1. What is TAX?

a. Compulsory levy (Mandatory)

b. Imposed by concerned government.
c. Introduced by way of a legislation.
d. Used for public purposes with no quid pro quo (reciprocal benefit)

2. Indian Tax Before GST:

a. Direct taxes -> Central -> Income Tax
b. Indirect taxes -> Central and State
• Central -> Customs Duty and Excise Duty
• State -> VAT, and Luxury, Entry, Entertainment
3. WHY TAX?
a. State Building
b. Internal Management - extending benefits and placing restraints.
3 Rs come under this category
• Revenue Generation
• Regulate or Control
• Redistribution of wealth
c. Negotiated Expansion
• Tax competitiveness

4. HOW to TAX
a. Tax distribution based on
• Benefits Approach
• Equity or Fairness
• Ability to pay – generally adopted.
1. Vertical and Horizontal equity
b. Tax distribution should aim for
• Economic Efficiency
• Administrative Capacity

5. ARTICLE 270 (Tax Levied by Union Govt and distributed to Union and State – except
items in article 268, 269, Surcharges and additional surcharge as per 271 and Cess for
any specific purpose) Vs ARTICLE 271(Surcharges Levied for the purposes of Union)

6. TAX Vs CESS(Earmarked Tax) Vs FEE –

a. Tax goes to the total tax Base for distribution based on finance commisssion
b. CESS is an Earmarked Tax (Ex Ante). No quid pro quo
c. Fee is a payment for a reciprocal benefit (Quid pro quo). Not a tax
7. Cess Vs Surcharge
a. Cess :
• Earmarked for a specific purpose Ex Ante
• Could get used by Union or State
b. Surcharge
• For the purposes of Union
• No need for specific purpose (no Ex Ante)
• No need to be shared with States.

8. CASE LAW: Dewan Chand Builders & Contractors vs Union of India

9. Tax applicability
a. Taxable event + cycle
b. Residential status + Source of income

10. Who - Taxable person

a. Assessee – person who has to pay tax
b. Section 2(31) and Section 2(7)
Individual, HUF, Company, Firm, An association or body of persons (whether
incorporated or not), local authority(ex. Govt) and every juridical artificial
person (ex. Idol, statutory corporation, trust)

11.What - Tax Base Section 2(24)

a. Includes illegal income also.
b. Income received in monetary payments and kind.
c. Charging – Section 4(1)
• Income received in PY
• Taxed as per the tax rates as on 1st of April of AY.
• Tax rates defined every year as per Finance Act
d. Total Income
• Section 2(45) and Section 5(1)
• For residents - Income received or accrued in India or anywhere
Globally.
• For Non-Residents – Income received or accrued in India
e. Source rule - Deemed to accrue or arise in India
• Income from business connection
• Capital profit on transfer of Capital Asset in India.
f. Heads – Section 14
• Salaries
• Income from house property
• Profits and Gains of Business or Profession
 • Capital Gains
• Income from other sources

12.When - Taxation Cycle

a. Financial Year
b. Previous Year
c. Assessment year
d. Section 2(34) and Section 3
e. Exceptions
• Section 174 – Persons leaving India with no intention to return
• Section 175 – Person trying to alienate his assets with an intention of
tax evasion.
• Advance tax mechanism.

13.Two pronged rule for taxing

A. Residence Rule – Whether person/ company is resident in India or not
B. Source Rule – Whether the source of the income is from India or not

14.Residential Status
a. Citizenship and Residence are separate
• Resident if
a. Is in India for a period of periods amounting to 182 days or more
OR
b. Is in India for 60 days in the relevant PY and has been in India for
365 days or more during the 4 PYs preceding the relevant PY.
b. Residence Rule for Company – A company is said to be resident in India in the
PY if
• Indian Company or company incorporated in India
• Its place of Effective Management is (key management and commercial
decisions are made) in India for that PY.
• Tests for Residence
1. Control and Management Test (Qualitative or Quantitative test?)
2. Place of Effective Management Test(POEM) (If effective business is
outside India and Majority meetings are abroad, creates
presumption Company is non-resident. (Substance over Form
should be the guiding principle for deciding residence of a
company).

15.CASE LAWS for Residential Status

a. DE BEERS CONSOLIDATED MINES, LIMITED, Vs HOWE (SURVEYOR OF TAXES)
b. Radha Rani Holdings (P) Ltd. vs Additional Director Of Income Tax
16.Source Rule:
• To determine where the source of income generation/ earning occurs
• Vodafone Case:
A transaction occurs abroad between two non-residents which involved
transfer of shares of a JV company – transfer of share created a controlling
interest in an asset owned by the JV in India – the asset being a telecom
license.
o Govt said activity taxable; SC said activity not taxable – later law gets
amended to make the activity taxable
o “Sec 9 – Income Deemed (construed as) to accrue or arise in India:
▪ Income from business connection
▪ Capital Profit on transfer of a capital asset situated in India –
covers the Vodafone case transaction
• Example PG Wodehouse – French Resident – sells publishing rights in USA to a
publisher – source of income considered as USA and the income earned
through sale of goods is taxable in US.

