TAX:- Tax is one of the most of tax and direct benefits. In other compromise is needed.
mise is needed. Therefore, canon of economy, if hinders the
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option was withdrawn and tax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 gov-
ernments 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
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
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 ob-
serves “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 unreason-
able 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
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.
(4) 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:- (1)The greatest
merit of single tax is it simplicity.
Since there is only one tax work of
the Government is simplified.
(2)Levy assessment and collection
of revenue would become very
easy. (3)Levy ad collection of tax
can be bad if tax concerned is
carefully selected.
DISADVANTAGES OF SINGLE
TAXATION:- (1)The greatest
defect of the single tax system is
that from the revenue point of
view the tax yield may not be
sufficient for the Government.
(2)Yield of any single tax does not
increase rapidly as the yield from
multiple taxes system. (3)Increase
in the rate of tax alone cannot
increase revenue.
MULTIPLE TAXATION:- A
single tax system presented many
difficulties. It proved inefficient in
solving the real purpose behind a
good tax system. Consequently,
economists now widely acclaim
multiple tax system.------- A
multiple tax refers to the tax
system in which taxes are levied
on various items or bases. A
modern economy is not one
objective economy. It tries to forge
ahead simultaneously along the
paths of growth, equitable
distribution of income and wealth,
economic stabilisation, and
soon.------ And since no single tax
can be expected to help the
economy on all fronts, a choice for
a multiple tax system becomes
inevitable. Different taxes
contribute to the attainment of
different objectives.--------- Thus,
some taxes would help the
economy in the direction of
regional balanced growth. Still
others may be needed so as to
provide adequate revenue for the
government treasury, and so
on.-------- The other advantages of
multiple tax system are that it is
efficient in checking the
tendencies of frequent tax evasion.
It increases the tax revenue of the
government. It is more flexible
than the single tax system.
ADVANTAGES OF MULTIPLE
TAXATION:- Multiple tax system
generally results in equitable tax
burden since it is compound of
direct and indirect, proportional
and progressive taxes.
(2)It is difficult for individual to
evade taxes altogether. (3)It is
more useful to achieve social and
political objectives. (4)Tax system
becomes broad based and even
covers every sector in the country.
DISADVANTAGES OF
MULTIPLE TAXATION:-
Numerous taxes in the garb of a
multiple tax system can become
uncomfortable and annoying to
the tax payers and general public
and cause inconvenience for tax
collection authorities. (2)The
cannons of economy, productivity,
convenience may be adversely
affected because of excessive
multiplicity of taxes.
DISTINGUISH BETWEEN
SINGLE TAX AND MULTIPLE
TAX:- (1)Facility of Collection:-
Single tax is easy to enforce and
collect, but multiple tax is difficult
to enforce and collect because of
number of points at which it is
collected.
(2)Point of Levy:- Under single
tax system, the tax is levied at only
one point either at the first point
or at the final point, whereas
under multiple tax system, the tax
is levied at all points of sale till it
is sold to the consumers. V
(3)Chance for Tax Evasion: Under
single tax system, the possibility
for tax evasion is more, whereas
under Multiple tax system, it is
difficult to evade tax.
(4) Rate of Tax: Usually, under
single tax system, the rate of tax is
high, whereas in the case of
multiple tax system, the rates of
taxes are low. (5)Administration:
The number of dealers to be
assessed under single tax is very
small. Hence, it is convenient to
administer this system. But the
administration of multiple tax is
difficult because large number of
dealers is to be dealt with.
(6)Exemption: The number of
goods exempted under single tax
is more. But the number of goods
exempted under multiple tax is
less.
IMPACT OF TAXATION:- The
impact of a tax is on the person
who pays the money in the first
instance. In other words, the man
who pays the tax to the
government in the first instance
bears its impact. The impact of a
tax is, therefore, the immediate
result of the imposition of a tax on
the person who pays in the first
instance. It corresponds to what is
often, but erroneously called the
“original incidence” or the
“primary incidence” of a tax. The
impact of tax as such, denotes the
act of imposing.--------- Impact of
a tax, therefore, refers to the
immediate burden of the tax and
not to the ultimate burden of the
tax.
INCIDENCE OF TAXATION:-
Incidence of a tax refers to the
money burden of a tax on the
person who ultimately bears it. In
other words, when the money
burden of a tax finally settles or
comes to rest on the ultimate
taxpayer, is called the incidence of
a tax. The incidence of tax
remains upon that person who
cannot shift its burden to any
other person, i.e., who ultimately
bears it.----------- Thus, there are
three distinct conceptions- the
impact, the shifting and the
incidence of a tax, which
correspond respectively to the
imposition, the transfer, and the
settling or coming to rest of the
tax. The impact is the initial
phenomena, the shifting is the
intermediate process, and the
incidence is the result.
SHIFTING OF TAXATION:-
Shifting of tax means transferring
some or all of a tax burden of an
entity to another (for example, by
a subsidiary to the parent firm, or
by a producer or supplier to the
consumer).---------- The incidence
of a tax rests on the person(s)
whose real net income is reduced
by the tax. It is fundamental that
the real burden of taxation does
not necessarily rest upon the
person who is legally responsible
for payment of the tax. GST are
paid by business firms, but most
of the cost of the tax is actually
passed on to those who buy the
goods that are being taxed. In
other words, the tax is shifted
from the business to the
consumer.------------
Taxes may be shifted in several
directions:- (i)A forward-shifted
tax is a tax imposed on producers
but passed on to consumers. The
amount of a tax shifted forward
depends
on the price elasticity of demand
for the taxed good.
(ii)A backward-shifted tax is a tax
borne by firms and input
suppliers. The amount of
backward shifting to input
suppliers depends on their
responsiveness to changes in input
prices. (iii)Forward shifting takes
place if the burden falls entirely
on the user, rather than the
supplier, of the commodity or
service in question—e.g., an excise
tax on luxuries that increases their
price to the purchaser. Backward
shifting occurs when the price of
the article taxed remains the same
but the cost of the tax is borne by
those engaged in producing it—
e.g., through lower wages and
salaries, lower prices for raw
materials, or a lower return on
borrowed capital.
DISTINGUISH BETWEEN
IMPACT AND INCIDENCE OF
TAXATION:- (1)The impact
refers to the initial burden of tax
while incidence refers to the
ultimate burden of the tax. Impact
is felt by the tax payer at the
point of imposition of the tax,
while the incidence is felt by the
tax payer at the point of
settlement or rest of the tax.
(2)The impact of the tax is felt by
the person from whom the tax is
collected, while the incidence is
felt by the person who actually
bears the burden of the tax.
(3)Impact of a tax can be shifted,
but the incidence of a tax cannot
be shifted. However, tax evasion minimises
(4)Thus, impact of the tax is the tax liability by exercising
always on the person who is unfair means. (5)Tax
responsible by law to pay the tax Avoidance involves taking benefit
amount to the Government of the loopholes in the law.
treasury, in the first instance. Conversely, Tax Evasion includes
Incidence may fall on somebody the deliberate concealment of
from whom the manufacturer material facts.
ultimately recovers the amount, (6)The arrangement for tax
provided he shifts the tax. avoidance is made prior to the
occurrence of tax liability. Unlike
Tax Evasion, where the
TAX EVASION:- An illegal act,
arrangements for it, are
made to escape from paying taxes
made after the occurrence of the
is known as Tax Evasion. Such
tax liability.
illegal practices can be deliberate
concealment of income,
manipulation in accounts, DUTY:- A duty is a kind of tax
disclosure of unreal expenses for payable to the government,
deductions, showing personal charged on goods and financial
expenditure as business expenses, transactions. It comes under the
overstatement of tax credit or category of Indirect tax. The right
exemptions suppression of profits to levy duty is in the hands of the
and capital gains, etc. This will Central Government. It also adds
result in the disclosure of income to the revenue of the government.
which is not the actual income The following are the types of
earned by the entity.-------- Tax duties:- (1)Excise Duty:- Tax
Evasion is a criminal activity for levied on the production of goods
which the assessee is subject to within the country is known as
punishment under the law. It Excise Duty. It is also known by
involves acts like:- (i)Deliberate the name Central Value
misrepresentation of material Added Tax (CENVAT). Central
facts (ii)Hiding relevant Excise Act, 1944 and the Central
documents (iii)Not maintaining Excise Tariff Act, 1985 are the two
complete records of all the important statutes which govern
transactions (iv)Making false the Excise Duty in India. (2)
statements. TAX AVOIDANCE:- Customs Duty:- When the goods
An arrangement made to beat the are traded outside India then the
intent of the law by taking unfair tax levied by the Government of
advantage of the shortcomings in India is known as Customs Duty.
the tax rules is known as Tax It is charged on the import and
Avoidance. It refers to finding out export of the commodities.
new methods or tools to avoid the Customs Duty is governed by the
payment of taxes which are within Customs Act, 1962 and Customs
the limits of the law.---------- This Tariff Act, 1975. The tax
can be done by adjusting the charged on imports is known as
accounts in a manner that it will Import Duty whereas the tax on
not violate any tax rules, as well as exports is known as Export Duty.
the tax incurrence, will also be
minimised. Formerly tax
avoidance is considered as lawful,
but now it comes to the category
of crime in some special
cases.---------- The only purpose of
tax avoidance is to postpone or
shift or eliminate the tax liability.
