LAW OF TAXATION

PART – A

01) Residential Status or Types of Residential Status

The Indian Income Tax Act, 1961, requires individuals to determine their residential status, which is
based on their physical presence in India during a financial year and previous years.

The Income Tax Act recognizes 3 types of Residential Status :

a) Resident and Ordinary Resident: Section 6(1) of the Income Tax Act defines a resident and
ordinarily resident (ROR) as an individual who meets certain conditions.

 If the individual is present in India for 182 days or more in the financial year, OR
 The individual must be present in India for 60 days or more during the financial year
and for 365 days or more in the preceding four financial years.

Resident and Ordinarily Resident (ROR) are taxed on their global income earned in India and
abroad, and must disclose their foreign assets and income for taxation purposes.

b) Resident but not Ordinary Resident: Section 6(6) of the Income Tax Act defines a Resident
but Not Ordinarily Resident (RNOR) as someone who meets certain conditions.

 If the individual has been an Indian resident for nine out of the past ten financial years,
OR
 If the individual has been present for 729 days or less in the preceding seven financial
years.

A Resident but Not Ordinarily Resident (RNOR) is entitled to specific tax benefits and
exemptions on foreign income and assets for a specific period.

c) Non-Resident (NR): Section 6(3) of the Income Tax Act deems an individual as a Non-
Resident (NR) if they do not meet any of the aforementioned conditions.

Non-Residents (NR) are taxed only on their income within India and are typically not required
to disclose their foreign income or assets for taxation purposes.

Different residential statuses may result in different tax obligations and benefits, which are crucial for
filing tax returns and ensuring Income Tax Act compliance.

02) Resident and Non Resident under the Income Tax Act

The Income Tax Act, 1961, categorizes individuals into Resident and Non-Resident residential status,
which significantly impact their tax liabilities and obligations, ensuring accurate tax determination.

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Resident:

An individual is considered a resident for tax purposes if any of the following conditions are fulfilled:

a) If the person is present in India for 182 days or more in the financial year, OR

b) If the person is present in India for 60 days or more during the financial year and has been in
India for a total of 365 days or more in the preceding four financial years.

Resident individuals are further divided into two sub-categories:

a) Resident and Ordinary Resident: An individual is classified as a Resident and Ordinarily

Resident (ROR) if they meet any of the following criteria:

 The individual meets the residency requirements and has been a resident of India for
two out of the previous ten financial years.
 If the person's cumulative stay in India in the preceding seven financial years is 729
days or more.
Resident and Ordinarily Residents (ROR) are required to pay tax on their global income,
including income earned outside India.

b) Resident but Not Ordinary Resident: An individual is classified as a Resident but Not
Ordinarily Resident (RNOR) if they meet any of the following criteria:

 The person is a resident of India according to the conditions mentioned above, but has
been a non-resident in India in nine out of the previous ten financial years, OR
 If the person's cumulative stay in India in the preceding seven financial years does not
exceed 729 days.

Resident but Not Ordinarily Residents (RNOR) enjoy certain tax benefits and exemptions on
specified foreign income for a certain period.

c) Non Resident: An individual is considered a Non-Resident (NR) if they do not meet any of the
conditions mentioned above to be classified as a resident.

Non-Residents (NR) are only taxed on their income earned within India, and they are generally
not required to disclose their foreign income for tax purposes.

It is important to determine the correct residential status as it impacts the tax liability, exemptions, and
reporting obligations of individuals.

03) Previous Year, Financial Year, and Assessment Year

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The Income Tax Act, 1961 defines three key terms: Previous Year, Financial Year, and Assessment
Year, which are interconnected and defined.

a) Previous Year: The previous year, also known as the "Income Year" or "Fiscal Year," is the
financial year preceding the assessment year, during which taxpayer's income is assessed for
taxation purposes, as specified by the Income Tax Act.

For individuals and businesses the Gregorian calendar is from 1st April to 31st March of the
following year.

For businesses a different financial year as per the financial year chosen by them.

For example, if we consider the assessment year as 2022-23, the Previous Year
corresponding to it would be 2021-22 (1st April 2021 to 31st March 2022).

b) Financial Year: The Financial Year is a twelve-month period for financial transactions,
accounting, and tax calculations, ranging from April 1st to March 31st of the following year. It is
based on the Gregorian calendar for tax purposes and differs depending on the calendar
followed by individuals or businesses.

For example, the Financial Year 2021-22 began on 1st April 2021 and will end on 31st March
2022.

c) Assessment Year: The Assessment Year is the year after the previous year, where
taxpayers' income from the previous year is assessed and taxed. It involves filing income tax
returns for the previous year, reporting income, deductions, and other tax-related details.

E.g. The assessment year for the previous year 2021-22 is 2022-23, which is when the
income tax return for the previous year 2021-22 will be filed and the tax liability for that year will
be determined.

Understanding these terms is crucial for effective income tax planning, compliance, and timely filing of
returns.

04) Assessee

The term "assessee" under the Law of Taxation refers to any legal person, entity, or entity liable to
pay taxes according to relevant tax laws. This concept is crucial for determining tax liability, filing tax
returns, and fulfilling tax obligations.

1. Income Tax Act, 1961:

a) Individual Assessee: Resident individuals are taxed on their global income, while non-
resident individuals are taxed on income earned or received in India. Tax deductions and
exemptions are available for specific criteria.

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 b) Hindu Undivided Family (HUF): HUF is a distinct tax entity, taxed on its total income,
including ancestral properties and investments, and can claim deductions and exemptions
under the Income Tax Act.

c) Partnership Firm: Partnership firms are subject to income tax under the Income Tax
Act, with partners filing returns and sharing profits/losses. Partnerships are not separate
entities, and tax liability is passed on to partners.

d) Company: Companies are distinct legal entities from shareholders, subject to specific tax
rates, deductions, exemptions, and incentives, and are obliged to file corporate tax returns.

2. Goods and Service Tax Act (GST): India's Goods and Services Tax regime categorizes
assessee’s based on turnover and operations, including registering businesses, obtaining a
unique GSTIN, filing periodic returns, paying GST on taxable goods or services, and complying
with compliance obligations.

3. Customs and Excise Duty: Customs and excise duty laws mandate assessees like
importers, exporters, manufacturers, and suppliers to adhere to regulations, file declarations,
pay duties, and maintain relevant records.

It is important for assessees to understand the provisions that apply to their specific circumstances to
ensure compliance with taxation laws.

05) Double Taxation Relief

The Income Tax Act, 1961, provides double taxation relief through Double Taxation Avoidance
Agreements (DTAA) with foreign countries, aimed at preventing double taxation of income in both
India and the foreign country.

Illustration: Mr. X, a resident of India, earns income from both India and the United States. His global
income is taxed in India, while the United States taxes his income within its jurisdiction. This could
lead to double taxation, as he is taxed on the same income in both countries.

To provide relief from double taxation, India has entered into a DTAA with the United States. The
provisions of the DTAA will determine the method of double taxation relief applicable. The most
common methods used under DTAA are:

Section 90 allows double tax relief to only be claimed by residents of countries that have entered into
an agreement, while residents of other countries need to obtain a Tax Resident Certificate (TIRC) from
the country's government.

Double Taxation Relief can be provided under two ways namely;

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 a) Exempted Method: The method allows income already taxed in one country to be exempt from
taxation in another. For example, if the DTAA mandates income taxation in the US, India would
provide exemption, preventing double taxation in the US.

b) Tax Credit Method: The method allows income already taxed in one country to be exempt
from taxation in another, such as India providing exemption to the US if the DTAA mandates it.

Taxpayers like Mr. A should consult with tax professionals or experts to understand the provisions of
each DTAA and the relief method used, as the relief method depends on the specific agreement
between India and the foreign jurisdiction.

