Business Taxation and GST 4 Blocks

Karnataka State Open University
Mukthagangothri, Mysuru - 570 006

commerceksou.stud@gmail.com II SEMESTER M.COM
BUSINESS TAXATION AND GST
COURSE CODE:MCOHC2.3
Department of Studies and Research in Commerce
BLOCK
1
Page No.
UNIT - 1: INTRODUCTION 1-19
UNIT - 2: DEFINITION OF COMPANY 20-32
UNIT - 3: HEADS OF INCOME 33-72
UNIT - 4: DEPRECIATION 73-91

Credit Page
Programme : M.Com Year/Semester: Second Block No :I
Course : Business Taxation and GST Credit : 04 Units No :1-4
Course Design Expert Committee
Prof. Vidyashankar Chairman
Vice-Chancellor,
Mukthagangotri, Mysuru – 570 006
Prof. Ashok Kamble Member
Dean (Academic)
Dr.Mahesha V. Member
BOS Chairman,
DOS&R in Commerce,KSOU, Mysuru
Smt.Usha C. Member
Chairperson and Course Designer,
DOS&R in Commerce, KSOU, Mysuru.
Smt. Usha C. Member Convener
Chairperson,
DOS&R in Commerce, KSOU, Mysuru
Course Writer Course Editor
Dr. Devarajappa S. Smt. Usha C.
Assistant Professor, Chairperson,
Department of Commerce DOS&R in Commerce
Tumkur University, Tumkur. KSOU, Mysuru
Editorial Committee
Dr.Mahesha V. Chairman
BOS Chairman,
Prof. Venkatesh S. External Member

Professor,Department of Commerce
Kuvempu University, Shivamogga.
Dr. Sukanya R. Internal Member
Assistant Professor, DoS & R in Commerce
Karnataka State Open University, Mysuru.

Chairperson,
DOS&R in Commerce, KSOU, Mysuru. .
Copy Right
Registrar,
Karnataka State Open University, Mukthagangothri, Mysuru - 570006.
Developed by the Department of Studies and Research in Commerce , KSOU, under the guidance of Dean
(Academic) , KSOU, Mysuru.Karnataka State Open University, October -2022.
All rights reserved. No part of this work may be reproduced in any form, or any other means, without permission in
writing from the Karnataka State Open University.Further information on the Karnataka State Open University
Programmes may obtained from the University’s office at Mukthagangothri, Mysuru-570006.
Printed and Published on behalf of Karnataka State Open University. Mysuru-570006 by Registrar (Administration)-
2022.
Preface
Dear Learner,
Taxes are a crucial part of running any business. The government levies taxes on
income and business transactions. The two primary types of taxes are direct tax and indirect
tax. In case of direct taxes imposed in India, the most important is income tax. Business Tax
is administered by the State and Central government on the income of business organisations.
The revenue collected is shared between the Central government and the State governments.
This tax represents the most important source of tax revenue. First two blocks of the study
material explains business taxation in accordance with the Income Tax Act of 1961 while
adhering to the recent amendments made for the assessment year 2023–2024.
On the other hand, the Goods and Services Tax is one of the most significant reforms
in India's history of indirect taxation, which has replaced numerous indirect taxes. The
introduction of the GST has resulted in the development of a common national market and a
reduction in the cascading effect of taxes. India implemented a dual GST with four slabs
of tax rate that are uniformly applied across the country. GST is a tax on goods and services
that offers extensive and numerous advantages and eliminates various drawbacks which was
facing in the earlier indirect tax system. It is essentially a tax only on value addition at each
level, and a supplier is allowed to set-off the GST paid on the purchase of goods and services
at each stage through input tax credit. As a result, to inculcate the fundamental aspect of
GST, this study material was developed in accordance with the Goods and Services Act,
2017, by using simple language and explaining the provisions of Act step-by step with the
help of suitable illustrations adhering to all the recent amendments made.
I am confident that, this study material gives you a thorough knowledge on the course
‘Business Taxation and GST’. The study material has been developed by the well
experienced faculties in the field of taxation. There is always scope for further improvements.
Your insightful suggestions are invited so as to incorporate in the next addition to come.
With best wishes,
Smt. Usha C.
Chairperson
BLOCK – I
INTRODUCTION
An income tax is a tax that governments levy on income generated by businesses and
individuals within their jurisdiction. As per law, taxpayers must file an income tax return
annually to determine their tax obligations. Income taxes is a major source of revenue for
governments. They are used to fund public services, pay government obligations, and provide
goods for citizens. Income Tax Act, 1961 provides for levy, administration, collection and
recovery of Income Tax. It provides progressive rate schedule, exemption limits, and
implement number of incentive provisions. It provides sound tax system. Rates of tax and
Exemption limits are prescribed by Finance Act. Indian tax legislative and judicial
environment is constantly evolving, along with globalization, economic shifts, and
operational adjustments. Businesses are faced with a tax regime with greater complexities
and challenges, however moving towards a globally cohesive tax world. Now, more than
ever, businesses must have an ongoing system for adapting to and staying on top of these
complex changes. This block discuses the basic concepts of taxations, Company and its
residential status and incidence of tax, heads of income and computation of gross total
income of company.
This block comprises of 4 units:
Unit-1: Introduction to Taxation
Unit-2: Definitions of Company
Unit-3: Heads of Income
Unit-4: Depreciation
BLOCK-I
UNIT-1 INTRODUCTION TO TAXATION

Structure:
1.0 Objectives
1.1 Introduction
1.2 Brief History of Taxation in India
1.3 Meaning of Tax and Income Tax
1.4 Types of Tax
1.5 Canons of Taxation
1.6 Basic Concepts of Taxation
1.6.1 Assessment Year
1.6.2 Previous Year
1.6.3 Assessee
1.6.4 Person
1.6.5 Income
1.6.6 Gross Total Income
1.6.7 Total Income
1.6.8 Casual Income
1.7 Capital and Revenue
1.8 Exempted Incomes
1.9 Check Your Progress
1.10 Summary
1.11 Keywords
1.12 Questions for Self-Study
1.13 References
1
1.0 OBJECTIVES
After studying this unit, you will be able to;
 Give the meaning and types of tax.

 Explain the different canon of taxation.
 Discuss the various concepts of tax.
 Explain the Capital v/s Revenue for tax point of view.
 Highlight the exempted incomes.
1.1 INTRODUCTION
The Government of any country takes primary responsibility for the well-being of its
citizens, as in matters of health care, education, employment, infrastructure, social security
and other development needs. To facilitate these, Government needs revenue. The taxation is
the main source of revenue to the Government for incurring such public well-being
expenditure. In other words, Government is collecting taxes from the public and spending it
for welfare expenditure for public at large. Therefore, taxes are compulsory or enforced
contribution to the Government revenue by public. Government may levy taxes on income of
person, business profits or wealth or from goods, services, and transactions. Thus, there is a
need to study the course taxation. In this unit we shall discuss the basic concepts of taxation,
exempted incomes, capital and revenue and other related concepts.
1.2 BRIEF HISTORY OF TAXATION IN INDIA

In India, Income Tax was introduced for the first time in 1860, by Sir James Wilson in
order to meet the losses sustained by the Government on account of the Military Mutiny of
1857. Thereafter, several revisions were made in it from time to time. In 1886, a separate
Income Tax Act was passed. This act remained in force upto 1918, with various amendments
from time to time. In 1918, a new income tax was approved and again it was replaced by
another new act which was passed in 1922. This Act remained in force up to the assessment
year 1961-62 with many amendments. The Income Tax Act 1961 has been brought into force
with 1 April 1962. It applies to the whole of India and Sikkim (including Jammu and
Kashmir). Since 1962 numerous amendments of far-reaching nature have been made in the
Income Tax Act by the Union Budget every year.
2
1.3 MEANING OF TAX AND INCOME TAX
The word ‘Tax’ was derived from the Latin word “Taxore”. Taxo means to estimate,
appreciate or value. Tax is a levy imposed on public by an appropriate authority. The
authority empowered to levy, collect and administer tax may be central, state or local
government. Tax is a compulsory contribution from a person to the government to meet its
general expenses in the interest of all, without any corresponding benefits to the tax payer.
Income tax is one of the important sources of income to the central government.
Income tax may be defined as “annual charge imposed on both earned income (wages,
salaries, commission) and unearned income (dividends, interest, rents)”.
In addition to funding a government's operations, progressive income taxation is

designed to allocate, wealth more evenly in a population and to serve as instinctive fiscal
stabilizer to cushion the effects of economic cycles. The two basic types of income tax are:
(1) Personal income tax, levied on incomes of individuals, households, partnerships, and
sole-proprietorships; and
(2) Company income tax, levied on profits (net earnings) of incorporated firms.
However, presence of tax ambiguities (whose number increases in direct proportion

to the complexity of tax code) may allow some wealthy persons to escape higher taxes
without violating the letter of the tax laws.
1.4 TYPES OF TAX

There are two types of taxes: Direct Tax and Indirect Tax
Tax, of which incidence and impact fall on the same person, is known as Direct Tax,
such as Income Tax. On the other hand, tax, of which incidence and impact fall on two
different persons, is known as Indirect Tax, such as GST, etc. It means, in the case of Direct
Tax, tax is recovered directly from the assessee, who ultimately bears such taxes, whereas in
the case of Indirect Tax, tax is recovered from the assessee, who passes such burden to
another person and is ultimately borne by consumers of such goods or services.
3
The following are the differences between direct and indirect Taxes.
Direct Tax Indirect Tax
Incidence and impact fall on the same person Incidence and impact fall on two different
persons
Assessee, himself bears such taxes. Thus, it Tax is recovered from the assessee, who
pinches the taxpayer. passes such burden to another person.
Thus, it does not pinch the taxpayer.
Levied on income Levied on goods and services. Thus, this

type of tax leads to inflation and have
E.g., Income Tax
wider base
E.g., GST and Customs Duty
1.5 CANONS OF TAXATION

Canons of taxation refers to the administrative aspects of a tax. They relate to the rate,
amount and method of levy and collection of a tax.
In other words, the characteristics or qualities which a good tax should possess are
described as canons of taxation. It must be noted that canons refer to the qualities of an
isolated tax and not to the tax system as a whole. A good tax system should have a proper
combination of all kinds of taxes having different canons.
The following canons of taxation have been identified by Adam Smit.
1. Canon of Equality: Every fiscal economist, along with Adam Smith, stresses that
taxation must ensure justice. The canon of equality or equity implies that the burden of
taxation must be distributed equally or equitably in relation to the ability of the tax
payers. Equity or social justice demands that the rich people should bear a heavier burden
of tax and the poor people will have a lesser burden. Hence, a tax system should contain
progressive tax rates based on the tax-payer’s ability to pay and sacrifice.
2. Canon of Certainty: Taxation must have an element of certainty. According to Adam
Smith, “the tax in which each individual is bound to pay ought to be certain and not
arbitrary. The time of payment, the manner of payment, the amount to be paid ought to be
clear and plain to the contributor and to every other person.”
4
The certainty aspects of taxation are:
 Certainty of effective incidence i.e., who shall bear the tax burden.
 Certainty of liability as to how much shall be the tax amount payable in a particular
period.
 Certainty of revenue i.e., the government should be certain about the estimated
collection of revenue from a given tax levied.
3. Canon of Economy: This principle suggests that the cost of collecting a tax should not
be exorbitant but be the minimum. Extravagant tax collection machinery is not justified.
According to Adam Smith, “every tax has to be contrived as both to take and keep out of
the pockets of the people as little as possible over and above what it brings into the public
treasury of the state.” Owing to the complex and ever-changing nature of taxation laws in
India, government has to maintain elaborate tax collection machinery with a large staff of
highly trained personnel involving high administrative costs and inordinate delay in
assessment and collection of tax
4. Canon of Convenience: According to this canon, tax should be collected in a convenient
manner from the tax payers. Adam Smith stresses “every tax ought to be levied at the
time or in the manner in which it is most likely to be convenient for the contributor to pay
it.” For example, it is convenient to pay a tax when it is deducted at source from the
salaried classes at the time of paying salaries.
5. Canon of Elasticity: Taxation should be elastic in nature in the sense that more revenue
is automatically fetched when income of the people rises. This means that taxation must
have built-in flexibility.
6. Canon of Productivity: This implies that a tax must yield sufficient revenue and not
adversely affect production in the economy.
7. Canon of Simplicity: This norm suggests that tax rates and tax systems ought to be
simple and comprehensible and not to be complex and beyond the understanding of the
layman. This is what is rarely found in the Indian tax structure.
8. Canon of Diversity: Canon of diversity implies that there should be a multiple tax
system of diverse nature rather than having a single tax system. In the former case, the tax
payer will not be burdened with a high incidence of tax in the aggregate.
9. Canon of Expediency: This suggests that a tax should be determined on the ground of its
economic, social and political expediency. For instance, a tax on agricultural income
5
lacks social, political or administrative expediency in India and that is why the
government of India had to discontinue it.
1.6 BASIC CONCEPTS OF TAXATION

1.6.1: ASSESSMENT YEAR - Section 2 (9)
“Assessment year (AY)” means the period starting from April 1 and ending on March 31 of
the next year. For instance, assessment year 2023-24 which commences on April 1, 2023 and
ends on March 31,2024. Income of previous year of an assessee is taxed during the
assessment year at the rates prescribed by the relevant Finance Act for tax rates.
1.6.2: PREVIOUS YEAR - Section 3
Income earned in a particular year is taxable in the next year. The year in which income is
earned is known as previous year (PY) and the next year in which income is taxable is known
as assessment year.
In other words, previous year is the financial year immediately proceeding the assessment
year
In the following situations income of an assessee is liable to be assessed to tax in the same
year in which he earns the income:
1. Income of non-residents from shipping;
2. Income of persons leaving India either permanently or for a long period of time;
3. Income of bodies formed for short duration;
4. Income of a person trying to alienate his assets with a view to avoiding payment of tax;
5. Income of a discontinued business.
Previous Year (PY) in case of newly setup business
The previous year in case of newly setup business shall be reckoned the date of setting up of
the business and end with the said financial year
Illistration-1: What will be the PY in relation to AY 2023-24 in the following cases:
a) A sole trader keeping his accounts on financial basis.
b) Sri Murthy steps up a new business on 03-03-2023.
c) Mrs. Lavanya joins an Indian company on 23-01-2023.
6
d) Smt. Monika bought a house on 01-08-2022 and let out at ₹ 6,000 p m.
e) Smt. Pavithra is a registered doctor and keeps her income and expenditure account on
calendar year.
Answer:
Determination of Previous Year in relation to Assessment year 2023-24
Particulars Previous Year in relation to Assessment

year 2023-24
a) A sole trader keeping his accounts on 1-4-2022 to 31-3-2023

financial basis.
b) Sri Murthy steps up a new business 03-03-2023 to 31-3-2023

on 03-03-2023
c) Mrs Lavanya joins an Indian 23-01-2023 to 31-3-2023

company on 23-01-2023
d) Smt. Monika bought a house on 1-08-2022 to 31-3-2023

01-08-2022 and let out at ₹ 6,000 p m.
e) Smt. Pavithra is a registered doctor 1-04-2022 to 31-3-2023

and keeps her income and expenditure
account on calendar year.
1.6.3: ASSESSEE- Section 2(7)
Every person in respect of whom, any proceeding under the act has been taken for the
assessment of his income or of the income of any other person in respect of which he is
assessable or of the loss sustained by him or by such other person or the amount of refund
due to him or to such other person may be called an assessee.
Deemed Assessee: A person who is deemed to be an assessee for some other person is called
“Deemed Assessee”.
Assessee In Default: When a person is responsible for doing any work under the Income Tax
Act and he fails to do it, he is called an “Assessee in default”.
1.6.4: PERSON- Section 2(31)
The term “person” includes:
1. an individual;
2. a hindu undivided family;
7
3. a company;
4. a firm;
5. an association of persons or a body of individuals, whether incorporated or not;
6. a local authority; and
7. every artificial juridical person not falling with in any of the preceding categories.
1.6.5: INCOME-Section2 (24)
The definition of the term “income” in section 2(24) is inclusive and not exhaustive.
Therefore, the term “income” not only includes those things that are included in section 2(24)
but also includes those things that the term signifies according to its general and natural
meaning. 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.
The following are the list of incomes included under section 2(24):
a. Profit and gains.

b. Dividends.
c. Voluntary contribution.
d. Perquisite/profit in lieu of salary/ allowance.
e. Capital gains.
f. Winning from lottery/crossword puzzle/ race.
g. Sum received under Keyman Insurance Policies including bonus thereon.
h. Gift as per section 56.
i. Any consideration received for issue of shares as exceeds the fair market value of
shares, etc.
1.6.6: GROSS TOTAL INCOME
As per section 14, the income of a person is computed under the following five heads:
1. Income from salaries.

2. Income from house property.
3. Profits and gains of business or profession.
4. Capital gains.
5. Income from other sources.
8
If the income is not derived from any of the above sources, it is not taxable under the
act. The aggregate income under these heads is termed as “Gross Total Income”.
In simple words, the aggregate of taxable income of all five heads of income after
setting of losses but before allowing deduction under section 80C to 80U is called as Gross
Total income.
1.6.7: TOTAL INCOME
Total income means the amount left after making the deductions under section 80C to
80U from the gross total income.
1.6.8: CASUAL INCOME
Any receipt which is of a casual and non-recurring nature is called casual income. Casual
income includes the following receipts:
a) Winning from lotteries.

b) Winning from crossword puzzles.
c) Winning from races (including horse races).
d) Winning from card games and other games of any sort.
e) Winning from gambling or betting of any form or nature.
1.7 CAPITAL AND REVENUE

Income Tax is levied on income of assessee and not an every receipt which he
receives. The method of charging tax on different types of receipt is different. Income Tax
Act, 1961 provides a separate head “CAPITAL GAINS” for levying tax on capital receipts.
Similarly, while calculating net taxable income of an assessee only revenue expenses are
allowed to be deducted out of revenue receipts. Particularly, while calculating business profit
or gain from profession, only revenue receipts and revenue expenses are considered. This
makes the distinction between capital and revenue of vital importance. Hence, the capital and
revenue items can be divided in to 3 sub-parts:
A. Capital Receipts vs Revenue Receipts
B. Capital Expenses vs Revenue Expenses
C. Revenue Losses vs Capital Losses
9
A. CAPITAL RECEIPTS VS REVENUE RECEIPTS
As discussed above, the capital receipts are to be charged to tax under “ Capital
Gains” and revenue receipts are taxable under other heads, it is of vital importance to
understand which receipt is a capital receipt and which one is a revenue. Let us understand
this concepts with some examples:
i. On the basis of nature of assets: If a receipt is referred to fixed asset, it is capital

receipt and if it is preferable to circulating asset, it is revenue receipt.
Fixed assets is that with the help of which owner earns profit by keeping it in this
possession, for example, Plant and Machinery, Building or factory, and other fixed
assets.
Circulating Asset is that with help of which owner earns profits by parting with it and
letting others to become its owner like Stock-in Trade.
Profit on the sale of Motor Car used in business by an assessee is capital receipt
whereas the profit earned by an automobile dealer, dealing in cars, by selling a car is
his revenue receipt.
ii. Termination of source of income: Any sum received in compensation for the
termination of source of income is capital receipt. For instance, compensation
received by an employee from its employer on termination of his services is capital
receipt.
iii. Amount received in substitution of income: Any sum received in substitution of
income is revenue receipt. For instance ‘A’ company purchased the right to produce a
Film from its earlier producer with the condition that no other produce will be given
these rights. Afterwards, it is found that the rights for producing this film had already
been sold. The ‘A’ Company claimed damages and was awarded ₹ 50,000. It was
held that damages received are the compensation for the profits which were to be
earned. Hence, this is revenue receipt.
iv. Compensation received on termination of lease or surrender of a right: Any
amount received as compensation on surrendering a right or termination of any lease
is capital receipt where as any amount received for loss of future income is a revenue
receipt
For example, an author gives up his right to publish a book and receives
₹ 1,00,000 as compensation. It is capital receipt but if he receives it as advance
royalty for 5 years it is revenue receipt.
10
B. CAPITAL EXPENSES VS REVENUE EXPENSES
To distinguish a Revenue Expenditure from a Capital Expenditure, the following

cases can be applied for this purpose:
i. Nature of the assets: Any expenditure incurred to acquire a fixed assets or in

connection with installation of fixed assets is capital expenditure. Whereas, any
expenditure incurred as price of goods purchased for resale along with other
necessary expenses incurred in connection with such purchase are revenue
expenses.
ii. Nature of liability: A payment made by a person to discharge a capital liability is

a capital expenditure. Whereas, an expenditure incurred to discharge a revenue
liability is revenue expenditure. For example, amount paid to a contractor for
cancellation of contract to construct a factory building is capital expenditure.
iii. Nature of Transaction: If an expenditure is incurred to acquire a source of

income, it is capital expenditure. For example, purchase of patents to produce
picture tubes of T.V. sets, whereas, an expenditure incurred to earn an income is
revenue expenditure, such as salary to staff, advertisement expenses and related
expenses.
iv. Nature of payment in the hands of payer: If an expenditure is incurred by an

assessee as a capital expenditure, it will remain a capital expenditure even if the
amount may be revenue receipt in the hands of receiver. For example, purchase of
Motor Car by a businessman is capital expenditure in his hands whereas it is
revenue receipt in the hands of car dealer.
C. CAPITAL LOSSES VS REVENUE LOSSES
Distinction has to be made between revenue losses and capital losses of the business
because under the provisions of this act. Capital losses are dealt under the Chapter “Capital
Gain” whereas revenue losses are treated as business losses and as such are treated under the
head “Profit and Gains of Business or Profession”.
Distinguish has to be made between revenue losses and capital losses of the business
because under the provisions of this Act. Capital losses can be set off against the income
from capital gain only, whereas the revenue losses are business losses and as such can be set
off against any other income of the assessee.
11
It is very difficult to distinguish between a capital loss and a revenue loss on the basis
of certain principles. On the basis of court judgment, following decisions are considered to
distinguish between capital and revenue losses.
a. Loss due to sale of assets: Where there is loss on selling a capital assets, it is a capital
loss whereas any loss incurred during the sale of stock-in-trade is a revenue loss.
b. Loss due to theft or embezzlement by an employee: Where there is embezzlement

done by an employee and this causes loss to the business, it is of revenue loss.
c. Loss due to withdrawal of money from bank: Once the amount is deposited in bank
and then it is withdrawn by an employee and is misappropriated, is a capital loss.
d. Loss due to liquidation of company: Amount deposited by a person with

manufacturing industry to get its agency and lost due to company being liquidated is a
capital loss.
1.8 EXEMPTED INCOMES

Income that is non-taxable is called as exempt income. Under section 10, there are
different sub-sections that define what kind of income is exempt from tax. This can range
from agricultural to house rent allowance.
Any income that an individual acquires or earns during the course of a financial year
that is deemed to be non-taxable is referred to as ‘Exempt Income’. As per the Income Tax
Act, there are specific kinds of income that are exempt from tax as long as these types of
income fulfil the guidelines and provisions outlined in the Act. Exempted income comes in
many forms such as the interest received through agricultural means, interest received
through PPF, long term capital gains earned through shares and stocks, and much more.
However, there is still some debate on what exactly constitutes ‘exempt income’ and if such
income is required to be declared by the taxpayer when filing his or her income tax returns.
Income Exempt from Tax as per Section 10:
Most of the incomes that are exempted from tax is listed under Section 10 of the
Income Tax Act. This section contains a list of income that is deemed or considered to be free
from taxation.
Exempted income specified under Section 10 is as follows:
12
Section 10(1) Income earned through agriculture
Any amount received by an individual through a coparcener
Section 10(2)
from an HUF
Income received by partners of a firm, as shared between
Section 10(2A)
them
Any interest that has been paid to a person who is not a
Section 10(4)(i)
resident Indian
Any interest that has been paid to the account of a person
Section 10(4)(ii)
who is not a resident Indian
Any interest that has been paid to a person who is not a
Section 10(4B)
resident Indian, but of Indian origin
Concession on travel given to an employee who is also a
Section 10(5)
citizen of India
Section 10(6) Any income earned or received by a non - Indian citizen
Section 10(6A),
Government tax paid on the income of a foreign firm
(6B), (6BB), (6C)
Allowances received by government employees stationed
Section 10(7)
abroad
Income earned by foreign employees in India under the
Section 10(8)
Cooperative Technical Assistance Program
Section 10(8A) Income earned by a consultant
Section 10(8B) Income earned by a consultant’s staff or employees
Income earned by any family member of a foreign employee
Section 10(9)
in India under the Cooperative Technical Assistance Program
Section 10(10) Gratuity
Section 10(10A) The commuted value of the pension earned by an individual
Any amount earned via encashment of leave at the time of
Section 10(10AA)
retirement
Section 10(10B) Compensation paid to workers due to relocation
Any remittance obtained as per the Bhopal Gas Leak Disaster
Section 10(10BB)
Act 1985
Section 10(10BC) Any compensation obtained in the event of a disaster
Compensation in lieu of retirement from a PBC or any other
Section 10(10C)
firm
Section 10(10CC) Any income received through taxation on perquisites
Section 10(10D) Any amount acquired via life insurance policy
13
Section 10(11) Any payment received via the Statutory Provident Fund
Section 10(12) Any payment received via recognised or authorised Fund
Section 10(13) Any payment received through a Superannuation Fund
Section 10(13A) House Rent Allowance
Section 10(14) Allowances utilised to meet business expenses
Section 10(15) Income received in the form of interest
Income received by an Indian firm through the lease of an
Section 10(15A)
aircraft from a foreign firm or government
Section 10(16) Income in the form of a scholarship
Section 10(17) Allowances granted to MLCs, MLAs or MPs
Section 10(17A) Income received in the form of a government award
Income received in the form of pension by winners of awards
Section 10(18)
for heroism
Income received by family members of the armed forces in
Section 10(19)
the form of pension
Section 10(19A) Income received from a single palace of an exruler
Section 10(20) Income received by a localised body or authority
Income received by an association involved with scientific
Section 10(21)
research
Section 10(22B) Income earned by a news or broadcasting agency
Section 10(23A) Income earned by certain Professional Institutes
Section 10(23AA) Income acquired through Regimental Fund
Section 10(23AAA) Income acquired through an employee welfare fund
Section 10(23MB) Insurance pension fund income
Section 10(23B) Income earned by village industry development institutions
Income earned by state level Khadi and Village Industries
Section 10(23BB)
Board
Income earned by regulatory bodies of institutions affiliated
Section 10(23BBA)
with religion and charity
Section 10(23BBB) Income received by the European Economic Community
Section 10(23BBC) Income received through SAARC funded regional projects
Section 10(23BBE) Income received by the IRDA
Section 10(23BBH) Income received through Prasar Bharti
Section 10(23C) Income received by any individual through certain specified
14
funds
Section 10(23D) Income earned via Mutual Funds
Section 10(23DA)j Income earned via a Securitisation Trust
Section 10(23EA) Income earned through an IPF
Income received by the Credit Guarantee Trust for Small
Section 10(23EB)
Industries
Section 10(23ED) Income exemption of IPF
Income exemption of specified income received by Venture
Section 10(23DFB)
Capital Firms, Funds or Businesses
Section 10(24) Income earned by authorised trade unions
Section 10(25) Income earned via provident funds and superannuation funds
Section 10(25A) Income earned via Employee’s State Insurance Fund
Section 10(26),
Income earned by Schedule Tribe Members
10(26A)
Section 10(26AAN) Income earned by an individual of Sikkimese origin
Section 10(26AAB) Marketing regulation with regards to agricultural produce
Income earned by corporations established for the upliftment
Section 10(26B)
of backward tribes and classes
Income earned by corporations established for the protection
Section 10(26BB)
of Minority interests
Income earned by corporations established for former
Section 10(26BBB)
servicemen
Income earned by cooperative societies established for
Section 10(27)
protection of scheduled castes and tribes interests
Section 10(29A) Income received by Community Boards
Section 10(30) Income earned in the form of subsidies via the Tea Board
Income earned in the form of subsidies via the concerned
Section 10(31)
Board
Income earned by a child in accordance with Section 64 of
Section 10(32)
the Income Tax Act
Income earned through Unit Trust of India capital asset
Section 10(33)
transfer
Income earned in the form of dividends through an Indian
Section 10(34)
firm
Income earned by a shareholder through the buyback of
Section 10(34A)
unlisted companies
15
Income received through the sale or transfer of Unit Trust of
Section 10(35)
India units as well as other mutual funds
Section 10(35A) Income from a securitisation trust that is exempt
Income received on the sale of shares under specific
Section 10(36)
conditions
Any capital gains made on the mandatory acquirement of
Section 10(37)
land in relation to urban agriculture
Any long-term capital gains made from share and security
Section 10(38) transfers that fall under the purview of Security Transaction
Tax
Any income received from any international event or
Section 10(39)
function relating to sports
Any income acquired in the form of a grant from a company
Section 10(40)
deemed to be a subsidiary of the parent company
Any income received on any asset transfer of a company or
Section 10(41) project that conducts power distribution, generation and
transmission
Any income earned by any authority that has been
Section 10(42)
established by more than one country
Section 10(43) Any income in relation to reversal of mortgage
Section 10(44) Income generated through the NPS Trust
Any allowance or perks granted to the chairman or any
Section 10(45)
member of the UPSC
Any income that comes under the category of ‘specified
Section 10(46)
income’ with regards to specific authoritative bodies
Any income that is exempt under the category of
Section 10(47)
infrastructure debt fund
Any income earned by a foreign firm or company due to
Section 10(48)
crude oil sales within India
Any income earned by the NFHC (National Finance

Section 10(49)
Holdings Company)
16
1.9 CHECK YOUR PROGRESS
Choose an appropriate answer for the following:
1. The year in which British Government in India incurred heavy losses on account of first
war of Indian independence is ______.
a. During 1857-58 c. During 1858-59
b. During 1867-68 d. During 1860-61
2. ______ is a compulsory contribution from a person to the government to meet its general
expenses in the interest of all, without any corresponding benefits to the tax payer.
a. Tax c. Penalty
b. Fine d. Income
3. The year in which income is taxable is called as______.
a. Financial Year c. Assessment Year
b. Accounting Year d. Calendar year
4. Who is tax payer?
a. Assessee c. Trust
b. Businessman d. Farmer
5. Which of the following is the capital receipt
a. Salary paid by HUF to a member c. Dividend from investment
b. Bonus share d. Sale of technological know-how
6. Exempted incomes are defined under section_____.
a. Section 15 c. Section 10
b. Section 18 d. Section 20
7. Casual income is
a. Fully taxable
b. Partly exempted
c. Fully exempted
d. None of the above
17
Answers to Check Your Progress
1. a
2. a
3. c
4. a
5. d
6. c
7. a
1.10 SUMMARY
In this we have discussed, introduction to tax, different concepts of tax, income,
exempted income etc. Therefore, we understood that, tax is an important source of revenue to
the government. It is a compulsory contribution from a person to the government to meet its
general expenses in the interest of all, without any corresponding benefits to the tax payer
which has two types direct tax and Indirect tax, while preparing tax law, government has to
follow the various canons of taxation, which play very important role. A good tax system
should have a proper combination of all kinds of taxes having different canons. Income Tax
is levied on income of assessee and not an every receipt which he receives. The method of
charging tax on different types of receipt is different. Income Tax Act, 1961 provides a
separate head “Capital Gains” for levying tax on capital receipts. Similarly, while calculating
net taxable income of an assessee only revenue expenses are allowed to be deducted out of
revenue receipts.
1.11 KEYWORDS
Tax : Compulsory contribution from a person to the
government to meet its general expenses in the interest
of all, without any corresponding benefits to the tax
payer.
Assessment Year : The period starting from April 1 and ending on March
31 of the next year.
Assessee : Every person in respect of whom, any proceeding under

the act.
18
Casual Income : Any receipt which is of a casual and non-recurring
nature.
Exempted Income : Income that is not taxable.
1.12 QUESTIONS FOR SELF-STUDY

1) What is Tax?
2) State the types of Tax.
3) Explain the canons of taxation.
4) What are the components of income tax law?
5) What is assessment year?
6) Define previous year.
7) Define income u/s 24.
8) Define person u/s 2 (31).
9) Differentiate between capital and revenue for tax point of view.
10) What is exempted income? State any ten exempted incomes under section 10.
11) Mention any four casual incomes.
1.13 REFERENCES
1. Vinod Singhania and Monika Singhania - Corporate Tax Planning & Business Tax
Procedure - Taxman Publications - New Delhi – 2022.
2. Vinod Singhania and Kapil Singhania - Direct Tax Law and Practice - Taxman
Publications - New Delhi – 2022.
3. Manoharan and Hari - Direct Tax Laws - Snow White Publications - New Delhi –
2022.
4. Girish Ahuja and Ravi Gupta - Direct Tax Law – Theory & Practice, Bharat Law
House, New Delhi – 2022.
5. Suresh T. G. - Direct Tax Laws - CCH India - New Delhi – 2022.
19
UNIT-2 DEFINITIONS OF COMPANY
Structure:
2.0 Objectives
2.1 Introduction
2.2 Definitions of Company u/s 2 (17)
2.3 Types of Companies
2.3.1 Indian Company
2.3.2 Domestic Company
2.3.3 Foreign Company
2.3.4 Widely held company
2.3.5 Closely held company
2.3.6 Banking Company
2.3.7 Investment Company
2.4 Residential Status of Company
2.5 Incidence of Tax
2.6 Rates of Tax for the AY 2023-24
2.8 Summary
2.9 Keywords
2.11 References
20
2.0 OBJECTIVES
 Give the meaning of company.

