Short note.
Discuss the following citing appropriate legal
Q.what is canon of equaty.?
Ans- Every fiscal economist, along with Adam Smith,
stresses that taxation must ensure justice. The canon of
equality or equity implies that the burden of taxation
must be distributed equally or equitably in relation to
the ability of the tax payers.
Equity or social justice demands that the rich people
should bear a heavier burden of tax and the poor a
lesser burden. Hence, a tax system should contain
progressive tax rates based on the tax-payer’s ability to
pay and sacrifice.
Q. Who is an 'assessee' under the incame tax act 1961.
Ans- An assessee is any individual who is liable to pay
taxes to the government against any kind of income
earned or any losses incurred by him for a particular
assessment year. Each and every person who has been
taxed in the previous years for income earned by him is
treated as an Assessee under the Income Tax Act, 1961
Section 2(7) of the Income Tax Act,1961.
Also assessee can be termed as each and every person
for whom
Any proceedings have been taken under the act for the
assessment of his income
Fringe benefits
Income of any other person for whom he is considered
accessible
Any loss sustained by him or by such other person or
Person entitled to any tax refund.
Q. What is an financial year and an assessment year.
Ans- The financial year is the calendar year in which you
received your money. It begins on April 1st of each
calendar year and ends on March 31st of the next
calendar year. The word "financial year" is sometimes
abbreviated as "F.Y." An assessee must measure and
plan taxes for the fiscal year, but the income tax return
must be filed the next year or Assessment Year.
What is an Assessment Year?
The assessment year is the period (from April 1 to March
31) during which you are taxed on the money you
receive in a given financial year. In the relevant
assessment year, you must file your income tax return.
The year immediately after the Financial Year is known
as the Assessment Year.
Q.what is a valuation date.?
Ans- The valuation date is the date on which the market
value of a gift or inheritance is established. The market
value is the best price you would get if you sold the item
on the open market. The valuation date determines the
date by which a return must be filed and tax must be
paid.
The valuation date:
*.for a gift is generally the date you receive it
*.for an inheritance is the earliest of the following dates:
*.the date the executor or administrator is entitled to
retain the asset for your benefit
the date on which the asset is retained
the date the executor or administrator gives the asset to
you.
Q.what are the goods under the central sales tax 1956.
Ans- (c)"declared goods" means goods declared under
section 14 to be of special importance in inter- State
trade or commerce;
(d) "goods" includes all materials, articles, commodities
and all other kinds of movable property, but does not
include 1[newspapers] actionable claims, stocks, shares
and securities.
Q. What do you meant by canons of taxation.
Ans- By canons of taxation we simply mean the
characteristics or qualities which a good tax system
should possess. In fact, canons of taxation are related to
the
administrative part of a tax. Adam Smith first devised
the principles or canons
of taxation in 1776. • Even in the 21st century, Smithian
canons of taxation are applied by the
modern governments while imposing and collecting
taxes.
Q.what is the meaning of aggregate turnover.?
Ans- “aggregate turnover” means the aggregate value of
all taxable supplies (excluding the value of inward
supplies on which tax is payable by a person on reverse
charge basis), exempt supplies,
exports of goods or services or both and inter-State
supplies of persons having the same Permanent Account
Number, to be
computed on all India basis but excludes central tax,
State tax, Union territory tax, integrated tax and cess.
Q. Notes on CGST.
Ans- CGST – Central Goods and Services Tax
Goods and Services Tax was introduced in India several
times by different governments before it was actually
implemented from July 1, 2017, onwards. The idea of
bringing about GST was to have ‘One Nation One Tax’.
GST subsumed all the taxes that prevailed in the country
earlier, and are now categorised under:-
Central Goods and Services Tax
Central Goods and Services Tax or (CGST) subsumed all
the taxes levied by the central government. For example
central excise duty, central surcharges and cess and
other such central indirect taxes that were earlier
applicable.
Q.define PAN.
ans- Permanent Account Number abbreviated as PAN is
a unique 10-digit alphanumeric number issued by the
Income Tax Department to Indian taxpayers.
The department records all tax-related transactions
and information of an individual against his unique
permanent account number. This allows the taxman to
link all tax-related activities with the department.
PAN primarily acts as a database for all individual
transactions, such as the tax collected at source
(TCS)/tax deducted at source (TDS) credits, income tax
payments, return on gift/investments/wealth, etc.
Simply put, the PAN enables the tax department to
identify an individual’s tax-related transaction.
Q.who is a person under the incame tax act, 1961.
Ans- Under Section 2(31), A 'Person' is An Association Of
Persons (AOP) or a Body Of Individuals (BOI) or a Local
Authority or an Artificial Juridical Person, whether or
not, such Person or Body or Authority or Juridical
Person, was formed or established or incorporated with
the object of deriving income, profits or gains.
In other words, A Person includes…
(i)An Individual
(ii) A Hindu Undivided Family (HUF)
(iii) A Company
(iv) A Firm
(v)An Association Of Person (AOP) or a Body Of
Individual (BOI), whether incorporated or not.
(vi) A Local Authority
(vii)Every Artificial Judicial Person not falling within any
of the preceding sub-clauses.
Q. .what is an 'agricultural incame, under the incame tax
act 1961.?
Ans- As per section 10(1), agricultural income earned by
the taxpayer in India is exempt from tax.
Agricultural income is defined under section 2(1A) of the
Income-tax Act. As per section 2(1A),
agricultural income generally means:
(a) Any rent or revenue derived from land which is
situated in India and is used for
agricultural purposes.
(b) Any income derived from such land by agriculture
operations including processing of agricultural produce
so as to render it fit for the market or sale of such
produce.
(c) Any income attributable to a farm house subject to
satisfaction of certain conditions specified in this regard
in section 2(1A).Any income derived from saplings or
seedlings grown in a nursery shall be deemed to be
agricultural income.
Q.what is UTGST.
ANS- UTGST full form or UTGST meaning is Union
Territory Goods and Service Tax. UTGST is applicable
when goods or services or both are consumed in the
supplied regions of India that include Andaman and
Nicobar Islands, Lakshadweep, Dadra & Nagar Haveli
and Daman & Diu, Ladakh and Chandigarh, termed as
Union territories of India. Union Territory GST will be
charged simultaneously with the Central goods and
services tax (CGST).
Q.what is turnover.?
Ans- The Term ‘Turnover’ has not been defined under
the Income Tax Act, 1961. According to section 2(91) of
Companies Act 2013 as amended by the Companies
(Amendment) Act, 2017
"Turnover" means the gross amount of revenue
recognised in the profit and loss
account from the sale, supply, or distribution of goods or
on account of services rendered, or both, by a company
during a financial year.
Q.what is canon of certainty.
Ans- The tax which an individual has to pay should be
certain and not arbitrary. According to A. Smith, the time
of payment, the manner of payment, the quantity to be
paid, i.e., tax liability, ought all to be clear and plain to
the contributor and to everyone. Thus, canon of
certainty embraces a lot of things. It must be certain to
the taxpayer as well as to the tax-levying authority.
Not only taxpayers should know when, where
and how much taxes are to be paid. In other words, the
certainty of liability must be known beforehand.
Similarly, there must also be certainty of revenue that
the government intends to collect over the given time
period. Any amount of uncertainty in these respects may
invite a lot of trouble.
Q. Write two objects of GST.
Ans- 1.To achieve the ideology of ‘One Nation, One Tax’
GST has replaced multiple indirect taxes, which were
existing under the previous tax regime. The advantage of
having one single tax means every state follows the
same rate for a particular product or service. Tax
administration is easier with the Central Government
deciding the rates and policies. Common laws can be
introduced, such as e-way bills for goods transport and
e-invoicing for transaction reporting. Tax compliance is
also better as taxpayers are not bogged down with
multiple return forms and deadlines. Overall, it’s a
unified system of indirect tax compliance.
2.To increase the taxpayer base
GST has helped in widening the tax base in India.
Previously, each of the tax laws had a different threshold
limit for registration based on turnover. As GST is a
consolidated tax levied on both goods and services both,
it has increased tax-registered businesses. Besides, the
stricter laws surrounding input tax credits have helped
bring certain unorganised sectors under the tax net. For
example, the construction industry in India.
Q.define TDX concept.
Ans-TDS is deducted from the payments made by the
individuals as per Income Tax Act. Various types & rates
of TDS deduction are present. Focus on pay as you earn.
TDS is a direct tax which is collected from the people at
the time of payment like salary, rent, commission, etc.
The TDS collected is then transferred to Government
Account. The full form of TDS is Tax Deducted at Source.
The Central Board of Direct Taxes (CBDT) governs the
provisions of TDS under the Income Tax Act, 1961. The
deductor is referred to the person deducting the tax,
and the deductee is the person from whom tax is
deducted. TDS payment is made at a specified rate
prescribed. No tax is deducted in case the amount
doesn't exceed the specified limit.
Q.differnce single tax and multiple tax.
Ans- The following are some of the differences between
single point tax and multi-point tax.
1. Facility of Collection: Single point tax is easy to
enforce and collect, but multi-point tax is difficult to
enforce and collect because of number of points at
which it is collected.
2. Payment of Tax on Tax: Under single point tax system,
tax is paid on the price of the product, which does not
include tax as one of its component. Hence, the
payment of tax on tax is not occurred, whereas in multi-
point tax system in each subsequent point, tax is paid on
the price which includes the tax paid at the proceeding
points also. Thus, the payment of tax on tax is occurred.
3. Point of Levy: Under single point tax system, the tax is
levied at only one point either at the first point or at the
final point, whereas under multi-point tax system, the
tax is levied at all points of sale till it is sold to the
consumers.
Q.notes self assessment
Ans-
Self Assessment Tax means the amount that an assessee
pays on the requisite income after deducting Advance
Tax and TDS for the given financial year. Individuals who
are required to file their income tax returns are liable to
pay their SAT beforehand. A taxpayer can file SAT by
submitting Challan 280, also used for e-filing income tax.
There is no specific date for paying SAT as it is computed
at the end of a financial year. Hence, there is no
deadline associated with the payment of such tax.
Nevertheless, taxpayers must make SAT payments
before filing their respective income tax returns to avoid
paying interest on the tax amount.
Why Should One Pay Self Assessment Tax?
SAT has to be paid by individuals who earn income from
other sources. The tax amount is levied for the following
reasons:
*.There might be some instances where a taxpayer fails
to take an income into consideration while paying
advance tax.
*.Sometimes the TDS amount deducted might be
inaccurate.
*.A salaried employee may earn a substantial income
from investments such as fixed deposits and mutual
funds which may not be known to the employer.
Calculation of Self Assessment Tax
SAT can be calculated by using the following formula:
[(B+C) – (D+E+F+G)]
Where,
B = Total amount of tax payable
C = Interest payable under section 234A/234B/234C
D= Relief on the tax payable under Section 90/90A/91
E= MAT Credit under Section 115JAA
F= Amount of TDS/TCS
G= Advance Tax
Please note that interest under Section 234A will only be
included in case of late filing of income tax returns;
whereas, interest under Section 234B/234C will only be
paid in case of late payment of Advance Tax.
How to pay self assessment tax online?
Individuals can make payment for Self Assessment Tax
online by following the steps mentioned below:
Step 1: Visit the official website of the Income Tax
Department of India.
Step 2: After signing in, click on the e-Pay taxes option to economy. Even though GST serves as a historical tax
be redirected to the official website of National
Securities Depository Ltd. (NSDL).
Step 3: Select “Challan no. /ITNS 280” and then choose
the “0021 (other than companies)” option.
Step 4: Fill in personal details such as name, address,
contact details, PAN card number and more.
Step 5: Individuals have to select the correct assessment
year for which the payment of SAT will be made.
Q. .
provisions.: (SGST,CGST,IGST.)
Ans- Introduction to CGST, SGST and IGST
Unlike earlier when there were multiple taxes such as
Central Excise, Service Tax, State VAT, etc., the GST
introduces just one tax with three components- CGST,
SGST and IGST.
When the supply of goods or services happens within a
state called intra-state transactions, then both the CGST
and SGST will be collected. Whereas if the supply of
goods or services happens between the states called
inter-state transactions, then only IGST will be collected.
Integrated Goods and Services Tax or IGST
The Integrated Goods and Services Tax or IGST is a tax
under the GST regime that is applied on the interstate
(between 2 states) supply of goods and/or services as
well as on imports and exports.
The IGST is governed by the IGST Act. Under IGST, the
body responsible for collecting the taxes is the Central
Government. After the collection of taxes, it is further
divided among the respective states by the Central
Government.
Note: Under IGST,
*.Exports would be zero-rated.
*.Tax will be shared between the Central and State
governments.
For instance, if a trader from West Bengal has sold goods
to a customer in Karnataka worth Rs.5,000, then IGST
will be applicable as the transaction is an interstate
transaction. If the rate of GST charged on the goods is
18%, the trader will charge Rs.5,900 for the goods. The
IGST collected is Rs.900, which will be going to the
Central Government.
2. State Goods and Services Tax or SGST
The State Goods and Services Tax or SGST is a tax under
the GST regime that is applicable on intrastate (within
the same state) transactions. In the case of an intrastate
supply of goods and/or services, both State GST and
Central GST are levied.
However, the State GST or SGST is levied by the state on
the goods and/or services that are purchased or sold
within the state. It is governed by the SGST Act. The
revenue earned through SGST is solely claimed by the
respective state government.
Note: Any tax liability obtained under SGST can be set
off against SGST or IGST input tax credit only and not
CGST.
For instance, if a trader from West Bengal has sold goods
to a customer in West Bengal worth Rs.5,000, then the
GST applicable on the transaction will be partly CGST
and partly SGST. If the rate of GST charged is 18%, it will
be divided equally in the form of 9% CGST and 9% SGST.
The total amount to be charged by the trader, in this
case, will be Rs.5,900. Out of the revenue earned from
GST under the head of SGST, i.e. Rs.450, will go to the
West Bengal state government in the form of SGST.
Central Goods and Services Tax or CGST
Just like State GST, the Central Goods and Services Tax of
CGST is a tax under the GST regime that is applicable on
intrastate (within the same state) transactions. The CGST
is governed by the CGST Act. The revenue earned from
CGST is collected by the Central Government.
Note: Any tax liability obtained under CGST can be set
off against CGST or IGST input tax credit only and not
any SGST.
As mentioned in the above instance, if a trader from
West Bengal has sold goods to a customer in West
Bengal worth Rs.5,000, then the GST applicable on the
transaction will be partly CGST and partly SGST. If the
rate of GST charged is 18%, it will be divided equally in
the form of 9% CGST and 9% SGST. The total amount to
be charged by the trader, in this case, will be Rs.5,900.
Out of the revenue earned from GST under the head of
CGST, i.e. Rs.450, will go to the Central Government in
the form of CGST.
Conclusion:
The Government has introduced a GST system to
smoothen tax processes and bring businesses into the
formal economy. Being GST-compliant, businesses can
experience the merits of having a unified tax system and
easy input credits. Stakeholders welcome GST
implementation as a new change as it helps boost the
reform in India, there are several downsides that make
this tax challenging to implement.
Q. Best judgement assessment.
Ans A best judgement assessment is an income tax
assessment which is performed by the assessing officer
with limited knowledge about the financial
circumstances of the assessee. Assessees may fail to give
the assessing officer adequate co-operation regarding
the assessment procedure. In such circumstances, the
assessing officer proceeds with the assessment based on
the information available. Best judgement assessment
takes place when the Income Tax officer is forced to
perform the assessment with the available knowledge
and resources. The present article provides an overview
of the concept of best judgement assessment.
Types of Best Judgement Assessment
Compulsory Best Judgement Assessment
Best judgement assessment is performed when the
assessee is not co-operating with the assessing officer or
withholds necessary information.
Discretionary Best Judgement Assessment
This is performed if the assessing officer feels any
inconsistency in the method of accounting or feels the
account was not conclusive or doubts its authenticity.
Best Judgement Assessment (Seciton 144)
The Assessing Officer, after considering all relevant
material which he has gathered, is under an obligation
to make an assessment of the total income or loss to the
best of his judgment in some cases. Such cases are –
a.if any person fails to submit his return;
b.if any person fails to comply with all the terms of a
notice under section 142(1);
C.if a person fails to comply with the direction to get his
accounts audited;
d.if a person fails to respond to a scrutiny notice under
section 143(2) or
e.if the Assessing Officer is not satisfied about the
correctness or the completeness of the accounts.
A best judgment assessment can only be made
after giving the assessee an opportunity of being heard.
Opportunity must be given to the assessee before
making Best Judgement Assessment :
The best judgment assessment can only be made after
giving the assessee an opportunity of being heard by
giving notice to the assessee to show cause why the
assessment should not be completed under section 144.
However, it will not be necessary to give such notice
where a notice under section 142(1) has already been
issued prior to making assessment under this section.
Best Judgemnet Assessment on Rejection of Accounts:
Section 145(3) empowers the Assessing Officer to reject
the account books which are unreliable, false incorrect
or incomplete. The Assessing Officer can reject thebooks
of account on the following grounds and may make the
assessment in the manner provided in section 144:
1.He is not satisfied about the correctness or
completeness of the accounts of the assessee,
2.Although the accounts of the assessee are correct and
complete to the satisfaction of the Assessing Officer but
the method of accounting employed is such that, in the
opinion of the Assessing Officer, profits cannot be
correctly arrived therefrom,
3.Where the method of accounting adopted by the
assessee has not been regularly followed by him, or
4.Where income has not been computed in accordance
with the standards notified under section 145(2)"
Q.Double taxation relief.
Ans- Double taxation is a situation where an income is
subject to tax twice which can happen in many ways.
Find out how can you prevent double taxation.
Double taxation is a situation where an income is
subject to tax twice. This can occur in one of two ways -
economic or juridical. Economic double taxation occurs
if an income or a part of it is taxed twice in the same
country, in the hands of two individuals. Alternatively,
juridical double taxation occurs if income earned outside
India is taxed two times in the hands of the same
individual, once abroad and once in their home country.
This unique situation puts an undue burden on the
taxpayer when their income is taxed twice.
Types of Double Taxation
There are mainly two types of double taxation:
1.Corporate Double Taxation - This refers to the taxation
on corporate profits through corporate taxation and
dividend taxation (imposed on dividend pay-outs).
2.International Double Taxation - This refers to the
taxation of foreign income in both the country where
the income is derived and the country where the
investor resides.
Double Taxation Relief - Unilateral relief Covered Under
Section 91
Section 91 of the Income Tax Act, 1961 provides for
unilateral relief against double taxation. According to
the provisions of this section, an individual can be
relieved of being taxed twice by the government,
irrespective of whether there is a DTAA between India
and the foreign country in question or not. However,
there are certain conditions that have to be satisfied in
order for an individual to be eligible for unilateral relief.
These conditions are:
1.The individual or corporation should have been a
resident of India in the previous year.
2.The income should have been accrued to the taxpayer
and received by them outside India in the previous year.
3.The income should have been taxed both in India and
in the country with which there is no DTAA.
4.The individual or corporation should have paid tax in
that foreign country.
Thus, by utilising the provisions of DTAAs and the relief
measures offered under the Income Tax Act, individuals
earning income from other countries can minimise their
tax liabilities and avoid the burden of double taxation.
Q.Revisions under the incame tax act 1961.
Ans- Text of Section 264 of Income Tax Act, 1961
REVISION OF OTHER ORDERS. 264.
(1) In the case of any order other than an order to which
section 263applies passed by an authority subordinate
to him, the Principal Commissioner or Commissioner
may, either of his own motion or on an application by
the assessee for revision, call for the record of any
proceeding under this Act in which any such order has
been passed and may make such inquiry or cause such
inquiry to be made and, subject to the provisions of this
Act, may pass such order thereon, not being an order
prejudicial to the assessee, as he thinks fit.
(2) The Principal Commissioner or Commissioner shall
not of his own motion revise any order under this
section if the order has been made more than one year
previously.
(3) In the case of an application for revision under this
section by the assessee, the application must be made
within one year from the date on which the order in
question was communicated to him or the date on
which he otherwise came to know of it, whichever is
earlier : PROVIDED that the Principal Commissioner or
Commissioner may, if he is satisfied that the assessee
was prevented by sufficient cause from making the
application within that period, admit an application
made after the expiry of that period.
(4) The Principal Commissioner or Commissioner shall
not revise any order under this section in the following
cases – (a) where an appeal against the order lies to the
Deputy Commissioner (Appeals) or to the Commissioner
(Appeals) or to the Appellate Tribunal but has not been
made and the time within which such appeal may be
made has not expired, or, in the case of an appeal to the
Commissioner (Appeals) or to the Appellate Tribunal,
the assessee has not waived his right of appeal; or (b)
where the order is pending on an appeal before the
Deputy Commissioner (Appeals); or (c) where the order
has been made the subject of an appeal to the
Commissioner (Appeals) or to the Appellate Tribunal. (5)
Every application by an assessee for revision under this
section shall be accompanied by a fee of five hundred
rupees.
Q. Discuss the powers and functions of the GST council.
Ans- introduction
GST stands for Goods and Services Tax. It is a value-
added tax that replaced many indirect taxes in India
such as excise duty, VAT, services tax, etc. The Goods
and Service Tax Act finally got passed in the Indian
Parliament on 29th March 2017 after years of debate
and postponement and came into effect on 1st July 17
Creation of the GST Council
Creation of the GST Council was facilitated by the
Constitution (One Hundred and Twenty Second
Amendment) Bill 2016 was approved by the President of
India on 8th September 2016. The objective of the Bill
was to introduce GST in India. Thereafter, the
notification for enforcing Article 279A was issued on
10th September 2016 and the Article came into effect
from 12th September 2016. On this date, in a Union
Cabinet meeting, the establishment of the GST Council
was approved along with the establishment of the GST
Council’s Secretariat. The Finance Minister at the time,
Mr. Arun Jaitley, also convened the first meeting of the
GST Council on 26th and 27th September 2016.
Features of GST Council
GST Council has the following features –
1.The office of the council is located in New Delhi
2..The Ex-officio Secretary to the GST Council is the
Revenue Secretary of India
3.The Central Board of Excise and Customs (CBEC) is a
chairperson and a permanent, non-voting invitee for all
the meetings of the GST Council
4.A post for Additional Secretary to the GST Council
would be created. This post would be equivalent to the
level of the Additional Secretary to the Indian
Government.
5.At the level of Joint Secretary of the GST Council, four
posts of commissioner would be created in the GST
Council Secretariat.
Structure of the GST Council
The structure of the GST Council is determined by Article
279 (1) of the amended Constitution of India. This Article
states that the GST Council should be constituted by the
President of India within a period of 60 days of the
inception of Article 279A. The Article states that GST
Council should be joint forum of the Central
Government as well as the State Governments. It would
consist of the following members –
1*.The Chairperson of the council would be the Union
Finance Minister of the country. Presently, Mr. Arun
Jaitley is the Union Finance Minister of India and as such
he is also the Chairperson of the GST Council
*.The Union Minister of State would be a member of the
GST Council. He/she would be in charge of Revenue of
Finance
*.The members of the GST Council would be the
minister who is in charge of finance or taxation or any
other minister as nominated by the respective State
Governments. Each State Government would nominate
one minister to act as a member of the GST Council
Duties of the GST Council
Besides governing GST implementation in the country,
the GST Council has two major duties to dispose of.
