FOC UNIT 4

 

1.     Explain the Origin of Income-tax and its Features ?

A.    Origin:-

The Military Mutiny of 1857 caused heavy losses to British India. To come out of the financial crisis, the then Economic Advisor, Sir James Wilson advised introduction of income-tax and following his advice the then British Government introduced income –tax for the first time in the year 1860. So many changes took place in the provisions of 1860 Act and finally another bill was passed in the year 1886. This 1886 Act provided a permanent place for income tax in the Indian system. A number of amendments were made to the Act from time to time finally in 1922 income –tax became a central subject which leads to create “The Central Board of Revenue”. The income tax Act of 1922 was subject to so many changes and remained in force till the assessment year 1961-62.

The Present Income tax Act which is being followed in the country is mainly based on the Income tax Act 1961. In 1986 significant changes in the provisions of the Act relating to charitable trusts, depreciation, casual incomes, assessment procedure, registration of firms, appeals, revision etc. were made. As per the provisions of Indian Constitution every year on the last date of February month, Finance Minister presents the budget in the parliament. Along with the budget he also presents Finance Bill applicable to the next previous year. The bill becomes an act after approval of the President. The Income tax  Act 1961 is a comprehensive with as many as 298 sections and many more sub sections. For proper administration of the Act, Central Government constituted a board called “Central Board of Direct Taxes (C.B.D.T) The term tax is derived from Latin word “taxare”  which means estimate or value.

 

Definitions:-

 

a)     According to Holmes he defines as  “Taxes are the price of Civilization”.

b)    According to Dalton “A tax is a compulsory contribution imposed by public authority, irrespective of the exact amount of the service rendered to the tax payer in return and not imposed as a penalty of any legal offence”.

Features:

1.     Taxes shall be imposed by the Government only.

2.     Taxes are paid in the form of cash. (In the ancient days taxes were collected in the form of kind also).

3.     The aim of levying tax is to promote the welfare of the people living in the country.

4.     The object of tax is to raise revenue to the government.

5.     It is levied by the Government by virtue of its power conferred under the constitution.

6.     Tax is not a payment for specific service rendered by the Government to tax payer.

7.     Taxes are proportionate—payment based on ability.{earning/expenditure/rersource).

8.     It is a personal obligation.

9.     No agreement between Tax  Payer and Tax Collecting Authority. Ie. No favor or advantage is granted in return for something.

10.            Tax is payable on regularly or periodically as determined by the tax authority.

 

 

2.     Explain the Objectives of Taxes or Taxation ?

A.    Every Government has to discharge its statutory, administrative, and social functions. To discharge said duties money is required by the Government. So  every Government has to levy and collect taxes from the public. The objective of taxes or taxation is categorized into two types they are (a) Traditional Objectives (b) Modern Objectives.

 

(a)  Traditional Objectives:

1.     To generate income to meet day-to-day expenditure of the Government.

2.     To make provisions to fulfill the basic needs of the people.

3.     Taxation policy is a key instrument to bring socio and economic changes of the people.

4.     Tax is levied to protect the home trade and domestic industry from the foreign business.

5.     Prevention and control of concentration of economic power i.e income and wealth in the hands of few persons.

(b) Modern Objectives:-

1.     Ensuring accelerated economic development.

2.     Increasing employment opportunities.

3.     Reducing regional imbalances.

4.     Promoting Exports and restricting imports.

5.     Control and audience of trade cycles through anti   inflationary and anti deflationary measures.

6.     Regulation of consumption of undesirable of commodities.

7.     Regulating production from the National point of view.

 

) Explain about components of GST ?