 Discuss the different types of company for income tax point of view.
 Explain the residential status of the company.
 Highlights the company’s incident of tax.
2.1 INTRODUCTION
In the previous unit, we have discussed the basic concepts of taxation, exempted
income, capital v/s revenue and exempted incomes. Hope you have studied fundamentals of
income tax and assessment of income tax of an individual assessee at under graduation level.
As we all know that, Indian companies in Indian are playing very important role for the
economic growth of the country, which are contributing 28 percent of revenue to the
government. Therefore, it is very important to study taxation of companies. In this unit, we
will discuss the definition of the company, different types of company and residential status
and incidence of tax of the company.
2.2 DEFINITIONS OF THE COMPANY U/S 2 (17)

As per section 2(17) of Income Tax Act 1961, the term company defined as:
(i) any Indian company, or

(ii) any body corporate incorporated by or under the laws of a country outside India,
or
(iii) any institution, association or body which is or was assessable or was assessed as
a company for any assessment year under the Indian Income Tax Act, 1922 (11
of 1922) or was assessable or was assessed under this Act, as a company for any
assessment year commencing on or before April 1, 1970; or
(iv) any institution, association or body, whether incorporated or not and whether
Indian or non-Indian, which is declared by general or special order of the CBDT
to be a company. Provided that such institution, association or body shall be
deemed to be a company only for such assessment year or assessment years
(whether commencing before the 1st day of April 1971, or on or after that date)
as may be specified in the declaration
21
2.3 TYPES OF COMPANIES
The classification of companies as per Income Tax Act, 1961 are given in the below chart;
Indian
company
Widely
Domestic
held Company
company
Types of
Companies
Closely
Foriegn
held Company
company
2.3.1: INDIAN COMPANY
Section 2(26) of the Income Tax Act, 1961 defines ‘Indian Company’ as a company
formed and registered under the Companies Act, 2013 and includes:
(a) a company formed and registered under any law relating to companies formerly
in force in any part of India (other than the State of Jammu and Kashmir, and the
Union Territories specified in (e) below);
(b) any corporation established by or under a Central, State or Provincial Act;
(c) any institution, association or body which is declared by the Board to be a
company under Section 2(17) of the Income Tax Act, 1961;
(d) in the case of State of Jammu and Kashmir, any company formed and registered
under any law for the time being in force in that State; and
(e) in the case of any of the Union Territories of Dadra and Nagar Haveli, Goa,
Daman and Diu and Pondicherry, a company formed and registered under any law
for the time being in force in that Union Territory.
In simple words, Indian Company may be defined as a company formed and

registered under the companies Act 2013. It includes corporations, institutions and AOP or
BOI for which the head office of the company must be situated in India.
22
2.3.2: DOMESTIC COMPANY
Section 2(22A) of the Income Tax Act, 1961, defines domestic company as an Indian
company or any other company which, in respect of its income liable to tax under the Income
Tax Act, has made the prescribed arrangements for the declaration and payment within India,
of the dividends (including dividends on preference shares) payable out of such income.
From this definition, it is clear that all Indian companies are domestic companies while all
domestic companies need not necessarily be Indian companies. In other words, a non-Indian
company would be considered as a domestic company if it makes the prescribed
arrangements for the declaration and payment of dividends in India on which tax is
deductible under Section 194.
2.3.3: FOREIGN COMPANY
Section 2(23A) of the Income tax Act defines foreign company as a company, which,
is not a domestic company. However, all non-Indian companies are not necessarily foreign
companies. If a non-Indian company has made the prescribed arrangements for declaration
and payments of dividends within India, such a non-Indian company must be treated as a
“domestic company” and not as a “foreign company”.
2.3.4: WIDELY-HELD COMPANY (COMPANY IN WHICH PUBLIC ARE

SUBSTANTIALLY INTERESTED)
Section 2(18) of the Income Tax Act defines, the “company in which the public are
substantially interested”. A company is said to be one in which public are substantially
interested in the following cases, namely –
(i) A company owned by Government/ RBI: If it is a company owned by the

Government or the Reserve Bank of India or in which not less than 40 per cent
of the shares, whether singly or taken together, are held by the Government or
the Reserve Bank of India or a corporation owned by the Reserve Bank of
India; or
(ii) Section 8 company: If it is a company which is registered under Section 8 of
the Companies Act, 2013; or
(iii) A company having no share capital declared by CBDT: If it is a company,
having no share capital and if, having regard to its objects, the nature and
composition of its membership and other relevant considerations, it is declared
23
by an order of the Board (CBDT) to be a company in which the public are
substantially interested. However, such a company shall be deemed to be one
in which the public are substantially interested only for the assessment year(s)
as may be specified in the declaration; or
(iv) Nidhi/ Mutual Benefit Society: If it is mutual benefit finance a company
which carries on, as its principal business, the business of acceptance of
deposits from its members and which is declared by the Central Government
under Section 406 of the Companies Act, 2013 to be a Nidhi or Mutual
Benefit Society; or
(v) A company owned by co-operative Society: If it is a company in which
shares carrying not less than 50 per cent of the voting power have been
allotted unconditionally to or acquired unconditionally by and are throughout
the relevant previous year beneficially held by one or more cooperative
societies;
(vi) Listed company: If it is a company which is not a private company as defined
in Companies Act and equity shares of the company (not being shares entitled
to a fixed rate of dividend whether with or without a further right to participate
in the profits, i.e., preference shares) were, as on the last day of the relevant
previous year, listed in a recognised stock exchange in India;
(vii) Public company owned by Government and/ or public limited company:
If it is a company which is not a private company within the meaning of the
Companies Act and the shares in the company (not being shares entitled to a
fixed rate of dividend whether with or without a further right to participate in
profits) carrying not less than 50 per cent (40 per cent in case of an industrial
company) of the voting power have been allotted unconditionally to, or
acquired unconditionally by and were throughout the relevant accounting year
beneficially held by (a) the Government, or (b) a corporation established by a
Central or State or Provincial Act, or (c) any company in which the public are
substantially interested or a wholly owned subsidiary company.
2.3.5: CLOSELY HELD COMPANY
A company in which the public is not substantially interested is known as a closely

held company. The distinction between a closely held and widely held company is significant
from the following viewpoints.
24
(i) Section 2(22)(e), which deems certain payments as dividend, is applicable only to
the shareholders of a closely-held company; and
(ii) A closely held company is allowed to carry forward its business losses only if the
conditions specified in Section 79 are satisfied.
2.3.6: BANKING COMPANY
A Company to which the banking regulations Act 1949 is applicable and includes any
bank or banking institutions referred in section 51 of the Act.
2.3.7: INVESTMENT COMPANY
An investment company is a Company whose main business is holding securities of

other companies purely for investment purposes. The investment company invest money on
behalf its share holders who intern share in the profits and losses.
2.4 RESIDENTIAL STATUS OF COMPANY U/S 6(3)

As you know, the incidence of income tax depends upon the residential status of a
company in India during the relevant previous year. A Company may be either resident or
non-resident in India based on the following conditions:
Section Company Residential status
6(3) (i) Indian Company Always resident in India
6 (3) (ii) A Foreign company (whose It will be resident in India, if, it place
turnover/ gross receipt in the of effective management (POEM)
previous year is more than ₹ 50 during the relevant previous year, is in
crore) India.
6 (3) (iii) A Foreign company (whose Always non-resident in India

turnover/ gross receipt in the
previous year is ₹ 50 crore or
less)
 An Indian company is always resident in India. Even if an Indian company is controlled

from a place outside India (or even if shareholders of Indian company controlling more
than 51percent voting power are non-resident and/or located outside in India), an Indian
company can never be a non-resident India.
25
 A Foreign company is resident India if it places of effective management (POEM),
during the relevant previous year is in India.
 A company cannot be ordinary or not-ordinary resident.
From Assessment Year 2017-18, a foreign company is resident in India if its Place of
Effective Management (POEM) during the previous year is in India. For this purpose, the
place of effective management (POEM) means a place where key management and
commercial decisions that are necessary for conduct of the business entity as a whole are, in
substance made.
2.4.1 THE PLACE OF EFFECTIVE MANAGEMENT (POEM)
Place of Effective Management (POEM) is an internationally recognised test for

determination of residence of a company incorporated in a foreign jurisdiction. Any
determination of POEM will depend upon the facts and circumstances of given case. The
POEM concept is one of substance over form. An entity may have more than one place of
management, but it can have only one place of effective management at any point of time.
Since, ‘residence’ is to be determined for each year, POEM will also be required to determine
on year-to-year basis. The process of determination of POEM would be primary based on the
fact as to whether or not the company is engaged in active business outside India.
2.4.2 ACTIVE BUSINESS OUTSIDE INDIA
A company shall said to be engaged in active business outside India if-
a. The passive income is not more than 50 % of its total income.
b. Less than 50% of total assets are situated in India
c. Less than 50% of total number of employees are situated in India or are resident in
India
d. The payroll expenses incurred on such employees is less than 50% of its total
payroll expenditure
2.4.3 PASSIVE INCOME
Passive income of a company shall be aggregate of –
a. Income from transaction where both the purchase and sale of goods is from or to its
associate enterprise
b. Income by way of royalty, dividend, capital gains, interest or rental income.
26
The residential status of a company can understand from the following illustration.
Illitration-1: XYZ Ltd. is an Indian Company. It has 10 shareholders who are foreign
citizens and non-resident in India. The business of the company is fully controlled from
outside India. Find out the residential status of XYZ Ltd. for the assessment year 2023-24.
Solution: XYZ Ltd, is an Indian Company. An Indian company is always resident in India.
This rule is equally applicable even if shareholders are foreign citizens as well as non-
resident or even if business is controlled from outside India.
Illustration-2: Y Ltd, is a company incorporated in Mauritius (turnover more than ₹ 50

crore). It has 10 shareholders who are Indian citizens and resident in India. The company has
active business outside India and is controlled wholly from outside India by a team of
professionals. What is the residential status of Y Ltd for the assessment year 2023-24?
Solution:
 Y Ltd is foreign company.
 It is controlled from outside India (POEM is outside India).
 Therefore, it is Non-Resident in India.
 Residential status and nationality of the shareholders are irrelevant here.
2.5 INCIDENCE OF TAX

In the previous section we have discussed, the residential status of the company.
Incidence of the tax dependents upon residential status of the company. The following
provisions according to the act explains the incidence of tax.
According to Section 5(1) of the Act, the total income of any previous year of a resident
company would consist of:
(i) Income received or deemed to be received in India during the previous year by
or on behalf of such company;
(ii) Income which accrues or arises or is deemed to accrue or arise to it in India
during the previous year;
(iii) Income which accrues or arises to it outside India during the previous year.
It is important to note that under clause (iii) only income accruing or arising outside
India is included. Income deemed to accrue or arise outside India is not includible in the
27
hands of residents. Hence, net dividends received from foreign companies are includible in
income and not the gross dividends.
Under Section 5(2) of the Act, the total income of any previous year of non-resident
company would consist of:
(i) Income received or deemed to be received in India in the previous year by or on

behalf of such company;
(ii) Income which accrues or arises or is deemed to accrue or arise to it in India during
the previous year.
2.6 RATES OF TAX FOR THE ASSESSMENT YEAR 2023-24
Assessment Year
Particulars
2023-24
Domestic Company
- Where it opted for Section 115BAA [This benefit shall be 22%

available when total income of the company is computed without
claiming specified deductions, incentives, exemptions and additional
depreciation available under the Income-tax Act.]
Where it opted for Section 115BA [This regime shall be available 15%
only for the manufacturing companies incorporated in India on or
after 01-10-2019. Hence, old companies will not be able to take the
benefit of this section.]
- Where it has not opted for Section 115BAA and the Total 25%
Turnover or Gross receipts of the company in the last previous year
does not exceeds 400 crore rupees
- Any other domestic company 30%
Foreign Company
On so much of the total income as consists of- royalties received 50%

from Government or an Indian concern in pursuance of an
agreement made by it with the Government or the Indian concern
28
after the 31st day of March, 1961 but before the 1st day of April,
1976; or fees for rendering technical services received from
Government or an Indian concern in pursuance of an agreement
made by it with the Government or the Indian concern after the 29th
day of February, 1964 but before the 1st day of April, 1976,and
where such agreement has, in either case, been approved by the
Central Government
On other incomes 40%
SURCHARGE:
(i) For Domestic Company:

(a)The amount of income-tax shall be increased by a surcharge at the rate of 7%
of such tax, where total income exceeds one crore rupees but not exceeding ten
crore rupees.
(b) At the rate of 12% of such tax, where total income exceeds ten crore rupees.
(c) However, the rate of surcharge in case of a company opting for taxability
under Section 115BAA or Section 115BAB shall be 10% irrespective of
amount of total income.
(ii) For Foreign Company: Surcharge @ 2% where total income exceeds Rs. 1 crore
and @ 5% where total income exceeds Rs. 10 crores
HEALTH AND EDUCATION CESS:
The amount of income-tax and the applicable surcharge, shall be further increased by
health and education cess calculated at the rate of four 4% of such income-tax and surcharge.
MARGINAL RELIEF:
In case of a company having a total income exceeding ₹ 1 crore, marginal relief

would be provided to ensure that the additional income-tax payable including surcharge, on
the excess of income over ₹ 1 crore is limited to the amount by which the income is more
than ₹ 1 crore.
In other words, marginal relief = [Tax on total income (plus surcharge) - Tax on
total income of ₹ 1 crore] – [Total Income – ₹ 1 crore)], if positive.
29
Similarly in case of a company having total income exceeding ₹ 10 Crore, the amount
payable as income tax and surcharge shall not exceed the total amount payable as income tax
and surcharge on total income of ₹ 10 Crore by more than the amount of income that exceeds
₹ 10 Crore.
In other words, marginal relief = [Tax on total income (+surcharge) – Tax on total
income of 10 crore(+surcharge)] – [ Total Income – 10 crores], if positive.

1. Under which income tax Act, Company is defined.
a. Section 2(17) c. Section 2(8)
b. Section 2(12) d. Section 2 (24)
2. Domestic Company is defined under section______.
a. section 2(17) c. Section 2(26)
b. Section 2(20) d. Section 2 (24)
3. The applicable tax rate, if gross receipts of the company in the last previous year does not
exceeds 400 crore rupees is
a. 25% c. 40%
b. 30% d. 50%
4. If a company which is registered under Section 8 of the Companies Act, 2013; is

called_____.
a. Widely held company c. Domestic Company
b. Closely held Company d. Investment Company
5. In case of Domestic Company, applicable surcharge if total income of the company

exceeds ₹ 10 Crores is ______.
a. 25% c. 7%
b. 3% d. 12%
Answer to Check Your Progress
1. a 2. c 3. a 4. a 5. D
30
2.8 SUMMARY
In this unit we have discussed, definitions of a company and different types of
company for income tax point of view and also discussed residential status of the company
which very important steps for computation of total income and tax lability of company
assessee. The unit also highlighted the applicable tax rate to the corporate assessee for the
assessment year 2023-24. Indian companies in Indian are playing very important role for
the economic growth of the country, which are contributing 28 percent of revenue to the
government. the incidence of income tax depends upon the residential status of a company
in India during the relevant previous year. A Company may be either resident or non-
resident in India.
2.9 KEYWORDS
Indian Company : A company formed and registered under the
Companies Act, 2013.
Foreign Company : The Company which is not domestic company.
Place of Effective : A place where key management and commercial

Management (POEM) decisions that are necessary for conduct of the
business entity.
Passive Income : Income from transaction where both the purchase and
sale of goods is from or to its associate enterprise.

1. Define Company as per Income tax Act.
2. Differentiate between Indian Company and Domestic Company?
3. What is closely held company and widely held company?
4. What is resident company? Explain the residential status of Company.
5. Mention the different tax rates applicable to corporate assessee for the assessment year
2023-24.
6. Explain the incidence of tax of a company.
31
2.11 REFERENCES
2022.
32
UNIT-3 HEADS OF INCOME
Structure:
3.0 Objectives
3.1 Introduction
3.2 Income from House Property
3.3 Profits or Gain from Business or Profession
3.4 Capital Gain
3.5 Income from Other Sources
3.6 Computation of Taxable Income
3.7 Computation of Tax Liability of a Company
3.9 Summary
3.10 Keywords
3.12 References
33
3.0 OBJECTIVES
 Discuss different heads of income.

 Compute the gross total income and total income of company.
 Explain the Minimum Alternative tax.
 Compute tax liability of a company.
3.1 INTRODUCTION
In the previous unit, we have discussed the definition of a company and understand
the different types of company for tax point of view. And also discussed the residential
status of company. Residential status of the company is very important to calculate total
income of a company. The total income of the company will be determining with different
heads of income. Heads of the company have been classified into four categories, viz,
Income from house property, Profit or gain from business or profession, Capital Gain and
Income from other sources. Computation of total income and tax liability of the company
shall be discussed in this unit.
3.2 INCOME FROM HOUSE PROPERTY

Income from house property is one of the important head of income. Income is
taxable under the head Income from house property, if the following conditions are
satisfied.
a. The property should consist of any building or land appurtenant there to.
b. The assessee should be the owner of the property and
c. The property should not be used by the assessee for the purpose of any business or
the profession carried on by him.
Income from house property will be calculating based on the gross annual value
(GAV) of the property, the GAV can be calculated by considering the following factors:
Terminologies Associated with Income from House Property
Annual value: This is the actual rent received or to be received by the property owner on
renting out the house.
Municipal Rental value: This is the value on house property as calculated by the
municipal authorities for imposing municipal taxes.
34
Fair rental value: Fair rental value is the rent which a similar property with similar
features in the same locality would fetch.
Standard rent: The standard rent is determined under the Rent Control Act. If the
standard rent has been fixed for any property under the Rent Control Act, the property
owner cannot charge a rent higher than the standard fixed rent.
Net Annual Value: NAV is calculated as Gross Annual Value minus Municipal Taxes
paid.
Deductions: To ascertain the actual taxable income, the taxpayer can claim the following
deductions under Section 24 of the Income Tax Act, 1961.
Standard Deduction: The assessee can claim 30% of the NAV as a deduction towards
rent collection, repairs etc., irrespective of the actual expenses are incurred. This deduction
will not be permitted in case the GAV is nil.
Interest on home loan: Deduction can be claimed for interest on home loan under Section
24 of the Income Tax Act. The limit under this section is ₹ 2 lakhs.
Conditions associated with claiming tax exemption on home loan interest are:
 Loan should be availed after 1st April, 1999 for property purchase or construction.
 The taxpayer can claim benefits for repairs or reconstruction work of an existing
property.
 Processing and prepayment charges shall be regarded as interest payment.
 The purchase or construction needs to be completed within 3 years from the end of the
financial year in which the loan was availed.
Computation Income from House Property
Particulars LOP/DLOP SOP
Gross Annual Value XXXX --

Less: Municipal Tax XXX ---
Net Annual Value XXX ---

Less: Deduction u/s 24
a. Standard Deduction-30% of NAV XXX ---
b. Interest on loan XXX XXX
Income from House Property XXXX XXXX
35
Computation of Gross Annual Value
Particulars Amount (₹)
Municipal Rental Value (MRV) XXXX
Fair Rental Value (FRV) XXXX
Notional Rent (Whichever is Higher) XXXX
Standard Rent XXXX
Expected Rental Value (Whichever is less) XXXX
Actual Rent XXXX
Gross Annual Value (Whichever is Higher) XXXX
3.3 PROFIT OR GAIN FROM BUSINESS OR PROFESSION

Business is an activity of purchase and sale of goods with the purpose of making
profit.
Profession is an occupation necessitating intellectual skill. E.g., Doctor, Lawyer

etc. Vocation is an activity, which requires a special skill, which is used to earn income.
e.g., Painter, Singer, etc. For income tax purpose, there is no difference between business
income, profession income and vocation income.
BUSINESS- Section 2 (13):
“Business includes any trade, commerce or manufacture or any adventure or concern in the
nature of trade, commerce or manufacture.”
Profession Section 2(36):
“Profession” may be defined as a vacation, or a job requiring some thought, skill and
special knowledge like Charted Accountant, Lawyer, Doctor, Engineer, Architect, etc. So,
profession refers to those activities where the livelihood is earned by the persons through
their intellectual or manual skill.
36
Essential features of profits from business and profession:
 Business or Profession carried on by the assessee.

 The business or profession must be carried out by assessee himself.
 Business or profession should have been carried during the previous year.
 Aggregate income of different businesses is assessed to tax.
 Profits from speculation business are also taxed under the head income from
business.
 Income from previous year should be taxed for the current assessment year.
 The real profit i.e., the profit received or receivable during the previous year are
taxed.
BASIS OF CHARGE - SECTION 28:
Under Section 28 following are the income chargeable to tax under the head Profits
or Gains from Business or profession:
1. Profits and Gains of any business or profession that is carried on by the assessee at
any time during the previous year.
2. Any compensation or other payment due to or received by an assessee for loss of
agency due to termination or modification of terms.
3. Income derived by a trade, professional or a similar association for specific
services
performed for its members.
4. Any profit on sale of a license granted under Imports (controls) Order 1955 made
under Imports & Exports (control) Act of 1947.
5. Any cash assistance (by whatever name called) received or receivable against
exports
under any scheme of Government of India.
6. Any duty of customs or excise repaid or repayable as drawback to any person
against
exports under the Customs and Central Excise Duty’s Drawback Rules 1971.
7. Any profit on the transfer of the duty entitlement pass book scheme under export
import policy.
8. Any profit on the transfer of the duty-free replenishment certificate under export -
import policy.
37
9. The value of any benefit or perquisite whether convertible into money or not
arising from business or exercise of a profession. e.g. a gift received by the lawyer
from his client.
10. Any interest, salary, bonus, commission or remuneration due to or received by
partner of a firm.
11. Sum received or receivable in cash or in kind under an agreement for not carrying
out any activity in relation to any business or not sharing any know how, patent,
copyright, trade mark, license, franchise or any other business or commercial right
of similar nature or information or technique likely to assist the manufacture or
processing of goods or provision of services.
12. Any sum received including bonus under Keyman Insurance Policy.
13. Any sum received (or receivable) in cash or kind, on account of any capital asset
(other than land or goodwill or financial instrument) being demolished, destroyed,
discarded or transferred, if the whole of the expenditure on such capital asset has
been allowed as a deduction under section 35AD.
14. Income from a speculative business.
Admissible Expenses:
The following expenses are admissible expenses which are allowed as deduction under the
head profit or gain from business or profession:
1. Rent, Rates, Taxes, Repairs and Insurance for Building [Section 30]
2. Repairs and Insurance of Machinery, Plant and Furniture [Section 31]
3. Depreciation [Section 32]
4. Investment allowance in Notified Backward Area in Andhra Pradesh, Bihar,

Telangana or West Bengal [Section 32AD]
5. Tea/Coffee/Rubber Development Account [Section 33AB]
6. Site Restoration Fund [Section 33ABA]
7. Expenditure on Scientific Research [Section 35]
8. Expenditure for Obtaining Right to use Spectrum for Telecommunication Services

[Section 35ABA]
38
9. Expenditure for obtaining Licence to operate Telecommunication Services [Section
35ABB]
10. Deduction in respect Of Expenditure on Specified Business [Section 35AD]
11. Payment to Associations and Institutions for carrying out Rural Development
Programmes [Section 35CCA]
12. Expenditure on Agricultural Extension Project [Section 35CCC]
13. Expenditure on Skill Development Project [Section 35CCD]
14. Amortisation of Preliminary Expenses [Section 35D]
15. Amortisation of expenditure in case of Amalgamation / Demerger [Section 35DD]
16. Amortisation of Expenditure under Voluntary Retirement Scheme [Section

35DDA]
17. Amortisation of Expenditure on Prospecting etc., for Development of Certain

Minerals. (Section 35E).
18. Insurance Premium [Section 36(1)(i)]
19. Bonus or Commission to Employees [Section 36(1)(ii)]
20. Interest on Borrowed Capital [Section 36(1)(iii)]
21. Discount on issue of Zero-Coupon Bonds [Section 36(1) (iiia)]
22. Employer’s Contribution to National Pension Scheme (NPS) [Section 36(1) (iva)]
23. Contribution towards Approved Gratuity Fund [Section 36(1)(v)]
24. Employees’ Contribution to Staff Welfare Schemes [Section 36(1) (va)]
25. Allowance in respect of Dead or Permanently useless Animals [Section 36(1)(vi)]
26. Bad debts [Section 36(1)(vii)]
27. Provision for Bad and Doubtful Debts relating to Rural Branches of Commercial
Banks [Section 36(1) (viia)]
28. Transfer to Special Reserve [Section 36(1)(viii)]
29. Family Planning Expenditure [Section 36(1)(ix)]
30. Securities Transaction Tax [Section 36(1)(xv)]
39
31. Commodities Transaction Tax [Section 36(1)(xvi)]
32. Expenditure by Co-Operative Society for purchase of Sugarcane [Section

36(1)(xvii)
33. General Deductions [Section 37]
Inadmissible Expenses:
Inadmissible expenses are those expenses which are not allowed as deductions under the
head profit or gain from business or profession. The following are the inadmissible
expenses.
1. Advertisement expenses incurred by an assessee on advertisement in any souvenir,

magazine, pamphlet published by political party.
2. Interest, royalty, fees paid outside India without TDS shall be disallowed.
3. Any amount of income tax, arrears of income tax or advance income tax paid is
disallowed.
4. Payment of provident fund paid outside India without TDS.
5. Payment to a relative by way of salary, provident fund, or Interest.
6. Any expenditure paid in cash or through bearer cheque exceeding ₹ 20,000 will be
disallowed.
7. Capital expenditures.
8. All types of provisions, reserves and fund.
9. Drawing of proprietor.
10. Personal expenses of proprietor.
11. Fines and penalties.
12. Past losses and provisions for losses.
13. Charity and Donation.
14. Registration expenses of business assets.
15. Legal expenses related to capital assets.
16. Life insurance premium on the life of proprietor.
17. Expenditures on raising capital.
18. Expenditure on shifting registered office.
19. Gifts made on personal consideration.
40
Computation of Income from Business or Profession
Particulars Amount (₹) Amount (₹)
Profit as per statement of profit and loss XXXX
Add: (a)Inadmissible expenses charged to statement of XXXX

profit or loss
(b)Business income but not credited to statement XXXX

of profit or loss
(c)Overvaluation of opening stock and XXXX XXXX

Undervaluation closing stock
XXXX
Less: (a)Non-business income but credited to statement XXXX

of profit or loss
(b)Admissible expenses but not charged to XXXX

statement of profit or loss
(c)Under valuation of opening stock and XXXX XXXX

overvaluation of closing stock
Income from Business or profession XXXX
Illustration: 01
M/s. Prasad Ltd. has prepared the following profit and loss account for the year ending 31-
03-2023
Particulars ₹ Particulars ₹
Salary to employees 8,000 Gross profit 1,37,300
Advertisement expenses 4,000 Dividends from Indian Co. 4,000
Sundry expenses 4,500 Rent from House Property 16,500
Interest on capital 2,000 Interest on securities (non trade) 92,000
Fire insurance premium 3,000 Lottery winning (TDS-3,000) 15,000
(₹1,000 relates to HP)
41
Income tax 7,000
Fines and Penalties 2,500
Bad debts 1,000
Provision for bad debts 1,500
Repairs of HP 1,000
Municipal tax of HP 3,600
Donation to hospital 3,000
Donation to congress party 4,000
Depreciation (allowable) 3,700
Net profit 2,16,000
2,64,800 2,64,800
Business runs in the house owned by the proprietor, which is used as follows.
a) 25% of carpet area for his own business.

b) 25% of carpet area for his own residence.
c) 50% of carpet area is let out.
d) Advertising expenses includes expenditure of ₹ 3,000 on Neon Sign Board.
You are required to compute M/s. Prasad Ltd. taxable income from Business for
A.Y. 2023-24 (Ignore Alternative Tax Regime under Section 115BAC)
Solution:
Computation of Taxable Income from Business for the Assessment Year 2023-24
Assessee: M/s Prasad Ltd. A.Y.: 2023-24
Residential Status: Resident P.Y.:2022-23
Particulars ₹ ₹
Net profit as per profit and loss account 2,16,000
Add: Inadmissible expenses debited to P&L A/c
1. Interest on capital 2,000
2. Fire insurance premium (1,000 of 75%) 750
3. Income tax 7,000
4. Fines and Penalties 2,500
5. Provision for bad debts 1,500
6. Repairs of HP (1,000 of 75%) 750
7. Municipal tax of HP (3,600 of 75%) 2,700
42
8. Donation to hospital 6,000
9. Donation to Congress party 4,000
10. Neon sign board (being Capital expenture) 3,000
30,200
2,46,200
Less: Allowable expenses not debited to P&L A/c
Depreciation on neon sign board (3,000 of 10%) 300
Less: Non-Business and Tax free income credited to
P&L A/c
1.Rent from HP 16,500
2.Dividend from Indian Co.(Taxable and non-business 4,000
income)
3.Lottery winning 15,000
4.Interest on securities 92,000 1,27,800
Income from business 1,18,400
Note: Dividend from Indian Company is taxable income chargeable under the head
income from other sources.
Illustration: 2
M/s. Reshma Ltd. running a cloth business has prepared the following profit and loss
account for the year ended 31st March 2023. You are required to compute business income
and gross total income for the A.Y. 2023-24. (Ignore Alternative Tax Regime under
Section 115BAC)
Trade expenses 450 Gross profit 1,00,000
Establishment charges 2,200 Dividends
Rent, Rates and taxes 1,400 (Gross from Indian Co.) 2,640
Provisions for Bad dets 1,850 Interest on Non-Govt.
Discounts allowed 200 Securities (net) 1,592
Income tax 700 Rent received from paying guest 21,908
Advertisement 450
Postage and Telegrams 100
Donations to school 125
43
Fire insurance premium 250
Donation to NDF 800
Repairs etc. 1,600
Fines and Penalties 850
Advanced IT Paid 600
Interest on capital 400
Audit fees 250
Net profit 1,13,915
1,26,140 1,26,140
Solution:
Computation of Taxable Income from Business
Assessee: M/s. Reshma Ltd. A.Y.: 2023-24
Particulars ₹ ₹
Net profit as per profit and loss account 1,13,915
1.Provision for Bad debts 1,850
700
2.Income tax
125
3.Donation to school 800
4.Donation to NDF 850
600
5.Fines and Penalties
400
6.Advanced IT Paid
7.Interest on capital 5,325
1,19,240
Less: Non-Business and Tax-free income credited to
P&L A/c
1. Dividends (Gross from Indian Co.) (Taxable and non- 2,640
business income)
1,592 4,232
2. Interest on Non-Govt. Securities (net)
Taxable Income from Business 1,15,008
44
Computation of Gross Total Income
Particulars ₹ ₹
1. Income from House property Nil
2. Profit and Gain of Business or Profession 1,15,008

Nil
3. Capital Gains
4. Income from other sources
*Dividend from an Indian Co. 2,640

100
*Interest on Non-Govt Securities (Net) {1592 × } 1,769
90
4,409
Gross Total Income 1,19,417
Note: TDS on interest on securities for the financial year 2022-23 is 10%.
Illustration – 3:
Compute the total income of PPS Ltd. for the previous year 2022-23 from the following
statement of profit and loss or additional information;
Statement of Profit or Loss

(For the year ended 31st March 2023)
I. Revenue form operations 500,000
II. Other Income
Interest 10,000
Short term capital Gain 15,000 25,000
III. Total Revenue 5,25,000
IV. Expenses:
Employee benefit expenses-Salary and 1,00,000
Bonus --
Depreciation and amortization expenses 10,000
Office rent 10,000
War risk insurance 10,000
Postage and Stationery 20,000
General Charges 25,000
45
Reserve for depreciation 2,00,00 3,75,000
Provisions for Income Tax -2022-23
V. Profit Before Tax (III-IV) 1,50,000
VI. Tax Expenses -Income Tax 2021-22 50,000
VII. Profit for the period 1,00,000
Additional Information:
a. The general charges include ₹ 5000 for advertising; ₹ 1000 for charitable
donation; ₹ 3000 paid to motor car company for exchanging the old car for new
one; ₹ 1000 for charity and ₹ 5000 miscellaneous repairs.
b. The amount of depreciation admissible under the income tax Act is ₹ 15,000
only.
c. The amount of interest is from Govt. Securities.
Solution:
Computation of Income from Business
Assessee: PPS Ltd. A.Y.: 2023-24

Particulars ₹ ₹
Net Profit as per Statement of profit or loss 1,00,000
Add: Items not allowed
 Reserve for Depreciation 25,000
 Income Tax -2021-22 50,000
 Provision for Income Tax 2022-23 2,00,000
 Donation 1,000
 Payment for Car being Capital Expenditure 3,000
 Charity 1,000 2,80,000
3,80,000
Less: Items Allowed
 STCG 15,000
 Interest on Securities taxable under the head
income from other sources 10,000
 Depreciation allowed 15,000 40,000
INCOME FROM BUSINESS 3,40,000
46
Computation of Total Income of PPS Ltd
Assessee: PPS Ltd. A.Y.: 2023-24
Particulars ₹ ₹
1. Income from House property --
2. Income from Business 3,40,000
3. Capital Gain-STCG 15,000
4. Income from Other Sources- Interest 10,000
GROSS TOTAL INCOME 3,65,000
Less: Deduction U/S 80G to 80U
 50% of Donation u/s 80G (Charity-50% of ₹ 1000) 500
TOTAL INCOME 3,64,500
Illustration- 4:
Surya Ltd., has furnished to you the following particulars for its assessment in respect of
its previous year ended on 31st March 2023.
Particulars ₹
1. New Business
a. Profit before allowing depreciation 50,000
b. Depreciation admissible 40,000
2. Old Manufacturing Business
a. Profit before allowing depreciation 1,50,000
b. Depreciation admissible 40,000
3. Speculation business-Profit or loss
a. Oil- Loss 80,000
b. Cotton-Profit 40,000
4. Profit or Loss on sale of Assets
a. Long Term Profit 1,00,000
b. Short term Loss 60,000
5. Dividend from Indian Company
a. Gross 1,00,000
b. Expenses Incurred (Collection Charges) 20,000
47
you are required to compute the total income of the Surya Ltd. for the assessment year
2023-24. The company has distributed the amount of dividend of ₹ 70,000 on 16th
September 2022.
Computation of Total Income of Surya Ltd

