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CHAPTER 23

                  TAXATION, TAX LAWS – DIRECT & INDIRECT TAX

Why tax? The Government takes primary responsibility for the welfare of its citizens, as in matters of

 health care,  education,  employment,  infrastructure,  social security and  other development needs.

To facilitate these, Government needs revenue.

The taxation is the primary source of revenue to the Government for incurring such public welfare expenditure.

In other words, Government is taking taxes from public through its one hand and uses it through another hand.

However, no one enjoys handing over his hard-earned money to the government to pay taxes. Thus, taxes are compulsory or enforced contribution to the Government revenue by public.

Government may levy taxes on income, business profits or wealth or add it to the cost of some goods, services, and transactions.

Direct Tax and Indirect Tax There are two types of taxes:

 Direct Tax and  Indirect Tax

Tax, of which incidence and impact fall on the same person, is known as Direct Tax, such as Income Tax. It means, in the case of Direct Tax, tax is recovered directly from the assessee, who ultimately bears such taxes. It is Progressive in nature i.e., higher tax are levied on person earning higher income and vice versa.

On the other hand, tax, of which incidence and impact fall on two different persons, is known as Indirect Tax, such as GST, it means tax is recovered from the assessee, who passes such burden to another person & is ultimately borne by consumers of such goods or services. It is

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Regressive in nature i.e.; all persons will bear equal wrath of tax on goods or service consumed by them irrespective of their ability.

Administration of Tax Laws

The administrative hierarchy of tax law is as follows:

CBDT deals with levy and collection of all direct tax whereas matters relating to levy and collection of Central indirect tax are dealt by CBIC.

Basic Principles for Charging Income Tax

Sec. 4 is a charging section and it is the backbone of the Income Tax Act.

Every Person whose total income exceeds maximum amount which is not chargeable to tax is an assessee & shall pay income tax at the rate or rates prescribed in the finance act as well as income tax act in the relevant Assessment year.

However, his total income shall be determined on the basis of Residential status in India.

Although tax on income of the previous year is subject to income tax in the Assessment year but assessee is liable to pay advance tax or he gets the credit of TDS which has been deducted during the previous year.

Important Concepts

1. Assessment Year

   Assessment year means the period of 12 months commencing on the 1st day of April every year. It is the year (just after the previous year) in which income earned in the previous year is charged to tax. E.g., A.Y.2020-21 is a year, which commences on

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Diagram - Administrative hierarchy of tax laws

Ministry of Finance
        |
        v
Department of Revenue
      /       \
     v         v
Central Board of      Central Board of Indirect
Direct Tax (CBDT)     Tax & Customs (CBIC)

The page states: CBDT deals with levy and collection of all direct tax whereas matters relating to levy and collection of Central indirect tax are dealt by CBIC.

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April 1, 2020 and ends on March 31, 2021. Income of an assessee earned in the previous year 2019-2020 is assessed in the A.Y. 2020-21.

   Taxpoint:
            Duration: Period of 12 months starting from 1st April.
            Relation with Previous Year: It falls immediately after the Previous Year.
            Purpose: Income of a previous year is assessed and taxable in the immediately
             following Assessment Year.

2. Previous Year

            Previous Year means the financial year immediately preceding the Assessment
             Year. Income earned in a year is assessed in the next year.
            The year in which income is earned is known as Previous Year and the next
             year in which income is assessed is known as Assessment Year.
            It is mandatory for all assessee to follow financial year (from 1st April to 31st
             March) as previous year for Income-Tax purpose.


             Determination of the first previous year in case of a newly set-up
             business or profession or for a new source of income

Note - Where an assessee has an existing regular income from various sources and he earns an income from a new source during the financial year, his previous year shall commence –

• For the existing income: From 1st April of previous year; and

• For new income: From the date when on which the new source of income comes into existence.

However, assessee is liable to tax on aggregate income from all the sources, therefore, all the income will be included in the previous year.

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3. Person

    The term person includes the following:
    i)         an Individual;
    ii)        a Hindu Undivided Family (HUF);
    iii)       a Company;
    iv)        a Firm;
    v)         an Association of Persons (AOP) or a Body of Individuals (BOI), whether
               incorporated or not;
    vi)        a Local authority; &
    vii)       every artificial juridical person not falling within any of the preceding categories.
   

Individual

The word ‘individual’ means a natural person, i.e. human being. “Individual” includes a minor or a person of unsound mind. However, Deities are assessable as juridical person. Trustee of a discretionary trust shall be assessed as an individual.

Hindu Undivided Family (HUF)

A Hindu Undivided Family (on which Hindu law applies) consists of all persons lineally descended from a common ancestor & includes their wives & unmarried daughters.

   Buddhists, Jains, and Sikhs can also form a HUF.
   One person cannot form HUF, it can only be formed by a family.
   A HUF is automatically created at the time of marriage.

Domestic Company [Sec. 2(22A)]

Domestic company means an Indian company;

Foreign Company [Sec. 2(23A)]

Foreign company means a company which is not a domestic company.