These include making recommendations and holding
GST Council meetings. Let’s understand these duties in
details
GST Council recommendations
According to the provisions laid down under Article 279A
(4), the GST Council has the duty to make
recommendations about GST to the Union Government
as well as the State Governments. The council would
decide which goods and services would be charged to
GST and which would be exempted from it. Thereafter,
the GST Council has the duty of creating laws and
principles about the place of supply, threshold limits,
special rates of GST for certain States of India, the
applicable GST rates on various goods and services and
special rates of GST during a natural calamity or a
disaster so that additional resources can be raised for
meeting the financial losses suffered, etc.
GST Council meetings
Another important duty of GST Council is to meet and
discuss about the GST rules and laws which would be
beneficial for dealers. Ever since the GST Council has
been formed, various meetings have taken place. In the
last GST Council meeting, the council decided that GST
should be implemented on e-way bills which require
goods valuing more than INR 50,000 being registered
before they are moved. The GST Council also extended
the deadline of filing the GSTR – 1. Anti-profiteering
screening committees were also set up in the latest
meeting of the GST Council. The aim of setting up these
committees was to strengthen the National Anti-
Profiteering Authority under the laws of GST. Besides
formulating laws on GST, the GST Council also took
decisions on the following aspects –
*.For Indian States, except the special category States,
the threshold limit for exemption of GST would be set at
INR 40 lakhs
*.In case of special category States, the threshold limit
for exemption of GST is set at INR 10 lakhs
*.In case of composition schemes, the threshold limit for
GST exemption is set at INR 1.5 cr for Indian States.
However, for North Eastern States and for Himachal
Pradesh, the threshold limit of GST exemption is set at
INR 50 lakhs
*.Goods like tobacco, pan masala, ice cream and other
types of edible ice manufacturers would not be eligible
to avail composition levy. However, in case of restaurant
services, the composition levy would be allowed on
these goods and manufacturing activities.
*.There was a defect in the constitution of the council
*.There was a defect in appointing an individual as the
member of the council
*.In case of non-compliance of a procedure
Similarly, in the 34th GST Council meeting, some of the
decisions taken by the council included the following –
*.The GST rate on non-affordable houses was lowered
5%. For affordable houses, the GST rate was lowered to
1%. This lowered GST rate would be applicable on
under-construction properties
*.Realty estate developers can choose older GST rate of
12% on non-affordable houses. In case of affordable
houses, the GST rate of 8% can be chosen till May 10,
2019
*.If the old GST rate is chosen by any builder, the builder
would not be able to claim input tax credit.
Quorum of GST meetings and decision making
Whenever a GST Council meeting is held, the following
rules must be complied with –
*.At least 50% of the total number of GST members
must be present at every GST Council meeting so that
the meeting can be called a valid meeting
*.Every decision that is taken in GST Council meetings
should be backed by a minimum of 75% majority of the
weighted votes cast by the members of the council. The
members should be present in the meeting and should
also vote. For understanding the weighted votes cast by
the Central Government and State Government
members, Article 279A lays down the following rules –
*.The vote of the Central Government would have the
weightage of 1/3rd of the total votes cast
*.The votes of the members of the State Government
would have the weightage of 2/3rd of the total votes
cast
Dispute handling by the GST Council
The GST Council is also charged with the duty to create a
mechanism with which the following disputes would be
settled –
*.Disputes between the Central Government and the
State Government of a State
*.The disputes between the Central Government and
one or more States on one side and one or more States
on the other side
*.Disputes between two or more States which occurred
due to any recommendation of the GST Council or due
to the implementation of the recommendation of the
council.
Conclusion
The Central Goods and Services Tax bill, Integrated
Goods and Services Tax bill, Union Territories (without
legislature) Goods and Services Tax bill and Goods and
Services Tax (Compensation to States) bill have been
passed by the Lok Sabha on 29.03.2017 and by the Rajya
Sabha on 06.04.2017.
Q. Discuss the main features of the constitutional 101st
amendment act.
Ans- introduction The constitution of India prescribed
the power to levy tax on both the union and state
government by its union list and state list.
The 101st constitution amendment act introduced the
system of ‘one nation, one tax’.
The Constitution (101st) Amendment Act, 2016 requires
the centre to compensate states for any revenue loss
due to implementation of GST for a five-year period. To
compensate states, an additional cess on certain goods
and services will be levied under GST.
Salient features of the 101st Constitution Amendment
Act
The 101st constitution amendment act, 2016 has some
salient features. These are:-
1.One hundred and first constitution amendment act led
to Article 246A in the constitution, which provided
powers to the parliament and the respective state
legislatures to make goods and services tax laws. The
parliament is empowered to make laws specifically on
inter-state supplies.
2.The act also led to Article 269A in the constitution,
which prescribes revenue from Integrated goods and
services tax (IGST). IGST deals with inter-state supplies.
IGST is governed by the IGST Act 2017.
3.101st constitution amendment act also inserted Article
279A, which proposed the power to the president to
constitute a GST council. This GST council will consist of
ministers from both union and state governments. This
council may make recommendations, procure or modify
any rule and regulation concerning goods and services
tax.
4.Article 286 of the constitution got amended to restrict
the imposition of tax by the state on the supply of goods
or services or both where such collection takes place
outside the territory of the respective state or on export
and import of goods in India.
5.Previously, this restriction was on the sale or purchase
of goods, but now it is replaced by the supply of goods
or services or both.
6.The act also led to Article 269A in the constitution,
which prescribes revenue from Integrated goods and
services tax (IGST). IGST deals with inter-state supplies.
IGST is governed by the IGST Act 2017
7.If the state suffers any revenue loss due to the
implementation of the GST, it can seek relief in
compensation from the centre.
It is valid for up to five years and governed by the Goods
and services (compensation to states) Act, 2017.
8.101st constitution amendment act also inserted Article
279A, which proposed the power to the president to
constitute a GST council. This GST council will consist of
ministers from both union and state governments. This
council may make recommendations, procure or modify
any rule and regulation concerning goods and services
tax .Conclusion The 101st constitution amendment act
Q. What is GST.? Write a in brief about different types of
taxes at the certre and state level that submission into
GST.
Ans- GST is known as the Goods and Services Tax. It is an
indirect tax which has replaced many indirect taxes in
India such as the excise duty, VAT, services tax, etc. The
Goods and Service Tax Act was passed in the Parliament
on 29th March 2017 and came into effect on 1st July
2017.
In other words,Goods and Service Tax (GST) is levied on
the supply of goods and services. Goods and Services
Tax Law in India is a comprehensive, multi-stage,
destination-based tax that is levied on every value
addition. GST is a single domestic indirect tax law for the
entire country.
Types of GST and its Explanation
As per the newly implemented tax system, there are 4
different types of GST:
Integrated Goods and Services Tax (IGST)
State Goods and Services Tax (SGST)
Central Goods and Services Tax (CGST)
Union Territory Goods and Services Tax (UTGST)
Tax Laws before GST
In the earlier indirect tax regime, there were many
indirect taxes levied by both the state and the centre.
States mainly collected taxes in the form of Value Added
Tax (VAT). Every state had a different set of rules and
regulations.
Inter-state sale of goods was taxed by the centre. CST
(Central State Tax) was applicable in case of inter-state
sale of goods. The indirect taxes such as the
entertainment tax, octroi and local tax were levied
together by state and centre. These led to a lot of
overlapping of taxes levied by both the state and the
centre.
For example, when goods were manufactured and sold,
excise duty was charged by the centre. Over and above
the excise duty, VAT was also charged by the state. It led
to a tax on tax effect, also known as the cascading effect
of taxes.
The following is the list of indirect taxes in the pre-GST
regime:
Central Excise Duty,
Duties of Excise,
Additional Duties of Excise,
Additional Duties of Customs,
Special Additional Duty of Customs
Cess,
State VAT,
Central Sales Tax,
Purchase Tax,
Luxury Tax,
Entertainment Tax,
Entry Tax,
Taxes on advertisements,
Taxes on lotteries, betting, and gambling
CGST, SGST, and IGST have replaced all the above taxes.
However, certain taxes such as the GST levied for the
inter-state purchase at a concessional rate of 2% by the
issue and utilisation of ‘Form C’ is still prevalent.
It applies to certain non-GST goods such as:
i.Petroleum crude;
iiHigh-speed diesel
iii.Motor spirit (commonly known as petrol);
iv.Natural gas;
v.Aviation turbine fuel; and
vi.Alcoholic liquor for human consumption.
It applies to the following transactions only:
*.Resale
*.Use in manufacturing or processing
*.Use in certain sectors such as the telecommunication
network, mining, the generation or distribution of
electricity or any other power
……………………………………………………………………………….
TAX:- Tax is one of the most important sources of
revenue to every government. In the earlier days,
payment of taxes was optional. A choice was given to
the people to pay the tax and to avail the benefit of
social amenities in the form of education, health and
sanitation, utilities and recreation facilities. Naturally,
everyone interested in availing social amenities used to
evaluate the benefit derived by him in exchange for the
tax to be paid by him. But the option in the payment of
tax created lot of problems for the government in
fulfilling their obligations to society. Hence, in modern
times, option was withdrawn and tax became a
compulsory contribution by every citizen to the
government to enable the government to fulfill its
commitments towards society.--------------- According to
Prof. Taylor “Taxes are compulsory payments to
governments without expectations of direct return or
benefit to the tax payer”.
CHARACTERISTICS OF TAX:-
(1)A tax is a compulsory payment from the person to
the Government without expectation of any direct
return. Every person has to pay direct as well as indirect
taxes. As it is a compulsory contribution, no one can
refuse to pay a tax on the ground that he or she does
not get any benefit from certain public services the
government provides.
(2)No one can be forced by any authority to pay tax, if it
is not due from him. Suppose, if there is a tax on liquor,
the state can force an individual to pay the tax only
when he drinks liquor. But, if he does not drink liquor,
he cannot be forced to pay the tax on liquor. Similarly, if
an individual’s income is below the exemption limit, he
cannot be forced to pay tax on income. For example
individuals earning monthly salary below birr 150 cannot
be forced to pay tax on income.
(3)No one has the right to impose taxes. Only the
government has the right to impose taxes and to collect
tax proceeds from the people.
(4)The tax, so collected by the Government, is spent for
the common benefit of all the people. In other words,
when the government collects a tax, its proceeds are
spent to extend common benefits to all the people. The
Government incurs expenditure on the defense of the
country, on maintenance of law and order, provision of
social services such as education, health etc. Such
benefits are given to all the people- whether they are
tax-payers or non-taxpayers. These benefits satisfy social
wants. But the Government also spends on subsidies to
satisfy merit wants of poor people.
(5)In the modern times, there is no direct relationship
between the payment of tax and direct benefits. In other
words, there is absence of any benefit for taxes paid to
the Governmental authorities. The government
compulsorily collects all types of taxes and does not give
any direct benefit to tax-payers for taxes paid. For
example, when taxable income is earned by an
individual or a corporation, he or it simply pays the tax
amount at the specified rate cannot demand any benefit
against such payment.
(6)A good tax system recognizes the basic rights of the
tax-payers. The tax-payer is expected to pay his taxes
but not undergo harassment. In other words, the tax law
should be simple in language and the tax liability should
be determined with certainty. The mode and timings of
payment should be convenient to the tax-payer. At the
same time, a tax system should be equitable between
tax-payers. It should be progressive and burden of
taxation should be equitable on all the tax-payers.
OBJECTIVES OF TAX:- (1)Raising revenue:- to render
various economic and social activities, a government
needs large amount of revenue and to meet this
government imposes various types of taxes.
(2)Removal of inequalities in income and wealth:-
government adopts progressive tax system and stressed
on canon of equality to remove inequalities in income
and wealth of the people.
(3)Ensuring economic stability:- taxation affects the
general level of consumption and production. Hence, it
can be used as effective tool for achieving economic
stability. Governments use taxation to control inflation
and deflation.
(4)Reduction in regional imbalances:- If there is regional
imbalance with in the country, governments can use
taxation to remove such imbalance by tax exemptions
and tax concessions to investors who made investment
in under developed regions.
(5)Preventing harmful consumptions:- Government can
reduce harmful things on the society by levying heavy
excise tax on cigarettes, alcohols and other products,
which worsen people’s health.
(6)Enhancement of standard of living:- The government
also increases the living standard of people by giving tax
concessions to certain essential goods.
PRINCIPLES OF TAXATION:- A tax system (that is, the set
of all taxes) for achieving certain objectives chooses and
adheres to certain principles which are termed its
characteristics. A good tax system therefore, is one of
which designed on the basis of an appropriate set of
principles, such as equality and certainty. Mostly,
however, objectives of taxation conflict with each other
and a compromise is needed. Therefore, usually
economists select some important objectives and work
out the corresponding principles which the tax system
should adhere to. The first set of such principles was
enunciated by Adam smith (which he called Cannons of
Taxation)
CANONS OF TAXATION:- (1)Canon of Equality or Ability:-
According to this canon, taxes imposed should be in
accordance with an individual’s ability to pay. In this
context, Adam Smith observes “the subjects of every
state ought to contribute towards the support of the
government as nearly as possible, in proportion to their
respective abilities that is in proportion to the revenue
which they enjoy under the protection of the state”.------
---- It implies that in absolute terms the richer should
pay more taxes, because without the protection of the
state, they could not have earned and enjoyed that extra
income. In this case Smith observes “it is not very
unreasonable that the rich should contribute to the
public expense not only in proportion to their revenue,
but something more than that proportion”.
(2)Canon of Certainty:- This canon is meant to protect
tax payers from unnecessary harassment by the tax
officials. The amount to be paid, the time and method of
payment should be clear and certain for the tax payers
to adjust his income and expenditure accordingly.--------
“The tax which each individual is bound to pay ought to
be certain and not arbitrary. The time of payment, the
manner of payment, the quantity to be paid ought all to
be clear and plain to the contributors and to every other
person”.
(3)Canon of Convenience:- This canon states that “every
tax ought to be levied at the time or on the manner in
which it is most likely to be convenient for the
contributor to pay it. A tax imposes burden on the
taxpayer.--------- Hence, a tax should be imposed at a
time and in such a manner that the taxpayer feels
minimum of inconvenience. For example, agricultural tax
should be collected soon after harvest, since the farmers
are in a better position to pay it. Income tax should be
deducted monthly on installment basis from salaried
taxpayers.
(4)Canon of Economy:- Every tax involves a collection
cost. It is important that the cost of collection should be
the minimum possible. Smith says that “every tax ought
to be contrived as both to take out and to keep out of
pockets of the people as little as possible over and
above what it brings to the public treasury of the state”.-
---------- The tax is economical, in the sense that the cost
of collection is very small. Moreover, a tax will violate
the canon of economy, if hinders the development of
trade and industry in any manner.
KIND OF TAX:- (1)Direct Taxes:- A direct tax is referred
to as a tax levied on a person’s income and wealth and is
paid directly to the government, the burden of such tax
cannot be shifted. The tax is progressive in nature i.e. it
increases with an increase in the income or wealth and
vice versa. It levies according to the paying capacity of
the person, i.e. the tax is collected more from the rich
and less from the poor people. The tax is levied and
collected either by the Central Government or State
government or the local bodies.------- The plans and
policies of the Direct Taxes are being recommended by
the Central Board of Direct Taxes (CBDT) which is under
the Ministry of Finance, Government of India.-------
There are several types of Direct Taxes, such as:- Income
Tax, Wealth Tax, Property Tax, Corporate Tax, Import
and Export Duties etc.
(2)Indirect Taxes:- Indirect Tax is referred to as a tax
charged on a person who consumes the goods and
services and is paid indirectly to the government. The
burden of tax can be easily shifted to another person.----
------ The tax is regressive in nature, i.e. as the amount of
tax increases the demand for the goods and services
decreases and vice versa. It levies on every person
equally whether he is rich or poor. The administration of
tax is done either by the Central Government or the
State Government.---------- There are several types of
Indirect Taxes, such as:- GST, Custom duty
DIFFERENCES BETWEEN DIRECT AND INDIRECT TAXES:-
(1)Direct tax is levied and paid for by individuals, Hindu
Undivided Families (HUF), firms, Companies etc.
whereas indirect tax is ultimately paid for by the end-
consumer of Goods and Services.
(2)The burden of tax cannot be shifted in case of direct
taxes while burden can be shifted for indirect taxes.
(3)Lack of administration in collection of direct taxes can
make tax evasion possible, while indirect taxes cannot
be evaded as the taxes are charged on goods and
services.
(4)Direct tax can help in reducing inflation, whereas
indirect tax may enhance inflation. (5)Direct taxes have
better allocative effects than indirect taxes as direct
taxes put lesser burden over the collection of amount
than indirect taxes, where collection is scattered across
parties and consumers’ preferences of goods is distorted
from the price variations due to indirect taxes. (6)Direct
taxes help in reducing inequalities and are considered to
be progressive while indirect taxes enhance inequalities
and are considered to be regressive.
MERITS OF DIRECT TAXES:- (
1)Social and economic equity:- This form of taxation
indicates social justice as it is based on the ability to pay.
The economic situation of persons determines the rate
at which they are taxed. Also, the progressive nature of
direct taxation can help reduce income inequalities. This
is well depicted by the slabs and exemption limits for
different sections like women, individuals and senior
citizens.
(2)The certainty of tax to be paid:- The taxpayer is
certain as to how much tax is to be paid, as the tax rates
are decided in advance. The same implies for the
government where it can estimate the tax revenue from
direct taxes.
(3)Economical and lower cost mechanism:- Collection of
direct taxes is generally economical. Like in the case of
personal income tax, the tax can be deducted at source
(TDS) from the income or salaries of the individuals. So,
the government does not have to spend much in tax
collection as far as personal income tax is concerned.
(4)Relatively Elastic:- Increase in the income of
individuals and companies leads to increase in the yield
from direct taxes also. An increase in tax rates would
increase tax revenues. Thereby, direct taxes are
relatively elastic.
(5)Controls inflation:- Direct taxes can help control
inflation. When the inflation is on the uptrend, the
government may increase the tax rate. With an increase
in tax rate, the consumption demand may decline, which
in turn may help reduce inflation.
DEMERITS OF DIRECT TAXES:- (
1)Tax Evasion:- We have higher tax evasion in our
country due to high tax rates, poor documentation and
corrupt tax administration. This helps in suppressing the
correct information about incomes easily and thereby
with manipulating accounts, evasion on tax is
encouraged.
(2)Impacts capital formation:- Direct taxes can affect
savings and investments. Due to tax implications, the net
income of individuals reduces, in turn reducing their
savings. Reduction in savings results in low investment,
affecting capital formation in the country.
(3)Arbitrary rate of taxation:- The direct taxes are
arbitrary. There is no objective defined for determining
the tax rates of direct taxes. Also, the exemption limits
in personal income tax, wealth tax, etc., are also
determined in an arbitrary manner. Therefore, direct
taxes may not always fulfill the requirement of equity.
(4)Inconvenient:- Direct taxes are inconvenient owing to
the lengthy procedure of filing returns. For most people
payment of direct tax is a task to convince oneself to pay
a part of their income as tax to the state. This is a boost
to evade tax further. It is also inconvenient in terms of
maintaining accounts in a proper form.
(5)Imbalance in Sectoral taxation:- In India, there is
sectoral imbalance as far as direct taxes are concerned.
Certain sectors like the corporate sector are heavily
taxed, whereas, the agriculture sector is 100% tax-free.
MERITS OF INDIRECT TAXES:-
(1)Convenience:- Indirect taxes are less inconvenient
and burdensome to the taxpayer than the direct taxes.
Since taxes are included in the price of the taxed
commodity the taxpayer does not feel the burden of the
taxes. It is convenient also because these taxes are not
paid in lump-sum amount unlike direct taxes.-----------
Sometimes, the consumer may not be aware of the fact
that he pays tax. Above all, an indirect tax cam be
avoided by not buying taxed commodities. But, once a
taxpayer crosses the threshold limit, he or she will have
to pay direct taxes. For all these reasons, indirect taxes
are both convenient and burden-free. (
2)Broad-Based:- Indirect taxes are broad- based since
the effects are felt by more or less all the people in the
community. Direct tax, on the other hand, has a narrow
base. The lower income group is not required to pay
income tax but he cannot escape the indirect tax net
once he purchases a tax-imposed commodity.
(3)Elastic and Productive:- Elasticity and productivity are
the other merits of indirect tax. It is flexible or elastic in
the sense that it can be revised in accordance with the
requirements of the government. It is also revenue-
yielding since its bases are wide.
(4)Difficulty in Evading Taxes:-It is difficult to evade
indirect tax since such tax is included in the price of the
commodity even if the rate of tax is high.
(5)Social Objective:- Indirect taxes are often levied on
harmful and luxury goods whose consumption has to be
curtailed so as promote social welfare. Thus, an indirect
tax has a social purpose.
(6)Important Anti-Inflationary Measure too:- It is said
that indirect taxes, as contrasted to direct taxes, are
more effective in controlling inflation. Truly speaking,
indirect taxes may fuel inflationary pressure in the
economy.
DEMERITS OF INDIRECT TAXES:- (
1)Regressive in Character:- As these taxes fail to satisfy
the principle of distributive justice, it is considered to be
a regressive tax.------------ Principle of progressiveness is
violated since the burden of an indirect tax falls upon all
persons indiscriminately, irrespective of their ability to
pay. As these taxes are not levied in accordance with the
principle of ability to pay, burden of taxes mostly falls
upon the poorer persons. Thus, these taxes are unjust
and inequitable.
(2)Uncertain Revenue Earning:- It fails to satisfy the
Smithian canon of certainty because the revenue
accruing from indirect taxes cannot be estimated
properly. As soon as a tax on a commodity is imposed its
price rises. The law of demand states that there will be a
fall in quantity demanded following this price rise.---------
----- How much the demand will fall consequent upon
the imposition of taxes cannot be estimated accurately.
So is the revenue-yielding capacity of taxes. Thus, an
element of uncertainty is involved in indirect taxes.
(3)Unproductive:- It is uneconomical since the cost of
collecting indirect taxes is rather high. In this sense,
some of the indirect taxes are unproductive. (4)Civic
Consciousness not Created:- These taxes do not create
civic consciousness as its burden is not clearly felt by the
taxpayers. They lack interest in making a vigil on
government expenditure. However, this is not true,
particularly when the rate of indirect taxes becomes
high. Excessive dose of taxation often leads to public
protest against the government’s taxation policies.
(5)Possibility of Evasion:- Indirect taxes are also evaded
by taxpayers. Development of an unholy alliance
between buyers and sellers may result in tax evasion.
Usually, buyers evade taxes by not accepting ‘receipts of
sale’ from the sellers. Sellers also evade these taxes by
not maintaining legal accounts book.
(6)Wage-Price Push:- Finally, instead of being an anti-
inflationary device, increased rates of indirect taxes have
the potentiality of fuelling cost-push inflationary
pressures in the economy. Higher prices consequent
upon high rate of tax result in higher costs, higher
wages, and again higher prices. A wage-price spiral is
thus initiated.
