Dayanand College of Commerce, LaturProf. Premsagar S. Mundada

Dept. BBAClass-BBA TY

Business Taxation-I

Short NotesIntroduction of Income Tax-Government has to play an important role in all round development of society in the

modern era. It has not only to perform its traditional functions but also to undertake

welfare and development activities such as health, education, rural development, water

supply etc. It has also to pay for its own administration. All these functions require huge

public finance. Taxes constitute the main source of public finance whereby government

raises revenue for public spending. Taxes have been broadly categorized into direct and

indirect taxes. Direct taxes‟ include those taxes which are paid by the person on whom

these are levied like income tax, wealth tax etc. On the other hand, indirect taxes‟ are

levied on one person, but paid by another e.g. sales tax, excise duty, custom duty etc.

Income tax is the most important of all direct taxes and with the application of

progressive rate schedule, provision of exemption limit and incorporation of a number

of incentive provisions. It can be used not only to satisfy all the canons of a sound

tax system but may also go a long way in realising variety of socio economic

objectives set out by the economic system. It also helps in bringing distributional justice

through higher rate of tax on the rich class of the society. It may also act as a tool for

controlling inflation. Due to all these factors, income tax has assumed greatimportance

in the structure of direct taxation. Therefore, all politically advanced democracies impose

some form of personal taxation, generally based on income.

Previous Year & Assessment YearAssessment year (A.Y.) means the period of twelve months commencing on the 1st April

every year. Assessment year is the financial year following the previous year.

Previous year (P.Y.) is the financial year immediately preceding the assessment year, i.e., it

is the financial year ending on 31st March, in which the income has accrued or

received. In case of a newly set-up business, the previous year would be the period beginning

with the date of setting up of the business or profession or, as the case may be, the date

on which the source of income newly came into existence, and ending on 31 st March.

income earned during the previous year is chargeable to tax in the Assessment year. For

example, income earned during the P.Y. 2016-17 is chargeable to tax in the A.Y.2017-18.

Therefore, for the A.Y.2017-18, the relevant previous year is P.Y.2016-17.

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Person [Section 2(31)]The levy of income-tax is on every “person”. The definition of “person” is, again,

inclusive. It includes

Individual,

Hindu Undivided Family (HUF, in short),

Company,

Firm,

Association of persons (AOP) or a body of individuals (BOI),

Local authority

Artificial juridical person.

Assessee [Section 2(7)]

Assessee means a person by whom any tax or any other sum of money is payable under this

Act. It includes every person in respect of whom any proceeding has been taken for

the assessment of his income or assessment of fringe benefits. Sometimes, a person

becomes assessable in respect of the income of some other persons. In such a case

also, he may be considered as an assessee. This term also includes every person who

is deemed to be an assessee or an assessee in default under any provision of this Act.

Every person in respect of whom any proceeding under the Act has been taken

for the assessment of –

• His income; or

• The income of any other person in respect of which he is assessable; or

• The loss sustained by him or by such other person; or

• The amount of refund due to him or to such other person.

• Every person who is deemed to be an assessee under any provision of this Act;

• Every person who is deemed to be an assessee-in-default under any provision

of this Act.

Deemed Assessee-

Assessee includes every person who is deemed to be an assessee under the provisions of the

Act. For example, section 160(1) defines “Representative assessee”. Section 160(2)

states that, every representative assessee shall be deemed to be an assessee for the

purposes of the Act.

Assessee in default-

A person is said to be an assessee in default if he fails to comply with the duties

imposed upon him under the Income-tax Act, 1961. Suppose an employer who pays

salary or other person who pays interest, commission, professional fees etc. but does

not deduct tax at source and deposit into government treasury, then, he shall be deemed to

be an assessee in default. Likewise, under section 218, if a person does not pay advance tax,

then, he shall be deemed to be an assessee-in-default.

Income-

The definition of income as per the Income-tax Act, 1961 begins with the words

“Income includes”. Therefore, it is an inclusive definition and not an exhaustive one. Such

a definition does not confine the scope of income but leaves room for more inclusions within

the ambit of the term. Certain important principles relating to income are enumerated below

–

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• Income, in general, means a periodic monetary return which accrues or is

expected to accrue regularly from definite sources. However, under the Income-

tax Act, 1961, even certain income which do not arise regularly are treated as

income for tax purposes e.g. Winnings from lotteries, crossword puzzles.

• Income normally refers to revenue receipts. Capital receipts are generally not

included within the scope of income. However, the Income-tax Act, 1961 has

specifically included certain capital receipts within the definition of income e.g.

Capital gains i.e. gains on sale of a capital asset like land.

• Income means net receipts and not gross receipts. Net receipts are arrived at after

deducting the expenditure incurred in connection with earning such receipts. The

expenditure which can be deducted while computing income under each head is

prescribed under the Income-tax Act.

• Income is taxable either on due basis or receipt basis. For computing income under

the heads “Profits and gains of business or profession” and “Income from other

sources”, the method of accounting regularly employed by the assessee should

be considered, which can be either cash system or mercantile system.

• Income earned in a previous year is chargeable to tax in the assessment year.

Previous year is the financial year, ending on 31st March, in which income has

accrued/ received. Assessment year is the financial year (ending on 31st March)

following the previous year. The income of the previous year is assessed during the

assessment year following the previous year. For instance, income of previous

year 2017-18 is assessed during 2018-19. Therefore, 2017-18 is the assessment

year for assessment of income of the previous year 2016-17.

