UNIT 1.

Indian Taxation History As we all know that evolution means the process of developing by gradual changes. Taxation history in India as it stands today has developed
over the years since ancient times to modern day tax laws. The first Income tax Act was introduced in India in Feb 1860 by James Wilson who was India’s first Finance
Minister under the British Rule. He also quoted the authority of Manu for levying Income Tax in India. The salient feature of the then Income Tax Act was that it
consisted of 259 sections and other salient features of the Act were as under:-

“Income was classified under four schedules as follows:

i) Income from landed property;

ii) Income from professions and trade;
iii) Income from securities, annuities and dividends;
iv) Income from salaries and pensions.

A tax was imposed on each one of these sources. The exemption limit for the general public was fixed at Rs. 200, against the exemption limit of Rs. 4980 to the
military and the police officials, and Rs. 2100 for the naval and marine officers. Agricultural income was subject to tax. The rate of tax was 2 percent for income
between rs. 200 and Rs. 499 and over that, 4 percent, out of the 4 percent charge 1 percent was to be retained by the provincial Governments and 3 percent was to
go to the Central Government. Compulsory returns were required to be submitted by all who were liable to tax. The administration of the tax was left in the hands of
the land revenue officers except in Calcutta and the financial year commenced on 1st of August, 1860.” In addition to above certain other taxes were levied like
Custom tax, Salt tax. The Salt Tax was abolished after Salt Satyagrah started after Dandi March by Mahatma Gandhi. Urban local bodies’ taxation was brought by Lord
Rippon in 1882 which was aimed at decentralization which gave power to municipal taxes for development and infrastructure of local areas. The Act of 1860 was
revised in 1886 to improve on some categories for which tax can be levied. The next important revision was in the form of Income Tax Act 1922 which was very
important because it was only then that Income Tax Department came into existence. After independence the Indian Income Tax Act 1961 came into existence after
consultation with the Ministry of Law effective from 1st April 1962. This Act was amended from time to time through Union Budgets and amendments Acts. It is
noteworthy that in the tax history of India at one time the rate of personal income tax was as high as 97.5 percent which has gradually been brought down to 30
percent with additional surcharges etc which varied from time to time. The rate of tax at 30% is lower even than some advanced countries in the world. The corporate
taxes has also been reduced considerably upto 15% for certain categories of corporate tax payers.
What are the Constitutional Provisions Relating to Taxation?
The Constitution of India is the supreme law of the land and all laws in India must be consistent with its provisions. The constitutional provisions relating to taxation
in India are contained in Articles 265 to 289 of the Constitution of India. These articles outline the powers of the Union and the States to levy taxes, as well as the
procedures for assessing and collecting taxes.
Some of the key constitutional provisions relating to taxation include:
 Article 265: This article states that no tax can be levied or collected except by the authority of law. This means that all taxes must be imposed by a valid law and that
no tax can be levied or collected without the authority of law.
 Articles 268 to 270: These articles deal with the levy of duties of customs, excise and other taxes on goods imported into or exported out of India. These taxes are
levied by the Union government and the proceeds are shared between the Union and the States.
 Article 286: This article restricts the power of the States to levy taxes on goods and services that are imported into or exported out of India. This is to prevent States
from taxing goods that are in transit between different States.
 Articles 276 and 277: These articles deal with taxes that can be levied by the States for the benefit of the State or for the benefit of a municipality, district board or
other local authority. These taxes are known as “cess” taxes and they can be levied on a variety of subjects, such as professions, trades, callings and employment.
 Articles 271 and 279: These articles deal with taxes that can be levied by the Union and the States concurrently. This means that both the Union and the States can
levy taxes on the same subject, but the Union government has the power to override any State law that conflicts with a Union law.
 Articles 273, 275, 274 and 282: These articles deal with grants-in-aid that can be given by the Union government to the States. These grants are given to help the
States meet their financial needs and they can be used for a variety of purposes, such as education, health and infrastructure development.
The constitutional provisions relating to taxation are complex and have been interpreted by the courts in a number of cases. However, these provisions provide the
basic framework for the taxation system in India.

Article 265
Without the ‘authority of law,’ no taxes can be collected is what this article means in simple terms. The law here means only a statute law or an act of the legislature.
The law when applied should not violate any other constitutional provision. This article acts as an armour instrument for arbitrary tax extraction.
In the case Tangkhul v. Simirei Shailei, all the villagers were paying Rs 50 a day to the head man in place of a custom to render free a day’s labour. This was done every
year and the practice had been continuing for generations. The Court, in this case, held that the amount of Rs. 50 was like a collection of tax and no law had
authorized it, and therefore it violated Art 265. Article 265 is infringed every time the law does not authorize the tax imposed.
In the case, Lord Krishna Sugar Mills v. UOI, sugar merchants had to meet some export targets in a promotion scheme started by the government but if they fell short
of the targets then an additional excise duty was to be levied on the shortfall. The court intervened here and said that the government had no authority of law to
collect this additional excise tax. What this means in effect is that the government on its own cannot levy this tax by itself because it has not been passed by the
Parliament.

Article 266
This article has provisions for the Consolidated Funds and Public Accounts of India and the States. In this matter, the law is that subject to the provisions of Article
267 and provisions of Chapter 1 (part XII), the whole or part of the net proceeds of certain taxes and duties to States, all loans raised by the Government by the issue
of treasury bills, all money received by the Government in repayment of loans, all revenues received by the Government of India, and loans or ways and means of
advances shall form one consolidated fund to be entitled the Consolidated Fund of India. The same holds for the revenues received by the Government of a State
where it is called the Consolidated Fund of the State. Money out of the Consolidated Fund of India or a State can be taken only in agreement with the law and for the
purposes and as per the Constitution.
Article 268
This gives the duties levied by the Union government but are collected and claimed by the State governments such as stamp duties, excise on medicinal and toilet
preparations which although are mentioned in the Union List and levied by the Government of India but collected by the state (these duties collected by states do not
form a part of the Consolidated Fund of India but are with the state only) within which these duties are eligible for levy except in union territories which are collected
by the Government of India.
Article 269 provides the list of various taxes that are levied and collected by the Union and the manner of distribution and assignment of Tax to States. In the case
of M/S. Kalpana Glass Fibre Pvt. Ltd. Maharashtra v. State of Orissa and Others, placing faith in a judgement of the Apex Court in the case of Gannon Dunkerley & Co.
and others v. State of Rajasthan and others, the advocate from the appellant side submitted that to arrive at a Taxable Turnover, turnover relating to inter-State
transactions, export, import under the CST Act are to be excluded. Thus, the provision of the State Sales Tax Act is always subject to the provisions of Sections 3 and 5
of the CST Act. Sale or purchase in the course of interstate trade or commerce and levy and collection of tax thereon is prohibited by Article 269 of the Constitution of
India.
Article 269(A)
This article is newly inserted which gives the power of collection of GST on inter-state trade or commerce to the Government of India i.e. the Centre and is named
IGST by the Model Draft Law. But out of all the collecting by Centre, there are two ways within which states get their share out of such collection
1. Direct Apportionment (let say out of total net proceeds 42% is directly apportioned to states).
2. Through the Consolidated Fund of India (CFI). Out of the whole amount in CFI a selected prescribed percentage goes to the States.
Article 270
This Article gives provision for the taxes levied and distributed between the Union and the States:
 All taxes and duties named within the Union List, except the duties and taxes named in articles 268, 269 and 269A, separately.
 Taxes and surcharges on taxes, duties, and cess on particular functions which are specified in Article 271 under any law created by Parliament are
extracted by the Union Government.
 It is distributed between the Union and the States as mentioned in clause (2).
 The proceeds from any tax/duty levied in any financial year, is assigned to the states where this tax/duty is extractable in that year but it doesn’t form a
part of the Consolidated Fund of India.
 Any tax collected by the centre should also be divided among the centre and states as provided in clause (2).
 With the introduction of GST 2 sub-clauses having been added to this Article- Article 270(1A) and Article 20(1B7).
The Supreme Court of India has set a famous judicial precedent under Article 270 of the Constitution of India in the case T.M. Kanniyan v. I.T.O. The SC, in this case,
propounded that the Income-tax collected forms a part of the Consolidated Fund of India. The Income-tax thus extracted cannot be distributed between the centre,
union territories, and states which are under Presidential rule.
Article 271
At times the Parliament for the Union Government (only when such a requirement arises), decides to increase any of the taxes /duties mentioned in article 269 and
Article 270 by levying an additional surcharge on them and the proceeds from them form a part of the Consolidated Fund of India. Article 271 is an exception to
Article 269 and Article 270. The collection of the surcharge is also done by the Union and the State has no role to play in it.
Cess and surcharge
There seems to be a lot of confusion between cess and surcharge. Cess is described in Article 270 of the Constitution of India. Cess is like a fee imposed for a
particular purpose that the legislation charging it decides. Article 271 deals with a surcharge which is nothing but an additional tax on the existing tax collected by the
union for a particular purpose. Proceeds from both the cess and surcharge form part of the Consolidated Fund of India In the case of m/s SRD Nutrients Private
Limited v. Commissioner of Central Excise, Guwahati, the Supreme Court was presented with the question: If on excisable goods an education cess can be levied
before the imposition of cess on goods manufactured but cleared after imposition of such cess. The judgement given in this case was in favour of the manufacturer
but the judges, Justice A K Sikri and Justice Ashok Bhushan observed that education and higher education cess are surcharges.
Grants-in-aid
The constitution has provisions for sanctioning grants to the states or other federating units. It is Central Government financial assistance to the states to
balance/correct/adjust the financial requirements of the units when the revenue proceeds go to the centre but the welfare measures and functions are entrusted to
the states. These are charged to the Consolidated Fund of India and the authority to grant is with the Parliament.
Article 273
This grant is charged to the Consolidated Fund of India every year in place of any share of the net proceeds, export duty on products of jute to the states of Assam,
Bihar, Orissa, and West Bengal. This grant will continue and will be charged to the Consolidated Fund of India as long as the Union government continues to levy
export duty on jute, or products of jute or the time of expiration which is 10 years from its commencement.
Article 275
These grants are sanctioned as the parliament by law decides to give to those states which are in dire need of funds and assistance in procuring these funds. These
funds /grants are mainly used for the development of the state and for the widening of the welfare measures/schemes undertaken by the state government. It is also
used for social welfare work for the Scheduled tribes in their areas.
Article 276
This article talks about the taxes that are levied by the state government, governed by the state government and the taxes are collected also by the state
government. But the taxes levied are not uniform across the different states and may vary. These are sales tax and VAT, professional tax and stamp duty to name a
few.
Article 277
Except for cesses, fees, duties or taxes which were levied immediately before the commencement of the constitution by any municipality or other local body for the
purposes of the State, despite being mentioned in the Union List can continue to be levied and applied for the same purposes until a new law contradicting it has
been passed by the parliament.
In the case Hyderabad Chemical and Pharmaceutical Works Ltd. v. State of Andhra Pradesh, the appellant was manufacturing medicines for making which they had to
use alcohol, the licenses for which were procured under the Hyderabad Abkari Act and had to pay some fees to the State Government for the supervision. But the
parliament passed the Medicinal and Toilet Preparations Act, 1955 under which no fee had to be paid but the petitioner challenged the levy of taxes by the state after
the passing of the Medicinal and Toilet Preparations Act, 1955 because according to Article 277, entry 84 of list 1 in the 7th schedule, the state could not levy any fee.
The difference between tax and fee was explained. Proceeds from tax collection are used for the benefit of all the taxpayers but a fee collected is used only for a
specific purpose.
Article 279
This article deals with the calculation of “net proceeds” etc. Here ‘net proceeds’ means the proceeds which are left after deducting the cost of collection of the tax,
ascertained and certified by the Comptroller and Auditor-General of India.
Article 282
It is normally meant for special, temporary or ad hoc schemes and the power to grant sanctions under it is not restricted. In the case Bhim Singh v. Union of India &
Ors the Supreme Court said that from the time of the applicability of the Constitution of India, welfare schemes have been there intending to advance public welfare
and for public purposes by grants which have been disbursed by the Union Government. In this case, the Scheme was MPLAD (Member of Parliament Local Area
Development Scheme) and it falls within the meaning of ‘public purpose’ to fulfil the development and welfare projects undertaken by the state as reflected in the
Directive Principles of State Policy but subject to fulfilling the constitutional requirements. Articles 275 and 282 are sources of granting funds under the Constitution.
Article 282 is normally meant for special, temporary or ad hoc schemes and the power to grant sanctions under it is not restricted. In the case Cf. Narayanan
Nambudripad, Kidangazhi Manakkal v. State of Madras, the Supreme Court held that the practice of religion is a private purpose. And donations and endowments
made are therefore not a state affair unless the state takes the responsibility of the management of such religious endowment for a public purpose and uses the
funds for public welfare measures. So it can be seen that Article 282 can be used for a public purpose but at times in the name of public purpose it can even be
misused.
 Article 286
This article restricts the power of the State to tax
1) The state cannot exercise taxation on imports/exports nor can it impose taxes outside the territory of the state.
2) Only parliament can lay down principles to ascertain when a sale/purchase takes place during export or import or outside the state. (Sections 3, 4, 5 of the Central
Sales Tax Act, 1956 have been constituted with these powers)
3) Taxes on sale/purchase of goods that are of special importance can be restricted by the parliament and the State Government can levy taxes on these goods of
special importance subject to these restrictions (Section 14 and Section 15 of Central Sales Act, 1956 have been constituted to impose restrictions on the state
Government to levy taxes on these goods of special importance). In the case of K. Gopinath v. the State of Kerala, Cashew nuts were purchased and imported by the
Cashew Corporation of India from African suppliers and sold by it to local users after processing it. The apex court held that this sale was not in the course of import
and did not come under an exemption of the Central Sales Tax Act, 1956. The issue before the court was to decide whether the purchases of raw cashew nuts from
African suppliers made by the appellants from the cashew corporation of India) fall under the nature of import and, therefore protected from liability to tax under
Kerala General Sales Tax Act, 1963. The judgement here went against the appellants.
Article 289
State Governments are exempted from Union taxation as regards their property and income but if there is any law made by the parliament in this regard then the
Union can impose the tax to such extent.
Some other tax-related provisions
1. Article 301 which states that trade, commerce and inter-course are exempted from any taxation throughout India except for the provisions mentioned
in Article 302, 303, and 304 of the Indian Constitution, 1949.
2. Article 302 empowers the parliament to impose restrictions on trade and commerce in view of public interest.
3. Article 303– Whenever there is the scarcity of goods this article comes in play. Discrimination against the different State Governments is not permitted
under the law except when there is a scarcity of goods in a particular state and this preference to that state can be made only by the Parliament and in
keeping with the law.
4. Article 304– permits a State Government to impose taxes on goods imported from other States and Union Territories but it cannot discriminate
between goods from within the State and goods from outside the State. The State can also exercise the power to impose some restrictions on freedom
of trade and commerce within its territory.
Article 366
Apart from all these provisions, there are other provisions also that require mention such as Article 366 which gives the definition of:
 Goods;
 Services;
 Taxation;
 State;
 Taxes that are levied on the sale/purchase of goods;
 Goods and service tax etc.
DIFFERENCES BETWEEN TAX, FEES AND CESS

FEE TAX
There must be actual quid pro quo for a fee has undergone a sea A tax is levied as a part of a common burden
changed
While a fee is for payment of a specific benefit or privilege although If the element of revenue for general purpose of the State
the special to the primary purpose of regulation in public interest. predominates, the levy becomes a tax.
In regard to fee, there is and must always be, correlation between the
fee collected and the service intended to be rendered.
The power to levy tax or fee is not coextensive with each other and different meanings have been ascribed to the term ‘fee’ and ‘tax’. Initial judgments of the Hon’ble
Supreme Court have carved ‘quid pro quo test’ between the fees collected and the services rendered to identify fees from tax. Tax was considered to be a general
burden for public welfare whereas levy of fee corelates to expenses incurred by the government in rendering a service. The fees collected were to be kept in a
separate funds and not to be added to the Consolidated Fund.
Basis Tax Cess

Introduction Type of financial charge Kind of tax collected for specific

imposed by a government on purpose
wealth and income
Scope Wider Limited

Purpose/Objective Generating revenue Collecting fund for special

purpose

It Is Kind Of Fee Kind of tax

Examples Direct and indirect tax Educational cess, healthcare cess

etc.

