ADDENDUM

POWER TO LEVY TAXES

‰‰ Income-tax is the most significant direct tax. Entry 82 of the Union
List i.e., List I of Seventh Schedule to Article 246 of the Constitution
of India has given the power to Parliament to make laws on taxes
on income other than agricultural income.
‰‰ Article 265 of the Indian Constitution states that “No tax shall be

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imposed or collected except by authority of law.” Accordingly, a
legislation must be drafted by the government before any taxes
may be levied.
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‰‰ The Central and State Governments in India have the authority
to impose and collect taxes, whether they be direct or indirect.
Article 246 of the Indian Constitution gives the Parliament and
State Legislatures the authority to pass legislation on the topics
listed in the Seventh Schedule.
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THE FINANCE ACT

‰‰ The Finance Bill is presented in the Parliament’s Budget Session
each year by the Finance Minister of the Government of India. The
Finance Bill becomes the Finance Act once it has been approved
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by both houses of Parliament and the President. The Finance Act

amends the Income-tax Act of 1961 and other tax legislation each
year. The First Schedule to the Finance Act contains four parts
which specify the rates of tax -
 Part I of the First Schedule to the Finance Act specifies the
rates of tax applicable for the current Assessment Year. Ac-
cordingly, Part I of the First Schedule to the Finance Act, 2022
specifies the rates of tax for A.Y. 2022-23.
 Part II specifies the rates at which tax is deductible at source
for the current Financial Year. Accordingly, Part II of the First
Schedule to the Finance Act, 2022 specifies the rates at which
tax is deductible at source for F.Y. 2022-23.

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 Part III gives the rates for calculating income-tax for deduct-
ing tax from income chargeable under the head “Salaries” and
computation of advance tax for F.Y. 2022-23.
 Part IV gives the rules for computing net agricultural income.

SURCHARGE
‰‰ Surcharge is an additional tax payable over and above the income
tax. Surcharge is levied as a percentage of income-tax, where total
income exceeds ` 50 lakhs.

REBATE UNDER SECTION 87A

‰‰ In order to provide tax relief to the individual tax payers who are in
the 5% tax slab, section 87A provides a rebate from the tax payable

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by an assessee, being an individual resident in India, whose total
income does not exceed ` 5,00,000. The rebate shall be equal to
the amount of income tax payable on the total income for any
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assessment year or an amount of ` 12,500, whichever is less.

CHARGES OF INCOME TAX

‰‰ Section 4 of the Income-tax Act, 1961 is the charging section which
provides that:
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 Tax shall be charged at the rates prescribed for the year by the
Annual Finance Act or the Income-tax Act, 1961 or both
 The charge is on every person specified under section 2(31)
 Tax is chargeable on the total income earned during the pre-
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vious year and not the assessment year. (There are certain ex-
ceptions provided by sections 172, 174, 174A, 175 and 176)
 Tax shall be levied in accordance with and subject to the vari-
ous provisions contained in the Act

SCOPE OF TOTAL INCOME

‰‰ Section 5 provides the scope of total income in terms of the
residential status of the assessee because the incidence of tax on
any person depends upon his residential status. The scope of total
income of an assessee depends upon the following three important
considerations:
(i) the residential status of the assessee
(ii) the place of accrual or receipt of income, whether actual or
deemed
(iii) the point of time at which the income had accrued to or was
received by or on behalf of the assessee

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AGRICULTURAL INCOME SECTION 10(1)

‰‰ Section 10(1) provides that agricultural income is not to be included
in the total income of the assessee. The reason for total exemption
of agricultural income from the scope of central income-tax is that
under the Constitution, the Central Government has no power to
levy a tax on agricultural income.

PAYMENT FROM SUKANYA SAMRIDDHI ACCOUNT

[SECTION 10(11A)]
‰‰ Section 10(11A) provides that any payment from an account opened
in accordance with the Sukanya Samriddhi Account Rules, 2014,
made under the Government Savings Bank Act, 1873, shall not be
included in the total income of the assessee.

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BASIS OF CHARGE (SECTION 15)
‰‰ Section 15 deals with the basis of charge. Salary is chargeable to
tax either on ‘due’ basis or on ‘receipt’ basis, whichever is earlier.
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‰‰ However, where any salary, paid in advance, is assessed in the year
of payment, it cannot be subsequently brought to tax in the year in
which it becomes due.
‰‰ If the salary paid in arrears has already been assessed on due basis,
the same cannot be taxed again when it is paid.
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ADVANCE SALARY
‰‰ Regardless of whether or not it is due, advance salary is taxed
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when it is received by the employee. It is possible that the tax rate

at which the employee is assessed will be greater than the typical
tax rate to which he would have been assessed since advance
salary was incorporated and charged in a specific preceding year.
In certain situations, relief is provided under Section 89.

GRATUITY
‰‰ An employer may voluntarily offer an employee a gratuity as a
way of showing their appreciation for the work they have done.
Gratuities are now accepted as standard compensation for all
employees. In actuality, the 1972 Payment of Gratuity Act formally
recognises the notion of gratuities.

INCOME CHARGEABLE UNDER THE HEAD” PROFITS AND GAINS

OF BUSINESS OR PROFESSION
‰‰ Under section 145(1), income chargeable under the heads “Profits
and gains of business or profession” or “Income from other
sources” shall be computed in accordance with either the cash

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or mercantile system of accounting regularly employed by the

assessee.
‰‰ Under section 145(2), the Central Government is empowered to
notify in the Official Gazette from time to time, income computation
and disclosure standards (ICDSs) to be followed by any class of
assessees or in respect of any class of income.