Assessee: Surya Ltd. A.Y.: 2023-24
Particulars ₹ ₹
I. Income from Business
A. New Business -Profit after Depreciation 10,000
B. Old Manufacturing Business -PAD 1,10,000
C. Speculation Business
Cotton Profit- 40,000
Less: Oil Loss 80,000 --- 2,20,000
II. Capital Gain
Long Term Capital gain 1,00,000
Less: Short term capital loss 60,000 40,000
III. Income from other sources
Divided from Indian Company 1,00,000 1,00,000
(₹ 20,000 expenses not deductible)
Less: Deduction u/s 80G to 80U ---
Illustration -5:
The statement of profit or loss of XYZ Ltd. for the year end 31st March 2023 shows a net
profit of ₹ 15,00,000. The credits and debits in the statement of profit or loss includes the
following items among others.
Credits ₹
a. Dividend from Indian Company (GROSS) 1,00,000
b. Net rent form house property (Computed) 23,000
Debits ₹
48
a. Provision for Taxation 2,00,000
b. Salary and perquisites 1,16,000
c. Office Expenses at New York (allowable) 60,000
d. Legal Expenses 3,000
e. Expenses for obtaining loan 20,000
f. Amount embezzled by the cashier of the
company which irrecoverable 15,000
The Company has distributed dividend ₹ 90,00,000 on 16th October 2021. Compute the
total income of the company.
Solution:
Computation of Total Income of XYZ Ltd

Assessee: XYZ Ltd. A.Y.: 2023-24
Particulars ₹ ₹
I. Income from House Property (Computed) 23,000
II. Income from Business
Net profit as Statement of profit or Loss 15,00,000
Add: Items disallowed
 Provision for Taxation 20,00,000
Less: Items Allowable
 Dividends 1,00,000
 Rent from house property 23,000 33,77,000
III. Income from other sources -Dividend 1,00,000
GROSS TOTAL ICOME 35,00,000
Less: Deduction u/s 80G to 80U --
49
Illustration – 6:
The following is the Manufacturing and Profit and Loss account of a Surgas Mill Co. for
the year ended 31-3-2023.
To Opening stock 1,82,300 By Sales 24,51,500
“ Cost of cane crusher 12,57,700 “ Miscellaneous Receipt 6,700
“ Manufacturing Expenses 7,98,500 “ Closing Stock 3,66,000
“ Repairs and Rewards 40,700
“ Establishment Charges 41,600
“ Miscellaneous Expenses 17,800
“ Commission on sales 1,42,100
“ Director Fees 1,600
“ Auditor Fees 2,000
“ Depreciation written off 1,30,700
“ Balance c/d 2,09,200
28,24,200 28,24,200
By balance b/d 2,09,200
“ Amount transferred to reserve fund 25,000
“ Reserves for IT 90,000
“ Balance carried to Balance sheet 94,200
2,09,200 2,09,200
Compute the business income for the Assessment year 2023-24, after taking the
following information into account:
1. Cane crushed included ₹1,54,000, the cost of cane grown on companies own form.
2. The average market price of the same being ₹1,96,000.
3. Manufacturing expenses include
(a) ₹4,26,000 for excise duty paid.
(b) ₹68,000 spent on scientific research of which ₹57,000 for capital expenditure
on the filling up of a new research laboratory and ₹11,000 for current
expenditure.
4. Establishment charges include ₹1,200 for contribution towards employees PF
which is unrecognized.
50
5. Miscellaneous expenses include ₹5,000 for donation to local educational
institutions and ₹2,000 for donation to public hospital where the companies
employees are treated free and ₹2,000 commission in connection with issue of
shares for setting up a new industrial unit.
6. Sugar worth ₹1,000 was distributed free on Diwali Pooja which is not included in
the above Profit and Loss account.
7. ₹15,000 cost of addition to factory building has been charged to revenue account.
8. Amount of depreciation admissible according to rules works out ₹98,200.
Solution:
Computation of Taxable Business Income
Assessee: Sugar Mill Company A.Y.2023-24

Status: Resident P.Y. 2022-23
Particulars ₹ ₹
Net Profit as per Profit and Loss account 2,09,200
Add: (a) In admissible expenses debited to Profit and Loss a/c
 Contribution to URPF 1,200
 Donation to local education institution 5,000
 Donation to public hospital 2,000
 Commission in connection with issue of shares 2,000
 (considered separately)
 Depreciation (considered separately) 1,30,700
 Cost of building charged to revenue account 15,000 1,55,900
Add: (b) Business Income not credited to Profit and Loss Account - -
(c) Overvaluation of opening stock and under - -
valuation of closing stock
3,65,100
Less: (a) Admissible expenses not debited to Profit and Loss
Account
 Cost of cane crushed(Average Market Price- Cost of 42,000
cane grown) (1,96,000 – 1,54,000)
 Depreciation (Actual Amount) 98,200
51
 Commission in connection with issue of shares 400
(2,000X15)
 Sugar distributed to employees on Diwali 1,000 1,41,600
Illustration – 7:
Kashyap Ltd. a domestic company in which public are substantially interested,

Manufacture Textiles for the year ending 31-3-2023.
The following information from the Profit and Loss account of the company
showed a net profit of ₹10,00,000 on a turnover of ₹1,00,00,000. This included the
following debits to Profit and Loss account.
1. Dividend amounting to ₹ 2,00,000 declared on 1-7-2021 to the shareholders for the

accounting year 2021-22 paid in December 2022.
2. Interest amounting to ₹10,000 paid on the loan taken for the payment of company’s
income tax liability.
3. Interest amounting to ₹15,000 paid on the loan taken to make donation to an
approved charity.
4. ₹20,000 spent by the managing director on his visit to :
a) Canada to buy machinery and finalize a collaboration agreement for a new
independent undertaking proposed to be setup (Cement Factory) ₹10,000.
b) U.S.A. to study export market for textiles ₹10,000.
c) Managing director’s wife accompanies her husband ₹10,000 were
contributed by the company towards her foreign trip expenses and the
Canadian collaborator paid ₹15,000 towards her expenses.
5. Company incurred expenditure of ₹1,00,000 as follows:
a) Advertisement in Newspaper ₹ 50,000.
b) Advertisement in a souvenir of political party ₹25,000.
c) Guest house of a factory ₹35,000.
d) ₹20,000 paid to legal advisors in respect of proceedings before income tax
authorities.
6. Company incurred ₹25,000 as entertainment expenditure.
52
7. Penalty of ₹24,000 for importing yarn in contravention of import regulation.
Compute the taxable income of the company for the A.Y. 2023-24.
Solution:
Assessee: Kashyap Ltd A.Y.: 2023-24

Status: Resident P.Y.: 2022-23
Particulars ₹ ₹
Net profit as per Profit and Loss account 10,00,000
Add: Inadmissible expenses debited to Profit and Loss
Account
 Dividend paid 2,00,000
 Interest on loan taken for IT proceedings 10,000
 Interest on loan taken for donation 15,000
 Visit to Canada for finalizing the agreement 10,000
 MD’s wife trip expenses 10,000
 Advertisement in souvenir of political party 25,000
 Penalty 24,000 2,94,000
Illustration - 8:
Following is the Profit and Loss Account of a Purohit Ltd.Co. for the year ending
31-3-2023. Find out the total income of the company for the Academic Year 2023-24.
Dr. Cr.
To Sales tax paid 25,000 By G.P. b/d 2,90,000
“ Reserve for doubtful debts 6,000 “ Premium on Issue of 23,000
shares
“ General charges 13,000
“ Fines and Penalties 2,000
“ Commission and Brokerage 14,000
53
“ Income tax 13,000
“ Underwriting commission paid 3,000
regarding issue of shares
“ Cost of issue of debentures 1,500
“ Interest on debentures 2,000
“ Donation to prime minister 7,000
draught relief fund
“ Workmen’s compensation 1,000
insurance
“ Loss by embezzlement 9,000
“ Recognized PF 2,500
“ Compensation paid to customers 62,000
for termination of contract
“ Legal expenses 5,000
“ Commitment charges 6,000
“ Damage paid for wrong full 49,000
dismissal of MD
“ Net Profit 92,000
3,13,000 3,13,000
Additional information:
1. ₹10,000 on account of liability forgone by a creditor to whom the sum was due by
the way of commission charged by the company, in the revenue account of
preceding year and ₹30,000 on account of speculation profit have been carried to
special reserve, it is claimed that speculation is not the regular business of the
company.
2. General charges includes-
a) ₹500 donation to the hospitals where the companies employees are treated free.
b) ₹1,000 subscription to Sugar’s syndicate whose object is to regulate the sugar
sale price.
c) ₹ 1,000 interest on unpaid price on business asset purchased by company.
d) ₹ 3,000 spent on promoting family planning among its employees.
54
3. Commission and brokerage includes ₹10,000 on account of secret commission
disburse through the MD.
4. The Company is prepared to satisfy the IT authorities in every respect except
furnishing the names of payers as such disclosure would be determinantal to its
business.
5. Legal expenses were incurred in defending the officer of the company in a
protection under the Essential Supplies (Temporary Power) Act of 1946.
6. Commitment charges were paid on the undrawn amount of a loan which was kept
in readiness by the lender for disbursement.
Solution:
Assessee: Purohit Ltd. A.Y.: 2023-24
Status: Resident P.Y.: 2022-23
Particulars ₹ ₹
Net profit as per Profit and Loss Account 92,000
Add: (a) Inadmissible expenses debited to Profit and
Loss Account
 Reserve for doubt debts 6,000
 Donation paid to the hospitals 500
 Damages paid for wrongful dismissal of MD 49,000
 Fines and penalties 2,000
 Commission and Brokerage on account of secret 10,000
commission
 Income Tax paid 13,000
 Under writing commission paid regarding the 3,000
issue of shares ( considered separately)
 Donation to prime minister draught relief fund 7,000
 Commitment charges 6,000 96,500
55
(b) Business income not credited to Profit and Loss
account
 Amount foregone by the creditor 10,000
 Speculation income 30,000 40,000
2,28,500
Less: (a) Admissible expenses debited to Profit and Loss
Account
 Under writing commission ( 3,000 X 1/5) 600
 Cost of issue of debentures ( 1,500 X 1/5) 300
(b) Non business income credited to Profit and
Loss account
 Premium on issue of shares 23,000 23,900
Taxable income from business 2,04,600
3.4 CAPITAL GAIN

Any profit or gain rising from transfer/sale of a capital asset is a capital gain. This
gain or profit shall be charged to tax in the year in which transfer of capital assets takes
place.
No capital gain is applicable when an asset is inherited because there is no 'sale',

only a transfer of ownership. However, if this asset is sold by the person who inherits it,
capital gains tax will be applicable. The Income Tax Act has specifically exempted assets
received as gifts by way of an inheritance or will.
Conditions: If the asset is satisfied the following conditions, then it will be taxable under
the head “Capital Gain”
 There must be a capital asset

 The transfer must be of capital asset
 The transfer must have been taken place during the previous year.
 The transfer of such capital asset must give rise to profit or gain
Transfer Sec. 2 (47): It includes a sale, exchange or relinquishment of the asset or

extinguishment of any right or the compulsory acquisition under the law or conversion of
the asset in to stock in trade.
56
Capital Assets Sec. 2(14): Property of any kind held by the assessee whether connected or
not with his business or profession. It includes all kinds of property, movable or
immovable, tangible or intangible. For examples land, building, house property, vehicles,
patents, trademarks, leasehold rights, machinery, jewellery, shares, debentures, units,
mutual funds, securities held by FII as per SEBI, etc.
Types of capital assets:
Capital Assets Short Term Financial Asset: It is held for less than 12 months
or 1 year like securities, bonds, shares mutual funds
Other Asset: It is held for less than 36 months or 3

years like Jewellery etc. and less than 24 months for
immovable properties like land, building, house
property.
Long Term Financial Asset: It is held for more than 12 months

or 1 year
Other Asset: It is held for more than 36 months or 3

year and more than 24 months for immovable
properties like land, building, house property
Type of capital Gain:
Short term Capital Gain: Any gain arising  Tax on short-term capital gain when
from transfer of short-term capital asset is securities transaction tax is not
known as short-term capital gain. applicable: short-term capital gain is
For Example: Equity funds are considered added to income tax return and the
as short-term when held for 12 months or taxpayer is taxed according to the
less. income tax slab
 Tax on short-term capital gain if
securities transaction tax is
applicable: short-term capital gain is
taxable at the rate of 15%
+surcharge and cess
Long-term capital Gain: Any gain arising  Sale of equity share : 10% tax of the
from transfer of long-term capital asset is gain exceeds ₹ 1(one) lakhs
known as long-term capital gain.  Except for sale of equity: 20% tax
57
For Example: House property held for rate
more than 3 years is termed as long-term  Financial year 2001-2002 is taken
capital asset. as base =10
Calculation of Long-Term Capital Gain:
Particulars ₹ ₹
Sale Consideration XXXX
Less: Selling Expenses XXXX
Net Sale Consideration XXXX
Less: Indexed Cost of Acquisition XXX
Less: Index Cost of Improvement XXX XXXX
Long Term Capital Gain XXXX
Less: Exemption U/S 54, 54B, 54D, 54EC, 54F, 54G, 54GA XXXX
Taxable Long Term Capital Gain XXXX
Calculation of Short-Term Capital Gain:
Particulars ₹ ₹
Sale Consideration XXXX
Less: Selling Expenses XXXX
Net Sale Consideration XXXX
Less: (a) Cost of Acquisition XXX
(b) Cost of Improvement XXX XXXX
Taxable Long Term Capital Gain XXXX
3.5 INCOME FROM OTHER SOURCES

Income from other source is the fifth and the last heads of income. Any source of
income which does not fall under any of the other heads of income is chargeable to tax
under the head ‘Income from other sources’.
58
Conditions:
If the income is satisfied the following conditions, then it will be taxable under the
head income from other sources;
 Income of every kind.

 Not excluded from Total Income.
 Not chargeable to tax under other four heads of income.
 Shall be chargeable to Income Tax under Income from Other Sources.
Following Incomes SHALL BE chargeable under head Other Sources [Section 56(2)]
1. Dividend income.
2. Winnings from lotteries, cross word puzzles, card games etc.
3. Interest on securities, if not chargeable under business or profession.
4. Income from letting of plant, machinery or furniture, if income not chargeable
under business or profession.
5. Income from composite letting of building together with plant, machinery or
furniture, which is inseparable from letting of such building, if such income not
chargeable under Business or Profession.
6. Sum received under Keyman Insurance Policy, if not chargeable under salary or
business or profession.
7. Sum/property received as Gifts.
8. Share premium in excess of fair market value received by Closely Held Company.
9. Interest received on compensation or on enhanced compensation.
10. Advance or other money received in course of negotiations for transfer of a capital
asset, if such sum is forfeited and negotiations do not result in transfer of such
capital asset.
11. Any compensation or other payment, due to or received by any person, by
whatever name called, in connection with the termination of his employment or
the modification of the terms and conditions relating thereto.
Examples:
1. Rental income from vacant land

2. Income from sub-letting of house property
3. Interest on loan/deposits.
4. Agricultural income outside India
59
5. Family pension.
6. Insurance commission
7. Income from undisclosed sources
8. Royalty (If not covered under Business or Profession)
9. Receipt of life insurance money [(If not exempt u/s 10(10D)]
10. Director fees/commission
11. Director salary if not chargeable under salary
12. Salary to MP/MLA, etc.
3.6 COMPUTATION OF TAXABLE INCOME

The aggregate income of income from house property, Profit or Gain from business
or profession, Capital gain and Income from other sources are called as Gross Total
Income (GTI).
Statement of Computation of Gross Total Income of a Company for the

Assessment Year 2023-24
Particulars ₹ ₹
Income from House Property XXXX
Profit or Gain from Business or Profession XXXX
Capital Gain XXXX
Income from Other Sources XXXX
Total XXXX
Less: Adjustment towards set off and carry forward of loses XXXX
Gross Total Income XXXX

Less: Deduction under Chapter VIA XXXX
Taxable Income XXXX
60
3.7 COMPUTATION OF TAX LIABILITY OF A COMPANY
Statement of Computation of Tax Liability of a Company for the Assessment Year 2023-
24
Particulars ₹ ₹
Tax on Total Taxable income or Net income XXXX
Add: Surcharge XXXX
Tax and surcharge XXXX
Add: Health and Education Cess @ 4% XXXX
Less: Rebate under section 86/89/90/90A/91 XXXX
Less: Prepaid taxes XXX

Self-assessment tax XXX
TDS/TCS XXX
Advance tax XXX XXXX
Tax Payable XXXX
Illustration-6:
The following is the information of Tanush and Co. for the year 2022-23.
To cost of goods sold 10,00,000 By sales 14,00,000

To tax relating to LTCG 3,000 By long term capital gain 1,50,000
To depreciation 85,000 (Exempt u/s 10 (38))
To proposed dividend 1,30,000 By Interest on Govt. securities 15,000
To income tax 60,000
To net profit 2,87,000
15,65,000 15,65,000
1. Depreciation allowable for the year as per Income Tax Act is ₹ 50,000
2. Brought forward business loss as per books of account is ₹ 1,25,000
61
3. Brought forward unabsorbed depreciation is ₹ 55,000
Compute:
1. Total income of the company under normal provision

2. Tax liability of the company
Solution:
Computation of Taxable Income from Business of Tanush and Co.
for the Assessment Year 2023-24
Particulars ₹ ₹
Net profit as per Profit and Loss account 2, 87, 000

 Tax relating to LTCG 3,000
 Depreciation 85,000
 Proposed dividend 1,30,000
 Income Tax 60,000 2,78,000
5,65,000
Less: Non-business income but credited to P&L A/c
 Long Term Capital Gain 1,50,000
 Interest on Government Securities 15,000 1,65,000
4,00,000
Less: Admissible expenses but not debited to P&L A/c
 Depreciation allowable 50,000
 Brought forward business loss 1,25,000
 Brought forward unabsorbed depreciation 55,000 2,30,000
Income from Business 1,70,000
62
Computation of Taxable Income for the Assessment Year 2023-24
Particulars ₹ ₹
Capital Gain-Long term capital gain Exempt
Income from other sources:
Interest on government securities 15,000
Less: Deduction U/s 80G to 80U ---
Total Income 1,85,000
Computation of Tax Liability for the Assessment Year 2023-24
Taxable Tax
Tax
Particulars amount Liability
Rate
(₹) (₹)
Other Income 1,85,000 25% 46, 250

Add: Surcharge --- -- ---
Add: Health and Education Cess 46,250 4% 1,850
Tax Liability 48,100
Illustration-7:
Compute the total income of PPS Ltd for the previous year 2022-23 from the following
statement of Profit or Loss and additional information;
Figures as at the
Particulars Note No. end of current
reporting period
I. Revenue from operations 5,00,000
II. Other income
Interest 10,000
63
Short term capital gains 15,000 25,000
III. Total revenue 5,25,000
IV. Expenses
Cost of material consumed -
Changes in Inventories of finished
goods, WIP and Stock in Trade -
Salary and allowances 1,00,000
Depreciation expenses -
Other expenses
Office rent 10,000
General expenses 20,000
Reserve for depreciation 25,000
Provision of income tax 2022-23 2,00,000
Total Expenses 3,75,000
V. Profit before tax (III-IV) 1,50,000
VI. Tax Expenses – Income Tax 2021-22 50,000
VII. Profit for the period (V-VII) 1,00,000
a. The general charges include ₹ 5,000 for advertising, ₹ 1,000 for chartable
donation, ₹ 3,000 paid to motor car company for exchanging the old car for new
one; ₹ 1,000 for charity and ₹ 5,000 for miscellaneous repairs.
b. The amount of depreciation admissible under the income tax Act is ₹ 15,000 only.
64
Solution:
Computation of Income from Business
Particulars ₹ ₹
Net profit as per statement of Profit or Loss 1,00,000
Add: Inadmissible expenses charged to statement of

profit or loss
 Reserve for depreciation 25,000

 Income tax for the year - 2021-22 50,000
 Provision for Income tax for the year - 2022-23 2,00,000
 Donation 1,000
 Payment for Car being capital expenditure 3,000
 Charity 1,000 2,80,000
3,80,000
Less: Non-Business income but credited to P&L A/c
 Short Term Capital Gain 10,000

 Interest on Government Securities 15,000 25,000
3,55,000
Less: Admissible Expenses but not debited to P&L A/c
 Depreciation allowable 15,000 15,000
65
Computation of Taxable Income
For the Assessment Year 2023-24
Particulars ₹ ₹
Capital Gain: Short Term Capital Gain 15,000
Less: Deduction U/s 80G to 80U
80G-50% of Donation of ₹ 1,000 500

1. Under the head income from house property, the basis of charge is______
a. Rent received c. Annual value
b. Gross annual value d. Municipal value
2. Interest on loan paid prior to completion of construction of house shall be allowed as
deduction______.
a. In 2 instalments for 2 years c. In 4 instalments for 4 years

b. In 3 instalments for 3 years d. In 5 instalments for 5 years
3. Out of the following which expenses is not admissible expenses.
a. Bad debts c. Income Tax

b. GST d. Excise duty
4. Which of the following is not a capital asset?
a. Goodwill of a business c. Stock in trade

b. Jewellery d. Agriculture land in Delhi
66
5. Income from subletting of house property is______.
a. Income from other sources c. Exempted

b. Property income d. Capital gain
6. ______ is the casual income
a. Interest received c. Pension received

b. Dividend income d. Winning from lotteries
1.c 2.d 3.c 4.c 5.a 6. d
3.9 SUMMARY
In this unit we have discussed, different heads of income of company, i.e., Income
from House property, Profit or Gain from Business or Profession, Capital Gain and Income
other sources and also discussed computation of gross total income, total income and tax
liability of a company.
3.10 KEYWORDS
Annual Value : This is the actual rent received or to be received by the
property owner on renting out the house.
Standard Deduction : The assessee can claim 30% of the NAV as the
deduction towards rent collection, repairs etc.,
irrespective of the actual expense is incurred. This
deduction will not be permitted in case the GAV is nil.
Admissible Expenses : The expenses which are allowed as deduction under the
head profit or gain from business or profession.
Inadmissible Expenses : The expenses which are not allowed as deduction under
the head profit or gain from business or profession.
Gross Total Income : The aggregate of four heads of income i.e., Income
from House Property, Income from Business, Capital
Gain and Income from Other Sources.

1. What is annual value?
2. Explain the meaning of business or profession.
67
3. Define speculative transaction.
4. Mention any ten fully allowable expenses under the head income from business.
5. Discuss long term and short-term capital gain.
6. What is capital asset? Briefly explain the types of capital asset as per Income Tax Act.
7. Mention any ten items which are taxable under the head income from other sources.
8. What is Indexed Cost of Acquisition and Indexed cost of improvement?
9. X Ltd is running a steel business in India. The following profit and loss account for the
year ended 31st March 2023 has prepared by the company. You are required to compute
taxable income for the A.Y. 2023-24. (Ignore Alternative Tax Regime under Section
115BAC)
Trade expenses 55,000 Gross profit 2,50,000

Establishment charges 22,000 Dividends
Rent, Rates and taxes 14,000 (Gross from Indian Co.,) 2,640
Household expenses 1,800 Interest on Non-Govt.
Discounts allowed 5,000 Securities (net) 1,592
Income tax 6,000 Rent received from paying guest 21,908
Advertisement 2,000
Postage and Telegrams 1,000
Gifts and presents to a friend 1,250
Fire insurance premium 5,000
Donation to NDF 1,600
Repairs etc. 3,200
Life insurance premium 1,000
Advanced IT Paid 6,000
Interest on capital 1,000
Audit fees 500
Net profit 1,49,790
2,76,140 2,76,140
68
10. Indigo Ltd provides you to the following is the information for the year 2022-23.
To Income Tax 1,500 By Long term Capital gain 75,000
To Depreciation 42,500 (Exempt u/s 10 (38))
To Proposed Dividend 65,000 By Int. on Govt. Securities 7,500
To Provision for Income Tax 30,000
To Net profit 1,43,500
7,82,500 7,82,500
1. Depreciation allowable for the year as per Income Tax Act is ₹ 25,000
2. Brought forward business loss as per books of account is ₹ 60,000
3. Brought forward unabsorbed depreciation is ₹ 30,000
Compute:
1. Total income of the company under normal provision.

2. Tax liability of the company.
11. Compute the total income of Civil Core Ltd for the previous year 2022-23 from the
following statement of Profit or Loss and additional information;
Figures as at the
Particulars Note No. end of current
reporting period
II. Other income
Interest 5,000
Short term capital gains 7,500 12,500
III. Total revenue 2,62,500
IV. Expenses
69
Cost of material consumed -
Changes in Inventories of finished -
goods, WIP and Stock in Trade -
Salary and allowances 50,000
Depreciation expenses -
Other expenses
Office rent 5,000
General expenses 12,500
Provision of income tax 2022-23 1,00,000
Total Expenses 2,02,500
V. Profit before tax (III-IV) 60,000
VI. Tax Expenses – Income Tax 2021-22 20,000
VII. Profit for the period (V-VII) 40,000
a. The general charges include ₹ 2,000 for advertising, ₹ 2,000 for chartable donation,
₹ 1,000 paid to motor car company for exchanging the old car for new one; ₹ 1,000
for charity and ₹ 2,000 for miscellaneous repairs.
b. The amount of depreciation admissible under the income tax Act is ₹ 10,000 only.
12. Compute the assessable income of Right Ltd. based on the undermentioned particulars
relating to the year ending 31-3-2023.
Net profit without adjustment for the following: 3,46,000
1. Salary, rent, electric charges etc.-pre production expenses-
previously allocated to capital assets 3,00,000
2. Depreciation for the year (Including that on roads, drive
ways and compound wall ₹ 5000) 15,000
3. Capital Employed 3,04,000
4. Brokerage for obtaining loan ₹ 10 lakhs 10,000
70
5. Propaganda to prevent seizure of business by Govt. 15,000
6. Legal expenses 16,000
7. Entertainment expenses 26,000
8. Forfeiture of securities deposit paid to a customer for non-
fulfilment of contract 5,000
13. Compute the total income of MMS Ltd. for the previous year 2022-23 from the
following statement of profit and loss or additional information;
Statement of Profit or Loss
(For the year ended 31st March 2023)
II. Other Income
Interest 50,000
Short term capital Gain 7,500 57,500
III. Total Revenue 3,07,500
IV. Expenses
Employee benefit expenses-Salary and Bonus 50,000
Depreciation and amortization expenses --
Office rent 5,000
General Charges 10,000
Provisions for Income Tax -2022-23 1,00,000 1,87,500
V. Profit Before Tax (III-IV) 1,50,000
VI. Tax Expenses -Income Tax 2021-22 40,000
VII. Profit for the period 1,10,000
71
a. The general charges include ₹ 6000 for advertising; ₹ 2000 for charitable donation
₹ 3000 paid to motor car company for exchanging the old car for new one; ₹ 1000 for
charity and ₹ 5000 miscellaneous repairs.
b. The amount of depreciation admissible under the Income Tax Act is ₹ 10,000 only.
c. The amount of interest is from Karnataka Govt. Securities.
14. Kar India Ltd is Industrial Company. Facts of the case are: For the previous year
ended on 31-3-23;
a. Profit from business ₹ 10,00,000
b. Dividends from Indian Company ₹ 52,000
c. Income from royalty for providing technical know-how to Indian Concern ₹ 25,000
A scrutiny of the profit and loss account further furnished the following information:
a. Export promotion expenses incurred ₹ 60,000

b. Accrued liability for staff gratuity provided in the accounts on accrual basis, no gratuity
funds have been set up ₹ 1,00,000
c. GST paid ₹ 2,500
d. The company conducted research to develop a new product. A laboratory for this
purpose was set up. Total cost debited to building a/c ₹ 1,50,000 and Depreciation
claimed ₹ 7,500.
You are required to compute the total income of a company for the A Y 2023-24.
3.12 REFERENCES
2022.
72
UNIT-4 DEPRECIATION
Structure:
4.0 Objectives
4.1 Introduction
4.2 Conditions for Charging Depreciation
4.3 Block of Assets
4.4 Rates of Depreciation
4.5 Additional Depreciation
4.6 Methods of Charging Depreciation
4.7 Computation of Depreciation
4.9 Summary
4.10 Keywords
4.12 References
73
4.0 OBJECTIVES
 Give the meaning of depreciation.

 Highlights the rate of depreciation.
 Explain the method of depreciation.
 Compute the allowable depreciation as per Income Tax Act.
4.1 INTRODUCTION
Depreciation is the diminision in the value of an asset due to normal wear and tear and
due to the passing of time or obsolescence. Normally, depreciation for financial statements is
calculated under the straight-line method or written down value method. However, for
income tax purposes, depreciation can be claimed in a different method than the normal
allowance for wear and tear. The higher depreciation rate allowed for income tax purposes
helps businesses reduce their tax liability while incentivizing capital expenditure.
Depreciation rates vary according to the legally specified useful life mentioned in the Income
Tax Act for each category of asset. For example, the depreciation rate which is applicable
to buildings is different from the rate applicable to plant and machinery. Thus, in this unit we
shall concentrate on the provision and computation of depreciation as per Income Tax Act.
4.2 CONDITIONS FOR CHARGING DEPRECIATION
The following conditions must be satisfied by the assessee for claiming depreciation
allowance under the Income Tax Act:
1. The asset must be owned by the assessee who claims the depreciation. However, the
asset could also be partially owned by the assessee to be eligible for depreciation.
2. The asset must have been used for the purpose of a business or profession carried on
by the assessee.
3. The asset should have been used during the relevant year in which depreciation
allowance is claimed.
4.3 BLOCK OF ASSETS
Section 2(11) of Income Tax has defined ‘Block of Assets’ as a ‘group of assets’
falling within a ‘class of assets’ comprising-
74
(a) Tangible assets, being buildings, machinery, plant or furniture;
(b) Intangible assets, being know-how, patents, copyrights, trade-marks, licenses,

franchises or any other business or commercial rights of similar nature,
4.4 RATES OF DEPRECATION
Sl. No. Tangible assets Rate
1 Buildings used primarily for residential reasons (excluding boarding 5%

houses and hotels)
2 Buildings apart from those used primarily for residential reasons and 10%
not covered by sub items
3 Buildings procured on or after September 1, 2002, for installing plant 40%
and machinery forming part of water treatment system or water
supply project and which is used for the purpose of business of
providing infrastructure facilities under clause (i) of subsection (4) of
section 80-IA
4 Purely temporary erections like wooden structures 40%
5 Furniture and fittings including electrical fittings 10%
6 Plant and machinery 15%
7 Motor cars, excluding those used in a business of running them on 15%

hire, procured or put to use on or after April 1, 1990
8 Motor cars, other than those used in a business of running them on 30%
hire, acquired on or after 23rd of August, 2019 but before 1st of April,
2020 and is put to use before 1st of April, 2020.
9 Aeroplanes, Aero Engines 40%
10 (a) Motor taxis, motor buses and motor lorries used in a business of 30%
running them on hire
75
11 (b) Motor buses, motor lorries and motor taxis used in a business 45%
of running them on hire, acquired on or after 23rd of August,
2019 but before 1st of April, 2020 and is put to use before the 1st
of April, 2020.
12 Commercial vehicle which is procured by the assessee on or 40%
after October 1, 1998, but before April 1, 1999, and is used for
any period of time prior to April 1, 1999, for the purpose of
profession or business in agreement with the third proviso to
clause (ii) of sub-section (1) of section 32
13 New commercial vehicle procured on or after October 1, 1998, 40%
but prior to April 1, 1999, in replacement of condemned vehicle
of more than 15 years of age and is used for any period of time
prior to April 1, 1999, for the purpose of business or profession
in agreement with the third proviso to clause (ii) of sub-section
(1) of section 32
14 New commercial vehicle procured on or after April 1, 1999, but 40%
before April 1, 2000, in replacement of condemned vehicle of
more than 15 years of age and is put to use prior to April 1,
2000, for the purposes of profession or business in agreement
with the second proviso to clause (ii) of sub-section (1) of
section 32
15 New commercial vehicle procured on or after April 1, 2001, but 40%
before April 1, 2002, and is put to use before April 1, 2002, for
the purpose of profession or business
16 New commercial vehicle which is acquired on or after the 1st 40%
day of January, 2009 but before the 1st day of October, 2009
and is put to use before the 1st day of October, 2009 for the
purposes of business or profession [See paragraph 6 of the Notes
below this Table]
17 Moulds used in plastic and rubber goods factories 30%
18 Air pollution control equipment 40%
19 Containers made of plastic or glass used as refills 40%
20 Computers including computer software 40%
76
21 Plant and machinery, used in processing, weaving and garment 40%
sector of textile industry, which is bought under TUFS on or
after April 1, 2001, but prior to April 1, 2004, and is put to use
prior to April 1, 2004
22 Plant and machinery procured and installed on or after 40%
September 1, 2002, in a water treatment system or a water
supply project and put to use for the purpose of business of
providing infrastructure facility under clause (i) of sub-section
(4) of section 80-IA
23 Wooden parts used in artificial silk manufacturing machinery 40%
24 Match factories, wooden match frames 40%
25 Cinematograph films, bulbs of studio lights 40%
26 Salt works, condensers, reservoirs, salt pans, etc., made of 40%
clayey, sandy or earthy material or any other similar material
27 Sand stowing pipes, winding ropes, tubs and haulage ropes 40%
28 Safety lamps 40%
29 Flour mills, rollers 40%
30 Sugar works, rollers 40%
31 Steel and iron industry, rolling mill rolls 40%
32 Gas cylinders including regulators and valves 40%
33 Glass manufacturing concerns, Direct fire glass melting furnaces 40%
34 Mineral oil concerns 40%
35 Books, being annual publications 40%
36 Books other than annual publications 40%
37 Books owned by assessees carrying on business in running 40%
lending libraries
38 Ocean-going ships including tugs, survey launches, dredgers, 20%
barges and other similar ships used primarily for dredging
purposes and sighing vessels with wooden hull
39 Vessels ordinarily operating on inland waters, not covered by 20%
sub-item (iii) below
40 Vessels ordinarily operating on inland waters being speed boats 20%
77
Intangible assets
1 Franchise, trademark, patents, license, copyright, know-how or 25%
other commercial or business rights of similar nature
4.5 ADDITIONAL DEPRECIATION
In case of any new machinery or plant (excluding ships and aircraft) acquired and
installed after March 31, 2005 by an assessee who is engaged in the business of manufacture
or production of any article or thing – additional depreciation under Income Tax Act of 20%
of actual cost shall be allowed.
From A.Y. 2013-14 the same is also allowed to assessee engaged in the business of
generation or generation and distribution of power, where the depreciation is provided on
WDV method.
From assessment year 2017-18 the same is also allowed to the assessee engaged in the
business of transmission of power.
Where the asset is used for less than 180 days, then 50% depreciation i.e, 1/2 of 20%
(i.e. 10%) is available (balance 50% of additional depreciation can be claimed in next year)
4.6 METHODS OF CHARGING DEPRECIATION
Section 32(1) of the Act provides that depreciation is to be computed at the prescribed
percentage on the written down value of the asset which in turn is calculated with reference to the
actual cost of the assets. In the context of computing depreciation, it is important to understand the
meaning of the term ‘WDV’ and ‘Actual Cost’.
4.7 COMPUTATION OF DEPRECIATION
Format for Calculating Depreciation
Block of
Particulars
Asset
Opening value of W.D.V as on 1-4-2022 XXX
Add: Purchase of assets during the previous year XXX
XXX
Less: Sales during the previous year XXX
Cost of asset for depreciation XXX
78
Less: Depreciation for the year 2022-23 XXX
Balance XXX
Less: Additional Depreciation XXX
Closing balance or W.D.V as on 01-04-2023 XXX
Illustration-1:
A Ltd. set-up a new business on 1st July 2022 and for this purpose machinery was for ₹ 40,000 from
B Ltd. which was closing down the business and installed it in the own building which was
constructed at a cost of ₹ 2,00,000 in May 2022. The prescribed rates of depreciation for machinery
and building are 15% and 10% respectively. Compute depreciation on the assets.
Solution:
Computation of Amount of Depreciation
Block-I
Block-II
Particulars (old
(Building)
Machine)
Opening value of W.D.V as on 1-4-2022 40,000 2,00,000
Add: Purchase of assets during the previous year Nil Nil
40,000 2,00,000
Less: Sale of assets during the previous year Nil Nil
Actual cost of asset for depreciation 40,000 2,00,000
Less: Depreciation - Machinery 40000 X 15/100 6,000 -------
- Building 200000 X 10/100 ----- 20,000
34,000 1,80,000
Less: Additional Depreciation ----- -------
Closing balance or W.D.V as on 01-04-2023 34,000 1,80,000
Note: Additional Depreciation is only applicable on new plant and Machinery.
Illustration-2:
M/s. Bhagat Singh Ltd. provides the following particulars which are furnished for its
depreciation claim for the year ended 31st March 2023:
79
Buildings: ₹
Rate - 10%
W.D.V. of factory Building 1,30,000
New additions on 1-9-2022 to above 40,000
W.D.V. of office building 50,000
Machinery: ₹
Rate - 15%
W.D.V of machinery 1,00,000
A new machine purchased and installed in production
Department on 1-4-2022 60,000
An old machine purchased and installed in production
Department on 1-11-2022 50,000
Sold an old machine on 1-11-2022 40,000
Furniture: ₹
Rate - 15%
W.D.V. on furniture 15,000
New additions to furniture on 1-12-2022 5000
Compute the depreciation for the assessment year 2023-24.
Solution:
Block-I Block-II Block-III

