pro quo" eleent.

Difference between Fees and Cess

Fees Cess
Aspect
Definition AA charge imposed by the AA tax on an existing tax, levied to raise
or
government for specific services funds for a specific purpose
provided to individuals or program.
businesses.
specific
Primary Purpose To recover the cost of aparticular To generate revenue for a
service rendered by the government initiative, often with a
government. social or economicgoal.

Quid Pro Quo There is direct correlation No direct benefit or service provided
(Direct Benefit) between the fee paid and the to the payer; funds are allocated to a
service received by the payer. designated purpose.
 Legislation Basis component
Authorized by specific laws Imposed as an additional
laws, often with a
detailing the services provided and under existing tax
their cost. clear legislative objective.
Revenue Usage Used only to cover the cost of Collected funds go into a dedicated
services provided, not for general fund and are earmarked for specific
Duration revenue. public purposes.
Permanent or long-term, as long as Often temporary and collected only
the service is
provided. until the targeted funds for the
Scope of Applied objective are met.
Application busintheesses
to individuals
that directly benefit Applied generally on an existing tax
from base like income tax or GST,
government's service. applicable to alltaxpayers within that
Account abi
Transparencylity and
Generally more base.
fee
correlates
service's cost.
tr ansparent
directly , as the
with the
Less transparent, as the funds go to
specific initiatives, and the impact
Examples Court isn't always directly
measurable.
fees, license
examination registration
fees, fees, Swachh Bharat Cess,
fees. Education Cess, Road Health and
Refundability Not usually
refundable,
Energy Cess.
Cess, Clean
based on specific service as it's
usage. final Non-refundable;
cess payments are
contributions towards the
Collection Collected designated purpose.
Authority by the
specific | Collected by the tax
government
service,
body
like courtsproviding the additional authorities as an
bodies. or licensing taxes. component on existing
Justification The
Requirement government
fee based on the must justify the|
Justification
is based on the
cost of the
economic need for the cess social or
service provided. doesn't correlate with but
services
provided.
Legal Challenges Fees may be
challenged if there is Cesses can be
no service provided or if the deemed chalenged if they are
charge exceeds the cost of service. excessive, unfair, or
misaligned with the designated
purpose.

Tax Planning
Tax planning is the process of
approach in compliance with theminimizing
an individual's tax obligations
relevant through strategic legal
laws, rules and regulations. It involves
legal provisions that allows the assessee to take the use of various
benefits from deductions, credits, concessions,
**Th
 rebates, and exemptions, It is alegitimate way of managing and relucing taxes. Tax planning can
be done through various methods such as short term tax planning,. Long term tax planning.
Permissive tax planning. and Purposive tax planrning. Inome tax Act, 1961 (The Act) itself
provides various methods of tax planning.
For example: Under
Section 80C of Income Tax Act, an individual can claim deductions up to 1,50,000 for certain
investments.

Nature and Characteristics of Tax planning

Legaland Encouraged: Tax plannirng is a legal way of saving taxes through use of
deductions, credits, exemptions. It's also encouraged to plan taxes.
Legitimate: It is legitimate way of saving taxes without exploiting loopholes and in an
ethical way
Encourages Savings and Investments: Makes use of incentives like Section 80C in India to
encourage investment in savings schemes and insurance.

Examples of Tax Planning

Investing in tax-saving instruments like Public Provident Fund (PPF), ELSS, or life insurance.
Utilizing deductions under various sections like 80C, 80D, etc., in India.

Timing asset sales to benefit from lower capital gains tax rates
Tax Avoidance
Tax avoidance refers to legally reducing tax liabilities by taking advantage of loopholes or
incentives within the tax law. Although it is not illegal, it is often seen as unethical, especially when
taxpayers exploit gray areas in the law to minimize their tax burden. While it is considered legal
but unethical. In tax evasion, assessee use certain legal loopholes to pay less taxes. When done at
a large scale, the government faces huge revenue losses.
Nature and Characteristics ofTax Avoidance
Legal but Controversial: Tax avoidance is within the bounds of law, but it usually exploits
loopholes or complexities of the tax laws.
Exploitation of Loopholes: Takes advantage of gaps or complexities in tax law to minimize
taxes.
Ethically Questionable: While legal, it may be viewed unethical as it weakens the spirit of
tax laws.