This can be done investing in
government schemes and offers
like the tax credit, tax privileges,
deductions, exemptions, etc.,
which will result in the reduction
in the tax liability without making
any offence or breach of law.
DIFFERENCE BETWEEN TAX
EVASION AND TAX
AVOIDANCE:- (1)A planning
made to reduce the tax burden
without infringement of the
legislature is known as Tax
Avoidance. An unlawful act, done
to avoid tax payment is known as
Tax Evasion.
(2)Tax avoidance refers to
hedging of tax, but tax evasion
implies the suppression of tax.
(3)Tax avoidance is immoral that
tends to bend the law without
causing any damage to it. Unlike
tax evasion, which is illegal and
objectionable both according to
law and morality.
(4)Tax avoidance aims at
minimising the tax burden by
applying the script of law.
DIFFERENCE BETWEEN TAX
AND DUTY:- (1)Tax is a financial
obligation which is to be paid to
the government compulsorily.
Duty is a fee payable to the
government on the manufacture
and import/export of goods.
(2)The duty itself is a type of tax.
(3)Tax is charged on individuals,
wealth, services and sales, whereas
Duty is charged on goods.
(4)There are two major types of
taxes, i.e. Direct Tax and Indirect
Tax. Conversely, the major types
of duties are Excise Duty and
Customs Duty. (5)The Central
Government or State Government
can impose taxes, but only the
Central Government has got the
authority to levy duty.
DIFFERENCE BETWEEN TAX
AND FEES:- (1)Tax is
the compulsory payment to the
government without getting any
direct benefits while Fee is the
voluntary payment for getting
service.
(2)If the element of revenue for
general purpose of the State
predominates, the levy becomes a
tax While a fee is for payment of a
specific benefit or privilege
although the special to the
primary purpose of regulation in
public interest. (3)In
regard to tax, there is not and
must not always be, direct
correlation between the tax and
the service intended to be
rendered while in regard to fee,
there is and must always be,
correlation between the fee
collected and the service intended
to be rendered.
(4)Tax is compulsory payment
while fee is the voluntary
payment. (5)If
tax is imposed on a person he has
to pay it. Otherwise he has to be
panelized. On the other hand, fee
is not paid if the person does not
want to get the service.
(6) In this case, tax payer does not
expect any direct benefit while Fee
payer can get direct benefit for
paying fee.
CONSTITUTIONAL
PROVISIONS RELATING TO
COLLECT AND LEVY OF
TAX:- Article 246 (1) of
Constitution of India states that
Parliament has exclusive powers
to make laws with respect to any
of matters enumerated in List I in
Seventh Schedule to
Constitution(i.e Union list).
Article 246 (3)
provides that State Government
has exclusive powers to make laws
for State with respect to any
matter enumerated in List II of
Seventh Schedule to
Constitution(i.e. State
List).------------ Parliament has
exclusive powers to make laws in
respect of matters given in Union
List and State Government has
the exclusive jurisdiction to
legislate on the matters containing
in State List.------------ There is yet
another list i.e List III (called
concurrent list) in the Seventh
Schedule to the Constitution. In
respect of the matters contained in
List III both the Central
Government and State
Governments can exercise powers
to legislate. In case of Union
Territories Union Government
can make laws in respect of all the
entries in all the three
lists.---------- List III of 7th
Schedule(i.e Concurrent list)
includes entries like Criminal law
and Procedure, Trust and
Trustees, Civil Procedures,
economic and social planning,
trade unions, charitable
institutions, price control
factories, etc.-------------- In case
there is a conflict between the laws
legislated by State Government
and Central Government in
respect of entries contained in
Concurrent list, law made by
Union Government
prevails.---------- However, there is
one exception to this rule, if law
made by State contains any
provision repugnant to earlier law
made by Parliament, law made by
State Government prevails, if it
has received assent of President.
Even in such cases, Parliament
can make fresh law and amend,
repeal or vary law made by
State.---------
Now let’s go through the Entries
in Union list and State list relevant
to Taxation.--------- Union List:-
Entry No. 82 – Tax on Income
other than agriculture income.
Entry No. 83 – Duties of customs
including export duties.
Entry No. 84 – Duties of excise on
Tobacco and other goods
manufactured or produced in
India except alcoholic liquors for
human consumption, opium,
narcotic drugs, but including
medicinal and toilet preparations
containing alcoholic liquor, opium
or narcotics.
Entry No. 85 – Corporation tax
Entry No. 92A – Taxes on sale or
purchase of goods other than
newspapers, where such sale or
purchase takes place in the source
of Interstate trade or commerce.
Entry No. 92B – Taxes on
consignment of goods where such
consignment takes place during
Inter-State trade or commerce.
Entry No. 92C – Tax on services
Entry No. 97 – Any other matter
not included in List II, List III and
any tax not mentioned in List II or
List III. State List:-
Entry No. 46 – Taxes on
agricultural income.
Entry No. 51 – Excise duty on
alcoholic liquors, opium and
narcotics.
Entry No. 52 – Tax on entry of
goods into a local area for
consumption, use or sale therein
(usually called Octroi or Entry
Tax).
Entry No. 54 – Tax on sale or
purchase of goods other than
newspapers except tax on
interstate sale or purchase.
Entry No. 55 – Tax on
advertisements other than
advertisements in newspapers.
Entry No. 56 – Tax on goods and
passengers carried by road or
inland waterways.
Entry No. 59 – Tax on
professionals, trades, callings and
employment.
NO TAX SHALL BE LEVIED
OR COLLECTED EXCEPT BY
THE AUTHORITY OF LAW:-
Article 265 of the Constitution of
India provides that "no tax shall
be levied or collected except by the
authority of law". Therefore, no
tax can be levied or collected in
India, unless it is explicitly and
clearly authorised by way of
legislation. The Income-tax Act,
1961 (ITA) was enacted to provide
for levy and collection of tax on
income earned by a depending
person.-------------- According to
the ITA, every person, whose total
income exceeds the maximum
amount not chargeable to tax,
shall be chargeable to income tax
at the rate or rates prescribed in
the Finance Act. The ITA defines
the term "person" to include an
individual, an HUF, a company, a
firm (including LLP), an AOP or
a BOI; a local authority and every
other artificial juridical
person.--------------- The ITA
provides an inclusive definition of
the expression "income".
Therefore, income includes not
only those things which this
definition explicitly declares, but
also all such things as the word
signifies according to its natural
import.Therefore, before arriving
at a conclusion as to the tax
implications of a receipt of money,
it is imperative to determine
whether or not such a receipt
amounts to income under the ITA.
There will be no incidence of
income
tax if a receipt of money does not
amount to income. For instance, it
is important to distinguish a
capital receipt from a revenue
receipt because, while all revenue
receipts are taxable under the
ITA, unless specifically exempted,
a capital receipt cannot be taxed
as income, unless otherwise
provided for by the statute.
HISTORY OF INCOME TAX OF
INDIA:- Taxation of India in
Ancient Times:- In India, the
system of direct taxation as it is
known today, has been in force in
one form or another even from
ancient times. There are
references both in Manu Smriti
and Arthasastra to a variety of tax
measures. The detailed analysis
given by Manu Smriti and
Arthasastra on the subject clearly
shows the existence of a well-
planned taxation system, even in
ancient times. Not only this, taxes
were also levied on various classes
of people like actors, dancers,
singers and even dancing girls.
