INTRODUCTION TO INDIAN TAX

STRUCTURE
 DEFINATIONS OR MEANING

 TAX- IT IS A COMPULSORY CONTRIBUTION MADE BY CITIZEN OF A

NATION TO MEET VARIOUS EXPENSES OF STATE.
 Direct tax- It is a kind of tax where incidence and impact on the same person
Example- Income tax
 Indirect tax- it is a kind of tax where incidence and impact is on two different
persons. Example -GST
 Direct Tax

 Income tax-
Wealth Tax
Gift tax and Capital Gains Tax
Gift tax Capital Gain
Value Added Tax and Octroi Tax
Value Added Tax Octroi Tax
INDIRECT TAX
Service Tax and Customs Duty
Legal frame work
Objectives of Tax

  Raising Revenue
  Development of Backward Regions
  Reducing Income Inequalities
  Promoting Economic Growth
  To meet Government Expenditures
  To meet social welfare expenditures
  Regulation of Consumption and Production
  Encouraging Domestic Industries
  Stimulating Investment
  Ensuring Price Stability – Avoiding situation of inflation
PRICIPLES / CANNONS OF TAXATION

 The cannons as suggested by ADAM SMITH:

CANNONS OF EQUITY: this emphasizes equality of wealth and income
distribution among the citizens of a nation. Taxes according to which should be
collected only from those who have the ability to pay the taxes.
CANNONS OF CERTAINITY: the tax which each individual is bound to pay ought
to be certain and not arbitrary . The time of payment, the manner of payment , the
amount to be paid, etc.., to be clear and plain and it should be as per the rules and
regulations.
CANNON OF CONVENIENCE: it suggests that the mode and timing of tax
payment should be convenient to the tax payer and unnecessary trouble should be
avoided.
Cannons of taxation

 CANNON OF ECONOMY: it recommends that the amount of tax to be levied

should be minimum possible. It is considered useless to impose taxes, which are
too widespread and difficult to administer.
 CANNON OF PRODUCTIVITY: this advocates that the tax system should be
able to yield enough revenue to the government.
 CANNON OF BUOYANCY: it suggests that tax revenue should have an inherent
tendency to increase along with an increase in national income, even if the rates
and coverage of taxes are not revised.
Cannons of taxation

 CANNON OF FLEXIBILITY: it presents that it should be possible for the

authorities, with out delay, to revise the tax structure, both with respect to its
coverage and rates, to suit the changing requirements of the economy and the
govt.
 CANNON OF SIMPLICITY: it suggests that the system should be simple to
understand and implement.
 CANNON OF DIVERSITY: this principle recommends tax revenue should come
from diversified sources. A caution here is that too much multiplicity of taxes is
not good for the economy
Assessment year [Sec 2(9)]
Assessment year is defined as “ the
period of 12 months starting from 1 st

April and ending 31 march every

st

year”
01/04/2020- 31/03/2021
 Previous year [Sec 3]
Previous year is the financial year
immediately preceding the assessment year
In other words the year in which income is
earned is known as previous year
01/04/2019- 31/03/2020
 Assessee [Sec 2(7)]
 Who is liable to pay any tax to the income tax authorities
 Who is liable to pay any other sum of money under this act
 Any person who is liable to pay interest to the income tax
authorities
 Any person who is liable to pay penalty
 Any person who is deemed to be an assesse as per act
 A person who is considered as a default assesse by the act
 Any person who is entitled to refund of tax
TYPES OF ASSESSEE
 INCOME [SEC 2(24)]
 Profit and gains
 Dividends
 The value of any perquisite
 Any capital Gains
 Any allowances
 Any special allowances
Any sum received by an employee as contribution to any provident fund
Any sum chargeable to income tax under the head business or profession
 Person [ Section 2(31)
An individual
A HUF
A Company
A Firm
An Association of persons (AOP)
A Local Authority
An Artificial Juridical person
GROSS TOTAL INCOME [SECTION 14]
It
Casual Income
is an income occurred by chance
It is unanticipated, Non recurring
income, unknown source, no Specific
efforts
Example – Winning from lottery, Tips
given to tax drivers, income from card
games
Exempted incomes under section 10
TAX RATE FOR INDIVIDUALS
Computation of Total Taxable income

 Determination of Residential Status

Individual RS- Sec 6 basic and Additional Condition- OR, Non OR, Not R
Company – Place of register and Place Of Effective Management
 Classification of Income – 5 heads
 Computation of Gross Income
 Clubbing of Income of Spouse and Minor
 Set off and Carry forward
 Computation of GTI
 Deduction – Sec 80G, 80IA, 80IB, 80IC (very imp)
 Total taxable Income
Introduction to Minimizing the tax