Person [Section 2(31)]

The definition of ‘assessee’ leads us to the definition of ‘person’ as the former is

closely connected with the latter. The term ‘person’ is important from another point of

view also viz., the charge of income-tax is on every ‘person’.

The definition is inclusive i.e. a person includes,

1. Individual,

2. Hindu Undivided Family (HUF)

3. Company,

4. Firm,

5. Association Of Person (AOP) or Body Of Individuals (BOI), whether incorporated or

not,

6. Local authority, and

7. Every artificial juridical person

Gross Total Income-Gross Total Income is a cumulative income which is computed under the five heads of

income, i.e. salary, house property, business or profession, capital gain and other sources.

Gross total income is calculated after the clubbing provisions and making adjustments of set-

off and carry forward of losses. In this article, we look at transactions covered under Section

68 to 69D of the Income Tax Act, 1961 which must be included in Gross Total Income.

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Gross Total Income Includes-

• Income from salary

• Income from house property

• Income from business or profession

• Capital gains

• Income from other sources.

Total Income-Income Tax is payable on the total income at the rates of income tax prescribed. The term

Gross Total Income has been defined in sub-section 45 of section 2 (Chapter II) of Income

Tax Act,1961 as under: "total income" means the total amount of income referred to in

section 5, computed in the manner laid down in this act.

Computation of gross total income and Taxable Income

Particulars Amount

Income from salary XXXXX

Income from house property XXXXX

Profits and gains of business or profession XXXXX

Capital gains XXXXX

Income from other sources XXXXX

Gross Total Income XXXXX

Less : Deductions under Chapter VI-A (i.e. under s ection 80C to 80U)

(XXXXX)

Total Income (i.e., taxable income) XXXXX

Income under the Head Salary

Income from Salary-The term salary is defined under section 17 (1) of the income tax act to include following

items as salary; Wages. Any annuity or pension. ... Any fee, commission, perquisite or profit

in lieu of salary or in addition to any salary or wages.

Salary includes–

• Wages

• Any Annuity or pension,

• Any Gratuity

• Any Fees,

• Commissions,

• Perquisites or

• Profits in Lieu of or in addition to any salary or wages

• Any Advance of salary

• Any payment received by an employee in respect of any period of leave not availed of

by him

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• Employer's contribution to recognized provident fund is excess of 12% of salary of

employee.

Specimen of Income From Salary:Particulars Amount (In Rs.)

Add:

1.Basic Salary 00000

2.Fees, Commission and Bonus 0000

3.Allowances 0000

4.Perquisites 0000

5.Retirement Benefits 0000

-------------------

Gross Salary -------------------

Less: Deductions from Salary

1.Entertainment Allowance 0000

2.Professional Tax 0000

-------------------

Net Salary -------------------

Partially Exempt Incomes

This category includes allowances which are exempt up to certain limit specified in Income

Tax Rules. For certain allowances, exemption depends on amount of allowance spent for the

purpose for which it was received and for other allowances, there is a fixed limit of

exemption. They are as follows:

1. Section 10(13a) – HRA Exemption-

An allowance granted to a person by his employer to meet expenditure incurred on payment

of rent in respect of residential accommodation occupied by him is exempt from tax to the

extent of least of the following :

1. House Rent Allowance actually received by the assessee.

2. Rent Paid -10% of Salary

3. An amount equal to40% or 50% of salary due to assessee.

*Salary – Basic + DA (if part of retirement benefit) + Turnover based Commission.

2. Entertainment Allowance-

This allowance is first included in gross salary under allowances and then deduction is

allowed .In the case of government employees, least of the following is exempt:

1. Rs 5,000;

2. 20% of salary; or

3. Entertainment allowance actually received.

3. Children Education Allowance-

Up to Rs. 100 per month per child up to a maximum of 2 children is exempt

4. Children Hostel Allowance-

Up to Rs. 300 per month per child up to a maximum of 2 children is exempt

5. Transport Allowance granted to an employee or (who is a blind and handicap) meet

expenditure on commuting between place of residence and place of duty.

Rs.1600/-p.m.Or

Rs. 3200/- p.m. (for handicapped)

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6. Underground Allowance -Rs. 800/- p.m.

7. Compensatory Modified Field Area Allowance- Rs. 1,000/- p.m.

8. Recognised provident fund-

• Employer’s contribution = exempted up to 12%

• Interest = exempted up to 9.5%

Fully Taxable Allowances (Individual salaried

employees)

Allowances generally mean any sum of money given to a person to meet his/her needs or

expenses. These allowances are given to employees to meet some of the particular

requirements like house rent, expenses on uniform conveyance, here is a list of some fully

taxable allowance:

1. City Compensatory Allowance

These are given to compensate for the high cost of living in a particularly big city of India or

any other capital city. These are also fully taxable.

2. Fixed Medical Allowance

Medical expenses paid to the employees irrespective of whether they submit the bills to

substantiate the expenditure or not are fully taxable.

3. Servant Allowance

Servant provided at employee’s resident would be fully taxable

4. Project Allowance

Any allowance provided by employer to employees to meet project expenses are taxable.

5. Overtime Allowance

Employee working beyond working hours and receives the amount for the same will be

taxable.

