TAXATION LAWS

(FOR PRIVATE CIRCULATION ONLY)

2022
PROGRAMME COORDINATOR
Prof. Pallavi Ligade

COURSE DESIGN AND REVIEW COMMITTEE

Ms. Prerna Patil Prof. Atul Kahate
Dr. Prashant Ubarhande Ms. Apoorva Kulkarni
Ms. Minal Abhyankar

COURSE WRITERS
Prof. Vidya Kumbhar Prof. Sonal Khosla
Ms. Prerna Patil

EDITOR
Mr. Yogesh Bhosle

Published by Symbiosis Centre for Distance Learning (SCDL), Pune,

2020 (Revision 01, 2022)

Copyright © 2022 Symbiosis Open Education Society

All rights reserved. No part of this book may be reproduced, transmitted or utilised in any form or by any
means, electronic or mechanical, including photocopying, recording or by any information storage or retrieval
system without written permission from the publisher.

Acknowledgement
Every attempt has been made to trace the copyright holders of materials reproduced in this unit. Should any
infringement have occurred, SCDL apologises for the same and will be pleased to make necessary corrections
in future editions of this book.
 PREFACE
In mathematics and computer science, an algorithm is a step-by-step procedure for calculations.
Algorithms are used for calculation, data processing, and automated reasoning.
An algorithm is an effective method expressed as a finite list of well-defined instructions for calculating
a function. Starting from an initial state and initial input, the instructions describe a computation
that, when executed, proceeds through a finite number of well-defined successive states, eventually
producing “output” and terminating at a final ending state. The transition from one state to the next
is not necessarily deterministic; some algorithms, known as randomised algorithms, incorporate
random input. A sorting algorithm is an algorithm that puts elements of a list in a certain order. A
search algorithm is an algorithm for finding an item with specified properties among a collection of
items. The items may be stored individually as records in a database.
Once you go through the various methods of writing algorithms given in this SLM, you will be able to
apply them in any programming languages. We have also discussed special problems and algorithms
which will help the learners to understand and implement the concepts studied in the earlier units.

Prof. Vidya Kumbhar

Prof. Sonal Khosla
Prof. Prerna Patil

iii
 ABOUT THE AUTHOR

Prof. Vidya Kumbhar has completed her Master of Computer Management (MCM) and Master
of Computer Applications (MCA). She has more than 10 years of teaching experience for various
management institutes in Information Technology domain.
She is also associated with different institutes for various educational related assignments. She
has worked on various software development projects in National Informatics Centre, Pune and is
currently working on minor research projects of Symbiosis Institute of Research and Innovation.
She is also working as Assistant Professor, and pursuing her PhD from Symbiosis International
University, Pune. She had published various research papers in National and International Journals
and confer- ences.
Prof. Sonal Khosla has completed her Master in Computer Application (MCA) from Maharishi
Dayanand University, Rohtak. She has nine plus years of teaching experience and is currently
working with Symbiosis Institute of Computer Studies and Research, Pune, as Assistant Professor.
Before joining SICSR, she has worked with Ansal Institute of Technology, Gurgaon.
Her areas of specialisations are Database Management, Computer Networks, Algorithm Designing and
Programming. She also has various research papers to her credit in various national and international
journals and conferences.
Prof. Prerna Patil has completed her Master in Computer Science from Pune University. She has
nine plus years of software development/IT experience. Furthermore, she has rich experience in
Academics and Training. She has published several articles and has won the Trainer of the Year’
2010 award at Oracle Financial Service Software Limited. Her areas of specialization include cloud
computing, trends in software development and agile methodology.

iv
 CONTENTS

Unit No. TITLE Page No.

1 Introduction to Taxation System 1 - 10
1.1 Introduction
1.2 Taxation System in India
1.3 Tax Collection Bodies
1.4 Other Government Bodies
1.5 Reasons Why do We Pay Taxes
1.6 Introduction to Direct and Indirect Tax
Summary
Keywords
Self-Assessment Questions
Answers to Check your Progress
Suggested Reading
2 History of Taxation in India 11 - 18
2.1 Introduction
2.2 History of Indian Taxation
2.3 Evolution of Income Tax Act in India
2.4 Evolution of Indirect Taxes
Summary
Keywords
Self-Assessment Questions
Answers to Check your Progress
Suggested Reading
3 Definition under Income Tax Act 1961 19 - 38
3.1 Introduction
3.2 General Definitions under Act
3.3 Introduction
3.4 Definitions Related to Tax Authorities
3.5 Definitions under Tax Procedures
Summary
Keywords
Self-Assessment Questions
Answers to Check your Progress
Suggested Reading

v
 Unit No. TITLE Page No.
4 Residential Status 39 - 52
4.1 Introduction
4.2 Residential Status of Assessee
4.3 Determination of Residential Status of Different ‘Persons’
4.4 Basic Rules for Determining Residential Status of an Assessee
Summary
Keywords
Self-Assessment Questions
Answers to Check your Progress
Suggested Reading

5 Taxation of Different Kinds of Persons 53 - 66

5.1 Charge of Income-tax
5.2 Scope of Total Income
5.3 Types of Income
5.4 Tax Slabs
5.5 Taxability
5.6 Classification and Tax Incidence on Companies
5.7 Minimum Alternate Tax (MAT)
5.8 Fringe Benefit Tax (FBT)
5.9 Securities Transaction Tax (STT)
Summary
Keywords
Self-Assessment Questions
Answers to Check your Progress
Suggested Reading

6 Penalties Imposable, Offences and Prosecutions 67 - 92

6.1 Introduction
6.2 What are the Defaults which may Invite Levy of Penalty?
6.3 Who is Liable to be Prosecuted?
Summary
Keywords
Self-Assessment Questions
Answers to Check your Progress
Suggested Reading
Annexure

vi
Unit No. TITLE Page No.
7 Introduction to GST 93 - 104
7.1 Introduction
7.2 What is GST
7.3 History of GST
7.4 Constitutional Amendments
7.5 Advantages of GST
7.6 Components of GST
Summary
Keywords
Self-Assessment Questions
Answers to Check your Progress
Suggested Reading
8 Levy and Collection of Tax 105 - 112
8.1 Introduction
8.2 Composition Levy
8.3 Power to Grant Exemption from Tax
Summary
Keywords
Self-Assessment Questions
Answers to Check your Progress
Suggested Reading

vii
viii
Introduction to Taxation System
UNIT

1
Structure:

1.1 Introduction
1.2 Taxation System in India
1.3 Tax Collection Bodies
1.4 Other Government Bodies
1.5 Reasons Why do We Pay Taxes
1.6 Introduction to Direct and Indirect Tax
Summary
Keywords
Self-Assessment Questions
Answers to Check your Progress
Suggested Reading

Introduction to Taxation System 1

 Notes
Objectives
----------------------

---------------------- After going through this unit, you will be able to:

---------------------- ●● State the basics of taxation system in India

●● Elaborate about the tax collection bodies
----------------------
●● Differentiate between direct and indirect tax
----------------------

----------------------
1.1 INTRODUCTION
----------------------
The Government needs money to maintain law and order in the country
---------------------- and to undertake certain welfare measures to bring the balanced development
of the state.
----------------------
The government’s prime source of revenue is tax. The tax is divided into
---------------------- two types depending on its incidence and impact.
---------------------- Taxation is the only tool to achieve growth and economic development
in the long run of any country and it is very important to understand the
---------------------- components of tax which are to be targeted in order to attain economic growth.
---------------------- Generally, the personal income tax had less or no impact on economic growth in
turn corporate income tax had considerable impact on economic growth.
---------------------- Today, Indian taxing system is going a revolutionary change owing to
---------------------- spreading the wings of Indian business into global market. Indian Government
is paying its full attention to liberalise the taxing system and at the same time
---------------------- closing the loopholes to disable the intruders to evade the taxing system so as to
enlarge the revenue to Government exchequer and flourish the overall business
---------------------- scene.
---------------------- Broadly taxing system may be classified into three parts:
---------------------- a) Progressive taxation system
b) Regressive taxation system
----------------------
c) Proportional taxation system
----------------------
Progressive taxation implies a taxing system where tax rate increases with
---------------------- increase in income, thus if a person has higher income, he will bear more tax
burden due to increased tax rate than person having lesser income. Regressive
---------------------- taxation means a taxing system where tax rate reduces with increase in income
---------------------- and thus a person having lesser income faces lesser tax burden due to facing
lesser tax rates. Proportion tax means a taxing system of charging tax on a fixed
---------------------- proportion irrespective of level of amount on which tax is to be levied. Thus,
the same tax rate applies to different persons having different taxable amounts.
----------------------
India has a well-developed tax structure with clearly demarcated authority
---------------------- between Central and State Governments and local bodies. Central Government

2 Taxation Laws
levies taxes on income (except tax on agricultural income, which the State Notes
Governments can levy), customs duties, Central Goods & Services tax (CGST)
& Integrated Goods & Services Tax (IGST). State Good& Services Tax (SGST), ----------------------
stamp duty, state excise, land revenue and profession tax are levied by the State
Governments. ----------------------

Local bodies are empowered to levy tax on properties, octroi and for ----------------------
utilities like water supply, drainage etc.
----------------------
India has a well-developed tax structure with clearly demarcated authority
between Central and State Governments and local bodies. Central Government ----------------------
levies taxes on income (except tax on agricultural income, which the State
----------------------
Governments can levy), customs duties, Central Goods & Services tax (CGST)
& Integrated Goods & Services Tax (IGST). State Good & Services Tax ----------------------
(SGST), stamp duty, state excise, land revenue and profession tax are levied by
the State Governments. Local bodies are empowered to levy tax on properties, ----------------------
octroi and for utilities like water supply, drainage etc. Indian taxation system
----------------------
has undergone tremendous reforms during 2017. The multiple indirect taxes
have been subsumed in the new Good & Services Tax which was implemented ----------------------
from 1st July 2017. With the implementation of GST almost 17 types of indirect
taxes have been abolished making the indirect tax compliance much easier and ----------------------
free from bureaucracy. The government introduced Goods and Services Tax
----------------------
(GST) in 2017 which is the most important tax reform in independent India till
date. Earlier, governments levied various state and central taxes for availing ----------------------
various services or buying different goods. The taxation was complex and
contradicting rules enabled some people to evade taxes through loopholes in ----------------------
the system. After the introduction of GST, higher percentage of assesses was
----------------------
brought in the taxation umbrella and it made tougher for evaders to escape from
paying taxes. Also, tax rates have been rationalized and tax laws have been ----------------------
simplified in recent years, resulting in better compliance, ease of tax payment
and better enforcement. The process of rationalisation of tax administration is ----------------------
ongoing in India.
----------------------
1.2 TAXATION SYSTEM IN INDIA ----------------------

----------------------
Taxes in India
----------------------

----------------------
Direct Tax Indirect Tax ----------------------

----------------------
1. Income Tax Custom Duty
2. Wealth Tax
GST Excise Duty ----------------------

----------------------
IGST SGST
CGST ----------------------

Introduction to Taxation System 3

 Notes 1.3 TAX COLLECTION BODIES
---------------------- The three bodies which collect the taxes in India have clearly defined the
rules on what type of taxes they are permitted to collect.
----------------------
●● The Central Government: income tax, custom duties, central excise duty
----------------------
●● The State Governments: tax on agricultural income, professional tax,
---------------------- value- added tax, state excise duty, stamp duty

---------------------- ●● Local Bodies: property tax, water tax, other taxes on drainage and small
services
----------------------

----------------------
1.4 OTHER GOVERNMENT BODIES

---------------------- For a smooth implementation of the Indian tax system, there are bodies
dedicated to it. Popularly known as the revenue authorities.
---------------------- ●● CBDT: The Central Board of Direct Taxes is a part of the revenue
---------------------- department under the Ministry of Finance. It has a two-fold role. One, it
provides important ideas and inputs for planning and policy with regard
---------------------- to direct tax in India. Second, it assists the Income Tax department in the
administration of direct taxes.
----------------------
●● CBIC: Post GST implementation, the CBEC has been renamed as the
---------------------- Central Board of Indirect Taxes & Customs (CBIC). Central Board
of Indirect Taxes and Customs (erstwhile Central Board of Excise &
----------------------
Customs) is a part of the Department of Revenue under the Ministry of
---------------------- Finance, Government of India. It deals with the tasks of formulation of
policy concerning levy and collection of Customs, Central Excise duties,
---------------------- Central Goods & Services Tax and IGST, prevention of smuggling and
administration of matters relating to Customs, Central Excise, Central
----------------------
Goods & Services Tax, IGST and Narcotics to the extent under CBIC’s
---------------------- purview. The Board is the administrative authority for its subordinate
organizations, including Custom Houses, Central Excise and Central
---------------------- GST Commissionerates and the Central Revenues Control Laboratory.
----------------------
1.5 REASONS WHY DO WE PAY TAXES
----------------------
1) To Provide Basic Facilities for Every Citizen of the Country: Whatever
---------------------- money is received by the government in terms of direct tax and indirect
tax is spent by it for the welfare of the citizens of the country. Some
---------------------- of the services provided by the government are: health care, electricity,
---------------------- roads, education system, and free houses for poor, water supply, police,
firefighters, judiciary system, disaster relief, taking care of bridges and
---------------------- other things of public welfare.
---------------------- 2) To Finance Multiple Governments: All the local government of the state
like village panchayats, block panchayats and municipal corporations
---------------------- receive fund from the state finance commission.

4 Taxation Laws
3) Protection of the Life: Tax payers receive the protection of life and Notes
wealth from the government in case of external aggression, internal armed
rebellion or any other situation in exchange of tax paid by them. ----------------------

----------------------
1.6 INTRODUCTION TO DIRECT AND INDIRECT TAX
----------------------
1. Direct tax:
A Direct tax is a kind of charge, which is imposed directly on the taxpayer ----------------------
and paid directly to the government by the persons (juristic or natural) ----------------------
on whom it is imposed. A direct tax is one that cannot be shifted by the
taxpayer to someone else. For example income tax and wealth tax in ----------------------
India.
----------------------
Income tax: Under Indian income tax law both flat rate (proportional
tax) and slab rate (progressive tax) applies. Tax is computed on total ----------------------
income. On lottery income, long term capital gain, and in some cases
----------------------
short term capital gain is taxed under proportional taxation system. Again
the income of assesses such as for companies, firms etc. proportional ----------------------
taxation system is applied while for individual and cooperative society,
progressive taxation system is followed. ----------------------
According to the Income-tax Act of 1961, there are seven categories of ----------------------
persons liable to pay income tax:
----------------------
●● An individual;
●● A Hindu Undivided Family (HUF); ----------------------

●● A company; ----------------------
●● A firm; ----------------------
●● An Association of Persons (AOP) or Body of Individuals (BOI);
----------------------
●● A local authority, and;
----------------------
●● Every artificial Juridical Person not falling within any of the
preceding categories. ----------------------
Income heads for calculating income tax ----------------------
Income tax in India is levied depending on the person’s source of income
and his/her residential status. All sources of income are classified under the ----------------------
following five heads: ----------------------
Salaries
----------------------
The term ‘salary’ is defined to include the following:
----------------------
●● Wages;
●● Any annuity or pension; ----------------------

●● Any gratuity; ----------------------

----------------------

Introduction to Taxation System 5

 Notes ●● Any fees, commissions, perquisites, or profits in lieu of or in addition to
any salary or wages;
----------------------
●● Any advance of salary;
---------------------- ●● Any encashment of leave salary, and;
---------------------- ●● Any amount of credit in a recognised provident fund of an employee to
the extent that it is taxable.
----------------------
For income to be treated as salary, the following conditions should be noted:
---------------------- ●● There must be an employer-employee relationship between the payer and
---------------------- receiver of income;
●● Salary income must be real and there must an intention to pay and receive
---------------------- salary, and;
---------------------- ●● Salary may be received from more than one employer; it may be received
from the present employer as well as from a prospective employer, and in
----------------------
some cases even from a former employer, such as pensions.
---------------------- Capital gains
---------------------- Capital gains taxation applies to earnings from the sale of capital assets held by
the tax assessee. Capital assets refer to the properties such as buildings, lands,
---------------------- bonds, equities, debentures, and jewelries etc. Taxes are levied on the income
---------------------- of the assesse when such properties are sold.
Income from house property
----------------------
Income tax is levied on house property if the house is given out on rent by
---------------------- the owner. However, under this income head, the property cannot be used for
business or professional purposes, which will otherwise be subject to a different
---------------------- tax rate.
---------------------- Profits and gains of business or profession
---------------------- According to the Income-tax Act, the profits earned from businesses or by
providing professional services are considered taxable as per applicable rates.
---------------------- This income head is also known as ‘profits and gains of business or profession’.
---------------------- Income from other sources

---------------------- Income from any sources – other than the four listed above – are categorised
under this category. Some of these are listed below:
---------------------- ●● Lottery/horse race winnings;
---------------------- ●● Income from dividends;
---------------------- ●● Pension received after the pensioner’s death;
●● Rental income (other than house properties);
----------------------
●● Gifts received, and;
----------------------
●● Interest on government securities, debentures and bonds.
----------------------

6 Taxation Laws
 Wealth tax: Wealth tax is levied at 1% on the net wealth of individual, Notes
Hindu undivided family and company if net wealth exceeds Rs.30 lakhs on the
valuation date. It is payable in every assessment year based on valuation of net ----------------------
wealth on the respective valuation dates.
----------------------
Wealth tax, in India, is levied under Wealthtax Act, 1957. Wealth tax is
a tax on the benefits derived from property ownership. The tax is to be paid ----------------------
year after year on the same property on its market value, whether or not such
----------------------
property yields any income.
Under the Act, the tax is charged in respect of the wealth held during the ----------------------
assessment year by the following persons:
----------------------
1. Individual
----------------------
2. Hindu Undivided Family (HUF)
3. Company Chargeability to tax also depends upon the residential status of ----------------------
the assessee, same as the residential status for the purpose of the Income ----------------------
Tax Act. Wealth tax is not levied on productive assets, hence investments in
shares, debentures, UTI, mutual funds, etc. are exempt from it. The assets ----------------------
chargeable to wealth tax are Guest house, residential house, commercial
building, Motor car, Jewellery, bullion, utensils of gold, silver, Yachts, ----------------------
boats and aircrafts, Urban land and Cash in hand (in excess of Rs. 50,000 ----------------------
for Individual & HUF only.
Corporate tax: The income tax paid by a company is defined as the ----------------------
corporate tax. It is based on the different slabs that the revenue falls under. The ----------------------
sub-categories of corporate taxes are as follows:
----------------------
a) Dividend distribution tax: This tax is levied on the dividends that
companies pay to the investors. It applies to the net or gross income that ----------------------
an investor receives from the investment.
----------------------
b) Fringe benefit tax: This is tax levied on the fringe benefits that an
employee receives from the company. This include expenses related to ----------------------
accommodation, transportation, leave travel allowance, entertainment,
retirement fund contribution by the employee, employee welfare, ----------------------
Employee Stock Ownership Plan (ESOP), etc.
----------------------
c) Minimum Alternative Tax (MAT): Companies pay the IT Department
through MAT which is governed by Section 115JA of the IT Act. ----------------------
Companies that are exempt from MAT are those that are in the power and ----------------------
infrastructure sectors.
Securities transaction: This tax is levied on stock market and securities ----------------------
trading. The tax is levied on the price of the share as well as securities traded on ----------------------
the ISE (Indian Stock Exchange).
Capital gains: Capital gains tax is levied on the sale of a property or ----------------------
money received through an investment. It could be from either short-term or ----------------------
long-term capital gains from an investment. This includes all exchanges made
in kind that is weighed against its value. ----------------------

Introduction to Taxation System 7

 Notes 2. Indirect Tax:
The indirect taxes are the levies made by Central and State government
----------------------
on the expenditure, consumption, services, rights and privileges yet not
---------------------- on the property or income. They are imposed on goods/services. The
Immediate liability to pay is of the manufacturer/service provider/seller
---------------------- but its burden is transferred to the ultimate consumers of such goods/
services. The burden is transferred not in form of taxes, but, as a part
----------------------
of the price of goods/services. This includes duties of customs paid on
---------------------- imports, GST, etc.
Goods and Services Tax:
----------------------
The law on GST was brought to action in July 2017, with 17 indirect
---------------------- taxes under its purview. GST (Goods and Services Tax) is the biggest indirect
tax reform of India. GST is a single tax on the supply of goods and services. It
----------------------
is a destination based tax where the tax is collected by the State where goods
---------------------- are consumed. All major services and service tax have been subsumed under
the GST.
----------------------
India has adopted the Dual GST model in which both States and Central
---------------------- levies tax on Goods or Services or both.

---------------------- SGST – State GST, collected by the State Govt. CGST – Central GST,
collected by the Central Govt.
---------------------- IGST – Integrated GST, collected by the Central Govt.
---------------------- Customs Duty- It is an Import duty levied on goods coming from outside
the country, ultimately paid for by consumers and retailers in India.
----------------------
Other taxes are minor revenue generators and are small cess taxes. The
---------------------- various sub-categories of other taxes are as follows:
---------------------- ●● Property tax: This is also called Real Estate Tax or Municipal Tax.
Residential and commercial property owners are subject to property tax.
---------------------- It is used for the maintenance of some of the fundamental civil services.
---------------------- Property tax is levied by the municipal bodies based in each city.
●● Professional tax: This employment tax is levied on those who practice
---------------------- a profession or earn a salaried income such as lawyers, chartered
---------------------- accountants, doctors, etc. This tax differs from state to state. Not all states
levy professional tax.
---------------------- ●● Entertainment tax: This is tax that is levied on television series, movies,
---------------------- exhibitions, etc. The tax is levied on the gross collections from the
earnings.
----------------------
●● Registration fees, stamp duty, transfer tax: These are collected in
---------------------- addition to or as a supplement to property tax at the time of purchasing a
property.
----------------------
●● Education cess: This is levied to fund the educational programs launched
---------------------- and maintained by the government of India.

