Taxation- Direct and Indirect

December 2021 Examination

Q1. GST is called as consumption based tax. Discuss and verify this statement with the help
of a relevant example. Also, elaborate on the different categories of GST (10 Marks)

SOLUTION:

Introduction:

On July 1, 2017, the 101st amendment to the Indian constitution sanctioned Goods and Services
Tax (GST) which became pertinent in India. Evaluation changes highlighted harmonizing the
country's taxation structure and helping with reshaping its $2.4 trillion economy were proposed
with GST as the principle cost change post-opportunity. With the help of the honorable Prime
Minister, Mr. Narendra Modi, the places of the reason changed to gain ground toward $5 trillion
as a benchmark. As a destination-based evaluation, GST is needed on consumption rather than
on spot of start of merchandise, suggesting that it is gotten to subject to the spot of consumption.

Concept and application:

There are a couple of kinds of variant obligations under the Goods and Services Tax, similar to a
single and multistage, complete and consumption-based evaluation. With the methodology of
GST, around 17 extraordinary backhanded obligations, earlier constrained, were taken out as
they were subsumed in one appraisal, i.e., GST. These were state regard conveyed Tax, diversion
charge, Octroi, separate charge, and so forward

In India, the taxation framework manages an origination-based methodology or which is known

as a destination-based strategy. An individual can be charged direct costs if the person obtained
any income over the basic exemption set by law in where the income began. GST, obviously, is
known as a destination-based hard and fast consumption charge. It is an abnormal cost that is
constrained at the consumption of supply or the destination in which the things or
administrations gave as consumed. For instance, if a vehicle is manufactured at Kolkata and
purchased through a consumer-based totally at Pune, GST on such transaction will accumulate to
Maharashtra, the destination of supply of the thing, and not West Bengal.

Kinds of GST

As needs be, the extraordinary and administration charge is disengaged into various components
so an individual can save charge without making any inadequacy of income for the state or focal
government to bear As a consequence, when purchasing a thing, the consumer will finish with
the expense, which fuses the GST. This GST accumulated from the client is then conveyed to the
credit of the experts by the supplier. The classification is done ward on the transaction type,
intra-state or between state, or both. these components of GST are:

1. Central items and Service Tax (CGST)

2. State merchandise and Service Tax (SGST)

3. Union Territory Goods and Service Tax (us.)

4. fused Goods and Service Tax (IGST)

CGST: The CGST charge is the appraisal needed by the United Kingdom government on intra-
national transactions of work and items under the CGST Act. An intra-state transaction is subject
to CGST and SGST, charged comparably by each nation and central government. The proportion
of the central government is called CGST or the fundamental items and administration Tax. For
example, Shruti, a supplier from Kota, offered merchandise to Aayush, a consumer-based at
Bikaner, that is in danger to charge at the speed of 12%. Here, the stock is given inside the state.
Along these lines, the pertinent GST could be CGST (6%) and SGST (6%).

IGST: Integrated GST or IGST is the appraisal gathering conveyance of work and items in and
among different states. Additionally, IGST is accumulated on transactions including imports or
items. IGST is directed by using IGST Act. The cost proportion of IGST is controlled by head
trained professionals, and the percentage of the patron state government is then administered to
them. For instance, Rohit, a merchant arranged in Bengaluru, bought items for Shashi, a client
arranged in Kerala. The important GST on this transaction can be IGST and could be
accumulated through the central government.

SGST: SGST Act controls SGST or the state GST. Its miles the appraisal collected by means of
the customer state on the intra-state trade and administrations or transactions the state. SGST has
subsumed charges like purchase charge, Octroi, VAT, luxury charge, and so forward In intrastate
transactions, the origination and destination of the transaction lie in a comparable country. For
example, Anju being a supplier of readymade merchandise in Jaipur sold items worth Rs. 100000
to Bhanu in Jodhpur. In the given transaction, the stock of things happened inside the domain of
Rajasthan only, and the arrangements will accumulate to the state trained professionals. In this
way, the evaluation could be amassed through the state government as SGST and the central
government as CGST.