Ans :-    India has come up with GST effectively from 1^st July GST is a consumption based tax i.e., the tax is received by the state in which goods or services are consumed and  not by the state in which such goods are manufactured. There are 4 elements or components in GST they are :-

1.      CGST,SGST,IGST and UTGST.

1) CGST :-

        CGST means central goods and services tax. It is imposed and collected by Central Government on intra-state supply. This tax includes central excise duty and some other taxes imposed by Central Government. Central Government has the discretion on how to spend the revenue collected in the form of CGST Input tax credit on GST should be utilized only against the payment of CGST and IGST.

2) SGST :-

       SGST means state goods and service tax. This is imposed and collected by State Government on intra state supplies. This tax includes state sales tax (VAT), turn over tax, luxury tax entertainment tax and current taxes imposed by State Governments. The State Government has the power on now to spend the revenue collected in the form of SGST. Input tax credit on SGST should be utilized only against the payment of SGST and IGST.

3) IGST :-

      IGST means integrated goods and services tax. It is imposed and collected by Central Government on inter-state supplies. Out of the collected tax amount 50% Of the tax amount should be retained with the Central Government. The remaining should be apportioned to the states as per the recommendations of GSTC(Goods & Services tax council). It is designed to ensure the flow of input tax credit from one state to another. Every state has to deal only with the central government to settle the tax amount and not with every other states input tax credit should be utilized against the payment of IGST, CGST and SGST.

4) UTGST :-

        It means union territory goods and services tax. It is imposed and collected by Central Government. On intra –union territory supply. Examples of union territories are Chandigarh, lakshwadeep, diu-daman, datra and and nagarhawell, Andaman and Nicobar islands. Central Governments have the power on how to spent the revenue collected in the form of UTGST. Input tax credit on UTGST would be utilized against the payment of UTGST and IGST.

6) What are the salient features of GST ?

Ans :- Introduction :-

                       GST is perceived as the replacement of all indirect taxes imposed currently on the goods and services around the nation. It is basically an indirect taxation that will feature a single tax imposition at the national level. It is a consolidated on the basis of uniform rate of tax and will bear at the end of final destination or point of consumption based tax.

 Salient features :-

The salient features of GST are as under:

1) GST would be applicable on “supply” of goods or services as against the present concept of Tax on the manufacturer of goods or on sale of goods or on provision of services.

2) GST would be based on the principle of destination based consumption taxation as a against the present principle of origin-based taxation.

3) Import of goods would be treated as inter-state supplies and would be subject to IGST in addition to customs Duties.

4) Import of services would be treated as inter-state supplies and would be subject to IGST.

5) CGST, SGST/UTGST &IGST would be levied at rates to be mutually agreed upon by the Centre and the states under the GST Council.

6) GST would replace the indirect taxes levied by both State and Central Government.

7) GST would apply to all goods and services except Alcohol for human consumption.

8) GST on five specified petroleum products (crude, petrol, diesel, ATF & Natural gas) would be applicable from a date to be recommended by the GSTC.

9) Tobacco and tobacco products would be subject to GST. In addition, the Centre would continue to levy Central Excise Duty.

10) A common threshold exemption would apply to both CGST and SGST.

11) The list of exempted goods and services would be kept to a minimum and it would be harmonized for the Centre and the States as well as across States as far as possible.

12) All Exports and supplies to SEZs and SEZ units would be Zero-rated.

13) Electronic filing of Returns by different class of persons at different cut-off dates.

14) Various modes of payment of tax available to the taxpayer including internet banking, debit/credit card and National Electronic Funds Transfer(NEFT) /         Real Time Gross settlement(RTGS).

 

7) Write the objectives of GST ?

Ans:- Introduction :-

                       GST is perceived as the replacement of all indirect taxes imposed currently on the goods and services around the nation. It is basically an indirect taxation that will feature a single tax imposition at the national level. It is a consolidated on the basis of uniform rate of tax and will bear at the end of final destination or point of consumption based tax.

 Objectives of GST :-

1) Ensuring that the cascading effect of tax on tax will be eliminated.

2) Improving the competitiveness of the original goods and services, thereby improving the GDP rate too.