Taxes were paid in the shape of
gold-coins, cattle, grains, raw-
materials and also by rendering
personal service.
Let’s Take small part from Manu
Smriti:- Manu, the ancient sage
and law-giver stated that the king
could levy taxes, according to
Sastras. The wise sage advised
that taxes should be related to the
income and expenditure of the
subject. He, however, cautioned
the king against excessive taxation
and stated that both extremes
should be avoided namely either
complete absence of taxes or
exorbitant taxation. According to
him, the king should arrange the
collection of taxes in such a
manner that the subjects 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
upon their
circumstances.
The Establishment of Income Tax
in Modern India:- The history of
Income-Tax in modern India
dates back to 1860 when the first
Income Tax Act was introduced
by James Wilson who became
(British) India’s first finance
member.---------------- First
Income Tax Act came in force on
24th July 1860 with the approval
of The Governor General. It was a
tax selectively imposed on the rich
royalty and Britishers. For the
first year of tax the government
collect Rs 30 Lakhs. The act
lapsed in 1865 and was
reintroduced in
1867.------------------- There was
need for more revenue to fight
Anglo-Russian war. So Governor
General Lord Dufferin introduced
a comprehensive Income Tax Act
in 1886. It was combination of
Licence Tax and Income Tax.
Taxes were collected in the same
manner as land
revenue.---------------- The most
comprehensive Income Tax Law
was the Income Tax Act of 1922.
1919 Chelmsfod reforms made a
distinction between the functions
and resources of the state and the
Central Govt. and Income Tax
became a primary source of
revenue for the central
Government.
GST:- GST is an Indirect Tax
which has replaced many Indirect
Taxes in India. The Goods and
Act was passed in the Parliament
on 29th March 2017. The Act
came into effect on 1st July 2017;
Goods & Services Tax Law in
India is a comprehensive, multi-
stage, destination-based tax that is
levied on every value addition
.---------- In simple words, Goods
and Service Tax (GST) is an
indirect tax levied on the supply of
goods and services. This law has
replaced many indirect tax laws
that previously existed in
India.----------
GST is one indirect tax for
the entire country.-------- Under
the GST regime, the tax is levied
at every point of sale. In the case
of intra-state sales, Central GST
and State GST are charged. Inter-
state sales are chargeable to
Integrated GST.
PRINCIPLES OF TAX
SUBSUMATION:- The various
Central, State and Local levies
were examined to identify their
possibility of being subsumed
under GST. While identifying, the
following principles were kept in
mind:- (i)Taxes or levies to be
subsumed should be primarily in
the nature of indirect taxes, either
on the supply of goods or on the
supply of services.
(ii)Taxes or levies to be
subsumed should be part of the
transaction chain which
commences with import/
manufacture/ 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.
CENTRAL TAXES TO BE
SUBSUMED IN GST:- On
application of the above principles
and various papers which have
been released in this regard, it is
deduced that the following
Central Taxes should be, to begin
with, subsumed under the Goods
and Services Tax:- (1)Central
Excise Duty (CENVAT)
(2)Additional Excise Duties
(3)The Excise Duty levied under
the Medicinal and Toiletries
Preparations (Excise Duties) Act
1955 (4)Service Tax
(5)Additional Customs Duty,
commonly known as
Countervailing Duty (CVD)
(6)Special Additional Duty of
Customs – 4% (SAD)
(7)Surcharges and Cesses levied
by Centre are also likely to be
subsumed wherever they are in
the nature of taxes on goods or
services. This may include cess on
rubber, tea, coffee, national
calamity contingent duty etc.
(8)Central Sales Tax to be phased
out.
STATE TAXES TO BE
SUBSUMED IN GST:- Following
State taxes and levies would be, to
begin with, subsumed under
GST:- (1)VAT / Sales tax
(2)Entertainment tax (unless it is
levied by the local bodies)
(3)Luxury tax
(4)Taxes on lottery, betting and
gambling (5)State Cesses and
Surcharges in so far as they relate
to supply of goods and services
(6)Octroi and Entry Tax
(7)Purchase Tax --------------- The
above taxes are directly relatable
to the supply of goods and
services and fall in the supply
chain from the point of
procurement of the raw material
to the consumption of the goods
and services by the end customer.
CGST:- CGST refers to the
Central GST tax that is levied by
the Central Government of India
on any transaction of goods and
services tax taking place within a
state. It is one of the two taxes
charged on every intrastate
(within one state) transaction, the
other one being SGST (or UTGST
for Union Territories). CGST
replaces all the existing Central
taxes including Service Tax,
Central Excise Duty, CST,
Customs Duty, SAD, etc. The rate
of CGST is usually equal to the
SGST rate. Both taxes are
charged on the base price of the
product. See the example below to
understand it better. Let’s
understand this with an example,
when Suresh sales a product to
Pradeep in the same state
(Rajasthan), he has to pay two
taxes. CGST is for the central
government while SGST is for the
state. The rate of CGST is 9%,
same as SGST. After the
application of CGST (9% of Rs
10,000), the final cost of the
product will become Rs 11,800.
SGST:- SGST (State GST) is one
of the two taxes levied on every
intrastate (within one state)
transaction of goods and services.
The other one is CGST. SGST is
levied by the state where the goods
are being sold/purchased. It will
replace all the existing state taxes
including VAT, State Sales Tax,
Entertainment Tax, Luxury Tax,
Entry Tax, State Cesses and
Surcharges on any kind of
transaction involving goods and
services. The State Government is
the sole claimer of the revenue
earned under SGST. Let’s
understand this with an example,
Suresh from Rajasthan wants to
sell some goods to Pradeep in
Rajasthan. The product,
originally priced at Rs 10,000, will
attract GST at 18% rate
comprising of 9% CGST rate and
9% SGST rate. The SGST tax
amount here is Rs 900 (9% of Rs
10,000) which is fully claimed by
the Rajasthan State Government.
The rate of the product after
SGST will be Rs 10,900.
IGST:- Integrated GST (IGST) is
applicable on interstate (between
two states) transactions of goods
and services, as well as on
imports. This tax will be collected
by the Central government and
will further be distributed among
the respective states. IGST is
charged when a product or service
is moved from one state to
another. IGST is in place to
ensure that a state has to deal only
with the Union government and
not with every state separately to
settle the interstate tax amounts.
Let’s try to understand IGST with
an example, Ramesh is a
manufacturer in Rajasthan who
sold goods worth Rs 10,000 to
Suresh in Rajasthan. Since it is an
interstate transaction, IGST will
be applicable here. Let’s assume
the GST rate is 18% for the
particular item. So, the IGST
amount charged by the Central
Government will be Rs 1800 (18%
of Rs 10,000), and the refined rate
of the product will be Rs 11,800.
UTGST:- The Union Territory
Goods and Services Tax,
commonly referred to as UTGST,
is the GST applicable on the goods
and services supply that takes
place in any of the five Union
Territories of India, including
Andaman and Nicobar Islands,
Dadra and Nagar Haveli,
Chandigarh, Lakshadweep and
Daman and Diu. This UTGST will
be charged in addition to the
Central GST (CGST) explained
above
. For any transaction of
goods/services within a Union
Territory: CGST + order to pay your taxes via the
UTGST.----------------The reason
why a separate GST was
implemented for the Union
Territories is that the common
State GST (SGST) cannot be
applied in a Union Territory
without legislature. Delhi and
Puducherry UTs already have
their own legislatures, so SGST is
applicable to them.
GSTN:- GSTN or the Goods and
Services Tax Network is a Non-
Profit, Non Government
organization which will manage
the entire operations of the GST
Portal. It has been rightly hailed
as the “mother-database” for
everything related to GST. The
GSTN will act as a link between
the taxpayers and the government
and will aim at reducing the
communication gap between the
Central government, state
government and the taxpayers.
GSTN is the first of its kind
shared IT infrastructure
integrating the State and Central
governments for taxation
purposes. This portal will help
both the central as well as the
state governments to track and
keep a record of all financial
transaction made by businesses
and will act as a backbone to the
IT infrastructure in India. In
portal, you will need a GST
registration and a
corresponding GSTIN (GST
Identification Number).
STRUCTURE OF GSTN:- The
GST network is a non-government
organization (PPP Company)
meaning the private parties hold
51% of this organization. The rest
49% is owned by the government.