UGST: UGST or the union GST is administered by UTGST Act and resembles SGST. In any
case, its miles were assembled on provisions embraced among Union spaces. In case of
transactions taking location in the union regions like Andaman and Nicobar Islands, Daman Diu,
Dadra, and Nagar Haweli, and Chandigarh, the UTCGST is assembled by using the Union
Territory councils along with the CGST while inside the case of Union spaces like Puducherry
and Delhi SGST is collected rather than UTGST.

Conclusion:

In India, the Goods and Services Tax, or GST as it is more commonly called, transformed into
the primary cost change. Specifically, it was expected to restrict the falling effects of the diverse
appraisal provisions in all cases, and similarly to ensure consistency among all the distinctive
obligation structures on a nation wide reason. It has helped with diminishing compliances for the
residents. A couple of appraisals like VAT, extricate, carrier charge, and so forward, have been
subsumed in GST. The appraisal superseded a couple of variant obligations to help with
streamlining the state's taxation contraption and present the important transformations. Note that
GST maintains the imposition of a single obligation system overall nation, as a piece of the cost
change.
Q2. Following emoluments are received by Ms Sangeeta during the previous year ended on
31.3.2021

Basic salary 250000

Dearness Allowance 10000

Commission 2500

Entertainment allowance 2000

Medical expenses reimbursed 25000

Professional taxes paid 2000(Rs1000 paid by employer)

Ms. Sangeeta contributes Rs 2000 towards the Recognized Provident Fund

She has no other income.

Compute the income from salary for A.Y 2021-22, and give reasons and explanations
wherever required, If Ms. Sangeeta is a Government employee. (10 Marks)

SOLUTION:

Introduction:

Direct taxation is a kind of direct taxation which is assessed subject to the income of a person.
Income charge in India is controlled by the income-charge demonstration of 1961, which shows
the laws regulating the portion of an assessee. According to the Act, the gross income is
segregated into five social events under which each part could acknowledge his/her share of the
income.

I should give a few instances of those heads:

1. Salary

2. Capital increments

3. House property

4. Income from business and profession

5. Income from various sources

This sums up to shape unquestionably the gross income of an organization when various people
are used under those headings. The full scale gross income secured by each resident may be
deducted from irrefutably the gross income procured by him in view of their activities.
Deductions help them with diminishing their accessible income, which consequently helps them
with reducing the proportion of evaluation they should pay.

Concept and application:

It is intended to stimulate saving and speculation through the provision of those deductions.
Various examinations are relied upon to reduce a resident's cost liability by diminishing their
obligation evaluations. The case situation described in the given question deals with the charging
of income under the top compensation. Section 15 of the IT Act, 1961 courses of action with and
is the charging section for pay under the head pay rates. Section 16 of the Act considers explicit
deductions. Those deductions are wanted to advantage the assessee by diminishing his cost
liability.

The head compensations' significant provisions for income are contained in sections 15,16 and
17 of the income charge act, 1961. While section 15 is the blame limit section overseeing for the
compensation total due, further created portions made inside the kind of pay, and the unfulfilled
obligations of pay. Section 16 presents for deductions viz. the standard deduction, the deduction
for entertainment allowance, and deduction for professional obligation. Section 17 of the Act
talks about chargeable compensation perquisites and the perquisites as opposed to paying.

Before we start learning about the various terms, we ought to clarify a portion of the
fundamentals.

1. Allowances-Allowances are positive bills made by using the business to the worker to
meet several necessities. It might be income rewards like house-rent allowance, amusement
settlement, conveyance, uniform settlement, and so on. a portion of those allowances are totally
accessible, even as some are by and large exculpated. In the given case, Ms. Sangeeta is
equipped for Dearness payment and diversion reward. Both the dearness settlement and the
amusement allowance are totally accessible. Nonetheless, inside the occurrence of an
administration laborer, an exceptional deduction is permitted toward a delight allowance. The
quantum of deduction permitted is subject to most prominent minor of the going with:

a. The genuine proportion of diversion settlement

b. Rs. 5000 p.a.

