Taxation

Commerce Eed - Vision
By,
Gobind Kumar Jha

CA (F), L.L.B(H), M.COM,
B.COM(H)
Gobind Kumar Jha 9874411552
Unit-1 Basic Concepts of Indirect Tax and

Overview of GST [5 Marks]
1. GST: Short title, extent and commencement.
(a) This Act may be called the Central Goods and Services Tax Act, 2017.
(b) It extends to the whole of India
2. Concept of Indirect Taxes

Meaning
Indirect Tax is a tax of which incidence and impact fall on two different person.
 Incidence falls on the person who pays the tax to the Government and
 Impact falls on the person who finally bears the burden of tax.
Tax is paid by one person and borne by another. It is generally levied on goods, services, expenditure,
consumption, import, export, etc. Indirect tax is often also known as the consumption tax.
Example
GST: GST is paid by Suppliers (seller) but borne by recipient (buyer).
Custom duty: Custom duty is paid by importer but borne by ultimate buyer of goods.
Regressive in nature
These taxes are regressive in nature i.e. it imposes equal burden of tax on payer irrespective of his income. In
other words, it imposes same effect on richer and poor class.
Features of Indirect Taxes
1. Regressive in nature: IDT is regressive in nature. Both richer and poor need to pay tax of same
amount.
2. Tax on goods and services: IDT is generally levied on goods or services or both, e.g. GST, Custom
duty.
3. Shifting of burden: Tax burden I case IDT can be shifted. The person who pays tax can recover the
same from another person. And ultimately burden of GST falls on consumer.
4. Inflationary: IDT are inflationary in nature. It causes increases in price.
5. Wider tax base: IDT has wider tax base then Direct tax. Hence, it generates more revenue.
6. Major source of revenue: IDT is the major source of revenue.
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3. Difference between Direct Tax and Indirect Tax
S.N Particulars Direct Tax Indirect Tax

1 Meaning Direct Tax is a tax of which Indirect Tax is a tax of which
incidence and impact fall on incidence and impact fall on two
same person. different persons.
2 Nature of tax Direct Tax is progressive in Indirect Tax is regressive in nature.
nature.
3 Imposition It is generally imposed on It is generally imposed on goods or
Income of the person. services.
4 Inflation It does not causes inflation It may cause increase in inflation
5 Tax evasion It leads to more tax evasion It comparatively has less chances of
because only one person is tax evasion because two persons are
involved. involved.
6 Administrative cost It causes high administrative It causes low administrative cost to

cost to Government. Governments.
7 Example Income tax, Corporate GST, Custom duty, Securities
dividend tax, Municipal tax, transaction tax etc.
etc.
4. What is Goods and Services Tax (GST)?

GST is a single uniform indirect tax which was introduced to replace Central and State indirect taxes such as
VAT, CST, and others. GST applies on all types of businesses, small or large. This makes it one of the greatest
tax reforms in the country. The entire nation will follow a unified tax structure. As the name suggests, GST will
be applicable on both goods and services and India will follow a dual system of GST to keep both the Centre
and State independent of each other. The GST council will be headed by the Union Finance Minister and it will
consist of various State Finance Ministers. GST will be devised as a four-tiered tax structure with tax slabs of
5%, 12%, 18%, and 28% for various different categories of products and services. 0% rate is kept for most
essential goods such as rice, wheat.
5. Concept of GST
(a) GST stands for “Goods and Service Tax”
(b) It is levied on supply of goods or service or both.
(c) It is an Indirect tax.
(d) It is applicable all over India.
(e) Its main objective is to consolidate all indirect taxes into a single tax.
(f) It is a type of value added tax.
(g) Input tax credit is the main feature of GST. Tax (GST) paid on input shall be adjusted with tax (GST)
payable on output.
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6. Salient features of GST in brief:

The salient features of GST are as follows:
(a) GST is an indirect tax.
(b) No distinction is made between goods and services except in certain cases for certain purposes.
(c) For the words manufacture, sale, service, etc. the only ‘Supply’ is used. Supply covers all forms of
supplies like sale, barter, rental, lease, exchange or disposal.
(d) GST is levied on supply of goods or service or both.
(e) It is a consumption based tax. Tax is payable in the State where goods or services are finally consumed.
(f) GST is levied both by Central Government and State Government/Union territory on a common sale
(i.e. supply) according to the relevant provisions of the Act. Thus, GST introduced in India is dual GST.
(g) Tax paid on inward supplies is available as input tax credit against tax on outward supplies subject to
fulfillment of certain conditions.
(h) GST law is applicable all over India
7. Objectives of GST
Objectives of GST are as under :
(a) To Develop national Market- One Nation, one Tax
(b) To Remove cascading effect of various indirect taxes.
(c) To reduce multiplicity of indirect taxes.
(d) To Eliminate classification dispute between goods & services.
(e) To avoid overlapping of State & Central Tax.
(f) To remove barriers in inter-State movement of goods
(g) To reduce wastage of truck time & wastage of man-hours at check posts.
(h) To ease the administrative control.
(i) To reduce the compliance cost.
(j) Uniformity of tax rates and automated compliances.
(k) Ensuring availability of input tax credit across the value chain
(l) Simplification of registration, filing of return, tax administration and compliance.
(m) Harmonization of tax base, laws, and administration procedures across the country.
(n) Minimizing tax rate slabs to avoid classification issues.
(o) Prevention of unhealthy competition among states.
(p) Increasing the tax base and raising compliance.
(q) Free movement of Goods across the country without any additional tax.
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8. Advantages of GST in brief: [Important]

The chief advantages of GST are mentioned below:
(a) As almost all indirect taxes are subsumed in one tax i.e. GST, it would be easier to handle the single
legislation both by the taxpayer and tax administrators.
(b) It eliminates the cascading effect of several indirect taxes.
(c) It eliminates the unhealthy competition among the States.
(d) GST is levied on a common base i.e. ‘supply’ of goods and services. Thus, separate valuation rules are
not required to be followed for changing different indirect taxes.
(e) An input tax credit (ITC) is available under the GST Act subject to fulfillment of certain conditions,
payment of GST would not be considered as cost. As a result, cost of goods and services will be
reduced.
(f) Composition scheme is available to small taxpayers. In such a case, compliance procedure would be
comparatively less.
9. Structure of GST
Structure of GST
India is a federal country, which means there’s division of power between the Central government and the State
governments. Because of India’s Federal structure, dual GST model had been adopted. This means GST is
administered by the Central Government and State Government.
What is Dual Model?
Dual model GST is applicable in India i.e. two varieties of GST will be charged on same bill i.e. CGST (Central
goods and service tax) and SGST (State goods and service tax). On an Intra State Supply, both CGST and SGST
shall be applicable. Amount of CGST is revenue of the Central Government and the amount of SGST is revenue
of State Government.
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10. Types of GST

There are four types of GST:
1. Central Goods and Services Tax (CGST)
2. State Goods and Services Tax (SGST)
3. Integrated Goods and Services Tax (IGST)
4. Union Territory Goods and Services Tax (UTGST)
1. What is 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 intra-state (within
one state) transaction, the other one being SGST (or UTGST for Union Territories).
2. What is 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. The
State Government is the sole claimer of the revenue earned under SGST.
3. What is IGST?
Integrated GST (IGST) is applicable on inter-state (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.
4. What is UTGST (or UGST)?
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.
Difference between Different Types of GST Taxes
Types of
CGST SGST IGST UGST/UTGST
Differences
Inter-state
Applicable
Intrastate Intrastate (between two Within one
transactions
(Within one (Within one states or one state Union Territory
(Goods &
state) state) and one UT) and (UT)
Services)
imports
Central
Collected by State Govt. Central Govt. UT Govt.
Govt.
Benefitting Central Central Govt. &

State Govt. UT Govt.
Authority Govt. State Govt.
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11. Taxes subsumed in GST [Important]

OR
The GST replaces which indirect taxes?
GST subsumes following taxes:
Central Taxes Subsumed in GST
(a) Central Excise Tax
(b) Additional Excise Duties
(c) Service Tax
(d) Additional Custom duty, commonly known as Countervailing Tax (CVD)
(e) Special Additional Tax of Customs (SAD)
(f) Surcharges, and
(g) Cess as they relate to goods or services.
State Taxes Subsumed in GST
(a) VAT / Sales tax
(b) Entertainment tax (excluding Entertainment tax levied by the local bodies).
(c) Luxury tax
(d) Purchase tax
(e) Taxes on lottery, betting and gambling.
(f) State Cess and Surcharges in so far as they relate to supply of goods and services.
(g) Entry tax / Octroi
(h) Taxes on advertisement
(i) Central Sales Tax
12. Taxes not subsumed in GST

Many of the indirect taxes are not subsumed in GST, few of these are illustrated here
(a) Custom duty
(b) Stamp duty
(c) Securities transaction Tax
(d) Electricity tax
(e) State Excise on Alcohol
(f) Entertainment Tax (Levied by Local Bodies)
(g) Central Excise on Petroleum products, Tobacco
(h) VAT on Petroleum Products and Alcohol
(i) Profession Tax
(j) Property Tax levied by Local Bodies
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13. Non-applicability of GST

There are certain activities which are items not covered under GST. They are beyond the scope of GST, i.e.,
GST will not apply on them. These are classified under Schedule III of the GST Act as “Neither goods nor
services”.
(a) Services by an employee to the employer in relation to his employment
(b) Courts will not charge GST to pass judgement.
(c) Duties performed by The Members of Parliament, State Legislature, Panchayats, Municipalities and
other local authorities etc are not chargeable to GST
(d) There are no taxes on funeral services for any religion.
(e) Actionable claims (other than lottery, betting and gambling): Actionable Claims’ means claims which
can be enforced only by a legal action or a suit, example a book debt, bill of exchange, promissory note.
(f) Supply of goods from a place in the non-taxable territory to another place in the non-taxable territory
(g) Supply in Customs port before Home consumption.
Apart from Schedule III, GST is also not applicable on the following, i.e., they are beyond the scope of GST:
(a) Alcohol for human consumption
(b) Electricity [it shall be liable to electricity tax]
(c) 5 verities of Petroleum Products
14. Rate of GST

Rate of GST varies from product to product. There are 4 popular rates of GST i.e.
(a) 5% (2.5% CGST + 2.5% SGST)
(b) 12% (6% CGST + 6 % SGST)
(c) 18% (9 % CGST + 9 % SGST) and
(d) 28% (14 % CGST+14 % SGST)
Note:
(a) Special Rate of GST on Jewellery: It is 3% in case of Gold, Silver, Platinum, jeweler and limitation
jeweler.
(b) In case of Rough diamond rate of GST is 0.25%
15. GST Compensation Cess

Goods and Services Tax (Compensation to States) Act, 2017 was enacted to levy Compensation cess for
providing compensation to the States for the loss of revenue arising on account of implementation of the goods
and service tax.
(a) Compensation cess shall be levied on goods such as Pan Masala, Tobacco and manufactured tobacco
substitutes, coal, aerated water, Luxury car etc.
(b) It is levied to provide compensation to the States for loss of revenue arising on account of
implementation of the GST for a period of 5 years.
(c) General rate of compensation cess is 15 %.
(d) It is levied on assessable value (and not on the amount of tax).
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16. Definitions: Aggregate turnover [Section 2 (6)]

As per Section 2(6) of the CGST Act, “Aggregate turnover” means the aggregate value of
(a) all taxable supplies
(b) exempt supplies
(c) export of goods or services or both
(d) includes inter-state supplies
Aggregate turnover of a person having the same Permanent Account Number (PAN) shall be computed on all
India basis. It includes stock transfer & Branch Transfer. However It does not include the followings:
(a) the value of inward supplies on which tax is payable by a person on reverse charge basis.
(b) excludes Central tax, State tax, Union tax, integrated tax and Cess.
17. Definitions: Capital goods [Section 2 (19]

As per Section 2(19) of the CGST Act, “capital goods” means goods,
(a) The value of which is capitalized in the books of account of the person claiming the input tax credit and
(b) Which are used or intended to be used in the course or furtherance of business;
18. Definitions: Casual taxable person [Section 2 (20]

As per Section 2(20) of the CGST Act, “casual taxable person” means
a person who occasionally undertakes transactions involving supply of goods or services or both in the course or
furtherance of business. Such supply may be made
— whether as principal, agent or in any other capacity,
— in a State or a Union territory
— where he has no fixed place of business.
19. Definitions: Goods [Section 2 (52)] [Important]

As per Section 2(52) of the CGST Act, 2017, “goods” means
— every kind of movable property
— other than money and securities
— but includes
 actionable claim,
 growing crops,
 grass and things attached to or forming part of the land
— which are agreed to be severed before supply or under a contract of supply.
20. Definitions: lnput [Section 2 (59)]

As per Section 2(59) of the Central Goods and Services Tax (CGST) Act, 2017, “input” means any goods other
than capital goods used or intended to be used by a supplier in the course or furtherance of business.
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21. Definitions: lnput tax [Section 2 (62)]

As per Section 2(62) of the Central Goods and Services Tax (CGST) Act, 2017, input tax” in relation to a
registered person, means the CGST, SGST, IGST or UTGST charged on any supply of goods or services or both
made to him and includes-
(a) IGST charged on import of goods;
(b) The tax payable under Reserve charge mechanism for inward supplies.
However, input tax does not include the tax paid under the composition levy.
22. Definitions: lnput tax credit [Section 2 (63)]

As per Section 2(63) of the Central Goods and Services Tax (CGST) Act, 2017, “input tax credit” means
the credit of input tax;
23. Definitions: Output tax [Section 2 (82)]

As per Section 2(82) of the Central Goods and Services Tax (CGST) Act, 2017, “Output Tax “in relation to
a taxable person,
 Means the tax chargeable under this Act on taxable supply made by him or by his agent;
 But excludes tax payable by him on reverse charge basis.
24. Definitions: Person [Section 2 (84)]

As per Section 2(84) of the Central Goods and Services Tax (CGST) Act, 2017 “Person” includes –
(a) An Individual;
(b) A Hindu Undivided Family;
(c) A Company;
(d) A Firm;
(e) A Limited Liability Partnership
(f) An AOP (association of persons) or a BOI (body of individuals), (whether incorporated or
not) in India or outside India
(g) Any Corporation established by or under any Central Act, State Act or Provincial Act or a
Government company;
(h) Any Body corporate incorporated by or under the laws of a country outside India;
(i) A co-operative society registered under any law relating to co-operative societies;
(j) A local authority
(k) Central Government or a State Government;
(l) Society as defined under the Societies Registration Act, 1860;
(m) Trust; and
(n) Every Artificial juridical person, not falling within any of the above.
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25. Definitions: Place of business [Section 2 (85)]

As per Section 2(85) of the Central Goods and Services Tax (CGST) Act, “Place of Business” includes
–
(a) A place from where the business is ordinarily carried on, and includes a warehouse, a godown o any
other place where a taxable person stores his goods, supplies or receives goods or services or both; or
(b) A place where a taxable person maintains his books of account; or
(c) A place where a taxable person is engaged in business through an agent, by whatever name called.
[POB = Ordinary place of business + Warehouse + Place where Accounts kept + Agent’s place]
26. Definitions: Registered Person [Section 2 (94)]

As per Section 2(94) of the Central Goods and Services Tax (CGST) Act “Registered person” –
(a) Means a person who is registered u/s 25 of the CGST Act,
(b) But does not include a person having a Unique Identity Number.
27. Definitions: Services [Section 2 (102)]

As per Section 2(102) of the Central Goods and Services Tax (CGST) Act “Services” means –
(a) anything other than
 goods
 money and
 securities
(b) However it includes activities relating to the use of money or its conversion by cash or by any other
mode, from one form, currency or denomination, to another form, currency or denomination for which a
separate consideration is charged.
28. Definitions: Taxable person [Section 2 (107)]

As per Section 2(107) of the Central Goods and Services Tax (CGST) Act “Taxable Person” means
(a) a person who is registered or
(b) liable to be registered u/s 22 or 24.
29. Definitions: Turnover in state and union territory [2 (112]

As per Section 2(107) of the Central Goods and Services Tax (CGST) Act “Turnover in State” or
“Turnover in Union Territory” means the aggregate value of:
(a) All taxable supplies (excluding the value of inward supplies on which tax is payable by a person on
reverse charge basis) and
(b) Exempt supplies made within a State or Union territory by a taxable person and
(c) Export of goods or services or both and
(d) inter-State supplies of goods or services or both made from the State or Union territory by the said
taxable person
(e) But excludes CGST, SGST, IGST, UTGST and Cess.
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30. Meaning of Business under GST explained with illustrations

