Tax Deducted at Source (TDS)

TDS, or Tax Deducted at Source, is a predetermined amount subtracted from various

payments such as salaries, commissions, rents, interests, and professional fees. The rates of
TDS are determined based on the individual’s age group and income level.
The entity making the payment is responsible for deducting the tax at the source, shifting
the tax liability from the recipient to themselves. This method acts as a deterrent to tax
evasion since the tax is collected at the time of payment.
For instance, let’s consider an example of TDS in the context of salary payments:
Suppose Mr. A, an employee, earns a monthly salary of ₹50,000 from XYZ Corporation. As
per the Income Tax Act, XYZ Corporation is obliged to deduct TDS from Mr. A’s salary before
issuing the payment.
Assuming Mr. A falls into the 30-60 age group and falls within the 20% tax slab based on his
annual income, XYZ Corporation would deduct TDS from Mr. A’s salary at the applicable
rate, say 20%.
Consequently, XYZ Corporation would subtract ₹10,000 (20% of ₹50,000) as TDS from Mr.
A’s salary and remit this amount to the government on his behalf. Mr. A would then receive
a net salary of ₹40,000 after the TDS deduction.
In this scenario, TDS ensures that taxes are collected upfront, directly from Mr. A’s salary by
XYZ Corporation, mitigating the possibility of tax evasion. Though Mr. A remains liable to pay
taxes on his total income, a portion of it is already accounted for through TDS at the time of
payment.
When should TDS be deducted and who is liable to deduct it?
Under the Income Tax Act, 1961, Tax Deducted at Source (TDS) should be deducted at the
time of making certain specified payments. The person responsible for making these
payments, known as the “deductor”, is liable to deduct TDS. The following are some key
points regarding when TDS should be deducted and who is responsible for deducting it:
1. Specified Payments: TDS should be deducted when making payments such as salaries,
interest, commission, rent, professional fees, royalties, contract payments, dividends, etc.
These payments are specified under different sections of the Income Tax Act.
2. Threshold Limits: TDS is usually required to be deducted when the amount of payment
exceeds specified threshold limits. These limits vary depending on the nature of the
payment and the provisions of the Income Tax Act.
3. Type of Entity: The responsibility to deduct TDS typically falls on certain types of entities,
including individuals, Hindu Undivided Families (HUFs), partnerships, companies,
government agencies, and other entities making specified payments.
4. Non-resident Entities: In the case of payments made to non-residents, TDS is often
applicable at higher rates and under specific provisions outlined in the Income Tax Act.
5. Rates and Sections: The rates at which TDS should be deducted and the relevant sections of
the Income Tax Act governing TDS vary depending on the type of payment. For example, TDS
on salaries is governed by Section 192, while TDS on interest is covered under Section 194A.
6. Filing of TDS Returns: After deducting TDS, the deductor is required to file TDS returns and
remit the deducted TDS to the government within specified due dates. Failure to comply
with TDS provisions may attract penalties and interest.
Types of TDS:
Under the Income Tax Act, 1961, Tax Deducted at Source (TDS) encompasses various types,
each pertaining to specific categories of income or transactions. Here are some of the
primary types of TDS:
1. TDS on Salaries (Section 192): Employers are required to deduct TDS from salaries paid to
employees based on the applicable income tax slab rates.
2. TDS on Interest other than Interest on Securities (Section 194A): TDS is deducted by banks,
financial institutions, and other entities when interest payments exceed specified
thresholds, excluding interest on securities.
3. TDS on Dividends (Section 194): Companies distributing dividends are obligated to deduct
TDS at a specified rate before making payments to shareholders.
4. TDS on Rent (Section 194I): Individuals, HUFs, or entities making rent payments are required
to deduct TDS at specified rates when the annual rent exceeds a certain threshold.
5. TDS on Professional or Technical Services (Section 194J): TDS is deducted by individuals,
HUFs, or entities making payments for professional or technical services exceeding a
specified threshold.
6. TDS on Commission or Brokerage (Section 194H): TDS is deducted by entities making
payments towards commission or brokerage exceeding specified thresholds.