Firm

As per sec. 4 of Indian Partnership Act, 1932, partnership means “relationship between persons who have agreed to share profits of the business carried on by all or any one of them acting for all”.

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Persons, who enter into such business, are individually known as partners and such business is known as a Firm. A firm is, though not having a separate legal entity, but has separate entity in the eyes of Income-tax Act

Tax point:

► A partnership firm is a separate taxable entity apart from its partners.

► In Income tax, a Limited liability partnership shall be treated at par with firm.

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

An AOP means a group of persons (whether individuals, HUF, companies, firms, etc.) who join together for common purpose(s). Every combination of person cannot be termed as AOP. It is only when they associate themselves in an income-producing activity then they become AOP. Whereas, BOI means a group of individuals (individual only) who join together for common purpose(s) whether or not to earn income.

Difference between AOP and BOI

► In case of BOI, only individuals can be the members, whereas in case of AOP, any person can be its member i.e., entities like Company, Firm etc. can be the member of AOP but not of BOI.

► In case of an AOP, members voluntarily get together with a common will for a common intention or purpose, whereas in case of BOI, such common will may or may not be present.

Local Authority

As per Sec. 3(31) of the General Clause Act, a local authority means a municipal committee, district board, body of Port Commissioners, Panchayat, Cantonment Board, or other authorities legally entitled to or entrusted by the Government with the control and management of a municipal or local fund.

Artificial Juridical Person

Artificial juridical person are entities –

• which are not natural person;

• has separate entity in the eyes of law;

• may not be directly sued in a court of law but they can be sued through person(s) managing them

E.g: Deities, Idols, University, Bar Council, etc.

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Note: Under the Income-tax Act, such person has been provided exemption from payment of tax under separate provisions of the Act, if certain conditions mentioned therein are satisfied. E.g – Charitable trust etc.

4. ASSESSEE

   Assessee” means,

             a. a person by whom any tax or any other sum of money (i.e., penalty or
                interest) is payable under this Act (irrespective of the fact whether any
                proceeding under the Act has been taken against him or not);
             b. every person in respect of whom any proceeding under this Act has
                been taken (whether or not he is liable for any tax, interest or penalty)
                for the assessment of his income or loss or the amount of refund due to
                him;
             c. a person who is assessable in respect of income or loss of another
                person; E.g – Transfer of Income without transfer of assets, Income of
                minor child, Income of taxpayer’s spouse.
             d. every person who is deemed to be an assessee under any provision of
                this Act; and E.g – Legal representative of deceased.
             e. a person who is deemed to be an ‘assessee in default’ under any
                provision of this Act. E.g. A person, who was liable to deduct tax but
                has failed to do so, shall be treated as an ‘assessee in default.
   

Heads of Income

According to Sec.14 of the Act, all income of a person shall be classified under the following five heads:

1. Salaries;

2. Income from house property;

3. Profits and gains of business or profession;

4. Capital gains;

5. Income from other sources.

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For computation of income, all taxable income should fall under any of the five heads of income as mentioned above.

If any type of income does not become part of any one of the above mentioned first four heads, it should be part of the fifth head, i.e. Income from other sources, which may be termed as the residual head.

Significance of heads of income

• Income chargeable under a particular head cannot be charged under any other head.

• The Act has self-content provisions in respect of each head of income.

• If any income is charged under a wrong head of income, the assessee may lost the benefit of deduction available to him under the correct head.

Distinguish between Heads of income and Sources of income

There are only five heads of income as per Sec. 14 of the Act, but the assessee may generate the income from various sources.

In the same head of income, there may be various sources of income. E.g. under the head ‘Income from house property’, there may be two or more house properties and each house property shall be termed as a source of income. The source of income decides under which head (among the five heads) income shall be taxable.

Tax rates for AY 2021-22

• Income tax is to be charged at the rates fixed for the year by the Annual Finance Act.

In case of Individual who is less than 60 years during the PY /HUF/Association of Persons/Body of Individuals/Artificial Juridical Person

Total Income Range Rates of Income Tax Up to Rs. 2,50,000 Nil Rs. 2,50,001 to Rs. 5,00,000 5% of (Total Income – Rs. 2,50,000) Rs. 5,00,001 to Rs. 10,00,000 Rs. 12,500 + 20% of (Total income – Rs. 5,00,000)

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Rs.10,00,001 and above Rs. 1,12,500 + 30% of (Total income – Rs. 10,00,000)

In case of Senior citizen i.e resident individuals whose age is 60 years or more than years at
any time during the PY

 Total Income Range                             Rates of Income Tax
 Up to Rs. 3,00,000                             Nil
 Rs. 3,00,001 to Rs. 5,00,000                   5% of (Total Income – Rs. 3,00,000)
 Rs. 5,00,001 to Rs. 10,00,000                  Rs. 10,000 + 20% of (Total income – Rs.
                                                5,00,000)
 Rs.10,00,001 and above                         Rs. 1,10,000 + 30% of (Total income – Rs.
                                                10,00,000)