8 Taxation Laws
●● Entry tax: This is tax that is levied on the products or goods that enter a Notes
state, specifically through e- commerce establishments, and is applicable
in the states of Delhi, Assam, Gujarat, Madhya Pradesh, etc. ----------------------
●● Road tax and toll tax: This tax is used for the maintenance of roads and ----------------------
toll infrastructure.
----------------------
Check your Progress 1 ----------------------

State True or False. ----------------------

1. Professional tax is levied on those who practice a profession or earn ----------------------
a salaried income.
----------------------
2. Entry tax is tax that is levied on the persons that enter a state.
----------------------

----------------------
Activity 1
----------------------
Visit https://www.investindia.gov.in/taxation and read the basic tax reforms.
----------------------

----------------------
Summary
----------------------
●● In India, tax system may be classified into three parts:
----------------------
a) Progressive taxation system
b) Regressive taxation system ----------------------

c) Proportional taxation system ----------------------

●● A Direct tax is a kind of charge, which is imposed directly on the taxpayer ----------------------
and paid directly to the government by the persons.
----------------------
●● The indirect taxes are the levies made by Central and State government
on the expenditure, consumption, services, rights and privileges yet not ----------------------
on the property or income.
----------------------
Keywords ----------------------
●● SGST: State GST, collected by the State Govt. ----------------------
●● CGST: Central GST, collected by the Central Govt. ----------------------
●● IGST: Integrated GST, collected by the Central Govt.
----------------------
●● Property Tax: This is also called Real Estate Tax or Municipal Tax.
----------------------

----------------------

----------------------

Introduction to Taxation System 9

 Notes
Self-Assessment Questions
----------------------
1. Elaborate the sources of income under Act.
---------------------- 2. Write a note on components of GST.
----------------------
Answers to Check your Progress
----------------------
Check your Progress 1
----------------------
State True or False.
---------------------- 1. True
---------------------- 2. False
----------------------
Suggested Reading
----------------------
1. https://www.investindia.gov.in/taxation.
----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

10 Taxation Laws
History of Taxation in India
UNIT

2
Structure:

2.1 Introduction
2.2 History of Indian Taxation
2.3 Evolution of Income Tax Act in India
2.4 Evolution of Indirect Taxes
Summary
Keywords
Self-Assessment Questions
Answers to Check your Progress
Suggested Reading

History of Taxation in India 11

 Notes
Objectives
----------------------

---------------------- After going through this unit, you will be able to:

---------------------- ●● State the history of Taxation

---------------------- ●● Discuss the evolution of the Income Tax Act in India

----------------------

---------------------- 2.1 INTRODUCTION

---------------------- Tax is collected as a mandatory liability for every citizen of the country.
In India, there exist two types of taxes and they are direct taxes and indirect
---------------------- taxes. The practice of taxation in India is rooted in the ancient period. The
---------------------- present tax structure is based on this ancient tax system which was based on the
theory of maximum social welfare.
----------------------
In India, the Constitution is the parent law. All other laws should be
---------------------- enacted without violating the framework of the Constitution and subject to
the norms laid down therein. The constitution of India authorises the Central
---------------------- Government to levy a tax on income. By virtue of this power and to achieve
this goal, the Income Tax Act-1961 was enacted and it extends to entire India.
----------------------
“It was only for the good of his subjects that he collected taxes from them,
---------------------- just as the Sun draws moisture from the Earth to give it back a thousand fold”
---------------------- – Kalidas in Raghuvansh, Eulogising King Dalip

---------------------- It is a matter of general belief that taxes on income and wealth are of
recent origin but there is enough evidence to show that taxes on income in some
---------------------- form or the other were levied even in primitive and ancient communities. The
origin of the word “Tax” is from “Taxation” which means ‘estimate’.
----------------------

---------------------- 2.2 HISTORY OF INDIAN TAXATION

---------------------- “It was only for the good of his subjects that he collected taxes from them,
just as the Sun draws moisture from the Earth to give it back a thousand fold”
----------------------
– By Kalidas
---------------------- In India, the system of direct taxation as it is known today has been in
---------------------- force in one form or another even from ancient times. Variety of tax measures
are referred in many ancient Indian treatises like Kautilya’s Arthasastra. The
---------------------- wise sage advised that taxes should be related to the income and expenditure of
the citizen or tax payer. In Kautilya’s Arthasastra, he, however, cautioned the
---------------------- nation against excessive taxation; a nation should neither impose a high rate of
---------------------- tax nor exempt all from tax.
The nation should arrange the collection of taxes in such a manner that
---------------------- the tax payer did not feel the pinch of paying taxes. During ancient times traders

12 Taxation Laws
and artisans were paying 1/5th of their profits in silver and gold, while the Notes
agriculturists were paying 1/6th, 1/8th and 1/10th of their produce depending
upon their circumstances as tax to the king. ----------------------
Kautilya has also described in great detail the system of tax administration ----------------------
in the Mauryan Empire. It is remarkable that the present day tax system is in
many ways similar to the system of taxation about 2300 years ago. ----------------------
Arthasastra mentioned that each tax was specific and there was no scope ----------------------
for arbitrariness. Tax collectors determined the schedule of each payment, and
its time, manner and quantity being all pre-determined. The land revenue was ----------------------
fixed at 1/6 share of the produce and import and export duties were determined
----------------------
on the ad-valorem basis. The import duties on foreign goods were roughly 20%
of their value. Similarly, tolls, road-cess, ferry charges, and other levies were ----------------------
all fixed.
----------------------
Kautilya also laid down that during war or emergencies like scarcity of
resources or floods, etc. the taxation system should be made more stringent and ----------------------
the nation could also raise war loans. The land revenue could be raised from
1/6th to 1/4th during the emergencies. The people engaged in commerce were ----------------------
to pay big donations to war efforts.
----------------------
Kautilya’s concept of taxation emphasized equity and justice in
taxation. According to his philosophy, the wealthy had to pay higher taxes as ----------------------
compared to the poor. ----------------------
In India, the tax was introduced as a law for the first time in 1860, by
Sir James Wilson in order to meet the losses sustained by the Government ----------------------
on account of the Military Mutiny of 1857. In 1918, a new income tax was ----------------------
passed and again it was replaced by another new act which was passed in 1922.
This Act remained in force up to the assessment year 1961-62 with numerous ----------------------
amendments.
----------------------
In consultation with the Ministry of Law, the Income Tax Act, 1961 was
passed. The Income Tax Act 1961 has been brought into force with 1 April ----------------------
1962. It applies to the whole of India (including Jammu and Kashmir).
----------------------
Since 1962, several amendments of far-reaching nature have been made
in the Income Tax Act by the Union Budget every year. ----------------------
Central Board of Revenue bifurcated and a separate Board for Direct ----------------------
Taxes known as Central Board of Direct Taxes (CBDT) constituted under the
Central Board of Revenue Act, 1963. ----------------------
The major tax enactment in India is the Income Tax Act, 1961 passed by ----------------------
the Parliament, which imposes a tax on the income of persons.
----------------------
2.3 EVOLUTION OF INCOME TAX ACT IN INDIA ----------------------
1860- The Tax was introduced for the first time by Sir James Wilson. India’s ----------------------
First “Union Budget” Introduced by Pre-independence finance minister, James
Wilson on 7 April 1860. The Indian Income Tax Act of 1860 was enforced to ----------------------

History of Taxation in India 13

 Notes meet the losses sustained by the government on account of the military mutiny
of 1857. Income was divided into four schedules taxed separately:
----------------------
(1) Income from the landed property;
---------------------- (2) Income from professions and trades;
---------------------- (3) Income from Securities;

---------------------- (4) Income from Salaries and pensions.

This act was replaced by several license taxes from time to time.
----------------------
1886- Separate Income tax act was passed. This act remained in force up
---------------------- to 1918, with various amendments from time to time. Under the Indian Income
Tax Act of 1886, income was divided into four schedules taxed separately:
----------------------
(1) Salaries, pensions or gratuities;
----------------------
(2) Net profits of companies;
---------------------- (3) Interests on the securities of the Government of India;
---------------------- (4) Other sources of income.

---------------------- 1918- A new income tax was passed. The Indian Income Tax Act of 1918
repealed the Indian Income Tax Act of 1886 and introduced several important
---------------------- changes.
---------------------- 1922- Indian Income Tax Act of 1918 was replaced by another new
act which was passed in 1922. The organisational history of the Income-tax
---------------------- Department starts in the year 1922. The Income-tax Act, 1922, gave, for the first
time, a specific nomenclature to various Income-tax authorities. The Income
----------------------
Tax Act of 1922 remained in force until the year 1961.
---------------------- The Income Tax Act of 1922 had become very complicated on account
of innumerable amendments. The Government of India, therefore, referred it to
----------------------
the law commission in1956 with a view to simplify and prevent the evasion of
---------------------- tax.
1961– In consultation with the Ministry of Law finally the Income Tax Act,
----------------------
1961 was passed. The Income Tax Act 1961 has been brought into force with
---------------------- 1 April 1962. It applies to the whole of India (including Jammu and Kashmir).

---------------------- Since 1962, several amendments of far-reaching nature have been made
in the Income Tax Act by the Union Budget every year which also contains
---------------------- Finance Bill. After it is passed by both the houses of Parliament and receives
the assent of the President of India, it becomes the Finance act.
----------------------

---------------------- 2.4 EVOLUTION OF INDIRECT TAXES

---------------------- During the British Raj, mostly the raw materials were exported from India
and later it used to come back as finished products and consumables. Most of
---------------------- the raw materials were exported to England. The Rulers those days used to
discourage any manufacture of finished products in India so that they can have
----------------------

14 Taxation Laws
the major profit by way of value addition. The Indian market was flooded with Notes
British products. Few rare exceptions were there, few products like clothes,
etc. were also produced in India in cottage industries. The prices of products ----------------------
made in India were much lesser, for obvious reasons, compared to the imported
British products. At that point, only the British thought to impose taxes on ----------------------
India made products. The modern history of Indirect taxes starts from the early ----------------------
20th century while Excise duty was imposed on Salt, Sugar, Motor Spirit, etc.
Gradually the base of Excise duties was increased. The Central Excise Act was ----------------------
formulated in 1944 and thereafter has gone for gradual change year by year till
1969 the physical control was generally done away with few exceptions. ----------------------

In sovereign India, in early 1960, the Boothalingam Committee had ----------------------

recommended the introduction of a general excise levy of 10 % on all goods
----------------------
(with some exceptions) produced in the country. However, the government did
not accept this recommendation. ----------------------
Sales tax was first introduced in India in the province of Bombay, where
----------------------
a tax was imposed on sales of tobacco within certain very limited urban and
suburban areas by the Bombay Tobacco (Amendment) Act, 1938, which came ----------------------
into force on the 24th March 1938.
----------------------
Thereafter, a lot of indirect tax has been added to the taxation system and
we had around 20 indirect taxes in India before GST (Goods and Service tax) ----------------------
has been implemented.
----------------------
1994: Shri Amaresh Baghchi Report, 1994 suggested that the introduction
of “Value Added Tax (VAT)” will act as the root for implementation of Goods ----------------------
and Services Tax in India.
----------------------
2000: Shri Atal Bihari Vajpayee, the then prime minister of India flags
off discussions on the GST. A committee was set up headed by the then finance ----------------------
minister of West Bengal, Shri Asim Dasgupta, to design the GST model and
put in place the back-end technology and logistics for its implementation. Shri ----------------------
Asim Dasgupta remained the chairman of the committee until 2011. ----------------------
2004: A task force chaired by Shri Vijay L. Kelkar, the then advisor to the
finance ministry, says the existing tax system is in built with so many problems. ----------------------
It suggests a comprehensive GST. ----------------------
2005, February: MOF in Union Budget 2005-06 says: “In the medium-
----------------------
to-long term, it is our goal that the entire production-distribution chain should
be covered by a national VAT (value added tax), or even better, a goods and ----------------------
services tax, encompassing both the centre and the states.”
----------------------
2007, February: The union budget for 2007-08 retains the April 1, 2010
deadline for implementation of the GST. ----------------------
2008, February: While reading out the union budget for 2008-09, the ----------------------
Finance Minister said, “I am also happy to report that there is considerable
progress in preparing a roadmap for introducing the Goods and Services Tax ----------------------
with effect from April 1, 2010.”
----------------------

History of Taxation in India 15

 Notes 2009, July: India’s new Finance Minister, Shri Pranab Mukherjee,
announces the basic structure for the GST. The government retains April 1,
---------------------- 2010, deadline.
---------------------- 2009, November: The Committee head by Shri Asim Dasgupta releases
its first discussion paper on the GST in the public domain, looking to generate
---------------------- debate and obtain inputs from stakeholders.
---------------------- 2010, February: The government launches a mission mode project for
the computerization of commercial taxes in states which is expected to lay
---------------------- the foundation for the GST. The budgetary outlay for the project is Rs. 1,133
Crores, of which the centre’s share is Rs. 800 Crores. The GST implementation
----------------------
is pushed back by another year.
---------------------- 2011, March: The government introduces a Constitution Amendment
Bill in the Lok Sabha to implement GST. India’s opposition parties protest.
----------------------
The bill is sent to a parliamentary standing committee. A bill is usually sent to
---------------------- the standing committee—that comprises members from Lok Sabha and Rajya
Sabha—for a detailed examination.
----------------------
2012, June: The standing committee begins the discussion. India’s
---------------------- opposition parties raise concerns over clause 279B which allows the centre to
have extra discretionary powers over the GST dispute authority.
----------------------
2012, November: Finance minister holds meetings with State Finance
---------------------- Ministers. The two sides set December 31, 2012, as the deadline to solve all
issues.
----------------------
2013, February: In his budget speech, Finance Minister announces that
---------------------- the government has made provisions of Rs. 9,000 Crore for compensation to
states. “I hope we can take this consensus forward in the next few months and
---------------------- bring to this house a draft bill on the constitutional amendment and a draft
---------------------- bill on the GST. I appeal to the state finance ministers to realize the serious
intent of the government to introduce GST and come forward to work with the
---------------------- government and bring about a transformational change in the tax structure of
the country,” Finance Minister said.
----------------------
2013, August: The standing committee submits its report to parliament.
---------------------- The panel approves the legislation with some amendments on the provision of
tax structure and resolution mechanism. “What should be included in the laws
----------------------
and rules should not form part of the constitution of India. The present bill
---------------------- relating to GST, in the committee’s view, has not been well drafted from this
perspective and, therefore, require amendments as suggested,” the report said.
----------------------
2014, May: The constitution amendment bill lapses with the dissolution
---------------------- of the 15th Lok Sabha. Any bill be it Constitutional Amendment or Money Bill
or any bill lapses with the dissolution of the House of People or Lok Sabha,
---------------------- even if the Bill has been passed by the Upper House or the Council of States or
Rajya Sabha.
----------------------

----------------------

16 Taxation Laws
 2014, December: Seven months later, the finance minister, introduces Notes
the bill in the parliament. And it was decided that the bill be sent to a standing
committee. ----------------------
2015, February: In the budget speech, the Finance Minister announces ----------------------
that the government is keen on implementing the GST by April 1, 2016, and
hopes it will be cleared by parliament. ----------------------
2015, May: The Lok Sabha passes the Constitution amendment Bill to ----------------------
GST. “I straight away concede that 27% (revenue-neutral rate) would be very
high. We have decided to keep petroleum out and every state finance minister ----------------------
is not interested in imposing higher taxes on its own people, and neither the
----------------------
central government. Therefore, this figure is going to (get) much more diluted
compared to the figure (27%) which has been mentioned,” the finance minister ----------------------
said.
----------------------
July 2017: GST got implemented.
----------------------
Check your Progress 1 ----------------------

Fill in the blanks. ----------------------

1. _______________ mentioned that each tax was specific and there ----------------------
was no scope for arbitrariness.
----------------------
2. The Income Tax Act 1961 has been brought into force with
_______________. ----------------------

----------------------

Activity 1 ----------------------

----------------------
Visit https://www.investindia.gov.in/taxation and read the taxability in India.
----------------------

----------------------
Summary
----------------------
●● In India, the system of direct taxation as it is known today has been in
force in one form or another even from ancient times. ----------------------
●● In India, the tax was introduced as a law for the first time in 1860, by Sir ----------------------
James Wilson in order to meet the losses sustained by the Government on
account of the Military Mutiny of 1857. ----------------------

----------------------
Keywords
----------------------
●● GST: Goods and Service Tax
----------------------
●● Tax: Levy imposed on a person
----------------------

History of Taxation in India 17

 Notes
Self-Assessment Questions
----------------------
1. Write a brief on the history of taxation in India.
---------------------- 2. Write a short note on the implementation of GST.
----------------------
Answers to Check your Progress
----------------------
Check your Progress 1
----------------------
Fill in the blanks.
---------------------- 1. Arthasastra mentioned that each tax was specific and there was no scope
---------------------- for arbitrariness.
2. The Income Tax Act 1961 has been brought into force with 1 April 1962.
----------------------

---------------------- Suggested Reading

---------------------- ●● https://www.ijmter.com/papers/volume-3/issue-2/recent-trend-in-
indian-taxation-system-an- overview-of-gst-in-rapid-growth-of-indian-
----------------------
economy.pdf
---------------------- ●● http://www.iosrjournals.org/iosr-jbm/pages/Conf.18010-2018-Volume-1.
---------------------- html
●● https://www.trademarkgwalior.com/indirect-tax-laws
----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

18 Taxation Laws
Definition Under Income Tax Act 1961
UNIT

3
Structure:

3.1 Introduction
3.2 General Definitions Under Act
3.3 Introduction
3.4 Definitions Related to Tax Authorities
3.5 Definitions under Tax Procedures
Summary
Keywords
Self-Assessment Questions
Answers to Check your Progress
Suggested Reading

Definition Under Income Tax Act 1961 19

 Notes
Objectives
----------------------
After going through this unit, you will be able to:
----------------------
●● Define the basic terms under tax laws
----------------------
●● Give the examples under general tax definitions
----------------------
●● Define the basic terms used under various procedures in tax assessment
---------------------- ●● Define the various tax authorities
----------------------

---------------------- 3.1 INTRODUCTION

Every person whose total income of the previous year exceeds the
----------------------
maximum amount which is not chargeable to income tax, is an Assessee and
---------------------- chargeable to income tax at the rate or rates prescribed in the Finance Act for
the relevant Assessment Year. However, his total income shall be determined on
---------------------- the basis of person’s residential status.
---------------------- 3.2 GENERAL DEFINITIONS UNDER ACT
---------------------- 1. Income Tax

---------------------- It is the tax that is collected by Central Government for each financial
year levied on total taxable income of an assessee during the previous year.
---------------------- 2. Advance Tax
---------------------- Advance tax means the advance tax payable in accordance with the
provisions of Act.
----------------------
3. Agricultural Income
----------------------
(a) Any rent or revenue derived from land which is situated in India
---------------------- and is used for agricultural purposes;

---------------------- (b) Any income derived from such land by—

(i) Agriculture; or
----------------------
(ii) the performance by a cultivator or receiver of rent-in-kind of
---------------------- any process ordinarily employed by a cultivator or receiver
of rent-in-kind to render the produce raised or received by
----------------------
him fit to be taken to market; or
---------------------- (iii) the sale by a cultivator or receiver of rent-in-kind of the
produce raised or received by him, in respect of which no
----------------------
process has been performed other than a process of the nature
---------------------- described in paragraph (ii) of this sub-clause;
(c) Any income derived from any building owned and occupied by
----------------------
the receiver of the rent or revenue of any such land, or occupied
---------------------- by the cultivator or the receiver of rent-in-kind, of any land with

20 Taxation Laws
 respect to which, or the produce of which, any process mentioned Notes
in paragraphs (ii) and (iii) of sub-clause (b) is carried on
Provided that— ----------------------

(i) The building is on or in the immediate vicinity of the land, ----------------------

and is a building which the receiver of the rent or revenue or
the cultivator, or the receiver of rent-in-kind, by reason of ----------------------
his connection with the land, requires as a dwelling house, or ----------------------
as a store-house, or other out- building, and
(ii) The land is either assessed to land revenue in India or is ----------------------
subject to a local rate assessed and collected by officers of ----------------------
the Government as such or where the land is not so assessed
to land revenue or subject to a local rate, it is not situated— ----------------------
(A) in any area which is comprised within the jurisdiction ----------------------
of a municipality (whether known as a municipality,
municipal corporation, notified area committee, town ----------------------
area committee, town committee or by any other name)
or a cantonment board and which has a population of ----------------------
not less than ten thousand; or
----------------------
(B) in any area within the distance, measured aerially,—
----------------------
(I) n ot being more than two kilometers from the local
limits of any municipality or cantonment board ----------------------
referred to in item (A) and which has a population
of more than ten thousand but not exceeding one ----------------------
lakh; or
----------------------
(II) n ot being more than six kilometers from the local
limits of any municipality or cantonment board ----------------------
referred to in item (A) and which has a population
of more than one lakh but not exceeding ten lakh; ----------------------
or ----------------------
(III) n ot being more than eight kilometres from the
local limits of any municipality or cantonment ----------------------
board referred to in item (A) and which has a ----------------------
population of more than ten lakh.
----------------------
4. Amalgamation
Amalgamation in relation to companies means the merger of one or more ----------------------
companies with another company or the merger of two or more companies
----------------------
to form one company (the company or companies which so merge being
referred to as the amalgamating company or companies and the company ----------------------
with which they merge or which is formed as a result of the merger, as the
amalgamated company) in such a manner that— ----------------------
(i) All the property of the amalgamating company or companies ----------------------
immediately before the amalgamation becomes the property of the
amalgamated company by virtue of the amalgamation; ----------------------

Definition Under Income Tax Act 1961 21

 Notes (ii) All the liabilities of the amalgamating company or companies
immediately before the amalgamation become the liabilities of the
---------------------- amalgamated company by virtue of the amalgamation;
---------------------- (iii) Shareholders holding not less than three-fourths in value of the
shares in the amalgamating company or companies (other than
---------------------- shares already held therein immediately before the amalgamation
by, or by a nominee for, the amalgamated company or its subsidiary)
----------------------
become shareholders of the amalgamated company by virtue of
---------------------- the amalgamation,otherwise than as a result of the acquisition of
the property of one company by another company pursuant to the
---------------------- purchase of such property by the other company or as a result of the
distribution of such property to the other company after the winding
----------------------
up of the first-mentioned company.
---------------------- 5. Person
---------------------- According to Section 2(31), the term Person includes:

---------------------- a. An Individual
b. A Hindu Undivided Family (HUF) - The term has not been defined
---------------------- under the Act. However, HUF means a family consisting of all
---------------------- persons ideally descended from a common ancestor including their
wives and unmarried daughters.
---------------------- c. A Company - A Company means a company formed as per the
---------------------- provisions of Companies Act, 2013.
d. A Firm - A Firm means a partnership firm.
----------------------
e. An Association of Persons (AOP) or A Body of Individuals (BOI)
---------------------- - AOP is formed when two or more persons come together to earn
the income. BOI is formed when more than two individuals come
----------------------
together to earn the income.
---------------------- f. A Local Authority
---------------------- g. Every Artificial Person not falling under any of the preceding sub-
clauses.
----------------------
6. Assessee
----------------------
Assessee means a person by whom any tax or any other sum of money is
---------------------- payable under this Act, and includes—
(a) every person in respect of whom any proceeding under this Act
----------------------
has been taken for the assessment of his income or assessment of
---------------------- fringe benefits or of the income of any other person in respect of
which he is assessable, or of the loss sustained by him or by such
---------------------- other person, or of the amount of refund due to him or to such other
person;
----------------------
(b) every person who is deemed to be an assessee under any provision
---------------------- of this Act;

22 Taxation Laws
 (c) every person who is deemed to be an assessee in default under any Notes
provision of this Act.
----------------------
7. Assessment Year
According to Section 2(9), Assessment Year (AY) is the period of 12 ----------------------
months which starts from 1st April and ends on 31st March.
----------------------
8. Previous Year
----------------------
Section 3 of the Act defines Previous Year as the financial year immediately
preceding Assessment Year, e.g. income earned during previous year ----------------------
1.4.2019 to 31.3.2020 will be assessed or charged to tax in AY 2020-
2021. ----------------------

For the purposes of this Act, “Previous Year” means— ----------------------

(a) the financial year immediately preceding the assessment year; or ----------------------
(b) if the accounts of the assessee have been made up to a date within
----------------------
the said financial year, then, at the option of the assessee, the twelve
months ending on such date; or ----------------------
(c) in the case of any person or business or class of persons or business
----------------------
not falling within clause (a) or clause (b), such period as may be
determined by the Board or by any authority authorised by the ----------------------
Board; or
----------------------
(d) in the case of a business or profession newly set up in the said
financial year, the period beginning with the date of the setting up ----------------------
of the business or profession and—
----------------------
(i) Ending with the said financial year, or
(ii) if the accounts of the assessee have been made up to a date ----------------------
within the said financial year, then, at the option of the ----------------------
assessee, ending on that date, or
----------------------
(iii) Ending with the period, if any, determined under clause (c)
(e) in the case of a business or profession newly set up in the twelve ----------------------
months immediately preceding the said financial year—
----------------------
(i) if the accounts of the assessee have been made up to a date
within the said financial year and the period from the date of ----------------------
the setting up of the business or profession to such datedoes
----------------------
not exceed twelve months, then, at the option of the assessee,
such period, or ----------------------
(ii) if any period has been determined under clause (c), then the ----------------------
period beginning with the date of the setting up of the business
or profession and ending with that period, as the case may be; ----------------------
or
----------------------
(f) where the assessee is a partner in a firm and the firm has been
assessed as such, then, in respect of the assessees share in the ----------------------

Definition Under Income Tax Act 1961 23

 Notes income of the firm, the period determined as the previous year for
the assessment of the income of the firm; or
----------------------
(g) in respect of profits and gains from Life Insurance business, the
---------------------- year immediately preceding the assessment year for which annual
accounts are required to be prepared under the Insurance Act,
---------------------- 1938, or under that Act read with section 43 of the Life Insurance
Corporation Act, 1956.
----------------------
The term Previous Year should not be confused with the Accounting
---------------------- Year for financial accounting purposes. There may be a possibility that
an organisation may have the Accounting Year for financial accounting
----------------------
purposes which does not end on 31st March. However, for income tax
---------------------- purposes, Previous Year essentially ends on 31st March.
9. Business
----------------------
Business includes any trade, commerce or manufacture or any adventure
---------------------- or concern in the nature of trade, commerce or manufacture.
---------------------- 10. Business Trust
---------------------- Business trust means a trust registered as—
(i) an Infrastructure Investment Trust under the Securities and Exchange
----------------------
Board of India (Infrastructure Investment Trusts) Regulations, 2014
---------------------- made under the Securities and Exchange Board of India Act, 1992
(15 of 1992); or
----------------------
(ii) a Real Estate Investment Trust under the Securities and Exchange
---------------------- Board of India (Real Estate Investment Trusts) Regulations, 2014
made under the Securities and Exchange Board of India Act, 1992
---------------------- (15 of 1992), and
---------------------- (iii) the units of which are required to be listed on recognised stock
exchange in accordance with the aforesaid regulations.
----------------------
11. Capital Asset
---------------------- Capital asset means—
---------------------- (a) Property of any kind held by an assessee, whether or not connected
with his business or profession;
----------------------
(b) any securities held by a Foreign Institutional Investor which has
---------------------- invested in such securities in accordance with the regulations made
under the Securities and Exchange Board of India Act, 1992 (15 of
----------------------
1992), but does not include—
---------------------- (i) any stock-in-trade other than the securities referred to in sub-
clause (b), consumable stores or raw materials held for the
----------------------
purposes of his business or profession;
---------------------- (ii) personal effects, that is to say, movable property (including
---------------------- wearing apparel and furniture) held for personal use by the