7. TDS on Contractors and Sub-contractors (Section 194C): TDS is deducted by individuals,
HUFs, or entities making payments to contractors and sub-contractors for specified services.
8. TDS on Payments to Non-residents (Section 195): TDS is deducted from payments made to
non-residents for various types of income, including interest, royalties, fees for technical
services, etc.
9. TDS on Lottery Winnings (Section 194B): TDS is deducted by entities making payments
exceeding specified thresholds as lottery winnings.
10. TDS on Insurance Commission (Section 194D): TDS is deducted by insurance companies
when paying commission or brokerage exceeding specified thresholds.
Advantages of TDS
Tax Deducted at Source (TDS) offers several advantages, both to the government and
taxpayers, in ensuring efficient tax collection and compliance. Here are some key advantages
of TDS:
1. Regular Revenue Stream for the Government: TDS ensures a steady and regular inflow of
revenue for the government by collecting taxes at the source of income generation. This
minimizes the risk of tax evasion and improves the government’s cash flow.
2. Reduced Tax Evasion: By deducting tax at the source, TDS minimizes the possibility of tax
evasion. Taxpayers are less likely to under-report their income or evade taxes since a portion
of their income is deducted upfront before they receive it.
3. Simplified Tax Compliance: TDS simplifies tax compliance for taxpayers by automating the
tax deduction process. Taxpayers do not need to calculate and pay taxes on certain types of
income separately since the tax is deducted at the source by the payer. This reduces the
burden of tax compliance and minimizes errors in tax calculation.
4. Timely Collection of Taxes: TDS ensures the timely collection of taxes by requiring deductors
to remit the deducted tax to the government within specified due dates. This helps the
government meet its expenditure requirements and fund various developmental activities
without delays.
5. Enhanced Transparency: TDS promotes transparency in the tax system by creating a clear
trail of tax deductions and payments. Taxpayers receive TDS certificates from deductors,
which serve as proof of tax deducted and deposited with the government. This enhances
transparency and accountability in tax administration.
6. Lower Administrative Burden: TDS reduces the administrative burden on tax authorities by
shifting the responsibility of tax deduction and collection to deductors. Tax authorities can
focus their resources on enforcement activities and addressing tax evasion cases, rather
than on individual tax collection.
7. Encouragement of Voluntary Compliance: TDS acts as a deterrent to tax evasion and
encourages voluntary compliance among taxpayers. The automatic deduction of tax at the
source serves as a reminder for taxpayers to fulfill their tax obligations, thereby fostering a
culture of tax compliance.
Case Laws:
1. CIT vs. Bharti Cellular Ltd. (2007): This case dealt with the definition of ‘commission’ under
Section 194H concerning discounts provided to pre-paid cellular customers.
2. CIT vs. Samsung Electronics Co. Ltd. (2009): Addressing the applicability of TDS on payments
to foreign suppliers for raw materials, this case highlighted the complexities of cross-border
transactions in the TDS regime.
3. GE India Technology Centre Pvt. Ltd. vs. CIT (2010): This case discussed the taxation of
reimbursements received by a foreign company from its Indian subsidiary and whether they
were subject to TDS under Section 195.
4. CIT vs. Gujarat State Road Transport Corporation (2014): This case examined the
applicability of TDS on payments made by the Gujarat State Road Transport Corporation to
private parties for hiring vehicles.
Conclusion:
In conclusion, Tax Deducted at Source (TDS) stands as a cornerstone of the taxation system,
offering numerous advantages to both the government and taxpayers. By collecting taxes at
the source of income generation, TDS ensures a steady revenue stream for the government,
reduces the risk of tax evasion, and simplifies tax compliance for taxpayers. It promotes
transparency in the tax system, facilitates timely collection of taxes, and lowers the
administrative burden on tax authorities. Moreover, TDS acts as a deterrent to tax evasion
and encourages voluntary compliance among taxpayers. Overall, TDS plays a vital role in
 ensuring efficient tax collection, promoting tax compliance, and fostering transparency in
the tax administration, ultimately contributing to the effective functioning of the taxation
system and the socioeconomic development of the nation.