REQUIREMENTS OF A GOOD TAX SYSTEM:-
 (1)Equity and fairness:- Similarly situated taxpayers
should be taxed similarly. This includes horizontal equity
(taxpayers with equal ability to pay should pay the same
amount of taxes) and vertical equity (taxpayers with a
greater ability to pay should pay more
taxes). Note: Equity is best measured by considering a
range of taxes paid, not by looking just at a single tax.
(2)Certainty:- Tax rules should clearly specify when and
how a tax is to be paid and how the amount will be
determined. Certainty may be viewed as the level of
confidence a person has that a tax is being calculated
correctly.
(3)Economy of calculation:- The costs to collect a tax
should be kept to a minimum for both the government
and the taxpayer.
(4)Simplicity:- Taxpayers should be able to understand
the rules and comply with them correctly and in a cost-
efficient manner. A simple tax system better enables
taxpayers to understand the tax consequences of their
actual and planned transactions, reduces errors and
increases respect for that system.
(5)Neutrality:- The tax law’s effect on a taxpayer’s
decision whether or how to carry out a particular
transaction should be kept to a minimum. A tax system’s
primary purpose is to raise revenue, not change
behavior.
(6)Economic growth and efficiency:- A tax system
should not impede productivity but should be aligned
with the taxing jurisdiction’s economic goals. The system
should not favor one industry or type of investment at
the expense of others.
MODERN PRINCIPLES OF TAXATION:-
(1)The rational combination of direct and indirect taxes,
which implies the utilization of various types of taxes,
taking into consideration both the wealth and the
income of the taxpayer. In periods of economic crisis it is
better to have many sources of budget revenue with a
relatively low rate and a large taxation basis then to
have 1-2 types of income with high deduction rates.
(2)One-time taxation implies that one object can only be
taxed once through one tax type for a specific period of
time indicated in the law.
(3)The scientific approach for the determination of the
exact tax rate, which implies setting the deduction rate
at a level that would allow the subject to have an
income necessary for normal development. The
magnitude of the tax burden should allow the normal
functioning of the taxpayer after paying the tax amount.
It is not acceptable to set the tax rates on basis of short-
term interests of insuring state revenues and to the
detriment of economic development or to the interests
of the taxpayer.
(4)Stability, or the endurance of taxation for a long
period of time and the simplicity of deducting the
payment. Tax rates should be determined by law and
should not be revised frequently.
(5)Differentiation of tax rates in accordance to the level
of income, which should not develop into an inhibitive
progression (i.e. a significant increase in tax rates), nor
should it be transformed into an individualization of
rates, which contradicts the basic principles of the
market.
(6)The application of a tax allowances system, which
would lead to an actual stimulation of investments into
entrepreneurship activities and would, at the same time,
comply with the principle of social justice, including the
insurance of a minimum living standard of the citizens.
Allowances should not be established for certain payers
only—they should be the same for everybody.
PRINCIPLE OF EQUITY IN TAXATION:-
(1)Benefits Received Theory:- According to this theory of
taxation, citizens should be asked to pay taxes in
proportion to the benefits they receive from the services
rendered by the Government. This theory is based upon
the assumption that there is an exchange relationship or
quid pro quo between the tax payer and Government.---
------- The Government confers some benefits on the tax
payers by performing various services or providing them
what are called social goods. In exchange for these
benefits individuals pay taxes to the Government.
Further, according to this theory, equity or fairness in
taxation demands that an individual should be asked to
pay a tax in proportion to the benefits he receives from
the services rendered by the Government.-----------
However, there are some difficulties in application of
this theory. The most crucial problem faced by benefits
received approach is that it is difficult to measure the
benefits received by an individual from the services
rendered by the Government.
(2)Ability to Pay Theory:-The ability to pay is another
criterion of equity or fairness in taxation. This theory
requires that individuals should be asked to pay taxes
according to their ability to pay. The rich have greater
ability to pay, therefore they should pay more tax to the
Government than the poor.------------- Essentially, the
ability to pay approach to fairness in taxation requires
that burden of tax falling on the various persons should
be the same. In the discussion of various characteristics
of a good tax system, we mentioned about the two
concepts of equity, namely horizontal equity and vertical
equity based on the principle of ability to pay.----------
According to the concept of horizontal equity, equals
should be treated equally, that is, persons with the same
ability to pay should be made to bear the same amount
of tax burden. According to the vertical equity, unequal’s
should be treated unequally, that is, how the tax burden
among people with different abilities to pay is divided.
THEORIES OF TAXATION:-
(1)Cost of Service Principle:- This principle suggests that
the cost incurred by the government in providing public
goods to satisfy social wants should be regarded as the
basis of taxation.------ Thus, tax is payable as per the cost
of public goods enjoyed by the citizens. This means that
the state is just like a producer of social goods and taxes
are the prices for the same. This principle has many
shortcomings:- (1)It is not so easy to estimate the cost
of government service or social goods made available to
each individual tax payer. (2)It is not in conformity with
the definition of tax. A tax is not a price. Tax has no quid
pro quo. (3)It goes against the norms of welfare. If cost
is the base for taxation, government cannot provide free
education and medical care to the poorer section.
(2)Benefit Principle:- This principle suggests that the
burden of taxes should be distributed among the tax
payers in relation to the benefits enjoyed by them from
government services or social goods. This means those
who get more benefits from public goods should pay
more taxes than others.------- The benefit theory
contains the value of services principle. It implies that
every citizen should pay tax in proportion to the utility
he derives from the public goods and services. Thus,
those who receive more benefits or utility from social
goods should pay more than others.------------ The main
merit of this principle is that it assumes that the
imposition of taxes is justified by the benefits involved in
public goods. It also implies the voluntary exchange
principle. This principle has the following drawbacks:-
(1)It is very difficult to measure the benefits enjoyed by
an individual from public services. (2)There are certain
public goods which satisfy collective wants and are not
subject to voluntary exchange principle. (3)It is not in
conformity with the definition of tax. It makes tax similar
to price. But, price has quid pro quo basis of exchange, a
tax has no quid pro quo basis. (4)A blind application of
this principle will cause great injustice. A poor person
gets more benefit from low cost housing provision by
the government. So, this principle will suggest to impose
more tax on the poor because he derives more benefit
from low-cost housing. (5)The principle is also not
conducive to general welfare which requires
redistribution of income in favour of the poorer sections
through public welfare programmes and services for
their benefit.
(3)Ability to Pay Theory:- The most popular and
commonly accepted principle of equity or justice in
taxation is that citizens of a country should pay taxes to
the government in accordance with their ability to pay.
It appears very reasonable and just that taxes should be
levied on the basis of the taxable capacity of an
individual. For instance, if the taxable capacity of a
person A is greater than the person B, the former should
be asked to pay more taxes than the latter. The main
view points advanced in this connection are as follows:-
(i)Ownership of Property:- Some economists are of the
opinion that ownership of the property is a very good
basis of measuring one's ability to pay. This idea is out
rightly rejected on the ground that if a persons earns a
large income but does not spend on buying any
property, he will then escape taxation. On the other
hand, another person earning income buys property, he
will be subjected to taxation. Is this not absurd and
unjustifiable that a person, earning large income is
exempted from taxes and another person with small
income is taxed?
(ii)Tax on the Basis of Expenditure:- It is also asserted by
some economists that the ability or faculty to pay tax
should be judged by the expenditure which a person
incurs. The greater the expenditure, the higher should
be the tax and vice versa. The viewpoint is unsound and
unfair in every respect. A person having a large family to
support has to spend more than a person having a small
family. If we make expenditure. as the test of one's
ability to pay, the former person who is already
burdened with many dependents will have to' pay more
taxes than the latter who has a small family. So this is
unjustifiable.
(iii)Income as the Basics:- Most of the economists are of
the opinion that income should be the basis of
measuring a man's ability to pay. It appears very just and
fair that if the income of a person is greater than that of
another, the former should be asked to pay more
towards the support of the government than the latter.
That is why in the modern tax system of the countries of
the world, income has been accepted as the best test for
measuring the ability to pay off a person.
SINGLE TAXATION:- A single tax occurs in a system in
which the tax is levied on one subject. There is only one
tax which constitutes the sources of public revenue. One
simple form of a single tax is the poll tax, or the head tax
which is imposed on a person irrespective of his income,
or wealth or profession, etc.--------- The other examples
can be a single tax on income, or a tax on land rent.-------
--- A tax system comprising only one tax has been
advocated at times in the past. Partly this was due to the
inadequate understanding of the working of a complex
modern economy, and partly it was the result of the
belief in the ‘concentration theory of incidence’.----------
De Marco claimed that tax-payers are more certain of
their liabilities in a single tax and this can help in a more
equitable distribution of the tax burden and in reducing
cost of collection. As against these claims, there are
problems of identification and choice of an appropriate
single tax the determination of rate schedule, the
adequacy and growth of revenue, and its role in
promoting national objectives.
ADVANTAGES OF SINGLE TAXATION:- SHIFTING OF TAXATION:- Shifting of tax means
(1)The greatest merit of single tax is it simplicity. Since transferring some or all of a tax burden of an entity to
there is only one tax work of the Government is another (for example, by a subsidiary to the parent firm,
simplified. or by a producer or supplier to the consumer).----------
(2)Levy assessment and collection of revenue would The incidence of a tax rests on the person(s) whose real
become very easy. net income is reduced by the tax. It is fundamental that
(3)Levy ad collection of tax can be bad if tax concerned is the real burden of taxation does not necessarily rest
carefully selected. upon the person who is legally responsible for payment
of the tax. GST are paid by business firms, but most of
DISADVANTAGES OF SINGLE TAXATION:- the cost of the tax is actually passed on to those who
(1)The greatest defect of the single tax system is that buy the goods that are being taxed. In other words, the
from the revenue point of view the tax yield may not be tax is shifted from the business to the consumer.----------
sufficient for the Government. -- Taxes may be shifted in several directions:- (i)A
(2)Yield of any single tax does not increase rapidly as the forward-shifted tax is a tax imposed on producers but
yield from multiple taxes system. passed on to consumers. The amount of a tax shifted
(3)Increase in the rate of tax alone cannot increase forward depends on the price elasticity of demand for
revenue. the taxed good. (ii)A backward-shifted tax is a tax borne
by firms and input suppliers. The amount of backward
MULTIPLE TAXATION:- A single tax system presented shifting to input suppliers depends on their
many difficulties. It proved inefficient in solving the real responsiveness to changes in input prices. (iii)Forward
purpose behind a good tax system. Consequently, shifting takes place if the burden falls entirely on the
economists now widely acclaim multiple tax system.------ user, rather than the supplier, of the commodity or
- A multiple tax refers to the tax system in which taxes service in question—e.g., an excise tax on luxuries that
are levied on various items or bases. A modern economy increases their price to the purchaser. Backward shifting
is not one objective economy. It tries to forge ahead occurs when the price of the article taxed remains the
simultaneously along the paths of growth, equitable same but the cost of the tax is borne by those engaged
distribution of income and wealth, economic in producing it
stabilisation, and soon.------ And since no single tax can DISTINGUISH BETWEEN IMPACT AND INCIDENCE OF
be expected to help the economy on all fronts, a choice TAXATION:- (1)The impact refers to the initial burden of
for a multiple tax system becomes inevitable. Different tax while incidence refers to the ultimate burden of the
taxes contribute to the attainment of different tax. Impact is felt by the tax payer at the point of
objectives.--------- Thus, some taxes would help the imposition of the tax, while the incidence is felt by the
economy in the direction of regional balanced growth. tax payer at the point of settlement or rest of the tax.
Still others may be needed so as to provide adequate (2)The impact of the tax is felt by the person from whom
revenue for the government treasury, and so on.-------- the tax is collected, while the incidence is felt by the
The other advantages of multiple tax system are that it is person who actually bears the burden of the tax.
efficient in checking the tendencies of frequent tax (3)Impact of a tax can be shifted, but the incidence of a
evasion. It increases the tax revenue of the government. tax cannot be shifted. (4)Thus, impact of the tax is
It is more flexible than the single tax system. always on the person who is responsible by law to pay
ADVANTAGES OF MULTIPLE TAXATION:- Multiple tax the tax amount to the Government treasury, in the first
system generally results in equitable tax burden since it instance. Incidence may fall on somebody from whom
is compound of direct and indirect, proportional and the manufacturer ultimately recovers the amount,
progressive taxes. provided he shifts the tax.
(2)It is difficult for individual to evade taxes altogether. TAX EVASION:- An illegal act, made to escape from
(3)It is more useful to achieve social and political paying taxes is known as Tax Evasion. Such illegal
objectives. practices can be deliberate concealment of income,
(4)Tax system becomes broad based and even covers manipulation in accounts, disclosure of unreal expenses
every sector in the country. for deductions, showing personal expenditure as
DISADVANTAGES OF MULTIPLE TAXATION:- business expenses, overstatement of tax credit or
1. Numerous taxes in the garb of a multiple tax system exemptions suppression of profits and capital gains, etc.
can become uncomfortable and annoying to the tax This will result in the disclosure of income which is not
payers and general public and cause inconvenience for the actual income earned by the entity.-------- Tax
tax collection authorities. Evasion is a criminal activity for which the assessee is
(2)The cannons of economy, productivity, convenience subject to punishment under the law. It involves acts
may be adversely affected because of excessive like:- (i)Deliberate misrepresentation of material facts
multiplicity of taxes. (ii)Hiding relevant documents (iii)Not maintaining
complete records of all the transactions (iv)Making false
DISTINGUISH BETWEEN SINGLE TAX AND MULTIPLE statements.
TAX:- TAX AVOIDANCE:- An arrangement made to beat the
(1)Facility of Collection:- Single tax is easy to enforce and intent of the law by taking unfair advantage of the
collect, but multiple tax is difficult to enforce and collect shortcomings in the tax rules is known as Tax Avoidance.
because of number of points at which it is collected. It refers to finding out new methods or tools to avoid
(2)Point of Levy:- Under single tax system, the tax is the payment of taxes which are within the limits of the
levied at only one point either at the first point or at the law.---------- This can be done by adjusting the accounts
final point, whereas under multiple tax system, the tax is in a manner that it will not violate any tax rules, as well
levied at all points of sale till it is sold to the consumers. as the tax incurrence, will also be minimised. Formerly
(3)Chance for Tax Evasion: Under single tax system, the tax avoidance is considered as lawful, but now it comes
possibility for tax evasion is more, whereas under to the category of crime in some special cases.----------
Multiple tax system, it is difficult to evade tax. The only purpose of tax avoidance is to postpone or shift
(4) Rate of Tax: Usually, under single tax system, the rate or eliminate the tax liability. This can be done investing
of tax is high, whereas in the case of multiple tax system, in government schemes and offers like the tax credit, tax
the rates of taxes are low. privileges, deductions, exemptions, etc., which will result
(5)Administration: The number of dealers to be in the reduction in the tax liability without making any
assessed under single tax is very small. Hence, it is offence or breach of law.
convenient to administer this system. But the DIFFERENCE BETWEEN TAX EVASION AND TAX
administration of multiple tax is difficult because large AVOIDANCE:- (1)A planning made to reduce the tax
number of dealers is to be dealt with. burden without infringement of the legislature is known
(6)Exemption: The number of goods exempted under as Tax Avoidance. An unlawful act, done to avoid
single tax is more. But the number of goods exempted tax payment is known as Tax Evasion. (2)Tax avoidance
under multiple tax is less. refers to hedging of tax, but tax evasion implies the
suppression of tax. (3)Tax avoidance is immoral that
IMPACT OF TAXATION:- The impact of a tax is on the tends to bend the law without causing any damage to it.
person who pays the money in the first instance. In Unlike tax evasion, which is illegal and objectionable
other words, the man who pays the tax to the both according to law and morality. (4)Tax avoidance
government in the first instance bears its impact. The aims at minimising the tax burden by applying the script
impact of a tax is, therefore, the immediate result of the of law. However, tax evasion minimises the tax liability
imposition of a tax on the person who pays in the first by exercising unfair means. (5)Tax Avoidance involves
instance. It corresponds to what is often, but taking benefit of the loopholes in the law. Conversely,
erroneously called the “original incidence” or the Tax Evasion includes the deliberate concealment of
“primary incidence” of a tax. The impact of tax as such, material facts. (6)The arrangement for tax avoidance is
denotes the act of imposing.--------- Impact of a tax, made prior to the occurrence of tax liability. Unlike Tax
therefore, refers to the immediate burden of the tax and Evasion, where the arrangements for it, are made after
not to the ultimate burden of the tax. the occurrence of the tax liability.
DUTY:- A duty is a kind of tax payable to the
INCIDENCE OF TAXATION:- Incidence of a tax refers to government, charged on goods and financial
the money burden of a tax on the person who transactions. It comes under the category of Indirect tax.
ultimately bears it. In other words, when the money The right to levy duty is in the hands of the Central
burden of a tax finally settles or comes to rest on the Government. It also adds to the revenue of the
ultimate taxpayer, is called the incidence of a tax. The government. The following are the types of duties:-
incidence of tax remains upon that person who cannot (1)Excise Duty:- Tax levied on the production of goods
shift its burden to any other person, i.e., who ultimately within the country is known as Excise Duty. It is also
bears it.----------- Thus, there are three distinct known by the name Central Value Added Tax (CENVAT).
conceptions- the impact, the shifting and the incidence Central Excise Act, 1944 and the Central Excise Tariff Act,
of a tax, which correspond respectively to the 1985 are the two important statutes which govern the
imposition, the transfer, and the settling or coming to Excise Duty in India. (2) Customs Duty:- When the goods are
rest of the tax. The impact is the initial phenomena, the traded outside India then the tax levied Government of India is
shifting is the intermediate process, and the incidence is known as Customs Duty. It is charged on the import and export of
the commodities. Customs Duty is governed by the Customs Act,
the result. 1962 and Customs Tariff Act, 1975. The tax charged on imports
isknown asImport Duty whereas the tax on exports is
known as Export Duty.
DIFFERENCE BETWEEN TAX AND DUTY:- NO TAX SHALL BE LEVIED OR COLLECTED EXCEPT BY CENTRAL TAXES TO BE SUBSUMED IN GST:- On GSTN:- GSTN or the Goods and Services Tax Network is a
(1)Tax is a financial obligation which is to be paid to the THE AUTHORITY OF LAW:- Article 265 of the application of the above principles and various papers Non-Profit, Non Government organization which will
government compulsorily. Duty is a fee payable to the Constitution of India provides that "no tax shall be levied which have been released in this regard, it is deduced manage the entire operations of the GST Portal. It has
government on the manufacture and import/export of or collected except by the authority of law". Therefore, that the following Central Taxes should be, to begin been rightly hailed as the “mother-database” for
goods. no tax can be levied or collected in India, unless it is with, subsumed under the Goods and Services Tax:- everything related to GST. The GSTN will act as a link
(2)The duty itself is a type of tax. explicitly and clearly authorised by way of legislation. (1)Central Excise Duty (CENVAT) between the taxpayers and the government and will aim
(3)Tax is charged on individuals, wealth, services and The Income-tax Act, 1961 (ITA) was enacted to provide (2)Additional Excise Duties at reducing the communication gap between the Central
sales, whereas Duty is charged on goods. for levy and collection of tax on income earned by a (3)The Excise Duty levied under the Medicinal and government, state government and the taxpayers. GSTN
(4)There are two major types of taxes, i.e. Direct Tax person.-------------- According to the ITA, every person, Toiletries Preparations (Excise Duties) Act 1955 is the first of its kind shared IT infrastructure integrating
and Indirect Tax. Conversely, the major types of duties whose total income exceeds the maximum amount not (4)Service Tax the State and Central governments for taxation
are Excise Duty and Customs Duty. chargeable to tax, shall be chargeable to income tax at (5)Additional Customs Duty, commonly known as purposes. This portal will help both the central as well as
(5)The Central Government or State Government can the rate or rates prescribed in the Finance Act. The ITA Countervailing Duty (CVD) the state governments to track and keep a record of all
impose taxes, but only the Central Government has got defines the term "person" to include an individual, an (6)Special Additional Duty of Customs – 4% (SAD) financial transaction made by businesses and will act as
the authority to levy duty. HUF, a company, a firm (including LLP), an AOP or a BOI; (7)Surcharges and Cesses levied by Centre are also likely a backbone to the IT infrastructure in India. In order to
a local authority and every other artificial juridical to be subsumed wherever they are in the nature of taxes pay your taxes via the portal, you will need a GST
DIFFERENCE BETWEEN TAX AND FEES:- person.--------------- The ITA provides an inclusive on goods or services. This may include cess on rubber, registration and a corresponding GSTIN (GST
(1) Tax is the compulsory payment to the government definition of the expression "income". Therefore, tea, coffee, national calamity contingent duty etc. Identification Number).
without getting any direct benefits while Fee is the income includes not only those things which this (8)Central Sales Tax to be phased out. STRUCTURE OF GSTN:- The GST network is a non-
voluntary payment for getting service. definition explicitly declares, but also all such things as government organization (PPP Company) meaning the
(2)If the element of revenue for general purpose of the the word signifies according to its natural STATE TAXES TO BE SUBSUMED IN GST:- Following State private parties hold 51% of this organization. The rest
State predominates, the levy becomes a tax While a fee import.Therefore, before arriving at a conclusion as to taxes and levies would be, to begin with, subsumed 49% is owned by the government. The authorized
is for payment of a specific benefit or privilege although the tax implications of a receipt of money, it is under GST:- capital of GSTN is Rs. 10 Crores. The 49% of the
the special to the primary purpose of regulation in public imperative to determine whether or not such a receipt (1)VAT / Sales tax shareholding of the governments is divided equally
interest. amounts to income under the ITA. There will be no (2)Entertainment tax (unless it is levied by the local between Central and the State Governments i.e.