[For knowledge purpose only]
As per Sec 2(17) of CGST Act, 2017 “Business” includes :
(a) any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity,
whether or not it is for a pecuniary benefit;
 Banks providing financial services to its customers.
 Company manufacturing turbines for export and local sale.
 Provision of CA services to client such as audit and consultancy.
 An artist earning income for dance performances.
 Gambling in a Derby.
 Charitable hospital providing free medicines to farmers.
Note: Pecuniary benefit means monetary benefits. It’s a benefit or compensation that is quantifiable in monetary
terms. The primary significance of this term is economic gain by the entity.
(b) any activity or transaction in connection with or incidental or ancillary to (a) above;
 Provisions of lockers for rent to customers in the Bank premises as Banks have high security.
Turbine Manufacturing company letting out R&D facilities to research units towards improvement of product
and expansion.
(c) any activity or transaction in the nature of(a) above, whether or not there is volume, frequency, continuity or
regularity of such transaction;
 Mr. X gambles for the first time in Derby and wins.
 Sale of mangoes by a farmer during summer in flea market.
 Sale of old newspapers by a CA firm.
(d) supply or acquisition of goods including capital assets and services in connection with commencement or
closure of business;
 Services rendered by a Company Secretary to incorporate a Company.
 Real estate agent helping Company to acquire factory godown for a commission.
(e) provision by a club, association, society, or any such body (for a subscription or any other consideration) of
the facilities or benefits to its members, as the case may be;
 Cooperative society formed for lending loans to farmers.
 Recreation club formed by apartment owners.
(f) admission, for a consideration, of persons to any premises; and
 PVR selling movie tickets.
 Museums run by Governments for an entry fee to public to display objects of historical
significance.
(g) services supplied by a person as the holder of an office which has been accepted by him in the course or
furtherance of his trade, profession or vocation;
 Consultancy service provided by a Company CFO regarding Mergers to another company.
(h) services provided by a race club by way of totalisator or a licence to bookmaker in such club;
(i) any activity or transaction undertaken by the Central Government, a State Government or any local
authority in which they are engaged as public authorities;
Acquisition of land for Metro construction by the State Government from the landowners for some
compensation.
 Government running BBMP service for the welfare of citizens.
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Unit -2
(A) Taxable events & Concept of Supply: [5 Marks]
1. Meaning of taxable event

Taxable event means as event which causes accrual of tax liability. A taxable event refers to any event or transaction
those results in a tax consequence for the party who executes the transaction. Every law has its own taxable event.
The taxable event in GST is supply of goods or services or both. The liability to pay tax arises at the ‘time of supply of
goods or services’. Thus, determining whether or not a transaction falls under the meaning of supply, is important to
decide GST’s applicability.
2. Supply as per CGST Act [Section 7 (1)]

The scope of term supply is given under Section 7(1) of CGST Act which provides the inclusive definition of term
supply. As per the provision of supply, supply includes:
(a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or
disposal made or agreed to be made for a consideration by a person in the course or furtherance of business;
(b) import of services for a consideration whether or not in the course or furtherance of business and;
(c) the activities specified in Schedule I, made or agreed to be made without a consideration and;
(d) the activities to be treated as supply of goods or supply of services as referred to in Schedule II.
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3. What are the necessary elements that constitute supply under

CGST/SGST Act?
In order to constitute a ‘supply’, the following elements are required to be satisfied, i.e.-
(a) The activity involves supply of goods or services or both;
(b) The supply is for a consideration unless otherwise specifically provided for;
(c) The supply is made in the course or furtherance of business;
(d) The supply is a taxable supply; and
(e) The supply is made by a taxable person.
Examples:
(a) Mr. A buys a table for ₹ 10,000 for his personal use and sells it off after 10 months of use to a dealer. This is not
considered as supply under CGST as this is not done by Mr. A for the furtherance of business.
(b) Mrs. B provides free coaching to neighbouring students as a hobby. This is not considered as supply as this act is
not performed for a consideration. However, as specified in Schedule I of GST Act, certain activities are
considered as supply even if it is made without consideration.
(c) Supply of goods to an orphanage by any manufacturing company for free distribution will not get covered as a
taxable supply as it is without consideration.
(d) A non resident person Mr. X visits India as a tourist and sells his camera for ₹10000. This doesn’t amount to
supply as it is not in the course and furtherance of business.
(e) A practicing CA who is registered under GST sells his personal Rado watch. It doesn’t amount to supply as it is
not in the course and furtherance of business.
4. Schedule I: Transactions Treated as Supply under GST Even If

Made Without Consideration
Transactions Treated as Supply under GST Even If Made Without Consideration
a) Supply of goods or services between related persons. Whereas, the supply made between related
persons for inadequate or no Consideration is covered under Schedule I of the GST Act. Such
transactions shall be treated as ‘Supply’ only if it happens in course or furtherance of business.
b) Supply of goods by principal to his agent or by an agent to his principal
c) Import of services by taxable person from a related person or from any of his other establishment
outside India, in the course or furtherance of business
d) Permanent transfer of business asset where ITC has been availed.
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5. Schedule II: Activities or transactions to be treated as supply

of goods or supply of services**
[Permanent transfer – Goods]
[Temporary given to use –Service]
Deemed as supply of services
 Renting of immovable property
 Work contract
 Developing, designing, programming, customizing of IT software
 Construction of a building, complex or civil structure
 Transfer of right to use any goods
 Job work
 Temporary transfer or use of intellectual property rights
Deemed as supply of goods
 Transfer of title in goods
 Transfer of title in goods at a future date i.e. hire purchase
 Transfer or disposal of business assets
6. Schedule III: Activities or transactions treated neither as the

sale of goods nor sale of services*****
Activities which are neither supply of goods or services

(a) Services provided by an employee to the employer.
(b) Gifts up to ₹50,000/- in value in a Financial Year, by an employer to an employee
(c) Services of the funeral, burial, crematorium or mortuary including transportation of the deceased
(d) Services by any court or Tribunal.
(e) Duties performed by the MP/MLA/MLC/ Members of Local Bodies.
(f) Duties performed by any person as a Chairperson or a Member or a Director in a body established by
the Central Government or a State Government or local authority.
(g) Duties performed by any person who holds any post in pursuance of the provisions of the
Constitution in that capacity.
(h) Sale of Land
(i) Sale of Building (However, If construction of a complex /building intended for sale to a buyer and
part of the consideration is received before completion, then it will be treated as Supply of Services)
(j) Actionable claims, other than lottery, betting and gambling.
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7. Types of Supply
Based on Recipient
(a) Inward Supply
(b) Outward Supply
Based on Tax treatment

(a) Exempt Supply
(b) Zero-Rated Supply
(c) Non-Taxable Supply
(d) Taxable Supply
Based on combination
(a) Composite Supply
(b) Mixed Supply
(c) Continuous Supply
Based on location
(a) Intra-State supply
(b) Territorial waters
(c) Inter-State supply
8. Inward supply [Section 2 (67)]

Inward supply literally means receiving goods or services or both.
As per Section 2(67) of the Central Goods and Services Tax (CGST) Act, 2017, “inward supply” in
relation to a person, shall mean receipt of goods or services or both whether by purchase, acquisition or any
other means with or without consideration.
9. Outward supply [Section 2 (83)]

As per Section 2(83) of the CGST Act, 2017, the term “outward supply” has been defined, as under:
“outward supply” in relation to a taxable person, means supply of goods or services or both, whether by sale,
transfer, barter, exchange, licence, rental, lease or disposal or any other mode, made or agreed to be made by
such person in the course or furtherance of business.
10. Non-taxable supply [Section 2 (78)]

As per Section 2(78) of the Central Goods and Services Tax (CGST) Act, 2017 “Non-taxable supply”
means a supply of goods or services or both which is not leviable to tax under CGST Act or under the IGST
Act.
Note:
(a) A transaction must be a ‘supply’ as defined under the GST law to qualify as a non-taxable supply
under the GST.
(b) Only those supplies that are excluded from the scope of taxation under GST are covered by this
definition – i.e.,
• alcoholic liquor for human consumption,
• articles listed in section 9(2) or
• articles listed in schedule III
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11. Taxable Supply [Section 2 (108)]

As per Section 2(108) of the Central Goods and Services Tax (CGST) Act, 2017,
“taxable supply” means a supply of goods or services or both which is leviable to tax under this Act.
12. Exempt supply [Section 2 (47)]

As per Section 2(47) of the CGST Act, 2017, “exempt supply” means
(a) supply of any goods or services or both which attracts nil rate of tax
(b) Supplies that are wholly or partially exempted from CGST or IGST,
(c) Non-taxable supply as defined under Section 2(78)
Tax need not be paid on these supplies.
13. Zero-Rated Supply [Section 16 (1)]

Section 16 (1) of the IGST Act, 2017, which states that “zero rated supply” means any of the following
supplies of goods or services or both, namely: ––
a) export of goods or services or both; or
b) supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone
unit.
14. Difference between Exempt Supply & Zero-Rated Supply

Exempt Supply
As per section 2(47) of the CGST Act, 2017, a supply is said to be exempt, when it attracts nil rate of duty or
is specifically exempted by a notification or kept out of the purview of tax (i.e. a non-GST supply).
But if a good or service is exempted from payment of tax, it cannot be said that it is zero rated. The inputs
and input services which go into the making of the good or provision of service has already suffered tax and
only the final product is exempted. Moreover, when the output is exempted, tax laws do not allow
availment/utilisation of credit on the inputs and input services used for supply of the exempted output.
Thus, in a true sense the entire supply is not zero rated. Though the output suffers no tax, the inputs and input
services have suffered tax and since availment of tax credit on input side is not permitted, it becomes a cost
for the supplier. The concept of zero rating of supplies aims to correct this anomaly.
Zero-Rated Supply
By zero rating it is meant that the entire value chain of the supply is exempt from tax.
This means that in case of zero rating, not only is the output exempt from payment of tax, there is no bar on
taking/availing credit of taxes paid on the input side for making/providing the output supply. Such an
approach would in true sense make the goods or services zero rated. As per the GST Law exports are meant
to be zero rated the zero rating principle is applied in letter and spirit for exports and supplies to SEZ.
16
15. Difference between Nil Rated, Exempt, Zero Rated and Non-
GST supplies
Supply Name Description

Zero Rated Exports
Supplies made to SEZ or SEZ Developers.
Nil Rated Supplies that have a declared rate of 0 % GST.

Example: Salt, grains, Jaggery etc.
Exempt Supplies are taxable but do not attract GST and for which ITC cannot be
claimed.
Example: Fresh milk, Fresh fruits, Curd, Bread etc.
Non-GST These supplies do not come under the purview of GST law.
Example: Alcohol for human consumption, Petrol etc.
16. Composite supply [Section 2 (30)] [Important]

As per Section 2(30) of the Central Goods and Services Tax (CGST) Act, 2017,
“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.
Principal supply has been defined in Section 2(90) of the CGST Act as supply of goods or services which
constitutes the predominant element of a composite supply and to which any other supply forming part of
that composite supply is ancillary.
Example:
(a) Buying a Dry Fruit Gift Box for Diwali. It includes dry fruits, a box and a wrapper. Box and wrapper
cannot be sold individually without the main content which is dry fruit. This is composite supply.
(b) 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.
(c) Booking of Air Tickets which involves cost of the meal to be provided during travel will be Composite
supply and tax will be calculated on the principle supply which in this case is transportation of
passengers through flight.
(d) M/s P Ltd. entered into a contract with M/s Z Ltd. for supply of goods. 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.
(e) Five-star hotel provides four days and three-night package, with breakfast. This is a composite supply as
the package of accommodation facilities and breakfast is a natural combination in the ordinary course of
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business for a hotel. In this case, the hotel accommodation is the principal supply, and breakfast is
ancillary to the hotel accommodation.
(f) If the laptop bag is supplied along with the laptop in the ordinary course of business, the principal
supply is that of the laptop and the bag is an ancillary. Therefore, it is a composite supply and the rate of
tax would that as applicable to the laptop
17. Mixed supply [Section 2 (74)]

As per Section 2(74) of the Central Goods and Services Tax (CGST) Act, 2017, “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.
Example:
(a) 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.
(b) M/s X Ltd. a dealer offer combo packs of shirt, watch, wallet, book and they are bundled as a kit and
this kit is supplied for a single price and the supply of one item does not naturally necessitate the supply
of other elements. Hence the supply is a mixed supply. Tax rate for a shirt, watch, wallet and book are
12%, 18%, 5% and Nil respectively. In this case, watch attracts the highest rate of tax in the mixed
supply i.e., 18%. Hence, the mixed supply will be taxed at 18%.
18. Intra-state supply of goods [Section 2 (64) & section 8]

Intra-State supply
Intra-State is a type of supply of goods or services where the location of the supplier and the place of
supply of goods are in the same State or same Union Territory.
Exceptions –
(a) Supply of goods to or by a Special Economic Zone developer or a SEZ unit; or
(b) Goods imported into the territory of India; or
(c) Supplies made to a tourist
19 . Inter-state supply of goods

It is a supply of goods or services, where the location of the supplier and place of supply are in-
(a) Two different States;
(b) Two different Union territories; or
(c) A State and a Union territory
It also includes import of goods or services into the territory of India.
Further, the following shall be treated as an inter-state supply of goods or services:
(a) When the supplier is located in India and the place of supply is outside India;
(b) To or by a Special Economic Zone (SEZ) developer or a SEZ unit; or
(c) In the taxable territory, not being an intra-state supply and not covered elsewhere
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20. Mixed Supply & Composite supply:

A dealer sold detergent along with bucket. The taxable value of the supply is 1,20,000. The rate of CGST and
SGST on detergent is 9% in each case and that on the bucket is 14% in each case. Compute CGST and SGST
payable.
21. Mixed Supply & Composite supply:

(a) Determine whether the following supplies amount to composite supplies–
(i) A hotel provides 3 nights - 4 days package wherein the facility of breakfast and dinner is provided
alongwith the room accommodation.
(ii) A toothpaste company has offered the scheme of free toothbrush of ₹ 15 alongwith the toothpaste
tube of ₹ 100.
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Unit-3 [5 Marks]
Time of Supply:
.
1. Time of Supply of Goods (Forward charge)

Time of supply means the point in time when goods/services are considered supplied’. When the seller
knows the ‘time’, it helps him identify due date for payment of taxes. CGST/SGST or IGST must be paid at
the time of supply.
Time of Supply of Goods
Time of supply of goods is earliest of:
1. Date of issue of invoice by the supplier
2. The last date on which he is required, under section 31, to issue the invoice with respect to the supply;
(i.e. removal of goods for supply to the recipient, where the supply involves movement of goods)
(delivery of goods or making available thereof to the recipient, in any other case)
(Practically, in case of goods, the date of receipt of payment by the supplier is no longer a criterion for
determination of time of supply for payment of tax)
2. Time of supply of services (Forward charge)

Time of Supply of Services if invoiced is issued within 30 Days from Supply of Services:
Time of supply of services is earliest of:
(a) Date of issue of invoice by the supplier
(b) Date on which the supplier receive the payment.
Time of Supply of Services if invoiced is not issued within 30 Days from Supply of Services:
Time of supply of services is earliest of:
(a) The date of provision of service, (i.e. Date of completion of services)f
(b) Date on which the supplier receive the payment.
3. Time of Supply of Goods (Reverse charge)

The time of supply shall be the earliest of the following dates, namely:—
(a) the date of the receipt of goods; or
(b) the date of payment as entered in the books of account of the recipient or
(c) the date on which the payment is debited in his bank account, whichever is earlier; or
(d) the date immediately following thirty days from the date of issue of invoice
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4. Time of Supply of Services (Reverse charge)

The time of supply shall be the earliest of the following dates, namely:—
(e) the date of the supply of services; or
(f) the date of payment as entered in the books of account of the recipient or
(g) the date on which the payment is debited in his bank account, whichever is earlier; or
(h) the date immediately following sixty days from the date of issue of invoice
5. Determine time of supply of Goods: [Forward Charge]

Question:
Mr. Ram sold goods to Mr. Ravi worth ₹ 5,00,000. The invoice was issued on 15th November. The payment
was received on 31st October. The goods were supplied on 20th November. Find the time of supply of
goods. Prevous year turnover of Mr. Ram was ₹ 72 lakhs.

Mr. X sold goods to Mr. Y worth ₹ 1,00,000. The invoice was issued on 15th January. The payment was
received on 31st January. The goods were supplied on 20th January. Determine the time of supply.