06) Perquisites

The Income Tax Act, 1961, classifies certain employer-provided benefits and allowances as
perquisites, which are taxable under the "Salary" heading.

a) Rent Free Accommodation: Rent-free accommodation provided by employers to employees

is considered a perquisite and taxable, but a specific exemption may be available in remote or
unpopulated areas.

b) Motor Car: An employer's perquisite value is taxable if a motor car is provided for personal
use by an employee, while if the car is exclusively used for official purposes or used within
prescribed limits, no perquisite value is taxable.

c) Free or Concessional Education: An employer's contribution to employee children's

education at an employer-owned or financed educational institution is considered taxable.

d) Club Membership: If an employer provides club membership to an employee, the value of the
perquisite is taxable. However, if the club is owned by the employer and is located on the
business premises, no perquisite value is taxable.

e) Medical Facilities: Any medical reimbursement or medical insurance premium paid by the
employer for the employee is taxable as a perquisite. However, medical reimbursement up to a
certain limit may be exempted.

f) Interest Free or Concessional Loan: An employer's interest-free loan to an employee is

taxable, but exemptions may apply if the loan is for specific purposes like medical treatment or
home purchase.

Perquisites, defined by the Income Tax Act, are taxable as part of an employee's salary income and
subject to specific valuation rules. Jurisdiction lies with the Income Tax Appellate Tribunal, High Court,
and Supreme Court of India, with specific sections 17(2) to 17(3) and 28(iv).

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 07) Computation of Pension

Commuted pension is a lump-sum payment received by retired individuals in lieu of a portion of their
pension, with tax treatment based on eligibility and rules outlined in Section 10(10A) of the Income
Tax Act.

a) Government Pension: Government employees receive a commuted pension portion that is

completely tax-free, meaning the lump-sum amount received in exchange is not subject to any
income tax.

Illustration: Mr. Sharma, a retired government employee, who is eligible to commute a portion
of his pension. If he decides to commute 1/3rd of his monthly pension of Rs.50,000/-, the
calculation would be as follows:

Monthly Pension is Rs.50,000/-.

Commuted portion of pension is 1/3rd of Monthly Pension i.e. Rs.16,666.67

The commuted portion of Rs. 16,666.67 would be paid as a lump-sum amount to Mr. Sharma,
and this amount would be fully exempt from income tax.

b) Non-Government Pension: The taxation of non-government pensioners' commuted pensions

is governed by Section 10(10A) of the Income Tax Act, with the exempted portion determined
by Rule 2A of the same rules.

Illustration: Mr. Kumar, a non-government employee, commutes a portion of his monthly

pension. If he receives a commuted amount of Rs. 10 lakh and an uncommuted pension of Rs.
20,000 per month, the exempted portion of the commuted pension is calculated.

Commuted Pension is Rs.10,00,000/-

Un Commuted Pension is Rs.20,000/- * 12 = Rs.2,40,000/-

Using the formula from Rule 2A of the Income Tax Rules, let's calculate the exempted portion
of the commuted pension:

Exempted portion of commuted pension = Commuted Pension * (un-commuted pension / total

pension).

Exempted Portion of Commuted Pension = Rs.10,00,000 * (2,40,000/12,40,000)

Exempted Portion of Commuted Pension = Rs.1,93,548.39

The exempted portion of the commuted pension is Rs. 1,93,548.39. This means that Mr.
Kumar would receive Rs. 1,93,548.39 tax-free as a lump-sum commuted pension, and the
remaining portion (if any) would be taxable at the individual's slab rate.

The rules and provisions regarding pension commutation and taxation may be subject to change due
to amendments to the Income Tax Act or related regulations.
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 08) Payments of Advance Tax

The Income Tax Act, 1961 mandates advance tax payment for Indian taxpayers, allowing them to pay
income tax in installments instead of a lump-sum payment at the end of the year, ensuring regular
revenue flow and effective tax liability management.

a) Section 208 mandates individuals with a total tax liability of Rs. 10,000 or more in a financial
year to pay advance tax, which applies to all taxpayers in companies.

b) Section 209 calculates advance tax payable for individuals and non-corporate taxpayers,
estimating liability based on current year's income and applicable tax rates.

c) Section 210 mandates taxpayers to make advance tax payments in four installments on
specific dates throughout the financial year.

Illustration: Let's consider an individual, Mr. X, with an estimated total tax liability of Rs. 2,40,000 for
the current financial year. The due dates for advance tax payment are as follows:

1st Installment: June 15 - 15% of total tax liability (Rs. 2,40,000 * 15% = Rs. 36,000)
2nd Installment: September 15 - 45% of total tax liability (Rs. 2,40,000 * 45% = Rs. 1,08,000)
3rd Installment: December 15 - 75% of total tax liability (Rs. 2,40,000 * 75% = Rs. 1,80,000)
4th Installment: March 15 - 100% of total tax liability (Rs. 2,40,000)

Mr. X is required to pay the above-specified amounts as advance tax on or before the respective due
dates. Failure to pay advance tax may attract interest and penalty provisions under the Income Tax
Act.

The Income Tax Act, 1961 is a central Act that applies uniformly across India, with jurisdiction for
advance tax matters falling under the Income Tax Department and appellate authorities.

Taxpayers must adhere to advance tax payment provisions to avoid legal consequences and ensure
smooth income tax compliance.

09) Due dates of Advance Tax Payments

The Income Tax Act, 1961 mandates advance tax payments in installments with specific due dates to
ensure timely and even tax payments throughout the financial year, as per the following dates.

1st Installment - 15% of Advance Tax: On or before 15th June

This installment requires taxpayers to pay 15% of the estimated advance tax liability on or before 15th
June of the financial year.

2nd Installment - 45% of Advance Tax: On or before 15th September

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The second installment of advance tax requires taxpayers to pay 45% of the advance tax liability on or
before 15th September.
3rd Installment - 75% of Advance Tax: On or before 15th December Taxpayers are required to pay
75% of their advance tax liability on or before 15th December in the financial year.

4th Installment - 100% of Advance Tax: On or before 15th March The final installment of advance tax
is due on or before 15th March, where taxpayers are required to pay 100% of their estimated advance
tax liability.

To calculate advance tax liability, taxpayers should consider their income during the financial year,
including salary, business income, and capital gains, and make payments on due dates to avoid
interest or penalty charges under the Income Tax Act.

To comply with the Income Tax Act, 1961, taxpayers must meet due dates for advance tax payments,
as failure to do so may result in interest under Section 234B and 234C.

The Income Tax Department and its appellate authorities, including the Income Tax Appellate Tribunal
(ITAT), High Courts, and the Supreme Court, have jurisdiction over matters related to advance tax
payments.

10) Agricultural Income

The Income Tax Act, 1961, categorizes agricultural income as a specific income category with specific
exemptions and provisions. Here's a brief note on agricultural income:

Section 2(1A) of the Income Tax Act, 1961 defines agricultural income as income derived by an
individual or Hindu Undivided Family from land in India used for agricultural purposes, including
farming and related activities.

Section 10(1) of the Income Tax Act exempts agricultural income from income tax, allowing
individuals or HUFs whose primary income source is agriculture to avoid paying income tax on their
agricultural income.

There are certain exceptions to the exemption of agricultural income. The following types of
agricultural income are not exempt from income tax:

a) Income from agricultural land situated outside India.

b) Income from processing of agricultural produce beyond the production stage, such as
manufacturing of dairy products, producing tea, coffee, or rubber, etc.
c) Income from the sale of agricultural land.
d) Income earned from agricultural operations not directly related to land cultivation, such as
poultry, beekeeping, and dairy farming.

Individual agricultural income is typically treated as their own, not combined with their spouse or
children's income. However, clubbing provisions may apply if income is derived from assets
transferred for inadequate consideration.
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The Income Tax Act, 1961, is a central Act that regulates agricultural income taxation, with the Income
Tax Department handling matters across the country.

11) Income from Salary

Income from salary is a common source of income in India, regulated by the Income Tax Act, 1961,
and is a key source of income for individuals.