The authorized capital of GSTN
is Rs. 10 Crores. The 49% of the
shareholding of the governments
is divided equally between Central
and the State Governments i.e.
24.5% to the centre and the states
in the Indian Union.------------ The
Goods and Services Tax Network
is headed by Dr Ajay Bhushan
Pandey (Chairman), 1984 batch
IAS (Indian Administrative
Services) servant. along with
the CEO of GSTN Shri Prakash
Kumar.--------- Shareholder /
Shareholding (Central
Government, State Governments
& EC + 24.5%), (HDFC, HDFC
Bank, ICICI Bank, NSE Strategic
Investment Co + 10%), (LIC
Housing Finance Ltd + 11%),
Total = 100%.
FEATURES OF GSTN:-
(1)National Information Utility:-
The GST Network has been
deemed to be a trusted National
Information Utility(NIU). This
essentially means that the network
is in charge of providing reliable,
robust, as well as, efficient IT
infrastructure and information
passing.
(2) Strong Infrastructure and
Complex Operations:- The GSTN
basically helps taxpayers to
register themselves, make tax
payments and claim GST returns
generate business analytics
among others. Along with this,
the network is also in charge of
calculating and settling the
Integrated GST (IGST) along
with the Input Tax Credit (ITC).
The GST network thus aims to
provide comprehensive solutions
to difficult and intensive taxation
solutions.
(3) Information Security:- The
central government owns a major
share of the GST network as
compared to any other individual
player and hence the major share
of responsibility for the
confidentiality as well as the
security of the information
provided by the taxpayers. The
central government will control
the composition of the board,
Mechanisms of the special
resolutions, Shareholder’s
agreement, and agreements
between the network and other
state governments.
(4) Payment:- The GST network
has enabled the taxpayers to avail
the option of payment through
online methods:- (i)Online
payment can be done via the
option of internet banking. The
RBI has allocated certain banks
(Agency Banks ) with the
authority to collect payments
made in favour of GST. The
taxpayer will need to make
payment by selecting from a list
of the agency banks authorized to
collect the tax. After that, the
taxpayer needs to login to the
respective bank’s online portal
and make the payment and
download the challan generated
for said payment of GST.
(ii)Offline:- It is not mandatory
that the taxpayers have to make
an online payment always. The
government has also facilitated
the provision of payment of GST
offline via “over the counter”
payments. You can head over to
your respective bank make the
payment for GST. Bank will
further notify the RBI as well as
the GST portal to update relevant
details. (5)Expenses:- The user
charges will be paid entirely by
the Central Government and the
State Governments in equal
proportion (i.e. 50:50) on behalf
of all users. The state share will
be then apportioned to individual
states, in proportion to the
number of taxpayers in the state.
GSTIN:- GSTIN or Goods and
Services Tax Identification
Number is a unique 15-digit
number, which has replaced the
Tax Identification Number (TIN).
Before GST was implemented,
dealers registered under the state
VAT law were given a unique TIN
number by the respective state tax
authorities. Business entities
registering under GST will be
provided a unique identification
number known as the
GSTIN.------------- GSTIN, as the
name suggests, is an unique
identification number assigned to
a dealer or supplier, under the
GST regime. Obtaining GSTIN
and registering for GST are free
of cost. There are two ways to
register for GST:- (1)GST Online
Portal (2)GST Seva Kendra set
up by the Government of
IndiaFORMAT / 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.
(5) The fourteenth digit
currently has no use and
therefore will be “Z” by default.
(6) The last digit will be a check
code which will be used for
detection of errors.------------
(7) 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 / or documents.
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
(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
Goods and Services Tax
Identification Number is a unique
15-digit number, which has
replaced the Tax Identification
Number (TIN). Before GST was
implemented, dealers registered
under the state VAT law were
given a unique TIN number by the
respective state tax authorities.
Business entities registering under
GST will be provided a unique
identification number known as
the GSTIN.------------- GSTIN, as
the name suggests, is an unique
identification number assigned to
a dealer or supplier, under the
GST regime. Obtaining GSTIN
and registering for GST are free
of cost. There are two ways to
register for
GST:- (1)GST Online Portal
(2)GST Seva Kendra set up by the
Government of India.----------- On
the other hand, GSTN or the
Goods and Services Tax Network
is a Non-Profit, Non Government
organization which will manage
the entire operations of the GST
Portal. It has been rightly hailed
as the “mother-database” for
everything related to GST. The
GSTN will act as a link between
the taxpayers and the government
and will aim at reducing the
communication gap between the
Central government, state
government and the taxpayers.
GSTN is the first of its kind
shared IT infrastructure
integrating the State and Central
governments for taxation
purposes. This portal will help
both the central as well as the
state governments to track and
keep a record of all financial
transaction made by businesses
and will act as a backbone to the
IT infrastructure in India. In
order to pay your taxes via the
portal, you will need a GST
registration and a
corresponding GSTIN (GST
Identification Number).
FILING OF GST
COMPENSATION TO STATE
ACT:- Government has
compensated to the States/UTs for
the reported revenue deficit on
account of implementation of
Goods and Services Tax (GST). As
per provisions in Section 7 of the
GST (Compensation to States)
Act, 2017 loss of revenue to the
States on
account of implementation of
Goods and Services Tax shall be
payable during transition period
and compensation payable to a
State shall be provisionally
calculated and released at the
end of every two months during
transition period of 5 Amendment Act 2018.-----------
years.----------- As per Section 4
of the said Act, financial year
2015-16 has been taken as the
base year for calculating
compensation amount payable to
States for loss of revenue during
transition period. The projected
nominal growth rate of revenue
subsumed for a state during the
transition period shall be 14%
per annum.------------- As per
section 7(c) of the said Act, the
total compensation payable in
any financial year shall be
difference between the projected
revenue for any financial year
and the actual revenue collected
by a State. On this basis, the
revenue loss due to
implementation of GST to the
states for the month of July, 2017
to March, 2018 and April to
May, 2018 has been estimated to
be Rs. 48178 crores (Annexure-I)
and Rs. 3899 crores (Annexure-
II) respectively and accordingly,
States/UTs have been paid GST
Compensation of Rs. 48178
crores for the period of July 2017
to March, 2018 and of Rs. 3899
crores for the period of April-
May, 2018.
STATE GOODS AND
SERVICES TAX ACT 2017:-
GST COUNCIL:- GST council is
a governing body to regulate and
direct each and every step for the
implementation of goods and
service tax in the nation with
decisions over tax rates and
further implementation
measures. GST council assimilates
suggestions and regulation into
one form and improvise the
changes formally through
notifications and circulars with its
departments and finance
ministry.------------ Cabinet
Ministry has given approval for
the establishment of GST Council
while the notification regarding
the establishment of Council was
issued on Saturday the 10th day
September 2016 and the
provisions came into force on
Monday the 12th day of
September 2016. Also, the Article
279A having provisions regarding
establishment of GST Council was
inserted after Article 279 of The
Constitution (101st Amendment)
Act, 2016. The Former Union
Finance Minister Late Mr. Arun
Jaitley who was the head of GST
Council while the First Meeting of
the council was held on 22nd and
23rd September 2016 in New
Delhi.
GST (AMENDMENT) ACT, 2018
FROM 1ST FEBRUARY 2019:-
The President of India gave assent
on 29th August 2018 to make
amendments to following GST
laws:- (1)The Central Goods and
Services Tax (Amendment) Act
2018 (2)The Integrated Goods
and Services Tax (Amendment)
Act 2018 (3)The Union Territory
Goods and Services Tax
(Amendment) Act 2018 (4)The
Goods and Services Tax
(Compensation to States)
The GST council in its 31st GST
Council Meeting held on 22nd
December 2018, has announced
through the press release that the
effective date of applicability of
amendments in GST Act(s)
2018 will be from 1st February
2019.---------- Latest Features:-
(1)CBIC has notified
(under CGST & IGST) that all the
changes to GST Law as covered in
this article will be applicable from
1st Feb 2019. (2)Applicable from
1st Feb 2019, 01/2019 Central tax
rate notification
& 01/2019 Integrated Tax Rate
Notification states that the
provision of RCM under Sec 9(4)
– purchase of goods from
unregistered supplier shall now
stand to be applicable blanket all
intra-state supplies(irrespective of
the daily limit per supplier of Rs
5000 that was earlier notified).