A machine has to be supplied at site. It is done by sourcing various components from vendors and
assembling the machine at site. The details of the various events are:
17th September Purchase order with advance of ₹ 50,000 is received for machine worth
₹ 12 lakh and entry duly made in the seller’s books of account
20th October The machine is assembled, tested at site, and accepted by buyer
23rd October Invoice raised

4th November Balance payment of ₹ 11,50,000 received
Determine the time of supply(ies) in the above scenario for the purpose of payment of tax.
8. Determine time of supply of services: [Forward Charge]

Determine the time of supply from the following paerticulars
6th May Booking of convention hall, sum agreed ₹ 15000, advance of
₹ 3000 received
15th September Function held in convention hall
27th October Invoiceissued for ₹15000,indicating balance of ₹ 12000 payable
3rd November Balance payment of ₹ 12000 received
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9. Determine time of supply of services [Forward Charge]

Question:
Mr. A provides services worth Rs 20,000 to Mr. B on 1st January. The invoice was issued on 20th January
and the payment for the same was received on 1st February. (prescribed time for issue of invoice = 30 days)
10. Determine time of supply of services

From the following information determine the time of supply of goods .
Date of removal of goods. 23..03 2021
Date of issue of invoice: 20.03.2021
Date of payment entered in the books or accounts: 28.03.2021
Date of credit in bank Accounts: 31.03.2021
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Unit-4
Place of Supply:
1. Place & Location of supply

While determining the levy of taxes based on Place of Supply, two things are considered namely:
1. Location of Supplier: It is the registered place of business of the supplier.
2. Place of Supply: It is the registered place of business of the recipient
Place of supply of goods under GST defines whether the transaction will be counted as intra-state or inter-
state, and accordingly levy of SGST, CGST & IGST will be determined.
2. Place of Supply of Goods

Place of Supply When There is Movement of Goods
No Movement of Goods
Imports & Exports
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3. Examples of Place of Supply of Goods (Movement)

Question:
(a) Mr. Raj of Mumbai, Maharashtra sells 10 TV sets to Mr. Vijay of Nagpur, Maharashtra.
(b) Mr. Raj of Mumbai, Maharashtra sells 30 TV sets to Mr. Vinod of Bangalore, Karnataka
(c) Anand in Lucknow buys goods from Mr. Raj in Mumbai (Maharashtra). The buyer requests
theseller to send the goods to Nagpur (Maharashtra)
4. Examples of Place of Supply of Goods (Imports/Exports)
Question:
(a) Ms. Malini imports school bags from China for her shop (registered in Mumbai)
(b) Ms. Anita (Kolkata) exports Indian perfumes to UK
5. General Rules for Place of Supply of Services (except those

covered separately)
6. Examples of Place of Supply of General services

Question:
(a) Mr. Ajay (Karnataka) provides consultancy services to M/s Sumati Technologies Ltd.
(registered inMaharashtra).
(b) Mr. Ajay (Karnataka) provides consultancy services to Mr. Vijay (unregistered but address on
recordshows Tamil Nadu).
(c) Mr. Ajay (Karnataka) provides consultancy services to Mr. Anand (unregistered and address is
notavailable).
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Unit-5 [5 Marks]
Value of Supply:
1. Valuation of supply under GST

Valuation of supply under GST
Currently, GST will be charged on the ‘transaction value’. Transaction value is the price actually paid (or
payable) for the supply of goods/services between un-related parties (i.e., price is the sole consideration)
The value of supply under GST shall include:
(a) Any taxes, duties, cess, fees, and charges levied under any act, except GST.
(b) Any amount that the supplier is liable to pay which has been incurred by the recipient and is not
included in the price.
(c) The value will include all incidental expenses in relation to sale such as packing, commission etc.
(d) Subsidies linked to supply, except Government subsidies will be included.
(e) Interest/late fee/penalty for delayed payment of consideration will be included.
2. Inclusions in the Transaction Value [Section 15(2)]

The transaction value shall include the following:
(a) Taxes under other statute Any taxes, duties, cesses, fees and charges levied under any statute other
than GST Act/IGST Act, if charged separately by the supplier to the
recipient.
(b) Any amount for which Any amount that the supplier is liable to pay in relation to such supply
supplier is liable to pay but which has been incurred by the recipient of the supply and not
included in the price actually paid or payable for the goods and/or
services.
(c) Incidental expenses Incidental expenses, such as commission and packing, charged by the
supplier to the recipient of a supply
(d) Interest or late fees Interest/late fee/penalty for delay in payment of consideration for supply
will form part of value.
3. Exclusions from Transaction Value [Section 15(3)]

The value of the supply shall not include any discount that is given:
(a) Discount given before or at the time of the supply provided such discount has been duly recorded in
the invoice issued in respect of such supply; and
(b) Discount given after the supply has been effected but:
i. such discount is established in terms of an agreement entered into at or before the time of such
supply and specifically linked to relevant invoice; and
ii. Input tax credit has been reversed by the recipient of the supply as is attributable to the discount
issued by the supplies.
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4. Transaction with the related person

If transaction is with the related person then the supplier has to substantiate that the value of supply is not
influenced because of relationship.
5. Compute GST & Total amount Payable

Question:
M/S Carwala Ltd. sells a car worth Rs 4,00,000 to “B Automobiles”.
(a) They incur packing charges of Rs 5,000 on the car
(b) They provide a discount of 1% on the price, as part of Diwali scheme
Compute GST & Total amount payable (assuming GST of 18 % on car).
6. Computation of Taxable value of supply
RG Pvt. Ltd. provides the following particulars relating to goods sold by it to GK Pvi Ltd.:
Particulars Amount in (₹)
List price of the goods (exclusive of taxes and discounts) 10,00,000
Tax levied by Municipal Authority in the sale of such goods 1,00,000
CGST and SGST chargeable on the goods 2,00,880
Packing charges (not included in price above) 20,000
Cash Discount @ 2 % on the list Price
RG Pvt. Ltd. received ₹ 40,000 as a subsidy from a NGO. The price of ₹
10,00,000 of the goods is after considering such subsidy.
Determine the value of the taxable supply made by RG Pvt. Ltd.
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Unit-6 [5 Marks]
Charge of GST:
1. What is Reverse Charge?

What is Reverse Charge?
Normally, the supplier of goods or services pays the tax on supply. In the case of Reverse Charge, the
receiver becomes liable to pay the tax, i.e., the chargeability gets reversed.
Why Reverse Charge Mechanism under GST?
Motive of Reverse Charge Mechanism is mainly more tax compliance and increased tax revenues.
Government was unable to collect service tax from various unorganised sectors but through Reverse charge
mechanism compliance has gone up thus on certain services because of this reason RCM has been brought
under GST regime as well.
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2. Conditions/ Requirements under the Reverse Charge

Mechanism*
Conditions/ Requirements under the Reverse Charge Mechanism
(a) There should be a supply of goods or services
(b) The supply should be in respect of taxable goods/ services
(c) Supply must be by an unregistered person
(d) Supply must be to a registered person
(e) Supply must be an intra-state supply as compulsory registration is required for inter-state sales
3. Difference between Forward Charge and Reverse Charge
Difference between Forward Charge and Reverse Charge
S. No. Particulars Forward Charge Reverse Charge
1. Meaning Forward charge is a mechanism where Reverse charge is a mode of collecting

the supplier of goods/ services is liable GST on supplies of goods and services
to pay tax. where the receiver of the goods/ service
will be liable to pay GST to the
government.
2. Tax Liability The tax liability is on the supplier of The tax liability is on the receiver of the
the goods or services or both. goods or services or both.
3. Registration Registration is required once a supplier All the people required to pay tax under
meets the threshold limit. reverse charge have to register
themselves for GST irrespective of
threshold.
4. Supplier A supplier can only be a registered A supplier can also be a registered

supplier. An unregistered supplier supplier in case of supply of notified
cannot collect tax. goods or services.
5. Recipient A recipient can be a registered or an A recipient should be registered in RCM

unregistered person. in case of section 9(3) of CGST Act and
section 5(3) of IGST Act.
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Unit-7 [10 Marks]

Input and Output Tax computation, lnput Tax
Credit & composition Scheme under GST
1. What is input tax credit?

Input tax credit means at the time of paying tax on output, you can reduce the tax you have already paid on
inputs. Say, you are a manufacturer –
Tax payable on output (final product) is ₹ 450. Tax paid on input (purchases) is ₹ 300. You can claim input
credit of ₹ 300 and you only need to deposit ₹ 150 in taxes.
2. Conditions for enjoyment of ITC

A registered person will be eligible to claim Input Tax Credit (ITC) on the fulfilment of the following
conditions:
(a) Possession of a tax invoice or debit note or document evidencing payment
(b) Receipt of goods and/or services
(c) Goods delivered by supplier to other person on the direction of a registered person against a
document of transfer of title of goods
(d) Furnishing of a return
(e) No ITC will be allowed if depreciation has been claimed on tax component of a capital good.
3. What can be claimed as ITC?

ITC can be claimed only for business purposes. ITC will not be available for goods or services exclusively
used for:
a. Personal use
b. Exempt supplies
c. Supplies for which ITC is specifically not available
4. GST Composition Scheme

In GST Law, it was argued that GST needs much documentation and small dealer will not be able to handle
such pressure of formalities. Further, rate of GST is very high and will cause undue burden on small dealer.
To resolve these issues, small dealers have been given the choice of opt Composite scheme in which they
will have to pay GST just @ 1% (generally) and will not be allowed input tax credit hence need not to
maintain much accounts & records. A composite scheme dealer need to file only one return on Annual basis.
So GST compliance is also relaxed for him. The scheme is optional and the option can be changed from year
to year.
5. Persons Eligible for the GST Composition Scheme

(a) A taxpayer whose turnover is below Rs 1.5 crore can opt for Composition Scheme. In case of North-
Eastern states and Himachal Pradesh, the limit is now Rs 75 lakh.
(b) As per the CGST (Amendment) Act, 2018, a composition dealer can also supply services to an extent of
ten percent of turnover, or ₹5 lakhs whichever is higher.
(c) Turnover of all businesses registered with the same PAN should be taken into consideration to calculate
turnover.
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5. Persons Ineligible for the GST Composition Scheme

The following taxable persons cannot opt for the composition scheme under GST:
(a) Taxpayer supplying Exempt supplies
(b) Supplier of services other than restaurant related services
(c) Manufacturer of ice cream, pan masala, or tobacco
(d) Casual Taxable Person or a Non-resident Taxable Person
(e) Businesses which supply goods through an e-commerce operator
(f) Note: A restaurant operator or outdoor caterer can opt composite scheme.
6. Features of Composite Scheme

Features of Composite Scheme are as follows:
(a) Reduced rate of levy: Rate of GST under Composite scheme is 1 % for goods.
(b) ITC not available: A person who opts composite scheme shall not be entitled to credit of input tax.
Tax paid on Input service and capital goods shall not be eligible for ITC.
(c) Not to collect tax: A person who opts composite scheme cannot collect GST from the recipient of
supplies. GST payable on his outward supply shall be paid by him only out of his pocket.
(d) Person having several branches must opt composite scheme together. It is not possible that one
branch pays tax u/s 9 and another branch of same person pays tax u/s 10
(e) Tax on Exempted goods: If a taxable person who trades in both taxable as well as exempted goods,
tax @ 1% is payable on supply Taxable goods only. Exempted goods will not be charged to GST at
all.
(f) Quarterly Payment and Annually return: A supplier who has opted composition scheme shall file
quarterly statement and make payment on 18th of next month from end of quarter and shall file one
return for the entire financial year on or before 30th April in form GSTR – 4.
7. Advantages of Composition schemes

Advantages of Composite Scheme are as follows:
(a) Reduced rate of tax
(b) Simplified return
(c) File Annual return
(d) Lesser requirement of maintenance of records
(e) Scheme is optional and option can be changed from year to year
(f) Lesser compliance (returns, maintaining books of records, issuance of invoices)
(g) Pay tax quarterly.
8. Meaning of Aggregate Turnover [Sec. 2(6)]

Aggregate Turnover
“Aggregate turnover” means:-
(a) Aggregate value of all taxable supplies
(b) It does not include the value of inward supplies on which tax is payable by a person on reverse
charge basis
(c) It includes exempt supplies
(d) It includes export of goods or services or both and
(e) It includes inter-state supplies of persons having the same Permanent Account Number.
(f) It is to be computed on all India basis
But excludes Central tax, State tax, Union territory tax, integrated tax and Cess
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9. Determination of aggregate turnover (simple problems)

Question:
Dharma Production has furnished you following details, find aggregate turnover:
Particulars Amount (₹ )
Supply of taxable goods 40 lakhs
Supply of exempted goods 60 lakhs
Export of service 10 lakhs
Supply of nil rated goods 8 lakhs
Goods sent to another branch having separate registration 6 lakhs
10. Determination of aggregate turnover (Simple ProblemS)
Question:
Red chilli production has furnished you following details, find Aggregate turnover:
Particulars Amount (₹ )
Supply of taxable service (including GST ₹ 40,000) 5 lakhs
Inward supply under RCM 2 lakhs
Outward Supply of service on which RCM is applicable 3 lakhs
Goods sent to another branch in same state not having separate registration 2 lakhs
11. Computation of GST Liabilities (simple problems)

Question:
From the following details pertaining to Ashwathama, a registered dealer engaged in purchase and sale of
goods, ascertain the GST liability (SGST/CGST/IGST) for the month of September, 2021:
Particulars Amount ( ₹)
Sale price charged to customers within State (excluding GST) 12,50,000
Commission charged to buyers 12,000
Packing and forwarding expenses incidental to sale 18,000
Weighment charges, shown separately in invoices 9,500
Prompt payment discount, indicated in invoice 1%,
CGST 9%
SGST 9%
12. Determination of aggregate turnover (simple problems)

(a) Mrs. Lakshmi, intending to start a new business in January, 2021. furnishes the following information
pertaining to the period upto 31.03.2021:
Estimated supplies (₹)
Intra-State supplies of taxable goods 14,00,000
Intra-State supplies of exempt services 4,00,000
Export sales 3.20,000
Supplies made as agent of a principal 2,40,000
Ascertain the aggregate turnover.
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Unit-8 [10 Marks]:

Custom Duty [Practical & Theory]
1. Introduction
 Custom Duty is an indirect tax, imposed under the Customs Act formulated in 1962.
 The Customs Act, 1962 is the basic statute which governs entry or exit of different categories of vessels,
aircrafts, goods, passengers etc., into or outside the country.
 Section 12 of the Custom Act provides that duties of customs shall be levied at such rates as may be
specified under the Customs Tariff Act, 1975 or other applicable Acts on goods imported into or
exported from India.
 w.e.f. 29.3.2018 “Central Board of Excise and Customs”, has been substituted by the words “Central
Board of Indirect Taxes and Customs” [under Section 2 (6)]
2. Short title, extent & commencement

 This Act may be called the Customs Act, 1962.
 It extends to the whole of India.
 It comes into force from February 1, 1963.
3. Goods [Section 2 (22)]

"Goods" includes -
(a) vessels, aircrafts and vehicles;
(b) stores;
(c) baggage;
(d) currency and negotiable instruments; and
(e) any other kind of movable property;
4. Territorial water
As per section 2(27) of the Customs Act, the term India is an inclusive definition and includes not only the land
mass of India but also territorial waters of India. The territorial waters extend to 12 nautical miles into the sea
from the base line. Therefore, a vessel not intended to deliver goods should not enter these waters. Sovereignty
of India extends upto territorial water. Hence, all provisions of the Customs Act, 1962 are applicable to area
covered under territorial water.
5. Indian customs waters [Section 2 (28)]

“Indian customs waters” means the waters extending into the sea up to the limit of contiguous zone of India
under section 5 of the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime
Zones Act, 1976 (80 of 1976) and includes any bay, gulf, harbour, creek or tidal river [Section 2(28)];
The concept of territorial waters and Indian customs waters are highly relevant for customs law. Territorial
waters extend upto twelve nautical miles from the baseline on the coast of India. Indian customs waters extend
upto contiguous zone of India which is twenty four nautical miles from the nearest point of base line. Thus
Indian customs waters extend upto twelve nautical miles beyond territorial waters. The significance of Indian
32
customs waters is that the Customs Officer has powers to arrest a person; to stop and search any vessel; to
confiscate a vessel concealing goods; to search any person on board any vessel and; to confiscate goods in the
these waters.
6. Taxable event
Taxable event for imported goods for Home consumption:
Import of goods will commerce when they cross the territorial waters of India but is completed when it becomes
part of the mass of the goods within the country.
taxable event in case of imported goods can be summed up in the following lines:
(a) Unloading of imported goods at the customs port – is not a taxable event
(b) Date of entry into Indian territorial waters – is not a taxable event
(c) Date of presentation of bill of entry – is not a taxable event
(d) Date on which the goods cross the customs barrier - is a taxable event
Taxable event for warehoused goods:

As per Section 15(1)(b) of the Customs Act, 1962, when goods have been deposited into a warehouse, and they
are removed there from for home consumption, the relevant date for determination of rate of duty is the date of
presentation of ex-bond bill of entry (i.e. Sub-bill of Entry) for home consumption.
(1) Taxable event for exported goods:

As per section 16(1) of the Customs Act, 1962, taxable event arises only when proper officer makes an order
permitting clearance (i.e. entry outwards) granted and loading of the goods for exportation took place under
Section 51 of the Customs Act, 1962.
7. Types of Custom Duties