CARRY-FORWARD OF LOSSES
What is Set Off of Losses?
Set off of losses under the Income Tax Act refers to the process by which losses incurred in
one source of income can be utilized to offset profits or gains earned from another source of
income, thereby reducing the taxable income. The Income Tax Act allows taxpayers to set
off losses against income from other heads of income or against income within the same
head of income, subject to certain conditions and limitations.
There are primarily two types of set-off provisions:
1. Inter-head Set-off: This refers to the set-off of losses from one head of income against
income from another head of income. For example, losses from business or profession can
be set off against income from salary or capital gains.
2. Intra-head Set-off: This involves setting off losses within the same head of income. For
instance, short-term capital losses can be set off against short-term capital gains or long-
term capital gains.
The Income Tax Act specifies various rules and conditions regarding the set-off of losses,
such as the carry-forward period for losses, restrictions on set-off of certain types of losses,
and the order of set-off. It’s important for taxpayers to understand these provisions to
optimize their tax planning and minimize their tax liability.

What are the exceptions to Intra-head set off?

Under the Income Tax Act, there are certain exceptions to the intra-head set-off of losses.
These exceptions limit the ability of taxpayers to set off losses within the same head of
income. Some of the key exceptions include:
1. Speculative Business Losses: Losses incurred from speculative business activities cannot be
set off against any other income except speculative business income. Speculative business
includes activities where there is a significant element of speculation, such as trading in
derivatives or commodities.
2. Long-term Capital Losses: Long-term capital losses cannot be set off against any other
income except long-term capital gains. However, if there are no long-term capital gains to
set off against, the unadjusted long-term capital losses can be carried forward for up to eight
 assessment years, immediately succeeding the assessment year in which the loss was
incurred.
3. Losses from owning and maintaining racehorses: Losses incurred from owning and
maintaining racehorses can only be set off against income from owning and maintaining
racehorses. They cannot be set off against any other income.
4. Losses from owning and maintaining horses other than racehorses: Similarly, losses from
owning and maintaining horses other than racehorses can only be set off against income
from owning and maintaining such horses. They cannot be set off against any other income.
These exceptions ensure that certain types of losses are ring-fenced and cannot be used to
reduce tax liability arising from other sources of income, thereby preventing potential abuse
of tax provisions. The carry-forward of losses refers to the provision in the tax laws that
allows taxpayers to carry forward certain types of losses incurred in a particular financial
year to subsequent years for set-off against future profits or gains. This provision helps
taxpayers offset losses against future income, thereby reducing their tax liability in
subsequent years.
Key points regarding the carry forward of losses include:
1. Types of losses eligible for carry forward: Typically, business losses, capital losses, and
speculative business losses are eligible for carry forward under the Income Tax Act, subject
to certain conditions and limitations.
2. Time limit for carry forward: The Income Tax Act specifies the time limit for carrying
forward losses. For example, business losses can usually be carried forward for up to 8
assessment years immediately succeeding the assessment year in which the loss was
incurred. Capital losses can also be carried forward for a specified number of years, typically
up to 8 assessment years.
3. Utilization of carried forward losses: The losses carried forward can be set off against
income in future years, subject to the provisions of the Income Tax Act. Taxpayers can use
these losses to reduce their taxable income in subsequent years, thus lowering their tax
liability.
4. Conditions and restrictions: There may be certain conditions and restrictions regarding the
utilization of carried forward losses, such as the order of set-off, limitations on set-off
against specific types of income, and compliance with reporting requirements.
Overall, the carry forward of losses provides taxpayers with a mechanism to mitigate the
impact of financial losses incurred in one year by offsetting them against future profits or
gains, thereby providing relief and encouraging investment and business activities.
SECTION LOSSES CAN BE CARRIED SET OFF AGAINST INCOME TIME LIMITATION FOR
FORWARD FROM CARRY FORWARD
71B Loss from House property House property 8 Years
72 Business and profession Business and profession 8 Years
73 Loss from speculative Speculative business 4 Years
business
73A Loss from specified business Specified business No time limit
 74 Short term capital loss Short term capital gain and 8 Years
Long term capital Gain
74 Long term capital loss Long term capital Gain 8 Years
74A Loss from owning and Owning and maintaining 4 Years
maintaining horse races horse races

