History of tax

Personal Income Tax in India is not something recent; it has a history that can be traced back to
prehistoric times, and it has passed through many developmental stages before the British rule as well as
after independence. Hence, the knowledge of such a history is important for understanding the present
system of taxation, which has been affecting both individuals and businesses.

Taxation in Ancient India

Taxation is not a new concept to Indian society. In fact, it has existed for centuries. Ancient texts such as
the Manu Smriti and the Arthashastra have given a highly elaborated set of rules from how to levy and
collect taxes to their utilization. In these older tax systems, the goals were quite the same: to levy
revenue and in parallel make sure that social welfare and economic stability are observed.

Manu Smriti

Manu Smriti would probably be the oldest source of law in India and even contains the most detailed
provisions for income tax. Manu, the ancient lawgiver, held that taxes should be fair, not a burden.
According to Manu Smriti:

 The merchant and artisan taxed 20% of the earned income.

 Farmers paid 1/6 to 1/10 of their produce. The rate fluctuated with crop yield and economic
condition.
These tax rates should be fair in satisfying the state with its needs for revenues and should not
hurt the citizens.

Arthashastra

The Arthashastra, by Kautilya (also known as Chanakya), is one of the earliest texts. It was written in an
organized manner for taxation. Kautilya argued for a system of taxation that sought to maximize welfare
for society. Among his guidelines were:

 A flat 1/6 production tax for land. This makes sure that the farmers pay into the state but they
are not over-burdened.

 Higher taxes for the rich and low taxes for the poor. This comes out of a progressive tax
philosophy.
Arthashastra by Kautilya: It brought in a neatly documented tax code. This document consisted
of well-laid-out principles, rates of tax, and the duties of those collecting taxes. This codification
in the early period laid its foundation. It was induced in the organized approach on public
finance in India.

British Colonial Age: Income Tax Act, 1860

Income tax in India has a history at the onset of modern history, during the British colonial period. Sir
James Wilson first introduced formal income tax in 1860. It aimed at covering the losses suffered by the
British government in the revolt of 1857. The major features of the Income Tax Act 1860 are:

 It exempted income from farming. This has been a portrayal of the British government
depending on land revenue.

 Life insurance premiums were tax-exempt; this helped in popularizing the purchase of insurance.

 The Act recognized Hindu undivided families as separate taxable units. This was a big change
from individual taxation.
This was a temporary measure for five years only. But as a matter of fact, it opened the way for
income tax laws in India.

Personal Income Tax Act of 1918

New Income Tax Act In the year 1918, a new Act of imposing Income Tax was brought into force by the
British Government. It brought a change in the tax system of India. The first time this kind of Act offered:

 We should tax one-time income, such as business profits. This would enhance the tax system.

 Allowing the tax deductions for some, non-recurring expenses. It would make the taxable
income fairer.
The Act aimed at a fair tax system, the reflections of the growing complexities in the Indian
economy.

1922 Income Tax Act

The Income Tax Act, 1922 marked a milestone in the history of taxation in India, introducing features to
be the basics for the present income tax system in India.

 This allowed flexible tax rates, which could be implemented regarding the needs of the
government budget without changing the law.

 The Act set up a better tax system. It created a tax collection machinery that worked for the next
40 years.
The 1922 Act was enforceable up to the year 1961 when the Income Tax Act of 1961 came into
force. Many amendments were done to keep pace with the then changing economy.

Tax Reforms Post-independence

India kept the Act of 1922 post-independence in 1947; however, it did require a new tax code to suit the
changing needs of the state. The requirement of an overall taxation reform was initiated with the
government under process to achieve a new tax code, which finally translated into the Income Tax Act of
1961. The objective of this act is to provide an overall detailed scheme for income tax in India.

The 1961 Income Tax Act

The Income Tax Act of 1961 dawned a new era in Indian taxation. It had many new characteristics. They
continue to represent India's income tax system to this day.

 Five Heads of Income: Salary; House property; Business or Profession; Capital Gains; and Other
Sources are the five heads of income specified under this Act.

 Revenue Audits: For the first time, this Act introduced a system of revenue audits, whereby the
tax authorities would check the veracity of filed tax returns.

 Competency Evaluation: The Act confers assessment competency upon the tax officials and
ensures enforcement. In the process, this made sure taxpayers obeyed the law.
The Act of 1961 has been very largely amended over the years since its passing. Nonetheless, it
still remains the backbone of income tax law in India.

Visit the link for filing the Income Tax Return

Section 1 of the Income Tax Act, 1961

Section 1 is the section of the Income Tax Act, 1961 that defines the short title and also outlines details
regarding its scope and commencement.

 Short Title: The Act may be called the Income-tax Act, 1961.

 Applicability: This extends throughout India, covering all the states and union territories of India.

 Commencement: The Act came into effect on 1st April 1962. It applies from the assessment year
1962-63.
Initially, it was not applicable in Sikkim. On its merger with India in 1975, the Income Tax Act,
1961 has been gradually extended to Sikkim. Fully applicable from assessment year 1990-91.

Impact on Contemporary Taxation

The history of income tax in India has had a long-lasting impact on the structure and administration of
current tax practices. Ancient texts and colonial laws continue to influence modern tax policy and its
administration.

Discussion of Similarities and Differences between Ancient and Modern Taxation

Ancient and modern India's methods of taxation could differ but similarities might come to some extent.

 Continuities: Modern tax policy is guided by the elements of fairness as highlighted by Manu and
Kautil.

 Changes: Ways of tax collection, taxable income, and laws have evolved. They are just a
reflection of growing complexity in the Indian economy.
Challenges in Taxation Across the Centuries

Over the years, India's taxation system has faced many challenges.

 Administrative Difficulties: Tax authorities have long faced the enormous challenge of how to
achieve compliance and block evasion.

 Societal Resistance: Taxes invariably bring about some type of resentment if seen to be too high
or unfair.
Addressing these challenges has required continuous adaptation and reform of the tax system.

Taxation's Part in Nation Building

Taxation has been the guiding light, so to speak, in building a nation like India. It funds public services
and infrastructure, and development programs. A good taxation system is very important for the welfare
and growth of the state; it is one of the basic tenets of good governance.

Conclusion

The history of the Income Tax of India is a very interesting and convoluted saga. It's the story of the
economic and political evolution in the country. Taxation has been the function of changing social needs.
This is well observed from old texts like Manusmriti and Arthashastra, so also from more modern ones
like the Income Tax Act, 1961. For anyone who deals with tax policy or compliance, this is a very
important history because it would throw light on what the basis of the present system is.
Introduction

Taxes are financial charges imposed by the government on earnings, commodities, services, activities, or
transactions. The term “tax” comes from the Latin term “taxo.” Taxes are the government’s primary
source of income, and they are used to benefit the citizens of the nation through government policies,
regulations, and practices.

The Indian tax system has evolved throughout the decades to meet the government’s rising demand for
finances. The system is also designed to help the government accomplish its socio-economic goals. Tax
reform is a continual activity that should be carried out regularly to assess the system for revamping and
repairs.

India is now governed by the Income Tax Act of 1961 (IT Act). The current Income Tax Act was passed in
1961 and went into effect on April 1, 1962. The Income Tax Act was referred to the Law Commission by
the government in 1956, and the report was submitted in 1958. Shri Mahavir Tyagi was appointed as
Chairman of the Direct Tax Administration Enquiry Commission in 1958. The current Income Tax Act was
created based on the suggestions of both of these groups. The 1961 Act has been revised several times
since then.