In case of Super Senior citizen i.e resident individuals whose age is 80 years or more than
years at any time during the PY

 Total Income Range                             Rates of Income Tax
 Up to Rs. 5,00,000                             Nil
 Rs. 5,00,001 to `10,00,000                     20% of (Total income – Rs. 5,00,000)
 Rs.10,00,001 and above                         Rs. 1,00,000 + 30% of (Total income – Rs.
                                                10,00,000)



Special tax Rate for Individual and HUF (Sec 115BAC)

The Finance Act, 2020, has provided an option to Individuals and HUF for payment of taxes
at the following reduced rates from Assessment Year 2021-22 and onwards:

Total Income (Rs) Rate

Up to 2,50,000 Nil

From 2,50,001 to 5,00,000 5%

From 5,00,001 to 7,50,000 10%

From 7,50,001 to 10,00,000 15%

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From 10,00,001 to 12,50,000 20%

From 12,50,001 to 15,00,000 25%

Above 15,00,000 30%

Surcharge

Surcharge is levied on the amount of income-tax at following rates if total income of an
assessee exceeds specified limits: -

Assessment Year 2021-22

Range of Income

Rs. 50 Lakhs to Rs. Rs. 1 Crore to Rs. 2 Rs. 2 Crores to Rs. 5 crores to Rs. 10 Exceeding
1 Crore               Crores                 Rs. 5 Crores        Crores                      Rs.      10
                                                                                             Crores

10%                   15%                    25%                 37%                         37%



Health & Education Cess - Rate of cess: 4% of Tax liability after Surcharge

Firm or Limited Liability Partnership (LLP)

A partnership firm (including limited liability partnership) is taxable at the rate of 30%

Surcharge:12% of income-tax (if total income exceeds Rs. 1 crore otherwise Nil)

Health & Education Cess: 4% of tax liability after surcharge

Company

Income-tax rates applicable in case of domestic companies for assessment year 2021-22 are
as follows:

Domestic Company
                                                                       Assessment Year 2021-
                                                                       22

♦ Where its total turnover or gross receipt during the previous 25%
year 2018-19 does not exceed Rs. 400 crore




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♦ Any other domestic company 30%

Surcharge: -

The amount of income-tax shall be increased by a surcharge at the rate of 7% of such tax, where total income exceeds one crore rupees but not exceeding ten crore rupees and at the rate of 12% of such tax, where total income exceeds ten crore rupees.

Health & Education Cess: 4% of tax liability after surcharge

Foreign Company

Tax Rate - 40%

Health & Education Cess: 4% of tax liability after surcharge

Surcharge - 2% if total income exceeds Rs. 1 Crore but up to 10 Crore

5% if total income exceeds Rs. 10 Crore.

Local authority

Tax rate - 30%.

Surcharge: 12% of tax where total income exceeds Rs. 1 crore

Education cess: 4% of tax plus surcharge

Rounding-off of total income [Sec. 288A]

The total income so computed will have to be rounded off to the nearest multiple of Rs. 10, i.e., if the last figure in the ‘rupee element’ is Rs. 5 or more, it should be rounded off to the next higher amount, which is a multiple of Rs. 10.

The ‘paise’ element should be ignored.

Thus, if the total income works out to Rs. 41,645, it should be rounded off to Rs. 41,650, but if it works out to Rs. 41,644.98, it should be rounded off to Rs. 41,640.

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Rounding-off of tax [Sec. 288B]

The tax calculated on the total income should be rounded off to the nearest Rs. 10. Amount of tax (including TDS or advance tax), interest, penalty, etc. and refund shall be rounded off to the nearest Rs. 10.

PAN

PAN stands for Permanent Account Number. A PAN number is a ten-digit number in alphabets and numerical, or in 'alphanumeric' terms, that is allocated by the income tax department to all the taxpayers, and is unique with each individual. A PAN number helps the authorities keep track of the financial activities of any individual, as PAN is integral to all forms of payments. A PAN number is allotted through a laminated card, which is called a PAN card. A PAN card contains information like PAN number, Name, DOB, and address.

Residential Status

           -   Residential status is determined in respect of each previous year and of every
               category of PERSONS. In other words, residential status of a person may vary
               from one previous year to another previous year
           -   A person can have only one residential status for a previous year i.e., he cannot
               be a resident for one source of income and non-resident for another source
           -   Citizenship and residential status are two different concepts. A citizen of India
               may not be a resident in India for the purpose of income-tax.
           -   A person can have same residential status in more than one country

Resident in India (Only of Individual)

An individual is said to be a resident in India, if he satisfies any one of the following conditions –

i) He is in India in the previous year for a period of 182 days or more [Sec. 6(1)(a)]; or ii) He is in India for a period of 60 days or more during the previous year and for 365 or more days during 4 previous years immediately preceding the relevant previous year [Sec. 6(1)(c)]

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Tax point: Given Conditions are alternative in nature i.e. assessee needs to satisfy any one condition.

