Taxation

In this category, articles related to taxation will be available

Advance Rulings

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Meaning:-

Advance ruling is a written decision of an Authority for Advance Rulings (now Boards for Advance Rulings) with regard to tax consequences of a transaction.

Definition:-

According to section 245N(a):- Advance ruling means:-

A determination or decision by the Authority :-

(i) in relation to a transaction which has been undertaken or is proposed to be undertaken by a non-resident applicant.

(ii) in relation to tax liability of non-resident arising out of a transaction which has been undertaken by a resident.

(iia) in relation to tax liability of a resident applicant arising out of a transaction which has been undertaken (determination shall include any question of law/fact specified in the application).

(iii) in respect of an issue relating to computation of total income which is pending before any income tax authority/Tribunal.

(iv) arrangement which is proposed to be undertaken by any person resident or a non-resident, is an impermissible avoidance arrangement.

Applicant:- who can be applicant

According to section 245N(b), Applicant means any person who is non-resident, resident, a public sector company.

Constitution of Board for Advance Rulings:-

The Central Government has constituted three Boards for Advance Rulings:-

  • headquarter of Board for Advance Rulings-I,II&III in Delhi/Mumbai.

Introduction to Income Tax| Basic Terminology of Income Tax

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Introduction to income tax/ basic terminology of income tax

Introduction:- As per article 265 of the Constitution of India, No tax shall be levied or collected except by authority of law it means if the government wants to levy and collection of tax then there shall be a law and law framed by the government. Constitution of India gives the power to the Parliament and State Legislatures to levy, collect tax and to make laws on the matters in list I, II & III of Seventh Schedule to Article 246.

Lists of the Seventh Schedule to Article 246:-

ListPower to make laws
I (Union List)Parliament (Central Government)
II (State List)State Legislatures
III (Concurrent List)Both Parliament and State Legislatures

Note: Entry 82 of the Union List i.e., List I in the Seventh Schedule to Article 246 of the Constitution of India has given the power to the Parliament to make laws on taxes on income other than agricultural income.

Income tax is one of the major source of revenue for the Central Government.

Central Government collects income tax from company in form of corporation tax and from non-corporate assessees.

Income-tax is a tax levied on the total income of the previous year of every person. A person includes an individual, Hindu Undivided Family (HUF), Association of Persons (AOP), Body of Individuals (BOI), a firm, a company etc.

The income-tax law in India consists of the following components:-

  • Income Tax Act-The levy of income-tax in India is governed by the Income-tax Act, 1961. It extends to the whole of India & came into force on1st April, 1962. It contains sections 1 to 298 and schedules I to XIV.
  • Annual Finance Act– Amendments in Direct tax is brought by Finance Act.
  • Income Tax Rules- These rules are issued by CBDT for the proper administration of the Act.
  • Circulars and Notifications– Circulars issue to deal with specific problem and doubts relating to the scope and meaning of provisions of the Act, if any. Department is bound but not assessee by the circulars.
  • Notifications- issued by the Central Government to give effect to the provisions of the Act.
  • Case laws:- Case laws of Supreme court and High court are taking into consideration when dispute arises.

Important Definitions:-

  • Assessee: As per section 2(7), Assessee” means a person by whom income tax or any other sum of money is payable under this Act.
  • Assessment:- As per section 2(8), procedure of determine the income of assessee.
  • Assessment year- As per section 2(9), the financial year which starts on April1 and ending on March 31 of the next year.
  • Person- As per section 2(31), person includes An individual, HUF, company, firm, AOP, BOI, local authority and every artificial juridical person.
  • Previous year- As per section 3, means the financial year immediately preceding the assessment year. The income earned during the previous year is taxable in the assessment year.
  • Income- As per section 2(24), Income includes profits & gains, dividend, voluntary contribution, value of perquisites, allowance, capital gains, winnings etc. (for details refer sec. 2(24)).