A brief overview of the Income Tax Act, 1961

Sir James Wilson implemented income tax in India for the first time in 1860 in order to compensate for
the damage suffered by the military mutiny in 1857. A distinct Income Tax Act was created in 1886, and it
remained in effect for a long period, subject to different revisions from time to time. A new Income Tax
Statute was enacted in 1918, however, it was quickly repealed by a new act enacted in 1922. The Act of
1922 grew extremely difficult as a result of several modifications. This statute is still in effect for the fiscal
year 1961-62. The Law Commission was referred to by the Indian government in 1956 to clarify the law
and combat tax cheating.

In September 1958, the Law Commission delivered its findings in collaboration with the Ministry of Law.
This legislation is now controlled by the Act of 1961, also known as the Income Tax Act of 1961, which
came into effect on April 1, 1962. It is applicable across India, including the state of Jammu & Kashmir.

Any legislation, in and of itself, is insufficient until the loopholes are addressed. The Income Tax Act of
1961 governs income tax legislation in India, along with the help of certain income tax rules,
notifications, circulars, and judicial pronouncements, including tribunal judgments.

Elements of Indian Income Tax Law

The fundamental components of Indian income tax legislation are as follows:

The Income Tax Act of 1961

The Act comprises the majority of Income Tax laws in India.

Income Tax Regulations, 1962

The Central Board of Direct Taxes (CBDT) is the authority in charge of Direct Tax administration. The CBDT
has the authority to enact regulations to carry out the purposes of this Act.

Finance Act

Every year, the Finance Minister delivers the budget in Parliament. When the financial bill is passed by
the parliament and signed by the President of India, it becomes an Act.

Circulars and notifications

The terms of an act may require clarification at times, and such clarification is normally in the form of
circulars and notifications issued by the CBDT from time to time. It entails clearing up any confusion
about the scope and interpretation of the provisions.

Types of income tax

Income taxes can be marginal, moderate, or proportionate. Income tax in India is divided into two types:

Direct taxes

Direct taxes are those that are charged immediately on the income received. Individuals and
corporations are subject to direct taxes. These taxes cannot be passed on to future generations. The
income tax is the most important sort of Direct tax for individual taxpayers like you. This tax is levied
once a year throughout the assessment year (1st April to 31st March). According to the Income Tax Act
of 1961, you must pay income tax if your yearly income exceeds the minimal exemption level. Various
parts of the Act provide for tax breaks. Before we discuss tax breaks, it is critical that you grasp the
income tax bracket. In India, direct taxes make for over half of all government revenue. Income tax,
however, is not the sole direct tax. In India, there are three sorts of direct taxes: income tax, capital gains
tax, and corporate tax.

Income tax is levied on all income earned by individuals and HUFs, with the exception of capital gains
and earnings from business and professions. The appropriate slab rates for the Assessment Year are used
to calculate income tax. The slab rates are announced by the national government in the annual budget.
Indirect taxes

In contrast, indirect taxes are those that are received on your behalf and remitted to the Indian
government. Businesses that are subject to indirect taxes include e-commerce firms, theatres, and any
services for which you are required to pay tax. Indirect taxes are those that are placed on goods and
services. They vary from direct taxes in that they are placed on products rather than individuals who pay
them directly to the Indian government. Instead, they are imposed on items and collected by an
intermediary, the individual selling the commodity. Sales taxes, taxes placed on imported products, Value
Added Tax (VAT), and other minor indirect taxes are examples. These taxes are levied by adding them to
the price of the product or service, which is likely to raise the price of the product.

Need for the Income Tax Act

The primary source of income for the government is taxes. The revenue generated by taxes is used to
cover government expenses such as education, infrastructure amenities such as roads and dams, and so
on. Taxes are collected for the fundamental aim of generating adequate income for the state. Taxes have
come to be seen as a tool by which the economic and social ideals of a welfare state may be attained. As
a result, the Income Tax Act of 1961 became necessary.

Liability to pay

In India, the following individuals must pay income tax:

 Individuals who work for themselves;

 Individuals who earn a living;

 Hindu Undivided Family;

 People as a group;

 Persons’ Organization;
  Companies or corporate firms;

 Authorities at the local level.

Applicability of the Income Tax Act, 1961

The Income Tax Act of 1961 applies to the entire country of India. The Income Tax Act addresses:

 The basis for charging revenue.

 Income that is not subject to income tax.

 Income computation under multiple categories.

 Income grouping.

 Losses are set off and carried forward.

 Allowable deductions.

 Rebates and tax breaks.

 In certain exceptional circumstances, taxation is determined.

 Dividends paid by domestic corporations are subject to taxation.

 Income Tax Authorities and their Authorities.

 Surveillance, search, and seizure.

 Procedures for assessing.

 Tax collection and recovery, as well as tax deduction at source (TDS).

 Advance tax payment.

 Reimbursement.

 Revisions and appeals.

 Immovable property acquisitions.

 Punishment and prosecution.

Purpose of the Income Tax Act

The Income Tax Act’s goals can be described as follows:

 To reduce income and wealth distribution inequalities.

  To accomplish the twin goals of better yields.

 To quicken the pace of the country’s economic growth and development.

 To preserve appropriate economic stability and security of long-term inflationary pressures and
short-term foreign price fluctuations.

 To make funds available for economic development.

 Minimize excessive wealth, income, and consumerism inequality through indeterminate

productivity gains, offence, justice, and peace and stability.

 To encourage the purchase of new capital goods.

 To direct investment toward the industries that yield the most to growth in the economy.

Features of the Income Tax Act

The amount payable when the government assesses taxes on the direct income of its residents under its
authority is known as income tax. Income tax in India has a myriad of complexity, impediments,
difficulties, and characteristics. Even if the entire procedure may appear to be challenging, effective
treatment of the situation may have ramifications for the residents of the country. Income tax is a means
by which the government guarantees that community activities and public tasks are carried out properly
and in a timely way.

The basic features of the act are as follows:

1. Income tax is levied on the preceding year’s income at the rate specified by the Finance Act for
the current assessing year.

2. Income tax is imposed on a person based on his or her previous year’s earnings.

3. The responsibility of the taxpayer is calculated based on his residence status in the prior year.

4. Income tax liability occurs only when overall revenue in the financial year exceeds the threshold
tax-free amount established by the Finance Act for that relevant year.

5. Income tax rates are progressive, which means that the tax burden increases as income rises.

6. It is mandatory to deduct taxes at the source and deposit them in the government’s treasury.

Important sections of the Income Tax Act, 1961

The following are some key definitions from the Income Tax Act of 1961:

Assessee- Section 2(7)

According to Section 2(7) of the Income Tax Act of 1961, an assessee is a person who is required to pay
taxes under any provision of the Act. The term ‘assessee’ refers to somebody who has been evaluated
for his income, another person’s income for which he is assessable, or the profit and loss he has
experienced. A person or an individual under any provision of this Act is referred to as an assessee.

They may also be referred to as each and every person for whom:

 Any processes under the statute for the assessment of his income are now underway;

 Income of another individual for which he is liable to be taxed;

 Any loss incurred by him or any other person, or

 A person who is eligible for a tax refund.