(3)In regard to tax, there is not and must not always be, incidence of income tax if a receipt of money does not bodies) 24.5% to the centre and the states in the Indian Union.--
direct correlation between the tax and the service amount to income. For instance, it is important to (3)Luxury tax ---------- The Goods and Services Tax Network is headed
intended to be rendered while in regard to fee, there is distinguish a capital receipt from a revenue receipt (4)Taxes on lottery, betting and gambling by Dr Ajay Bhushan Pandey (Chairman), 1984 batch IAS
and must always be, correlation between the fee because, while all revenue receipts are taxable under (5)State Cesses and Surcharges in so far as they relate to (Indian Administrative Services) servant. along with
collected and the service intended to be rendered. the ITA, unless specifically exempted, a capital receipt supply of goods and services the CEO of GSTN Shri Prakash Kumar.--------- Shareholder
(4)Tax is compulsory payment while fee is the voluntary cannot be taxed as income, unless otherwise provided (6)Octroi and Entry Tax / Shareholding (Central Government, State Governments
payment. for by the statute. (7)Purchase Tax --------------- The above taxes are directly & EC + 24.5%), (HDFC, HDFC Bank, ICICI Bank, NSE
(5)If tax is imposed on a person he has to pay it. relatable to the supply of goods and services and fall in Strategic Investment Co + 10%), (LIC Housing Finance Ltd
Otherwise he has to be panelized. On the other hand, HISTORY OF INCOME TAX OF INDIA:- Taxation of India the supply chain from the point of procurement of the + 11%), Total = 100%.
fee is not paid if the person does not want to get in Ancient Times:- In India, the system of direct taxation raw material to the consumption of the goods and FEATURES OF GSTN:- (1)National Information Utility:-
the service. as it is known today, has been in force in one form or services by the end customer. The GST Network has been deemed to be a trusted
(6) In this case, tax payer does not expect any another even from ancient times. There are references National Information Utility(NIU). This essentially means
direct benefit while Fee payer can get direct benefit for both in Manu Smriti and Arthasastra to a variety of tax CGST:- CGST refers to the Central GST tax that is levied that the network is in charge of providing reliable,
paying fee. measures. The detailed analysis given by Manu Smriti by the Central Government of India on any transaction robust, as well as, efficient IT infrastructure and
and Arthasastra on the subject clearly shows the of goods and services tax taking place within a state. It is information passing. (2)Strong Infrastructure
CONSTITUTIONAL PROVISIONS RELATING TO COLLECT existence of a well-planned taxation system, even in one of the two taxes charged on every intrastate (within and Complex Operations:- The GSTN basically helps
AND LEVY OF TAX:- Article 246(1) of Constitution of ancient times. Not only this, taxes were also levied on one state) transaction, the other one being SGST (or taxpayers to register themselves, make tax payments
India states that Parliament has exclusive powers to various classes of people like actors, dancers, singers UTGST for Union Territories). CGST replaces all the and claim GST returns generate business analytics
make laws with respect to any of matters enumerated in and even dancing girls. Taxes were paid in the shape of existing Central taxes including Service Tax, Central among others. Along with this, the network is also in
List I in Seventh Schedule to Constitution(i.e Union list). gold-coins, cattle, grains, raw-materials and also by Excise Duty, CST, Customs Duty, SAD, etc. The rate of charge of calculating and settling the Integrated GST
Article 246(3) provides that State Government has rendering personal service. Let’s Take small part from CGST is usually equal to the SGST rate. Both taxes are (IGST) along with the Input Tax Credit (ITC). The GST
exclusive powers to make laws for State with respect to Manu Smriti:- Manu, the ancient sage and law-giver charged on the base price of the product. See the network thus aims to provide comprehensive solutions
any matter enumerated in List II of Seventh Schedule to stated that the king could levy taxes, according to example below to understand it better. Let’s understand to difficult and intensive taxation solutions.
Constitution(i.e. State List).------------ Parliament has Sastras. The wise sage advised that taxes should be this with an example, when Suresh sales a product to (3)Information Security:- The central government owns
exclusive powers to make laws in respect of matters related to the income and expenditure of the subject. Pradeep in the same state (Rajasthan), he has to pay two a major share of the GST network as compared to any
given in Union List and State Government has the He, however, cautioned the king against excessive taxes. CGST is for the central government while SGST is other individual player and hence the major share of
exclusive jurisdiction to legislate on the matters taxation and stated that both extremes should be for the state. The rate of CGST is 9%, same as SGST. After responsibility for the confidentiality as well as the
containing in State List.------------ There is yet another list avoided namely either complete absence of taxes or the application of CGST (9% of Rs 10,000), the final cost security of the information provided by the taxpayers.
i.e List III (called concurrent list) in the Seventh Schedule exorbitant taxation. According to him, the king should of the product will become Rs 11,800. The central government will control the composition of
to the Constitution. In respect of the matters contained arrange the collection of taxes in such a manner that the the board, Mechanisms of the special resolutions,
in List III both the Central Government and State subjects did not feel the pinch of paying taxes. He laid SGST:- SGST (State GST) is one of the two taxes levied on Shareholder’s agreement, and agreements between the
Governments can exercise powers to legislate. In case of down that traders and artisans should pay 1/5th of their every intrastate (within one state) transaction of goods network and other state governments. (4)Payment:- The
Union Territories Union Government can make laws in profits in silver and gold, while the agriculturists were to and services. The other one is CGST. SGST is levied by GST network has enabled the taxpayers to avail the
respect of all the entries in all the three lists.---------- List pay 1/6th, 1/8th and 1/10th of their produce depending the state where the goods are being sold/purchased. It option of payment through online methods:- (i)Online
III of 7th Schedule(i.e Concurrent list) includes entries upon their circumstances. The Establishment of Income will replace all the existing state taxes including VAT, payment can be done via the option of internet banking.
like Criminal law and Procedure, Trust and Trustees, Civil Tax in Modern India:- The history of Income-Tax in State Sales Tax, Entertainment Tax, Luxury Tax, Entry The RBI has allocated certain banks (Agency Banks ) with
Procedures, economic and social planning, trade unions, modern India dates back to 1860 when the first Income Tax, State Cesses and Surcharges on any kind of the authority to collect payments made in favour of GST.
charitable institutions, price control factories, etc.--------- Tax Act was introduced by James Wilson who became transaction involving goods and services. The State The taxpayer will need to make payment by selecting
----- In case there is a conflict between the laws (British) India’s first finance member.---------------- First Government is the sole claimer of the revenue earned from a list of the agency banks authorized to collect the
legislated by State Government and Central Government Income Tax Act came in force on 24th July 1860 with the under SGST. Let’s understand this with an example, tax. After that, the taxpayer needs to login to the
in respect of entries contained in Concurrent list, law approval of The Governor General. It was a tax Suresh from Rajasthan wants to sell some goods to respective bank’s online portal and make the payment
made by Union Government prevails.---------- However, selectively imposed on the rich royalty and Britishers. Pradeep in Rajasthan. The product, originally priced at and download the challan generated for said payment of
there is one exception to this rule, if law made by State For the first year of tax the government collect Rs 30 Rs 10,000, will attract GST at 18% rate comprising of 9% GST. (ii)Offline:- It is not mandatory that the taxpayers
contains any provision repugnant to earlier law made by Lakhs. The act lapsed in 1865 and was reintroduced in CGST rate and 9% SGST rate. The SGST tax amount here have to make an online payment always. The
Parliament, law made by State Government prevails, if it 1867.------------------- There was need for more revenue is Rs 900 (9% of Rs 10,000) which is fully claimed by the government has also facilitated the provision of
has received assent of President. Even in such cases, to fight Anglo-Russian war. So Governor General Lord Rajasthan State Government. The rate of the product payment of GST offline via “over the counter” payments.
Parliament can make fresh law and amend, repeal or Dufferin introduced a comprehensive Income Tax Act in after SGST will be Rs 10,900. You can head over to your respective bank make the
vary law made by State.--------- Now let’s go through the 1886. It was combination of Licence Tax and Income Tax. IGST:- Integrated GST (IGST) is applicable on interstate payment for GST. Bank will further notify the RBI as well
Entries in Union list and State list relevant to Taxation.--- Taxes were collected in the same manner as land (between two states) transactions of goods and services, as the GST portal to update relevant details.
------ Union List:- Entry No. 82 – Tax on Income other revenue.---------------- The most comprehensive Income as well as on imports. This tax will be collected by the (5)Expenses:- The user charges will be paid entirely by
than agriculture income. Entry No. 83 – Duties of Tax Law was the Income Tax Act of 1922. 1919 Central government and will further be distributed the Central Government and the State Governments in
customs including export duties. Entry No. 84 – Duties of Chelmsfod reforms made a distinction between the among the respective states. IGST is charged when a equal proportion (i.e. 50:50) on behalf of all users. The
excise on Tobacco and other goods manufactured or functions and resources of the state and the Central product or service is moved from one state to another. state share will be then apportioned to individual states,
produced in India except alcoholic liquors for human Govt. and Income Tax became a primary source of IGST is in place to ensure that a state has to deal only in proportion to the number of taxpayers in the state.
consumption, opium, narcotic drugs, but including revenue for the central Government. with the Union government and not with every state GSTIN:- GSTIN or Goods and Services Tax Identification
medicinal and toilet preparations containing alcoholic separately to settle the interstate tax amounts. Let’s try Number is a unique 15-digit number, which has replaced
liquor, opium or narcotics. Entry No. 85 – Corporation GST:- GST is an Indirect Tax which has replaced many to understand IGST with an example, Ramesh is a the Tax Identification Number (TIN). Before GST was
tax Entry No. 92A – Taxes on sale or purchase of goods Indirect Taxes in India. The Goods and Act was passed manufacturer in Rajasthan who sold goods worth Rs implemented, dealers registered under the state VAT
other than newspapers, where such sale or purchase in the Parliament on 29th March 2017. The Act came 10,000 to Suresh in Rajasthan. Since it is an interstate law were given a unique TIN number by the respective
takes place in the source of Interstate trade or into effect on 1st July 2017; Goods & Services Tax Law in transaction, IGST will be applicable here. Let’s assume state tax authorities. Business entities registering under
commerce. Entry No. 92B – Taxes on consignment of India is a comprehensive, multi-stage, destination-based the GST rate is 18% for the particular item. So, the IGST GST will be provided a unique identification number
goods where such consignment takes place during Inter- tax that is levied on every value addition.---------- In amount charged by the Central Government will be Rs known as the GSTIN.------------- GSTIN, as the name
State trade or commerce. Entry No. 92C – Tax on simple words, Goods and Service Tax (GST) is an indirect 1800 (18% of Rs 10,000), and the refined rate of the suggests, is an unique identification number assigned to
services Entry No. 97 – Any other matter not included in tax levied on the supply of goods and services. This law product will be Rs 11,800. a dealer or supplier, under the GST regime. Obtaining
List II, List III and any tax not mentioned in List II or List has replaced many indirect tax laws that previously UTGST:- The Union Territory Goods and Services Tax, GSTIN and registering for GST are free of cost. There are
III. State List:- Entry No. 46 – Taxes on agricultural existed in India.---------- GST is one indirect tax for commonly referred to as UTGST, is the GST applicable on two ways to register for GST:- (1)GST Online Portal
income. Entry No. 51 – Excise duty on alcoholic liquors, the entire country.-------- Under the GST regime, the tax the goods and services supply that takes place in any of (2)GST Seva Kendra set up by the Government of India
opium and narcotics. Entry No. 52 – Tax on entry of is levied at every point of sale. In the case of intra-state the five Union Territories of India, including Andaman
goods into a local area for consumption, use or sale sales, Central GST and State GST are charged. Inter-state and Nicobar Islands, Dadra and Nagar Haveli,
therein (usually called Octroi or Entry Tax). Entry No. sales are chargeable to Integrated GST. Chandigarh, Lakshadweep and Daman and Diu. This
54 – Tax on sale or purchase of goods other than PRINCIPLES OF TAX SUBSUMATION:- The various UTGST will be charged in addition to the Central GST
newspapers except tax on interstate sale or purchase. Central, State and Local levies were examined to identify (CGST) explained above. For any transaction of
Entry No. 55 – Tax on advertisements other than their possibility of being subsumed under GST. While goods/services within a Union Territory: CGST + UTGST.-
advertisements in newspapers. Entry No. 56 – Tax on identifying, the following principles were kept in mind: ---------------The reason why a separate GST was
goods and passengers carried by road or inland (i)Taxes or levies to be subsumed should be primarily in implemented for the Union Territories is that the
waterways. Entry No. 59 – Tax on professionals, trades, the nature of indirect taxes, either on the supply of common State GST (SGST) cannot be applied in a Union
callings and employment. goods or on the supply of services. (ii)Taxes or levies to Territory without legislature. Delhi and Puducherry UTs
be subsumed should be part of the transaction already have their own legislatures, so SGST is applicable
chain which commences with import/ manufacture/ to them.
production of goods or provision of services at one end
and the consumption of goods and services at the other.
(iii)The subsumation should result in free flow of tax
credit in intra and inter-State levels. (iv)The taxes, levies
and fees that are not specifically related to supply of
goods & services should not be subsumed under GST.
(v)Revenue fairness for both the Union and the
States individually would need to be attempted.
FORMAT / STRUCTURE OF GSTIN:- (1)Every taxpayer
will be assigned a state-wise PAN-based Goods and
Services Taxpayer Identification Number (GSTIN), which
will be 15 digits long. (2)The first two digits of GSTIN will
represent the state code according to Indian Census
2011. Each state has a unique two digit code like “27”
for Maharashtra and “10” for Bihar. (3)The next ten
digits of GSTIN will be the PAN number of the taxpayer.
(4)The 13th digit indicates the number of registrations
an entity has within a state for the same PAN. (5)It will
be an alpha-numeric number (first 1-9 and then A-Z) and
will be assigned on the basis of number of registrations a
legal entity (having the same PAN) has within one
state. For example, if a legal entity has single or one
registration only within a state then it will be assigned
the number “1” as 13th digit of the GSTIN. If the same
legal entity gets another or second registration for a
second business vertical within the same state, then the
13th digit of GSTIN assigned to this entity will become
“2”. Similarly, if an entity has 11 registrations in the
same state then it will b e assigned letter “B” in the 13th
place. This way up to 35 business verticals of any legal
entity can be registered within a state using this system.
(6)The fourteenth digit currently has no use and
therefore will be “Z” by default. (7)The last digit will be
a check code which will be used for detection of errors.--
---------- Specimen Structure of GSTIN:-
(22=State Code, AAAAA0000A=PAN, 1=Entity Number
of the Same Pan Holder in a State, Z=Alphabet ‘Z’ by
default, 5=Check sum digit
HOW TO APPLY / REGISTRATION FOR GSTIN:- There are
two ways to register for GST:- (1)GST Online Portal, or
(2)GST Seva Kendra set up by the Government of India---
----------- Following are the steps to apply for the GSTIN
number:- (1)Login:- First, you need to log onto to GST
portal using your username and password details.
(2)Fill Details in Part A of REG-01:- Once you login, you
then need to declare the following details in Part A of
Form GST REG-01 on the common portal. These details
include:- PAN, Mobile number, Email address and State
or UT (3)Verification of the Details:- After filling the
details, your PAN and mobile number get verified
through one-time password sent to the said mobile
number. Then, your email address gets verified through
a separate one-time password sent to the email address
so mentioned. (4)TRN Gets Generated:- Once your
PAN, mobile number and email address details get
verified, a Temporary Reference Number (TRN) is
generated. Such reference number is sent to your
mobile number and your registered email ID. (5)Submit
Application in Part B of REG-01:- On receipt of TRN, you
are required to submit an application in Part B of Form
GST REG-01. However, such an application should be
signed or verified through electronic verification code.
Moreover, your application should also be accompanied
by the documents specified in the said Form.
(6)Issuance of Acknowledgement:- After submitting the
application, an acknowledgement will be issued to you
in Form GST REG-02. (7)Verification of Documents by
the Officer:- Then, your application along with the
accompanying documents is sent to the proper officer
for verification. Furthermore, the officer approves the
grant for registration once he finds your application and
documents to be in order. Thus, such an approval is
given within 3 working days from the date of submission
of the application. (8)Notice Issued in Case of Flaw:- In
case there is some flaw in your application, the officer
will issue you a notice electronically in Form GST REG-03.
Such a form is issued within 3 working days from the
date of submission of application. Then, you are
required to furnish such clarification, information or
documents in Form GST REG-04. Such details should be
furnished within 7 working days from the date of receipt
of such intimation. (9)Grant of Registration:- The officer
will approve the grant for registration once he is
satisfied with the clarification, information or
documents so furnished. Such an approval is given
within 7 working days from the date of such clarification
or information or documents. (10)In Case The
Application Gets Rejected:- In case your application gets
rejected, the officer will inform you about the rejection
in form GST REG – 05. (11)Issue of Certificate Of
Registration:- Upon approval of your application for
grant of registration, a certificate of registration will be
issued to you. Further, such a certificate shall be issued
in Form GST REG-06. Additionally, the certificate will
incorporate the 15 digit GSTIN and will be made
available to you on the common portal.
DIFFERENCE BETWEEN GSTIN AND GSTN:- GSTIN or CONSTITUTION OF GST COUNCIL:- According to the FEATURES OF CONSTITUTION (122nd AMENDMENT)
Goods and Services Tax Identification Number is a Article 279A, it is on the part of Prime Minister to give GST:- The Constitution (122nd Amendment) Bill, 2014
unique 15-digit number, which has replaced the Tax the order to constitute the council of GST within the 60 was introduced in the Lok Sabha on December 19, 2014.
Identification Number (TIN). Before GST was days from the 12th September 2016 which is already The following is the gist of amendments proposed by
implemented, dealers registered under the state VAT notified by the Government. Following are the this Bill::- (1)The Bill seeks to amend the Constitution to
law were given a unique TIN number by the respective designated personnel, who will form the GST Council introduce the goods and services tax
state tax authorities. Business entities registering under together:- (1)The Union Finance Minister who will be the (GST). Consequently, the GST subsumes various central
GST will be provided a unique identification number Chairman of the council; (2)The Union Minister of State indirect taxes including the Central Excise Duty,
known as the GSTIN.------------- GSTIN, as the name in charge of Revenue or Finance who will be the Additional Excise Duties, Service Tax, Additional Customs
suggests, is an unique identification number assigned to Member of council; (3)One Member from each state Duty (CVD) and Special Additional Duty of Customs
a dealer or supplier, under the GST regime. Obtaining who is Minister in charge of Finance or Taxation or any (SAD), etc. It also subsumes state Value Added Tax
GSTIN and registering for GST are free of cost. There are other Minister and anyone of them will be Vice (VAT)/Sales Tax, Central Sales Tax, Entertainment Tax,
two ways to register for GST:- (1)GST Online Portal Chairman Of the GST Council who will be mutually Octroi and Entry Tax, Purchase Tax and Luxury Tax,
(2)GST Seva Kendra set up by the Government of India.-- elected by them.-------- NOTE:- (i)The Secretary of etc. (2)Concurrent powers for GST:- The Bill inserts a
--------- On the other hand, GSTN or the Goods and Revenue Department will work as EX-Officio Secretary to new Article 246A in the Constitution to give the central
Services Tax Network is a Non-Profit, Non Government the GST Council, (ii)The Chairperson of Central Board of and state governments the concurrent power to make
organization which will manage the entire operations of Excise and Customs will be the permanent invitee in all laws on the taxation of goods and services.
the GST Portal. It has been rightly hailed as the “mother- the proceedings of the GST Council who will not have (3)Integrated GST (IGST):- However, only the centre may
database” for everything related to GST. The GSTN will the voting rights. levy and collect GST on supplies in the course of inter-
act as a link between the taxpayers and the government QUORUM AND DECISION-MAKING:- (1)For a valid state trade or commerce. The tax collected would be
and will aim at reducing the communication gap meeting of the members of GST Council, at least 50 divided between the centre and the states in a manner
between the Central government, state government and percent of the total number of the member should be to be provided by Parliament, by law, on the
the taxpayers. GSTN is the first of its kind shared IT present at the meeting. (2)Every Decision made during recommendations of the GST Council. (4)GST Council:-
infrastructure integrating the State and Central the meeting should be supported by at least 75 percent The President must constitute a Goods and Services Tax
governments for taxation purposes. This portal will help majority of the weighted votes of the members who are Council within sixty days of this Act coming into
both the central as well as the state governments to present and voting at the meeting. In “Article 279A” a force. The GST Council aim to develop a harmonized
track and keep a record of all financial transaction made principle is there which divides the total weighted vote national market of goods and services. (5)The
by businesses and will act as a backbone to the IT cast between Central Government and State Goods and Service Tax Council shall recommend the
infrastructure in India. In order to pay your taxes via the Government:- (i)The vote of Central Government shall date on which the goods and service tax be levied on
portal, you will need a GST registration and a have the weighted of one-third of the total votes; (ii)The petroleum crude, high speed diesel, motor spirit
corresponding GSTIN (GST Identification Number). votes of State Government shall have the weighted of (commonly known as petrol), natural gas and aviation
FILING OF GST COMPENSATION TO STATE ACT:- two third of the total votes, cast in the meeting. (3)Any turbine fuel. (6)Resolution of disputes:- The GST Council
Government has compensated to the States/UTs for the act, decision or proceedings shall not be declared as may decide upon the modalities for the resolution of
reported revenue deficit on account of implementation invalid on the basis of any remaining deficiency at the disputes arising out of its
of Goods and Services Tax (GST). As per provisions in time of establishment of GST Council i.e.:- (i)if there is recommendations. (7)Restrictions on imposition of tax:-
Section 7 of the GST (Compensation to States) Act, 2017 any vacancy remained in the Council; (ii)if there is any The Constitution imposes certain restrictions on states
loss of revenue to the States on account of defect in the constitution of Council; (iii)if there is any on the imposition of tax on the sale or purchase of
implementation of Goods and Services Tax shall be defect in the appointment of a person as a member of goods. The Bill amends this provision to restrict the
payable during transition period and compensation the Council; (iv)if there is any procedural non- imposition of tax on the supply of goods and services
payable to a State shall be provisionally calculated and compliance. and not on its sale. (8)Additional Tax on supply of
released at the end of every two months during POWER OF GST COUNCIL:- (i) The goods and services goods:- An additional tax (not to exceed 1%) on the
transition period of 5 years.----------- As per Section 4 of that may be subjected or exempted from GST; (ii) supply of goods in the course of inter-state trade or
the said Act, financial year 2015-16 has been taken as Principles that govern Place of Supply; (iii) commerce would be levied and collected by the
the base year for calculating compensation amount Threshold limits; (iv) GST rates including the floor rates centre. Such additional tax shall be assigned to the
payable to States for loss of revenue during transition with bands, special rates for raising additional resources states for two years, or as recommended by the GST
period. The projected nominal growth rate of revenue during natural calamities/disasters or RNR; (v) Special Council. (9)Compensation to states:- Parliament may by
subsumed for a state during the transition period shall provisions for certain States, etc.; (vi) Transition law provide for compensation to states for revenue
be 14% per annum.------------- As per section 7(c) of the Provisions FUNCTION OF GST COUNCIL:- The GST losses arising out of the implementation of the GST, on
said Act, the total compensation payable in any financial council will be supposed to make the recommendation the GST Council’s recommendations. This would be up
year shall be difference between the projected revenue to the Union and State on the following matters:- (i)On to a five-year period. (10)The Government of India may
for any financial year and the actual revenue collected subsuming of various taxes, cess, and surcharge in GST. where it considers necessary in the public interest,
by a State. On this basis, the revenue loss due to (ii)Details of services and goods that will be subjected to exempt such goods from the levy of tax. (11)The Centre
implementation of GST to the states for the month of GST or which will be exempted from GST. (iii)On would levy and collect the Integrated Goods and
July, 2017 to March, 2018 and April to May, 2018 has Threshold limit below which, services and goods will be Services Tax (IGST) on all inter-State supply of goods and
been estimated to be Rs. 48178 crores (Annexure-I) and exempted from GST. (iv)On GST rates including floor rate services. There will be seamless flow of input tax credit
Rs. 3899 crores (Annexure-II) respectively and with bands of GST and any special rate for time being to from one State to another. Proceeds of IGST will be
accordingly, States/UTs have been paid GST arrange resources to face any natural calamity. apportioned among the States. (12)GST will be a
Compensation of Rs. 48178 crores for the period of July (v)Making special provisions for the following states: destination-based tax. All SGST on the final product will
2017 to March, 2018 and of Rs. 3899 crores for the Arunachal Pradesh, Assam, Jammu and Kashmir, ordinarily accrue to the consuming State.