24 Taxation Laws
 assessee or any member of his family dependent on him, but Notes
excludes—
----------------------
(a) jewellery
(b) archaeological collections ----------------------
(c) drawings ----------------------
(d) paintings ----------------------
(e) sculptures or
----------------------
(f) any work of art
----------------------
(iii) Agricultural land in India, not being land situate—
(a) in any area which is comprised within the jurisdiction of a ----------------------
municipality (whether known as a municipality, municipal
----------------------
corporation, notified area committee, town area committee,
town committee, or by any other name) or a cantonment board ----------------------
and which has a population of not less than ten thousand; or
----------------------
(b) in any area within the distance, measured aerially,—
(I) n ot being more than two kilometres from the local limits ----------------------
of any municipality or cantonment board referred to in ----------------------
item (a) and which has a population of more than ten
thousand but not exceeding one lakh; or ----------------------
(II) n ot being more than six kilometres from the local limits ----------------------
of any municipality or cantonment board referred to in
item (a) and which has a population of more than one ----------------------
lakh but not exceeding ten lakh; or
----------------------
(III) n ot being more than eight kilometres from the local
limits of any municipality or cantonment board referred ----------------------
to in item (a) and which has a population of more than
----------------------
ten lakh.
12. Block of Assets ----------------------
Block of assets means a group of assets falling within a class of assets ----------------------
comprising—
----------------------
(a) Tangible assets, being buildings, machinery, plant or furniture
(b) Intangible assets, being know-how, patents, copyrights, trade- ----------------------
marks, licenses, franchises or any other business or commercial ----------------------
rights of similar nature, in respect of which the same percentage of
depreciation is prescribed. ----------------------

----------------------

----------------------

----------------------

Definition Under Income Tax Act 1961 25

 Notes 13. Company
Company means—
----------------------
(i) Any Indian company, or
----------------------
(ii) Anybody incorporated by or under the laws of a country outside
---------------------- India, or

---------------------- (iii) Any institution, association or body which is or was assessable or

was assessed as a company for any assessment year under the Indian
---------------------- Income tax Act, 1922 (11 of 1922) or which is or was assessable or
was assessed under this Act as a company for any assessment year
---------------------- commencing on or before the 1st day of April, 1970, or
---------------------- (iv) Any institution, association or body, whether incorporated or not
and whether Indian or non-Indian, which is declared by general or
---------------------- special order of the Board to be a company
---------------------- Provided that such institution, association or body shall be deemed to be
a company only for such assessment year or assessment years (whether
---------------------- commencing before the 1st day of April, 1971 or on or after that date) as
---------------------- may be specified in the declaration.
14. Company in which the Public is Substantially Interested
----------------------
A company is said to be a company in which the public is substantially
---------------------- interested—
---------------------- (a) if it is a company owned by the Government or the Reserve Bank
of India or in which not less than forty per cent of the shares are
---------------------- held (whether singly or taken together) by the Government or the
Reserve Bank of India or a corporation owned by that bank; or
----------------------
(aa) if it is a company which is registered under section 25 of the
---------------------- Companies Act, 1956 (1 of 1956); or
---------------------- (ab) if it is a company having no share capital and if, having regard
to its objects, the nature and composition of its membership and
---------------------- other relevant considerations, it is declared by order of the Board to
---------------------- be a company in which the public are substantially interested:
Provided that such company shall be deemed to be a company in
----------------------
which the public is substantially interested only for such assessment
---------------------- year or assessment years (whether commencing before the 1st day
of April, 1971, or on or after that date) as may be specified in the
---------------------- declaration; or
---------------------- (ac) if it is a mutual benefit finance company, that is to say, a
company which carries on, as its principal business, the business of
---------------------- acceptance of deposits from its members and which is declared by
the Central Government under section 620A of the Companies Act,
----------------------
1956 (1 of 1956), to be a Nidhi or Mutual Benefit Society; or
----------------------

26 Taxation Laws
 (ad) if it is a company, wherein shares (not being shares entitled Notes
to a fixed rate of dividend whether with or without a further right
to participate in profits) carrying not less than fifty per cent of the ----------------------
voting power have been allotted unconditionally to, or acquired
unconditionally by, and were throughout the relevant previous year ----------------------
beneficially held by, one or more co-operative societies; ----------------------
(b) if it is a company which is not a private company as defined in the
----------------------
Companies Act, 1956 and the conditions specified either in item (A)
or in item (B) are fulfilled, namely: ----------------------
(A) shares in the company (not being shares entitled to a fixed rate
----------------------
of dividend whether with or without a further right to participate
in profits) were, as on the last day of the relevant previous year, ----------------------
listed in a recognised stock exchange in India in accordance with
the Securities Contracts (Regulation) Act, 1956 (42 of 1956), and ----------------------
any rules made thereunder;
----------------------
(B) shares in the company (not being shares entitled to a fixed rate
of dividend whether with or without a further right to participate ----------------------
in profits) carrying not less than fifty per cent of the voting power
----------------------
have been allotted unconditionally to, or acquired unconditionally
by, and were throughout the relevant previous year beneficially held ----------------------
by
----------------------
(a) the Government, or
(b) a corporation established by a Central, State or Provincial ----------------------
Act, or ----------------------
(c) any company to which this clause applies or any subsidiary
company of such company if the whole of the share capital ----------------------
of such subsidiary company has been held by the parent ----------------------
company or by its nominees throughout the previous year.
----------------------
15. Co-operative society
Co-operative society means a co-operative society registered under the ----------------------
Co-operative Societies Act, 1912 (2 of 1912), or under any other law for
----------------------
the time being in force in any State for the registration of co-operative
societies. ----------------------
16. Demerger ----------------------
“demerger”, in relation to companies, means the transfer, pursuant to a
scheme of arrangement under sections 391 to 394 of the Companies ----------------------
Act, 1956 (1 of 1956), by a demerged company of its one or more ----------------------
undertakings to any resulting company in such a manner that—
(i) all the property of the undertaking, being transferred by the ----------------------
demerged company, immediately before the demerger, becomes the ----------------------
property of the resulting company by virtue of the demerger;
----------------------

Definition Under Income Tax Act 1961 27

 Notes (ii) all the liabilities relatable to the undertaking, being transferred by
the demerged company, immediately before the demerger, become
---------------------- the liabilities of the resulting company by virtue of the demerger;
---------------------- (iii) the property and the liabilities of the undertaking or undertakings
being transferred by the demerged company are transferred at values
---------------------- appearing in its books of account immediately before the demerger;
---------------------- (iv) the resulting company issues, in consideration of the demerger,
its shares to the shareholders of the demerged company on a
---------------------- proportionate basis except where the resulting company itself is a
shareholder of the demerged company;
----------------------
(v) the shareholders holding not less than three-fourths in value of the
---------------------- shares in the demerged company (other than shares already held
therein immediately before the demerger, or by a nominee for,
---------------------- the resulting company or, its subsidiary) become shareholders of
---------------------- the resulting company or companies by virtue of the demerger,
otherwise than as a result of the acquisition of the property or
---------------------- assets of the demerged company or any undertaking thereof by the
resulting company;
----------------------
(vi) the transfer of the undertaking is on a going concern basis;
---------------------- (vii) the demerger is in accordance with the conditions, if any, notified
---------------------- under sub-section (5) of section 72A by the Central Government in
this behalf.
----------------------
17. Domestic Company (22A)
---------------------- Domestic company means an Indian company, or any other company
which, in respect of its income liable to tax under Income Tax Act, has
----------------------
made the prescribed arrangements for the declaration and payment,
---------------------- within India, of the dividends (including dividends on preference shares)
payable out of income.
----------------------
18. Firm (23)
---------------------- (i) “firm” shall have the meaning assigned to it in the Indian Partnership
Act, 1932 (9 of 1932), andshall include a limited liability partnership
----------------------
as defined in the Limited Liability Partnership Act, 2008 (6 of 2009)
---------------------- (ii) “partner” shall have the meaning assigned to it in the Indian
Partnership Act, 1932 (9 of 1932), and shall include—
----------------------
(a) any person who, being a minor, has been admitted to the
---------------------- benefits of partnership; and
---------------------- (b) a partner of a limited liability partnership as defined in the
Limited Liability PartnershipAct, 2008 (6 of 2009);
----------------------
(iii) “partnership” shall have the meaning assigned to it in the Indian
---------------------- Partnership Act, 1932 (9 of 1932), and shall include a limited
liability partnership as defined in the Limited Liability Partnership
---------------------- Act, 2008 (6 of 2009)

28 Taxation Laws
19. Public Sector Company (36A) Notes
Public sector company means any corporation established by or under
----------------------
any Central, State or Provincial Act or a Government company as defined
in section 617 of the Companies Act, 1956 (1 of 1956). ----------------------
20. Relative
----------------------
Relative, in relation to an individual, means the husband, wife, brother or
sister or any lineal ascendant or descendant of that individual. ----------------------
For easy understanding, the definitions of relative under all three ----------------------
regulations are summarized in the following table:
----------------------
Relationship Income Income Companies
Tax Act Tax Act Act ----------------------
Sec.2(41) Sec.56(2) Sec.2(77)
----------------------
(Gift) (FEMA)
Spouse (Husband / Wife) Yes Yes Yes ----------------------
Parents (Father, Mother) Yes Yes Yes
----------------------
Brother/Sister, Son/Daughter Yes Yes Yes
Spouse of Brother/Sister No Yes No ----------------------
Spouse of Son/Daughter No Yes Yes ----------------------
Parents’ Brother/Sister and their No Yes No
Spouse ----------------------
Spouse’s Brother/Sister and their No Yes No ----------------------
Spouse
Grand-Parents and Grand Children Yes Yes No ----------------------
Spouse of Grand-Children No Yes No ----------------------
Great-Grand-Parents and Great- Yes Yes No
Grand-Children ----------------------
Spouse’s Parents, Grand-Parents No Yes No ----------------------
and Great- Grand-Parents
----------------------
Please note that the above table of relatives shows YOUR relatives
i.e. whether they are your relative. It does not show whether you are ----------------------
their relative.
----------------------
21. Resulting Company
Resulting company means one or more companies (including a wholly ----------------------
owned subsidiary thereof) to which the undertaking of the demerged
----------------------
company is transferred in a demerger and, the resulting company in
consideration of such transfer of undertaking, issues shares to the ----------------------
shareholders of the demerged company and includes any authority or body
or local authority or public sector company or a company established, ----------------------
constituted or formed as a result of demerger.
----------------------

----------------------

Definition Under Income Tax Act 1961 29

 Notes 22. Resident
Resident means a person who is resident in India within the meaning of
----------------------
section 6.
---------------------- 23. Non-Resident (30)
---------------------- Non-resident means a person who is not a “resident”, and for the purposes
of sections 92, 93 and168, includes a person who is not ordinarily resident
---------------------- within the meaning of clause (6) of section 6.
----------------------
Check your Progress 1
----------------------

---------------------- State True or False.

1. Domestic company means an Indian company, or any other company
----------------------
which, in respect of its income liable to tax under act.
---------------------- 2. Business includes any trade, commerce or manufacture or any
adventure or concern in thenature of trade, commerce or manufacture.
----------------------

----------------------
Activity 1
----------------------

---------------------- Categorize the definitions given in this unit as per different sections of
Income tax Act.
----------------------

----------------------
3.3 INTRODUCTION
----------------------
In the previous unit, we have discussed various definitions which are
---------------------- general in nature and defines the tax structure of India. In this unit, we will
highlight various terms related to tax authorities and procedures.
----------------------

---------------------- 3.4 DEFINITIONS RELATED TO TAX AUTHORITIES

---------------------- 1. Additional Commissioner

---------------------- Additional Commissioner means a person appointed to be an Additional

Commissioner of Income-tax under sub-section (1) of section 117.
---------------------- 2. Additional Director
---------------------- Additional Director means a person appointed to be an Additional Director
of Income-tax under sub- section (1) of section 117.
----------------------
3. Assessing Officer
----------------------
Assessing Officer means the Assistant Commissioner or Deputy
---------------------- Commissioner or Assistant Director or Deputy Director or the Income-tax
Officer who is vested with the relevant jurisdiction by virtue of directions
---------------------- or orders issued under sub-section (1) or sub-section (2) of section 120

30 Taxation Laws
 or any other provision of this Act, and the Additional Commissioner Notes
or Additional Director or Joint Commissioner or Joint Director who is
directed under clause (b) of sub-section (4) of that section to exercise or ----------------------
perform all or any of the powers and functions conferred on, or assigned
to, an Assessing Officer under this Act. ----------------------

4. Board ----------------------
Board means the Central Board of Direct Taxes constituted under the ----------------------
Central Boards of Revenue Act, 1963 or the Central Board of Excise and
Customs constituted under section 3. ----------------------
Constitution of separate Central Boards for Direct Taxes and for Indirect ----------------------
Taxes and Customs:
----------------------
(1) The Central Government shall, in place of the Central Board of
Revenue, constitute two separate Boards of Revenue to be called ----------------------
the Central Board of Direct Taxes and the Central Board of Indirect
Taxes and Customs, and each such Board shall, subject to the control ----------------------
of the Central Government, exercise such powers and perform such ----------------------
duties, as may be entrusted to that Board by the Central Government
or by or under any law. ----------------------
(2) Each Board shall consist of such number of persons not exceeding ----------------------
seven as the Central Government may think fit to appoint.
5. Assistant Commissioner ----------------------

Assistant Commissioner means a person appointed to be an Assistant ----------------------

Commissioner of Income-tax or a Deputy Commissioner of Income-tax
----------------------
under sub-section (1) of section 117.
6. Assistant Director ----------------------
Assistant Director means a person appointed to be an Assistant Director ----------------------
of Income-tax under sub- section (1) of section 117.
----------------------
7. Chief Commissioner
Chief Commissioner means a person appointed to be a Chief Commissioner ----------------------
of Income-tax or a Principal Chief Commissioner of Income-tax under ----------------------
sub-section (1) of section 117.
----------------------
8. Commissioner
Commissioner means a person appointed to be a Commissioner of ----------------------
Income-tax or a Director of Income- tax or a Principal Commissioner of
----------------------
Income-tax or a Principal Director.
9. Deputy Commissioner (19B) ----------------------
Deputy Commissioner (Appeals) means a person appointed to be a Deputy ----------------------
Commissioner of Income- tax (Appeals) or an Additional Commissioner
of Income-tax (Appeals) under sub-section (1) of section 117. ----------------------

----------------------

Definition Under Income Tax Act 1961 31

 Notes 10. Deputy Director (19C)
Deputy Director means a person appointed to be a Deputy Director of
----------------------
Income-tax under sub-section (1) of section 117.
---------------------- 11. Director General or Director
---------------------- Director General or Director means a person appointed to be a Director
General of Income-tax or a Principal Director General of Income-tax or,
---------------------- as the case may be, a Director of Income-tax or a Principal Director of
Income-tax, under sub-section (1) of section 117, and includes a person
----------------------
appointed under that sub-section to be an Additional Director of Income-
---------------------- tax or a Joint Director of Income-tax or an Assistant Director or Deputy
Director of Income-tax.
----------------------
12. National Tax Tribunal (29D)
---------------------- National Tax Tribunal means the National Tax Tribunal established under
---------------------- section 3 of the National Tax Tribunal Act, 2005.
13. Principal Chief Commissioner of Income-tax (34A)
----------------------
Principal Chief Commissioner of Income-tax means a person appointed
---------------------- to be a Principal Chief Commissioner of Income-tax under sub-section
(1) of section 117.
----------------------
14. Principal Commissioner of Income-tax
----------------------
Principal Commissioner of Income-tax means a person appointed to be a
---------------------- Principal Commissioner of Income-tax under sub-section (1) of section
117.
----------------------
15. Principal Director of Income-tax
---------------------- Principal Director of Income-tax means a person appointed to be a
---------------------- Principal Director of Income-tax under sub-section (1) of section 117.
16. Principal Director General of Income-tax
----------------------
Principal Director General of Income-tax means a person appointed to
---------------------- be a Principal Director General of Income-tax under sub-section (1) of
section 117.
----------------------
17. Principal Officer
----------------------
Principal Officer, used with reference to a local authority or a company
---------------------- or any other public body or any association of persons or anybody of
individuals, means—
----------------------
(a) the secretary, treasurer, manager or agent of the authority, company,
---------------------- association or body, or

---------------------- (b) any person connected with the management or administration of

the local authority, company, association or body upon whom the
---------------------- Assessing Officer has served a notice of his intention of treating
him as the principal officer thereof.
----------------------

32 Taxation Laws
3.5 DEFINITIONS UNDER TAX PROCEDURES Notes

1. Total Income ----------------------

For calculating the Total Income of the Assessee, the income is required ----------------------
to be classified under the following five heads of income.
----------------------
a. Income from Salaries
----------------------
b. Income from House Property
c. Profits from Business and Profession ----------------------
d. Income from Capital Gains ----------------------
e. Income from Other Sources ----------------------
For calculating the income from the heads of incomes stated above,
the deductions available for each of the above heads of income are ----------------------
considered. E.g. while calculating the Income from salaries, deductions ----------------------
under Section 16 are considered or while calculating income from house
property, deductions under Section 24 are considered. ----------------------
The combined amount of all the above five heads of income gives the ----------------------
amount of Gross Total Income (GTI).
----------------------
From GTI, the amounts available as deductions as per the provisions of
Chapter VI-A of the Act are deducted. These deductions are as per the ----------------------
provisions of Section 80C to Section 80U of the Act.
----------------------
Gross Total Income duly reduced by the deductions as per the provisions
of Chapter VI- A of the Act gives the Total Income. ----------------------
2. Dividend ----------------------
Dividend includes—
----------------------
(a) any distribution by a company of accumulated profits, whether
capitalised or not, if such distribution entails the release by the ----------------------
company to its shareholders of all or any part of the assets of the
company; ----------------------

(b) any distribution to its shareholders by a company of debentures, ----------------------

debenture-stock, or deposit certificates in any form, whether with or
----------------------
without interest and any distribution to its preference shareholders
of shares by way of a bonus, to the extent to which the company ----------------------
possesses accumulated profits, whether capitalised or not;
----------------------
(c) any distribution made to the shareholders of a company on its
liquidation, to the extent to which the distribution is attributable ----------------------
to the accumulated profits of the company immediately before its
liquidation, whether capitalised or not; ----------------------
(d) any distribution to its shareholders by a company on the reduction of ----------------------
its capital, to the extent to which the company possesses accumulated
profits which arose after the end of the previous year ending next ----------------------

Definition Under Income Tax Act 1961 33

 Notes before the 1st day of April 1933, whether such accumulated profits
have been capitalised or not;
----------------------
(e) any payment by a company, not being a company in which the public
---------------------- are substantially interested, of any sum (whether as representing a
part of the assets of the company or otherwise) made after the 31st
---------------------- day of May, 1987, by way of advance or loan to a shareholder, being
a person who is the beneficial owner of shares (not being shares
----------------------
entitled to a fixed rate of dividend whether with or without a right to
---------------------- participate in profits) holding not less than ten per cent of the voting
power, or to any concern in which such shareholder is a member
---------------------- or a partner and in which he has a substantial interest (hereafter
in this clause referred to as the said concern) or any payment by
----------------------
any such company on behalf, or for the individual benefit, of any
---------------------- such shareholder, to the extent to which the company in either case
possesses accumulated profits.
----------------------
But “dividend” does not include—
---------------------- (i) a distribution made in accordance with sub-clause (c) or sub-clause
(d) in respect of any share issued for full cash consideration, where
----------------------
the holder of the share is not entitled in the event of liquidation to
---------------------- participate in the surplus assets;

---------------------- (ia) a distribution made in accordance with sub-clause (c) or sub-

clause (d) insofar as such distribution is attributable to the
---------------------- capitalised profits of the company representing bonus shares
allotted to its equity shareholders after the 31st day of March
---------------------- 1964, and before the 1st day of April 1965;
---------------------- (ii) any advance or loan made to a shareholder or the said concern by a
company in the ordinary course of its business, where the lending
---------------------- of money is a substantial part of the business of the company;
---------------------- (iii) any dividend paid by a company which is set off by the company
against the whole or any part of any sum previously paid by it and
---------------------- treated as a dividend within the meaning of sub-clause (e), to the
---------------------- extent to which it is so set off;
(iv) any payment made by a company on purchase of its own shares
----------------------
from a shareholder in accordance with the provisions of section
---------------------- 77A of the Companies Act, 1956 (1 of 1956);
(v) any distribution of shares pursuant to a demerger by the resulting
----------------------
company to the shareholders of the demerged company (whether or
---------------------- not there is a reduction of capital in the demerged company).

---------------------- 3. Assessment
Assessment is primarily a process of determining the correctness of
---------------------- income declared by the assessee and calculating the amount of tax payable
---------------------- by him and further procedure of imposing that tax liability on that person.

34 Taxation Laws
4. Fair Market Value (22B) Notes
“Fair market value”, in relation to a capital asset, means—
----------------------
(i) the price that the capital asset would ordinarily fetch on sale in the
open market on the relevant date; and ----------------------
(ii) where the price referred to in sub-clause (i) is not ascertainable, ----------------------
such price as may be determined in accordance with the rules made
under this Act; ----------------------
5. Interest (28A) ----------------------
Interest means interest payable in any manner in respect of any amounts ----------------------
of money borrowed or debt incurred (including a deposit, claim or other
similar right or obligation) and includes any service fee or another charge ----------------------
in respect of the money borrowed or debt incurred or in respect of any
credit facility which has not been utilised. ----------------------

6. Interest on Securities (28B) ----------------------

Interest on securities means,— ----------------------
(i) interest on any security of the Central Government or a State
----------------------
Government;
(ii) interest on debentures or other securities for money issued by or on ----------------------
behalf of a local authority or a company or a corporation established
----------------------
by a Central, State or Provincial Act.
7. Long-term Capital Asset (29A) ----------------------

Long-term capital asset means a capital asset which is not a short-term ----------------------
capital asset.
----------------------
8. Long-term Capital Gain (29B)
----------------------
Long-term capital gain means capital gain arising from the transfer of a
long-term capital asset. ----------------------
9. Manufacture (29BA)
----------------------
Manufacture, with its grammatical variations, means a change in a non-
living physical object or article or thing,— ----------------------
(a) resulting in the transformation of the object or article or thing into a ----------------------
new and distinct object or article or thing having a different name,
character, and use; or ----------------------

(b) bringing into existence of a new and distinct object or article or ----------------------
thing with a different chemical composition or integral structure.
----------------------
10. Approved Gratuity Fund
----------------------
Approved gratuity fund means a gratuity fund which has been and
continues to be approved by the Principal Chief Commissioner or Chief ----------------------
Commissioner or Principal Commissioner or Commissioner in accordance
with the rules contained in Part C of the Fourth Schedule. ----------------------

Definition Under Income Tax Act 1961 35

 Notes 11. Approved Superannuation Fund
Approved superannuation fund means a superannuation fund or any part
----------------------
of a superannuation fund which has been and continues to be approved
---------------------- by the Principal Chief Commissioner or Chief Commissioner or Principal
Commissioner or Commissioner in accordance with the rules contained
---------------------- in Part B of the Fourth Schedule.
----------------------
Check your Progress 2
----------------------

---------------------- Fill in the blanks.

