basic concepts of taxation in india

Advanced Tax - Laws and PracticeChapter 1- Basic Concepts

Monika Goel’s Online ClassesFor CS Professional Students

About the courseAdvanced Tax Law & Practice covers three areas of taxation which have been allocated differently under new and old syllabus.

Old Syllabus• Part A- Direct Taxes (30 marks)

– Includes Return of Income and assessment

• Part B- Indirect Taxes (50 marks)• Covers excise and customs• Part C- International Taxation

(20 marks)

New Syllabus• Part A- Direct Taxes and International

Taxation (30 marks)• Part B- Indirect Taxes (70 marks)

– Covers excise, customs, service tax and VAT.

How to study• Regular study is must• Updated knowledge of amendments, notifications and judicial decisions very

important (almost 20% of the question paper from updates)– Once a topic is introduced in the class, try to finish reading it from the study

material the very next day. Thereafter, check out the reference books and read it from reference books.

– Try solving practical problems with hand, once you have understood the theoretical aspects.

– Mark important aspects in the study material or make your own notes.– In case of any doubts, click a picture of it and send it to me through email

preferably, else through whatsapp and if the doubts are more, take an appointment to discuss over phone.

– Prepare well for exam preparatory (Dec-15 almost 20% q.p from exam prep questions) and use the feedback to improve upon your understanding of the subject.

mail: [email protected]

Reference Books

Direct Taxes and International Taxation Indirect Taxes


https://www.taxmann.com/bookstore/BookShop/Bookimg/8223L.jpg

TAXATION IN INDIA- THE CONSTITUTIONAL FRAMEWORK


Constitutional Framework...• Taxes levied by Central Government and State Government(s)• Authority to levy a tax is derived from the Constitution of India

– Which allocates power to levy various taxes between the Centre and State

– Article 265 of the Constitution which states that "No tax shall be levied or collected except by the authority of law”

• Article 246 of the Indian Constitution, distributes legislative powers including taxation, between the Parliament of India and the State Legislature

• Schedule VII enumerates use of three lists;– List - I Where the parliament is competent to make laws– List - II Where only the state legislature can make laws– List - III Where both the Parliament and the State Legislature can make

laws upon concurrentlymail: [email protected]

...Constitutional FrameworkUnion List State List Concurrent List

• Income Tax• Custom Duty• Excise Duty• Corporation Tax• Service tax• Central Sales Tax• Stamp duty in respect of

bills of exchange, cheques, promissory notes, etc

• Taxes on lands and buildings

• Excise duty on alcoholic liquor etc

• Entry tax• Sales Tax• Tolls• Luxury Tax• Stamp duty in respect of

documents other than those specified in the provisions of List I

• Stamp duties other than duties or fees collected by means of judicial stamps, but not including rates of stamp duty

The constant blurring of taxing jurisdiction between the Centre and the States has necessitated multiple Constitutional challengesmail: [email protected]

Heads of Taxation in three Lists- Union ListS. No.

Parliament

1 Taxes on income other than agricultural income (List I, Entry 82)

2 Duties of customs including export duties (List I, Entry 83)

3 Duties of excise on tobacco and other goods manufactured or produced in India except (i) alcoholic liquor for human consumption, and (ii) opium, Indian hemp and other narcotic drugs and narcotics, but including medicinal and toilet preparations containing alcohol or any substance included in (ii). (List I, Entry 84)

4 Corporation Tax (List I, Entry 85)

5 Taxes on capital value of assets, exclusive of agricultural land, of individuals and companies, taxes on capital of companies (List I, Entry 86)

6 Estate duty in respect of property other than agricultural land (List I, Entry 87)

7 Duties in respect of succession to property other than agricultural land (List I, Entry 88)

8 Terminal taxes on goods or passengers, carried by railway , sea or air; taxes on railway fares and freight (List I, Entry 89)

9 Taxes other than stamp duties on transactions in stock exchanges and futures markets (List I, Entry 90)

10 Taxes on the sale or purchase of newspapers and on advertisements published therein (List I, Entry 92)

11 Taxes on sale or purchase of goods other than newspapers, where such sale or purchase takes place in the course of inter-State trade or commerce (List I, Entry 92A)

12 Taxes on the consignment of goods in the course of inter-State trade or commerce (List I, Entry 93A)

13 All residuary types of taxes not listed in any of the three lists (List I, Entry 97)


Heads of Taxation in three Lists- State ListS. No

State Legislature

1 Land revenue, including the assessment and collection of revenue, the maintenance of land records, survey for revenue purposes and records of rights, and alienation of revenues (List II, Entry 45)