6. Any Other Cash Allowance

Cash given for telephone allowance, holiday allowance, it is fully taxable.

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“Income under the head House Property”House property consists of any building or land appurtenant thereto of which the assessee is

the owner. The appurtenant lands may be in the form of a courtyard or compound

forming part of the building. But such land is to be distinguished from an open plot of land,

which is not charged under this head but under the head Income from Other sources‟or

Business Income as the case may be. Besides, house property includes flats, shops, office

space, factory sheds, agricultural land and farm houses.

Further, house property includes all type of house properties, i.e., residential houses,

godowns, cinema building, workshop building, hotel building, etc.

Income from house property is taxable in the hands of its legal owner in whose name

the property stands. „Owner ‟for this purpose means a person who can exercise the rights of

the owner not on behalf of the owner but in his own right. A person entitled to receive

income from a property in his own right is to be treated as its owner, even if no registered

document is executed in his name.

The following three conditions must be satisfied before the income of the property

can be taxed under the head “Income from House Property”:

•The property must consist of buildings and lands appurtenant thereto;

•The assessee must be the owner of such house property;

•The property may be used for any purpose, but it should not be used by the owner for the

purpose of any business or profession carried on by him, the profit of which is chargeable to

tax. If the property is used for own business or profession, it shall not be chargeable to tax.

Ownership includes both free-hold and lease-hold rights and also includes deemed ownership

The annual value of property consisting of any building or lands appurtenant thereto of which

the assessee is the owner shall be subject to Income-tax under the head „Income from House

Property after claiming deduction under Sec. 24, provided such property or any portion

of such property is not used by the assessee for the purpose of any business or

profession, carried on by him, the profits of which are chargeable to Income-tax.

Manner of computation of income from house property in case of

a let-out property :

A) Gross annual value (*) XXXX

B) Less:-Municipal taxes paid during the year XXXX

C) Net Annual Value (NAV) XXXX

D) Less:-Deduction under section 24

Deduction under section 24(a) @ 30% of NAV ➣ XXXX

Interest on borrowed capital under section 24(b)➣ XXXX

E) Income from house property XXXX

Deductions from income from house Property [Sec.24]

Income chargeable under the head “ Income from house property” shall be computed

after making the following deductions, namely:-

• Standard deductions:- From the net annual value computed, the assessee shall

be allowed a standard deduction of a sum equal to 30% of the net annual value.

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• Interest on borrowed capital:-Where the property has been acquired,

constructed, repaired, renewed or reconstructed with borrowed capital, the

amount of any interest payable on such capital is allowed as a deduction.

Annual Value-

Income from house property is taxable on the basis of annual value. Even if the

property is not let out, notional rent receivable is taxable as its annual value.

As per Sec. 23(1)(a) the annual value of any property shall be the sum for which the property

might reasonably be expected to be let out from year-to-year. In determining the annual value

there are four factors which are normally taken into consideration. These are: i) Actual

rent received or receivable, ii) Municipal value, iii) Fair rent of the property, iv) Standard

rent.

Municipal Value-

MUNICIPAL VALUE is the value determined by local authorities by making a periodical

survey of all buildings in their jurisdiction. Such valuation helps in charging municipal tax. ...

The value assigned to property by a municipality for the purpose of tax assessment.

The local authority makes a survey of all the properties that come under their jurisdiction on a

periodical basis. Based on this survey, the value of the property is determined which is

called Municipal Value. The amount of Municipal tax to be levied is calculated based on the

Municipal Value of the property.

The Municipal Tax paid on a house property is allowed to be deducted from the Gross

Annual Value (GAV) of the House Property.

Standard Rent-

The standard rent is fixed under the Rent Control Act. If the standard rent has been fixed for

any property under the Rent Control Act, the owner cannot be expected to get a rent higher

than the standard rent fixed under the Rent Control Act.

Fair Rent-

The rent which a similar property in the same or similar locality would have fetched is the

fair rental value of the property. This is nothing but notional rent a property can get if it has

been let out for a year. e.g. In case of apartment, one can assume approx rent of other similar

flat which is already let out with some addition or reduction in rent with reference to facilities

of both flats.

Unrealized rent:-

It is the rent of the property pertaining to the previous year, which the owner of the property

could not recover from the tenant. If following conditions are satisfied, then unrealised

rent pertaining to the previous year is to be deducted from the actual rent of the

previous year:

➣ The tenancy is bona fide.

➣ The defaulting tenant has vacated the property, or steps have been taken to compel him to

vacate the property.

➣ The defaulting tenant is not in occupation of any other property of the assessee.

➣ The assessee has taken all steps to recover such an amount, including legal

proceedings or he satisfies the Assessing Officer that legal proceedings would be

useless.

Computation of Capital Gains-

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Capital Gain-

Profits or gains arising from the transfer of a capital asset made in a previous year is taxable

as capital gains under the head “Capital Gains”. The important ingredients for capital gains

are, therefore, existence of a capital asset, transfer of such capital asset and profits or

gains that arise from such transfer.