Particulars
(Building) (Machinery) (Furniture)
Opening Value or W.D.V. as on 1-4-2022 1,30,000 1,00,000 15,000
Add: Purchases during the previous year 40,000 1,10,000 5,000
1,70,000 2,10,000 20,000
Less: Sales during the previous year ---- 40,000 ----
Actual cost of assets for depreciation 1,70,000 1,70,000 20,000
Less: Depreciation-Building 170000X10/100 17,000 ---- ----
- Machinery (>180 days) 120000X15/100=18000
+ Machinery (<180 days) 50000X7.5/100=3750 ---- 21,750 ----
- Furniture (>180 days) 15000X10/100= 1500
80
+Furniture (<180 days) 5000X15/100=250 ---- ---- 1,750
1,53,000 1,48,250 18,250
Less: Additional Depreciation for New machinery ---- 12,000 ----
(60,000X30/100)
Closing Balance 1,53,000 1,36,250 18,250
Illustration – 3:
M/s. Ramesh Ltd. furnishes the following particulars related to P.Y.2022-23.
a) Opening value of Machinery, A ₹50,000.
b) Purchased another Machinery B on 1-1-2023 for ₹50,000.
c) Sold Machinery B on 1st March 2023 for ₹ 45,000.
d) Purchased a computer on 1st September 2022 for ₹1,00,000.
e) Bought books on 15th November 2022 for ₹ 10,000.
Calculate amount of depreciation.
Solution:
Block I Block II Block III
Particulars Machinery Computer Book
(15%) (40%) (40%)
Opening value of the asset 50,000 Nil Nil
Add: Purchase during the year 50,000 1,00,000 10,000
Balance 1,00,000 1,00,000 10,000
Less: Sales during the year 45,000 Nil nil
Balance 55,000 1,00,000 10,000
Less: Loss from the sales 5,000 nil nil
Balance 50,000 1,00,000 10,000
Less: Depreciation 7,500 40,000 2,000
Closing Value of the Asset 42,500 60,000 8,000
81
Note: 1) If any assets purchased and sold during the same previous year, no depreciation is
allowable but in case any difference arises between purchase value and sale value that is
treated as loss on sales.
2) Books used less than 180 days so half of the depreciation is allowable.
Illustration - 4:
M/s. Jhon Ltd. purchased a new machinery on 1st April 2022 for ₹ 20,00,000 and also paid
₹2,00,000 as installation charge, ₹1,00,000 for freight and ₹ 50,000 for cost of insurance
while purchase. After installation, spends ₹2,50,000 as repair expenses during the previous
year. Calculate amount of depreciation.
Solution:
Computation of Amount of Depreciation for Machinery
Particulars ₹ ₹
Cost of purchase 20,00,000
Add: Expenses incurred up to installation
a) Installation charges 2,00,000
b) Freight 1,00,000
c) Insurance 50,000 3,50,000
Total cost of machinery 23,50,000
Less: Depreciation (23,50,000 x 15/100) 3,52,500
Balance 19,97,500
Less: Additional depreciation (23,50,000 x 20/100) 4,70,000
Closing Value of the Machinery 15,27,500
Note: Any expenses incurred up to installation and asset to be ready to use it is also
considered as acquisition cost.
82
Illustration-5:
‘Vasu’ Ltd. Owns the following assets on 1-4-2021.
Rate of
Actual Cost W.D.V as on
Asset Depreciation
(₹) 1-04-2021
(%)
Building
A 40,00,000 13,60,000 10
B 16,00,000 2,35,000 10
C 18,00,000 35,786 5
Plant
A 3,70,000 75,400 15
B 8,10,000 1,68,000 15
C 1,30,000 17,000 40
D 60,000 34,000 4
He acquired the following used assets after 1-04-2021.
Rate of
Cost Date of
Asset Depreciation
(₹) Acquisition
(%)
Building
D 8,00,000 28-11-2021 10
E 8,30,000 08-06-2021 5
Plant
E 4,90,000 12-08-2021 15
F 2,10,000 18-10-2022 15
G 3,90,000 30-10-2022 40
He sells the following assets after 01-04-2021.
Net Sale
Assets Date of Sale
Consideration
Building
A 11-05-2021 10,70,000
Plant
83
B 16-05-2021 40,000
D 18-12-2021 1,15,000
C 08-04-2022 68,000
Compute the W.D.V and the amount of depreciation for the assessment year 2023-24 and
2023-24.
Solution:
Computation of W.D.V. and Depreciation of Vasu Ltd.
Block of Asset
Block-I Building 10% (A&B)

Block-II Building 5% (C)
Block-III Plant 15% (A,B)
Block-IV Plant 40% (C,D)
Block- I Building (A&B) – 10%
Particulars ₹ ₹
W.D.V. as on 1-4-2021 15,95,000
Add: Purchases during the year 8,00,000
23,95,000
Less: Sales during the year 10,70,000
Depreciable Balance 13,25,000
5
Less: Depreciation on (8,00,000X ) 40,000
100
10
On Balance (5,25,000X ) 52,500 92,500
100
W.D.V as on 1-4-2022 12,32,500
Add: Purchases during the year -
12,32,500
Less: Sales during the year -
Depreciable balance 12,32,500
10
Less: Depreciation on (12,32,500X ) 1,23,250
100
W.D.V. as on 1-4-2023 11,09,250
84
Block –II – Building – 5%
Particulars ₹ ₹
W.D.V as on 1-4-2021 35,786
8,65,786
5 43,289
Less: Depreciation (8,65,786X100)
W.D.V. as on 1-4-22 8,22,497

8,22,497
5 41,125
W.D.V. as on 1-4-2023 7,81,372
Block –III – Plant – 15%

Particulars ₹ ₹
W.D.V as on 1-4-2021 2,43,400
7,33,000
Less: Sale during the year 40,000
15 1,04,010
Less: Depreciation(6,93,400X100)
W.D.V as on 1-4-2022 5,89,390
7,99,390
7.5 15,750
Less: Depreciation on (2,10,000X100)
15 88,409 1,04,159
On Balance (5,89,390X100)
W.D.V as on 1-4-2023 6,95,231
85
Block –IV – Plant – 15%
Particulars ₹
W.D.V. as on 1.4.2021 51,000
51,000
Less: Sales during the year 1,15,000
Depreciable Balance -
Less: Depreciation -
W.D.V. as on 1.4.2022 -
3,90,000
Less: Sales during the year 68,000
20 64,400
W.D.V. as on 1-4-2023 2,57,600
Summary Table
Block W.D.V. as Deprecation W.D.V. as Depreciation W.D.V. as
on 1-4-2021 on 1-4-2022 on 1-4-2023
I 15,95,000 92,500 12,32,500 1,23,250 11,09,250
II 35,786 43,289 8,22,497 41,125 7,81,372
III 2,43,400 1,04,010 5,89,390 1,04,159 6,95,231
IV 51,000 - - 64,400 2,57,600
Total 2,39,799 3,32,934
Illustration-6:
‘Varista’ Ltd is engaged in the business of manufacturing of computer hardware since 1995.
During the previous year 2022-23. The following assets are acquired and put to use.
Particulars Block – I Block – II Block – III

Rate of depreciation 15% 30% 60%
No of assets in the block 11 12 17
Depreciated Value of the block on 1-4-2022 18,00,000 25,00,000 5,00,000
Additions of Plants (new)
During the Previous Year 2022-23
Plant – A 57,00,000 - -
86
Plant – B - 4,00,000 -
Plant – C - - 17,00,000
Sale of old Plants
(One plant in each block) 8,000 28,70,000 42,00,000
Plant A,B and C are acquired during May-2022 and put to use during September-
2022. However, plant –B is put to use in last week March 2023.
Find out the amount of depreciation, additional depreciation and capital gains.
Solution:
Computation Depreciation Additional Depreciation and Capital Gains of Vasista Ltd.
Block – I Block – II Block – III

Particulars
(15%) (30%) (60%)
W.D.V. as on 1-4-2022 18,00,000 25,00,000 5,00,000
Add: Purchases during the year 57,00,000 4,00,000 17,00,000
75,00,000 29,00,000 22,00,000
Less: Sales during the year 8,000 28,70,000 42,00,000
Depreciation Balance 74,92,000 90,000 -
Less: Normal Depreciation
15 11,23,800 - -
(74,92,000X100)
15 - 4,500 -
(3,000X100)
63,68,200 25,500 -
Less: Additional Depreciation:

20 11,40,000 - -
Block – I – Plant –A (57,00,000X100)
20 - 40,000 -
Block - II – Plant –B (4,00,000X100 X ½ )
20 - - 3,40,000
Block - III – Plant –C (17,00,000X100)
W.D.V. as on 1-4-2023 52,28,200 - -

Short Term Capital Gain - 14,500 20,00,000
Total Depreciation 22,63,800 44,500 3,40,000
87
1. As per section 30, which expenditure incurred for a building used for the business or
profession shall not be allowed as deduction?
a) Rent, rates and taxes
b) Insurance of building
c) Repairs of building
d) Capital expenditure
2. Group of assets falling within a class of assets comprising of tangible & intangible assets
is known as:
a) Group of assets
b) Block of assets
c) Set of assets
d) None of these
3. Which of the following conditions should be fulfilled for claiming depreciation u/ s 32?
a) Asset must be owned wholly or partly by the assessee.

b) Asset must be used for the purpose of business or profession of the assessee.
c) Asset should be used during the relevant Assessment year.
d) All of the above.
4. If the Plant & Machinery is used for less than 180 days in the year of its acquisition, then,
at what rate the depreciation on that asset should be provided under section 32?
a) 7.5%
b) 15%
c) 20
d) 10%
88
5. The transfer of one or more undertakings as a result of the sale for a lump sum
consideration without values being assigned to the individual assets and liabilities in the
sale is known as:
a) Lump sum sale

b) Slump sale
c) Aggregate sale
d) Total sale
1. d 2. b 3. d 4. a 5. B
4.9 SUMMARY
In this unit we have discussed meaning of depreciation as per Income Tax Act, types
of depreciation, rate of depreciation as per IT Act. For income tax purposes, depreciation can
be claimed in a different method than the normal allowance for wear and tear. The higher
depreciation rate allowed for income tax purposes helps businesses reduce their tax liability
while incentivizing capital expenditure. Depreciation rates vary according to the legally
specified useful life mentioned in the Income Tax Act for each category of asset. In case of
any new machinery or plant (excluding ships and aircraft) acquired and installed after March
31, 2005 by an assessee who is engaged in the business of manufacture or production of any
article or thing – additional depreciation under Income Tax Act of 20% of actual cost shall be
allowed. Section 32(1) of the Act provides that depreciation is to be computed at the prescribed
percentage on the written down value of the asset which in turn is calculated with reference to the
actual cost of the assets.
4.10 KEYWORDS
Depreciation : Under the Income Tax Act is a deduction allowed for the
decline or loss in the real value of a tangible or intangible asset,
due to physical wear, tear and decay, and is generally limited to
losses or decline in value which cannot be restored by current
repairs and maintenance.
Block of Assets : Section 2(11) of Income Tax has defined ‘Block of Assets’ as a
‘group of assets’ falling within a ‘class of assets’.
89
W.D.V. : It is the value of an asset after deducting depreciation or
amortization.
1. Define depreciation as per Income Tax Act 1961.
2. Define block of assets.
3. Explain the different methods of depreciation.
4. Compute depreciation for Assessment year 2023-24
Machinery A 15% WDV as on 1/04/22 ₹ 1,00,000
Machinery B 15% acquired on 15/04/22 ₹ 50,000
Machinery C 15% acquired on 30/09/22 ₹ 60,000
Machinery A sold on 20/05/22 for ₹ 40,000 &
Machinery C sold on 11/12/22 for ₹ 40,000
5. X Ltd. is engaged in the business of manufacture. During the previous year 2022-23, he
submits the following information:
Machinery Block: Rate of Depreciation 15%, WDV of block as on 01/04/22- ₹ 2,00,000.
New Machinery acquired on 15/04/22 – ₹ 1,00,000
New Machinery put to use on 20/05/22.
Sale of Old Machinery in opening Block on 15/12/22 ₹ 5000.
6. Kiran Ltd. Purchased old machinery on 1st July 2022 for ₹ 5,00,000 but the machinery is
start of use on 10th December 2022. Calculate depreciation.
7. M/s. Devraj Ltd. purchased a new machinery on 1st December 2022 for ₹ 2,00,000 and
also paid ₹ 20,000 as installation charge, ₹ 10,000 for freight and ₹ 5,000 for cost of
insurance while purchase. After installation, spends ₹25000 as repair expenses during the
previous year. Calculate amount of depreciation.
8. Calculate depreciation from the following information.
a) WDV of the asset as on 1-4-2022 is ₹ 3,00,000.
b) Purchase during the year ₹ 1,00,000.
c) Sales during the year ₹ 50,000.
d) Rate of depreciation ₹ 15%.
90
4.12 REFERENCES
2022.
91
BLOCK
2
Page No.
UNIT - 5: DEDUCTIONS 1-28
UNIT - 6: CLUBBING, AGGREGATION AND SET-OFF 29-47
UNIT - 7: TAX PLANNING 48-75
UNIT - 8: TAX ASSESSMENT 76-101

Credit Page
Programme : M.Com Year/Semester: Second Block No :II
Vice-Chancellor,
Dean (Academic)
BOS Chairman,
Smt Usha C. Member
Chairperson,
DOS&R in Commerce, KSOU, Mysuru
Dr. Devarajappa S. Smt. Usha C.
Tumkur University, Tumkur. KSOU, Mysuru
Editorial Committee
BOS Chairman,



Chairperson,
Copy Right
Registrar,
Developed by the Department of Studies and Research in Commerce, KSOU, under the guidance of Dean
2022.
Preface
Dear Learner,
With best wishes,
Smt. Usha C.
Chairperson
BLOCK – II
INTRODUCTION
The tax laws of the country undergo significant changes every year on the passing of
Annual Finance Act. Apart from the amendments coming out every year through the Finance
Act, there are circulars / notifications issued by the CBDT / CBEC to implement the
provision of the act, clarifying the scope of the provision. Government providing various
provisions to new business by giving exemption and deductions under sections 80G to 80U.
All businesses except partnerships must file an annual income tax return. Partnerships file an
information return, paying taxes in time, filing of return within due date and maintain the
accuracy in accountability of the company is called as tax management. tax management and
tax planning are another important concept in business taxation. In this back drop. this block
discusses the various deduction available to company assessee, Aggregating of income, Tax
planning and Management and assessment of Tax.
Unit-5: Deductions.
Unit-6: Clubbing, Aggregation and Set-Off.
Unit-7: Tax Planning
Unit-8: Tax Assessment

BLOCK-II
UNIT-5 DEDUCTIONS
Structure:
5.0 Objectives
5.1 Introduction
5.2 Deductions under section 80G to 80U
5.3 Procedure for Computation of Tax Liability of the Company
5.4 Minimum Alternative Tax (MAT)
5.5 Illustrations on MAT
5.7 Summary
5.8 Keywords
5.10 References
1
5.0 OBJECTIVES
 Give the meaning of deduction.

 Explain the various deductions available to the company.
 Highlights the provisions of MAT.
 Determine the tax liability of the company.
5.1 INTRODUCTION
In the previous units, introduction to tax, different heads of incomes have been
discussed. Corporate tax is one of important source of revenue to the government. As per
Income Tax Act 1961, there are separate set of provisions for computation of income and tax
liability of a company assessee. In this unit, various deduction available to the company
assessee, MAT provisions and computation of tax liability will be discussed.
5.2 DEDUCTIONS UNDER SECTION 80G TO 80U

Deduction is an expense that can be subtracted from a tax payer’s gross total income
specified under chapter VI-A under in order to reduce the amount of taxable income. As far
as company assessee is considered, there are various deductions under section 80G to 80U
are available.
From the gross total income so computed, the following deductions are permissible
under section 80G to 80U.
Sl.No. Section Name of the Deduction
1. 80G  Donation to prescribed funds charitable institutions

and etc.
2. 80GGA  Donation for scientific research or rural

development.
3. 80GGB  Contribution to political parties or electoral trust.
4. 80IA  Profit or gain from industrial undertakings engaged

in developing, maintaining and operating any
infrastructure facility, industrial parks, any power
undertaking, reconstruction of power undertaking.
2
5. 80-IAB  Profit and gains by an undertaking or an enterprise
engaged in development of Special Economic Zone
(SEZ).
6. 80-IAC  Profit or gains derived by an eligible start up from

specified business.
7. 80-IB  Profit and gains from certain industrial undertakings

other than infrastructure development undertakings
8. 80-IBA  Profits and gains from developing and building

housing projects.
9. 80-IC  Profit and gains of specified undertakings in certain

states.
10. 80-ID  Profit of hotels and convention centres.
11. 80-IE  Profits and gains of certain undertakings in North

Eastern States
12. 80-JJA  Profit and gains from the business of collecting and
processing of bio-degradable waste.
13. 80-JJAA  Employment of New Workmen.
14. 80M  Inter Corporate Dividend.
15. 80PA  Income of Producer Companies.
1. 80G: DONATION TO PRESCRIBED FUNDS AND CHARITABLE INSTITUTION
Contributions made to certain relief funds and charitable institutions can be claimed
as a deduction under section 80G of the Income Tax Act. All donations, however, are not
eligible for deductions under section 80G. Only donations made to prescribed funds qualify
as a deduction. This deduction can be claimed by any taxpayer – individuals, company, firm
or any other person.
The following donations does not qualify for deduction U/S 80G:
3
a. Donation to an individual;
b. Donations in kind;
c. Donation paid in excess of ₹ 2,000 in cash;
d. Donation to institutions, funds, organisations not approved by commissioner of

income tax;
e. Donation to a political party.
f. Donation made for the benefits of particular community, or religion.
All allowable deductions under section 80G have been classified into following sub
groups.
Group-I: Donations Eligible for 50% Deduction without Qualifying Limit
• Jawaharlal Nehru Memorial Fund
• Prime Minister’s Drought Relief Fund
• Indira Gandhi Memorial Trust
• Rajiv Gandhi Foundation
Group-II: Donations Eligible for 100% Deduction without Qualifying Limit
• National Defence Fund set up by the Central Government
• Prime Minister’s National Relief Fund
• National Foundation for Communal Harmony
• An approved university/educational institution of National eminence
• Zila Saksharta Samiti constituted in any district under the chairmanship of the
Collector of that district
• Fund set up by a State Government for the medical relief to the poor
• National Illness Assistance Fund
• National Blood Transfusion Council or to any State Blood Transfusion Council
• National Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental
Retardation, and Multiple Disabilities
• National Sports Fund
4
• National Cultural Fund
• Fund for Technology Development and Application
• National Children’s Fund (w.e.f AY 2014-15)
• Chief Minister’s Relief Fund or Lieutenant Governor’s Relief Fund with respect to
any State or Union Territory
• The Army Central Welfare Fund or the Indian Naval Benevolent Fund or the Air
Force Central Welfare Fund, etc.
• Andhra Pradesh Chief Minister’s Cyclone Relief Fund.
• The Maharashtra Chief Minister’s Relief Fund.
• Any fund set up by the State Government of Gujarat exclusively for providing relief
to the victims of the earthquake in Gujarat.
• Any trust, institution or fund to which Section 80G (5C) applies for providing relief to
the victims of the earthquake in Gujarat.
• Prime Minister’s Armenia Earthquake Relief Fund.
• Africa (Public Contributions – India) Fund.
• Swachh Bharat Kosh (applicable from FY 2014-15).
• Clean Ganga Fund (applicable from FY 2014-15).
• National Fund for Control of Drug Abuse (applicable from FY 2015-16).
Group-III: Donations Eligible for 50% Deduction Subject to 10% of Adjusted Gross
Total Income
• Any other fund or any institution which satisfies the conditions mentioned in Section
80G(5).
• Government or any local authority, to be utilized for any charitable purpose other than
the purpose of promoting family planning.
• Any authority constituted in India for the purpose of dealing with and satisfying the
need for housing accommodation or for the purpose of planning, development or
improvement of cities, towns, villages or both
5
• Any corporation referred to in Section 10(26BB) for promoting the interest of the
minority community
• For repairs or renovation of any notified temple, mosque, gurudwara, church or other
places.
Group-IV: Donations Eligible for 100% Deduction Subject to 10% of Adjusted Gross
Total Income
• Donations to the government or any approved local authority, institution or

association to be utilized for the purpose of promoting family planning.
• Donation by a Company to the Indian Olympic Association or to any other notified

association or institution established in India for the development of infrastructure for
sports and games in India, or the sponsorship of sports and games in India.
Illustration 1:
Compute total income for the A.Y.2023-24 of X Ltd, a resident individual, from the following
details:
Particulars Amount
Profits and gains of business or profession 80,000
Income from Other Sources 10,000
Long-term Capital Gains 5,00,000
Donation to National Foundation for communal harmony 4,000
Donation to the fund set up by the Gujarat Govt. for providing Relief to victims of 5,000
earthquake in Gujarat
Donation to Indira Gandhi Memorial Trust 1,000
Donation to Prime Minister’s Drought Relief Fund 5,000
Donation to Approved Charitable Institution 12,000
Donation to Central Government for promotion of family planning 3,000
Donation to a poor boy for higher education 10,000
Donation of cloth to an approved institution worth 12,000
Donation to charitable institution for construction of home for a particular 8,000
community
6
Solution :
Computation of Total Income of X Ltd. for the A.Y. 2023-24

Particulars Amount
(₹) (₹)
Profits and gains of business or profession 80,000
Capital gains: Long term capital gains 5,00,000
Income from Other Sources 10,000
Less: Deduction under chapter VIA
Sec. 80G (Donation) (See below calculation) 17,750 17,750
Statement showing Amount of Deduction u/s 80G
Donation made to Amount Rate Deduction

 Donation to National Foundation for Communal Harmony 4,000 100% 4,000
 Donation to the fund set up by the Gujarat Government 5,000 100% 5,000
for providing relief to victims of earthquake in Gujarat
 Donation to Indira Gandhi Memorial Trust 1,000 50% 500
 Donation to Prime Minister’s Drought Relief Fund 5,000 50% 2,500
 Donation to the Central Government for promotion of 3,000* 100% 3,000
family planning
 Donation to approved charitable institution 5,500* 50% 2,750
Total Amount of Donation u/s 80G 17,750
Calculation of Deduction for Donation on which limit is applicable:

Computation of Limit
Adjusted GTI – LTCG – Deductions other than ₹ 5,90,000 – ₹ 5,00,000 – ₹ 5,000
GTI deduction u/s 80G = ₹85,000
Limit 10% of Adjustment GTI 10% of ₹ 85,000 = ₹ 8,500
Donation to Central Government for promotion of family planning 3,000
Donation to approved charitable institution (₹ 8,500 – ₹ 3,000) 5,500
Total 8,500
7
Application of limit: There is restriction on amount of donation qualifying under this section.
If assessee opts to adjust qualifying amount with donation made to approved charitable
institution, then he is eligible for deduction to the extent of 50% only. So, it is beneficial for
him to adjust qualifying amount, first, with donation made to the ‘Central Government for
promotion of family planning’ as it is eligible for 100% deduction. Hence, donation shall be
restricted.
Donations which are not eligible for deduction u/s 80G are stated below:
Donation Reason
 Donation to a poor boy for higher Donation has not been given to a specified
education organization.
 Donation of cloth to an approved Donation has been made in kind.
institution
 Donation to charitable institution for Amount donated is for the benefit of a
construction of home for particular particular community.
community
2. 80GGA: DONATIONS MADE TOWARDS SCIENTIFIC RESEARCH OR RURAL

DEVELOPMENT.
 This deduction is allowed to all assessee except those who have an income (or loss)
from a business and/or a profession.
 Mode of payment: Donations can be made in the form of a cheque or by a draft or
in cash; however, cash donations in excess of ₹ 2,000 are not allowed as deductions.
 Quantum of Deduction: 100% of the amount that is donated or contributed is
eligible for deductions.
3. 80GGB: CONTRIBUTION TO POLITICAL PARTIES
Section 80GGB of the Income Tax Act, 1961 provides tax deduction facility to Indian
companies on donations made to registered political parties or an electoral trust. Since there
is no limit specified u/s 80GGB, any amount contributed to a political party can be claimed as
a tax deduction.
8
Eligibility Criteria for Claiming Tax Benefits Under Section 80GGB:
All Indian companies registered under the Companies Act, 2013 can make donations
to a registered political party or electoral trust to claim tax deduction under section 80GGB
except the following:
• A Government Company.
• A company which is established only in the last 3 years.
• Deduction can be claimed on the total amount paid though any mode other than cash.
• Donations must be made to a registered political party under section 29A of

Representation of People Act (RPA), 1951. Donations made to electoral trust also will
be eligible for claiming tax deduction under section 80GGC.
Quantum of Deduction:
• There is no upper limit for claiming the tax deduction. Any amount donated to a
registered political party (u/s 29A of RPA, 1951) by a qualified company can be
claimed as a tax deduction.
• Donations made under section 80GGB by companies are 100% tax-deductible.
Can companies contribute any amount as political donations?
• There is no provision under the Income Tax Act, 1961 which limits the political
contributions made by companies.
• However, under the Companies Act, 2013, companies can only contribute upto
7.5% of their average net profits of the past three financial years.
• It should also be noted that u/s 182, it is mandatory for companies to disclose such
contributions in their profit/loss statement along with the name of the political
party.
4. 80IA: PROFIT OR GAIN FROM INDUSTRIAL UNDERTAKINGS ENGAGED IN

INFRASTRUCTURE, DEVELOPMENT, ETC.
Deduction under section 80IA is available only to the following undertakings
• Infrastructure facility.
• Telecommunication service.
9
• Industrial parks or special economic zone.
• Power generation, transmission and distribution or substantial renovation and

modernisation of existing distribution lines.
• Undertaking setup for reconstruction of power unit.
• A cross country natural gas distribution network.
Quantum of deduction: 100% of profits and gains derived from such business for 10
consecutive assessment years out of 15 years beginning with the year in which
undertaking or the enterprise develops and begins to operate any infrastructure facility or
generates power or commences transmission or distribution of power or undertakes
substantial renovation or modernisation.
However, in case of enterprises engaged in developing, etc of any infrastructure

facility other than port, airport, inland waterway or inland port or navigational channel in
the sea, the period of 15 years shall be substituted by 20 years.
The deduction commences from the 'Initial Assessment Year'.
5. 80IAB-DEDUCTION IN RESPECT OF PROFIT AND GAIN BY AN

UNDERTAKING OR ENTERPRISE ENGAGED IN DEVELOPMENT OF SEZ
The following conditions should be satisfied
1. The taxpayer must be engaged in the business of developing Special Economic Zone
(SEZ).
2. Such special economic zone is notified on or after April 1, 2005 and the development
of special economic zone should begin on or before March 31, 2017.
3. The book of the account of the tax payer should be audited.
• The deduction shall be allowed of an amount equal to 100% of the profits and
gains derived from such business for 10 consecutive assessment years.
• The deduction may, at the option of the assessee, be claimed by him for any 10
consecutive assessment years, out of 15 years beginning from the year in which a
Special Economic Zone has been notified by the Central Government.
10
6. 80IAC: DEDUCTION IN RESPECT OF ELIGIBLE START-UP
Conditions to be satisfied to claim exemption under section 80-IAC
• The assessee is a company or a limited liability partnership (LLP) and engaged in an

eligible business.
• “Eligible business” means a business carried out by an eligible start up engaged in

innovation, development or improvement of products or processes or services or a
scalable business model with a high potential of employment generation or wealth
creation.
• The company or LLP is incorporated after March 31, 2016 but before April 1, 2023.
• Annual business turnover of the company or LLP does not exceed ₹ 100 crore in the
previous year relevant to the assessment year for which deduction is claimed under
section 80-IAC.
• It holds a certificate of eligible business from the Inter-Ministerial Board of

Certification as notified in the Official Gazette by the Central Government.
• The business should not be formed by splitting up or reconstruction of an existing

business. However, this condition is not applicable when conditions given u/s 33B are
satisfied.
• It is not formed by the transfer to a new business of machinery or plant previously

used for any purpose.
• 100% of the profits and gains derived from eligible business is deductible for 3
consecutive assessment years, out of 10 years commencing from the year in which
such eligible start up is incorporate.
7. 80IB: DEDUCTION IN RESPECT OF PROFITS AND GAINS FROM CERTAIN

INDUSTRIAL UNDERTAKINGS OTHER THAN INFRASTRUCTURE
DEVELOPMENT UNDERTAKINGS
Deduction under this section is available to all assessee engaged in:
• Industrial Undertaking;
• Commercial production and refining of mineral oil;
11
• Processing, preservation and packaging of fruits or vegetables, meat and meat
products or poultry or marine or dairy products;
• Integrated business of handling, storage and transportation of food grains;
Conditions:
It is available to the following industrial undertakings:
1) Business of an industrial undertaking: Its features are-
a) It should be a new undertaking.
b) It should produce non-priority sector items in the 11th schedule.
c) It should employ 10/20 workers.
d) It must start manufacturing between 1.4.1991, and 31.3.2002.
e) Deductible Amount:
DEDUCTIBLE If small Scale Industrial

AMOUNT co. Backward –‘A’ District Backward-‘B’ Districts
a) If owned by company @ 30% for 1st 10 years @100%for 1st @100% for 1st 3 years
only 5years&@30%for next 5 &@30% for next 5 years.
years
b) If owned by a co.- @25%for 1st 12years @100%for 1st @100%for 1st
operative society only 5years.&@25% for next 3years&@25% for next
7 years 9years
c) If owned by any other @25%for 1st 10years @100% for 1st @100% for 1st 3 years &
person only 5years&@25% for next 5years&@25% for next
5yrs 5yrs
2) Industrial and scientific research - 100% of such profit for first five years deductible.
3) Production of mineral oil - 100% for seven Assessment Years.
4) Developing and building housing projects - @100% of any assessment years.
5) Integrated handling, storage and transportation of food grains unit: 100% of profit for first
5 years and for next 5 years 30%
6) Business of processing, preservation and packing of fruits or vegetables and meat

products: @100% for 1st five years and @ 30% during next five years.
7) Operating and maintaining a hospital in rural area,-@100% of such profit for first five
Assessment year.
12
8. 80IBA: PROFIT AND GAINS FROM HOUSING PROJECTS
Deduction under this section is available to assessee, if the following conditions are
satisfied:
• The assessee has profits derived from the business of developing and building a
housing project
• The competent authority has approved the project after June 1st 2016 but before
31st March 2023.
• The assessee completes a project within a period of 5 years from the date of
approval by the competent authority.
• The built-up area of the shops and other commercial establishment included in the
housing projects does not exceeds 3 per cent of the aggregate of the built-up area.
• 100 % of the profit derived from such business is deductible.
9. 80IC: DEDUCTION IN RESPECT OF PROFITS AND GAINS OF CERTAIN

UNDERTAKINGS IN CERTAIN SPECIAL CATEGORY OF STATES
• Deduction under this section is available to eligible assesse engaged in establishing

undertaking in specified states.
Quantum of deduction:
• 100% of profits derived from such business for a period of 7 consecutive years
starting from initial assessment year.
• Sikkim – 100% of profit for first 10 assessment years.
• Himachala Pradesh or Uttaranchal-100% of profit for first 5 years and 25% of

profit (30% incase of company)for next 5 years.
• North Eastern states (Arunachala Pradesh, Assam, Manipur, Meghalaya, Mizoram,

Nagaland and Tripura) – 100% for first 10 assessment years.
13
10. 80ID: DEDUCTION IN THE CASE IF HOTELS AND CONVENTIONS CENTRE
IN NCR
• This deduction is available to the taxpayers who are engaged in the business of hotel
located in specified area.
• This deduction is also available to the taxpayer who is engaged in the business of
building, owning and operating a convention centre located in specified area.
• Hotel means Hotel of two stars, three stars or four stars category as classified by the
Central Government.
• Convention centre means a building of a prescribed area comprising of convention

halls to be used for the purpose of holding conferences and seminars being of such
size and number and having such other facilities and amenities as may be prescribed.
• 100% of the profit is allowed as deduction for first 5 consecutive assessment year.
11. 80IE- DEDUCTION IN RESPECT OF CERTAIN UNDERTAKINGS IN NORTH

EASTERN STATES
• This deduction is available to the undertakings engaged in manufacture or provision

of specified goods/services or undertake substantial expansion, in North Eastern
States.
• 100% of the profit for 10 consecutive years beginning from the year of
commencement or completion of expansion as may be applicable.
12. 80JJA: DEDUCTION IN RESPECT OF PROFITS AND GAINS FROM THE

BUSINESS OF COLLECTING AND PROCESSING BIO-DEGRADABLE
WASTE
• This deduction is applicable to all the assessee.
• The assessee should be engaged in business of collecting and processing of bio-

degradable waste for –
a) Generating power;
b) Producing bio-fertilisers, bio-pesticides or other biological agents; or
14
c) Producing bio-gas;
d) Making pellets or briquettes for fuel;
e) Organic manure.
• 100% of the profit derived from such business for a period of 5 consecutive years
from the year of commencement of such business.
13. 80JJAA: DEDUCTION IN RESPECT OF EMPLOYMENT OF NEW WORKMEN
• This deduction is applicable to any assessee subject to tax audit under section
44AB.
• No deduction under section 80JJAA (1) shall be allowed, —
1. If the business is formed by splitting up, or the reconstruction, of an existing business:

However, nothing contained in this clause shall apply in respect of a business which is
formed as a result of re-establishment, reconstruction or revival by the assessee of the
business in the circumstances and within the period specified in section 33B;
2. If the business is acquired by the assessee by way of transfer from any other person or
as a result of any business reorganisation;
3. Unless the assessee furnishes along with the return of income the report of a chartered
accountant giving such particulars in the report as may be prescribed.
• 30% of additional employee cost to be allowed as deduction for 3 assessment years

[Section 80JJAA(1)]:
14. 80M: DEDUCTION IN RESPECT OF INTER-CORPORATE DIVIDEND
 Applicable to Domestic Company

 Deduction under this section is available to the assessee if the following conditions
are satisfied
1. Gross total income of the assessee includes any income by way of dividends from
any other domestic company or a foreign company or a business trust.
2. Assessee distributes dividend among its shareholder within due date
3. Due date means the date one month prior to the due date for furnishing the return
of income.
15
Minimum of the following:
 Dividend so received by the assessee; or
 Dividend distributed by the assessee within due date
No Double Deduction: Where any deduction, in respect of the amount of dividend

distributed by the domestic company, has been allowed in any previous year, no
deduction shall be allowed in respect of such amount in any other previous year.
15.80PA: DEDUCTION IN RESPECT OF INCOME OF PRODUCER COMPANIES
 Applicable to Producer Company as defined u/s 581A of the Companies Act, 2013
 Deduction under this section is available to the assessee if the following conditions
are satisfied:
1. Total turnover of the assessee is less than ₹ 100 crore in any previous year.
2. Gross total income of the assessee includes any income from eligible business.
3. Eligible Business means—
a. The marketing of agricultural produce grown by the members; or
b. The purchase of agricultural implements, seeds, livestock or other articles
intended for agriculture for the purpose of supplying them to the members; or
c. The processing of the agricultural produce of the members;
Quantum of deduction: 100% of the profits and gains attributable to such eligible
business:
 No deduction shall be available u/s 80PA from A.Y. 2025-26.