(3)Further, the Sec 9(4) has been
amended to refer only to specified
goods and services as notified by
the Government and not all
supplies. But the list is yet to be
notified, after which this provision
Sec 9(4) shall 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.
CONSTITUTION OF GST
COUNCIL:- According to the
Article 279A, it is on the part of
Prime Minister to give the order
to constitute the council of GST
within the 60 days from the 12th
September 2016 which is already
notified by the Government.
Following are the designated
personnel, who will form the GST
Council together:- (1)The Union
Finance Minister who will be the
Chairman of the council; (2)The
Union Minister of State in charge
of Revenue or Finance who will be
the Member of council; (3)One
Member from each state who is
Minister in charge of Finance or
Taxation or any other Minister
and anyone of them will be Vice
Chairman Of the GST Council
who will be mutually elected by
them.-------- NOTE:- (i)The
Secretary of Revenue Department
will work as EX-Officio Secretary
to the GST Council, (ii)The
Chairperson of Central Board of
Excise and Customs will be the
permanent invitee in all the
proceedings of the GST Council
who will not have the voting
rights.
QUORUM AND DECISION-
MAKING:- (1)For a valid meeting
of the members of GST Council,
at least 50 percent of the total
number of the member should be
present at the meeting. (2)Every
Decision made during the meeting
should be supported by at least 75
percent majority of the weighted
votes of the members who are
present and voting at the
meeting. In “Article 279A” a
principle is there which
divides the total weighted vote
cast between Central
Government and State
Government:- (i)The vote of
Central Government shall have
the weighted of one-third of the
total votes; (ii)The votes of State
Government shall have the
weighted of two third of the total
votes, cast in the meeting. (3)Any
act, decision or proceedings shall
not be declared as invalid on the
basis of any remaining deficiency
at the time of establishment of
GST Council i.e.:- (i)if there is any
vacancy remained in the Council;
(ii)if there is any defect in the
constitution of Council; (iii)if
there is any defect in the
appointment of a person as a
member of the Council; (iv)if
there is any procedural non-
compliance.
POWER OF GST COUNCIL:- (i)
The goods and services that may
be subjected or exempted from
GST; (ii) Principles that
govern Place of Supply;
(iii) Threshold limits; (iv) GST
rates including the floor rates with
bands, special rates for raising
additional resources during
natural calamities/disasters
or RNR; (v) Special provisions for
certain States, etc.; (vi) Transition
Provisions FUNCTION OF
GST COUNCIL:- The GST
council will be supposed to make
the recommendation to the Union
and State on the following
matters:- (i)On subsuming of
various taxes, cess, and surcharge
in GST. (ii)Details of services and
goods that will be subjected to
GST or which will be exempted
from GST. (iii)On Threshold limit
below which, services and goods
will be exempted from GST.
(iv)On GST rates including floor
rate with bands of GST and any
special rate for time being to
arrange resources to face any
natural calamity. (v)Making
special provisions for the
following states: Arunachal
Pradesh, Assam, Jammu and
Kashmir, Manipur, Meghalaya,
Mizoram, Nagaland, Sikkim,
Tripura, Himachal Pradesh and
Uttarakhand. (vi)On model law on
GST, Principal of levy of GST and
the principals which will govern
the place of Supply.
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:– (i)For Indian States,
except the special category States,
the threshold limit for exemption
of GST would be set at INR 40
lakhs. (ii)In case of special
category States, the threshold
limit for exemption of GST is set
at INR 10 lakhs. (iii)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. (iv)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.-------------- Similarly, in
the 34th GST Council meeting,
some of the decisions taken by the
council included the following:–
(i)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.
(ii)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. (iii)If the old GST rate is
chosen by any builder, the builder
would not be able to claim input
tax credit.----------- Besides these
two duties, the GST Council also
makes rules regarding GST
registration, valuation, payment
of GST, input tax credit, GST
return, composition, transitional
provisions, invoice and claiming
refund, etc.
FEATURES OF
CONSTITUTION (122nd
AMENDMENT) GST:- The
Constitution (122nd Amendment)
Bill, 2014 was introduced in the
Lok Sabha on December 19, 2014.
The following is the gist of
amendments proposed by this
Bill::- (1)The Bill seeks to amend
the Constitution to introduce the
goods and services tax (GST).
Consequently, the GST subsumes
various central indirect taxes
including the Central Excise Duty,
Additional Excise Duties, Service
Tax, Additional Customs Duty
(CVD) and Special Additional
Duty of Customs (SAD), etc. It
also subsumes state Value Added
Tax (VAT)/Sales Tax, Central
Sales Tax, Entertainment Tax,
Octroi and Entry Tax, Purchase
Tax and Luxury Tax, etc.
(2) Concurrent powers for GST:-
The Bill inserts a new Article
246A in the Constitution to give
the central and state governments
the concurrent power to make
laws on the taxation of goods and
services. (3)Integrated GST
(IGST):- However, only the
centre may levy and collect GST
on supplies in the course of inter-
state trade or commerce. The tax
collected would be divided
between the centre and the states
in a manner to be provided by
Parliament, by law, on the
recommendations of the GST
Council.
(3) GST Council:- The President
must constitute a Goods and
Services Tax Council within sixty
days of this Act coming into
force. The GST Council aim to
develop a harmonized national
market of goods and services.
(5)The Goods and Service Tax
Council shall recommend the
date on which the goods and
service tax be levied on petroleum
crude, high speed diesel, motor
spirit (commonly known as
petrol), natural gas and aviation
turbine fuel.
(5) Resolution of disputes:- The
GST Council may decide upon
the modalities for the resolution
of disputes arising out of its
recommendations.
(6) (7)Restrictions on imposition
of tax:- The Constitution imposes
certain restrictions on states on
the imposition of tax on the sale
or purchase of goods. The Bill
amends this provision to restrict
the imposition of tax on the
supply of goods and services and
not on its sale. (8)Additional Tax
on supply of goods:- An
additional tax (not to exceed 1%)
on the supply of goods in the
course of inter-state trade or
commerce would be levied and
collected by the centre. Such
additional tax shall be assigned to
the states for two years, or as
recommended by the GST
Council.
(9)Compensation to states:-
Parliament may by law provide
for compensation to states for
revenue losses arising out of the
implementation of the GST, on the
GST Council’s recommendations.
This would be up to a five-year
period. (10)The Government of
India may where it considers
necessary in the public interest,
exempt such goods from the levy
of tax. (11)The Centre would levy
and collect the Integrated Goods
and Services Tax (IGST) on all
inter-State supply of goods and
services. There will be seamless
flow of input tax credit from one
State to another. Proceeds of
IGST will be apportioned among
the States. (12)GST will be a
destination-based tax. All SGST
on the final product will
ordinarily accrue to the
consuming State.
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.
(4) 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 assessee shall be given a
transaction or specified domestic reasonable opportunity of being
transaction, two or more heard.
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
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/com
merce 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/-.
(4) 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 individuals
or entities depending on the level
of earnings or gains during a
financial year. The earnings may
be both actual and notional. The
Government of India decides the
rate of income tax as well as
income tax slabs on which
individuals are taxed. Those
under higher income slabs are
taxed at higher rates. The taxable
income slabs are changed from
time to time, keeping in mind the
price levels. Sometimes, the
government also provides income
tax rebates, which benefit people
in the lower-income group. To
collect long-term funds, the
government also provides income
tax incentives. The amount
invested in tax-saving schemes is
deducted from gross income,
which reduces the amount of
taxable income and benefits the
taxpayer.
WHO IS ELIGIBLE FOR
INCOME TAX?:- As income tax
is based on one’s ability to pay it,
different tax rates are applied to
different income slabs, which is
revised by the government from
time to time. Currently, there is
0% tax on taxable income up to
Rs 2,50,000, 5% tax is levied on
taxable income between Rs 2.5
lakh and Rs 5 lakh, 20 per cent
tax is levied on taxable income
between Rs 5 lakh to Rs 10 lakh.
For taxable income above Rs 10
lakh, 30% is the applicable rate.
On the tax payable, 4% Health
and Education cess is also
charged. Moreover, 10%
surcharge is levied on income
between Rs 50 lakh and Rs 1 crore
and 15% surcharge is levied on
income over Rs 1 crore. Tax
rebate (under section 87A) up to
Rs 12,500 is provided to the
assessees having total income after
Deductions up to Rs 5 lakh.