Income tax overview

The term “tax” originates from the Latin word “taxo,” which means “to estimate.” To levy a
tax is to impose a financial obligation or levy on a taxpayer, whether an individual or a legal
entity, by a governing authority such as a state or its equivalent administrative body.
According to Prof Seligman – A tax is compulsory contribution from the person to the
government to defray the expense incurred in the common interest of all without reference
to special benefits conferred.
According to Bastable – A tax as a compulsory contribution of the wealth of a person, or
body of persons for the service of public powers.
kinds of taxes:
Direct taxes are those taxes that are directly levied on individuals or entities based on their
income, wealth, or other financial transactions. The burden of direct taxes cannot be shifted
to someone else. Examples include Income Tax, where individuals or businesses are taxed
based on their income, and Wealth Tax, which is levied on the net wealth of individuals or
entities.
Indirect Taxes, on the other hand, are imposed on the price of goods or services rather than
directly on individuals or entities. The person who pays the indirect tax can shift the burden
of the tax onto another person, typically the consumer. Examples of indirect taxes include
Goods and Services Tax (GST), which is levied on the sale of goods and services at each stage
of production and distribution, and Customs Duty, which is a tax imposed on goods
imported into a country.
Merits of Direct Tax
1. Equity: Direct taxes exhibit equity of sacrifice as they are based on the principle of
progressivity, meaning that tax rates increase as the level of income rises. This ensures that
individuals with higher incomes contribute a larger proportion of their earnings towards
taxes, thus reducing income inequality to some extent.
2. Elasticity and Productivity: Direct taxes demonstrate elasticity as the government can adjust
tax rates or impose new taxes in times of emergency, such as natural disasters or economic
crises, to generate revenue quickly. This flexibility allows the government to respond
effectively to unforeseen circumstances.
3. Certainty: Direct taxes offer certainty for both taxpayers and the government. Taxpayers are
aware of the amount of tax they are required to pay, as well as the time, manner, and
consequences of non-payment. Similarly, the government can accurately predict the
revenue it will receive from direct taxes, facilitating effective budget planning and resource
allocation.
4. Reduce Inequality: Direct taxes contribute to reducing income inequality by following
progressive principles. By imposing higher tax rates on individuals with higher incomes and
lower rates on those with lower incomes, direct taxes help redistribute wealth and promote
a more equitable distribution of resources within society.
5. Effective Tool Against Inflation: Direct taxes can be utilized as a fiscal instrument to combat
inflation. By adjusting tax rates or introducing new taxes, the government can absorb excess
money in the economy, thereby helping to stabilize prices and control inflationary pressures.
6. Simplicity: Direct taxes are generally considered to be simpler than indirect taxes in terms of
levy rules, procedures, and regulations. The income tax system, for example, often has clear
and straightforward guidelines for taxpayers to follow, which can help reduce compliance
costs and administrative burden.
Demerits of Direct Taxes
1. Evasion: Direct taxes, being levied on income, can sometimes lead to tax evasion as
taxpayers may attempt to underreport their income or engage in other forms of non-
compliance to reduce their tax liability. This evasion can be more prevalent due to the
relatively larger sums involved compared to indirect taxes.
2. Uneconomical Collection: Direct taxes often require a widespread administrative
infrastructure for collection, leading to higher administrative expenses. This can be
attributed to the need for a larger staff and more resources to administer and enforce
compliance with direct tax laws.
3. Unpopularity: Direct taxes are typically paid in lump sums, which can be perceived as
burdensome by taxpayers. This lump-sum payment can lead to discontent among taxpayers,
making direct taxes less popular compared to taxes that are paid in smaller, more frequent
installments.
4. Reduced Incentive to Work and Save: The progressive nature of direct taxes, where higher
earners are taxed at higher rates, can create disincentives for individuals to work hard and
save money. As individuals reach higher income brackets, they may feel that the marginal
benefit of their additional earnings is diminished due to higher tax rates.
5. Suitability for Poor Countries: Direct taxes may not be sufficient to meet the revenue needs
of a poor country, particularly if a significant portion of the population earns low incomes or
operates in the informal economy where income is difficult to tax effectively.
6. Arbitrariness: The degree of progression in direct taxation, i.e., how tax rates increase with
income, may lack a clear logical or scientific basis. This perceived arbitrariness can lead to
dissatisfaction among taxpayers and uncertainty regarding the fairness of the tax system.
Merits of Indirect Taxes
1. High Revenue Production: Indirect taxes are imposed on a wide range of goods and services,
including both essential items and luxury goods. This broad coverage allows governments to
collect significant revenue since these goods are consumed by a large portion of the
population, regardless of their income level.
2. No Evasion: Because indirect taxes are embedded in the price of goods and services, it can
be difficult for individuals or businesses to evade or avoid paying them. This inherent
inclusion in the price helps ensure a more consistent collection of taxes.
3. Convenience: Indirect taxes are often small amounts that are integrated into the price of
goods and services. Since they are not directly visible to consumers as separate payments,
the burden of these taxes may not be felt as acutely by taxpayers compared to lump-sum
direct taxes.
4. Economic Collection: Indirect taxes are generally more cost-effective to collect compared to
direct taxes. The administrative costs associated with collecting indirect taxes are often
lower, and the procedures for collection are typically simpler, contributing to overall
efficiency in tax administration.
5. Wide Coverage: Indirect taxes can be applied to a broad range of commodities, including
essential goods, luxury items, and even harmful products like tobacco or alcohol. This wide
coverage ensures that a diverse array of economic activities contributes to government
revenue.
6. Elasticity: The scope for modifying indirect taxes is quite extensive due to the broad range of
goods and services covered. Governments can adjust tax rates and apply taxes selectively
based on the nature of goods, consumer demand, and economic conditions, providing
flexibility in revenue management and economic policy.