 No double deduction.
 Return of income shall be filed within due date.
5.3 PROCEDURE FOR COMPUTATION OF TAX LIABILITY OF THE

COMPANY
For calculating tax liability of company assessee, the following procedure has to be
followed:
Step-1 Ascertain income under different heads income
Step-2 Income of other person may be included in the income of company
16
under section 60 and 61
Step-3 Current and bought forward losses should be adjusted.
Step-4 Computation of gross total income under different heads.
Step-5 Deduct the permissible deduction under section 80G to 80U
Step-6 Net Income (Step4 –Step5)
Step-7 Tax liability under normal provision of IT Act
Step-8 Calculation of Book Profit under MAT
Step-9 Tax Liability under MAT
Step-10 Tax Liability (Step-7 or Step-9 which ever is higher)
Step-1 to Step-7 have discussed in Unit-3 of Block-1, in the next paragraph MAT provisions
are discussed.
5.4 MINIMUM ALTERNATIVE TAX (MAT)

• Minimum Alternate Tax (MAT) is a tax effectively introduced in India by the Finance
Act of 1987, vide Section 115JB of the IT Act to facilitate the taxation of ‘zero tax
companies’, that is, those companies which show zero or negligible income to avoid tax.
Under MAT, such companies are made liable to pay to the government, by deeming a
certain percentage of their book profit as taxable income.
• MAT is an attempt to reduce tax avoidance; it was introduced to contain the practices
followed by certain companies to avoid the payment of income tax, even though they
had the “ability to pay”.
• MAT or Minimum Alternate Tax is a provision in Direct tax laws to limit tax
exemptions availed by companies, so that they mandatorily pay a minimum amount of
tax to the government.
Who is liable to pay MAT:
Unless specifically exempted from MAT provisions, every company including foreign
company whose tax payable on total income in respect of any assessment year is less than
15% of book profit is liable to pay MAT at the rate of 15% of it book profit.
17
As per Section 115JB, all companies are required to pay corporate tax at least equal to
the higher of the following:
A. Normal Tax Liability: It is calculated as per the normal provisions of the Income
Tax Act, that is, by applying the relevant tax rate to the taxable income of the
company.
Note: The Ministry of Finance has revised the corporate tax rates in September, 2019.
B. Minimum Alternate Tax (MAT): From financial year 2019-20, tax payable is
computed at 15% (previously 18.5%) on book profit plus applicable cess and
surcharge.
CALCULATION OF MAT
• MAT is calculated as 15% of the book profit of the tax assessee. Under existing
rules, book profit is calculated as per Section 115JB of the Income Tax Act, 1961.
• As per Section 115JB (2), book profit means net profit in the statement of profit and
loss prepared in accordance with Schedule III of the Companies Act, 2013. A number
of costs/incomes are considered along with the profit and loss statement when
calculating the book profit of a company. The following are some of the major ones:
18
COMPUTATION OF BOOK PROFIT
Particulars Amount Amount

Net Profit as per statement of profit and loss XXXX
Add: The following items debited to statement of
profit and loss
 Income tax paid or payable XXXX
 Transfer to general reserve XXXX
 Provision for unascertained liabilities XXXX
 Dividend paid or proposed XXXX
 Provision for losses of subsidiary company XXXX
 Amount of depreciation debited to
statement of profit and loss XXXX
 Expenses on exempted income XXXX
 Deferred tax XXXX XXXX
XXXX
Less: The following items credited to P&L A/c
 Amount withdrawn from revaluation reserves XXXX
 Exempted incomes XXXX
 Amount of Depreciation debited to statement XXXX
of profit and loss (excluding depreciation on
revaluation of assets)
 Amount withdrawn form revaluation reserve XXXX
and credited to statement of profit and loss
 Brought forward loss or unabsorbed XXXX
depreciation which ever is less
 Deferred tax if credited to statement of profit XXXX
and loss
BOOK PROFIT XXXX
19
5.5 ILLUSTRATIONS ON MAT
Illustration-1:
The Total Income of a company is ₹ 5,78,000 out of which Long Term Capital gain (LTCG)
is ₹ 33,000 and Income from Business is ₹ 5,45,000. The book profit of the company is
₹ 10,00,000. Compute the tax liability of the company.
Solution:
Calculation of Tax Liability under Normal Provisions of IT Act
Taxable Tax Rate Tax

Particulars
Amount (₹) (%) Liability (₹)
Long Term Capital Gain 33,000 20% 6,600
Income from Business 5,45,000 25% 1,36,250
Total Tax -- -- 1,42,850
Add. Surcharge (Taxable income -- -- --

less than ₹ 1Cr.)
Add: Health and Education Cess 1,42,850 4% 5,714
Tax Payable -- -- 1,48,564
Computation MAT
Taxable Tax Rate Tax

Particulars
Amount (₹) (%) Liability (₹)
Book Profit 10,00,000 15% 1,50,000
Add: Surcharge (Taxable income less -- -- --

than ₹ 1Cr.)
Add: Health and Education Cess 1,50,000 4% 6,000
Tax Payable -- -- 1,56,000
20
Tax Liability of a Company for the AY 2023-24
Tax Liability under normal provisions of IT 1,48,564

Act
Tax Liability using MAT provision 1,56,000
Tax Liability-WHICHEVER IS HIGHER 1,56,000
Illustration-2:
The following is the information of Tanush and Co. for the AY 2023-24, (Ignore Alternative
Tax Regime under Section 115BAA)
Particulars Amount Particulars Amount
To tax relating to LTCG 3,000 By long term capital gain 1,50,000
To depreciation 85,000 [(Exempt u/s 10(38)]
To proposed dividend 1,30,000 By interest on government 15,000
To income tax 60,000 securities
To net profit 2,87,000
15,65,000 15,65,000
1. Depreciation allowable for the year as per Income Tax Act is ₹50,000
2. Brought forwarded business loss as per books of accounts is ₹1,25,000
3. Brought forward unabsorbed depreciation is ₹55,000
Compute:
(i) Total income of the company under normal provisions

(ii) Tax liability of the company
(iii) Tax payable U/S 115-JB
21
Solution:
Computation of Tax Income and Tax Liability
Assessee: Tanush and Co. A.Y.: 2023-24

Residential Status: Resident P.Y.: 2022-23
Particulars ₹ ₹
I. Computation of Taxable Income from Business

Net profit as per statement of Profit and Loss account 2,87,000
Add: Inadmissible expenses debited to Profit and Loss account
 Tax relating to LTCG 3,000
 Depreciation 85,000
 Proposed dividend 1,30,000
 Income Tax 60,000 2,78,000
5,65,000
Less: Admissible expenses not debited to Profit and Loss A/c
allowed:
 Depreciation allowable 50,000
 Brought forwarded business loss 1,25,000
 Brought forwarded unabsorbed Depreciation 55,000
Less: Tax-free incomes and other incomes credited to Profit and
Loss Account:
 Long term capital gain 1,50,000
 Interest on Government securities 15,000 3,95,000
II. Computation of Taxable Income

 Income from business 1,70,000
 Interest on Government securities 15,000
Other Total Income 1,85,000
Less: Deductions U/s 80G to 8U Nil
Other Total Income 1,85,000
22
Add: Long term capital gain Exempted
Taxable Income 1,85,000
III. Computation of Tax Liability

Tax on other income (1,85,000x25%) 46,250
Add: Health and Education cess 4% (46,250x4%) 1,850
Tax Liability 48,100
IV. Computation of Book Profit

Net profit as per statement Profit and Loss 2,87,000
Add:1. Proposed dividend 1,30,000
2.Depreciation 85,000
3.Income tax 60,000 2,75,000
5,62,000
Less:
1.Depreciation 50,000
2.Long term capital gain 1,50,000
4. Brought forwarded business loss 1,25,000
5. Brought forwarded unabsorbed depreciation 55,000 3,80,000
Book Profit 1,82,000
V. Computation of MAT
Tax on Book Profit (1,82,000 x 15%) 27,300
Add: Health and Education cess 4% (27,300 x 4%) 1,092
MAT 28,392
VI. Tax Payable by the Company

Tax on Taxable Income 48,100
Tax as per MAT provision 28,392
Tax Liability (whichever is Higher) 48,100
23
Illustration :3
Subhash Company Limited is a widely – held domestic company. The following are the
particulars of its income in respect of the previous year 2022-23:
a) Income from business: 1,09,80,000

b) Interest on Government securities:20,000
c) Short term capital gains u/s 111A:30,000
d) Long term capital gains:66,000
e) Dividend from a domestic company (gross):20,000
f) Dividend form a foreign company:20,000
g) Book profit U/S 115 JB:1,05,00,000
During the previous year, the company donated by cheque ₹50,000 to national defense
fund. Compute company’s total income and tax payable for the assessment year 2023-24.
Solution:
Computation of Total Income
Assessee: Subhash Company Limited A.Y.: 2023-24

Residential Status: Resident P.Y.: 2022-23
Particulars ₹ ₹
Income from business 1,09,80,000

Capital gains:
Long term capital gain 66,000
Short term capital gain U/S 111 A 30,000 96,000
Dividend from domestic company 20,000
Dividend from foreign company 20,000 60,000
Gross total income 1,11,36,000
Less: Deduction U/S 80 G – Donation 50,000
Total income 1,10,86,000
24
Computation of Tax Payable
(For the assessment year 2023-24)
Particulars ₹
Tax on STCG ₹ 30,000 u/s 111A @ 15% 4,500

Tax on LTCG ₹ 66,000 @ 20% 13,200
Tax on other income ₹1,09,90,000 @ 25% 27,47,500
27,65,200
Add: Surcharge @ 7% 1,93,564
29,58,764
Add: Health and education cess @ 4% 1,18,351
Tax Liability (a)30,77,115
Tax on book profit ₹1,05,00,000 @ 15% 15,75,000
Add: Surcharge @ 7% 1,10,250
16,85,250
Add: Health and education cess @ 4% 67,410
Tax liability as per MAT Provision (b)17,52,660
Tax payable is (a) or (b), whichever is more. Hence, tax payable ₹ 30,77,115.
Rounded off ₹ 30,77,120.

Fill in the blanks with suitable answers:
1. Surcharge levied on company assessee if the total income exceeds______.
a. ₹ 50 lakhs c. ₹ 1 Crore
b. ₹ 2 Crore d. ₹ 10 Lakhs
2. Minimum Alternative Tax defines under section ______.
a. 111JB c. 115BJ
b. 115JJ d. 115JB
3. Donation given to political parties’ deals u/s ______.
a. 80G c. 80GGA
b. 80GGC d. 80D
25
4. Rate of deduction applicable for donation to national defence fund is ______.
a. 100% c. 40%
b. 50% d. 75%
1. c
2. d
3. b
4. a
5.7 SUMMARY
Income tax Act 1961 given number of legal provisions for reducing the tax liability of
all type of assessee, among all provisions deductions u/s 80C to 80U are important. In this
unit the details of deductions related to company assessee have been discussed and also
discussed MAT provisions and computation of tax liability under MAT. Minimum Alternate
Tax (MAT) is a tax effectively introduced in India by the Finance Act of 1987, vide Section
115J of the IT Act to facilitate the taxation of ‘zero tax companies; that is, those companies
which show zero or negligible income to avoid tax. Under MAT, such companies are made
liable to pay to the government, by deeming a certain percentage of their book profit as
taxable income.
5.8 KEYWORDS
Deduction : It is an expense that can be subtracted from a tax
payer’s gross total income under in order to reduce
the amount of taxable income.
MAT : Minimum Alternative Tax facilitates the zero tax

companies to pay tax on the basis of book profit.
Book Profits : Refer to the profit earned by the business entity

from its operations and activities.

1. What is Minimum Alternative Tax?
2. What is tax credit under MAT?
26
3. Define Book Profit.
4. Explain the deduction available to company under section 80C to 80U.
5. The total income of a XYZ Ltd. is ₹ 6, 00,000, out of which long term capital gain is
₹ 40,000 and income from business is ₹ 5, 60,000. The book profit of the company is
₹ 10,00,0000. Compute the tax liability.
6. X company Ltd has provided the following information for the year ended 31-3-2023:
Particulars Amount ₹
20,00,000
Total income computed as per provisions of the income tax Act
50,00,000
Profit as per statement of profit and loss
Items deducted in the statement of P&L

7,00,000
 Provision for income tax
60,000
 Provision for deferred tax
1,50,000
 Provision for gratuity on actuarial valuation
2,40,000
 Dividend declared
1,00,000
 Expenditure to earn agriculture income
4,50,000
 Depreciation (this includes depreciation of ₹ 2,00,000
on revaluation of assets)
Items added in statement of P&L

2,00,000
 Transfer from special reserve
400,000
 Agriculture income
Brought forward business losses as per books of account 8,00,000
Brought forward depreciation as per books account 7,00,000
You are required to compute
a. Tax payable by the company

b. Tax credit to be carried forward, if any
27
5.10 REFERENCES
2022.
28
UNIT-6 CLUBBING, AGGREGATION AND SET-OFF
Structure:
6.0 Objectives
6.1 Introduction
6.2 Clubbing of Income
6.3 Set-off of Losses
6.3.1 Intra-head Set-off of Losses
6.3.2 Inter-head set-off of Losses
6.4 Carry Forward of Losses
6.5 Illustrations
6.7 Summary
6.8 Keywords
6.10 References
29
6.0 OBJECTIVES
 Give the meaning of set-off of losses.

 Explain the clubbing of income.
 Discuss the set-off of losses.
 Highlights the carry forward of losses under Income Tax Act.
6.1 INTRODUCTION
In the previous unit, we have discussed the heads of income and computation of total
income, that is, computation of income from house property, profit or gain from business or
profession, capital gain and income from other sources. Once the computation of income of
each heads of income is done, the next important step for computation of total income is
clubbing, aggregate and set-off of losses.
In certain cases, some amounts are deemed as income in the hands of the assessee
though they are actually not in the nature of income. These cases are contained in sections
68, 69, 69A, 69B, 69C and 69D. The Assessing Officer may require the assessee to
furnish explanation in such cases. If the assessee does not offer any explanation or the
explanation offered by the assessee is not satisfactory, the amounts referred to in these
sections would be deemed to be the income of the assessee. Such amounts have to be
aggregated with the assessee’s income.
Specific provisions have been made in the Income-tax Act, 1961 for the set-off and
carry forward of losses. In simple words, “Set-off” means adjustment of losses against the
profits from another source/head of income in the same assessment year. If losses cannot
be set-off in the same year due to inadequacy of eligible profits, then such losses are
carried forward to the next assessment year for adjustment against the eligible profits of
that year. The maximum period for which different losses can be carried forward for set-
off has been provided in the Act.
6.2 CLUBBING OF INCOME

An assessee is taxed normally on the basis of income earned by him/her or from the
business. However, sometimes income of other persons in a family can also be included in
the hands of the assessee, this is called clubbing of income.
30
Computation of income to be clubbed:
The income, which is to be clubbed, shall be first computed in the hands of recipient
and all expenditure related to such income shall be allowed as per the respective provisions of
the Act and thereafter the net income shall be clubbed.
For instance, Standard deduction u/s 24(a) from income from house property shall be
allowed in the hands of the recipient and thereafter the net income shall be clubbed.
Clubbing Head:
Income shall be, first, computed in the hands of recipient and then clubbing shall be
made head wise.
For instance, Bank interest of minor child shall be clubbed under the head “income
from other sources” of parent.
Deduction under chapter VI-A:
If the clubbed income is eligible for deduction u/s 80C to 80U, then such deduction
shall be allowed to the assessee in whose hands such income is clubbed. Example: If interest
on saving bank account of the minor is clubbed in the hands of parent u/s 64(1A), then parent
can claim deduction u/s 80TTA.
As for as the company taxation is considered, section 60 and 61 deals the clubbing of
income:
Section 60: Transfer of Income Without Transfer of Assets:
Where an income is transferred without transferring the asset yielding such income,
then income so transferred shall be clubbed in the hands of the transferor.
The above provision holds good:
 Whether the transfer is revocable or not; or

 Whether the transaction is affected before or after the commencement of this Act.
Section 61: Recoverable Transfer of Assets
If an assessee transfers an asset under a revocable transfer, then income generated

from such asset, shall be clubbed in the hands of the transferor.
Revocable transfer:
As per sec. 63(a), a transfer shall be deemed to be revocable if -
31
 It contains any provision for the retransfer (directly or indirectly) of any part or whole
of the income/assets to the transferor; or
 It, in any way, gives the transferor a right to re-assume power (directly or indirectly)
over any part or whole of the income/assets.
Exceptions [Sec. 62]:
As per sec. 62(1), the provision of sec. 61 shall not apply to an income arising to a person by
virtue of -
 A transfer by way of creation of a trust which is irrevocable during the lifetime of the
beneficiary;
 Any transfer which is irrevocable during the lifetime of the transferee; or
 Any transfer made before 1.4.61, which is not revocable for a period exceeding 6
years.
In any case, the transferor must not derive any benefit (directly or indirectly) from
such income.
6.3 SET-OFF OF LOSSES

Set off of losses means adjusting the losses of current year or previous year against
the profit or income of the current year. If loss of the one year is not set off against the
income of the same year then that loss can be carried forward to the subsequent years for set
off against income of those years.
Set-off losses can be of two types:
Intra Head
Set-off set-off
of Losses Inter head
set-off
32
6.3.1 INTRA-HEAD SET OFF OF LOSSES
Intra head set-off means the losses of the one source of income will be set off against
income from another source under the same head of income.
Example: Loss of Business A can be set off against profit of Business B, where Business A
is one source and Business B is another source and the common head of income is “income
from business and profession”.
Exception of Intra-head set-off:
1. Long Term Capital Loss: Long term capital loss can be set off only against income from
long term capital gain not against the income from short term capital gain.
2. Loss from Speculative Business: It should be set of against income from speculative
business.
3. Loss from Owing and Maintaining Race Horse: It should be set off only against the
income of owing and maintaining race horses.
4. Loss From Business Specified Under Section 35AD: It will be set-off against specified
business.
6.3.2 INTER-HEAD SET-OFF OF LOSSES
Inter head set-off means loss under one head will be allowed to set-off against the
income for that assessment year under any other head.
Exception of Inter-head set-off:
1. Losses under the head “Income from business or profession” will not be set-off against
salary income.
2. Loss of business specified under section 35AD can be set off only against specified
business.
3. Loss of speculation business can be set-off only against income from speculation business.
4. Losses under Capital gain cannot set-off against any other head income.
5. Loss from activity of owning and maintaining of horses cannot be set-off against any
other type of income.
33
6. Loss under the head income from house property can be set-off against any other head
income only to the extent of 2lakhs. That means maximum loss from house property
which can be set-off against the income of any other head is 2lakh.
6.4 CARRY FORWARD OF LOSSES AND SET-OFF

House Property (Section 71B):
 Losses of house property can be set-off in the same assessment year from the income of
any other head.
 Loss of house property can be carried forward up to next 8 assessment years from the
assessment year in which the loss was incurred. And will be adjusted only against Income
from house property.
 Losses of house property can be carried forward even if the return of income for the loss
year is belatedly filed.
Business losses (Section 72):
 Loss of “Profit and gain from business or profession” other than loss from speculation
business can be set off against any other heads income in the same assessment year
 And if such loss cannot be set-off against income from any other head the loss shall be
carried forward to the following assessment years and it shall set-off against the income
from business and profession.
 The loss from business and profession can be carried and set off against the profit of the
assessee who incurred the loss. That means the person who has incurred the loss will be
entitled to carry forward the loss and set-off the same.
 Loss of business or profession can be carried forward up to next 8 assessment years from
the assessment year in which the loss was incurred. And will be adjusted only against
profit and gains from business and profession.
 As per section 80, the assessee must have filled a return of loss u/s 139(3) in order to carry
forward and set off a loss.
Loss in speculation business (Section 73):
 The loss from speculation business can be set-off only against the income of speculation
business.
34
 The loss if not fully set-off against the income of speculation business can be carry
forward up to the next 4 assessment year from the year of loss.
 Speculation transaction means a transaction which consists of purchase and sale of

commodity including stock and shares other than actual delivery or transfer of commodity
or stock.
Losses of business specified u/s 35AD (Section 73A):
 Loss of any business specified u/s 35AD shall be allowed to be set-off against the income
of any other specified business under the heads ‘Profit and gain from business or
profession.
 If loss of the assessment year is not set-off fully against the profit of the assessment year
shall be allowed to carry forward the loss upto the “n” numbers of year (without limit) and
can be set-off against the income from the specified business u/s 35AD.
 This means the loss of specified business cannot be set off against the income of any other
non-specified business not in current year.
 The losses can be carried forward in the following year even if the assessee has not filed
the return of losses (section 80)
Losses under Capital gain (Section 74):
 Capital loss will be set-off against the income of the same head in respect of any other
capital gain income.
 Long term capital loss will be set-off with only long term capital gain and not against any
other head.
 Short term capital loss can be set-off from both short as well as long term capital gain.
 If loss of capital assets are not set-off from the profit of current year can be carried
forward the loss to the following year up to 8 years from the assessment year loss is
computed.
Loss of Other Source (Section 74A):
 The loss of owning and maintaining race horses shall be set-off only against the income of
owing and maintain race horses in that year and shall be carried forward to the following
assessment years
35
 It shall be set off against the income from the activity of owing and maintaining race horse
assessable for the A/Y provided that the activity of owning and maintain race horse is
carried on be him in the P/Y relevant for that A/Y
 If losses are not set-off fully in the current year can be carried forward up to 4 years from
the assessment year of loss.
6.5 ILLUSTRATIONS
Illustration-1:
From the following income particulars of X Ltd. supplied to you, compute the gross total
income for the A Y 2023-24.
Income from House property-I ₹ 50,500
Loss from House property-II ₹ 23,500
Loss from business unit-2 ₹ 20,000
Profit from speculative business ₹ 75,000
Long term capital gain ₹ 55,000
Long term capital loss ₹ 20,000
Interest on Securities ₹ 22,500
Income from poultry Business ₹ 1,35,000
Solution:
Computation of Gross Total Income of X Ltd for the AY 2023-24
Particulars ₹ ₹
Income From House property
Income from House Property-I 50,500
Less: Loss from House property-II 23,500 27,000
Profit or Gain from Business or Profession
Income from poultry business 1,35,000
Less: Loss form business unit-2 20,000
36
1,15,000
Profit from Speculation Business 75,000 1,90,000
Capital Gain
Long-Term Capital Gain 55,000
Less: Long Term Capital Loss 20,000 35,000
Income from Other Sources
Interest on securities 22,500
 Loss from house property is set off with Income from house property-I
 Loss from business unit-2 is set off with Income from poultry business.
 Long Term Capital Loss is set-off with long term capital gain
Illustration-2:
Madhu Ltd. furnishes the following particulars for the P.Y. 2022-23:
Particular ₹
Income from house property – I 45,000
Income from house property - II (24,000)
Income from business – non-speculative (22,000)
Income from speculative business (4,000)
Short-term capital losses (25,000)
Long-term capital gains 19,000
What is the total income chargeable to tax for the A.Y.2023-24?
37
Solution:
Total Income of Madhu Ltd. for the A.Y. 2023-24
Particulars Amount Amount

(₹) (₹)
Income from house property – I 45,000
Set off: Income from house property - II (24,000)
21,000
Income from Business – Non-speculative (22,000)
Set off loss to be carried forward [Note 1] (1,000)

Speculative loss to be carried forward [Note 2] (4,000)
Capital Gains

Short term capital loss (25,000)
Short term capital loss to be carried forward [Note 3] (6,000)
Taxable Income Nil
Note 1: Remaining loss from non-speculative business can be carried forward to next year
for set-off against income from business, if any.
2: Loss of ₹ 4,000 from the speculative business can be set off only against the income
from the speculative business. Hence, such loss has to be carried forward.
3: Short term capital loss can be set off against both short term capital gain and long
term capital gain. Therefore, short term capital loss of ₹ 25,000 can be set-off against
long-term capital gains to the extent of ₹ 19,000. The balance short term capital
loss of ₹ 6,000 cannot be set-off against any other income and has to be carried
forward to the next year for set-off against capital gains, if any.
38
Illustration 3:
During the P.Y. 2022-23, Karthick Ltd. has the following income and the brought
forwardlosses:
Particulars ₹
Short term capital gains on sale of shares 1,50,000
Long term capital loss of A.Y.2021-22 (96,000)
Short term capital loss of A.Y.2022-23 (37,000)
What is the capital gain taxable in the hands of Karthick Ltd. for the A.Y.2023-24?
Solution:
Taxable capital gains of Karthick Ltd. for the A.Y. 2023-24
Particulars ₹ ₹
Short term capital gains on sale of shares 1,50,000
Less: Brought forward short term capital loss of the
A.Y.2022-23 (37,000) 1,13,000

Less: Brought forward long-term capital loss of A.Y.2021-22
[See Note below] (75,000) Nil
Taxable short-term capital gains 1,13,000
Note: Long-term capital loss cannot be set off against short-term capital gain. Hence,
the unadjusted long term capital loss of A.Y.2021-22 of ₹ 21,000 (that is, ₹
96,000 – ₹ 75,000) has to be carried forward to the next year to be set-off
against long-term capital gains of that year.
39
Illustration- 4:
Rudresh Ltd. has the following income for the P.Y. 2022-23:
Particulars ₹
Income from the activity of owning and maintaining the race horses 75,000
Income from textile business 85,000
Brought forward textile business loss (relating to A.Y. 2022-23) 50,000
Brought forward loss from the activity of owning and maintaining the 96,000
race horses (relating to A.Y. 2020-21)
What is the total income in the hands of Rudresh Ltd. for the A.Y. 2023-24?
Solution:
Total income of Rudresh Ltd. for the A.Y. 2023-24
Particulars ₹ ₹
Income from the activity of owning and maintaining race 75,000
horses
Less: Brought forward loss from the activity of owning and
maintaining race horses 96,000
Loss from the activity of owning and maintaining race (21,000)
horses to be carried forward to A.Y.2024-25
Income from textile business 85,000
Less: Brought forward business loss from textile business. 50,000 35,000
Total Income 35,000
Note: Loss from the activity of owning and maintaining race horses cannot be set-off
against any other source/head of income.
40
Illustration-5:
Compute the gross total income of X Ltd. for the A.Y. 2023-24 from the information
given below –
Particulars ₹
Income from house property (computed) 1,25,000
Income from business (before providing for depreciation) 1,35,000
Short term capital gains on sale of unlisted shares 56,000
Long term capital loss from sale of property (brought forward (90,000)
fromA.Y. 2022-23)
Income from tea business 1,20,000
Dividends from Indian companies carrying on agricultural operations 80,000
Current year depreciation 26,000
Brought forward business loss (loss incurred six years ago) (45,000)
Solution:
Gross Total Income of X Ltd. for the A.Y. 2023-24
Particulars ₹ ₹
Income from house property (Computed) 1,25,000
Income from business
Profits before depreciation 1,35,000
Less: Current year depreciation 26,000
Less: Brought forward business loss 45,000
64,000
Income from tea business (40% is business income) 48,000 1,12,000
Capital gains
Short term capital gains 56,000
41
Note:
(1) Dividend from Indian companies is exempt from tax under section 10(34) to
the extent of ₹ 10 lakh.
(2) 60% of the income from tea business is treated as agricultural income and therefore,
exempt from tax;
(3) Long-term capital loss can be set-off only against long-term capital gains. Therefore,
long-term capital loss of ₹ 90,000 brought forward from A.Y. 2022-23 cannot be
set-off in the A.Y. 2023-24, since there is no long-term capital gains in that year. It
has to be carried forward for set-off against long-term capital gains, if any, during
A.Y. 2024-25.
Illustration-6:
M/s. Punith Ltd. submits the following details of income for the assessment year
2023-24:
Particulars ₹
Income from house property – A 30,000

Loss from let out house property - B (-) 40,000
Income from sugar business 50,000
Loss from iron ore business b/f (discontinued in P.Y. 2018-19) (-) 1,20,000
Short term capital loss (-) 60,000
Dividend 5,000
Income received from lottery winning (Gross) 50,000
Winnings from card games (Gross) 6,000
Agricultural income 20,000
Short-term capital loss under section 111A (-) 10,000
Bank interest on Fixed deposit 5,000
Calculate gross total income and losses to be carried forward.
42
Solution:
Computation of Gross Total Income of M/s. Punith Ltd. for the A.Y. 2023-24
Particulars ₹ ₹
Income from House property:
Income from house property 30,000
Less: Loss from house property set-off against salary
income as per section 71 (40,000) Nil
Balance Loss from house property ₹ 10,000 to be carried

forward
Profits and gains of business or profession:
Income from sugar business 50,000
Less: Brought forward loss from iron-ore business set-
off as per section 72(1) (50,000) Nil
Balance business loss of ₹ 70,000 of P.Y. 2018-19 to be

carried forward to A.Y. 2024-25
Capital gains:
Less: Short term capital loss set-off (40,000) Nil
Balance short-term capital loss of ₹ 20,000 to be carried
forward
Short-term capital loss of ₹ 10,000 under section 111A
also to be carried forward
Income from other sources
Dividend 5,000
Winnings from lottery 50,000

Winnings from card games 6,000
Bank interest 5,000 66,000
Gross Total Income 66,000
Losses to be carried forward to A.Y.2024-25
Loss from House Property (₹ 40,000-₹ 30,000) 10,000
43
Loss of iron-ore business (₹ 1,20,000 – ₹ 50,000) 70,000
Short term capital loss (₹ 20,000 + ₹ 10,000) 30,000
Notes:
1. Agricultural income i s Exempt under section 10(1).
2. It is presumed that loss from iron-ore business relates to P.Y. 2018-19, the
year in which the business was discontinued.
Illustration-7:
The following are the details relating to Sagar Co.Ltd. relating to the year ended
31.3.2022:
Particulars ₹
Loss from cloth business 2,40,000
Income from speculation business 30,000
Loss from specified business covered by section 35AD 20,000
Long-term capital gains from sale of urban land 2,50,000
Loss from card games 32,000
Income from betting (Gross) 45,000
Compute the total income and show the items eligible for carry forward.
Solution:
Computation of total income of Sagar Co. Ltd. for the A.Y.2023-24
Particulars ₹ ₹
Profits and gains of business or profession
Income from speculation business 30,000
Less: Loss from cloth business set off 30,000 Nil
Capital gains
Long-term capital gains from sale of urban land 2,50,000
Less: Loss from cloth business set off 2,10,000 40,000
Income from other sources
Income from betting 45,000
44
Gross Total Income 85,000
Less: Deduction u/s 80C to 80U Nil
Total income 85,000
Losses to be carried forward:
Particulars ₹
(1) Loss from cloth business (₹ 2,40,000 - ₹ 30,000 - ₹ 2,10,000) Nil
(2) Loss from specified business covered by section 35AD 20,000
Notes:
(i) Loss from specified business covered by section 35AD can be set-off only against
profits and gains of any other specified business. Therefore, such loss cannot
be set off against any other income. The unabsorbed loss has to be carried
forward for set-off against profits and gains of any specified business in the
following year.
(ii) The balance business loss of ₹ 2,10,000 (₹ 2,40,000 – ₹ 30,000 set-off against
income from speculation business) can be set-off against long-term capital
gains of ₹ 2,50,000 from sale of urban land. Consequently, the taxable long-
term capital gains would be ₹ 40,000.
(iii) Loss from card games can neither be set off against any other income, norcan
be carried forward.
(iv) Income from betting is chargeable at a flat rate of 30% under section 115BB and
no expenditure or allowance can be allowed as deduction from such income, nor
can any loss be set-off against such income.