- Tax is a mandatory charge levied by the tax authority to generate government revenue. But cess is collected by the authority (generally by local government) to raise
fund for specific purpose.
- Scope of tax is wider than cess because cess is only a kind of tax.

What is Tax Evasion and Tax Avoidance?

To define tax evasion and tax avoidance both of them are used to reduce tax obligations. But, among tax evasion or avoidance, avoidance is legal while the other is
not.
Tax Evasion refers to illegal means of lowering taxes, like hiding income sources. It can lead to legal repercussions. Tax Avoidance refers to the use of government
tools and tax-free instruments to reduce taxable income. The effects of tax evasion and tax avoidance are paying fewer taxes and having more in-hand income.
What is Tax Evasion?
Among tax evasion and avoidance, evasion is an illegal method. It is a fraud in which the person aims to pay fewer taxes. They may show less income or not report
any source. Tax evasion happens often, and the authorities are responsible for curtailing it. They can check any individual's or business's tax returns if anything is
suspicious. They have to assess the income and resources of individuals and businesses. The authorities can also raid such taxpayers to understand if they've
committed tax evasion avoidance. Read the examples below to differentiate between tax avoidance and tax evasion.
o Tax evasion can be when a business owner doesn't report a few cash sales to show a lower income, leading to lower taxes.
o Tax evasion can also be when a person claims an unjustified deduction. One may report they've paid more interest for life insurance. It is a deduction for
taxable income.
o Business owners may present a personal expense as a business expense. It reduces the profit and the tax.
o Tax evasion can also be through concealing documents or if records are not maintained.
These practices are fraud and help differentiate between tax planning, tax evasion, and tax avoidance. The taxpayer may have to pay fines or even prison terms.
Find out about the Scope and Importance of International Business here.
What is Tax Avoidance?
The major difference tax avoidance and tax evasion display is the legality. Tax Avoidance is legal and offered by the government. It includes several deductions and
exemptions, which lowers the taxable income. Taxpayers can avoid tax on certain gains and have more in-hand money.
o To distinguish between tax planning, tax avoidance, and tax evasion is the nature of the act. Planning and avoidance go hand-in-hand as one can plan
taxes for the future. Evasion happens when the tax is due, and the person doesn't want to pay it. It constitutes a crime.
o One can plan for tax-free investments in the financial year and avoid tax on that income. To choose between tax avoidance versus tax evasion, one must
go for avoidance as it's the moral path. It also encourages good investment habits.
Find some tools for tax avoidance discussed below.
o Section 80C in India's Income Tax Act mentions several investment schemes to help save money. For example, public provident fund, ELSS, national savings
certificate, etc.
o Taxpayers can make tax avoidance investments in the financial year to claim deductions on their taxable income. Other instruments like education or
electric vehicle loan are also helpful for saving tax.
o In tax planning vs tax avoidance vs tax evasion, one should plan their income, investments, loans, and needs to decide how they can legally lower taxes.
The difference between tax evasion and avoidance helps taxpayers choose a better path. Tax evasion and tax avoidance can lower taxes. But, you may end up
paying much more than your due tax as penalties for tax evasion. Avoidance helps people adopt the legal way. It also helps promote better investment habits.
Tax Evasion and Tax Avoidance Differences Overview
The difference between tax evasion and tax avoidance in India is the method. Evasion is a crime, while avoidance is an encouraged investment plan. Tax evasion tax
planning and tax avoidance might have the same purpose, but avoiding evasion is necessary. Tax planning refers to evaluating taxes and making plans and
investments to reduce the same in a financial year.
o The difference between tax planning and tax evasion and tax avoidance is the legal status. Tax planning and avoidance are recommended and legit in
the eyes of law whereas tax evasion is a crime with legal punishment.
o The definition of tax evasion and tax avoidance both mention it as tax saving measures. Section 80C helps taxpayers plan tax avoidance methods. It can
be investments, interest incomes, or interest payments.
Difference between Tax Evasion and Tax Avoidance
Refer to the following points to differentiate between tax evasion and tax avoidance.
Basis Tax Evasion Tax Avoidance Tax Planning
Nature Tax Evasion is an illegal method to Tax Avoidance is a legal method to Tax planning refers to steps
reduce or avoid taxes reduce taxable income and pay fewer and plans to reduce tax
taxes obligations and save money.
Motive The motive of tax evasion is to The tax Avoidance motive is to use The motive is to reduce taxes
avoid taxes for an income or legal ways to reduce taxable income. and have more in-hand
revenue completely. It requires One can use government-sanctioned income.
lying to the authorities to pay less investments to earn without paying
money. taxes.
Consequences Tax evasion is a criminal offense. It Tax Avoidance is legal and doesn't Tax planning is legal and
can lead to imprisonment and fines lead to punishment. However, if the encouraged for both
for the individual. individual shows incorrect deductions, individuals and companies.
they may face charges.
Timing Evasion happens after the income Tax Avoidance happens before the tax Tax planning is done before
tax is due for the taxpayer liability occurs for the individual the assessment year. The
individual can make the
necessary investments to
reduce taxes.
Method Illegal means like concealing Legal means of tax planning before Investment in tax-exempt
documents or not reporting income the assessment year investments and claiming
deductions.
Example Reporting less income or hiding Investment in employee provident Investment in the employee
cash transactions during tax returns fund, National savings certificate provident fund
o The differences mentioned above help distinguish between tax avoidance and tax evasion. One can invest money in tax avoidance instruments in the
financial year. It also promotes saving habits for people.
Examples of Tax Evasion and Tax Avoidance
Tax avoidance vs. tax evasion vs. tax planning can be understood better with the following examples.
 Tax Evasion
Among tax evasion and tax avoidance, evasion is possible with both illegal and legal businesses. For example, a shopkeeper might be selling bread at his grocery
store. The bread is sold with cash. The shopkeeper does not report this income. The income from an all-cash business can be tax evasion.
Tax Avoidance
Tax avoidance and tax evasion with case law are easily understandable. Among tax evasion and tax avoidance, avoidance can be investments. Investment in the
national savings certificate of the government can help reduce taxable income. This is present in the Income Tax Act.

Ethics of Tax Avoidance and Tax Evasion

The ethics have been stated below.
o Legal Compliance: Some argue that as long as one is adhering to the letter of the law, their actions are ethically acceptable. Others argue that just because
something is legal doesn't make it ethical, and there's a moral obligation to contribute to society through taxes.
o Social Responsibility: From a societal perspective, there may be an ethical obligation to contribute to the common good. Taxes fund public services and
infrastructure, and some argue that individuals and businesses should pay their fair share.
o Fairness: Ethical concerns often revolve around the perceived fairness of the tax system. If some entities exploit legal loopholes to pay significantly less in
taxes than others with similar income or profits, it may be seen as unfair.
The ethics of tax avoidance and tax evasion depend on individual perspectives, societal values, and the specific actions taken. While tax avoidance is generally legal,
the ethical line can be subjective and may be influenced by considerations of fairness, social responsibility, and the overall impact on the community. Tax evasion,
being illegal, is almost universally condemned on ethical grounds. Public debate often centers around striking a balance between the right to minimize taxes within
the bounds of the law and the ethical responsibility to contribute to the public welfare.

UNIT 2
Income: [Sec. 2(24)]
The definition of ‘Income’ given under section 2(24) is inclusive and not exhaustive and therefore it may be possible that certain items may be considered as income
under this Act according to its general and natural meaning, even if it is not included under section 2(24). The term ‘Income’ includes the following:

 Profits and gains;
 Dividend;
 Voluntary contributions received by a trust which is created wholly or partly for charitable or religious purposes; or by educational institutions, hospitals or electoral
trust;
 The value of any perquisite or profit in lieu of salary taxable u/s 17;
 Any special allowance granted to the assessee to meet expenses wholly, necessarily and exclusively for the performance of office or employment duties;
 The value of any benefit or perquisite, whether converted into money or not, obtained from a company either by a director or by a person who has substantial
interest in the company or by a relative of the director or such person, and any sum paid by any such company in respect of any obligation which, otherwise, would
have been payable by the director or other person aforesaid;
 The value of benefit or perquisite to a representative assessee like a trustee appointed under a trust;
 Any sum chargeable to income-tax under clauses (ii) and (iii) of sec. 28 or sec. 41 or sec. 59;
 Any sum chargeable to income-tax under clauses (iiia), (iiib), (iiic), (iv), (v), (va) and (via) of sec. 28;
 Any capital gains chargeable u/s 45;
 The profits and gains of any insurance business carried on by a mutual insurance company or by a co-operative society, computed in accordance with section 44 or
any surplus taken to be such profit and gains by virtue of provisions contained in the First Schedule;
 The profits and gains of any of banking business (including providing credit facilities) carried on by a co-operative society with its members;
 Winnings from lottery, crossword puzzles, races (including horse races), card games or other games of any sort or from gambling or betting;
 Any sum received by the assessee from his employees as contributions to any provident fund or superannuation fund or any fund set up under Employees’ State
Insurance Act, 1948 or any fund for the welfare of such employee; [Sec. 2(24)(x)]
 Any amount received under the Keyman insurance policy including the sum allocated by way of bonus; [Sec. 2(24)(xi)]
 Any sum chargeable to income-tax u/s 56(2)(v), (vi);
 Any sum of money or specified movable or immovable properties received without consideration or inadequate consideration as provided u/s 56(2)(vii), (via);
 Any consideration received for issue of shares as exceeds the FMV of shares referred to in section 56(2)(viib);
 Any sum of money received as advance in the course of negotiation for transfer of a capital asset, if such sum is forfeited as the negotiation do not resulted in transfer
of the asset 56(2)(ix);
 Any sum chargeable to income-tax u/s 56(2)(x);
 Any compensation or other payment referred to in Sec. 56(2)(xi);
 Income shall include assistance received in the form of a subsidy or grant or cash incentive or duty drawback or waiver or concession or reimbursement (by whatever
name called) from the Central Government or a State Government or any other authority or body or agency in cash or kind to the assessee other than:
(a) the subsidy or grant or reimbursement which is taken into account for determination of the actual cost of the asset in accordance with the provisions
of Explanation 10 to clause (1) of section 43,
(b) the subsidy or grant by the Central Government for the purpose of the corpus of a trust or institution established by the Central Government or the State
Government, as the case may be.
Previous year: [Sec. 3]
The year in which income is earned, i.e. the financial year immediately preceding the assessment year, is called the previous year and the tax shall be paid on such
income in the next year which is called the assessment year. This means that the tax is levied on the income in the year in which it is earned; referred as previous year
and the tax on such income will be paid in the assessment year. All assessees are required to follow a uniform previous year i.e. the financial year starting from
1st April and ending on 31st March.
Assessment year: [Sec. 2(9)]
Assessment year means a period of 12 months commencing on 1st April every year. The total income earned by the assessee during the previous year shall be
chargeable to tax in the next year; which is termed as the assessment year. For example, for the previous year 2023-24, the relevant assessment year shall be 2024-
25 (1.4.2024 to 31.3.2025).
Person: [Sec. 2(31)]
As the income tax is levied on the total income of the previous year of every ‘person’, it becomes important to understand the term ‘Person’. The term ‘person’
includes the following seven categories:
(i) an individual,
 (ii) a Hindu Undivided Family (HUF),
(iii) a company,
(iv) a firm,
(v) an Association of Persons (AoP) or a Body of Individuals (BoI), whether incorporated or not,
(vi) a local authority, and
(vii) every artificial juridical person not falling within any of the preceding sub-clauses e.g., a university or deity.
As per Explanation to Sec. 2(31), an AoP/BoI/Local authority or any artificial juridical person shall be deemed to be a person, irrespective of whether they were
formed or established with the purpose of earning or deriving profits or not.
6. Assessee: [Sec. 2(7)]
Assessee means a person by whom any tax or any other sum of money is payable under this Act. It also includes the following:
(i) Every person in respect of whom any proceeding under this Act has been taken for the assessment of his income;
(ii) Every person who is deemed to be an assessee under any provisions of this Act. Sometimes, a person becomes assessable in respect of the income of some other
persons. In such case also, he is considered as an assessee. For example, legal representative of a deceased person;
(iii) Every person who is deemed to be an assessee in default under any provision of this Act. For example, where a person making any payment to other person is
liable to deduct tax at source, and if he has not deducted tax at source or has deducted but not deposited the tax with the government; he shall be deemed to be an
assessee in default.
Income Tax Law
Income-tax is a tax levied on the total income of an assessee, being a person charged under the provisions of this Act, for the relevant previous year.
For understanding Income tax law in India, the following components need to be studied carefully:
(1) Income-tax Act, 1961
(2) Annual Finance Acts
(3) Income-tax Rules, 1962
(4) Notification and Circulars, issued from time to time
(5) Judicial Decisions
1.1 Income-tax Act, 1961
The levy of income-tax in India is governed by the Income-tax Act, 1961 which extends to whole of India and came into force on 1 st April, 1962. The Act contains 298
sections and XIV schedules. It contains provisions for determination of taxable income, tax liability, assessment procedures, appeals, penalties and prosecutions.
These undergo changes every year with additions and deletions brought by the Annual Finance Act passed by the Parliament.
1.2 Annual Finance Acts
Every year, Finance Bill is introduced by the Finance Minister of the Government of India in the Parliament’s Budget Session. When the Finance Bill is passed by both
the Houses of the Parliament and gets the assent of the President, it becomes the Finance Act. Amendments are made every year to the Income-tax Act, 1961 and
other tax laws by the Finance Act. Finance Bill also mentions the Rates of Income tax and other taxes given in various schedules which are attached to it. Therefore,
though Income-tax Act is a settled law, the operative effect is given by the Annual Finance Act.
1.3 Income-tax Rules, 1962
Central Board of Direct Taxes (CBDT) looks after the administration of direct taxes and is empowered u/s 295 of the Income Tax Act, to make rules for carrying out the
purposes of the Act and thereby it frames various rules from time to time for the proper administration of the Income-tax Act, 1961. These rules were first framed in
1962 and are thereby collectively called Income-tax Rules, 1962. It is important to read these rules along with the Income-tax Act, 1961. The power to make rules
under this section shall also include the power to give retrospective effect, but not earlier than the date of commencement of this Act. However, such retrospective
effect shall not be given so as to prejudicially affect the interests of the assessees.
1.4 Circulars and Notifications
Circulars are issued by the CBDT from time to time to deal with certain specific problems and to clarify doubts regarding the scope and meaning of the provisions.
These circulars are issued for the guidance of the officers and/or assessees. These circulars are binding on the department and not on the assessee and therefore the
assessee can take advantage of beneficial circulars.
Notifications are issued by the Central Government to give effect to the provisions of the Act. For example, u/s 10(15)(iv)(h), interest on bonds and debentures are
exempt by the Central Government subject to such conditions through Notifications. The CBDT is also empowered to make and amend rules for the purposes of the
Act by issue of notifications. For example, u/s 35CCD, the CBDT is empowered to prescribe guidelines for notification of skill development project.
1.5 Judicial Decisions
Judicial decisions are an important and unavoidable part of the study of income-tax law. For the Parliament, it is not possible to provide for all possible issues that
may arise in the implementation of any Act and hence the judiciary will have to consider various cases between the assessees and the department and give
decisions on various issues. The Supreme Court is the Apex Court of the country and the law laid down by the Supreme Court is the law of the land. In case, where
the apparently contradictory decisions are given by benches having similar number of judges, the principle of the later decision would be applicable. The decisions
given by various High Courts will apply in the respective states in which such High Courts have jurisdiction.
Total Income
Total Income is defined under Section 2(45) with the scope defined by Section 5 of the Income Tax Act, 1961
 If you are an Indian resident in the previous year, any income received, accrued or deemed to be received by you will be accounted for
 If you are not ordinarily resident in the previous year, incomes arising out of India will be included only if they are from a business controlled or performed from India
 In the case of non-residents (NRI), only incomes arising or accruing in India will be counted
 Total Income is arrived by deducting all eligible deductions from “Gross Total Income”
Your tax liability will be estimated on the Total Income. In simple terms, you pay tax on your Total Income.

10. Total Income and Computation of Tax Liability

Total income of an assessee means the Gross Total Income (GTI) as reduced by the amount of deduction available under sections 80C to 80U.

1. Income from Salaries

Income from salary ……..

Add: Taxable allowances ……..

Add: Taxable perquisites ………

Gross Salary ……..

Less: Deductions u/s 16

– Standard deduction

– Entertainment allowance ……..