1. Approved superannuation fund means a superannuation fund or any
---------------------- part of a superannuation fund which has been and continues to be
---------------------- approved by the _____________.
2. Assessing Officer means the Assistant Commissioner or Deputy
---------------------- Commissioner or Assistant Director or Deputy Director or the
---------------------- Income-tax Officer who is vested with the relevant _____________
by virtue of directions.
----------------------

---------------------- Activity 2
----------------------
Categorise the definitions given in this unit as per different sections of the
---------------------- Income tax Act.
----------------------

---------------------- Summary
---------------------- ●● The Central Government can, in place of the Central Board of Revenue,
constitute two separate Boards of Revenue to be called the Central Board
---------------------- of Direct Taxes and the Central Board of Indirect Taxes and Customs.
---------------------- ●● Each Board shall, subject to the control of the Central Government,
exercise such powers and perform such duties, as may be entrusted to that
----------------------
Board by the Central Government or by or under any law.
---------------------- ●● Income tax is collected by Central Government for each financial year
levied on total taxable income of an assessee during the previous year.
----------------------
●● Intangible assets include know-how, patents, copyrights, trade-marks,
---------------------- licenses, franchises or any other business or commercial rights of similar
---------------------- nature.
●● Previous Year is the financial year immediately preceding Assessment
---------------------- Year.
----------------------

----------------------

36 Taxation Laws
 Keywords Notes

----------------------
●● Dividend: Any distribution by a company of accumulated profits.
●● Principal Officer: Any person connected with the management or ----------------------
administration of the local authority, company, association or body upon
----------------------
whom the Assessing Officer has served a notice of his intention of treating
him as the principal officer thereof. ----------------------
●● Domestic Company: Indian company, or any other company which, in
----------------------
respect of its income liable to tax under act.
●● Capital Asset: Property of any kind held by an assessee, whether or not ----------------------
connected with his business or profession. ----------------------

Self-Assessment Questions ----------------------

----------------------
1. Define the term Board with all cases for both direct and indirect tax.
2. Elaborate on the concept of “Fund”. ----------------------
3. Define the term Previous Year with all cases for new firms. ----------------------
4. Elaborate the concept of “Person”. ----------------------

Answers to Check your Progress ----------------------

Check your Progress 1 ----------------------

Fill in the Blanks. ----------------------

1. Approved superannuation fund means a superannuation fund or any part ----------------------
of a superannuation fund which has been and continues to be approved by
the Principal Chief Commissioner. ----------------------
2. Assessing Officer means the Assistant Commissioner or Deputy ----------------------
Commissioner or Assistant Director or Deputy Director or the Income-tax
Officer who is vested with the relevant jurisdiction by virtue of directions. ----------------------
Check your Progress 2 ----------------------
State True or False.
----------------------
1. True
----------------------
2. True
----------------------

----------------------

----------------------

----------------------

----------------------

Definition Under Income Tax Act 1961 37

 Notes
Suggested Reading
----------------------
1. http://incometaxmanagement.com
---------------------- 2. Lal. Direct Taxes. Pearson Education India.
---------------------- 3. http://incometaxmanagement.com.

---------------------- 4. Lal. Direct Taxes. Pearson Education India.

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

38 Taxation Laws
Residential Status
UNIT

4
Structure:

4.1 Introduction
4.2 Residential Status of Assessee
4.3 Determination of Residential Status of Different ‘Persons’
4.4 Basic Rules for Determining Residential Status of an Assessee
Summary
Keywords
Self-Assessment Questions
Answers to Check your Progress
Suggested Reading

Residential Status 39
 Notes
Objectives
----------------------

---------------------- After going through this unit, you will be able to:

---------------------- ●● Determine the Residential status of Assessee

---------------------- ●● Define Basic rules for determining Residential Status of an Assessee

----------------------
4.1 INTRODUCTION
----------------------
Income Tax Act revolves around assessee and his income. In the previous
---------------------- units, you have been familiarized with concepts such as assessee, previous
year, assessment year, etc. which are considered to be foundations of income
---------------------- tax. However, to determine the tax liability of an assessee it is essential to his
---------------------- residential status. In this unit’, we intend to explain the method of applying the
rules regarding the residential status and thereby determining the scope of the
---------------------- total income of an assessee.

---------------------- The income of the previous year of a person at the rate fixed for the
assessment year, immediately following the previous year, by the Annual
---------------------- Finance Act paned by Parliament sometime in April/May every ear. The tax
liability of a person is determined on the basis of RB is the residence in India in
---------------------- the previous year & residential status of an assessee may not necessarily be the
---------------------- same-in each year, he may be a resident in one year and a non-resident in the
next. As such, clear identification of residential status is necessary.
----------------------
4.2 RESIDENTIAL STATUS OF ASSESSEE
----------------------

---------------------- The total income is different in case of a person resident in India and a
person non-resident in India. Further, in case of an individual and HUF being
---------------------- “not ordinarily resident in India”, the meaning of total income shall be slightly
different. Since the total income of an assessee varies according to his residential
---------------------- status in India, the incidence of tax shall also vary according to such residential
---------------------- status in India.
Tax is levied on the total income of the assessee. Under the provisions
---------------------- of the Income-tax Act, 1961 the total income of each person is based upon his
---------------------- residential status. Section 6 of the Act divides the assessable persons into three
categories
---------------------- 1. Ordinary Resident;
---------------------- 2. Resident but Not Ordinarily Resident; and
---------------------- 3. Non-Resident.

---------------------- Residential status is a term coined under the Income Tax Act and has
nothing to do with nationality or domicile of a person. An Indian, who is a citizen
---------------------- of India can be non-resident for Income-tax purposes, whereas an American

40 Taxation Laws
who is a citizen of America can be a resident of India for Income-tax purposes. Notes
Residential status of a person depends upon the territorial connections of the
person with this country, i.e., for how many days he has physically stayed in ----------------------
India.
----------------------
The residential status of different types of persons is determined
differently. Similarly, the residential status of the assessee is to be determined ----------------------
each year with reference to the “previous year”. The residential status of the
----------------------
assessee may change from year to year. What is essential is the status during the
previous year and not in the assessment year. ----------------------
Important Points:
----------------------
1. Residential Status in a previous year. Residential status is to be
determined for each previous year. It implies that— ----------------------
(a) Residential status of assessment year is not important. ----------------------
(b) A person may be resident in one previous year and a non-resident ----------------------
in India in another previous year, e.g., Mr. A is resident in India in
the previous year 2022-23 and in the very next year he becomes a ----------------------
non-resident in India.
----------------------
2. Duty of Assessee. It is assessee’s duty to place relevant facts, evidence, and
material before the Income Tax Authorities supporting the determination ----------------------
of Residential status.
----------------------
3. Dual Residential Status is possible. A person may be resident of one or
more countries in a relevant previous year e.g., Mr. X may be resident ----------------------
of India during previous year and he may also be resident/non-resident
----------------------
in England in the same previous year. The emergence of such a situation
depends upon the following ----------------------
(a) The existence of the Residential status in countries under
----------------------
considerations
(b) The different set of rules having laid down for the determination of ----------------------
residential status. ----------------------

4.3 DETERMINATION OF RESIDENTIAL STATUS OF ----------------------

DIFFERENT ‘PERSONS’ ----------------------
As we know that Income tax is charged on every person. The term ‘Person’ ----------------------
has been defined under section 2(31) includes:
----------------------
(i) An individual
(ii) Hindu Undivided Family ----------------------
(iii) Firm ----------------------
(iv) Company ----------------------
(v) AOP/BOI
----------------------

Residential Status 41
 Notes (vi) Local authority
(vii) Every other artificial juridical person not falling in preceding six sub-
----------------------
classes.
---------------------- Therefore, it is essential to determine the residential status of above
various types of persons and now we shall learn the calculation of residential
----------------------
status of each type of person.
----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------
Fig. 4.1 Residential Status of person, Determination of Residential status
----------------------
The taxability of an individual in India depends upon his residential status
---------------------- in India for any particular financial year.

---------------------- For the purpose of income tax in India, the income tax laws in India
classify the taxable persons as:
---------------------- a. A resident
---------------------- b. A resident not ordinarily resident (RNOR)

---------------------- c. A non-resident (NR)

The taxability differs for each of the above categories of taxpayers.
----------------------
Resident
----------------------
An individual is deemed to be resident in India in any previous year if he
---------------------- satisfies any of the following conditions:
1. If he is in India for a period of 182 days or more during the previous year;
----------------------
or
---------------------- 2. If he is in India for a period of 60 days or more during the previous year
and 365 days or more during 4 years immediately preceding the previous
----------------------
year.
42 Taxation Laws
 However, condition No. 2 does not apply where an individual being Notes
citizen of India or a person of Indian origin, who being outside India, comes on
a visit to India during the previous year. ----------------------
In the event an individual leaves India for employment during an FY, he ----------------------
will qualify as a resident of India only if he stays in India for 182 days or more
A person shall be deemed to be of Indian origin if he, or either of his parents or ----------------------
any of his grand-parents, was born in undivided India.
----------------------
Mr. X, an Australian cricketer has been coming to India for 100 days
every year since 2005-06: ----------------------
(a) Determine his residential status for the assessment year 2018-19. ----------------------
(b) Will your answer be different if he has been coming to India for 110 days ----------------------
instead of 100 days every year?
Solution: ----------------------

(a) Mr. X satisfies the second condition of the category (A) because he is in ----------------------
India for more than 60 days during the relevant previous year and for 400
days during four years preceding the relevant previous year. Therefore, he ----------------------
is a resident. ----------------------
Further, in this case, although he satisfies the first condition of category
----------------------
(B) of being resident for at least 2 out of 10 preceding previous years but
he does not satisfy the second condition of category (B) as during 7 years ----------------------
preceding the previous year, he is in India for only 700 days. He shall,
therefore, be a resident but not ordinarily resident in India. ----------------------
(b) Yes. He will, in this case, be resident and ordinarily resident in India. He ----------------------
satisfies both conditions of the category (B) as he was in India for 770 days
in the last seven years and he was resident for at least 2 previous years out ----------------------
of 10 previous years immediately preceding the relevant previous year.
----------------------
Resident Not Ordinarily Resident
----------------------
He will be a ROR if he meets both of the following conditions:
1. Has been a resident of India in at least 2 out of 10 years immediately ----------------------
previous years and ----------------------
2. Has stayed in India for at least 730 days in 7 immediately preceding years
----------------------
Therefore, if any individual fails to satisfy even one of the above
conditions, he would be an RNOR. ----------------------
Example: ----------------------
Mr. Levis left India for the first time on November 25, 2015, for meeting ----------------------
his friends. During the calendar year 2016 he came to India on September 1
and stayed for a period of 10 days. During the calendar year 2017, he did not ----------------------
visit India at all but finally came to India on January 16, 2018. Determine the
residential status of Mr. Levis for the assessment year 2018-19. ----------------------

----------------------

Residential Status 43
 Notes Solutions:
During the previous year 2017-18, the assessee was in India for 75 days
----------------------
and during the four years preceding the previous year, he was in India for 979
---------------------- days (10 days during 2016-17, 239 days during 2015-16, 365 days during 2014-
15 and 365 days during 2013-14).
----------------------
Thus, he satisfies one of the conditions laid down in section 6(1) for
---------------------- being treated as resident in India. In addition, the assessee also satisfies the two
additional conditions laid down in section 6(6) as he was resident in India in 2
---------------------- years out of 10 years immediately preceding the previous year 2017-18 (during
the period 2007-2017 he was resident in India in all the years except 2016-17)
----------------------
and during 7 years immediately preceding the previous year 2017-18, he was in
---------------------- India for more than 730 days.
He will, therefore, be treated as Resident and Ordinarily Resident in India
----------------------
for the assessment year 2018-19.
---------------------- Non-resident
---------------------- An individual satisfying neither of the conditions stated in (a) or (b) above
would be an NR for the year.
----------------------
HUF (Hindu Undivided family)
----------------------

----------------------

----------------------

----------------------

----------------------

----------------------
Resident
----------------------
A HUF is said to be resident in India in any previous year in every case
---------------------- except where during that year the control and management of its affairs are
situated wholly outside India.
----------------------
Once the HUF is a resident in India, it is to be further determined whether
---------------------- it is:
---------------------- ●● Resident and ordinarily resident in India; or
●● Resident but not ordinarily resident in India.
----------------------
When is HUF said to be a Resident and Ordinarily Resident in India?
----------------------
The HUF shall be said to be resident and ordinarily resident in India if the
---------------------- karta of the HUF satisfies both the following conditions:
---------------------- I. He (Karta) must be resident in at least 2 out of 10 previous years
immediately preceding the relevant previous year; and
----------------------

44 Taxation Laws
II. He must be in India for at least 730 days during 7 previous years Notes
immediately preceding the relevant previous year.
----------------------
When is HUF said to be Resident but Not Ordinarily Resident in India?
[Section 6(6)(b)]: ----------------------
A HUF, which is resident in India, is said to be resident but not ordinarily
----------------------
resident in India during the relevant previous year if the manager (Karta) of the
HUF does not satisfy any one, or both, of the conditions mentioned in clauses ----------------------
(a) and (b) above.
----------------------
For determining whether HUF is a Resident or not, the residential
status of its ‘Karta’ for the relevant previous year is of no relevance. But for ----------------------
determining whether HUF is ordinarily Resident in India or not, Karta’s status
for the preceding years becomes relevant. ----------------------
A) Non-Resident ----------------------
A HUF is said to be non-resident in India if, during the previous year, the ----------------------
control and management of its affairs are situated wholly outside India.
In other words, it will be non-resident in India if no part of the control and ----------------------
management of its affairs is situated in India. ----------------------
Example:
----------------------
A Hindu Undivided Family carries Import-Export business in India,
Bhutan, Sri Lanka, and Pakistan. The Karta stays in India and manages ----------------------
the affairs of HUF through employees and agents. What will be the status
----------------------
of the family for income- tax purposes’?
Solution: ----------------------
The control and management of the affairs of the family are situated ----------------------
wholly in India and the manager stays in India and fulfils the conditions
of Part I1 Section 6(6). Hence, the Hindu Undivided Family is resident in ----------------------
India. ----------------------
B) Not Ordinarily Resident
----------------------
A Hindu Undivided Family is said to be ‘not ordinarily resident in India if
control and management of its affairs are situated wholly or partly in India ----------------------
during the previous year but its manager does not satisfy the conditions of
----------------------
Section 6(6).
C) Non-resident ----------------------
A Hindu Undivided Family is said to be a non-resident in such cases only ----------------------
where its control and management is situated wholly outside India during
the previous year. If however, the control and management are situated ----------------------
partly in India and the Karta satisfies the conditions of Part I1 Section
----------------------
6(6) it becomes a resident in India.
----------------------

----------------------

Residential Status 45
 Notes Company
Resident
----------------------
Section 6(3)(i) : Indian Company Always Resident in India.
---------------------- An Indian company is always resident in India. Even if an Indian
company is controlled from a place located outside India (or even if shareholders
----------------------
of an Indian company controlling more than 51 per cent voting power are non-
---------------------- resident and/or located outside India), the Indian company is resident in India.
An Indian company can never be non-resident.
----------------------
Section 6(3)(ii): A Foreign Company (with effect from the assessment
---------------------- year 2017-18) is resident in India if its place of effective management (POEM),
during the relevant previous year, is in India. For this purpose, the place of
---------------------- effective management means a place where key management and commercial
decisions that are necessary for the conduct of the business of an entity as a
----------------------
whole are, in substance made. For this purpose, a set of guiding principles (to be
---------------------- followed in determination of POEM) have been issued by the Board in Circular
No. 6/2017, dated January 24, 2017.
----------------------
Non Resident:
---------------------- Section 6(3)(iii): A Foreign Company whose turnover/gross is always a
Non-Resident in India if receipt in the previous year is Rs. 50 crores or less.
----------------------
Always Non-Resident in India
---------------------- Provisions of section 6(3)(ii) shall not apply to a foreign company having
---------------------- a turnover or gross receipts of Rs. 50 crore or less in a financial year – Circular
No. 8/2017, dated February 23, 2017. In other words, a foreign company (whose
---------------------- annual turnover/gross receipts is Rs. 50 crores or less) cannot be resident in
India from the assessment year 2017-18 onwards.
----------------------
It will be resident in India if its place of effective management (POEM),
---------------------- during the relevant previous year, is in India.
---------------------- A foreign company (with effect from the assessment year 2017-18)
is resident in India if its place of effective management (POEM), during the
---------------------- relevant previous year, is in India. For this purpose, the place of effective
management means a place where key management and commercial decisions
---------------------- that are necessary for the conduct of the business of an entity as a whole are, in
---------------------- substance made.
Residential Status of a Company is determined as follows a Table Format.
----------------------
Section Company Residential Status
---------------------- 6(3)(i) Indian Company Always Resident in India
6(3)(ii) A foreign company (whose turnover/ It will be resident in India if its
---------------------- gross receipt in the previous year isplace of effective management
more than ` 50 crore) (POEM), during the relevant
----------------------
previous year, is in India.
---------------------- 6(3)(ii) A foreign company (whose Always non-resident in India
turnover/gross receipt in the
---------------------- previous year is ` 50 crore or less)

46 Taxation Laws
Example: Notes
The Indian Textile limited is a registered Indian company carrying
----------------------
business in India and in Gulf countries. The control and management of its
affairs were partially situated in Riyadh (Saudi Arabia) during the year ending ----------------------
March 31, 2017. What will be the residential status of the company for the
assessment year 1917-18? ----------------------
Solution: ----------------------
The Indian Textile Limited is an Indian company, therefore, it should be
----------------------
treated as resident in India and the facts regarding control and management
outside the country are immaterial. ----------------------
Example: ----------------------
Zion Industries is a registered company in Japan and has a registered
office in Japan, but the management and control are situated wholly in Delhi ----------------------
(India). What will be the residential status of the company for tax purpose? ----------------------
Solution:
----------------------
As the company’s control and management are situated wholly in India,
it is resident in India, and the location of the registered office of the company ----------------------
is immaterial. In the above illustration, if suppose the control and management
----------------------
are partially situated in India, then the company is non-resident in India for tax
purpose. ----------------------
AOP/BOI, Firm Introduction
----------------------
An association of persons (AOP) or a body of individuals (BOI), whether
incorporated or not, is treated as a ‘person’ under section 2(31) of the Income- ----------------------
tax Act, 1961. Hence, AOP or BOI is treated as a separate entity for the purpose ----------------------
of assessment under the Income-tax Act.
Here, it is important to note that an AOP or BOI shall be deemed to be a ----------------------
person, whether or not, they were formed or established or incorporated with ----------------------
the object of deriving income, profits or gains.
Resident in India ----------------------

A firm, AOP, etc. is said to be resident in India in any previous year in all ----------------------
cases except where during that year the control and management of its affairs
----------------------
are situated wholly outside India.
In the case of a firm, the control and management is in the hands of the ----------------------
partners and therefore, if the partners generally meet in India regarding the
----------------------
affairs of the firm, then the firm is said to be resident in India.
It means that if A firm, an association of persons (AOP) or body of ----------------------
individuals (BOl) is controlled from India even partially it will be resident
----------------------
assessee.
*The control and management of affairs refers to the controlling and ----------------------
directing power, the head, and the brain. It means that decision-making power ----------------------

Residential Status 47
 Notes for vital affairs is situated in India. The control and management mean de-facto
control and management and not merely the right to control or manage.
----------------------
In the case of a firm, it is said that the control and management of the firm
---------------------- are situated at a place where partners meet to decide the affairs of the firm. If
such a place is outside India, it will be said that the control and management are
---------------------- outside India.
---------------------- There may be a situation where all the partners of a firm are resident
in India but even then that firm may be non-resident if its full control and
---------------------- management lie outside India.
---------------------- A firm or association of persons shall be non-resident if the control and
management of affairs are situated wholly outside India.
----------------------
Non-Resident in India
---------------------- If the control and management of the affairs of these entities are wholly
---------------------- out of India during the relevant previous year then they are said to be non-
resident.
---------------------- In other words, to be Non-Resident, no part of the control and management
---------------------- should be in India.
Example:
----------------------
A firm has five partners who are permanent residents in India. The firm
---------------------- owns a rubber estate in Shri Lanka. The estate is managed and controlled by
the partners in India, through an agent in Shri Lanka. Determine the residential
----------------------
status of the firm.
---------------------- Solution:
---------------------- Even if the control and management of the firm are partly situated in India
the firm becomes resident. Here, all the partners reside in India and manage at
---------------------- least a part of the affairs of the estate. As such the firm is resident in India.
---------------------- Every other Person (Section 6(4))
---------------------- A) Resident: Every other person (local authority, artificial, juridical person
e.g.: Statutory Corporations) is said to be resident in India in any previous
---------------------- year if the control and management of its affairs are partly or wholly
situated in India.
----------------------
B) Non-Resident: Every other person is said to be non-resident if control
---------------------- and management of its affairs are situated wholly outside India.
---------------------- Note: Every other person is never a ‘not ordinarily resident.’

---------------------- 4.4 BASIC RULES FOR DETERMINING RESIDENTIAL

---------------------- STATUS OF AN ASSESSEE
---------------------- The following basic rules must be kept in mind while determining the
residential status:
----------------------

48 Taxation Laws
●● — Residential status is determined for each category of persons separately Notes
e.g. there are a separate set of rules for determining the residential status
of an individual and separate rules for companies, etc. ----------------------
●● — Residential status is always determined for the previous year because ----------------------
we have to determine the total income of the previous year only.
----------------------
●● — Residential status of a person is to be determined for every previous
year because it may change from year to year. For example, A, who is ----------------------
a resident of India in the previous year 2017- 18, may become a non-
resident in the previous year 2018-19. ----------------------
●● — If a person is resident in India in a previous year relevant to an ----------------------
assessment year in respect of any source of income, he shall be deemed to
be resident in India in the previous year relevant to the assessment year in ----------------------
respect of each of his other source of income. [Section 6(5)]
----------------------
●● — A person may be a resident of more than one country for any previous
year. If Y is a resident in India for the previous year 2017-18, it does not ----------------------
mean that he cannot be a resident of any other country for that previous ----------------------
year.
●● — Citizenship of a country and residential status of that country are ----------------------
separate concepts. A person may be an Indian national/citizen, but may ----------------------
not be a resident in India. On the other hand, a person may be a foreign
national/citizen but may be a resident in India. ----------------------
●● — It is the duty of the assessee to place all material facts before the ----------------------
assessing officer to enable him to determine his correct residential status.
----------------------
Excepting individual and HUF, all other persons are classified either
as resident or non-resident. They are not to be further classified as ordinarily ----------------------
resident or as not ordinarily resident.
----------------------
Check your Progress 1 ----------------------

State True or False. ----------------------

1. As per the provisions of Section 5 of the Act, the incidence of tax of ----------------------
the assessee depends upon his residential status and not on the place
and time of accrual of income. ----------------------

2. A person is considered to be of Indian origin if he or either of his ----------------------

parents or any of his grandparents (maternal or paternal) was born in
----------------------
undivided India.
----------------------

----------------------

----------------------

----------------------

Residential Status 49
 Notes
Activity 1
----------------------

---------------------- Mr. A, a citizen of the UK, comes to India for the first time during the
financial year 2012-2013. His stay in India during the financial years 2013-
---------------------- 2014, 2014-2015, 2015-2016, 2016-2017 and 2017-2018 is as below:
---------------------- 2013-2014 55 days
2014-2015 63 days
---------------------- 2015-2016 75 days
2016-2017 166 days
----------------------
2017-2018 65 days
---------------------- Determine his residential status for the Assessment Year 2018-2019.
----------------------

---------------------- Summary

---------------------- ●● The total income is different in case of a person resident in India and a
person non-resident in India.
----------------------
●● A person may be a resident of more than one country for any previous
---------------------- year.
●● The taxability of an individual in India depends upon his residential status
----------------------
in India for any particular financial year.
----------------------

---------------------- Keywords

---------------------- ●● Resident: Resident in India in any previous year

●● Non-Resident: Non-resident in India in any previous year
----------------------

---------------------- Self-Assessment Questions

---------------------- 1. Discuss the conditions for deciding the Residential Status of an individual.
---------------------- How does the tax liability of the individual get affected due to his
residential status?
---------------------- 2. Elaborate the basic rules for determining Residential Status of an assessee.
----------------------
Answers to Check your Progress
----------------------
Check your Progress 1
----------------------
State True or False.
----------------------
1. False
---------------------- 2. True
----------------------

50 Taxation Laws
 Notes
Suggested Reading
----------------------
●● http://incometaxmanagement.com
●● Lal. Direct Taxes. Pearson Education India. ----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

Residential Status 51
 Notes

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

52 Taxation Laws
Taxation of Different Kinds of Persons
UNIT

5
Structure:

5.1 Charge of Income-tax

5.2 Scope of Total Income
5.3 Types of Income
5.4 Tax Slabs
5.5 Taxability
5.6 Classification and Tax Incidence on Companies
5.7 Minimum Alternate Tax (MAT)
5.8 Fringe Benefit Tax (FBT)
5.9 Securities Transaction Tax (STT)
Summary
Keywords
Self-Assessment Questions
Answers to Check your Progress
Suggested Reading

Taxation of Different Kinds of Persons 53

 Notes
Objectives
----------------------

---------------------- After going through this unit, you will be able to:

---------------------- ●● Define a Company under Income the Tax Act

---------------------- ●● Explain the taxation of a Company

●● Describe the Minimum Alternate Tax (MAT Provisions)
----------------------

----------------------
5.1 CHARGE OF INCOME-TAX
----------------------
(1) Where any Central Act enacts that income-tax shall be charged for any
---------------------- assessment year at any rate or rates, income-tax at that rate or those rates
---------------------- shall be charged for that year in accordance with, and subject to the
provisions (including provisions for the levy of additional income-tax)
---------------------- of, this Act in respect of the total income of the previous year of every
person:
----------------------
Provided that where by virtue of any provision of this Act income-tax is
---------------------- to be charged in respect of the income of a period other than the previous
year, income-tax shall be charged accordingly.
----------------------
(2) In respect of income chargeable under sub-section (1), income-tax shall
---------------------- be deducted at the source or paid in advance, where it is so deductible or
payable under any provision of this Act.
----------------------