Computation of Income Taxable under the head “Capital Gain”

Sales Considerations xxx

Less: Selling expenses xxx

Net Sales xxx

Less:- Cost.

a) Indexed Cost of Acquisition

(Cost*selling Year Price Index xxx

Acquisition year Index)

b) Indexed Cost of Improvement

(Cost*selling Year Price Index xxx

Improvement year Index)

Capital Gain xxx

Less: Deduction U/s 54

a) Purchase of Property xxx

b) Investment xxx

Taxable Capital Gain xxx

PROFITS AND GAINS FROM BUSINESS ANDPROFESSION

FORMAT FOR COMPUTATION OF TAXABLE INCOME FROM BUSINESS

Assessee: Previous year:Assessment year:

PARTICULARS AMOUNT AMOUNT

Net Profit as per profit and loss account XX

ADD: Inadmissible expenses debited to P/L a/c XX

Business Income not credited to P/L a/c XX

Overvaluation of opening stock XX

Undervaluation of closing stock XX

Notional Loss XX XX

XX

LESS: Admissible expenses not debited to P/L a/c XX

Tax –free incomes credited to P/L a/c XX

Non-business Incomes credited to P/L a/c XX

Undervaluation of opening stock XX

Overvaluation of closing stock XX

Notional Profit XX XX

TAXABLE INCOME FROM BUSINESS XX

FORMAT FOR COMPUTATION OF INCOME FROM PROFESSION

1. IN CASE OF LAWYER OR ADVOCATEPARTICULAR AMOUNT AMOUNT

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S

PROFESSIONAL RECEIPTS:

1. Practicing fee XX

2. Legal fees XX

3. Special Commission XX

4. Gifts received from clients XX

5. Examiners fees XX

6. Any other professional receipts XXTOTAL PROFESSIONAL RECEIPTS XX

LESS: PROFESSIONAL EXPENSES

1. Office expenses XX

2. Salary to staff XX

3. Depreciation of books at prescribed rates XX

4. Depreciation on office equipments, office furniture XX

5. Expenses incurred to increase professional knowledge XX

6. Subscriptions XX

7. Purchase of stamp paper and court fees XX

8. Any other expenditure pertaining to profession XXTOTAL PROFESSIONAL EXPENSES XX

INCOME FROM PROFESSION XX

2. IN CASE OF DOCTOR OR MEDICAL PRACTITIONER

PARTICULARS AMOUNT AMOUNT

PROFESSIONAL RECEIPTS:

1. Fees for conducting operations XX

2. Consultation fees XX

3. Visiting fees XX

4. Sale of medicines XX

5. Gifts received from patients XX

6. Examiners fees XX

7. Any other professional receipts XX

TOTAL PROFESSIONAL RECEIPTS XX

LESS: PROFESSIONAL EXPENSES

1. Rent, light, water charges, salary to staff, telephone expenses of clinic XX

2. Cost of medicines XX

3. Depreciation on surgical equipments and X-ray XX

4. Depreciation of books at prescribed rates XX

5. Motor car expenses XX

6. Depreciation on motor car XX

7. Expenditure incurred to increase professional knowledge XX

8. Hospital or clinic expenses XX

9. Any other expenditure pertaining to profession XX XX

TOTAL PROFESSIONAL EXPENSES XX

INCOME FROM PROFESSION XX

3. IN CASE OF CHARTERED ACCOUNTANT

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PARTICULARS AMOUNT AMOUNT

PROFESSIONAL RECEIPTS:

1. Audit fees XX

2. Consultation fees XX

3. Gain from accounting work XX

4. Institute fees XX

5. Gifts received from clients XX

6. Examiners fees XX

7. Any other professional receipts XX XX

TOTAL PROFESSIONAL RECEIPTS XX

LESS: PROFESSIONAL EXPENSES

1. Audit office expenditure XX

2. Institute fees XX

3. Depreciation of books at prescribed rates XX

4. Motor car expenses XX

5. Depreciation on motor car XX

6. Membership fees XX

7. Hospital or clinic expenses XX

8. Stipend to trainees XX

9. Subscriptions XX

10.Depreciation on office equipments, office furniture XX

11. Any other expenditure pertaining to profession XX XXTOTAL PROFESSIONAL EXPENSES XX

INCOME FROM PROFESSION XX

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Prof Mundada P.S.-Dayanand College of Commerce Latur, BBA Dept. Business Taxation-II Page 1

Dayanand College of Commerce, Latur

Prof. Mundada P.S.

BBA TY (VI Sem)

Subject: Taxation-II

Important Questions.

1. Limited Liability Partnership-

Limited Liability Partnership (LLP) was introduced in India by way of the Limited

Liability Partnership Act, 2008. The basic premise behind the introduction of Limited

Liability Partnership (LLP) is to provide a form of business entity that is simple to

maintain while providing limited liability to the owners.

The main advantage of a Limited Liability Partnership over a traditional partnership firm

is that in a LLP, one partner is not responsible or liable for another partner's misconduct

or negligence. A LLP also provides limited liability protection for the owners from the

debts of the LLP. Therefore, all partners in a LLP enjoy a form of limited liability

protection for each individual's protection within the partnership, similar to that of the

shareholders of a private limited company. However, unlike private limited company

shareholder, the partners of a LLP have the right to manage the business directly.

LLP is one of the easiest form of business to incorporate and manage in India. With an

easy incorporation process and simple compliance formalities, LLP is preferred by

Professionals, Micro and Small businesses that are family owned or closely-held. Since,

LLPs are not capable of issuing equity shares, LLP should be used for any business that

has plans for raising equity funds during its lifecycle.