– Professional tax ……..

Taxable Income under the head ‘Salaries’ ……..

2. Income from House Property

Net Annual Value ……..

Less: Deductions u/s 24 ……..

Taxable Income under the head ‘Income from House Property’ ……..

3. Profits and Gains of Business and Profession

Net profit as per Profit and Loss Account ……..

Add: Amounts debited to P & L A/c but are not allowable as deduction under the Act ……..

Add: Amounts not credited to P & L A/c but are taxable under the head PGBP ……..

Less: Amounts credited to P & L A/c but are exempt u/s 10 or are taxable under other heads of income ……..

Less: Amounts not debited to P & L A/c but are allowable as deduction under the Act ……..

Taxable Income under the head ‘Profits and Gains of Business and Profession’ ……..

4. Capital Gains

Amount of Capital gains u/s 48 ……..

Less: Exemption u/ss 54, 54B, 54D, 54EC, 54EE, 54F, 54G, 54GA, 54GB, 54H ……..

Taxable Income under the head ‘Capital gains’ ……..

5. Income from other sources

Gross income ……..

Less: Deductions u/s 57 ……..

Taxable Income under the head ‘Income from other sources’ ……..

Total [1 + 2 + 3 + 4 + 5] ……..

Less: Adjustment of set off and carry forward of losses ……..

Gross Total Income ……..

Less: Deductions under sections 80C to 80U [Chapter VI-A] ……..

Net Taxable Income ……..

Computation of Tax Liability:

 Tax on Net income ……..

Less: Rebate u/s 87A (Available if resident individual is having net taxable income of ` 5,00,000 or less) ……..

Income Tax after rebate ……..

Add: Surcharge, if applicable ……..

Tax and surcharge ……..

Add: Health and Education cess ……..

Less: Rebate u/ss 86, 89, 90, 90A and 91 ……..

Less: Prepaid taxes, if paid

Self assessment tax paid (SAT) ……..

Tax Deducted or Collected at Source (TDS and TCS) ……..

Advance tax ……..

Total Net Tax liability ……..

INCOMES WHICH DO NOT FORM PART OF TOTAL INCOME

Exemption and Deduction in respect of income
 Exemption in respect of any income means that such income shall not form part of any head of income and therefore not to be included in computation of total
income. Whereas, deduction in respect of any income means that such income shall be first included under the respective head of income for the computation of
gross total income and thereafter deduction can be claimed on such income under the respective head or from the gross total income. Deduction may also be
allowed for making certain specified payments or contributions.
 For e.g. Section 10 provides exemption in respect of certain incomes; sections 54, 54b, 54d, 54ec, 54f, 54g, 54ga, 54gb, 54H provides exemption in respect of capital
gains of the assessee.
Section 16 [i.e. standard deduction, entertainment allowance and professional tax] provides deduction from gross salary, section 24 provides standard deduction and
deduction for interest of loan borrowed under the head ‘Income from House Property’. Further, Chapter VI-A [i.e. sections 80C to 80U] provides deduction from
gross total income of the assessee.
 Exemption cannot exceed the taxable income; but deduction can exceed taxable income.
Meaning and importance of residential status
The taxability of an individual in India depends upon his residential status in India for any particular financial year. The term residential status has been coined under
the income tax laws of India and must not be confused with an individual’s citizenship in India. An individual may be a citizen of India but may end up being a non-
resident for a particular year. Similarly, a foreign citizen may end up being a resident of India for income tax purposes for a particular year. Also to note that the
residential status of different types of persons viz an individual, a firm, a company etc is determined differently. In this article, we have discussed about - how the
residential status of an assessee can be determined for any particular financial year.
How to determine residential status?
For the purpose of income tax in India, the income tax laws in India classifies taxable persons as:
 A resident and ordinarily resident (ROR)
 A resident but not ordinarily resident (RNOR)
 A non-resident (NR)
The taxability differs for each of the above categories of taxpayers. Before we get into taxability, let us first understand how a taxpayer becomes a resident, an RNOR
or an NR.
Resident
A taxpayer would qualify as a resident of India if he satisfies one of the following 2 conditions :
1. Stay in India for a year is 182 days or more in previous year or
2. Stay in India for the immediately 4 preceding years is 365 days or more and 60 days or more in the relevant financial year
Exceptions to Residential Status
In the event an individual who is a citizen of India leaves India as a member of the crew of an Indian ship or for the purpose of employment during the FY, he will
qualify as a resident of India only if he stays in India for 182 days or more.
Indian citizen or person of Indian origin who stays outside India comes on a visit to India during the relevant previous year. However, such a person having a total
income, other than the income from foreign sources which exceeds Rs.15 lakhs during the previous year will be treated as a resident in India if –
 he stays in India during the relevant previous year for 182 days or more, or
 he stayed in India for 365 days or more during the previous 4 years and has been in India for at least 120 days in the previous year.
As mentioned as a significant amendment above, the individual will be treated as a “deemed resident of India” if a citizen of India having total income (other than
foreign sources) exceeds Rs 15 lakh and nil tax liability in other countries.
The amendment can be further simplified as below-
 Resident Not Ordinarily Resident
If an individual qualifies as a resident, the next step is to determine if he/she is a Resident and ordinarily resident (ROR) or Resident but not ordinarily Resident
(RNOR). He will be an 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, there are 3 situations in which an individual is said to be RNOR
 if any individual fails to satisfy either or none of the above-mentioned conditions.
 If an individual is an Indian citizen or person of Indian origin having a total income more than exceeding Rs.15 lakhs (excluding foreign income), who has been
in India for 120 days or more but less than 182 days during that previous year.
 If an individual is deemed to be a resident in India, by default, he will be considered as a Resident and Not Ordinarily Resident.
Non-resident
An individual failing to satisfy the condition of stay in India for :
 182 days or more in the previous year or
 60 days or more in the previous year and 365 days in the 4 years preceding previous years
will be considered as a Non-Resident for that financial year.
Taxability
Resident and Ordinarily Resident: A resident and ordinarily 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.
Resident but not ordinarily resident: There is a thin line in taxability of income between ROR and RNOR, on below incomes RNORs are not required to pay taxes.
 Income earned outside India as well as received outside India.
Non-Resident: A Non-resident will be charged tax only on the income ‘received in India’ or source of income ‘received from India’. However, income earned outside
India, having no connection with India, is not taxable
Examples:
 ‘received in India’ - interest on Fixed deposits kept with banks in India. Technically called as Income earned in India.
 ‘received from India’ - payment from an Indian person/company in a foreign bank account for the services provided to such person. Technically called as
Income accrued from India.
Residential status of HUF
Resident: An HUF would be resident in India if its management is made from the members in India, if not will be considered a Non-resident.
Resident and ordinarily resident/ Resident but not ordinarily resident
If Karta (manager) of resident HUF satisfies the below conditions, then HUF will be treated as resident and ordinarily resident, otherwise, it will be resident but not
ordinarily resident.
 should be resident in at least 2 previous years out of the last 10 years.
 Stay in the last 7 years should be 730 days or more.
Note: Only individuals and HUFs can be Resident and not ordinarily residents in India. All other classes of assesses can be either a resident or non-resident.
Residential Status of a Company
A company would be resident in India in the following circumstances :
 If it is an Indian company or
 The place of effective management in the previous year is in India.
Note: Place of effective management means a place where management and commercial decisions that are necessary for the conduct of business or entity are taken.
Residential status of Firms, LLPs, AOPs, BOIs, Local authorities and artificial juridical persons
In simple words, again, the residential status will depend on the place from where the management of the above persons management is made, similar to HUF, if it's
done by members in India, then it will be resident, else it will be non-resident.
Clubbing Of Income Under Section 64
There are many occasions when you may require to club income of someone else with your income. If you are planning to transfer any of your assets/income to
another person as a means of tax planning to avoid the income getting taxed in your hands, hold on. Such transfers could result in attraction of clubbing provisions
under the Indian income tax laws.

Even genuine gifts extended to your kith and kin could have these income tax implications. It will help you immensely if you get some insights on the clubbing
provisions under the Indian income tax law. Hence, let us understand these provisions a little more in detail.
Clubbing of Income
As the term suggests, clubbing of income means adding or including the income of another person (mostly family members) to one’s own income. This is allowed
under Section 64 of the IT Act. However, certain restrictions pertaining to specified person(s) and specified scenarios are mandated to discourage this practice.
Specified Persons to Club Income
Income of any and every person cannot be clubbed on a random basis while computing total income of an individual and also not all income of specified person can
be clubbed. As per Section 64, there are only certain specified income of specified persons which can be clubbed while computing total income of an individual.
Specified Scenarios to Club Income

Section Specified Specified scenario Income to be clubbed

person

Section 60 Any person Transferring income without transferring Any income from such asset will be clubbed in
asset either by way of an agreement or the hands of the tranferor
any other way,

Section 61 Any person Transferring asset on the condition that it Any income from such asset will be clubbed in
can be revoked the hands of the transferor

Section Minor child Any income arising or accruing to your Income will be clubbed in the hands of higher
64(1A) minor child where child includes both earning parent. Note: If the marriage of the
step child and adopted child. The clubbing child’s parents does not subsist, income shall be
provisions apply even to minor married clubbed in the income of that parent who
daughter. maintains the minor child in the previous year.
If a minor child’s income is clubbed in the hands
of parent, then an exemption of Rs. 1,500 is
allowed to the parent (This is applicable only if
the parent opts for the old tax regime).
Exceptions to clubbing
Income of a disabled child (disability of the
nature specified in section 80U)
Income earned by manual work done by the
child or by activity involving the application of
his skill and talent or specialised knowledge and
experience
Income earned by a major child. This would also
include income earned from investments made
out of money gifted to the adult child. Also,
money gifted to an adult child is exempt
from gift tax under gifts to ‘relative’.

Section Spouse** If your spouse receives any remuneration Income shall be clubbed in the hands of the
64(1)(ii) irrespective of its nomenclature, such as taxpayer or spouse, whose income is greater
Salary, commission, fees or any other (before clubbing).
form and by any mode, i.e., cash or in An exception to clubbing: Clubbing is not
kind from any concern in which you have allowable if spouse possesses technical or
substantial interest* professional qualifications in relation to any
income arising to the spouse, and such income
is solely attributable to the application of
his/her technical or professional knowledge and
experience.

Section Spouse** Direct or indirect transfer of assets to Income from out of such asset is clubbed in the
64(1)(iv) your spouse by you for inadequate hands of the transferor. Provided the asset is
consideration other than the house property. Exceptions to
 clubbing of income in the following cases:
a. Where the asset is received as part of divorce
settlement
b. If assets are transferred before marriage,
c. No husband and wife relationship subsists on
the date of accrual of income.
d. The asset is acquired by the spouse out of pin
money (i.e. an allowance given to the wife by
her husband for her personal and usual
household expenses)

64(1)(vi) Daughter-in- Transfer of assets transferred directly or Any income from such assets transferred is
law indirectly to your daughter in-law by you clubbed in the hands of the transferor
for inadequate consideration

64(1)(vii) Any person or Transferring any assets directly or directly Income from such assets will be considered as
association of for an inadequate consideration to any your income and clubbed in your hands
person person or association of persons to
benefit your daughter in-law either
immediately or on deferred basis

64(1)(viii) Any person or Transferring any assets directly or directly Income from such assets will be considered as
association of for an inadequate consideration to any your income and clubbed in your hands
person person or association of persons to
benefit your spouse either immediately or
on deferred basis

Section Hindu In case, a member of HUF transfers his Income from such converted property shall be
64(2) Undivided individual property to HUF for inadequate clubbed in the hands of individual
Family consideration or converts such property
into HUF property

*An individual is said to have the substantial interest in the concern if–
 In case of a company, individual either by himself or along with his relative/s beneficially owns shares having 20% or more voting power (not being shares
entitled to a fixed rate of dividend whether with or without a further right to participate in profits)
 In any other case, such individual either alone or along with his relative/s is entitled to 20% or more of profits in the aggregate of such concern at any time
during the previous year.

**Income from reinvestment of clubbed income by a spouse is not clubbed in the hands of individual.
Examples on Clubbing of Income
Example 1
Mr P owns a shop which fetches a rent of Rs.12,000 per month. He transfers the rent to his friend Mr Q but retains the ownership of the shop.
In this case, because Mr P has transferred the income without transferring the asset. Hence, as per section 60 of the income tax act, Mr P must include the rental
income while computing his total income.
How to avoid Clubbing of Income ?
Now we have explained the provision where transaction which are considered under clubbing of income , Let's explain some of unique ways you can plan your taxes
without clubbing of Income provision
 Transfer of amount to Parents and Interest earned on such investment : Any amount transferred to your Parents as a Gift will not be taxable in the hands of
your Parents and lets say such amount is invested in a Fixed Deposit , Interest on such FD will continue to be taxed in the hands of Parents and clubbing
provision will not be applicable
 Gift Received at the time of Marriage : Any gift received during the time of marriage will not be taxable in the hands of the recipient and thus any income
arising on such investment will continue to be taxed in the hands of the recipient.
 Investment in PPF : Since interest earned on PPF is exempt income , Even if you invest in PPF in the name of your Spouse or Minor child , Interest will not be
taxable. Thus clubbing provision became irrelevant.
Since there is an investment cap of Rs 150,000 per individual in PPF , You can open multiple PPF accounts in the name of your Spouse or Minor child to get this
benefit.
What Is Tax Planning?
Tax planning is the process of analysing a financial plan or a situation from a tax perspective. The objective of tax planning is to make sure there is tax efficiency. With
the help of tax planning, one can ensure that all elements of a financial plan can function together with maximum tax-efficiency. Tax planning is a significant
component of a financial plan. Reducing tax liability and increasing the ability to make contributions towards retirement plans are critical for success.
Tax planning comprises various considerations. Considerations such as size, the timing of income, timing of purchases, and planning are concerned with other kinds of
expenditures. Also, the chosen investments and the various retirement plans should go hand-in-hand with the tax filing status as well as the deductions in order to
create the best possible outcome.
Understanding Tax Planning
 Tax planning plays an important role in the financial growth story of every individual as tax payments are compulsory for all individuals who fall under the IT bracket.
With tax planning, one will be able to streamline his/her tax payments such that he or she will receive considerable returns over a specific period of time involving
minimum risk. Also, effective tax planning will help in reducing a person's tax liability.
Tax planning can be classified into the following:
1. Permissive tax planning: Tax planning which falls under the framework of the law.
2. Purposive tax planning: Tax planning with a specific objective.
3. Long-range/short-range tax planning: Planning executed at the beginning and towards the end of the fiscal year.
Highlights of tax planning:
1. Tax planning is the process of analysing finances from a tax angle, with an aim to ensure maximum tax efficiency.
2. Considerations concerning tax planning will include timing of income, timing of purchases, planning for expenditures, and size.
3. Tax planning is vital for small as well as large businesses since it will be helpful for achieving business-related goals.
Income Tax Slabs FY 2023-24 & AY 2024-25 (New & Old Regime Tax Rates)
The income tax slabs are different under the old and the new tax regimes. Further, the slab rates under the old tax regime are divided into three categories
 Indian Residents aged < 60 years + All the non-residents
 60 to 80 years: Resident Senior citizens
 More than 80 years: Resident Super senior citizens
What Is an Income Tax Slab?
In India, the Income Tax applies to individuals based on a slab system, where different tax rates are assigned to different income ranges. As the person's income
increases, the tax rates also increase. This type of taxation allows for a fair and progressive tax system in the country. The income tax slabs are revised periodically,
typically during each budget. These slab rates vary for different groups of taxpayers.
Let us take a look at all the slab rates applicable for FY 2023-24(AY 2024-25).
Income Tax Slab Rates For FY 2022-23 (AY 2023-24)
a. New Tax regime until 31st March 2023

Income Slabs Individuals (for all age categories)

Up to Rs 2,50,000 Nil

Rs 2,50,001 - Rs 5,00,000* 5%

Rs 5,00,001 - Rs 7,50,000 10%

Rs 7,50,001 - Rs 10,00,000 15%

Rs 10,00,001 - Rs 12,50,000 20%

Rs 12,50,001 - Rs 15,00,000 25%

Rs 15,00,001 and above 30%

* Tax rebate up to Rs.12,500 is applicable if the total income does not exceed Rs 5,00,000 (not applicable for NRIs)
Refer to the above image for the rates applicable to FY 2023-24 (AY 2024-25) for the upcoming tax filing season.
b. Old Tax regime
Income tax slabs for individuals aged below 60 years & HUF
Income Slabs Individuals of Age < 60 Years and
NRIs

