Short Notes — Ch 23 Taxation (Direct & Indirect)
⚡ Ch 23 — Taxation ⭐⭐
PYQ: 5 questions — 2024·Q52, Q55, Q56, Q57, Q59. (Zero in 2022 — this chapter exploded in 2024.) MCQ bank: 100 questions (Q501–550 Direct Tax · Q551–600 GST) — one-sixth of the entire bank. ⚠️ The law changed on 1 April 2026 — read §1 before anything else.
1️⃣ 🚨 THE INCOME-TAX ACT, 2025 — read this first
The Income-tax Act, 2025 replaced the 1961 Act on 1 April 2026 — before your exam.
| Old — 1961 Act | New — 2025 Act |
|---|---|
| Previous Year (earn) + Assessment Year (file) | ⭐ "TAX YEAR" (1 Apr – 31 Mar) replaces Previous Year |
| ~298 sections | 536 sections · 23 chapters |
| In force 1 Apr 1962 → 31 Mar 2026 (65 yrs) | In force from 1 April 2026 |
| — | Simplified language · tax rates UNCHANGED |
Transition: income earned up to 31 Mar 2026 stays under the 1961 Act. First filing under the new Act = 2027, for Tax Year 2026-27. ⚠️ MCQ Q505/Q506 (AY & Previous Year framing) are now superseded wording — know the concept, expect the new term.
2️⃣ Direct vs Indirect Tax
| DIRECT | INDIRECT | |
|---|---|---|
| Burden | falls on the same person | ⭐ shifted to the consumer |
| Examples | Income tax, corporate tax | GST, customs, excise |
| Administered by | ⭐ CBDT | ⭐ CBIC |
| Nature | progressive | regressive |
⭐ Incidence of tax = who ultimately BEARS the burden. Burden borne by the consumer → indirect tax. ⭐ Article 265 — no tax shall be levied or collected except by authority of law.
3️⃣ ⭐ Income Tax — the high-frequency facts
| Point | Answer |
|---|---|
| Act came into force | ⭐ 1962 (enacted 1961 — classic trap) |
| Charging section | ⭐ Section 4 |
| Heads of income | ⭐ 5 — Salaries · House Property · PGBP · Capital Gains · Other Sources (⚠️ MCQ Q519's key wrongly says 7) |
| Categories of "Person" | ⭐ 7 — Individual · HUF · Company · Firm · AOP/BOI · Local Authority · Artificial Juridical Person |
| Panchayat is a | Local Authority |
| Rebate section | ⭐ 87A |
| Super senior citizen | ⭐ 80 years+ (⚠️ MCQ Q543's key wrongly says 85) |
| Senior citizen | 60 years+ |
| Assessment year | 12 months from 1 April to 31 March — mandatorily |
| Income tax applies to | the whole of India |
| Advance tax — 2nd instalment | 15 September |
| Tax paid in the AY | Self-assessment tax |
| Surcharge is applied on | ⭐ basic income tax (not total income) |
| Surcharge, company income > ₹10 cr | 12% |
| Sec 234F late-filing fee (income ≤ ₹5 L) | ₹1,000 |
⭐ Residential status
| Status | Taxed on |
|---|---|
| Resident & Ordinarily Resident (ROR) | ⭐ GLOBAL income — including income accruing and received outside India |
| Resident but Not Ordinarily Resident (RNOR) | Indian income + foreign business income controlled from India |
| Non-Resident (NR) | Indian income only |
⭐ Income RECEIVED IN INDIA is taxable for ALL assessees, regardless of status. Basic test: 182 days in India during the year (or 60 days + 365 days in the 4 preceding years). Indian citizen leaving for employment abroad → only the 182-day test applies. Residential status is determined for the Previous Year / Tax Year (not the AY).