The First Schedule to the Finance Act

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The First Schedule to the Finance Act contains four parts which specify the rates of tax

SchedulePartParticulars
First ScheduleIRates of tax for current Assessment Year
First ScheduleIIRates of TDS for the current Financial Year
First ScheduleIIIRates of Income Tax for Income Chargeable to tax under the head “Salaries” & advance tax
First ScheduleIVRules for determining/computing net agricultural income.

Differences between Tax Planning, Tax Avoidance and Tax Evasion

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Tax PlanningTax AvoidanceTax Evasion
it is method of reduce taxes by using maximum benefit of deductions, exemptions, rebates etc. for minimizing tax liability.It is method of reduce taxes by finding out loopholes in the law.It is method of reduce taxes by dishonest means.
It is fully within the framework of law.It complies with the legal language of the law but not the spirit of the lawIt is clearly violation of law and unethical in nature.
This concept is accepted by the Judiciary in
India.		This concept can be considered heinous to tax evasion. Government brings amendment to curb such practices and to plug the loopholesIt is wholly illegal & prohibited.
It is within the language and
spirit of law. So, penalty and prosecution can be.		penalties and prosecution can be against the person engaged in it.stringent penalties and prosecution can be against the person engaged in it.
It is futuristic in nature, i.e., it aims to minimize the tax liability of the upcoming years.It is also futuristic in nature.It aims to evade the
payment of tax after the
tax has arisen.

Tax Planning, Tax Evasion and Tax Avoidance OR Methods of reducing taxes-

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Tax Planning :- is an arrangement in such a way that assessee takes advantage of all tax exemptions, deductions, concessions, rebates, allowances and other reliefs or benefits permitted under the Act without violating the legal provisions so that the burden of taxation on the assessee is reduced to the minimum.

Tax Evasion :- it refers to the reduction of tax liability by illegal or fraudulent means.

In this case, taxpayer tries to reduce tax liability and pays less tax than he is legally obligated to pay by hiding income or information from the tax authorities.

An assessee guilty of tax evasion is punishable under the relevant laws with fines and penalties ranging from 100% to 300% of tax evaded.

Examples–

• Misrepresentation or suppression of facts.
• Fail to record investments in accounting records. Recording of any false entry in books of account.
• Don’t have record of any receipt in books of account.
• Failure to report any international transaction.

  • omission of material facts in assessments.
  • using fake documents to claim deductions/exemptions.

Tax Avoidance :- by using variety of methods or technically satisfying the requirement of law, to eliminate or reduce tax burden.

Examples–

  • Transfer money to their parents who are not earning up to Rs. 2.5 lakhs, if they are below 60 years of age, up to Rs. 3 lakhs in case the parents are above 60 years of age, and up to Rs. 5 lakhs in case the parents are above 80 years of age.
  • Taking loans from relatives and friends since gift tax does not apply on the same and the loan may be paid back with a nominal interest rate.

GST on Liquidity Damages, Penalty and Compensation arising out of breach of contract or other provisions of law.

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As per the CBIC vide Circular No. 178/10/2022-GST dated August 03, 2022 regarding GST applicability on liquidated damages, compensation and penalty arising out of breach of contract or other provisions of law.

No GST on :-

  • Liquidated damages paid for breach of contract.
  • Compensation given to previous allottees of coal blocks for cancellation of their licenses pursuant to Supreme Court Order.
  • Cheque dishonour fine/penalty charged by a power distribution company from the customers
  • Penalty paid by a mining company to State Government for unaccounted stock of river bed material
  • Bond amount recovered from an employee leaving the employment before the agreed period
  • Late payment charges collected by any service provider for late payment of bills.
  • Fixed charges collected by a power generating company from State Electricity Boards (SEBs) or by SEBs/DISCOMs from individual customer for supply of electricity.
  • Cancellation charges recovered by railways for cancellation of tickets, etc.
  • Link of circular: https://taxinformation.cbic.gov.in/view-pdf/1003115/ENG/Circulars
  • Advice for readers: pls refer definition of supply.