Up to Rs 2,50,000 NIL

Rs 2,50,001 - Rs 5,00,000 5%

Rs 5,00,001 to Rs 10,00,000 20%

Rs 10,00,001 and above 30%

NOTE:
 The income tax exemption limit is up to Rs 2,50,000 for Individuals, HUF below 60 years aged, and NRIs.
 Surcharge and cess will be applicable.
Income tax slab for individuals aged above 60 years to 80 years

Income Slabs Individuals of Age 60 Years to 80 Years

Up to Rs 3,00,000 NIL
 Rs 3,00,001 - Rs 5,00,000 5%

Rs 5,00,001 to Rs 10,00,000 20%

Rs 10,00,001 and above 30%

NOTE:
 The income tax exemption limit is up to Rs.3 lakh for senior citizens aged above 60 years but less than 80 years.
 Surcharge and cess will be applicable
Income tax slab for Individuals aged more than 80 years

Income Slabs Individuals of Age above 80

Years

Up to Rs 5,00,000 NIL

Rs 5,00,001 to Rs 10,00,000 20%

Rs 10,00,001 and above 30%

NOTE:
 Income tax exemption limit is up to Rs 5 lakh for super senior citizen aged above 80 years.
 Surcharge and cess will be applicable
What Are 5 Heads Of Income Tax?
Income tax is a composite tax on all incomes received by, or accruing or arising to, an assessee during a previous year. For computing the taxable income, incomes
from various sources are computed under 5 different heads of income. If there are two or more sources of income falling under a head of income, the income is
computed separately for each source and then aggregated under that head. The five heads of income are: (sec 14)
 Income from Salary (sec.15 to 17)
 Income from House Property (sec.22 to 27)
 Income from Profits and Gains from Business or Profession ( sec. 28 to 44D)
 Income from Capital Gains (sec.45 to 55A)
 Income from Other Sources (sec 56 to 59)
Income from Salary
Any income that you receive in terms of the service you provide on a contract of employment is applicable for taxation under this head. This includes salary, advance
salary, perquisites, gratuity, commission, annual bonus and pension.
The following section governs the Income from the Salary
 Section 15 describes the taxability of income from Salary
 Section 16 explains about deduction available under salaries
 Section 17 explains the components of the Salary like Monetary compensation, Perquisites etc.
This tax head also includes some exemptions:
 House Rent Allowance (HRA): As a salaried individual, if you live in a rented house, you can claim House Rent Allowance for partial or complete tax
exemptions.
 Transport Allowance: In case of blind/deaf and dumb/orthopedically handicapped employees, you can claim allowance of Rs 1,600 per month.
Income from House Property
An individual’s income from his or her house property or land appurtenant such property is taxable under the head of income from house property. To put it simply,
this head includes the policy for calculating the tax on rental income that you receive from your properties.
Broadly Income from House Property has three sub-classifications
 Self Occupied Property
 Let out Property
 Deemed Let out Property
In case you own more than two self-occupied house, then only two of such houses is considered to be self-occupied and the rest are considered to be deemed let out.
The taxation occurs on income received from both commercial and residential property.
Income from Profits and Gains from Business or Profession
The profits that you earn from any kind of business or profession are taxable under this head. You can subtract your expenses from the total income in order to
determine the amount on which tax is chargeable.
Here are the types of income that are chargeable under this head:
 Profits generated from the sale of a certain license
 Gains earned by an individual during an assessment year
 The profits that an organization makes on its income
 Cash received on the export of a government scheme
 The benefits that a business receives
 Gains, bonuses or salary that an individual receives due to a partnership with a firm.
Individual or HUF earning income from business and profession must file ITR-3 or ITR-4
Income from Capital Gains
When you earn profits by transferring or selling an asset that was held as an investment, that income is taxable under the head of income from capital gains. A large
number of assets, like gold, bonds, mutual funds, real estate, stocks, etc., fall under capital assets.
Now, you can subdivide capital gains into
 Short-term capital gains and
 Long-term capital gains.
Income from Other Sources
Among the five heads of income tax, this one includes any other income that does not have any mention in the above 4 heads. They fall under Section 56 sub-section
(2) of the Income-tax Act and include income from dividends, interest, rent on plant and machinery, lottery, bank deposits, gambling, card games, sports rewards,
etc.
Heads of Income vs Sources of Income
The heads of income are ways to classify the earnings or gains of an individual during a given year as per the Income Tax Act. This is necessary for taxation purposes.
They are:
 Income from Salaries
 Income from House Property
 Profits and Gains from Profession or Business
 Capital Gains
 Income from other sources
On the other hand, sources of income for any person or business are monetary sources from which they can earn an income.
For individuals, they are:
 Salary
 Interest
 Commission, etc.
In case of businesses, they are:
 Returns on investments
 Profits
 Grants from the government and more
What is Salary under Section 17(1)?
Salary is a much broader term than what we understood. Salary is used when there is an employer-employee relationship between the payee and the payer. While
calculating the income under the head salaries, the total amount of salary, perquisites, and profits provided in place of a salary received in a financial year must be
calculated. Salary is used most frequently while filing the income tax return. All salaried individuals with income above the exemption limit must file the ITR.

Incomes Classified as “Salary” Under Section 17(1) are:-

 Wages- Wages refer to the payment or remuneration given to an employee in exchange for their work or services rendered. It is typically paid hourly for
blue-collar jobs, such as factory workers, mechanics, or construction workers. It is fully taxable under Section 15 if received during the relevant previous
year.
 Annuity or pension- An annuity or pension is amount received by an individual that provides a fixed stream of payments over a certain period, typically
after retirement. It is designed to provide a steady income to help individuals meet their financial needs in retirement. Annuity received from a present
employer is taxed as ‘Salary while the Annuity received from a previous employer is taxed as ‘Profits in lieu of Salary’.
 Advance of salary- An advance of salary is a payment made by an employer to an employee before the employee's regular salary payment date. This
payment is usually made in anticipation of an employee's financial need or emergency. It is fully taxable under Section 15.
 Gratuity- Gratuity is a lump-sum payment made by an employer to an employee as a token of appreciation for the employee's long and meritorious
service. It is a type of retirement benefit and is usually paid when an employee completes a certain period of service with the employer, such as 5 or 10
years. Taxed as per Section 10(10) and is exempted up to certain limits.
 Fees, commissions, perquisites- Fees, commissions, and perquisites are types of income that an individual may receive as part of their employment or
business activities.
o An amount received as fees to the employee from the employer for the services rendered is included in the definition of salary.
o Any amount of commissions given to the employee for the services provided shall form part of the salary. If the employee receives a fixed
commission as a percentage of the sales or profits, it shall be considered a salary.
o Perquisites, also known as perks, are benefits or privileges provided to an employee in addition to their regular salary or wages. This is
explained more under Section 17 (2).
 Profits in lieu of salary- Profits in lieu of salary refer to any payment or benefit received by an employee in connection with their employment, other than
salary or wages. This can include bonuses, commissions, incentives, allowances, or any other form of compensation not classified as salary. This is
explained more under Section 17(3).
 Leave encashment- Leave encashment is a payment made to an employee in lieu of the employee taking their entitled leave. In other words, it is the
amount paid to an employee for the unutilized leave days they are entitled to.
 EPF- EPF stands for Employees' Provident Fund, a retirement savings scheme for salaried employees in India. The scheme is managed and regulated by the
Employees' Provident Fund Organization (EPFO), a statutory body under the Ministry of Labour and Employment.
 NPS- A contribution made by the Central Government or any other employer in a financial year in an employee’s account under National Pension Scheme
(NPS) will form part of the salary.
 Transferred PF balance- The taxable portion of the transferred balance from an unrecognized provident fund to a recognized provident fund will be
considered salary.

UNIT 3
Income Tax Deductions under Section 80C to 80U
Individuals can claim tax deduction benefits for payments made towards life insurance policies, fixed deposits, superannuation/provident funds, tuition fees, and
construction/purchase of residential properties under Section 80C of the Income Tax Act.
Tax Deductions under Section 80C

Section 80C of the Income Tax Act provides provisions for tax deductions on a number of payments, with both individuals and Hindu Undivided Families eligible for
these deductions. Eligible taxpayers can claim deductions to the tune of Rs 1.5 lakh per year under Section 80C, with this amount being a combination of deductions
available under Sections 80 C, 80 CCC and 80 CCD.
Some of the popular investments which are eligible for this tax deduction are mentioned below.

 Payment made towards life insurance policies (for self, spouse or children)
 Payment made towards a superannuation/provident fund
 Tuition fees paid to educate a maximum of two children
 Payments made towards construction or purchase of a residential property
 Payments issued towards a fixed deposit with a minimum tenure of 5 years

This section provides for a number of additional deductions like investment in mutual funds, senior citizens saving schemes, purchase of NABARD bonds, etc.

Subsections under Section 80C

Section 80C has an exhaustive list of deductions an individual is eligible for, which have led to the creation of suitable sub-sections to provide clarity to taxpayers.

 Section 80CCC: Section 80CCC of the Income Tax Act provides scope for tax deductions on investment in pension funds. These pension funds could be from
any insurer and a maximum deduction of Rs 1.5 lakh can be claimed under it. This deduction can be claimed only by individual taxpayers.
 Section 80CCD: Section 80CCD aims to encourage the habit of savings among individuals, providing them an incentive for investing in pension schemes
which are notified by the Central Government. Contributions made by an individual and his/her employer, both are eligible for tax deduction, subject to
the deduction being less than 10% of the salary of the person. Only individual taxpayers are eligible for this deduction.
 Section 80CCD (1):All individuals who have subscribed to the National Pension Scheme (NPS) will be eligible to claim tax benefits under Section 80 CCD (1)
up to the limit of Rs.1.5 lakh. In addition to that, an exclusive tax deduction for investments of up to Rs.50,000 in NPS (Tier I account) can be availed by the
subscribers under Section 80 CCD (1B).
 Section 80CCF: Open to both Hindu Undivided Families and Individuals, Section 80CCF contains provisions for tax deductions on subscription of long-term
infrastructure bonds which have been notified by the government. One can claim a maximum deduction of Rs 20,000 under this Section.
 Section 80CCG: Section 80CCG of the Income Tax Act permits a maximum deduction of Rs 25,000 per year, with specified individual residents eligible for
this deduction. Investments in equity savings schemes notified by the government are permitted for deductions, subject to the limit being 50% of the
amount invested.
 Tax Deductions under Section 80D
 Section 80D of the Income Tax Act permits deductions on amounts spent by an individual towards the premium of a health insurance policy. This includes
payment made on behalf of a spouse, children, parents, or self to a Central Government health plan.
 An amount of Rs 15,000 can be claimed as a deduction when paid towards the insurance for spouse, dependent children, or self, while this amount is Rs
30,000 (Union Budget 2017) if the person is over the age of 60 years.
 On February 1, 2018, Finance Minister Arun Jaitley presented the Union Budget 2018 with a few changes in the tax deductions applicable for senior
citizens. Under Section 80D, the income tax deduction limit for senior citizens has been increased to Rs.50,000 for medical expenditure.
 Both individuals and Hindu Undivided Families are eligible for this deduction, subject to the payment being made in modes other than cash.

Subsections under Section 80D

Section 80D is further subdivided into two sub-sections, offering clarity on the benefits available to taxpayers.

 Section 80DD: Section 80DD provides provisions for tax deductions in two cases, with the permitted deduction being Rs 75,000 for normal disability and
Rs 1.25 lakh if it is a severe disability. This deduction can be claimed in case of the following expenditures.
 On payments made towards the treatment of dependents with disability
 Amount paid as premium to purchase or maintain an insurance policy for such dependent

The permitted deduction is Rs 75,000 for normal disability and Rs 1.25 lakh for a severe disability. Both Hindu Undivided Families and resident individuals are eligible
for this deduction. The dependant, in this case can be either a spouse, sibling, parents or children.

 Section 80DDB: Section 80DDB can be utilised by HUFs and resident individuals and provides provisions for deductions on the expense incurred by an
individual/family towards medical treatment of certain diseases. The permitted deduction is limited to Rs 40,000, which can be increased to Rs 60,000
(Union Budget 2015) if the treatment is for a senior citizen.The deduction under Section 80DDB for senior citizens and very senior citizens has been
increased to Rs.1 lakh in Union Budget 2018.

Tax Deductions under Section 80E

Under Section 80E of the Income Tax Act has been designed to ensure that educating oneself doesn’t become an additional tax burden. Under this provision,
taxpayers are eligible for tax deductions on the interest repayment of a loan taken to pursue higher education.

This loan can be availed either by the taxpayer himself/herself or to sponsor the education of his/her ward/child. Only individuals are eligible for this deduction, with
loans taken from approved charitable organizations and financial institutions permitted for tax benefits.

Subsections of Section 80E

 Section 80EE: Only individual taxpayers are eligible for deductions under Section 80EE, with the interest repayment of a loan taken by them to buy a
residential property qualifying for deductions. The maximum deduction permitted under this section is Rs 3 lakhs.
 Section 80EEB: Individuals securing loans for electric vehicles between 1 April 2019 and 31 March 2032 qualify for tax deductions under Section 80EEB.
This deduction specifically covers interest payments on the electric vehicle loan, with a maximum claim of Rs.1.5 lakh.
Tax Deductions under Section 80G

Section 80G encourages taxpayers to donate to funds and charitable institutions, offering tax benefits on monetary donations. All assessees are eligible for this
deduction, subject to them providing proof of payment, with the limit of deductions decided based on a few factors.

 100% deductions without any limit: Donations to funds like National Defence Fund, Prime Minister’s Relief Fund, National Illness Assistance Fund, etc.
qualify for 100% deduction on the amount donated.
 100% deduction with qualifying limits: Donations to local authorities, associations or institutes to promote family planning and development of sports
qualify for 100% deduction, subject to certain qualifying limits.
 50% deduction without qualifying limits: Donations to funds like the PMs Drought Relief fund, Rajiv Gandhi Foundation, etc. are eligible for 50%
deduction.
 50% deduction with qualifying limit: Donations to religious organisations, local authorities for purposes apart from family planning and other charitable
institutes are eligible for 50% deduction, subject to certain qualifying limits.

The qualifying limit refers to 10% of the gross total income of a taxpayer.

Subsections of Section 80G

Under Section 80G has been further subdivided into four sections to simplify understanding.

 Section 80GG: Individual taxpayers who do not receive house rent allowance are eligible for this deduction on the rent paid by them, subject to a
maximum deduction equivalent to 25% of their total income or Rs 2,000 a month. The lower of these options can be claimed as deduction.
 Section 80GGA: Tax deductions under this section can be availed by all assessees, subject to them not having any income through profit or gain from a
business or profession. Donations by such members to enhance social/scientific/statistical research or towards the National Urban Poverty Eradication
Fund are eligible for tax benefits.
 Section 80GGB: Tax deductions under this section can be availed by Indian Companies only, with the amount donated by them to a political party or
electoral trust qualifying for deductions.
 Section 80GGC: Under this section, funds donated/contributed by an assessee to a political party or electoral trust are eligible for deduction. Local
authorities and artificial juridical persons are not entitled to the tax deductions available under Section 80GGC.

Tax Deductions under Section 80 IA

Section 80 IA provides an avenue for all taxpaying assessees to claim tax deductions on the profits generated through industrial activities. These industrial
undertakings can be related to telecommunication, power generation, industrial parks, SEZs, etc.

The following subsections are related to Section 80-IA

 Section 80-IAB: Section 80 IAB can be used by SEZ developers, who can claim tax deductions on their profits through development of Special Economic
Zones. These SEZs need to be notified after 1/4/2005 in order for them to be eligible for tax deductions.
 Section 80-IB: Provisions of section 80-IB can be used by all assessees who have profits from hotels, ships, multiplex theatres, cold storage plants, housing
projects, scientific research and development, convention centres, etc.
 Section 80-IC: Section 80 IC can be used by all assessees who have profits from states categorised as special. These include Assam, Manipur, Meghalaya,
Himachal Pradesh, Uttaranchal, Arunachal Pradesh, Mizoram, Tripura and Nagaland.
 Section 80-ID: All assessees who have profits or gain from hotels and convention centres are eligible for deduction under this section, subject to their
establishments being located in certain specified areas.
 Section 80-IE: All assessees who have undertakings in North-East India are eligible for deductions under this Section, subject to certain conditions.