3) Ensuring the availability of input credit across the value chain.

4) Reducing the complications in tax administration and compliance.

5) Making a unified law involving all the tax bases, laws and administration procedures across the country.

6) Decreasing the unhealthy competition among the states due to taxes and revenues.

7) Reducing the tax slab rates to avoid further clarification issues.

8) To implement one country – One Tax.

9) Consumption based tax instead of Manufacturing.

10) Uniform GST Registration, payment and Input Tax Credit.

11) To eliminate the cascading effect of Indirect Taxes on single transaction.

12) Subsume all Indirect Taxes at centre and State level under

13) Reduce tax evasion and corruption   14) Increase productivity

15) Increase Tax to GDP Ratio and revenue surplus.

 

 

) Explain advantages and disadvantages of GST ?

 Ans:-  Introduction :-

                       GST is perceived as the replacement of all indirect taxes imposed currently on the goods and services around the nation. It is basically an indirect taxation that will feature a single tax imposition at the national level. It is a consolidated on the basis of uniform rate of tax and will bear at the end of final destination or point of consumption based tax.

Advantages :-

1) Simplicity :-

        GST will replace the existing form of incident tax in the nation will prove a substitute for the 17 indirect laws prevailing in the nation. It is very simple not only understanding point of view but in case of computation it is very easy.

2) Boosting of revenue :-

         After implementation of GST every trader came forward to show all the business transactions transparently which leads to increase in the revenue of Government. There is no necessary to maintain so many records and produce documents for getting tax benefits with this reason every business man voluntarily make efforts to file returns.

3) Help for lesser developed states :-

        GST facilitates reduction in economic imbalances in the states. It helps greatly for the development of each and every state by sharing collected tax amount equally. In the VAT system the tax collected is distributed to the states not inequally for this reasons some states are still underdeveloped. At now in GST all the states have equal importance.

4) Minimizes less corruption :-

         GST will also lead to less corruption and there will be a significant reduction as all the money spent needs to reported for the taxation purpose moreover in order to get input tax credit (ITC). The businessman should sale the goods with Bill. The same bill is produced as evidence for getting the ITC.

5) Removal of cascading or double taxation:-

           A system of seamless tax credit throughout the value chain and across the boundaries of the sale would ensure that there is no cascading of taxes. This would reduce the hidden cast of doing business.

6) Easy moment of goods :-

          With the removal of taxes like entry tax, other taxes movement of goods across the states is made easy.

7) Relief in overall taxburden :-

           Because of deficiency gains and prevention of corruption, the overall tax burden on most of the commodities will come down which will be a huge benefit to the consumers.

Disadvantages :-

1) Change in the business software :-

             Most business use accounting software or ERP’s (Entreprenuer resource planning) Ex:- tally for filing tax returns which have excise, VAT and service tax already incorporated in them. The transition to GST will require businesses to change their ERP’s either by upgrading the software or by purchasing new GST. This will lead to increase in cost of buying new software and training employees on now to use it.

2) Increase in operating cost:-

             Most small businesses in India don’t employ tax professionals and have traditionally to pay taxes and file the returns on their own to sale cost. However they will require professionally assistants to become GST client as it is a completely new system because of GST overhead expenses increase more.

3) GST Compliance :-

            Subject matter experts(SME’s) are still not completely aware of the changes of the new tax system. Changing over to a completely new system of taxation requires understanding of the details which the businesses lack right now. Most of them worried about filling timely returns but it is important to note that even before businesses can reach the filling state. They have to issue GST compliance invoices. For a traditionally pen and paper economy like India. This change to digital record keeping is going to be massive. Invoices after 1^st July will need to be GST complaint with all details such as GST identification number (GST IN), HNC/SAC, place of supply these are mandatory in the invoice bill.

4) No clarity on tax holiday :-

             Many manufacturers like textile, pharmacetical, FMCG and industries enjoy tax holidays and state benefit schemes. There is still no notifications regarding these benefits. There will be increased cost for these industries which will probably be passed on the end consumers.

