Course: Taxation- Direct and Indirect

Internal Assignment Applicable for December 2022 Examination

Question No.1:
For the purpose of charging taxes, the Indian Income Tax Act, 1961 has identified
and defined the specific heads of income. The charging sections of each head
defines the scope of income to be charged under each head. Discuss precisely all
the heads of income as mentioned under the Income Tax Act 1961.
Answer:
Introduction:
Taxation is the legal system for assessing and collecting the taxes. Taxes are
considered to be the cost of living in the society. Taxes are levied by the government to
meet the common welfare expenditure of the society. It is mandatory for every individual
to pay taxes whose earnings are over and above the particular amount. The rates of
income taxes are set by the Ministry of Finance which is revised from time to time.
The reason for the levy of taxes is that they constitute the basic source of revenue for
the government. Revenue which is collected through taxes are utilized for the purpose of
meeting the expenses of the government such as infrastructure, health care, education
etc. Government charges taxes to accomplish its economic and social objectives also to
reduce the economic disparity.
In India, the central government, state government and local municipal bodies are
allowed to levy and collect the taxes as per Article 256 of the constitution. The Income
Tax Department functions under the Central Board of Direct Taxes(CBDT) which further
works under the Ministry of Finance, Government of India.
There are two types of taxes. They are-
* Direct Tax
* Indirect Tax
Direct Tax are the taxes which are levied directly on the income of a person. The person
who pays the tax to the government cannot recover from any other person, which means,
the burden of direct tax cannot be shifted. The examples of direct tax includes income tax,
property tax.
Indirect Tax are the taxes which is levied on the prices of goods or services. The person
who pays indirect tax passes the incidence to another person, which means, the burden
of the indirect tax can be shifted to the ultimate consumer. The examples of indirect tax
are Goods and Service Tax(GST), Custom duty.
 Course: Taxation- Direct and Indirect
Internal Assignment Applicable for December 2022 Examination
Concept and application:
A person may earn income from different sources. For example, by way of salary,
interest from deposits, rental income etc., Under Income Tax Act 1961, for the
computation of total income, all the income of the tax payer are classified into five heads
of income. They are –
* Salaries
* Income from House property
* Profits and Gains from Business or Profession
* Capital Gains
* Income from Other Sources.
There is a charging section under each head of income which defines the scope of
income chargeable under that head. These heads of income exhaust all possible types of
income that can accrue or received by the tax payer. Accordingly, income earned are
classified as –
01) Income from Salaries: The provisions pertaining to the income under the head
salaries are contained in section 15, 16 and 17 in the following manner:
Section 15- It is the chargeability section which includes salary due, arrears of
salary and salary paid.
Section 16- It is the deduction section and includes standard deduction,
entertainment allowance and professional tax.
Section 17- This section contains the meaning of the salary, perquisite and the
profits in lieu of salary.
The relationship of employer and employee is important for the payment to be
termed as salary. Salary is chargeable to tax either on due basis or on receipt basis,
whichever is earlier. It also includes some other allowances like House rent
allowance, dearness allowances ,etc. Salary also includes wages, pension, gratuity,
fees, commission etc.

02) Income from House Property : The provision pertaining to the income from house
property are included in section 22 to 27.
Under income from house property, the annual value of the building or land is
chargeable to tax in the hands of the assessee who is the owner or deemed owner
of the property.
There are some deduction allowed to the assesses under section 23 and 24 which
are municipal tax paid and interest on loan for the construction or acquisition of the
house property.
03) Profits and Gains of Business or Profession: The provision relating to profits and
gains from business and profession are included in section 28 to 44DB.
 Course: Taxation- Direct and Indirect
Internal Assignment Applicable for December 2022 Examination
Under this head, all the profits and gains obtained from the business and
profession are chargeable to tax by the assessee. The income received are taxable
on the basis of receipt or accrual method.
Income received from partnership firm like interest on capital, salary and bonus
are also taxable under this head.
04) Income from Capital Gains: The provisions pertaining to the income under the head
capital gains are included in section 45 to 55A.
Under this head, the income arising from the sale of capital asset are taken for
the taxation purpose. Capital gains on sale of capital asset are of two types, that is,
short term capital gains and long term capital gains depending upon the period for
which the asset was held by the assessee.
There are certain deductions and exemptions allowed under section 54 to 54F.
05) Income from Other Source: The provisions pertaining to the income from other
source are included in section 56 to 59.
Under this head, any income which is not taxable under any other heads
mentioned above are taxable under this head. This head is also known as residuary
head of income.
Income from other sources includes dividend income, winnings from lottery,
horse race, gambling, gifts received etc.
There are some deductions which are allowed from other sources under section
57.