Examples of Tax Avoidance

Shifting income to lower tax jurisdictions.
Using trust funds or shell companies to minimize tax.
Tax Evasion
Tax evasion refers to the illegal practice of intentionally misrepresenting or concealing financial
information to reduce tax liability. It is outright illegal, a criminal offense and violates tax laws,
9
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edding to penalties, fines, and even imprisonment. It deliberately done to mislead the authorities.
S BVing false information or oiving incorrect information about assets or income and faking
documents.
Nature and Characteristics of Tax
Evasion
llegal and Unethical: Tax evasion violates tax laws and is punishable by law.
Deliberate Concealment: It involves deliherately hiding income, inflating expenses, or using
other means to evade
taxes.
Penal
Consequences:
penalties,
Tax
interest on unpaidevasion can lead to serious consequences, including financial
taxes, and imprisonment.
Ondisclosed Income and Assets: Offen involves concealing income from
holding unreported assets. authorities or
Manipulation of Records: Falsification or omission of financial
income. records to reduce taxabie
Examples of Tax Evasion
Not reporting income from
cash transactions.
Claiming fake or inflated deductions.
Using undisclosed offshore accounts or shell
companies to hide income.
Key Differences Between Tax Evasion, Tax
Avoidance, and Tax Planning
Aspect Tax Evasion Tax Avoidance Tax Planning
Legality llegaland punishable Legal, but often ethically Fully legal and
questionable encouraged
Method Misrepresentation or Exploiting loopholes in Proper planning within
hiding of income tax law legal provisions
Consequences Criminal penalties, fines, May invite scrutiny; No penalties;
imprisonment anti-avoidance rules promotes compliance
Unethical Questionable in some Ethical and prudent
Ethics
cases

Investments in tax
Examples Not reporting income, fake Shellcompanies, shifting saving schemes
deductions income
To manage tax
To evade tax liability To reduce tax liability efficiently within limits
Objective significantiy
completely
 other fit
fiscal stability.

of Taxation under the Constitution

Power The Union
articles gives the power of taxation to both
through various level of
The constitution of India hence the constitution ensures that each
is afederal state,
(Centre) and the states. Indiafinancial resources to sustain itself.
enough
the government has
Distribution of Legislative Powers across three
1. Article 246: Parliament and state legislatures
legislative powers of
Article 246 defines the
Schedule:
lists in the Seventh
Exclusive powers of Parliament, including central taxes.
Union List (List I): certain state
Exclusive powers of the State Legislatures, including
State List (List ll):
taxes. Parliament and state
ID): Shared subjects where both
Concurrent List (List taxes.
this list has no direct
legislatures can legislate, though
by Authority of Law
Article 265: No Tax Shall Be Levied or Collected Except
2. with legal authority,
establishes that taxes can only be levied and collected
Article 265 imposed.
that all taxes must be sanctioned by law and not arbitrarily
ensuring
Consolidated and Contingency Funds of India and of the States
3.Article 266: and loans, are
received by the central and state governments, including taxes
Allrevenues India or the respective states.
credited to the Consolidated Fund of
Funds, used for
It also covers Contingency
Withdrawals require legislative approval.
approved by the legislature later.
unforeseen expenses, which must be
by the States
Union but Collected and Appropriated
4. Article 268: Duties Levied by the excise
specifies that certain duties (like stamp duties onspecific documents and but
This Article the Union
preparations containing alcohol) are levied by
duties on medicinal and toilet
collected and appropriated by the states.
the Union and Collected and Appropriated by the Union
5. Article 268A: Service Tax Levied by
and States
service tax and provided that the revenue be
Article 268A allowed the Union to levy
(This Article was effectively rendered
distributed between the Union and the states.
which subsumed service tax.)
redundant after the introduction of GST in 2017, 14
 6. Article 269: Taxes Levied and Collected by the Union but
Assigned to the States
Article 269 provides that specific taxes, such as taxes on the sale or
(excluding inter-state trade) and consignment of goods, are levied purchase of goods
NI
by the Union but
assigned tothe states where theyare collected.
7. Article 269A: Levy and
Trade or Commerce Collection of Goods and Services Tax (GST) in the Course of
Inter-State
Article 269A, introduced by the 101st
to levy Integrated Amendment Act, empowers the central
GST (|GST) on inter-state
then shared between the Union and
the
supplies of goods and services. Thisgovernment
revenue is
8. Article states based on aformula
the States 270: Taxes Levied and Collected by the Union and prescribed by Parliament.
Distributed Between the Union and
Article 270
based on allows for the sharing of
of the certain Union taxes (like income tax) with the
9. Article
recommendations
portion of the central
revenue to Finance
address Commission.
fiscal needs.
It ensures that
states
states,
receive
271: Surcharge on a

Article Certain Duties and Taxes for

271 gives the central
and duties. Such Purposes of the'Union
the states. surcharges government
are
retained
the
power to impose a
exclusively by the Unionsurcharge
and
on Union taxes
10. Article 272: are not shared with
[Repealed]
Article 272 used to permit the
states, but it was repealed Union government to share
excise duty revenue from with the enactment of 80th certain excise duties with the
specific items goes to thetheUnion Amendment Act, 2000. Now,
alone.
11. Article 273:
Grants in Lieu of Export Duty on
Jute and Jute
Article 273 mandates that the Products
export duty on jute and jute central government provides grants to
states whose revenue was products. This provision was states in lieu of the
affected central control included as
over export duties.compensation
by for
12. Article 274: Prior O )
States Recommendation of the President for Certain Bills Affecting
Article 274 requires the
Taxation in
Parliament that alters state President'
taxation
s
lawsrecommendation
or affects the before introducing any bill in
13. Article 275:Grants
from the Union to Certain
financial interests of states.
States
Article 275 allows the Union to
assistance, and it ensures funds provide
for the
grants to states, especially those
needing financial
of tribal areas. welfare of Scheduled Tribes and the
development
14. Article 276: Taxes on
Professions, Trades, Callings, and Employments