Customs duty means a tax which is levied by the Government on import of goods into India and export out of
India. It is a central tax and mainly imposed on imported goods. Generally Govt. levies export duty on a very
few items due to export promotion. The different types of duties of customs collected are as follows.
(A) Basic Customs Duty
Basic customs duty is levied under section 12 of the Customs Act, 1962 read with section 2 of the Customs
Tariff Act, 1975. The duties of customs shall be levied at such rates as may be specified under the Customs
Tariff Act, 1975 or any other law for the time being in force, on goods imported into or exported from India.
The rates of Customs duty are specified in first and second schedule of Section 2 of Customs Tariff Act, 1975
(First Schedule enlist the goods liable to import duty and Second Schedule enlist the goods liable to export
duty).
There are different rates for different goods but merit rate is generally 7.5%.
Basic duty may exempted, wholly or partially, with or without any conditions, by a notification under section 25
of the Customs Act, 1962.
Basic Customs Duty is also exempted upfront or through drawback mechanism where the imported goods are
meant for re-export or for use in the manufacture of export goods.
The basic customs duty may have two rates: (A) Standard rates (B) Preferential rates:
33
(A) Standard Rates: Standard rate is charged where there is no provision forpreferential treatment.
(B) Preferential Rates: If the goods are imported from the area notified by the Government as
preferential area duty to be charged at preferential rates. Preferential rate is applied only where the
owner of the article (importer) claims at the time of importation, with supporting evidence, that the
goods are chargeable with the preferential rate of duty and if importer fails to claim with
supporting evidence then duty to be charged as standard rates.
Basic Customs Duty is not creditable against any tax or duty, whatsoever.
(B) Safeguard Duty (Section 8 of Custom Tariff Act, 1975)

The Central Government may impose safeguard duty on specified imported goods, if it is satisfied that the
goods are being imported in large quantities and they are causing serious injury to domestic industry. The
safeguard duty is imposed for the purpose of protecting the interests of any domestic industry in India aiming to
make it more competitive.
Conditions:
(a) Safeguard duty is product specific.
(b) It is in addition to any other duty.
Safeguard duty, unless revoked earlier, cease to have effect on the expiry of four years from the date of
imposition.
If the Central Government is of the opinion that the domestic industry has taken measures to adjust to such
injury or threat thereof and it is necessary that the safeguard duty should continue to be imposed, it may extend
the period of such imposition.
However, in no case the safeguard duty shall continue to be imposed beyond a period of ten years from the date
on which such duty was first imposed.
If the Central Government is of the opinion that increased imports have not caused or threatened to cause
serious injury to a domestic industry, it shall refund the duty so collected.
Exemptions from safeguard duty:
(a) If an article originating from developing country and share of imports of that article from that country
does not exceed 3% of the total imports of that article in India it should be exempted from safeguard
duty.
(b) If an article originating from more than one developing countries and aggregate of imports from
developing countries each with less than 3% import share taken together does not exceed 9% of the total
imports of that article into India then it should be exempted from safeguard duty.
(C) Anti Dumping Duty (Section 9 of Customs Tariff Act, 1975)

Large manufacturers from abroad may export goods at very low prices compared to prices in their domestic
market. Such dumping may be with the intention to cripple domestic industry or to dispose of their excess stock.
In order to avoid such dumping, Central Government can impose, anti-dumping duty up to the margin of
dumping on such articles.
Dumping: Dumping means exporting goods to India, at prices lower than the price inthe domestic market of the
exporting country, subject to certain adjustments.
When the export price of a product imported into India is less than the normal value of like articles sold in the
domestic market of the exporter the Central Government may, by notification in the Official Gazette, impose an
anti-dumping duty not exceeding the margin of dumping in relation to such article. Anti dumping duty is country
specific i.e.it is imposed on imports from a particular country.
34
Computation of Anti-dumping duty: The anti dumping duty is margin of dumpingor injury margin whichever
is lower.
Margin of dumping: Difference between export price and normal value of an article.
Normal Value means: comparable price in the ordinary course of trade, in theexporting country, after making
adjustments to the extent of conditions of sale,taxation, etc.
Injury Margin: It means difference between fair selling price of domestic industryand landed cost of imported
product.
Fair Selling price: Price at which the industry have expected to charge under normal circumstances in the
Indian market.
(D) Additional Customs Duty or countervailing duty (CVD) :

This duty is popularly known as countervailing duty because it is levied to counter balance the GST in India for
such imported items. Under Section 3(1) of the Customs Tariff Act, an additional duty on goods imported into
the country is levied. The rate of this duty is equal to the GST on like articles produced or manufactured in
India.
Provisions under IGST Act, 2017 Applicable for imported goods
Goods imported into India are now subjected to IGST, not CVD and Special CVD. However, petroleum
products and tobacco products are outside the scope of GST and hence CVD and special CVD are applicable to
them as usual.
Relevant Provisions under IGST Act:
As per section 5 of the IGST Act that Subject to the provisions of sub-section (2), there shall be levied a tax
called the integrated goods and services tax on all inter-State supplies of goods or services or both, except on
the supply of alcoholic liquor for human consumption, on the value determined under section 15 of the Central
Goods and Services Tax Act and at such rates, not exceeding forty per cent., as may be notified by the
Government on the recommendations of the Council and collected in such manner as may be prescribed and
shall be paid by the taxable person.
Provided that the integrated tax on goods imported into India shall be levied and collected in accordance with
the provisions of section 3 of the Customs Tariff Act, 1975 on the value as determined under the said Act at the
point when duties of customs are levied on the said goods under section 12 of the Customs Act, 1962.
(E) Social Welfare Surcharge (SWS)

As per Section 110 of the Finance Act,2018, SWS is levied and collected, on the goods imported into India, as
a duty of Customs on the goods specified in the First Schedule to the Customs Tariff Act,1975. The SWS is
calculated at the rate of ten percent on the aggregate of duties, taxes, and cesses which are levied and collected
under Section 12 of the Customs Act,1962. This surcharge is in addition to any other duties of Customs or tax or
cess chargeable on imported goods.
Social Welfare Surcharge @ 10 % on the basic custom duty (BCD) of customs levied at the time of import.
(F) Protective Duties [Section 6 of Custom Tariff Act]

Section 6 of the Customs Tariff Act empowers the Central Government to levy a protective duty based on a
recommendation made by the Tariff Commission.
(a) The protective duties should not be very stiff so as to discourage imports.
(b) It should be sufficiently attractive to encourage imports to bridge the gap between demand and supply
of those articles in the market.
35
(c) Section 6 provides that the protective duties are levied by the Central Government upon the
recommendation made to it by the Tariff Commission established under the Tariff Commission Act,
1951, and upon it being satisfied that circumstances exist which render it necessary to take immediate
action to provide protection to any industry established in India.
(d) As per section 7(1), the protective duty shall be effective only upto and inclusive of the date if any,
specified in the First Schedule.
(e) Section 7(2) provides that the Central Government may reduce or increase the duty by notification in
the Official Gazette. However, such duty shall be altered only if it is satisfied, after such inquiry as it
thinks necessary, that such duty has become ineffective or excessive for the purpose of securing the
protection intended to be afforded by it to a similar article manufactured in India.
(f) If there is any increase in the duty as specified above, then the Central Government is required to place
such notification in the Parliament for its approval.
(g) As per section 7(3), every notification in so far as it relates to increase of such duty, shall be laid before
each House of Parliament if it is sitting as soon as may be after the issue of the notification, and if it is
not sitting within seven days of its re-assembly, and the Central Government shall seek the approval of
Parliament to the notification by a resolution moved within a period of fifteen days beginning with the
day on which the notification is so laid before the House of the People. If the Parliament recommends
any change in the notification, then the notification shall have effect subject to such changes. However,
anything done pursuant to the notification before the recommendation by the Parliament shall be valid.
(G) Countervailing duty on subsidized articles – [Section 9 of the customs tariff act]
Section 9(1) provides that the countervailing duty on subsidized articles is imposed if any country or territory,
directly or indirectly, pays or bestows subsidy upon the manufacture or production or exportation of any article.
Such subsidy includes subsidy on transportation of such article. Such articles are imported into India. The
importation may or may not directly be from the country of manufacture or production.
Subsidy shall be deemed to exist if
(a) there is financial contribution by a government, or any public body in the exporting or
producingcountry or territory, that is, where -
 a government practice involves a direct transfer of funds (including grants, loans and equity
infusion), or potential direct transfer of funds or liabilities, or both;
 government revenue that is otherwise due is foregone or not collected (including fiscal
incentives)
 a government provides goods or services other than general infrastructure or purchasesgoods;
(b) a government makes payments to a funding mechanism, or entrusts or directs a private body to carry
out one or more of the type of functions specified in clauses (i) to (iii) above which would normally
be vested in the government and the practice in, no real sense, differs from practices normally
followed by governments; or
 The amount of countervailing duty shall not exceed the amount of subsidy paid or bestowed as
aforesaid.
 Countervailing duty shall not be levied unless it is determined that -
(i) The subsidy relates to export performance;
(ii) The subsidy relates to the use of domestic goods over imported goods in the export article;
or
(iii) The subsidy has been conferred on a limited number of persons engaged in
36
manufacturing producing or exporting the article unless such a subsidy is for-

 Research activities conducted by or on behalf of such persons engaging in manufacture,production,
export;
 Assistance to disadvantaged regions within the territory of the exporting country; or
 Assistance to promote adaptation of existing facilities to new environmental requirements.
 Unless revoked earlier, the duty imposed under this section shall be in force for a period of 5 years
from the date of its imposition.
8. Exchange rate for imported goods [Important for practical]
9. Computation of Assessable Value
Invoice Price of Goods ₹

Add –Following Items
1. Commission to agent paid by seller
2. Cost of Packing
3. Development and Design charges
4. Loading & Unloading at the place of exportation
5. Royalties and license fees
6. Engineering work
Free on Board Value (FOB Value)
Add –
6. Transportation cost from Foreign coundry to Indian port [Maximum 20 % of FOB in case of air
fare]
7. Insurance Premium (If the insurance premium is not given then 1.125% of FOB price will be
added)
Cost of Insurance & Freight Value (CIF) or Assessable value
10. Computation of Landed value & Custom Duty
Assessable value = ₹ 1,000; BCD= 10 %, Safeguard Duty = 30 %, Anti Dumping Duty = ₹ 200, SWS = 10
%, GST compensation cess =15 %, IGST = 18 %, Compute Custom Duty & landed value
37
11. Computation of Total Import duty
Determine the Customs Duty payable including the safeguard duty of 20%, for Goods with Assessable Value of
INR 50,00,000 considering BCD @ 10%, IGST @ 18%
12. Computation of Total Import duty

Calculate the total import duty payable if :
a) F.O.B. Value is GBP 18000
b) Freight Charges incurred (actual) are GBP 7500
c) Design & Development Charges incurred at UK are GBP 2500
d) Selling Commission at India paid to a local agent @ 2% of F.O.B. Value
e) Date of Bill of Entry : 24th Oct 2020 (Rate of Basic Customs Duty is 20% and Exchange Rate as
notified by CBIC is INR 68 to 1 GBP)
f) Date of Entry Inward : 20th Oct 2020 (Rate of Basic Customs Duty is 18% and Exchange Rate
as notified by CBIC is INR 70 to 1 GBP)
g) IGST @ 18%
h) Insurance Charges could not be ascertained
Use the information appended below to find out the assessable value.
Item No. Description USD

1 Cost of Machine at the factory of the US Exporter 17500
2 Transport Charges from the said factory until the sea port for onward shipment 2500
3 Handling Charges at the Port of Shipment 200
4 Buying Commission paid by Importer 50
5 Freight Charges until the Indian Port 2500
Please use an exchange rate of $1=63.84 INR

Raika Healthcare Ltd. imported goods from the USA. The assessable value of the goods is Rs.
30,00,000. Basic Customs Duty is payable @ 10%. Other duties imposed on the goods are:
(i) Safeguard Duty- 25%
(ii) Anti-dumping Duty @ 12 per Kg. of the imported goods (10,000 Kgs.). IGST
tariff on similar goods in India is 12%.
Social Welfare Surcharge is applicable @10%.
Find out total customs duty payable and the cost of the imported goods.
38

Determine the Customs Duty payable when the safeguard duty is 30% on the basis of the following
information –
(a) Assessable Value of caustic soda imported from a developing country ₹ 60,00,000
(b) Share of imports of the caustic soda from developing country against 4% total import of goods to
India
(c) Rate of Basic Customs Duty 10%
(d) Social Welfare Charges 10%
(e) Integrated GST 18%
16. Practical Sums

From the following particulars, determine assessable value: ₹
Price charged by exporter (FOB) 15,00,000
Transportation cost for import to India by air 4,50,000
Insurance cost (transit insurance) 90,000
Loading and unloading charges at the place of importation 25,000
Transportation cost from Indian airport to warehouse 15,000
17. Practical Sums
Determine assessable value from the following information: ₹

FOB 30,00,000
Freight from importing country to India (by air) 3,00,000
Transit insurance (not ascertainable) -----
Loading, unloading and handling charges at the place of importation 1,23,000
39
Partnership Firms
Computation of Tax :
For the Assessment Year 2021-22 income tax will be levied at the following rates :
A. Short-term capital gains – 15% (u/s 111A)

Conditions for Sec. 111A :
1) Asset is equity shares of a company
2) Transaction is chargeable to Security Transaction Tax.
Otherwise normal rate of tax is applicable.
B. Long term capital gains - 10% / 20% (u/s 112) Sec. 112A
1) Applicable on Long Term Asset is equity shares of a company
2) Transaction is chargeable to Security Transaction Tax.
3) Without indexing when gain exceeding Rs. 1 lakh @ 10%. [Upto 1 lakh exempt]
C. Winnings from lotteries, card games, crossword puzzles, horse race, etc. - 30%
D. Tax Rate for other incomes:

The applicable tax rate for any Partnership Firms & Limited Liability Partnerships (LLP) is at a flat
rate of 30 %.
Surcharge:
In case income is more than ₹ 1 crore, the surcharge is applicable @ 12% over income tax amount,
otherwise Nil.
Health and Education Cess:

4 % of tax liability after surcharge
40
Unit 1 (B) : Computation of tax liability of

an individual [15 Marks]
1. Computation of Total Income & Tax Payable of an Individual
2. Incomes Which are fully Exempt from tax

(a) Agricultural Income [Section 10(1)]
(b) Sum received by a Member from HUF [Section 10(2)]
(c) Share of Profit of a Partner from a Firm [Section 10(2A)
(d) Interest on Post Office Saving Bank a/c is exempt up to 3,500 [Section 10 (15)]
(e) Dividend from UTI & Mutual Fund [Section 10 (35)]
3. Definition of agricultural income [Section 2(1A)]

This definition is very wide and covers the income of not only the cultivators but also the land holders who
might have rented out the lands. Agricultural income may be received in cash or in kind.
Conditions:
(a) Rent or revenue should be derived from land:
(b) Land has to be situated in India
(c) Land should be used for agricultural purpose:
4. Income partially agricultural & partially Non –agricultural

Income from the sale of tea grown and manufactured by the seller 60% 40%
Agriculture Business
Income
41
5. COMPUTATION OF INCOME UNDER THE HEAD SALARY

Basic salary ***
Dearness Allowance ***
City compensatory Allowance ***
Transport Allowance (Fully Taxable) ***
Medical Allowance (Fully Taxable) ***
Entertainment Allowance (Fully Taxable) ***
House rent allowance ***
Less: exemption u/s 10(13 A) *** ***
Advance salary (taxable in the year of receipt) ***
Bonus ***
Commission ***
Special Allowance ***
Less Exemption u/s 10 (14) *** ***
Employer’s contribution to RPF (in excess of 12% of salary) ***
Interest credited to RPF (in excess of 9.5%) ***
Perquisite U/s 17(2)
Rent free accommodation or accommodation provided at concessional rate 17 (2) (i) & (ii) ***
Perquisite taxable in hands of specified employees U/s 17 (2) (iii) ***
Obligation of the employee paid by the employer U/s 17 (2) (iv) ***
Any other prescribed fringe benefit or amenities U/s 17 (2) (viii) ***
Profit on lieu of salary u/s 17 (3)
Gross Income from salary ***
Less: Deduction u/s 16
Standard Deduction/s 16 (ia) ***
Deduction for payment of professional tax u/s 16 (iii) *** ***
Income from salary ***
6. Exemption of HRA u/s 10 (13A) and rule 2A

House situated in Delhi, Mumbai, Chennai & Kolkata Any other place
Least of the following Least of the following
i. Allowances actually received i. Allowances actually received
ii. Rent paid in excess of 10% of salary ii. Rent paid in excess of 10%salary
iii. 50% of salary iii. 40% of salary
Here salary means Basic + D.A + fixed % of comm. on turnover. Salary is to be taken on due basis
7. Special Allowance [Exemption u/s 10 (14) ]
(1) Amount exempt to the extent of Actual amount received or amount spent whichever is less
Travelling Allowance: - Allowances granted to meet the cost of travel on tour or on transfer;
Conveyance Allowance: - Granted to meet the expenses on conveyance on performance of duty
(2) Allowance which are exempt to the extent of amount received or specified limit, whichever is less:
Children education Allowance: - ₹ 100 p.m. per child for a maximum of two children
Hostel expenditure Allowance: - ₹ 300 per month per child for a maximum of two children
42
8. Valuation of rent free accommodation u/s 17 (2) (i)