5) Profit changed during the middle of the year :-

             GST will go live three months into the financial year 2017 -18. So far the financial year 2017-18 business will follow the old tax structure for the first 3 months and rest of the period follow the tax structure with GST. It is very difficult to cross over from one tax structure to another this leads to confusion and complicate in some issues.

6) Online procedures :-

             GST compliance return filing and payments all have to be done online. Many small businesses are not having knowledge on online procedure and don’t have the resources for fully computerized the organization accounting section. Go to digital business in small cities across India face a huge technology problem in the present days.

 

 

 

Conclusion :-

          The government is trying to reduce the burden compliance for businesses by re-taxing the return filling requirements for the first 2 months post implementation. The provisions of TCs on e-commerce and registration for online sellers have also be relaxed for the time being. once GST is implemented most of the current challengers of this move will be a story of the past.

4) Explain the rates of GST on different goods ?

Ans :-          As soon as the GST rates were announced a huge wave of curiosity hit across the industry and trade bodies. Every one is evaluating their position as a result of this change. GST council made so many efforts for designing the rate of tax on various goods and services. Mainly rates of taxes are categorized into 4 types they are 5%, 12%, 18% and 28%. The details of the rates of taxes on various products and goods as under.

Name of the product/goods	Rate of Tax
Sugar tea, edible oils, domestic LPG, Packed panner, coal, raisin, roasted coffee beans PDS kerosene, Skimmed Milk powder, cashew nuts, foot wear below Rs 500, milk food for babies, Apparels (Below Rs 1,000), Fabric, coir mats, matting and floor covering, spices, agarbatti, Mithai (Indian sweets), life saving drug, coffee (except instant)	5%
Butter, Ghee, Almonds, Computers, processed foods, mobiles, fruit juices (preparations of vegetables, fruits, nuts or other parts of plants) pickle murabba, chutney, jam and jelly, packed coconut water, umbrella.	12%
Hair oil, tooth paste, soaps, pasta, cornflakes, soups, ice creams, toiletries, computers (other than 12% block), printers, industrial intermediaries.	18%
Small cars (1% or 3% less), high-end motor cycles (15% less), consumers durables like AC, fridge etc; luxury items, cigarettes and aerated drinks(15% less)	28%

 

 Other than the above products or goods there are certain goods which are not taxable (0%) or nil rated they are as under  Milk, eggs, curd, lassi, unpacked food grains, kajal, unpacked pannier, GUR, unbranded natural honey, education services, health services, children drawings and coloring books, unbranded aata, unbranded maida, besan, fresh vegetables, salt, palmyra, jiggery.

 

5.Explain Differences between Direct tax and Indirect tax ?

A.   Direct Tax:-

The tax which is paid directly by the person on whose it is imposed is a direct tax. In this case the burden does not shift to the other. i.e the person bearing the tax and the person paying the tax are the same. There is a direct connection between the tax payer and the tax imposing authorities. Direct taxes includes… Income Tax, Wealth Tax, Corporate Tax, Gift Tax, Estate Duty etc.

Indirect tax:-.

The tax which is not paid directly by the person on whom it is imposed is an indirect tax. In this case the  burden shifts to the other, i.e the person bearing the tax and the person paying the tax are not the same. There is no direct connection between the tax payer and the tax imposing authorities. Indirect tax includes…….Customs Duty, Excise Duty, Sales tax, Service Tax, VAT, and GST etc. it also known as Commodity Tax.

