice and remaining payment after invoice.
30-11-2017 for
respective Amount
4 06-11-2017 and Invoice is issued within 30 days. However, the for advance has
been received in two instalments before the date of completion
09-11-2017 the
of service. Thus, date of receipt of each such advance shall be
respective Amount
treated as TOS/
4.5 Meaning of ‘supply’:
Supply includes all forms of supply (goods and / or services) and includes agreeing to supply
when they are for a consideration and in the course or furtherance of business (as defined
under Section 7 of the Act). It specifically includes Sale, Transfer, Barter, Exchange, License,
Rental, Lease, Disposal etc.
Procedure relating to Levy of CGST and SGST:
Every supply will be liable to tax. The nature of tax would depend upon the nature of supply,
viz., inter-State supplies will be liable to IGST and intra-State supplies will be liable to CGST and
SGST (UTGST).
4.6 Scope of supply:
According to the provision “supply” includes and means

(i) all forms of supply of goods or services or both such as sale, transfer, barter, exchange,
license, rental, lease or disposal made or agreed to be made for a consideration by a
person in the course or furtherance of business;
(ii) Import of services for a consideration whether or not in the course or furtherance of
business;
(iii) The activities specified in Schedule I, made or agreed to be made without a consideration;
and
Transactions not treated as supply

a) Any activities or transactions undertaken by the Central Government, a State
b) Government or any local authority in which they are engaged as public authorities, as may
be notified by the Government on the recommendations of the Council, shall be treated
neither as a supply of goods nor a supply of services.
c) Subject to the provisions of sub-sections (1) and (2), the Government may, on the
recommendations of the Council, specify, by notification, the transactions that are to be
treated as—
 A supply of goods and not as a supply of services; or
 A supply of services and not as a supply of goods.
Features of supply
a) It is an inclusive definition and not exhaustive definition
b) All forms of supply are included
c) As an example sale, transfer, exchange, licence , rentals, lease or disposal made are agreed
to be made are consider as supply
d) Supply specified in clause (a) of section 3(1) should be for consideration
e) Supply should be made by person.
f) Supply should be in course of or futureance of business
g) Importation of service is consider as supply
h) Scope of supply without consideration
i) Transaction considered as transaction of goods and services
j) Mixed or composite supply
k) Levy of tax on supply
4.7 Definition of Supply under GST Act:
The term supply is defined to include:

 all forms of supply of goods and/or services: such as sale, transfer, barter, exchange,
license, rental, lease or disposal, made or agreed to be made for consideration by a person
in course of or furtherance of business
 Import of service, for a consideration, whether or not in the course or furtherance of
business, and
 Activities specified in Schedule I, made or agreed to be made without consideration, viz.
 Permanent transfer / disposal of business assets where input tax credit has been
availed on such assets.
 Supply of goods or services or both between related persons or between distinct
persons as specified in Section 25, when made in the course or furtherance of
business.
Provided that gifts not exceeding ` 50,000 in value in a financial year by an
employer to an employee shall not be treated as supply of goods or services both
 Supply of goods –
(a) By a principal to his agent where the agent undertakes to supply such goods
on behalf of the principal, or
(b) By an agent to his principal where the agent undertakes to receive such
goods on behalf of the principal.
 Import of services by a taxable person from a related person or from any of his
other establishments outside India, in the course or furtherance of business.
4.8 SCHEDULE II of GST Act, where matters as treated as supply of goods or services:
1. Transfer
1) Any transfer of the title in goods is a supply of goods.
2) Any transfer of right in goods or of undivided share in goods without the transfer of
title thereof, is a supply of services.
3) Any transfer of title in goods under an agreement which stipulates that property in
goods will pass at a future date upon payment of full consideration as agreed, is a
supply of goods.
2. Land and Building
1) Any lease, tenancy, easement, licence to occupy land is a supply of services.
2) Any lease or letting out of the building including a commercial, industrial or residential
complex for business or commerce, either wholly or partly, is a supply of services.
3. Treatment or process
Any treatment or process which is being applied to another person’s goods is a supply of
services. (Job work transactions subject to section143 of GST).
4. Transfer of business assets

1) Where goods forming part of the assets of a business are transferred or disposed of by
or under the directions of the person carrying on the business so as no longer to form
part of those assets, whether or not for a consideration, such transfer or disposal is a
supply of goods by the person.
2) Where, by or under the direction of a person carrying on a business, goods held or used
for the purposes of the business are put to any private use or are used, or made
available to any person for use, for any purpose other than a purpose of the business,
whether or not for a consideration, the usage or making available of such goods is a
supply of services.
3) Where any person ceases to be a taxable person, any goods forming part of the assets
of any business carried on by him shall be deemed to be supplied by him in the course
or furtherance of his business immediately before he ceases to be a taxable person,
unless—
(a) The business is transferred as a going concern to another person; or
(b) The business is carried on by a personal representative who is deemed to a
taxable person.
5. The following shall be treated as “supply of service”

(a) renting of immovable property;
(b) Construction of a complex, building, civil structure or a part thereof, including a
complex or building intended for sale to a buyer, wholly or partly, except where the
entire consideration has been received after issuance of completion certificate,
where required, by the competent authority or after its first occupation, whichever is
earlier.
Explanation.- For the purposes of this clause-
(1) the expression "competent authority" means the Government or any authority
authorized to issue completion certificate under any law for the time being in force
and in case of non-requirement of such certificate from such authority, from any of
the following, namely:–
(a) An architect registered with the Council of Architecture constituted under the
Architects Act, 1972; or
(b) A chartered engineer registered with the Institution of Engineers (India); or
(c) A licensed surveyor of the respective local body of the city or town or village or
development or planning authority;
(2) The expression "construction" includes additions, alterations, replacements or
remodeling of any existing civil structure;
(a) Temporary transfer or permitting the use or enjoyment of any intellectual
property right;
(b) development, design, programming, customization, adaptation, up gradation,
enhancement, implementation of information technology software;
(c) Agreeing to the obligation to refrain from an act, or to tolerate an act or a
situation, or to do an act;
(d) Transfer of the right to use any goods for any purpose (whether or not for a
specified period) for cash, deferred payment or other valuable consideration;
4.9 Tax liability on composite and mixed supply:
Tax liability on composite and mixed supply under section 8 of CGST act of 2017 as below. The
tax liability on the composite and mixed supply shall be determined in the following manner:
(a) A composite supply comprising two or more supplies, one of which is a principal
supply, shall be treated as a supply of such principal supply; and
(b) A mixed supply comprising two or more supplies shall be treated as supply of that
particular supply which attracts the highest rate of tax.
(c) The above information clarifies about tax liability on composite and mixed supply
under section 8 on CGST act of 2017.
Composite Supply
Section 2(30) “composite supply” means a supply made by a taxable person to a recipient
comprising two or more supplies of goods or services, or any combination thereof, which are
naturally bundled and supplied in conjunction with each other in the ordinary course of
business, one of which is a principal supply. Composite supply comprising of two or more
supplies, one of which is principal supply shall be treated as supply of such principal supply.
For example, where goods such as fans are supplied and installation done at buyer place, the
supply of fan and installation of fan is a composite supply and supply of fan is the principal
supply to be taxed at the GST rate which is applicable to fan. Supply of software on CD and
license to use same, could be liable to GST at rate applicable to software license [treated as
service under GST] if agreement is for licensing of software.

Mixed Supply
Section 2(74) “mixed supply” means two or more individual supplies of goods or services, or
any combination thereof, made in conjunction with each other by a taxable person for a single
price where such supply does not constitute a composite supply. Mixed supply comprising two
or more supplies shall be treated as supply of particular supply which attracts highest rate of
tax. It shall not be a mixed supply if these items are supplied separately.
For examples a supply consisting of cakes and fresh fruits in single box, for a single price is a
mixed supply. In such case where cakes are taxable and fruits exempted, each of these items
can be supplied separately and is not dependent on any other. When supplied together, taxed
at GST rate applicable to cakes. Supply consisting of taxable coaching class and exempted
residential dwelling, could be taxed at highest rate applicable to coaching class.
Bundled Services
Under service tax law, there is a concept of bundled service. When more than one type of
service are provided in combination with each other in ordinary course of business, then such
services to be treated based on essential character. Example, accommodation in hotel along
with breakfast. Essential nature of service is that of hotel accommodation service and to be
taxed at rate applicable to hotel accommodation service.
When more than one kind of service is not naturally bundled in the ordinary course of business,
it shall be treated as provision of the single service which results in highest liability of service
tax. Example, renting done for residential purpose along with renting for commercial purpose
used as office. The residential dwelling used as residence is exempted from service tax and
renting for office use is taxable. The entire is to be taxed at highest rate of tax of 15% applicable
to renting for official use.
4.10 Time of supply of foods and service:
The statuary provision of time of supply provides under the following sub section(2) is
reproduced below. The time of supply of service shall be the earliest of the following dates,
names:-
a) The dates of issue of invoice by the supplier ,if the invoice is issued within the period
prescribed under sub section (2) of section 31(Invoice has to be issued within 30days
from the receipt of service) or the date of receipt of payments ,whichever is earlier; or
b) the date of provision of service ,if the involves is not issued within the period prescribed
under sub section (2) of section 31(Invoice has to be issued within 30days from the
receipt of service) or the date of receipt of payment, whichever is earlier; or
c) the date on which the recipient shows the receipts of service in his books of account ,in
a case where the provision of clause (a) or clause (b) do not apply:
Provided that where the supplier of taxable service receives an amount up to one thousand
rupees in excess of the amount indicated in the tax invoice, the time of supply to the extent of
such excess amount shall, at the option of said supplier, be the date of issue of invoice relating

to such excess amount.
Explanation: - For the purpose of clause (a) and (b)
i. The supply shall be deemed to have been made to the extent it is covered by the invoice
by the invoice or, as the case may be, the payment;
ii. “The date of receipt of payment “shall be the date on which the payment is entered in
the books of account of the supplier or the date on which the payment is credited to
his bank account, whichever is earlier.
4.11 Value of taxable supply:
Goods and service tax or GST will be one tax to subsume all taxes. It will bring in “One nation one tax”
regime. Being a completely new form of indirect taxation there are many questions in the
minds of the organizations. Currently taxes are calculated on the value of goods/services-
Tax Value of goods/services
Excise Transaction value of goods or MRP
VAT Sale Value
Service tax Taxable value of service rendered
Valuation of Supply under GST:
Under Section 15
1. The value of a supply of goods or services or both shall be the transaction value, which is
the price actually paid or payable for the said supply of goods or services or both where
the supplier and the recipient of the supply are not related and the price is the sole
consideration for the supply.
2. The value of supply shall include–––
(a) Any taxes, duties, cesses, fees and charges levied under any law for the time
being in force other than this Act, the State Goods and Services Tax Act, the Union
Territory Goods and Services Tax Act and the Goods and Services Tax
(Compensation to States) Act, if charged separately by the supplier;
(b) Any amount that the supplier is liable to pay in relation to such supply but which
has been incurred by the recipient of the supply and not included in the price
actually paid or payable for the goods or services or both;
(c) Incidental expenses, including commission and packing, charged by the supplier
to the recipient of a supply and any amount charged for anything done by the
supplier in respect of the supply of goods or services or both at the time of, or
before delivery of goods or supply of services;
(d) Interest or late fee or penalty for delayed payment of any consideration for any
supply and
(e) Subsidies directly linked to the price excluding subsidies provided by the Central
Government and State Governments.
Note: For the purposes of this sub-section, the amount of subsidy shall be included in
the value of supply of the supplier who receives the subsidy.
3. The value of the supply shall not include any discount which is given––
(a) Before or at the time of the supply if such discount has been duly recorded in the
invoice issued in respect of such supply; and
(b) After the supply has been effected, if—
(i) Such discount is established in terms of an agreement entered into at or before
the time of such supply and specifically linked to relevant invoices; and
(ii) Input tax credit as is attributable to the discount on the basis of document issued
by the supplier has been reversed by the recipient of the supply.
(4) Where the value of the supply of goods or services or both cannot be determined
under sub-section (1), the same shall be determined in such manner as may be
prescribed.
(5) Notwithstanding anything contained in sub-section (1) or sub-section (4), the value of
such supplies as may be notified by the Government on the recommendations of the
Council shall be determined in such manner as may be prescribed.
Note: For the purposes of this Act,––

1. Persons shall be deemed to be “related persons” if––
(a) Such persons are officers or directors of one another’s businesses;
(b) Such persons are legally recognized partners in business;
(c) Such persons are employer and employee;
(d) Any person directly or indirectly owns, controls or holds twenty-five per cent. or
more of the outstanding voting stock or shares of both of them;
(e) One of them directly or indirectly controls the other;
(f) Both of them are directly or indirectly controlled by a third person;
(g) Together they directly or indirectly control a third person; or
(h) They are members of the same family;
2. The term “person” also includes legal persons,
3. Persons who are associated in the business of one another in that one is the sole agent or
sole distributor or sole concessionaire, howsoever described, of the other, shall be deemed to
be related.
4.12 Determination of Value of Supply:
1. Value of supply of goods or services where the consideration is not wholly in money
Where the supply of goods or services is for a consideration not wholly in money, the value of
the supply shall,
a) Be the open market value of such supply;
b) If open market value is not available, be the sum total of consideration in money and any
such further amount in money as is equivalent to the consideration not in money if such
amount is known at the time of supply;
c) If the value of supply is not determinable under clause (a) or clause (b), be the value of
supply of goods or services or both of like kind and quality;
d) If value is not determinable under clause (a) or clause (b) or clause (c), be the sum total
of consideration in money and such further amount in money that is equivalent to
consideration not in money as determined by application of rule 4 or rule 5 in that order.
For example,
1. Where a new phone is supplied for `20000 along with the exchange of an old phone and
if the price of the new phone without exchange is `24000, the open market value of the
new phone is ` 24000.
2. Where a laptop is supplied for `40000 along with a barter of printer that is manufactured
by the recipient and the value of the printer known at the time of supply is `4000 but the
open market value of the laptop is not known, the value of the supply of laptop is `44000.
2. Value of supply of goods or services or both between distinct or related persons, other than
through an agent
The value of the supply of goods or services or both between distinct persons as specified in
sub-section (4) and (5) of section 25 or where the supplier and recipient are related, other than
where the supply is made through an agent, shall,-
a) be the open market value of such supply;
b) if open market value is not available, be the value of supply of goods or services of like
kind and quality;
c) if value is not determinable under clause (a) or (b), be the value as determined by
application of rule 4 or rule 5, in that order:
Provided that where goods are intended for further supply as such by the recipient, the value
shall, at the option of the supplier, be an amount equivalent to ninety percent of the price
charged for the supply of goods of like kind and quality by the recipient to his customer not
being a related person: Provided further that where the recipient is eligible for full input tax
credit, the value declared in the invoice shall be deemed to be the open market value of goods
or services.
3. Value of supply of goods made or received through an agent

The value of supply of goods between the principal and his agent shall,-
a. be the open market value of the goods being supplied, or at the option of the supplier, be
ninety percent of the price charged for the supply of goods of like kind and quality by the
recipient to his customer not being a related person, where the goods are intended for
further supply by the said recipient;
For example, where a principal supplies groundnut to his agent and the agent is supplying
groundnuts of like kind and quality in subsequent supplies at a price of `5000 per quintal on
the day of supply. Another independent supplier is supplying groundnuts of like kind and
quality to the said agent at the price of `4550 per quintal. The value of the supply made by the
principal shall be `4550 per quintal or where he exercises the option the value shall be 90% of
the `5000 i.e. is `4500 per quintal.
b. Where the value of a supply is not determinable under clause (a), the same shall be
determined by application of rule 4 or rule 5 in that order.
4. Value of supply of goods or services or both based on cost

Where the value of a supply of goods or services or both is not determinable by any of the
preceding rules, the value shall be one hundred and ten percent of the cost of production or
manufacture or cost of acquisition of such goods or cost of provision of such services.
5. Residual method for determination of value of supply of goods or services or both