period of April-May, 2018. Manipur, Meghalaya, Mizoram, Nagaland, Sikkim,
Tripura, Himachal Pradesh and Uttarakhand. (vi)On
GST COUNCIL:- GST council is a governing body to model law on GST, Principal of levy of GST and the
regulate and direct each and every step for the principals which will govern the place of Supply.
implementation of goods and service tax in the nation GST COUNCIL MEETINGS:- Another important duty of
with decisions over tax rates and further GST Council is to meet and discuss about the GST rules
implementation measures. GST council assimilates and laws which would be beneficial for dealers. Ever
suggestions and regulation into one form and improvise since the GST Council has been formed, various
the changes formally through notifications and circulars meetings have taken place. In the last GST Council
with its departments and finance ministry.------------ meeting, the council decided that GST should be
Cabinet Ministry has given approval for the implemented on e-way bills which require goods valuing
establishment of GST Council while the notification more than INR 50,000 being registered before they are
regarding the establishment of Council was issued on moved. The GST Council also extended the deadline of
Saturday the 10th day September 2016 and the filing the GSTR – 1. Anti-profiteering screening
provisions came into force on Monday the 12th day of committees were also set up in the latest meeting of the
September 2016. Also, the Article 279A having GST Council. The aim of setting up these committees
provisions regarding establishment of GST Council was was to strengthen the National Anti-Profiteering
inserted after Article 279 of The Constitution (101st Authority under the laws of GST. Besides formulating
Amendment) Act, 2016. The Former Union Finance laws on GST, the GST Council also took decisions on the
Minister Late Mr. Arun Jaitley who was the head of GST following aspects:– (i)For Indian States, except the
Council while the First Meeting of the council was held special category States, the threshold limit for
on 22nd and 23rd September 2016 in New Delhi. exemption of GST would be set at INR 40 lakhs. (ii)In
GST (AMENDMENT) ACT, 2018 FROM 1ST FEBRUARY case of special category States, the threshold limit for
2019:- The President of India gave assent on 29th August exemption of GST is set at INR 10 lakhs. (iii)In case of
2018 to make amendments to following GST laws:- composition schemes, the threshold limit for GST
(1)The Central Goods and Services Tax (Amendment) Act exemption is set at INR 1.5 cr for Indian States. However,
2018 (2)The Integrated Goods and Services Tax for North Eastern States and for Himachal Pradesh, the
(Amendment) Act 2018 (3)The Union Territory Goods threshold limit of GST exemption is set at INR 50 lakhs.
and Services Tax (Amendment) Act 2018 (4)The Goods (iv)Goods like Tobacco, Pan Masala, Ice Cream and other
and Services Tax (Compensation to States) Amendment types of edible ice manufacturers would not be eligible
Act 2018.----------- The GST council in its 31st GST Council to avail composition levy. However, in case of
Meeting held on 22nd December 2018, has announced Restaurant services, the composition levy would be
through the press release that the effective date of allowed on these goods and manufacturing activities.----
applicability of amendments in GST Act(s) 2018 will be ---------- Similarly, in the 34th GST Council meeting, some
from 1st February 2019.---------- Latest Features:- (1)CBIC of the decisions taken by the council included the
has notified (under CGST & IGST) that all the changes to following:– (i)The GST rate on non-affordable houses
GST Law as covered in this article will be applicable from was lowered 5%. For affordable houses, the GST rate
1st Feb 2019. (2)Applicable from 1st Feb was lowered to 1%. This lowered GST rate would be
2019, 01/2019 Central tax rate notification applicable on under-construction properties. (ii)Realty
& 01/2019 Integrated Tax Rate Notification states that estate developers can choose older GST rate of 12% on
the provision of RCM under Sec 9(4) – purchase of goods non-affordable houses. In case of affordable houses, the
from unregistered supplier shall now stand to be GST rate of 8% can be chosen till May 10, 2019. (iii)If the
applicable blanket all intra-state supplies(irrespective of old GST rate is chosen by any builder, the builder would
the daily limit per supplier of Rs 5000 that was earlier not be able to claim input tax credit.----------- Besides
notified). (3)Further, the Sec 9(4) has been amended to these two duties, the GST Council also makes rules
refer only to specified goods and services as notified by regarding GST registration, valuation, payment of GST,
the Government and not all supplies. But the list is yet to input tax credit, GST return, composition, transitional
be notified, after which this provision Sec 9(4) shall provisions, invoice and claiming refund, etc.
apply to all such supplies notified. (4)The GST
Rules have been amended to be in line with the changes
brought to the Act. Check out the amendments 03/2019
CT, 05/2019 CT, 06/2019 CT, 02/2019 IT & 03/2019 IT.
HISTORY OF INDIRECT TAXATION IN INDIA:- The history
of Indirect Taxation in India dates back to few centuries
and we get some cue of the same in Kautilya’s
Arthasashtra. Those days’ taxes were collected in the
form of crop and/or any agricultural product. Such
collections were generally ear-marked for some specific
purposes or for the development of the State. Taxes
were also raised separately for meeting internal and
external exigencies like famine, flood, war etc. It was
also known as ‘Lagaan.’-------------- According to Manu
Smriti, the king should arrange the collection of taxes in
such a manner that the tax payer did not feel the pinch
of paying taxes. He laid down that traders and artisans
should pay 1/5th of their profits in silver and gold, while
the agriculturists were to pay 1/6th, 1/8th and 1/10th of
their produce depending upon their circumstances.-------
-------
Kautilya has also described in great detail the system of
tax administration in the Mauryan Empire. It is
remarkable that the present day tax system is in many
ways similar to the system of taxation in vogue about
2300 years ago. Arthasastra mentioned that each tax
was specific and there was no scope for arbitrariness.
Tax collectors determined the schedule of each
payment, and its time, manner and quantity being all
pre-determined.------------ Kautilya also laid down that
during war or emergencies like famine or floods, etc. the
taxation system should be made more stringent and the
king could also raise war loans. The land revenue could
be raised from 1/6th to 1/4th during the emergencies.
The people engaged in commerce were to pay big
donations to war efforts.------------- During the British
Raj, mostly the raw materials were exported from India
and later it used to come back as finished products and
consumables. Most of the raw materials were exported
to England. The Rulers those days used to discourage
any manufacture of finished products in India so that
they can have the major profit by way of value addition.
Indian market was flooded with British products. Few
rare exceptions were there, few products like clothes etc
were also produced in India in cottage industries. The
prices of India made products were much lesser, for
obvious reasons, compared to the imported British
products. At that point only the British thought to
impose taxes on India made products. The modern
history of Indirect taxes start from the early 20th
century while Excise duty was imposed on Salt, Sugar,
Motor Spirit etc. Gradually the base of Excise duties was
increased. The Central Excise Act was formulated in
1944 and thereafter has gone for gradual change year by
year till 1969 the physical control was generally done
away with few exceptions.-------------- In sovereign India,
in the early 1960, the Boothalingam Committee had
recommended introduction of a general excise levy of 10
per cent on all goods (with some exceptions) produced
in the country. However, the government did not accept
this recommendation.------------- Sales tax was first
introduced in India in the province of Bombay, where a
tax was imposed on sales of tobacco within certain very
limited urban and suburban areas by the Bombay
Tobacco (Amendment) Act, 1938, which came into force
on the 24th March, 1938.------------- Thereafter, a lot of
indirect tax has been added to the taxation system and
we had around 20 indirect taxes in India before GST
(Goods and Service tax) has been implemented.
GST (COMPENSATION TO STATES) ACT, 2017:- The
Goods and Service Tax (Compensation to States) Act,
2017 provides for a mechanism to compensate the
States on account of loss of revenue which may arise
due to implementation of the Goods and Services Tax
read together with the Constitutional (101st
Amendment) Act, 2016, for a period of 5 years. This Act,
inter-alia provides:- (i)That the base year during the
transition period shall be reckoned as the financial year
2015-16 for the purpose of calculating compensation
amount payable to the States; (ii)That the revenue
proposed to be compensated would consist of revenues
from all taxes that stands subsumed into the GST law, as
audited by the CAG; (iii) For reckoning
the growth rate of revenue subsumed for a State at 14%
per annum; (iv)That the compensation will be released
bi-monthly based on the provisional numbers furnished
by the Central Accounting Authorities and the final
adjustment to be done after the accounts are subjected
to audit by CAG; (v)That the revenue foregone on
account of grant of exemption in the 11 special
categories State (Article 279A), be counted for the
purpose of determining revenue for the base year 2015-
16; (vi)That the revenue of States directly devolved to
Mandi / Municipalities would be considered as revenue
subsumed; (vii)Levy of a cess over and above the GST
on certain notified goods to compensate States for 5
years on account of revenue loss suffered by them; (viii)
That the proceeds of the cess will be utilised to
compensate States that warrant payment of
compensation; (ix)That 50% of the amount remaining
unutilised in the fund at the end of the fifth year will be
transferred to the Centre and the balance 50% would be
distributed amongst the State and Union Territories in
the ratio of total revenues from SGST / UTGST of the
fifth year;
GST (COMPENSATION TO STATES) ACT, 2017:- (i)The
Goods and Services Tax (Compensation to States)
Amendment Bill, 2018 was introduced in Lok Sabha by
the Minister of Finance, Mr. Piyush Goyal on August 7,
2018. It amends the Goods and Services Tax
(Compensation to States) Act, 2017. The Act provides
for compensation to states for any loss in revenue due
to the implementation of GST. (ii)Compensation Fund:-
The Act allows the central government to levy a GST
Compensation Cess on the supply of certain goods and
services. The receipts from the cess are deposited to a
GST Compensation Fund. The amount deposited in the
Fund is used to compensate states for any loss in
revenue following the implementation of GST. (iii)Under
the Act, any unutilised amount in the Compensation
Fund at the end of the transition period (5 years from
the date on which the state brings its State GST Act into
force) is distributed in the following manner: (i) 50% of
the amount is shared between the states in proportion
to their total revenue, and (ii) remaining 50% is a part of
the centre’s divisible pool of taxes.
FEATURES OF GST:- (1)Levy of GST:- The centre will levy
Central GST (CGST) and the states will levy State GST
(SGST) on the supply of goods and services within a
state. The centre will levy IGST in the case of (i) inter-
state supply of goods and services, (ii) imports and
exports, and (iii) supplies to and from special economic
zones. (2)Exemptions from GST:- The centre exempt
certain goods and services from the purview of GST
through a notification. This will be based on
recommendations of the GST Council. (3)Turnover
limit under GST and tax right over low turnover entities:-
GST is applied when turnover of the business exceeds Rs
20lakhs per year (Limit is Rs 10lakhs for the North-
Eastern States). Traders who would like to get input tax
credit should make a voluntary registration even if their
sales are below Rs 20 lakh per year. Traders supplying
goods to other states have to register under GST, even if
their sales is less than Rs 20 lakh. There is a composition
scheme for selected group of tax payers whose turnover
is up to Rs 75 lakhs a year. (4)The four-tier rate
structure:- The GST proposes a four-tier rate structure.
The tax slabs are fixed at 5%, 12%, 18% and 28% besides
the 0% tax on essentials. Gold is taxed at 3%. The center
has strictly demanded and got an additional cess on
demerit luxury goods that comes under the high 28%
tax. Essential commodities like food items are exempted
from taxes under GST.--------- Other consumer goods
which are common items will be taxed at 5%.4. The new
GST seems to have two standard rates – 12% and 18%.
GST rate structure for the goods and services are fixed
by considering different factors including
luxury/necessity nature.
(5)Tax revenue appropriation between the center and
states:- The center and states will share GST tax
revenues at 50:50 ratio (except the IGST). This means
that if a service is taxed at 18%, 9% will go to the center
and 9% will go to the concerned state. (6)Input tax
credit:- Every taxpayer while paying taxes on outputs
may take credit for taxes paid earlier by the supplier on
inputs. However, this will not be applicable on supplies
related to: (i) motor vehicles when used for personal
consumption, (ii) supply of food, health services, etc.
unless they are further used to make a supply.
(7)Taxable amount (value of supply):- The GST levied on
the supply of goods and services, whose value will
include: (i) price paid on the supply, (ii) taxes and duties
levied under other tax laws, (iii) interest, late fee,
penalties for delayed payments, among others.
(8)Refunds and welfare fund:- Any taxpayer may apply
for refund of taxes in cases including: (i) payment of
excess taxes, or (ii) unutilised input tax credit. The
refund may be credited to the taxpayer, or to a
Consumer Welfare Fund under certain circumstances.
(9)Returns:- Every taxpayer should self-assess and file
tax returns on a monthly basis by submitting: (i) details
of supplies provided, (ii) details of supplies received, and
(iii) payment of tax. In addition to the monthly returns,
an annual return will have to be filed by each taxpayer.
(10)Apportionment of IGST revenue:- The IGST collected
will be apportioned between the center and the state
where the goods or services are consumed. The revenue
will be apportioned to the center at the CGST rate, and
the remaining amount will be apportioned to the
consuming state.
AGGREGATE TURNOVER IN GST:- As per Section 2(6)
of Central Goods & Services Tax Act, 2017, “aggregate
turnover” means the aggregate value of all taxable
supplies (excluding the value of inward supplies on
which tax is payable by a person on reverse charge
basis), exempt supplies, exports of goods or services or
both and inter-State supplies of persons having the
same Permanent Account Number, to be computed on
all India basis but excludes central tax, State tax, Union
territory tax, integrated tax and cess. INCLUSION IN
CALCULATING AGGREGATE TURNOVER:- (1)Taxable
supply:– Taxable supply has been broadly defined and
means any supply of goods or services or both which, is
leviable to tax under the Act.( Sec 2(108) of CGST Act)
(2)Exempt Supply:- As per section 2(47) of the CGST Act,
2017 , Exempt Supply means supply of any goods or
services or both which attracts nil rated of tax or which
may be wholly exempt under section 11, or under
section 6 of the Integrated Goods and Services Tax Act,
and includes Non- Taxable supply. (3)NIL Rated supply:-
Nil rated supply is nowhere defined in GST Law. The
basic difference between nil rated and exempt supply is
that the tariff is higher than 0% in case of exempt
supply. But there is no tax payable due to exemption
notification. Whereas in case of NIL rated supply, the
tariff is at NIL rate so there is no tax without the
exemption notification. (4)Zero Rated Supply:- As per
sec 16(1) of IGST Act any supplies made by a registered
dealer as an export (Both goods or services) or supply to
an SEZ qualifies for Zero Rated Supplies in GST. (5)Non
GST Supply:- Goods or services on which GST is not
leviable are called Non GST supply. Examples of Non-GST
supplies are alcohol for human consumption, petroleum
products, electricity etc. (6)Supply to Distinct person:-
According to section 25(4) of CGST Act a person who
has obtained or is required to obtain more than one
registration whether in one State or Union territory or
more than one State or Union territory shall in respect
of each of such registration would be treated as “Distinct
Person”.------------- Aggregate turnover is an all-
encompassing term covering all the supplies effected by
a person having the same PAN. EXCLUSION IN
CALCULATING AGGREGATE TURNOVER:- The
following charges must be excluded while calculating
aggregate turnover:- (1)Taxes & Cess with respect to
CGST, SGST and IGST Acts (2)Value of taxes payable on
reverse charge mechanism (3)Value of inward supplies
of goods and services
CALCULATION OF AGGREGATE TURNOVER UNDER GST
WITH EXAMPLE:- Value of all (taxable supplies + Exports
+ Exempt supplies + Inter-state supplies) – (Taxes +
Value of inward supplies + Value of supplies taxable
under reverse charge + Non-taxable supplies Value) of a
person having the same PAN (Permanent Account
Number) across all his business across India. (1)Normal
Category States under GST (for the limit of INR
20,00,000):- Let us consider a practical scenario to gain a
better understanding of the aggregate turnover:- Mr
Anil Kumar is a farmer. His annual turnover is of INR
66,00,000 lakh. This being an agricultural income, the
turnover would be exempted from GST. However, Mr
Anil Kumar also supplies cardboard cartons along with
his yield for which he charges separately. He yields INR
1,20,000 from the sale of cardboard cartons. This
turnover of INR 1,20,000 would be chargeable to GST. As
defined by law, Mr. Anil Kumar needs to get registered
under GST because his aggregate turnover exceeds the
threshold limit of INR 20,00,000 lakh. Though, as his
aggregate turnover is less than Rs. 1 Crore (as decided in
the 22nd GST Council meeting held on 06th October
2017), he may opt for the composition scheme and
register himself as a composite dealer. (2)Special
Category States under GST (for the limit of INR
10,00,000):- The same scenario would be applied here
too with some modifications in the amounts: Suppose,
the turnover of Mr Bipin Kumar, a farmer, who stays in
Nagaland, is INR 15,00,000. Further, his taxable turnover
from the sale of cardboard cartons is only INR 85,000.
Here, since aggregate turnover exceeds the threshold
limit of INR 10,00,000, Mr Bipin Kumar still needs to get
registered under GST.------------ The special category
states as per Government are: Arunachal Pradesh,
Assam, Manipur, Meghalaya, Nagaland, Tripura, Sikkim,
Mizoram, Uttarakhand and Himachal Pradesh.
MIXED SUPPLY OF GST:- Mixed Supply means two or
more individual supplies of goods or services, or any
combination thereof, made in conjunction with each
other by a taxable person for a single price where such
supply does not constitute a composite supply.
Illustration:- A supply of a package consisting of canned
foods, sweets, chocolates, cakes, dry fruits, aerated
drinks and fruit juices when supplied for a single price is
a mixed supply. Each of these items can be supplied
separately and is not dependent on any other. It shall
not be a mixed supply if these items are supplied
separately. Time of supply in case of mixed supplies:-
The mixed supply, if involves supply of a service liable to
tax at higher rates than any other constituent supplies,
such mixed supply would qualify as supply of services
and accordingly the provisions relating to time of supply
of services would be applicable. Alternatively, the mixed
supply, if involves supply of goods liable to tax at higher
rates than any other constituent supplies, such mixed
supply would qualify as supply of goods and accordingly
the provisions relating to time of supply of services
would be applicable.
COMPOSITE SUPPLY OF GST:- Composite Supply means
a supply made by a taxable person to a recipient
consisting of two or more taxable supplies of goods or
services or both, or any combination thereof, which are
naturally bundled and supplied in conjunction with each
other in the ordinary course of business, one of which is
a principal supply. Illustration:- Where goods are packed
and transported with insurance, the supply of goods,
packing materials, transport and insurance is a
composite supply and supply of goods is a principal
supply. Time of supply in case of Composite supply:- If
the composite supply involves supply of services as
principal supply, such composite supply would qualify as
supply of services and accordingly the provisions relating
to time of supply of services would be applicable.
Alternatively, if composite supply involves supply of
goods as principal supply, such composite supply would
qualify as supply of goods and accordingly, the
provisions relating to time of supply of goods would be
applicable.
DISTINGUISH BETWEEN COMPOSITE SUPPLY AND
MIXED SUPPLY:- (1)Principal supplies:- In a composite
supply, one item or service is clearly the main part of the
supply. In a mixed supply, no one part is necessarily the
principal supply (though the part with the highest GST
rate is treated as principal). (2)Individually available
supplies:- In a composite supply, it wouldn’t make sense
to sell the secondary parts separately from the principal
supply (for instance, the towels provided along with a
hotel room). In a mixed supply, each piece could be sold
separately (for instance, a grocery bundle containing an
assortment of snacks and drinks).
COMPOSITION LEVY IN GST:- Composition scheme is an
alternative taxation levy under GST. It is an optional
scheme introduced to benefit the small taxpayers. This
will save them from the hustle of lengthy tax
compliances like maintenance of detailed records, the
filing of multiple returns monthly etc. Also, the
procedures in terms of the issue of invoices etc are very
minimal and simplified.----------- Under this scheme, a
registered taxpayer would be required to pay tax(GST)
on their turnover based on the prescribed percentage.
The tax rate is comparatively lower than those
prescribed for normal taxpayers. A supplier having
turnover upto Rs 1.5 Crores in the preceding financial
year can opt for the composition tax levy in the current
year. For notified categories of states, the limit is Rs 75
lakhs.
WHO CAN OPT / ELIGIBILITY FOR COMPOSITION
SCHEME:- A taxpayer whose turnover is below Rs 1.5
Crores can opt for Composition Scheme. In case of
North-Eastern states and Uttarakhand, the limit is now
Rs 75 lakhs.There are certain conditions that need to be
fulfilled before opting for composition levy.They are as
follows:- (1)Any Assessee who only deals in supply of
goods can opt for this scheme that means this provision
is not applicable for service providers. However,
restaurant service providers are excluded. (2)There
should not be any interstate supply of goods that means
businesses having only intra-state supply of goods are
eligible. (3)Any dealer who is supplying goods through
electronic commerce operator will be barred from being
registered under composition scheme. For example: If
M/s ABC sells its products through Flipkart or Amazon
(Electronic Commerce Operator), then M/s. ABC cannot
opt for composition scheme. (4)Composition scheme is
levied for all business verticals with the same PAN. A
taxable person will not have the option to select
composition scheme for one, opt to pay taxes for other.
For example, A taxable person has the following
Business verticals separately registered – Sale of
footwear, the sale of mobiles, Franchisee of McDonald’s.
Here the composition scheme will be available to all 3
business verticals. (5)Dealers are not allowed to collect
composition tax from the recipient of supplies, and
neither are they allowed to take Input Tax Credit. (6)If
the person is not eligible under composition scheme, tax
liability shall be TAX + Interest and penalty which shall
be equal to the amount of tax. ------------ Turnover of all
businesses registered with the same PAN should be
taken into consideration to calculate turnover.
WHO CANNOT OPT FOR COMPOSITION SCHEME:-
(1)Supplier of service other than Restaurant
Owners(Serving foods and non-alcoholic drinks)
(2)Supplier of non-taxable goods (3)If the person in
engage in the inter-state supply of goods (3)Supplier
supplying goods through E-commerce operator, who is
eligible to collect TCS (4)Supplier of Tobacco, Pan
Masala, and Ice- Cream
BILL OF SUPPLY FOR COMPOSITION SCHEME:- As the
composition scheme dealer cannot pass on the credit of
the tax, he is required to issue the bill of supply. Details
to be mentioned in the bill of supply are as follows:-
(i)Name, address, and GSTIN of the supplier, (ii)A
consecutive serial number which is a unique number for
every financial year, (iii)Date of issue, (iv)If the recipient
is registered then the name, address, and GSTIN of the
recipient, (v)HSN Code of goods or Accounting Code for
services, (vi)Description of goods/services, (vii)Value of
the goods/services after adjusting any discount or
abatement, (viii)Signature or digital signature of the
supplier or his authorized representative
ADVANTAGE OF COMPOSITION SCHEME:- (1)Less
Compliance:- One of the biggest and the most attracting
advantage involved in the composition scheme is that
the same comes with less compliance. In other words,
the taxpayer opting for composition scheme has to
undergo less compliance under GST. GST being the new
taxation law much of the time and cost of the taxpayer is
being consumed in filing the GST returns, however, the
same gets lessen up in case of composition scheme.------
----- A person registered under composition scheme is
required to file in total only 5 returns (i.e. 4 quarterly
return in form GSTR 4 and one annual return in
form GSTR 9A). On the other hand the regular registered
person is required to file monthly returns and an
additional annual return.------------ Taxpayer opting
under composition scheme is even not required to
maintain detailed records. (2)Lower Tax:-Taxpayer
registered under the composition scheme in GST are
benefited by low tax rates. Separate rates are specified
by the Government for the taxpayer opting for
composition scheme and the rates specified are
comparatively very low from that of the normal GST
rates. (3)High Liquidity:- For normal taxpayers, most of
his working capital will be blocked as Input Tax credit
because he can avail the input only if his supplier has
filed the return. The supplier has to pay tax at standard
rate and credit of the input will only be availed when his
supplier files the return. In composition levy, dealer
need not worry about his supplier filing return as he
cannot take credit and will pay tax at a nominal rate.