---------------------- 5.2 SCOPE OF TOTAL INCOME

---------------------- (1) Subject to the provisions of this Act, the total income of any previous year
of a person who is a resident includes all income from whatever source
---------------------- derived which—
---------------------- (a) is received or is deemed to be received in India in such year by or
on behalf of such person;
----------------------
or
---------------------- (b) accrues or arises or is deemed to accrue or arise to him in India
during such year; or
----------------------
(c) accrues or arises to him outside India during such year
----------------------
Provided that, in the case of a person not ordinarily resident in India
---------------------- within the meaning of sub- section (6) of section 6, the income which
accrues or arises to him outside India shall not be so included unless it is
---------------------- derived from a business controlled in or a profession set up in India.
---------------------- (2) Subject to the provisions of this Act, the total income of any previous
year of a person who is a non-resident includes all income from whatever
---------------------- source derived which—

54 Taxation Laws
 (a) is received or is deemed to be received in India in such year by or Notes
on behalf of such person; or
----------------------
(b) accrues or arises or is deemed to accrue or arise to him in India
during such year. ----------------------
Explanation 1—Income accruing or arising outside India shall not be
----------------------
deemed to be received in India within the meaning of this section by
reason only of the fact that it is taken into account in a balance sheet ----------------------
prepared in India.
----------------------
Explanation 2—For the removal of doubts, it is hereby declared that
income which has been included in the total income of a person on the ----------------------
basis that it has accrued or arisen or is deemed to have accrued or arisen
to him shall not again be so included on the basis that it is received or ----------------------
deemed to be received by him in India.
----------------------
Scope of Total Income/Incidence of Tax [Sec 5)
----------------------
Scope of total income is according to the residential status of assessee.
1. Resident in India/ordinarily resident in India ----------------------

A person is assessable to tax in respect of income which ----------------------

i. Is received or deemed to be received in India by him or on his behalf ----------------------
ii. Accrues or arises or deemed to accrue or arise to him in India ----------------------
iii. Accrues or arises to him outside India
----------------------
2. Resident but not ordinarily resident in India
----------------------
A person is assessable to tax in respect of income which
i. Is received or deemed to be received in India by him or on his behalf ----------------------
ii. Accrues or arises or deemed to accrue or arise to him in India ----------------------
iii. Accrues or arises to him outside India from a business controlled in ----------------------
or a profession set up in India
3. Non-resident in India ----------------------

A person is assessable to tax in respect of income which ----------------------

i. Is received or deemed to be received in India by him or on his behalf ----------------------
ii. Accrues or arises or deemed to accrue or arise to him in India
----------------------

5.3 TYPES OF INCOME ----------------------

Received in India means the first receipt in India. If an income is received ----------------------
first outside India and then subsequently remitted to India, it shall be treated as
----------------------
received outside India.
Past untaxed profits shall not be considered to be the income of the current ----------------------
year in any case.
----------------------

Taxation of Different Kinds of Persons 55

 Notes Income received or deemed to be received in India [Sec 7)
Income received in India: Any income which is received in India is
----------------------
liable to tax in India, whether the person receiving income is resident or non-
---------------------- resident. ‘Received in India’ means the first receipt.
Income deemed to be received in India: Following incomes shall be
----------------------
deemed to be received in India even in the absence of actual receipt:
---------------------- i. Contribution by the employer to recognized provident fund in excess of
12% of the salary of employee
----------------------
ii. Interest credited to RPF in excess of 9.5%
----------------------
iii. Transferred balance from unrecognized PF to RPF
---------------------- iv. Contribution by Government/Employer to the notified pension scheme
---------------------- Dividend Income (Sec 8)
For the purposes of inclusion in the total income of an assessee,—
----------------------
(a) any dividend declared by a company or distributed or paid by it within
---------------------- the meaning of sub- clause (a) or sub-clause (b) or sub-clause (c) or sub-
clause (d) or sub-clause (e) of clause (22) of section 2 shall be deemed to
----------------------
be the income of the previous year in which it is so declared, distributed
---------------------- or paid, as the case may be;

---------------------- (b) Any interim dividend shall be deemed to be the income of the previous
year in which the amount of such dividend is unconditionally made
---------------------- available by the company to the member who is entitled to it.

---------------------- Income deemed to accrue or arise in India (Sec 9)

The following income shall be deemed to accrue or arise in India:
----------------------
i. Income from any property, asset or source of income in India
----------------------
ii. Income from the transfer of any capital asset situated in India
---------------------- iii. Any income from salary if it is payable for services rendered in India
---------------------- iv. Salary (not allowances) payable by the government of India to an Indian
citizen for services rendered outside India
----------------------
v. Interest payable by
---------------------- a. Government or
---------------------- b. Resident in India if money is used by the borrower for the purpose
of business or profession or earning any income from any source in
----------------------
India or
---------------------- c. Non-resident in India if money is used by the borrower for the
purpose of business or profession in India
----------------------
vi. Royalty is payable by
----------------------
a. Government or
----------------------

56 Taxation Laws
 b. Resident in India if services are utilized for the purpose of business Notes
or profession or earning any income from any source in India or
----------------------
c. Non-resident in India if services are utilized for the purpose of
business or profession or earning any income from any source in ----------------------
India
----------------------
vii. Fees for technical services payable by
a. Government or ----------------------
b. Resident in India it services are utilized for the purpose of business ----------------------
or profession or earning any income from any source in India or
----------------------
c. Non-resident in India it services are utilized for the purpose of
business or profession or earning any income from any source in ----------------------
India
----------------------
viii. Income from a business connection in India
----------------------
Any income which arises, directly or indirectly, from any activity or
a business connection in India is deemed to be earned in India. If all ----------------------
business activities are not carried out in India, then only such part of
income, as is reasonably attributable to the operations carried out in India, ----------------------
is taxable
----------------------
Examples of business connection include
----------------------
i. branch office in India,
ii. agent of non-resident entering into contracts, ----------------------

iii. Subsidiary in India ----------------------

iv. maintaining stocks etc. ----------------------
However, in the case of non-resident, the following shall not be treated as
----------------------
a business connection in India:
i. Purchase of goods in India for the purpose of exports ----------------------
ii. Collection of news and views for transmission outside India by non- ----------------------
resident who is engaged in the business of running news agency or
of publishing newspapers, magazines or journals ----------------------

iii. Shooting of films in India if ----------------------

a. In case of an individual – he is not a citizen of India ----------------------
b. In case of Firm – none of the partners is a citizen or resident
----------------------
of India
c. In case of a company – none of the shareholders is citizen or ----------------------
resident of India
----------------------
ix. a dividend paid by an Indian company outside India
----------------------

----------------------

Taxation of Different Kinds of Persons 57

 Notes 5.4 TAX SLABS
---------------------- From financial year (FY) 2020-21 and 2021-22, individual taxpayers
can choose between two tax regimes - the existing or old tax regime and the
----------------------
new, concessional one. The old tax regime allows the taxpayer to continue with
---------------------- existing tax exemptions such as House Rent Allowance (HRA), Leave Travel
Allowance (LTA) and deductions under different sections of the Income-tax
---------------------- Act, 1961. While those opting for the new regime will have to forego most of
the (approximately 70) tax exemptions and deductions that are available under
----------------------
the old regime.
----------------------
Income Tax Slab Old tax New Regime Income Tax Slab
---------------------- regime Rates FY 2021-22 (Applicable
for All Individuals & HUF)
----------------------
Rs 0.0 – Rs 2.5 lakh NIL NIL
----------------------
Rs 2.5 lakh – Rs 3.00 lakh 5% 5% (tax rebate u/s 87a is
---------------------- available)
---------------------- Rs 3.00 lakh – Rs 5.00 lakh 5%

---------------------- Rs 5.00 lakh- Rs 7.5 lakh 20% 10%

---------------------- Rs 7.5 lakh – Rs 10.00 lakh 20% 15%

---------------------- Rs 10.00 lakhs – Rs 12.50 30% 20%

lakh
----------------------
Rs 12.5 lakhs – Rs 15.00 30% 25%
---------------------- lakh

---------------------- > Rs 15 lakh 30% 30%

---------------------- With regards to income tax slabs, old regime has higher tax rates and
three tax slabs, whereas the new regime has lower tax rates and six tax slabs.
----------------------
Here is a look at the latest income tax slabs and rates for FY 2020-21 and
---------------------- FY 2021-22. The income tax rates and slabs given below will be applicable
for individuals filing income tax returns for FY 2020-21 and planning for tax-
---------------------- saving for FY 2021-22.
---------------------- We will be comparing income tax rates and slabs under the new and old
tax regimes for individuals, senior citizens, super senior citizens for FY 2020-
---------------------- 21 and 2021-22.
---------------------- The left-hand side of the table given below shows the old tax regime
which comes with deductions and tax exemptions. The right-hand side of
---------------------- the table shows rates in the new tax regime without any tax exemptions and
deductions.
----------------------
Income tax slabs for resident individual below 60 years of age, non-
---------------------- resident individuals (NRI) irrespective of age and HUFs

58 Taxation Laws
Income tax slabs and rates for FY 2020-21 and FY 2021-22 Notes
Old tax Total income New tax regime ----------------------
regime (With (without
deductions and deductions and ----------------------
exemptions) exemptions)
----------------------
NIL Up to Rs 2.5 lakh NIL
5% From Rs 2,50,001 to Rs 5 lakh 5% ----------------------

20% From Rs 5,00,001 to Rs 7.5 lakh 10% ----------------------

20% From Rs 7,50,001 to Rs 10 lakh 15% ----------------------
30% From Rs 10,00,001 to Rs 12.5 lakh 20%
----------------------
30% From Rs 12,50,001 to Rs 15 lakh 25%
----------------------
30% From Rs 15,00,001 and above 30%
----------------------
5.5 TAXABILITY
----------------------
Resident: A resident will be charged to tax in India on his global income
----------------------
i.e. income earned in India as well as income earned outside India.
NR and RNOR: Their tax liability in India is restricted to the income ----------------------
they earn in India. They need not pay any tax in India on their foreign income. ----------------------
Also note that, in a case of double taxation of income where the same
income is getting taxed in India as well as abroad, one may resort to the Double ----------------------
Taxation Avoidance Agreement (DTAA) that India would have entered into ----------------------
with the other country in order to eliminate the possibility of paying taxes twice.
Non-resident Indians (NRIs) are not required to file a tax return if their ----------------------
income consists of only interest and dividends, provided taxes due on such ----------------------
income are deducted at source. It is possible for non- resident Indians to avail
of these special provisions even after becoming residents by following certain ----------------------
procedures laid down by the Income Tax act.
----------------------
5.6 CLASSIFICATION AND TAX INCIDENCE ON ----------------------
COMPANIES
----------------------
Definition of a Corporate
----------------------
Any juristic person having a separate and independent legal entity from
its shareholders is termed as a corporate. The income earned by a company ----------------------
is computed and assessed separately from the dividends that it offers to its
----------------------
shareholders. These dividends do not figure out in the tax calculation of the
company but are assessed as part of the income of the shareholder. ----------------------

----------------------

----------------------

Taxation of Different Kinds of Persons 59

 Notes Corporate entities that are liable to pay corporate tax in India are as
follows:
----------------------
●● Incorporated corporations in India.
---------------------- ●● Corporations that acquire revenues from India and do business on those
earned incomes.
----------------------
●● Other foreign enterprises that have permanently established themselves
---------------------- in India.
---------------------- ●● Corporations that have earned the title of being an Indian resident only for
the purpose of tax payment.
----------------------
Corporate Entities: Definitions and Types
---------------------- A corporate entity or corporation is an artificial person that is legally
---------------------- considered to have certain rights and duties such that by law it has an independent
legal identity separate from that of its shareholders. For the purpose of tax
---------------------- calculation, companies in India have been broadly divided into the following
two categories.
----------------------
1. Domestic Corporate:
----------------------
Any company that is Indian is called as domestic company or if the
---------------------- company is foreign but the control and management are wholly situated
in India then also it is termed as a domestic company. An Indian company
---------------------- means a company registered under the Companies Act 1956
---------------------- 2. Foreign Corporate:

---------------------- Any foreign company is one that is not of Indian origin and has some part
of the control and management of affairs located outside India.
---------------------- Income of a Company
---------------------- In order to compute corporate tax on the income of a company, it is
necessary to first learn what all factors make up the total income of any company.
----------------------
●● Profits from business
----------------------
●● Income from property
---------------------- ●● Capital gains
---------------------- ●● Income from other sources such as foreign dividends, interests, etc.

---------------------- Calculation of Net Income for Corporate

Corporate tax is computed on the net revenue or net income of a company.
----------------------
A net income/net revenue of a company is the total amount left with the
---------------------- company after making a necessary deduction of various expenses. There are a
host of expenses that a company incurs for selling goods. These expenses are
---------------------- as follows:
---------------------- ●● Depreciation
●● The total cost of goods sold
----------------------

60 Taxation Laws
●● Selling expenditures Notes
●● Expenses incurred for administrative purposes.
----------------------
The income of a company includes net profit earned from the business,
rent income, capital gains or income from other sources such as interest income ----------------------
or dividend income.
----------------------
Thus, Net Revenue = Gross Revenue – (Expenses + Depreciation)
Corporate Tax Rates ----------------------
Corporate Tax Rates for Domestic Companies ----------------------
Range of income Rate of tax ----------------------
Up to Rs.250 crore gross turnover 25%
----------------------
Gross turnover that exceeds Rs. 250 crore 30%
----------------------
Surcharge rates in addition to the rates above
Particulars Domestic Companies ----------------------
Tax rate
----------------------
If total income range is between Rs.1 crore 7% as per rate of tax
and Rs.10 crore above If total income ----------------------
range exceeds Rs.10
crore ----------------------
12% as per rate of tax ----------------------
above
----------------------
Corporate Tax Rates for Foreign Companies AY 2019-20 ----------------------
Nature of income Rate of tax
Royalty or fees received for any technical 50% the government or ----------------------
services from an Indian concern under ----------------------
agreements
made before April 1, 1976, which is approved ----------------------
by the central government
----------------------
Any other kind of income 40%
----------------------
Surcharge rates in addition to the rates above
Particulars Foreign Companies ----------------------
Tax rate
----------------------
If total income range is between Rs.1 crore 2% as per the rate of tax
and Rs.10 crore above If total income ----------------------
range exceeds ` 10 crore
----------------------
5% as per the rate of tax
above ----------------------

----------------------

----------------------

Taxation of Different Kinds of Persons 61

 Notes Health and Education Cess
To the amount that is the total tax liability, 4% of the income tax that is
----------------------
calculated and the surcharge that is applicable will be added before the health
---------------------- and education cess.
Corporate Tax Rebates
----------------------
As several types of corporate taxes are levied on a company, similarly there are
---------------------- certain provisions for corporation tax rebates or deductions as well. The key
ones to consider are as follows:
----------------------
●● Interest Income can be deducted in certain cases.
----------------------
●● Capital gains of a corporate entity are not taxed.
---------------------- ●● Dividends may also be subject to tax rebate with applicable terms and
---------------------- conditions.
●● The corporate entity has an authority to carry the losses incurred in the
----------------------
business for a maximum of 8 years.
---------------------- ●● If a corporate sets up new sources of power or new infrastructure, then
they can be subjected to certain deductions.
----------------------
●● In the case of exports and new undertakings of a corporate, a certain
---------------------- amount of deductions are allowed to the corporate.
---------------------- ●● Various amounts of provisions for deductions are allowed if the corporate
wishes to venture capital enterprises or fund.
----------------------
●● If a domestic corporate receives some amount of dividends from other
---------------------- domestic corporate, they have the provision to deduct such dividends as
rebates.
----------------------
Due date for filing an Income tax return
----------------------
Companies including foreign companies have to file their income tax
---------------------- return on or before September 30 every year. Even if the company came into
existence during the same financial year, then too, it has to file the income tax
---------------------- return for that period on or before September 30.
---------------------- Tax return forms to be filed by the company

---------------------- ITR 6: All the companies except companies claiming deduction under
section 11 need to file their return using Form ITR 6.
---------------------- ITR 7: All the companies registered under section 8 of companies act,
---------------------- 2013 are required to file their return using Form ITR 7.

---------------------- 5.7 MINIMUM ALTERNATE TAX (MAT)

---------------------- The minimum alternate tax rate is 18.5% for both domestic and foreign
---------------------- companies. This is based on the book profits if the tax that is calculated at the
rates given above are less than 18.5% of the book profits.
----------------------

62 Taxation Laws
Liability of Minimum Alternate Tax (MAT) Notes
If the total applicable payable tax of a company on the total income is
----------------------
less than 18.5% of the profit which is recorded in their books (in addition to
surcharge and SHEC), the company will be liable to pay token tax money in the ----------------------
form of MAT or Minimum Alternate Tax.
----------------------
However, MAT can also be carried forward and adjustments can be made
against regular tax. The MAT can be carried forward for 10 subsequent years. ----------------------
Application and Exemption of Minimum Alternate Tax (MAT)
----------------------
The Minimum Alternate Tax or MAT is applicable to all the companies.
Foreign companies which have income sources in India are also liable to pay ----------------------
MAT. ----------------------
However, there are certain exemptions as per the regulations of the MAT.
Companies that have a setup for the life insurance business will be exempted ----------------------
from the purview of MAT under Section 115B. Companies having income ----------------------
generated through shipping will be exempted from the purview of MAT under
Section 115V-O. ----------------------

----------------------
5.8 FRINGE BENEFIT TAX (FBT)
----------------------
The Finance Act, 2005 introduced a new levy, namely Fringe Benefit Tax
(FBT) contained in Chapter XIIH (Sections 115W to 115WL) of the Income ----------------------
Tax Act, 1961. The origin of FBT stems from the corporate trend wherein the
amount of salary paid to an employee is less but the perquisites (perks) are more. ----------------------
Fringe Benefit Tax (FBT) is an additional income tax payable by the employers ----------------------
on the value of fringe benefits provided or deemed to have been provided to the
employees. The FBT is payable by an employer who is a company; a firm; an ----------------------
association of persons excluding trusts/a body of individuals; a local authority;
a sole trader, or an artificial juridical person. This tax is payable even where the ----------------------
employer does not otherwise have taxable income. Fringe Benefits are defined ----------------------
as any privilege, service, facility or amenity directly or indirectly provided by
an employer to his employees (including former employees) by reason of their ----------------------
employment and include expenses or payments on certain specified heads.
----------------------
The benefit does not have to be provided directly in order to attract FBT.
It may still be applied if the benefit is provided by a third party or an associate of ----------------------
the employer or by under an agreement with the employer. The value of fringe
benefits is computed as per provisions under Section 115WC. FBT is payable ----------------------
at a prescribed percentage on the taxable value of fringe benefits. Besides, a ----------------------
surcharge in case of both domestic and foreign companies shall be leviable on
the amount of FBT. On these amounts, education cess shall also be payable ----------------------
Dividend Distribution Tax ----------------------
A tax that has to be paid by companies on the dividend that is distributed
----------------------
to the shareholders every year. In the shareholders’ hands, this dividend is
exempted up to Rs.10 lakh. However, tax paid by companies is 20.56%. ----------------------

Taxation of Different Kinds of Persons 63

 Notes 5.9 SECURITIES TRANSACTION TAX (STT)
---------------------- Securities Transaction Tax or turnover tax, as is generally known, is a tax
---------------------- that is leviable on taxable securities transaction. STT is leviable on the taxable
securities transactions with effect from 1st October 2004 as per the notification
---------------------- issued by the Central Government. The surcharge is not leviable on the STT.

----------------------
Check your Progress 1
----------------------
Fill in the Blanks.
----------------------
1. If the total applicable payable tax of a company on the total income is
---------------------- less than ___________ of the profit which is recorded in their books
(in addition to surcharge and SHEC), the company will be liable to
----------------------
pay token tax money in the form of ___________.
----------------------

---------------------- Activity 1
----------------------
Visit https://www.incometaxindia.gov.in and collect the information on the
---------------------- taxability of various person.
----------------------

---------------------- Summary
---------------------- ●● The Minimum Alternate Tax or MAT is applicable to all the companies.
Foreign companies which have income sources in India are also liable to
---------------------- pay MAT.
---------------------- ●● Corporate tax is computed on the net revenue or net income of a company.
---------------------- ●● Non-resident Indians (NRIs) are not required to file a tax return if their
income consists of only interest and dividends, provided taxes due on
---------------------- such income are deducted at source.
----------------------
Keywords
----------------------
●● Foreign Company: a company which is not a domestic company.
----------------------
●● MAT: Minimum Alternate Tax
----------------------

---------------------- Self-Assessment Questions

---------------------- 1. Write a note on tax audit.

---------------------- 2. Explain the concept of taxation of companies.