 The avid goal of every taxpayer is to minimize his tax liability. To achieve this
objective taxpayer may resort to following methods
a) Tax Planning (best method for reducing tax)
b) Tax avoidance
c) Tax evasion
Tax Avoidance
Tax avoidance is totally legal, whilst tax evasion is not legal – Tax
evasion illegal .
Tax avoidance is the act of minimizing tax liability within the limits of
the law or without breaking the law. In other words, taxpayers can use
legitimate methods to reduce the amount of tax payable in association
with their financial activities. Such methods to allow taxpayers to
avoid paying tax to the government may include the followings:
 Using tax deductions for decreasing business expenses and
business tax bill
 Delaying the payment of tax until a later date with an appropriate
tax deferral plan
 Taking advantage of tax credits for legal purposes like business
purchases, benefiting the company’s employees for sick leave and
family leave
 Sheltering revenue from tax liability through the establishment of
employee retirement plans.
 It should also be noted that seeking reductions of tax obligations by tax avoidance
is 100% legal, but it must be within four corners of the tax law framework.
Employing practices of tax avoidance if inappropriate in some cases may lead the
taxpayer to step beyond the line to tax evasion, hence a violation of the
jurisdiction regulations.
Tax Evasion
 Tax evasion is any illegal method or unlawful attempt to reduce tax liability
of taxpayers. It is highly attached to techniques or illicit practices which
results in showing fewer profits to minimize the individual or company’s tax
burden.
Examples of tax evasion usually are the followings:
 Making false statements and information
 Inflating deductions without legal proof
 Hiding related documents to prove the actually earned business profits like
records of transactions or report of cash income
 Concealing or transferring assets illegally
 Magnifying tax credit
 Claiming excessive expenditure
Tax evasion can be deemed as a form of tax fraud which indicates illegitimate
and deliberate actions for not paying tax. Due to the fact that employing such
unfair means is fraudulent, any taxpayers regardless of individual or business
committing tax evasion behaviors would be prosecuted for offence and must be
subject to stringent punishments of a heavy fine or imprisonment.
Tax planning

 Tax planning is the analysis of a financial situation or plan from a tax perspective.

The purpose of tax planning is to ensure tax efficiency. Through tax planning, all
elements of the financial plan work together in the most tax-efficient manner
possible. Tax planning is an essential part of an individual investor's financial
plan. Reduction of tax liability and maximizing the ability to contribute to
retirement plans are crucial for success.
Tax Planning

 Tax planning involves planning in order to avail all exemptions, deductions and
rebates provided in act.
Considers following
a) The planning should be done before the accrual of income, after accrual of
income it is known as fraud
b) Tax planning should be resorted at the source of income
c) Choice of location of business undertaking
d) Residential status of person
 Tax Planning Vs Tax Management

 Tax Planning is all about planning of taxable income and planning of investments
of the Tax Payer. As against, Tax Management deals with the proper maintenance
of financial records, audit of accounts, timely filing of the return, payment of
taxes and appearing before the appellate authority, whenever required. Some of
the major comparisons includes:
Conclusion

 Tax planning is an honest and legal method of availing the full advantages of
taxation laws. It is a way of effectively managing the income and taxes so that the
tax liability arising on the assessee is minimum. As against, Tax Management is
an art of handling the financial affairs, while complying with the tax provisions,
so as to avoid the payment of interest and penalties.
Methods of tax planning
 Short Term Tax Planning : Short range Tax Planning means the
planning thought of and executed at the end of the income year to
reduce taxable income in a legal way.
Example : Suppose , at the end of the income year, an assesse finds
his taxes have been too high in comparison with last year and he
intends to reduce it. Now, he may do that, to a great extent by
making proper arrangements to get the maximum tax rebate u/s 88.
Such plan does not involve any long term commitment, yet it results
in substantial savings in tax.
 Long Term Tax Planning : Long range tax planning means a plan chalked out at
the beginning or the income year to be followed around the year. This type of
planning does not help immediately as in the case of short range planning but is
likely to help in the long run
e.g. If an assesse transferred shares held by him to his minor son or spouse, though
the income from such transferred shares will be clubbed with his income u/s 64, yet
is the income is invested by the son or spouse, then the income from such investment
will be treaded as income of the son or spouse. Moreover, if the company issue any
bonus shards for the shares transferred , that will also be treated as income in the
hands of the son or spouse.
 Permissive Tax Planning : Permissive Tax Planning means making plans which
are permissible under different provisions of the law, such as planning of earning
income covered by Sec.10, specially by Sec. 10(1) , Planning of taking advantage
of different incentives and deductions, planning for availing different tax
concessions etc.
 Purposive Tax Planning : It means making plans with specific purpose to ensure
the availability of maximum benefits to the assessee through correct selection of
investment, making suitable programme for replacement of assets, varying the
residential status and diversifying business activities and income etc
Advance tax rulings