Demerits of Indirect Taxes
1. Regressive in Effect: Indirect taxes tend to have a regressive effect as they are applied
uniformly to essential commodities that are consumed by individuals across all income
levels. This means that lower-income individuals end up spending a larger proportion of
their income on these taxed essentials, compared to higher-income individuals. As a result,
the tax burden disproportionately impacts those with lower incomes.
2. Uncertainty in Collection: Indirect taxes are collected when individuals spend their income
on goods and services, making it challenging for tax authorities to accurately estimate total
tax revenue from various indirect taxes. This uncertainty in collection can pose challenges
for budget planning and revenue forecasting.
3. Discouragement of Savings and Increased Inflation: Indirect taxes, being embedded in the
prices of goods and services, lead to higher costs for essential commodities. This can reduce
individuals’ ability to save money, as more of their income is spent on taxed goods.
Additionally, the increased costs of production due to indirect taxes can contribute to
inflationary pressures, as producers may pass on these higher costs to consumers in the
form of higher prices.
4. Inflationary Pressure: Indirect taxes can lead to an increase in production costs, as taxes on
inputs and outputs raise the overall cost of production for businesses. This increase in
production costs may result in higher prices for goods and services, which can contribute to
inflation. Additionally, higher prices may lead to demands for increased wages by workers to
maintain their purchasing power, further contributing to inflationary pressures in the
economy.
 Heads of Income:
Heads of Income: Income under the Income Tax Act is categorized into various heads to
determine the applicable tax treatment. In India, there are five heads of income.
1. Income from Salary: This includes any remuneration received by an individual for services
rendered under an employer-employee relationship. It encompasses wages, bonuses,
commissions, perquisites, and other benefits received by an employee.
2. Income from House Property: This head includes rental income derived from owning
property, such as houses, buildings, land, or any rights in or over such property. The taxable
income is computed after deducting permissible expenses like property taxes, municipal
taxes, and standard deductions.
3. Profits and Gains of Business or Profession: This head covers income generated from
carrying on a business or profession. It includes profits from trading, manufacturing,
rendering services, or any commercial activity. The taxable income is computed after
deducting allowable business expenses.
4. Income from Capital Gains: Capital gains arise when a capital asset (like stocks, bonds, real
estate) is sold at a profit. The Income Tax Act differentiates between short-term and long-
term capital gains based on the holding period of the asset. Various exemptions and
deductions may apply to reduce the taxable portion of capital gains.
5. Income from Other Sources: This head encompasses income that doesn’t fall under the
other four heads. It includes interest income, dividend income, winnings from lotteries or
gambling, gifts exceeding specified limits, etc. The taxable income is computed after
deducting certain expenses and exemptions.
Each head of income has its own set of rules, exemptions, deductions, and tax rates
specified under the Income Tax Act. Taxpayers are required to compute their total income
by aggregating income from all heads and apply relevant provisions to calculate the tax
liability.
Heads of Income under Taxation
As per Section 14 of the Income Tax Act, for the purpose of charging of tax and computation
of total income, all incomes are classified under the following 5 Heads of Income:-
1. Salaries
2. House Property
3. Profits and Gains of Business or Profession
4. Capital Gains
5. Other Sources
1. Income from Salaries
An Income can be taxed under head Salaries if there is a relationship of an employer and
employee between the payer and the payee. If this relationship does not exist, then the
income would not be deemed to be income from salary.
If there is no element of employer-employee relationship, the income shall be not
assessable under this head of income.
Illustration: Mrs. Angelina works in SGP Company Ltd. Owned by her Uncle. Despite being a
close relation, she is getting paid 50,000 as a monthly salary. Here, her monthly earnings are
chargeable under income from the salary head since she has an employer-employee
relationship with her Uncle.
As per Section 15(a) of the Income Tax Act, any salary from the employer or former
employer to the assessee (previous year) is taxable under this head regardless of the fact
that it has been paid or not.
According to the Indian taxation Law, an employer could be remunerated by the mean of
the following terminologies,
 Fees
 Basic Wages
 Advance salary
 Allowances
 Pension
 Gratuity
 retirement benefits and
 Annual bonus as well.
2. Income from House Property
Sections 22 to 27 of the Act of 1961 elucidate the computation of the total income from the
properties inclusive of land and building, which the concerned person owns. The revenue
under this head is chargeable only when the property has let out or rent i.e. only the rental
income is taxable.
Section 22 of the Act provides that the annual value of property consisting of any buildings
or lands appurtenant thereto of which the assessee is the owner, other than such portions of
such property as he may occupy for the purposes of any business or profession carried on by
him the profits of which are chargeable to income-tax, shall be chargeable to income-tax
under the head “income from house property.
Hence, the chargeable cess could be levied on the gains from the building or the land
appurtenant to the property comprises buildings rented for residential, businesses,
professional, and entertainment purposes. In general, the income from the house property
is calculated as, earning – expenditure = profit.
3. Profits and Gains from Business or Profession
Any income earned from any trade/commerce/manufacture/profession shall be chargeable
under this head of income after deducting specified expenses.
The computation procedures of this head are explicated under Sections 28 to 44D of the
Income Tax Act, 1961. But, it is quintessential to comprehend the meaning of the terms
‘businesses and ‘profession’ pursuant to the Act. The term business is defined as an activity
performed for the purpose of earning a profit, while Section 2(36) defines the latter as an
occupation. Notwithstanding, both are similar in all respects that they are driven in pursuit
of income/ profit.
Under this head, the following incomes are chargeable,
 Benefit reaped from the business
 Profit on the income by an organisation or as a result of being in a partnership,
 Profit earned by the assessee
 Cash received on export by the operation of the governmental scheme