As per Section 17(1) of the Income Tax Act, 1961, salary includes the following components:

i) Wages
ii) Annuity or pension
iii) Any gratuity (except the gratuity earned over and above the exempted by the Act)
iv) Fees, Commission, perquisites, profits in lieu of or in addition to salary or wages
v) Advance of salary
vi) Annual accretion to the employees' provident fund
vii) Leave encashment
viii) Transfer of any assets held by an employee in a specified period

These are general components that make up salary income and can vary depending on the specific
terms and conditions of employment.

a) Basic Salary: Basic salary is the fixed part of the salary structure. It forms the foundation for
other components like Dearness Allowance (DA), House Rent Allowance (HRA), etc.

b) Dearness Allowance (DA): Dearness Allowance is a component of salary that is provided to

mitigate the impact of inflation. It is calculated as a percentage of the basic salary and can vary
based on government policies and regulations.

c) House Rent Allowance (HRA): House Rent Allowance is given to employees to meet the cost
of accommodation. This component is taxable, subject to certain conditions, and exemptions
under Section 10(13A) of the Income Tax Act.

d) Leave Travel Allowance (LTA): Leave Travel Allowance is provided to employees to cover
the expenses of travel during leaves. It is eligible for tax exemption under certain conditions as
specified in Section 10(5) of the Income Tax Act.

e) Medical Allowance: Medical Allowance is granted to meet medical expenses incurred by the
employee. It may be tax-exempt up to a certain limit, as per Section 10(14) of the Income Tax
Act.

f) Perquisites: Perquisites are non-monetary benefits or facilities provided to employees, such

as accommodations, free assets, and club memberships, which are generally taxable unless
specifically exempted under the Income Tax Act.

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Salary income is subject to tax deductions, exemptions, and provisions under the Income Tax Act,
with employer’s obligation to deduct tax based on applicable tax slab rates.

The Income Tax Act, 1961, is a central act that applies uniformly across India. Matters related to
salary income fall under the jurisdiction of the Income Tax Department and their respective appellate
authorities.

12) Tax Deducted at Source (TDS)

Tax Deducted at Source (TDS) is a crucial provision under the Income Tax Act, 1961, requiring
individuals to deduct tax at the source of specific payments made to another party and remit it to the
government.

Tax Deducted at Source (TDS) is the practice of systematically deducting tax at predetermined rates
from individual or entity payments, with the “deductor” being the payer and the “deductee” being the
recipient.

TDS ensures regular tax collection, prevents tax evasion, distributes tax liabilities across income
sources, and facilitates convenient tax collection for the government, while also ensuring tax liabilities
are distributed across various income sources.

TDS is applicable to various types of payments, including but not limited to the following:

a) Salaries
b) Interest
c) Rent
d) Professional fees
e) Contractor and sub-contractor payments
f) Royalties
g) Commission

The Income Tax Act sets different TDS rates for various payment types, based on the nature of the
payment and the status of the deductee.

Threshold limits are set for deductions of TDS, such as no deduction for rent payments below Rs.
2,40,000 per annum, and these limits are subject to periodic revisions and exemptions based on
specific conditions.

Deducted TDS must be deposited to the government's account within prescribed dates, and deductors
must file returns and provide certificates, such as Form 16 for salaries and Form 16A for other
payments.

Non-compliance with TDS provisions or failure to deduct TDS can result in penalties and interest
charges under the Income Tax Act, as well as penalties for late filing or non-filing of TDS returns.

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The Income Tax Act, 1961, is a uniformly applicable in India, governing matters related to TDS,
including deduction, deposit, and compliance, under the jurisdiction of the Income Tax Department.

13) Permanent Account Number (PAN)

The Permanent Account Number (PAN) is a unique ten-digit alphanumeric identification number
issued by the Income Tax Department under the Income-Tax Act, 1961, used for tracking tax-related
transactions and financial transactions of individuals, businesses, and other entities.

PAN is a universal identification key used to manage direct tax laws like income, wealth, and gift tax,
preventing tax evasion by linking financial activities to individuals or entities.

Mandatory PAN Requirements:

a) PAN is a universal identification key used to manage direct tax laws, such as income, wealth,
and gift tax, by linking financial activities to individuals or entities.
b)
PAN is necessary for various financial transactions, including opening bank accounts, investing
in securities, purchasing or selling properties, and conducting high-value transactions as per
the Income Tax Act.

c) The Tax Deduction and Collection Account Number (TAN) is crucial for businesses and entities
collecting or deducting taxes at the source, as it is used for reporting and remitting TDS or
TCS.

d) PAN applications can be made online through NSDL or UTIITSL websites for Indian citizens
and Form 49A for Indian Citizens and Form 49AA for foreign citizens / entities, or physically
submitted to designate PAN Service centers.

The Income Tax Department verifies applications and supporting documents, issuing PAN cards with
unique PAN numbers for each individual or entity.

The Income Tax Department has launched an online platform called "Know Your PAN" to verify the
authenticity of PAN cards and their associated details for individuals and entities.

The Income Tax Act, 1961, is a central Act that governs the issuance, verification, and use of PANs,
with the Income Tax Department and its agencies handling all related matters.

Obtaining and maintaining a valid PAN is crucial for individuals and entities for tax compliance and
financial transactions.

14) Capital Gains or (Long and Short Term Capital Gains)

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Capital gains are profits earned from selling or transferring non-stock-in-trade assets like real estate,
stocks, or mutual funds. The Income-Tax Act, 1961 in India outlines the taxation of capital gains,
including long-term and short-term gains.
a) Short Term Capital Gains (STCG): Short-term capital gains occur when a capital asset is
held for less than 36 months (24 months for immovable property) before transfer, with key
features of STCG.

 Short-term capital gains are included in a taxpayer's total income and taxed at the
normal slab rates applicable to them.

 The calculation of short-term gains involves subtracting the cost of acquisition,

improvement expenses, and transfer-related expenses from the sale consideration.

 The tax rates for short-term capital gains are as per the income tax slab rates
applicable to the taxpayer.

b) Long Term Capital Gains (LTCG): Long-term capital gains (LTCG) occur when a capital
asset is held for over 36 months (24 months for immovable property) before transfer, with key
features including:

 Long-term capital gains are taxed at a special tax rate as specified under the Income
Tax Act.

 Long-term capital gains are calculated by subtracting acquisition, improvement, and

transfer-related expenses from the sale consideration, determining the taxable gain.

 Certain long-term capital gains, such as those from residential property sales used for
reinvestment (Section 54) or certain bonds (Section 54EC), may qualify for tax
exemptions under sections.

c) Indexed Cost Acquisition: The government's Cost Inflation Index (CII) is used to adjust the
cost of acquisition and improvement expenses for long-term capital assets, reflecting the
impact of inflation on the asset's value.

The Income-Tax Act, 1961, is a uniformly applicable in India, governing matters related to capital
gains taxation and its jurisdiction.

15) Input Tax Credit

The Input Tax Credit (ITC) is a tax mechanism in India's Goods and Services Tax (GST) Act,
2017, allowing businesses to claim credit for GST paid on inputs or services used in business,
reducing their tax liability.

Section 16 of the CGST Act, 2017 and the State GST Act outline Input Tax Credit provisions,
which are uniform across all states due to the implementation of GST as a unified tax system.
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 In order to claim Input Tax Credit, certain conditions need to be satisfied, such as :

a) A registered taxpayer can claim ITC only if he has a valid tax invoice issued by the supplier.

b) ITC can only be claimed if the supplier has discharged the GST liability and deposited the tax
to the government.

c) The taxpayer must have received the goods or services on which the credit is claimed.

d) The goods or services on which credit is claimed should have been used in the course or
furtherance of the business.

e) The taxpayer must comply with the provisions of filing GST returns and reconcile the ITC
claimed with the supplier's details.

f) ITC is only applicable for eligible business supplies, with restrictions on claiming it for specific
goods or services like motor vehicles and food and beverages.

Businesses must maintain accurate records and documentation to support their Input Tax Credit
claim, which is subject to scrutiny by tax authorities to ensure compliance with the GST Act provisions.

Input Tax Credit disputes can be resolved by taxpayers approach the appellate authorities under the
GST Act or the relevant jurisdictional High Court.

16) Definition of Advance Ruling

The advance ruling mechanism allows taxpayers to seek an authoritative ruling from the Authority for
Advance Ruling (AAR) before any tax-related transactions or activities, established under the Central
Goods and Services Tax (CGST) Act, 2017, or the respective State Goods and Services Tax (SGST)
Act.

The definition and provisions of advance ruling can be found in Section 95 to Section 106 of the CGST
Act, 2017, and the respective provisions in the states' SGST Acts.

The AAR provides rulings on taxation, including classification of goods or services, transaction
taxability, tax exemptions, concessions, and input tax credit eligibility.

To obtain an advance ruling, taxpayers must apply to the AAR in the prescribed format, providing
relevant documents and facts. The AAR examines the issues and provides a ruling based on tax laws
and judicial precedents, binding both the applicant and tax authorities.