Non-Resident in India

An assessee who is not satisfying sec. 6(1) shall be treated as a non-resident in India for the relevant previous year.

Illustration 1

      Sam came to India first time during the P.Y. 2019-20. During the previous year, he
      stayed in India for (i) 50 days; (ii) 183 days; & (iii) 153 days.


      Determine his residential status for the A.Y. 2020-21.


      Solution


      (i)         Since Sam resides in India only for 50 days during the P.Y. 2019-20, he does
                  not satisfy any of the conditions specified in sec. 6(1). He is, therefore, a non-
                  resident in India for the P.Y. 2019-20.
      (ii)        Since Sam resides in India for 183 days during the previous year 2019-20, he
                  satisfies one of the conditions specified in sec. 6(1). He is, therefore, a resident
                  in India for the P.Y. 2019-20.
      (iii)       Sam resides in India only for 153 days during the previous year 2019-20.
                  Though he resided for more than 60 days during the previous year but in 4
                  years immediately preceding the previous year (as he came India first time),
                  he did not reside in India. Hence, he does not satisfy any of the conditions
                  specified in sec. 6(1). Thus, he is a non-resident for the P.Y. 2019-20.

A resident individual in India can further be categorised as –

i)            Resident and ordinarily resident in India
ii)           Resident but not ordinarily resident in India

Resident and ordinarily resident

If a resident individual satisfies the following two additional conditions, he will be treated
as resident & ordinarily resident in India –

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a) He has been resident in India [as per sec. 6(1)] in at least 2 out of 10 previous years immediately preceding the relevant previous year; and

b) He has resided in India for a period of 730 days or more during 7 previous years
immediately preceding the relevant previous year.

Taxpoint: - To be a Resident & Ordinarily resident in India, one has to satisfy at least one
condition of sec. 6(1) & both the additional conditions of sec. 6(6).



Resident but not ordinarily resident

If a resident individual does not satisfy both additional conditions as given u/s 6(6), he is
“Resident but not ordinarily resident in India”

Calculation of total income and tax payable

Step 1- Determination of residential Status

Step 2 – Classification of Income under different heads

Step 3- Computation of Income under each head

Step 4 -Clubbing of Income of spouse, minor child etc.

Step 5 -Set off or carry forward and set off of losses

Step 6 -Computation of Gross total Income

Step 7 – Deduction from Gross total Income

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Step 8 -Total Income

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Diagram - Deductions from Gross Total Income

                     DEDUCTIONS FROM GROSS TOTAL INCOME
                                  |
        -------------------------------------------------------------
        |                    |                    |                 |
        v                    v                    v                 v
DEDUCTIONS IN         DEDUCTIONS IN        DEDUCTIONS IN      OTHER DEDUCTIONS
RESPECT OF CERTAIN    RESPECT OF CERTAIN  RESPECT OF         |
PAYMENTS              INCOMES              OTHER INCOME       Example:
                                                            Deduction in case
Examples:              Examples:           Examples:          of a person with
1. Life Insurance     1. Employment of    1. Interest on     disability
   Premium paid          new employees        deposits in
2. Contribution to   2. Royalty income      saving account
   Provident Fund/       etc. of authors   2. Interest on
   Pension Fund          of certain books     deposits in
3. Medical insurance    other than text      case of senior
   premium paid         books                citizens
4. Payment of        3. Royalty on patents
   interest on loan
   taken for higher
   education
5. Payment of
   interest on loan
   taken for residential
   house
6. Payment of interest
   on loan taken for
   purchase of electric
   vehicle
7. Rent paid
8. Donation to certain
   funds, charitable
   institutions, etc.
9. Contributions to
   political parties

Bottom caption: Step 8 - Total Income

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Step 9 - Application of the rates of tax on the total Income

Step 10 - Surcharge/rebate under section 87A

Step 11- Health and education cess

Step 12 – Advance tax and tax deducted at source.

Step 13- Tax payable/Tax refundable.

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Flowchart - Computation of Total Income

COMPUTATION OF TOTAL INCOME
          |
          v
Determine the residential status
          |
          v
Classify income under five heads
          |
   --------------------------------------------------------------
   |            |                 |             |                |
   v            v                 v             v                v
Salaries   Income from       Profits and     Capital gains   Income from
           house property    gains from                       other sources
                            business or
                            profession
   \            |                 |             |                /
    \           |                 |             |               /
     ----------------------------------------------------------
                              |
                              v
Compute income under each head applying the charging & deeming
provisions and providing for permissible deductions/exemptions thereunder
                              |
                              v
                     Apply clubbing provisions
                              |
                              v
Set-off/carry forward and set-off of losses as per the provisions of the Act
                              |
                              v
                   Compute Gross Total Income (GTI)
                              |
                              v
                    Less: Deductions from GTI
                              |
                              v
                         Total Income (TI)

The page then lists:

• Step 9 - Application of the rates of tax on the total Income
• Step 10 - Surcharge/rebate under section 87A
• Step 11- Health and education cess
• Step 12 – Advance tax and tax deducted at source.
• Step 13- Tax payable/Tax refundable.