----------------------

64 Taxation Laws
Answers to Check your Progress Notes

Check your Progress 1 ----------------------

Fill in the Blanks. ----------------------
1. If the total applicable payable tax of a company on the total income is less ----------------------
than 18.5% of the profit which is recorded in their books (in addition to
surcharge and SHEC), the company will be liable to pay token tax money ----------------------
in the form of Minimum Alternate Tax.
----------------------

Suggested Reading ----------------------

●● https://www.icsi.edu ----------------------
●● Sharma, J.P. 2010. An Easy Approach to Company and Compensation ----------------------
Laws. Ane Books Pvt. Ltd.
----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

Taxation of Different Kinds of Persons 65

 Notes

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

66 Taxation Laws
Penalties Imposable, Offences and Prosecutions
UNIT

6
Structure:

6.1 Introduction
6.2 What are the Defaults which may Invite Levy of Penalty?
6.3 Who is Liable to be Prosecuted?
Summary
Keywords
Self-Assessment Questions
Answers to Check your Progress
Suggested Reading
Annexure

Penalties Imposable, Offences and Prosecutions 67

 Notes
Objectives
----------------------

---------------------- After going through this unit, you will be able to:

---------------------- ●● Discuss the defaults under the IT Act

---------------------- ●● Explain the penalty for the defaults

----------------------

---------------------- 6.1 INTRODUCTION

---------------------- Tax payers money used by the Government to achieve national

development, welfare activities for the public, etc. So the Government always
---------------------- try to ensure timely and consistent payment of taxes by the taxpayers. Filing of
returns are also equally important, this will give an idea to the Government to
----------------------
plan developmental activities considering the income flow. To make sure that
---------------------- taxpayer does not default in paying taxes or disclosing the information, there
are several penalties prescribed under the Income Tax Act, 1961. A penalty a
---------------------- punishment imposed on the taxpayer for being non-compliant. In the current
unit, the default and penalties are discussed.
----------------------

---------------------- 6.2 WHAT ARE THE DEFAULTS WHICH MAY INVITE

LEVY OF PENALTY?
----------------------
Default in complying with provisions of or with conditions prescribed
----------------------
under the Income Tax Act, 1961 would attract certain penalty and in critical
---------------------- cases prosecutions as well. There are three modes built in the fiscal legislation
for encouraging tax compliance: (a) Charge of Interest, (b) imposition of penalty
---------------------- (c) launching of prosecution against tax delinquents.
---------------------- Chapters XVII and XXI of Income Tax Act, 1961, contain various
provisions empowering an Income-tax Authority to levy penalty in case of
---------------------- certain defaults. The following defaults may invite levy of penalty:
---------------------- 1. Penalty payable when tax in default: [Section 221 read with Sec.
201(1)]
----------------------
When an assessee is in default or is deemed to be in default in making
---------------------- a payment of tax, he shall, in addition to the amount of the arrears and
the amount of interest payable under sub-section (2) of section 220, be
---------------------- liable, by way of penalty, to pay such amount as the Assessing Officer
---------------------- may direct, and in the case of a continuing default, such further amount
or amounts as the Assessing Officer may, from time to time, direct, so,
---------------------- however, that the total amount of penalty does not exceed the amount of
tax in arrears. Provided that before levying any such penalty, the assessee
---------------------- shall be given a reasonable opportunity of being heard. Provided further
---------------------- that where the assessee proves to the satisfaction of the Assessing Officer

68 Taxation Laws
 that the default was for good and sufficient reasons, no penalty shall be Notes
levied under this section. Where as a result of any final order the amount
of tax, with respect to the default in the payment of which the penalty was ----------------------
levied, has been wholly reduced, the penalty levied shall be cancelled and
the amount of penalty paid shall be refunded. ----------------------

2. False estimate of, or failure to pay, advance tax: [Section 273(1)] ----------------------
If the Assessing Officer, in the course of any proceedings in connection ----------------------
with the regular assessment46 for any assessment year, is satisfied that
any assessee: has furnished under clause (a) of sub-section (1) of section ----------------------
209A a statement of the advance tax payable by him which he knew or
----------------------
had reason to believe to be untrue, or has failed to furnish a statement
of the advance tax payable by him in accordance with the provisions of ----------------------
clause (a) of sub-section (1) of section 209A, he may direct that such
person shall, in addition to the amount of tax, if any, payable by him, pay ----------------------
by way of penalty a sum:
----------------------
(i) which, in the case referred to in clause (a), shall not be less than ten
per cent but shall not exceed one and a half times the amount by ----------------------
which the tax actually paid during the financial year immediately
----------------------
preceding the assessment year under the provisions of Chapter
XVII-C falls short of seventy-five per cent of the assessed tax as ----------------------
defined in sub-section (5) of section 215, or the amount which
would have been payable by way of advance tax if the assessee ----------------------
had furnished a correct and complete statement in accordance with
----------------------
the provisions of clause (a) of subsection (1) of section 209A,
whichever is less. ----------------------
(ii) which, in the case referred to in clause (b), shall not be less than ten ----------------------
per cent but shall not exceed one and a half times of seventy-five
per cent of the assessed tax as defined in sub- section (5) of section ----------------------
215.
----------------------
Provided that in the case of an assessee, being a company, the provisions
of this sub-section shall have effect as if for the words “seventy-five per ----------------------
cent”, at both the places where they occur, the words “eighty-three and
one-third per cent” had been substituted. ----------------------

3. Failure to furnish returns, comply with notices, concealment of ----------------------

income, etc.: [Section 271(1)]
----------------------
If any person:
----------------------
(a) has failed to comply with a notice under sub-section (2) of section
115WD or under sub-section (2) of section 115WE or under sub- ----------------------
section (1) of section 142 or sub-section (2) of section 143 or fails
to comply with a direction issued under sub-section (2A) of section ----------------------
142, or
----------------------
(b) has concealed the particulars of his income or furnished inaccurate
particulars of such income, or ----------------------

Penalties Imposable, Offences and Prosecutions 69

 Notes (c) has concealed the particulars of the fringe benefits or furnished
inaccurate particulars of such fringe benefits,
----------------------
it will be considered as default. The concerned authority may direct that
---------------------- such person to pay by way of penalty:
i) in the cases referred to in clause (b) of section 271, in addition to
----------------------
tax, if any, payable by him, a sum of ten thousand rupees for each
---------------------- such failure;
ii) in the cases referred to in clause (c) or clause (d) of section 271,
----------------------
in addition to tax, if any, payable by him, a sum which shall not be
---------------------- less than, but which shall not exceed three times, the amount of tax
sought to be evaded by reason of the concealment of particulars
---------------------- of his income or fringe benefits or the furnishing of inaccurate
particulars of such income or fringe benefits.
----------------------
4. Failure to keep, maintain or retain books of account, documents, etc.:
---------------------- [Section 271A]
---------------------- Without prejudice to the provisions of section 271, if any person fails to
keep and maintain any such books of account and other documents as
---------------------- required by section 44AA or the rules made thereunder, in respect of any
---------------------- previous year or to retain such books of account and other documents
for the period specified in the said rules, the Assessing Officer or the
---------------------- Commissioner (Appeals) may direct that such person shall pay, by way of
penalty, a sum of twenty-five thousand rupees.
----------------------
5. Failure to get accounts audited: [Section 271B]
----------------------
Failure to get the accounts audited in prescribed circumstances or failure
---------------------- to obtain the prescribed audit report within prescribed time period of
failure to furnish the audit report along with the return, as required under
---------------------- section 44AB. The Assessing Officer may direct that such person shall
pay, by way of penalty, a sum equal to one-half per cent of the total sales,
----------------------
turnover or gross receipts, as the case may be, in business, or of the gross
---------------------- receipts in profession, in such previous year or years or a sum of one
hundred thousand rupees, whichever is less.
----------------------
6. Failure to subscribe to the eligible issue of capital: [Section 271BB]
---------------------- Whoever fails to subscribe any amount of subscription to the units issued
---------------------- under any scheme referred to in sub-section (1) of section 88A to the
eligible issue of capital under that sub-section within the period of six
---------------------- months specified therein, may be directed by the Joint Commissioner to
pay, by way of penalty, a sum equal to twenty per cent of such amount.
----------------------
7. Penalty for failure to deduct tax at source: [Section 271C]
---------------------- If any person fails to:
---------------------- (a) deduct the whole or any part of the tax as required by or under the
provisions of Chapter XVII-B; or
----------------------

70 Taxation Laws
 (b) pay the whole or any part of the tax as required by or under- Notes
(i) sub-section (2) of section 115-O; or
----------------------
(ii) the second proviso to section 194B,
----------------------
then, such person shall be liable to pay, by way of penalty, a sum equal to
the amount of tax which such person failed to deduct or pay as aforesaid. ----------------------
8. Penalty for failure to comply with the provisions of section 269SS: ----------------------
[Section 271D]
Accepting of any loan or deposit or repayment of deposit of ` 20,000 or ----------------------
more otherwise than by account payee cheque or account payee draft, in ----------------------
contravention of the provisions of Section 269SS. The person shall be
liable to pay, by way of penalty, a sum equal to the amount of the loan or ----------------------
deposit so taken or accepted.
----------------------
9. Penalty for failure to comply with the provisions of section 269T:
[Section 271E] ----------------------
If a person repays any loan or deposit referred to in section 269T otherwise ----------------------
than in accordance with the provisions of that section, he shall be liable to
pay, by way of penalty, a sum equal to the amount of the loan or deposit ----------------------
so repaid.
----------------------
10. Penalty for failure to furnish return of income: [Section 271F]
----------------------
If a person who is required to furnish a return of his income, as required
under sub-section (1) of section 139 or by the provisos to that sub-section, ----------------------
fails to furnish such return before the end of the relevant assessment year,
the Assessing Officer may direct that such person shall pay, by way of ----------------------
penalty, a sum of five thousand rupees. ----------------------
11. Penalty for failure to answer questions, sign statements, furnish
information, returns or statements, allow inspections, etc.: ----------------------
[Section 272A(1)] ----------------------
If any person:
----------------------
(a) being legally bound to state the truth of any matter touching the
subject of his assessment, refuses to answer any question put to him ----------------------
by an income-tax authority in the exercise of its powers under this
----------------------
Act; or
(b) refuses to sign any statement made by him in the course of any ----------------------
proceedings under this Act, which an income-tax authority may
----------------------
legally require him to sign; or
(c) to whom a summons is issued under sub-section (1) of section ----------------------
131 either to attend to give evidence or produce books of account
----------------------
or other documents at a certain place and time omits to attend or
produce books of account or documents at the place or time he shall ----------------------
pay, by way of penalty, a sum of ten thousand rupees for each such
default or failure. ----------------------

Penalties Imposable, Offences and Prosecutions 71

 Notes 12. Penalty for failure to answer questions, sign statements, furnish
information, returns or statements, allow inspections, etc.:
---------------------- [Section 272A(2)]
---------------------- If any person fails:
(a) to comply with a notice issued under sub-section (6) of section 94;
----------------------
or
---------------------- (b) to give the notice of discontinuance of his business or profession as
required by sub-section (3) of section 176; or
----------------------
(c) to furnish in due time any of the returns, statements or particulars
---------------------- mentioned in section 133 or section 206 or section 206C or section
---------------------- 285B; or
(d) to allow inspection of any register referred to in section 134 or of
---------------------- any entry in such register or to allow copies of such register or of
---------------------- any entry therein to be taken; or
(e) to furnish the return of income which he is required to furnish under
---------------------- sub-section (4A) or sub- section (4C) of section 139 or to furnish
---------------------- it within the time allowed and in the manner required under those
subsections; or
----------------------
(f) to deliver or cause to be delivered in due time a copy of the
---------------------- declaration mentioned in section 197A; or
(g) to furnish a certificate as required by section 203 or section 206C;
----------------------
or
---------------------- (h) to deduct and pay tax as required by sub-section (2) of section 226;
---------------------- (i) to furnish a statement as required by sub-section (2C) of section
192;
----------------------
(j) to deliver or cause to be delivered in due time a copy of the
---------------------- declaration referred to in sub-section (1A) of section 206C;
---------------------- (k) to deliver or cause to be delivered a copy of the statement within
the time specified in sub-section (3) of section 200 or the proviso to
---------------------- subsection (3) of section 206C;
---------------------- (l) to deliver or cause to be delivered the quarterly return within the
time specified in sub-section (1) of section 206A, he shall pay, by
---------------------- way of penalty, a sum of one hundred rupees for every day during
which the failure continues. Provided that the amount of penalty
----------------------
for failures in relation to a declaration mentioned in section 197A,
---------------------- a certificate as required by section 203 and returns under sections
206 and 206C and statements under sub-section (3) of section 200
---------------------- or the proviso to sub-section (3) of section 206C shall not exceed
the amount of tax deductible or collectible, as the case may be.
----------------------

----------------------

72 Taxation Laws
13. Penalty for failure to comply with the provisions of section 133B: Notes
[Section 272AA)]
----------------------
If a person fails to comply with the provisions of section 133B, he shall,
on an order passed by the Joint Commissioner, Assistant Director or ----------------------
Deputy Director or the Assessing Officer, as the case may be, pay, by way
of penalty, a sum which may extend to one thousand rupees. ----------------------
14. Penalty for failure to comply with the provisions of section 203A: ----------------------
[Section 272BB]
----------------------
If a person fails to comply with the provisions of section 203A, he shall,
on an order passed by the Assessing Officer, pay, by way of penalty, a sum ----------------------
of ten thousand rupees.
----------------------
If a person who is required to quote his “tax deduction account number”
or, as the case may be, “tax collection account number” or “tax deduction ----------------------
and collection account number” in the challans or certificates or statements
or other documents referred to in sub-section (2) of section 203A, quotes ----------------------
a number which is false, and which he either knows or believes to be false ----------------------
or does not believe to be true, the Assessing Officer may direct that such
person shall pay, by way of penalty, a sum of ten thousand rupees. ----------------------
●● Is the levy of penalty automatic? ----------------------
No penalty under the Income-tax Act is imposed unless the person
concerned has been given reasonable opportunity of being heard. ----------------------

●● What is the minimum and maximum penalty leviable? ----------------------

The quantum of penalty leviable depends upon the nature of default. The ----------------------
relevant section of Income- tax Act prescribe the minimum and maximum
penalties which can be levied. ----------------------
●● Can the penalty be reduced or waived? ----------------------
The Commissioner of Income-tax may reduce or waive the amount of any ----------------------
penalty imposed or imposable, if prescribed conditions are satisfied. The
assessee should voluntarily and in good faith make full and true disclosure ----------------------
of income prior to the detection of concealment by the Assessing Officer.
In certain cases of genuine hardship, the penalty levied can be reduced/ ----------------------
waived if the assessee has co- operated in any enquiry relating to the ----------------------
assessment and recovery of taxes. The waiver/reduction of penalties is
discretionary and dependent upon satisfaction or prescribed conditions. ----------------------
No assessee can, a matter of right, claim waiver or reduction of penalty
imposed or imposable upon him. [Section 273A] ----------------------

●● Office and prosecution under the income tax act. Why is prosecution ----------------------
necessary?
----------------------
In the fight against tax evasion, the imposition of monetary penalty alone
is not sufficient. A calculating tax evader finds it profitable to evade tax ----------------------
for years, if he knows that he may get away with it by paying penalty in
----------------------

Penalties Imposable, Offences and Prosecutions 73

 Notes the year in which he is caught. However, the prospect of landing in jail
is a far more dreaded consequence and works as a deterrent. Further, for
---------------------- more serious defaults, sometimes launching of prosecution is prescribed
without prescribing monetary penalties.
----------------------
The Parliament has, therefore, been enacting deterrent laws for effective
---------------------- implementation of tax laws. The Income-tax Act contains a separate
chapter XXII wherein offences have been defined and punishment
----------------------
provided.
---------------------- ●● What are the offences punishable under the Income Tax Act?
---------------------- The following offences committed by a person are punishable:

---------------------- a. Removal, parting with or otherwise dealing with books of accounts,

documents, money, bullion, jewellery or other valuable article or
---------------------- thing put under restraint during the search. [Section 275A]

---------------------- b. Fraudulent removal, concealment, transfer or delivery of any

property or any interest in the property with the intention to thwart
---------------------- recovery of tax. [Section 276]
---------------------- c. Failure on the part of a liquidator or receiver of a company to give
notice of his appointment to the Assessing Officer or failure to set
---------------------- apart amount notified by the Assessing Officer, or parting away of
company’s properties in contravention of income-tax provision.
---------------------- [Section 276A]
---------------------- d. Failure to enter into written agreement or failure to furnish the
statement of immovable property intended to be transferred
----------------------
u/s.269UC, or failure to surrender or deliver the property u/s.269UE,
---------------------- purchased by the Appropriate Authority or doing or omitting to
do anything u/s.269UL, which will have the effect of transfer of
---------------------- property without the permission of the Appropriate Authority
(under the provisions of Chapter XX-C) [Section 276AB]
----------------------
e. Failure to pay to the credit of the Central Government the tax
---------------------- deducted at source. [Section 276B]
---------------------- f. Failure to pay the tax collected at source. [Section 276BB]

---------------------- g. Willful attempt to evade any tax, penalty or interest [Section

276C(1)]
---------------------- h. Willful attempt to evade the payment of any tax, penalty or interest
---------------------- levied under Income Tax Act. [Section 276C(2)]
i. Willful failure to furnish in due time return of income. [Section
----------------------
276CC)]
---------------------- j. Failure to furnish return of income in Search Cases as required
under section 158BC [Section 276CCC]
----------------------
k. Willful failure to produce accounts and documents as directed by
---------------------- issue of notice under section 142(1) [Section 276D]

74 Taxation Laws
 l. Willful failure to get the accounts audited as directed by the Notes
Assessing Officer under section 142(2A). [Section 276D]
----------------------
m. Making of a statement in verification or delivery of an account or
statement which is false and which the concerned person knows or ----------------------
believes to be false or does not believe to be true. [Section 277]
----------------------
n. Abetting or inducing another person to make and deliver an account
or statement or declaration relating to any taxable income which is ----------------------
false and which he either knows or believes to be false. [Section
278] ----------------------
o. Punishment for 2nd & subsequent offences in cases of certain ----------------------
defaults. [Section 278A]
----------------------
p. No person shall be punished for any failure if he proves that there is
reasonable cause failure. [Section 278AA]. ----------------------

----------------------
6.3 WHO IS LIABLE TO BE PROSECUTED?
----------------------
Any person, committing the offence is liable to be prosecuted. In this
connection it is not necessary that the person should be an assessee under the ----------------------
Income-tax Act. In the case of an offence committed by a Company, Firm,
Association of Persons or Body of Individuals, every person in charge of ----------------------
or responsible for the conduct of the business of the concern as well as the
----------------------
concern are deemed to be guilty. Similarly, in the case of an offence by a Hindu
Undivided Family, the karta thereof is deemed to be guilty of the offence. ----------------------
●● Is “mens rea” or culpable mental state or guilty intention necessary? ----------------------
In case of wilful act of omission or commission, the court shall presume
the existence of culpable mental state. However, the accused can rebut this ----------------------
presumption by producing necessary evidence before the court. (Section ----------------------
278E).
●● Can the offence be compounded? ----------------------

Section 279(2) of Income-tax Act empowers a Chief Commissioner of ----------------------

Director General of Income-tax to compound an offence either before or
----------------------
after the institution of prosecution proceeding.
●● When public servant liable to be prosecuted? ----------------------
If a public servant furnishes any information in contravention of the ----------------------
provisions of Section 138(2), prosecution may be instituted against him
with the previous sanction of the Central Government. (Section 280). ----------------------

----------------------

----------------------

----------------------

----------------------

Penalties Imposable, Offences and Prosecutions 75

 Notes
Check your Progress 1
----------------------

---------------------- State True or False.

1. The Commissioner of Income-tax may reduce or waive the amount
----------------------
of any penalty imposed or imposable, if prescribed conditions are
---------------------- satisfied.
2. In case of wilful act of omission or commission, the court shall
----------------------
presume the existence of culpable mental state however, the accused
---------------------- can rebut this presumption by producing necessary evidence before
the court.
----------------------

----------------------
Activity 1
----------------------
Browse for cases in which offenders are punished as per the Income Tax
----------------------
Act, 1961.
----------------------

---------------------- Summary
---------------------- ●● Tax payers money used by the Government to achieve national
development, welfare activities for the public, etc.
----------------------
●● Chapters XVII and XXI of Income Tax Act, 1961, contain various
---------------------- provisions empowering an Income-tax Authority to levy penalty in case
---------------------- of certain defaults.
●● No penalty under the Income-tax Act is imposed unless the person
---------------------- concerned has been given reasonable opportunity of being heard.
---------------------- ●● Any person, committing the offence is liable to be prosecuted. In this
connection it is not necessary that the person should be an assessee under
---------------------- the Income-tax Act.
---------------------- ●● In the case of an offence committed by a Company, Firm, Association of
Persons or Body of Individuals, every person in charge of or responsible
----------------------
for the conduct of the business of the concern as well as the concern are
---------------------- deemed to be guilty.
●● In case of wilful act of omission or commission, the court shall presume
----------------------
the existence of culpable mental state. However, the accused can rebut
---------------------- this presumption by producing necessary evidence before the court.

----------------------

----------------------

----------------------

76 Taxation Laws
 Keywords Notes

----------------------
●● Taxpayer: It is an individual or business entity that is obligated to pay
taxes to a federal, state, or municipal government body. ----------------------
●● Reasonable Opportunity of Being Heard: The chance to present one’s
----------------------
views or objections before being deprived of a right by government
authority. ----------------------

----------------------
Self-Assessment Questions
----------------------
1. What are the defaults under the Income Tax Act, 1961?
----------------------
2. Discuss penalty under the Income Tax Act, 1961.
3. What are the offences defined by the Income Tax Act, 1961? ----------------------

----------------------
Answer to Check Your Progress
----------------------
Check your Progress 1
----------------------
State True or False.
1. True ----------------------
2. True ----------------------

----------------------
Suggested Reading
----------------------
1. https://www.incometaxindia.gov.in/pages/acts/income-tax-act.aspx.
----------------------
2. Taxman’s Income Tax Act-As Amended by Finance Act 2019.
3. https://taxguru.in/income-tax/penalties-prosecutions-income-tax- ----------------------
act1961.html. ----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

Penalties Imposable, Offences and Prosecutions 77

 Notes

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

78 Taxation Laws
ANNEXURE Notes

----------------------
A) PENALTIES
Updated with Amendment made vide Finance Act, 2019 and applicable ----------------------
for A.Y. 2023-24 and Onwards: ----------------------
Penalties & Prosecution: AY 2023-24
----------------------
Section Nature of default Penalty leviable
(1) (2) (3) ----------------------
140A(3) Failure to pay wholly or Such amount as Assessing Officer
----------------------
partly— may impose but not exceeding
(a) self-assessment tax, or tax in arrears ----------------------
(b) interest and fee, or
(c) both ----------------------
under section 140A(1)
158BFA(2) Determination of Minimum : 100 per cent of tax ----------------------
undisclosed income of leviable in respect of undisclosed ----------------------
block period income
Maximum : 300 per cent of tax ----------------------
leviable in respect of undisclosed
income. ----------------------
221(1) Default in making payment Such amount as Assessing Officer ----------------------
of tax may impose but not exceeding
amount of tax in arrears ----------------------
234E Failure to file statement Rs. 200 for every day during
within time prescribed in which failure continues but ----------------------
section 200(3) or in proviso not exceeding tax deductible/ ----------------------
to section 206C(3) collectible
234F Default in furnishing return Rs. 5,000 if return is furnished ----------------------
of income within time after due date specified under
prescribed in section 139(1) section 139(1). However if the ----------------------
total income of the person does
----------------------
not exceed Rs. 5 lakhs then Rs.
1,000 shall be the late filing fees. ----------------------
234G Fee for default in submission Rs. 200 per day
of statement/certificate ----------------------
prescribed under section 35/
----------------------
Section 80G
234H Fee for default in intimating a) Rs. 500, if such intimation is ----------------------
the Aadhaar Number made between 01-04-2022 and
30-06-2022; and ----------------------
b) Rs. 1,000, in all other cases. ----------------------

----------------------

----------------------

Penalties Imposable, Offences and Prosecutions 79

 Notes Section Nature of default Penalty leviable
(1) (2) (3)
---------------------- 270A(1) Under-reporting and A sum equal to 50% of the amount
misreporting of income of tax payable on under-reported
----------------------
income.
---------------------- However, if under-reported
income is in consequence of
----------------------
any misreporting thereof by
---------------------- any person, the penalty shall be
equal to 200% of the amount of
---------------------- tax payable on under-reported
income
----------------------
271A Failure to keep, maintain, Rs. 25,000
---------------------- or retain books of account,
documents, etc., as required
---------------------- under section 44AA
271AA(1) (1) Failure to keep and 2% of value of each international
----------------------
maintain information and transaction/or specified domestic
---------------------- documents required by transaction entered into
section 92D(1) or 92D(2)
---------------------- (2) Failure to report such
transaction
----------------------
(3) Maintaining or
---------------------- furnishing incorrect
information or document
---------------------- 271AA(2) Failure to furnish Rs. 5,00,000/-
information and document
----------------------
as required under Section
---------------------- 92D(4)
271AAA Where search has been 10% of undisclosed income
---------------------- initiated before 1-7-2012
and undisclosed income
---------------------- found
---------------------- 271AAB(1) Where search has been (a) 10% of undisclosed income
initiated on or after 1-7- of the specified previous year if
---------------------- 2012 but before 15-12-2016 assessee admits the undisclosed
and undisclosed income income; substantiates the manner
---------------------- found in which it was derived; and on or
---------------------- before the specified date pays the
tax, together with interest thereon
---------------------- and furnishes the return of
income for the specified previous
---------------------- year declaring such undisclosed
---------------------- income

----------------------

80 Taxation Laws
 Section Nature of default Penalty leviable Notes
(1) (2) (3)
(b) 20% of undisclosed income ----------------------
of the specified previous year
----------------------
if assessee does not admit the
undisclosed income, and on or ----------------------
before the specified date declare
such income in the return of ----------------------
income furnished for the specified
----------------------
previous year and pays the tax,
together with interest thereon; ----------------------
(c) 60% of undisclosed income of
the specified previous year if it is ----------------------
not covered by (a) or (b) above
----------------------
271AAB(1A) Where search has been (a) 30% of undisclosed income
initiated on or after 15- of the specified previous year if ----------------------
12-2016 and undisclosed assessee admits the undisclosed
income found income; substantiates the manner ----------------------
in which it was derived; and on or
----------------------
before the specified date pays the
tax, together with interest thereon ----------------------
and furnishes the return of
income for the specified previous ----------------------
year declaring such undisclosed
----------------------
income
(b) 60% of undisclosed income ----------------------
of the specified previous year in
----------------------
any other case.
271AAC Income determined by 10% of tax payable under section ----------------------
Assessing Officer or the 115BBE.
Commissioner (Appeals) ----------------------
includes any income
----------------------
referred to in section 68,
section 69, section 69A, ----------------------
section 69B, section 69C or
section 69D for any previous ----------------------
year. [if such income is not
----------------------
included by assessee in his
return or tax in accordance ----------------------
with section 115BBE has
not been paid] ----------------------

----------------------

----------------------

----------------------

Penalties Imposable, Offences and Prosecutions 81

 Notes Section Nature of default Penalty leviable
(1) (2) (3)
---------------------- 271AAD Penalty, if during any 100% of such false entries or
proceedings under the Act, omitted entry.
----------------------
it is found that in the books
---------------------- of accounts maintained by
assessee, there is:
----------------------
a) A false entry; or
---------------------- b) Any entry relevant
---------------------- for computation of total
income of such person has
---------------------- been omitted to evade tax
liability.
---------------------- 271AAE Penalty for violation of the (a) For the first violation: to the
---------------------- provisions of 21st proviso extent of income applied by the
to section 10(23C) or institution for the benefit of any
---------------------- section 13(1)(c) pertaining interested party referred to in
to passing of unreasonable section 13(3);
---------------------- benefits to trustees or (b) For any violation in subsequent
---------------------- specified person years: twice the amount of such
income so applied (“double
---------------------- penalty”).
---------------------- 271B Failure to get accounts One-half per cent of total sales,
audited or furnish a report turnover or gross receipts, etc., or
---------------------- of audit as required under Rs. 1,50,000, which-ever is less
section 44AB
---------------------- 271BA Failure to furnish a report Rs. 1,00,000
---------------------- from an accountant as
required by section 92E
---------------------- 271BB Failure to subscribe any 20 per cent of such amount
amount to units issued
---------------------- under scheme referred to in
section 88A(1)
----------------------
271C Failure to deduct tax at Amount equal to tax not deducted
---------------------- source, wholly or partly, or paid
under sections 192 to 196D
---------------------- (Chapter XVII-B) or failure
to pay wholly or partly tax
----------------------
u/s 115-O(2) or proviso to
---------------------- section 194B
271CA Failure to collect tax at Amount equal to tax not collected
---------------------- source as required under
Chapter XVII-BB
----------------------