The advance ruling mechanism aims to enhance tax law certainty, transparency, and consistency,
reducing disputes and litigation, enabling taxpayers to optimize transactions and avoid potential
disputes with authorities.

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The advance ruling mechanism is accessible to all taxpayers, including individuals, companies,
partnerships, and non-residents, but it does not have binding effects on other taxpayers or tax
authorities for different transactions or taxpayers.

If a taxpayer disagrees with the AAR's ruling, they can appeal to the Appellate Authority for Advance
Ruling (AAAR), an independent body outlined in Sections 103 to 110 of the CGST Act, 2017.

17) Kinds of GST (IGST, CGST, SGST)

The Goods and Services Tax (GST) Act, 2017 in India outlines three types of GST: Integrated Goods
and Services Tax (IGST), Central Goods and Services Tax (CGST), and State Goods and Services
Tax (SGST), applied based on transaction nature and tax authority jurisdiction.

a) Integrated Goods and Services Tax (IGST): IGST, a combination of CGST and SGST, is a
tax levied and collected by the Central Government for inter-state transactions of goods and
services. It applies a single tax rate, focusing on a single national market, and is governed by
the Integrated Goods and Services Tax Act of 2017.

b) Central Goods and Services Tax (CGST): The Central Government levies and collects the
Central Goods and Services Tax (CGST) on intra-state transactions of goods and services,
retaining the tax revenue collected. The Central Goods and Services Tax Act, 2017 outlines its
provisions.

c) State Goods and Services Tax (SGST): SGST is a tax component levied and collected by
the State Government for intra-state transactions of goods and services, governed by the State
Goods and Services Tax Act, which governs the tax revenue collected and retained by the
state government.

The CGST and SGST rates are generally identical within a state, but they may vary from state to
state. The combined rate of CGST and SGST is referred to as the Goods and Services Tax (GST)
rate, which is determined by the GST Council at the national level.

The GST Act mandates businesses to maintain accurate records, comply with tax payment, return
filing, and input tax credit provisions, and establish authorities and tribunals for GST-related
matters.

18) Levy and Collection of Tax

The government raises revenue through the levy and collection of taxes, which involve the imposition
of taxes by the government and the actual receipt of tax payments from taxpayers, with specific
provisions varying depending on the applicable tax legislation.

The Indian Constitution grants the Parliament and State Legislatures the power to enact laws on
specific subjects, including taxation, under Article 246. The Parliament can legislate on Union List
matters, while the State Legislatures can legislate on State List subjects. Additionally, a Concurrent
List allows both parties to make laws.
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Tax legislations like Income Tax Act, GST Act, Central Excise Act, and Customs Act outline specific
provisions for tax levy and collection within their respective domains.

a) Tax legislation identifies taxable events or triggers for tax liability, such as income earned,
GST sales, or customs duty imports or exports, which result in the imposition of tax liability.

b) Tax laws define the tax base, such as income tax on taxable income for individuals and
businesses, and GST on the value of goods or services, and provide varying tax rates for
different taxpayers or transactions.

c) Tax authorities assess and determine individual taxpayers' tax liability by verifying records,
conducting audits, and calculating the amount of tax payable.

d) Taxpayers must file regular returns, detailing income, sales, and other relevant details, within
prescribed timelines, and pay the tax due, either in installments or a lump sum.

e) Tax authorities use various methods for tax collection, including direct demand notices, TDS,
TCS, recovery proceedings, and enforcement measures to ensure tax law compliance.

f) Taxpayers can challenge tax assessments or dispute demands through various dispute
resolution mechanisms, including appeals to higher authorities, Appellate Tribunals, and
judicial forums like High Courts and Supreme Courts.

It is important to note that the specific provisions related to the levy and collection of tax can vary
across different tax laws. The procedures, timelines, and rates may differ accordingly.

19) Definition of Income and Computation of Total Income

The definition of income and total income computation may differ based on local tax legislation, but
this summary provides a general understanding of the concept of Income and the computation of Total
Income.

a) Income, in taxation contexts, refers to the money or value an individual or entity earns or
receives during a specific period, including receipts, profits, gains, or benefits, and its definition
varies across different tax laws and jurisdictions.

b) Tax laws typically recognize various sources of income, including:

 Employment income comprises various forms of compensation such as salaries,

wages, bonuses, commissions, allowances, and other forms of compensation received
from employment.

 Any income generated from carrying out a trade, business, or profession is included in
this category. It encompasses self-employment income and income derived from
owning and operating a business.

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  Income generated from various investments such as interest on deposits, dividends
from stocks, capital gains from the sale of assets, rental income, etc., falls under this
category.

 Income earned by owning and leasing property, such as rental income from real estate,
is considered income from property.

 Income from other sources, such as royalties, lottery or gambling winnings, copyrights,
and patents, is not included in the aforementioned categories.

c) Computation of Total Income: The computation of total income involves determining the
sum of income from different sources. The following factors are typically considered:

 Gross income refers to the total income generated from all sources, excluding
deductions or exemptions.

 Tax laws often offer deductions and exemptions that reduce taxable income, including
eligible expenses, contributions, investments, or allowances.

 Tax laws determine the applicable tax rates and liability based on income brackets and
progressive tax systems, after applying deductions and exemptions, ensuring all
taxable income is subject to tax.

 Tax laws may offer tax credits, which directly reduce tax liability, such as education or
foreign tax credits, instead of deductions that decrease taxable income.

 Tax laws enable taxpayers to reduce their taxable income by offsetting losses from
specific sources against income from other sources.

The specific provisions and rules for calculating income and determining total income can vary
depending on the tax legislation.

20) Tax Liability on Composite and Mixed Supplies

The Goods and Services Tax (GST) Act, 2017 in India determines the tax liability on composite and
mixed supplies based on their nature and the applicable GST Act provisions, providing a brief
explanation of this tax liability.

a) Composite Supply: A composite supply is a single supply of goods or services consisting of

multiple individual supplies, bundled together for a single price. The principal supply is the
primary component, and tax liability is determined based on this supply.

 The tax liability in a composite supply is determined by the rate applicable to the
principal supply, and other GST provisions related to the principal supply will govern the
entire composite supply.

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 b) Mixed Supply: A mixed supply is a combination of distinct, non-bundled individual supplies,
which can be supplied separately, ensuring that each component is distinct and can be used
separately.

 Mixed supply tax liability is determined for each individual component, with the
applicable tax rate based on the classification and tax rate applicable to that specific
supply.

The GST Act offers guidelines for identifying and categorizing supplies as composite or mixed,
depending on the specific facts and circumstances of each case.

21) Persons Liable for Registration

Section 22 of the Goods and Services Tax (GST) Act, 2017 outlines the registration requirements for
certain categories of individuals, a comprehensive indirect tax law pertaining to the supply of goods
and services.

a) The GST Act requires individuals or entities with an aggregate turnover exceeding a specified
threshold limit to register, as they supply goods or services with a specified turnover.

 For businesses engaged in the supply of goods, the threshold limit is Rs.40.00 lakhs
(Rs.10.00 lakhs in some special category states).

 For businesses engaged in the supply of services, the threshold limit is Rs.20.00 lakhs
(Rs.10.00 lakhs in some special category states).

b) Casual taxable persons, who occasionally supply goods or services in India without a fixed
business location, are required to obtain GST registration regardless of their turnover.

c) Non-resident taxable persons who provide goods or services in India are also required to
register for GST, regardless of their turnover.

d) Individuals who are required to deduct or collect tax at source (TDS) or pay tax at source
(TCS) under the GST Act must obtain GST registration, regardless of their turnover.

e) The GST Act mandates registration for input service distributors who receive tax invoices for
their services and distribute credit to their branches.

f) E-commerce operators, regardless of their turnover, must obtain GST registration for the
supply of goods or services through their platforms.

Other categories of individuals are also liable for GST registration, which may vary based on specific
provisions and circumstances. These categories cover the major types of persons liable for GST
registration under the Act.

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 22) Procedure for Registration

The Goods and Services Tax (GST) Act, 2017, mandates registration for all entities involved in the
supply of goods or services, ensuring compliance with GST laws and enabling them to collect and
remit GST to the government.