Where the value of supply of goods or services or both cannot be determined under rules 1 to

4, the same shall be determined using reasonable means consistent with the principles and
general provisions of section 15 and these rules. Provided that in case of supply of services, the
supplier may opt for this rule, disregarding rule 4.
6. Determination of value in respect of certain supplies

(1) Notwithstanding anything contained in these rules, the value in respect of supplies
specified below shall, at the option of the supplier, be determined in the manner provided
hereinafter.
(2) The value of supply of services in relation to purchase or sale of foreign currency, including
money changing, shall be determined by the supplier of service in the following manner:-
(a) For a currency, when exchanged from, or to, Indian Rupees (INR), the value shall be
equal to the difference in the buying rate or the selling rate, as the case may be, and
the Reserve Bank of India (RBI) reference rate for that currency at that time,
multiplied by the total units of currency. Provided that in case where the RBI
reference rate for a currency is not available, the value shall be 1% of the gross
amount of Indian Rupees provided or received by the person changing the money.
Provided further that in case where neither of the currencies exchanged is Indian
Rupee, the value shall be equal to 1% of the lesser of the two amounts the person
changing the money would have received by converting any of the two currencies
into Indian Rupee on that day at the reference rate provided by RBI.
Provided also that a person supplying the services may exercise option to ascertain
value in terms of clause (b) for a financial year and such option shall not be withdrawn
during the remaining part of that financial year.
(b) At the option of supplier of services, the value in relation to supply of foreign
currency, including money changing, shall be deemed to be
(i) One per cent. of the gross amount of currency exchanged for an amount
up to one lakh rupees, subject to a minimum amount of two hundred and
fifty rupees;
(ii) One thousand rupees and half of a per cent. of the gross amount of
currency exchanged for an amount exceeding one lakh rupees and up to
ten lakh rupees; and
(iii) Five thousand and five hundred rupees and one tenth of a per cent. of the
gross amount of currency exchanged for an amount exceeding ten lakh
rupees, subject to maximum amount of sixty thousand rupees.
(3) The value of supply of services in relation to booking of tickets for travel by air
provided by an air travel agent shall be deemed to be an amount calculated at the
rate of five percent. Of the basic fare in the case of domestic bookings, and at the rate
of ten per cent. Of the basic fare in the case of international bookings of passage for
travel by air.
Note: For the purposes of this sub-rule, the expression “basic fare” means that part
of the air fare on which commission is normally paid to the air travel agent by the
airline.
(4) The value of supply of services in relation to life insurance business shall be:
(a) The gross premium charged from a policy holder reduced by the amount
allocated for investment, or savings on behalf of the policy holder, if such amount
is intimated to the policy holder at the time of supply of service;
(b) In case of single premium annuity policies other than (a), ten per cent. of single
premium charged from the policy holder; or
(c) In all other cases, twenty five per cent. of the premium charged from the policy
holder in the first year and twelve and a half per cent. of the premium charged
from policy holder in subsequent years:
Provided that nothing contained in this sub-rule shall apply where the entire premium
paid by the policy holder is only towards the risk cover in life insurance.
(5) Where a taxable supply is provided by a person dealing in buying and selling of second
hand goods i.e. used goods as such or after such minor processing which does not
change the nature of the goods and where no input tax credit has been availed on
purchase of such goods the value of supply shall be the difference between the selling
price and purchase price and where the value of such supply is negative it shall be
ignored:
Provided that the purchase value of goods repossessed from a defaulting borrower,
who is not registered, for the purpose of recovery of a loan or debt shall be deemed
to be the purchase price of such goods by the defaulting borrower reduced by five
percentage points for every quarter or part thereof, between the date of purchase
and the date of disposal by the person making such repossession.
(6) The value of a token, or a voucher, or a coupon, or a stamp (other than postage stamp)
which is redeemable against a supply of goods or services or both shall be equal to
the money value of the goods or services or both redeemable against such token,
voucher, coupon, or stamp.
(7) The value of taxable services provided by such class of service providers as may be
notified by the Government on the recommendations of the Council as referred to in
paragraph 2 of Schedule I between distinct persons as referred to in section 25, where
input tax credit is available, shall be deemed to be NIL.
7. Value of supply of services in case of pure agent

Notwithstanding anything contained in these rules, the expenditure or costs incurred by a
supplier as a pure agent of the recipient of supply shall be excluded from the value of supply,
if all the following conditions are satisfied, namely:-
(i) The supplier acts as a pure agent of the recipient of the supply, when he makes
payment to the third party on authorization by such recipient;
(ii) The payment made by the pure agent on behalf of the recipient of supply has been
separately indicated in the invoice issued by the pure agent to the recipient of service;
and
(iii) The supplies procured by the pure agent from the third party as a pure agent of the
recipient of supply are in addition to the services he supplies on his own account.
Note: For the purposes of this rule, “pure agent” means a person who -
(a) enters into a contractual agreement with the recipient of supply to act as his pure
agent to incur expenditure or costs in the course of supply of goods or services or
both;
(b) neither intends to hold nor holds any title to the goods or services or both so procured
or supplied as pure agent of the recipient of supply;
(c) does not use for his own interest such goods or services so procured; and
(d) Receives only the actual amount incurred to procure such goods or services in

addition to the amount received for supply he provides on his own account .
For example, corporate services firm A is engaged to handle the legal work pertaining to the
incorporation of Company B. Other than its service fees, A also recovers from B, registration
fee and approval fee for the name of the company paid to Registrar of the Companies. The
fees charged by the Registrar of the companies registration and approval of the name are
compulsorily levied on B. A is merely acting as a pure agent in the payment of those fees.
Therefore, A’s recovery of such expenses is a disbursement and not part of the value of supply
made by A to B.
8. Rate of exchange of currency, other than Indian rupees, for determination of value
The rate of exchange for determination of value of taxable goods or services or both shall be
the applicable reference rate for that currency as determined by the Reserve Bank of India on
the date of time of supply in respect of such supply in terms of section 12 or, as the case may
be, section 13 of the Act.
9. Value of supply inclusive of integrated tax, central tax, State tax, Union territory tax.
Where the value of supply is inclusive of integrated tax or, as the case may be, central tax, State
tax, Union territory tax, the tax amount shall be determined in the following manner,
Tax amount= Value inclusive of taxes X tax rate in % of IGST or as the case may be CGST, SGST
or UTGST (100+ sum of tax rates, as applicable, in %)
Note: In this context-
(a) “open market value” of a supply of goods or services or both means the full value in
money, excluding the integrated tax, central tax, State tax, Union territory tax and the
cess payable by person in a transaction, where the supplier and the recipient of the
supply are not related and price is the sole consideration, to obtain such supply at the
same time when the supply being valued is made.
(b) “supply of goods or services or both of like kind and quality” means any other supply
of goods or services or both made under similar circumstances that, in respect of the
characteristics, quality, quantity, functional components, materials, and reputation of
the goods or services or both first mentioned, is the same as, or closely or
substantially resembles, that supply of goods or services or both.
For example, the value of goods and/or services supplied is the transaction value, i.e.
the price paid/payable, which is ` 3,000 in the example. Assuming CGST=9% and SGST=
9%
Power Drill 3,000
Add: CGST @9% 270
Add: SGST @9% 270
Total 3,540
Discounts:
Discounts will be treated differently under GST. Discounts given before or at the time of supply
will be allowed as deduction from transaction value. Discounts given after supply will be
allowed only if certain conditions are satisfied.
4.13 Procedure relating to Levy IGST:

Taxable event under IGST
(a) Section 5 of the IGST Act, 2017 is the charging section.
(b) A tax called the Integrated Goods and Services Tax (IGST) shall be levied on all supplies
of goods/and or service made during the course of inter-State trade or commerce.
(c) Section also makes it clear that tax will be levied and collected on the value
determined under section 15 of the CGST Act, 2017.
(d) Tax will be levied and collected at the rates notified by the Central or State
Government.
(e) There is a ceiling to the rate which is 40% of the value.
(f) The section also provides that rate will be determined on the basis of
recommendations of GST council and collected in the manner prescribed.
(g) Import of goods or services are treated as inter-state supplies. IGST on imported
goods or services will be levied and collected in accordance with the provisions of
section 3 of Customs Tariff Act, 1975 at the point where customs duties are charged.
(h) As of now there is no provision to levy tax on the basis of quantity, volume etc.
popularly known as ‘specific rate’.
(i) Provisions relating to reverse charge and electronic commerce operator are similar to
the provisions in the CGST law and are applicable for levy and collection of IGST on
inter-state supplies of goods or services.
(j) Tax has to be paid by every taxable person in accordance with the provisions of the
Act.
4.14 Apportionment of Tax and settlement of dues:
Section 17 of IGST Act 2017 deals with the issue of apportionment of IGST between the Central
government and the States. The section provides for apportionment of the amount equivalent
to the CGST component of IGST to the Central government.
(a) In the case of supplies of goods or services to/or imports by an unregistered person
or taxable person availing composition scheme, amount equal to CGST payable on
intra state supply of goods or services would be apportioned to the Central
Government;
(b) Where a receiver of goods or services or an importer is not eligible for input credit or
where he does not avail the credit within one year or before the annual return is filed
in respect of imports made in a year, amount calculated equivalent to CGST payable
on similar intra state supply shall be apportioned to the Central Government;
(c) Balance amount remaining after apportionment as per the provisions above, shall be
apportioned to the State where such supply takes place as per sections 7, 8, 9 and 10
(Provisions relating to place of supply in the IGST Act – discussed in detail in relevant
chapters).
(d) Where the place of such supply made by any taxable person cannot be determined
separately, the said balance amount shall be apportioned to each of the States to
which such taxable person has made supplies during the financial year in the
proportion of the total supplies made to each of such States.
(e) In case taxable person making such supplies cannot be determined, the amount will
be paid to the States as per the orders of the President under Article 270(2) of the

Constitution. (Article 270(2) of the Constitution provides that where the Finance
Commission has made recommendations, President will issue the order after
considering the recommendations of the Finance Commission.)
(f) Above principles for apportionment shall mutatis mutandis apply to the
apportionment of interest, penalty and compounding amount realized in connection
with the tax so apportioned.
(g) Amounts apportioned to the Central government and States shall be transferred to
the CGST account and SGST account of the respective State by the Central
government.
(h) Time and manner of such transfer are to be prescribed.
(i) If any refund of IGST is granted, the amount transferred to the State shall be reduced
to that extent. Again Time and manner of such reduction are to be prescribed.
4.15 Intra-State supply:
If location of the supplier and the place of supply of goods are in the same State or same Union
territory then it will be treated as intra-State supply.
Exceptions for the above is,

1. Even when supplier and the place of supply of goods are in the same State or same Union
territory supply made to Special Economic Zone.
2. The integrated tax paid by tourist leaving India on any supply of goods taken out of India by
him shall be refunded will be considered as intra state supply.
3. Goods imported into the territory of India till they cross the customs frontiers of India.
Subject to the provisions of section 12, supply of services where the location of the supplier
and the place of supply of services are in the same State or same Union territory shall be
treated as intra-State supply. Provided that the intra-State supply of services shall not include
supply of services to or by a Special Economic Zone developer or a Special Economic Zone unit.
Explanation 1.––For the purposes of this Act, where a person has,––
(i) an establishment in India and any other establishment outside India;
(ii) an establishment in a State or Union territory and any other establishment outside
that State; or
(iii) an establishment in a State or Union territory and any other establishment being a
business vertical registered within that State or Union territory, transfer of business
then such establishments shall be treated as establishments of distinct persons.
Inter-State supply of goods:

If the location of the supplier and the place of supply are in two different States or UT or either,
then the supply will be in the course of inter-State trade or commerce.
Supplies in Territorial Waters
Notwithstanding anything contained in this Act, ––
(a) Where the location of the supplier is in the territorial waters, the location of such
supplier; or
(b) Where the place of supply is in the territorial waters, the place of supply, shall, for the
purposes of this Act, be deemed to be in the coastal State or Union territory where
the nearest point of the appropriate baseline is located.
Exports have been the area of focus in all policy initiatives of the Government for more than
30 years. Now with the Make in India initiative, exports continue to enjoy this special treatment
because exports should not be burdened with domestic taxes. On the other hand, GST
demands that the input-output chain not be broken and exemptions have a tendency to break
this chain. Zero-rated supply is the method by which the Government has approached to
address all these important considerations.
Zero Rated Supply

“Zero rated supply” means any of the following supplies of goods or services Zero rated or
both, namely: ––
(a) Export of goods or services or both; or
(b) Supply of goods or services or both to a Special Economic Zone developer or a Special
Economic Zone unit
Subject to the provisions of sub-section (5) of section 17 of the Central Goods and Services Tax
Act, credit of input tax may be availed for making zero-rated supplies, notwithstanding that
such supply may be an exempt supply. A registered person making zero rated supply shall be
eligible to claim refund under either of the following options, namely:
(a) He may supply goods or services or both under bond or Letter of Undertaking, subject
to such conditions, safeguards and procedure as may be prescribed, without payment
of integrated tax and claim refund of unutilized input tax credit; or
(b)He may supply goods or services or both, subject to such conditions, safeguards and
procedure as may be prescribed, on payment of integrated tax and claim refund of
such tax paid on goods or services or both supplied, in accordance with the provisions
of section 54 of the Central Goods and Services Tax Act or the rules made there under.
4.16 Input Tax Credit:
Input Tax Credit is the backbone of the GST regime. GST is nothing but a value-added tax on
goods & services combined. It is these provisions of Input Tax Credit that make GST a value
added tax i.e., collection of tax at all points in the supply chain after allowing credit for the
inputs/input services and capital goods. The invoice method of value added taxation will be
followed in the GST too, viz., the tax paid at the time of receipt of goods or services or both will
be eligible for set-off against the tax payable on supply of goods or services or both, based on
the invoices with a special emphasis on actual payment of tax by the supplier. The procedures
and restrictions laid down in these provisions are important to make sure that there is seamless
flow of credit in the whole scheme of taxation without any misuse.
The Cenvat credit scheme under present law was intended to be a beneficial scheme to allow
the supplier of taxable goods and/or services to avail Cenvat credit, including on input services
related to business. However, Cenvat credit rules have placed several artificial restrictions on
availment of input service credit on construction [other than to persons engaged in taxable
services of construction/works contract], motor vehicles related credit and employee credit on
expenses primarily incurred in relation to business.
The restrictions lead to break in the credit chain and consequent cascading effect, leading to
increase in costs of goods and services. There has been expectation under GST that credit