1. Business loss cannot be set off against;
a. House property income c. Capital Gain

b. Business Income d. salary Income
2. Casual Loss can be set off against;
a) Casual Income c) Income from Other sources

b) LTCG d) None of the above
45
3. Business Loss can be carried forward for
a) 10 years c) 4 years
b) 9 years d) 8 years
4. Carry forward and set off losses
a) Can be done in given order of set d) Can be done with specific

b) Can be done in any order permission from Govt
c) Can not be done at all
5.Inter head set off against income under other heads can be done under I T Act 1961.
a) Section 51 c) Section 91
b) Section 71 d) Section 99
1. d
2. d
3. d
4. a
5. b
6.7 SUMMARY
In this unit we have discussed types of set off of losses and provisions for carry
forwarding losses as per Income Tax Act. Perhaps we know, an assessee is taxed normally on
the basis of income earned by him or from his business. However, sometimes income of a
persons in a family can also be included in the hand of the assessee is called clubbing of
income. Set-off and carry forward loss under Income Tax Act, is one of the benefits provided
by the government to all type of assessee. Through this provisions assessee can make their
plan or use its losses for reducing their tax liability.
6.8 KEYWORDS
Set-off of loss : It means setting off of losses against the income of the
same year.
Intra head set-off : It means the losses of the one source of income will be
set off against income from another source under the
same head of income.
46
Clubbing of Income : It means income of other person included in the hands
of the employee due to some reasons.

1. What is clubbing of income?
2. What is recoverable transfer?
3. What is tax implication of clubbing of income?
4. What do you mean by set-off and carry forward of losses?
5. What are the provisions governing set-off of losses?
6. How is speculation loss treated?
7. Mr. Bhola has furnished you the following data –
Income from house property ₹ (1,30,000)
Salaries (Net) ₹ 80,000
Income from other sources ₹ (90,000)
Income from lotteries ₹ 3,50,000
Mr. Bhola is seeking your advice relating to set off and carry-forward.
6.10 REFERENCES
2022.
47
UNIT-7 TAX PLANNING
Structure:
7.0 Objectives
7.1 Introduction
7.2 Tax Planning
7.3 Tax Evasion
7.4 Tax Avoidance
7.5 Differences between Tax Planning, Tax Evasion and Tax Avoidance
7.6 Need for Tax Planning
7.7 Limitations of Tax Planning
7.8 Tax Planning with respect to Financial Decisions
7.9 Tax planning with respect to Managerial Decisions
7.9.1 Own or Lease Decisions
7.9.2 Make or Buy Decisions
7.9.3 Repair, Renewal or Replace of an Assets
7.9.4 Shut Down or Continue Decisions
7.11 Summary
7.12 Keywords
7.14 References
48
7.0 OBJECTIVES
 Give the meaning of tax planning, tax evasion and tax avoidance.
 Differentiate between tax planning and tax evasion.
 State the difference between tax planning and tax avoidance.
 Determine the tax planning with respect to financial decisions.
 Analyse the tax planning with respect to managerial decisions.
7.1 INTRODUCTION
In the previous units, we have discussed about various heads of come deductions
u/s 80G to 80U, computation of total taxable income for tax point of view, and calculation of
tax liability. But the main objective of every assessee is to reduce their tax liability as much
as possible by using provisions of income tax law, which is called as tax planning.
There are three stages in the imposition of tax:
i. There is a declaration of liability, that is the part of the status which determines what
persons in respect of what property are liable.
ii. There is an assessment.
iii. Method of recovery, if the person taxed does not pay voluntarily.
According to the supreme court judgement, the components which enter into the concept of
tax are:
a. The character of the imposition known by its nature which prescribes the taxable
event attracting the levy.
b. A clear indication of the person on whom the tax is imposed and who is obliged to
pay the tax.
c. The rate at which tax is imposed.
d. The measure to which the rate will be applied for computing the tax liability.
The rate of tax being very high at present, it has become necessary to arrange the fiscal
affairs in such a way as to attract least tax. This can be done by three ways: Tax Planning,
Tax Evasion, Tax Avoidance.
49
7.2 TAX PLANNING
Tax planning is a way to reduce tax liability by taking full advantages provided by
the Act through various exemptions, deductions, rebates and relief. In other words, it is a way
to reduce tax liability by applying script & moral of law. It is the scientific planning so as to
attract minimum tax liability or postponement of tax liability for the subsequent period by
availing various incentives, concessions, allowance, rebates and relief provided in the Act.
Tax planning may be defined as an arrangement of one’s financial affairs in such a

way that without violating in any way the legal provisions of an Act, full advantage is taken
of all exemption, deductions, rebates and reliefs permitted under the Act, so that the burden
of the taxation on an assessee, as far as possible, is the least.
Actually, the exemptions, deductions, rebates and reliefs have been provided by the
law legislature to achieve certain social and economic goals.
For example, section 80IB of the Income Tax Act, 1961 provides deduction from
gross total income in respect of profits from newly established industrial undertakings in
industrially backward sate or industrially backward district as may be notified in this behalf.
The objective of the tax concession is clear, that is, economic development of industrially
backward district or state. Section 80C provides deduction from gross total income, if an
individual or H.U.F. saves the amount and invests or deposits in the prescribed schemes. The
deduction has been provided to encourage savings and investments for economic
development of the country. Thus, if a person takes the advantages of the aforesaid
deductions, he not only reduces his tax liability but also helps in achieving the objective of
the legislature, which is lawful, social and ethical.
Thus, tax planning is an act within the four corners of the Act and is not a colourable
device to avoid the tax.
7.3 TAX EVASION

Tax evasion is the illegal way to reduce tax liability by deliberately suppressing
income or sale or by increasing expenses, etc., which results in reduction of total income of
the assessee. Tax evasion is illegal, both in script & moral. It is the cancer of modern society
and work as a clog in the development of the nation.
Where a person reduces his total taxable income and tax liability by making false
claims or by withholding the information regarding his real income, is known as tax evasion.
50
Tax evasion is not only illegal but it is also immoral, anti-social and anti- national practice.
Therefore, under the direct tax laws, provisions have been made for imposition of heavy
penalty and institution of prosecution proceedings against tax evaders.
The tax evader reduces his taxable income by one or more of the following steps:
1. Unrecorded sales.
2. Claiming bogus expenses, bad debts and losses.
3. Charging personal expenses as business expenses, for example, car expenses,
telephone expenses, travelling expenses, medical expenses incurred for self or
family may be shown in the account books as business expenses.
4. Submission of bogus receipts for charitable donation for deduction u/s 80G.
5. Non-disclosure of capital gains on sale of asset.
6. Non-disclosure of income from ‘Benami transactions’.
In brief, to evade tax he suppresses or omits receipts, inflates expenses and claims
bogus deductions.
7.4 TAX AVOIDANCE

Tax avoidance is an exercise by which the assessee legally takes advantages of
loopholes in the Act. Tax avoidance is a practice of bending the law without breaking it. It is
a way to reduce tax liability by applying script of law only. Most of the amendments are
aimed to curb such loopholes
Tax avoidance is an art of dodging tax without actually breaking the law. It is a
method of reducing tax incident by availing of certain loopholes in the law. The Royal
Commission on Taxation for Canada has explained the concept of ‘avoidance of tax’ as
under:
The expression ‘tax avoidance’ will be used to describe every attempt by legal means
to prevent or reduce tax liability which would otherwise be incurred, by taking advantage of
some provision or lack of provision in the law. It excluded fraud, concealment or other illegal
measures.
In other words, ‘tax avoidance’ is a device which technically satisfies the requirement
of the law but in fact it is not in accordance with the legislative intent.
51
7.5 DIFFERENCES BETWEEN TAX PLANNING AND TAX EVASION AND
TAX AVOIDANCE
Difference between Tax Planning and Tax Evasion
1. Tax planning is an act within the four corners of the Act to achieve certain social and
economic objective and it is not a colourable device to avoid the tax. Tax evasion is a
deliberate attempt on the part of tax payer by misrepresentation of facts, falsification
of account including downright fraud.
2. Tax planning is a legal right and a social responsibility. By tax planning certain social
and economic objective are achieved. Tax evasion is a legal offence coupled with
penalty and prosecution.
3. Tax planning requires through knowledge of the relevant Acts, social, economic and
political situation of the country while tax evasion requires boldness to infringe the
law.
4. Tax planning helps in economic development of the country by providing additional
funds for investment in desired channel while tax evasion generates black money
which is generally utilised for smuggling, bribery, extravagant expenses on luxury.
5. A tax planner enjoys his fruits freely and he does not suffer from high blood pressure,
whereas a tax evader remains always in anxiety of search and seizure.
Difference between Tax Planning and Tax Avoidance
1. In tax planning, the objects and the spirit of the law are followed while in tax avoidance
the tax is reduced by taking advantages of the loopholes of the law.
2. Tax planning is permanent while tax avoidance is temporary. However, no penalty can
be imposed either in case of tax planning or in case of tax avoidance.
Difference between Tax Avoidance and Tax Evasion
1. Tax avoidance is legal but tax evasion is illegal.

2. In case of tax avoidance, the objects and spirit of the law are not followed while in
the case of tax evasion the provisions of the law are flouted.
3. In case of tax avoidance, no penalty can be imposed while in case of tax evasion the
person is liable to penalty and prosecution.
4. In case of tax avoidance, black money is not generated hence’ it is not very harmful
to the society. In case of tax evasion, black money is generated which is mostly
used for unproductive purposes.
52
7.6 NEED FOR TAX PLANNING
Reduction in tax liability: The basic need of tax planning is to reduce the tax
liability so that enough surplus arises out of profits, remains with the earner of it for
his personal and social needs and also for future investment in his business. This is
only possible by planning his tax affairs properly and availing the deductions,
exemptions and reliefs, etc. which are admissible under the Acts. He can succeed in
doing so by updating his knowledge about the various concessions available in the
taxation laws and the conditions to be fulfilled to avail them.
Minimisation of litigation: There is always a tug-of-war between the tax payers and
the tax administrators. The tax payers try their best to pay the least tax and the tax
administrators attempt to extract the maximum. This sometimes results in prolonged
litigation. Actually, the main reason of litigation lies in tax avoidance and not in tax
planning. A good tax planning is always based on clear words of the statute or in
conformity with the provisions of the taxation laws. In such a case the chances of
litigation are minimised.
Productive investment: A proper tax planning brings fiscal discipline in the
functioning of a tax payer and reduces the transfer of money from the person who has
earned it by hard labour, to the government for waste and ostentation. The amount so
saved enhances the capacity of the tax payer for expansion and growth, which in turn
increases the tax revenue of the government.
Reduction in cost: Incidence of tax (direct and indirect) forms a part of cost of
production. The reduction of tax-by-tax planning reduces the overall cost. It results in
more sale, more profit and more tax revenue.
Healthy growth of economy: The growth of a nation’s economy depends upon the
growth of its citizens. Savings through tax planning device foster the growth of
economy while savings through tax evasion led to generation of black money, the evil
of which are obvious.
Employment generation: The amount saved by tax planning is generally invested in
commencement of new undertakings or expansion of the business. This creates new
employment opportunities in the business. Further, taxation laws are complicated that
by and large tax payers cannot plan their affairs efficiently.
53
7.7 LIMITATIONS OF TAX PLANNING
 Where an assessee has not claimed exemption, deduction or relief for which he is
entitled to, before the assessment is completed, he is not allowed to claim it as
rectification of mistake or in appeal or revision.
 Tax planning cannot be done in isolation. Other economic factors, apart from the
Income Tax Act and other Economic laws (e.g., partnership law or company law)
have to be considered before taking any decision in respect of reducing the tax
liability.
 Sometimes a decision taken for tax advantages leads a favour for some of the
family members at the cost of others in terms of individual property or income
rights.
 With increase in profits, the quantum of tax also increases. It necessitates the
devotion of adequate time on tax planning. Otherwise, this time might have been
used for some productive purpose.
 The direct tax laws are amended frequently either by the direct tax laws
(amendment)Act or by the finance Act. This puts a hindrance in making a long –
term tax planning.
 The tax incentives are allowed on fulfilment of certain conditions. Sometimes it is
very difficult to fulfil those conditions and the tax payers are not in a position to
avail the incentives.
7.8 TAX PLANNING WITH RESPECT TO FINANCIAL DECISIONS

Capital structure refers to the mix of sources from which funds required for the
business are raised. The choice relating to raising of funds and planning the capital structure
of an understanding would be between capital and borrowings and the planning of the
optimum debt-equity ratio.
From tax point of view expenses incurred on raising loans/debentures and interest
payable on loans are deductible in computing taxable income of the assessee. However, any
amount of interest paid, in respect of loan for acquisition of an asset for extension of existing
business for any period beginnings from the date on which loan was taken for acquisition of
the asset till the date on which such asset was first put to use, shall not be allowed as a
deduction. It will be added to the cost of the asset. On the other hand, the expenses incurred
on raising capital/share capital and interest on capital/dividend on share capital are not
54
deductible in computing the taxable income of the assessee. However, the following expenses
in relation to capital are deductible:
 If the assessee is a firm, the interest payable to partners on their capital and loan
capital, subject to a maximum of 12% p.a.
 If the assessee is an Indian company and in connection with the issue, for public
subscription, of shares in or debentures of the company, incurs expenses. Twenty per
cent of such expenses are allowed for each of the five successive previous years
beginning with the previous years in which the business commences.
From this one may conclude that, the borrowings contribute to tax saving resulting a
higher rate of return on owner’s equity. But this does not hold good in every case. If the rate
of return on total capital is more than the rate of interest, definitely the borrowing would
increase the rate of return on owner’s equity. Otherwise, it would reduce his rate of return.
Illustration -1
Three companies raised the capital as under:
Particulars A(₹) B(₹) C(₹)
Equity Share Capital 2,00,000 1,60,000 40,000
Loans _ 40,000 1,60,000
Total investment 2,00,000 2,00,000 2,00,000
Rate of interest on loan 10%
Rate of return 25%, 10%, 8%
Rate of tax 26% including cess
Explain whose capital structure is the best and why?
55
Solution:
Computation of Return on Equity when Rate of Return is 25%
A B C
Particulars
(₹) (₹) (₹)
EBIT (2,00,000X25%) 50,000 50,000 50,000
less: Interest on Loans @ 10% _ 4,000 16,000
Profit Before Tax 50,000 46,000 34,000
Less: Tax @ 26% 13,000 11,960 8,840
Profit After Tax 37,000 34,040 25,160
Return on Equity 18.5% 21.275% 62.9%
Particulars A B C
EBIT (2,00,000 X 10%) 20,000 20,000 20,000
Less: Interest on Loans @10% ___ 4,000 16,000
Profit Before Tax 20,000 16,000 4,000
Less: Tax @ 26% 5,200 4,160 1,040
Profit After Tax 14,800 11,840 2,960
Return on Equity 7.4% 7.4% 7.4%
Particulars A (₹) B (₹) C (₹)
EBIT (2,00,000X 8%) 16,000 16,000 16,000
Less: Interest on Loans @10% _ 4,000 16,000
Profit Before Tax 16,000 12,000 NIL
56
Less: Tax @ 26% 4,160 3,120 NIL
Profit After Tax 11,840 8,880 NIL
Return of Equity 5.92% 5.55% NIL
Conclusion:
1. When rate on return on investment is 25% which is more than the rate of interest at
10%, the Capital structure of company ‘C’ is the best as return on equity capital of
company ‘C’ is more compared to other companies.
2. When the rate of retune on investment is equal to the rate of interest, the rate of return
on capital is same for all companies whether the company takes the loan or issues share
capital.
3. When rate of return on investment is less than the rate of interest, if company takes a
loan, it will reduce the rate of return on capital. In the given situation the capital
structure of company A is the best.
Illustration-2
Bharat Ltd. a company engaged in manufacture of electrical switches is a widely-held

company. It is considering a major expansion of production facility and import of latest
technology which is expected to improve its profitability from the present rate of 20% to
atleast 25% (before tax). The finance manager has given the following proposals.
₹ (in lakh)
A B C D
Particulars
40 20 30 50
Share capital(Equity)
20 20 _ 10
14% preference shares
_ 20 _ 40
16% Non –convertible Debentures
_ 40 70 _
Term loans from Institutions and Bank (20%)
40 _ _ _
Lease finance (22%)
100 100 100 100
TOTAL
57
i. The rate of dividend on equity has not been below 24% in the past.
ii. The tax rate payable by the company is 26%.
Your opinion with detailed reasons is sought on the above.
Solution:
Computation of Return on Capital:
Particulars A(₹) B(₹) C(₹) D(₹)
Capital employed 1,00,00,000 1,00,00,000 1,00,00,000 1,00,00,00
EBIT 25,00,000 25,00,000 25,00,000

25,00,000
Less: * Interest
* 16% NCD _ 3,20,000 _

6,40,000
* Term loan 20% _ 8,80,000 14,00,000
_
* Lease finance 22% 8,80,000 _ _
Taxable profit 16,20,000 13,80,000 11,00,000 18,60,000
Less: Income-tax @26% 4,21,200 3,58,800 2,86,000 4,83,600
Return on Shareholders Fund 11,98,800 10,21,200 8,14,000 13,76,400
Less: Dividend on 14%preference 2,80,000 2,80,000 _ 1,40,000

share
Amount available to equity 9,81,800 7,41,200 8,14,00 12,36,400

shareholders
Rate of return for equity 22.97 37.06 27.13 24.73

shareholders
Suggestion: Return on equity shareholders of company ‘B’ is more (that is 37.06%)

compared to other companies. Therefore, it is concluded that the company ‘B’is having best
Capital structure with good returns.
58
7.9 TAX PLANNING WITH RESPECT TO MANAGERIAL DECISIONS
7.9.1: OWN OR LEASE DECISIONS
A lease of property is a transfer of right by the transferee to the transferor to enjoy

such property, made for certain time, in consideration of a price payable periodically.
When a person needs an asset for his business purposes, he has to decide whether the
asset should be purchased or taken on lease. While taking this decision he should keep in
mind the following factors:
Cash position: When a person has sufficient cash or he can borrow funds at a
reasonable rate of interest to purchase an asset or can acquire the asset under hire
purchase/instalment system, he may decide to buy it. The cost of own asset is not
deductible in computing the income but the interest on borrowed funds or under hire
purchase/instalment system is deductible in computing the income.
Depreciation: When the asset is purchased or acquired under hire
purchase/instalment system, the depreciation is allowed in computing income. When
the asset, is taken on lease, depreciation is allowed to the lessor. Non-availability of
depreciation to the lessee will increase his tax liability.
Obsolescence Risk: When a plant or machinery is purchased and it becomes obsolete
earlier than its expected working life, it has to be replaced, the replacement cost can
be met partly out of depreciation fund and partly by arranging further cash. In case of
lease, the asset will be replaced by the lessor.
Residual value: When a person purchases an asset, he has full right to the value of
the asset at the end of any given period. In the case of asset with large residual value it
is better to purchase it rather than taken on lease.
Profit margin: Where profit margin is low, it is better to purchase the asset. If the
asset has been purchased by borrowed funds the cash outflow would be equal to loan
instalment, interest payment and slightly higher tax. On the other hand, in case of
leasing the lease rent would be equal to part of the cost of asset to lessor, interest on
investment and profit to the lessor.
Consider profit after tax: It is an important consideration in tax planning. The
assessee should follow such a method for obtaining an asset which reduces his tax
liability and the profits after tax are greater. For this purpose, some people suggest
that own funds should not be used in purchase of an asset because interest on own
59
funds is not deductible in computing the income, whereas interest on borrowed funds
is deductible. But one should keep in mind that if own funds are invested outside the
business, the interest earned will offset the interest payment.
As far as possible the asset should be purchased and not taken on lease because the cost
of use of the asset purchased is less than the cost of lease asset. However, where the assessee
is suffering from a liquidity crunch and cannot invest in an asset nor he can avail substantial
credit from the suppliers or money-lenders, then he should take an asset on lease.
Illustration 3:
From the following information determine whether the assesse should purchase an asset or
take on lease:
1. Cost of asset ₹ 1,00,000.

2. Rate of depreciation 15%.
3. Rate of interest 10%.
4. Repayment of loan by the assessee ₹ 20,000 p.a.
5. Rate of tax 26 %.
6. Residual value ₹20,000 after five years.
7. Profit of the assessee ₹ 1,00,000 before depreciation, interest and tax/before lease rent
and tax.
8. Lease rent ₹ 30,000 p.a.
Solution:
I. Asset purchased:
Year
Particulars 1 2 3 4 5 TOTAL
(₹) (₹) (₹) (₹) (₹) (₹)
EBIT 1,00,000 1,00,000 1,00,000 1,00,000 1,00,000 5,00,000
Less: a) Depreciation 15,000 12,750 10,838 9,212 7,830 55,630
b) Interest 10,000 8,000 6,000 4,000 2,000 30,000
60
Profit Before Tax 75,000 79,250 83,162 86,788 90,170 4,14,370
Less: Tax @26% 19,500 20,605 21,622 22,565 23,444 1,07,736
Profit After Tax 55,500 58,645 61,540 64,223 66,726 3,06,634
Loss on sale of asset = ₹ 1,00,000 – (55,630 + 20,000) = ₹ 24,370.
II. Asset taken on lease:
Year
Particulars
TOTAL
1 2 3 4 5
(₹)
EBIT 1,00,000 1,00,000 1,00,000 1,00,000 1,00,000 5,00,000
Less: Lease Rent 30,000 30,000 30,000 30,000 30,000 1,50,000
Profit Before Tax 70,000 70,000 70,000 70,000 70,000 3,50,000
Less: Tax @ 26% 18,200 18,200 18,200 18,200 18,200 91,000
Profit After Tax 51,800 51,800 51,800 51,800 51,800 2,59,000
Conclusion:
When an asset is purchased, profit is (₹ 3, 06,634-24,370) ₹ 2,82,264.
When an asset is taken on lease, profit is ₹ 2, 59,000.
Hence, asset may be purchased.
Note: Own v/s lease of an asset can also be studied by considering net cash outflow under
both the situation.
61
Illustration-4
If the present value factor at 10% is :
Years 1 2 3 4 5
PV factor 0.909 0.826 0.751 0.683 0.621
On the basis of information given in illustration 1 determine whether an asset should

be purchased or taken on lease. Asset taken on lease.
Solution :
I. Asset taken in lease
Years
Particulars
1 (₹) 2(₹) 3 (₹) 4(₹) 5(₹)
1.Lease rent 30,000 30,000 30,000 30,000 30,000
2.Tax saved @26% 7,800 7,800 7,800 7,800 7,800
3.Cash outflow (1-2) 22,200 22,200 22,200 22,200 22,200
4. Discount factor @10% 0.909 0.826 0.751 0.683 0.621
5. Present value of cash outflow(3X4) 20,180 18,337 16,672 15,163 13,786
Total PV of Cash inflow 84,138
II. Asset purchased
Years
Particulars 1 2 3 4 5
(₹) (₹) (₹) (₹) (₹)
1. Loan repayment 20,000 20,000 20,000 20,000 20,000
2. Interest 10,000 8,000 6,000 4,000 2,000
3. Cash outflow(1-2) 30,000 28,000 26,000 24,000 22,000
4. Depreciation 15,000 12,750 10,838 9,212 7,830
62
5. Total cash outflow (2 + 4) 25,000 20,750 16,838 13,212 9,830
6. Tax saved on 5@ 26% 6,500 5,395 4,378 3,435 2,556
7. Net cash outflow (3-6) 23,500 22,605 21,622 20,565 19,444
8. Discount factor @10% 0.909 0.826 0.751 0.683 0.621
9. P.V of net cash outflow (8X9) 21,362 18,672 16,238 14,046 12,075
Total net present value of cash outflow 82,393
Less: P.V of cash inflow (asset sold for ₹ 20,000) at the end of 5th year
(i.e., 0.621 of ₹ 20,000) 12,420
Net Cash Outflow 69,973
Conclusion: On lease, the present value of cash flow of an asset is ₹ 84,138 and on purchase
it is ₹ 69,973. Hence, asset should be purchased.
Illustration -5
Decide which one is a better alternative, lease or buy, in the following situation:
Tax rate : 26%
Cost of capital:12
Depreciation rate (income tax):25%
Lease rent:₹ 32,000 p.a. for 5 years (per ₹ 1 lakhs)
Present value of ₹ 1 discounted @ 12% is as follows:
Year 1=0.893; year 2=0.797; year 3=0.712; year 4= 0.636; year 5 = 0.557.
Make any other suitable assumption, if necessary.
63
Solution:
Assumptions:
1) The cost of the asset (machine) is ₹ 1,00,000.

2) It is sold for ₹ 5,000 at the end of five years period.
3) The short-term capital loss is set –off against short – term capital gain at the end of
five-year period.
Case – 1: Computation of Net Cash outflow when an asset is purchased
Particulars ₹
Cash outflow 10,00,000
Less:
1. P.V. of tax saving on depreciation (₹58,474 @26%) 15,203
2. P.V. of machine sold at the end of 5th year (0.567x₹5,000) 2,835
3. P.V. of tax saving on STCL

₹1,00,000-76,269-5,000=₹18,731; 0.567x18,731x26% 2,761
Net Cash Outflow 79,201
Working note: Calculation of Depreciation and PV of tax savings on depreciation.
Discounted value
Years Depreciation @12%
(dep.×p.v.factor)
1 25,000 22,325
2 18,750 14,944
3 14,062 10,012
4 10,547 6,708
5 7,910 4,485
76,269 58,474
64
Case-2: Calculation of Net Cash out flow when an asset is taken in lease
Particulars ₹
PV. of cash outflow (lease rent) 1,15,360
Less: P.V. of tax saving on ₹1,15,360 @ 26% 29,990
Net cash outflow 85,366
Working Note: Calculation of P.V. of tax savings
Years Lease rent Discount value @12%

(L.R× P.V.)
1 32,000 28,576
2 32,000 25,504
3 32,000 22,784
4 32,000 20,352
5 32,000 18,144
TOTAL 1,15,360
Conclusion:
 When the asset is purchased net cash outflow is ₹ 79,201.

 When the asset is taken on lease net cash outflow is ₹ 85,366.
Hence, the asset should be purchased.
7.9.2 MAKE OR BUY DECISIONS

When a business concern requires a product or any part or components of the product for
its existing unit, it has to decide whether it should make the product, part or component or
buy it from other manufacturers. There are many costing and non-costing consideration
guiding the decision towards make or buy it. Some of the important factors affecting such
decision are:
Whether infrastructural facilities are available to manufacture a product.
65
Whether the present capacity of the undertaking is fully utilised. If not, it can be utilised
in making the required product.
If an additional unit is required to manufacture the product, the concern possesses
adequate funds for establishing the unit and the whole production of the unit will be
consumed by the concern or there is market for the sale of extra production.
Whether the product is available in the market easily and at reasonable terms.
If the cost of manufacture of a product/component is lower than the cost of purchase, it
may be manufactured.
If the product is not manufactured, if has to be imported then import trade control
regulations and foreign exchange control regulations have also a role.
Illustration :6
A motor car company requires 10,000 units of a part of car engines. From the following
information suggest to the company whether it should make the part itself or buy it from the
market:
Total cost of 10,000 units ₹
Direct material 20,000
Direct labour 80,000
Variable factory overhead 40,000
Fixed factory overhead 80,000
Total costs = 2,20,000
A manufacturer offers to sell the same part at ₹ 20 per unit.
If the company manufactures the part, does it not require any additional facility.
66
Solution:
Determination whether the company should manufacture the part or buy it:
If manufacturing total cost per unit (₹ 22

2,20,000/10,000)
If manufacturing variable cost per unit 14

Make
excluding fixed
Factory overhead (₹ 2,20,000-

80,000)/10,000
Buy If purchasing cost per unit 20
Conclusion: It is suggested to the company to manufacture the car parts, because the variable
cost of manufacture of the part is less than the market price.
In this case fixed factory overhead is an irrelevant cost because the same will be incurred by
the company irrespective of the decision to make or buy the part.
Illustration -7
A company requires 20,000 units of the components every year for next five years.
The components can either be manufactured by the company in its factory or be purchased
from the market. From the following information suggest the company whether it should
make the components or buy it from the market:
1. Material cost per unit ₹ 4.

2. Labour cost per unit ₹ 6
3. Variable overhead cost per unit ₹ 2.
4. If company manufactures the component, it has to purchase a machine by taking a
loan from the bank. The present value of net cash outflow for this regard for five
years will be ₹ 1,00,000.
5. The components are available in the market at (a) ₹ 12.50 per unit, (b) ₹ 14 per unit.
67
Solution:
Determination whether the company should manufacture the components or buy it
Material (₹ 4× 20,000) 80,000
Labour (₹ 6× 20,000) 1,20,000
Variable cost (₹ 2× 20,000) 40,000
P.V., of the cash outflow (₹ 1,00,000/5) 20,000
Total cost of 20,000 units 2,60,000
Cost per unit (₹ 2,60,000/20,000) to make the component ₹ 13.
Case a: When market price per unit is 12.50 per unit.
Decision: The components should be purchased from market.
Case b: When market price per unit is ₹ 14 per unit.
Decision: The components should be manufactured by the company.
Illustration – 8:
A company required a component. From the following information suggest to the company
whether it should make the component or buy it from the market:
A. Make the components:

1. A new machine will be purchased for ₹ 10,00,000. After five years it will be sold for
₹ 2,00,000. If there is any loss on sale of machine, it will be set-off against any other
short-term capital gain.
2. Rate of depreciation 15%.
3. Manufacturing cost of components:
I year ₹ 14,00,000 II year ₹ 16,00,000 III year ₹ 18,00,000
IV-year ₹ 20,00,000 V year ₹ 24,00,000
4. Rate of tax 30%.
68
B. Buying the components:
Cost: I year ₹ 20,00,000; II year ₹ 22,00,000; III year ₹ 24,00,000; IV year ₹ 26,00,000; V
year ₹ 30,00,000.
Solution:
(A) Making the components

Computation of Depreciation
Year Depreciation WDV
I 1,50,000 8,50,000
II 1,27,500 7,22,500
III 1,08,375 6,14,125
IV 92,119 5,22,006
V 78,301 4,43,705
Short term capital loss:
WDV ₹ 4,43,705-selling price ₹ 2,00,000 = ₹ 2,43,705.
Tax savings on short term capital loss = 2,43,705X30%
= ₹ 73,111
Computation of cost of component:
Manufacturing Tax Saving

Year Depreciation Total Cost Net Cost
Cost @ 30%
(1) (3) (4) (2-5)
(2) (5)
0 _ _ _ _ 10,00,000
1 14,00,000 1,50,000 15,50,000 4,65,000 9,35,000
2 16,00,000 1,27,500 17,27,500 5,18,250 10,81,750
69
3 18,00,000 1,08,375 19,08,375 5,72,513 12,27,487
4 20,00,000 92,119 20,92,119 6,27,636 13,72,364
5 24,00,000 78,301 24,78,301 7,43,490 16,56,510
Total Net Cost 72,73,111
(-) Sale of machine 2,00,000
70,73,111
(-) Tax savings on short term Capital Loss 73,111
Net Cash outflow 70,00,000
Hence, net of component shall be ₹ 70,73,111 - 73,111.
(B) Buying the components
Tax saving
Year Cost of purchase Net cost
@ 30%
I 20,00,000 6,00,000 14,00,000
II 22,00,000 6,60,000 15,40,000
III 24,00,000 7,20,000 16,80,000
IV 26,00,000 7,80,000 18,20,000
V 30,00,000 9,00,000 21,00,000
Total Net Cash Outflow 85,40,000
Suggestion: In case of making the components, the cost is ₹ 70,00,000 and in case of buying
the components the cost is ₹ 85,40,000. Hence the components should be manufactured.
70
7.9.3 REPAIR, RENEWAL OR REPLACE OF AN ASSET
From the accounting point of view, a person can debit the expenses incurred on repair
or replacement of an asset in profit and loss account. But to show a better probability or to
increase the gross block of assets higher amount of loans shall be taken from banks or
financial institutions. The expenses on replacement of an asset are to be capitalised. When
expenses incurred on replacement of an asset are capitalised, this increases the tax liability.
From tax point of view the person is not at liberty to capitalise or not to capitalise the
expenses incurred on replacement of a part of asset or the asset itself. Let us see the
provisions of the income tax act regarding deduction of expenses incurred on repairs and
renewal/replacement of an asset.
7.9.4 SHUT DOWN OR CONTINUE DECISION

Loss co-exists with profit in a business. A business may suffer loss due to one or more
of the following reasons:
Fall in demand: The demand of the product may fall due to availability of new
product in the market, change in fashion or increase in number of
product/competitors.
Financial problem: A firm may not have sufficient funds of its own nor further credit
is available from banks or financial institutions due to government restrictions.
Change in technology: Where the growth of technology is rapid and if it is not
possible to keep pace with it the net result may be a loss of profit.
High rates of taxes: High rate of taxes, such as, import duty, excise, sales tax, octroi,
etc., increase the price of the product. Due to this, demand of the product may fall and
the business may suffer losses.
Mismanagement: Efficient management is an important factor for success of
business. If it is lacks, the result may be disastrous.
Illustration -9
X Ltd. a domestic company, has two businesses A and B. The last two-year business
A has been running at a loss wiping out the entire profits of business B. At the end of the
financial year 2021-22, there are brought forward losses of ₹ 8,00,000 and unabsorbed
depreciation ₹ 5,00,000.
71
In the financial year 2022-23 onwards it is expected that business B will earn a profit
of ₹ 5,00,000 annually and if business A is continued at a minimum level there will be an
annual loss of ₹ 1,00,000 and rate of tax will be 26%.
Please suggest to the management of the company:
(I) Whether business A should be continued or shut – down.