Understanding the definition of a person is vital because an assessee is a person who pays a specific
amount to the government.

According to the Income Tax Act, they are grouped into the following categories:

1. Normal assessee: A normal assessee is a person who is required to pay taxes on income
generated during the fiscal year. In addition, any individual who is required to pay interest or
penalties to the government or is entitled to a refund under the act is termed a typical assessee.

2. Assessee representative: A person who is obligated to pay taxes on income or losses caused by a
third party. It usually occurs when the individual obligated to pay taxes is a non-resident, a
juvenile, or a lunatic.

3. Deemed assessee: A person who is legally obligated to pay taxes. It can be anybody who is
regarded to be an assessee under the Act or anyone for whom an action has been brought under
the Act to assess the income/loss of any other person in respect of whom he is assessable or the
amount of refund due to him or such other person. Furthermore, this group includes a person
who pays taxes on behalf of another person in certain circumstances.

4. Assessee-in-default: Individuals become assessees in default when they fail to satisfy their
statutory obligations of paying tax. For example, before paying his employees, an employer
should deduct tax from their pay. Furthermore, the employer is required to pay deducted taxes
to the government on time. If, however, the employer fails to deposit this tax, he becomes an
assessee-in-default.

Assessment- Section 2(8)

Assessment under Section 2(8) is a process of assessing the validity of the assessee’s claimed income and
computing the amount of tax payable by him, followed by the practise of imposing that tax responsibility
on that individual.

Assessment year – Section 2(9)

An “Assessment year” is defined in Section 2(9) as “twelve months beginning on the first day of April
each year.” Every year, an assessment year commences on April 1st and finishes on March 31st of the
following year. For instance, the Assessment year 2021-22 is a one-year period beginning on April 1,
2020, and concluding on March 31, 2021. In an assessment year, the assessee’s income from the
previous year is taxed at the rates specified in the appropriate Finance Act. As a result, it is also known as
the “Tax Year.”

Income – Section 2(24)

Even though income tax is a tax on earnings, the act does not establish a comprehensive definition of
“income.” Instead, the term “income” has been defined broadly by providing an inclusive meaning. It
comprises not only income in its broadest meaning, but also income mentioned in Section 2(24).

In general, the term “income” refers to the following:

 Any illicit money earned by the assessee;

 Any income earned at sporadic periods;

 Any taxable income obtained from a source outside of India;

 Any advantage that may be quantified in monetary terms;

 Any type of assistance, aid, or reimbursement;

 An individual or HUF makes a gift worth more than INR 50,000 without any consideration.;

 Any kind of award;

 Causal earnings include winnings from lotteries and horse racing betting, among other things.

The individuals referred to in this section must have received a benefit in order for this section to apply;
if no benefit has been obtained, the situation is not covered by that clause. All benefits obtained by the
referred individuals are taxed, regardless of whether they are capital or revenue in origin. A director
doesn’t have to be an employee in order to tax the benefit obtained from the firm. The director’s service
has no link to any advantage gained by the director under Section 2(24) of the IT Act, 1961. The provision
is not intended to limit the company’s ability to advance security deposits to its directors or relatives in
exchange for beneficial compensation, such as getting housing property on rent18 or advancing interest-
free loans. The phrase “whether converted into money or not” refers to a benefit other than financial
payments. The burden is on the assessee to allege and establish that the benefit was provided to him in
violation of any legal right.

Section 2(24) (iv) of the Income-Tax Act is a unique piece of legislation that includes both capital and
revenue advantages. This clause is meant to take care of a company’s benefit distribution to its directors,
who are in a fiduciary relationship and hold an office of trust. The primary goal of this legislation is to
prohibit corporate directors from abusing or misusing their official positions for personal gain.
Residential status

Residential status is defined under Section 6 of the act. It states that a person may be an Indian citizen,
however, this does not imply that they must dwell in India for a specified year. Section 6 of the Income-
tax Act of 1961 (the Act) covers provisions relating to determining a person’s residency.

The tax regulations divide taxable people into three groups.

1. A local resident.

2. A resident who is not typically resident.

3. Non-resident.

A local resident

There are several ordeals that may be used to ascertain a person’s residential status.

 A person is deemed to be a resident of India if he has lived in India for 182 days, not necessarily
consecutively, in the previous year.

 A person is considered to be a resident if he has lived in India for 365 days or more in the
preceding four years and 60 days in the previous year.

A resident who is not typically resident

An individual is not an ordinary resident if and only if the following conditions are met:

 He has not lived in India for nine of the ten years preceding that year.

 If the individual has not lived in India for 729 days or more in the past seven years.

 A Hindu undivided family whose manager has met the aforementioned requirements.

Non-resident

A Non-Resident is someone who does not meet any of the fundamental requirements.

Income that deemed to be received

Under Section 7 of the act, any income received in India by any assessee during the previous year is
taxable in India, regardless of the assessee’s residency status or the location where the income was
earned.

The term “receipts” refers to the initial receipt: The first time the receiver receives money under his own
authority is referred to as the receipt of income. Once an amount is received as income, any transfer or
transmission of the amount to another location does not constitute receipt within the meaning of this
paragraph at that location. This notion is important for identifying the year of receipt, as well as
estimating the incidence of taxation where it is solely based on income receipt.

For example, non-residents’ overseas income is not taxable unless it is received in India. In their instance,
unless the money is received as revenue from an outside source when it arrives in India, it is not an
income receipt. If a non-resident obtained money outside India as income or exempt income in an
earlier year or during the preceding year and transferred the funds into India during the accounting year,
such money will not count as income in the eyes of the law.

Punishments and remedies under the Income Tax Act, 1961

The timely and regular payment of taxes and submission of returns guarantees that the government has
funds available for public welfare at all times. Several penalties are stipulated under the Act to ensure
that taxpayers do not fail on paying taxes or giving information. A penalty is a punishment levied on a
non-compliant taxpayer. Indian tax authorities have been given the authority to impose fines on
taxpayers for infractions ranging from non-filing of returns to non-disclosure of income or non-payment
of tax as part of the taxation systems. Penalties for procedural infractions are often measured in direct
sums, but penalties for non-payment of tax or failure to disclose income or transactions are typically
quantified as percentages of the tax or amounts involved (generally, 100 to 300 percent). Penalties can
be assessed for under-reporting or misreporting income beginning with the assessment year 2020–2021,
whereas previously, the penalty was specified to be for supplying false particulars or concealing income.

Penalty procedures are not part of the assessment processes under the Income Tax Act. Section 274 of
the Income Tax Act of 1961 specifies the method that the tax authorities must follow in order to impose
fines on the assessee. The approach, in particular, takes into account natural justice principles (i.e., due
notice and hearing to be given to the assessee prior to impost). Furthermore, Section 273AA allows you
to seek senior tax authorities for a penalty reduction. If an order imposing penalties has been issued
against an assessee, the assessee may petition the appellate authority to have the order reversed. Tax
inspectors issuing show-cause notices, on the other hand, have the authority to impose fines on assesses
during the same procedures under both goods and services tax and customs regulations.