connected to business would be allowed without any restrictions.
The GST law sets out that every registered taxable person who carries on any business at any
place in India/ State, shall be entitled to take credit of input tax admissible to him which shall
be credited to the electronic credit ledger of such person. The amount of credit of IGST
available in the electronic credit ledger shall first be utilized towards payment of IGST, CGST
and SGST, in that order. The amount of credit of CGST shall first be utilized towards payment
of CGST and the amount remaining, if any, towards the payment of IGST. The input tax credit
on account of CGST shall not be utilized towards payment of SGST.
Input tax credit: means the credit of “input tax” in terms of section 2(63).
Input tax: "Input tax" in terms of section 2(62) in relation to a registered person, means the
central tax, State tax, integrated tax or Union territory tax charged on any supply of goods or
services or both made to him and includes
 integrated goods and service tax charged on import of goods
 tax payable on reverse charge basis under IGST Act/SGST Act/CGST
 Act/UTGST Act.
The input tax credit eligibility is based on whether the same is used for taxable supplies or zero
rated supplies. Where the goods or service is used for both taxable and exempted supplies,
only proportionate credit is eligible for registered person
Electronic credit ledger: The input tax credit as self-assessed in return of registered person shall
be credited to electronic credit ledger in accordance with section 41, to be maintained in the
manner as may be prescribed. [Section 2(46) read with Section 49(2)].
(f) Input: “Input” in terms of section 2(59) means
 any goods,
 other than capital goods,
 used or intended to be used by a supplier
 in the course or furtherance of business
(g) Input service: “Input service” in terms of section 2(60) means
 any service
 used or intended to be used by a supplier
 in the course or furtherance of business
Input Tax-2(62)
"Input tax" in relation to a taxable person, means the IGST, including that on import of goods,
CGST and SGST or UTGST charged on any supply of goods or services or both to him and
includes
(a) IGST charged on import of goods
(b) the tax payable under sub-section (3) and (4) of section 9;
(c) the tax payable under sub-section (3) and (4) of section 5 of IGST Act;
(d) the tax payable under sub-section (3) and (4) of section 9 of SGST Act; or
(e) the tax payable under sub-section (3) and (4) of section 7 of UTIGST Act
(f) ,but does not include the tax paid under composition levy;
Section 2(63) “input tax credit” means credit of ‘input tax’
Section 2(17) - Business is defined in inclusive manner as under:
(a) any trade, commerce, manufacture, profession, vocation, adventure, wager or any
other similar activity, whether or not it is for a pecuniary benefit,
(b) any activity or transaction in connection with or incidental or ancillary to sub-clause
(a);
(c) any activity or transaction in the nature of sub-clause (a), whether or not there is
volume, frequency, continuity or regularity of such transaction
(d) supply or acquisition of goods including capital goods and services in connection with
commencement or closure of business;
(e) provision by a club, association, society, or any such body (for subscription or any
other consideration) of the facilities or benefits to its members;
(f) admission, for a consideration, of persons to any premises; and
(g) services supplied by a person as the holder of an office which has been accepted by
him in the course or furtherance of his trade, profession or vocation
(h) services provided by a race club by way of totalisator or a licence to book maker in
such club; and
(i) any activity or transactions undertaken by Central Government , a State Government
or any local authority in which they are engaged as public authorities;
4.17 Capital goods – Section 2(19):
“Capital goods” means: Goods, the value of which is capitalized in the books of accounts of the
person claiming input tax credit and which are used or intended to be used in the course or
Eligibility and conditions for taking input tax credit under section 16 of GST Act
(1) Every registered taxable person can avail credit of input tax charged on any supply of goods
or services to him which are used or intended to be used in the course or furtherance of his
business and the said amount shall be credited to the electronic credit ledger of such person
subject to such conditions and restrictions as may be prescribed and within the time and
manner specified.
(2) Registered person shall not be entitled to the credit of any input tax in respect of any supply
of goods or services to him unless,-
(a) he is in possession of a tax invoice or debit note issued by a supplier registered under
this Act, or such other taxpaying document(s) as may be prescribed;
(b) he has received the goods or services or both;
For the purpose of this clause, If the goods are delivered by the supplier to recipient
or any other person on the direction of such registered person acting as an agent or
otherwise, before during the movement of goods either by way of transfer of
documents of title to goods or otherwise, then it shall be deemed that the registered
person received the goods.
For example, “X” a supplier transfers documents to “Z” on the direction of “Y” who is
a registered person. Z receives the documents on behalf of Y, then it shall be deemed
that Y has received the goods/documents.
(c) the tax charged in respect of such supply has been actually paid to the account of the
appropriate Government, either in cash or through utilization of input tax credit

admissible in respect of the said supply; and
(d) he has furnished the return under section 39:
Where goods received in lots: Where the goods against an invoice are received in lots or
installments, the registered taxable person shall be entitled to take credit upon receipt of the
last lot or installment.
When recipient not paid amount towards supply of service + tax within 180 days:
Where a recipient fails to pay to the supplier of goods /services / both other than those supplies
on which tax payable under reverse charge basis, the amount towards the value of supply of
services along with tax payable thereon within a period of 180 days from the date of issue of
invoice by the supplier, an amount equal to the input tax credit availed by the recipient shall
be added to his output tax liability, along with interest thereon, in the manner as may be
prescribed.
Recipient shall be entitled to avail the input tax credit on payment made by him towards the
value of supplies along with taxable person. For this purpose, interest paid is not eligible to
take credit
(3) No claiming depreciation under IT Act on capital goods: Where the registered taxable person
has claimed depreciation on the tax component of the cost of capital goods under the
provisions of the Income Tax Act, 1961, the input tax credit shall not be allowed on the said tax
component.
(4) A registered person shall not be entitled to take input tax credit in respect of any invoice or
debit note for supply of goods or services after furnishing of the return for the month of
September following the end of financial year to which such invoice or invoice relating to such
debit note pertains or furnishing of the relevant annual return, whichever is earlier.
Proportionate credit:
Input Tax Credit based ON usage in business
For Business
ITC Available
purposes
For other
ITC not available
purposes
Input Tax Credits based on use of Inputs
4.18 Apportionment of Credit and Blocked Credits:

(1) Goods and or services used partly for business and other purpose: Where the goods and/or
services are used by the registered taxable person partly for the purpose of any business and
partly for other purposes, the amount of credit shall be restricted to so much of the input tax
as is attributable to the purposes of his business.
(2) Goods and or services used partly for taxable including zero rated supplies and partly for
exempt supplies: Where the goods and / or services are used by the registered taxable person
partly for effecting taxable supplies including zero-rated supplies under this Actor under the
IGST Act, 2016 and partly for effecting exempt supplies under the said Acts, the amount of
credit shall be restricted to so much of the input tax as is attributable to the said taxable
supplies including zero-rated supplies.
Exempt supplies shall include supplies on which recipient is liable to pay tax on reverse charge
basis, “exempt supply” means supply of any goods or services or both which attracts nil rate of
tax or which may be wholly exempt from tax under section 11, or under section 6 of the
Integrated Goods and Services Tax Act, and includes non-taxable supply (Section 2(47));
A banking company or a financial institution including a non-banking financial company, which
is engaged in supplying services by way of accepting deposits, extending loans or advances
shall have the option to either given under (2) above, or avail of, every month, an amount equal
to 50% of the eligible input tax credit on inputs, capital goods and input services in that month
and the rest shall lapse.
The option once exercised as above shall not be withdrawn during the remaining part of the
financial year.
Input tax credit shall not be available in respect of the following:

(a) motor vehicles and other conveyances except when they are used
(i) For making the following taxable supplies, namely
(A) further supply of such vehicles or conveyances ; or
(B) transportation of passengers; or
(C) imparting training on driving, flying, navigating such vehicles or conveyances;
(ii) For transportation of goods.
(b) supply of goods and services, namely,
(i) food and beverages,
(ii) outdoor catering,
(iii) beauty treatment,
(iv) health services,
(v) cosmetic and plastic surgery except where such inward registered taxable person
for making an outward taxable supply of the same category of goods or services;
(c) membership of a club, health and fitness centre,
(d) rent-a-cab, life insurance, health insurance except where the Government notifies the
services which are obligatory for an employer to provide to its employees under any law
for the time being in force; and
(e) travel benefits extended to employees on vacation such as leave or home travel
concession.

(f) works contract services when supplied for construction of immovable property, other
than plant and machinery, except where it is an input service for further supply of works
contract service;
(g) goods or services received by a taxable person for construction of an immovable property
on his own account, other than plant and machinery, even when used in course or
For the purpose of (f) & (g) above, the word “construction” includes re-construction,
renovation, additions or alterations or repairs, to the extent of capitalization, to the
immovable property.
(h) goods or services on which tax has been paid under section 10;
(i) goods or services or both received by a non-resident taxable person exception goods
imported by him
(j) goods or services used for personal consumption;
(k) goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples;
and
(l) any tax paid in terms of sections 74, 129 or 130.
The Central or a State Government may, by notification issued in this behalf, prescribe the
manner in which the credit referred to in sub-sections 17(1) and (2)above may be attributed.
‘Plant and Machinery’ means apparatus, equipment, machinery, pipelines, telecommunication

tower fixed to earth by foundation or structural support that are used for making outward
supply and includes such foundation and structural supports but excludes
(a) Land, building or any other civil structures
(b) telecommunication tower
(c) pipelines laid outside the factory premises
4.19 Availability of credit in special circumstances:
(a) Credit to person who applied and got registration within 30 days from when liable for
registration: A person who has applied for registration under the Act within 30 days from the
date on which he becomes liable to registration and has been granted such registration shall,
subject to such conditions and restrictions as may be prescribed, be entitled to take credit of
input tax in respect of inputs held in stock and inputs contained in semi-finished or finished
goods held in stock on the day immediately preceding the date from which he becomes liable
to pay tax under the provisions of this Act.
(b) Voluntary registration: A person, who takes voluntary registration shall, subject to such
conditions and restrictions as may be prescribed, be entitled to take credit of input tax in
respect of inputs held in stock and inputs contained in semi-finished or finished goods held in
stock on the day immediately preceding the date of grant of registration.
(c) Person ceases to pay composition levy tax: Where any registered taxable person ceases to
pay tax under section 10, he shall, subject to such conditions and restrictions as may be
prescribed, be entitled to take credit of input tax in respect of inputs held in stock, inputs
contained in semi-finished or finished goods held in stock and on capital goods on the day
immediately preceding the date from which he becomes liable to pay composition tax. The
credit on capital goods shall be reduced by such percentage points as may be prescribed in this
behalf.
(d) When exempt supplies become taxable: Where an exempt supply of goods or services by a
registered taxable person becomes a taxable supply, such person shall, subject to such
conditions and restrictions as may be prescribed, be entitled to take credit of input tax in
respect of inputs held in stock and inputs contained in semi-finished or finished goods held in
stock relatable to such exempt supply and on capital goods exclusively used for such exempt
supply on the day immediately preceding the date from which such supply becomes taxable.
(1) The credit on capital goods shall be reduced by such percentage points as may be
prescribed in this behalf.
(2) A taxable person shall not be entitled to take input tax credit under sub-section (1),
in respect of any supply of goods and /or services to him after the expiry of one year
from the date of issue of tax invoice relating to such supply.
(3) Change in constitution: Where there is a change in the constitution of a registered
taxable person on account of sale, merger, demerger, amalgamation, lease or transfer
of the business with the specific provision for transfer of liabilities, the said registered
taxable person shall be allowed to transfer the input tax credit that remains unutilized
in its books of accounts to such sold, merged, demerged, amalgamated, leased or
transferred business in the manner prescribed.
(4) Switch over from normal scheme to composition scheme of paying tax: Where any
registered person who has availed of input tax credit switches over as a taxable person
for paying tax under section 10 or, where the goods and/ or services supplied by him
become exempt, he shall pay an amount, by way of debit in the electronic credit or
cash ledger, equivalent to the credit of input tax in respect of inputs held in stock and
inputs contained in semi-finished or finished goods held in stock and on capital goods,
reduced by such percentage points as may be prescribed, on the day immediately
preceding the date of such switch over or, as the case may be, the date of such
exemption.
After payment of such amount, the balance of input tax credit, if any, lying in his
electronic credit ledger shall lapse.
(5) The amount payable under sub-section (1) shall be calculated in such manner as may
be prescribed.
In case of supply of capital goods or plant and machinery, on which input tax credit has been
taken, the registered taxable person shall pay an amount equal to the input tax credit taken on
the said capital goods or plant and machinery reduced by the percentage points as may be
specified in this behalf or the tax on the transaction value of such capital goods or plant and
machinery, whichever is higher.
Where refractory bricks, moulds and dies, jigs and fixtures are supplied as scrap, the taxable
person may pay tax on the transaction value of such goods.
4.20 Taking input tax credit in respect of inputs sent for job work – Section 19:
(1) The “principal” referred to in section 143 shall, subject to such conditions and restrictions
as may be prescribed, be allowed input tax credit on inputs sent to a job-worker for job-
work.
(2) Notwithstanding anything contained in clause (b) of sub-section (2) of section 16, the
“principal” shall be entitled to take credit of input tax on inputs even if the inputs are

directly sent to a job worker for job-work without their being first brought to his place of
business.
(3) Where the inputs sent for job-work are not received back by the “principal” after
completion of job-work or otherwise or are not supplied from the place of business of the
job worker in accordance with clause (b) of sub-section (1) of section 143 within a period
of one year of their being sent out, it shall be deemed that such inputs had been supplied
by the principal to the job-worker on the day when the said inputs were sent out:
Where the inputs are sent directly to a job worker, the period of one year shall be
counted from the date of receipt of inputs by the job worker.
(4) The “principal” shall, subject to such conditions and restrictions as may be prescribed, be
allowed input tax credit on capital goods sent to a job-worker for job-work.
(5) Notwithstanding anything contained in clause (b) of sub-section (2) of section 16, the
“principal” shall be entitled to take credit of input tax on capital goods even if the capital
goods are directly sent to a job worker for job-work without their being first brought to his
place of business.
(6) Where the capital goods sent for job-work are not received back by the “principal” within
a period of three years of their being sent out, it shall be deemed that such capital goods
had been supplied by the principal to the job worker on the day when the said capital
goods were sent out:
Where the capital goods are sent directly to a job worker, the period of three years
shall be counted from the date of receipt of capital goods by the job worker.
(7) Nothing contained in sub-section (3) or sub-section (6) shall apply to moulds and dies,
jigs and fixtures, or tools sent out to a job-worker for job-work
Manner of distribution of credit by Input Service Distributor – Section 20

(1) The Input Service Distributor shall distribute, in such manner as may be prescribed,
the credit of CGST as CGST or IGST and IGST as IGST or CGST, by way of issue of a
prescribed document containing, inter alia, the amount of input tax credit being
distributed or being reduced thereafter, where the Distributor and the recipient of
credit are located in different States. (CGST ACT)
(2) The Input Service Distributor may distribute the credit subject to the following
conditions, namely:
(a) the credit can be distributed against a prescribed document issued to each of the
recipients of the credit so distributed, and such document shall contain details as
may be prescribed;
(b) the amount of the credit distributed shall not exceed the amount of credit
available for distribution;
(c) the credit of tax paid on input services attributable to a recipient of credit shall
be distributed only to that recipient;
(d) the credit of tax paid on input services attributable to more than one recipient of
credit shall be distributed only amongst such recipient(s) to whom the input
service is attributable and such distribution shall be pro rata on the basis of the
turnover in a State of such recipient, during the relevant period, to the aggregate
of the turnover of all such recipients to whom such input service is attributable
and which are operational in the current year, during the said relevant period;
(e) the credit of tax paid on input services attributable to all recipients of credit shall

be distributed amongst such recipients and such distribution shall be pro rata on
the basis of the turnover in a State of such recipient, during the relevant period,
to the aggregate of the turnover of all recipients and which are operational in the
current year, during the said relevant period.
Explanation 1. – For the purposes of this section, the “relevant period” shall be-
(a) if the recipients of the credit have turnover in their States in the financial year
preceding the year during which credit is to be distributed, the said financial year; or
(b) if some or all recipients of the credit do not have any turnover in their States in the
financial year preceding the year during which the credit is to be distributed, the last
quarter for which details of such turnover of all the recipients are available, previous
to the month during which credit is to be distributed.
Explanation 2. - For the purposes of this section, ‘recipient of credit’ means the supplier of
goods and / or services having the same PAN as that of Input Service Distributor.
Explanation 3. – For the purposes of this section, ‘turnover’ means value of turnover, reduced
by the amount of tax, duty or tax levied under entry 84 of List I of seventh schedule and entry
51 & 54 of List II of the said schedule of the Constitution
Manner of recovery of credit distributed in excess – Section 21