4. Income from Capital Gains

Any profits or gains arising from the transfer of a capital asset effected in the financial
year shall be chargeable to Income Tax under the head ‘Capital Gains’ and shall be deemed
to be the income of the year in which the transfer took place unless such capital gain is
exempt under Section 54, 54B, 54D, 54EC, 54ED, 54F, 54G or 54GA.

 LTCG- holding assets for more than 36 months and gaining profit by selling them.
 STCG- holding assets for less than 36 months and deriving profit by selling the same.
5. Income from Other Sources
Any Income which is not chargeable to tax under the above mentioned 4 heads of income
shall be chargeable under this head of income provided that income is not exempt from the
computation of total income. Incomes, which are being left by the aforementioned clauses,
can be charged under this head. Section 56 (2) of the Income Tax Act attributes the following
types of income sources as ‘other income’,
 Interest income from bank deposit
 Dividend earnings
 Gifts
 Insurance policy
 Income from the lottery, card games, gambling, and many more

The total income of an individual plays a pivotal role in income tax computation. That is why
it is significant to figure out the underlying structure of income tax. The aforementioned is
the brief outline of the existing five heads of income under the Income Tax Act, 1961.
Actionable claims
It is a claim to any debt, other than secured by mortgage of immovable property or pledge
or hypothecation of some movable property, or to any beneficial interest in movable
property, not in possession either actual or constructive of the claimant. Section 3 of
Transfer of Property Act, 1882 defines; “actionable claim means a claim to any debt, other
than a debt secured by mortgage of immovable property or by the hypothecation or pledge
of movable property, or to any beneficial interest in movable property not in the possession,
either actual or constructive, of the claimant, which the civil courts recognizes as affording
grounds for relief, whether such debt or beneficial interest be existent, accruing, conditional
or contingent.”
Lets’ analyze above definition; Actionable Claims means a claim to – Any debt, other than a
debt secured – By a mortgage of immovable property, or By hypothecation or pledge of
movable property, or Any beneficial interest in the movable property- not in possession
(either actual or constructive) of the claimant; which the civil courts recognize as affording
grounds for relief, whether such debt or beneficial interest be existent, accruing, conditional
or contingent.
An actionable claim is property and the assignee has a right to sue to enforce the claim. A
right to recover an unascertained amount of damages resulting from breach of contract or
tort is a mere right to sue. If, however, one has a right to recover an ascertained and definite
debt, he may transfer it because it is an actionable claim. Thus, suppose A is indebted to B
for ` 2000 and B transfers the right to recover the debt of C, the transfer is void. A beneficial
interest in specific movable property is also an actionable claim. It has been held that the
right to claim the benefit of an executory contract constitutes a beneficial interest in
movable property [Jaffer Meher Ali v. Budge Budge Jute Mills (1906) ILR 33 Cal. 702.]
A Debt may be Secured or Unsecured. Where a debtor gives security of any immovable or
movable property to secure payment of debt, called Secured Debt and other the other hand
where no security has given for payment of debt, called unsecured debt. An Unsecured
Debt is treated as Actionable Claim.
1. Where a debt is already due and become payable is called “Existing Debt”
2. on the other hand, where a debt or sum of money is due at present but payable on a
future date, it is “Accruing Debt”; Where the claim for a sum of money exists but the
payment depends upon the fulfilment of any condition, the debt is known as “Conditional
Debt”.
CLAIMS WHICH ARE HELD TO BE ACTIONABLE CLAIM; following claims are included under
the category of Actionable Claims;
1. A Claims for arrears of rent;
2. A share in partnership;
A Claim for money due under any insurance policy; 1. A claim for rent to fall due in future
accruing debt; 2. A Claim for the return of earnest money; 3. A Claim for unpaid dower of a
Muslim Woman; A right to get back the purchase-money when sale is set aside; A benefit of
an executory contract for the purpose of goods is a beneficial interest in the movable
property; 1. A right to proceeds of a business.
CLAIMS WHICH ARE NOT TREATED AS ACTIONABLE CLAIM; 1. A Decree is not an Actionable
Claim; 2. A Right to get damages under the law of torts or for breach of contract; A Claim to
mesne profit is not an actionable claim but it is a mere right to sue; 1. A Copyright; 2. A Debt
secured by mortgage of immovable property or hypothecation of movable property.
TRANSFER OF ACTIONABLE CLAIM: Section 130 of Transfer of Property Act, 1882 provides
that
(1) The transfer of an actionable claim (whether with or without consideration )shall be
effected only by the execution of an instrument in writing signed by the transferor or his
duly authorized agent, shall be complete and effectual upon the execution of such
instruments, and thereupon all the rights and remedies of the transferor, whether by way of
damages or otherwise, shall vest in the transferee, whether such notice of the transfer as is
hereinafter provided be given or not: Provided that every dealing with the debt or other
actionable claim by the debtor or other person from or against whom the transferor would,
but for such instrument of transfer as aforesaid, have been entitled to recover or enforce
such debt or other actionable claim, shall (save where the debtor or other person is a party
to the transfer or has received express notice thereof as hereinafter provided) be valid as
against such transfer.
(2) The transferee of an actionable claim may, upon the execution of such instrument of
transfer as aforesaid, sue or institute proceedings for the same in his own name without
obtaining the transferor’s consent to such suit or proceeding and without making him a
party thereto
Transfer of actionable claim takes effect only after execution and signing of the instrument.
After execution, all the rights and remedies of the transferor vest in the assignee. The
Assignee(transferee) becomes entitled to recover the claims and sue in his own name. The
assignee also become liable for all the liabilities and equities to which the transferor was
subject at time of the transfer.
Assignment of Insurance Policy: The insured has assigned his policies to a bank. He then
made a claim as a complaint under the Consumer Protection Act against the insurance
company. In this case it was held that the Bank has right to claim amount from insurance
company on the basis of decree passed by consumer court. The Bank need not to get
permission from the insured.
Subrogation of claim under insurance: A consignor has filed a suit against the carrier of
cargo for loss of stock due to negligence and heavy rain. The insurance company after
accessing claim amount has paid to the consignor and filed a recovery suit against the carrier
on the basis of letter of subrogation and power of attorney received from the
insured(consignor) in its own name. The court held that the suit of recovery of loss should be
in the name of consignor name, not in the name of the insurance company on the basis of
Power of Attorney;
Notice of Assignment: A notice of assignment to the debtor is not compulsory to perfect
the title of the assignee(transferee) but until the debtor receives notice of the assignment to
a third person, his dealings with original creditor shall be protected. Thus, it is necessary for
an assignee to give notice to the debtor as soon as possible;
Exception: the provisions of Section 130 are not applicable to the transfer of a marine or fire
insurance policy or affect the provisions of Section 38 of the Insurance Act, 1938.
Indu Kakkar Vs. Harayana State Industrial Development Corporation Ltd., AIR 1999 SC
296C (1999): The Supreme Court held that the transferee cannot compel the corporation
allotting the land to treat him as an allottee. In this case a plot was allotted to the allottee
for the establishment of an industrial unit within a specified time-period by the Industrial
Development Corporation. The original allottee has transferred the plot without the consent
of the corporation. The Supreme Court held that the corporation could not ne compelled to
treat him as an original allottee. He has no locus standi to challenge the order of resumption
passed by the corporation.