The Income-tax act enumerates certain penalties for taxpayers concerning specific offences such as
willful tax evasion, non-payment of already collected indirect taxes, and so on. Such offences are
punishable by imprisonment as well as a fine. The tax evader is next tried in accordance with the rules of
the Criminal Procedure Code. As a result, taxpayers may use the remedies authorized in the Code.

Criminalities under the Income Tax Act, 1961

India has a number of obligatory taxes, including income tax, goods, and services tax, import-export tax,
state border tax, and others. Despite the rules and regulations governing these taxes, some people try to
avoid paying them.
Tax evasion is defined as any conduct that seeks to conceal, understate, or fraudulently disclose income
in order to decrease your tax burden. Tax fraud, for example, is defined as failing to pay taxes or paying
less than what is owed. It is essentially criminal conduct committed by a person or organization in order
to avoid paying their tax responsibilities. It involves hiding or creating income, as well as misrepresenting
deductions without proof. Another type of tax avoidance is omitting to disclose cash transactions, etc.
Filing fake tax returns, smuggling, altering papers, and bribery are all techniques used by people to avoid
paying taxes. Tax evasion is significant since it is prohibited in India and carries serious consequences.

People can use a variety of methods to avoid paying taxes. The following are some of the most regularly
utilized strategies:

 Smuggling in lieu of paying state border taxes, import taxes, and so on.: Many people and
corporations smuggle to avoid paying state taxes, import-export levies, and customs fees. Under
Indian law, smuggling is a penalized offence, and tax evasion can result in harsher penalties.

 Incorrectly filing income tax returns: Submitting erroneous information, such as understating
your income, overstating deductions, or any other type of fraudulent reporting, is a common
method of income tax evasion. This, however, is unlawful.

 Keeping falsified financial statements: Incorrect financial papers, such as balance sheets and
account books, might create the impression of a low yearly income. Some firms also refuse to
maintain sales receipts in order to underplay their income and decrease their tax liability for the
year.

 Using forged documents to claim tax breaks: Another tax evasion strategy is to get bogus
documentation to establish that you are qualified for a tax deduction, such as a disability
certificate to claim Section 80U tax deductions.

 Not displaying any earnings: Many people use cash transactions to conceal the source of their
profits. If you don’t have any income on paper, you don’t have to pay any taxes either. Invoices
for sales are frequently not produced by businesses. Similarly, landlords may only take cash
payments for rent rather than bank transfers or checks.

 Keeping funds outside of India: The Indian income tax authority does not have jurisdiction over
international bank accounts. Some people may have a bank account outside of the nation to
keep their money safe.

 Failure to pay taxes: Many citizens may refuse to pay their taxes. The individual then fails to
make the required payments to the government, despite the fact that they owe taxes.

 Paying a bribe to a government official: Another method of tax evasion is to provide a bribe to
an income tax official in order to modify the amount of tax payable. Bribes are used by people to
reduce or remove any tax debt owed in their name.

2022 Amendment of the Income Tax Act

Ms. Nirmala Sitharaman, Finance Minister, delivered the Union Budget, 2022, in parliament on February
1, 2022. With the passage of the Finance Act, 2022, a number of adjustments to the provisions of the
Income Tax Law have been made, as they are every year.

The following are a few key developments that taxpayers should be aware of:

Digital Asset Taxation

 The implementation of new measures for taxation of income from virtual digital assets
(cryptocurrency, etc.) that will take effect on April 1, 2023, is a major feature of the Finance Bill
2022. Gains from the transfer of digital assets would be taxed at a fixed rate of 30%. (plus
applicable surcharge and cess).

 There must be no deduction for any expenditure (other than the cost of purchase) when
calculating the revenue from digital assets. Furthermore, no set-off of any loss from such income
should be permitted to the taxpayer.

 The beneficiaries would be taxed if they received digital assets as a gift.

 Payments made in connection with the transfer of digital assets will be subject to TDS at a rate of
1% above a specific threshold limit. This clause will take effect on July 1, 2022.

Return updated

The Finance Minister has proposed a new provision that allows the taxpayer to file a revised return,
allowing him to declare additional income that he may have overlooked in the initial tax return. While all
taxpayers have the option of amending their tax returns up until the 31st of December following the
relevant fiscal year, the amended return must be filed within two years of the end of the relevant
assessment year (i.e., within three years from the end of the relevant financial year). The inclusion of this
option is a step toward encouraging taxpayers to report voluntarily.

Start-up Incentives (Section 80-IAC)

Eligible start-ups formed before March 31, 2022, received a tax exemption for three consecutive years
out of ten years from the year of formation under Section 80-IAC. This time for incorporation of
qualifying start-ups has now been extended by one year, i.e., until March 31, 2023, in order to take
advantage of such tax breaks.

The disincentive of Tax Evasion

Section 79A of the Act has been added to improve dissuasion among tax evaders by providing that no
set-off of any loss shall be permitted against unreported income discovered during search and survey
activities.

Exemption of funds paid for Covid treatment or death caused by Covid-19

The Finance Ministry declared exemption of payments received for Covid medical care or on the death of
an individual owing to disease connected to Covid 19 in a press statement dated June 25th, 2021. These
exclusions have now been enacted with retroactive effect from April 1, 2020, by amending Sections
17 and 56 of the Act. The following are examples of exempt payments:

 The money collected by a taxpayer from an employer or any other individual for Covid-19
therapy.

 The amount collected by the family members of a person who died as a result of Covid-19 from
the dead individual’s employer.

It should be noted that this exemption is unlimited for amounts received from the employer, but it is
restricted to Rs. 10 lakhs for amounts received from any other person. It has been clarified that in order
to qualify for the exemption, such payment must be received within 12 months of the date of death.

The Union Budget 2022’s goal for direct taxes was to simplify the tax system, encourage voluntary
compliance by taxpayers, and eliminate litigation. Clarity on the taxation of virtual digital assets will
assist investors in making sound judgments. The addition of the possibility for updated returns is a step
toward positive and voluntary reporting by taxpayers, as well as relief from punitive measures.

Significance of the Income Tax Act

Because taxes may take up a significant percentage of a person’s earnings, many people assume that
taxes are nothing more than a burden. Let us examine the significance of income tax in India.

Applications for visas

Under the Income Tax Act, if an individual wants to travel to nations such as Canada, the United States,
or the United Kingdom, Indians must present their income tax returns (ITRs) for the previous three years
to obtain an uncomplicated visa acceptance. Paying income tax to the government of your home country
assures other nations that you are not departing the country for tax avoidance. As a result, the Income
Tax Act, through its restrictions, aids in preserving a balance between the individual and the
government.

Rapid credit approval

When you apply for large-ticket loans such as house loans, company loans, or personal loans, you must
pay your income tax regularly to the Government of India. Income tax plays an important role here since,
before granting the loan, the lender typically demands that the loan applicant submit copies of his or her
ITR to ensure that he is disencumbered of any falsehoods.

Proof of income

The Income Tax Act maintains a close check on income tax filing since it provides proof of income for any
self-employed professionals, such as freelancers, company partners, or consultants. It is effective in
situations where experts do not get a set pay from a certain employer. It is essential in all financial and
economic dealings.

Serves as the primary source of revenue for the country

The major goal of taxing Indian residents is to generate income for the smooth operation of government
functions and by regulating the same the act serves as a major source of revenue for the nation.