Where the Input Service Distributor distributes the credit in contravention of the provisions
contained in section 21 resulting in excess distribution of credit to one or more recipients of
credit, the excess credit so distributed shall be recovered from such recipient(s) along with
interest, and the provisions of section 73 or 74, as the case may be, shall apply mutatis
mutandis for effecting such recovery.
4.21 Distribution of Credit by Input Service Distributor:
The Input Service Distributor shall distribute the credit of central tax as central tax or integrated
tax and integrated tax as integrated tax or central, by way of issue of a document containing,
the amount of input tax credit being distributed in such manner as may be prescribed. The
Input Service Distributor may distribute the credit subject to the following conditions, namely:
1. The credit can be distributed to recipients of credit against a document containing
such details as may be prescribed;
2. The amount of the credit distributed shall not exceed the amount of credit available
for distribution;
3. The credit of tax paid on input services attributable to recipient of credit shall be
distributed only to that recipient;
4. The credit of tax paid on input services attributable to more than one recipient of
credit shall be distributed amongst such recipient(s) to whom the input service is
attributable and such distribution shall be pro rata on the basis of the turnover in a
State or turnover in a Union Territory of such recipient, during the relevant period, to
the aggregate of the turnover of all such recipients to whom such input service is
attributable and which are operational in the current year, during the said relevant
period.
5. The credit of tax paid on input services attributable to all recipients of credit shall be
distributed amongst such recipients and such distribution shall be pro rata on the
basis of the turnover in a State or turnover in a Union Territory of such recipient,

during the relevant period, to the aggregate of the turnover of all recipients and which
are operational in the current year, during the said relevant period.
Input tax credit (of services) is distributed to supplier of goods or services or both of same
entity having same PAN. Procedure for distribution is given in Rule 4 of Input Tax Credit Rules.
An ISD shall distribute the eligible ITC in accordance with Rule as given below.
Input Service Distributor (ISD) is an office of the supplier of goods or services or both where a
document (like invoice) of services attributable to other locations are received (since they
might be registered separately). Since the services relate to other locations the corresponding
credit should be transferred to such locations (having separate registrations) as services are
supplied from there. Care should be taken to ensure that an inter-branch supply of services
should not be misinterpreted as a distribution by ISD. Please recollect that ISD cannot be an
office that does any supply of its own but must be one that merely collects invoice for services
and issues prescribed document for its distribution.
For Example
Corporate office of XYZ Company Ltd., is at New Delhi, having its business locations of selling
and servicing of goods at New Delhi, Chennai, Mumbai and Kolkata. For example, if the
software license and maintenance is used at all the locations, invoice indicating CGST and SGST
is received at Corporate Office. Since the software is used at all the four locations, the input
tax credit of entire services cannot be claimed at New Delhi. The same has to be distributed to
all four locations. For that reason, the Delhi Corporate office has to act as ISD to distribute the
credit.
Distribution of credit where ISD and recipient are located in different States under
CGST Act: As per Rule 4(1) (e) of ITC Rules ISD shall distribute as prescribed, credit of CGST as
CGST or IGST and credit of IGST as IGST by issuing prescribed document mentioning the
amount of credit distributed to recipient of credit located in different States.
Distribution of credit where ISD and recipient are located in different States under
SGST Act: ISD could distribute as prescribed credit of SGST as IGST only (and not as SGST of
other State) by issuing a prescribed document containing the amount of credit distributed.
Distribution of credit where ISD and recipient are located within the State under
CGST Act: In cases where an entity has different registration within the same State by an entity,
it may have to distribute credit to such location also similar to locations with different
registrations outside the State. In order to enable the same, it is Provided that ISD can
distribute in the prescribed manner, credit of CGST as CGST and credit of IGST as IGST by issuing
prescribed document mentioning the amount of credit distributed to recipient being a
business vertical.
Distribution of credit where ISD and recipient are located within the State under
SGST Act: Similar to the provisions of CGST as indicated supra under CGST Act, even under the
SGST Act, it is Provided that an ISD can distribute in the prescribed manner, credit of SGST and
IGST as SGST (of the same State and none other State) by issuing prescribed document
mentioning the amount of credit distributed to recipient being a business vertical.

4.22 Input Service Distributor:
4.23 GST ILLUSTRATIONS AND PRACTICE PROBLEMS:

Illustrations:
3. How would you arrive at the transaction value for the purpose of levy of GST and calculate
GST payable. From the following particulars.
The selling price of the product exclusive of GST Rs.10,000, Rate of GST is applicable to the
product is 5%, trade discount allowed as per normal trade practice before delivery of the
product is Rs.1200, freight attributable for the supply of the product is Rs.750 from factory
to buyer place which is not included in the above selling price.
Solution:
Computation of transaction value and GST payable
Particulars Rs Rs
Gross turnover 10,000
Add: inclusive items
Freight 750 750
Sub total 10,750
Less:
Trade discount 1200 1200
Transaction value 9550
Output tax liability (transaction value* rate of
GST)
CGST (9550*2.5/100) 238.75
SGST(9550*2.5/100) 238.75
Total GST payable 477.50
Note: in computation of transaction value for the purpose of levy of GST, trade discount if it is
given as per normal practice and if it is shown separately in invoice is deductible. Freight
expenses incurred to deliver the product till the place of delivery is an inclusive item in
transaction value.
4. Determine the total amount of GST payable to this product is 28% i.e. CGST 14% + SGST
14%
Particulars Rs.
Selling price of the machine (inclusive of CGST at 9% and SGST at 9%) 2,95,000
Cost of durable and returnable packing included in the sale price given
above
10,000
Design and development charges paid by buyer on behalf of seller to a third
party
12,000
Warranty charges charged separately by the seller
4,000
Rate of GST 18%
Calculations should be supported by notes wherever required.
Solution:
Particulars Rs Rs
Price of the machine (excluding GST 295000*100/118) 2,50’000
Add:
Design and development charges paid by buyer on behalf of
seller to a third party
12,000
Warranty charges charged separately by the seller
4,000 16,000
2,66,000
Less:
Cost of durable and returnable packing included in the sale
10,000
price
Transaction value
2,56,000
SGST payable (256000*9%)
23,040
CGST payable (256000*9%)
23,040
Total GST
46,080
Note:
i. GST is an excludable item, hence excluded
The sale price exclusive tax can be worked out by the under mentioned formula
ii. Sale price exclusive tax = price including tax * 100/100+rate of GST
Design and development charges paid by buyer on behalf of seller to a third party and
warranty charges charged separately by the seller is a part of sale price hence included
iii. Cost of durable and returnable packing included in the sale price is excludable as it is sent
back to the supplier
5. XYZ Ltd of Chennai agreed to sell an electronic motor on which the rate of GST applicable
is 12% to ABC ltd. of Bangalore for Rs.15,000 on ex-factory basis. Other particulars are:
i. Transportation and transit insurance were arranged by YZ Ltd. this was at the request
of ABC Ltd and amounted to for Rs.1250 and Rs.1500 respectively which were charged
separately
ii. A discount of Rs.1, 000 was given to ABC Ltd. on the agreed price on payment of an
advance of Rs.3500 with the order. (ignore notional interest on advance)
iii. Interest of Rs.800 was charged from DEF Ltd. as it failed to make the payment within
30 days.
iv. Packing charges of the motor amount at Rs.1300
v. The expenditure incurred by ABC Ltd. towards ‘free after sale service’ during warranty
period comes out to be Rs.500 per motor. Compute IGST payable
Solution:
Particulars Rs Rs
Offered price 15,000
Add:
Discount 1,000
Packing charges 1,300
Free after sale service 500
Transportation charges 1,250
Transit insurance 1,500 5,550
Transaction value 20,550
IGST (20440*12%) 2,466
Note:
i. Transportation and transit insurance are includable items even if it is charged separately.
ii. Any discounts provided as per normal practices is allowable as deductions, but if it is given
as the payment of an advance received with the order. Hence added back
iii. Packing charges, free after sale service, are includable items.
iv. Interest on delayed payment is not a part of sale price. Hence excluded here. If the buyer
fails to pay with in 30days as per the agreement than it is chargeable to GST as and when
supplier raise the invoice or received the payment for the same.
6. A dealer in Mumbai entered a contract with a supplier in Mysore to deliver a machinery
along with essential accessories. From the information determine the total amount of GST
payable under section 15 of the CGST Act 2017.
Particulars Rs.
Price of machinery (excluding taxes and duties) 6,30,000
Installation and erection expenses charged separately in invoice 20,000
Packing charges (primary and secondary) 15,000
Design and engineering charges paid by the buyer 8,000
Cost of material supplied by buyer free of charge 2,000
Pre delivery inspection charges 1,000
Loading and handling charges within the factory 1,200
Other information:
i. Cash discount 2% on price of machinery was allowed as per terms of contracts. Since full
payment was received before dispatch of machinery
ii. Bought out accessories supplied along with machinery valued at Rs. 5000 which was
necessary for the working of the machinery. These bought out goods are charged for tax
at the rate of 5%.
iii. GST rate 18%. Make suitable assumptions as required and provide brief reasons
Solution:
Particulars Rs Rs
Price of machinery(excluding GST) 6,30,000
Add:
Installation and erection expenses charged separately in invoice 20,000
Packing charges (primary and secondary) 15,000
Design and engineering charges 8,000
Cost of material supplied by buyer free of charge 2,000
Pre delivery inspection charges 1,000
Loading and handling charges within the factory 1,200
Bought out accessories supplied along with machinery 5,000 52,200

6,82,200
Less:
Cash discount (630000*2%) 12,600
Transaction value 6,69,600
IGST Payable (669600*18%) 1,20,528
Note:
i. If a contract is entered for i. supply of certain goods and erection and installation of the
same thereto or ii. Supply of certain goods along with installation and warranty thereto,
and bought out accessories supplied along with machinery it is important to note that
these are naturally bundled and therefore would qualify as ‘composite supply’ and
taxable under GST at the rate of tax applicable to principal supply i.e. machinery.
ii. Full payment was made before delivery, hence discount is deducted
7. A Manufacturer has to supply machinery as following terms and conditions
Particulars Rs.
Price of machinery (net of taxes and duties) 400000
Installation and erection expenses charged separately in invoice 26000
Packing charges (primary and secondary) 4000
Design and engineering charges (net of taxes and duties) 30000
Cost of material supplied by buyer at reduced cost (the actual price of the
materials is Rs.25000)
Pre delivery inspection charges

5000
Rate of GST on machinery 18%
3000
Cash discount of Rs.15000 offered if full payment is received before dispatch of goods. The
buyer has made the payment as per the conditions stipulated.
The machine is supplied along with bought out accessories at Rs.8500. the accessories were
optional and the rate of duty applicable to these accessories is 28%.
The manufacturer incurred cost Rs.1500 in loading the machine in the truck in his factory.
These are not charged separately to buyer.
Find the transaction value and the GST payable if the rate of GST on principal supply is 5%
Solution:
Particulars Rs Rs
Price of goods(excluding GST) 400000
Add:
Installation and erection expenses charged separately 26000
Packing charges (primary and secondary) 4000
Design and engineering charges 30000
Cost of material supplied by buyer at reduced price 25000
Pre delivery inspection charges 3000 88000
488000
Less: 15000
Cash discount
473000
Add: bought out accessories (optional) 8500
Transaction value 481500
SGST payable (481500*14%) 67410
CGST payable (481500*14%) 67410
Total GST payable 134820
Note:
i. The manufacturer cost of Rs.1200 is already included in the selling price of machinery (as
it is not charged separately) and hence is not to be added again
ii. Supply of more than one goods and or services which are not naturally bundled together
(optional), these are referred to as mixed supply of goods and or services this implies that
the supply will be taxed wholly as supply of those goods which are liable to the highest rate
of GST. (i.e. tax must be at the highest rate among all other products supplied in this case
optional accessories have highest rate than principal supply)
8. The Taj hotel group of companies provided the following services within the state of
Karnataka from its various establishments. Compute the amount of GST payable for the
month July 2017.

a) Supply of food or drink in restaurant not having facilities in air conditioning @12%
GST 20,000.
b) Supply of food or drink in restaurant in having licence to serve liquor @18% GST
60,000.
c) Supply of food or drink in outdoor catering @ 18% GST 1,00,000.
d) Renting of hotel rooms @ 18% GST 1,50,000
e) Supply of food or drink in air condition restaurant in 5 star or above rated hotel @
28% GST 1,00,000.
Solution:
Computation of GST Payable
Particulars CGST (₹) SGST (₹)
Supply of food or drink in restaurant not having 1,200 1,200
facilities in air conditioning (20,000 x 12% x ½)
Supply of food or drink in restaurant in having
5,400 5,400
licence to serve liquor (60,000 x 18% x ½)
Supply of food or drink in outdoor catering
(1,00,000 x 18% x ½) 9,000 9,000
Renting of hotels rooms (1,.50,000 x 18% x ½)
Supply of food or drink in air condition restaurant in 13,500 13,500
5 star or above rated hotel (1,00,000 x 28% x ½)
14,000 14,000
Total output Tax payable 43,100 43,100
9. From the following information of S & Co. for the month of July, 2017:
1. Purchases of Raw material A from a supplier in Mysore ₹ 1,00,000 at 5% GST.
2. Purchases of Raw material B from Kerala ₹ 5,00,000 at 12% GST.
Sales of S & Co. for the month of July, 2017 are as follows:
a. Sales of ₹ 3,00,000 within the state at 18% GST
b. Sales of ₹ 3,00,000 within the state at 12% GST
Compute eligible Input Tax credit and GST payable for the month July, 2017.
Computation of GST Payable

Particulars CGST ₹ SGST ₹ IGST ₹
Output Tax Payable
Sales within the state (3,00,000 x 9%) 27,000 27,000 -
Sales within the state (3,00,000 x 6%) 18,000 18,000 -
Total (A) 45,000 45,000

Input Tax Credit Eligible on Inputs
i) Purchases of Raw material A (1,00,000 x 2.5%) 2,500 2,500 -
ii) Purchases of Raw material B from Kerala
(5,00,000 x 12%)
60,000
Total (B) 2,500 2,500 60,000
Balance tax payable or Excess (A-B) 42,500 42,500 (60,000)
Less: Inter head set off IGST towards CGST & (42,500) (17,500) 60,000
SGST
Balance to be payable or Excess balance available
in Electronic Credit Ledger
- 25,000 -
10. Mr. Komalesh a dealer submits the following information in relation to manufacture and
selling of drilling machine. Compute the net GST liability from the following information.
Particulars ₹
Import of raw-materials (excluding 10% of BCD on import and 12%
of IGST)
2,40,000
Raw materials purchased from Karnataka (including CGST at 14% &
SGST @ 14%)
2,81,600
Raw materials purchased from Goa including IGST @ 5%
63,000
Subsidy received from an NGO which was directly related to price
of the goods
Penalty levied by Mr. Sathish for delayed payment 13,000
Subsidy received from Central Government which was directly 575
linked to the price of the product
Additional incentives paid to the employees of sales department
34,000
Warranty charges
Manufacturing expenses
5,000
Service received from a registered dealer to manufacture a
8,500
machinery rate of GST applicable to these services 12%
6,000
23,000

Along with the machine he supplied 3 different components at a fixed price of ₹ 25,000 each
of these components are not naturally bundled with the supply of the machine. The GST rate
of the three products is 5%, 12% and 28% respectively.
Mr. Komalesh sold the machine to Mr. Umesh a registered dealer in Delhi at a profit of 15%
on the cost of production and the rate of GST on such sales is 18%.
Solution:
Calculation of Transaction Value
Particulars CGST ₹
Import of raw-materials (including BCD but excluding IGST should be
taken (2,40,000 + 10%)
2,64,000
Raw materials purchased from Karnataka
(excluding GST to be taken) (2,81,600 x 100/128)
2,20,000
Raw materials purchased from Goa (excluding GST)
(63,000 x 100/105)
60,000
Add:
Subsidy received from an NGO which was directly related to price of
the goods
Additional incentives paid to the employees of sales department
13,000
Warranty charges
5,000
Service received from a registered dealer to manufacture a
machinery 8,500
Manufacturing expenses 23,000
Subsidy received from Central Government which was directly linked
to the price of the product
6,000
Exempt
Total Cost 5,99,500
Add: Profit margin of 15% on cost (5,99,500 x 15%) 89,925
Cost of materials supplied 6,89,425
Add: Late fee charged on Delayed Payment 575
Sub Total 6,90,000

Add: Components suppled along with machinery (25,000 x 3) 75,000
Transaction Value 7,65,000
Calculation of GST Payable