The procedure for registration under the GST Act, 2017 is as follows :

a) The first step is to visit the official GST portal (www.gst.gov.in).

b) Create a user ID and password by providing the necessary details, such as PAN, email
address, and mobile number.

c) The registration application form should be filled out with all necessary information, such as the
entity's legal name, business address, contact details, and authorized signatories.

d) The GST portal requires submission of specific documents, such as PAN and Aadhaar cards,
photographs, business address proof, and bank account details.

e) The application form must be submitted after filling in all necessary details and uploading
documents, and then verified by the GST authorities.

f) The GST authorities may request additional information or documents, and applicants must
respond within the specified timeframe.

g) The applicant will receive a GST registration certificate, containing a unique GSTIN, which is
required for all GST-related transactions upon successful verification.

The GST Act, 2017 determines the jurisdiction for registration based on the applicant's place of
business. The applicant must provide the State/Union territory where their principal place of business
is located, and the appropriate tax officer is assigned.

23) Amendment of Returns under GST Act.

The Goods and Services Tax (GST) Act, 2017, mandates registered taxpayers to file regular returns
detailing their outward and inward supplies, tax payments, and any errors, omissions, or discrepancies
in the original return. Taxpayers have the option to revise their returns.

The procedure for filing revised returns under the GST Act, 2017 is as follows :

 If a taxpayer discovers errors in their original return, they should revise it, including corrections
in invoice details, tax amount, and input tax credit claims.

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  A taxpayer can file a revised return for rectification within the following timeframes:

 For the financial year up to March of the following financial year or before the filing of
the annual return, whichever is earlier.

 For the September to March period upto the 20th day of the month succeeding the tax
period.

 Log in to the GST portal using the registered credentials.

 After logging in, navigate to the 'Returns Dashboard' section on the GST portal.

 Choose the return period for which the revision is required.

 To revise a return, taxpayers must make necessary amendments to B2B invoices and credit
notes, and can modify invoice details by clicking on this option.

 Edit the details of the invoices or credit notes that require correction. This may include
modifications to the invoice number, invoice date, taxable value, tax amount, etc.

 After making the necessary amendments, save the changes and submit the revised return.

 Upon successful submission, an acknowledgment reference number (ARN) will be generated.

Keep a record of this ARN for future reference.

Revised returns can be filed to correct errors or omissions, but caution is crucial as deliberate misuse
or misrepresentation can result in penalties under the GST Act, 2017.

24) Foreign National of Indian Origin

The Income Tax Act, 1961, classifies foreign nationals of Indian origin as individual’s not Indian
citizens but with Indian ancestry, origin, or ethnicity, offering specific benefits and exemptions

a) A person of Indian origin (PIO) born in undivided India enjoys benefits under the Income Tax
Act, including exemption from foreign income, relief for foreign tax payments, and acquisition of
assets in India.

b) Overseas Citizen of India (OCI) is a permanent residency program for foreign nationals who
can establish at least one of their parents, grandparents, or great-grandparents as Indian
citizens. OCIs enjoy similar benefits under the Income Tax Act, including exemption from
income arising outside India.

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 c) Overseas Citizen of India (OCI) is a permanent residency for foreign nationals who can
establish at least one of their parents as Indian citizens. OCIs enjoy similar benefits under the
Income Tax Act.
d) NRIs, Indian citizens living outside India, are eligible for specific tax exemptions, deductions,
and benefits under the Income Tax Act, including provisions for house property, savings,
investments, and capital gains taxation.

The Income Tax Act differentiates between residents and non-residents for tax purposes, with NRIs
and Indian foreign nationals having different tax obligations and exemptions compared to residents.

The Income Tax Act, 1961, and its rules and notifications offer specific provisions, benefits, and
exemptions to Indian origin.

25) Article 265 of Indian Constitution

Article 265 of the Indian Constitution states that no tax can be imposed or collected without the
authority of law, establishing the fundamental principle of taxation in India.

Article 265 ensures that tax levy and collection are lawful and not arbitrary, protecting individuals and
entities from unauthorized taxation. It ensures that any tax is supported by a valid law passed by the
appropriate legislative authority.

Article 265 defines "tax" as a broad term that includes direct and indirect taxes, including income and
wealth taxes, and applies to both central and state taxes.

This Article mandates that any tax must be valid and enforceable, requiring it to be supported by
legislation enacted by the appropriate legislative body, such as the parliament for central taxes or the
state legislature for state taxes.

Article 265 prevents executive power from imposing taxes, ensuring clear legal frameworks for tax
liability. Contraventions can be challenged as violating constitutional protection against arbitrary
taxation, allowing courts to review tax laws.

Article 265 of the Indian Constitution safeguards individuals and entities' rights against arbitrary or
unauthorized taxation, emphasizing the principle of legality in taxation.

26) Standard Deduction

Standard Deduction is a predefined deduction under the Income Tax Act, 1961, for salaried individuals
and pensioners, regardless of actual expenses.
The Finance Act, 2018, introduced the Standard Deduction, effective from 2019-20, aiming to alleviate
taxable income for salaried individuals and pensioners by reducing their taxable income.

The Standard Deduction amount is ₹50,000, which is deducted from gross salary or pension, resulting
in a lower taxable income for all salaried individuals and pensioners, regardless of age or salary or
pension amount.
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The Standard Deduction is an alternative to the previous system that provided deductions for transport
allowance and medical reimbursement, which were abolished. Individuals with income from salaries or
pensions can choose between the Standard Deduction and the combination.

27) Characteristics of Salary

The Income Tax Act, 1961 defines salary as a broad term for various remuneration and benefits
received for employment or services, a key component of taxable income for salaried individuals.

 Salary is the compensation paid by an employer to an employee for their services provided in
an employer-employee relationship.

 Salary is a regular payment received by employees, including basic salary, allowances,

commissions, bonuses, and other similar compensation.

 Salary is considered a "income from salary" and is categorized as a head of income under the
Income Tax Act.

 Employers are obligated to deduct tax at source (TDS) from employee salaries, based on the
employee's income and tax rates, and are responsible for depositing the tax with the
government.

 Salary may include employer-provided benefits like rent-free accommodation, conveyance,

and medical reimbursements, which are taxable in the employee's hands.

 The Income Tax Act defines salary as income earned by an employee for services rendered
outside India, but taxability may be influenced by the Double Taxation Avoidance Agreement
(DTAA) provisions.

 The Income Tax Act offers various deductions and exemptions to reduce taxable income from
salary, including standard deductions, allowances, HRA and LTA deductions.

Understanding salary characteristics is crucial for employers and employees to comply with income
tax provisions, accurately determining taxable salary, deducting TDS, and issuing Form 16,
respectively.

28) Entertainment Allowance

Entertainment Allowance is a tax-deductible contribution from an employer to an employee's salary or

perquisites, used to cover entertainment-related expenses, and is a part of the employee's income
under the Income Tax Act, 1961.

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The deduction for Entertainment Allowance is restricted to specific employee categories, such as
government employees and those of certain statutory corporations, boards, and universities.

Section 16(ii) of the Income Tax Act, 1961 allows government employees and certain entities to
deduct 1/5th of their salary or ₹5,000, excluding other allowances, perquisites, or profits in lieu of
salary, whichever is less.

For example, if an eligible employee receives an annual salary of ₹10 lakh and they receive an
entertainment allowance of ₹20,000 per year, the deduction for entertainment allowance will be
calculated as 1/5th of the salary, i.e., ₹2 lakh, or ₹5,000, whichever is less. In this scenario, the
deduction will be limited to ₹5,000.

The Finance Act, 2018, introduced a standard deduction of ₹50,000 for all salaried individuals,
including entertainment, which is no longer available to those not covered under specific categories,
thereby eliminating the deduction for Entertainment Allowance.

29) Voluntary Retirement Allowance

Section 10(10C) of The Income Tax Act, 1961, defines a Voluntary Retirement Allowance (VRA) as
the compensation or benefits an employee receives for voluntary retirement.

The section offers tax benefits on the Voluntary Retirement Allowance (VRA) employees receive from
employers upon voluntary retirement, outlining key points.

a) To be eligible for the tax benefits under Section 10(10C), an employee must fulfill the following
criteria:

 They should have completed at least 10 years of continuous service in employment.