Tax Deductions under Section 80J

Section 80J of the Income Tax Act was amended to include two subsections, 80JJA and 80 JJAA

 Section 80 JJA: Section 80 JJA relates to deductions permitted on profits and gains from assessees who are in the business of processing/treating and
collecting bio-degradable waste to produce biological products like bio-fertilizers, bio-pesticides, bio-gas, etc.All assessees who deal with this are eligible
for deductions under this section. Such assessees can claim deduction equivalent to 100% of their profits for 5 successive assessment years since the time
their business started.
 Section 80 JJAA: Deductions under Section 80 JJAA can be claimed by Indian companies which have profits from the manufacture of goods in factories.
Deductions equivalent to 30% of the salary of new full time employees for a period of 3 assessment years can be claimed. A chartered accountant should
audit the accounts of such companies and submit a report showing the returns. Employees who are taken on a contract basis for a period less than 300
days in the preceding year or those who work in managerial or administrative posts do not qualify for deductions.

Tax Deduction under Section 80LA

Deductions under Section 80LA can be availed by Scheduled Banks which have offshore banking units in Special Economic Zones, entities of International Financial
Services Centres and banks which have been established outside India, in accordance to the laws of a foreign nation.

These assessees are eligible for deductions equivalent to 100% of the income for the first 5 years, and 50% of income generated through such transactions for the
next 5 years, subject to the rules of the land.
Such entities should have relevant permission, either under the SEBI Act, Banking Regulation Act or registration under any other relevant law.

Tax Deduction under Section 80P

Section 80P caters to cooperative societies, offering tax deductions on their income, subject to certain conditions. 100% deduction is permitted to cooperative
societies which have incomes through cottage industries, fishing, banking, sale of agricultural harvest grown by members and milk supplied by members to milk
cooperative societies.

Cooperative societies which are involved in other forms of business are eligible for deductions ranging between Rs 50,000 and Rs 1 lakh, depending on the type of
work they are involved in.

Deductions which can be claimed by all cooperative societies are listed below.

 Income which a cooperative society makes by renting out warehouses

 Income derived through interest on money lent to other societies
 Income earned through interest from securities or properties

Tax Deduction under Section 80QQB

Section 80QQB permits tax deductions on royalty earned from sale of books. Only resident Indian authors are eligible to claim deductions under this section, with the
maximum limit set at Rs 3 lakhs. Royalty on literary, artistic and scientific books are tax deductible, whereas royalties from textbooks, journals, diaries, etc. do not
qualify for tax benefits. In case of an author getting royalties from abroad, the said amount should be brought into the country within a specified time period in order
to avail tax benefits.

Tax Deduction under Section 80RRB

Patent owners are given tax breaks under Section 80RRB, which also grants tax relief to residents who receive royalties from their patent as income. If the patent is
registered after March 31, 2003, royalty payments up to Rs 3 lakh can be deducted. Those who get royalties from overseas must bring those funds into the nation
within a certain time frame in order to be qualified for tax deductions on those royalties.

Tax Deduction under Section 80TTA & 80TTB

Section 80TTA permits individuals and Hindu Undivided Families (HUF) below 60 years to claim tax deductions of up to Rs. 10,000 on interest earned from savings
accounts held at banks or post offices.

For senior citizens, Section 80TTB offers tax deductions of up to Rs. 50,000 on interest income from bank or post office deposits. This section extends tax benefits for
interest income received from various account types, including savings accounts and fixed deposits.

Tax Deduction under Section 80U

Only resident individual taxpayers with disabilities are eligible to claim tax deductions under Section 80U. A maximum deduction of Rs.75,000 per year is available to
anyone who have been declared Persons With At Least 40% Disability by the pertinent medical authorities. If they meet certain requirements, those with severe
disabilities are eligible for a maximum deduction of Rs.1.25 lakh. Autism, mental retardation, cerebral palsy, and other conditions are among the disabilities that
qualify for tax advantages.

POWERS OF INCOME TAX AUTHORITIES:

Powers of the Income Tax Authorities vary with the nature of the position acquired. Given below are the various tax authorities along with the powers they hold
under that position.

Director General/ Director:

The Director General/ Director, appointed by the Central Government, are required to perform such functions as maybe assigned by the Central Government, are
required to perform such functions as may be assigned by the Central Board of Direct Taxes. This position enjoys the following powers under different provisions of
the Act:

a. To give instructions to the Income-Tax officers

b. To enquire or investigate into concealment
c. To search and seizure
d. To requisite books of account
e. To survey
f. To make any enquiry

Commissioners of Income Tax:

Commissioners are appointed by the Central Government. Generally, they are appointed to head income-tax administration of a specified area. As the head of
administration, a Commissioner of income-tax enjoys certain administrative as well as judicial powers. A commissioner may exercise powers of an assessing officer. It
has the power to transfer any case from one or more assessing officers to any other assessing officer. It can grant approval for an order issued by the assessing officer.
Prior approval is required for reopening of an assessment. Its, also, has the power to revise an order passed by an assessing officer in addition to many other powers
as given in the Income Tax Act, 1961.
Commissioner (Appeals):
Commissioners of Income-Tax (Appeals) are appointed by the Central Government. It is an appellate authority vested with the following judicial powers:
a. Power regarding discovery, production of evidence etc.
b. Power to call information.
c. Power to inspect registers of companies.
d. Power to set off refunds against tax remaining payable.
e. Power to dispose of appeals.
f. Power to impose penalty.

Joint Commissioners:
Joint Commissioners are appointed by the Central Government. The main function of the authority is to detect tax- evasion and supervise subordinate officers. Under
the different provisions of the Act, the Joint Commissioner enjoys the power to accord approval to adopt fair market value as full consideration, instruct income tax
officers, exercise powers of income tax officers, the power to call information, to inspect registers of companies, to make any enquiry among other powers.

Income-Tax Officers:
While Income-Tax officers of Class I services are appointed by the Central Government, Income-tax Officers of Class II services are appointed by the Commissioner of
Income-Tax. Powers, functions and duties of Income-Tax officers are provided in many sections, some of which are Power of search and seizure, Power of assessment,
Power to call for information, Power of Survey etc.

Inspectors of Income-Tax:
They are appointed by the Commissioner of Income-Tax. Inspectors of Income-Tax have to perform such functions as are assigned to them by the Commissioner or
any other authority under whom they are appointed to work.

THE SCOPE OF EXERCISE OF THE POWERS GIVEN TO THE INCOME-TAX AUTHORITIES:

The Income Tax Act, 1961 specifies the scope of the powers handed to the income-tax authorities. Given below are some of the important powers of the Income Tax
Authorities and their scope as given in the Sections provided under the Income Tax Act, 1961:

Power to Transfer Cases [Section 127]:

CBDT can transfer the case from Assessing Officer to another A.O. subordinate to him after giving a reasonable opportunity of being heard to the concerned assessee.
However, no opportunity of being heard shall be required if the case is to be transferred from one A.O. to another A.O. within the same city, town or locality.
Disputes regarding jurisdiction shall be resolved by the concerned CCIT or CIT on mutual understanding. However, for any disagreement, the matter shall be referred
to CBDT and CBDT shall resolve the dispute by way of issuing a notification in the Official Gazette of India.

Opportunity of Being Reheard [Section 129]:

Whenever, an Income Tax Authority ceases to exercise jurisdiction over a particular case and is being succeeded by another Income Tax Authority, then the successor
Income Tax Authority shall continue the pending proceeding from the same stage at which it was left over by the predecessor Income Tax Authority. There shall be no
requirement on the part of the successor Income Tax Authority to reissue any notice already issued by his predecessor. However, if the concerned assessee demands
that before the successor Income Tax Authority continues the proceeding, he shall be given an opportunity of being reheard to explain his case to the successor
Income Tax Authority, then in such case, an opportunity of being reheard has to be given to the assessee. (However, such an opportunity of being reheard is required
to be given only if the concerned assessee demands for it and not otherwise).The time of A.O. lost in giving such opportunity of being reheard to the assessee, shall
be excluded while calculating time limit to complete the assessment.

Discovery, Production of Evidence etc. [Section 131]:

The Assessing Officer, Deputy Commissioner (Appeals), Joint Commissioner, Commissioner (Appeals), the Chief Commissioner and the Dispute Resolution Panel
referred to in section 144C have the powers vested in a Civil Court under the Code of Civil Procedure, 1908 while dealing with the following matters:
(i) discovery and inspection;
(ii) enforcing the attendance of any person, including any officer of a banking company and examining him on oath;
(iii) compelling the production of books of account and documents; and
(iv) issuing commissions

Search and Seizure [Section 132]:

Today it is not hidden from income tax authorities that people evade tax and keep unaccounted assets. When the prosecution fails to prevent tax evasion, the
department has to take actions like search and seizure. Under this section, wide powers of search and seizure are conferred on the income-tax authorities. The
provisions of the Criminal Procedure Code relating to searches and seizure would, as far as possible, apply to the searches and seizures under this Act. Contravention
of the orders issued under this section would be punishable with imprisonment and fine under section 275A.

Power to Requisition Books of Account etc. [Section 132A]:

Where the Director or the Director-General or Commissioner or the Chief Commissioner in consequence of information in his possession, has reason to believe that
(a), (b), or (c) as mentioned under section 132(1) and the book of accounts or other documents or the assets have been taken under custody by any authority or
officer under any other law, then the Chief Commissioner or the Director General or Director or Commissioner can authorize any Joint Director, Deputy Director, Joint
Commissioner, Assistant Commissioner, Assistant Director, or Income tax Officer to require the authority to provide sue books of account, assets or any documents to
the requisitioning officer, when such officer is of the opinion that it is no longer necessary to retain the same in his custody.

Application of Retained Assets [Section 132B]:

This section provides that the seized assets can be appropriated against all tax liabilities of the assessee. However, if the nature of source of acquisition of seized
assets is explained satisfactorily by the assessee, then, such assets are required to be released within a period of 120 days from the date on which last of the
authorisations for search under section 132 is executed after meeting any existing liabilities. For this purpose, it has been provided that the assessee should make an
application to the Assessing Officer within a period of 30 days from the end of the month in which the asset was seized. The assessee shall be entitled to simple
interest at ½% per month or part of a month, if the amount of assets seized exceeds the liabilities eventually, for the period immediately following the expiry of 120
days from the date on which the last of the authorisations for search under section 132 or requisition under section 132A was executed to the date of completion of
the assessment under section 153A or under Chapter XIV-B.
Power to call for information [Sections 133]:
The Commissioner The Assessing Officer or the Joint
Commissioner may for the purpose of this Act:
(a) Can call any firm to provide him with a return of the addresses and names of partners of the firm and their shares;
(b) Can ask any Hindu Undivided Family to provide him with return of the addresses and names of members of the family and the manager;
(c) Can ask any person who is a trustee, guardian or an agent to deliver him with return of the names of persons for or of whom he is an agent, trustee or guardian
and their addresses;
(d) Can ask any person, dealer, agent or broker concerned in the management of stock or any commodity exchange to provide a statement of the addresses and
names of all the persons to whom the Exchange or he has paid any sum related with the transfer of assets or the exchange has received any such sum with the
particulars of all such payments and receipts;

Power of Survey [Section 133A]:

The term 'survey' is not defined by the Income Tax Act. According to the meaning of dictionary 'survey' means casting of eyes or mind over something, inspection of
something, etc. An Income Tax authority can have a survey for the purpose of this Act. The objectives of conducting Income Tax surveys are:

(a)To discover new assessees;

(b)To collect useful information for the purpose of assessment;
(c)To verify that the assessee who claims not to maintain any books of accounts is in-fact maintaining the books; (d)To check whether the books are maintained,
reflect the correct state of affairs.

Power to Collect Certain Information [Section 133B]:

For the purpose of collection of information which may be useful for any purpose, the Income tax authority can enter any building or place within the limits of the
area assigned to such authority, or any place or building occupied by any person in respect of whom he exercises jurisdiction.

Power to Inspect Registers of Companies [Section 134]:

The Assessing Officer, the Joint Commissioner or the Commissioner (Appeals), or any person subordinate to him authorised in writing in this behalf by the Assessing
Officer, the Joint Commissioner or the Commissioner (Appeals), as the case may be, may inspect and if necessary, take copies, or cause copies to be taken, of any
register of the members, debenture holders or mortgagees of any company or of any entry in such register.

Other Powers [Sections 135 and 136]:

The Director General or Director, the Chief Commissioner or Commissioner and the Joint Commissioner are competent to make any enquiry under this act and for all
purposes they shall have the powers vested in an Assessing Officer in relation to the making of enquiries. If the Investigating officer is denied entry into the premises,
the Assessing Officer shall have all the powers vested in him under sections 131(1) and (2). All the proceedings before Income tax authorities are judicial proceedings
for purposes of section 196 of the Indian Penal Code, 1860, and fall within the meaning of sections 193 and 228 of the Code. An income-tax authority shall be deemed
to be a Civil Court for the purposes of section 195 of the Criminal Procedure Code, 1973.

JURISDICTION OF INCOME-TAX AUTHORITIES:

Income Tax authorities are required to exercise their powers and perform their functions in accordance with directions given by the Board. Tax authority higher in
rank, if directed by Board, shall exercise the powers and perform tie functions of the Income- Tax authority lower in rank. The directions of CBDT include direction to
authorize any Income Tax authority to issue instructions to their subordinates. In issuing instruction or orders, the Board or the Income-Tax authority may adopt any
one or more of the following criteria -
(a) Territorial area
(b) Person or classes of persons
(c) Incomes or classes of incomes
(d) Cases or classes of cases

The Board can also authorize Director General or Chief Commissioner or Commissioner to issue orders in writing to the effect that the functions conferred or assigned
to the Assessing Officer in respect of the above four criteria shall be exercised or performed by Joint Commissioner or Joint Director.

Also, the Assessing Officer has been vested with jurisdiction over any area or limits of such area -
1. If a person carries on business or profession only in that area. In respect of that person; or
2. If a person carries on business or profession in more than one place, then the principal place of business or profession situated in that area; or
3. In respect of any other person residing within that area.

Any dispute relating to jurisdiction to assess any person by an Assessing Officer shall be determined by Director General /Chief Commissioner/Commissioner of
Income Tax If the dispute is relating to areas within the jurisdiction of different Director General /Chief Commissioner/ Commissioner, then such issue is to be solved
mutually among themselves. If the above authorities are not in agreement among themselves such matter has to be decided by the Board or Director General/ Chief
Commissioner/ Commissioner authorized by the Board.

conclusion
It is believed that tax-authorities are independent judicial officers who are required to pass reasoned orders based on their own reasoning un-influenced by
instructions or advice from their superior officers. The Central Excise adjudication manual published in 1988 (that was its last publication), in para 39 directed that
Board Orders and reference numbers should not be quoted in the Adjudication Orders. It was further advised that Law Ministry’s opinion is confidential and should
never be communicated in the same language to even sub-ordinate officers. There are several Assistant Commissioners who boast “I am an adjudicating authority
and not bound by the Board orders”.
This has resulted in a considerable degree of uncertainty in financial management with respect to taxes. For example it is hard to determine for the assesses, the
binding value of circulars issued by CBDT under Section 119 of the Income Tax Act, 1961. Also, these circulars blatantly contradict statutory provisions that have been
given binding effect, displace the authoritative pronouncements of the Higher Judiciary and cause an erosion of the constitutionally-mandated effect of Supreme
Court declarations under Article 141.
In recent times the catena of judicial pronouncements and statue provisions are creating quite a stir. However, there is still a need to further define and redefine and
implement the extent to which Income Tax authorities are required to exercise their powers and perform their functions so as to prevent harassment of assesses, tax-
evasion, unnecessary discrimination in collection of tax and to help assesses effectively manage taxes.
Types of Assessment

 Self-Assessment.
 Summary Assessment.
 Regular Assessment
 Scrutiny Assessment.
 Best Judgment Assessment.
 Re-assessment/income escaping assessment

Self Assessment under Section 140 A

Before submitting the return assessee is supposed to find whether he is liable for any tax or interest. For this purpose, section 140(A) has been introduced in
the Income Tax Act, where any tax is payable based on any return required to be furnished under sec 139, or sec 142 or 148 or Sec 153A after deducting

 Advance tax if any payable

 TDS/TCS
 Relief u/s 90,91,90A
 MAT credit under 115JAA or 115JD

The assessee shall pay tax & interest before furnishing a return and proof of such payment will be accompanied under the return of income. In short, we can say that
the assessee himself determines the income tax payable. The tax department has made available various forms for filing income tax returns. The assessee
consolidates his income from various sources and adjusts the same against losses or deductions or various exemptions, if any, available to him during the year. The
total income of the assessee is then arrived at. The assessee reduces the TDS and Advance tax from that amount to determine the tax payable on such income. Tax if
still payable by him, is called self-assessment tax and must be paid by him before he files his return of income. This process is known as Self-Assessment.