Valuation of rent free unfurnished accommodation
When provided by the government to its employee: - License fees as determined
Accommodation owned and provided by the employer: -
 City whose population does not exceeds 10,00,000: -- 7.5 % of salary
 City whose population exceeds 10,00,000 but does not exceeds 25,00,000: : -- 10 % of salary
 City whose population exceeds 25,00,000: -- 15 % of salary
Accommodation is taken on lease or rent by the employer: - Amount of lease rent paid or 15 % of salary
whichever is lower.
Here salary = Basic + DA (forming part of retirement benefit) + bonus + commission + all other taxable
allowance + any other monetary payment changeable to tax (excluding perquisites & Cont to PF)
In case of furnished accommodation
Determine the value as if the accommodation is unfurnished. To the figure so arrived at add:
 10% of original cost of furniture, if furniture is owned by the employer
 Actual hire charges payable if furniture is hired by the employer
Note : Furniture includes Television sets, radio, refrigerator, other household appliance, air-conditioning
plant or equipment.
9. Any concession in matter of rent in respect of

accommodation {u/s 17 (2) (ii)}
The valuation is made as rent-free accommodation and the amount so computed will be reduced by the rent
payable by the employee.
10. Valuation of monetary obligation of the employee

discharged by the employer{u/s 17 (2) (iv)}
 Gas, electricity bill paid or reimbursed
 Children education expenses paid or reimbursed
 Medical expenses reimbursed
 Income-tax or professional-Tax paid by the employer
 LIP paid by the employer on the life of the employee
 Salary of domestic Servant, Cook Paid by employer
11. Perquisites which are taxable in hands of specified

employee [u/s 17 (2) (iii)]
 Valuation of perquisite in respect of free domestic servant
 Valuation of perquisite in respect of supply of gas electric energy or water
 Valuation of motor car
 Valuation of perquisite in respect of free or concessional education facility
 Valuation of perquisite in respect of medical facility
Medical facility in a hospital maintained by the employer/Govt.: - not taxable
43
12. Tax free perquisite for all employees

1. Telephone, mobile phones: Expenses for telephone, mobile phones actually incurred on behalf of
employee by the employer whether by way of direct payment or reimbursement.
2. Computer or Laptop: Computer or Laptop provided whether to use at office or at home (provided
ownership is not transferred to the employee).
3. Leave Travel Concession: Leave Travel Concession (LTC) subject to few conditions.
4. Loans:
 Loan given at nil or at concessional rate of interest by the employer provided the aggregate amount
of loan does not exceed ₹ 20,000.
13. Deduction from salary (section 16)

Standard Deduction {u/s 16 (ia)}
Least of the following:
(a) ₹ 50,000
(b) Gross Salary
Professional tax {u/s 16(iii)}
 Deduction is available only in the year in which the professional tax is paid
 If the professional tax is paid by the employer on behalf of the employees then it is first included in
the salary as perquisite and then the same is allowed as deduction.
14. Taxable value of Motor Car Facility

Most Important case:
Motor car is owned by the employer & Running and maintenance expenses are
met or reimbursed by the employer
(a) The car is used partly for official purposes and partly for private purposes of the employee or any
member of his household –
 Where cubic capacity of the engine does not exceed 1.6 litres OR 1600CC OR 16HP: ₹ 1,800 per
month for the use of car + ₹ 900 per month for chauffeur (Driver)
 Where cubic capacity of the engine exceeds 1.6 litres OR 1600CC OR 16HP: . ₹ 2,400 per month for
the use of car + ₹ 900 per month for chauffeur (Driver):
15. Computation of income from a let out property

Gross Annual value ***
Less:- Municipal Tax ***
Net Annual value***
Standard deduction [U/s 24 (a) 30% of NAV] ***
Interest on borrowed Capital [U/s 24(b)] *** ***
Income from Let out House ***
44
16. Computation of income from a Self occupied property

Net Annual value Nil
Interest on borrowed Capital [U/s 24(b)] [Maximum limit ₹ 2,00,000] *** ***
Income from Self occupied House (always Loss) (***)
17. Income From other sources

(a) Dividends from Indian company & Dividend from foreign Company are taxable
(b) any winnings from lotteries, crossword puzzles, races including horse-races, card games and other
games of any sort or from gambling or betting of any form or nature whatsoever ;****
(c) Where any sum of money exceeding ₹ 50,000 received by an individual or a Hindu undivided
familywithout consideration from a specified person
(d) Interest on securities
(e) Income from sub-letting
(f) Agricultural income outside India
(g) Fees received by a director for attending Board Meeting
(h) Family pension payable on the death of the employee
(i) Remuneration received by a teacher for acting as an examiner
(j) Honorarium for writing an article
(k) Interest on bank deposits and loans
(l) Income from activity of owning & maintaining race-horses
(m) Rent from a vacant plot of land
18. Admissible deductions from ‘Income from other sources’

(a) Deduction for computing income from dividend: Any reasonable sum paid by way of commission or
remuneration to a banker or any other person for the purpose of realising dividend or interest on behalf
of the assessee shall be deducted.
(b) Deduction in respect of income by way of family pension: One-third of such pension or ₹ 15,000,
whichever is less, will be allowed as deduction. For this purpose, 'family pension' means a regular
monthly amount payable by the employer to a person belonging to the family of an employee in the
event of his death.*****
19. Set-off & carry forward of losses

(a) Short term capital loss can be set off against Long term Capital Gain or Short term capital gain but
can't be set off against other heads.
(b) Long-term Capital Loss can be set off against income from Long-term Capital Gain only. It will not be
allowed to be set off against income under any other head. It shall however be allowed to be carried
forward.
45
20. Computation of income from Business or profession & Total

income
Computation of Business Income & Total Income (Indirect Method)
Particulars ₹ ₹
Net profit as per Profit and Loss Account Xxx
Add: Expenses debited to P/L Account but disallowed by the Income-tax Act:
Income-tax xxx
Depreciation as per Books Xxx
Legal charges & Penalty for infraction of law Xxx
Provision for bad debt Xxx
Donations xxx
Interest on capital Xxx
Expenses of other heads xxx Xxx
Less: Expenses not debited to P/L Account but allowed by the Income-tax Ac
Capital expenditure on scientific research Xxx
Depreciation as per Income-tax Rules, etc. Xxx Xxx
Less: Incomes credited to Profit and Loss Account but not chargeable under Xxx
The head ‘Profits and gains of business or profession’:
Bank interest Xxx
Dividend received Xxx Xxx
Capital Gains
Less: Items credited to P/L Account as income but not taxable as per the Act: Xxx
Income Tax Refund Xxx
Bad debt recovered out of bad debt disallowed in earlier year, etc. Xxx Xxx
Stock Adjustment:
Add: Overvaluation of Opening Stock
Add: Undervaluation of Closing Stock
Less: Undervaluation of Opening Stock
Less: Overvaluation of Closing Stock
Profit & Gains of Business or Profession
Add: Income of other heads (Bank Interest etc)
Gross Total Income
Less: Deduction under chapter VI A
Total Income
46
21. Expenses Allowed under Profit & Gains of Business &

Profession
Business Loss:
Following business loss is deductible in computing profits & gains of business or profession:
i. Loss on account of embezzlement by an employee
ii. Loss of stock-in-trade by fire and other natural calamities
iii. Loss on account of robbery and theft
iv. Loss due to non-recovery of advances for supply of supply raw-materials
v. Loss caused due to breach of contract for delivery of goods
Other deduction (section 36)
i. Insurance premium of stock
ii. Bonus or commission to employee
iii. Interest on borrowed capital
iv. Employers’ contribution to Recognised Provident Fund
v. Bad debts {u/s 36 (1) (vii)} are deductible but provisions for bad debts are not deductible. If any bad debt
are allowed as deduction earlier, subsequently recovered, then it shall be treated as income of the previous
year in which it is recovered.
General deduction { u/s 37(1)}
i. Salary and perquisite paid to an employee
ii. Penalty or interest paid for delay in completion of a contract
iii. Legal expenses incurred in connection with the business or profession
iv. Legal charges and other expenses for obtaining the loan
v. Legal and court expenditure spent for preparation and pursuing income-tax appeals
Expenses allowable under CBDT
i. Advertisement expenses
ii. Sales tax
22. Expenses Disallowed under Profit & Gains of Business &

Profession
Losses/expenses, which are not deductible
i. Loss incurred due to damage, destruction, etc of capital assets
ii. Anticipated losses of subsequent year (For example: Provision for bad debts)
iii. Penalty paid to custom authorities, sales tax authorities, income tax, authorities, etc for infraction of laws is
not deductible
iv. Legal expenditure to maintain the title of a capital asset
Amount not deductible (u/s 40)
i. Any interest, royalty, salary, fees for technical services, etc. payable outside India on which tax is not
deducted at source
ii. Under section 40A (3) where an assessee incurs any expenditure, in respect of which payment is made, in a
sum exceeding ₹ 10,000 otherwise than by a crossed cheque drawn on a bank or a crossed bank draft, 100
% of such expenditure shall not be allowed as a deduction.
47
23. Deduction u/s Sec 80C

This deduction is allowed only to an Individual; or a Hindu Undivided Family
Deduction allowed on account of the following savings/investment cannot exceed ₹ 1,50,000
(a) ife insurance paid for himself, spouse and any child of the individual [Child may be
married/unmarried, dependent/not dependent]; No deduction for premium paid for Parents; Brothers,
sisters etc. [Maximum deduction 20 % of policy value or sum assured if the policy is taken before
1/4/2012 & 10% if the policy is taken on or after 1/4/2012] [LIP paid by employer will also be
deductible]
(b) Any contribution by the employee towards a statutory provident fund or recognised provident fund
or public provident fund; (No Deductions u/s 80C for Contribution to Unrecognised Provident Fund)
(c) Subscription to national saving certificate (VIII issue)
(d) Any interest accrued on national saving certificates which is deemed to be reinvested also qualifies
for deduction [Excluding sixth year interest]
(e) Any sum paid as tuition fees [Excluding development fees or donations] to any university, college,
school, or other educational institution situated within India for full time education [For maximum of
2 children]
(f) Repayment of housing loan taken from Government; any Bank; Life insurance corporation etc.
[Excluding Interest]
(g) Term deposit for a fixed period of 5 years or More.
(h) Investment in Tax Saving Bonds & Infrastructure bonds
24. Deduction u/s Section 80 D

(a) This deduction is available to an (i) individual and (ii) a Hindu undivided family.
(b) The assessee pays insurance premium for insurance on the health of himself/herself, spouse, parents
(dependent or Independent) or dependent children
(c) Any payment is made on account of Preventive health check-up of the assessee or his family.
(d) Actual amount of insurance premia paid on the health of taxpayer, spouse and dependent children or
₹ 25,000, whichever is lower, will be allowed as deduction. If the insurance premium is paid for
senior citizen (i.e. attained 60 years of age at any time during the previous year), maximum
Deduction of ₹ 50000 will be available.
+
Actual amount of insurance premia paid on the health of parents or ₹ 25,000, whichever is lower,
will be allowed as deduction. If the insurance premium is paid for senior citizen (i.e. attained 60
years of age at any time during the previous year), maximum Deduction of ₹ 50000 will be available.
25. Deduction u/s Section 80 DD

(a) The assessee must incur expenditure by way of medical treatment (including nursing), training
and rehabilitation of a dependant who is a person with disability
(b) “Dependent” means the spouse; children; parents; brothers and sisters
(c) A fixed deduction of ₹ 75,000 shall be allowed irrespective of the actual expenditure incurred or actual
amount paid or deposited under the scheme.
(d) However, where such dependant is a person with severe disability (80% or more), the amount of
deduction will be ₹ 1,25,000.
48
26. Deduction u/s Section 80 DDB

(a) This deduction is available to a resident individual and a resident HUF.
(b) the assessee actually pays any amount for the medical treatment of specified disease or ailment
(c) “Dependent” means the spouse; children; parents; brothers and sisters
(d) Maximum deduction ₹ 40,000. Such amount shall be reduced by the amount received, if any, under an
insurance from an insurer, or reimbursed by an employer, for the medical treatment of the above
mentioned persons.
(e) If the insurance premium is paid for senior citizen, the amount of deduction will be the actual amount of
premium paid or ₹ 1,00,000, whichever is lower.
27. Deduction u/s Section 80 G

 No Deduction for Donations in kind & Donation to local Poor People.
(A) Donations made to following are eligible for 100% deduction without any qualifying limit:
(a) National Defence Fund set up by the Central Government.
(b) Prime Minister's National Relief Fund;
(c) National Foundation for Communal Harmony;
(d) University/Educational Institution of National Eminence approved by the prescribed authority;
(B) Donations made to the following are eligible for 50% deduction without any qualifying limit:
(a) Jawaharlal Nehru Memorial Fund;
(b) Prime Minister's Drought Relief Fund;
(c) Indira Gandhi Memorial Trust;
(C) Donations to the following are eligible for 100% deduction subject to qualifying limit:
(a) Donation to Government or any approved local authority, institution or association to be utilised for
promoting family planning.
(D) Donations to the following are eligible for 50% deduction subject to qualifying limit:
any charitable purpose other than promoting family planning.
(b) Any other fund or institution which satisfies the conditions of section 80G(5).
(c) Any notified temple, mosque, gurdwara, church or other place notified by the Central Government to be
of historic, archaeological or artistic importance, for renovation or repair of such place.
Qualifying Limit:
Least of the following
(i) Aggregate donations made to funds/institutions covered under (C) and (D)
(ii) 10% of Adjusted Gross Total Income.
Adjusted Gross Total Income:
Adjusted Gross Total Income for this purpose means the "Gross Total Income" as reduced by—
(a) Long-term capital gains, if any, which have been included in the "Gross Total Income"
(b) All deductions permissible u/s 80C to 8OU excepting deduction under this section i.e. section 80G;
49
28. Deduction u/s Section 80 GGC

(a) 100 % deduction in respect of donation to political parties
29. Illustration: Computation of total income & Tax Payable

Question:
Mr. S. Bardhan, a resident in India, is employed in a public limited company. He received net salary of ₹
1,37,200 during the year ended 31st March, 2021 after deduction of tax at source ₹ 1,800 and own contribution
to RPF ₹ 1,000. His employer contributes an equal amount to this fund. His other incomes in the previous year
2020-21 are:
₹
i. Income from House Property 30,750
ii. Profit from Business A 2,36,000
iii. Interest on fixed deposit with SBI 4,200
iv. Interest on National Savings Certificate (including 6th year interest ₹ 1,250) 2,250
v. Loss from Business B 13,200
He claims deduction in respect of the following donation and contributions:
a) Premium paid on wife’s life insurance (Policy Value of ₹ 42,000) 4,000
b) National savings certificate (VIII th issue) purchased 7,500
c) Donations to National Defence Fund 3,000
Compute his total income and tax liability for the Assessment year 2021-22

Question:
Smt. A. Sen (age 36 years), a resident individual of India, furnished the following details of her income during
the Previous Year 2020-21 Compute her Total Income and tax Payable for the Assessment year 2021-22:
Amount
Particulars ( ₹)
Business Income 2,50,000
Income from winning from lottery (net) TDS @ 30% 70,000
Salary income (computed) 8,00,000
Long term Capital gain on transfer of building 1,00,000
Life insurance premium paid (policy taken 1.1.2020 and sum assured 5,00,000) 80,000
Investment in NSC 50,000
Payment of Tuition fees 30,000
Medical Insurance Premium paid for himself 10,000
Medical Insurance Premium paid for her father (Age 65 years) (not dependent) 19,000
She incurred expenditure for medical treatment of her dependent brother Suffering 25,000
from cerebral palsy (severe)
Donation to a recognized political party 20,000
50
31. Illustration Computation of Total income & Tax Payable
For the previous year 2020-21, Mr. Swarup Sen has furnished the following information:
₹
Income from Salary (computed) 5,20,000
Income from House property 95,000
Bank interest on fixed deposit 18,000
Long term capital gains 30,000
Short term capital loss 5,000
He made the following payments:
₹
(a)LIP on own life (sum assured ₹ 2,00,000) 22,000
(b)LIP on wife’s life (sum assured ₹ 1,00,000) 10,000
(c)Deposit in PPF 18,000
(d)Paid for mediclaim (on own health) 12,000
(e)Medical expenses on treatment of dependent (Physically handicapped brother) 25,000
(f)Donation to Prime Minister’s National Relief Fund 10,000
(g)Donation to Ramkrishna Mission 12,000
Determine his total income and tax payable for the A.Y. 2021-22.