DISADVANTAGE OF COMPOSITION SCHEME:- (1)No
Credit of Input Tax:- Any dealer registered under
Composition Scheme will not be eligible to take credit of
Input Tax credit on purchases. Also, the buyer of those
goods will not get the credit of taxes paid. (2)No Inter-
state business:- The major drawback of this scheme is
that the assessee cannot deal in interstate transactions
or affect import-export of goods and services. He is
barred from performing such actions which limit his
territory for expansion and can only conduct local or
intrastate transactions. (3)Pay tax from own pocket:-
Since the dealer is not allowed to charge tax from his
buyer, despite the rate being very low, he has to pay out
of his own pocket. He is not even allowed to issue a tax
invoice, resulting in the burden on the assessee to pay
tax. (4)Strict Penal provisions:- Utmost care is required
while taking benefit of composition levy under GST
regime as the penal provisions are quite severe. If by any
chance, it is proved that the assessee is wrongly
registered under this scheme, not fulfilling the required
criteria and thereby avoiding taxes will face bad
consequences. He will be then be asked to pay taxes
along with penalty, which is equal to 100% of taxes put
on him.
RATE OF COMPOSITION SCEME:- There will be a
Uniform Rate of 1% (0.5% CGST + 0.5% SGST) on
Composition Scheme for Dealers and Manufacturers.
Manufacturers under this scheme earlier pay 2% (1%
CGST + 1% SGST) of the turnover. Restaurant Services
pay 5% (2.5% CGST + 2.5% SGST) of the turnover. Other
service providers Pay 6% (3% CGST + 3% SGST)
GST COMPLIANCE RATING:- GST proposes to bring in a
new system of compliance rating score for every taxable
person, based on the record of compliance with
provisions of law. This score shall be determined on the
basis of certain parameters such as timely furnishing of
returns, accuracy of data furnished, timely payment of
taxes, etc. The GST compliance rating score is somewhat
similar to the concept of the Denied Entities List (DEL,
earlier called ‘Black List’) under the provision of Rule 7 of
the Foreign Trade (Regulation) Rules, 1993, wherein a
total of 14 conditions have been described for
invocation DEL before a company can be refused a
license by the Directorate General of Foreign Trade.------
------- The GST compliance rating score shall be updated
at periodic intervals and intimated to the taxable person
and also placed in the public domain. A prospective
customer/client can view his supplier’s GST compliance
rating score and take appropriate decisions whether to
deal with a particular supplier or not. It is therefore
important for every taxable person to ensure adequate
level of compliance, which will not only facilitate ease of
doing his business, buy will also have a bearing on his
reputation.
ADVANTAGES OF GST:- (1)Mitigation of Cascading
effect:- Under the GST administration, the final tax
would be paid by the consumer for the goods and
services purchased. However, there would be an input
tax credit structure in place to ensure that there is no
slumping of taxes. GST is levied only on the value of the
good or service. (2)Abolition of Multiple Layers of
Taxation:- One of the advantages of GST is that it
integrated different tax lines such as Central Excise,
Service Tax, Sales Tax, Luxury Tax, Special Additional
Duty of Customs, etc. into one consolidated tax. It
prevents multiple tax layers imposed on goods and
services. (3)Resourceful Administration by
Government:- Previously, the management of indirect
taxes was a complicated task for the Government.
However, under the GST establishment, the integrated
tax rate, simple input of tax credit mechanism and a
merged GST Network, where information is available,
and administration of resources are well-organised and
straightforward for the Government. (4)Enhanced
Productivity of Logistics:- the restriction on inter
statement movement of goods has reduced. Earlier
logistic companies had to maintain multiple warehouses
across the country to avoid state entry taxed on
interstate movements.
(5)Creation of a Common National Market:- GST gave a
boost to India’s tax to Gross Domestic Product ratio that
aids in promoting economic efficiency and sustainable
long – term growth. It led to a uniform tax law among
different sectors concerning indirect taxes. It facilitates
in eliminating economic distortion and forms a common
national market. (6)Ease of Doing Business:- With the
implementation of GST, the difficulties in indirect tax
compliance have been reduced. Earlier companies faced
significant problems concerning registration of VAT,
excise customs, dealing with tax authorities, etc. The
benefits of GST has aided companies to carry out their
business with ease.
DISADVANTAGE OF GST:- (1)Would impact the Real-
Estate Market:– GST Tax would swell negative remarks
on the real-estate as perceived, GST will increase the
cost of the new homes by 8% which in turn will cease
the demand by 12%. (2)Costlier Service:– The current
Service Tax stands at 15% as of now which will increase
to 18%-20% when GST is levied. As such many services
will be on the costlier side with telecom, airline and
banking affected majorly. In fact, insurance and
petroleum are also said to be majorly affected by the
enactment of GST Tax. (3)Complexity for the
Businessmen:– According to the proposal of the GST Tax,
the control on business will be rendered to Central and
State Governments with businessmen binding by-laws.
As such complexity may arise for many businessmen
across the nation. (4)Income Tax Credit Mismatch:– As
the change in tax guard will take place, the first few
instances of application would mean high tax paying at
the start. That said, they will only be able to exercise the
tax input on the latter stages when the loop is exercised.
With that in place, there would be ITC mismatch during
the early uses of GST Tax. (5)Disability Tax:– Opposition
has called it as a Disability Tax as many of the things
related to disabled people which were earlier Tax-Free
are now included in GST Taxation. Prior to
implementation of GST, brail paper, typewriter, hearing
aid and motorized wheelchair were tax-free whereas
these things are being taxed now. Opposition have made
pleas to roll back the tax on such items. (6)Impact on
Discounts:– GST has also had an impact on discount and
reward programs as well. The product is being taxed on
the rates pre-discount whereas the products were
earlier taxed at post discount prices. Most of the
companies have also suspended reward programs for
temporary basis because of complexities of GST.
RESIDENTIAL STATUS OF ASSESSEE:- Tax is levied on
total income of assessee. Under the provisions of
Income-tax Act, 1961 the total income of each person is
based upon his residential status. Section 6 of the Act
divides the assessable persons into three categories:-
(1)Ordinary Resident; (2)Resident but Not Ordinarily
Resident; and (3)Non-Resident.-------- Residential status
is a term coined under Income Tax Act and has nothing
to do with nationality or domicile of a person. An Indian,
who is a citizen of India can be non-resident for Income-
tax purposes, whereas an American who is a citizen of
America can be resident of India for Income-tax
purposes. Residential status of a person depends upon
the territorial connections of the person with this
country, i.e., for how many days he has physically stayed
in India.
DETERMINING OF RESIDENTIAL STATUS:- As per Sec 6 of
the Income Tax Act,1961:- (1)An individual is said to be
resident in India in any previous year, if he:— (i)is in
India in that year for a period or periods amounting in all
to one hundred and eighty-two days or more ; or
(ii)having within the four years preceding that year been
in India for a period or periods amounting in all to three
hundred and sixty-five days or more, is in India for a
period or periods amounting in all to sixty days or more
in that year. Explanation-1:— In the case of an
individual:— (a) being a citizen of India, who leaves India
in any previous year as a member of the crew of an
Indian ship as defined in clause (18) of section 3 of the
Merchant Shipping Act, 1958 (44 of 1958), or for the
purposes of employment outside India, the provisions of
sub-clause (c) shall apply in relation to that year as if for
the words "sixty days", occurring therein, the words
"one hundred and eighty-two days" had been
substituted; (b)being a citizen of India, or a person of
Indian origin within the meaning of Explanation to clause
(e) of Section 115C, who, being outside India, comes on
a visit to India in any previous year, the provisions of
sub-clause (c) shall apply in relation to that year as if for
the words "sixty days", occurring therein, the words
"one hundred and eighty-two days" had been
substituted. Explanation-2:—For the purposes of this
clause, in the case of an individual, being a citizen of
India and a member of the crew of a foreign bound ship
leaving India, the period or periods of stay in India shall,
in respect of such voyage, be determined in the manner
and subject to such conditions as may be prescribed.
(2)A Hindu undivided family, firm or other association of
persons is said to be resident in India in any previous
year in every case except where during that year the
control and management of its affairs is situated wholly
outside India. (3)A company is said to be a resident in
India in any previous year, if:— (i) it is an Indian
company; or (ii) its place of effective management, in
that year, is in India. Explanation:—For the purposes of
this clause "place of effective management" means a
place where key management and commercial decisions
that are necessary for the conduct of business of an
entity as a whole are, in substance made.
(4)Every other person is said to be resident in India in
any previous year in every case, except where during
that year the control and management of his affairs is
situated wholly outside India. (5)If a person is resident
in India in a previous year relevant to an assessment
year in respect of any source of income, he shall be
deemed to be resident in India in the previous year
relevant to the assessment year in respect of each of his
other sources of income. (6)A person is said to be "Not
Ordinarily Resident" in India in any previous year if such
person is:— (i) an individual who has been a non-
resident in India in nine out of the ten previous years
preceding that year, or has during the seven previous
years preceding that year been in India for a period of,
or periods amounting in all to, seven hundred and
twenty-nine days or less; or (ii) a Hindu undivided family
whose manager has been a non-resident in India in nine
out of the ten previous years preceding that year, or has
during the seven previous years preceding that year
been in India for a period of, or periods amounting in all
to, seven hundred and twenty-nine days or less.
EXEMPT INCOME:- Any income earned which is not
subject to income tax is called exempt income. As per
Section 10 of the Income Tax Act, 1961, there are certain
types of income which will be subjected to income tax
within a financial year, provided they meet certain
guidelines and conditions. Following are the types of
income that are exempt from tax:- (1)House Rent
Allowance (2)Allowance on transportation, children’s
education, subsidy on hostel fee (3)Exemption on
Housing Loan (4)Income defined as per Section 10,
Section 54 of the Income Tax Act, 1961 (5)Leave and
Travel Allowance.
INCOME EXEMPT FROM TAX (SECTION 10):-
(1)Agriculture Income [Section 10(1)] (2)Amount
received out of family income, Hindu Undivided Family
(H.U.F.) [Section 10(2)] (3)Share of profit, [Section
10(2A)] (4)Interest paid to Non-Resident [Section
10(4)(i)] (5)Interest to Non-Resident on Non-Resident
(External) Account [Section 10(4)(ii)] (6)Interest paid to
a person of Indian Origin and who is Non-Resident
[Section 10(4 B)] (7)Leave Travel Concession or
Assistance [Section 10(5)] (8)Remuneration or Salary
received by an individual who is not a citizen of India
[Section 10(6)] a. Remuneration [U/s 10(6)(ii)] b.
Remuneration received as an employee of foreign
enterprise [U/s 10(6)(vi)] c. Employment on a foreign
ship [U/s 10(6)(viii)] d. Remuneration received by an
employee of foreign government [U/s 10(6)(xi)] (9)Tax
paid by Government or Indian concern on Income of a
Foreign Company [Section 10(6A), (6B), (6BB) and (6C)]
(10)Perquisites/Allowances paid by Government to its
Employees serving outside India [Section 10(7)]
(11)Employees of Foreign Countries working in India
under Cooperative Technical Assistance Programme
[Section 10(8)] (12)Income of a Consultant [Section
10(8A)] (13)Income of Employees of Consultant [Section
10(8B)] (14)Income of any member of the family of
individuals working in India under cooperative technical
assistance programmes [Section 10(9)] (15)Gratuity
[Section 10(10)] a. Gratuity received by Government
servants [Section 10(10)(i)] b. Gratuity Received by a
Non-Government Employee covered by Payment of
Gratuity Act, 1972 [Section 10(10)(ii)] (16)Commuted
value of Pension Received [Section 10(10A)]
(17)Amount received as Leave Encashment on
Retirement [Section 10(10AA)] (18)Retrenchment
Compensation received by Workmen [Section 10(10B)]
(19)Payment received under Bhopal Gas Leak Disaster
(Processing of Claims) Act 1985 [Section 10 (10BB)]
(20)Compensation received in case of any disaster
[Section 10(10BC)] (21)Retirement Compensation from
a Public Sector Company or any other Company [Section
10(10C)] (22)Tax on Non-monetary Perquisites paid by
Employer [Section 10(10CC)] (23)Amount received
under a Life Insurance Policy [Section 10(10D)]
(24)Statutory Provident Fund [Section 10(11)]
(25)Recognized Provident Fund [Section 10(12)]
(26)Superannuation Fund [Section 10(13)] (27)House
Rent Allowance-HRA [Section 10(13A)] (28)Business
Expenditure Allowance [Section 10(14)] (29)Interest
Incomes [Section 10(15)] (30)Scholarship [Section
10(16)]
SPECIAL PROVISIONS IN RESPECT OF NEWLY
ESTABLISHED 100% EXPORT-ORIENTED UNDERTAKINGS:-
(1)Subject to the provisions of this section, any profits
and gains derived by an assessee from a hundred per
cent export-oriented undertaking (hereafter in this
section referred to as the undertaking) to which this
section applies shall not be included in the total income
of the assessee. (2) This section applies to any
undertaking which fulfils all the following conditions,
namely:- (i) it manufactures or produces any articles or
things or computer software; (ii)it is not formed by the
splitting up, or the reconstruction, of a business already
in existence:- Provided that this condition shall not apply
in respect of any undertaking which is formed as a result
of the re-establishment, reconstruction or revival by the
assessee of the business of any such undertaking as is
referred to in section 33B, in the circumstances and
within the period specified in that section; (iii)it is not
formed by the transfer to a new business of machinery
or plant previously used for any purpose. (3)This section
applies to the undertaking, if the sale proceeds of
articles or things or computer software exported out of
India are received in, or brought into, India by the
assessee in convertible foreign exchange, within a
period of six months from the end of the previous year
or, within such further period as the competent
authority may allow in this behalf. (4)For the purposes of
sub-section (1), the profits derived from export of
articles or things or computer software shall be the
amount which bears to the profits of the business of the
undertaking, the same proportion as the export turnover
in respect of such articles or things or computer
software bears to the total turnover of the business
carried on by the undertaking. (5)The deduction under
sub-section (1) shall not be admissible for any
assessment year beginning on or after the 1st day of
April, 2001, unless the assessee furnishes in the
prescribed form84, along with the return of income, the
report of an accountant, as defined in the Explanation
below sub-section (2) of section 288, certifying that the
deduction has been correctly claimed in accordance with
the provisions of this section. (6)Notwithstanding
anything contained in the foregoing provisions of this
section, where the assessee, before the due date for
furnishing the return of income under sub-section (1) of
section 139, furnishes to the Assessing Officer a
declaration in writing that the provisions of this section
may not be made applicable to him, the provisions of
this section shall not apply to him for any of the relevant
assessment year.
RELIEF WHEN SALARY/ RELIEF IN RESPECT OF INCOME
TAX:- Section 89 of Income Tax Act "Relief when salary,
etc., is paid in arrears or in advance":- Where an
assessee is in receipt of a sum in the nature of salary,
being paid in arrears or in advance or is in receipt, in any
one financial year, of salary for more than twelve
months or a payment which under the provisions of
clause (3) of section 17 is a profit in lieu of salary, or is in
receipt of a sum in the nature of family pension as
defined in the Explanation to clause (iia) of section 57,
being paid in arrears, due to which his total income is
assessed at a rate higher than that at which it would
otherwise have been assessed, the Assessing Officer
shall, on an application made to him in this behalf, grant
such relief as may be prescribed: Provided that no such
relief shall be granted in respect of any amount received
or receivable by an assessee on his voluntary retirement
or termination of his service, in accordance with any
scheme or schemes of voluntary retirement or in the
case of a public sector company referred to in sub-clause
(i) of clause (10C) of section 10, a scheme of voluntary
separation, if an exemption in respect of any amount
received or receivable on such voluntary retirement or
termination of his service or voluntary separation has
been claimed by the assessee under clause (10C) of
section 10 in respect of such, or any other, assessment
year.
INCOMES FORMING PART OF TOTAL INCOME ON
WHICH NO INCOME TAX IS PAYABLE
INCOMES NOT INCLUDED IN TOTAL INCOME:-
(1)Agriculture Income:- Any income earned by the
taxpayer from agriculture activity is exempt from tax.
However, if it is accompanied by income from other
sources than one needs to consider the basic exemption
limit for taxability. (2)Gift Received from Relatives:- Any
gift received by an individual from relatives is exempt
from tax. Gift received on the occasion of marriage or by
way of will is exempt from income tax. Monetary gift
received from non-relative upto Rs. 50,000 is also
exempt from tax. (3)Long Term Capital Gain:- From FY
2018-19, LTCG up to Rs. 1,00,000 is exempt from tax.
Earlier Any long term capital gain received on sale of
stocks and equity mutual funds was exempt from tax
under section 10(38). This section is not applicable to
debt mutual funds. (4)Dividend Received:- Dividend
received from any company in case of mutual funds or
stocks are exempt from tax in the hands of an individual.
However, as per budget 2016 if a sum of the total
dividend exceeds Rs. 10 lakhs need to pay tax @10% of
such dividend income. (5)Interest on Securities:- Income
from securities in the form of interest, premium, etc
from government-issued bonds, certificates, deposits
are exempt from tax. For eg: Bonds issued by NHAI,
IRFC, REC, etc. (6)Life Insurance:- The payment proceeds
of a life insurance policy are exempt under section
10(10D). This includes a maturity amount as well as
death claims. (7)A share of Profit from Partnership Firm:-
Any share of profit received by a partner from a firm is
exempt from tax in the hands of the partner. Further,
any share of profit received by a partner of LLP (Limited
Liability Partnership) from the LLP will be exempt from
tax in the hands of a partner. This exemption is limited
only to share of profit. It does not apply to interest on
capital and remuneration received by the partner from
Firm/LLP. (8)Receipts From HUF:- Any amount received
out of family income is exempt in the hands of a
member. For example, a family owns an impartible
estate. An amount received out of an income of family
estate by the member of such HUF is exempt from tax in
the hands of the member. (9)Scholarship and awards:-
Any type of scholarship or award granted to any
deserving student to meet the cost of education is
exempted from tax. The entire sum of money received
as a scholarship gets that tax exemption. (10)Provident
Fund:- Payment received from PF are exempt as part of
section 10. However, PF withdrawal is taxable for less
than 5 years of service. In the case of EPF, balance can
be withdrawn only subject to a few conditions.
(11)Gratuity:- Gratuity received by a government
employee is totally exempt from tax. Whereas in the
case of employees of a private organisation, it is exempt
subject to certain conditions. (12)Commuted Pension:-
Commuted pension received by the government
employee is fully exempt. However, for other
employees, it is exempt subject to certain conditions.
SPECIAL PROVISIONS RELATING TO AVOIDANCE OF
TAX:- Section 92 of Income Tax Act "Computation of
income from international transaction having regard to
arm's length price":- (1)Any income arising from an
international transaction shall be computed having
regard to the arm's length price.
Explanation.-For the removal of doubts, it is hereby
clarified that the allowance for any expense or interest
arising from an international transaction shall also be
determined having regard to the arm's length price.
(2)Where in an international transaction or specified
domestic transaction, two or more associated
enterprises enter into a mutual agreement or
arrangement for the allocation or apportionment of, or
any contribution to, any cost or expense incurred or to
be incurred in connection with a benefit, service or
facility provided or to be provided to any one or more of
such enterprises, the cost or expense allocated or
apportioned to, or, as the case may be, contributed by,
any such enterprise shall be determined having regard
to the arm's length price of such benefit, service or
facility, as the case may be. (2A)Any allowance for an
expenditure or interest or allocation of any cost or
expense or any income in relation to the specified
domestic transaction shall be computed having regard
to the arm's length price. (3)The provisions of this
section shall not apply in a case where the computation
of income under sub-section (1) or sub-section (2A) or
the determination of the allowance for any expense or
interest under sub-section (1) or sub-section (2A), or the
determination of any cost or expense allocated or
apportioned, or, as the case may be, contributed under
sub-section (2) or sub-section (2A), has the effect of
reducing the income chargeable to tax or increasing the
loss, as the case may be, computed on the basis of
entries made in the books of account in respect of the
previous year in which the international transaction or
specified domestic transaction was entered into.
SELF ASSESSMENT(140A):- (1) Where a return has been
furnished under section 139, and the tax payable on the
basis of that return as reduced by any tax already paid
under any provision of this Act exceeds five hundred
rupees, the assessee shall pay the tax so payable within
thirty days of furnishing the return. (2)After a provisional
assessment under section 141 or regular assessment
under section 143 or section 144 has been made, any
amount paid under sub-section (1) shall be deemed to
have been paid towards the provisional assessment or
regular assessment, as the case may be. (3)If any
assessee fails to pay the tax or any part thereof in
accordance with the provisions of sub-section (1), he
shall, unless a provisional assessment under section
141 or a regular assessment under section
143 or section 144 has been made before the expiry of
thirty days referred to in that sub-section, be liable, by
way of penalty, to pay such amount as the Income-tax
Officer may direct, so however, that amount of penalty
does not exceed fifty per cent of the amount of such tax
or part, as the case may be: Provided that before levying
any such penalty, the assessee shall be given a
reasonable opportunity of being heard.
SUMMARY ASSESSMENT:- It is a type of assessment
carried out without any human intervention. In this type
of assessment, the information submitted by the
assessee in his return of income is cross-checked against
the information that the income tax department has
access to. In the process, the reasonableness and
correctness of the return are verified by the
department. The return gets processed online, and
adjustment for arithmetical errors, incorrect claims, and
disallowances are automatically done. Example, credit
for TDS claimed by the taxpayer is found to be higher
than what is available against his PAN as per department
records. Making an adjustment in this regard can
increase the tax liability of the taxpayer.--------- After
making the aforementioned adjustments, if the assessee
is required to pay tax, he will be sent an intimation
under Section 143(1). The assessee must respond to this
intimation accordingly.
SCRUTINY ASSESSMENT / REGULAR ASSESSMENT:-The
income tax department authorizes the Assessing Officer
or Income Tax authority, not below the rank of an
income tax officer, to conduct this assessment. The
purpose is to ensure that the assessee has neither
understated his income or overstated any expense or
loss or underpaid any tax.---------- The CBDT has set
certain parameters based on which a taxpayer’s case
gets picked for a Scrutiny Assessment:- (i)If an assessee
is subject to a scrutiny assessment, the Department will
send a notice well in advance. However, such notice
cannot be served after the expiry of 6 months from the
end of the Financial year, in which return is filed. (ii)The
assessee will be asked to produce the books of accounts,
and other evidence to validate the income he has stated
in his return. After verifying all the details available, the
assessing officer passes an order either confirming the
return of income filed or makes additions. This raises an
income tax demand, which the assessee must respond
to accordingly.