Direct Tax	Indirect Tax
1.    It is imposed on the income and activities conducted.	1.    It is imposed the Product or Services.
2.    The burden of tax can not be shifted.	2.    The burden of tax can be shifted on others.
3.    It paid after the income reaches in the hands of  the tax payer.	3.    It is paid before the goods/services reaches to the tax payer.
4.    Collection of tax is difficult.	4.    Collection of tax is very ease.
5.    Tax is collected in the Assessment year for the income earned in the Previous year.	5.    Tax is collected at the time of services rendered or goods are purchased/sold
6.    There is a direct connection between tax payer & tax authorities.	6.    There is no direct connection between tax payer & tax authorities.
7.    It is paid directly by person concerned.	7.    It is paid by one person but he recovers the from the ultimate consumer.
8.    In this case Central Board for Direct Taxes (CBDT) is the administrating authority.	8.    In this case Central Board for Indirect tax and Customs (CBIC) is the administrating authority.

 

6. Explain Constitutional Provisions of Income Tax ?

A.     Federal system is a political form of Government, in which many layers of Government will exist. Our country follows parliamentary form of Government at federal level i.e at the top it is known as Central Government and the next layer towards down is provincial Government or State Governments and the bottom or ground layer , Local Governments are known as Municipalities in urban areas, and Panchayat in the rural areas. The constitution of India defined very clearly about the role and functions of Central, State and Local Authorities.

According to the Constitutions of India, Central and State Governments have independent process to impose and collect taxes for the public. The 7^th Schedule of the Constitution contains the list of the formation  and revenue raising powers of the Government, and these lists are called as (a)Union List, (b) State List and (c) Concurrent List.

(a)   Union List:-

The Union List contains the following……..

·            Taxes on income other than agricultural income.

·            Duties of customs including export duties.

·            Corporation Tax.

·            Estate duty in respect of property other than agricultural land.

·            Duties in respect of succession to property other than agricultural land.

·            Terminal taxes on goods  or passengers, carried by railway, sea, air  taxes on railway fares and  freights.

·            Taxes other than stamp duties on transactions in stock exchanges.

·            Taxes on the sale or purchase of newspapers and advertisement published therein.

·            Taxes on capital value of assets, exclusive of agricultural land or individuals and companies.

(b)   State List:-

·            Taxes on agricultural income.

·            Estate duty in respect of agricultural land.

·            Taxes on goods into a local area for human consumption, use or sale therein.

·            Taxes on consumption or sale of electricity.

·            Taxes on professions, trade and employments.

·            Taxes on luxuries, including taxes on entertainments, betting and gambling.

( c) Concurrent List:-

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

·            Fees in respect of any of the matters in this list but not including fees in any court.

 

1) Explain the power of Assessing Officer.

ASSESSING OFFICER (A.o.)

The Assessing officer is the most important authority in the Income tax department.

He initiates assessment proceedings and makes assessment  of the incomes of the assessee

POWERS

1)    Granting relief in a special case for e.g. if the assessee has received arreas of salary relating to the earlier years then he can grant the relief under Sec.89(1).

2)    I.T.O is vested with the power regarding discovery and production of evidence

3)     Search and Seizure: The I.TO, can enter and search any building, place or vehicle where he has reason to believe that assessee is having unaccounted money. He can open/break locker, box, almirah etc. ifkeys are not available. He can seize the books and can make marksof identification on the books of accounts and other documents. He can make a note on inventory of Jewellery, Money or any othervaluable articles.

4)    The I.T.O. has the power to call for the services of police in case of any need.

5)    If the Director General or Commissioner of Income Tax authoriseshe can call for books and documents or assets which are held by any authority under other laws.

6)     The I.T.0,. can inspect the registers of companies

7)     The assessing officer has the power to allot a permanent accountNo. to an assessee.

8)    The Assessing officer has the power to make regular assessment and can issue notice of demand

9)     If any mistakes are there in the orders passed by him he can rectify the same.

10)           The assessing officer can grant registration of the firm and also he is authorisedto cancel the registration.

11)           To impose penalty for non payment of tax, and for not filing the return of income.

12)           If the assessee has paid or remitted more tax than due, then the excess can be refunded.