Section 131 of The Transfer of Property Act, 1882 deals with Notice in case of assignment of
Actionable Claim: provides that every notice of transfer of actionable claim must be in
writing and signed by the transferor or his duly authorised agent in this behalf. Where
transferor refuses to sign, then the notice must be signed by the transferee or his agent. The
notice must be in express terms of notice and name and address of the transferee must be
written clearly on the notice. Notice must be unconditional.
Sadasook Ramprotap Vs. Hoar Miller & Co. it was held that there is no time limit within
which the notice must be given. Notice given within one year was held to be reasonable.

Section 132 of the Transfer of Property Act, 1882 deals with Liability of Transferee of
Actionable Claim; the transferee of an actionable claim shall take it subject to all the
liabilities and equities and to which the transferor was subject in respect thereof at the date
of the transfer.
Example: Let’s consider Mr. X transfers to Mr. Y a debt due to him by Mr. Z, Mr. X being then
indebted to Mr. Y. Mr. Z sues Mr. Y for the debt due by Mr. Y to Mr. X. In this case Mr. Y is
entitled to set off the debt due by Mr. X to Mr. Z, although Mr. Y was unaware of it at the
date of transfer.
Note: – The principal of this section is that the assignee can get no better title than the
assignor. If nothing is due to the assignor the assignee gets nothing.

Section 133 of the Transfer of Property Act, 1882 : Where the transferor of a debt warrants
the solvency of the debtor, the warranty, in the absence of a contract to the contrary,
applies only to his solvency at the time of the transfer, and is limited, where the transfer is
made for consideration, to the amount or value of such consideration. A warranty of
solvency is not implied. Warranty is sometimes given by the transferor as a precautionary
measure that the debtor is solvent so that the transferee becomes assured that he may not
lose his claim. The warranty of solvency of debtor is limited only for the time of transfer or
time of the assignment. Where the transfer is for consideration, such warranty extends only
to the amount of such consideration.

Section 134 of Transfer of Property Act, 1882 provides that; where a debt is transferred for
the purpose of securing an existing or future debt, the debt so transferred, if received by the
transferor or recovered by the transferee, is applicable; First, in payment of the costs of such
recovery; Secondly, in or towards satisfaction of the amount for the time being secured by
the transfer; and Residue if any, belongs to the transferor or other person entitled to receive
the same.
Section 135[ inserted by 1944 amendment act of the Act, 1882 Assignment of rights under
policy of insurance against fire.—Every assignee by endorsement or other writing, of a policy
of insurance against fire, in whom the property in the subject insured shall be absolutely
vested at the date of the assignment, shall have transferred and vested in him all rights of
suit as if the contract contained in the policy has been made with himself.

Section 135 provides that any assignee of a policy of insurance against fire, in whom the
property in the subject insured shall be absolutely vested at the date of the assignment shall
have transferred and vested him all rights of suit as if the contract contained in the policy
has been made with him.
Note: Section 130 of the Act, 1882 exempts the assignments of marine or fire policies of
insurance from its operation because mere assignment of such policy does not entitle the
assignee to the ownership of the subject matter of policy.
Section 136 deals with the incapacity of officers connected with the Court of justice. The
person who includes in section 136 are as Legal practitioner; Judges of the Court; and The
legal or officer who concerned with the justice of the Court. And the last Section
137 describes the saving of negotiable instruments and etc.In the case, State of Kerala and
Ors. Vs. Mini Shamsudin and Ors State of Kerala and ors. Vs. Mini Shamsudin and ors,
(2009) insc 1 (2 jan 2009)., the Court said that actionable claims are ‘goods’ and movable
property but it is not for the purpose of the sales tax acts. SECTION 137 of the Transfer of
Property Act, 1882: the provisions of Sections 130 to 136 of the Transfer of Property Act,
1882 dealing with transfer of actionable claim do not apply to stocks, shares or debentures ,
or to instruments whish are for the time being , by law or custom, negotiable ,or to any
mercantile document of title to goods.
Mercantile Document of Tile of Goods; includes a bill of landing, dock-warrant, warehouse-
keeprs’ certificate, railway receipt, warrant or order for the delivery of goods, and any other
document used in ordinary course of business as a proof of the possession or control of
goods, or authorising or purporting to authorise ,either by endorsement or by delivery, the
purpose of the document to transfer or receive goods thereby represented.

what is actionable claim in gst?

Actionable Claims are those that meet the definition outlined in Section 3 of the Transfer of
Property Act, 1882, according to Section 2(1) of the CGST Act, 2017.
According to Section 2(52) of the CGST Act, “goods” include any type of moveable property
other than money and securities, including anything attached to land that is agreed to be
severed before supply, growing crops, grass, and actionable claims.