Summary Assessments under Section 143(1)

In this type of assessment, the information submitted by the assessee in the return of income is cross-checked against the information that the income
tax department has access to, it is a type of assessment carried out without any human intervention, if any tax liability/refund arises on summary assessment,
intimation u/s 143(1) will be sent to assessee through e-mail. This intimation should be treated u/s 156(1) or a refund order. No separate demand notice will be
issued. In this process, the reasonableness and correctness of the return are verified by the department. The return gets processed online, and adjustments for
arithmetical errors, incorrect claims, and disallowances are automatically done.

Regular Assessment

The income tax department authorizes the assessing officer or income tax authority, not below the rank of an income tax officer, to conduct this assessment. The
purpose is to ensure that the assessee has neither understated his income nor overstated any expense or loss or underpaid any tax.

Scrutiny Assessment under Section 143(3)

Scrutiny Assessment is one of the assessments of the Income Tax Return under the Income Tax Act. As the name suggests, the Assessing Officer (AO) critically and
thoroughly inspects and examines all the details of the Income Tax Return of the assessee to check that such details filed by the assessee are correct and genuine. The
AO tries to ensure that the assessee is not using any illegal practice to avoid tax liability in any manner. The AO also gives the opportunity of being heard to the
Assessee and thus assessee can produce and substantiate all the details filled in the ITR with evidence. In case any discrepancy, disparity, or inconsistency is found in
the ITR then the AO is empowered to charge penalties from the assessee.

Best Judgment Assessment under Section 144

This type of assessment is made when the assessee is not complying with the tax provisions. The A.O., in the absence of sufficient information of the assessee,
according to the best of his ability, knowledge, and experience makes such judgment. In short, Best judgment assessment refers to a situation where the officer
computes the tax payable as the assessee does not comply to provide or maintain necessary source documents or book of accounts to support the claim when
requested to submit.

In this scenario, the officer computes the tax liability based on his best judgment. The income tax act specifies certain situations under which the income tax officer
can compute tax liability based on best judgment,

 When the assessee does not file an income tax return

 When the assessee does not respond to the notice requesting the submission of documents
 The response of the assessee has crossed the limit permitted by the central board of direct taxes (CBDT)
 When the officer is not satisfied with the documents provided.
 Income Escaping Assessment under Section 177

Income escaping assessment refers to income that has been omitted from the Income Tax assessment of a particular taxpayer. The proceedings which govern a case
of income escaping assessment can be initiated by the income tax department if certain incomes have escaped assessment or income has been assessed at a lower
rate or excessive loss or allowances have been allowed. In such a scenario, the assessing officer is entitled to reassess the assessment of the relevant assessment year.
An assessing officer should not merely act on rumor or suspicion but rely on substantial evidence before initiating procedures. The assessing officer must conduct his
operations in good faith.

Every assessee, who earns income beyond the basic exemption limit in a financial year must file a statement containing details of his income, deductions, and other
related information. This is called the income tax return (ITR). Once you as a taxpayer file the income returns, the Income Tax Department will process it. There are
occasions where the return of an assessee gets picked for an assessment. The assessment plays an important role in the examination of the details submitted by a
taxpayer by the Income Tax Department.

A) Who are required to file Income Tax Return?

Section Assessee Covered Cases

139(1) 1. Company All cases

2. Firm All cases
3. Any other person If the Total Income of an individual for a particular year
exceeds the exemption limit (maximum amount which is
not chargeable to tax)
Fourth & Fifth Proviso to 139(1) A person, – being a resident, other than not (a) Who holds any asset (including financial interest in
ordinarily resident in India – who is not required to any entity) located outside India, as a beneficial owner;
furnish return under 139(1) or has a signing authority in any account located outside
India , or (b) or who is a beneficiary of any asset
(including any
Sixth Proviso to 139(1) All assessees other than company or firm If total income before giving effect to Chapter VI A
deductions and Sec 10(38) exemption exceeds the
maximum amount not chargeable to tax

ITR filing for some special entities: Charitable & Religious trusts are required to file ITR, if income before giving effect to exemptions u/s 11 and 12 exceeds the
maximum amount not chargeable to tax. Political Parties are required to file ITR, if income before giving effect to exemptions u/s 12A exceeds the maximum amount
not chargeable to tax. Hospitals, medical institutions, colleges and other specified institutions u/s 10; Investor protection fund, Core settlement Guarantee fund, and
others, as specified under Sec 139(4C) are required to file ITR, if income before giving effect to exemptions u/s 10 exceeds the maximum amount not chargeable to
tax.

Time limit for filing of Returns

S. No. Status of the Taxpayer Due date

Any company other than a company who is required to furnish a report in Form September 30 of the assessment year
No. 3CEB under section 92E (i.e. other than covered in 2 below)

Any person (may be corporate/non-corporate) who is required to furnish a report November 30 of the assessment year
in Form No. 3CEB under section 92E

Any person (other than a company) whose accounts are to be audited under the September 30 of the assessment year
Income-tax Law or under any other law

A working partner of a firm whose accounts are required to be audited under this September 30 of the assessment year
Act or under any other law

Any other assessee July 31 of the assessment year

Consequences of Late filing of Return

1. Late fees u/s 234F – Such fees has been introduced by Finance Act 2017. The late fees levied is Rs. 5,000 if ITR is filed upto 31st December of the
Assessment year and Rs. 10,000 afterwards. However, if the total income of assessee does not exceed Rs. 5 Lakhs, then such fees is limited to Rs. 1,000.
2. As per Sec 139(3) read with Sec 80, if the return is filed after the due date specified, losses cannot be carried forward. However, unabsorbed depreciation
& House property losses can be carried forward, even if return is filed after the due date. Also, Sec 80 does not prohibit set-off of losses in the same year.
Hence, set-off of losses in same year is allowed, even if return of income is filed after due date.
3. As per Finance Act 2017, religious / charitable trusts shall not get exemption u/s 11 & 12, if ITR filed after due date.
4. Belated return u/s 139(4) can be filed at anytime by the end of assessment year.
5. As per prescribed rules, ITR can be filed after due date of belated return (31st March of Assessment year), by applying for condonation of delay u/s 119(2)
(b), in case of carry forward of losses & refund claims. However, such condoation shall be given only in case of genuine hardships. (For details refer
Circular No. 9/2015)
Revision of Income Tax Returns
1.Upto AY 2017-18 , revised return could have filed upto 1 year from end of assessment year.

2.However from AY 2018-19, revised return can be filed at anytime before the end of assessment year or before completion of assessment, whichever is earlier.

Defective Income Tax Return u/s 139(9)

1. ITR is considered defective, unless it is accompanied by:
a) Return in prescribed form
b)Tax audit report u/s 44AB

2. With effect from Finance Act 2016, ITR is not treated as defective, even if self assessment tax, interest u/s 140A has not been paid.

B. Processing of Income Tax Returns

1. Following adjustments can be made when return is getting processed , when filed u/s 139 or Sec 142(1)(i):
i) Arithmetical errors
ii) Incorrect claims, which is apparent from any information in return
iii) Disallowance of loss, if carried forward, in case ITR filed after due date
iv) Disallowance of expenditures disallowed in Tax Audit Report
v) Disallowance of deductions u/s 80IA, 80IC, 10AA, etc, if carried forward, in case ITR filed after due date
vi) Addition of income as per Section Form 16 or Form 26AS, if not taken into account while filing of income tax return.
2. The above list is exhaustive in nature, hence no other adjustment can be done, while processing of return u/s 143(1).
3. No adjustment u/s 143(1) can be made unless Intimation u/s 143(1) has been given to assessee.
4. However, such adjustment is automatically done, if no response is filed by assessee within 30 days of issue of intimation u/s 143(1)
5. No intimation u/s 143(1) can be sent after expiry of one year from the end of financial year, in which return has been filed.
6. Intimation u/s 143(1) is deemed as Notice of demand u/s 156. Hence, any demand in intimation is to be paid within 30 days.
7. For Assessment year 2017-18 & onwards, if return is filed having refund claim & case is selected for scrutiny, then refund shall be granted & department cannot
stop refund till completion of assessment u/s 143(3). However, to protect interest of revenue, Sec 241A has been introduced, which provides to hold refunds, in
the interest of revenue.

Rectification u/s 154

1. Rectification of mistake apparent from record (i.e. as mistake, in which no two views are possible) can be rectified u/s 154, in case of below :
a) Any order passed by income tax authority
b) TDS / TCS Intimation
c) Intimation u/s 143(1)
2. Such rectification can be done latest by the expiry of 4 years, from the end of financial year, in which order sought to be amended has been passed. However, it
can be passed even after the expiry of said 4 years, if assessee had filed application within time limit & rectification is in favour of the assessee.

C. Income Tax Assessment Procedures Notice u/s 142(1)

Notice u/s 142(1)
1. If assessee has not furnished return, within time prescribed u/s 139, till issue of this notice, assessing officer may issue Notice u/s 142(1)(i), requiring him to furnish
return within time specified in notice.
2.Notice u/s 142(1)(ii) is issued for requiring assessee to furnish books of accounts, documents, other information. It can be issued whether ITR has been filed or not.
This notice is generally given with Scrutiny notice u/s 143(2), Show cause notice u/s 144, Notice u/s 148 or Notice u/s 153A.

Special Audit u/s 142(2A)

1. If at any time during assessment proceedings, Assessing officer is of the opinion that, it is necessary to get the books of accounts audited, having regard to the
complexity of the case & in the interest of revenue, he may ask assessee to get his accounts audited. However, he has to give assessee reasonable opportunity of
being heard before giving such directions.
2. Audit shall be done by a Chartered accounted nominated by Chief commissioner or commissioner.

Scrutiny Assessment u/s 143(3)

1. Notice is to be given u/s 143(2), being mandatory to be issued and such notice is to be served upto 6 months from end of financial year, in which return has been
furnished
2. Scrutiny assessment u/s 143(3) cannot be done, if ITR has not been filed.
3. It cannot result in decrease in taxable income or increase in loss.
4. For AY 2018-19 Order u/s 143(3) shall be made upto 18 months from end of relevant assessment year (21 months for AY 2017-18)

Best Judgement / Ex-Parte Assessment u/s 144

1. Best Judgement assessment can be done, if:

vii) Assessee has not filed the income tax return upto issue of show cause notice u/s 144
viii) Assessee fails to comply with notice/s 142(1)
ix) Assessee fails to comply with special audit directions u/s 142(2A)
2. It can be done basis of information available gathered & available by the assessing officer.
3. For AY 2018-19 Order u/s 144 shall be made upto 18 months from end of relevant assessment year (21 months for AY 2017-18)
Penalty Under Income Tax Act
An assessee who commits an offence under the provisions of The Income Tax Act, 1961 shall be subject to penalty. The penalty is an additional amount levied and is
different from the tax payable. Penalty is levied based on the law at the time of the offence being committed and not as it stands in the financial year for which the
assessment is being made. The list of penalties for assessment year 2023-24 are:

Sl
Section No. and Description Penalty
No

 Minimum - 100% of the tax payable on

undisclosed income
 Maximum - 300% of the tax payable in
Section 158BFA- Determination of undisclosed income for the respect of the undisclosed income
block period, when a search is initiated under section 132 or
1)
books of account, other documents or any assets are This penalty will be levied only on that
requisitioned under section 132A in the case of any person portion of the income which was determined
by the ITO in excess of the ITR furnished by
the assessee u/s 158BC and appeal is not filed
against such assessment

Amount as directed by the assessing officer.

2) Section 221(1)- Default in making payment of taxes However, the amount of penalty cannot exceed the
amount of tax in arrears.

Rs.200 for every day until you file the return

Section 234E- Failure to file return in respect of TDS/TCS within
3) The penalty cannot be more than the TDS/TCS
the time prescribed as given under section 200(3)/206C(3)
amount.

Rs.5,000 if return is furnished before 31st December

of the assessment year.
Section 234F- Default in furnishing of return under section 139(1)
4)
within the time prescribed
Note: If the income does not exceed Rs.5 Lakhs then
the penalty shall not exceed Rs.1,000

Section 270A-
- 50% of the amount of tax payable on under-
5) - Penalty for under-reporting of income reported income.
- Penalty for under-reporting on account of misreporting of - In case of misreporting, 200% of the amount of tax
income payable on under-reported income

Section 271A- Failure to keep, maintain or retain the books of

6) Rs. 25,000
account, documents as required under Section 44AA

Section 271AA(1)- Penalty in respect of an international

transaction/specified domestic transaction with regard to:
2% of the value of each international transaction or
7) -failure to keep and maintain any such information and document
specified domestic transaction entered into.
as required by Section 92D(1) or 92D(2)
-failure to report such transaction which is required to be done
-Maintaining or furnishing incorrect information or document

Section 271AA(2)- Failure to furnish information and document to

7) Rs.5,00,000
the authority prescribed as required under Section 92D(4)

Section 271AAA- Where search has been initiated under Section 10% of the undisclosed income of the specified
8)
132 between 1st day of June, 2007 and 1st day of July, 2012 previous year

9) Section 271AAA(1)- Where search was initiated after 1-7- 2012 a) 10% of the undisclosed income if: Assessee admits
but before 15-12-2016 and undisclosed income was found the undisclosed income along with the manner of
deriving the same.
-Substantiates the manner in which undisclosed
income was derived
-Pays the tax along with interest and furnishes the
return of income for the specified previous year
declaring undisclosed income on or before the
specified date

b) 20% of the undisclosed income if: The assessee

 does not admit the undisclosed income
-Declares the income for the specified previous year
and pays the tax along with interest on the
undisclosed income on or before the specified date

c) 60% of the undisclosed income: If not covered

under clause (a) or (b) above

a) 30% of the undisclosed income if: -Assessee admits

the undisclosed income along with the manner of
deriving the same.
- Substantiates the manner in which undisclosed
income was derived
Section 271AAB(1A)- Where search was initiated after 15-12-2016 - Pays the tax along with interest and furnishes the
10)
and undisclosed income was found return of income for the specified previous year
declaring undisclosed income on or before the
specified date

b) 60% of the undisclosed income if it is not covered

under the provisions of clause (a)

Section 271AAC- Income under section 68,69,69A,69B,69C,69D

determined by the assessing officer if not included by assessee or
tax under Section 115BBE not paid

*Section 68- Cash Credits At the rate of 10% on tax payable under Section
15)
Section 69- Unexplained Investments 115BBE
Section 69A- Unexplained money Section
69B-Amount of investments not fully disclosed in books of
account Section
69C-Unexplained expenditure

If any assessing officer finds-

a) A false entry, or
b) An omission of any entry which is relevant for
computation of total income of an assessee.

He may direct the assessee to pay a penalty of an

amount equal to sum of such false or omitted
entries.
Section 271AAD- Penalty for false entry, fake invoices etc. in
16)
books of account
The false entry here means the following:
a) Forged or false document such as a fake invoice
b) Any invoice of supply or receipts of goods or
services issued by any person without actual supply
or receipt of goods or services
c) An invoice in respect of supply or receipt of goods
or services or both to or from a person who does not
exist

In the case of business: ½% of the turnover/gross

Section 271B- Failure to get the accounts audited or furnish the receipts.
17)
report as required under Section 44AB or
Rs.1,50,000, whichever is less

Section 271BA- Failure to furnish a report from an accountant to

18) be furnished by persons entering into an international transaction Rs. 1,00,000
or specified domestic transaction under Section 92E

Section 271BB- Failure to subscribe to the eligible issue of capital

19) 20% of such amount
referred in Section 88A(1)

Sum equal to the amount of tax not paid or failed to

20) Section 271C- Failure to deduct tax at source
deduct

21) Section 271CA- Failure to collect tax at source Sum equal to the amount of tax not collected

Section 271D- Accepting loan or deposit or specified sum in Sum equal to the loan or deposit or specified sum
22)
contravention of Section 269SS taken
 Section 271DA- Receiving any sum( Rs. 2 Lakhs or more) in
23) Sum equal to the amount of receipt
contravention to the provisions of Section 269ST

Section 271E- Failure to comply with the provisions of Section

Sum equal to the amount of loan/deposit/specific
24) 269T with regard to the repayment of loan/deposit/specific
advance repaid.
advance

Section 271F- Failure to furnish the returns as required under

25) Section 139(1) or by its proviso before the end of the relevant Rs.5,000
assessment year Note: Applicable up to AY 2017-18

Section 271FA- Failure to furnish a statement of financial

transaction or reportable account under Section 285BA(1) Failure
26) Rs.500 per day of default Rs.1,000 per day of default
to furnish the statement within the period specified in the notice
issued under Section 285BA(5)

Section 271FAA- Furnishing inaccurate statement of financial

27) Rs.50,000
transaction or reportable account.