c. 1/10 of the fundamental compensation secured by the delegate

2. Provident fund-under the Provident fund conspire, a specific absolute is deducted from
the resident's compensation. This total is treated as the contribution of the worker towards the
provident fund conspire. The organization in like manner contributes an identical amount to the
PF. The contributions through the organization and the expert are placed assets into permitted
protections using the fund, and the superior obtained on them is credited to the delegate's record.
On the occasion of the agent's retirement, the whole strength is paid to the worker's credit. There
are four sorts of provident funds viz.

a. perceived Provident fund (RPF)

b. Unrecognized Provident Fund (URPF)

c. Statutory Provident Fund (SPF)

d. Public Provident Fund (PPF)

3. Professional cost professional obligation is the evaluation constrained on work by means

of the specific state. The aggregate paid as professional cost will be permitted as a deduction
while the expert can pay for the duration of the PY. The most proportion of expert cost in a
particular FY can't outperform Rs. 2500 p.a. In the unlikely event that the business conveys the
professional cost to assist a delegate, it is first guaranteed inside the gross compensation
aggregate. It is permitted as a deduction under section 16.
Table showing calculation of income from salary for Assessment year 2021-22

Particulars Calculation Amount

Basic Salary 250000
Commission income 2500*12 2500
Dearness allowance 10000*12 120000
Entertainment allowance 2000*12 24000
received
Employee’s contribution to -
Recognised Provident Fund
Medical Expenses reimbursed 25000
Professional taxes paid by 1000
employer
Gross Salary 450000
Less: Deductions under (57000)
Section 16
a. Standard deduction 50000 (see note below)
b. Entertainment 5000 (See note below)
allowance
c. Professional tax 2000

Income under the head 393000

salary

Notes:

1. Commission earned by Ms. Sangeeta shall form part of her income under the head
salary. 
2. Ms. Sangeeta shall be eligible for deduction under Section 80C for the sum of Rs. 2000
contributed to Recognized Provident Fund.
 3. The standard deduction shall be lower of the following two amounts:
a. Rs. 50000; or
b. Amount of salary 
2. Deduction pertaining to entertainment allowance shall be lower of the following:
a. Rs. 5000
b. The actual amount of entertainment allowance paid, i.e., Rs. 24000 (2000*12)
c. 1/5 of basic salary, i.e., 50000 (250000*1/5) 
3. It has been assumed that the amount of dearness allowance and entertainment allowance
is the amount per month.

Conclusion:

Indulging in the above calculations, we can estimate that Ms. Sangeeta's income for the fiscal
year 2021-22 under the head salary is Rs. 393000. 

Q3. From the following information, furnished by Ms. Anucampa pertaining to the
financial year ended as on 31st march 2021,

Short term capital gains on sale of shares in an Indian company received in 10000
Japan

Dividend from a Chinese company received in China 3000

Agricultural income from land in Madhya Pradesh 5000

Dividend from PJV Ltd an Indian Company 4745

Gross Rent from a residential property located at Singapore, later on 600000

remitted to the saving account in Bank of Maharashtra, Mumbai using the
approved channels
Compute the total income and give reason for considering/ not considering these specific
items for the relevant assessment year 2021-22, if she is-

a. Resident and ordinary resident (5 Marks) –

SOLUTION:

Introduction:

According to the Income Tax Act, a resident's private status is one of the focal consideration that
conclude their taxation rate. If all else fails, considering their private rate, residents can be
separated into three general classes:

1. Non-occupant

2. Resident and generally occupant

3. Resident yet not generally inhabitant

Concept and application:

The going with incomes will be accessible to occupants and generally inhabitant residents:

1. Portion got in India or considered to be recognized in India during the prior year.

2. Income assembled or arose in India or considered to be gathered or arisen in India during the
last year.

3. Income gathered or occurred outside India whether or not the portion isn't constantly gotten or
obtained India during the earlier year.
When in doubt, a tenant and typically occupant in India is committed to trouble on all incomes
that aggregate or are considered to assemble, are gotten, or considered to be gotten in India or
outside India sooner or later of the significant prior year.