Contributes to the improvement of public infrastructure

The income tax paid by the Indian people is used by the government to improve the quality of
infrastructures such as public spaces, smart cities, and government institutes which are regulated under
the Income Tax Act.

Assists in the building of the nation

The expense of administering an entire country, particularly one as huge and populous as ours, is
enormous. The government can carry out civic operations thanks to the taxes we pay. In other words,
the government would be unable to administer the country if taxes were not collected. The Income Tax
Act is one of the most important sources of revenue for the Indian government.

Schemes of welfare

In India, there are now more than fifty union government initiatives. The government has developed
many plans to assist all areas of society, ranging from job programs to house loan subsidies to cooking
gas concessions to pension schemes.

These programs help millions of Indians and cost crores of rupees to implement. The same is controlled
and handled under the Income Tax Act. By paying income tax, people contribute to the success of these
initiatives while also allowing the government to work on further assistance schemes and programs.

Reducing income disparities

The government’s taxation policy under the Income Tax Act is the most effective strategy to eliminate
economic disparities in India. The wealthiest are expected to pay more taxes than the poor under a
progressive taxation system. The income tax paid by the wealthy is used to fund social programs that
help the most vulnerable members of society.

Enhanced education and healthcare

A considerable portion of the taxes collected under the Income Tax Act is used to improve the country’s
healthcare system. There are healthcare facilities that provide free or low-cost medical treatments and
are regulated under the act. The level of care offered by government hospitals has increased by leaps
and bounds over the years, and it is only because taxpayers pay taxes that this has occurred.
Likewise, there are government schools with an extremely little tuition. Furthermore, every year, millions
of crores are spent on defence and infrastructure improvements. All of this adds to the country’s growing
power and wealth, and it cannot be governed without the Income Tax Act’s continual supervision.

Shortcomings and lacunae in the Income Tax Act

While the Income Tax Act has several advantages, it also has some downsides, which are as follows:

Failure to carry losses ahead

Each assessee has the right to carry forward losses if they are unable to offset any of their losses against
earned income subject to income tax laws and conditions. If the assessee attempts tax evasion, the
losses cannot be carried forward.

Hefty fine

If you fail to file your income tax return on time, you will be fined Rs 5000. The assessing officer has the
ability to waive the penalty imposed. Before the penalty is levied, the taxpayer is given a reasonable
opportunity to be heard. However, it is always prudent to follow the norms and regulations.

Deductions allowed under Chapter VIA

If you do not pay income tax in India, you are not eligible for a tax deduction for investments such as
insurance premiums, medical premiums, and so on, according to Chapter VIA. Deductions granted by the
Income Tax Act assist in lowering taxable income. Only if there are tax-saving investments or incurred
qualified costs, one can claim the deductions. A variety of deductions are allowed under various sections
to reduce your taxable income. Section 80C of Chapter VIA is the most well-known.

People’s willingness to work and save may suffer as a result

Imposing higher tax rates on people may increase their disinclination to work hard and save. They will
begin to believe that the higher their incomes and savings, the higher their taxation.

Currency devaluation

When a commodity is taxed, the price of that commodity rises as well. It will indirectly raise the cost of
manufacturing, requiring greater wages for employees, which will raise the price of the item even
further.

Other ramifications

The payment of income tax is critical in determining a taxpayer’s creditworthiness. If a person does not
pay taxes on time, it might obstruct financial activity in a variety of ways.

.
Conclusion

Rather than assuming that income tax is a burden, citizens should contribute to the progress of a nation
by paying income tax. The general population should endeavor to comprehend the significance of
income tax and the perceived role their money plays in the country’s growth. As a responsible citizen,
one must always pay their income tax on time because it is only via tax payments that our country can
stay up with other industrialized nations and progress further. If people begin to perceive income tax as a
hardship and avoid having to pay it, our nation’s growth will suffer, as would social disintegration so in
order to avoid the same paying of income tax on time is consequential.
Tax planning

July 15, 2024

Table of content

1.what is tax planning?

2.importance of tax planning

3.what are the objectives of tax planning?

4.what are the different tax planning strategies in india?

5.common expenses used for tax planning in india

6.favoured investments for tax planning in india

7.what steps should be taken when planning taxes?

8.summing up

9.faqs on tax planning

Taxes are an inevitable part of life, but that doesn't mean you have to leave your
hard-earned money entirely up to chance. Tax planning empowers you to take
control of your financial situation by strategically minimising your tax liability. It's
not about evading taxes, but rather, leveraging the legal deductions, exemptions,
and rebates offered by the government.
Effective tax planning isn't just about saving money in the short term; it can have
a significant impact on your long-term financial health. It allows you to invest
more, build wealth, and secure a more comfortable future. Whether you're a
seasoned investor or starting your financial journey, you need to learn about tax
planning to make an effective financial plan.

What is tax planning?

Tax planning refers to the process of arranging financial affairs in a way that
maximises tax benefits and minimises tax liabilities. It involves analysing an
individual's or an organisation's income, expenses, investments, and other
financial activities to identify potential tax-saving opportunities.

By understanding the provisions of the tax laws, taxpayers can make informed
decisions regarding tax payments and take advantage of available legal
provisions and exemptions. An effective tax plan involves identifying tax-saving
expenses and investments and developing a sound financial strategy all the while
ensuring full legal compliance.

Importance of tax planning

Taxes are a guaranteed expense, but unlike fixed costs, they can be influenced by
your financial decisions. Tax planning empowers you to navigate the tax
regulations and strategically use available deductions, exemptions, and rebates
to reduce your tax burden.

This translates into increased cash flow, which you can then channel towards
achieving your financial goals, such as saving for retirement, investing in your
child's education, or building an emergency fund.

Effective tax planning ensures financial stability, increased savings, and the
ability to achieve long-term financial goals. It is a proactive strategy for building
wealth and securing your financial future. It allows you to take control of your
finances and keep more of your money working for you.

What are the objectives of tax planning?

The objectives of tax planning revolve around minimising tax liability and
maximising savings. Here are some key objectives of tax planning:

1. Cutting down taxable income:

The primary objective of tax planning is to reduce your taxable income by utilising
various deductions, exemptions, and credits offered by the tax laws. By
effectively managing income, expenses, investments, and other financial
transactions, you can lower your overall tax liability.

2. Decrease tax-related legal problems:

Efficient tax planning helps you avoid tax-related legal problems by ensuring
compliance with tax laws. By staying informed about tax regulations and utilising
legal methods to optimise tax savings, you can avoid penalties, fines, and audits.

3. Increase your savings:

Tax planning aims to maximise savings by optimising tax deductions, credits, and
incentives. By utilising various tax-saving avenues, individuals can increase their
savings and allocate more funds towards financial goals, investments, and wealth
accumulation.

4. To secure financial stability:

Planning taxes helps individuals and businesses achieve financial stability by

optimising their tax liabilities. By effectively managing taxes, individuals can
allocate resources towards essential expenses, savings, and emergency funds.
This helps in safeguarding against unforeseen financial crises and ensures a
secure future.

5. To increase productivity:

Efficient tax planning allows individuals and businesses to focus on their core
activities rather than being burdened by complex tax issues. By streamlining tax-
related processes, individuals and companies can enhance productivity and
allocate more time towards revenue-generating activities.

6. To achieve financial goals:

Tax planning allows you to allocate funds efficiently to accomplish your financial
objectives, whether that is retirement planning, education expenses, or
purchasing assets.