2 Taxes on agricultural income (List II, Entry 46)

3 Duties in respect of succession to agricultural income (List II, Entry 47)

4 Estate Duty in respect of agricultural income (List II, Entry 48)

5 Taxes on lands and buildings (List II, Entry 49)

6 Taxes on mineral rights (List II, Entry 50)

7 Duties of excise for following goods manufactured or produced within the State (i) alcoholic liquors for human consumption, and (ii) opium, Indian hemp and other narcotic drugs and narcotics (List II, Entry 51)

8 Taxes on entry of goods into a local area for consumption, use or sale therein (List II, Entry 52)

9 Taxes on the consumption or sale of electricity (List II, Entry 53)

10 Taxes on the sale or purchase of goods other than newspapers (List II, Entry 54)

11 Taxes on advertisements other than advertisements published in newspapers and advertisements broadcast by radio or television (List II, Entry 55)

12 Taxes on goods and passengers carried by roads or on inland waterways (List II, Entry 56)

13 Taxes on vehicles suitable for use on roads (List II, Entry 57)

14 Taxes on animals and boats (List II, Entry 58)

15 Tolls (List II, Entry 59)

16 Taxes on profession, trades, callings and employments (List II, Entry 60)

17 Capitation taxes (List II, Entry 61)

18 Taxes on luxuries, including taxes on entertainments, amusements, betting and gambling (List II, Entry 62)

19 Stamp duty (List II, Entry 63) mail: [email protected]

Constitutional Amendment Bills•To enable Parliament to formulate by law principles for determining the modalities of levying the Service Tax by the Central Govt. and collection of the proceeds thereof by the Central Govt. and the State, the amendment vide Constitution (92nd amendment) Act, 2003 has been made.

•Consequently, new article 268 A has been inserted for Service Tax levy by Union Govt., collected and appropriated by the Union Govt., and amendment of seventh schedule to the constitution, in list I-Union list after entry 92B, entry 92C has been inserted for taxes on services.

•The Constitution (One Hundred and Twenty-Second Amendment) Bill, 2014 was introduced in the Lok Sabha on December 19, 2014 by the Minister of Finance, Mr. Arun Jaitley. (passed by Lok Sabha on 6th May 2015)•The Bill seeks to amend the Constitution to introduce the goods and services tax (GST). Consequently, the GST subsumes various central indirect taxes including the Central Excise Duty, Countervailing Duty, Service Tax, etc. It also subsumes state value added tax, octroi and entry tax, luxury tax, etc. Concurrent powers for GST: The Bill inserts a new Article in the Constitution to give the central and state governments the concurrent power to make laws on the taxation of goods and services. mail: [email protected]

• A law to levy or collect any tax or duty or cess or fees does not include an executive order or a rule without express statutory authority. A Money Bill, which includes a bill to impose, abolish, remit, alter or regulate any tax shall not be introduced in Rajya Sabha or a legislative council. Such a Bill shall not be moved or introduced except as the recommendations of the President or the Governor, as the case may be.


Constitutional Prohibitions on taxation

• The law imposing the tax, like other laws, must not violate any fundamental right or contravene any specific provision relating to particular matters e.g.

• the prohibition against specific appropriation of the proceeds of any tax in payment of expenses for the promotion or maintenance of any particular religious denomination (Article 27) or

• the ceiling of Rs. 2500 per annum in respect of total amount payable by one person as taxes on profession, trade, calling or employment (Article 276(2)] or

• the specific restrictions on the imposition of sales tax by a State (Article 286) or

• the freedom of trade and commerce carried on between one place and another in India so as to ensure that the economic unity of India is not broken up by internal barriers (Article 301).


Distribution of revenues between the Union and States

• Stamp duties like those on financial documents and excise or medicinal or toilet preparations as mentioned in the Union list are to be levied by the Government of India but are to be collected by the States (Article 268).

• Central Sales Tax is levied and collected by the Government of India but is assigned to the States (Article 269).

• All taxes and duties referred to in the Union list, except those referred to in Articles 268 and 269, surcharge on taxes and duties, for the purposes of the Union and any cess levied by the Parliament for specific purposes are to be collected by the Government of India and are to be distributed between the Union and the States in the manner prescribed by the President by order until a Finance Commission has been constituted and after its constitution, as prescribed by the President by order after considering the recommendations of the Finance Commission.

• As per recommendations of the Thirteenth Finance Commission duly accepted by the Government, in the overall scheme of transfer of funds, 39.5% of the gross revenue receipts is the ceiling for such transfer of funds to the States.