Conclusion: The taxpayers should classify their incomes under relevant heads of
income and calculate the net tax liability after adjusting any set off of losses and
deduction allowable under Chapter VI-A to get total income of the assessee.
Question no.2:
GST N is a non-government body. This body handles the IT system of the GST Portal.
Discuss the functions discharged by the GSTN in details
Answer:
Introduction:
In India, the indirect taxation witnessed a major changes on July 01st 2017 bringing a
large number of central and state indirect taxes into single tax system known as GOODS
AND SERVICE TAX (GST). GST is a value added tax levied on manufacture, sale and
consumption of goods and services.
GST offers continuous chain of tax credits, taxing only the value added at each stage of
supply chain. The supplier at each stage avails credit of GST paid on purchase of goods or
 Course: Taxation- Direct and Indirect
Internal Assignment Applicable for December 2022 Examination
services and set off against the GST payable on the supply of goods and services, it is only
the final consumer who bears the tax burden.
Concept and application:

Goods and Service Tax Network(GSTN) is a non-government body and handles the IT
system of the GST portal. It establishes a uniform interface for the tax payer and a
common and shared IT infrastructure between the centre and the state and also to other
stakeholders. This platform has given main objective of GST which is, One Nation, One
Tax, One Market. Any business entity which is registered under GST portal are given a 15
digit goods and service tax identification number (GSTIN).

Structurally,51% of GSTN’s stake is held by private entities and the remaining 49%
is held by the government.

The Features of GSTN includes:

* The GSTN can process a complex transactions easily because of its robust and secure IT
infrastructure.

* The ownership of GSTN is divided between the government and the private entities.
Whereas, the major share of the GSTN is held by the central government as compared to
any individual stakeholder.

* The payment of tax by the taxpayers are made through online as well as offline modes.

* The major responsibility to preserve the confidentiality and security of GSTN data lies
with the central government.

* The expenses incurred for the operation of the GSTN like infrastructure, utility etc, are
borne by the central and state government equally.

The Functions of the GSTN –

* When a taxpayer registers on GST portal, all the details of taxpayer are verified
thoroughly and passed to the centre and the respective state government.
 Course: Taxation- Direct and Indirect
Internal Assignment Applicable for December 2022 Examination
* Once the taxpayer profile is approved, he will get a 15 digit GSTIN for further
transactions.

* Tallying invoices are the major function performed by the GSTN. It helps to resolve any
discrepancies and helps the taxpayer to get input tax credit.

* GSTN helps to file the return of GST in a hassle free method without burdening the
taxpayer.

* GSTN helps to calculate and adjust the IGST of the taxpayer.

* GSTN helps to verify the payment of tax with the concerning banks.

* GSTN generates and sends the management information system reports to the
governments.

Conclusion:

The introduction of the Goods and Service Tax Network has undoubtedly simplified
the complex indirect tax system by replacing all the indirect taxes into a single tax system.
It also helped the business entity by providing a one stop solution for uploading the tax
invoices, filing their returns, availing tax benefits.

Question no.3:
Mrs Meera purchased a residential house property on August 6, 2019for Rs 30
lakhs. She made certain capital expenditure for the house in the month of January
2020 for Rs2 lakhs. She disposed off the property in April 2021, for Rs 40Lakhs.

a. Discuss about the exemption available under section 54

Answer:
Income under capital gains arises from the sale or transfer of the capital assets.
Capital assets refers to the property of any kind held by the assessee whether or not
connected with his business or profession and any securities held by a foreign
institutional investor which has invested in securities with the regulation under
securities and exchange board of India.
The Exemption under this head is included from Section 54 to 54F.
* Section 54: Exemption under section 54 is applicable to an Individual and HUF assesses.
This section states that, there should be a transfer of residential house property which
 Course: Taxation- Direct and Indirect
Internal Assignment Applicable for December 2022 Examination
must be a long term capital gains in nature. For exemption purpose, the assessee should
purchase another residential property within one year before transfer or two years after
transfer.
Where the amount of capital gains exceeds Rs.2 Crore:
∙ One residential house in India should be purchased within 1 year before or 2 years
after the date of transfer or,
∙ Constructed within a period of 3 years after the date of transfer.
Where the amount of capital gains does not exceeds Rs.2 Crore:
∙ Two residential houses in India should be purchased within 1 year before or 2
years after the date of transfer or,
∙ Construct two residential houses in India within 3 years after the date of transfer.

If the investment is not made before the date of filing of income tax, then the capital
gains must be deposited under the CAPITAL GAINS ACCOUNT SCHEME. Any amount
deposited under this scheme shall be deemed to be the cost of new assest.

b. Considering Section 54, Discuss the amount of exemption if any, amount of type
of capital gain taxable in the hands of Mrs. Meera if she purchased another property
from the sales proceed in the month of May 2021.
Answer:
Calculation of amount of capital gains:
Sale Consideration = Rs. 40,00,000
LESS: Cost of Acquisition = Rs. 30,00,000
Cost of improvement = Rs. 2,00,000

Short Term Capital Gains = Rs. 8,00,000

Short term capital gains, in respect of land and buildings are considered as asset
which is holding for less than 24 months. In the given problem, Mrs. Meera is holding the
residential property for 20 months. Hence it is considered as Short term capital gains.
Exemption under section 54 states that the residential property must be of long term
capital gains in nature. Thus, Exemption under Section 54 is NOT APPLICABLE to
Mrs.Meera.