Output Tax Payable

Sales made to Umesh (7,65,000 x 28%) -- -- 2,14,200
Total (A) -- -- 2,14,200

Imported (2,64,000 x 12%) -- -- 31,680
Purchased within the state (2,20,000 x 14%) 30,800 30,800 --
Purchased from Goa (60,000 x 5%) -- -- 3,000
Service received to manufacture (23,000 x 6%) 1,380 1,380 --
Total (B) 32,180 32,180 34,680
Note: Its mixed supply, Hence Taxable at high rate of Tax.
11. Preetham, a dealer furnished the following details for the month of January, 2014.
Inputs purchased within the state from registered dealer at 5% GST 1,50,000
Inputs purchased from a dealer who opted for composition Scheme (the rate
of GST applicable to this product is 18%.)
3,00,000
Inputs purchased from a dealer in Chennai at 12% GST
15,00,000
Inputs purchased within the state and these goods are exempt from GST
5,00,000
Capital goods procured from other state during the month at 28% GST
10,00,000
Finished goods sold within the state at 18% GST
3,00,000
Goods sold to a dealer in Kolkata at 5% GST
10,00,000
Goods Sold to a unit of SEZ in Tumkuru rate of GST applicable is 5%
3,00,000
Goods sold to unregistered dealer in Karnataka at 28% GST
5,00,000
Goods sold to a dealer in Bangalore (these goods are exempt from GST and
these goods are produced from the materials purchased from Chennai)
Goods sold to a dealer who opted for composition scheme at 5% GST
6,00,000
GST paid on capital goods

2,00,000
12%
Compute the total tax liability under the GST law.
Solution:
Output Tax Payable
Finished goods sold within the state (3,00,000 x 9%) 27,000 27,000 --
Goods sold to a dealer in Kolkata (10,00,000 x 5%) -- -- 50,000
Goods sold to a dealer who opted for composition
Scheme (2,00,000 x 2.5%)
5,000 5,000 --
Goods Sold to a unit of SEZ in Tumkuru (3,00,000 x
-- --
0%)
-- -- --
Goods sold to a dealer in Bangalore (exempted)
Goods sold to unregistered dealer in Karnataka
(5,00,000 x 14%) 70,000 70,000 --
Total (A) 1,02,000 1,02,000 50,000

Purchased within the state from registered dealer
(1,50,000 x 2.5/100)
3,750 3,750 --
Purchased from a registered dealer who opted for
composition scheme
-- -- --
Goods purchased from Chennai (ITC is not eligible as
final goods sold are exempted from GST)
Goods purchased within the state (these goods are -- -- --
exempt from GST at the time of purchase)
Capital goods purchased from other state (Note 1)
-- -- --
(10,00,000 x 28/100) = 2,80,000/60= 4,667 x
23,00,000/29,00,000
-- -- 3,701
Total (B) 3,750 3,750 3,701

Balance tax payable or Excess (A-B) 98,250 98,250 46,299
Less: Inter head set off of ITC -- -- --
Balance to be payable or excess balance available in
Electronic Credit Ledger
98,250 98,250 46,299
Note:
The dealer who opted for composition scheme should not charge GST even though the Rate
of GST is provided in the Schedule and no ITC is available on this purchase.
12. The following are details of purchase, Sales etc., affected by Manu and Company, a
registered dealer, for the year ended 31/7/2017.
Particulars ₹
Purchase of raw-materials, within the state, 2000 units, inclusive of GST at 5%
Inter-state purchase of raw-materials (inclusive of IGST at 12%) 5,25,000
Import of raw-materials, inclusive of customs duty of ₹ 35,000 and IGST at 5% 1,12,000
Capital goods purchased within the state 1/7/2017, inclusive of GST levy at
28%
2,35,000
Sales of taxable goods within the state GST at 12%
Sales of goods within the state exempt from levy of GST (goods were
2,56,000
manufactured from the inter-state purchase of raw-materials)
7,28,000
1,20,000
Compute the GST liability of the dealer for the month July, 2017.
Solution:
Output Tax Payable
Sale of taxable goods within the state (7,28,000 x 6%) 43,680 43,680 --
Goods sold within the state (exempted) -- -- --
Total (A) 43,680 43,680 --

Purchased within the state (5,25,000 x 5/105)x1/2 12,500 12,500 --
Purchased from other state (1,12,000x12/112) -- -- 12,000
Import from other country (2,35,000 x 5%) -- -- 11,750
Purchase of Capital goods within the state
(2,56,000x28/128)=56,000/60=933/8,48,000x7,28,000x1/2
400 400 --
Total (B) 12,900 12,900 23,750
Balance tax payable or Excess (A-B) 30,780 30,780 (23,750)
Less: Inter head set off of ITC
Balance to be payable or excess balance available in Electronic
Credit Ledger
7,030 30,780 --
4.24 Terminal Questions:
Section - A
1. Mentions any two types of person who are liable for the registration under GST
2. What is Zero rated supply
3. Give the meaning of casual taxable person
4. What do you mean by consideration?
5. Define Interstate supply
Section - B
1. What is integrated goods and services tax? What is the taxable event under IGST Act?
2. Define the following :
 Exempt supply
 Taxable supply
 Not taxable supply
 Inward supply
 Outward supply
Section - C
Practice problems:

accordance with provisions of section 12 of the CGST Act,2017 in case supply does not
involve movement of goods

Sl.no Date of invoice Date when goods made Date of receipt of
available to recipient payment
1 02-10-2017 03-10-2018 15-11-2017

2 04-10-2017 01-10-2017 25-11-2017
3 04-11-2017 06-11-2017 01-10-2017

accordance with provisions of CGST Act,2017:
Sl.no Date of actual Time (Date) of invoice, bill Date of receipt of payment
provision of service challan as the case may be
1 10-11-2017 30-11-2017 6-11-2017(part) and
2 10-11-2017 12-12-2017 30-04-2018
3 10-11-2017 12-12-2017 5-11-2017(part) and
4 10-11-2017 22-12-2017 12-12-2017
3. X company manufacture 2000 units of products and sold to a whole seller at Rs.200 per
unit. 10% discount is allowed to the whole seller as per the normal practice. What is the
amount of GST payable if rate of GST is 12%.
4. Having a regard to the provisions of CGST and SGST Act, 2017, compute the transaction
value of goods from the following information and GST payable.
Particulars Rs
Listed selling price including IGST of Rs.5,000 35,000
Following transactions are not included in the above price
Normal secondary packing cost 2,000
Cost of special packing 1,000
Cost of durable and returnable packing 1,500
Freight charges paid by supplier charged separately 800
Insurance of freight paid by supplier charged separately 200
Trade discount 2,000
Rate of GST 12%
5. A manufacture has prepared the invoice as under:

Particulars Rs.
Price of goods (excluding CGST at 14% and SGST at 14%) 10,00,000

The following items not included in the above price
Advertising charges 1,20,000
Publicity charges 60,000
Selling expenses 40,000
Loading and handling charges 10,000
Servicing charges 10,000
Outward freight and insurance on buyer request 64,000
Allowed discount at 10% on the price of the goods and shown in invoice. compute the
amount of GST payable.
6. How will you arrive the transaction value under the subject transaction to be determined
under section 15 of the CGST act 2017? Give reasons with suitable assumptions where
necessary.
Contracted sale price for delivery at buyer’s premises Rs.10,00,000. The contracted sale
price includes the following elements of cost:
Particulars Rs.
i. Cost of drawings and designs 3,000

ii. Cost of primary packing 3,500
iii. Cost of packing at buyer’s request for safety during transport 7,500
iv. GST at 12% 1,20,000
v. Freight and insurance charges paid from factory to ‘place of
delivery’ 20,000
vi. Durable and returnable container charges included 10,000
vii. Discount allowed as per the trade practice and shown in invoice 20,000
7. Having regard to the provisions of section 15 of CGST Act 2017, compute the transaction
value of taxable goods, for levy of GST, given the following information:
Particulars Rs.
Wholesale price of a product sold to Chennai from a dealer in banglore 72,000

(including GST 12%)
Above price is exclusive of the following: 4,000
Normal secondary packing cost 6,000
3,000
Cost of special secondary packing 2,500
500

Cost of durable and returnable packing 8,000
Freight
Insurance on freight
Trade discount (normal practice)
State in the foot note to your answer, reasons for the admissibility or otherwise of the
deductions .compute IGST payable.
8. A dealer in Bangalore agreed to supply 5 computer systems to a dealer in Bidar in the

month of august 2017 on following terms;
Particulars Rs.
Price of the each CPU supplied (inclusive of GST at 18%) 23,600

6,000
Price of the each desktops supplied (exclusive of GST at 28%) 4,000
Packing for transportation 6,000
10,000
Transport charges to recipient place charged separately in invoice 2,000
Commission paid to the agents to fix up agreement for the sale these
Late fee charged to buyer for the delayed payment of the materials
supplied in the month of July 2017
The dealer supplied following essential items along with the CPU:
i. 5 Key pads supplied along with the laptops costing Rs.300 each and rate of GST applicable
is 12%
ii. 5 mousse supplied along with the laptop costing Rs. 350 each and rate of GST applicable is
12%
iii. Cost of operating software’s sullied for all the systems Rs.50,000 rate tax applicable to
software’s 5%
iv. Special discount of Rs. 5000 for is given, if advance of Rs.100000 is paid with order. The
buyer has paid the advance with the order.
Find the transaction value and the GST payable for month of august 2017
9. A dealer in Hyderabad agreed to supply 10 laptops to a dealer in bangalore in the month

of august 2017 on following terms:
Rs
Price of the each laptop (inclusive of IGST at 18%) 47,200
Packing for transportation of laptop 5,000
Transport charges of laptops 5,000
Commission paid to the agents to fix up agreement for the sale these 10,000

Addition feature charges incurred by seller on request of buyer for each 20,000
laptop
The leader supplied following optional items along with the laptops:
i. 10 pen drives supplied along with the laptops costing Rs.600 each and rate of GST
applicable is 18%
ii. 10 key pads supplied along with the laptops costing Rs.300 each and rate of GST
applicable is 12%
iii. 10 optical mousse supplied along with the laptop costing rs.350 each and rate of GST
applicable is 12%
iv. 3 printers supplied along with the laptops costing Rs.5000 each and rate of GST
applicable is 28% and
v. Special discount of Rs.2000 for each laptop is given, if advance of Rs.200000 is paid with
order. The buyer has paid the advance with the order,
Find the transaction value and the GST payable for the month of august 2017.
10. A transport agency registered in the state of Karnataka provided the following services in
the month of July 2017. Compute the amount of GST payable for the month July 2017.
1. Transport of passenger by air condition contract or stage carriage 63,000

the rate of GST applicable is 5%
Transport of passenger by radio taxi @ 5% GST applicable
2. 20,000
Transport by passenger by air in economy class @ 5% GST
3. 1,20,000
Transport of passenger by air in other than economy class @ 12%.
4. 60,000
Service provided to a foreign tourist in relation to a tour conducted
wholly outside India which is exempt from GST
5. 3,00,000
11. An advertising (media) service provider registered in Andaman and Nicobar islands which
is a union territory, has provided the following services. Compute the amount of GST payable.
1. Selling of space for advertisement in print media @ 5% GST 5, 00,000.

Service by way of job work in relation to printing of newspaper @ 5% GST 4,00,000
2. Service provided to the united nations for creating awareness about health and
hygiene in India 2,00,000.
Service provided to farmer in relation to agricultural activity 50,000.
3.
Services provided to an event management company for creation of banners and
broachers. 30,000
4.

12. From the following details, compute the value of taxable services and services tax liability
for the Assessment year 2016-17.
Particulars Amount
Services provided by foreign diplomatic mission 5,00,000
Aerial advertising 1,00,000
Service by way of private tuitions 30,000
Speed post services 50,000
House given on rent for residential purpose 3,00,000
Value of free services rendered to friends 50,000
Services rendered to UNO 2,00,000
Certification for exchange control purpose 50,000
Secretarial auditing 20,000
Fees to act as a liquidator 1,00,000
Vacant land used for horticulture 10,00,000
Sale of time slot by broadcasting organisation 1,00,000
Services rendered within Indian territorial water 10,00,000
Services relating to supply of farm labour 2,00,000
13. From the following particulars, compute the Net GST liability of the month and GST Credit
to be carried forward, if any.
Inputs/supplies purchased during the month from SEZ in 1,00,000

Bengaluru (including BCD but Excluding GST)
Capital goods purchased during the month from Chennai
10,00,000
Sales made within the state during the month
10,00,000

Sales made to other state during the month 1,00,000
GST rate on purchases of inputs, capital goods and sales is 12%.
14. Mr. X (Registered Dealer) is a trader in Delhi and he has purchase certain goods from Punjab
for ₹ 4,00,000 and has paid IGST 5%. After manufacturing he has sold half of the goods in the
state of Delhi for ₹ 3,00,000 plus GST @ 12%. And the rest of the products to a unit situated in
SEZ in Delhi for ₹ 2,50,000. He has purchased certain goods in Delhi for ₹ 5,00,000 and paid
GST @ 18% and all the goods were sold by him under interstate sale to a registered dealer in
U.P. for ₹ 7,00,000 plus IGST @ 12%. Compute the net output tax payable.
15. Compute the net GST lability of Mr. Karthik registered dealer in Karnataka from the
information as given below:
i. Raw material purchased from foreign market including custom duty paid on imports @ 10%
+ EC @ 3% and exclusive of IGST at 12% is ₹ 70,500.
ii. Raw material purchased from local market (including GST charged on the material @ 5%) -
₹ 45,150.
iii. Raw material purchased from Telangana (including IGST @12%) - ₹ 29,120
iv. Storage, transportation cost and insurance - ₹ 4,500
v. Other manufacturing expenses incurred - ₹ 32,000.
vi. Materials purchased from a registered dealer who opted for composition scheme under GST
₹ 64,000. Rate of GST on this material is 1%
vii. Profit margin of a manufacturer is 10% on the selling price.
Mr. Karthik sold 30% of the finished goods to a SEZ in Bangalore, and the balance to a dealer
in Bangalore. GST rate on sale of such goods is 12%.
16. Ms. Swathi a dealer submits the following information in relation to manufacture and
selling of drilling machine. Compute the net GST liability from the following information:
Import of raw-materials (excluding 10% of BCD in import)

Rate of IGST @ 5% 1,40,000
Raw materials purchased from Karnataka (including CGST at 14% &
SGST @ 14%)
5,12,000
Raw materials purchased from Kerala excluding IGST @ 5%
40,000
Subsidy received from an NGO which was directly related to price of
the goods
13,000
Manufacturing expenses
3,800
Subsidy received from Central Government which was directly linked
to the price of the product.
Additional incentives paid to the employees of sales department 14,000

Warranty charges 3,000
Exempted services received in connection with the manufacture 9,600
6,600
Along with the machine he supplied 3 components at a fixed price of ₹ 15,000 each of these
components are naturally bundled with the supply of the machine. The GST rate of the three
products is 28%, 5% and 12% respectively.
Ms. Swathi sold the machine to Ms. Preethi at a profit of 15% on the cost of production and
the rate of GST on such sales is 18%.
17. From the following information compute the transaction value and the amount of GST
payable.
- Purchases from local market (GST inclusive of @ 5%) ₹ 1,47,000.