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Advance Tax

Generally, tax on the income earned in the previous year is paid in the respective assessment year, but in certain cases, an assessee may be required to pay tax during the previous year itself, as Advance tax. The scheme of advance tax is based on the concept “Pay as you earn”. Under this scheme assessee needs to estimate its income and tax liability of the previous year and pay tax on basis of such estimation in the previous year itself.

Scheme of Advance tax [Sec.208]

Where the advance tax liability of the assessee is Rs. 10,000 or more, the assessee should pay such tax in the previous year itself within the due date.

Due date for payment of advance tax

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Table - Advance tax liability [Sec. 209]

Table - Due date for payment of advance tax [Sec. 211]

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Note - Where an assessee is a senior citizen (or super senior citizen) and does not have any income chargeable under the head “Profits and gains of business or profession”, provision of advance tax is not applicable. In other words, senior citizen not having business income is not liable to pay advance tax.

Return of Income

As per section 139(1), it is compulsory for companies and firms to file a return of Income or loss for every previous year on or before the due date in the prescribed form.

In case of a person other than a company or a firm, filing of return on or before the due date is mandatory, if his total income or the total income of any other person in respect of which he is assessable under this act during the previous year exceeds the exemption limit.

Note – Every person, being an individual or a HUF or an AOP/BOI, whether Incorporated or not, or an artificial judicial person: -

           -   Whose total income or the total income of any other person in respect of which
               he is assessable under the act during the previous year
           -   Without giving effect to the provisions of Chapter VI-A or section
               54/54B/54D/54EC/54F.
           -   Exceeded the basic exemption limit

Is required to file a return of his income on or before due date.

The basic exemption limit is Rs. 2,50,000 for individuals/HUF/AOPs/BOIs and artificial juridical persons, Rs. 300,000 for resident individual at the age of 60 years but less than 80 years and Rs. 500,000 for resident individuals of the age of 80 years or more at any time during the previous year. These amounts denote the level of total income which is arrived at after claiming the admissible deductions under Chapter VI-A and exemption under section 54/54B/54D/54EC/54F in respect of capital gain.

However, the level of income is the income to be considered for the purpose of filing of return of income is the income before claiming the admissible deduction as mentioned above.

Mandatory furnishing of return in case of high value transactions

A person (other than firm and company), who is not required to furnish a return as per aforesaid provision, and who during the previous year:

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a) has deposited an aggregate amount exceeding Rs. 1 crore in one or more current accounts maintained with a banking company or a co-operative bank; or

b) has incurred expenditure of an aggregate amounts exceeding Rs. 2 lakh for himself or any other person for travel to a foreign country; or

c) has incurred expenditure of an aggregate amount exceeding Rs. 1 lakh towards consumption of electricity; or

d) fulfils such other conditions as may be prescribed, shall furnish a return of his income on or before the due date in such form and verified in such manner and setting forth such other particulars, as may be prescribed.

Due dates of furnishing Return of Income

A return should be filed on or before the following due date (of respective assessment year):

Assessee Due date Where the assessee is required to furnish a 30th November report in Form 3CEB u/s 92E pertaining to international transaction(s) Where the assessee is a company not 31st October having international transaction(s) Any other assessee - Where accounts of the 31st October assessee are required to be audited under any law - Where the assessee is a 31st October working partner in a firm and the accounts of the firm are required to be audited under any law - In any other case 31st July

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FEE FOR DEFAULT IN FURNISHING RETURN OF INCOME [SEC. 234F]

Where a person required to furnish a return of income u/s 139, fails to do so within the due date, he shall pay fee of:

Case Fees Total income does not exceed Rs. 5 lakh Rs. 1000 Total income exceeds Rs. 5 lakhs - - If the return is furnished on Rs. 5000 or before 31st December of the assessment year - In any other case Rs. 10,000

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INDIRECT TAX

                                            Tax



                                                         Indirect
                     Direct Taxes
                                                          Taxes

Direct Tax –

 The person paying the tax to the government directly bears the incidence of the tax.
 Burden of tax borne by the himself.
 Example – Income tax

Indirect Tax –

 The person paying to the government collects the same from the ultimate consumer.
      Thus, incidence of the tax is shifted to the other person.
 Burden of tax shifted to another person.
 Example – Goods and Service Tax, Custom Duty, Excise Duty.

CBIC – Central Board of Indirect Taxes and Customs

The Central Board of Indirect Taxes and Customs is the nodal national agency responsible for administering Customs, GST, Central Excise, Service Tax & Narcotics in India

1. GST


1.1        Concept of GST



 Value added tax - GST is a value added tax levied on manufacture, sale and
      consumption of goods and services.