(II) If continued, for how many years.
Solution:
If business A is discontinued in the previous year 2022-23, the company will not loose the
right to carry- forward and set-off the past losses and unabsorbed depreciation, let us
calculate profit after tax (cash in hand) in both the situations: (1) business A continued; (2)
business A discontinued.
(1) Business A continued:
Years
Particulars
1 2 3 4
Profit of Business B 5,00,000 5,00,000 5,00,000 5,00,000
Less: Current Year loss of Business A 1,00,000 1,00,000 1,00,000 1,00,000
4,00,000 4,00,000 4,00,000 4,00,000
Less: Bought forward Loss of Business A 4,00,000 4,00,000 _ _
Less: Unabsorbed depreciation _ _ 4,00,000 1,00,000
Profit of Business B Before Tax _ _ _ 3,00,000
Less: Tax @ 26% _ _ _ 78,000
Cash in hand after meeting current year 4,00,000 4,00,000 4,00,000 3,22,000
loss and tax (a-b)
72
(2) Business A discontinued:
Years
Particulars
1 2 3 4
Profit of B 5,00,000 5,00,000 5,00,000 5,00,000
Less: Bought forwarded loss of Business A 5,00,000 3,00,000 _ _
Less: Unabsorbed depreciation _ 2,00,000 3,00,000 _
Profit of Business B _ _ 2,00,000 5,00,000
Tax @ 26% _ _ 52,000 1,30,000
Cash in hand after meeting losses and tax 5,00,000 5,00,000 4,48,000 3,70,000
Conclusion: If Business A is continued there is loss every year. Hence, business A should be
discontinued in the previous year 2022-23.

1. Deemed Dividend is defined in
a) Section 2 (22) (a) c) Section 2 (23) (a)

b) Section 2 (21) (a) d) Section 2 (22) (c)
2.Tax deduction available to certain industries for initial five years is called ---
a) Tax holiday c) TDS

b) Tax d) Advance
3. Reducing tax liability by utilising deductions, exemptions or reliefs allowed in Income
Tax Act or Rules is called______.
a. Tax evasion c. Tax planning
b. Tax avoidance d. Tax payment
4. Using loopholes of law to reduce the tax is called______.
a. Tax evasion c. Tax planning
b. Tax avoidance d. Tax payment
73
1. a
2. a
3. c
4. b
7.11 SUMMARY
In this unit, we have discussed meaning tax planning, tax avoidance and tax evasion.
This units gives the detail provisions of tax planning, highlights, how the company can
reduce tax liability under various managerial decisions. Tax planning is necessary to reduce
the tax liability, minimise the litigation, productive investment and reduction of cost, through
this the companies can take various managerial decisions. It is an analysis of a financial
situation or plan to ensure that all elements work together to allow you to pay the lowest
taxes possible. A plan that minimizes how much you pay in taxes is referred to as tax
efficient. Tax planning should be an essential part of company’s financial plan. Reduction of
tax liability and maximising the ability to contribute to the profit of the company are crucial
for success.
7.12 KEYWORDS
Tax Planning : It refers to reducing tax burden by following the
provision of Act. It is legal.
Tax Evasion : It refers to reducing the tax burden by violating the

provisions of the Act. It is illegal.
Tax Avoidance : It refers to reducing the tax burden by taking advantage

of the loopholes of the Act. It is unethical.

1. Define tax planning?
2. What is tax evasion?
3. What is tax avoidance?
4. State the difference between tax planning and tax avoidance.
5. Distinguish between tax planning and tax evasion.
6. Explain the objectives of tax planning.
74
7. What are the factors to be considered while making a lease or buy decision? When
should be a leasing preferred over purchase?
8. Explain the provisions of tax planning regarding capital structure decisions.
7.14 REFERENCES
2022.
75
UNIT-8 TAX ASSESSMENT
Structure:
8.0 Objectives
8.1 Introduction
8.2 Types of Assessment
8.3 Procedures of Assessment
8.4 Advance Tax Payment
8.5 Computation of Advance Tax Payments
8.6 Tax Deducted at Source (TDS)
8.7 Refund and Penalties
8.8 Appeals and Revision
8.10 Summary
8.11 Keywords
8.13 References
76
8.0 OBJECTIVES
 Explain the procedure and different types of assessment.

 Discuss the advancement payment of tax.
 Describe the rate of TDS applicable for the assessment year 2023-24.
 Highlights the procedure and provisions of refund and appeals.
8.1 INTRODUCTION
Income tax assessment is the process of collecting and reviewing the information filed
by an assessee in their income tax returns. At the end of each financial year, all persons and
entities required to file an income tax return by self-computing the amount of income earned
and pay the tax due. Hence, an income tax assessment would happen subsequent to the filing
of an income tax return. Company assessment are tools for evaluating the performance of all
key systems and processes of the company. Executives worldwide are turning to company
assessment to gather more complete information about the departments and process which
they manage and to help their organisations complete more effectively. In this unit, we look
at the different types of income tax assessment and their implications.
8.2 TYPES OF ASSESSMENT

As per Income Tax Act,1961, varies types of assessment are given below:
 Self-assessment – u/s 140A
 Summary Assessment – u/s 143(1)
 Scrutiny Assessment – u/s 143(3)
 Best Judgment Assessment – u/s 144
 Protective Assessment
 Re-assessment or Income Escaping Assessment – u/s 147
 Assessment in case of Search or Requisition – u/s 153A
1. Self-Assessment:
Before submitting returns, assessee is supposed to find whether he is liable for
any tax or interest. For this purpose this section has been introduced in Income Tax
Act.
Where any tax is payable on the basis of any return required to be furnished
under section 139 or section 142 or section 148 or section 153A, after deducting:
77
a. Advance tax Paid, if any
b. TDS/TCS
c. Relief
d. MAT credit
Then, assessee shall pay tax and interest before furnishing return and proof of
such payment will be accompanied with return of income.
2. Summary Assessment:
Assessment under section 143(1) is like preliminary checking of the return of
income. Under this section, income tax department sent intimation u/s 143(1) in
which comparative income tax computation [i.e. as provided by tax payer in Return of
Income and as computed u/s 143(1)] is sent by Income Tax Department. At this stage
no detailed scrutiny of the Return of Income is carried out.
3. Scrutiny Assessment:
Scrutiny assessment refer to the examination of a return of income by giving
opportunity to the assessee to substantiate the income declared and the expenses,
deduction, losses, exemptions, etc. claimed in the return with the help of evidence.
During the course of scrutiny, the assessing officer gets opportunity to conduct
enquiry as he deemed fit from the assessee and from third parties.
The exercised is aimed at ascertaining whether the income in the return is correctly
shown by the assessee and whether the claims for deductions, exemptions etc. are
factually and legally correct. If any omission, discrepancies, inaccuracies, etc. comes
light to as a result of examination, the assessing officer makes his own assessment of
the assessee’s taxable income after taking into consideration all the relevant facts.
These assessments are made under section 143(3) of the Income Tax Act.
4. Best Judgment Assessment: Section 144 of Income tax act, 1961 speaks about Best
Judgment Assessment. In the best judgment assessment, an assessing officer makes an
assessment based on his best reasoning. Assessee should neither be dishonest in his
assessment nor have a cruel attitude.
There are two types of Best Judgment Assessment:
a. Compulsory best judgment assessment: It is done when assessing officer
finds that there is an act amounting to non-co-operation by the assessee or
where assessee is found to be a defaulter in supplying information to the
department.
78
b. Discretionary best judgment assessment: It is done in cases where assessing
officer is dissatisfied with the authenticity of the accounts given by the
assessee or where no regular method of accounting has been followed by the
assessee.
5. Protective Assessment: Though there is no provision in the income tax act
authorizing the levy of income tax on a person other than whom the income tax is
payable, yet it is open to the authorities to make a protective or alternative assessment
if it is not ascertainable who is really liable to pay the tax among a few possible
persons. In making a protective assessment, the authorities are merely making an
assessment and leaving it as a paper assessment until the matter is decided one way or
another. Furthermore, a protective order of assessment can be passed but not a
protective order of penalty must, however be noted that while protective assessment is
permissible, a protective order for recovery is not permissible.
6. Re-Assessment (or) Income escaping assessment: Re-assessment is carried out if
the Assessing Officer has reason to believe that any income chargeable to tax has
escaped assessment for any assessment year.
7. Assessment in case of search or requisition:
Notwithstanding anything contained in section 139, section 147, section 148, section
149, section 151 and section 153, in the case of a person where a search is initiated
under section 132 or books of account, other documents or any assets are
requisitioned under section 132A after the May 31, 2003.
The Assessing Officer shall –
(a) issue notice to such person requiring him to furnish within such period, as may
be specified in the notice, the return of income in respect of each assessment
year falling within six assessment years referred to in clause (b) in the
prescribed form and verified in the prescribed manner and setting forth such
other particulars as may be prescribed and the provisions of this Act shall, so far
as may be, apply accordingly as if such return were a return required to be
furnished under section 139;
(b) Assess or reassess the total income of six assessment years immediately
preceding the assessment year relevant to the previous year in which such
search is conducted or requisition is made.
79
Note: Sec. 153A contemplates issue of notice for 6 years preceding the search but not for the
year of search or requisition and thus no return is required to be filed for the year of search
u/s 153A. Only regular return u/s139 is to be filed.
8.3 PROCEDURE OF ASSESSMENT

Every taxpayer has to furnish the details of income to the Income-tax Department.
These details are to be furnished by filing the return of income of the company. Once the
return of income is filed by the taxpayer, the next step is the processing of the return of
income by the Income Tax Department. The Income Tax Department examines the return of
income for its correctness. The process of examining the return of income by the Income-Tax
department is called as “Assessment”. Assessment also includes re-assessment and best
judgment assessment under section 144.
Under the Income-tax Law, there are four major assessments given below:
 Assessment under section 143(1), i.e., Summary Assessment without calling the
assessee.
 Assessment under section 143(3), i.e., Scrutiny Assessment.
 Assessment under section 144, i.e., Best Judgment Assessment.
 Assessment under section 147, i.e., Income Escaping Assessment.
1. SUMMARY ASSESSMENT - UNDER SECTION 143(1):
This is a preliminary assessment and is referred to as summary assessment without

calling the assessee (i.e., taxpayer).
A. Scope of Assessment under section 143(1):
Assessment under section 143(1) is like preliminary checking of the return of income. At this
stage, no detailed scrutiny of the return of income is carried out. The total income or loss is
computed after making the following adjustments (if any), namely:
a) any arithmetical error in the return; or
b) an incorrect claim (*), if such incorrect claim is apparent from any information in the
return;
c) disallowance of loss claimed, if return of the previous year for which set-off of loss is
claimed was furnished beyond the due date specified under section 139(1); or
80
d) disallowance of expenditure indicated in the audit report but not taken into account in
computing the total income in the return; or
e) disallowance of deduction claimed u/s 10AA, 80IA to 80IE, if the return is furnished
beyond the due date specified under section 139(1); or
f) addition of income appearing in Form 26AS or Form 16A or Form 16 which has not
been included in computing the total income in the return. However, no such
adjustment shall be made in relation to a return furnished for the assessment year
2018-19 and thereafter.
However, no such adjustment shall be made unless an intimation is given to the

assessee of such adjustment either in writing or in electronic mode. Further, the response
received from the assessee, if any, shall be considered before making any adjustment, and in
case where no response is received within 30 days of the issue of such intimation, such
adjustments shall be made. For the above purpose “an incorrect claim apparent from any
information in the return” means a claim on the basis of an entry in the return,
a. of an item which is inconsistent with another entry of the same or some other item
in such return;
b. in respect of which the information is required to be furnished under the Act to

substantiate such entry and has not been so furnished; or
c. in respect of a deduction, where such deduction exceeds specified statutory limit

which may have been expressed as monetary amount or percentage or ratio or
fraction;
B. Procedure of Assessment under section 143(1):
After correcting arithmetical error or incorrect claim (if any) as discussed above, the
tax and interest and fee*, if any, shall be computed on the basis of the adjusted income. Any
sum payable by or refund due to the taxpayer shall be intimated to him. An intimation shall
be prepared or generated and sent to the taxpayer specifying the sum determined to be
payable by, or the amount of refund due to the taxpayer. An intimation shall also be sent to
the taxpayer in a case where the loss declared in the return of income by the taxpayer is
adjusted but no tax or interest is payable by or no refund is due to him. The acknowledgement
of the return of income shall be deemed to be the intimation in a case where no sum is
81
payable by or refundable to the assessee or where no adjustment is made to the returned
income.
*As per section 234F, a fee shall be levied where the return of income is not filed
within the due dates prescribed under section 139(1). Fee for default in furnishing return of
income shall be ₹ 5,000 if return has been furnished after the due date prescribed under
section 139(1). However, it shall be ₹ 1,000 if the total income of an assessee does not exceed
₹ 5 lakh.
C. Time-Limit:
Assessment under section 143(1) can be made within a period of 9 months from the end of
the financial year in which the return of income is filed.
2. SCRUTINY ASSESSMENT-UNDER SECTION 143(3):
This is a detailed assessment and is referred to as scrutiny assessment. At this stage, a

detailed scrutiny of the return of income will be carried out is to confirm the correctness and
genuineness of various claims, deductions, etc., made by the taxpayer in the return of income.
A. Scope of assessment under section 143(3):
The objective of scrutiny assessment is to confirm that the taxpayer has not understated the
income or has not computed excessive loss or has not underpaid the tax in any manner. To
confirm the above, the Assessing Officer carries out a detailed scrutiny of the return of
income and will satisfy himself regarding various claims, deductions, etc., made by the
taxpayer in the return of income.
B. Procedure of Assessment under section 143(3):
If the Assessing Officer considers it necessary or expedient to ensure that the taxpayer
has not understated the income or has not computed excessive loss or has not underpaid the
tax in any manner, then he will serve on the taxpayer a notice requiring him to attend his
office or to produce or cause to be produced any evidence on which the taxpayer may rely, in
support of the return. To carry out assessment under section 143(3), the Assessing Officer
shall serve such notice in accordance with provisions of section 143(2). Notice under section
143(2) should be served within a period of six months from the end of the financial year in
which the return is filed. The taxpayer or his representative (as the case may be) will appear
before the Assessing Officer and will place his arguments, supporting evidences, etc., on
various matters/issues as required by the Assessing Officer. After hearing/verifying such
82
evidence and taking into account such particulars as the taxpayer may produce and such other
evidence as the Assessing Officer may require on specified points and after taking into
account all relevant materials which he has gathered, the Assessing Officer shall, by an order
in writing, make an assessment of the total income or loss of the taxpayer and determine the
sum payable by him or refund of any amount due to him on the basis of such assessment.
Faceless Assessment [Section 144B] Faceless assessment means the assessment proceedings
conducted electronically in “e-proceeding” facility through assessee’s registered account in
the designated portal. Designated portal means the web portal designated as such by the
Principal Chief Commissioner or Principal Director General, in charge of the National
Faceless Assessment Centre. The CBDT had issued the instructions, guidelines and notice
formats for conducting scrutiny assessments electronically.
C. Scope of Faceless Assessment:
The provision provides that the assessment, re-assessment or recomputation under

Section 143(3), Section 144, or Section 147 shall be made in a faceless manner in respect of
the specified territorial areas, persons, income or class of cases. Authorities to conduct the
faceless assessment for the purpose of faceless assessment, the CBDT is empowered to set up
the following centres and units by specifying their respective jurisdiction:
(a) National Faceless Assessment Centre (NFAC);
(b) Assessment Units (AU);
(c) Verification Units (VU);
(d) Technical Units (TU); and
(e) Review Units (RU).
D. Time-limit:
As per Section 153, the time limit for making assessment under section 143(3) is:-
a) Within 21 months from end of the assessment year in which the income was first
assessable. [For assessment year 2017-18 or before]
b) 18 months from the end of the assessment year in which the income was first
assessable. [for assessment year 2018-19]
c) 12 months from the end of the assessment year in which the income was first
assessable [Applicable for assessment year 2019-20]
83
d) 18 months from the end of the assessment year in which the income was first
assessable [Applicable the for-assessment year 2020-21]
e) Within 9 months from end of the assessment year in which income was first
assessable. [Applicable for assessment year 2021-22 and onwards]
3. BEST JUDGEMENT ASSESSMENT UNDER SECTION 144:
This is an assessment carried out as per the best judgment of the Assessing Officer on the
basis of all relevant material he has gathered. This assessment is carried out in cases where
the taxpayer fails to comply with the requirements specified in section 144.
A. Scope of assessment under section 144:
As per section 144, the Assessing Officer is under an obligation to make an

assessment to the best of his judgment in the following cases: - If the taxpayer fails to file the
return required within the due date prescribed under section 139(1) or a belated return under
section 139(4) or a revised return under section 139(5), or an updated return under section
139(8A). If the taxpayer fails to comply with all the terms of a notice issued under section
142(1).
B. Procedure of Assessment under section 144:
If the conditions given above calling for best judgment are satisfied, then the
Assessing Officer will serve a notice on the taxpayer to show cause why the assessment
should not be completed to the best of his judgment. No notice as given above is required in a
case where a notice under section 142(1) has been issued prior to the making of an
assessment under section 144.
If the Assessing Officer is not satisfied by the arguments of the taxpayer and he has
reason to believe that the case demands a best judgment, then he will proceed to carry out the
assessment to the best of his knowledge. If the criteria of the best judgment assessment are
satisfied, then after taking into account all relevant materials which the Assessing Officer has
gathered, and after giving the taxpayer an opportunity of being heard, the Assessing Officer
shall make the assessment of the total income or loss to the best of his knowledge/judgment
and determine the sum payable by the taxpayer on the basis of such assessment.
84
C. Time-Limit:
As per Section 153, the time limit for making assessment under section 144 is:-
a. Within 21 months from the end of the assessment year in which the income was first
assessable. [For assessment year 2017-18 or before]
b. 18 months from the end of the assessment year in which the income was first
assessable. [for assessment year 2018-19]
c. Within 12 months from end of the assessment year in which income was first
assessable. [Applicable for assessment year 2019-20]
d. Within 18 months from end of the assessment year in which income was first assessable
[Applicable for assessment year 2020-21]
e. Within 9 months from end of the assessment year in which income was first assessable.
[Applicable for assessment year 2021-22 and onwards]
4. INCOME ESCAPING ASSESSMENT UNDER SECTION 147:
The Finance Act, 2021 has substituted the existing sections 147, 148, 149 and 151 and
also inserted a new section 148A making a complete change in the assessment proceedings
related to Income escaping assessment and search-related cases. The new provisions related
to re-assessment are as follow: If any income of an assessee has escaped assessment for any
assessment year, the Assessing Officer may, subject to the new provisions of sections 148 to
153, assess or reassess such income and also any other income which has escaped assessment
and which comes to his notice subsequently in the course of the proceedings, or recompute
the loss or the depreciation allowance or any other allowance, as the case may be, for such
assessment year It is imperative to note that once assessment or reassessment or re-
computation has started, the Assessing Officer is empowered to assess or reassess the income
which has escaped assessment and which comes to his notice subsequently in the course of
the proceeding under this procedure notwithstanding that the procedure prescribed in new
section 148A was not followed before issuing such notice for such income. The Assessing
Officer is required to make an assessment or re-assessment as per the following procedures:
A. Issue of Notice:
The Assessing Officer shall serve on the assessee a notice under Section 148 along
with a copy of the order passed under clause (d) of section 148A, requiring him to furnish
within return of his income or the income of any other person in respect of which he is
85
assessable under this Act during the previous year corresponding to the relevant assessment
year.
The notice shall be issued in the prescribed form and verified in the prescribed
manner and setting forth such other particulars as may be prescribed; and the provisions of
Income-tax Act shall, so far as may be, apply accordingly as if such return were a return
required to be furnished under section 139. Circumstances in which notice can be issued
Notice is required to be issued only when information with the Assessing officer
suggests that the income chargeable to tax has escaped assessment. Prior approval of
specified authority is also required to be obtained before issuing such notice by the Assessing
Officer.
However, no such prior approval is required if the Assessing Officer has passed an
order under Section 148A(d) with prior approval of the specified authority stating that the
income is escaping assessment.
B. Procedure before Issuance of Notice:
The Assessing Officer shall be required to follow the below procedure as laid down in
Section 148A before issuing a notice under new Section 148 in cases other than search,
survey or requisition. Conducting Inquiry. The Assessing Officer shall conduct an enquiry, if
required, with the prior approval of specified authority, concerning the information which
suggests that income chargeable to tax has escaped assessment. Granting an opportunity of
being heard The Assessing Officer shall provide an opportunity of being heard to the
assessee, by serving upon him a notice to show cause within such time, as may be specified
in the notice, being not less than 7 days but not exceeding 30 days from the date on which
such notice is issued, or such time, as may be extended by him based on an application in this
behalf, as to why a notice under new Section 148 should not be issued based on information
which suggests that income chargeable to tax has escaped assessment in his case for the
relevant assessment year and results of an enquiry conducted, if any.
C. Consider Reply of Assessee:
The Assessing Officer shall consider the reply furnished by the assessee furnished, if
any, in response to the show-cause notice issued by AO.
Passing an Order The Assessing Officer shall decide, based on material available on
record including reply of the assessee, whether or not it is a fit case to issue a notice under
86
new Section 148, by passing an order, with the prior approval of specified authority, within 1
month from the end of the month in which the reply of the assessee is received by him, or
where no such reply is furnished, within 1 month from the end of the month in which time or
extended time allowed to furnish a reply expires.
D. Time limit for Issuance of Notice:
Time limit for issuance of notice under section 148 of the Income-tax Act:
a. In general - No notice shall be issued if 3 years have elapsed from end of the
relevant assessment year.
b. Where the Assessing Officer has in his possession books of account or other documents
or evidence which reveals that the income chargeable to tax, represented in the form of:
(i) An Asset;(ii) Expenditure in respect of a transaction or in relation to an event or
occasion; or(iii) An entry or entries in the books of account. Which has escaped
assessment amounts to or is likely to amount to ₹ 50 lakhs or more. -Notice can be
issued beyond a period of 3 years but beyond the period of 10 years from the end
of the reassessment year.
8.4 TAX PAYMENT

Advance tax is the income tax paid in advance during the financial year instead of
paying it at the end. The tax rules prescribe certain dates through the year when this must be
paid. Advance tax may also be known as “pay as you earn” tax as it is paid in instalments
during the financial year.
Payment of Advance Tax
In case of companies, the advance tax is liable to be paid as per the following schedule;
On or before 15th June Not less than 15% of advance tax liability
On or before 15th September Not less than 45% of advance tax liability as
reduced by the amount of first instalment
On or before 15th December Not less than 75% of the advance tax
liability as reduced by the amount first and
second instalment
87
On or before 15th March 100% of the advance tax liability as reduced
by the amount paid earlier
8.5 COMPUTATION OF ADVANCE TAX PAYMENT

Advance tax is liable to be paid by estimating the current year income and then
applying the tax rates as per the Income Tax slabs in force. The advance tax shall be
computed as follows;
Particulars ₹
Income under 4 heads of Income (Except the head XXXX

income from salary)
Less: Bought forward Losses and Allowances XXXX
Gross Total Income (GTI) XXXX
Less: Deduction U/S 80G to 80U XXXX
Taxable Income XXXX
Estimated Tax liability XXXX
Add: Surcharge XXX
Add: Education Cess XXX
Total Tax Liability XXXX
Less: MAT Credit u/s 115JAA XXX
Advance Tax Liability XXXX
88
Illustration-1: XYZ Co Ltd. has estimated the tax liability of ₹ 5,00,000 for the previous
year 2022-23. Calculate the advance payment of tax.
Solution:
Calculation of Advance of Tax to be paid in each due date
Due date Percentage Amount (₹ )
On or before 15th June 15% X 5,00,000 75,000
On or before 15th September 30% X 5,00,000 1,50,000
On or before 15th December 30% X 5,00,000 1,50,000
On or before 15th March 25% X 5,00,000 1,25,000
Total 5,00,000
Illustration-2: The estimated taxable business income of Vijay Ltd. for the financial year
2022-23 is ₹ 6,00,000 and LTCG on 3-6-2022 is ₹ 3,00,000. Calculate the advance tax
installment assuming estimated TDS to be ₹ 25,000.
Solution:
Calculation of Total Taxable Income and Tax Liability of Vijay Ltd.
Particulars ₹
Business Income 6,00,000
LTCG 3,00,000

Less: Deduction u/s 80G to 80U --
Taxable Income 9,00,000
On LTCG ₹ 1,50,000 60,000

Balance of ₹ 6,00,000X30% 1,80,000
89
Total 2,40,000
Less: Health and Education Cess @4% 9,600
Total Liability 2,49,600

Less: TDS 25,000
Tax Payable 2,24,600
Calculation of Advance of Tax to be paid in each due date
Due date Percentage Amount
On or before 15th June 2021 15% X 2,24,600 33,690
On or before 15th September 2021 30% X 2,24,600 67,380
On or before 15th December 2021 30% X 2,24,600 67,380
On or before 15th March 2022 25% X 2,24,600 56,150
Total 2,24,600
8.6 TAX DEDUCTED AT SOURCE (TDS)

TDS or Tax Deducted at Source is a method designed for smooth collection of tax due
to the authorities from the tax payer. TDS prescribed rates is made mandatory by the income
tax Act on certain persons responsible for making payments.
Tax Deduction at Source (TDS) is one of the significant submissions for assessee.
There are many sections in Income Tax Act 1961, which specify different TDS rates, mode
of payment and its threshold limits for TDS. Every year when the budget is presented by
Finance Minister under Direct Tax Proposals, various changes in respect of TDS/TCS are
also introduced. In Budget 2022, TDS Percentage over a range of 1% to 30%.
90
Rates of TDS for the Assessment Year 2023-24
Applicable from 01/04/2022 to

31/03/2023
Resident Non- Foreign

Threshold resident Company
Section Nature of payment
Limit (₹) *
TDS Rate TDS TDS rate

(%) Rate (%)
(%)
192 Salaries Taxable Normal Normal

income slab rate slab rate
liable to tax
192A Premature withdrawal from EPF 50,000 10 10
193 Interest on Securities

 Debentures 5,000 10 - -
 8% saving (taxable) bonds 2003 10,000 10 - -
and 7.75% savings (taxable)
bonds, 2018.
 6.5% Gold bonds, 1977 or 7% 10,000 10 - -
Gold bonds, 1980.
194 Dividends 5,000 10 - -
194A Interest on Banking co., Co-operative 40,000 10 - -

society engaged in banking, post office
(other than securities)
194A Interest of any other person 5,000 10 - -

Eg: Interest from friends and relatives.
194B Winning from lotteries/Cross word 10,000 30 30 30
194BB Winning from Horse race 10,000 30 30 30
91
194C Contractor-Single Transaction
-Individual/HUF 30,000 1 - -
-Others 30,000 2 - -
194C Contractor –Aggregate transaction

- Individual/HUF 1,00,000 1 - -
- Others 1,00,000 2 - -
194D Insurance commission

- Other than Company 15,000 5 - -
- Company 15,000 10 - -
194DA Maturity of Life insurance policy 1,00,000 5 - -
194E Non-resident sportsmen or sports No Limit - 20 20

association
194EE National Savings Scheme 2,500 10 10 -
194F Repurchase units by Unit Trust of India No limit 20 20 -

(UTI) or Mutual fund
194G Commission on lottery tickets 15,000 5 5 5
194H Commission or Brokerage 15,000 5 - -
194I Rent of - Plant/Machinery /Equipment 2,40,000 2 - -

- Land and Building/Furniture & Fixture 2,40,000 10 - -
194IA Transfer of certain immovable property 50 lakh 1 - -

(other than agriculture land)
194IB Rent in respect of any land and building 50,000 5 - -

per month
92
194IC Payment under Joint Development No limit 10 - -
Agreements to Individual/HUF
194J Professional fees or 30,000 10 - -

Remuneration/Fee/Commission to a
director
194J Technical Fees (w.e.f. 01.04.2020) and 30,000 2 - -

royalty towards sale or distribution or
exhibition of cinematographic films.
(In case of payee engaged in business of
operation of call centre w.e.f. June
1,2017, the rate would be 2%)
194K Payment of any income in respect of No limit 10 - -

(a) units of a mutual fund as per section
10(23D); or
(b) the units from the administrator; or
(c) units from specified company
(w.e.f. 01.04.2020)
194LA Compensation on transfer of certain 2,50,000 10 - -

immovable property other than
agriculture land
(TDS exempted if covered under
RFCTLARR Act w.e.f. 01.04.2017)
194LB Income by way of interest from No limit - 5 5

infrastructure debt fund to non-resident
194LBA(1) Income from units of business trust No limit 10 - -
194LBA(2) Interest received or receivable from a No limit - 5 5

special purpose vehicle; or
Dividend referred to in sub-section (7) No limit - 10 10
of section 115-O
194LBA(3) Distribution of rental income to unit No limit - 30 40

holders
93
194LBB Income in respect of units of investment No limit 10 30 40
fund
194LBC Income in respect of investment in

securitization fund
No limit 25 30 -
- Individual/HUF
No limit 30 - -
- Domestic Company
No limit - - 40
- Foreign company
194LC Income by way of interest by an Indian No limit - 5 or 4* 5 or 4*

specified company to a non-
resident/foreign company on foreign
currency approved loan / long-term
infrastructure bonds from outside India.
In case where interest is payable in
respect of Long-term Bond or Rupee
Denominated Bond listed on recognised
stock exchange located in IFSC.
194LC Income by way of interest by an Indian No limit - 4 4

specified company on rupee
denominated bond / any long-term
bonds from outside India, which is listed
only on a recognized stock exchange
located in any International Financial
Services Centre
194LD Interest on certain bonds from Govt. No limit - 5 5

securities
194M Certain payments by Individual/HUF 50 lakh 5 - -
194N Payment of certain amount in cash 1 Crore 2 2 -
Payment of certain amount in cash (first

194N
proviso of section 194N) if-
- Amount is more than ₹20 lakh but up 2 2 -
to ₹ 1 crore 5 5 -
- Amount exceeds ₹ 1 crore
94
194O Applicable for e-commerce operator for 5,00,000 1 - -
the sale of goods or provision of
services facilitated by it through its
digital or electronic facility or platform
(w.e.f. 01.04.2020)
194-P Deduction of tax in case of specified Basic Normal - -

senior citizen [ Age 75 years or more] exemption tax slab
limit of rates
[Change will applicable from 1st April,
senior
2021]
citizens or
super
senior
citizens
194Q Payment of certain sum by the buyer to 50 lakh 0.1 - -

the seller (resident Indian) for purchase
of goods
[Change will applicable from 1st July,
2021]
194R Perquisite or benefit to a business or 20,000 10 - -

profession
(refer note
No.4)
194S TDS On The Transfer Of Virtual Digital

Assets
(refer note
No.4)  Specified Persons 50,000 1 - -
 Others 10,000 1 - -
195 Income of Investment made by an NRI No limit - 20 -
195 Long-term capital gain

- Under Section - No limit - 10 10
115E/112(1)(c)(iii)/112A
- Any Other Gains No limit - 20 20
195 Short-term capital gain - 111A No limit - 15 15
95
195 Royalty
A. When agreement is made
No limit - 10 50
between 31.3.1961
B. When agreement is made after
No limit - - -
31.3.1976
195 Fees for technical services

A. When agreement is made
No limit - 10 -
between 31.3.1961 to 31.3.1976
B. When agreement is made after
No limit - - 50
31.3.1976
195 Interest income payable by Govt./Indian No limit - 20 20

concern (other than section 194LB or
194LC)
195 Any Other Income No limit 10 10 -

- Other than Company - 30 40
- Company
196A Income in respect –

- of units of a Mutual Fund specified No limit - 20 -
under clause (23D) of section 10; or
- from the specified company referred to
in the Explanation to clause (35) of
section 10
196B Income from units to an offshore fund No limit - 10 10
196C Income from foreign currency bonds or No limit - 10 10

GDR of an Indian company
196D Income of foreign Institutional Investors No limit - 20 20

from securities (not being dividend or
capital gain)
Source: incometaxindia.gov.in;
96
Note:
1. The normal slab rates for the financial year 2022-23 for individuals and HUF
remain unchanged in both the old and new tax returns.
2. In the above TDS rate chart, the ‘Resident’ payee includes ‘domestic companies’.
The Normal Slab rates for FY 2022-23 for individuals and HUF remain unchanged
in both the old and new tax regimes.
3. The rate of TDS shall be increased by applicable surcharge and Health &
Education cess.
4. New Sections-194R and 194S are inserted in Budget 2022.
8.7 REFUND AND PENALTIES

REFUND:
As per section 237, if any person satisfies the Assessing Officer that the amount of tax
paid by him (or on his behalf) for any assessment year, exceeds the amount with which he is
chargeable under Income tax Act, then the person shall be entitled to a refund of such excess
amount.
Tax paid by the assessee includes the following –
 Advance tax;
 Tax deducted at source (TDS);
 Tax collected at source (TCS);
 Self-assessment tax; and
 Tax paid on demand
Following person can claim refund –
a) A person who has paid tax more than the amount for which he is chargeable under
this Act [Section 237];
b) Where the income of one person is included in the total income of other person, such
other person is entitled to claim refund on tax paid on such income [Section 238(1)];
c) Where due to death, incapacity, insolvency, liquidation or any other cause, a person is
unable to claim or receive any refund due to him, his legal representative, trustee,
guardian or receiver, as the case may be, can claim and receive such refund for the
benefit of such person or his estate [Section 238(2)].
97
PENALTY:
Under IT Act 1961, provides for the obligation of a penalty on an assessee who
commits any offences under the provisions of the Act. Penalty charged over and above the
amount of tax or interest payable by the assessee and thus, penalty is different from the tax
payable. Penalty proceedings, however, are a part of the assessment proceedings. The
authority concerned is entitled to levy penalty only if satisfied in the course of any
proceedings under the Act that a person has been found guilty of any default in complying
with the provisions of the Act. If the order of the penalty is set aside in appeal on the ground,
the assessee was not given a reasonable opportunity of being heard, the Assessing Officer
would be entitled to levy a penalty again after rectifying the mistake in proceedings. The
penalty to be levied on an assessee is to be based upon law as it stood at the time the default
was committed and not the law as it stands in the financial year for which the assessment is
made.
8.8 APPEALS AND REVISION

APPEAL
The expression “Appeal” has been defined in Mozley and Whiteley’s Law
Dictionary as “a complaint to a superior court of an injustice done by an inferior one”. The
party complaining is styled as the “appellant”. The other party is known as “respondent”. The
right to appeal must be given by express enactment and cannot be implied.
APPELLATE ORDER
Appeal Appellate authority Against which order Appellant
1st Commissioner (Appeals) Against specified order of Assessee only

the Assessing Officer
2nd Income Tax Appellate Against the order of Assessee or the

Tribunal (ITAT) Commissioner (Appeals) Commissioner (or
Principal
3rd High Court Against the order of
Commissioner) of
ITAT (the case must
Income tax
involve substantial
question of law)
98
Final Supreme Court Against the order of High
Court
REVISION
Revision of an income tax order is performed when a taxpayer feels that an income
tax assessment order forwarded by the assessing officer was unfair or unreasonable. Income
tax orders can also be revised in a manner which causes enhancement of the taxpayer’s tax
liability. A Principal Commissioner or Commissioner of the Income Tax Department is
empowered with the rights to enhance or modify an income tax order if the officer feels that
the interests of the revenue are at stake due to the erroneous passing of orders by the
Assessing Officer.