7. To manage risk:

Tax planning allows you to manage financial risks associated with taxes. By
diversifying investments and optimising tax liabilities, you can mitigate risks
arising from fluctuating tax rates and economic uncertainties.

What are the different tax planning strategies in india?

In india, different tax planning strategies can help individuals and businesses
optimise their tax liabilities. Here are some commonly used strategies for
planning your taxes:

1. Short-term tax planning:

Short-term tax planning focuses on minimising tax liability for the current
financial year. It involves analysing your income, expenses, and investments to
ensure efficient tax management within a shorter time frame.

2. Long-term tax planning:

Long-term tax planning involves comprehensive financial planning for the future,
considering multiple financial goals and priorities. It aims to achieve tax efficiency
over an extended period by strategically managing investments, assets, and
income.

3. Permissive tax planning:

Permissive tax planning involves utilising the exemptions, deductions, and credits
provided by the tax laws to legally minimise the tax liability. Taxpayers can take
advantage of specific provisions to maximise their savings.

4. Purposive tax planning:

Purposive tax planning aligns financial decisions with specific tax-saving

objectives. It involves strategically structuring income, expenses, and
investments to achieve desired financial outcomes rather than selecting as many
tax benefits as possible.

5. Marginal tax planning:

Marginal tax planning involves analysing the effects of additional income or

expenses on the tax liability to optimise tax savings. By optimising income within
lower tax brackets, taxpayers can reduce their overall tax liability.

6. Structural tax planning:

Structural tax planning involves restructuring business or personal finances to

benefit from tax exemptions, deductions, or incentives provided under the
current tax laws. It includes strategies like forming partnerships, utilising trusts,
or setting up tax-efficient entities to minimise tax obligations.

Common expenses used for tax planning in india

Certain expenses in india, such as medical expenses, education expenses,

donations to charitable institutions, and home loan interest payments, etc., are
eligible for tax deductions or exemptions. By utilising these expenses during tax
planning, you can reduce your taxable income. Some commonly utilised expenses
are:

Instrument name Relevant income tax act Permissible tax saving limit (annual)
section

Life insurance premium Section 80c Premium paid on the life of self, spous
rs 1.5 lakhs annually

Health insurance / mediclaim Section 80d Up to rs. 1 lakh for senior citizen self,
premium

Medical expenses for specified Section 80ddb Up to rs. 40,000

diseases
Children’s tuition fees Section 80c Up to rs 1.5 lacs annually under sectio

Donations to specific Section 80g Limit as specified under the section

institutions and trusts

Home loan principal repayment Section 80c Up to rs 1.5 lacs annually under sectio

Home loan interest repayments Section 24 Up to rs. 2 lakh annually

Education loan interest Section 80e As per actual (no limit) up to 8 years.
repayment

Favoured investments for tax planning in india

To encourage savings and investments, the government of india provides various

tax-saving investments, such as the employee provident fund (epf), public
provident fund (ppf), national pension scheme (nps), and equity-linked saving
scheme (elss), offer individuals opportunities to save taxes while maximising
returns. Some popular tax-saving investments in india include:

Investment name Type of scheme

Life insurance premium Section 80c

Equity linked savings scheme (elss) mutual fund Market-linked investment

Unit linked insurance plans (ulips) Market-linked/guaranteed1 return insura

Public provident fund (ppf) Government-backed fixed return

National savings certificate (nsc) Government-backed fixed return

National pension system (nps) Market-linked pension plans

Tax saver fd (5 year tenure) Fixed return investment

Sukanya samriddhi yojana Government-backed fixed return for pare

Employee provident fund/ voluntary provident fund Government-backed fixed return for sala

What steps should be taken when planning taxes?

The following steps must be taken while planning taxes:

Step 1. Early start:

Start tax planning early in the financial year to ensure adequate time for
analysing and implementing effective tax-saving strategies.

Step 2. Review your tax status:

Calculating your income sources, deductions, and exemptions will let you
determine your current tax status and identify areas where tax savings can be
achieved. This strategy can help you move to a lower income tax slab and hence
achieve more savings on your income.

Step 3. Find ways to save on taxes:

Research and explore various tax planning strategies, exemptions, and

deductions available under the current tax laws to identify opportunities for
substantial tax savings.

Step 4. Create a plan to save on taxes:

Based on your financial goals and tax status, develop a comprehensive tax-saving
plan that includes choosing the appropriate investments, expenses, and
exemptions for maximum tax benefits.

Step 5. Execute your tax-saving strategy:

Implement your tax-saving plan by investing in eligible schemes, making

necessary expenses, and ensuring compliance with tax laws.

Step 6. Track your tax status:

Regularly monitor and review your tax status to ensure that you continue to
benefit from tax-saving investments and stay compliant with changing tax
regulations.

Summing up

Tax planning is a crucial financial management practice that helps individuals and
businesses optimise their tax liabilities while complying with tax laws. By
implementing effective tax planning strategies, individuals can cut down taxable
income, decrease legal problems, increase savings, achieve financial stability,
enhance productivity, and manage risks.

It is essential to identify the appropriate tax planning strategies based on the

individual's financial goals and tax status to ensure maximum benefits.

Faqs on tax planning

Tax invasion and tax

Introduction

Every taxpayer wants to save tax on their income and reduce their tax burden; after all, they
have put lots of effort into earning that income. Therefore, every taxpayer looks for a
method to reduce their tax liability so that they can fully utilise that income and enjoy that
hard earned money.

There are many methods to achieve that tax saving goal. But before applying any method,
you have to be very careful, as selecting an illegal method can cause some serious trouble
for you. Let’s understand the two methods to reduce your tax liabilities, i.e., tax avoidance
and tax evasion and how a taxpayer can use these methods to minimise their tax burden in
a legal and right way.

What is tax avoidance

Tax avoidance is a legal method used by taxpayers to reduce their tax liabilities, using the
loopholes in the rules and regulations under the act. In other words, tax avoidance is a
method to avoid payment of tax by taking advantage of a situation, where rules and
regulations are not clearly defined or precise in the act. Although tax avoidance is legal, as
there is no violation of the act, it is not advisable as a good practice because taxpayers try
to gain an unfair advantage to avoid paying tax.

What is tax evasion

Tax evasion is an illegal method adopted by a taxpayer to escape the liability of paying taxes
to the government. It is an unlawful and prohibited activity, and indulging in it can result in
penalties, fines, criminal charges, and imprisonment for the taxpayer involved. It is
deliberately done by overstating expenses, underreporting income, concealing sources of
income and making offshore transactions.
Impact of tax evasion on the Indian economy

As per the Receipt Budget 2024-25, net tax revenue receipts were Rs. 2097785.82 crores
out of total revenue receipts of Rs. 2383206.47 crores, which were 88% of total revenue
receipts. That means a substantial part of revenue receipts comes from taxes but as per the
various estimations, India loses trillions to tax evasion annually. As per the Annual Report of
the Ministry of Economic Affairs, Ministry of Finance, Government of India 2016-17, the net
estimated tax evasion in direct tax from 2000-01 to 2014-15 was Rs. 1,98,449 crores.

As
a result of higher revenue loss in terms of tax evasion and tax avoidance, the government is
facing problems of a larger budget deficit, higher borrowings, and increased public debt,
subsequently leading to economic instability, which impacts the investment decisions of
foreign investors.