However, usual tax computation
will be applied in case the taxable
income exceeds Rs 5 lakh limit.
HOW IS INCOME TAX
CALCULATED IN INDIA?:-
Income tax in India is calculated
on the basis of tax rates determined
by the government for an
Assessment Year (AY). For
example: For AY 2019-20
(Financial Year 2018-19), the tax
payable may be calculated in the
following way:----------- Once the
gross total income is calculated by
adding all the above sources,
whichever applicable, deductions
on account of tax-saving
investments, allowed expenses,
donations etc are adjusted. The
main sections under which Income
Tax deductions in India are
allowed include up to Rs 1.5 lakh
under sections 80C, 80CCD,
80CCD(1), 80CCD(2) and 80CCG
combined; up to Rs 50,000 u/s
80CCD(1B); up to Rs 1 lakh u/s
80D and 80E, 80EE, 80G,
80TTA.------------ After the entire
eligible deduction amount is
reduced from the gross income,
the figure of taxable income is
arrived at. The income tax
amount that is payable is
computed on the basis of taxable
income.
CHARGE OF INCOME-TAX:-
(1)Where any Central Act enacts
that income-tax shall be charged
for any assessment year at any
rate or rates, income-tax at that
rate or those rates shall be
charged for that year in
accordance with, and subject to
the provisions (including
provisions for the levy of
additional income-tax) of, this Act
in respect of the total income of
the previous year of every person :
Provided that where by virtue of
any provision of this Act income-
tax is to be charged in respect of
the income of a period other than
the previous year, income-tax
shall be charged accordingly. (2)In
respect of income chargeable
under sub-section (1), income-tax
shall be deducted at the source or
paid in advance, where it is so
deductible or payable under any
provision of this Act.
SCOPE OF TOTAL INCOME:-
(1)Subject to the provisions of this
Act, the total income of any
previous year of a person who is a
resident includes all income from
whatever source derived which:-
(a)is received or is deemed to be
received in India in such year by
or on behalf of such person; or
(b)accrues or arises or is deemed
to accrue or arise to him in India
during such year; or (c)accrues or
arises to him outside India during
such year : Provided that, in the
case of a person not ordinarily
resident in India within the
meaning of sub-section (6)
of section 6, the income which
accrues or arises to him outside
India shall not be so included
unless it is derived from a business
controlled in or a profession set up
in India.
(2)Subject to the provisions of this
Act, the total income of any
previous year of a person who is a
non-resident includes all income
from whatever source derived
which:- (a)is received or is deemed
to be received in India in such
year by or on behalf of such
person; or (b)accrues or arises or
is deemed to accrue or arise to
him in India during such
year.--------- Explanation 1:-
Income accruing or arising
outside India shall not be deemed
to be received in India within the
meaning of this section by reason
only of the fact that it is taken into
account in a balance sheet
prepared in India.-----
- Explanation 2:- For the removal
of doubts, it is hereby declared
that income which has been
included in the total income of a
person on the basis that it has
accrued or arisen or is deemed to
have accrued or arisen to him
shall not again be so included on
the basis that it is received or
deemed to be received by him in
India.

INCOME TAX RETURN:- A
form that is used to declare the
net tax liability, claiming of tax
deductions, and to report the
gross taxable income is called
Income Tax Returns. It is
mandatory for individuals who
earn a certain amount of money
to file ITR. Firms or companies,
Hindu Undivided Families
(HUFs), and self-employed or
salaried individuals must file ITR
to the Income Tax Department.
Income tax filing can be defined as
the procedure by which ITR is
filed. The process by which
taxpayers file their returns online
is called efiling or ITR filing and it
can be completed on the Income
Tax Department website.
HOW TO FILE INCOME TAX
RETURN:- (1)ITR-1:- For
Individuals having income from
salary, one house property, other
sources (Interest etc.) and having
total income up to Rs.50 lakh.
(2)ITR-2:- For Individuals and
HUFs not carrying out business or
profession under any
proprietorship. (3)ITR-3:- For
Individuals and HUFs having
income from a proprietary
business or profession. (4)ITR-4:-
For Individual, HUF or Firm
opting for presumptive taxation
scheme. (5)ITR-5:- For Firm,
Limited Liability Partnership
(LLP), Association of Persons
(AOP), Body of Individuals (BOI),
Artificial juridical person, Private
Discretionary Trust, Cooperative
society, Registered societies, Local
authority. However, a person who
is required to file ITR-7 shall not
use this form. (6)ITR-6:- For
company, other than a company
claiming exemption under section
11 (exemption under section 11
can be claimed by
charitable/religious trust). (7)ITR-
7:- Persons including companies
who are
required to furnish return under
section 139(4A) or 139(4B) or
139(4C) or 139(4D) or section
139(4E) or section 139(4F) of the
Income-tax Act, 1961 (i.e., trusts,
political parties, institutions,
colleges, investment fund, etc.).
ITR FILING - IS IT
IMPORTANT:- Currently(FY
2019-20), is mandatory for one to
file income tax returns in India if
the following conditions are
applicable:- (1)If the gross total
annual income (before deductions
under 80C to 80U) is Rs. 2,50,000
(for ages less than 60 years), Rs.
3,00,000 (for ages 60 years but less
than 80 years) and Rs. 5,00,000
(for ages 80 years and above).
(2)If it’s a company or firm,
irrespective of the profit or loss
made in a financial year. (3)If a
tax refund needs to be claimed.
(4)If a loss under a head of income
needs to be carried forward. (5)If
being a resident of India, one has
an asset or financial interest in
any entity located outside India.
(6)If being a resident of India, one
is a signing authority in a foreign
account. (7)If one receives income
derived from property held under
a trust for charitable or religious
purposes or a political party or a
research association, news agency,
educational or medical institution,
trade union, a not for profit
university or educational
institution, a hospital,
infrastructure debt fund, any
authority, body or trust. (8)If one
is applying for a loan or a visa.
(9)If an NRI derives any or all of
his/her income through sources in
India, that income is liable to be
taxable in India, and income tax
returns for the same will be
necessary.
PROVISIONS RELATING TO
INCOME TAX RETURNS:- (1)In
the case of Companies:- Every
person, being a company, has to
file its return of income
compulsorily, irrespective of its
income being profit or loss. In
other words, it is mandatory for
every company to file the return
of income irrespective of its
income or loss. (2)In the case of
Partnership Firms:- Every person,
being a partnership firm
(including Limited Liability
Partnership), has to file its return
of income compulsorily,
irrespective of its income being
profit or loss. In other words, it is
mandatory for every partnership
firm to file the return of income
irrespective of its income or loss.
(3)In the case of an
Individual/HUF/AOP/BOI/Artifici
al Juridical Person:- Every
individual/HUF/AOP/BOI/artifici
al juridical person has to file the
return of income if his total
income (including income of any
other person in respect of which
he is assessable) without giving
effect to the provisions of section
10(38), 10A, 10B, 10BA 54, 54B,
54D, 54EC, 54F, 54G, 54GA, or
54GB or Chapter VIA (i.e.,
deduction under section 80C to
80U), exceeds the maximum
amount which is not chargeable to
tax i.e. exceeds the exemption
limit. (4)In the case of Charitable
or Religious Trusts:- Every person
in receipt of income derived from
property held under charitable or
religious trusts/legal obligations or
in receipt of income being
voluntary contributions referred
to in section 2(24)(iia), has to file
the return of income if its total
income without giving effect to the
provisions of sections 11 and 12
exceeds the maximum amount not
chargeable to income-tax.
(5) In the case of Political
Parties:- The Chief Executive
Officer of every political party has
to file the return of income of the
party if the total income of the
party without giving effect to the
provisions of section 13A exceeds
the maximum amount not
chargeable to income-tax.
(6)In the case of certain
Associations:- Following entities
are liable to file the return of
income if their total income
without giving effect to the
provisions of section 10 exceeds
the maximum amount not
chargeable to tax:- (i)Research
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/universit
y/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
Fund referred to in clause (23EE)
of section 10 (xi)Venture capital
company or venture capital fund
referred to in clause (23FB) of
section 10; (xii)Trade
union/association referred to in
sub-clause (a) or (b) of section
10(24) (xiii)Board or Authority
referred to in clause (29A) of
section 10.