Question:
Mrs. Mitra attains the age of 60 years on 26.10.2020. From the following information compute total income and
tax payable by Mrs. Mitra relating to the previous year 2020-21.
i. Pension ₹ 15,000 per month
ii. Dividend from TATA Motors ₹ 14,000
iii. Dividend from ZTE Telecommunications (a foreign company) ₹ 60,000
iv. Agricultural Income from Bangladesh ₹ 56,000
v. Interest from Bank Fixed Deposit ₹ 80,000
vi. Winning from lottery (net) ₹ 35,000 [Tax Deducted at Source @ 30 %]
vii. Interest from Govt Securities ₹ 50,000
Mr. Mitra has made the following payments during the previous year:
i. Premium on Life Insurance (own life) paid ₹ 24,000 (Policy value ₹ 2,00,000)
ii. Mediclaim premium on son’s health ₹ 6,000.
iii. Paid ₹ 20,000 to Rama Krishna Mission.
iv. Paid ₹ 15,000 to Prime Minister’s National Relief Fund.
v. Incurred ₹ 30,000 for treatment of dependent father aged 80 years old suffering from cancer.

Dr. Monorama Malakar (age 38 years) a resident individual of India, and a disabled person (not severe)
furnished the following details of her income during the previous year 2020-21. Compute her total income for
the assessment year 2021-22
i. Collection from profession ₹ 5,60,000 (Allowable expenses ₹ 4,20,000)
ii. Income from House Property (computed) ₹ 1,00,000.
iii. She received her share of income from the business of Hindu Undivided Family (HUF) as a
51
member ₹ 52,000.
iv. Gross salary ₹ 6,00,000.
v. Payment of Housing loan taken for her residential house ₹ 1,40,000 (Principal ₹ 75,000 and
balance is Interest on loan)
vi. She deposited in Public Provident Fund ₹ 30,000 during the period.
vii. School tuition fees paid during the year ₹ 15,000.

viii. Paid medical insurance premium ₹ 23,000 and Preventive health check-up for herself for ₹
6,000
ix. Donation to a recognised political party of India ₹ 15,000.
34. Computation of total income & Tax Payable

Mr. Tamang, a resident in India (age 32 years) has joined as State Government employee on April 8, 2015.
He furnished the following particulars for the year ended March 31, 2021.
(a) Basic Salary ₹ 2,49,000.
(b) Dearness allowance (not forming part of salary) ₹ 1,49,400
(c) Other taxable allowances ₹ 1,44,000
(d) He owns a house at Darjeeling which is let out at monthly rent of ₹ 18,000 per month. Municipal
value of the house is ₹ 2,00,000. Repairing expenses of ₹ 28,000 are incurred during the year.
Municipal tax is paid @ 10% of municipal value. The house remains vacant for 2 months during the
year.
(e) He sold an urban land on January 20, 2021 for ₹ 18,40,000, which has been purchase on July 25, 2019
for ₹ 9,70,000.
(f) He has earned savings bank interest of ₹ 9,200, interest from fixed deposits with bank ₹ 37,300 and
lottery income ₹ 42,000 (net of tax @ 30%)
(g) He has paid medical insurance premium as follows:
On his own health ₹ 15,700, on his wife’s health ₹ 20,300, on his father’s health (father’s age 84
years) ₹ 42,250.
(h) He paid life insurance premium on his own life taken on 01-08-18 ₹ 18,000 (policy value ₹ 1,50,000).
(i) He has deposited ₹ 55,000 to PPF and his contribution to R.P.F ₹ 15,000.
(j) He donated ₹ 10,000 to PM’s National Relief Fund.
Compute his total income and tax liability for the assessment year 2021-22
Mrs. Susoma Manna (age 45 years), a resident individual of India, furnishes the following details of her
incomes, investments and payments during the previous year 2020-21. compute her total income and tax
payable for the assessment year 2021-22.
(a) Gross Salary ₹ 12,00,000 (Profiessional Tax Paid ₹ 2000)
(b) Income from business ₹ 2,00,000
(c) Long term capital gain on sale of building ₹ 1,25,000
(d) Short term capital gain on sale of jewelllery ₹ 25,000 1
(e) Winning from lottery (net) ₹ 70,000 (TDS @ 30%).

52
(f) She deposited ₹ 60,000 to Public Provident Fund (PPF) during the previous year.
(g) Slhe paid ₹ 3000 by cheque for medical insurance policy on her own health.
(h) Donated ₹ 10,000 to Prime Minsiter's National Relief Fund.
(i) She paid ₹ 25,000 for premlum on life lnsurance policy. (sum assured ₹ 5,00,0000 taken on
01.10.2016) on her own life.
(j) She resides in a house which was purchased by her on 01.01.2017 by taking a loan from SBI. Durng
the previous year she repaid 2,00,000 of which 1,00,000 is for principal repayment).

Sri D. Banerjee furnished the following information for the P.Y. 2020-2021 :
₹
Income from Salary (Gross) 6,02,400
Professional tax deducted by employer from salary 2,400
Income from house property 1,40,000
Short term capital loss on sale of gold 15,000
Long term capital gain on sale of land 40,000
Interest on Bank Deposit (including interest on savings bank of ₹ 8,000) 25,000
Dividend from an Indian company 10,000
Received from lottery (after TDS @ 31.2%) 69,800
He made the following payments :
(a) Life Insurance Premium on own life ₹ 25,000 (Sum assured ₹ 2,00,000 taken on 15.10.2019)
(b) Deposit in PPF ₹ 1,40,000
(c) Own contribution to RPF ₹ 20,000
(d) Medical Insurance Premium on own health ₹ 10,000 and on the health of spouse ₹ 8,000 paid
by cheque
(e) Donation to P.M’s National Relief Fund ₹ 20,000
Compute his total income and tax payable for the A.Y. 2021-22.

Smt. Bijeta Mali (Age 58 years.), a resident individual of India, furnished the following details of her income
during the previous year 2020-21. Compute her total income and tax payable for the assessment year 2021-
22.
(a) Gross salary ₹ 15,00,000.
(b) Professional tax paid @ ₹ 200 per month.
(c) Long term capital gain on sale of building ₹
1,00,000.
(d) Received dividend from an Indian company ₹
10,000.
(e) Received interest from Savings Bank Account ₹
5,000.
53
(f) Deposited ₹ 1,00,000 to Public Provident Fund.

(g) Paid life insurance premium on her life ₹ 25,000
(taken on 01.01.2019, sum assured ₹ 5,00,000).
(h) Paid medical insurance premium by cheque on
her own health ₹ 10,000.
(i) Donated ₹ 10,000 to National Defence Fund.
(j) Repaid home loan taken from SBI ₹ 2,50,000 (of
which ₹ 52,400 is for principal repayment).

Ms. Suparna Roy (Age 46 yrs), a resident individual of India, finished the following details of her income
during the Previous year 2020-21. Compute her Total Income and tax payable for the Assessment year 2021–
22.
(a) Gross salary ₹ 5,01,000 (Professional Tax paid ₹
2,000).
(b) Income from Business owned by her ₹ 2,00,000
and Allowable expenses ₹ 1,20,000.
(c) Received family pension ₹ 10,000 p.m. w.e.f.
01.04.2020.
(d) Long term Capital gain on sale of building ₹
80,000.
(e) She received her share of income from Hindu
Undivided Family (HUF) as member ₹ 40,000.
(f) She deposited to PPF ₹ 80,000 during the year
(g) Donation to National Defence Fund ₹ 25,000.
(h) Repayment of house building loan taken from
HDFC Bank (purchased during 2018 –19) ₹ 2,50,000 (of which ₹ 50,000 is for principal repayment).
(i) Paid premium on Mediclaim Insurance Policy on
own health by cheque ₹ 16,000.
54
Unit 1 (C) : Computation of tax liability of

an Firm (Excluding AMT) [15 Marks]
1. Deduction u/s 40(b)
In case of computation of income under the head "Profits & gains of business or profession" a partnership
firm shall, apart from all deductions discussed in the said chapter, be further allowed deduction u/s 40(b) in
respect of -
(a) Interest to partner; and
(b) Remuneration to partner
2. Interest on Capital & Partners’ Loan

Interest to partners -whether on capital or on loan is allowed as deduction.
Conditions
1. Interest must be authorised by the partnership deed.
2. Payment must pertain to a period after the partnership deed.
Deduction:
Minimum of the following is allowed as deduction:
(a) Actual interest given to partner
(b) 12 % p.a. simple interest
3. Interest on drawings
Interest on drawings, charged by the firm from its partners), shall be treated as taxable income.
4. Remuneration to partner
Remuneration to a partner includes salary, fees, commission, bonus, etc.
Conditions to be satisfied
(a) Remuneration is allowed subject to fulfillment of the following conditions:
(b) Partner must be a working partner.
(c) Remuneration must be authorised by the partnership deed.
(d) Payment must pertain to a period after the partnership deed.
Deduction:
Remuneration (in total) is allowed to the minimum of the following:
(a) Actual remuneration allowed to all partne ₹
(b) Maximum permissible limit u/s 40 (b)
Amount of book-profit Maximum remuneration allowed

In case of loss ₹ 1, 50, 000
In case of profit
First ₹ 3,00,000 90 % of book profit or ₹ 1,50,000, whichever is higher
On balance book-profit 60 % of balance book profit
Step 1. Find out the net profit of the firm from the P & L A/c
55
5. Computation of Book Profit
Step 2. Exclude other heads of income

Step 3. Make adjustments as provided in sections 28 to 44D
Step 4. Add remuneration to partners if debited to P & L A/c
Step 5. Add interest paid to partners in excess of 12 % p.a.
Step 6. The resulting figure will be book profit.
Computation of income of Total Income of the firm (Indirect Method)
Particulars ₹ ₹
Net profit as per Profit and Loss Account Xxx
Add: Expenses debited to P/L Account but disallowed by the Income-tax Act:
Income-tax xxx
Depreciation as per Books Xxx
Legal charges & Penalty for infraction of law Xxx
Provision for bad debt Xxx
Donations xxx
Interest on capital in excess of 12 % Xxx
Remuneration to Partner (Salary + commission to Partner) xxx Xxx
Less: Expenses not debited to P/L Account but allowed by the Income-tax Act:
Capital expenditure on scientific research Xxx
Depreciation as per Income-tax Rules, etc. Xxx Xxx
Less: Incomes credited to Profit and Loss Account but not chargeable under Xxx
The head ‘Profits and gains of business or profession’:
Bank interest Xxx
Dividend from shares of a foreign company Xxx Xxx
Less: Items credited to P/L Account as income but not taxable as per the Act: Xxx
Dividend from Indian company Xxx

Bad debt recovered out of bad debt disallowed in earlier year, etc. Xxx Xxx
Stock Adjustment:
Add: Overvaluation of Opening Stock
Add: Undervaluation of Closing Stock
Less: Undervaluation of Opening Stock
Less: Overvaluation of Closing Stock
Book Profit
Less: Remuneration Allowed (See Working Notes)
Profit & Gains of Business of Profession
Add: Income of other heads (Bank Interest etc)
Gross Total Income
Less: Deduction under chapter VI A
Total Income
56
6. Expenses Allowed under Profit & Gains of Business &

Profession
Business Loss:
Following business loss is deductible in computing profits & gains of business or profession:
i. Loss on account of embezzlement by an employee
ii. Loss of stock-in-trade by fire and other natural calamities
iii. Loss on account of robbery and theft
iv. Loss due to non-recovery of advances for supply of supply raw-materials
v. Loss caused due to breach of contract for delivery of goods
Other deduction (section 36)
i. Insurance premium of stock
ii. Bonus or commission to employee
iii. Interest on borrowed capital
iv. Employers’ contribution to Recognised Provident Fund
v. Bad debts {u/s 36 (1) (vii)} are deductible but provisions for bad debts are not deductible. If any bad debt
are allowed as deduction earlier, subsequently recovered, then it shall be treated as income of the previous
year in which it is recovered.
General deduction { u/s 37(1)}
i. Salary and perquisite paid to an employee
ii. Penalty or interest paid for delay in completion of a contract
iii. Legal expenses incurred in connection with the business or profession
iv. Legal charges and other expenses for obtaining the loan
v. Legal and court expenditure spent for preparation and pursuing income-tax appeals
Expenses allowable under CBDT
i. Advertisement expenses
ii. Sales tax
7. Expenses Disallowed under Profit & Gains of Business &

Profession
Losses/expenses, which are not deductible
i. Loss incurred due to damage, destruction, etc of capital assets
ii. Anticipated losses of subsequent year (For example: Provision for bad debts)
iii. Penalty paid to custom authorities, sales tax authorities, income tax, authorities, etc for infraction of laws is
not deductibleLegal expenditure to maintain the title of a capital asset
Amount not deductible (u/s 40)
i. Any interest, royalty, salary, fees for technical services, etc. payable outside India on which tax is not
deducted at source
ii. Under section 40A (3) where an assessee incurs any expenditure, in respect of which payment is made, in a
sum exceeding ₹ 10,000 otherwise than by a crossed cheque drawn on a bank or a crossed bank draft, 100
% of such expenditure shall not be allowed as a deduction.
57
8. Deduction in respect of donations to certain funds, charitable
institutions, etc. [Section 80G]
(A) Donations made to following are eligible for 100% deduction without any qualifying limit:
(a) National Defence Fund set up by the Central Government.
(b) Prime Minister's National Relief Fund;
(c) National Foundation for Communal Harmony;
(d) University/Educational Institution of National Eminence approved by the prescribed authority;
(B) Donations made to the following are eligible for 50% deduction without any qualifying limit:
(a) Jawaharlal Nehru Memorial Fund;
(b) Prime Minister's Drought Relief Fund;
(c) Indira Gandhi Memorial Trust;
(d) Rajiv Gandhi Foundation.
(C) Donations to the following are eligible for 100% deduction subject to qualifying limit:
promoting family planning.
(D) Donations to the following are eligible for 50% deduction subject to qualifying limit:
any charitable purpose other than promoting family planning.
(b) Any other fund or institution which satisfies the conditions of section 80G(5).
(c) Any notified temple, mosque, gurdwara, church or other place notified by the Central Government to be
of historic, archaeological or artistic importance, for renovation or repair of such place.
Qualifying Limit:
Least of the following
(i) Aggregate donations made to funds/institutions covered under (C) and (D)
(ii) 10% of Adjusted Gross Total Income.
Adjusted Gross Total Income:
Adjusted Gross Total Income for this purpose means the "Gross Total Income" as reduced by—
(a) Long-term capital gains, if any, which have been included in the "Gross Total Income"
(b) All deductions permissible u/s 80C to 8OU excepting deduction under this section i.e. section 80G;
9. Deduction in respect of contributions given by any person to

political parties [Sec. 80GGC] :
(a) 100 % deduction
10. Tax Rates of Partnership Firms
Tax Rate:
The applicable tax rate for any Partnership Fir is at a flat rate of 30 %.
Surcharge:
In case income is more than ₹ 1 crore, the surcharge is applicable @ 12% on Tax, othersiwe no surcharge.
Health and Education Cess:
4 % of tax liability after surcharge
58
11. Illustration: Assessment of firm
Question:
A and B are partners of AB & Co., a registered professional firm, sharing profit and loss equally. Their
income and expenditure account for the year ended 31-3-2021 is given below:
Particulars ₹ Particulars ₹
To Salaries 75,000 By consultancy fees 3,30,000
To Depreciation 20,000 By Bank Interest 14,000
To office expenses 58,000
To Rent 12,000
To Provision for bad debts 5,000
To salary to A 54,000
To Salary to B 72,000
Commission to B 9,000
To interest on capital @ 20 % p.a.
A 8,000
B 7,000
To Share of profit
A 12,000
B 12,000
3,44,000 3,44,000
Additional information
(a) Office expenses include penalty to customs ₹ 5,000
(b) Depreciation as per Income-tax Rule ₹ 17,000
Compute the total income of the firm. Also Compute Tax payable by the firm.

Question:
X, Y and Z are partners in a firm which is assessed as a firm. They share profits and losses in the ratio of
3:2:1. The firm’s Profit and Loss Account for the year ended 31st March, 2021 is given below:
To Salary to Partners By Gross Profit 4,00,000
X 1,00,000 By Interest on Bank Deposit 50,000
Y 60,000
Z 40,000
To Interest on Partner’s Capital @ 15% p. a.
X 30,000
Y 20,000
Z 10,000
To Depreciation 32,000
To Sundry Business Expenses 1,20,000
To Net Profit 38,000
4,50,000 4,50,000
59
Other Information:
i. Depreciation as per IT rules ₹ 40,000
ii. Sundry business expenses include fines of ₹ 5,000 paid to customs authority.
Compute total income of the firm for the assessment year 2021-22.
13. Assessment of firm

The profit and loss account of the firm of M/S p and Q sharing profits and losses in the ratio of 3 : 2 for the
previous year ending 31st March, 2021 is given below:
Additional information:
(a) Other expenses include the following:
(i) ₹ 24,000 paid in cash to a supplier who refused to accept payment by cheque.
(ii) Donation to recognized charitable institution ₹ 6,000 and to a recognized political party
(b) Depreciation as per IT rules ₹ 15,000.
(c) Long-term capital gain represents gain on sale of land and computed as per provision of IT Act.
(d) Other incomes of the partners – P : ₹ 88,000; Q : ₹ 68,800.
You are required to compute for the assessment year 2021-22:
(i) Total income of the firm
(ii) Tax liability of the firm.