Reasons for tax avoidance and evasion

Tax avoidance and tax evasion have become common factors in higher revenue losses for
India. To curb this situation, it’s important to understand the reasons behind tax avoidance
and evasion. Here are some points that lead to tax avoidance and evasion in India.

High rate of tax

No one wants to pay a higher income tax; to reduce tax liabilities, every taxpayer looks for
legal or illegal ways. This high rate of taxation gives rise to emotions among taxpayers in
terms of tax avoidance and evasion.

Complexity in tax laws

As we know, provisions under the acts are not easy to understand for common people. It is
very difficult to understand and apply the provisions of the act without the help of
professionals. As a result, to avoid the burden of professional charges, taxpayers indulge in
tax avoidance and evasion.

Lack of strong tax policies

Failure to make strong tax policies may lead to loopholes and opportunities for taxpayers to
misuse the provisions of tax laws to avoid paying taxes.

Weak administration

Tax authorities have limited resources, due to which they are not capable of watching or
scrutinising each and every taxpayer. Also, the penalties and prosecution procedures are
liberal, which result in gaps for tax avoidance and tax evasion.

Methods of tax avoidance and evasion

Here are some common methods used by taxpayers to avoid paying tax to the government:

Underreporting income

Taxpayers do not disclose their full income to escape payment of tax liabilities. Generally,
taxpayers used to receive some part of their income in cash and the other through the
banking channel and did not disclose their cash receipts to the department.

Concealment of income

This is the method where full sources of income are not disclosed by taxpayers. For example,
a taxpayer has a trading business and also generates rental income from his house property.
However, he used to collect his rental income in cash, disclose only trading business income
in his return of income, and conceal income from house property.

Overstating expenses

Income is deliberately reduced by falsely claiming higher expenses to evade tax payments.

Offshore transaction

Tax evaders take advantage of loopholes in the provisions of the law in transactions between
2 countries. Vodafone International Holding vs. Union of India (2012) is the landmark
caselaw of tax avoidance, where the Supreme Court held that Indian revenue authorities do
not have jurisdictional authority to impose tax on transactions between two non-residents
where the controlling interest of an Indian company was acquired by a non-resident
company.

Creating shell companies

Shell companies are organisations without active operations and significant assets. Tax
evaders used to channel their money through shell companies to escape tax payments.

Claiming deductions and exemptions

These are very common methods used by taxpayers to reduce their income in a legal way.
There are various deductions and exemptions introduced by the Income Tax Department. By
using these taxpayers, they can reduce their tax liabilities, like investments in tax saving
instruments, take advantage of deductions under Chapter VI of the Income Tax Act of 1961
and claim all allowable allowances and expenses.

Tax shelters and tax havens

Both are strategies through which income can be reduced. Tax shelters are the instruments
and entities where money is invested to generate losses and set-offs from another source of
income. While in a tax haven, taxpayers enter into a transaction with a country where rates
of tax are lower.

Consequences of tax evasion and tax avoidance in India

Tax evasion is an unlawful activity and is considered a criminal offence or crime. Therefore,
consequences are more severe than tax avoidance, which covers penalties and fines,
imprisonment, and criminal charges.

Legal provisions for tax evasion and tax avoidance

Penalties fines

 As per Section 270A of Income Tax Act, 1961, there is a penalty of 50% of tax in
cases of under-reporting of income and 200% of tax in cases of mis-reporting of
income.

 If you fail to keep, maintain or retain books of accounts as required by Section 44AA,
penalty of Rs. 25000 can be imposed under Section 271A.

 If undisclosed income is found during the search proceedings under the Income Tax
Act, penalty of up to 60% of undisclosed income can be imposed under Section
271AAB.

 As per Section 271B, failure to get accounts audited up to due date under Section
44AB can result in a penalty of 1.5% of gross receipts (subject to maximum of Rs.
1.50 lakh).

 If you fail to furnish a report of CA under Section 92E, a penalty of Rs. 1 lakh can be
imposed under Section 271BA.

 If you fail to furnish information as required under Section 92D, a penalty of Rs. 5
lakh can be imposed.

Imprisonment

 As per Section 276BB, imprisonment of 3 months to 7 years is imposed in case of

failure to pay the tax collected under Section 206C.

 As per Section 276C(2), imprisonment of 3 months to 3 years in case of willful

attempt to evade payment of tax, penalty, and interest.
  As per Section 275A, imprisonment up to 2 years in case of contravention of order
made under Section 132(1) or 132(3).

Audit and investigation

Indulging in tax evasion and tax avoidance may lead to an audit and investigation by the
Income Tax Department. The Income Tax Act, 1961, has given power to the authorities to
initiate audits, investigations, and scrutiny of the assessee in default.

Search & seizure

The Income Tax Department has power to initiate search and seizure when the department
has sufficient grounds and reasons for tax evasion and tax avoidance.

Tax laws in India

The tax laws in India are a complex and ever-changing landscape. They are governed by
various statutes, rules, and regulations issued by the Central Board of Direct Taxes (CBDT).
These laws cover a wide range of taxes, including income tax, corporate tax, and goods and
services tax (GST).

The Income Tax Act

The Income Tax Act of India is a comprehensive piece of legislation that governs the levy and
collection of income tax in India. Enacted in 1961, the act has undergone numerous
amendments over the years to keep pace with changing economic and social conditions. The
Income Tax Act is administered by the Central Board of Direct Taxes (CBDT), a statutory body
under the Ministry of Finance.

The act applies to all individuals, Hindu Undivided Families (HUFs), companies, and other
legal entities that earn income in India. It prescribes the various sources of income that are
subject to tax, the rates of tax applicable to different categories of taxpayers, and the
exemptions and deductions that are available. The act also provides for the assessment of
income, the filing of tax returns, and the payment of taxes.

The Income Tax Act is a complex piece of legislation, and taxpayers are advised to seek
professional advice to ensure that they are complying with all the requirements of the law.
The CBDT has published a number of guidelines and circulars to help taxpayers understand
and comply with the provisions of the act.

The Income Tax Act is an important source of revenue for the Indian government. In the
2022-23 fiscal year, the government collected over Rs. 14 lakh crore in income tax, which
accounted for about 20% of the total tax revenue. The income tax collected by the
government is used to finance various public services, such as education, healthcare, and
infrastructure development.

The Income Tax Act is a vital part of the Indian tax system. It helps to ensure that the
government has the resources it needs to provide essential services to its citizens. The act
also promotes equity by ensuring that individuals and businesses pay their fair share of
taxes.
Corporate tax

Corporate tax is a significant source of revenue for governments, and it is levied on the
profits earned by companies. The tax rate can vary depending on the jurisdiction, but it is
typically a percentage of the company’s net income. In addition to corporate tax, companies
may also be required to pay other taxes, such as sales tax, property tax, and payroll tax.

The purpose of corporate tax is to generate revenue for the government, which can then be
used to fund public services such as healthcare, education, and infrastructure. Corporate tax
can also be used to discourage companies from engaging in certain activities, such as
polluting the environment or exploiting workers.

However, corporate taxes can also have a negative impact on businesses. High corporate
tax rates can make it difficult for companies to compete with their international rivals, and
they can also discourage investment and job creation. In addition, corporate tax can be
complex and time-consuming to comply with, which can be a burden for small businesses.