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 Continuous chain of tax credits – GST offers comprehensive and continuous chain of tax credits from the producer’s point/service provider’s point up to the retailer’s level/consumer’s level thereby taxing only the value added at each stage of supply chain.

 Burden borne by final consumers – The supplier at each stage is permitted to avail
    the credit of GST paid on purchase of goods and/or services and can set off against
    the GST payable on supply of goods and/or services to be made by him.




 No cascading of taxes – Only the value added at each stage is taxed under GST,
    hence there is no tax on tax or cascading of taxes under GST.




    Important Differences


     Difference                   Pre GST                         Post GST
     Multiple tax                 Central excise duty, VAT, GST (One nation one tax)
                                  CST, Service tax i.e total
                                  17 taxes
     Multiple Procedure           Separate – Registration, One (procedure)
                                  Books      of     accounts,
                                  Invoice etc.
     Multiple taxable event       Manufacture, Sales, Entry SUPPLY
                                  in other states etc.
     Person                       Manufacturer,          Service Taxable person
                                  provider, Trader etc.
     Cascading effect             Yes                             No
     Double taxation              Yes                             No

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Diagram labels on the page

VALUE ADDED TAX

CONTINUOUS CHAIN OF TAX CREDITS

BURDEN BORNE BY FINAL CONSUMER

NO CASCADING OF TAXES

Table - Important Differences

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Level Intra state, Inter state, Intra state, Inter state, International (International will also be called as Inter state)

1.2 Framework of GST

 Dual GST: India has adopted DUAL GST MODEL in which centre and state
    simultaneously levy GST on taxable supply of goods or services or both, which takes
    place within a state or UT. Thus, tax is imposed concurrently by the Centre and states.
    Now, the centre also has the power to tax intra-states sales & states are also
    empowered to tax services.




 CGST/SCGST/UTGST/IGST


            GST is a destination-based tax applicable on all transactions involving supply
              of goods and service for a consideration subject to exceptions thereof. Since,
              revenue of SGST ordinarily accrues to the consuming states.
            GST in India comprises of
              - Central goods and services tax (CGST) – Levied and collected by Central
              Government,
              - States goods and services tax (SGST) – levied and collected by state
              government/Union territories with legislations* and
              - UTGST – levied and collected by Union territories – levied and collected by
              Union territories without legislations**
              - on INTRA-STATE SUPPLIES of taxable goods and/or services.


            INTER-STATE SUPPLIES of taxable goods and services are subject to
              Integrated Goods and services Tax (IGST). IGST is the sum total of CGST and

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Table - Level

Diagram - Dual GST model

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SGST/UTGST and is levied and collected by Centre on all Inter-state supplies. The IGST rate would broadly be equal to CGST rate plus SGST rate.

• UT without legislation – Andaman and Nicobar Island, Lakshadweep, Ladakh, Dadra and Nagar Haveli & Daman & Diu and Chandigarh.

** UT with legislation – Delhi, Jammu and Kashmir and Puducherry

 Legislative framework


            There is single legislation – CGST Act 2017 for levying CGST.
            UT without legislation are governed by UTGST Act, 2017 for levying UTGST
            All States and UT with legislation are governed by SGST Act, 2017 for levying
              SGST.

           Therefore, there are multiple SGST legislation but the basic features of law are
           same such as chargeability, definition of taxable event and taxable person,
           classification and valuation of goods and services etc.

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Flowchart - How to decide IGST or CGST + SGST while raising invoices

Location of Supplier and Place of Supply
                 |
          -----------------
          |               |
      In same state   In different states
          |               |
          v               v
  Intra State          Inter State
  Transaction          Transaction
          |               |
          v               v
     CGST + SGST          IGST

Diagram - Movement/flow among territories

• Foreign Territory -> State 1: IGST
• Foreign Territory -> Union territory without legislature: IGST
• State 1 -> State 2: IGST
• State 2 -> Union territory without legislature: IGST
• State 1: CGST + SGST
• State 2: CGST + SGST
• Union territory without legislature: CGST + UTGST

• UT without legislation – Andaman and Nicobar Island, Lakshadweep, Ladakh, Dadra and Nagar Haveli & Daman & Diu and Chandigarh.

** UT with legislation – Delhi, Jammu and Kashmir and Puducherry

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 Classification of goods and services

            HSN (Harmonised system of nomenclature) is used for classifying the goods
              under GST.
            Service code (SAC) has been devised for classification of services under GST.

1.3 Genesis of GST in India

   Constitution (122nd Amendment) Bill, 2014 received the assent of the President of
     India on 8th September, 2016 and became Constitution (101st Amendment) Act,
     2016, which paved the way for introduction of GST in India.