BEST JUDGEMENT ASSESSMENT:-This assessment gets
invoked in the following scenarios:- (i)If the assessee
fails to respond to a notice issued by the department
instructs him to produce certain information or books of
accounts. (ii)If he/she fails to comply with a Special Audit
ordered by the Income tax authorities. (iii)The assessee
fails to file the return within due date or such extended
time limit as allowed by the CBDT. (iv)The assessee fails
to comply with the terms as contained in the notice
issued under Summary Assessment. -------------- After
providing an opportunity to hear the assessee’s
argument, the assessing officer passes an order based
on all the relevant materials and evidence available to
him. This is known as Best Judgement Assessment.
RE-ASSESSMENT / INCOME ESCAPING ASSESSMENT:-
When the assessing officer has sufficient reasons to
believe that any taxable income has escaped
assessment, he has the authority to assess or reassess
the assessee’s income. The time limit for issuing a notice
to reopen an assessment is 4 years from the end of the
relevant assessment Year. Some scenarios where
reassessment gets triggered are given below:- (i)The
assessee has taxable income but has not yet filed his
return. (ii)The assessee, after filing the income tax
return, is found to have either understated his income
or claimed excess allowances or deductions. (iii)The
assessee has failed to furnish reports on international
transactions, where he is required to do so.------------
Assessment could close quickly for some taxpayers,
while it could prove to be quite gruelling for others. If
you are not comfortable dealing with income tax
officers, it is suggested that you take the help of a
Chartered Accountant to help you with your case.
DOUBLE TAXATION RELIEF:- Double Taxation relief is a
situation in which the same income becomes taxable in
the hands of the same company or individuals (tax-
payer) in more than one country. It is a situation in
which the tax payer pays tax both in the country of
residence as well as in the other country from which he
earns income. The situation of Double Taxation arises
due to different rules for taxation of income in different
countries. The concept of Double Taxation comes into
existence generally due to the following reasons:- (1)A
company or a person may be resident of one country
but may derive income from other country as well, thus
he/ she becomes taxable in both the countries. (2)A
company or a person may be subjected to tax on his/
her world income in two or more countries, which is
known as concurrent full liability to tax. One country
may tax on the basis of nationality of tax-payer and
another on the basis of his/ her residence within its
border. Thus, a person domiciled in one country and
residing in another may become liable to tax in both the
countries in respect of his/ her world income. (3)A
company or a person who is non-resident in both the
countries may be subjected to tax in each one of them
on income derived from one of them. For example, a
non-resident person has a permanent establishment in
one country and through it he/ she derive income from
the other country.
REVISION [SEC 263(1)]:- The Principal Commissioner or
Commissioner may call for and examine the record of
any proceeding under this Act, and if he considers that
any order passed therein by the Assessing Officer is
erroneous in so far as it is prejudicial to the interests of
the revenue, he may, after giving the assessee an
opportunity of being heard and after making or causing
to be made such inquiry as he deems necessary, pass
such order thereon as the circumstances of the case
justify, including an order enhancing or modifying the
assessment, or cancelling the assessment and directing a
fresh assessment. Explanation-1:— For the removal of
doubts, it is hereby declared that, for the purposes of
this sub-section:— (a)an order passed on or before or
after the 1st day of June, 1988 by the Assessing Officer
shall include:—(i)an order of assessment made by the
Assistant Commissioner or Deputy Commissioner or the
Income-tax Officer on the basis of the directions issued
by the Joint Commissioner under section 144A; (ii)an
order made by the Joint Commissioner in exercise of the
powers or in the performance of the functions of an
Assessing Officer conferred on, or assigned to, him
under the orders or directions issued by the Board or by
the Principal Chief Commissioner or Chief Commissioner
or Principal Director General or Director General or
Principal Commissioner or Commissioner authorised by
the Board in this behalf under section 120; (b)record
shall include and shall be deemed always to have
included all records relating to any proceeding under
this Act available at the time of examination by the
Principal Commissioner or Commissioner; (c) where any
order referred to in this sub-section and passed by the
Assessing Officer had been the subject matter of any
appeal filed on or before or after the 1st day of June,
1988, the powers of the Principal Commissioner or
Commissioner under this sub-section shall extend and
shall be deemed always to have extended to such
matters as had not been considered and decided in such
appeal.
DIFFERENT HEADS OF INCOME / TAX COMPUTED:- The
Section 14 of Income Tax Act classifies all incomes under
the following heads:- (1)Income from Salaries:- An
income is taxable under Salary head if there is a
relationship of employer and employee. This means
there should be a relationship between the payer and
the payee. If the relationship does not exist or cannot be
proved, then the income will not be deemed to be
income from salary. For example, Mr. Rakesh works in
XYZ Ltd. owned by his brother. In spite of being related,
he takes a salary of Rs.60,000 as his monthly income. In
this example, he has an employee-employer relationship
with his brother. Therefore, his monthly income shall be
chargeable under the head of Income from Salary.
(2)Income from House Property:- The rental income
earned from the house property is taxable under the
Income from House Property. The income calculated is
levied on the expected rent if the property is not rented
out. This would be the rent that would have been
received from the property.------------ Income from
House Property is the only income that is taxed on a
notional basis. Tax is not only levied on the income from
house property but income from commercial property
and other forms of property. Various deductions such
as tax deduction on a home loan are allowed under this
income head. For example, Mr Sumesh owns two
properties and has rented out one of them whereas self-
occupied the other. The income from the first property
will be the rent amount received whereas the income
from the second property will be calculated on an
estimated rent which Sumesh would have earned based
on the rental value of the property. (3)Profits and Loss
from Business or Profession:- Any income that is earned
from a profession/trade/manufacture/commerce shall
be taxable under the income head, “ Profits and Loss
from Business or Profession”. For example, the Profit &
Loss Account of M/s XYZ Limited as on 31.03.19 shows
an amount of Net Profit as Rs.5,00,000/-. The following
information is also available from the profit and loss
account:- (i)Sale of Machinery- Rs.50,000 (ii)Sale of
goods- Rs.1,00,000------------- Computation of Net
Taxable Income:- Particulars / Amount - Net profit
(5,00,000), Sale of Machinery(50,000), Sale of
goods(1,00,000)= Net Taxable Income 6,50,000.
(4)Income from Capital Gains:- Any profit or gain earned
under a transfer of an asset in the effective financial
year shall be chargeable under the head of Income of
Capital Gains and shall be deemed to be the income of
the financial year in which the transfer took place unless
the gain is exempt under Section 54, 54B, 54D, 54EC,
54ED, 54F, 54G or 54GA.For example, Shweta sold her
house property for Rs. 50 lakhs whereas Divya inherited
a house from her father. Therefore, the income earned
by Shweta is chargeable under the head of Income from
Capital Gains. On the other hand, the property Divya
earned shall not chargeable as there is no sale involved,
only a transfer. (5)Income from other sources:- Any
income that does not come under the above 4 heads of
income shall be chargeable under this head.The incomes
computed under “Income from Other Sources are:-
(1)Interest on bank deposits and securities (2)Dividend
(3)Income from sub-letting a house property by a tenant
(4)Insurance commission (5)Income from royalty and
more
INCOME TAX:- Income tax in India is a tax paid by INCOME TAX RETURN:- A form that is used to declare Fund referred to in clause (23EE) of section 10 SPECIAL PROVISIONS RELATING TO INCOMES OF
individuals or entities depending on the level of earnings the net tax liability, claiming of tax deductions, and to (xi)Venture capital company or venture capital fund CERTAIN COMPANIES:- (1)Notwithstanding anything
or gains during a financial year. The earnings may be report the gross taxable income is called Income Tax referred to in clause (23FB) of section 10; (xii)Trade contained in any other provision of this Act, where in the
both actual and notional. The Government of India Returns. It is mandatory for individuals who earn a union/association referred to in sub-clause (a) or (b) of case of an assessee being a company (other than a
decides the rate of income tax as well as income tax certain amount of money to file ITR. Firms or companies, section 10(24) (xiii)Board or Authority referred to in company engaged in the business of generation or
slabs on which individuals are taxed. Those under higher Hindu Undivided Families (HUFs), and self-employed or clause (29A) of section 10. distribution of electricity), the total income, as
income slabs are taxed at higher rates. The taxable salaried individuals must file ITR to the Income Tax (xiv)Body/authority/Board/Trust/Commission referred computed under this Act in respect of any previous year
income slabs are changed from time to time, keeping in Department. Income tax filing can be defined as the to in section 10(46) (xv)Infrastructure debt fund relevant to the assessment year commencing on or after
mind the price levels. Sometimes, the government also procedure by which ITR is filed. The process by which referred to in section 10(47) (7)In the case of certain the 1st day of April, 1988 but before the 1st day of April,
provides income tax rebates, which benefit people in the taxpayers file their returns online is called efiling or ITR University, College or other Institution:- Every university,1991 (hereafter in this section referred to as the
lower-income group. To collect long-term funds, the filing and it can be completed on the Income Tax college or other institution referred to in clause (ii) and relevant previous year), is less than thirty per cent of its
government also provides income tax incentives. The Department website. clause (iii) of section 35(1), which is not required to book profit, the total income of such assessee
amount invested in tax-saving schemes is deducted from HOW TO FILE INCOME TAX RETURN:- (1)ITR-1:- For furnish return of income or loss under any other chargeable to tax for the relevant previous year shall be
gross income, which reduces the amount of taxable Individuals having income from salary, one house provision of the Act, shall furnish the return of income deemed to be an amount equal to thirty per cent of such
income and benefits the taxpayer. property, other sources (Interest etc.) and having total every year, irrespective of income (or) loss. (8)In the book profit. (1A)Every assessee, being a company, shall,
WHO IS ELIGIBLE FOR INCOME TAX?:- As income tax is income up to Rs.50 lakh. (2)ITR-2:- For Individuals and case of Business Trust:- Every business trust, which is not for the purposes of this section, prepare its profit and
based on one’s ability to pay it, different tax rates are HUFs not carrying out business or profession under any required to furnish return of income or loss under any loss account for the relevant previous year in
applied to different income slabs, which is revised by the proprietorship. (3)ITR-3:- For Individuals and HUFs other provision of the Act, shall furnish the return of accordance with the provisions of Parts II and III of
government from time to time. Currently, there is 0% having income from a proprietary business or income every year, irrespective of income (or) loss. (9)In Schedule VI to the Companies Act, 1956 (1 of 1956).
tax on taxable income up to Rs 2,50,000, 5% tax is levied profession. (4)ITR-4:- For Individual, HUF or Firm opting case of Investment Fund referred to in section 115UB:- Explanation:- For the purposes of this section, "book
on taxable income between Rs 2.5 lakh and Rs 5 lakh, 20 for presumptive taxation scheme. (5)ITR-5:- For Firm, Every investment fund referred to in section 115UB, profit" means the net profit as shown in the profit and
per cent tax is levied on taxable income between Rs 5 Limited Liability Partnership (LLP), Association of Persons which is not required to furnish return of income or loss loss account for the relevant previous year prepared
lakh to Rs 10 lakh. For taxable income above Rs 10 lakh, (AOP), Body of Individuals (BOI), Artificial juridical under any other provisions, shall furnish the return of under sub-section (1A), as increased by:- (a) the amount
30% is the applicable rate. On the tax payable, 4% person, Private Discretionary Trust, Cooperative society, income in respect of its income or loss every year of income-tax paid or payable, and the provision
Health and Education cess is also charged. Moreover, Registered societies, Local authority. However, a person irrespective of income (or) loss. therefore; or (b)the amounts carried to any reserves
10% surcharge is levied on income between Rs 50 lakh who is required to file ITR-7 shall not use this form. (other than the reserves specified in section 80HHD or
and Rs 1 crore and 15% surcharge is levied on income (6)ITR-6:- For company, other than a company claiming SPECIAL PROVISIONS RELATING TO INCOMES OF NON‐ sub-section (1) of section 33AC), by whatever name
over Rs 1 crore. Tax rebate (under section 87A) up to Rs exemption under section 11 (exemption under section RESIDENTS:- Chapter XIIA of the Income Tax Act deals called; or (c)the amount or amounts set aside to
12,500 is provided to the assessees having total income 11 can be claimed by charitable/religious trust). (7)ITR- with special provisions relating to certain incomes of provisions made for meeting liabilities, other than
after Deductions up to Rs 5 lakh. However, usual tax 7:- Persons including companies who are required to non-residents. As per Sec 115C, unless the context ascertained liabilities; or (d)the amount by way of
computation will be applied in case the taxable income furnish return under section 139(4A) or 139(4B) or otherwise requires:- (a)"Convertible Foreign Exchange" provision for losses of subsidiary companies; or (e)the
exceeds Rs 5 lakh limit. 139(4C) or 139(4D) or section 139(4E) or section 139(4F) means foreign exchange which is for the time being amount or amounts of dividends paid or proposed; or
of the Income-tax Act, 1961 (i.e., trusts, political parties, treated by the Reserve Bank of India as convertible (f)the amount or amounts of expenditure relatable to
HOW IS INCOME TAX CALCULATED IN INDIA?:- Income institutions, colleges, investment fund, etc.). foreign exchange for the purposes of the Foreign any income to which any of the provisions of Chapter III
tax in India is calculated on the basis of tax rates ITR FILING - IS IT IMPORTANT:- Currently(FY 2019-20), is Exchange Management Act, 1999 (42 of 1999), and any applies; or (g)the amount withdrawn from the reserve
determined by the government for an Assessment Year mandatory for one to file income tax returns in India if rules made thereunder; (b)"Foreign Exchange Asset" account under section 80HHD, where it has been utilised
(AY). For example: For AY 2019-20 (Financial Year 2018- the following conditions are applicable:- (1)If the gross means any specified asset which the assessee has for any purpose other than those referred to in sub-
19), the tax payable may be calculated in the following total annual income (before deductions under 80C to acquired or purchased with, or subscribed to in, section (4) of that section; or (h)the amount credited to
way:----------- Once the gross total income is calculated 80U) is Rs. 2,50,000 (for ages less than 60 years), Rs. convertible foreign exchange; (c)"Investment Income" the reserve account under section 80HHD, to the extent
by adding all the above sources, whichever applicable, 3,00,000 (for ages 60 years but less than 80 years) and means any income derived other than dividends that amount has not been utilised within the period
deductions on account of tax-saving investments, Rs. 5,00,000 (for ages 80 years and above). (2)If it’s a referred to in section 115-O from a foreign exchange specified in sub-section (4) of that section. (2)Nothing
allowed expenses, donations etc are adjusted. The main company or firm, irrespective of the profit or loss made asset; (d)"Long-Term Capital Gains" means income contained in sub-section (1) shall affect the
sections under which Income Tax deductions in India are in a financial year. (3)If a tax refund needs to be chargeable under the head "Capital gains" relating to a determination of the amounts in relation to the relevant
allowed include up to Rs 1.5 lakh under sections 80C, claimed. (4)If a loss under a head of income needs to be capital asset, being a foreign exchange asset which is not previous year to be carried forward to the subsequent
80CCD, 80CCD(1), 80CCD(2) and 80CCG combined; up to carried forward. (5)If being a resident of India, one has a short-term capital asset; (e)"Non-Resident Indian" year or years under the provisions of sub-section (2) of
Rs 50,000 u/s 80CCD(1B); up to Rs 1 lakh u/s 80D and an asset or financial interest in any entity located means an individual, being a citizen of India or a person section 32 or sub-section (3) of section 32A or clause (ii)
80E, 80EE, 80G, 80TTA.------------ After the entire eligible outside India. (6)If being a resident of India, one is a of Indian origin who is not a "Resident". Explanation:- A of sub-section (1) of section 72 or section 73 or section
deduction amount is reduced from the gross income, signing authority in a foreign account. (7)If one receives person shall be deemed to be of Indian origin if he, or 74 or sub-section (3) of section 74A or sub-section (3) of
the figure of taxable income is arrived at. The income tax income derived from property held under a trust for either of his parents or any of his grand-parents, was section 80J.
amount that is payable is computed on the basis of charitable or religious purposes or a political party or a born in undivided India; (f)"specified asset" means any
taxable income. research association, news agency, educational or of the following assets, namely:- (i)Shares in an Indian WHO ARE THE INCOME TAX AUTHORITIES:- According to
medical institution, trade union, a not for profit company; (ii)Debentures issued by an Indian company Sec 116, there shall be the following classes of Income
CHARGE OF INCOME-TAX:- (1)Where any Central Act university or educational institution, a hospital, which is not a private company as defined in the Tax Authorities for the purposes of this Act, namely:- (a)
enacts that income-tax shall be charged for any infrastructure debt fund, any authority, body or trust. Companies Act, 1956 (1 of 1956); (iii)Deposits with an the Central Board of Direct Taxes constituted under the
assessment year at any rate or rates, income-tax at that (8)If one is applying for a loan or a visa. (9)If an NRI Indian company which is not a private company as Central Boards of Revenue Act, 1963 (54 of 1963), (aa)
rate or those rates shall be charged for that year in derives any or all of his/her income through sources in defined in the Companies Act, 1956 (1 of 1956); (iv)any Principal Directors General of Income-tax or Principal
accordance with, and subject to the provisions (including India, that income is liable to be taxable in India, and security of the Central Government as defined in clause Chief Commissioners of Income-tax, (b)Directors-
provisions for the levy of additional income-tax) of, this income tax returns for the same will be necessary. (2) of section 2 of the Public Debt Act, 1944 (18 of 1944); General of Income-tax or Chief Commissioners of
Act in respect of the total income of the previous year of (v)such other assets as the Central Government may Income-tax, (ba) Principal Directors of Income-tax or
every person : Provided that where by virtue of any PROVISIONS RELATING TO INCOME TAX RETURNS:- (1)In specify in this behalf by notification in the Official Principal Commissioners of Income-tax, (c)Directors of
provision of this Act income-tax is to be charged in the case of Companies:- Every person, being a company, Gazette.---------------- Section 115D of Income Tax Act Income-tax or Commissioners of Income-tax or
respect of the income of a period other than the has to file its return of income compulsorily, irrespective "Special provision for computation of total income of Commissioners of Income-tax (Appeals), (cc) Additional
previous year, income-tax shall be charged accordingly. of its income being profit or loss. In other words, it is non-residents”:- (1)No deduction in respect of any Directors of Income-tax or Additional Commissioners of
(2)In respect of income chargeable under sub-section mandatory for every company to file the return of expenditure or allowance shall be allowed under any Income-tax or Additional Commissioners of Income-tax
(1), income-tax shall be deducted at the source or paid income irrespective of its income or loss. (2)In the case provision of this Act in computing the investment (Appeals), (cca)Joint Directors of Income-tax or Joint
in advance, where it is so deductible or payable under of Partnership Firms:- Every person, being a partnership income of a non-resident Indian. (2)Where in the case of Commissioners of Income-tax, (d)Deputy Directors of
any provision of this Act. firm (including Limited Liability Partnership), has to file an assessee, being a non-resident Indian:- (a)the gross Income tax or Deputy Commissioners of Income-tax or
its return of income compulsorily, irrespective of its total income consists only of investment income or Deputy Commissioners of Income-tax (Appeals),
SCOPE OF TOTAL INCOME:- (1)Subject to the provisions income being profit or loss. In other words, it is income by way of long-term capital gains or both, no (e)Assistant Directors of Income-tax or Assistant
of this Act, the total income of any previous year of a mandatory for every partnership firm to file the return deduction shall be allowed to the assessee under Commissioners of Income-tax, (f)Income-tax Officers,
person who is a resident includes all income from of income irrespective of its income or loss. (3)In the Chapter VI-A and nothing contained in the provisions of (g)Tax Recovery Officers, (h)Inspectors of Income-tax.
whatever source derived which:- (a)is received or is case of an Individual/HUF/AOP/BOI/Artificial Juridical the second proviso to section 48 shall apply to income
deemed to be received in India in such year by or on Person:- Every individual/HUF/AOP/BOI/artificial chargeable under the head "Capital gains"; (b)the gross APPOINTMENT OF INCOME-TAX AUTHORITIES (SEC
behalf of such person; or (b)accrues or arises or is juridical person has to file the return of income if his total income includes any income referred to in clause 117):- (1)The Central Government may appoint such
deemed to accrue or arise to him in India during such total income (including income of any other person in (a), the gross total income shall be reduced by the persons as it thinks fit to be income-tax authorities.
year; or (c)accrues or arises to him outside India during respect of which he is assessable) without giving effect amount of such income and the deductions under (2)Without prejudice to the provisions of sub-section (1),
such year : Provided that, in the case of a person not to the provisions of section 10(38), 10A, 10B, 10BA 54, Chapter VI-A shall be allowed as if the gross total income and subject to the rules and orders of the Central
ordinarily resident in India within the meaning of sub- 54B, 54D, 54EC, 54F, 54G, 54GA, or 54GB or Chapter VIA as so reduced were the gross total income of the Government regulating the conditions of service of
section (6) of section 6, the income which accrues or (i.e., deduction under section 80C to 80U), exceeds the assessee. persons in public services and posts, the Central
arises to him outside India shall not be so included maximum amount which is not chargeable to tax i.e. Government may authorise the Board, or a [Principal
unless it is derived from a business controlled in or a exceeds the exemption limit. (4)In the case of Charitable Director General or] Director-General, a [Principal Chief
profession set up in India. (2)Subject to or Religious Trusts:- Every person in receipt of income Commissioner or] Chief Commissioner or a [Principal
the provisions of this Act, the total income of any derived from property held under charitable or religious Director or] Director or a [Principal Commissioner or]
previous year of a person who is a non-resident includes trusts/legal obligations or in receipt of income being Commissioner to appoint income-tax authorities below
all income from whatever source derived which:- (a)is voluntary contributions referred to in section 2(24)(iia), the rank of an Assistant Commissioner or Deputy
received or is deemed to be received in India in such has to file the return of income if its total income Commissioner. (3)Subject to the rules and orders of the
year by or on behalf of such person; or (b)accrues or without giving effect to the provisions of sections 11 and Central Government regulating the conditions of service
arises or is deemed to accrue or arise to him in India 12 exceeds the maximum amount not chargeable to of persons in public services and posts, an income- tax
during such year.--------- Explanation 1:- Income accruing income-tax. (5)In the case of Political Parties:- The Chief authority authorised in this behalf by the Board may
or arising outside India shall not be deemed to be Executive Officer of every political party has to file the appoint such executive or ministerial staff as may be
received in India within the meaning of this section by return of income of the party if the total income of the necessary to assist it in the execution of its functions.
reason only of the fact that it is taken into account in a party without giving effect to the provisions of section CONTROL OF INCOME-TAX AUTHORITIES(SEC 118):- The
balance sheet prepared in India.------ Explanation 2:- For 13A exceeds the maximum amount not chargeable to Board may, by notification in the Official Gazette, direct
the removal of doubts, it is hereby declared that income income-tax. (6)In the case that any income-tax authority or authorities specified in
which has been included in the total income of a person of certain Associations:- Following entities are liable to the notification shall be subordinate to such other
on the basis that it has accrued or arisen or is deemed to file the return of income if their total income without income-tax authority or authorities as may be specified
have accrued or arisen to him shall not again be so giving effect to the provisions of section 10 exceeds the in such notification.