Is GST applicable on actionable claim?

Transactions/activities in actionable claims are kept outside the ambit of GST, except for the
following claims: lottery, betting, and gambling

Why actionable claims are not goods?

2(7) of the Act. It states that “‘goods’ means every kind of movable property other than
actionable claim and money”. Thus, actionable claims are not covered by the provisions of
the Sale of Goods Act. This is because they are defined and dealt with under the Transfer of
Property Act.

Why is actionable claim a good?

Actionable claims are recognised by the court of law in order to provide with relief in
reference to unsecured debt or beneficial interest in movable property. Debt: A debt is a
liquidated or certain sum of money which debtor is under the obligation to pay. It can vary
from being in present and in future

Conclusion
Every debt in movable property that could be enforced by the court is referred to as a
“Actionable Claim.” Any type of financial claim, regardless of whether the amount was fixed
 or undetermined, is actionable under this definition. These were sometimes made unclear,
and there used to be decisions that conflicted; the law was inconsistent or unclear. The
Transfer of Property Act should be revised to include both parties’ rights and obligations in
transactions.

CHARACTERISTICS OF TAXES
The word tax is based on the Latin word “taxo” which means to estimate. To tax means to
impose a financial charge or other levy upon a taxpayer, an individual or legal entity, by a
state or the functional equivalent of a state such that failure to pay is punishable by law.
In ancient times, taxes were either financial or material in the form of products or services.
The Head of a tribe or the King used to get a portion of the subjects’ revenue in exchange for
providing them with the administration’s security against outside aggression and other civic
amenities.
The foundation of the contemporary tax system was laid throughout the medieval eras,
along with the foundation of feudalism. With the growth of the money economy, feudal
market dues, tolls for the protection and use of roads, bridges, and ferries, land rent, and
other payments in goods and services were gradually replaced by payments made in money.
Kings liked to receive money, and people preferred to make payments in money rather than
in goods and services. The ancient feudal income structure gradually gave way to taxation.
Then, as the field of economics advanced and time went on, the functions of the modern
state began to take shape, and taxes gradually developed into a tool with several uses and a
significant source of income. The public expenditures have changed both qualitatively and
quantitatively during the 19th and 20th centuries. Since the goals and stages of taxation
have changed over time from the ancient communities to the medieval societies to the
modern societies, the tax system has evolved along with the development of the functions
of the modern state.
Taxes are sums of money that people pay that are not directly related to the benefits that
people receive from the provision of specific goods or services. They are levied by the
government and collected from natural persons or legal entities.

CHARACTERISTICS OF TAXES

1. Tax is compulsory – The law imposes taxes. Taxes are therefore payments that citizens must
make to their governments. Every person has a responsibility to pay his fair share of taxes to
support the government. Taxes must be paid in full; failing to do so results in punishment or
is considered a criminal offense by the courts. When someone purchases goods, utilizes
services, earns income, or any other condition of compulsion is discovered, the government
applies tax. When collecting taxes from its inhabitants, the government exercises its
sovereign authority.
2. Tax is contribution – To contribute is to assist or offer anything. Taxes are community
contributions made to the government. Every citizen has a responsibility to pay their fair
share of taxes to support the government and assist it in covering its expenses. Some
desires, like defense and security, are shared by every member of the society, therefore
individuals cannot satisfy these desires. Governments provide these societal needs, hence
 people support government to fulfill these needs. Contribution entails sacrifice or loss on
the part of the contributor. His income is impacted by these sacrifices.
3. Tax is for public benefit – Taxes are collected for the benefit of society as a whole, not to
benefit any particular person in particular. Government revenue is used to provide services
that benefit all citizens equally, including relief from natural disasters like floods and famine,
national defense, the upkeep of the law, and the establishment of infrastructure and order.
All people are eligible for such rewards..
4. No direct benefit – All taxes are required to be paid, and the government does not directly
reward tax payers for their contributions. The absence of a direct quid pro quo between the
taxpayer and the public authority distinguishes taxes from other levies made by
governments. Taxes are distinct from other types of government taxes and levies that may
provide direct benefits to payers, such as pricing, fees, fines, etc. All members of society
receive common benefits through taxes.
5. Tax is paid out of income of the tax payer –Income is defined as money received for
employment or from investments, especially on a regular basis. As long as the revenue is
recognized in this case, the tax must be paid out of it. Any business owner who makes
money should give the government his fair share as support.
6. Government has the power to levy tax – Through the collection of taxes, governments
exercise sovereign control over their constituents. People’s taxes can only be collected by
the government. Resources are being moved from the private to the public sectors through
taxes. The tax is being levied by the government to pay for its expenses. The government
uses these taxes to promote economic growth and social welfare..
7. Tax is not the cost of the benefit – Taxes do not represent the price of the benefits that the
state provides to the populace. Benefit and taxpayer are independent of one another, and
the purpose of paying taxes is of course to provide benefits to the broader public..
8. Tax is for the economic growth and public welfare – Maximizing social welfare and
economic prosperity is a key government goal. The two processes that make up a nation’s
development are often raising money and spending it, thus the government uses tax money
to improve the economy, the community, and society as a whole.