- Goods purchased from a unit of SEZ’s in Bangalore (excluding GST at 12%) ₹ 1,00,000.
- Raw materials purchased from a unregistered dealer in Mysore for ₹ 20,000 rate of GST
applicable to such materials is 18%.
- Materials purchased from SEZ in BIdar (including GST at 5%) ₹ 2,10,000.
- Materials purchased within the state from a registered dealer who opted for
composition scheme under GST. Rate of GST to this product is 12% ₹ 3,00,000.
- Materials purchased from Japan including BCD and excluding GST at 28%. ₹ 1,00,000.
- Manufacturing expenses is ₹ 1,00,000.
- Profit to manufacturer is ₹ 30,000.
Sales details:
1. 20% sold to a unit of SEZ in Bengaluru,
2. 30% sold to an unregistered dealer of Delhi,
3. 20% sold to a registered dealer of Mysore who opted for composition scheme under GST
and
4. The balance has sold to a registered dealer in Mysore.
18. Calculate the total tax liability under the GST Act for the month of October, 2017 from
the following particulars;
Particulars ₹
Inputs purchased within the state at 5% GST 1,70,000
Capital goods purchased from Goa used in the manufacture of 5,00,000
taxable goods and nontaxable goods at 5% IGST
Inputs purchased from a registered dealer who opt for composition
2,00,000
scheme

High Seas purchases of inputs including BCD @ 10% and excluding 1,00,000
IGST at 5%
Materials purchased from Telangana at 12% GST.
40,000
Finished goods ‘A’ sold:
a) Within the state at 12% GST

2,00,000
b) In the course of interstate trade at 12% IGST
2,50,000
Finished goods ‘B’ sold to SEZ on which tax is exempted
(these goods produced from the materials purchased from
Telangana)
50,000
19. From the following particulars compute net GST payable by Wipro Company for the
period ending 31.8.2017.
Particulars ₹
Inputs procured
Raw material at nil rate 20,00,000
Raw material purchased within the state at 5% GST 30,00,000
Raw material A purchased at 5% GST 1,74,80,000
Output
Intra-state sale of finished goods at 18% GST (these goods were
produced Entirely from raw material at NIL rate GST Procured as
input)
28,00,000
Exempted sales (these goods were produced from raw material
procured at 5% GST to the extent of 60%)
Sale of finished goods at 18% (these goods were procured from Intra- 25,00,000
state purchases at 5% GST to the extent of 40%)
Inter-state sale of finished goods at 5% (these goods were produced

10,00,000
from raw material A)
50,00,000

Customs Duties
5.1 Introduction:
Government requires money to discharge its duty towards public so it collects money from public in the
form of fines, fees, taxes and surcharge. One of such tax imposed by the government on the import and
export of goods is called custom duty. Customs is a form of indirect tax. They are as old as international
trade itself, the Customs Duties are major tax revenue for the Union Govt. and constitute around 30% of its
total tax revenues. The levy and the rate of customs duty in India are governed by the Customs Act 1962
and the Customs Tariff Act 1975. These duties are usually levied with ad valorem rates and their base is
determined by the domestic value the imported goods calculated at the official exchange rate. Similarly
export duties are imposed on export values expressed in domestic currency. Customs duty is calculated on
the transaction value of goods. Imported goods in India attract basic customs duty additional customs duty
and education cess. The rates of basic customs duty are specified under the Tariff Act. The peak rate of
basic customs duty has been reduced to 10% for industrial goods. Additional customs duty is equivalent to
the excise duty payable on similar goods manufactured in India. Education cess at 2% and secondary higher
education cess of 1% is leviable on the aggregate of customs duty on imported goods w.e.f 1-3-2007
5.2 Meaning of word “customs”:
Customs duty is a duty or tax, which is levied by Central Government on import of goods into, and export
of goods from India. It is collected from the importer or exporter of goods, but its incidence is actually borne
by the consumer of the goods and not by the importer or the exporter who pay it.
5.3 Historical Background:
The term ‘customs’ derives from the term ‘custom’, Which means a habitual practice or course of
action that characteristically is repeated in like circumstances. In olden days it was customary for a
trader bringing the goods to a particular kingdom to offer certain offerings as gifts to the King for
allowing him to sell his goods in that kingdom.This customary practice or circumstances of giving gifts
was formalized into present customs duty.
Kautiliya’s Arthashastra also refers to shulka (Customs Duty) consisting of import duty and export duty
to be collected at the city gates on both goods coming in and going out. Subsequently, the levy of tax
on goods imported into the country was organized through legislation during the British period.
There are two Acts, which form part of Customs Law in India, namely, the Customs Act.1962 and Customs
Tariff Act, 1975:
1. The Customs Act, 1962

The Customs Act was passed and promulgated in India by the Parliament in the year 1962, which
replaced the Sea Customs Act, 1878,The Customs Act.1962 is the basic Act for levy and collection of
customs duty in India. It contains various provisions relating to imports and exports of goods and
merchandize as well as baggage of persons arriving in India. The main purpose of Customs Act, 1962 is the
prevention of illegal imports and exports of goods. The Act extends to the whole of the India. It was
extended to Sikkim w.e.f. 1st October 1979.
2. The Customs Tariff Act, 1975

The Customs Duty is levied on goods imported or exported from India at the rates specified under the
Customs Tariff Act, 1975. The Act contains two schedules - Schedule 1 gives classification and rate of
duties for imports, while schedule 2 gives classification and rates of duties for exports. In the present Act,
the Tariff Schedule was replaced in 1986. The new Schedule is based on harmonized System of
Nomenclature (HSN) the internationally accepted harmonized commodity Description and coding System.
5.4 Objectives of customs duty:
The customs duty is levied, primarily, for the following purpose:

 To raise revenue.
 To regulate imports of foreign goods into India.
 To conserve foreign exchange, regulate supply of goods into domestic market.
 To provide protection to the domestic industry from foreign competition by restricting import of
selected goods and services, import licensing, import quotas, and outright import ban.
5.5 Nature of Customs Duty:
Entry 83 of List-I (Union List) to the Schedule-VII reads as under 83 ‘Duties of Customs including Export
duties’. Thus, the levy of duty on imports and exports is subject matter of Union and the parliament derives
power to make laws related to the duties of customs.
Accordingly, the Customs Act, 1962 was enacted by the Parliament. Section 12 of the Customs Act provides
that duties of customs shall be levied at such rates as may be specified under the Customs Tariff Act, 1975
or any other law for the time being in force, on goods imported into, or exported from, India. Goods become
liable to duty if there is import into and export from India.
Section 3 of customs tariff act has also been held as “charging section”(for levy of CVD-additional customs
duty).
1) Taxable Event for Import Duty: Goods become liable to import duty or export duty when there is
import into or export from India
2) Taxable event in case of warehoused goods: Import takes place only when goods are cleared from
the warehouse,, where it was held that taxable event occurs when goods cross customs barrier and
not when goods land in India or enter territorial waters.
3) Date of filling bill of entry: Rate of duty and tariff valuation as on date of presentation of bill of
entry or date of entry inward of the vessel, whichever is later, is relevant for determining the customs
duty payable. Thus rate of duty when the ship enters the port is relevant and not the date when ship
enters territorial waters.
4) Taxable event in case of exports: It has been held that export is complete when goods cross territorial
waters of India. If the ship sinks within territorial waters, export is not complete and hence duty
drawback is not payable..It was held that export is complete once the goods leave Indian waters and
property passes to purchases. Even if goods return due to engine trouble, duty drawback is payable.
5) Entry inwards to the vessel: Normally, entry inwards is granted only after the import manifest has
been delivered. This entry inward date is crucial for determining the rate of the duty, as provided in
section 15 of the customs act 1962. The master of the vessel is not to permit the unloading of any
imported goods until an order has been given by the proper officer granting entry inwards of such
vessel.

6) Entry Outwards to the Vessel: The vessel should be granted ‘Entry Outward’ Loading can start only
after entry outward is granted under Section 39 of Customs Act, 1962. If the shipping bill has been
presented before the date of entry outwards of the vessel by which the goods are to be exported, the
shipping bill shall be deemed to have been presented on the date of such entry outwards.
Circumstance under which no Duty will be levied
a) No duty will be levied in case of warehoused goods, when the goods are damaged before their actual
clearance from such warehouse, where it is shown to the satisfaction of the Assistant or Deputy
Commissioner of Customs.
b) No duty will be levied on pilfered goods under section 13 of the Customs Act. If any imported goods
are pilfered after the unloading thereof and before the proper officer has made an order for clearance
for home consumption then the importer shall not be liable to pay the duty leviable on such goods.
c) No duty will be levied when the goods are damaged or deteriorated before or during the course of
their unloading, where it is shown to the satisfaction of the Assistant or Deputy Commissioner of
Customs.
d) No duty will be levied in case of goods lost or destroyed due to natural causes like fir, flood etc.,
such losses may take place at any time before the clearance of goods for home consumption.
e) No duty will be levied in case of goods abandoned by importers. for the following reasons:
a) The goods may not be according to the specification
b) The goods may have been damaged
c) There might have been breach of contract.
f) No duty will be levied, if the Central Government is satisfied that it is necessary in the public interest
not to levy import duty by issuing the notification in the Official Gazette.
5.6 Important terms in Custom Duties:
Definition u/s 2 of The Customs Act 1962:
‘Import’, as defined in section 2(23), means ‘bringing into India from a place outside India’.
‘Export’, as defined in section 2(18), means taking out of India to a place outside India’.
‘India’ is defined in section 2(27) to include the territorial waters of India. The definition of India is an
inclusive definition. [Article I of the Constitution of India defines “India” as Union of States. General
Clauses Act defines India to mean all territories for the time being comprised in India.]
‘Goods’ as defined in section 2(22) Includes
 Vessels, aircrafts and vehicles
 Stores
 Baggage
 Currency and Negotiable instruments
 Any other kind of movable property
Dutiable Goods 2(14): any goods which are chargeable to Duty and on which Duty has not been paid.
Goods may be either imported or exported.
Non- Dutiable Goods: any goods on which no duty is payable are known as Non-Dutiable Goods

Coastal Goods: As Per Section 2(7), Coastal Goods means goods, other than imported goods, transported
in a vessel form one port in India to another. (goods which are meant to transport within India through
waterways)
Imported goods means

a. Any goods brought in India from outside India, but do not include goods which have been cleared
for home consumption.
b. Once goods are cleared by customs authorities from Customs Area, they are no longer imported
goods.
Export goods means

a. Any goods which are to be taken out of India to a place outside India.
b. Goods brought near customs area for export purpose will be export goods.
Prohibited goods means

Any goods, the import or export of which is subject to any prohibition under this Act or any other Act for
the time being in course but does not include any such goods, in respect of which the conditions subject to
which the goods are permitted to be imported or exported have been compiled with.
Stores means
Goods for use in a Vessel or Aircraft and includes fuel and spare parts and other equipment whether or not
for immediate fitting.
Exclusive economic zone

In this zone, the coastal state has exclusive right to exploit it for economic purposes like, constructing
artificial islands, fishing, mineral resources and scientific research. However, other countries have right of
navigation and over-flight rights. Other countries can lay sub-marine cables and pipe lines with the consent
of the Government of India.
Baggage:
U/s 2(3) The term has been defined as baggage includes unaccompanied baggage but does not include motor
vehicles. However, following may be noted:
 Baggage means all dutiable articles, imported by passenger or a member of a crew in his baggage
 Un-accompanied baggage, if dispatched previously or subsequently within prescribed period is also
covered
 baggage does not include motor vehicles, alcoholic drinks and goods imported through courier
 Baggage does not include articles imported under an import license for his own use or on behalf of
others.
Customs Station 2(13)

Imported goods are permitted to be unloaded only at specified places. Similarly, goods can be exported only
from specified area. In view of this, a definition of ‘Customs Station’ is important. Customs Station means
 customs port
 customs airport
 land customs station

Customs area 2(11)
Customs area means the area of Customs Station and includes any area where imported goods or export
goods are ordinarily kept before clearance by Customs authorities. Thus, ‘Customs Area’ could include
some area even outside the ‘Customs Station’.
Bill of Entry
This is a very vital and important document which every importer has to submit under section 46. Bill of
Entry should be submitted in quadruplicate –original and duplicate for customs, triplicate for the importer
and fourth copy is meant for bank for making remittances.
Drawback
Drawback means the rebate of duty chargeable on any imported materials or excisable materials used in
manufacture or processing of goods which are manufactured in India and exported.
Entry
Entry’ in relation to goods means an entry made in a Bill of Entry, Shipping Bill or Bill of Export. It includes
 label or declaration accompanying the goods which contains description, quantity and value of the
goods, in case of postal articles u/s 82
 Entry to be made in case of goods to be exported
 (c)Entry in respect of goods imported which 84. [Section 2(16)].
5.7 Valuation in Customs:
Customs duty is payable as a percentage of ‘Value’ often called ‘Assessable Value’ or ‘Customs Value’.
The Value may be either (a) ‘Value’ as defined in section 14(1) of Customs Act or (b) Tariff value
prescribed under section 14(2) of Customs Act (section amended w.e.f.10-10-2007)
a) Transaction value at the time and place of importation or exportation, when price is sole
consideration and buyer and sellers are unrelated is the basic criteria for ‘value’ u/s 14(1) of Customs
Act. Thus, CIF value in case of imports and FOB value in case of exports is relevant.
b) In case of high sea sale, price charged by importer to buyer would form the assessable value and not
the invoice issued to the importer by foreign supplier.
c) Rate of exchange will be as determined by CBE&C or ascertained in manner determined by
CBE&C.
d) Valuation for customs is required to be done as per provisions of Customs Valuation Rules, 2007
e) CIF value of goods plus 1% landing charges is the basis for deciding ‘Assessable Value’.
f) Commission to local agents, packing cost, value of goods and tooling’s supplied by buyer, royalty
relating to imported goods are added to the value.
g) Interest on deferred payment, demurrage and value of computer software loaded is not to be added.
h) Old machinery and old cars are often valued on basis of depreciated value, though such method has
no sanction of law.
Inclusions under Rule 10 to ‘Customs Value’

Rule 10 of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 [Rule 9 up to 10-
10-2007] provide that following cost and services are to be added,
a) Commission and brokerage, except buying Commission, if not already included in the invoice price
[rule10 (1)(a)(i)].
b) Cost of container which are treated as being one with the goods for customs purposes, if not already
included in the invoice price [rule 10(1)(a)(ii)].

c) Cost of packing whether labour or materials, if not already included in the invoice price [rule
10(1)(a)(iii)].
d) Materials, components, tools, dies, moulds, and consumables used in production of imported goods,
supplied by buyer directly or indirectly, free of charge or at reduced cost, to the extent not already
included in price and Engineering, development, art work, design work, plans and sketches
undertaken elsewhere than in India and necessary for production of imported goods, to the extent
not already included in price.
e) Royalties and license fees relating to imported goods that buyer is required to pay, directly or
indirectly, as a condition of sale of goods being valued
f) Value of proceeds of subsequent resale, disposal or use of goods that accrues directly or indirectly
to seller
g) All other payments made as condition of sale of goods being valued made directly or to third party
to satisfy obligation of seller, to the extent not included in the price.
h) Cost of transport up to place of importation
i) Loading, unloading and handling charges associated with delivery of imported goods at place of
importation [These are termed as landing charges and are to be taken as 1%] [rule 10(2)(b)]
j) Cost of insurance [rule 10(2)(c)]
5.8 Methods of Valuation for Customs:
The Valuation Rules, 2007, consist of rules providing six methods of valuation.
The methods are:
a) Transaction Value of Imported goods
b) Transaction Value of Identical Goods
c) Transaction Value of Similar Goods
d) Deductive Value, which is based on identical or similar imported goods, sold in India.
e) Computed value, which is based on cost of manufacture of goods plus profits
f) Residual method based on reasonable means and data available.
These are to be applied in sequential order, i.e. if one method cannot be applied, then method two comes
into force and when method two also cannot be applied, method three should be used and so on. The only
exception is that the ‘computed value’ method may be used before ‘deductive value’ method, if the importer
requests and Assessing Officer permits.
Transaction value of the Imported goods:

This is the first and primary method as per rule 3 of Valuation Rules. As per rule 3(1), ‘transaction value’
of imported goods shall be the price actually paid or payable for the goods when sold for exported to India,
adjusted in accordance with provisions of rule 10. [Rule 10 gives costs and services to be added to
transaction value].
Transaction value of identical goods:

Rule 4 of Customs Valuation Rules provide that if valuation on the basis of ‘transaction value’ is not
possible, the ‘Assessable value’ will be decided on basis of transaction value of identical goods sold for
export to India and imported at or about the same time, subject to making necessary adjustments. Identical
goods’ are defined under Rule 2(1)(c) as those goods which fulfill all following conditions i.e.
a) The goods should be same in all respects, including physical characteristics, quality and reputation;
except for minor differences in appearance that do not affect value of goods.
b) The goods should have been produced in the same country in which the goods being valued were
produced.
c) They should be produced by same manufacturer who has manufactured goods under valuation - if price
of such goods are not available, price of goods produced by another manufacturer in the same country.
Transaction value of similar goods:

If first method of transaction value of the goods or second method of transaction value of identical goods
cannot be used, rule 5 provide for valuation on basis of ‘Transaction value of similar goods imported at or
about the same time'.
Rule2 (1)(e) define ‘similar goods’ as imported goods
a) Which although not alike in all respects, have like characteristics and like components materials
which enable them to perform same functions. These should be commercially inter-changeable
with goods being valued as regards quality, reputation and trade mark.
b) The goods should have been produced in the same country in which the goods being valued were
produced.
c) They should be produced by same manufacturer who has manufactured goods under valuation -
if price of such goods are not available, price of goods produced by another manufacturer in the
same country can be considered.
Deductive Value:
Rule 7 of Customs Valuation Rules provide for the next i.e. fourth alternative method, which is called
‘deductive method'. This method should be applied if transaction value of identical goods or similar goods
is not available; but these products are sold in India. The assumption made in this method is that identical
or similar imported goods are sold in India and its selling price in India is available. The sale should be in
the same condition as they are imported. Assessable Value is calculated by reducing post importation costs
and expenses from this selling price. This is called ‘deductive value’ because assessable value has to be
arrived at by method of deduction (deduction means arrive at by inference i.e. by making suitable additions
/ subtractions from a known price to arrive at required ‘Customs Value').
Computed Value for Customs:

If valuation is not possible by deductive method, the same can be done by computing the value under rule
8, which is the fifth method. If the importer requests and the Customs Officer approves, this method can be
used before the method of ‘deductive value'. In this method, value is the sum of (a) Cost of value of materials
and fabrication or other processing employed in producing the imported goods (b) an amount for profit and
general expenses equal to that usually reflected in sales of goods of the same class or kind, which are made
in the country of exportation for export to India. (c) The cost or value of all other expenses under rule 9 (2)
i.e. transport, insurance, loading, unloading and handling charges.
Residual Method:
The sixth and the last method are called “residual method”. It is also often termed as ‘fallback method’.
This is similar to ‘best judgment method’ of the Central Excise. This method is used in cases where
‘Assessable Value’ cannot be determined by any of the preceding methods. While deciding Assessable
Value under this method, reasonable means consistent with general provisions of these rules should be the
basis and valuation should be on basis of data available in India. This method can be considered if valuation
is not possible by any other method. In other words, selling price for export to India can alone form the
basis.
5.9 Procedures for Import:
 Goods should arrive at customs port/airport only.

 Person in charge of conveyance is required to submit Import Manifest or Export Manifest.
 Goods can be unloaded only after grant of ‘Entry Inwards’.
 Importer has to submit Bill of Entry giving details of goods being imported, along with required
documents. Electronic submission of documents is to be done in many ports.
 Goods are assessed to duty, examined and customs duty is paid. Bond is executed if required. Goods
can be cleared from port after ‘Out of Customs Charge’ order is issued by customs officer.
 Self-Assessment on basis of ‘Risk Management System’ (RNS) has been introduced in some ports
in respect of specified goods and importers.
 Demurrage is payable if goods are not cleared within three days from port. Goods can be disposed
of if not cleared within 30 days.
Submission of Bill of Entry –

Bill of Entry is a very vital and important document which every importer has to submit to customs officer
in respect of imported goods other than goods intended for transit or transshipment.
Bill of Entry should be in prescribed form. It can be either for home consumption or for warehousing. It
should include all goods mentioned in Bill of Lading or other receipt given by carrier to consignor. Importer
has to declare that contents of Bill of Entry are true.
• White Bill of Entry is for home consumption. Imported goods are cleared on payment of customs duty.
• Yellow Bill of Entry is for warehousing. It is also termed as ‘into bond Bill of Entry’ as bond is executed.
Duty is not paid and imported goods are transferred to warehouse where these are stored.
• Green Bill of Entry is for clearance from warehouse on payment of customs duty. It is for ex-bond
clearance.
Documents to be submitted by Importer –

Documents required by customs authorities are required to be submitted to enable them to (a) check the
goods (b) decide value and classification of goods and (c) to ensure that the import is legally permitted.
The documents that are essentially required are:

(i) Invoice
(ii) Packing List
(iii) Bill of Lading / Delivery Order
(iv) GATT declaration form duly filled in
(v) Importers / CHAs declaration duly signed
(vi) Import License or attested photocopy when clearance is under license
(vii) Letter of Credit / Bank Draft wherever necessary (vii-a) Insurance memo or insurance policy
(viii) Industrial License if required
(ix) Certificate of country of origin, if preferential rate is claimed.
(x) Technical literature.
(xi) Test report in case of chemicals
(xii) Advance License / DEPB in original, where applicable
(xiii) Split up of value of spares, components and machinery
(xiv) No commission declaration. – A declaration in prescribed form about correctness of information
should be submitted.
5.10 Procedures for Export:

The broad procedures to be followed for exports are as follows —
a) Submit Shipping Bill for export to customs authorities.
b) Submit invoice, packing lists, contracts, exports authorization (if applicable) and other related
documents.
c) Submit necessary declarations for export.
d) Submit* GG/SDF/SOFTEX form as required under FEMA* Excise ARE-1 form.
e) The ‘Export Value Declaration’ should be in form given in Annexure A to MF(DR).
f) Noting of Shipping Bill by customs officer.
g) Assessment i.e. valuation and classification of goods. Checking of Advance Authorization, if
applicable.
h) Custom check whether export is restricted/prohibited
i) Examination of goods by customs officer
j) Pay export duty, if applicable.
k) Stuffing of container, if not already done.
l) ‘Let export’ Order by customs officer.
m) Obtain ARE-1 form duly signed by customs officer. Obtain Bill of Lading from shipping company.
Submit proof of export to excise authorities.
n) Complete formalities relating to claim of duty drawback.
Every exporter should take following initial steps -

a) Obtain BIN (Business Identification Number) from DGFT. It is a PAN based number.
b) Open current account with designated bank for credit of duty drawback claims
c) Register licenses/advance license/DEPB etc. at the customs station, if exports are under Export
Promotion schemes
5.11 Special Procedures Relating To Clearance of Baggage:
Introduction to Baggage:
The term baggage means luggage of the passenger if they travel by Air or Sea or by Road from one country
to another country. Sometimes this baggage amounts to import thereby import duty may be levied. It is
essential for us to know whether baggage is exempted or not, if exempted in what circumstance it is
exempted.
Definition:
Baggage means all dutiable goods imported by a passenger or a member of a crew in his baggage. Baggage
may be accompanied baggage or unaccompanied baggage. It includes all dutiable articles, imported by a
passenger or a member of a crew in his baggage. Un-accompanied baggage means if baggage is dispatched
previously or subsequently within a prescribed period. It means the baggage may be sent by him earlier or
after his departure from abroad.
Basically baggage can be classified into the following lines:

Baggage
Applicable Not Applicable

goods goods
Goods
All dutiable
Motor Vehicles Alcoholic drinks imported
goods
through courier
Green channel: means if a person does not have any dutiable goods, he can go through green channel
without undergoing any check along with baggage.
Red Channel: means if carrying dutiable goods should pass through red channel and should submit the
declaration and his baggage can be inspected by the customs authorities.
Rate of Duty on Baggage is @35% plus 2% education cess plus 1% secondary and higher education cess.
What is a Baggage – The term has not been defined as such. However, following may be noted: (a) Baggage
means all dutiable articles, imported by passenger or a member of a crew in his baggage (b) Un-accompanied
baggage, if dispatched previously or subsequently within prescribed period is also covered (c) baggage does
not include motor vehicles, alcoholic drinks and goods imported through courier (d) Baggage does not
include articles imported under an import license for his own use or on behalf of others.
Bona fide Baggage Exempt from duty- Bona fide baggage accompanying passenger is exempt from duty.
It includes wearing apparel, toilet requisites and other personal effects.
General prohibitions- Following are general prohibitions/restrictions – (a)Foreign and Indian currency can
be taken out/brought in only as per restrictions of RBI under FEMA (discussed later in this chapter). (b)
Possession of narcotic drugs is strictly prohibited. (c) Domestic pets like dogs, cats, birds etc. can be brought
as per strict health certificate regulations. (d) Taking out exotic birds, wind orchids and wild life, is strictly
prohibited. (e) Endangered species or articles made from flora and fauna such as ivory, musk, reptile skins,
furs, shahtoosh or antiques are prohibited.
General Free Allowance:

Passengers coming from out of India are allowed to bring certain goods without payment of customs duty.
It is termed as ‘Free Allowance’ (earlier, it was termed as ‘General Free Allowance’.

5.12 Exemption from Custom Duty:
Central Government can grant exemption from duty under section 25 of customs act. These exemptions are
listed below:
1) Exemptions by Notification: Section 25(1) of Customs Act, 1962 authorizes Central Government to
issue notifications granting exemptions from duty. Such exemption may be unconditional or subject to
conditions. Such conditions may be required to be fulfilled before or after clearance. Government can
also grant exemption by a special order in exceptional circumstances. The exemption notification should
be published in official gazette. The notification will be issued only in public interest.
2) Import for Repairs, Reconditioning etc.,: Goods can be imported for repairs, reconditioning or re-
engineering. These have to be re-exported within three years of imports. After imports, the repairs,
reconditioning or re-engineering has to be in a bonded warehouse under customs bond.
3) Imports by Privileged persons and organizations: Import by U.N. agencies, governors, Ford Foundation,
vice president of India specified equipment by foreign new agency, personal effects of deceased persons,
gifts imported by CARE have been granted various exemptions.
4) Ad hoc exemptions: Section 25(2) of Customs Act permits Government to issue ad hoc exemption from
customs duty by issue of a special order in exceptional circumstances. The order should specify the
exceptional circumstances for granting exemption. It has been clarified that such exemption can be
granted even after duty is paid. In such case, duty has to be refunded.
5) Exemption of Imports for Export: Many schemes have been formed to allow duty free imports of raw
materials and components for exports. These include schemes like FTZ, 100% EOU, STP, EHTP,
Advance licenses, etc. Import of materials for job work and return are also permitted.
6) Project Imports: Heavy Customs duty on imported machinery for projects make the initial project cost
very high and project may become unviable. Hence, concept of ‘Project Import’ has been introduced to
bring machinery etc., required for initial setup or substantial exemption at concessional customs duty.
5.13 Type of customs duties:
While Customs Duties include both import and export duties, but as export duties contributed only nominal
revenue, due to emphasis on raising competitiveness of exports, import duties alone constituted major part
of the revenue from Customs Duties. The import duties are imposed under The Customs Act, 1962 and
Customs Tariff Act, 1975. The structure of Customs Duties includes the following:
Basic Customs Duty (BCD)

All goods imported into India are chargeable to a duty under Customs Act, 1962 The rates of this duty,
popularly known as basic customs duty, are indicated in the First Schedule of the Customs Tariff Act, 1975
as amended from time to time under Finance Acts. The duty may be fixed on ad –valorem basis or specific
rate basis. BCD is further classified as standard rate of BCD or preferential rate of BCD
*Standard Rate is the rate of duty levied for all countries except the preferential countries.
*Preferential Rate of BCD is the special rate of duty for trade to or from a particular country declared by
Central Government by notification in the Official Gazette.
Auxiliary Duty of Customs

This duty is levied under the Finance Act and is leviable on all goods imported into the country at the rate
of 50 per cent of their value. However, this statutory rate has been reduced in the case of certain types of
goods into different slab rates based on the basic duty chargeable on them. This duty has been abolished
now.

Additional (Countervailing) Duty of Customs
Countervailing Duty is payable on imported goods u/s 3(1) of Customs Tariff Act to counter balance impact
of excise duty on local manufactures, to ensure level paying field. CVD is payable equal to excise duty
payable on like articles if produced in India. CVD is payable on assessable value plus basic customs duty.
CVD can be levied only if there is ‘manufacture’.
Additional Duty under section 3(5) Special Additional Duties of Custom (SAD)
Section 3(5) of Customs Tariff Act empowers Central Government to impose additional duty. This is in
addition to Additional Duty leviable u/s 3(1) of Customs Tariff Act. The duty is levied to counter balance
the effect of sales tax, VAT, local tax or other charges leviable on articles on its sale, purchase or transaction
in India.
Anti-Dumping Duty
Anti-dumping duty is leviable u/s 9A of Customs Tariff Act when foreign exporter exports his good at low
prices compared to prices normally prevalent in the exporting country. Dumping is unfair trade practice and
the anti-dumping duty is levied to protect Indian manufacturers from unfair competition. Margin of dumping
is the difference between normal value (i.e. his sale price in his country) and export price (price at which he
is exporting the goods).
If an article is exported by an exporter/producer from outside India to India at less than its normal value,
the Central Government can impose anti-dumping duty on such transaction. It can be imposed by issue of
a notification under section 9A of the Customs Tariff Act. This anti-dumping duty cannot exceed "margin
of dumping" in relation to sucharticle.
Margin of dumping - Margin of dumping means the difference between "normal value" and "export price"
(i.e., the price at which these goods are exported to India).
Normal Value - Normal value means comparable price in ordinary course in trade, for likearticle, when
destined for consumption in the exporting country or territory. If, however, there is no such sale in the
ordinary course of trade in the domestic market of the exporting country, or if because of market situation
or low volume of sale in the domesticmarket of the exporting country a proper comparison is not possible,
then any one of thefollowing methods can be adopted
a. a comparable representative price of the like article exported from the exporting country or territory
to an appropriate third country, or
b. cost of production of such article in the country of origin (including reasonable administrative,
selling and general cost) plus reasonable profit.
Export price-Export Price means the price at which goods are exported. If the export priceis unreliable
due to in association or compensatory arrangement between exporter and importer or a third party,
export price can be revised on the basis of price at which the imported articles are first sold to an
independent buyer or according to rules made for determining margin of dumping.
Other points - The following points should be noted –
1. Anti-dumping duty is generally imposed in cases where Indian manufacturers are manufacturing
similar articles.
2. It may be imposed on provisional basis. After anti-dumping duty is finally determined by the
Government, any extra amount collected may be refunded or additional amount may be recovered.