 Advance ruling has been internationally recognized as “A more or less binding

statement from the revenue authorities upon the voluntary request of a private
person, concerning the treatment and consequence of one or series of
contemplated future actions or transactions.”
 Eg: Mr X – Foreign investor
 Mr p have a deal getting signed by Mr. X – before starting the business I will go
to revenue or tax authority take a written opinion on decision if Mr X transaction
gets defaulted
 Advance rulings – Judgment Taken in advance
 It’s a written opinion by authority of Advance rulings (AAR) empowered to
render to the tax consequences of a proposed transaction
 In India, the scheme of advance rulings was introduced by the Finance Act, 1993​.
Chapter XIX-B (Section 245N to 245V) of the Income-tax Act, which deals with
advance rulings, came into force with effect from 1-6-1993. Advance Ruling
means written opinion or authoritative decision by an Authority empowered to
render it with regard to the tax consequences of a transaction or proposed
transaction or an assessment in regard thereto.
Who can seek- ASK or obtain Advance
Ruling:
As per Section 245N following persons can be applicant:
 1. A non-resident.
 2. A resident-undertaking proposing to undertake a transaction with a non-resident
can obtain advance ruling in respect of any question of law or fact in relation to
the tax liability of the non-resident arising out of such transaction.
 3. A resident who has undertaken or proposes to undertake one or more
transactions of value of Rs. 100 crore or more in total [vide Notification No. 73,
dated 28-11-2014] can obtain advance ruling in respect of any question of law or
fact in relation to the tax liability of the resident arising out of such transaction.
 4. A notified public-sector company.
Composition of Authority for Advance
Rulings:
 The Central Government shall constitute an Authority for giving advance rulings, to be known as
“Authority for Advance Rulings”:
 Provided that the Authority shall cease to act as an Authority for Advance Rulings for the purposes
of Chapter V of the Customs Act, 1962 on and from the date of appointment of the Customs
Authority for Advance Rulings under section 28EA of that Act.
 On and from the date of appointment of the Customs Authority for Advance Rulings referred
above, the Authority shall act as an Appellate Authority, for the purpose of Chapter V of the
Customs Act, 1962.
 The Authority shall consist of a
a) Chairman and such number of
b) Vice-chairmen,
c) revenue Members and
d) law Members as the Central Government may, by notification, appoint.
 Qualification for Appointment:

Chairman Who has been a Judge of the Supreme Court or the Chief Justice of a High
Court or for at least seven years a Judge of a High Court.

Vice- Chairman Who has been Judge of a High Court.

Revenue Member (i) From the Indian Revenue Service, who is, or is qualified to be, a Member of
the Board; or
(ii) From the Indian Customs and Central Excise Service, who is, or is
qualified to be, a Member of the Central Board of Excise and Customs,
on the date of occurrence of vacancy.

Law Member From the Indian Legal Service, who is, or is qualified to be, an Additional
Secretary to the Government of India on the date of occurrence of vacancy.
Form for Filing Advance Ruling Application under Income Tax Act, 1961:
The applicant may seek the advance ruling by making an application to the Authority in the prescribed form.
Rule-44E of the Income Tax Rules’1962 prescribes forms for filing the application. The application shall be made in quadruplicate in the below-prescribed forms:

Applicant Prescribed Form

Non-Resident Applicant. Form No.34C

The resident having transactions with a non-resident. Form 34D

A resident applicant referred to in sub-clause (iia) of clause (a) of section 245N falling within any Form No.34DA
such class or category of person as notified by the Central Government in exercise of the powers
conferred by item (III) of sub-clause (A) of clause (b) of section 245N

A resident falling within any such class or category of person as notified by the Central Government Form No.34E
in exercise of the powers conferred by item (IV) of sub-clause (A) of clause (b) of section 245N

An applicant referred to in item (V) of sub-clause (A) of clause (b) of section 245N Form No.34EA
Appellate authorities under Income tax
law
 (1) Central Board of Direct Taxes,
 (2) Directors of Inspection,
 (3) Commissioners and Additional Commissioners,
 (4) Appellate Assistant Commissioners,
 (5) Inspecting Assistant Commissioners,
 (6) Income-tax Officers, and
 (7) Income-tax Inspectors.
Types of
Companies