Subhajit and Sutirtha are partners in a firm which is assessed as a firm. They share profits and Losses
equally. The firm’s profit and Loss Account for the year ended 31.03.2021 is given below:
Rs. Rs.
To Office Expenses 35,000 By Gross Profit 2,85,000
To Provision for doubtful 5,000 By Bank Interest from fixed 40,000
debt deposit
To Depreciation 30,000
To Salary to Partners
Subhajit 1,00,000
Sutirtha 90,000
To Interest on Partners
Capital @ 15% p.a.:
Subhajit 30,000
Sutirtha 15,000
To Net Profit
Subhajit 10,000
Sutirtha 10,000
3,25,000 3,25,000
Other Information :
(i) Office expenses include penalty paid to customs authority ₹ 10,000
(ii) Depreciation as per Income Tax Rule ₹ 24,000.
(iii) Income from other sources of Subhajit and Sutirtha are ₹ 15,000 and ₹ 10,000 respectively.
You are requtired to compute for i:he assessment year 2021-22:
60
(a) Book profit of the firm;

(b) Total income of the form; and
(c) Tax liability of the firm.
S
Question
A, B and C are partners in a firm sharing profits and losses in the ratio of 3:2:1. From the following
information compute the amount of remuneration paid to partners allowable in the assessment of the firm:
(a) Book profit of the firm ₹ 4, 20,000.
(b) Remuneration to partners: A – ₹ 2, 40,000; B – ₹ 1, 80,000 and C – ₹ 1, 44,000.

P and Q are partners of a firm sharing profits and losses in the ratio of 3:2. The firm satisfies all the
conditions of section 184 and 40(b). The profit and loss account of the firm for the year ended March 31,
2021 shows net profit of ₹ 19,28,000.
Debit items include the following :
(a) Interest on Partners’ capital @20% p.a. : P ₹ 48,000, Q ₹ 40,000
(b) Partners’ Remuneration : P ₹ 2,60,000 ; Q ₹ 3,36,000
(c) Donation to an approved charitable institution ₹ 8,800
(d) Office expenses ₹ 50,000
(e) Depreciation ₹ 55,000
Credit items include the following :
(a) Interest on partners’ drawings : P ₹ 5,480; Q ₹ 4,000
(b) Long term capital gain on sale of land calculated as per section 48 ₹ 94,280
Other information :
(a) Depreciation as per IT rules ₹ 60,000
(b) Office expenses include fines paid to customs authorities ₹ 10,000.
Compute total income and tax liability of the firm for the assessment year 2021-2

X, Y and Z are partners in a firm which is assessed as a firm. They share profit and losses in the ratio of 3 : 2
: 1. The firm’s Profit and Loss Account for the year ended 31.03.2020 is given below :
To, Salary to partners : By Gross Profit 5,00,000
X— 1,00,000 By Interest on Bank deposit 70,000
Y— 60,000
Z— 40,000 2,00,000
To, Interest on partner’s capaital
@ 15% p.a.
X— 30,000
Y— 20,000
Z— 10,000 60,000
61
To Depreciation 2,20,000
To Sundry expenses 50,000
To Net Profit 40,000
5,70,000 5,70,000
Other information :
(a) Depreciation as per IT rules ₹ 2,30,000.
(b) Sundry expenses include fines of ₹ 7,000 paid to custom authority.
(c) For the assessment year 2021-22 compute–
(i) Total income of the firm.
(ii) Tax liability of the firm.
62
Unit 2 (A) : TAX MANAGEMENT [5 Marks]
1. What is return of Income: [Section 139]

Return of income is the format in which the assessee has to furnish information as to his total income and tax
Payable. The format for filing of returns by different assessees is notified by the Central Board of Direct Tax
(CBDT).
2. Compulsory return of income [Section 139 (1)]

Under Section 139 (1), in the following cases the filing of Income Tax Return is Mandatory:
(a) As per this Section, it is mandatory for a company or a firm to file income tax return. It means if a
company or a firm does not have any income then also it will be mandatory to file ITR.
(b) It is mandatory for a person other than a company or a firm to file income tax return if his or her Gross
Total income exceeds the basic exemption limit. Basic exemption limit refers to a term which means
“maximum amount of income not chargeable to tax.
(c) If any person has deposited an amount or aggregate of the amounts exceeding one crore rupees in one
or more current accounts maintained with a banking company or a co-operative bank; or
(d) If any person has incurred expenditure of an amount or aggregate of the amounts exceeding two lakh
rupees for himself or any other person for travel to a foreign country; or
(e) If any person has incurred expenditure of an amount or aggregate of the amounts exceeding one lakh
rupees towards consumption of electricity;
3. Return of loss [section 139(3)]

(a) This section requires the assessee to file a return of loss in the same manner as in the case of return of
income within the time allowed under section 139(1).
(b) Under section 80, an assessee cannot carry forward or set off his loss against income in the same or
subsequent year unless he has filed a return of loss in accordance with the provisions of section 139(3).
(c) A return of loss has to be filed by the assessee in his own interest and the non-receipt of a notice from the
Assessing Officer requiring him to file the return cannot be a valid excuse under any circumstances for the
non-filing of such return.
(d) In particular, a return of loss must be filed by an assessee who has incurred a loss under the heads “profits
and gains from business or profession”, “capital gains”, and income from the activity of owning and
maintaining race horses taxable under the head “Income from other sources”.
(e) However, loss under the head “Income from house property” and unabsorbed depreciation can be carried
forward for set-off even though return of loss has not been filed before the due date.
(f) The advantage of filing the loss returns is that it allows one to carry the loss forward which reduces the tax
liability for the future yea ₹ Hence, it is highly advisable to file the return for loss.
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4. Date of filing of return
Status of taxpayer Due date

All individuals/assessees whose accounts are not required to be audited July 31 of the relevant
(individuals, HUFs, Association of Persons, Body of Individuals etc.) assessment year
Following persons whose accounts are required to be audited September 30, of the
(a) A company relevant assessment year
(b) An individual or other entities whose accounts are required to be
audited (like proprietorship, firm etc.)
(c) A working partner of a firm whose account is required to be audited
5. Belated return [section 139(4)]

(a) Any person who has not furnished a return within the time allowed to him under section 139 (1) or within
the time allowed under a notice issued under section 142(1) may furnish the return for any previous year at
any time -
(i) before the end of the relevant assessment year; or
(ii) Before the completion of the assessment, whichever is earlier.
(b) This means that you can file belated return for FY 2020-21 by March 31, 2021, i.e., before the end of the
current assessment year (AY 2021-22).
(c) Interest is required to be paid under section 234A, as stated above.
(d) "With effect from the financial year 2016-17, a belated return can be revised.
(e) An individual would have to pay a fee of up to Rs 10,000 for filing ITR after the due dates specified in
section 139(1) of the Act. [section 234F]
6. Revised return [section 139(5)]

(a) An assessee who is required to file a return of income is entitled to revise the return of income
under Section 139(5) of Income Tax Act, 1961 originally filed by him to make such amendments,
additions or changes as may be found necessary by him.
(b) Such a revised return may be filed by the assessee at any time before the end of the relevant assessment
year or before the assessment is made whichever is earlier
(c) Thus return of A.Y 2021-22 can be revised till 31st March 2021 or before the completion of the
assessment whichever is earlier.
(d) You can’t Revise Your Income Tax Return under Section 139(5) of Income Tax Act, 1961 if income
tax department already did the assessment of your return.
(e) If you missed any deduction or income in the return you can Revise Your Income Tax Return.
(f) If some information come to your knowledge after filing the Income Tax Return You can Revise
Your Income Tax Return.
(g) Revision of Income Tax Return under Section 139(5) of Income Tax Act, 1961 is allowed only if the
omission was unintentional.
(h) The benefit of Section 139 (5) cannot be claimed by a person who has filed fraudulent returns
(i) Section 139 (5) will apply only to cases of ‘omission or wrong statements’ and not to cases of
‘concealment or false statements’.
(j) Once you revise your Income Tax return, the original stands withdrawn. If the omission(s) in the
original Income Tax return is intentional, the assessee will be penalised.
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7. Defective return [section 139(9)]

What is Defective Return
A tax return is termed defective if it has not been filed with all the necessary information or documents as
required under law. If your return is found defective, then Income Tax department will send you a defective
return notice under section 139(9) of the Income Tax Act. You will get 15 days of time from the date of
receiving the notice to rectify the defect in your return.
Common cases where defective return notice is received under section 139(9)
(a) If you fail to file your return in the correct format as prescribed or leave any mandatory field empty.
(b) If you haven’t attached a statement showing computation of your tax liability.
(c) If you miss to submit proofs of taxes.
(d) In case your business had undergone audit under section 44AB before you had filed the return and you
missed to submit a copy of the report along with the proof of furnishing the report.
(e) If you are required to maintain regular books of accounts under I-T laws,
Consequences of not responding to notice u/s 139(9)
If you fail to respond within the allotted time for notices issued u/s 139(9), then the assessing officer may treat
your return as invalid. In other words, it will be as if you never filed your income tax return for the year. This
may result in you losing out on some of your exemptions and deductions, since your return is treated as not
filed. But more importantly, you may find yourself paying hefty penalties for failure to file your return in
time. Also, if you have any carry forward losses you may not be able to carry them forward and set it off
against future income.
8. Relevant forms of return
ITR Form number Type of Type of income

taxpayer
ITR 1 (SAHAJ) Individuals Income from salary, one house property, other sources (interest etc.)
Total income should not exceed INR 50 lakhs
ITR 2 Individuals Income from salary, more than one house property, capital gains
and HUFs and income from other sources (lotteries etc)
ITR 3 Individuals Income from salary, house property, income from business
and HUFs or profession, capital gains and income from other sources
ITR 4 (SUGAM) Individuals Income from salary, one house property, other sources,
HUFs income from business or profession computed under
and firms Section 44AD, 44ADA and 44AE
9. Return by whom to be signed:

(a) Individual: (i) by the individual himself; (ii) where he is absent from India, by the individual himself or
by some person duly authorised by him in this behalf; (iii) where he is mentally incapacitated from
attending to his affairs, by his guardian or any other person competent to act on his behalf; and (iv)
where, for any other reason, it is not possible for the individual to sign the return, by any person duly
authorised by him in this behalf.
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(b) du Undivided Family (HUF): by the Karta and where the karta is absent from India or is mentally
incapacitate from attending to his affairs, by any other adult member of such family
(c) Company: Managing director or where for any unavoidable reason managing director is not able to
sign or where there is no managing director, by any director thereof.
(d) A Firm / Limited Liability Partnership: Managing partner or where for any unavoidable reason
managing partner is not able to sign and verify the return, or where there is no managing partner, by any
partner thereof
10. ‘Permanent Account Number (PAN)

PAN - Permanent Account Number (PAN) in India
Permanent Account Number or PAN is a means of identifying various taxpayers in the country. PAN is a 10-
digit unique identification alphanumeric number (containing both alphabets and numbers) assigned to Indians,
mostly to those who pay tax.
The PAN system of identification is a computer-based system that assigns unique identification number to
every Indian tax paying entity. Through this method, all tax-related information for a person is recorded
against a single PAN number which acts as the primary key for storage of information. This is shared across
the country and hence no two people on tax paying entities can have the same PAN.
Who has to obtain PAN?

PAN is to be obtained by following persons:
(a) Every person if his Goss total income or the Gross total income of any other person in respect of
which he is assessable during the previous year exceeds the maximum amount which is not chargeable
to tax.
(b) A charitable trust who is required to furnish return under Section 139(4A)
(c) Every person who is carrying on any business or profession whose total sale, turnover, or gross
receipts are or is likely to exceed five lakh rupees in any previous year
(d) Every person who is entitled to receive any sum/income after deduction of tax at source
(e) A person not covered in any of the above can voluntarily apply for PAN.
Transactions where quoting of PAN made compulsory:

Quoting of PAN is compulsory in the following transactions:
(a) PAN needs to be quoted while paying direct taxes.
(b) Taxpayers need to input their PAN when paying income tax.
(c) Sale or purchase of property (immovable) which is valued at ₹5 lakh or above
(d) Sale or purchase of a vehicle except a two-wheeler
(e) Payments made towards hotels and restaurants and which are above ₹25,000
(f) Payments made in connection with travel requirements to other countries. The amount in this case if it
exceeds ₹25,000, then you need to quote your PAN
(g) Payments of more than ₹50,000 towards bank deposits
(h) Purchase of shares worth ₹50,000 or more
(i) Purchase of insurance policy worth ₹50,000 or more
(j) Purchase of mutual fund schemes
(k) Payments made for more than ₹5 lakh towards purchase of jewellery and bullion
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11. Illustration: Return of Loss

Question:
Nantu furnishes the following information for the previous year 2020-21:
a) Loss from business : ₹ 8,00,000
b) Long-term capital loss : ₹ 5,00,000
c) Loss from House property : ₹ 1,00,000
Does Nantu require to submit return? Also state the consequences for non filing of return. What is the due date
of submission of such return?
67
Unit 2 (B) : TAX MANAGEMENT [5 Marks]
1. Self assessment u/s140A

This simply means that the person is calculating his own tax liability and thereafter filing ITR after payment
of self calculated tax. Since assessee himself calculates the tax and income, it is called as self assessment.
It is the first step in the process of assessment that is taken by the department. The system of self assessment
exists only to make the work easier. There is no assessment order is given because assessment is not done by
the department.
The assessee can file ITR as Self assessment under
(a) the different sections of 139 like return with due date
(b) Belated Return
(c) Return of Loss
(d) in response to notice u/s 142(1) or 148 or 153A
(e) when return has been filed and refund is due.
If the Department does not take the case for further assessment, then there is nothing else to do. For the time
being, assessment has been completed on the part of assessee.
Computation of Self assessment Tax
The payment required to be made u/s 140A along with the return of income shall be as under :
Particulars Amount (₹)
Income Tax (After Deduction rebate u/s 87A & including surcharge, if any and Health
& education cess) on the returned income
Add: Interest u/s 234A, 234B, 234C
Less: TDS/TCS
Less: Advance Tax
Self Assessment Tax Payable
Notes:
(a) Since, assessment has not been done by the Department, it shall not be considered as ‘assessment’ in
future legal proceedings.
2. Summary assessment u/s 143 (1)

It is not an actual assessment. Under this, the Return of Income filed by the assessee will not be scrutinized,
rather whatever has been claimed by the assessee will be accepted only after confirming the arithmetical
accuracy.
An income tax notice under Section 143(1) will be issued in any of the following scenarios:
(a) Additional tax is payable by the assessee, after making adjustments mentioned below and giving
credit to the taxes and interest paid. In such a case, the taxpayer will be asked to pay the amount due
within 30 days.
(b) Tax is refundable to the assessee, after making adjustments mentioned below and giving credit to the
taxes and interest paid.
(c) There is an increase/decrease in the loss declared by the assessee and no tax or interest is payable by
the assessee and no interest is refundable to the assessee.
The total tax payable, refund applicable or loss can be recomputed due to any of the following reasons:
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(a) Any arithmetical error in the return.

(b) An incorrect claim, if such incorrect claim is apparent from any information in the return.
(c) Disallowance of loss claimed
(d) Disallowance of any expenditure
(e) Disallowance of deduction claimed
(f) Addition of income which has not been included in computing the total income in the return.
Time Limit
(a) Assessment under section 143(1) can be made within a period of one year from the end of the
financial year in which the return of income is filed.
3. Scrutiny assessment u/s 143(3)

Scrutiny Assessment
Scrutiny assessment under section 143(3) is a detailed assessment of an income tax return filed by a
taxpayer. In a scrutiny assessment, a tax officer would perform various tests and processes to confirm the
correctness and genuineness of various claims, deductions, etc., made by the taxpayer in the income tax
return. The objective of a scrutiny assessment is to ensure that the taxpayer has not understated the income or
has not computed excessive loss or has not underpaid the tax in any manner.
Notice for regular scrutiny assessment is to be issued u/s 143(2).