Section 271FAB- Failure to furnish

28) statement/information/document within the time prescribed as Rs.5,00,000
provided under Section 9A(5)

Section 271FB- Failure to furnish a return of fringe benefits as

29) Rs.100 per day of default
required under Section 115WD(1) within the prescribed time

Section 271G- Failure to furnish information under Section 92D(3)

2% of the value of the international transaction or
30) in relation to an international transaction or specified domestic
specified domestic transaction
transactions

Section 271GA- Failure by the Indian concern to furnish any

information or document under Section 285A

Section 285A-
- Where any interest/share in an entity registered outside India - 2% of the value of the transaction in respect of
31)
obtains its value from assets located in India and which such failure has taken place if such transaction
- Where such foreign company holds assets in the Indian concern had the effect of directly or indirectly transferring the
Such an Indian concern shall, for the purposes of determination of right of management/control in relation to the Indian
any income accruing or arising in India, furnish the documents concern.
within the prescribed time
- Rs. 5,00,000 in any other case

- For delay of:

Section 271GB-
a) less than one month: Rs.5,000 for every day of
default
b) more than one month: Rs.15,000 for every day of
- Failure to furnish the report/submitting an inaccurate report by
default
the reporting entity which is required to furnish country-by-
c) Continuing default even after service of notice
country report as required under Section 286.
30) under either under (a) or (b) above penalty would be
Rs.50,000 for every day of default.
- Failure to produce the documents within 30 days of notice as
prescribed under Section 286(6).
- Rs.5,000 for every day of default starting after the
period for furnishing the document expires.
- Furnishing inaccurate information in the report which is to be
furnished under Section 286(2).
- Rs.5,00,000

Section 271H- Failure to furnish TDS/TCS statements of furnishing

incorrect information within the prescribed time
Minimum: Rs.10,000
33)
Maximum: Rs.1,00,000
Note: Applicable to TDS/TCS statements to be delivered after 01-
07-2012

Section 271I- Failure in furnishing the information related to the

payment made to a non-resident, which is not a company/foreign
34) Rs.1,00,000
company of any sum (even though not chargeable under the
provisions of this act)
 Section 271J- Incorrect information in reports/certificates by an
35) Rs. 10,000 for each such report/certificate
accountant/merchant banker/registered valuer

Section 272A(1)- Any person fails/refuses to:

- Answer questions put by the IT authority
- Sign statements which the IT authority requires him to do
36) -Give evidence or produce the books under summons issued Rs. 10,000 for each default
under Section 131(1)
-Comply with the notice issued under Section 142(1) or 143(2) or
142(2A)

Section 272A(2)- Failure to:

- Furnish the statement regarding ownership/beneficial interest in
the securities in order to determine whether tax is borne on the
same as required under Section 94(6)

- Furnish the notice of discontinuance within 15 days under

section 176(3)

- Furnish information, TDS return, TCS returns and submission of

statements by producers of cinematograph films under section
133/206/206C/285B

- To allow inspection/copies of the register under Section 134

-To furnish return of income under Section 139(4A) or 139(4C)

-To deliver a copy of the declaration for transactions where no

Rs.100 for every day of default.
TDS needs to be deducted as given under Section 197A
37) In sections related to TDS/TCS, the amount of penalty
-To furnish a certificate for TDS/TCS under section 203/206C
shall not exceed the amount of
tax-deductible/collectible.
-To deduct and pay tax in respect of salary as referred to in
Section 226

-To furnish a statement to the person receiving the salary

complete particulars of perquisites or profits in lieu of salary
under section 192(2C)

-To deliver in due time a copy of declaration as required under

Section 206C(1A) -To deliver statements pertaining to TDS/TCS
under section 200(3) or 206C(3)

-To furnish quarterly returns in respect of payment of interest to

residents without deduction of tax within the prescribed time and
in a prescribed manner under section 206A(1)

-To furnish a statement in respect of sums credited to the Central

Government under Section 200(2A) or Section 206C(3A).

Section 272AA- Failure to comply with Section 133B wherein an

38) Maximum: Rs. 1,000
income tax authority has the power to call for information

Section 272B-

Failure to comply with Section 139A with regard to a permanent

account number(PAN)
-PAN is to be quoted in the documents as prescribed by the Board
under Section 139(5)(c)
39) Rs.10,000
-PAN is to be furnished to the person deducting tax by the person
receiving the income PAN is to be furnished to the person
responsible for collecting tax by the buyer/licensee/lessee.

If in any of the circumstance the PAN furnished is false or the

person believes it to be false then he shall be liable to a penalty

Section 272BB- Failure to apply/quote the tax deduction/tax

collection number
40) Rs.10,000
Tax deduction number/ tax collection number falsely quoted or
the person believes it to be false.
Offences and prosecutions under Income-tax Act, 1961

The sections dealing with offences and prosecution proceedings are included in Chapter XXII of the Income-tax Act, 1961 i.e. S. 275A to S. 280D of the Act (hereinafter
referred as “ said Act”). However, the provisions contained in said Chapter XXII of the Act do not inter se deal with the procedures regulating the prosecution itself,
which is governed by the provisions of the Criminal Procedure Code, 1973. The provisions of the said Code are to be followed relating to all offences under the
Income-tax Act, unless the contrary is specially provided for by the Act. An appropriate example would be S. 292A of the Act that prescribes that S. 360 of the Code of
Criminal Procedure, 1973 (Order to release on probation of good conduct or after admonition) and the Probation of Offenders Act, 1958, would not apply to a person
convicted of an offence under the Income–tax Act, unless the accused is under eighteen of age. The Finance Act, 2012, w.e.f. 1-7-2012 has inserted S. 280A to 280D,
wherein the Central Government has been given the power to constitute Special Courts in consultation with the Chief Justices of the respective jurisdictional High
Courts. Normally, the Magistrate Court in whose territorial jurisdiction an offence is committed tries the offence. For direct tax cases, the offence is said to committed
at the place where a false return of income is submitted, even though it is completely possible that the return has be prepared elsewhere or that accounts have been
fabricated at some other place. In J. K. Synthetics Ltd. v. ITO (1987) 168 ITR 467 (Delhi) (HC), the Court held that the offence u/s. 277 of the Act can be tried only at the
place wherefalse statement is delivered (SLP was rejected (1988) 173 ITR 98 (st). also refer Babita Lila v. UOI (2016) 387 ITR 305 (SC). A First Class Magistrate or a
Metropolitan Magistrate, should try the prosecution case under the direct taxes. If a Special Economic Offences Court with specified jurisdiction is notified, the
complaint is to be filed before the respective court. For ready reference an easy to understand summary of prosecutions provisions under Income–tax Act has been
reproduced in a chart as per annexure “A”.

Penalty and prosecution – S. 271(1)(c) and S. 277

In S.P. Sales Corporation v. S. R. Sikdar (1993) 113 Taxation 203 (SC) and G. L. Didwania v. ITO (1995) 224 ITR 687 (SC), the Hon’ble Apex Court laid down the principle
that “The Criminal Court no doubt has to give due regard to the result of any proceedings under the Act having bearing on the question in issue and in an appropriate
case it may drop the proceedings in the light of an order passed under the Act.” In
K. C. Builder v. ACIT (2004) 265 ITR 562 (SC), the court held that when the penalty is cancelled, the prosecution for an offence u/s 276C for wilful evasion of tax cannot
be proceeded with thereafter. Following this principle the courts have quashed prosecution proceedings on the basis of the cancellation of penalty by the Appellate
Authority (Shashichand Jain & Ors. v UOI (1995) 213 ITR 184 (Bom) (HC). When Tribunal decides against the assessee in quantum proceedings and if there is
possibility of department launching prosecution proceedings, it may be desirable for the assessee to file an appeal before the High Court. Various courts have held
that, when the substantial question of law is admitted by a High Court, it is not a fit case for the levy of penalty for concealment of Income

(CIT v. Nayan Builders and Developers (2014) 368 ITR 722 (Bom.) (HC), CIT v. Advaita Estate Development Pvt. Ltd. (ITA No. 1498 of 2014 dt. 17/2/2017) (Bom.)(HC),
(www.itatonline.org) CIT v. Dr. Harsha N. Biliangady (2015) 379 ITR 529 (Karn.) (HC). A harmonious reading of the various ratios it can be contended that if penalty
cannot be levied upon the admission of a substantial question of law by the Jurisdictional High Court, it cannot be a fit case for prosecution.

In V. Gopal v. ACIT (2005) 279 ITR 510 (SC), the court held that when the penalty order was set-aside, the Magistrate should decide the matter accordingly and quash
the prosecution.

In ITO v. Nandlal and Co. (2012) 341 ITR 646 (Bom.)(HC), the court held that, when the order for levy of penalty is set aside, prosecution for wilful attempt to evade
tax does not survive.

Non-initiation of penalty proceedings does not lead to a presumption that the prosecution cannot be initiated as held in Universal Supply Corporation v. State of
Rajasthan
(1994) 206 ITR 222 (Raj) (HC) (235), A.Y. Prabhakar (Kartha) HUF v. ACIT (2003) 262 ITR 287 (Mad.) (288). However, if penalty proceedings are initiated and after
considering the reply, the proceedings are dropped, it will not be a case for initiating prosecution proceedings. CBDT guidelines had instructed that where quantum
additions or penalty have been deleted by the departmental appellate authorities, then steps must be taken to withdraw prosecution (Guidelines F. No. 285/16/90-IT
(Inv) 43 dated 14-5-1996)

Offences by HUF

S. 278C provides for criminal liability of the Karta, or members of a HUF in respect of offences committed by the Hindu Undivided Family. Under this provision, when
an offence has been committed by HUF, the Karta thereof will be deemed to be liable to be prosecuted and punished accordingly, unless he proves that the offence
was committed without his knowledge or that he had exercised all due diligence to prevent the offence. If the offence was committed with the consent or connivance
of or is attributable to any neglect on the part of any other member of the family, such other member shall be deemed to be guilty of the offence and shall be liable
to be prosecuted and punished accordingly. In
Roshan Lal v. Special Chief Magistrate (2010) 322 ITR 353 (All.) (HC), the Court held that a member of HUF cannot be held liable for delay in filing of return of HUF
though he has participated in the assessment proceedings.

Offences by Credit Institutions

If an offence is committed by a credit institution, then the credit institution as well as every person, who at the time of the offence being committed was in-charge
and responsible to the credit institution for the conduct of the business of such institution, shall be deemed to be guilty and liable to be proceeded against. Burden
would be on such person to prove that the offence was committed without his knowledge or that he had exercised all due diligence to prevent the commission of
such offence,
then he will not be liable to be proceeded against.

4Th unit
When did GST start?

The history of GST goes back as early as the year 1954, when it was first adopted by France, followed by over 160 countries worldwide. Malaysia was one of the most
recent countries to adopt a valued-based tax system, GST, back in 2015. GST was first introduced in India in 2017 when they decided to introduce a dual tax structure
system.

Who introduced GST in India?

 In 2014, the then Finance Minister, Mr Arun Jaitley, introduced the Constitution Amendment Bill in the parliament. In May 2015, the Constitution (122nd
Amendment) Bill was passed in the Lok Sabha. The Integrated GST Bill, 2017, the Union Territory GST Bill, 2017, the Central GST Bill, 2017, and the GST (Compensation
to States) Bill, 2017 were passed by the Lok Sabha and the Rajya Sabha by the 20th of April 2017. On the 1st of July, 2017, GST was officially rolled out.

Brief history of GST Bill and GST Act in India

The history of GST traces back more than 20 years ago to the year 2000 when the first discussion with regard to India adopting GST was made at a time when the Atal
Bihari Vajpayee government was in reign. An empowered committee of state finance ministers was chosen for this purpose since they had prior experience working
with State VAT. The Fiscal Responsibility and Budget Management Committee was formed in 2004, and the Committee recommended the introduction of GST.

During the 2006-07 Budget Speech, the then Union Finance Minister announced that GST would be introduced by April 1, 2010. However, for various reasons, the
introduction of GST had to be pushed further. The Constitution (115th Amendment) Bill, 2011, was introduced in the parliament. This Bill was introduced to
incorporate certain provisions of GST and was examined in detail by a Standing Committee. With the dissolution of the Lok Sabha in 2014, the Bill lapsed, thus
warranting the need for a new Constitutional Amendment Bill.

Taxes before GST introduction

Prior to the implementation of GST, the major taxes were:-
 VAT (State level tax)
VAT (Value Added Tax) is an indirect tax levied on goods and services sold intra-state. Output VAT was charged on sales made by a dealer. On the other hand, Input
VAT could be claimed as a tax credit for the VAT charged on business purchases.
 Excise Duty
Products manufactured domestically (within the country) were subject to excise duty levied by the Central Government. It was also known as CENVAT (Central Value
Added Tax).
 Customs Duty
A tax levied on imports and exports (international transactions) was a customs duty. The idea behind charging customs duty was to ensure that domestic products are
safeguarded and also to be able to regulate the movement of goods.
 Central Sales Tax
The sale or purchase of goods at an inter-state level was subject to the levy of Central Sales Tax, an indirect tax imposed by the central government.
 Service Tax
The tax levied on service providers for services they provided (excluding the list of services that came under the negative list) was termed a service tax. Technically,
although the tax is levied on the service providers, the tax is paid by the customer at the time of availing the service.
Changes after GST introduction
 GST is focused on the “supply” of goods and services as opposed to the older taxes that were also applicable to the manufacturing process. Since it is focused
on supply, it is regarded as a destination-based tax.
 It has replaced a host of taxes, including-
 Service tax
 Central Excise Duty
 Additional duties related to Excise
 Special Additional Customs Duty
 Additional duties related to Customs
 Other cesses and surcharges
 GST has absorbed the following taxes-
 Central Sales Tax
 Value Added Tax (VAT)
 Luxury Tax
 Purchase Tax
 Entertainment Tax (except taxes levied by local entities)
 Taxes on lottery, gambling, advertisements
 Entry Tax
 Since it follows the ”one nation, one tax” ideology, the cascading effect of taxes is now mitigated.
 Fresh GST registrations are necessary for every state where the business has branches or intends to make outward supplies.
 The components of GST include-
 CGST – Central GST
 SGST – State GST
 IGST – Integrated GST
 Section 9 (4) deals with the Reverse Charge Mechanism, which is unique to GST, where a person buying goods from an unregistered dealer will be liable to pay
GST on a reverse charge basis.
 Section 9 (5) deals with the GST charged on the supply of services by restaurants through e-commerce operators.
 Sections 51 and 52 of the GST Act came into effect to state the authority and procedure with regard to the TDS mechanism under GST.
 E-way bill system was introduced to track the inter-state movement of goods and is mandatory where the value of the goods transported exceeds Rs.50,000.
 The introduction of e-invoices is a significant step towards combating tax evasion.
 GST is a digital tax since the returns, and their related details are filled through the web portal. The supporting documents are also submitted on the portal,
thus enabling easy tracking of transactions.
What Is the Goods and Services Tax (GST)?

The goods and services tax (GST) is a value-added tax (VAT) levied on most goods and services sold for domestic consumption . The GST is paid by consumers, but it
is remitted to the government by the businesses selling the goods and services.
Critics point out, however, that the GST may disproportionately burden people whose self-reported income are in the lowest and middle income brackets, making
it a regressive tax.1 These critics argue that GST can therefore exacerbate income inequality and contribute to social and economic disparities. In order to address
these concerns, some countries have introduced GST exemptions or reduced GST rates on essential goods and services, such as food and healthcare. Others have
implemented GST credits or rebates to help offset the impact of GST on lower-income households.