   The following bills became an Act on 12th April 2017:
     ● Central Goods and Services Tax Bill, 2017
     ● Integrated Goods and Services Tax Bill, 2017
     ● Union Territory Goods and Services Tax Bill, 2017
     ● Goods and Services Tax (Compensation to States) Bill, 2017


   The Central Government notified 1st July, 2017 as the date from which the much-
     awaited indirect tax reform in India, i.e., Goods and Services Tax (GST) will be
     implemented.


   On 7th July, 2017, the Jammu and Kashmir Goods and Services Tax Bill, 2017 was
     passed by the State Legislature, empowering the State to levy State GST on intra-
     state supplies with effect from 8th July, 2017.
   With this, the State of Jammu and Kashmir has become part of the GST regime,
     making GST truly a “one nation, one tax” regime.

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GST common portal

            Common GST electronic portal – www.gst.gov.in - a website manage by GST
              network (GSTN) (a co. under section 8 of co. act) is set by the government
              which is accessible over internet by taxpayers and over intranet by tax officials.




            This common portal provides linkage to all state/UT commercial tax deptt,
              central tax deptt, taxpayers, banks etc. This consist of all stakeholders starting
              from taxpayer to tax professional to tax officials to GST portal to banks to
              accounting authorities. It functions include facilitating registration, forwarding
              the return to central and state authorities, computation and settlement of IGST,
              matching of tax payment details with banking network, providing various
              reports, etc.

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Timeline - Genesis of GST in India (visual timeline)

• 2000: In the year 2000, the then Prime Minister introduced the concept of GST and set up a committee to design a GST model for the country.
• 2006: Announcement by Union Finance Minister, during budget of 2006-07 that GST would be introduced from 1 April 2010.
• 2014: The 122nd Constitution (Amendment) Bill was introduced in the Lok Sabha.
• Aug 2016: The Constitution (101st Amendment) Act was enacted.
• Sep 2016: 1st GST Council Meeting.
• Mar 2017: GST Council recommends CGST, SGST, IGST, UTGST & Compensation Cess Bill.
• Apr 2017: CGST, IGST, UTGST and Compensation Cess Acts passed.
• May 2017: GST Council recommends all the rules.
• 30th June 2017: All States except J&K passed their SGST Act.
• 1st July 2017: GST launched.
• 8th July 2017: SGST Act passed by J&K; CGST and IGST Ordinances promulgated to extend GST to J&K.
• Journey continues.

Screenshot/visual on the page

A screenshot/banner of the Goods and Services Tax common portal is shown below the heading GST common portal.

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 Common GST electronic portal for furnishing e-way bill is www.ewaybillgst.gov.in which is an electronic document generated on the GST portal evidencing movement of goods.

 GST- A tax on goods and services


 GST is levied on all goods and services except: -

GST Council

As per Article 279A of the Constitution of India, the President of India is empowered to constitute Goods and Services Tax Council. The President of India constituted the GST Council on 15th September, 2016.

The GST Council shall consist of Union Finance Minster as a Chairperson, Union Minister of State in charge of Finance as a member, the State Finance Minister or State Revenue Minister or any other Minister nominated by each State as a member of the Council. The GST Council shall select one of them as Vice Chairperson of Council.

Functions of the GST Council:

GST Council is to make recommendations to the Central Government and the State Governments on

1. tax rates,

2. exemptions,

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Diagram - Within GST or outside GST?

The visual contains the following categories and notes:

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3. threshold limits,

4. dispute resolution,

5. GST legislations including rules and notifications etc.

   2. Custom Duty

Custom is a form of Indirect Tax. Customs duty refers to the tax imposed on goods when they are transported across international borders. In simple terms, it is the tax that is levied on import and export of goods. The government uses this duty to raise its revenues, safeguard domestic industries, and regulate movement of goods.

The rate of Customs duty varies depending on where the goods were made and what they were made of.

Custom duty in India is defined under the Customs Act, 1962, and all matters related to it fall under the Central Board of Indirect Taxes & Customs (CBIC). The Customs Acts 1962 extends to whole of India.

Types of custom duty

   Basic Customs Duty (BCD)
   Countervailing Duty (CVD)
   Additional Customs Duty or Special CVD
   Protective Duty,
   Anti-dumping Duty

3. Excise Duty

Excise duty is a form of tax imposed on goods for their manufacture. An indirect tax paid to the Government of India by producers of goods, excise duty is the opposite of Customs duty in that it applies to goods manufactured domestically in the country, while Customs is levied on those coming from outside of the country. At the central level, excise duty earlier used to be levied as Central Excise Duty, Additional Excise Duty, etc. However, the Goods and Services Tax (GST), introduction in July 2017, subsumed many types of excise duty. Today, excise duty applies only to few products such as petroleum and liquor.

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Alcohol does not come under the purview of GST as an exclusion mandated by constitutional provision. States levy taxes on alcohol according to the same practice as was prevalent before the rollout of GST. Petroleum Products i.e., Petroleum crude, motor spirit (petrol), high speed diesel, natural gas and aviation turbine fuel etc. are presently kept outside GST. However, the taxes for these products are attracted as per the structure before introduction of GST. Excise duty is levied on their production by Central Government & VAT is levied on their sale by State Governments.