(a) The notice can be issued only when the assessee has furnished Return of Income u/s 139 (1) or
142(1).
(b) Notice shall be served within six months of expiry of relevant financial year.
4. Best judgement assessment u/s 144

Best Judgement Assessment u/s 144:
Under this, AO determine the income and tax payable by the assessee based on records possessed to the best
of his judgement.
Such an assessment can be done in the cases where assessee,
(a) fails to furnish ITR u/s 139(1)
(b) also has not furnished u/s 139(4)
(c) fails to comply with the terms of notice u/s. 142(1)
(d) fails to comply with the direction issued u/s. 142(2A)
(e) fails to comply with the terms of notice u/s. 143(2)
The AO is required to give show cause notice to the assessee in which he shall be asked to show cause as to
why a best judgement assessment should not be made on him. The AO shall not make the assessment unless
he gives an opportunity of being heard to the assessee.
Under this, AO cannot assess income less than the returned income and loss higher than the returned loss as
can be done under Regular Scrutiny Assessment u/s 143(3).
The assessment order should be a speaking order.
Assessment u/s 144 can be resorted if AO is not satisfied with the correctness or completeness of the Books
of Accounts.
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5. Computing Self-assessment tax
PARTICULARS AMOUNT
Tax Payable on Total Income ——-
Add- Interest under Section 234A ——-
Add- Interest under Section 234B
Add- Interest under Section 34C
Minus- Relief under Section 90/90A/91 ——-
Minus - MAT Credit under Section 115JAA ——-
Minus - TDS/TCS ——-
Minus - Advance Tax ——-
Self assessment Tax to be paid Total Amount
6. Practical Sum on self assessment

Tax payable on total income of Mr. Das as declared in the return for the assessment year 2021-22 is ₹
2,47,300. He paid advance tax of ₹ 30,200 during the previous year 2020-21. Tax of ₹ 12,400 has been
deducted at source. Interest u/s 234A, 234B and 234C calculated as per provisions of the Act amounted to ₹
10,400, ₹ 15,900 and ₹ 8,700 respectively.
Calculate self-assessment tax payable by Mr. Das u/s 140A.
70
Unit 2 (C) : TAX MANAGEMENT [5 Marks]
1. What is Advance payment of tax?

Normally, tax on the income earned in the previous year is paid in the respective assessment year, but in
certain cases, an assessee may be required to pay tax during the previous year itself, as Advance tax.
The scheme of advance tax is based on the concept “Pay as you earn”. Under this scheme assessee needs to
estimate its income and tax liability of the previous year and pay tax on basis of such estimation in the
previous year itself.
For instance, income earned during the previous year 2020–21 is normally taxable in the assessment year
2021–22, however under the scheme of Advance tax, assessee is required to pay tax on estimated income of
previous year 2020–21 in the previous year itself.
2. Who are liable to pay Advance Tax?

(a) If total tax liability is Rs 10,000 or more in a financial year, then assessee have to pay advance tax.
Advance tax applies to all taxpayers, salaried, freelancers, and businesses.
(b) Senior citizens, who are 60 years or older but do not run a business, are exempt from paying advance tax.
3. Due Dates for payment of Advance Tax for Previous Year

2020-21
Due Date Advance Tax Payable
On or before 15th June, 2020 15 % of advance tax
On or before 15th September, 2020 45 % of advance tax less advance tax already paid
On or before 15th December, 2020 75 % of advance tax less advance tax already paid
On or before 15th March, 2021 100 % of advance tax less advance tax already paid
5. Illustration: Computation of Advance Tax Payable

Question:
The estimated Incomes of Mr. A.K. Mukherjee (age 54 years) a resident individual, for the year 2020-21 are as
follows:
Income from house property ₹ 59,500
Incomes from profession ₹7,63,000
Income from other sources ₹ 35,700
Mr. Mukherjee is entitled to deduction under section 80C and 80G amounting to ₹ 72,100 and ₹ 10,500
respectively. Tax deducted at source during the year is ₹ 10,325. Calculate the amount of advance tax payable
by Mr. Mukherjee.
71

Question:
The estimated Incomes of Mr. P (age 54 years) a resident individual, for the year 2020-21 are as follows:
Income from Salary ₹ 9, 80, 000
Income from other sources (Gross) ₹ 1,70,000
Mr. Mukherjee is entitled to deduction under section 80C and 80G amounting to ₹ 1,50,000 and ₹ 15,000
respectively. Tax deducted at source during the year is ₹ 32,680. Calculate the amount of advance tax payable
by Mr. Mukherjee.

Question:
Find out the amount of advance tax payable by Mr. Kardata on specified dates under the Income Tax Act,
1961 for the financial year 2020-21
₹
Tax Payable (including HEC) 18,540
Tax deducted at source:
Case 1 13,600
Case 2 3,540

Question:
From the following information find out the amount of advance tax payable by Suhani o specified dates for the
previous year 2020-21:
Business Income ₹ 5,00,000
Other Income ₹ 35,000
Tax deducted at source ₹2,280
9. Illustration: Advance Tax Payable
From the following information, compute the amount of advance tax payable by Mr. Rohit Sharma on
specified dates as per Income Tax Act for the assessment year 2021-22 :
₹
Tax payable (including Health and Education Cess) 40,560
Tax deducted at source :
Situation - I 35,000
Situation - II 20,560
72
Unit 2 (D) : TAX MANAGEMENT [5 Marks]
1. Interest & Penalty Payable by the Assessee

1. For default in furnishing return of income [Sec. 234A]
2. For default in paying advance tax [Sec. 234B]
3. For deferment of advance tax [Sec. 234C]
4. Penalty for Late Filing u/s 234F
2. Interest for default in furnish return of Income [Sec 234A]

Condition:
Where a person, who is required to furnish return of income –
(a) Fails to furnish a return; or
(b) Furnishes it after the due date specified u/s 139 (1).
Amount on which interest is to be charged:
In other words, interest is to be calculated on the following amount:
Particulars Amount Amount
Tax determined u/s 143(1) or on Regular assessment u/s 143(3) ***
Less: Advance tax paid ***
Tax deducted/collected at source ***
Self Assessment tax paid on or before due date ***
Short fall ***
Short fall rounded off as per Rule 119 A (upon which interest to be computed) ***
Rate of Interest:
Simple interest @ 1% per month or part thereof
Period:
For every month or part of a month commencing from the day immediately following the due date for
furnishing return for the relevant assessment year and ending on:
 Where the return is furnished after due date : Date of furnishing return
 Where the return is not furnished at all : Date of completion of assessment u/s 144
3. Interest for defaults in payment of advance tax [Sec. 234B]
Cases Rate of Interest Period for which such interest is chargeable

Where the assessee liable Simple interest @ 1% for Such interest is chargeable for the period from
to pay advance tax in any every month or part of a April 1 of the relevant assessment year to the date
financial year has failed to month of determination of total income under section
pay such tax 143(1) and where a regular assessment is made to
the date of such regular assessment
73
Where the assessee has Simple interest @ 1% for Such interest is chargeable for the period from
paid advance tax but the every month or part of a April 1 of the relevant assessment year to the date
advance tax paid by him is month of determination of total income under section
less than 90% of the 143(1) and where a regular assessment is made to
‘assessed tax’. the date of such regular assessment.
4. Interest for Deferment of Advance Tax [Sec. 234C]

The interest for late payment is set at 1% on the amount of tax due. It is calculated from the individual cut off dates
shown above, till the date of actual payment of outstanding taxes.
Calculation of Interest under section 234C
Particulars Rate of Interest Period of Amount on which Interest is
Interest calculated
If Advance Tax paid on or before June Simple interest 3 months 15% of Amount* (-) tax already
15 is less than 15% of the Amount @1% per month deposited before June 15
If Advance Tax paid on or before Sept. Simple interest 3 months 45% of Amount* (-) tax already
15 is less than 45% of the Amount @1% per month deposited before September 15
If Advance Tax paid on or before Dec. Simple interest 3 months 75% of Amount* (-) tax already
15 is less than 75% of the Amount @1% per month deposited before December 15
If Advance Tax paid on or before March Simple interest 1 month 100% of Amount* (-) tax
15 is less than 100% of the Amount @1% per month deposited before March 15
5. Penalty for Late Filing u/s 234F

As per the changed rules notified under section 234F of the Income Tax Act which came into effect from 1 April
2017, filing your ITR post the deadline, can make you liable to pay a maximum penalty of ₹ 10,000.
Total Income Return Filed Fees (Penalty)
Upto ₹ 5,00,000 After Due Date ₹ 1,000
Exceeds ₹ 5,00,000 On or before 31st Dec of Assessment Year but after due date ₹ 5,000
After 31st December ₹ 10,000
6. Illustration [Interest u/s Sec. 234 A]

Question:
Prof. Subrata Sarkar (aged 43 years) submitted his return of income on November 15, 2021 (due date: July 31,
2021) showing total income of ₹ 6,75,000 for the assessment year 2021-22. Assessment is completed on
February 22, 2022 on income of ₹ 7,20,000. The particulars of payment of taxes are as follows:
₹
Payment of advance tax 30,000
Tax deducted at source 20,500
Payment of self-assessment tax u/s 140 A 20,570
Calculate interest under section 234A.
74
7. Illustration [Interest under Section Sec. 234 A]

Question:
Sunu submits his return of income on 21st December, 2021 (due date: September 30, 2021) for the assessment
year 2021-22. Income declared and assessed ₹ 16,35,000. He paid advance tax of ₹ 2,04,000. Calculating the
amount of interest payable under section 234A (Tax including cess on assessed income of ₹ 16,35,000: ₹
3,15,120).

Question:
From the following information find out the amount of interest payable under section 234A:
i. Due date of filing return July 31, 2021
ii. Date of filling return December 15, 2021
iii. Tax on assessed income ₹ 25,000
iv. Advance tax paid during the financial year 2020-21 ₹ 15,000
v. Tax deducted at source during the year 2020-21 ₹ 1,000
vi. Self assessment tax paid u/s 140A ₹ 5,000
vii. Date of payment of self assessment tax October 10, 2021

From the following information, compute interest payable u/s 234A:
i. Due date of filing return 31.07.2021
ii. Date of filing return 25.01.2022
iii. Tax on assessed income ₹ 80,000
iv. Advance tax paid ₹ 30,000
v. Self assessment tax paid on 25.01.2022 ₹ 10,000
10. Illustration [Interest under Section Sec. 234 B]

Question:
The following particular are furnished by Mr. Late Latif for the financial year 2020-21:
Tax Payable on assessed income ₹ 2,06,700
Advance tax paid ₹ 1,68,000
Tax deducted at source ₹ 16,700
Due date of return 31/7/2021
Date of assessment order 23/12/2021
Compute the interest payable under section 234B.
75
Unit 2 (E) : TAX MANAGEMENT [5 Marks]
1. Provisions regarding TDS from salary [Section 192]

Who is responsible to deduct tax
Any person responsible for paying any income chargeable under the head “Salaries” (i.e. employer) is required
to deduct tax at source. According to section 192 of the income tax act, there must be an employer-employee
relationship for the deduction of tax at source.
When tax shall be deducted
Under Section 192, TDS is deducted at the time of actual payment of salary and not during the accrual of salary.
Tax will also be deducted if your employer pays salary in advance to you or you receive arrears from him.
Rate of TDS
Tax shall be deducted at the average rate of tax, computed on basis of prescribed rates in force for the financial
year in which payment to employee is made. However, if the employee do not have PAN, TDS shall be
deducted at the rate of 20 %.
Exemption or relaxation from the provision
When the recipient applies to the Assessing Officer in form 13 and gets a certificate authorizing the payer to
deduct no tax or deduct tax at lower rate.
What if TDS is not deducted on salary?
If TDS is not deducted on salary, the employer is liable to pay interest for non-deduction of TDS @ 1% per
month from the date on which tax was deductible till the date tax actually deducted.
2. TDS on Winning from Lottery. (Section 194B)

Who is liable to Deduct TDS from winning from Lottery, Card Games etc. Under Section 194B
The person responsible for paying to any person any income by way of winnings from any lottery or crossword
puzzle, card game and other game of any sort in an amount exceeding ₹ 10,000 shall, deduct income-tax
thereon at the rates in force.
Note: If such income is more than ₹ 10,000 (say ₹ 1,000), then tax shall be deducted on the whole amount (i.e.
₹ 11,000).
Rate of TDS under Section 194B
Rate of TDS is 30%.
No surcharge, Health & Education Cess (HEC) shall be added. Hence, TDS shall be deductible at basic rates.
When tax shall be deducted:
At the time of payment of such income. Where lottery or prize money, etc. is paid in instalments, the deduction
of tax is to be made at the time of actual payment of each such instalment.
3. TDS from Winnings from Horse Races [Section 194BB]

Who is liable to deduct TDS U/s 194BB :
Any person, who is responsible for paying to any person any income by way of winnings from any horse race an
amount exceeding ₹ 10,000 shall deduct income-tax at the rates in force.
Any person here means a book maker or a person to whom a licence has been granted by the Government under
any law for the time being in force for horse racing in any race course or for arranging for wagering or betting in
76
any race course.

Rate of TDS
The rate of TDS is 30 %.
When TDS U/s 194BB is to be deducted:
At the time of payment of such income.
4. Tax deduction and Collection Account Number [Sec 203A]

Meaning of TAN:
Tax Deduction Account Number or Tax Collection Account Number is a 10-digit alphanumeric number issued
by the Income-tax Department (we will refer to it as TAN). TAN is to be obtained by all persons who are
responsible for deducting tax at source (TDS) or who are required to collect tax at source (TCS).
Persons liable to apply for TAN :
As discussed above, every person liable to deduct tax at source or collect tax at source is required to obtain
TAN. However, a person required to deduct tax under section 194-IA can use PAN in place of TAN as such
person is not required to obtain TAN.
Use of TAN Number
Tax deductors get uniquely identified by their ten-digit TAN. Some of the uses of TAN are:
(a) It has to be quoted in TDS/TCS returns, payment challans and certificates that are to be issued.
(b) It is used for deductions, such as salary, interest, dividend, etc.
(c) It records the address of the person who deducts the tax on behalf of the IT department. Additionally, it
captures the PIN that is recorded with the department.
5. Computation of TDS
Mr. X working in Y Ltd. furnishes the following, compute the tax to be deducted at source by Y Ltd.
Taxable salary ₹ 5,00,000
Loss from House Property ₹ 5,000
Loss from Business ₹ 10,000
Gross Interest Income (TDS ₹ 5,000) ₹ 60,000
Investment in PPF ₹ 10,000
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Taxation

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Commerce Eed - Vision

Gobind Kumar Jha

Unit-1 Basic Concepts of Indirect Tax and

2. Concept of Indirect Taxes

3. Difference between Direct Tax and Indirect Tax

S.N Particulars Direct Tax Indirect Tax

6 Administrative cost It causes high administrative It causes low administrative cost to

4. What is Goods and Services Tax (GST)?

6. Salient features of GST in brief:

8. Advantages of GST in brief: [Important]

10. Types of GST

Benefitting Central Central Govt. &

11. Taxes subsumed in GST [Important]

12. Taxes not subsumed in GST

13. Non-applicability of GST

14. Rate of GST

15. GST Compensation Cess

16. Definitions: Aggregate turnover [Section 2 (6)]

17. Definitions: Capital goods [Section 2 (19]

18. Definitions: Casual taxable person [Section 2 (20]

19. Definitions: Goods [Section 2 (52)] [Important]

20. Definitions: lnput [Section 2 (59)]

21. Definitions: lnput tax [Section 2 (62)]

22. Definitions: lnput tax credit [Section 2 (63)]

23. Definitions: Output tax [Section 2 (82)]

24. Definitions: Person [Section 2 (84)]

25. Definitions: Place of business [Section 2 (85)]

26. Definitions: Registered Person [Section 2 (94)]

27. Definitions: Services [Section 2 (102)]

28. Definitions: Taxable person [Section 2 (107)]

29. Definitions: Turnover in state and union territory [2 (112]

30. Meaning of Business under GST explained with illustrations

1. Meaning of taxable event

2. Supply as per CGST Act [Section 7 (1)]

3. What are the necessary elements that constitute supply under

4. Schedule I: Transactions Treated as Supply under GST Even If

5. Schedule II: Activities or transactions to be treated as supply

6. Schedule III: Activities or transactions treated neither as the

Activities which are neither supply of goods or services

Based on Tax treatment

8. Inward supply [Section 2 (67)]

9. Outward supply [Section 2 (83)]

10. Non-taxable supply [Section 2 (78)]

11. Taxable Supply [Section 2 (108)]

12. Exempt supply [Section 2 (47)]

13. Zero-Rated Supply [Section 16 (1)]

14. Difference between Exempt Supply & Zero-Rated Supply

Supply Name Description

Nil Rated Supplies that have a declared rate of 0 % GST.

16. Composite supply [Section 2 (30)] [Important]

17. Mixed supply [Section 2 (74)]

18. Intra-state supply of goods [Section 2 (64) & section 8]

19 . Inter-state supply of goods

20. Mixed Supply & Composite supply:

21. Mixed Supply & Composite supply:

1. Time of Supply of Goods (Forward charge)

2. Time of supply of services (Forward charge)

3. Time of Supply of Goods (Reverse charge)

4. Time of Supply of Services (Reverse charge)

5. Determine time of supply of Goods: [Forward Charge]

6. Determine time of supply of Goods: [Forward Charge]

7. Determine time of supply of Goods: [Forward Charge]

23rd October Invoice raised

8. Determine time of supply of services: [Forward Charge]