----------------------

82 Taxation Laws
 Section Nature of default Penalty leviable Notes
(1) (2) (3)
271D Taking or accepting any Amount equal to loan or deposit ----------------------
loan or deposit or specified or specified sum so taken or
----------------------
sum in contravention of accepted
the provisions of Section ----------------------
269SS.
----------------------
“Specified sum” means any
sum of money receivable, ----------------------
whether as advance or
otherwise, in relation to ----------------------
transfer of an immovable
----------------------
property, whether or not the
transfer takes place. ----------------------
271DA Receiving an amount of Rs. Amount equal to such receipt
2 lakh or more from a person ----------------------
in a day [section 269ST]
----------------------
271DB Failure to provide facility for Rs. 5,000 rupees for every day of
accepting payment through default ----------------------
prescribed electronic modes
of payment as referred to in ----------------------
section 269SU
----------------------
271E Repayment of any loan Amount equal to loan or deposit
or deposit or specified or specified advance so repaid ----------------------
advance otherwise than in
accordance with provision ----------------------
of Section 269T.
----------------------
“Specified advance” means
any sum of money in the ----------------------
nature of advance, by
whatever name called, in ----------------------
relation to transfer of an ----------------------
immovable property, whether
or not transfer takes place. ----------------------
271FA1 Failure to furnish an Rs. 500 per day of default
annual information return ----------------------
as required under section ----------------------
285BA(1)2
271FAA Furnishing of inaccurate Rs. 50,000 ----------------------
information in statement
of financial transaction or ----------------------
reportable account ----------------------
Failure to furnish annual Rs. 1,000 per day of default
information return within ----------------------
the period specified in
notice u/s 285BA(5) ----------------------

Penalties Imposable, Offences and Prosecutions 83

 Notes Section Nature of default Penalty leviable
(1) (2) (3)
---------------------- 271FAB Section 9A provides that Rs. 5,00,000
fund management activity
----------------------
carried out by an eligible
---------------------- offshore investment
fund through an eligible
---------------------- fund manager acting on
behalf of such fund shall
----------------------
not constitute business
---------------------- connection in India (subject
to certain conditions).
----------------------
The provision requires that
---------------------- eligible investment fund
shall furnish within 90 days
---------------------- from the end of the financial
year a statement, in respect
----------------------
of its activities in a financial
---------------------- year, in the prescribed form
containing information
---------------------- relating to fulfilment of
specified conditions and
----------------------
such other information
---------------------- or documents as may be
prescribed. Penalty to be
---------------------- levied if investment fund
failed to comply with the
----------------------
requirement.
---------------------- 271G3 Failure to furnish any 2% of the value of the international
information( or document as transaction/specified domestic
---------------------- required by section 92D(3) transaction for each failure
271GA Section 285A provides Penalty shall be:
----------------------
for reporting by an Indian a) a sum equal to 2% of value of
---------------------- concern if following two transaction in respect of which
conditions are satisfied: such failure has taken place, if
----------------------
a) Shares or interest in a such transaction had effect of,
---------------------- foreign company or entity directly or indirectly, transferring
derive substantial value, right of management or control in
---------------------- directly or indirectly, from relation to the Indian concern;
assets located in India; and b) a sum of Rs. 5,000 in any other
----------------------
b) Such foreign company case.
---------------------- or entity holds such assets
---------------------- in India through or in such
Indian concern.
----------------------

84 Taxation Laws
 Section Nature of default Penalty leviable Notes
(1) (2) (3)
In this case, the Indian entity ----------------------
shall furnish the prescribed
----------------------
information for the purpose
of determination of any ----------------------
income accruing or arising
in India under Section 9(1) ----------------------
(i).
----------------------
In case of any failure, the
Indian concern shall be ----------------------
liable to pay penalty.
----------------------
271GB(1) Failure to furnish report Rs. 5,000 per day upto 30 days
under section 286(2) and Rs. 15,000 per day beyond ----------------------
30 days
271GB(2) Failure to produce the Rs. 5,000 for every day during ----------------------
information and documents which the failure continues.
----------------------
within the period allowed
under section 271GB(6) ----------------------
271GB(3) Failure to furnish report Rs. 50,000 for every day for
or failure to produce which such failure continues ----------------------
information/documents beginning from the date of
----------------------
under section 286 even after serving such order.
serving order under section ----------------------
271GB(1) or 271GB(2)
271GB(4) Failure to inform about Rs. 5,00,000 ----------------------
inaccuracy in report furnish
----------------------
under section 286(2)
Or furnishing of inaccurate ----------------------
information or document
----------------------
in response to notice issued
under section 286(6). ----------------------
271H4 Failure to deliver/cause to W.e.f. 1-10-2014 Assessing
be delivered a statement Officer may direct payment of ----------------------
within the time prescribed penalty. Penalty shall not be less
----------------------
in section 200(3) or the than Rs. 10,000 but may extend
proviso to section 206C(3), to Rs. 1,00,000 ----------------------
or furnishes incorrect
information in the statement ----------------------
271K Penalty of default in Rs. 10,000 to Rs. 1 lakh
----------------------
submission of statement/
certificate prescribed under ----------------------
section 35/Section 80G
----------------------

----------------------

Penalties Imposable, Offences and Prosecutions 85

 Notes Section Nature of default Penalty leviable
(1) (2) (3)
---------------------- 271-I As per section 195(6) of the Rs. 1,00,000
Act, any person responsible
----------------------
for paying to a non-resident
---------------------- or to a foreign company,
any sum (whether or not
---------------------- chargeable to tax), shall
furnish the information
----------------------
relating to such payment
---------------------- in Form 15CA and 15CB.
Penalty shall be levied in
---------------------- case of any failure.
271J Furnished incorrect Rs. 10,000 for each incorrect
----------------------
information in any report or report or certificate
---------------------- certificate by an accountant
or a merchant banker or a
---------------------- registered valuer
272A(1) Refusal or failure to : Rs. 10,000 for each failure/
----------------------
default
---------------------- (a) answer questions
(b) sign statement
---------------------- (c) attend to give evidence or
produce books of account,
---------------------- etc., in compliance with
---------------------- summons under section
131(1)
---------------------- (d) comply with notice u/s
142(1), 143(2) or failure
---------------------- to comply with direction
---------------------- issued u/s 142(2A).
272A(2) Failure to :
---------------------- (a) furnish requisite Rs. 500 for every day during
information in respect of which the failure continues. (In
---------------------- securities as required under respect of penalty for failure,
---------------------- section 94(6) ; in relation to a declaration
mentioned in section 197A,
---------------------- a certificate as required by
section 203 and returns u/ss
---------------------- 206 and 206C and statements
---------------------- under Section 200(2A) or section
200(3) or proviso to section
---------------------- 206C(3) or section 206C(3A),
penalty shall not exceed amount
---------------------- of tax deductible or collectible)
----------------------

86 Taxation Laws
 Section Nature of default Penalty leviable Notes
(1) (2) (3)
(b) give notice of ----------------------
discontinuance of business
----------------------
or profession as required
under section 176(3) ; ----------------------
(c) furnish in due time
returns, statements or ----------------------
certificates, deliver de-
----------------------
claration, allow inspection,
etc., under sections 133, ----------------------
134, 139(4A), 139(4C),
192(2C), 197A, 203, 206, ----------------------
206C, 206C(1A) and 285B;
----------------------
(d) deduct and pay tax under
section 226(2) ----------------------
(e) file a copy of the
prescribed statement within ----------------------
the time specified in section
----------------------
200(3) or the proviso to
section 206C(3) (up to 1-7- ----------------------
2012)
(f) file the prescribed ----------------------
statement within the time
specified in section 206A(1) ----------------------
(g) Failure to deliver or cause ----------------------
to be delivered a statement
under Section 200(2A) or ----------------------
Section 206C(3A) within
prescribed time. ----------------------

     With effect from June 1, ----------------------

2015, it is mandatory for an
----------------------
office of the Government,
paying TDS or TCS, as ----------------------
the case may be, without
production of a challan, to ----------------------
deliver a statement in the
----------------------
prescribed form and manner
to the prescribed authority. ----------------------
272AA(1) Failure to comply with Not exceeding Rs. 1,000
section 133B ----------------------
272B Failure to comply with Rs. 10,000 for each default
provisions relating to PAN ----------------------
or Aadhaar as referred to in ----------------------
section 139A/139A(5)(c)/
(5A)/(5C) ----------------------

Penalties Imposable, Offences and Prosecutions 87

 Notes Section Nature of default Penalty leviable
(1) (2) (3)
---------------------- 272BB(1) Failure to comply with Rs. 10,000 for each failure/
section 203A default
----------------------
272BB(1A) Quoting false tax deduction Rs. 10,000
---------------------- account number/tax
collection account number/
---------------------- tax deduction and collection
account number in challans/
----------------------
certificates/statements/
---------------------- documents referred to in
section 203A(2)
----------------------
Note : No penalty is imposable for any failure under sections 271(1)(b),
---------------------- 271A, 271AA, 271B, 271BA, 271BB, 271C, 271CA, 271D, 271E, 271F,
271FA, 271FAB, 271FB, 271G, 271GA, 271GB, 271H, 271-I, 272A(1)(c) or
---------------------- (d), 272A(2), 272AA(1), 272B, 272BB(1), 272BB(1A), 272BBB(1), 273(1)
(b), 273(2)(b) and 273(2)(c) if the person or assessee proves that there was
----------------------
reasonable cause for such failure (section 273B).
---------------------- Section 273AA provides that a person may make application to the Principal
Commissioner/Commissioner for granting immunity from penalty, if (a) he has
----------------------
made an application for settlement under section 245C and the proceedings for
---------------------- settlement have abated; and (b) penalty proceeding have been initiated under
this Act. The application shall not be made after the imposition of penalty after
---------------------- abatement.
----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

88 Taxation Laws
B) OFFENCES AND PROSECUTIONS Notes
Section Nature of default Punishment Fine
(rigorous ----------------------
imprisonment) ----------------------
(1) (2) (3) (4)
275A Contravention of order made under Up to 2 years No limit ----------------------
section 132(1) (Second Proviso) or
132(3) in case of search and seizure ----------------------
275B Failure to afford necessary Up to 2 years No limit
----------------------
facility to authorised officer to
inspect books of account or other ----------------------
documents as required under
section 132(1)(iib) ----------------------
276 Removal, concealment, transfer or Up to 2 years No limit
----------------------
delivery of property to thwart tax
recovery ----------------------
276A Failure to comply with provisions 6 months to 2 years —
of section 178(1) and (3) re : ----------------------
company in liquidation
----------------------
276B Failure to pay to credit of Central 3 months to 7 years No limit
Government (i) tax deducted at ----------------------
source under Chapter XVII-B
(non-cognizable offence under ----------------------
section 279A), or (ii) tax payable
----------------------
u/s 115-O(2) or proviso to section
194B ----------------------
276BB Failure to pay the tax collected 3 months to 7 years No limit
under the provisions of section ----------------------
206C
276C(1) Wilful attempt to evade tax, penalty ----------------------
or interest or under-reporting of ----------------------
Income (non-cognizable offence
under section 279A)— ----------------------
(a) where tax sought to be evaded 6 months to 7 years No limit
exceeds Rs. 1 lakh (Rs. 25 lakh ----------------------
w.e.f. 1-7-2012) ----------------------
(b) in other cases 3 months to 3 years No limit
(2 years w.e.f. 1-7- ----------------------
2012)
276C(2) Wilful attempt to evade payment 3 months to 3 years No limit ----------------------
of any tax, penalty or interest (non- (2 years w.e.f. 1-7- ----------------------
cognizable offence under section 2012)
279A) ----------------------

----------------------

----------------------

Penalties Imposable, Offences and Prosecutions 89

 Notes Section Nature of default Punishment Fine
(rigorous
---------------------- imprisonment)
(1) (2) (3) (4)
---------------------- 276CC Wilful failure to furnish returns
---------------------- of fringe benefits under section
115WD/115WH or return of
---------------------- income under section 139(1)
or under section 139(8A) or in
---------------------- response to notice under section
---------------------- 142(1)(i) or section 148 or section
153A (non-cognizable offence
---------------------- under section 279A)—
(a) where tax sought to be evaded 6 months to 7 years No limit
---------------------- exceeds Rs. 1 lakh (Rs. 25 lakh
---------------------- w.e.f. 1-7-2012)
(b) in other cases 3 months to 3 years No limit
---------------------- Note : *** A person shall not be (2 years w.e.f. 1-7-
liable to be prosecuted under this 2012)
----------------------
section if he furnishes the return
---------------------- before expiry of assessment year
or the tax payable by such person,
---------------------- not being a company, as reduced
---------------------- by the advance tax self-assessment
tax paid before expiry of the
---------------------- assessment year, TDS and TCS,
does not exceed Rs. 10,000.
---------------------- 276CCC Wilful failure to furnish in due time 3 months to 3 years No limit
---------------------- return of total income required to be
furnished by notice u/s 158BC(a)
---------------------- 276D6 Wilful failure to produce accounts Up to 1 year 7Rs. 4 to
and documents under section Rs. 10 for
---------------------- 142(1) or to comply with a notice every day
---------------------- under section 142(2A) of default
277 False statement in verification or
---------------------- delivery of false account, etc. (non-
cognizable offence under section
---------------------- 279A)
(a) where tax sought to be evaded 6 months to 7 years No limit
----------------------
exceeds Rs. 1 lakh (Rs. 25 lakh
---------------------- w.e.f. 1-7-2012)
(b) in other cases 3 months to 3 years No limit
---------------------- (2 years w.e.f. 1-7-
2012)
----------------------

----------------------

90 Taxation Laws
 Section Nature of default Punishment Fine Notes
(rigorous
imprisonment) ----------------------
(1) (2) (3) (4)
277A Falsification of books of account or 3 months to 3 years No limit ----------------------
document, etc., to enable any other (2 years w.e.f. 1-7- ----------------------
person to evade any tax, penalty or 2012)
interest chargeable/leviable under ----------------------
the Act
278 Abetment of false return, account, ----------------------
statement or declaration relating ----------------------
to any income or fringe benefits
chargeable to tax (non-cognizable ----------------------
offence under section 279A)
(a) where tax, penalty or interest 6 months to 7 years No limit ----------------------
sought to be evaded exceeds Rs. 1 ----------------------
lakh (Rs. 25 lakh w.e.f. 1-7-2012)
(b) in other cases 3 months to 3 years No limit ----------------------
(2 years w.e.f. 1-7-
2012) ----------------------
278A Second and subsequent offences 6 months to 7 years No limit
----------------------
under sections 276B, 276BB,
276C(1), 276CC, 276DD, 276E, ----------------------
277 or 278
280(1) Disclosure of particulars by public Up to 6 months No limit ----------------------
servants in contravention of section (simple/rigorous)
----------------------
138(2) [Prosecution to be instituted
with previous sanction of Central ----------------------
Government under section 280(2)]
----------------------
Notes:
1. No person is punishable for any failure under section 276A, 276AB or ----------------------
276B if he proves that there was reasonable cause for such failure (vide
----------------------
section 278AA).
2. (a) Prosecution for offences under section 275A, section 275B, section ----------------------
276, section 276A, section 276B, section 276BB, section 276C, ----------------------
section 276CC, section 276D, section 277, section 277A and section
278 to be instituted with previous sanction of Principal Director ----------------------
General/Principal Chief Commissioner/Principal Commissioner/
Director General/Chief Commissioner/Commissioner, except ----------------------
where prosecution is at the instance of the Commissioner (Appeals) ----------------------
or the appropriate authority (vide section 279).
(b) The offences under Chapter XXII can be compounded (either ----------------------
before or after the institution of proceedings) by Principal Director ----------------------
General/Director General or Principal Chief Commissioner/Chief
Commissioner. ----------------------

Penalties Imposable, Offences and Prosecutions 91

 Notes 3. Where an offence under this Act has been committed by a person, being a
company, and the punishment for such offence is imprisonment and fine,
---------------------- then, such company shall be punished with fine and every person, referred
to in sub-section (1) of section 278B, or the director, manager, secretary
---------------------- or other officer of the company referred to in sub-section (2) of section
---------------------- 278B shall be liable to be proceeded against and punished in accordance
with the provisions of this Act.
----------------------
4. With effect from 1-4-2008 under section 278AB a person may apply to
---------------------- the Principal Commissioner/Commissioner for granting immunity from
prosecution, if he has applied for settlement under section 245C and the
---------------------- proceedings have abated under section 245HA. The application shall not
be made after institution of prosecution proceedings after abatement.
----------------------

---------------------- References:
----------------------
1. With effect from assessment year 2015-16 “annual information return”
---------------------- has been changed to “statement of financial transaction or reportable
account” and word “return” has been changed to “statement”.
----------------------
2. With effect from assessment year 2015-16 a new section 271FAA has been
---------------------- inserted to provide for a penalty of Rs. 50,000 for furnishing inaccurate
statement of financial transaction or reportable account in certain cases.
----------------------
3. With effect from 1-10-2014 TPO can also levy penalty.
----------------------
4. Section 271H as amended with effect from 1-10-2014 provides that
---------------------- penalty shall be levied by Assessing Officer.
5. Non-operative with effect from 1-7-2002.
----------------------
6. With effect from October 1, 2014, if a person wilfully fails to produce
---------------------- accounts and documents as stated or wilfully fails to comply with the
direction given, he shall be punishable with rigorous imprisonment for a
----------------------
term which may extend to one year and with fine (quantum of fine has not
---------------------- been specified).

---------------------- 7. No limit w.e.f. 1-10-2014.

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

92 Taxation Laws
Introduction to GST
UNIT

7
Structure:

7.1 Introduction
7.2 What is GST
7.3 History of GST
7.4 Constitutional Amendments
7.5 Advantages of GST
7.6 Components of GST
Summary
Keywords
Self-Assessment Questions
Answers to Check your Progress
Suggested Reading

Introduction to GST 93
 Notes
Objectives
----------------------

---------------------- After going through this unit, you will be able to:

---------------------- ● Learn the basics of GST law.

---------------------- ● Understand the constitutional amendments and advantages of

introduction of the GST law.
----------------------

----------------------
7.1 INTRODUCTION
----------------------
The Goods and Services Tax has revolutionized the Indian taxation
---------------------- system. The GST Act was passed in the Lok Sabha on 29th March, 2017, and
came into effect from 1st July, 2017.
----------------------
In this unit, we will understand the basics of GST law and take a closer
---------------------- look at what changes does GST will bring in the taxation system in India.
----------------------
7.2 WHAT IS GST
----------------------
GST (Goods & Services Tax) Law in India is a multi-stage, comprehensive
---------------------- and destination-based tax that will be levied on every transaction, goods and
services where there is value addition.
----------------------
In other words we can say that, GST is a type of indirect tax which can be
---------------------- levied on the supply of goods and services. Also GST Law has replaced many
indirect taxes that previously existed in Indian tax system.
----------------------
Before the introduction of GST law the indirect tax structure was as follows:
----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------
Source: Indirect Taxes Committee, ICAI
----------------------
As stated the GST law is a multi-stage, comprehensive and destination-
---------------------- based tax, following points will highlight the same:

94 Taxation Laws
a. Multi-stage: Notes
There are multiple stages through which an item goes along its supply
----------------------
chain for instance during its transportation from manufacture to final
consumer. At every stage some or more value is added to the commodity. ----------------------
However this is not mandatory to add the value at every stage. But we can
say that there exists different stages through which the commodity pass ----------------------
till its consumption. These stages can be summarised as follows:
----------------------

Purchase of raw Warehousing of ----------------------

materials manufacture finished goods
----------------------

----------------------
Sale of the ----------------------
le to the end
product to the
consumer
retailer ----------------------

----------------------
Since, Goods and Services Tax is levied on each of these stages, we can
say it makes GST a multi-stage tax. ----------------------
b. Destination-Based
----------------------
GST a destination based tax, Consider goods manufactured in Gujrat and
are sold to the final consumer in Maharashtra. Since Goods & Service Tax ----------------------
(GST) is levied at the point of consumption, in this case Maharashtra, the
----------------------
entire tax revenue will go to Maharashtra.
c. Value Addition ----------------------

The manufacturer who makes textile buys cotton. The value of cotton ----------------------
gets increased when the cotton is woven into a cloths.
----------------------
The manufacturer then sells the cloths to the retailer/agent who attaches
labels and tags to each item. That is another addition of value after which ----------------------
the warehouse sells it to the consumer by adding value to it.
----------------------
Consider following image which explains the above example:
----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------
GST will be levied on these value additions i.e. the monetary worth added
at each stage to achieve the final sale to the end customer. ----------------------

Introduction to GST 95
 Notes 7.3 HISTORY OF GST
---------------------- The implementation of the Goods and Services Tax (GST) in India was
a historical move, as it marked a significant indirect tax reform in the country.
----------------------
The amalgamation of a large number of taxes (levied at a central and state level)
---------------------- into a single tax is expected to have big advantages.

---------------------- The journey of this law is described below:

a. The idea of moving towards GST was first mooted by the then Union
---------------------- Finance Minister in his Budget speech for 2006-07.
---------------------- b. Initially, it was proposed that GST would be introduced from 1st April
2010.
----------------------
c. The Empowered Committee of State Finance Ministers (EC) which had
---------------------- formulated the design of State VAT was requested to come up with a
roadmap and structure for GST. Joint Working Groups of officials having
----------------------
representatives of the States as well as the Centre were set up to examine
---------------------- various aspects of GST and draw up reports specifically on exemptions
and thresholds, taxation of services and taxation of inter-State supplies.
----------------------
d. Based on discussions within and between it and the Central Government,
---------------------- the EC released its First Discussion Paper (FDP) on the GST in November,
2009. This spelt out features of the proposed GST and has formed the
---------------------- basis for discussion between the Centre and the States so far.
---------------------- e. The introduction of the Goods and Services Tax (GST) is a very significant
step in the field of indirect tax reforms in India. By amalgamating a large
---------------------- number of Central and State taxes into a single tax, GST will mitigate ill
effects of cascading or double taxation in a major way and pave the way
----------------------
for a common national market.
---------------------- f. From the consumers’ point of view, the biggest advantage would be in
---------------------- terms of reduction in the overall tax burden on goods, which is estimated
to be around 25%-30%. It would also imply that the actual burden of
---------------------- indirect taxes on goods and services would be much more transparent to
the consumer.
----------------------
g. Introduction of GST would also make Indian products competitive in the
---------------------- domestic and international markets owing to the full neutralization of
input taxes across the value chain of production and distribution. Studies
---------------------- show that this would have a boosting impact on economic growth.
---------------------- h. GST, because of its transparent and self-policing character, would be
easier to administer. It would also encourage a shift from the informal to
---------------------- formal economy.
---------------------- i. The GST law was introduced and is in force from 1st July 2017.
----------------------

----------------------

96 Taxation Laws
Following picture gives the insight into the history of GST Law: Notes

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------
Source: Indirect Taxes Committee, ICAI
----------------------
7.4 CONSTITUTIONAL AMENDMENTS ----------------------
In order to address prevalent issues in taxation, the Constitution 122nd ----------------------
Amendment Bill was put forth in the 16th Lok Sabha on 19 December 2014.
----------------------
●● The Bill suggests levy of GST on all goods and services, except alcohol
that humans consume. ----------------------
●● The tax is levied as Dual GST by the Centre and states/union territories. ----------------------
The component levied by the Centre is Central Tax - CGST, while that
levied by the state is State Tax - SGST. The tax levied by union territories ----------------------
is Union Territory Tax - UTGST.
----------------------
●● The Centre would levy the GST on inter-state trade or imports of services
and goods. This tax is referred to as Integrated Tax - IGST. ----------------------
●● The Central Government will also levy excise duty on tobacco products, ----------------------
in addition to GST.
----------------------

Introduction to GST 97
 Notes ●● The tax on five petroleum products, i.e., high speed diesel, crude, petrol,
natural gas, and Aviation Turbine Fuel (ATF) will be outlined later after a
---------------------- decision is made by the GST Council.
---------------------- September 2016: A Goods and Services Tax Council (GSTC) was created
by the union finance minister, revenue minister, and ministers of state to take
---------------------- decisions on GST rates, thresholds, taxes to be subsumed, exemptions, and
other features of the taxation system. The state finance ministers mentioned
----------------------
that the EC would be a platform for states where there would be discussions of
---------------------- their regional issues. The GST Council is a separate entity that would oversee
the implementation of the GST system.
----------------------
September 2019
---------------------- 37th GST Council meeting was held on the 20th of September 2019 in Goa.
The Union Finance Minister, chaired this Council meeting. Highlights of the
----------------------
meeting are:
---------------------- 1. Waiver of GSTR-9A for Composition Taxpayers for FY 2017-18 & FY
2018-19
----------------------
2. GSTR-9 for small taxpayers now not compulsory for FY 2017-18 & FY
---------------------- 2018-19
3. New GST Returns Deferred to April 2020
----------------------
4. Restrictions on ITC claim in GSTR-3B
---------------------- 5. Circular on Post Sale Discount Withdrawn
6. GST Exemptions announced
----------------------
● Supplies of goods or services to FIFA- specified individuals for the
---------------------- Under-17 Women’s Football World Cup in India.
● Supply to the Food and Agriculture Organisation (FAO) for specified
----------------------
projects in India.
---------------------- ● Imports of certain defence goods not made indigenously (up to
2024).
----------------------
● Import of silver/platinum by specified agencies (Diamond India
---------------------- Ltd), and the supply of silver/platinum by specified nominated
agencies to exporters for the export of jewellery.
---------------------- ● Storage or warehousing services for cereals, pulses, fruits, nuts and
vegetables, spices, copra, sugarcane, jaggery, raw vegetable fibres
----------------------
such as cotton, flax, jute etc., indigo, unmanufactured tobacco, betel
---------------------- leaves, tendu leaves, rice, coffee and tea.
● Life insurance business provided or agreed to be provided by
---------------------- the Central Armed Paramilitary Forces (under Ministry of Home
---------------------- Affairs) Group Insurance Funds to their members.
● Services provided by an intermediary to a supplier of goods or
---------------------- recipient of goods when both the supplier and recipient are located
outside the taxable territory.
----------------------
● The BANGLA SHASYA BIMA (BSB) crop insurance scheme of
---------------------- the West Bengal Government.