13)           He can with-hold the re-fund money against outstanding demands.

14)           He can direct any assessee to get his accounts audited with the prior permission from commissioner of Income Tax.

 

 

1.      Explain the Powers of Central Board of Direct Taxes( CBDT) ?

A.     The Highest authority in the administrative set up of the income tax department is the Central Board of Direct Taxes.  It was created under the control of Ministry of Finance, Government of India and its jurisdiction is whole of India.

Powers:

§  It has the power to make rules and to issue orders, instructions and directions to all officers and persons employed in the execution of the Act.

§  The Board has power to determine the jurisdiction of various authorities mentioned in the act.

§  To declare an organization as Company.

§  To determine the period of previous year.

§  The Board is empowered to decide jurisdiction matters of any income tax authority and assign to them such functions as are to be performed by them.

§  To approve reduction or waiving of penalty by the commissioner in excess of specified amount.

§  To make an enquiry under the Act.

§  The Board can appoint an Income Tax authority below the rank of Assistant Commissioner.

§  If he has reason to suspect that any income has been concealed or likely to be concealed by any person then he si empowered to make an enquiry.

2.      Explain the Powers of Assessing Officer (AO)?

A.     The Assessing Officer is the most important authority in the Income tax Department. He initiates assessment proceedings and makes assessment of the incomes of the assessee.

Powers:

v  Granting relief in a special case for e.g. if the assessee has received arrears of salary relating to the earlier years then he can grant the relief .

v  He is vested with the power regarding discovery and production of evidence .

v  He has the power to call for the services of police in case of any need.

v  He can inspect the registers of companies.

v  The Assessing Officer has the power to allot a permanent account No. to an assessee.

v  If any mistakes are there in the orders passed by him he can rectify the same.

v  He can grant registration of the firm and also he is authorized to cancel the registration.

v  He has the power to impose penalty for nonpayment of tax, and for not filing the return of income.

v  If the assessee has paid or remitted more tax than due , then the excess can be refunded.

v  He can with—hold the refund money against outstanding demands.

 

3.      Explain the Powers of Central Board of Direct Taxes( CBDT) ?

B.      The Highest authority in the administrative set up of the income tax department is the Central Board of Direct Taxes.  It was created under the control of Ministry of Finance, Government of India and its jurisdiction is whole of India.

Powers:

§  It has the power to make rules and to issue orders, instructions and directions to all officers and persons employed in the execution of the Act.

§  The Board has power to determine the jurisdiction of various authorities mentioned in the act.

§  To declare an organization as Company.

§  To determine the period of previous year.

§  The Board is empowered to decide jurisdiction matters of any income tax authority and assign to them such functions as are to be performed by them.

§  To approve reduction or waiving of penalty by the commissioner in excess of specified amount.

§  To make an enquiry under the Act.

§  The Board can appoint an Income Tax authority below the rank of Assistant Commissioner.

§  If he has reason to suspect that any income has been concealed or likely to be concealed by any person then he si empowered to make an enquiry.

 

4.      Explain the Powers of Assessing Officer (AO)?

B.      The Assessing Officer is the most important authority in the Income tax Department. He initiates assessment proceedings and makes assessment of the incomes of the assessee.

Powers:

v  Granting relief in a special case for e.g. if the assessee has received arrears of salary relating to the earlier years then he can grant the relief .

v  He is vested with the power regarding discovery and production of evidence .

v  He has the power to call for the services of police in case of any need.

v  He can inspect the registers of companies.

v  The Assessing Officer has the power to allot a permanent account No. to an assessee.

v  If any mistakes are there in the orders passed by him he can rectify the same.

v  He can grant registration of the firm and also he is authorized to cancel the registration.

v  He has the power to impose penalty for nonpayment of tax, and for not filing the return of income.

v  If the assessee has paid or remitted more tax than due , then the excess can be refunded.

He can with—hold the refund money against outstanding demands.