17.Income S 2(24)
• All income is income and is to be declared
• Illegal income is also income however declaring it doesn’t make it legitimate
• Income can be monetary payment and kind as well (car provided by company –
value of car added to income)
• Also include capital gains - S 2(45)
• Is income tax a single tax/ multiple tax? Single tax, because the tax base in the
one activity “income”; income has multiple heads

18.Total Income and Heads of Income

• Total income defined in S2(45).
• S14 refers the different heads of income
o Salaries
o Income from house property
o Profits and gains of business and profession
o Capital Gains
o Income from other sources – Residuary Head
• Identification of correct head is important as different rates of taxation for
different heads; different exemptions and different deductions allowed.
• Exemption – Income that is not taxed (Chapter III)
• Deduction – Expense that is allowed to be deducted from tax base (Chapter VI A)
• Gross Total Income = Aggregate Income under the heads before the allowable
deductions
• Total Income = Gross – Deductions under VI A
19.Indian Tax Slab – Progressiveness and Wealth Tax:
• Progressive – equity – ability / power to pay
• Wealth Tax – Thomas Pickety:
o Ability to pay for wealthy people is not based on income but on wealth
o Income is flow figure typically taxed on realization
o Wealth is the sum value of your assets at any point in time.
o Ultra wealthy have many streams of income but also assets which they
don’t or don’t need to monetise
o Income of wealthy only a portion of the their capacity to pay
o Introduce wealth taxes globally
o India – Surcharge on higher income brackets
Net Taxable Income (AY 2023-24) Rate of Surcharge on Income Tax (%)
Rs. 50 lakh to Rs 1 crore 10
Rs. 1 crore to Rs. 2 crore 15
Rs. 2 crore to Rs. 5 crore 25
Rs. 5 crore and above 37

20.Tax Rates
• Marginal Tax Rate is the tax rate that is applicable for each tax bracket of a
taxpayer’s income
• Average Tax Rate is the total tax/ total income
• Illustration Below:

Tax Slab Tax Rate For income of 14 lac

Up to 3 lac Nil Marginal Rate 0
3 lac to 6 lac 5% Marginal Rate 15000
6 lac to 9 lac 10% Marginal Rate 30000
9 lac to 12 lac 15% Marginal Rate 45000
12 lac to 15 lac 20% Marginal Rate 40000
Above 15 lac 30% Marginal Rate 0
Total Tax 1,30,000 (1.3 lac)
Average Tax Rate = Total Tax/ Total Income 9.3%
Income from Salaries
1. Salary – Section 15
a. Employee-Employer relationship is a necessary or indispensable requirement
(sine qua non is Latin for “without which not”).
b. Identifying scope
• Income from Salaries – Contract of Service
• Income from Business or Profession – Contract for Service
• Income from office not amounting to employment.
c. Salaries under section 15 covers
• Salary due from an employer or ex-employer whether paid or not in PY
• Salary paid or allowed by an employer or ex-employer in the PY though
not due to him or became due.
• Arrears of Salary paid or allowed in the PY by employer or ex-
employer, if not-charged to income tax in any of the PYs
• Advance salary paid if included in the total-income for any PY will not
be included again when it becomes due
• Any Salary, bonus, commission, or renumeration paide to a partner of a
firm will not be regarded Salary.
2. Difference between exemptions and deductions
a. Exemptions – Income not part of taxable income i.e. income which is Totally
excluded from computation of income for example Agricultural income
b. Deductions- expenses which are allowed
Difference between both is one is income earned and the other is expense
incurred
3. Tax Slabs

Net Income Range Rate of Income-tax

Assessment Year 2023-24
Up to Rs. 2,50,000 -
Rs. 2,50,000 to Rs. 5,00,000 5%
Rs. 5,00,000 to Rs. 10,00,000 20%
Above Rs. 10,00,000 30%
will a person earning 10 lakhs and a person earning 1 crore pay the same tax.
There is a concept of Surcharge, which charged on all incomes above 50 lakhs over
and above the tax calculated.

4. what is progressive tax structure? what principal it is upholding?

 People with higher income should pay more taxes i.e, economic capacity to pay taxes,
principal of fairness is applicable here as people with higher income can pay high
taxes.
Thomas PIcketty French economist and celebrity author stated that wealth tax should
be introduced by India and ultimately lobal wealth tax must be introduced. He also
said that Income is not the indicator of their capacity and that wealth is the indicator
of their capacity.