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version**
 Article 276 empowers states to impose a professional tax, up to a maximum limit as
prescribed. This tax is collected by states or localbodies and is leviedon professions., trades.
and employment.
15. Article 277: Savings of Existing Taxes
Article 277 protects taxes or duties that were in place before the Constitution carne into
effect, even if they aren't part of the Union or State List. Such taxes may continue to be
levied and collected by states unless altered by the appropriate legislative authority.
16. Article 280: Finance Commission

Article 280 establishes the Finance Commission, which is constituted every five years to
recommend the distribution of central revenues between the Union and the states. The
Finance Commission also addresses issues like fiscal federalism and financial assistance to
states.
 Taxes are sums of money that people pay that arc not dircctly rclatcd
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
I. 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
like defense and security, are shared by every member of the desires,
therefore individuals cannot satisfy these desires. Governments society,
provide these societal needs, hence people support
fulfill these needs. Contribution entails sacrifice or lossgovernment to
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,
of infrastructure and order. All people are eligibleand the establishment
for such rewards..
4. No direct benefit- All taxes are
required to be paid,
government does not directly reward tax payers forand their the
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
AVers,
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 governmnent 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.
 Tax is the compulsory collection of money by the Government for public
Taxes are levied by governments on their citizens to generate revenue to be usedpurposes. for the
wetfare of the public, to raisethe standard of living of itscitizens, and to b00st the economy
of the country. The authority of the government to impose tax in India is derived from the
Constitution of India, which confers the power on the Central and State Governments to
levy taxes. Therefore, no taxX can be levied except by the authority of law. All taxes levied
within India must be backed by a law passed by the Parliament or the State Legislature.
Tax and Fee
Tax is the compulsory collection of money by the Government for public purposes.
Taxes are levied by governments on their citizens to generate the revenue to be used for
the welfare of the public, whereas, the fee is specifically charged for providing a
service.
Whenever government provides any service it may charge a fee for that service. Therefore,
the fee rate is directlyrelated to the cost of maintaining the service. Significantly, money
collected from the fee is generally used for providing that service only for which the fee is
charged and not used for any other service. For example, a government may charge a fee
tovisit a park. Such a fee may be used for maintaining the park. Important
differences are:
(a) A tax is a compulsory collection of money by the Government for a public purpose
or is the compulsorycontribution made by a taxpayer. A fee, by definition, is a
voluntary payment for receiving any service or advantage from the Government.
(b) In the case of tax, there is no direct give-and-take relationship between the
taxpayer and the tax-levying authority. Whereas in the case of fees, there is a
direct give-and-take relationship between the fee-payer ic., those who rcceive
 2 Tuation Laws
(hap.
some special advantages, or the government guarantees the services and h
Charging authority. Fees are, thercfore, deemed to be the by products
administrativë activitics of the government.
(c) Ataxpayer cannot denmand any spccial favour from the authority in
taxes paid by him. Whercas fee-payer always demands any special return
favour
lor
the Tee charging authority in return for the fee paid by him from
(d) Fees are mostly imposed to rcgulate or control various types of activities. But t.
objectives of taxation are many. It has no separate objective. Taxes are levied c
generating revenue to be used for public purposes.
Types of Taxes
Taxes are of two distinct types-direct indirect taxes. The difference lies in ther
implementation. When a tax is imposed by the Government on a person and he pays it from
his pocket,such tax is known as adirect tax. For example, income tax, wealth tax, corporate
tax, etc. However, when tax is imposed by the Government on a person and he does not
pay it from his own pocket rather he collects it from other people, such tax is known as
indirect tax. For example, the Goods and Service Tax (GST), etc.
But, besides these two conventional taxes, a cess is also levied by the Central
7Government. Significantly, cess is a tax on tax that is imposed on both direct and indirect
taxes for achieving aspecific objective. For example, Secondary and higher education ces
for achieving the objective ofsecondary and higher education), Swachh Bharat Cess (for
financing and promoting Swachh Bharat initiatives of the government)!, Krishi Kalvan
Cess (to promote various initiatives in the domain of agriculture and also finance them)².
and infrastructure Cess (it is imposed on the production of vehicles and will be used to fund
infrastructure projects)'.
1.2Applicability of the Income Tax Act, 1961 JSection 1|