Taxation law notes

1.1 concept of -tax, cess, surcharge; types of taxes: direct taxes, indirect taxes(GST)
What is Cess?
In simple terms, a cess is a tax on tax. The Indian Government levies it on the tax liability,
including surcharge, and is used for a specific purpose. For example, the Indian Government
collects a cess on education and utilises it specifically for that purpose alone, that is,
education. Moreover, this cess applies to all taxpayers.
Further, cess taxes go to the Consolidated Fund of India. It is vital to note that a cess must be
applicable for that purpose alone for which it is charged.
Example of Cess
Here is an example to demonstrate how cess works.
For an education cess of 3%, where the personal income tax is 30%, a cess is applicable on
this personal income tax amount of 30%. Hence, this total tax rate goes up to 30.9% (30%
income tax + (3% of 30% income tax)).
Types of Cess
There are various types of cess levied in India. They are:
Infrastructure Cess on motor cars
Krishi Kalyan Cess on Service Value
Swachh Bharat Cess
Education Cess
Cess on Crude Oil
Cess on Exports
Road and Infrastructure Cess
Duty on Tobacco and Tobacco Products
Health and Education Cess on Income Tax
After the Kerala floods, the State Government imposed a 1% Calamity Cess. It was the first
state to do so. Remember that a cess is not a permanent revenue source for the Government.
Once the purpose for which the cess is levied is completed, it is removed.
What is Surcharge?
A surcharge applies to those persons whose income is more than Rs. 50 lakhs. This money is
not collected for any specific cause but can be used for any reason as the Union Government
sees fit. Interestingly, it applies to the tax payable and not the total income. This collection
also goes to the Consolidated Fund of India and can be used for any purpose.
Example of Surcharge
A significant source of government income is a surcharge on income tax. For example, a
surcharge of 10% on the income tax rate of 30% raises the tax burden to 33%.

Similarities between Cess and Surcharge

 The Central Government levies both cess and surcharge.
 Both are collected and taken into the Consolidated Fund of India.
 State Governments cannot share any of these

What is Tax and its Types?

A tax is a mandatory fee or financial charge levied by any government on an individual or an
organization to collect revenue for public works providing the best facilities and
infrastructure. The collected fund is then used to fund different public expenditure programs.
If one fails to pay the taxes or refuses to contribute towards it will invite serious implications
under the pre-defined law.
Types of Taxes

1.2 Definition Income

Assessment year [Sec. 2(9)]
Assessment year means the period of twelve months Starting from April | of every year and
ending on March 31 of the next year. For instance, the current assessment year 1995-96
commenced on April 1, 1995 and will end on March 31, 1996. The period of assessment year
is fixed. Income of previous year [see para 2] of an assessee is taxed during the following
assessment year at the rates prescribed for such assessment year by the relevant Finance Act.
Previous year [Sec. 3]
Income earned in a year is taxable in the next year. The year in which income is earned is
known as previous year and the next year in which income is taxable is known as assessment
year. In other words, it can be said that income earned during the previous year 1994-95 is
taxable in the immediately following assessment year (ie.,1 995-96).