included on the basis that it is received or deemed to be maximum amount not chargeable to tax:- (i)Research
received by him in India. association referred to in section 10(21) (ii)News agency
referred to in section 10(22B) (iii)Association or
institution referred to in section 10(23A) (iv)Person
referred to in clause (23AAA) of section 10 (v)Institution
referred to in section 10(23B)
(vi)Fund/institution/trust/university/other educational
institution/any hospital/medical institution referred to in
sub-clause (iiiac), (iiiab), (iiiad), (iiiae), (iv), (v), (vi) or
(via) of section 10(23C) (vii)Mutual Fund referred to in
clause (23D) of section 10 (viii)Securitisation trust
referred to in clause (23DA) of section 10 (ix)Investor
Protection Fund referred to in clause (23EC) or clause
(23ED) of section 10. (x)Core Settlement Guarantee
JURISDICTION OF INCOME-TAX AUTHORITIES (Sec 120):-
(1)Income-tax authorities shall exercise all or any of the
powers and perform all or any of the functions
conferred on, or, as the case may be, assigned to such
authorities by or under this Act in accordance with such
directions as the Board may issue for the exercise of the
powers and performance of the functions by all or any of
those authorities. (2)The directions of the Board under
sub-section (1) may authorise any other income-tax
authority to issue orders in writing for the exercise of
the powers and performance of the functions by all or
any of the other income-tax authorities who are
subordinate to it. (3)In issuing the directions or orders
referred to in sub-sections (1) and (2), the Board or
other income-tax authority authorised by it may have
regard to any one or more of the following criteria,
namely:- (a)territorial area; (b)persons or classes of
persons; (c)incomes or classes of income; and (d)cases
or classes of cases. (4)Without prejudice to the
provisions of sub-sections (1) and (2), the Board may, by
general or special order, and subject to such conditions,
restrictions or limitations as may be specified therein:-
(a)authorise any Principal Director General or Director
General or Principal Director or Director to perform such
functions of any other income-tax authority as may be
assigned to him by the Board; (b)empower the Principal
Director General or Director General or Principal Chief
Commissioner or Chief Commissioner or Principal
Commissioner or Commissioner to issue orders in
writing that the powers and functions conferred on, or
as the case may be, assigned to, the Assessing Officer by
or under this Act in respect of any specified area or
persons or classes of persons or incomes or classes of
income or cases or classes of cases, shall be exercised or
performed by an Additional Commissioner or an
Additional Director or a Joint Commissioner or a Joint
Director, and, where any order is made under this
clause, references in any other provision of this Act, or in
any rule made thereunder to the Assessing Officer shall
be deemed to be references to such Additional
Commissioner or Additional Director or Joint
Commissioner or Joint Director by whom the powers
and functions are to be exercised or performed under
such order, and any provision of this Act requiring
approval or sanction of the Joint Commissioner shall not
apply. (5)The directions and orders referred to in sub-
sections (1) and (2) may, wherever considered necessary
or appropriate for the proper management of the work,
require two or more Assessing Officers (whether or not
of the same class) to exercise and perform, concurrently,
the powers and functions in respect of any area or
persons or classes of persons or incomes or classes of
income or cases or classes of cases; and, where such
powers and functions are exercised and performed
concurrently by the Assessing Officers of different
classes, any authority lower in rank amongst them shall
exercise the powers and perform the functions as any
higher authority amongst them may direct, and, further,
references in any other provision of this Act or in any
rule made thereunder to the Assessing Officer shall be
deemed to be references to such higher authority and
any provision of this Act requiring approval or sanction
of any such authority shall not apply.
(6)Notwithstanding anything contained in any direction
or order issued under this section, or in section 124, the
Board may, by notification in the Official Gazette, direct
that for the purpose of furnishing of the return of
income or the doing of any other act or thing under this
Act or any rule made thereunder by any person or class
of persons, the income-tax authority exercising and
performing the powers and functions in relation to the
said person or class of persons shall be such authority as
may be specified in the notification.
JURISDICTION OF ASSESSING OFFICERS (SEC 124):-
(1)Where by virtue of any direction or order issued
under sub- section (1) or sub-section (2) of section 120,
the Assessing Officer has been vested with jurisdiction
over any area, within the limits of such area, he shall
have jurisdiction:- (a)in respect of any person carrying
on a business or profession, if the place at which he
carries on his business or profession is situate within the
area, or where his business or profession is carried on in
more places than one, if the principal place of his
business or profession is situate within the area, and
(b)in respect of any other person residing within the
area. (2)Where a question arises under this section as to
whether an Assessing Officer has jurisdiction to assess
any person, the question shall be determined by the
Principal Director General or Director General or the
Principal Chief Commissioner or Chief Commissioner or
the Principal Commissioner or Commissioner; or where
the question is one relating to areas within the
jurisdiction of different Principal Directors General or
Directors General or Principal Chief Commissioners or
Chief Commissioners or Principal Commissioners or
Commissioners, by the Principal Directors General or
Directors General or Principal Chief Commissioners or
Chief Commissioners or Principal Commissioners or
Commissioners concerned or, if they are not in
agreement, by the Board or by such Principal Director
General or Director General or Principal Chief
Commissioner or Chief Commissioner or Principal
Commissioner or Commissioner as the Board may, by
notification in the Official Gazette, specify. (3) No person
shall be entitled to call in question the jurisdiction of an
Assessing Officer:- (a)where he has made a return under
sub-section (1) of section 115WD or under sub-section
(1) of section 139, after the expiry of one month from
the date on which he was served with a notice under
sub-section (1) of section 142 or sub-section (2) of
section 115WE or sub-section (2) of section 143 or after
the completion of the assessment, whichever is earlier;
(b) where he has made no such return, after the expiry
of the time allowed by the notice under sub-section (2)
of section 115WD or sub-section (1) of section 142 or
under sub-section (1) of section 115WH or under section
148 for the making of the return or by the notice under
the first proviso to section 115WF or under the first
proviso to section 144 to show cause why the
assessment should not be completed to the best of the
judgment of the Assessing Officer, whichever is earlier.
(4)Subject to the provisions of sub-section (3), where an
assessee calls in question the jurisdiction of an Assessing
Officer, then the Assessing Officer shall, if not satisfied
with the correctness of the claim, refer the matter for
determination under sub-section (2) before the
assessment is made. (5)Notwithstanding anything
contained in this section or in any direction or order
issued under section 120, every Assessing Officer shall
have all the powers conferred by or under this Act on an
Assessing Officer in respect of the income accruing or
arising or received within the area, if any, over which he
has been vested with jurisdiction by virtue of the
directions or orders issued under sub-section (1) or sub-
section (2) of section 120.
ASSESSING OFFICER:- Assessing Officer means the
Assistant Commissioner or Deputy Commissioner or
Assistant Director or Deputy Director or the Income-tax
Officer who is vested with the relevant jurisdiction by
virtue of directions or orders issued under sub-section
(1) or sub-section (2) of section 120 or any other
provision of this Act, and the Joint Commissioner or Joint
Director who is directed under clause (b) of sub-section
(4) of that section to exercise or perform all or any of the
powers and functions conferred on, or assigned to, an
Assessing Officer under this Act.
POWERS AND FUNCTION OF INCOME TAX
AUTHORITIES:- (1)The Income-tax Officer, Appellate
Assistant Commissioner, Commissioner and Appellate
Tribunal shall, for the purposes of this Act, have the
same powers as are vested in a Court under the Code of
Civil Procedure, 1908 (V of 1908), when trying a suit in
respect of the following matters, namely:- (a)discovery
and inspection; (b)enforcing the attendance of any
person, including any officer of a banking company, and
examining him on oath; (c)compelling the production of
books of account and other documents; and (d)issuing
commissions. (2)Subject to any rules made in this behalf,
any Income-tax Officer specially authorised by the
Commissioner in this behalf may:- (i)enter and search
any building or place where he has reason to believe
that any books of account or other documents which in
his opinion will be useful for, or relevant to, any
proceeding under this Act may be found and examine
them, if found; (ii)seize any such books of account or
other documents or place marks of identification
thereon or make extracts or copies therefrom; (iii)make
a note or an inventory of any other article or thing found
in the course of any search under this section which in
his opinion will be useful for, or relevant to, any
proceeding under this Act; and the provisions of the
Code of Criminal Procedure, 1898 (V of 1898), relating to
searches shall apply so far as may be to searches under
this section. (3)Subject to any rules made in this behalf,
any authority referred to in sub section (1) may impound
and retain in its custody for such period as it thinks fit
any books of account or other documents produced
before it in any proceeding under this Act: Provided that
an Income-tax Officer shall not:- (a)impound any books
of account or other documents without recording his
reasons for so doing; or (b)retain in his custody any such
books or documents for a period exceeding 15 days
(exclusive of holidays) without obtaining the approval of
IMMUNITY FROM IMPOSITION OF PENALTY, etc. (SEC
270AA):- (1)An assessee may make an application to the
Assessing Officer to grant immunity from imposition of
penalty under section 270A and initiation of proceedings
under section 276C or section 276CC, if he fulfils the
following conditions, namely:-(a)the tax and interest
payable as per the order of assessment or reassessment
under sub-section (3) of section 143 or section 147, as
the case may be, has been paid within the period
specified in such notice of demand; and (b)no appeal
against the order referred to in clause (a) has been filed.
(2)An application referred to in sub-section (1) shall be
made within one month from the end of the month in
which the order referred to in clause (a) of sub-section
(1) has been received and shall be made in such form
and verified in such manner as may be prescribed.
(3)The Assessing Officer shall, subject to fulfillment of
the conditions specified in sub-section (1) and after the
expiry of the period of filing the appeal as specified in
clause (b) of sub-section (2) of section 249, grant
immunity from imposition of penalty under section 270A
and initiation of proceedings under 276C, where the
proceedings for penalty under section 270A has not
been initiated under the circumstances referred to in
sub-section (9) of the said section 270A. (4)The
Assessing Officer shall, within a period of one month
from the end of the month in which the application
under sub-section (1) is received, pass an order
accepting or rejecting such application : Provided that no
order rejecting the application shall be passed unless the
assessee has been given an opportunity of being heard.
(5)The order made under sub-section (4) shall be final.
(6)No appeal under section 246A or an application for
revision under section 264 shall be admissible against
the order of assessment or reassessment, referred to in
clause (a) of sub-section (1), in a case where an order
under sub-section (4) has been made accepting the
application.
SET OFF OF LOSSES:- Set off of losses means adjusting
the losses against the profit of a particular financial year.
If the profits are insufficient to set off the losses, they
can be carried forward to the next assessment year.
Following are the ways in which the losses can be set
off:- (1)Intra-head Set Off:- In this Set Off, an assessee
has the option to set off the losses of one source of the
profit of any other source under the same head. This
adjustment is not possible in the following cases:-
(i)Long-term capital losses:- Long-term capital losses can
be set off only against the long-term capital gains but
the short-term capital losses can be set off against both
the short-term as well as long-term capital gains.
(ii)Speculative business losses:- Losses of speculative
businesses can be set off only against the profits of
speculative businesses; it is not possible to set off the
speculative business loss against any other
business/professional income. However, any other
business loss can be set off against the profits of
speculative businesses. (iii)Loss from owning and
maintaining race horses:- Like speculative business loss,
loss from owning and maintaining race horses can also
be set off only against the profit from owning and
maintaining race horses. (iv)Specified Business Loss
under Section 35AD:- Losses from specified businesses
can be set off only against profits from such specified
businesses only but the losses from other businesses can
be set off against profits from specified businesses.
(2)Inter head Set Off:- This is another way of set off of
losses. If it is not possible for an assessee to set off the
losses under Intercourse adjustment, he/she can use
this adjustment to set off the losses. Under this set off,
an assessee has the option of setting off the losses of
one head against the profits of another head in a
particular financial year. The adjustments under this
category are:- (i)House Property Losses:- Losses from
House Property can be set off against profits from other
heads like: salary income, business income, income from
capital gains, and income from other sources. (ii)Non-
Speculative Losses:- Non-speculative business losses can
be set off against any other heads like: business income,
income from house property, etc except income from
salary.------------ NOTE: Losses which can be set off from
intercourse adjustments cannot be set off from inter-
head adjustments.
CARRY FORWARD OF LOSSES:- If an assessee cannot set
off losses in the intercourse and inter-head adjustments,
then he/she can carry forward the losses to the next
assessment year. It should be clearly understood that
the carry forward losses can be set off only against the
profit from that head of income. An assessee has to file
Income Tax Return on due dates to carry forward the
losses to next assessment years except the losses arising
out of house property. Following are the categories in
which the losses can be carried forward:- (1)House
Property Losses:- House property losses can be carried
forward up to 8 years from the financial year in which
the loss has been incurred. It can be adjusted only
against income from house property. An assessee can
file the income tax return in this case later on. (2)Non-
Speculative Business Losses:- Non-speculative business
losses can be carried forward up to 8 years from the
financial year in which the loss has been incurred. This
loss can be set off only against the business income. To
carry forward the losses under this category, an assessee
has to file the income tax return on due date.
(3)Speculative Business Losses:- The speculative
business losses can be carried forward up to any number
of years. For losses to be carried forward to next years,
an assessee is required to file the income tax return on
due date. This loss can only be adjusted against specified
business incomes. (4)Long-term/Short-term losses:-
Long-term/short-term losses can be carried forward up
to 8 years from the financial year in which the loss has
been incurred. Loss-term capital losses can be adjusted
only against the long-term capital gains but the short-
term capital losses can be adjusted against both the
short-term as well long-term capital gains. For carrying
forward this loss to next assessment years, an assessee
must file the income tax returns on the due date.
(5)Loss from owning and maintaining race horses:- Loss
from owning and maintaining race horses can be carried
forward up to 4 years from the financial year in which
the loss has been incurred. An assessee has to file the
income tax return on time to carry forward the losses to
next years. This loss can only be adjusted against the
income from owning and maintaining race horses.
AGGREGATION OF INCOME:- Generally, person is liable
to pay tax only on the income which is earned by him.
However under Income Tax Act 1961, there are certain
provisions as per which an income of though legally
belonging to one person is to be included in the total
income of other person. Inclusion of others income in
the income of assesse is called “Clubbing of income” and
such clubbed income is termed as “Deemed Income”.
PREVIOUS YEAR:- Previous year or the financial year or
your tax year is the 12 month period that begins on
1st April and ends on the 31st March of the next year.
No matter when you start your job, your tax year closes
on 31st March and a new tax year starts on 1st April. So,
it is important to plan your taxes for each financial year.
ASSESSMENT YEAR:- It is a term you will often hear in
relation to tax filing. It is the financial year after the
previous year in which you will ‘assess’ and file your
return for the previous year. So, Assessment Year is
2020-21 for the Previous Year 2019-20.--------
Assessment Year is the year in which you will file your
return for the Previous Year. For instance, if you start
your job on 1st January 2020, your tax year closes on 31
March 2020. 2019-20 is your Previous Year and your
Assessment Year is 2020-21. The last day to file your
return is 31 August 2020.
PERSON:- Person includes:- (i)an individual,(ii)a Hindu
undivided family,(iii)a company,(iv)a firm, (v)an
association of persons or a body of individuals, whether
incorporated or not, (vi)a local authority, and (vii)every
artificial juridical person, not falling within any of the
preceding sub-clauses. Explanation:-For the purposes of
this clause, an association of persons or a body of
individuals or a local authority or an artificial juridical
person shall be deemed to be a person, whether or not
such person or body or authority or juridical person was
formed or established or incorporated with the object of
deriving income, profits or gains.
AGRICULTURE INCOME:- In India, agricultural income
refers to income earned or revenue derived from
sources that include farming land, buildings on or
identified with an agricultural land and commercial
produce from a horticultural land. Agricultural income is
defined under section 2(1A) of the Income Tax Act,
1961. According to this Section, agricultural income
generally means:- (a) Any rent or revenue derived from
land which is situated in India and is used for agricultural
purposes. (b) Any income derived from such land by
agriculture operations including processing of
agricultural produce so as to render it fit for the market
or sale of such produce. (c) Any income attributable to a
farm house subject to satisfaction of certain conditions
specified in this regard in section 2(1A). (d) Any income
derived from saplings or seedlings grown in a nursery
shall be deemed to be agricultural income.
TURNOVER:- As per Section 44AB of the Income Tax Act,
an assessee whose turnover from profits and gains from
business or profession exceeds Rs. 1,00,00,000 during
the Financial Year shall mandatorily get its books of
accounts audited under the said section. However I am
little bit confused regarding the definition of "Turnover".
Can anybody please explain me which elements are
included and which elements are excluded for
calculation of turnover for the purpose of Section 44AB.
And also state the section from where I could refer it.
AGGREGATE TURNOVER:- Aggregate Turnover means
the aggregate value of all taxable supplies (excluding the
value of inward supplies on which tax is payable by a
person on reverse charge basis), exempt supplies,
exports of goods or services or both and inter-State
supplies of persons having the same Permanent Account
Number, to be computed on all India basis but excludes
central tax, State tax, Union territory tax, integrated tax
and cess.
CANON OF PRODUCTIVITY:-According to a well-known
classical economist in the field of public finance, Charles
F. Bastable, taxes must be productive or cost-effective.
This implies that the revenue yield from any tax must be
a sizable one. Further, this canon states that only those
taxes should be imposed that do not hamper productive
effort of the community. A tax is said to be a productive
one only when it acts as an incentive to production.

CANONS OF TAXATION:- The canons of taxation were
first presented by Adam Smith in his famous book ‘The
Wealth of Nations’. These canons of taxation define
numerous rules and principles upon which a good
taxation system should be built. Although these canons
of taxation were presented a very long time ago, they
are still used as the foundation of discussion on the
principles of taxation.--------- Adam Smith originally
presented only 4 canons of taxation, which are also
commonly referred to as the ‘Main Canons of Taxation’
or ‘Adam Smith’s Canons of Taxation’.
PAN:- PAN stands for Permanent Account Number. PAN
is a ten-digit unique alphanumeric number issued by the
Income Tax Department. PAN is issued in the form of a
laminated plastic card (commonly known as PAN card).
Given below is an illustrative PAN:- ALWFG5809L ----------
-- The fourth character of PAN represents the status of
the PAN holder. A partnership firm is represented by the
character ‘F’ (e.g. ALWFG5809L).
ASSESSEE:-Assessee means a person by whom any tax or
any other sum of money is payable under this Act, and
includes:- (a)every person in respect of whom any
proceeding under this Act has been taken for the
assessment of his income or assessment of fringe
benefits or of the income of any other person in respect
of which he is assessable, or of the loss sustained by him
or by such other person, or of the amount of refund due
to him or to such other person; (b)every person who is
deemed to be an assessee under any provision of this
Act; (c)every person who is deemed to be an assessee in
default under any provision of this Act.
ASSESSING OFFICER:- Assessing Officer means the
Assistant Commissioner or Deputy Commissioner or
Assistant Director or Deputy Director or the Income-tax
Officer who is vested with the relevant jurisdiction by
virtue of directions or orders issued under sub-section
(1) or sub-section (2) of section 120 or any other
provision of this Act, and the Additional Commissioner
or Additional Director or Joint Commissioner or Joint
Director who is directed under clause (b) of sub-section
(4) of that section to exercise or perform all or any of the
powers and functions conferred on, or assigned to, an
Assessing Officer under this Act.
CANON OF ELASTICITY:- Modern economists attach
great importance to the canon of elasticity. This canon
implies that a tax should be flexible or elastic in yield.----
------ It should be levied in such a way that the rate of
taxes can be changed according to exigencies of the
situation. Whenever the government needs money, it
must be able to extract as much income as possible
without generating any harmful consequences through
raising tax rates. Income tax satisfies this canon.
CANON OF SIMPLICITY:- Every tax must be simple and
intelligible to the people so that the taxpayer is able to
calculate it without taking the help of tax consultants. A
complex as well as a complicated tax is bound to yield
undesirable side-effects. It may encourage taxpayers to
evade taxes if the tax system is found to be
complicated.--------- A complicated tax system is
expensive in the sense that even the most honest
educated taxpayers will have to seek advice of the tax
consultants. Ultimately, such a tax system has the
potentiality of breeding corruption in the society.
CANON OF DIVERSITY:- Taxation must be dynamic. This
means that a country’s tax structure ought to be
dynamic or diverse in nature rather than having a single
or two taxes. Diversification in a tax structure will
demand involvement of the majority of the sectors of
the population.--------- If a single tax system is
introduced, only a particular sector will be asked to pay
to the national exchequer leaving a large number of
population untouched. Obviously, incidence of such a
tax system will be greatest on certain taxpayers. A
dynamic or a diversified tax structure will result in the
allocation of burden of taxes among the vast population
resulting in a low degree of incidence of a tax in the
aggregate.

CANON OF EQUALITY:- Canon of equality states that the

burden of taxation must be distributed equally or
equitably among the taxpayers. However, this sort of
equality robs of justice because not all taxpayers have
the same ability to pay taxes. Rich people are capable of
paying more taxes than poor people. Thus, justice
demands that a person having greater ability to pay
must pay large taxes.----------- If everyone is asked to pay
taxes according to his ability, then sacrifices of all
taxpayers become equal. This is the essence of canon of
equality (of sacrifice). To establish equality in sacrifice,
taxes are to be imposed in accordance with the principle
of ability to pay. In view of this, canon of equality and
canon of ability are the two sides of the same coin.

CANON OF CERTAINTY:- The tax which an individual has

to pay should be certain and not arbitrary. According to
A. Smith, the time of payment, the manner of payment,
the quantity to be paid, i.e., tax liability, ought all to be
clear and plain to the contributor and to everyone. Thus,
canon of certainty embraces a lot of things. It must be
certain to the taxpayer as well as to the tax-levying
authority.-------- Not only taxpayers should know when,
where and how much taxes are to be paid. In other
words, the certainty of liability must be known
beforehand. Similarly, there must also be certainty of
revenue that the government intends to collect over the
given time period. Any amount of uncertainty in these
respects may invite a lot of trouble. CANON OF
ECONOMY:- This canon implies that the cost of
collecting a tax should be as minimum as possible. Any
tax that involves high administrative cost and unusual
delay in assessment and high collection of taxes should
be avoided altogether.----------- According to A.
Smith: “Every tax ought to be contrived as both to take
out and to keep out of the pockets of the people as little
as possible, over and above what it brings into the public
treasury of the State.”

CANON OF CONVENIENCE:- Taxes should be levied and

collected in such a manner that it provides the greatest
convenience not only to the taxpayer but also to the
government.----- Thus, it should be painless and trouble-
free as far as practicable. “Every tax”, stresses A. Smith:
“ought to be levied at time or the manner in which it is
most likely to be convenient for the contributor to pay
it.” That is why, after the harvest, agricultural income tax
is collected. Salaried people are taxed at source at the
time of receiving salaries.------- These canons of taxation
are observed, of course, not always faithfully, by modern
governments. Hence these are basic and classic canons
of taxation.