Understanding the Goods and Services Tax (GST)

The goods and services tax (GST) is an indirect federal sales tax that is applied to the cost of certain goods and services. The business adds the GST to the price of
the product, and a customer who buys the product pays the sales price inclusive of the GST. The GST portion is collected by the business or seller and forwarded to
the government. It is also referred to as Value-Added Tax (VAT) in some countries.
Most countries with a GST have a single unified GST system, which means that a single tax rate is applied throughout the country. A country with a unified GST
platform merges central taxes (e.g., sales tax, excise duty tax, and service tax) with state-level taxes (e.g., entertainment tax, entry tax, transfer tax, sin tax, and
luxury tax) and collects them as one single tax. These countries tax virtually everything at a single rate.
Different Types of GST Tax
The structure of GST takes into account the type of transaction, depending on which the tax amount is levied –
 Inter-State transactions
It is a transaction that takes place between two states. For instance, a supplier supplies iron ore from Jharkhand to a consumer in West Bengal. The GST, thus
collected, is divided between the Central government and the West Bengal government (State of consumption).
 Intra-State transactions
When a transaction is carried out within a State, it is an intra-state transaction. For example, a business in Jharkhand supplies 1 tonne of iron-ore to a consumer
within the State. The GST then diverts to the Centre government and the Jharkhand government.
Based on this nature of transactions, there are primarily three different types of GST –
 State Goods and Services Tax or SGST
 Central Goods and Services Tax or CGST
 Integrated Goods and Services Tax or IGST
Components of GST
SGST
A State government levies SGST on the intra-state transactions of goods and services. The revenue collected is earned by the state government wherein this
transaction takes place. SGST subsumes earlier taxes like purchase tax, luxury tax, VAT, Octroi, etc.
For union territories like Chandigarh, Puducherry and Andaman and Nicobar Islands, a Union Territory Goods and Services Tax or UGST replaces SGST.
CGST
The Central government levies CGST on the intra-state transactions of goods and services. It is levied alongside SGST or UGST, and the collected revenues are shared
equally between the center and the state.
IGST
When a transaction of goods and services is inter-state in nature, an IGST is levied on them. It is applicable to imports and exports as well. Revenues generated
through this tax are shared between the state and the central governments.
Who is Liable to Pay GST?
The following categories of persons are liable to pay GST –
 Individuals registered under GST and making taxable supplies.
 GST registered persons are required to pay under the reverse charge mechanism.
 Persons registered under GST and required to deduct tax at source (TDS).
 E-commerce operators registered under GST.
 E-commerce operators registered under GST are required to collect tax at source (TCS).
 Individuals supplying goods or services on behalf of a supplier or manufacturer (agents).
Goods Exempted from GST Payment
Like all other taxes, the GST exempts certain goods and services from ensuing liability. Exemptions under GST contain an extensive list of goods, which include the
following –
 Food: Fruits and vegetables, cereals, meat, and fish, etc.
 Raw materials: Cotton for khadi yarn, handloom fabrics, unprocessed wool, raw silk, raw jute fibre, etc.
 Instruments/Tools: Agricultural tools, tools for differently-abled individuals.
 Miscellaneous: Vaccines, journals, newspapers, maps, books, non-judicial stamps, articles of paper pulp, etc.

Are VAT and GST the Same?

Value-added tax (VAT) and goods and services tax (GST) are similar taxes that are levied on the sale of goods and services. Both VAT and GST are also indirect taxes,
which means that they are collected by businesses and then passed on to the government as part of the price of the goods or services.
However, there are some key differences between the two. VAT is primarily used in European countries and is collected at each stage of the production and
distribution process, while GST is used in countries around the world and is collected only at the final point of sale to the consumer. VAT is generally applied to a
wider range of goods and services than GST, and the rate of VAT and GST can vary depending on the type of goods or services being sold and the country in which
they are sold.

What were the major defects in the structure of Indirect Taxes before the GST regime?

Before the implementation of the Goods and Services Tax (GST) regime in India, the indirect tax structure was fragmented, complicated, and riddled with numerous
defects. The indirect tax system in India is comprised of multiple taxes levied at different stages of the supply chain, including central excise duty, service tax, value-
added tax (VAT), central sales tax, and other levies. These taxes were levied by different authorities, resulting in a complicated and confusing tax structure. Here are
some of the major defects in the structure of Indirect taxes before GST:
1. Cascading Effect:
One of the significant problems with the pre-GST indirect tax system was the cascading effect of taxes, also known as the tax on tax. In the pre-GST regime, taxes
were levied at each stage of production and distribution, leading to a compounding effect of taxes. This resulted in an increase in the cost of goods and services,
making them expensive for the end consumer.
2. Multiple Taxes and Rates:
The pre-GST indirect tax structure had multiple taxes levied at different stages of the supply chain. The central government levied taxes such as excise duty, service
tax, and customs duty, while the state government levied taxes such as VAT, entry tax, and entertainment tax. Each tax had its own rate, making it complicated for
businesses to calculate and comply with the tax laws.
3. Compliance Burden:
Compliance with the pre-GST indirect tax system was complicated and time-consuming. Businesses had to comply with multiple tax laws, file separate tax returns,
maintain separate records, and undergo multiple audits. This resulted in a high compliance burden for businesses, particularly small and medium-sized enterprises.
4. Tax Evasion:
The pre-GST indirect tax system was plagued with rampant tax evasion due to the complex tax laws and multiple tax rates. Many businesses found ways to evade
taxes, such as underreporting sales, claiming false exemptions, and claiming input tax credits fraudulently. This resulted in a loss of revenue for the government and
an uneven playing field for compliant businesses.
5. Lack of Uniformity:
The pre-GST indirect tax system lacked uniformity across states and industries. Different states had different tax rates, and industries were subject to different tax
laws and exemptions. This resulted in a lack of transparency and predictability in the tax regime, making it difficult for businesses to plan and invest in the long term.
In conclusion, the pre-GST indirect tax system in India was fraught with several defects, making it complicated, time-consuming, and expensive for businesses to
comply with the tax laws. The implementation of the GST regime in July 2017 has simplified the tax structure, reduced the compliance burden, and eliminated the
cascading effect of taxes. The GST regime has brought much-needed uniformity and transparency to the indirect tax system, making it easier for businesses to
operate and grow.

Reasons for introducing GST

The idea of a nationwide GST in India was first proposed by the Kelkar Task Force on Indirect taxes in 2000. The objective was to replace the prevailing complex and
fragmented tax structure with a unified system that would simplify compliance, reduce tax cascading, and promote economic integration. The Empowered
Committee of State Finance Ministers prepared a design and roadmap, releasing the First Discussion Paper in 2009. The Constitution Amendment Bill was introduced
in 2011 but faced challenges regarding compensation to States and other issues.

After years of deliberation and negotiations between the Central and State Governments, the Constitution (122 nd Amendment) Bill, 2014, was introduced in the
Parliament. The Bill aimed to amend the Constitution to enable the implementation of GST. The Constitution Amendment Bill was passed by the Lok Sabha in May,
2015. The Bill with certain amendments was finally passed in the Rajya Sabha and thereafter by the Lok Sabha in August, 2016. Further, the Bill has been ratified by
the required number of States and has since received the assent of the President on 8 th September, 2016 and has been enacted as the 101st Constitution Amendment
Act, 2016. The GST Council was notified w.e.f. 15th September, 2016. For assisting the GST Council, the office of the GST Council Secretariat was also established.
The GST Council, consisting of the Union Finance Minister and representatives from all States and Union Territories, was established to make decisions on various
aspects of GST, including tax rates, exemptions, and administrative procedures. It played a crucial role in shaping the GST framework in India. On 1 st July, 2017, GST
laws were implemented, replacing a complex web of Central and State taxes. Under the Indian GST, goods and services are categorized into different tax slabs,
including 5%, 12%, 18%, and 28%. Some essential commodities are exempted from GST, Gold and job work for diamond attract low rate of taxation. Compensation
cess is being levied on demerit goods and ceratin luxury items.
To prepare for the implementation of GST, extensive efforts were made to build the necessary technological infrastructure and train tax officials and businesses. GST
Network (GSTN), a not-for-profit company, was created to provide the IT backbone for the GST system, including taxpayer registration, return filing, and tax
payments.

Since its implementation, the Indian GST has undergone various amendments and refinements based on feedback from businesses and the evolving economic
scenario. While the GST implementation initially posed challenges for businesses in terms of understanding the new compliance requirements and adapting to the
changes, it has gradually settled into the Indian tax landscape.

It can be said that the history of GST in India showcases a monumental shift in the country's tax structure, aiming to create a more unified, efficient, and transparent
indirect tax regime for the benefit of businesses and the economy as a whole.

GST Benefits – Advantages and Disadvantages of GST

Advantages of GST
GST eliminates the cascading effect of tax
GST is a comprehensive indirect tax that was designed to bring indirect taxation under one umbrella. More importantly, it is going to eliminate the cascading effect of
tax that was evident earlier.
Cascading tax effect can be best described as ‘Tax on Tax’. Let us take this example to understand what is Tax on Tax:
Before GST regime
A consultant offering services for say, Rs.50,000 and charged a service tax of 15%
(Rs.50,000 * 15% = Rs.7,500).
Then say, he would buy office supplies for Rs.20,000 paying 5% as VAT
(Rs.20,000 *5% = Rs.1,000).
He had to pay Rs.7,500 output service tax without getting any deduction of Rs.1,000 VAT already paid on stationery.
His total outflow is Rs.8,500.
Under GST

GST on service of Rs.50,000 @18% 9,000

Less: GST on office supplies (Rs 20,000*5%) 1,000

Net GST to pay 8,000

Higher threshold for registration

Earlier, in the VAT structure, any business with a turnover of more than Rs.5 lakh (in most states) was liable to pay VAT. Please note that this limit differed state-wise.
Also, service tax was exempted for service providers with a turnover of less than Rs.10 lakh.
Under GST regime, however, this threshold has been increased to Rs.20 lakh, which exempts many small traders and service providers.
Let us look at this table below:
 Tax Threshold Limits

Excise 1.5 crores

VAT 5 lakhs in most states

Service Tax 10 lakhs

GST 20 lakhs (10 lakhs for NE states)

Composition scheme for small businesses

Under GST, small businesses (with a turnover of Rs.20 to 75 lakh) can benefit as it gives an option to lower taxes by utilising the Composition scheme. This move has
brought down the tax and compliance burden on many small businesses.

Simple and easy online procedure

The entire process of GST (from GST registration to filing returns) is made online, and it is super simple. This has been beneficial for start-ups especially, as they do
not have to run from pillar to post to get different registrations such as VAT, excise, and service tax.
Our Clear GST software helps you with filing of accurate GST returns ahead of due dates.

The number of compliances is lesser

Earlier, there was VAT and service tax, each of which had its own returns and compliances. Below table shows the same:

Tax Return Filing

Excise Monthly

Proprietorship / Partnership – Quarterly

Service Tax
Company / LLP – Monthly

Is different for different states

VAT Some states require monthly returns over a threshold limit.
Some states like Karnataka require a Monthly return

Under GST, however, there are fewer returns to be filed. Therefore, the number of returns to be filed has come down. There are about 11 returns under GST, out of
which 4 are basic returns that apply to all regular taxable persons under GST. The main GSTR-1 is filed to report list of sales invoice and related documents for the tax
period.
The next return is GSTR-2A and GSTR-2B that are dynamic and static auto-drafted returns with input tax credit details reported as available or not for a taxpayers
during the tax period. The summary return in form GSTR-3B contains both sales and ITC information, any refund details as well as details of non-GST supplies for the
tax period. This return is filed to report the taxes payable, ITC claimed and taxes paid for the tax period.
Special treatment for e-Commerce operators
Before GST regime, supplying goods through the e-commerce sector did not have separate rules. It had variable VAT laws. Let us look at this example:

Online websites (like Flipkart and Amazon) delivering to Uttar Pradesh had to file a VAT declaration and mention the registration number of the delivery truck. Tax
authorities could sometimes seize goods if the documents were not produced.

Again, these e-commerce brands were treated as facilitators or mediators by states like Kerala, Rajasthan, and West Bengal which did not require them to register for
VAT.

All these differential treatments and confusing compliances have been removed under GST. For the first time, GST has clearly mapped out the common provisions
applicable to the e-commerce sector across India and since these are applicable all over India, there should be no complication regarding the inter-state movement of
goods anymore.

Read a more detailed analysis of the impact of GST on e-commerce .

Improved efficiency of logistics

Earlier, the logistics industry in India had to maintain multiple warehouses across states to avoid the Central Sales Tax and state entry taxes on inter-state movement.
These warehouses were forced to operate below their capacity, giving room for increased operating costs.

Under GST, however, these restrictions on inter-state movement of goods have been lessened.

As an outcome of GST, warehouse operators and e-commerce aggregators players have shown interest in setting up their warehouses at strategic locations such as
Nagpur (which is the zero-mile city of India), instead of every other city on their delivery route.
Reduction in unnecessary logistics costs is already increasing profits for businesses involved in the supply of goods through transportation.

Visit here to read more about the impact of GST on logistics.

Unorganised sector is regulated under GST

In the pre-GST era, it was often seen that certain industries in India like construction and textile were largely unregulated and unorganised.

Under GST, however, there are provisions for online compliances and payments, and for availing of input credit only when the supplier has accepted the amount. This
has brought in accountability and regulation to these industries.

Let us now look at the disadvantages of GST. Please note that businesses need to overcome these disadvantages to run the business smoothly.

Disadvantages of GST

Increased costs due to software purchase

Businesses have to track GST updates regularly. They must ensure that their accounting or ERP software gets updated in real time for GST legal and portal updates.
Else, they can go for a GST compliance solution to ensure continuous compliance. But both the options involve money to be invested and needs time commitment for
training employees so that there is efficient utilisation of the new GST software.

Clear has a ready-to-use, enterprise-grade GST solution- ClearGST software. Ensure compliance with latest GST laws and rules through AI-powered reconciliations,
insightful reports, end-to-end GST return filing, automated Table-4 reporting in GSTR-3B and much more!

Not being GST-compliant can attract penalties

Many small businesses in India are adapting GST changes with every passing month. When the law was first introduced, they had learn to issue GST-complaint
invoices, be compliant with digital record-keeping, and of course, file timely returns. This means that the GST-complaint invoice issued should have had mandatory
details such as GSTIN, place of supply, HSN codes, and others.

These same invoices can be easily imported through various options for accurate return filing through the ClearGST platform.

GST brought about a rise in operational costs

GST changed the way taxes are paid and returns are filed. Businesses needed to employ tax professionals who had expertise to stay GST-complaint. This gradually
increased costs for small businesses as they had to bear the additional cost of hiring experts.

Also, businesses needed to train their employees in GST compliance, further increasing their overhead expenses. A plug-and-play, SaaS-based solution such as
ClearGST allowed taxpayers to ensure compliance at reasonable cost.

GST came into effect in the middle of the financial year

Initially, as GST was implemented on the 1st of July 2017, businesses followed the old tax structure for the first 3 months (April, May, and June), and GST for the rest
of the financial year 2017-18.

Businesses found it hard to get adjusted to the GST regime, and some of them ran these tax systems parallelly, resulting in confusion and compliance issues.

Adapting to a complete online taxation system

Unlike earlier, businesses are had to switch from pen and paper invoicing and filing to online return filing and making payments. This was tough for some smaller
businesses to adapt to.

The process for GST return filing on ClearGST is easy to follow. Business owners need to only upload their invoices through easy-import options, and the software will
populate the return forms automatically with the information from the invoices for an error-free end-to-end filing. Any errors in invoices will be clearly identified by
the software in real-time, thus increasing efficiency and timeliness.

SMEs have a higher tax burden

Smaller businesses, especially in the manufacturing sector have faced difficulties under GST. Earlier, only businesses whose turnover exceeded Rs.1.5 crore had to pay
excise duty. But now any business whose turnover exceeds Rs.20 lakh have to pay GST.
However, SMEs with a turnover upto Rs.75 lakh can opt for the composition scheme and pay only 1% tax on turnover in lieu of GST and enjoy lesser compliances. The
catch though is these businesses will then not be able to claim any input tax credit. The decision to choose between higher taxes or the composition scheme (and
thereby no ITC) continues to be a tough one for many SMEs.