Despite the potential drawbacks, corporate taxation remains an important source of revenue
for governments around the world. It is a way to ensure that companies contribute to the
costs of public services and that they are held accountable for their actions.

Here are some of the key features of corporate tax:

 It is a tax on the profits earned by companies.

 The tax rate can vary depending on the jurisdiction.

 Companies are also required to pay other taxes, such as sales tax, property tax, and
payroll tax.

 The purpose of corporate taxation is to generate revenue for the government.

 Corporate taxes can also be used to discourage companies from engaging in certain
activities.

 High corporate tax rates can make it difficult for companies to compete with their
international rivals.

 Corporate taxation can also discourage investment and job creation.

 Corporate tax can be complex and time-consuming to comply with.

Goods and Services Tax Act (GST)

The Goods and Services Tax (GST) is a comprehensive indirect tax levied on the supply of
goods and services. It is a destination-based tax, which means that it is levied at the point of
consumption. GST is a single tax that replaces multiple indirect taxes levied by the Central
and State Governments.

GST was introduced in India on July 1, 2017, and it has brought about a significant change in
the indirect tax landscape of the country. GST is a major step towards creating a unified
common market for goods and services in India.
Here are some of the key features of GST:

 It is a comprehensive tax that applies to all goods and services, except for a few
exempt items.

 It is a destination-based tax, which means that it is levied at the point of

consumption.

 It is a single tax that replaces multiple indirect taxes levied by the Central and state
governments.

 It is a self-assessed tax, which means that taxpayers are responsible for calculating
and paying their own taxes.

 It is a technology-driven tax with a focus on electronic filing of returns and payments.

GST has had a significant impact on the Indian economy. It has made it easier for businesses
to do business across state borders, and it has led to a reduction in the cost of doing
business. GST has also helped increase tax compliance and reduce tax evasion.

Overall, GST has been a positive development for the Indian economy. It has made the tax
system more efficient and transparent, and it has helped to create a more level playing field
for businesses.

Here are some of the benefits of GST:

 It has made it easier for businesses to do business across state borders.

 It has led to a reduction in the cost of doing business.

 It has helped to increase tax compliance and reduce tax evasion.

 It has made the tax system more efficient and transparent.

 It has helped to create a more level playing field for businesses.

Landmark case laws on tax evasion

Commissioner of Income Tax vs. Ramkanth Mohanlal Gandhi: (1978) 113 ITR 266 (SC)
Assessee

An income tax assessee is a person who pays tax or any sum of money under the provisions
of the Income Tax Act, 1961.

Furthermore, Section 2(7) of the act defines an income tax assessee as anyone who is
required to pay taxes on any earned income or incurred loss in a single assessment year.
They can also be referred to as each and every person for whom:

1. Is there any action being taken under the act to evaluate his income?
2. The income of another person for which he is taxed
3. Any loss incurred by him or any other person or persons entitled to a tax refund

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Who is a ‘Person’ under the Income Tax Act?

The 7 categories of “persons” mentioned under the Income Tax Act:

  Individual

 Hindu Undivided Family

 Partnership Firm

 Company

 Association of Persons (AOP) or Body of Individuals (BOI)

 Local Authority

 Artificial Judicial Body (not covered under any of the above-mentioned categories)

Normal Assessee

An individual who is liable to pay taxes for the income earned during a financial year is
known as a normal assessee. Every individual who has earned any income earned or losses
incurred during the previous financial years is liable to pay taxes to the government in the
current financial year.

All individuals who pay interest/penalty or who are supposed to get a refund from the
government are categorised as normal assessees. Say, Mr A is a salaried individual who has
been paying taxes on time over the past 5 years. Then, Mr A can be considered as a normal
assessee under the Income Tax Act, 1961.

Representative Assessee

There may be a case in which a person is liable to pay taxes for the income or losses
incurred by a third party. Such a person is known as a representative assessee.

Representatives come into the picture when the person liable for taxes is a non-resident,
minor, or lunatic. Such people will not be able to file taxes by themselves. The people
representing them can either be an agent or guardian.

Consider the case of Mr. X. He has been residing abroad for the past 7 years. However, he
receives rent for two house properties he owns in India. He takes the help of a relative, Mr. Y,
to file taxes in India. In this case, Mr. Y acts as a representative assessee. If the assessing
officer plans to investigate the tax filing, Mr. Y will be asked to provide the necessary
documents as he is the guardian of the property and represents Mr. X.

Deemed Assessee

An individual might be assigned the responsibility of paying taxes by the legal authorities
and such individuals are called deemed assessees. Deemed assessees can be:

 The eldest son or a legal heir of a deceased person who has expired without writing a
will.

 The executor or a legal heir of the property of a deceased person who has passed on
his property to the executor in writing.

 The guardian of a lunatic, an idiot, or a minor.

  The agent of a non-resident Indian receiving income from India.

For example, Mr P owns a commercial building from which he earns rent income. He has
prepared and signed a will stating the property should be handed over to his niece after his
death. Upon his death, his niece will be considered as the executor of the property, i.e.
deemed assessee. She will be responsible for paying tax on the rental income thereon.

Assessee-in-default

Assessee-in-default is a person who has failed to fulfil his statutory obligations as per
the income tax act such as not paying taxes to the government or not filing his income tax
return. For example, an employer is supposed to deduct taxes from the salary of his
employees before disbursing the salary. He is, then, required to pay the deducted taxes to
the government by the specified due date. If the employer fails to deposit the tax deducted,
he will be considered as an assessee-in-default.

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Roles/Responsibilities and Duties of an Assessee

Assesses must file their returns on time and pay their taxes when they are due. However, an
assessee may frequently fail to file their return on time. In this situation, they may receive a
notice from the IT department or the relevant Assessing Officer requesting information about
why the return was not filed for that particular fiscal year. In this scenario, the assessee
must provide a response to the Assessing Officer explaining why they did not file his returns
on time, and he must also file the returns as soon as he receives the notification.

Let us take a quick look at the various roles and responsibilities of an Assessee upon
receiving a notice:

 As soon as the Assessee receives the notice from the department, they must file their
tax returns for the avoided income for the specific assessment year.

 After filing the returns, they may obtain a copy from the assessing officer that clearly
states the grounds for which the officer issued the notice to them.

 If the Assessee believes that the grounds given in the copy are not valid, and they
are not satisfied with the reasons, they may file an objection and question the legality
of the notice.

 The Assessee must also ensure that they have valid reasons for filing the objection
and that they have properly decided to query the government's notification.

 If the officer rejects the Assessee's allegations, the Assessee may submit a request to
the concerned Assessing Officer, asking him to provide additional explanations.
 The Assessee may choose to contest the legitimacy of the notification much before
the planned assessment or re-assessment is completed by filing a writ petition with
the relevant High Court.

 The Assessee may also choose to challenge the legitimacy of the notice even after
the planned assessment is completed by filing a writ petition with the respective High
Court.

 The Assessee must provide details relevant to their income returns within 30 days of
the date of issuance of the notice, not the date on which the notification was received
by the Assessee. To avoid complications later on, the details relevant to the income
for which tax payment has been avoided, as well as other associated income details,
must be clearly given and filed with the concerned authorities.