2. Partnership-

A partnership firm is a form of business in which a group of people, also known as

partners, come together. They set up their firm and provide services and products through

it. However, a partnership firm is not considered to be a separate legal entity. Partners

share all the profit and losses amongst each other. There is an unlimited liability given to

all the partners. To become a partner in a partnership firm you will require certain things

as mentioned below.

To become a partner you need to be a major and should be of sound mind. You

shouldnot be disqualified from contracting in any way by the law. However a minor can

also become a partner. In such a case scenario, all the partners should give their consent.

The minor won’t be able to participate in the workings, however, he will be entitled to the

benefits of a partnership. He is personally not liable for any act. He cannot sue other

partners anyhow.

Prof Mundada P.S.-Dayanand College of Commerce Latur, BBA Dept. Business Taxation-II Page 2

The following can enter into a partnership by law:

• An Individual

• A firm (which is recognized as a separate legal entity by law)

• A company

• A Trustee

• The main member (Karta) of a Hindu Undivided Family

Kinds of partner

• Active or Managing Partner

• Dormant or Sleeping Partner

• Nominal Partner

• Partner in profits only

• Minor Partner

• Other Partner

Active partner-

He is the one who is present in the workings of the partnership in every step. He plays the

most crucial role and is majorly responsible for all the workings.

Sleeping partner

He is one who does not participate actively in the proceedings of the partnership. They are

not known to the public. They work in the background.

Nominal partner

He is a partner by name only. That is he plays no part in the workings of the firm. He is not

interested in workings nor he shares the profit.

Partner in profits

He is when a partner is entitled to only the profits as agreed by all the other partners. He is

not liable to any kind of losses.

Minor partner

He is one who is below eighteen years of age and is entitled to the benefits of the partnership

only. There are restrictions like he cannot participate or intervene in the workings of the firm.

Other partners

Generally, including silent partner. They don’t want to be known to the outside world. They sit back and work.

So, we can conclude by saying that partnership firm, even though is not a separate legal

entity, is still registered by following certain rules. The partners need to be sure of their

eligibility and nature in which they will work. A partnership deed should be established. We,

at LegalRaasta, can help you register partnership firm.

Prof Mundada P.S.-Dayanand College of Commerce Latur, BBA Dept. Business Taxation-II Page 3

3. Individual- Individuals are subject to income tax. Income tax is a direct tax levied on the income

earned by individuals, corporations or on other forms of business entities. The Indian

constitution has empowered only the Central Government to levy and collect income tax.

The Income Tax department set up by the Government, is governed by the Central Board

for Direct Taxes (CBDT). The CBDT is a part of Department of Revenue in the Ministry

of Finance. It has been charged with all the matters relating to various direct taxes in

India. It provides essential inputs for policy and planning of direct taxes in India and is

also responsible for administration of direct tax laws through the Income Tax

Department. For all the matters relating to Income tax, the Income Tax Act, 1961 is the

umbrella Act which empowers the Central Board of Direct Taxes to formulate rules (The

Income Tax Rules, 1962) for implementing the provisions of the Act.

4. Gross Total Income & Total Income- Income Tax is payable on the total income at the rates of income tax prescribed. The term

GTI has been defined in sub-section 45 of section 2 (Chapter II) of Income Tax Act, 1961

as under:

Particulars Rs. Rs.

Income From Salary

Salary xxxxx

Allowances received (taxable allowances) xxxxx

Taxable value of perquisite xxxxx

=====

Gross Salary xxxxx

Less: Deduction under section 16

Professional Tax xxxxx

Entertainment allowance Xxxxx

=====

Income From Salary (1) XXXXX

Income from house property

Adjusted net annual value xxxxx

Less: Deduction under section 24 xxxxx

=====

Income From House Property (2) XXXXX

Profit and gains of business and

Profession

Net Profit as per profit an d loss account xxxxx

Add:- Income which are debited to profit and loss account but not allowable xxxxx

as deduction

Less:- Expenditure which are not debited to profit and loss account xxxxx

Prof Mundada P.S.-Dayanand College of Commerce Latur, BBA Dept. Business Taxation-II Page 4

but allowable as deduction

Less:-Income which are credited to profit and loss account but are

xxxxx

exempt under section 10 or taxable under any other head of income

Add:- Income which are not credited to profit and loss account but

xxxxx are taxable under the head “Profit and gains of business or profession” =====

Profit and gains of business and profession (3) XXXXX

Capital Gains

Amount of capital gain xxxxx

Less: Amount exempt under section 54 to 54H xxxxx

=====

Income From Capital gain (4) XXXXX

Income from other sources

Gross Income xxxxx

Less: Deduction under section 57 xxxxx

=====

Income From Other Sources (5) XXXXX

=====

Total Income (1+2+3+4+5) XXXXX

Less:- Adjustment on account of setoff and carried forwarder of XXXXX

Losses

=====

Gross Total Income XXXXX

Less:-Deduction under section 80C to 80U XXXXX

=====

Total Taxable Income XXXXX

Computation of tax liability

Tax on Long Term Capital Gain XXXXX

Tax on Lottery/ Horse Races/ Card Games/ Beating Income XXXXX

Tax on Other Remaining Amount XXXXX

=====

Tax Liability XXXXX

Prof Mundada P.S.-Dayanand College of Commerce Latur, BBA Dept. Business Taxation-II Page 5

5. Company- A company is any entity that engages in business. Companies can be structured in

different ways. For example, your company can be a sole proprietorship, a partnership, or

a corporation. Depending on which different type of company you're dealing with, it may

be owned by one person or a group of people. Liability in most types of company is

assumed by the owners, and can either be limited or unlimited depending on the type. A

voluntary association formed and organized to carry on a business. Types of companies

include sole proprietorship, partnership, limited liability, corporation, and public limited

company.