⭐ Section 80CCD — NPS (the 2024 question)
| Provision | Limit |
|---|---|
| 80CCD(1) own contribution | within the overall ₹1.5 lakh (80C + 80CCC + 80CCD(1)) |
| ⭐ 80CCD(1B) additional | extra ₹50,000 → total ₹2 lakh |
| 80CCD(2) employer's | 14% of salary (govt) · 10% (others) |
| ⭐ On closure / opting out | 40% of the amount payable is EXEMPT |
4️⃣ ⭐ GST — Indirect Tax
| Point | Answer |
|---|---|
| Implemented from | ⭐ 1 July 2017 |
| Based on | ⭐ DESTINATION / consumption principle |
| Model | Dual — Centre + State together |
| Intra-state supply | CGST + SGST |
| ⭐ Inter-state supply (e.g. Gujarat → Assam) | ⭐ IGST |
| Union Territory | UTGST |
| Administered by | CBIC |
| Exports are | ⭐ ZERO-RATED |
| Classification codes | ⭐ HSN for goods · SAC for services |
| ⭐ Reverse charge | tax paid by the RECIPIENT, not the supplier |
| Composition scheme dealer | ⭐ CANNOT collect tax from the recipient, and cannot claim ITC |
| GST rate slabs | 0% · 5% · 12% · 18% · 28% |
| Taxes subsumed | Central Excise, Service Tax, CVD, VAT, etc. |
⭐ "Goods" under Section 2(52), CGST Act (the 2024 question)
Every kind of MOVABLE property, ⭐ INCLUDING actionable claims, growing crops and grass — ❌ EXCLUDING money and securities.
| Item | Goods? |
|---|---|
| Actionable claim | ✅ Yes |
| Money · Securities · Bonds | ❌ No |
Only three actionable claims are actually taxable: lottery, betting, gambling. "Services" u/s 2(102) = anything other than goods, money and securities.
5️⃣ 🎯 PYQs from this chapter — all five
2024 · Q52 — GST is a consumption tax based on
a) Development b) Dividend c) Duration d) Destination → Ans: D
2024 · Q55 — Income which accrues and is received outside India is taxable for
a) Resident and Ordinarily Resident b) RNOR c) Non-Resident d) ROR and RNOR → Ans: A Only ROR is taxed on global income.
2024 · Q57 — Amount payable on closure/opting out of NPS u/s 80CCD is exempt to the extent of
a) 30% b) 100% c) 40% d) 25% → Ans: C
2024 · Q56 — Included in the definition of "Goods" u/s 2(52) CGST Act
a) Money b) Actionable claim c) Securities d) Bonds → Ans: B
2024 · Q59 — A: If interest is payable outside India, TDS must be deducted. R: If not deducted, the interest is disallowed as a business deduction.
→ Ans: A — both correct and R explains A (Sec 40(a)(i) disallowance).
6️⃣ High-frequency MCQ traps
| MCQ | Point |
|---|---|
| Q501 | Act came into force in 1962 (not 1961) |
| Q502 / Q503 | Panchayat = Local Authority · 7 categories of person |
| Q515 | A senior citizen without business income is NOT liable for advance tax |
| Q517 | Surcharge on basic income tax |
| Q518 | Tax paid in the AY = self-assessment tax |
| Q520 / Q574 | CBDT = direct · CBIC = indirect |
| Q521 | Burden borne by the consumer → indirect tax |
| Q523 / Q524 | Article 265 · Section 4 |
| Q525 | Abusing loopholes within the law = tax AVOIDANCE (evasion is illegal) |
| Q541 | Residential status determined for the previous year |
| Q545 / Q548 | 87A rebate · Central Board of Direct Taxes |
| Q549 / Q550 | 182 days · income received in India taxable for all |
| Q575 / Q576 / Q577 / Q578 / Q579 | GST: subsumed taxes · IGST · composition cannot collect · SAC/HSN · reverse charge |
Q519 — heads of income: key says B (7), correct is A (5). (The key appears copied from Q503, where 7 is right.) Q543 — super senior citizen: key says D (85), correct is C (80).
The chapter and its MCQs quote AY 2020-21 / 2021-22 figures. Concepts are safe; every rate, slab, surcharge and threshold needs re-checking against the current Finance Act before the exam.
7️⃣ If you remember nothing else
Income-tax Act 2025 in force from 1 Apr 2026 — "TAX YEAR" replaces Previous Year, 536 sections · Act of 1961 came into FORCE in 1962 · Sec 4 = charging · Art 265 = authority of law · 5 heads · 7 persons · 87A rebate · 80 yrs = super senior · CBDT direct, CBIC indirect · ROR = global income; income RECEIVED in India taxable for ALL · 182 days · 80CCD(1B) = extra ₹50,000; closure exemption = 40% · GST from 1 Jul 2017, DESTINATION-based · intra = CGST+SGST, inter = IGST · exports ZERO-RATED · reverse charge = recipient pays · composition dealer cannot collect tax · "Goods" INCLUDES actionable claims, EXCLUDES money & securities
🔗 Related
- Full notes + the Income-tax Act 2025 addendum: L-23-TAXATION, TAX LAWS – DIRECT & INDIRECT TAX · MCQs Q501–600 in MCQs
- Prev: SN-22-PFMS · Next: SN-24-Cost-Accounting