(xiv)Body/authority/Board/Trust/
Commission referred to in section
10(46) (xv)Infrastructure debt
fund referred to in section 10(47)
(7)In the case of certain
University, College or other
Institution:- Every university,
college or other institution
referred to in clause (ii) and clause
(iii) of section 35(1), which is not
required to furnish return of
income or loss under any other
provision of the Act, shall furnish
the return of income every year,
irrespective of income (or) loss.
(8)In the case of Business Trust :-
Every business trust, which is not
required to furnish return of
income or loss under any other
provision of the Act, shall furnish
the return of income every year,
irrespective of income (or) loss.
(9)In case of Investment Fund
referred to in section 115UB:-
Every investment fund referred to
in section 115UB, which is not
required to furnish return of
income or loss under any other
provisions, shall furnish the
return of income in respect of its
income or loss every year
irrespective of income (or) loss.
SPECIAL PROVISIONS
RELATING TO INCOMES OF
NON‐RESIDENTS:- Chapter
XIIA of the Income Tax Act deals
with special provisions relating
to certain incomes of non-
residents. As per Sec 115C, unless
the context otherwise requires:-
(a)"Convertible Foreign
Exchange" means foreign
exchange which is for the time
being treated by the Reserve Bank
of India as convertible foreign
exchange for the purposes of the
Foreign Exchange Management
Act, 1999 (42 of 1999), and any
rules made thereunder;
(b)"Foreign Exchange Asset"
means any specified asset which
the assessee has acquired or
purchased with, or subscribed to
in, convertible foreign exchange;
(c)"Investment Income" means
any income derived other than
dividends referred to in section
115-O from a foreign exchange
asset; (d)"Long-Term Capital
Gains" means income chargeable
under the head "Capital gains"
relating to a capital asset, being a
foreign exchange asset which is
not a short-term capital asset;
(e)"Non-Resident Indian" means
an individual, being a citizen of
India or a person of Indian origin
who is not a "Resident".
Explanation:- A person shall be
deemed to be of Indian origin if
he, or either of his parents or any
of his grand-parents, was born in
undivided India; (f)"specified
asset" means any of the following
assets, namely:- (i)Shares in an
Indian company; (ii)Debentures
issued by an Indian company
which is not a private company as
defined in the Companies Act,
1956 (1 of 1956); (iii)Deposits with
an Indian company which is not a
private company as defined in the
Companies Act, 1956 (1 of 1956);
(iv)any security of the Central
Government as defined in clause
(2) of section 2 of the Public Debt
Act, 1944 (18 of 1944); (v)such
other assets as the Central
Government may specify in this
behalf by notification in the
Official Gazette.--
-------------- Section 115D of
Income Tax Act "Special
provision for computation of total
income of non-residents”:- (1)No
deduction in respect of any
expenditure or allowance shall be
allowed under any provision of
this Act in computing the
investment income of a non-
resident Indian. (2)Where in the
case of an assessee, being a non-
resident Indian:- (a)the gross total
income consists only of investment
income or income by way of long-
term capital gains or both, no
deduction shall be allowed to the
assessee under Chapter VI-A and
nothing contained in the
provisions of the second proviso to
section 48 shall apply to income
chargeable under the head
"Capital gains"; (b)the gross total
income includes any income
referred to in clause (a), the gross
total income shall be reduced by
the amount of such income and
the deductions under Chapter VI-
A shall be allowed as if the gross
total income as so reduced were
the gross total income of the
assessee.
SPECIAL PROVISIONS
RELATING TO INCOMES OF
CERTAIN COMPANIES:-
(1)Notwithstanding anything
contained in any other provision
of this Act, where in the case of an
assessee being a company (other
than a company engaged in the
business of generation or
distribution of electricity), the
total income, as computed under
this Act in respect of any previous
year relevant to the assessment
year commencing on or after the
1st day of April, 1988 but before
the 1st day of April, 1991
(hereafter in this section referred
to as the relevant previous year),
is less than thirty per cent of its
book profit, the total income of
such assessee chargeable to tax for
the relevant previous year shall be
deemed to be an amount equal to
thirty per cent of such book profit.
(1A)Every assessee, being a
company, shall, for the purposes
of this section, prepare its profit
and loss account for the relevant
previous year in accordance with
the provisions of Parts II and III
of Schedule VI to the Companies
Act, 1956 (1 of 1956).
Explanation:- For the purposes of
this section, "book profit" means
the net profit as shown in the
profit and loss account for the
relevant
previous year prepared under
sub-section (1A), as increased by:-
(a) the amount of income-tax paid
or payable, and the provision
therefore; or (b)the amounts
carried to any reserves (other
than the reserves specified in
section 80HHD or sub-section (1)
of section 33AC), by whatever
name called; or (c)the amount or
amounts set aside to provisions
made for meeting liabilities, other
than ascertained liabilities; or
(d)the amount by way of provision
for losses of subsidiary companies;
or (e)the amount or amounts of
dividends paid or proposed; or
(f)the amount or amounts of
expenditure relatable to any
income to which any of the
provisions of Chapter III applies;
or (g)the amount withdrawn from
the reserve account under section
80HHD, where it has been utilised
for any purpose other than those
referred to in sub-section (4) of
that section; or (h)the amount
credited to the reserve account
under section 80HHD, to the
extent that amount has not been
utilised within the period specified
in sub-section (4) of that section.
(2)Nothing contained in sub-
section (1) shall affect the
determination of the amounts in
relation to the relevant previous
year to be carried forward to the
subsequent year or years under
the provisions of sub-section (2) of
section 32 or sub-section (3) of
section 32A or clause (ii) of sub-
section (1) of section 72 or section
73 or section 74 or sub-section (3)
of section 74A or sub-section (3) of
section 80J.
WHO ARE THE INCOME TAX
AUTHORITIES:- According to
Sec 116, there shall be the
following classes of Income Tax
Authorities for the purposes of
this Act, namely:- (a) the Central
Board of Direct Taxes constituted
under the Central Boards of
Revenue Act, 1963 (54 of 1963),
(aa) Principal Directors General
of Income-tax or Principal Chief
Commissioners of Income-tax,
(b)Directors-General of Income-
tax or Chief Commissioners of
Income-tax, (ba) Principal
Directors of Income-tax or
Principal Commissioners of
Income-tax, (c)Directors of
Income-tax or Commissioners of
Income-tax or Commissioners of
Income-tax (Appeals), (cc)
Additional Directors of Income-
tax or Additional Commissioners
of Income-tax or Additional
Commissioners of Income-tax
(Appeals), (cca)Joint Directors of
Income-tax or Joint
Commissioners of Income-tax,
(d)Deputy Directors of Income tax
or Deputy Commissioners of
Income-tax or Deputy
Commissioners of Income-tax
(Appeals), (e)Assistant Directors
of Income-tax or Assistant
Commissioners of Income-tax,
(f)Income-tax Officers, (g)Tax
Recovery Officers, (h)Inspectors
of Income-tax.
APPOINTMENT OF INCOME-
TAX AUTHORITIES (SEC 117):-
(1)The Central Government may
appoint such persons as it thinks
fit to be income-tax authorities.
(2)Without prejudice to the
provisions of sub-section (1), and
subject to the rules and orders of
the Central Government
regulating the conditions of
service of persons in public
services and posts, the Central
Government may authorise the
Board, or a [Principal Director
General or] Director-General, a
[Principal Chief Commissioner
or] Chief Commissioner or a
[Principal Director or] Director or
a [Principal Commissioner or]
Commissioner to appoint income-
tax authorities below the rank of
an Assistant Commissioner or
Deputy Commissioner. (3)Subject
to the rules and orders of the
Central Government regulating
the conditions of service of
persons in public services and
posts, an income- tax authority
authorised in this behalf by the
Board may appoint such executive
or ministerial staff as may be
necessary to assist it in the
execution of its functions.
CONTROL OF INCOME-TAX
AUTHORITIES(SEC 118):- The
Board may, by notification in the
Official Gazette, direct that any
income-tax authority or
authorities specified in the
notification shall be subordinate
to such other income-tax authority
or authorities as may be specified
in such notification.