6. Limited Liability Partnership- In business, liabilities are debts that companies take on as they conduct business. It is

common for businesses in the normal course of growth and activity to accumulate debts

as they borrow money for new operations or expansions, purchase supplies and raw

materials using credit, or take out mortgages on property or equipment. There are two

general categories of liabilities: current liabilities, which are paid off within one year, and

long-term liabilities, which are paid off in time frames greater than one year.

The term limited liability is used to describe a situation in which those responsible for

paying back a debt are limited in the amount of money they owe in repayments. In terms

of business ownership, limited liability describes a legal arrangement in which business

owners are financially responsible for only the amount of money they have put into the

business. For example, if the owner of a small business sets up his company with limited

liability, and later the business loses so much money that it must file for bankruptcy, the

owner will owe only the amount of money that he initially put into the business.

7. Unlimited Liability Partnership- Unlimited liability involves general partners and sole proprietors who are equally

responsible for debt and liabilities accrued by the business. This liability is not capped

and can be paid off through the seizure of owners’ personal assets, making it different

from limited liability ventures. Unlimited liability typically exists in general partnerships

and sole proprietorships. It indicates that whatever debt accrues within a business—whether the company is unable to repay or defaults on its debt—each business owner is

equally responsible, and their personal wealth could reasonably be seized to cover the

balance owed. For this reason, most companies opt to form limited partnerships, where

one or more business partners is liable only up to the amount of money that a partner

invested in the company.

Prof Mundada P.S.-Dayanand College of Commerce Latur, BBA Dept. Business Taxation-II Page 6

8. Closely Held Company-

A closely held company is a company where the majority of shares are owned by a small

number of shareholders and generally unavailable to outsiders. Closely held companies differ

from privately owned companies where the stock is not publically traded. Owing to their

concentrated shareholding pattern, closely held companies are much more resistant to hostile

takeovers than other companies. Also, they are more stable as their share prices are not

affected by investment decisions. However, some of the transactions between major

shareholders in a closely held company do not receive the same preferential tax treatment as

its actively traded counterparts.

9. Book Profit-

Partnership is not a separate entity distinct from the partners, but for tax purposes a

partnership is an entity. Total income of the Partnership firm is taxed as a separate entity.

But while computing business income a deduction shall be allowed to the firm on account

of interest or remuneration payable to partner. While taxability of Partnership firm there

is no distinction between registered and unregistered firms.

Book Profit simply means profit as computed in accordance with the provisions but

before remuneration paid to partner.

Computation of Book Profits would be calculated as under

Step-I. Find out the net profit of the firm as per the Profit & Loss A/c.

Step-II. Make adjustments as provided below-

• Income chargeable to tax under the heads Income from House Property• ,Capital

gains• and Income from Other Sources• will not be a part of book profit;

• Brought forward business losses will not be deducted from book profit;

• Permissible deductions from gross total income under sections 80C to 80U shall be

ignored from computing book profit.

Step-III. Add remuneration to partners if debited to the Profit & Loss A/c

The resulting figure would be Book Profit.

Prof Mundada P.S.-Dayanand College of Commerce Latur, BBA Dept. Business Taxation-II Page 7

Income Tax Rates for Individual (for AY 2018-19) Individual (resident or non-resident), who is of the age of less than 60 years on the last

day of the relevant previous year:

Taxable income Tax Rate

Up to Rs. 2,50,000 Nil

Rs. 2,50,000 to Rs. 5,00,000 5%

Rs. 5,00,000 to Rs. 10,00,000 20%

Above Rs. 10,00,000 30%

Resident senior citizen, i.e., every individual, being a resident in India, who is of the age

of 60 years or more but less than 80 years at any time during the previous year:

Taxable income Tax Rate

Up to Rs. 3,00,000 Nil

Rs. 3,00,000 - Rs. 5,00,000 5%

Rs. 5,00,000 - Rs. 10,00,000 20%

Above Rs. 10,00,000 30%

Resident super senior citizen, i.e., every individual, being a resident in India, who is of

the age of 80 years or more at any time during the previous year:

Taxable income Tax Rate

Up to Rs. 5,00,000 Nil

Rs. 5,00,000 - Rs. 10,00,000 20%

Above Rs. 10,00,000 30%

Plus:

Surcharge: 10% of tax where total income exceeds Rs. 50 lakh.

15% of tax where total income exceeds Rs. 1 crore

Education cess: 3% of tax plus surcharge

Prof Mundada P.S.-Dayanand College of Commerce Latur, BBA Dept. Business Taxation-II Page 8

Tax Rate For Partnership Firm:

A partnership firm (including LLP) is taxable at 30%.

Plus:

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

Education cess: 3% of tax plus surcharge.

Tax Slab Rate for Company:

• Tax Slab Rate for Domestic Company:

A domestic company is taxable at 30%. However, tax rate is 25% if turnover or gross

receipt of the company does not exceed Rs. 50 crore.