 The VRA, which is a voluntary retirement scheme, must adhere to guidelines set by the
Central Government.

b) The Voluntary Retirement Allowance, based on an employee's years of service, basic salary,
and government-specified amount, can be eligible for tax exemption up to a maximum of ₹5
lakh, as per current provisions.

c) The amount exempt from tax depends on the formula specified in the Income Tax Act. It is the
least of the following:

 The actual VRA received.

 ₹5 lakh.
 The amount calculated using the formula [(3 x Last drawn salary) x Completed years of
service] / 10.

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 d) Excess Voluntary Retirement Allowance received beyond the exempted limit is taxable as
salary income, added to total income, and taxed at applicable slab rates.

e) Employers are obligated to deduct tax at source (TDS) on the taxable portion of the Voluntary
Retirement Allowance (VRA) after disbursing it.
Employees receiving a Voluntary Retirement Allowance must comprehend the tax implications and
comply with the Income Tax Act provisions.

30) Association of Persons under the Income-Tax Act, 1961

Section 2(31) of the Income Tax Act, 1961 defines an "Association of Persons" (AOP) as a joint
venture or business activity between two or more individuals or entities with a common purpose.

An AOP include various groups such as partnerships, companies, and co-operative societies, but
excludes individuals involved in joint property rental.

The Income Tax Act recognizes AOPs as distinct entities for taxation, determining their taxable
income separately from their members and following the Act's applicable provisions.

Sections 86 to 91 of the Income Tax Act, 1961, primarily pertain to the assessment, taxation, and
income determination of AOPs, with tax rates and deductions varying based on the business or joint
venture's nature.

It is important to note that AOPs are distinct from partnerships, which are governed by their own set of
rules under the Indian Partnership Act, 1932.

The Income Tax Authorities and the Income Tax Appellate Tribunal are responsible for determining
tax liabilities and disputes related to AOPs, while taxpayers can appeal against tax assessments to the
appropriate High Court or Supreme Court.

31) Persons Chargeable to Income-Tax

The Income Tax Act, 1961, defines "Persons Chargeable to Income Tax" as individuals, companies,
firms, local authorities, and all artificial juridical entities, prescribing tax rates and provisions for various
taxpayer categories.

The Income Tax Act, 1961, primarily consists of Sections 2(31) and 4 to 9 which outline the specific
provisions regarding persons chargeable to income tax.

a) Income tax is imposed on individuals based on various sources, including salary, property,
capital gains, and business income, with tax brackets varying based on age, residential status,
and income levels.

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 b) Indian companies, both domestic and foreign, are required to pay income tax on their total
income, with domestic companies paying a flat rate and foreign companies varying based on
income nature.

c) The Indian Partnership Act, 1932 defines a firm as a partnership, with income tax levied on
individual partners, and taxable income and tax liability determined by profit allocation.

d) Local authorities, including municipalities and panchayats, are required to pay income tax on
their total income, determined separately under the Income Tax Act.

e) Artificial juridical persons, such as trusts, cooperative societies, and religious institutions, are
not natural or legal individuals but recognized as juridical under the law. They are liable to
income tax according to the Act's provisions.

The Income Tax Authorities, including the Assessing Officer and Commissioner of Income Tax, are
responsible for determining tax liability. If disputes arise, taxpayers can seek resolution from the
appropriate Income Tax Appellate Tribunal, High Court, or Supreme Court.

32) Revised Return under Income-Tax Act

The Income Tax Act, 1961 permits taxpayers to file a revised return under specific circumstances,
allowing them to rectify any errors or omissions in their original return.

Section 139(5) of the Income Tax Act, 1961 allows taxpayers to file a revised return if they discover
any mistakes or omissions in their original return, either before the end of the relevant assessment
year or before assessment completion.

Section 139(1) of the Income Tax Act, 1961 allows individuals, Hindu Undivided Families (HUFs), and
companies to file revised returns if the original return was submitted by the due date.

A revised return can be filed to correct errors in income, deductions, exemptions, or other details
affecting taxpayer's tax liability computation, overriding the original return and being considered by the
tax department for assessment.

The jurisdiction for filing a revised return lies with the Income Tax Department. Taxpayers can file their
revised return electronically through the Income Tax Department's online portal or by submitting a
physical copy to the jurisdictional assessing officer.

PART – B

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 01) Explain the Constitutional Provisions of Taxation? Explain object of
Taxation?

The Indian Constitution, primarily governed by Articles 265 to 293, grants the Union and state
governments the power to levy and collect taxes, with key provisions highlighting the responsibilities of
both parties.

a) Article 248 of the Constitution grants the Union government supplementary power to create
laws and impose taxes on matters not explicitly listed in the State or Concurrent List.

b) The Seventh Schedule of the Constitution outlines the Union List, which includes taxes only
the Union government can levy, including income tax, customs duties, excise duties, and
service tax.

c) The State List, a part of the Seventh Schedule, lists taxes only levied by state governments,
including sales tax, VAT, stamp duty, and professional tax.

d) The Concurrent List includes taxes levied by both Union and State governments, such as
goods and services tax (GST), estate duty, and electricity duty, which was introduced by the
Constitution (101st Amendment) Act, 2016.

Objectives of Taxation:

a) Taxation primarily aims to generate revenue for the government, which is used to fund public
services, infrastructure development, defense, education, healthcare, and other essential
services.

b) Progressive tax systems aim to redistribute wealth from affluent to less privileged sections,
promoting social justice and reducing income inequalities.

c) Taxation is utilized for economic regulation, such as imposing higher taxes on goods like
tobacco and alcohol to discourage consumption, promote public health, and control social
harms.
d) Fiscal policy involves governments adjusting tax rates and policies to stimulate or limit
economic growth, control inflation, and manage fiscal deficits.
The summary provides a brief overview of the constitutional provisions of taxation, which are detailed
in the Constitution and specific tax laws and regulations enacted by Central and State governments.

02) Write a note on History of Indian Income-Tax Law?

The Indian income-tax law has its roots in the British colonial era, when the concept of income tax was
introduced in India.

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The Indian income-tax law, introduced in 1860 by Finance Member Sir James Wilson, was aimed at
raising revenue to cover British government expenses during the Indian Rebellion of 1857, marking
the beginning of the British Raj's income-tax system.

However, the Indian Income Tax Act, 1860, was short-lived and ineffective, leading to its repeal in
1865 due to inadequate administration and poor compliance.

The Indian Income Tax Act, 1886 was a tax imposed by the British government to alleviate fiscal
deficits, primarily targeting British subjects and certain non-British individuals and businesses, with
amendments to expand its tax base and improve compliance.

The Indian Income Tax Act, 1922, established a comprehensive framework for income taxation in
India. However, after India gained independence in 1947, the Act was amended to suit the country's
changing economic, social, and fiscal conditions, replacing the 1922 Act.

The Indian Income Tax Act, 1961 governs India's income tax collection, administration, and
assessment procedures, serving as a revenue generator, public finance source, social justice tool,
economic regulation, and a crucial part of India's fiscal policy.

The Indian income-tax law, dating back to the British colonial era, has evolved through various
amendments since its inception in 1860 to ensure fair taxation, revenue generation, and economic
development.

03) Write a detailed note on the Principle and additional principles in

determining the three residential status of a person

The Income Tax Act, 1961, outlines specific principles for determining an individual's residential status
for income tax purposes, which are crucial in assessing their tax liabilities. Additional principles are
also used to determine residential status.

Principle – 1: The residential status of an individual in India is determined by their physical

presence during the relevant financial year, as per Section 6(1) of the Income Tax Act, and can be
classified as Resident, Non-Resident, or Not Ordinarily Resident.

Resident: A resident in India is someone who has been present in India for at least 182 days or
more during the financial year, or 60 days or more has been in India for a total of 365
days or more in the preceding four financial years.

Non Resident: If an individual does not meet any of the aforementioned conditions, they are
considered a Non-Resident for tax purposes.

Principle – 2: Additional principles are used to determine residential status for individuals who don't
meet the basic conditions, such as:

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Resident but Not Ordinary Resident is an individual who has been a non-resident in India for at
least nine out of ten previous years or has been in India for 729 days or less in the seven preceding
financial years, entitled to certain tax benefits and exemptions.

Not Ordinarily Resident is a person who does not meet the residency or Resident but Not Ordinary
Resident criteria, and is taxed on India-sourced and foreign income remitted to India, with foreign
income earned outside India being exempt.