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.
previous year prepared under
sub-section (1A), as increased by:-
(a) the amount of income-tax paid
or payable, and the provision
therefore; or (b)the amounts
carried to any reserves (other
than the reserves specified in
section 80HHD or sub-section (1)
of section 33AC), by whatever
name called; or (c)the amount or
amounts set aside to provisions
made for meeting liabilities, other
than ascertained liabilities; or
(d)the amount by way of provision
for losses of subsidiary companies;
or (e)the amount or amounts of
dividends paid or proposed; or
(f)the amount or amounts of
expenditure relatable to any
income to which any of the
provisions of Chapter III applies;
or (g)the amount withdrawn from
the reserve account under section
80HHD, where it has been utilised
for any purpose other than those
referred to in sub-section (4) of
that section; or (h)the amount
credited to the reserve account
under section 80HHD, to the
extent that amount has not been
utilised within the period specified
in sub-section (4) of that section.
(2)Nothing contained in sub-
section (1) shall affect the
determination of the amounts in
relation to the relevant previous
year to be carried forward to the
subsequent year or years under
the provisions of sub-section (2) of
section 32 or sub-section (3) of
section 32A or clause (ii) of sub-
section (1) of section 72 or section
73 or section 74 or sub-section (3)
of section 74A or sub-section (3) of
section 80J.
WHO ARE THE INCOME TAX
AUTHORITIES:- According to
Sec 116, there shall be the
following classes of Income Tax
Authorities for the purposes of
this Act, namely:- (a) the Central
Board of Direct Taxes constituted
under the Central Boards of
Revenue Act, 1963 (54 of 1963),
(aa) Principal Directors General
of Income-tax or Principal Chief
Commissioners of Income-tax,
(b)Directors-General of Income-
tax or Chief Commissioners of
Income-tax, (ba) Principal
Directors of Income-tax or
Principal Commissioners of
Income-tax, (c)Directors of
Income-tax or Commissioners of
Income-tax or Commissioners of
Income-tax (Appeals), (cc)
Additional Directors of Income-
tax or Additional Commissioners
of Income-tax or Additional
Commissioners of Income-tax
(Appeals), (cca)Joint Directors of
Income-tax or Joint
Commissioners of Income-tax,
(d)Deputy Directors of Income tax
or Deputy Commissioners of
Income-tax or Deputy
Commissioners of Income-tax
(Appeals), (e)Assistant Directors
of Income-tax or Assistant
Commissioners of Income-tax,
(f)Income-tax Officers, (g)Tax
Recovery Officers, (h)Inspectors
of Income-tax.
APPOINTMENT OF INCOME-
TAX AUTHORITIES (SEC 117):-
(1)The Central Government may
appoint such persons as it thinks
fit to be income-tax authorities.
(2)Without prejudice to the
provisions of sub-section (1), and
subject to the rules and orders of
the Central Government
regulating the conditions of
service of persons in public
services and posts, the Central
Government may authorise the
Board, or a [Principal Director
General or] Director-General, a
[Principal Chief Commissioner
or] Chief Commissioner or a
[Principal Director or] Director or
a [Principal Commissioner or]
Commissioner to appoint income-
tax authorities below the rank of
an Assistant Commissioner or
Deputy Commissioner. (3)Subject
to the rules and orders of the
Central Government regulating
the conditions of service of
persons in public services and
posts, an income- tax authority
authorised in this behalf by the
Board may appoint such executive
or ministerial staff as may be
necessary to assist it in the
execution of its functions.
CONTROL OF INCOME-TAX
AUTHORITIES(SEC 118):- The
Board may, by notification in the
Official Gazette, direct that any
income-tax authority or
authorities specified in the
notification shall be subordinate
to such other income-tax authority
or authorities as may be specified
in such notification.
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
the Commissioner therefore.
(4)Any proceeding before any
authority referred to in this
section shall be deemed to be a
judicial proceeding within the
meaning of sections 193 and 228,
and for the purposes of section
196 of the Indian Penal Code
(XLV of 1860)].
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 assessee 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.
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
the Commissioner therefore.
(4)Any proceeding before any
authority referred to in this
section shall be deemed to be a
judicial proceeding within the
meaning of sections 193 and 228,
and for the purposes of section
196 of the Indian Penal Code
(XLV of 1860)].
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 assessee 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 form of a laminated plastic card
from a horticultural land. (commonly known as PAN card).
Agricultural income is defined Given below is an illustrative
under section 2(1A) of the Income PAN:- ALWFG5809L ------------
Tax Act, 1961. According to this The fourth character of PAN
Section, agricultural income represents the status of the PAN
generally means:- (a) Any rent or holder. A partnership firm is
revenue derived from land which represented by the character ‘F’
is situated in India and is used for (e.g. ALWFG5809L).
agricultural purposes. (b) Any
ASSESSEE:-Assessee means a
income derived from such land by
person by whom any tax or any
agriculture operations including
other sum of money is payable
processing of agricultural produce
under this Act, and includes:-
so as to render it fit for the market
(a)every person in respect of
or sale of such produce. (c) Any
whom any proceeding under this
income attributable to a farm
Act has been taken for the
house subject to satisfaction of
assessment of his income or
certain conditions specified in this
assessment of fringe benefits or of
regard in section 2(1A). (d) Any
the income of any other person in
income derived from saplings or
respect of which he is assessable,
seedlings grown in a nursery shall
or of the loss sustained by him or
be deemed to be agricultural
by such other person, or of the
income.
amount of refund due to him or to
TURNOVER:- As per Section such other person; (b)every
44AB of the Income Tax Act, an person who is deemed to be an
assessee whose turnover from assessee under any provision of
profits and gains from business or this Act; (c)every person who is
profession exceeds Rs. 1,00,00,000 deemed to be an assessee in
during the Financial Year shall default under any provision of this
mandatorily get its books of Act.
accounts audited under the said
ASSESSING OFFICER:-
section. However I am little bit
Assessing Officer means the
confused regarding the definition
Assistant Commissioner or
of "Turnover". Can anybody
Deputy Commissioner or
please explain me which elements
Assistant Director or Deputy
are included and which elements
Director or the Income-tax Officer
are excluded for calculation of
who is vested with the relevant
turnover for the purpose of
jurisdiction by virtue of directions
Section 44AB. And also state the
or orders issued under sub-section
section from where I could refer
(1) or sub-section (2) of section
it. Definition of the term Turnover
120 or any other provision of this
has not been defined anywhere in
Act, and the Additional
section 44AB.
Commissioner or Additional
Director or Joint Commissioner
AGGREGATE TURNOVER:-
or Joint Director who is directed
Aggregate Turnover means the
under clause (b) of sub-section (4)
aggregate value of all taxable
of that section to exercise or
supplies (excluding the value of
perform all or any of the powers
inward supplies on which tax is
and functions conferred on, or
payable by a person on reverse
assigned to, an Assessing Officer
charge basis), exempt supplies,
under this Act.
exports of goods or services or
both and inter-State supplies of
persons having the same
CANON OF EQUALITY:- Canon
Permanent Account Number, to
of equality states that the burden
be computed on all India basis but
of taxation must be distributed
excludes central tax, State tax,
equally or equitably among the
Union territory tax, integrated tax
taxpayers. However, this sort of
and cess.
equality robs of justice because
CANONS OF TAXATION:- The
not all taxpayers have the same
canons of taxation were first
ability to pay taxes. Rich people
presented by Adam Smith in his
are capable of paying more taxes
famous book ‘The Wealth of
than poor people. Thus, justice
Nations’. These canons of taxation
demands that a person having
define numerous rules and
greater ability to pay must pay
principles upon which a good
large taxes.----------- If everyone is
taxation system should be built.
asked to pay taxes according to his
Although these canons of taxation
ability, then sacrifices of all
were presented a very long time
taxpayers become equal. This is
ago, they are still used as the
the essence of canon of equality (of
foundation of discussion on the
sacrifice). To establish equality in
principles of taxation.---------
sacrifice, taxes are to be imposed
Adam Smith originally presented
in accordance with the principle of
only 4 canons of taxation, which
ability to pay. In view of this,
are also commonly referred to as
canon of equality and canon of
the ‘Main Canons of Taxation’ or
ability are the two sides of the
‘Adam Smith’s Canons of
same coin. CANON OF
Taxation’.
CERTAINTY:- The tax which an
individual has to pay should be
PAN:- PAN stands for Permanent
certain and not arbitrary.
Account Number. PAN is a ten-
According to A. Smith, the time of
digit unique alphanumeric
payment, the manner of payment,
number issued by the Income Tax
the quantity to be paid, i.e., tax
Department. PAN is issued in the
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.
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 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.
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