Ms. Anucampa's income can be enlisted as follows, on the off chance that she is an inhabitant
and her house is conventionally where she dwells:Table showing calculation of total income of
Ms. Anucampa for AY 2021-22
 Particulars Amount Taxable/ Non- Reason
taxable

Short-term capital gains on the 10000 Taxable Taxable income has been earned
sale of shares in an Indian on the sale of shares of Indian
company received in Japan income. It will be treated as
income deemed to be accepted in
India and hence taxable in India.

Dividend from a Chinese 3000 Taxable However, the income has accrued
company acquired in China or arisen out of doors India and
not brought in India. It will be
taxable inside the hands of Ms.
Anucampa owing to her
residential status.

Agricultural income from the land - Non-taxable Agricultural income is exempt in

in Madhya Pradesh India under section 10 (1)

Dividend from PJV Ltd an Indian 4745 Taxable Dividend income shall be taxable
Company in the hands of the recipient from
AY 2021-22

Gross rent from a residential 4,20,000 Taxable Rental income has been sent to a
property located in Singapore, (see note savings bank account in
later on, remitted to the saving below) Maharashtra. Thus, revenue has
account in the bank of been brought in India and, for this
Maharashtra, Mumbai the usage reason, taxable in India.
of the approved channels

Total income 437745

Note:
1. The rent received from residential property in Singapore has been assumed to be the gross
annual value of the property. Ms. Anucampa shall be eligible for a standard deduction of 30%
under phase 24 of the Income Tax Act, 1961. The taxable cost of rental income has been
computed as underneath:

The gross annual value of the property (as provided in the question) = Rs. 6,00,000

Less: standard deduction @30% = Rs. 1,80,000

Income from house property = Rs. 4,20,000

Conclusion:

Due to her status as a resident and ordinarily residing in India, Ms. Anucampa's total income is
Rs. 442745 per month.

b. Nonresident (5 Marks)

SOLUTION:

Introduction:

There is a specific section of the Act dealing with the status of a person's residence. There may
be a change in the taxpayer's residence status from one tax season to another; as a result, the
taxpayer must maintain a record of each previous year's residence. In the same way that a non-
resident can also become a resident and ordinarily a resident or a resident and be considered as if
they were no longer a resident in an earlier year or vice versa.

Concept and application:

As per section 5(2) of the Income Tax Act, 1961, a non-resident’s total income shall comprise of
the following:

1. Income received in India or deemed to be received in India during the previous year; and
2. Income that accrues or arises in India is deemed to accrue or arise in India over the last year.

Thus, a non-resident shall not be taxable on income that accrues, get up, is acquired outside
India, or is deemed to accrue, occur, or received outside India.

In the given case, if Ms. Anucampa is a non-resident, her income shall be computed as below:

Table showing calculation of total income of Ms. Anucampa for AY 2021-22

Particulars
Short-term capital gains on the 10000
sale of shares in an Indian
company received in Japan
Dividend from a Chinese 0
company received in China
Agricultural income from land in 0
Madhya Pradesh
Dividend from PJV Ltd an Indian 4745
Company
Gross rent from a residential asset 0
placed in Singapore was later
remitted to the saving account in
the bank of Maharashtra, Mumbai
using the approved channels
Amount Taxable/ Non- Reason
taxable
Taxable The income from capital gains has
been obtained outside India but
has accrued in India. Ms.
Anucampa, a non-resident, shall
be taxed on such income
Non- taxable The dividend income has arisen
and received outside India and
will not be taxable in India in the
hands of Ms. Anucampa, a non-
resident.
Non-taxable Agricultural income is exempt in
India under section 10 (1) for all
persons, irrespective of their
residential status.
Taxable Dividend income received in
India shall be taxable in the hands
of all recipients from AY 2021-
22. Ms. Anucampa shall be liable
to tax on such remuneration as the
income is accrued and arisen in
India.
Non- taxable The rental income arose outside
India. No matter the reality that
payment has been delivered in
India, the amount of rental income
shall now not be taxable in the
hands of Ms. Anucampa.
Conclusion:

In this particular case, the total income of Ms. Anucampa, a non-resident, is Rs. 14745 per
month.