Plus:

Surcharge: 7% of tax where total income exceeds Rs. 1 crore

12% of tax where total income exceeds Rs. 10 crore

Education cess: 3% of tax plus surcharge

• Tax Rates for Foreign Company:

A foreign company is taxable at 40%

Plus:

Surcharge: 2% of tax where total income exceeds Rs. 1 crore

5% of tax where total income exceeds Rs. 10 crore

Education cess: 3% of tax plus surcharge

*********************Wish You Best Luck *********************

CHAPTER – 1

INTRODUCTION TO GOODS AND

SERVICES (GST)

WHAT IS GST

• GST (Goods and Services Tax) is a indirect taxlevied on goods and services.

• GST is a single tax on the supply of goods andservices.

• GST improve overall economic growth of thenation.

• GST is a comprehensive indirect tax levy onmanufacture, sale and consumption of goods aswell as services at the national level.

• It will replace all indirect taxes levied on goodsand services by states and Central.

DEFINITION OF GST

• Goods and services tax (GST) is a tax on goods

and services with value addition at each stage

having comprehensive and continuous chain

of set of benefits from the producer’s / service

provider’s point up to the retailers level where

only the final consumer should bear the tax.

MEANING OF GOODS

• Goods means every kind of movable property

other than money and securities but includes

actionable claim, growing crops, grass and

things attached or forming part of the land,

which are agreed to be served before supply

or under a contract of supply.

DUE TO GST WHAT IS EXPENSIVE AND

CHEAPER

• EXPENSIVE – Mobile services, banking

services, Luxury items like hotels, health care,

diamonds.

• CHEAPER – Fruits, vegetables, eggs, milk, two

wheeler, tea, coffee.

OBJECTIVES / PURPOSE OF GST• One country – one tax

• Consumption based tax instead of manufacturing

• Uniform GST registration, payment

• To eliminate cascading effect of indirect taxes/ doubling tax/ tax

on tax

• Subsume all indirect taxes at centre and state level

• Reduce tax evasion and corruption

• Increase productivity

• Increase Tax to GDP and revenue surplus

SALIENT FEATURES OF GST1. Dual GST Model

2. Destination based consumption tax

3. Taxes to be subsumed Central tax – central excise duty

service tax

Surcharges and cess

State tax – VAT

Entertainment tax

Luxury tax

Taxes on lottery, betting

Octroi – entry tax

4. GST on Export and Import

5. Computation of GST on the basis of invoice credit method

6. Payment of GST - CGST AND SGST are paid throughGST

BASIC SCHEME / COMPOSITION SCHEME

OF GST

A. Intimation and effective date for composition levy

• For persons already registered under pre-GST regime

• For persons who applied for fresh register under GSTto opt scheme

• Registered under GST and person switches tocomposition scheme

B. Effective date for composition levy

• Option to pay tax under composition scheme shall beeffective.

• For persons who applied for fresh register under GSTto opt scheme

C. Conditions and Restrictions for composition levy

• Person opting for scheme must neither be casualtaxable person nor non- resident taxable person.

• Goods must be inter- state purchase, imported goods,branch situated outside the state.

• Mandatory display of invoices.

D. Validity of composition levy – fulfilment ofconditions, filing application.

E. Composition scheme under GST – Compliance

F. Rate of tax

SUBSUMING OF TAXES / EXISTING TAXES

PRINCIPLES SUBSUMED THE TAXES UNDER

GST

(i) Taxes to be subsumed should be primarily on indirecttaxes, either on the supply of goods or on the supply of

services.

(ii) Taxes to be subsumed should be part of the transactionchain which commences with import/ manufacture/production of goods or provision of services at one end andthe consumption of goods and services at the other.

(iii) The subsumation should result in free flow of tax creditin intra and inter-State levels.

(iv) Revenue fairness for both the Union and the Statesindividually would need to be attempted.

ADVANTAGES / BENEFITS OF

IMPLEMENTION OF GST IN INDIA

Advantages of GST to Citizens:

(i) Simpler tax system

(ii) Reduction in prices of goods and services due to

elimination of cascading

(iii) Uniform prices throughout the country

(iv) Transparency in taxation system

(v) Increase in employment opportunities

Advantages of GST to Trade/Industry:

(i) Reduction in multiplicity of taxes

(ii) Mitigation of cascading/double taxation

(iii) More efficient neutralization of taxes especially

for exports

(iv) Development of common national market

(v) Simpler tax regime-fewer rates and exemptions

Advantages of GST to Central/State Governments:

(i) A unified common national market to boost Foreign Investment and

“Make in India” campaign

(ii) Boost to export/manufacturing activity, generation of more

employment, leading to reduced poverty and increased GDP growth

(iii) Improving the overall investment climate in the country which will

benefit the development of states

(iv) Uniform SGST and IGST rates to reduce the incentive for tax

evasion

(v) Reduction in compliance costs as no requirement of multiple record

keeping

(vi) Simpler tax system

(vii) Broadening of tax base

(viii) Improved revenue collections

(ix) Efficient use of resources

DUAL GST

Many countries in the world have a single unified

GST system i.e. a single tax applicable throughout

the country.