• The share of states in the net proceeds of shareable central taxes has been raised from 30.5 per cent to 32 per cent.

• Fourteen Finance commission has submitted its report on 24 th February, 2015 increasing the share of states in divisible pool to 42% and not sharing the proceeds of service tax with the State of J&K.

• The recommendations of fifteenth Finance Commission have also been submitted to the President of India.


Review Questions

1. Which of the following does not fall under the State List as stipulated in the Article 246 read with Schedule VII of the Constitution of India —(a) Excise on alcoholic liquors and narcotics(b) Taxes on consumption and sale of electricity(c) Taxes on advertisements in newspapers(d) Taxes on advertisements other than those

contained in newspapers.


Review Question1. Prior recommendation of the President of India is required to Bills affecting

taxation in which States are interested under Article —(a) 271 of the Constitution of India(b) 281 of the Constitution of India(c) 274 of the Constitution of India(d) 273 of the Constitution of India.

2. As per Article 270(1) read with Article 4(a) of the Constitution of India, the proceeds of corporation tax are ––(a) Not divisible among the States(b) Divisible among the States(c) Divisible between the Centre and States (d) None of the above.

3. Powers given to Parliament by Entry No.97 of List I of Seventh Schedule to the Constitution of India are called_____________.


Review Questions• Which schedule to the Constitution of India indicates bifurcation of powers

to make laws, between Union government and State governments —(a) First Schedule(b) Seventh Schedule(c) Eighth Schedule(d) Twelfth Schedule.

• (ii) Which article of the Constitution of India provides that no tax shall be levied or collected except by authority of law ––(a) Article 265(b) Article 268(c) Article 269(d) Article 274.


Review Question• (i) What is the source of power of levying VAT under the

Constitution of India -(a) Entry 84 of List I(b) Entry 97 of List I(c) Entry 52 of List II(d) Entry 54 of List II.

(ii) What is the source of power of levying Service Tax under the Constitution of India –(a) Entry 92C of List I(b) Entry 97 of List I(c) Entry 54 of List II(d) Entry 59 of List II.


Review question


The Income Tax Act, 1961


Income-tax Act, 1961• Came into force w.e.f. 1st April, 1962

• Extends to whole of India

• Consists of more than 300 sections, 23 Chapters and 14 schedules. The number of sub-sections, provisos and Explanations runs into several hundreds

20mail: [email protected]

Income-tax Act, 1961• The Act determines which persons are liable to pay tax and in

respect of which income. The sections lay down the law of income tax and the schedules lay down certain procedures and give certain lists, which are referred to in the sections.

• However, the Act does not prescribe the rates of Income Tax


Income-tax Act, 1961• The rates of Income-tax are prescribed every year by the

Finance Act (popularly known as “The Budget”)

• At present, the tax rates are same for all corporate assessees and partnership firms (30%) and there are different slabs for Individual tax payers

• We also have surcharge and education cess for all assessees


Finance Act• Part I of the First Schedule to the Finance Act, 2015, seeks to specify the

rates at which income-tax is to be levied on income chargeable to tax for the assessment year 2015-16.

• Part II lays down the rate at which tax is to be deducted at source during the financial year 2015-16 from income subject to such deduction under the Income-tax Act, 1961;

• Part III lays down the rates for charging income-tax in certain cases, ratesfor deducting income-tax from income chargeable under the head "salaries" and the rates for computing advance tax for the financial year 2015-16 i.e., A.Y.2016-17.

• Part III of the First Schedule to the Finance Act, 2015 will become Part I of the First Schedule to the Finance Act,2016 and so on.


Surcharge on T.D.S• Surcharge and education cess would be levied on T.D.S in case of non-corporate

nonresidents and foreign companies. • If the recipient is a non-corporate non-resident, surcharge@12% would be levied

on such income-tax if the income or aggregate of income paid or likely to be paid and subject to deduction exceeds Rs. 1 crore

• If the recipient is a foreign company, surcharge@ –– (i) 2% would be levied on such income-tax, where the income or aggregate of such incomes paid or

likely to be paid and subject to deduction exceeds Rs. 1 crore but does not exceed Rs.10 crore; and– (ii) 5% would be levied on such income-tax, where the income or aggregate of such incomes paid or

likely to be paid and subject to deduction exceeds Rs. 10 crore.

• Surcharge would not be levied on deductions in all other cases. Also, education cess and secondary and higher education cess would not be added to tax deducted or collected at source in the case of a domestic company or a resident non-corporate assessee.


basic concepts of taxation in india

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