3. Education cess, secondary and higher education cess and social welfare surcharge arenot applicable.
4. Anti-dumping duty is exporter specific. If there is no anti-dumping duty on an exporter,no duty is
payable.
5. Order of imposing anti-dumping duty is appealable to Customs Excise and Service TaxAppellate
Tribunal (CESTAT).
6. Anti-dumping duty shall be in force for a period of 5 years from the date of its imposition and can
be extended for a further period of 5 years.
7. Anti-dumping duty shall not be leviable on articles imported by a 100 per cent EOU unless
specifically made applicable for such units as per section 9A.
8. When one country exports goods to another country at a price lower than its normal value,
dumping occurs. Since this is an unfair trade practice having a distortive effect as international trade,
anti-dumping duty is a measure to rectify the situation arising out ofdumping of goods.
Protective Duties
Tariff Commission' has been established under Tariff Commission Act, 1951.If the Tariff Commission
recommends and Central Government is satisfied that immediate action is necessary to protect interests of
Indian industry, protective customs duty at the rate recommended may be imposed under section 6 of
Customs Tariff Act. The protective duty will be valid till the date prescribed in the notification.
Countervailing duty on subsidized goods
If a country pays any subsidy (directly or indirectly) to its exporter’s for exporting goods to India, Central
Government can impose Countervailing duty up to the amount of such subsidy under section 9 of Customs
Tariff Act.
Safeguard duty
Central Government is empowered to impose 'safeguard duty' on specified imported goods if Central
Government is satisfied that the goods are being imported in large quantities and under such conditions that
they are causing or threatening to cause serious injury to domestic industry. Such duty is permissible under
WTO agreement. Safeguard duty is a step in providing a need-based protection to domestic industry for a
limited period, with ultimate objective of restoring free and fair competition
National Calamity Contingent Duty

A National Calamity Contingent Duty (NCCD) of customs has been imposed vide section 129 of Finance
Act, 2001. This duty is imposed on pan masala, chewing tobacco and cigarettes. It varies from 10% to 45%.
NCCD of customs of 1% was imposed on motor cars, multi utility vehicles and two wheelers and NCCD of
Rs. 50 per ton was imposed on domestic crude oil,
Export duties
As per the Act, export duty is chargeable for the goods exported from India. The items on which export duty
is chargeable and also the rate at which the duty is levied are given in the customs Tariffs Act 1975, as
amended from time to time under Finance Acts. Depending on the circumstances the Central Government
has power to change the duty rates and levy fresh export duty.
5.14 Procedure for levying customs duty

The constitution has given right to the Union to legislate and collect duties on imports and exports as per
the entry 83 of list I to Schedule VII of the Constitution. The customs Act 1962 is the basic statute which
empowers under section 12, duties to be levied on goods imported into or exported from India. The
categories of items and the rates of duties which are leviable have been specified in two schedules of the
Customs Tariff Act 1975.
The first schedule to the said Act specifies the various categories of import items in a systematic and well-
considered manner, in accordance with an international scheme of classification of internationally traded
goods termed “Harmonised System of Nomenclature”. Different rates of duty are prescribed by the
legislature on different commodities mentioned in the first schedule. The duties are levied both on specific
and Ad Valorem basis and in some case compound duty are also collected on imported items. Second
schedule of Customs Tariff Act 1975 incorporate items subject to export duties and rates thereof. For
levying Customs duty the following functions to be performed
a. Classification of goods
b. Determination of Assessable Value
c. Application of rate of duty as per exemption notifications
Exclusions from Assessable Value:
The following charges to be excluded:

 Charges for construction, election, assembly, maintenance or technical assistance undertaken after
importation of plants, machinery or equipment.
 Cost of transport after importation
 Duties and taxes in India
 Other payments from buyer to seller that do not relate to imported goods are not part of the customs
value.
 Bank charges paid to banker for services rendered.
 Interest on deferred payment if shown separately in the invoice cannot be added.
 Demurrage – 2 types: Ship demurrage & Port demurrage:
Ship demurrage – when the chartered ship was not unloaded within the specified time.
Port demurrage – payable to the port trust as goods are not cleared from port within prescribed
time.(Port demurrage should not be added)
Specimen for calculation of Assessable Value

Transaction value (it is FOB and a few
Step 1 adjustments) XXX
Add: Cost of transport, loading, unloading and handling
charges associated with the delivery of imported goods tothe
Step 2 place of importation [see Note 1] XXX
Add: Cost of insurance cover to the place of importation(if

cost of insurance cover is not ascertainable, it will be
Step 3 1.125% of FOB) [see Note 5] XXX

Total (Step 1 + Step 2+ Step 3) (it may be
termed as CIF) (it is generally known as
Step 4 assessable value) XXX
*If Air transport / freight is given 20% of FOB or Actual amount WEL is taken.
**If Assessable value is foreign currency,
Assessable Value = Assessable value in Foreign Currency x Exchange rate notified by CBE &C
Illustration – 1
Calculate the Assessable value from the following:
Invoice price = 20,000$
The following expenses is not taken into consideration
a) Transport expenses = 2,000$
b) Insurance expenses = 10,000$
c) Cost of Packing = 1,000$
d) Royalty paid = 2,000$
Exchange rate as per CBE & C 1$ = Rs.49
Computation of Assessable value
Particulars $
Invoice Price 20,000
Add: Inclusions
Packing Cost 1,000
Royalty 2,000
Freight on Board 23,000
Add: Transport Expenses 2,000
Insurance Expenses 10,000
Cost Insurance and Freight 35,000
Add: Landing Charges -
Assessable Value in $ 35,000
Assessable Value in rupees = 35000 x 49 = 17,15,000
Illustration – 2
Indian importer imports goods from Germany @ 40,000 DM, Packing cost @ 3,600 DM, the Rate of
Exchange as notified by the CBE & C is 1 DM = Rs.45, calculate the Assessable Value.

Particulars $
Purchase Price 40,000
Add: Inclusions
Packing Cost 3,600
Add: Transport Expenses 8,720
Insurance Expenses 491
Cost Insurance and Freight 52,811
Add: Landing Charges -
Assessable Value in $ 52,811
Assessable Value in rupees = 52,811 x 45 = 23,76,495
Illustration – 3
Calculate Assessable value:-
 FOB = 10,000 $
 Freight = 800 $
 Insurance = 10,000 Rs.
 Packing expenses = 1,400$
 Local agents commission = 10% of FOB value
 Exchange rate 1$ = Rs.50

Particulars $
Add: Freight 800
Commission (10,000 x 10% ) 1,000
Value in $ 11,800
Assessable Value in rupees (11,800 x 50) 5,90,000
Add: Insurance 10,000
Packing 1,400
Cost Insurance and Freight 6,01,400
Add:- 1% landing expenses -
6,01,400
Illustration – 4
Find out assessable value in the case given below -
Rs.
Price charged by exporter (FOB) 45,00,000
Cost of transportation to India by air 11,00,000
Loading/unloading charges in India 42,000
Cost of insurance from exporting country to India 60,000

Solution: Rs.
Transaction value (FOB) 45,00,000
Add: Cost of transport loading and unloading (if goods are
imported by air, such cost shall not exceed 20% of FOB, 20%of
Rs. 45,00,000 or Rs. 11,42,000, whichever is less)
9,00,000
Add: Cost of insurance cover (actual cost is taken, if it is not
ascertainable, it will be 1.125% of FOB) 60,000
Assessable value or CIF 54,60,000
Illustration – 5
Rs.
Cost of transportation to India by air 3,00,000
Cost of insurance from exporting country to India 40,000

Solution: Rs.
Add: Cost of transport loading and unloading (if goods areimported
by air, such cost shall not exceed 20% of FOB, 20% of Rs.
60,00,000 or Rs. 3,90,000, whichever is less) 3,90,000
Illustration – 6

Rs.
Cost of transportation to India by sea 11,00,000
Cost of insurance from exporting country to India Not Available
Solution: Rs.
Add: Cost of transport loading and unloading (20% of FOB is the
maximum amount in the case of transport by air), it is not
applicable when goods are transported by any other mode 11,03,000
Private circulation only

18
Illustration – 7
Find out the customs duty from the information given below in respect of goods imported by
X Ltd. on March 1, 2018 –
USD Rs.
Free on-board value (FOB) 45,000
SBI buying rate of 1 USD 52
SBI selling rate of 1 USD 58
Exchange rate notified by Central Board of Indirect
Taxes
and Customs 52
Buying commission paid by X Ltd. to its agent in USA
for representing X Ltd. in the purchase of goods 900
Air fare 4,60,000
Demurrage paid by X Ltd. to airlines for not lifting
goods in time 38,000
Insurance charges 90,000
Loading charges, handling charges 2,000
Basic custom duty 10%
IGST 18%
Solution: Rs.
Computation of assessable value -
Transaction value (FOB: $ 45,000 x Rs. 52, buying commissionpaid
to
an agent to represent the importer in the foreign country
cannot be included) 23,40,000

19
Add: Cost of transport, loading charges, handling charges,
demurrage
(Rs. 4,60,000+ Rs. 2,000 + Rs. 38,000) (it comes to Rs. 5,00,000,
it cannot exceed 20% of FOB) 4,68,000
Assessable value 28,98,000
Custom Duty Total

Computation of custom duty- Rs. Rs.
Assessable value 28,98,000
Add: Basic customs duty (@ 10% of
assessable
2,89,800 2,89,800
value)
Add: Social welfare surcharge (@10% of customs
duty) 28,980 28,980
Assessable value and customs duty 32,16,780
Add: IGST [@ 18% of (assessable value and
customs duty)] 5,79,020 5,79,020
Total 8,97,800 37,95,800
Terminal Questions:
Section A
1. What is Customs Duty?
2. Write 2 objectives of Customs duty.
3. Write any two Nature of Customs duties.
4. Write any two circumstance under which no Duty will be levied
5. Write any two Exemptions from Custom Duty.
6. Define the term Goods under the Customs Act.
7. Define the term Dutiable Goods under the Customs Act.
8. Define the term Coastal Goods under the Customs Act.
9. Define the term Import Goods under the Customs Act.
10. Define the term Export Goods under the Customs Act.

20
11. Define the term Prohibited Goods under the Customs Act.
12. Define the Baggage under the Customs Act
Section B
1. What is Customs Duty? Write its objectives.
2. Explain the Nature of Customs Duty.
3. Explain the circumstance under which no Duty will be levied.
4. Explain the Exemption from Custom Duty.
5. What is the mode of levy of Customs Duty?
6. AB Ltd imported goods from USA. CIF value of imported goods in US dollars is
Rs.2,00,000. BCD @ 10% and excised duty rate if manufactured in India @ 8%,
exchange rate Rs.50 per US dollars. Calculate the total customs duty.
7. An importer imported goods for sale in India.

 The A.V of the goods is Rs.2, 00,000
 Air freight 25% on Free on Board (FOB)
 Insurance @ 1.125%
 Unloading charges at 1%
Compute the customs duty payable.
8. From the following particulars calculate A.V & total customs duty payable
1) Date of presentation of bill of entry:- 10.7.2013 (Rate of BCD 25%, Exchange
rate Rsd.43.60 and rate notified by CBEC Rs 43.60)
2) Date of arrival of goods to India:- 20.7.2007 (rate of BCD 20%, Exchange rate
Rs.43.80 and rate notified by CBEC Rs.44)
3) Rate of additional customs duty is 16%
4) CIF value 4,000 U.S dollars, air freight 1,000 US dollars, insurance cost 200 US
dollars, (landing charges not ascertainable)
9. Find the A.V from the following information

 Cost of the machine 10,000$
 Landing charges 100$
 Transport charges 400$
 Buying commission 100$
 Freight charges 100$
 Exchange rate Rs.45 per dollars
10. A material was imported by air at CIF price of 5,000 US$. Freight paid was 1,500 US$ and
insurance cost was 500 US$. The banker realized the payment from importer at the
exchange rate of Rs.71 per dollar. Central Board of Excise and Customs notified the
exchange rate as Rs. 70 per US$. Find the value of the material for the purpose of levying
duty.
Section C

21
1. What is Customs Duty? Explain the different types of Customs duty.
2. Write the inclusions and exclusions to Customs Value
3. Explain the different methods of valuations of Customs duty.
4. Explain the Import and Export procedure involved in Customs.
5. Zen Ltd imported goods from U.S.A at Mumbai port at cost 4,00,000$ the other
information are as follows:-
o Sea freight charges: - 9,000$
o Packing charges: - 11,000$
o Transit Insurance = 8,000$
o Selling commission paid by the importer 2,000$
o Design and development charges 4,000$
o Rate of exchange notified by RBI= Rs.41.60 per dollar
o Rate of Exchange notified by CBEC = Rs. 41.70 per dollar
o Rate of BCD = 15%
6. From the following particulars compute A.V and total custom duty payable.
 Cost of the machine 12,000$
 Transport charges 600 $
 Handling charges paid 100$
 Buying commission paid by importer 100$
 Freight charges is 1,000$
 Exchange rate 1$ = Rs.45.
7. From the particulars given below, find out the assessable value of the imported goods
under the Customs Act, 1962:
(i) Cost of the machine at the factory of the exporter - 10000 US$
(ii) Transport charges from the factory of exporter to the port for shipment - 500 US $
(iii) Handling charges paid for loading the machine in the ship - 50 US $
(iv) Buying commission paid by the importer - 50 US $
(v) Freight charges from exporting country to India - 1000 US $
(vi) Exchange rate to be considered: 1$ = Rs. 70
(vii) Actual insurance charges paid are not ascertainable.
8. Foreign Trade International Ltd. has imported one machine from England. It has given
the following particulars:
(i) Price of machine 8,000 UK Pounds
(ii) Freight paid (air) 2,500 UK Pounds
(iii) Design and development charges paid in UK 500 UK Pounds
(iv) Commission payable to local agent of exporter @ 2% of price of machine, in
IndianRupees
(v) Date of bill of entry 24.10.20XX (Rate BCD 10%; Exchange rate as notified by CBIC

22
Rs.100 per UK Pound)
(vi) Date of arrival of aircraft 20.10.20XX (Rate of BCD20%; Exchange rate as notified
byCBIC ` 98 per UK Pound)
(vii) Integrated tax leviable under section 3(7) of the Customs Tariff Act, 1975 is 12%
(viii) Insurance charges have been actually paid but details are not available.
Compute the total customs duty and integrated tax payable by Foreign Trade
International Ltd.
Note: Ignore GST Compensation Cess.
9. Compute the total duty and integrated tax payable under the Customs Law on an
imported equipment based on the following information:
(i) Assessable value of the imported equipment US $ 10,100
(ii) Date of bill of entry is 25.4.20XX. Basic customs duty on this date is 10% and
exchangerate notified by the Central Board of Excise and Customs is US $ 1 = Rs. 65
(iii) Date of entry inwards is 21.4.20XX. Basic customs duty on this date is 20%
andexchange rate notified by the Central Board of Excise and Customs is US $ 1 = ` 70.
(iv) Integrated tax payable under section 3(7) of the Customs Tariff Act, 1975: 12%
(v) Social Welfare surcharge 10% Make suitable assumptions where required and show
the relevant workings and round off your answer to the nearest rupee.
Note: Ignore GST Compensation Cess.

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INCOME TAX -II

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Module – 1.PROFITS AND GAINS FROM BUSINESS AND PROFESSION12 HOURS

Module – 2- DEDUCTIONS FROM GROSS TOTAL INCOME AND TAX LIABILITY OF

Module – 3 – CONCEPT OF GST AND ITS PROCEDURES 12 HOURS

Module – 4 -TRANSACTION VALUE & LEVY OF GST 14 HOURS

Module – 5- CUSTOMS DUTIES 10 HOURS

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Chargeability (Section 28)

Business u/s 2(13)

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Profession u/s 2(36)

Format of Computation of Taxable Income from Business for the AY 2022-22

Disallowed or Inadmissible Expenses

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Rate of depreciations prescribed according to Income Tax Act 1961

Books owned by assessees carrying on business in running lending 40%

III. Plant and Machinery

Lifesaving Medical equipment 40%

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Books (Annual publication or other than annual publication) owned 40%

Intangible assets: Patents, copyrights, technical know-how,

 Rate of additional depreciation: 20% of actual cost.

 Undertakings set up in any backward area in State of Telangana/West Bengal/Andhra

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6. Expenditure incurred on acquisition of patent rights or copy rights (sec. 35A):

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Section B and Section C

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Particulars Amount Particulars Amount

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Income from Profession

Format for computation of Profession Income

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Treatment of Cost of Medicine

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Particulars Amount Particulars Amount

Particulars Amount Particulars Amount

To Balance b/d 1,40,000 By Balance c/d

To Consultation fees By Rent of Clinic

2020-21 25,000 2020-21 36,000

2021-22 5,25,000 2021-22 1,44,000 1,80,000

2022-23 30,000 5,80,000 By Surgical equipment 1,00,000

To Visiting fees 1,60,000 By Computer 50,000

To Share from HUF 50,000 (Annual publication)

To Sale of medicines 2,40,000 By Purchase of medicines 1,00,000

To Loan from bank 3,00,000 By Household expenses 25,000

By Income tax 25,000

By Life insurance premium 36,000

By Gift to mother 24,000

By Subscription to AIMA 20,000