However, in federal countries like Brazil and

Canada, a dual GST system

In India, a dual GST is proposed whereby a Central

Goods and Services Tax (CGST) and a State Goods

and Services Tax (SGST) will be levied on the

taxable value of every transaction of supply of

goods and services.

BENEFITS OF DUAL GST

• Reduction in the number of taxes at the Central and

State level

• Decrease in effective tax rate for many goods

• Removal of the current cascading effect of taxes

• Reduction of transaction costs of the taxpayers

through simplified tax compliance

• Increased tax collections due to wider tax base

and better compliance

• Better for business

• Good balance between centre and states

• Better for business

• Least changes, most benefits

CENTRAL GOODS AND SERVICES TAX BILL, 2017

• Levy of CGST

• Tax rates

• Exemptions from CGST

• Liability to pay CGST

• Taxable amount (value of supply)

• Input tax credit

• Registration

• Returns

• Refunds and welfare fund

• Prosecution and appeals

• Transition of the new regime

• Compliance rating – provision of bill

STATE GST / UNION TERRITORY GST

• State GST will be levied by the state

government on both goods and services to

replace the existing taxes like sales tax, luxury

tax, entry tax, etc. It only applies to intra-state

trade. The dealer can use the benefit of

composition scheme up to turnover of 50 lakh.

STATE GST / UNION TERRITORY GOODS AND

SERVICES TAX BILL , 2017

• Levy of UTGST

• Assistance to search

• Applicability of provisions of central goods and

services tax act, 2017

• Transition to the new regime

Sl. No. Name of the State Date on which SGST Act passed in the Assembly

1. Telangana Act Passed on 9th April 2017

2. Bihar Act Passed on 24th April, 2017

3. Rajasthan Act Passed on 26th April 2017

4. Jharkhand Act Passed on 27th April, 2017

5. Chhattisgarh Act Passed on 28th April, 2017

6. Uttarakhand Act Passed on 2nd May, 2017

7. Madhya Pradesh Act Passed on 3rd May, 2017

8. Haryana Act Passed on 4th May, 2017

9. Goa Act Passed on 9th May, 2017

10. Gujarat Act Passed on 9th May, 2017

11. Assam Act Passed on 11th May, 2017

12. Arunachal Pradesh Act Passed on 12th May, 2017

13. Andhra Pradesh Act Passed on 16th May, 2017

14. Uttar Pradesh Act Passed on 16th May, 2017 (in both the Houses)

15. Puducherry Act Passed on 17th May, 2017

16. Odisha Act Passed on 19th May, 2017

17. Maharashtra Act Passed on 22nd May, 2017

Sl. No. Name of the State Date on which SGST Act passed in the

Assembly

18. Tripura Act Passed on 25th May, 2017

19. Sikkim Act Passed on 25th May, 2017

20. Mizoram Act Passed on 25th May, 2017

21. Nagaland Act Passed on 27th May, 2017

22. Himachal Pradesh Act Passed on 27th May, 2017

23. Delhi Act Passed on 31st May, 2017

24. Manipur Act Passed on 5th June, 2017

INTEGRATED GOODS AND SERVICES

TAX BILL MARCH 27,2017

• Levy of IGST

• Apportionment of IGST revenue

• Place of supply of goods

• Place of supply of services

• Input tax credit

• Application of provision of CGST

GST COUNCIL

• The GST council, the key decision-making body that

will take all important decisions regarding the GST,

will have representation from the central government

as well as all the state governments.

• The Goods & Services Tax Council {GST Council}

has been created in September 2016 under Article

279-A of the Constitution of India. The main

objective of GST is to develop a harmonized national

market of goods and services. It has its Secretariat

office in New Delhi.

FUNCTIONS OF GST COUNCIL

• Taxes, cesses, and surcharges to be subsumed under the

GST;

• Goods and services which may be subject to, or exempt from

GST;

• The threshold limit of turnover for application of GST;

• Rates of GST

• Model GST laws, principles of levy, apportionment of IGST

and principles related to place of supply

• Special provisions with respect to the eight north eastern

states, Himachal Pradesh, Jammu and Kashmir, and

Uttarakhand; and

• Other related matters.

QUORUM AND DECISION - MAKING

• For a valid meeting of the members of GST Council,at least 50 percent of the total number of the membershould be present at the meeting.

• Every Decision made during the meeting should besupported by at least 75 percent majority votes of themembers who are present and voting at the meeting.vote cast between Central Government and StateGovernment:-

– The vote of Central Government shall have the weighted ofone-third of the total votes

– The votes of State Government shall have the weighted oftwo third of the total votes, cast in the meeting

ACTION PLAN OF GST• List number of Taxes, cesses, and surcharges to be subsumed under GST

• Preparation of list of goods and services subject to, or exempt from GST

• Determination of threshold limit of turnover for application of GST

• Fixation of rates

• Preparation of model GST Laws, principles of levy, apportionment of tax benefits

• Firming up Place of supply Rules

• Recommend on Compensation to states losing on revenue post implementation ofGST, subject to maximum time limit of 5 years.

• Passage of SGST laws by all State legislatures

• Recommendation of Model GST Rules by GST Council

• Notification of GST Rules

• Recommendation of GST Tax rates by GST Council

• Establishment and up gradation of IT framework

• Meeting implementation challenges

• Effective coordination between Centre & State tax administrations

• Reorganization of field formations

• Training of Officials

• Outreach programs for all stakeholders including Trade & Industry