Additional principles aim to classify an individual's residential status based on their previous residency
patterns and income nature.

Residential status is crucial for determining an individual's taxability, as it influences the applicable tax
rates, exemptions, deductions, and reporting requirements.

04) What are the salient features of the GST Act, 2017?

The Goods and Services Tax (GST) Act, 2017, is a comprehensive indirect tax legislation in India that
replaces multiple taxes imposed by central and state governments, with key features.

a) One Nation, One Tax: The GST Act aims to establish a unified tax structure across the
country, replacing indirect taxes like Central Excise Duty, Service Tax, and VAT. It simplifies
the tax system by introducing a destination-based consumption tax.

b) Dual Taxation System: The GST Act uses a dual taxation model, with the Central
Government collecting Central GST (CGST), State Governments collecting State GST (SGST),
and the Central Government levied Integrated GST (IGST) on inter-state transactions.

c) Tax Applicability: The GST Act governs the supply of goods or services within a country,
including imported goods and services, covering nearly all items, except for a few exempted
ones.

d) Threshold Limit: The GST Act sets registration thresholds based on a business's annual
turnover, with businesses exceeding these limits required to register.

e) Input Tax Credit: The Act permits businesses to claim Input Tax Credit on taxes paid on
inputs used in business, allowing them to set off the tax paid on purchases against their supply
tax liability.

f) Compliance and Registration: The GST Act requires businesses to register and adhere
to GST requirements, including regular returns, record-keeping, and invoicing guidelines, and
introduces a common GSTIN for identification and compliance.

g) GST Council: The GST Council, comprising Central and State Government representatives,
is established to make recommendations on GST-related matters, including rates and tax
reforms, playing a crucial role in decision-making.

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 h) Anti-Profiteering Measures: The GST Act mandates businesses to avoid profiteering by
reducing tax rates or providing input tax credits to consumers by lowering prices.

The above features highlight the key aspects of the GST Act, 2017. It is crucial for businesses and
individuals to understand the provisions of the Act, comply with the requirements

05) Explain the Heads of Income and Computation? or Explain the Computation of
Income from House Property or Computation of Income from Salary?

The Income Tax Act, 1961, classified taxable income into various heads, each representing a different
source or nature of income. This explanation explains the computation of these heads.

1) The Income from Salary (Section 15-17) covers income received from employees, including
salary, wages, fees, commission, or other forms of remuneration. It involves calculating gross
salary, deducting allowances, exemptions, and deductions to determine taxable income.

2) Income from house property (Section 22 to 27) includes income from owning and renting
out residential or commercial properties. It is calculated by determining the property's gross
annual value, deducting municipal taxes, and allowing a standard deduction, with other
permissible deductions including interest on property loans.

3) Section 28 to 44DA covers income from business or profession activities, which is

computed by deducting business expenses, depreciation, and other deductions from gross
receipts to determine taxable business income.

4) Capital gains (Section 45 to 55) refer to income from the transfer of capital assets like stocks
or real estate. They are determined by deducting acquisition/improvement costs and allowable
exemptions from sale proceeds, with tax rates varying based on the asset's holding period.

5) Income from other sources (Section 56 to 49), including interest, dividends, lotteries or
games winnings, and certain gifts, is categorized under other income heads. Computation
involves summarizing all income from other sources and applying tax rates.

Taxpayers must adhere to specific provisions, exemptions, deductions, and tax rates for each income
source and maintain accurate records for accurate computation, as they differ under each income
head.

The Act outlines rules for setting off and carrying forward losses under different income heads to
determine net taxable income. Income Tax Authorities assess these incomes, and taxpayers must file
returns, disclose income details, and pay applicable taxes.

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 06) Explain the concept of Registration in detail in GST Act, 2017?

The Goods and Services Tax (GST) Act, 2017, mandates registration for individuals exceeding a
specified threshold for taxable goods or services, aiming to consolidate previously levied taxes into a
single, unified tax structure.

The GST Act registration process involves submitting an application and necessary documents to the
Goods and Services Tax Network (GSTN), which serves as the IT backbone for GST registration,
filing returns, and compliance requirements.

The threshold limits for mandatory registration vary depending on the type of taxable
person:

a) For Businesses: If the aggregate turnover of a person (excluding certain specified categories)
exceeds the threshold of Rs.40.00 lakhs (Rs.10.00 lakhs for special category states),
registration is mandatory.

b) For Casual Taxable Persons and Non-Resident Taxable Persons: Registration is required
irrespective of turnover.

c) For Input Service Distributors, Agents, and E-commerce Operators: Registration is

mandatory, regardless of the turnover.

The registration process involves the following steps:

 Verification of PAN: The PAN (Permanent Account Number) of the applicant is verified for its
correctness and validity.

 Verification of Aadhaar: In certain cases, the Aadhaar number of the applicant is verified.

 Business Details: The applicant provides details about the business, such as legal name,
trade name, nature of business, etc.

 Address Proof: Documentary evidence for the principal place of business, such as a lease
agreement, utility bills, etc., is submitted.

 Bank Account Details: Information regarding bank accounts held by the applicant is
furnished.

 Authorized Signatory: The details of the authorized signatory, who will be responsible for all
GST compliance activities and communication with the authorities, are provided.

 Upload Documents: Supporting documents (such as PAN card, Aadhaar card, photographs,
bank statements, etc.) are uploaded.
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  Submission and ARN Generation: Once all the required details and documents are
submitted, an Application Reference Number (ARN) is generated.

Upon submission of an application, tax authorities may verify the provided information, and if
approved, a unique Goods and Services Tax Identification Number (GSTIN) is issued to the applicant.

GST registration offers benefits like customer tax collection, input tax credit, and compliance with GST
rules. Failure to register can result in penalties and legal consequences under the GST Act.

The registration jurisdiction falls under the State GST Act or Union Territory GST Act, and any
disputes or issues related to registration are handled by the relevant tax authority or appellate
authority.

07) Explain the different types of authorities under GST Act, 2017?
(Appellate Authorities, Revisional Authorities)?

The GST Act, 2017, establishes various authorities to administer and enforce the law, ensuring
compliance with GST regulations and resolving disputes. Appellate Authorities and Revisional
Authorities are two significant types of authorities.

1) Appellate Authorities: Appellate Authorities handle appeals against lower-level tax

authorities' orders, providing taxpayers with a forum to address grievances or disputes. Key
Appellate Authorities under the GST Act include:

 The Appellate Authority for Advance Ruling (AAAR) is a state or union territory that
hears appeals against the Authority for Advance Ruling's rulings on tax liability
determination and GST classification.

 The National Appellate Authority for Advance Ruling (NAAAR) is a central authority that
hears appeals against the State Appellate Authority's rulings.

 The Goods and Services Tax Appellate Tribunal (GSTAT) is a quasi-judicial body that
adjudicates disputes arising from lower-level tax authorities' decisions, with separate
state and national benches and judicial and technical members.

 If a party is dissatisfied with GSTAT's decision, they can appeal to the High Court and
then the Supreme Court of India.

2) Revisional Authorities: Revisional Authorities review lower-level tax authorities' decisions

and orders to ensure compliance with GST provisions. The primary Revisional Authority is the
Commissioner of State Tax or Central Tax, as applicable.

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 The Commissioner of State Tax or Commissioner of Central Tax can initiate revision
proceedings within a specified timeframe if they believe an order from a subordinate authority
is incorrect or detrimental to revenue.

The GST Act outlines the powers, functions, and procedures of Appellate Authorities and Revisional
Authorities, with their jurisdiction and hierarchy varying based on the nature and extent of the dispute
or appeal.

08) Explain PAN in detail?

PAN is a unique alphanumeric identification number assigned to individuals, businesses, and entities
for income tax-related transactions, ensuring effective tax administration, tracking financial
transactions, and preventing tax evasion.