5. Difference between income and wealth

wealth – Total accumulated capital at any point of time
Income – How much total wealth increases during the year
The ultra rich have so many streams of income and so much stock of wealth, they
don’t need to monetise and they can allow it to sit elsewhere wealth parked all over
the world, the steady income which they are earning on which they pay the tax, is not
justified.
There are different regimes of taxes. The preferential rules basis the tax base itself
because of different expenses allowed as deductions in some cases. For example
professional income is taxed at different rates and salary income is taxed at different
rates
The highest tax slab is taxed at 30% whereas the Long term capital gains (LTC) is taxed
at 20%. Both by implementing different tax rates and rules for computing tax rates. If
you don’t charge the capital at high rate, the labour will have to be charged at high
rate.
6. In order to attract capital many countries are reducing the tax on capital gains which
leads into introduction of other taxes, in order to earn steady streams of income,
otherwise there will not be income for spending. And hence ill move to less mobile
factors of production like labour.

7. What is the difference between marginal tax rate and average tax rate.
WHAT IS MARGINAL TAX RATE?
The marginal tax rate is the income tax rate applicable on each income bracket or
slab. According to the income tax slabs set by the government, as the income
increases, so does the tax liability. Persons earning more than Rs. 2.5 lakh in a year
are liable for income tax and as their income increases, a higher slab of tax will be
applicable.

Thus, the marginal tax rate increases as the individual’s income bracket increases. The
 aim of the marginal tax rate is to tax individuals based on what they earn, so that
those that are earning more are taxed higher and those that are earning less are
taxed lesser.
Average tax rate
The average tax rate equals total taxes divided by total taxable income. Calculating
the average tax rate involves adding all of the taxes paid under each bracket and
dividing it by total income.
8. Test of employment
a) Employee told ho to perform the task i.e. directions, supervision and control is
exercised by a superior.
b) In case of Uber, whether they are employees different countries have interpreted in
different manner. For example UK & Switzerland have said that they are independent
contractors. However, the courts in USA have considered them as employees.
In case of directors, in case they are regular employees, they are directors. However,
the Board of directors of the company should not be considered as directors.

9. Red chillies Entertainment Pvt. Ltd. V ACIT 2017

Whether the professionals an employee or not as the question?
The assessee a company engaged in production of feature films and Television programs and
hired six professionals. The terms of the contract are as follows:
• There as a service agreement
• The production manager should perform the duties as may be assigned from time t time
• They ere getting fixed income and perks like car, cell phone etc
• There ere to report to duty on all days
• 30 days leave ere to be ranted
• If terminating the employment one month notice as to be given
The tax authorities held that remuneration paid to six professionals engaged by the company
was liable for deduction of tax at source u/s 192 as the same was in the nature of salary. The
assessee contested that these persons were acting in the capacity of independent professionals
and not as employee of the company on the following grounds:
• These persons were not employees of the company and they were free to give their
services to any other party.
• These parties were not entitled for any gratuity or any other facility available to the
employees.
• They had no fix hours of duty and there was no exclusivity. The parties as well as the
company had a clear understanding that the relation was of taking professional services
and not of employment.
The Court decided against the assess and said that they ere employee’s and the TDS should have
been deducted as employees not as professionals.
10. Standard Deduction and professional tax
A standard deduction of Rs. 50,000/- and professional tax (applicable only in certain states) is
deducted from salaries.

Income from House Property

1. Section 22

The income from Houses, Building, Bungalows, Godowns etc. is to be computed and
assessed to tax under the head “ INCOME FROM HOUSE PROPERTY” . The income
under this head is not based upon the actual income from the Property but upon
Notional Income or the Annual Value of the Building.

Income is taxable under this head “Income from House Property” if the following 3
conditions are satisfied :

Condition-1 : The property should consists of any building or lands appurtenant

thereto.

Condition-2 : The assessee should be owner of the property.

Condition-3 : The Property should not be used by the owner for the purpose of
any business or profession carried on by him, the profits of which are chargeable to
Income Tax.

The ‘Annual Value’ of a ‘House Property’ is taxable as income in the hands of the
owner of the property.

2. Raj Dadarkar & Associates v ACIT

Law on tests to be applied to determine whether income from property is chargeable as “Income
from house property” or as “Profits and gains of business” explained.

Appellant acquired the right to to conduct market upon successfully participating in

an auction. The object clause which is contained in the partnership firm is to take the
premises on rent and to sub-let.
Held:
The court said that it as not a business income for the following reasons:
The partnership firm had other business and this as not the main business
The income as not substantial income it as only pone of the streams.
The object clause as not clear
Not organised and systemic activity

3. Section 23
Determination of Annual value

a) If it is let out (higher of 2)

 a) Expected rent;
b) Actual rent received or receivable.

Less Municipal taxes

b) Self occupied property

Annual value is NIL. Exception applies for only 2 houses.

c) Computation

• Municipal value of property

• Fair rent
• Standard rent (fixed by government)
Expected rent + higher of municipal value/fair rent but not exceeding standard rent
4. Section 24: Permissible Deduction
1) Standard deduction
30% of gross annual value
2) Interest on borrowed capital
5. Computation

gross annual value

(-) taxes
=Net Annual Value
(-) Standard deduction
(-) Interest on loan

= Taxable income from house property