CLARIFICATION ON NON-APPLICABILITY OF SECTION 43B ON

EMPLOYEE’S CONTRIBUTION TO WELFARE FUNDS
‰‰ As per section 2(24)(x), any sum received by an assessee, being an
employer from his employee as contribution to any provident fund
or superannuation fund or any fund set up under Employee’s State
Insurance Act, 1948 or any other fund for the welfare of employees
would be considered as the income of an employer.

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‰‰ As per section 43B, any sum payable by the assessee as an employer
by way of contribution to any provident fund or superannuation
fund or gratuity fund or any other fund for the welfare of employees,
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would be allowable during any P.Y. if the same has been paid on
or before the ‘due date’ applicable in his case for furnishing the
return of income under section 139(1) in respect of that P.Y.

CASUAL INCOME [SECTION 56(2)(IB)]

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‰‰ Casual income means income in the nature of winnings from

lotteries, crossword puzzles, races including horse races, card
games and other games of any sort, gambling, betting etc. Such
winnings are chargeable to tax at a flat rate of 30% under section
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115BB and tax is deductible at source@30% on such income in

case it exceeds ` 10,000.

APPLICABILITY AND RATE OF TDS UNDER SECTION 192A

‰‰ Section 192A provides for deduction of tax @10% on premature
taxable withdrawal from employees provident fund scheme.
Accordingly, in a case where the accumulated balance due to an
employee participating in a recognised provident fund is includible
in his total income owing to the provisions of Rule 8 of Part A
of the Fourth Schedule not being applicable, the trustees of the
Employees Provident Fund Scheme, 1952 or any person authorised
under the scheme to make payment of accumulated balance due to
employees are required to deduct income-tax@10%.

TDS ON WINNING FROM LOTTERIES, CROSSWORD PUZZLES

ETC.
‰‰ According to the provisions of section 194B, every person
responsible for paying to any person, whether resident or non-

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resident, any income by way of winnings from lottery or crossword

puzzle or card game and other game of any sort, is required to
deduct income-tax therefrom at the rate of 30% if the amount of
payment exceeds ` 10,000. Winnings by way of jackpot would also
fall within the scope of section 194B

TDS UNDER SECTION 194C

‰‰ The rate of TDS under section 194C on payments to contractors
would be 1%, where the payee is an individual or HUF and 2% in
respect of other payees. The same rates of TDS would apply for
both contractors and subcontractors.

APPLICABILITY OF TDS UNDER SECTION 194D

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‰‰ Section 194D casts responsibility on any person responsible
for paying to a resident any income by way of remuneration or
reward, whether by way of commission or otherwise, for soliciting
or procuring insurance business (including the business relating
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to the continuance, renewal or revival of policies of insurance) to
deduct tax at source.

TAXABILITY OF SUM RECEIVED UNDER A LIFE INSURANCE

POLICY
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‰‰ Under section 10(10D), any sum received under a life insurance

policy, including the sum allocated by way of bonus on such policy
is exempt subject to fulfillment of conditions specified under the
said section.
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COMMISSION ETC. ON THE SALE OF LOTTERY TICKETS

[SECTION 194G]
‰‰ Under section 194G, the person responsible for paying to any
person any income by way of commission, remuneration or
prize (by whatever name called) on lottery tickets in an amount
exceeding ` 15,000 shall deduct income-tax thereon at the rate of
5%

PAYMENT OF RENT BY CERTAIN INDIVIDUALS OR HINDU

UNDIVIDED FAMILY [SECTION194-IB]
‰‰ Section 194-IB requires any person, being individual or HUF, other
than those individual or HUF whose total sales, gross receipts or
turnover from the business or profession exceeds ` 1 crore in case
of business and ` 50 lakhs in case of profession in the financial year
immediately preceding the financial year in which such rent was
credited or paid, responsible for paying to a resident any income
by way of rent, to deduct income tax @5%.

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TDS ON CERTAIN PAYMENT BY E-COMMERCE OPERATOR TO

E-COMMERCE PARTICIPANT [SECTION 194-O]
‰‰ Section 194-O provides that where sale of goods or provision
of services of an e-commerce participant is facilitated by an
e-commerce operator through its digital or electronic facility or
platform, such e-commerce operator is liable to deduct tax at
source @1% of the gross amount of such sales or services or both
[Section 194-O(1)].

DEDUCTION OF TAX AT SOURCE ON PURCHASE OF GOODS

[SECTION 194Q]
‰‰ Section 194Q requires any person, being a buyer who is responsible
for paying any sum to any resident-seller for purchase of goods
of the value or aggregate of such value exceeding ` 50 lakhs in a

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previous year, to deduct tax at source @0.1% of such sum exceeding
` 50 lakhs [Section 194Q(1)].

GST
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‰‰ GST is a path breaking indirect tax reform which attempts to
create a common national market. GST has subsumed multiple
indirect taxes like excise duty, service tax, VAT, CST, luxury tax,
entertainment tax, entry tax, etc.
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CONCEPT OF SUPPLY [SECTION 7 OF THE CGST ACT]

‰‰ The concept of ‘supply’ is the key stone of the GST architecture. The
provisions relating to meaning and scope of supply are contained
in Chapter III of the CGST Act read with various Schedules given
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under the said Act.

Section 7 Meaning and scope of supply
Section 8 Taxability of composite and mixed supplies
Schedule I Activities to be treated as supply even if made
without consideration
Schedule Activities or transactions to be treated as supply of
goods or as supply of services
Schedule III Activities or transactions which shall be treated
neither as supply of goods nor as supply of services.

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