Here is a detailed explanation of PAN under the Income Tax Act, 1961 :

a) Need for PAN: PAN is a unique taxpayer identification number in India, used for tax reporting,
tracking financial transactions, and preventing tax evasion by monitoring high-value
transactions, detecting evaders, and discouraging the use of fake or multiple identities for
financial activities.

b) Structure of PAN: PAN is a unique identification system consisting of ten characters,

consisting of letters and numbers. The first five are letters, followed by four numerals, and the
last one is a letter. An example is ABCDE1234F.

c) Application and Issuance of PAN: The application process for a PAN can be done online
through the National Securities Depository Limited or UTIITSL, requiring Form 49A for
individuals or Form 49AA for non-individual entities. Supporting documents like proof of
identity, address, and date of birth are also required. After submission, the details are verified,
and a PAN card is issued by the Income Tax Department.

d) Importance of PAN: PAN is a mandatory document in India for filing income tax returns,
making tax payments, conducting financial transactions, and quoting PAN for certain cash
transactions. It is also required for obtaining loans, applying for credit cards, and claiming tax
benefits. PAN is also necessary for certain cash transactions, such as deposits above a
specified threshold.

e) Legal Provisions: Section 139A of the Income Tax Act, 1961 mandates the need for PAN
and outlines its issuance and usage, while Rule 114 of the Income Tax Rules, 1962 provides
detailed procedures for PAN application and verification.

PAN is non-transferable and must be updated with tax authorities for any changes in details, as non-
compliance or misuse can result in penalties and legal consequences.

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 09) Write a detail note on Commutation of Pension and its treatment under
Income-Tax?

Commutation of pension is the conversion of a portion of a monthly pension into a lump sum payment,
subject to specific rules and provisions under the Income Tax Act, 1961, determining its tax
implications.

a) Commutation of Pension: Pension commutation is available to government employees,

armed forces members, and employees of statutory corporations, local authorities, and
universities. The maximum commutation allowed is 1/3rd of the pension for retirees on or after
January 1, 2006. The commuted amount is paid as a lump sum, with the remaining pension
received monthly.

b) Tax Treatment of Commuted Pension:

 Pre- 1/3rd Commutation Rule: If the commutation of pension took place prior to April 1,
2016, the commuted portion is fully tax-exempt, irrespective of the employee's category
(i.e., government/non-government).

 Post-1/3rd Commutation Rule: - Government Employees: For government employees,

the commuted portion is fully exempt from tax.

Non-Government Employees:

 Recognized Provident Fund: For employees covered by a recognized provident fund,

the commuted portion is fully exempt from tax.
 Unrecognized Provident Fund: Employees covered under unorganized provident
funds can receive tax-exempt commutation amounts up to the extent allowed by the
Act, calculated based on age and commutation payment received.

 Other Cases: In cases where the pension is not covered by a provident fund, the
commuted portion is considered as salary. The commuted amount received in this
scenario is taxable as per the applicable tax slab rates.

c) Tax Treatment of Remaining Pension: Monthly pension received is treated as a salary and
taxed based on the individual's income tax slab rates.

Example: An individual receives a lump sum payment of Rs. 12 lakh from their pension, which
is tax-exempt if they are a government employee. The remaining monthly pension is treated as
salary and taxed accordingly.

The Income Tax Act, 1961 may periodically introduce amendments and changes to the tax treatment
of commuted pensions.

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 10) What are the guidelines for allowing exemption of expenses incurred
for the treatment of specified deceases under Section 80DDB of the
Income-Tax Act?

Section 80DDB of the Income Tax Act, 1961 allows individuals to claim deductions for expenses
related to specified diseases, with specific guidelines for exemption.

a) Eligible Deceases: Section 80DDB deductions cover diseases like cancer, AIDS, chronic
renal failure, and thalassemia, as per Rule 11DD of the Income Tax Rules, 1962. These
diseases require continuous medical treatment from a specialized doctor in a government
hospital.

b) Deduction Limits: The deduction limit for treatment expenses varies based on the individual's
age. For individuals under 60, the maximum deduction is Rs.40,000/-, while for those 60 and
above, it is Rs.1,00,000/-. The actual amount spent or the specified limit can be claimed as a
deduction under Section 80DDB.

c) Prescription and Certificate: To claim a deduction, individuals must obtain a prescription

from a specialized doctor in a government hospital or approved hospital, along with a Form 10-
I certificate certifying the disease, treatment details, and spent amount.

d) Dependents: The deduction can be claimed for specified diseases treatment for individuals,
spouses, children, parents, siblings, or members of the Hindu Undivided Family who are
dependent on the individual.

e) Documentation: Individuals should maintain accurate documentation and receipts of

expenses, including bills from hospitals, pharmacies, and diagnostic centers, for future
reference and tax authorities' scrutiny or verification.
f) Claiming the Deduction: Section 80DDB deduction can be claimed during income tax return
filing, requiring taxpayers to provide expenses details, proof, prescribed forms, and certificates.

Section 80DDB deductions are subject to specific conditions and requirements outlined in the Income
Tax Act and relevant rules, which may be subject to government changes and updates.

11) Explain about Administration Officers in GST Act?

The Goods and Services Tax (GST) Act, 2017, mandates the role of Administration Officers in
overseeing and enforcing GST provisions, ensuring smooth implementation and compliance by
businesses and taxpayers.

a) Appointment: The Central or State Government appoints Administration Officers, typically

from the Indian Revenue Service (IRS), who can hold various positions such as Commissioner,
Additional Commissioner, Joint Commissioner, Deputy Commissioner, Assistant
Commissioner, or Superintendent.

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 b) Roles and Responsibilities: Administration Officers manage and enforce GST in their
jurisdiction, oversee registration and issuance of GSTINs, and conduct assessments and
audits to ensure compliance, verify tax returns, and identify discrepancies.

Administration Officers are responsible for conducting inspections, recovering tax dues,
resolving disputes, and providing guidance to taxpayers. They can seize goods or documents,
impose penalties, initiate recovery proceedings, and process refunds. They also provide
education and awareness programs.

c) Powers and Jurisdiction: Administration Officers, under the GST Act, have geographically
defined jurisdiction and powers to issue notifications, circulars, orders, and administrative
directions for GST implementation.

d) Collaboration and Coordination: Administration Officers collaborate with other taxation

authorities like CBIC and SGST to streamline tax administration.

The powers, functions, and procedures of Administration Officers under the GST Act, 2017, may be
subject to government updates and changes.

12)Prepare the draft pro-forma of computation of income from Salary and House
property applying appropriately the provisions of Sections 10(13)(14), 16, 24,
80DDB, 80E and 80C?

SUGGESTED TO AVOID THIS QUESTION AND CHOOSE ANOTHER

QUESTION IN THE EXAMINATION

13) Explain the method of calculation of gratuity and its treatment on

retirement for government and non-government employees under Income-
Tax Act?

Gratuity is a statutory benefit given to employees in India as a form of gratitude for their services,
regulated by the Payment of Gratuity Act, 1972, and calculated and treated under the Income Tax Act,
1961 for both government and non-government employees.

a) Calculating Gratuity:

The gratuity amount is calculated based on a specific formula:

Gratuity = (Last drawn salary × 15 days) × number of years of service (subject to a maximum
of 20 lakh rupees)

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 For example, if an employee's last drawn salary is Rs.50,000 and the individual has
completed 20 years of service, the gratuity amount would be (50,000/26) × 15 × 20 =
Rs.5,76,923.

b) Treatment of Gratuity on Retirement under Income Tax Act :

Government Employees: For government employees covered under the Central Civil
Services (Pension) Rules, 1972 or similar state rules, the gratuity received on retirement is fully
exempt from income tax.

Non-Government Employees: The Income Tax Act, 1961 determines the exemption limit for
gratuity received on retirement or resignation for non-government employees, calculated using
a specific formula.

i. Actual gratuity received

ii. 15 days salary for each completed year of service or part thereof in excess of six
months (based on the last drawn salary)

iii. Rs.20.00 lakhs (maximum limit as per the Payment of Gratuity Act, 1972)

The exempted gratuity amount is determined using the formula (ii) or (iii) mentioned above,
whichever is lower.

For example, if an employee's last drawn salary is Rs. 50,000 and the individual has
completed 20 years of service, the exempted gratuity amount would be (50,000/26) × 15 × 20
= Rs. 5,76,923 (which is less than the maximum limit of Rs. 20 lakh), and thus the exempted
amount under the Income Tax Act would be Rs. 5,76,923.

Please note that the above information is applicable as per the Income Tax Act, 1961 and the
Payment of Gratuity Act, 1972.

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