4. VAT- Value Added Tax

The full form of VAT is Value Added Tax. It is a state level tax that is applicable to some key products such as petrol, diesel and alcohol for human consumption that are not taxable under the GST Act. VAT was, in fact, introduced in 2005 as a replacement for the earlier Sales Tax so that a unified tax rate for products and services was possible across India. VAT is levied on Sale of goods & is calculated on Selling Price.

The following are the key differences between GST and VAT:

Goods and Services Tax Value Added Tax

                                         Applicable only to goods (Service Tax for

Applicable to both goods and services services)

Applicable on supply of goods/services Applicable at the time of sale of goods

The tax collected is equally shared by The tax collected is held solely by the state state/central government in which the sale occurs

5. Service Tax

Service tax was an indirect tax levied by the government on services offered by service providers. Service tax was abolished with the rollout of GST on July 1, 2017, as the new tax subsumed service tax in addition to many other indirect taxes.

Agriculture Infrastructure and Development Cess (AIDC)

Union Finance Minister Nirmala Sitharaman proposed the imposition of Agriculture Infrastructure and Development Cess (AIDC) during her Union Budget 2021 Presentation in the Parliament on February 1, 2021. The agricultural infrastructure development cess will

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be applicable from February 2, 2021. This cess will be used to Improve Agriculture Infrastructure in the country. The Finance Minister announced Agriculture Infrastructure & Development Cess of Rs 2.5 per litre on petrol and Rs 4 per litre on diesel. There will be no additional burden on the consumer overall as AIDC on petrol and diesel will be counter- balanced by an equal reduction in Basic Excise Duty & Special Additional Excise Duty to the same extent, thus ensuring nil impact on fuel. Other items with AIDC cess The AIDC cess will be levied on Import of other items including alcoholic beverages, Gold & silver Dore bars, Crude palm oil, crude soyabean oil, peas, kabuli chana, apples and Bengal gram etc. However, the Basic Customs Duty on these items will be reduced so that the impact on Customer is Nil.

Examples for Calculation of Indirect Tax

GST Product – For Example, A shirt. Selling Price of Shirt is Rs 1000. GST is 18% (CGST 9%, SGST 9%) Particulars Amount (Rs) Selling Price 1000 Add: CGST @ 9% 90 Add: SGST @ 9% 90 Total Price to be charged to Customer 1180

Non-GST Product – For Example, Petrol Basic Price Per Litre Rs 35. Excise Duty is 70%, VAT is 30% Particulars Amount (Rs) Basic Price 35 Add: Excise Duty @ 70% 24.50 Selling Price - A 49.50 Add: VAT@ 30% (To be calculated on A) 14.85 Total Price to be charged to Customer 64.35

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Visual / Repeated Elements

The pages repeatedly display the watermark CA MOHAMAD LATEEF and the page number/footer (for example, “17 | Page”). Decorative borders, colored boxes, arrows, icons, and screenshots are represented textually above where they carry substantive information.

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📌 ADDENDUM — Current updates & missing topics

[!danger] ⚠️ THE LAW CHANGED — this chapter was written under the OLD Act Everything above is based on the Income-tax Act, 1961 and quotes AY 2020-21 / 2021-22. The Income-tax Act, 2025 replaced it with effect from 1 April 2026 — before your exam on 15 Nov 2026. Concepts are unchanged. Terminology and section numbers moved. Learn both.

1. ⭐ Income-tax Act, 2025 — the replacement

Transition: income earned up to 31 March 2026 stays under the 1961 Act. The first filing under the new Act happens in 2027, for Tax Year 2026-27.

[!tip] Likely question forms "Which Act governs income tax from 1 April 2026?" → Income-tax Act, 2025 "'Tax Year' replaces which term?" → Previous Year "How many sections in the new Act?" → 536 ⚠️ MCQ Q505 ("Assessment year means 12 months from 1 April…") and Q506 ("Previous Year for AY 2021-22") now use superseded framing — know the idea, expect the new word.

2. Union Budget 2026-27 (presented Feb 2026 by Nirmala Sitharaman)

3. ⭐ Section 80CCD — NPS deductions (missing from the chapter; asked as 2024·Q57)

On closure / opting out of NPS:

⭐ 40% of the total amount payable is EXEMPT — this is the answer to 2024·Q57. Of the corpus, up to 60% is tax-free on withdrawal; the remaining 40% must be reinvested in an annuity (also exempt at reinvestment).

4. ⭐ "Goods" under Section 2(52), CGST Act 2017 (missing; asked as 2024·Q56)

"Goods" means every kind of MOVABLE property — ✅ INCLUDES: actionable claims, growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before supply ❌ EXCLUDES: money and securities

Related: "Services" u/s 2(102) = anything other than goods, money and securities. Note: only three actionable claims are actually taxable — lottery, betting and gambling.

5. Quick facts most likely to be asked