98 Taxation Laws
7. Other Significant Decisions Notes
● The validity period of the conditional GST exemption extended for
----------------------
export freight by air or sea by one more year till 30 September
2020. ----------------------
● Taxability of fishmeal: Exemption granted for all cases from 1 July
----------------------
2017 to 30 September 2019, except where tax is already collected.
● Pulleys, wheels and items under HSN 8483 used as agricultural ----------------------
machinery to be taxed at 12% during period 1 July 2017 to 31 ----------------------
December 2018.
● Option to pay GST at the rate of 18% on transaction value at the ----------------------
time of disposal of specified goods for petroleum operations (on ----------------------
which concessional GST rate of 5% was paid at the time of original
supply) provided that the goods are certified by Director General ----------------------
Hydrocarbon (DGH) as non-serviceable.
----------------------
● To specify modalities for allowing concessions on spare parts
imported temporarily by foreign airlines for the repair of their ----------------------
aircraft, while in India in transit in terms of the Chicago Convention
on Civil Aviation. ----------------------

----------------------
Activity 1
----------------------
Enumerate the stages of GST implementation in India. ----------------------

----------------------
7.5 ADVANTAGES OF GST ----------------------
Before GST, tax on tax was calculated and tax was paid by every purchaser ----------------------
including the final consumer. The taxation on tax is called the Cascading Effect
of Taxes. ----------------------
GST is to improve the collection of taxes as well as boost the development ----------------------
of Indian economy by removing the indirect tax barriers between states and
integrating the country through a uniform tax rate. ----------------------
Following example will justify this argument: ----------------------
Say a shirt manufacturer pays ` 100 to buy raw materials. If the rate of
----------------------
taxes is set at 10%, and there is no profit or loss involved, then he has to pay
` 10 as tax. So, the final cost of the shirt now becomes ` (100+10=) 110. ----------------------
At the next stage, the wholesaler buys the shirt from the manufacturer
----------------------
at ` 110, and adds labels to it. When he is adding labels, he is adding value.
Therefore, his cost increases by say ` 40. On top of this, he has to pay a 10% ----------------------
tax, and the final cost therefore becomes
----------------------
` (110+40=) 150 + 10% tax = ` 165
----------------------

Introduction to GST 99
 Notes Now, the retailer pays ` 165 to buy the shirt from the wholesaler because
the tax liability had passed on to him. He has to package the shirt, and when he
---------------------- does that, he is adding value again. This time, let’s say his value add is ` 30.
Now when he sells the shirt, he adds this value (plus the VAT he has to pay the
----------------------
government) to the final cost. So, the cost of the shirt becomes ` 214.5 Let us
---------------------- see a breakup for this:
Cost = ` 165 + Value added
----------------------
= ` 30 + 10% tax
---------------------- = ` 195 + ` 19.5
= ` 214.5
----------------------
So, the customer pays ` 214.5 for a shirt the cost price of which was
---------------------- basically only ` 170 (Rs 110 + ` 40 + ` 30). Along the way the tax liability was
passed on at every stage of transaction and the final liability comes to rest with
---------------------- the customer. This is called the Cascading Effect of Taxes where a tax is paid on
tax and the value of the item keeps increasing every time this happens.
----------------------
Action Cost 10% Tax Total
---------------------- Buys Raw Material @ 100 100 10 110
---------------------- Manufactures @ 40 150 15 165
Adds value @ 30 195 19.5 214.5
----------------------
Total 170 44.5 214.5
---------------------- In the case of Goods and Services Tax, there is a way to claim credit for
tax paid in acquiring input. What happens in this case is, the individual who has
----------------------
paid a tax already can claim credit for this tax when he submits his taxes.
---------------------- In our example, when the wholesaler buys from the manufacturer, he pays
a 10% tax on his cost price because the liability has been passed on to him. Then
----------------------
he adds value of ` 40 on his cost price of ` 100 and this brings up his cost to
---------------------- ` 140. Now he has to pay 10% of this price to the government as tax. But
he has already paid one tax to the manufacturer. So, this time what he does is,
----------------------
instead of paying Rs (10% of 140=) 14 to the government as tax, he subtracts
---------------------- the amount he has paid already. So, he deducts the ` 10 he paid on his purchase
from his new liability of ` 14, and pays only ` 4 to the government. So, the
---------------------- ` 10 becomes his input credit.
---------------------- When he pays ` 4 to the government, he can pass on its liability to the
retailer. So, the retailer pays ` (140+14=) 154 to him to buy the shirt.
---------------------- At the next stage, the retailer adds value of ` 30 to his cost price and
---------------------- has to pay a 10% tax on it to the government. When he adds value, his price
becomes ` 170.
---------------------- Now, if he had to pay 10% tax on it, he would pass on the liability to
---------------------- the customer. But he already has input credit because he has paid `14 to the
wholesaler as the latter’s tax. So, now he reduces ` 14 from his tax liability of
---------------------- ` (10% of 170=) 17 and has to pay only ` 3 to the government.

----------------------

100 Taxation Laws

 And therefore, he can now sell the shirt for ` (140+30+17) 187 to the Notes
customer.
----------------------
Action Cost 10% Tax Actual Total
Liability ----------------------
Buys Raw Material 100 10 10 110
----------------------
Manufactures @ 40 140 14 4 154
Adds Value @ 30 170 17 3 187 ----------------------
Total 170 17 187
----------------------
In the end, every time an individual was able to claim input tax credit,
the sale price for him reduced and the cost price for the person buying his ----------------------
product reduced because of a lower tax liability. The final value of the shirt also
----------------------
therefore reduced from ` 214.5 to ` 187, thus reducing the tax burden on the
final customer. ----------------------
Following are the key benefits of the GST ----------------------
1. The GST system is introduced to create a common national market that
boosts foreign investment. ----------------------

2. The cascading effect of taxation will be mitigated. ----------------------

3. There will be uniformity in laws, rates of tax, and procedures across ----------------------
states.
----------------------
4. The GST regime is expected to boost manufacturing activities and exports.
This would, in turn, generate more employment and lead to the growth of ----------------------
the economy.
----------------------
5. Indian products would be more competitive in the international markets.
6. The GST system is likely to improve the overall investment climate in ----------------------
India. ----------------------
7. Uniformity in the rates of GST will reduce tax evasion to a large extent.
----------------------
8. The average sales burden experienced by companies is expected to
come down, thereby increasing consumption and boosting subsequent ----------------------
production of goods.
----------------------
9. GST is a simpler system of taxation with smaller number of exemptions.
----------------------
10. There are automated and simplified methods for processes such as
registration, refunds, returns, tax payments, etc. ----------------------
11. All interactions will be handled by the common GSTN website. ----------------------
12. The input tax credit process will be more accurate and transparent, as
electronic matching will be performed. ----------------------

13. The final price of most goods will be lower when taxation is at the new ----------------------
GST rates. There will also be a seamless input tax credit flow between the
manufacturer, retailer, and supplier of service. ----------------------

----------------------

Introduction to GST 101

 Notes 14. A huge segment of small-scale retailers may be either exempt from tax
or may benefit from low tax rates based on the compounding scheme.
---------------------- Consumers will further benefit if purchases are made from these small
retailers.
----------------------

---------------------- 7.6 COMPONENTS OF GST

---------------------- There are three applicable taxes under GST: CGST, SGST & IGST.

---------------------- ●● CGST: Collected by the Central Government on an intra-state sale

(Eg: Within Maharashtra)
----------------------
●● SGST: Collected by the State Government on an intra-state sale
---------------------- (Eg: Within Maharashtra)
●● IGST: Collected by the Central Government for inter-state sale
----------------------
(Eg: Maharashtra to Gujrat)
---------------------- In most cases, the tax structure under the new regime will be as follows:
---------------------- Transaction New Taxation Old Taxation Remarks
Type Regime Regime
----------------------
Sale within the CGST +SGST VAT + Central Revenue will be shared
---------------------- State Excise/Service equally between the
tax Centre and the State
---------------------- Sale to another IGST Central Sales There will only be one
---------------------- State Tax + Excise/ type of tax (central) in
Service Tax case of inter-state sales.
---------------------- The Center will then
share the IGST revenue
---------------------- based on the destination
---------------------- of goods.
Illustration:
----------------------
A dealer in Maharashtra sells goods to a consumer in Maharashtra worth
---------------------- ` 10,000. The GST rate is 18% : comprising CGST of 9% and SGST of 9%.
---------------------- In such cases, the dealer collects ` 1800 and of this amount, ` 900 will go
to the Central Government and ` 900 will go to the Maharashtra government.
----------------------
Now, let us assume the dealer in Maharashtra had sold the goods to a
---------------------- dealer in Gujarat worth ` 10,000.

---------------------- The GST rate is 18% comprising of only IGST. In such case, the dealer has
to charge ` 1800 as IGST. This IGST revenue will go to the Central Government.
----------------------

----------------------

----------------------

----------------------

102 Taxation Laws

 Notes
Check your Progress 1
----------------------
Multiple Choice Multiple Response. ----------------------
1. Which of the following are the constituents of GST
----------------------
a. SGST
----------------------
b. CGST
c. IGST ----------------------

d. PGST ----------------------
2. GST (Goods & Services Tax) Law in India is a: ----------------------
a. Multi-stage tax ----------------------
b. Comprehensive tax
----------------------
c. Destination-based tax
----------------------
d. Value added tax
----------------------

Summary ----------------------

●● The Goods and Services Tax has revolutionized the Indian taxation ----------------------
system. ----------------------
●● Before GST, tax on tax was calculated and tax was paid by every purchaser
including the final consumer. The taxation on tax is called the Cascading ----------------------
Effect of Taxes. ----------------------
●● GST (Goods & Services Tax) Law in India is a multi-stage, comprehensive
and destination-based tax that will be levied on every transaction, goods ----------------------
and services where there is value addition. ----------------------

Keywords ----------------------

----------------------
●● CGST: Central Goods and Service Tax
●● SGST: State Goods and Service Tax ----------------------
●● IGST: Integrated Goods and Service Tax ----------------------

----------------------
Self-Assessment Questions
----------------------
1. Write a short note on constituents of the GST.
----------------------
2. What are the benefits of GST introduction?
3. Which are the taxes replaced in GST law? ----------------------

----------------------

Introduction to GST 103

 Notes Answer to Check your Progress
---------------------- Check your Progress 1
---------------------- Multiple Choice Multiple Response.

---------------------- 1. Which of the following are the constituents of GST?

a. SGST
----------------------
b. CGST
----------------------
c. IGST
---------------------- 2. GST (Goods & Services Tax) Law in India is a:
---------------------- a. Multi-stage tax
---------------------- b. Comprehensive tax
c. Destination-based tax
----------------------

---------------------- Suggested Reading

---------------------- 1. http://www.idtc.icai.org
---------------------- 2. https://www.bankbazaar.com/tax
---------------------- 3. Good And Simple Tax – GST for You, CMA Bhogavalli Mallikarjuna
Gupta, Notion Press, 2017.
----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

104 Taxation Laws

Levy and Collection of Tax
UNIT

8
Structure:

8.1 Introduction
8.2 Composition Levy
8.3 Power to Grant Exemption from Tax
Summary
Keywords
Self-Assessment Questions
Answers to Check your Progress
Suggested Reading

Levy and Collection of Tax 105

 Notes
Objectives
----------------------

---------------------- After going through this unit, you will be able to:

---------------------- ● Understand the concept of Levy and Collection of Tax.

---------------------- ● Define the concept of composition levy.

----------------------

---------------------- 8.1 INTRODUCTION

---------------------- Section 8(1) says that there shall be levied a tax called the Central/State
Goods and Services Tax (CGST/SGST) on all intra-State supplies of goods and/
---------------------- or services on the value determined under section 15 and at such rates as may
---------------------- be notified by the Central/ State Government in this behalf, but not exceeding
14%, on the recommendation of the Council and collected in such manner as
---------------------- may be prescribed.
---------------------- In terms of Section 9 of the CGST Act, 2017, intra-State supplies are
liable to CGST & SGST. In terms of Section 7 of UTGST Act, 2017, intra-
---------------------- State supplies effected by a taxable person located in Union Territory (within
the Union Territory) will be liable to CGST & UTGST.
----------------------
Note (1)
----------------------
Subject to the provisions of sub-section (2), there shall be levied a tax called
---------------------- the central goods and services tax on all intra-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 and at such rates, not exceeding twenty
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.

---------------------- Note (2)

The central tax on the supply of petroleum crude, high speed diesel, motor
---------------------- spirit (commonly known as petrol), and natural gas and aviation turbine fuel
---------------------- shall be levied with effect from such date as may be notified by the Government
on the recommendations of the Council.
----------------------
CGST along with SGST / UTGST is leviable on intra-State supplies. The
---------------------- maximum rate at which Government can levy CGST is 20%. However currently,
the highest rate at which it has been levied is 14% (as decided in the 14th GST
---------------------- council meeting).Alcoholic liquor for human consumption is outside the ambit
of GST. Further petroleum crude, high speed diesel, motor spirit (commonly
----------------------
known as petrol), natural gas and aviation turbine fuel is also kept outside GST
---------------------- for the time being, but can be brought under its regime from such date as may
be notified.
----------------------

106 Taxation Laws

Note (3) Notes
The Government may, on the recommendations of the Council, by
----------------------
notification, specify categories of supply of goods or services or both, the tax
on which shall be paid on reverse charge basis by the recipient of such goods or ----------------------
services or both and all the provisions of this Act shall apply to such recipient
as if he is the person liable for paying the tax in relation to the supply of such ----------------------
goods or services or both.
----------------------
Note (4)
----------------------
The central tax in respect of the supply of taxable goods or services or
both by a supplier, who is not registered, to a registered person shall be paid by ----------------------
such person on reverse charge basis as the recipient and all the provisions of this
Act shall apply to such recipient as if he is the person liable for paying the tax ----------------------
in relation to the supply of such goods or services or both.
----------------------
Note (5)
----------------------
The Government may, on the recommendations of the Council, by
notification, specify categories of services the tax on intra-State supplies of ----------------------
which shall be paid by the electronic commerce operator if such services
are supplied through it, and all the provisions of this Act shall apply to such ----------------------
electronic commerce operator as if he is the supplier liable for paying the tax ----------------------
in relation to the supply of such services: Provided that where an electronic
commerce operator does not have a physical presence in the taxable territory, ----------------------
any person representing such electronic commerce operator for any purpose in
the taxable territory shall be liable to pay tax: Provided further that where an ----------------------
electronic commerce operator does not have a physical presence in the taxable ----------------------
territory and also he does not have a representative in the said territory, such
electronic commerce operator shall appoint a person in the taxable territory for ----------------------
the purpose of paying tax and such person shall be liable to pay tax.
----------------------
GST is normally payable by the supplier of goods or services. However
when the same is payable by the recipient of goods/services, it is called reverse ----------------------
charge. The term ―reverse charge‖ is defined under section 2 (98) of CGST
Act. ----------------------

The supplies in respect of which tax is payable on reverse charge basis ----------------------
are specified in sub- section (4) and (5) of section 9 of CGST Act. Further the
----------------------
government can also notify such categories under sub-section (3) of section 9
of CGST Act. ----------------------

8.2 COMPOSITION LEVY ----------------------

The composition levy is an alternative method of levy of tax designed for ----------------------
small taxpayers. The objective of composition scheme is to bring simplicity and ----------------------
to reduce the compliance cost for the small taxpayers. Moreover, it is optional
and the eligible person opting to pay tax under this scheme can pay tax at a ----------------------
prescribed percentage of his turnover every quarter, instead of paying tax at
normal rate. However to qualify for this scheme, he has to fulfil the mandatory ----------------------

Levy and Collection of Tax 107

 Notes conditions prescribed under the law, one of which is the limit of annual turnover.
(1) Notwithstanding anything to the contrary contained in this Act but subject
----------------------
to the provisions of sub-sections (3) and (4) of section 9, a registered
---------------------- person, whose aggregate turnover in the preceding financial year did
not exceed fifty lakh rupees, may opt to pay, in lieu of the tax payable
---------------------- by him, an amount calculated at such rate as may be prescribed, but not
exceeding,––
----------------------
a) One per cent. of the turnover in State or turnover in Union territory
---------------------- in case of a manufacturer,
---------------------- b) two and a half per cent of the turnover in State or turnover in Union
territory in case of persons engaged in making supplies referred to
---------------------- in clause (b) of paragraph 6 of Schedule II, and
---------------------- c) Half per cent. of the turnover in State or turnover in Union territory
in case of other suppliers, subject to such conditions and restrictions
---------------------- as may be prescribed:
---------------------- d) Provided that the Government may, by notification, increase the
said limit of fifty lakh rupees to such higher amount, not exceeding
---------------------- one crore rupees, as may be recommended by the Council.
---------------------- (2) The registered person shall be eligible to opt under sub-section (1), if:—
---------------------- a) He is not engaged in the supply of services other than supplies
referred to in clause (b) of paragraph 6 of Schedule II;
----------------------
b) He is not engaged in making any supply of goods which are not
---------------------- leviable to tax under this Act;

---------------------- c) He is not engaged in making any inter-State outward supplies of

goods;
---------------------- d) He is not engaged in making any supply of goods through an
---------------------- electronic commerce operator who is required to collect tax at
source under section 52; and
---------------------- e) He is not a manufacturer of such goods as may be notified by the
---------------------- Government on the recommendations of the Council:
f) Provided that where more than one registered persons are having
----------------------
the same Permanent Account Number (issued under the Income-tax
---------------------- Act, 1961), the registered person shall not be eligible to opt for the
scheme under sub-section (1) unless all such registered persons opt
---------------------- to pay tax under that sub-section.
---------------------- (3) The option availed of by a registered person under sub-section (1) shall
lapse with effect from the day on which his aggregate turnover during a
---------------------- financial year exceeds the limit specified under sub-section (1).
---------------------- (4) A taxable person to whom the provisions of sub-section (1) apply shall
not collect any tax from the recipient on supplies made by him nor shall
---------------------- he be entitled to any credit of input tax.

108 Taxation Laws

(5) If the proper officer has reasons to believe that a taxable person has paid Notes
tax under sub- section (1) despite not being eligible, such person shall, in
addition to any tax that may be payable by him under any other provisions ----------------------
of this Act, be liable to a penalty and the provisions of section 73 or
section 74 shall, mutatis mutandis, apply for determination of tax and ----------------------
penalty. ----------------------
●● The Composition scheme is not available to supplier of services
----------------------
except restaurant service.
●● Taxable person whose all supplies of goods and services are within ----------------------
the state only are eligible.
----------------------
●● Taxable person who opts for this scheme will not be allowed to
charge GST in their invoice. They will issue a bill of supply instead ----------------------
of Tax invoice. They are also not entitled to take input tax credit.
----------------------
●● The scheme lapses on the day his aggregate turnover exceeds the
specified aggregate turnover limit. ----------------------

●● A registered taxable person having same PAN and multiple ----------------------

registrations in different states have to opt for the composition
scheme for all states. ----------------------

----------------------
8.3 POWER TO GRANT EXEMPTION FROM TAX
1. Where the Government is satisfied that it is necessary in the public interest ----------------------
so to do, it may, on the recommendations of the Council, by notification, ----------------------
exempt generally, either absolutely or subject to such conditions as may
be specified therein, goods or services or both of any specified description ----------------------
from the whole or any part of the tax leviable thereon with effect from
such date as may be specified in such notification. ----------------------

2. Where the Government is satisfied that it is necessary in the public interest ----------------------
so to do, it may, on the recommendations of the Council, by special order
----------------------
in each case, under circumstances of an exceptional nature to be stated in
such order, exempt from payment of tax any goods or services or both on ----------------------
which tax is leviable.
----------------------
3. The Government may, if it considers necessary or expedient so to do for
the purpose of clarifying the scope or applicability of any notification ----------------------
issued under sub-section (1) or order issued under sub-section (2),
insert an explanation in such notification or order, as the case may be, ----------------------
by notification at any time within one year of issue of the notification
----------------------
under sub-section (1) or order under sub-section (2), and every such
explanation shall have effect as if it had always been the part of the first ----------------------
such notification or order, as the case may be.
----------------------
Explanation.––For the purposes of this section, where an exemption
in respect of any goods or services or both from the whole or part of the tax ----------------------
leviable thereon has been granted absolutely, the registered person supplying
----------------------

Levy and Collection of Tax 109

 Notes such goods or services or both shall not collect the tax, in excess of the effective
rate, on such supply of goods or services or both.
----------------------

----------------------
Check your Progress 1

---------------------- Fill in the Blanks.

---------------------- 1. CGST along with SGST / UTGST is leviable on __________ supplies.

---------------------- 2. The Composition scheme is not available to supplier of services

except ______________.
----------------------

----------------------
Activity 1
----------------------

---------------------- Visit the website of Central Board of Indirect Taxes & Customs of India and
read the provisionsrelated to valuation of taxable perquisites.
----------------------

----------------------
Summary
----------------------
●● The composition levy is an alternative method of levy of tax designed for
---------------------- small taxpayers whose turnover is up to 1.5 Crore.( as decided in the 23rd
GST council meeting, 2019)
----------------------

---------------------- Keywords
---------------------- ●● Composition levy: Alternative method of levy of tax designed for small
taxpayers whose turnover is up to 1.5 Crore.
----------------------
●● UTGST: is a part of Goods and Service Tax in India. A separate Act is
---------------------- being implemented for Union Territory states to imposed and administered
under GST.
----------------------

---------------------- Self-Assessment Questions

---------------------- 1. A person availing composition scheme during a financial year crosses
---------------------- the turnover of ` 75 lakhs/50 lakhs during the course of the year i.e. say
he crosses the turnover of ` 75 lakhs/50 lakhs in December? Will he be
---------------------- allowed to pay tax under composition scheme for the remainder of the
year i.e. till 31st March?
----------------------

----------------------

----------------------

----------------------

110 Taxation Laws

Answers to Check your Progress Notes

Check your Progress 1 ----------------------

Fill in the Blanks ----------------------
1. CGST along with SGST / UTGST is leviable on Intra-State supplies. ----------------------
2. The Composition scheme is not available to supplier of services except
----------------------
restaurant service.
----------------------
Suggested Reading ----------------------
1. https://www.icsi.edu/media/webmodules/customs%20laws/Levy_&_ ----------------------
Collection_CGST(11- 2).pdf
----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

Levy and Collection of Tax 111

 Notes

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

112 Taxation Laws