Choose an appropriate answers for the following:
1. Appeal may be made to
a. Appellate Tribunal c. High Court
b. Commissioner d. All of the above
2. What is the monetary limit above which tax must be deducted at source on interest on
securities?
a. ₹ 5,000 c. ₹2,500
b. ₹ 8,000 d. None of the above
3. The rate of TDS on Securities other than Govt. Securities is;
a. 7.5 Percent c. 15 percent
b. 3.75 percent d. 30 percent
4. The Highest Administrative Authority for Income Tax in India;
a. CBDT c. Prime Minister
b. Finance Minister d. President
5. The Assessment in which, an assessee has to assess his income himself, called as;
a. Summary Assessment c. Self-Assessment
b. Re-Assessment d. None of the above

99
1. d
2. d
3. a
4. a
5. c
8.10 SUMMARY
In this unit, key concepts of income tax in India like assessment and its procedure, tax
deducted at source and rates of TDS for the relevant assessment year, advance tax payment,
appeal and penalty and other concepts have been discussed. Assessment is one of the main
obligations of the taxpayer, because every tax payer has to furnish the details of his income to
the income tax department. TDS is designed for smooth collection of tax due from the tax
payer. Rates of TDS will be revised time to time and announced in every budget.
Commissioner of Income Tax (Appeals) is the first appellate authority and Income Tax
Appellate Tribunal (IFAT) is the second appellate authority. Appeal to the ITAT can be field
by any of the aggrieved party either by the tax payer or by the Assessing Officer.
8.11 KEYWORDS
Assessment : It is the process of collecting and reviewing the
information filed by assessee in their income tax
returns.
TDS : Tax Deducted at Source.

Advance tax : It is the income tax paid in advance during the financial
year instead of paying it at the end.
Appeal : A complaint to a superior court of an injustice done by
an inferior one.

1. What is Assessment? Explain the different types of assessment.
2. What is TDS? Mention its advantages.
3. What is payment of advance tax?
4. Write a note on Advance Tax Payment procedure of company assessee.
5. Define Appeal. Explain the hierarchy of appeal as IT Act.
6. Write note on Revision and Penalty under IT Act 1961.
100
8.13 REFERENCES
2022.
101
BLOCK
3
Page No.
UNIT - 9: INTRODUCTION TO GOODS AND SERVICE TAX (GST) 1-14
UNIT - 10: GST ACTS 15-26
UNIT – 11. LEVY AND COLLECTION TAX 27-59
UNIT - 12: INPUT TAX CREDIT 60-98

Credit Page
Programme : M.Com Year/Semester: Second Block No :III
Vice-Chancellor,
Dean (Academic)
BOS Chairman,
Smt. Usha C. Member
Chairperson,
Dr. Srinivas K.R. Smt. Usha C.
PBMMEC, Mysuru. KSOU, Mysuru
Editorial Committee
BOS Chairman,


Chairperson,
Copy Right
Registrar,
Developed by the Department of Studies and Research in Commerce, KSOU, under the guidance of Dean
2022.
Preface
Dear Learner,
With best wishes,
Smt. Usha C.
Chairperson
BLOCK – III
INTRODUCTION
The GST was implemented in India during 1st July 2017. It is destination based
consumption tax would be applicable on the supply of goods or services, other than alcoholic
liquor for human consumption and five petroleum products and exports would be tax-free and
imports taxed at the same rate as integrated tax (IGST). An Integrated GST (IGST) would be
levied and collected by the centre on inter-state supply of goods and services. Similarly,
CGST and SGST in case of intra-state supply. An aggregate turnover in a financial year up to
` 40 lakhs in case of goods and ` 20 lakhs in case of services would be exempt from tax.
Different rates of taxes on goods and services consists, 0% on essential items, 5% on of mass
consumption items, 12%/18% standard rates on manufactured goods and Services and 28%
of high rate on Consumer Durable Goods, Pan masala, tobacco and aerated drinks. Further,
Small taxpayers with an aggregate turnover in a financial year up to ` 150 lakhs (` 1.5 Cr)
shall be eligible for opt composition levy.
Unit-9 : Introduction to Goods and Service Tax (GST)
Unit-10: GST Acts
Unit-11: Levy and Collection of Tax
Unit-12: Input Tax Credit

BLOCK - III
UNIT - 9 INTRODUCTION TO GOODS AND SERVICES TAX (GST)

Structure:
9.0 Objective
9.1 Introduction
9.2 Meaning and Definitions of GST
9.3 Objectives and Salient Features of GST
9.4 Subsuming of Taxes
9.5 Benefits of Implementing GST
9.6 Structure of GST (Dual Model)
9.7 GST Council
9.8 Constitutional Amendments
9.10 Summary
9.11 Keywords
9.13 References
1
9.0 OBJECTIVES
 Examine the theoretical and practical concept of GST.

 Explain the structure of GST.
 List of that taxes subsumed and not subsumed in GST.
 Analyse the structure of GST Council and their role.
 Analyse the Constitutional Amendments of GST.
9.1 INTRODUCTION
Introduction of GST would be a critical stage in the field of indirect tax assessment
changes in India. By amalgamating an enormous number of Central and State charges into a
solitary duty and permitting set-off of earlier stage tax charges, it would moderate cascading
effect in indirect tax and also become one nation and one market system. For the buyers, the
greatest increase would be as far as a decrease in the general duty trouble on products, which
is right now assessed at 25%-30%. Implementation of GST would likewise make products
and services more competitive in both national and international markets. There may likewise
be income gain for the Centre and the States due to extending of duty base, expansion in
exchange volumes and further developed assessment consistence. Last however not the least,
the present indirect tax system become transparent and would be an easy to manage and
administrate. Therefore, we shall look into the very important reform in indirect taxation
system in India, that is, GST.
9.2 MEANING AND DEFINITIONS OF GST

According to article 366(12A) GST means, any tax on supply of goods and services
or both except taxes on supply of the alcoholic liquor for human consumption.
According to CGST Act, under section 2(52), ‘Goods’ means every kind of movable
property other than money and securities but includes actionable claim, growing crops, grass
and things attached to or forming part of the land which are agreed to be served before supply
or under a contract of supply.
According to CGST Act, under section 2(102), services means anything other than
goods, money and securities but includes activities relating to the use of money or its
conversion by cash or by any other mode, from one form, currency or denomination, to
another form, currency or denomination for which a separate consideration is charged.
2
SI. No Definition Article Definition
1 Goods 366(12) Includes all materials, commodities, and articles
2. Services 366 (26A) Anything other than goods
3 State 366(26B) With reference to articles 246A, 268, 269,269A and

Article 279A includes a Union territory with
legislature
9.3 OBJECTIVES AND SALIENT FEATURES OF GST

 The GST will be applicable on the supply of goods or services
 Classification of a supply to be categorized either supply of goods or supply of services

for the purpose of levy of GST.
 India has followed a dual GST model that is, Centre and States will simultaneously levy
tax on goods and services.
 The GST levied by the Centre is called Central GST (CGST) and GST is levied by the
states (including Union Territories) is called State GST (SGST). Union territories
without legislature will levy Union territory GST (UTGST) for intra state supply.
 Integrated Goods & Services Tax (IGST) will be levied for Inter-state supplies.
 The GST will apply to all goods other than alcoholic liquor for human consumption and
five petroleum products, viz. petroleum crude, motor spirit (petrol), high speed diesel
(HSD), natural gas and Aviation Turbine Fuel (ATF). It would apply to all services
baring a few specifically.
 The list of exempted goods and services are common for both center and the states.
 CGST, SGST/UTGST & IGST would be levied at rates to be fixed by GST council.
 Threshold Exemption: With effect from April 1, 2019, the threshold limits for
exemption from registration and payment of GST for suppliers of goods will be ` 40
lakhs and ` 20 lakhs (in the case of the states of Arunachal Pradesh, Manipur,
Meghalaya, Mizoram, Nagaland, Puducherry, Sikkim, Telangana, Tripura, and
Uttarakhand).
 Threshold limit of aggregate turnover for exemption from registration and payment of
3
GST for suppliers of services would be ` 20 lakhs and ` 10 lakhs (in case of States of
Manipur, Mizoram, Nagaland and Tripura).
 If a person is doing business in more than one state, separate registration in each state is
required under GST. Any person having multiple business verticals within a state may
also require separate registration.
 Composition Levy: Small taxpayers within an aggregate turnover in a financial year up

to ` 150 lakhs (` 75 lakhs for north eastern states and Himachal Pradesh) shall be eligible
for composition levy. Under the scheme, a taxpayer shall pay tax as a fixed percentage of
his turnover during the year without the benefit of Input Tax Credit (ITC).
 The center will levy and collect an integrated tax (IGST) on inter-state supply of goods
and services, as well as imports of goods and services into India. Accounts between the
central government and the states would be settled on a regular basis to ensure that the
SGST/UTGST component of the IGST is remitted to the states where the products or
services are eventually consumed.
 Input Tax Credit: Taxpayers will be able to claim credit for taxes paid on inputs (input
tax credit) and apply it to the payment of tax on the product. However, no CGST input
tax credit can be used to pay SGST/UTGST and vice versa. The IGST credit would be
allowed to be used to pay CGST, IGST, and SGST/UTGST in that sequence.
9.4 SUBSUMING OF TAXES

Earlier tax structure consists custom duties on import and export, excise duty was
levied on manufacture of goods are services and further, VAT and CST on sales. After
introduction of GST the following taxes are subsumed with GST.
Taxes Subsumed with GST
Central Levied Subsumed State Levied Subsumed

 State VAT
 Central Excise Duty
 Central sales tax
 Excise duty under (medicinal
 Purchase tax
&toilet preparations)
 Luxury tax
 Additional excise duties (goods of
 Entry tax (all forms)
special importance)
 Entertainment tax (not levied by the
 Additional excise duties (textiles
local bodies)
4
and textile product)  Taxes on advertisement
 Additional customs duties (CVD)  Taxes on lotteries, betting and
 Special additional customs duty gambling
(SAD)  State cess and surcharges
 Services tax
 Cesses and surcharges
Taxes Not Subsumed in GST
Central Taxes Not Subsumed State Taxes Not Subsumed

 State excise duty on alcoholic liquor
 Basic Customs Duty (BCD).
for human consumption
 Excise duty on tobacco and its
 Taxes on entertainment and
products and specified petroleum
amusements to the extent levied and
goods
collected by a panchayat or a
 Specific cesses (other than relatable
municipality or a regional council or a
to supply of goods & services)
district council
 Central Sales Tax on alcoholic
 Specific cesses (other than relatable to
liquor for human consumption and
supply of goods & services)
specified petroleum goods.
 Stamp duty on transfer on immovable
property.
9.5 BENEFITS OF IMPLEMENTING GST

9.5.1 Benefits of GST implementation in General
Ease to Perform: All the services of taxpayers like registration, filing of returns, payments
and any other services. would be done through the services available online which would
result in saving the time and the work can be done easily.
Unified Rates of Taxes: After the implementation of GST, the rates of goods and services
will be common across the country. The rate of taxes throughout the country will be same
irrespective of the choice of doing the business.
No Cascading Affect: No cascading will help in reducing the hidden cost of performing the
business as there would be seamless credit system throughout the supply chain.
Increase in Competition: As the transaction cost of performing the business will be reduced
so the competition in trade and industry will increase.
5
Manufacturers and Exporters: The replacement of indirect tax with GST will reduce the
cost of locally manufactured goods and services which in result would increase the demand
of the Indian goods and services in the international market resulting in the boost of Indian
exports.
9.5.2 Benefits of GST in India for Central and State Government
Easy to Administer: GST would be more simple and easy to administer from all the other
indirect taxes at central and state level.
Efficiency of higher revenue: The cost of collection of the tax revenue of the government
will reduce leading to the higher revenue efficiency.
9.5.3 Benefits of GST in India for Consumers
Transparent tax: The replacement of goods and services tax with the indirect taxes levied
by the central and state government would bring transparency. In today’s world, the cost of
many goods and services may hold the hidden taxes and no or incomplete input tax credit will
be available but after the implementation of GST there would only one tax from manufacturer
to the consumer of goods and services which would lead to the transparency in the tax system
which will be paid by the final consumer.
9.6 STRUCTURE OF GST (DUAL MODEL)

India implemented a dual GST by the central and state governments levying taxes at
the same time. The present structure of GST in India are as follows.
GST Dual Model
SGST  State GST

 Collected by the State Government
CGST  Central GST

 Collected by the Central Government
IGST  Integrated GST

 Collected by the Central Government on inter-state supply of Goods
and Services
6
9.7 GST COUNCIL
9.7.1 Members of GST council
The GST Council shall consist of the following members, namely:
(a) The Union Finance Minister is the Chairperson;
(b) The Union Minister of State in charge of Revenue or Finance is the Member;
(c) The Minister in charge of Finance or Taxation or any other Minister nominated by each
State Government is the Members.
The Members of the GST Council referred to in clause (c) above shall choose one of
their members to serve as Vice Chairperson of the Council for whatever duration they
choose.
9.7.2 Role of GST Council
The GST Council shall make recommendations to the Union and the States on
(1) The taxes, cesses and surcharges levied by the Union, the States and the local bodies
which may be subsumed in the goods and services tax;
(2) The goods and services that may be subjected to, or exempted from the goods and
services tax;
(3) Model Goods and Services Tax Laws, principles of levy, apportionment of Goods and
Services Tax levied on supplies in the course of inter-state trade or commerce under
article 269A and the principles that govern the place of supply;
(4) The threshold limit of turnover below which goods and services may be exempted from
goods and services tax;
(5) Any special rate or rates for a specified period, to raise additional resources during any
natural calamity or disaster;
(6) Special provision with respect to the States of Arunachal Pradesh, Assam, Jammu and
Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh
and Uttarakhand [Such States are referred as Special Category States]; and
(7) Any other matter relating to the goods and services tax, as the Council may decide.
7
9.7.3 Effective date of levy of GST on petroleum products
The GST Council shall recommend the date on which the goods and services tax be levied on
petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas and
aviation turbine fuel.
9.7.4 Guiding principles for GST Council
While discharging the functions conferred by this article, the GST Council shall be guided by
the need for a harmonized structure of goods and services tax and for the development of a
harmonized national market for goods and services.
9.7.5 Quorum and Procedure
One-half of the total number of Members of the GST Council shall constitute the quorum at
its meetings and the GST Council shall determine the procedure in the performance of its
functions.
9.7.6 Decision by GST Council
Every decision of the GST Council shall be taken at a meeting, by a majority of not less than
three-fourths of the weighted votes of the members present and voting, in accordance with
the following principles, namely:
(a) the vote of the Central Government shall have a weightage of one-third of the total votes
cast, and
(b) the votes of all the State Governments taken together shall have a weightage of two-
thirds of the total votes cast, in that meeting.
9.7.7 Statement of Dispute
The Goods and Services Tax Council shall establish a mechanism to adjudicate any dispute:
(a) between the Government of India and one or more States or
(b) between the Government of India and any State or States on one side and one or more
other States on the other side; or
(c) between two or more States, arising out of the recommendations of the Council or
implementation thereof.
8
9.8 CONSTITUTIONAL AMENDMENTS
Article- 265: The Indian Constitution, Article 265, forbids arbitrary tax collecting. No tax
must be charged or collected except by authority of law, it adds. The term "authority of law"
refers to the fact that a proposed tax must fall within the legislative competence of the
legislature imposing the tax.
Article-245: The connection between the Union and the States is addressed in Part XI of the
Constitution. Article 245 of the Constitution confers the ability to enact legislation on the
Parliament and the Legislature of a State.
The said Article states, subject to the provisions of this Constitution, Parliament may make
laws for the whole or any part of India's territory, and the legislature of a State may make
laws for the whole or any part of the State," and
No law made by Parliament shall be deemed invalid on the ground that it would have extra
territorial effect."
Article-246: It delegated taxing authority to the Union and State governments, respectively.
Unlike Parliament, which can create laws for the entire country or any part of it, the State
Legislature can make laws for the entire state or a portion of it.
Article -246: It has three lists that list the matters over which the Union and state
governments have legislative authority.
List I - Union List: It contains the matters in respect of which the Parliament (Central
Government) has the exclusive right to make laws
List II - State List: It contains the matters in respect of which the State Government
has the exclusive right to make laws.
List III - Concurrent List: It contains the matters in respect of which both the
Central & State Governments have power to make laws.
Article-248: Residuary Powers of Legislation Amended
 Article 248 grants the residuary powers to Parliament to make laws with respect to any
matter not enumerated in the Concurrent List or State List. Such power shall include the
power of making any law imposing a tax not mentioned in either of those Lists.
9
This article has been amended. Now, this power has been subjected to Article 246A, namely
the power to make laws with respect to goods and service tax to be imposed by the Centre
and States.
Article-268: Duties levied by the Centre but collected and appropriated by the States
The duties imposed by the Centre but collected and appropriated by the States are covered by
Article 268. It states that the Government of India shall levy stamp duties and excise duties
on medicinal and toilet preparations as specified in the Union List, but such duties shall be
collected by the Government of India in cases where such duties are liveable within any
Union territory, and by the States in other cases.
The CAA omits “duties of excise on medicinal and toilet preparations” from Article 268.
Article -268A: Empowering Union to levy service tax omitted
In 1994, the residual Entry 97 of the Union list was used to levy a service tax. The
Constitution (88th) Amendment Act of 2003 included in Article 268A, which established a
distinct item 92C in the Union List for service tax. However, it has remained unnoticed since
then. The CAA has chosen to ignore this article.
Article -269A: Levy and collection of GST on inter-State supply
Levy and collection of goods and services tax in course of inter-State trade or commerce
(1) The Government of India shall levy and collect goods and services tax on supplies made
in the course of inter-State trade or commerce, and such tax shall be apportioned between
the Union and the States in the manner determined by Parliament by law based on the
recommendations of the Goods and Services Tax Council.
(2) The amount apportioned to a State under clause (1) shall not form part of the
Consolidated Fund of India.
(3) Where an amount collected as tax levied under clause (1) has been used for payment of
the tax levied by a State under article 246A, such amount shall not form part of the
Consolidated Fund of India.
(4) Where an amount collected as tax levied by a State under article 246A has been used for
payment of the tax levied under clause (1), such amount shall not form part of the
Consolidated Fund of the State.
10
(5) Parliament may, by law, formulate the principles for determining the place of supply, and
when a supply of goods, or of services, or both takes place in the course of inter-State
trade or commerce.
Article -270: Distribution of the goods and services tax (GST) between the Centre and
the States
 By order of the President, after consideration of the Finance Commission's proposals,

Article 270 is revised to provide for the allocation of the goods and services tax between
the Centre and the States.
 This is true for tax amounts apportioned or payable to the Central Government for taxes
imposed under sections 246A (1) and (2), as well as Clause (1) of 269A.
Article -271: Article 271 gives Parliament, the authority to raise any of the levies or taxes
mentioned in articles 269 or 270. It also specifies that such a surcharge is not transferable and
stays the property of the Centre. This article has been updated to remove GST from its scope
IX.
Article -366: Definitions of ‘Goods and Services Tax’, ‘Services’ and ‘State’
incorporated
 Goods and services tax means any tax on supply of goods, or services or both except
taxes on the supply of the alcoholic liquor for human consumption. Consequently, GST
can be levied on supply of all goods and services except alcoholic liquor for human
consumption
 Services means anything other than goods.
 State with reference to articles 246A, 268, 269, 269A and article 279A, includes a Union
territory with Legislature.
 Definition of “goods”: The term goods has already been defined in an inclusive manner
under clause (12) of Article 366, stating that "goods encompasses all materials,
commodities, and objects."
Article - 286: Imposing restrictions as to imposition of tax on the sale or purchase of

goods amended
 Article 286 prohibits states from enacting legislation that imposes a tax on the sale or
purchase of goods when the sale or purchase occurs outside the state or during the
importation or exportation of commodities into or out of India's territory. The phrases
11
"sell or purchase" have been replaced with "supply," and the word "goods" have been
replaced with "goods or services or both" to reflect the changes brought on by GST.
 As a result, states do not have the authority to levy GST on interstate supplies of
commodities or services, or both. As previously stated, it will be imposed by the
Union Government under Article 269A.
 Furthermore, clause (3) of Article 286 has been omitted, which states that any law of
a State shall, in so far as it imposes or authorizes the imposition of a tax on the sale or
purchase of goods declared by Parliament by law to be of special importance in inter-
State trade or commerce, be subject to such restrictions and conditions in regard to the
system of levy, rates, and other incidents of the tax as Parliament may, by law,
specify, be subject to such restrictions and conditions in regard to XI.
Article- 279A: GST Council
 Article 279A of the Constitution authorizes the President to establish the Goods and
Services Tax Council, which is a combined forum of the Centre and States (GST
Council).
 The GST Council provisions went into effect on September 12th, 2016. On September
15-2016 the President established the GST Council.

1. GST was introduced in India with effect from______.

2. Goods and service tax is ______ based tax.
3. Under GST, expenses plus profit refers to______.
4. SGST is applicable when goods are sold ______.
5. The GST council can take a decision only if there is majority of ______ members.
6. The chair of GST Council is ______.
7. Under GST law tax rate is determined by ______.
1. 1-July-2017
2. Consumption
3. Value addition
4. Within state
12
5. Three- fourth
6. Union Finance Minister
7. GST Council
9.10 SUMMARY
Perhaps, we have gone through the importance of indirect taxation system in India
that is, GST, its structure, advantages, constitutional amendment and related concepts. Article
366(12A) of the Constitution as amended by 101st Constitutional Amendment Act, 2016
characterizes the Goods and Services tax (GST) as a taxes on supply of goods and services or
both with replace of different Centre and state levied taxes and made it as ‘one nation and one
tax’. Supply of petroleum crude, motor spirit (petrol), high speed diesel, natural gas and
aviation turbine fuel have temporarily been kept out and GST. GST is an objective put
together expense with respect to utilization of goods and services. It is proposed to be tax
collected at all stages right from manufacture to sale. The GST Council will make
suggestions and recommendations to the Union and States with respect to the tax, surcharge
and duties.
9.11 KEYWORDS
Council-Sec. 2(36) : Council means the Goods and Services Tax
Council established under article 279A of the
Constitution.
Designated Authority- Sec. 2(40) : Designated authority’ means such authority as

may be notified by the Board.
Government-Sec. 2(53) : Government means the Central or state

Government.
Notification-Sec. 2(80) : Notification “means a notification published in

the Official Gazette and the expressions ‘notify’
and ‘notified’ shall be constructed accordingly.

1. What is GST? Briefly explain provision of GST in India.
2. Explain features of GST.
3. What are the benefits to state and central government on the implementation of GST.
4. Explain structure of GST in India.
13
5. Which are the central and state taxes subsumed in GST?
6. Which are the central and state taxes not subsumed in GST?
7. Explain the constitutional provision of GST.
8. Explain about GST council.
9.13 REFERENCES
1. Vinod K. Singhania - GST and Customs Law - Taxmann Publications Private Limited -
6th Edition- January 2022.
2. Datey - V.S. GST Ready Reckoner - Taxmann Publications Private Limited - 16th
edition- February 2022.
3. Indirect Taxation with MCQs for CMA Inter Containing GST & Customs -Baharat’s
Publication - 20th Edition- January 2022.
4. Raj K Agrawal and Shivangi Agrawal - Indirect Taxation for CMA Inter - Baharat’s
Publication - 1st Edition - 2022.
5. Lakshita Wadhwa, Mahajan B. V., Motlani P H and Rachit Wadhwa - GST Manual
Pocket Edition - 5th Edition - January 2022.
6. Indirect Taxation: CMA intermediate study material - Directorate of Studies, The
Institute of Cost Accountants of India (ICAI) - Kolkata- Revised Edition – January
2022.
7. icmai.in
8. www.icsi.edu
9. cbic-gst.gov.in
10. idtc-icai.amazonaws.com
11. www.cleartax.in
14
UNIT – 10 GST ACTS
Structure:
10.0 Objectives
10.1 Introduction
10.2 Central Goods and Service Tax (CGST) Act, 2017
10.3 State Goods and Service Tax (SGST) Act, 2017
10.4 Integrated Goods and Services Tax (IGST) Act, 2017
10.5 Important Definitions under CGST and IGST Act, 2017
10.6 GST (Compensation to State) Act, 2017
10.8 Summary
10.9 Keywords
10.11 References
15
10.0 OBJECTIVES
 Analyse the concept of CGST Act, SGST Act, IGST Act and GST (Compensation to
State) Act
 Give important definitions comes under CGST and IGST Act 2017.
10.1 INTRODUCTION
In the precious unit, we had discussed about the introduction of Goods and Services
tax. In this unit, we shall focus on the GST ACTs and its provisions. GST would be imposed
on the supply of goods, services, or both, and the GST imposed by the Centre on intra-State
supply of goods and/or services would be known as Central GST (CGST), while the GST
imposed by the States would be known as State GST (SGST). All items other than alcoholic
beverages for human consumption and five petroleum products, namely petroleum crude,
motor spirit (petrol), high-speed diesel, natural gas, and aviation turbine fuel, would be
subject to the GST. It would apply to all services, with the exception of a handful that would
be identified. Tobacco and tobacco products will be subject to GST and the Centre would be
able to charge Central Excise Duty on them.
10.2 CENTRAL GOODS AND SERVICE TAX (CGST) ACT, 2017

10.2.1 Origin and Commencement of CGST Act
 CGST Act extends to whole of India excluding the states of Jammu and Kashmir.
 Jammu and Kashmir will need to approve levy of GST in its State assembly, on account
of its special powers on taxation under the Constitution. Once it is done, then GST shall
be introduced in the State.
 The CGST Act shall come into force from a date which will be notified by the Central
Government in Official Gazette, that is, from the appointed date.
 Different provisions may be made applicable from different dates as may be notified.
10.2.2 The main features of Central Goods and Services Tax (CGST) Act, 2017
 Under CGST Act, levy of tax on all intra-State supplies of goods or services or both.
 The CGST Act broadens the basis of the input tax credit by making it available in
respect of taxes paid on supplies of goods or services or both used or planned to be
utilized in the course or furtherance of business;
16
 Impose an obligation on electronic commerce operators to collect tax at source, at a rate
not exceeding 1% of the value of taxable supplies (net), from payments to suppliers
supplying goods or services through their portals;
 The CGST act allows for self-assessment of the taxes payable by the registered person;
 To allow for the auditing of registered persons in order to ensure that the Act's
provisions are being followed;
 To provide for recovery of arrears of tax using various modes including detaining and
sale of goods, movable and immovable property of defaulting taxable person;
 The CGST Act grants officers’ powers of inspection, search, seizure, and arrest;
 The CGST Act establishes the Goods and Services Tax Appellate Tribunal by the
Central Government to hear appeals against the orders passed by the Appellate
Authority or the Revisional Authority;
 The CGST Act establishes the Goods and Services Tax Appellate Tribunal by the
Central Government to hear appeals against the orders passed by the Appellate
Authority or the Revisional Authority;
 The CGST Act contains penalties for violating the proposed legislation's provisions;
 The CGST Act contains an anti-profiteering clause to ensure that businesses pass on the
benefit of lower tax incidence on goods or services, or both, to consumers; and
 The CGST Act contains detailed transitional provisions to ensure that existing
taxpayers transition smoothly to the goods and services tax regime.
10.3 STATE GOODS AND SERVICES TAX (SGST) ACT, 2017

10.3.1 Origin and Commencement of SGST Act
State Goods and Service Tax (SGST) is one of the tax components of GST in India and it
could be that, when SGST is being introduced, the present state taxes of State Sales Tax,
VAT, Luxury Tax, Entertainment tax (unless it is levied by the local bodies), Taxes on
lottery, betting and gambling, Entry tax not in lieu of Octroi, State Cesses and Surcharges in
so far as they relate to supply of goods and services etc. are subsumed into one tax in GST
called State GST.
17
10.3.2 The main features of State Goods and Service Tax (SGST) Act, 2017
 SGST is levied and collected by the respective states on all goods and services
supplied for consideration.
 The tax collected is deposited to the accounts of the respective state.
 Each state has its separate SGST act under its State Goods and Service Tax
Department. However, the basic features of the GST law for all the states like the
charges, valuation, taxable event, measure, classification and other features. would
remain the same across the respective act of each state.
 SGST is not applicable to the exempted goods and services as they do not come under
the influence of GST. Furthermore, SGST is also not applicable where the aggregate
annual turnover is less than the prescribed limit.
10.3.3 Karnataka State Goods and Services Tax Act
As per the notification from the Finance Department, Government of Karnataka on

March 15, 2017 specifies that new Karnataka State GST Act, 2017 is going to subsume
various Acts which were existed under earlier indirect tax regime such as
 The Karnataka Value Added Tax Act, 2003;

 The Karnataka Sales Tax Act, 1957;
 The Central Sales Tax Act, 1956;
 The Karnataka Tax on Luxuries Act, 1979;
 The Karnataka Entertainment Tax Act, 1958;
 The Karnataka Tax on Entry of Goods Act, 1979;
 The Karnataka Agricultural Income Tax Act, 1957;
 The Karnataka Tax on Professions, Trades, Callings and Employments Act,
1976; and
 The Karnataka Betting Tax Act, 1932.
Since uniform tax was to be implemented from 1st July 2017, this was necessary to
subsume multiple tax acts to eliminate cascading effect of tax. Besides, National Informatics
Centre (NIC), Bangalore is software solution provider provides Goods and Services Tax
Network (GSTN) and supports for the various application software for Karnataka
Government to monitor GST compliances like audit, assessment, recovery, refund,
18
inspection, appeal and other compliences. Karnataka Government has a strong belief that
GST helps to simplify the tax procedures and to bring transparency in taxation system.
Information and Communication Technology (ITC) tools can be effectively and efficiently
utilized with the implementation of GST.
As of now, Karnataka has more than 9,82,562 registered tax payers with revenue
collection having on an average of ` 97 billion per month during 2021-22. Before GST
implementation, total number of registered taxpayers were 5,84,775 and after the GST
implementation it shows 9,82,562 as of March 2022 in Karnataka, which is estimated to be
68% increase within 5 years from the years of GST implementation. Major states of India
hold largest share of GST collection but only four states including Karnataka hold more than
45% of share in GST in total indirect tax collection. Karnataka state is the third highest tax
generator in the country.
10.4 INTEGRATED GOODS AND SERVICES TAX (IGST) ACT, 2017

10.4.1 Origin and Commencement of SGST Act
The Integrated Goods and Services Tax (IGST) Act, 2017 shall be applicable to the whole of
India including the State of Jammu and Kashmir. It shall come into force from a date which
will be notified by the Central Government by way of a notification.
10.4.2 Salient features of IGST Act 2017
 Continuance of uninterrupted ITC chain on inter-State transactions.
 No requirement to pay tax upfront or substantial blockage of funds for the inter-State
seller or buyer.
 No claim of refund of taxes paid in exporting State, as ITC is used up while paying the
tax.
 Self-monitoring model.
 The activity of streamlining is limited to inter-State dealers and Central and State
Governments should be able to streamline their processes expeditiously.
 As dealers making inter-state supplies will be e-registered and correspondence with them
will be by email, the compliance level will improve substantially.
 The IGST Model can take ‘Business to Business’ as well as ‘Business to Consumer’
transactions into an account.
19
10.5 IMPORTANT DEFINITIONS UNDER CGST AND IGST ACT, 2017
Sec. 2(6) “Aggregate Turnover”
The aggregate value of all taxable supplies (excluding the value of inward supplies on
which tax is payable by a person on reverse charge basis), exempt supplies, exports of goods
or services or both and inter-State supplies of persons having the same Permanent Account
Number, to be computed on all India basis but excludes Central Tax, State Tax, Union
Territory Tax, Integrated Tax and Cess
Sec. 2(17) “Business” includes:
(a) any trade, commerce, manufacture, profession, vocation, adventure, wager (i.e. bet,
gamble), or other comparable activity, whether for monetary gain or not;
(b) any activity or transaction related to, incidental to, or ancillary to sub clause (a);
(c) any activity or transaction in the type of sub clause (a), regardless of volume, frequency,
continuity, or regularity;
(d) the supply or acquisition of products, including capital goods and services, in conjunction
with the start-up or shut-down of a business;
(e) the provision of facilities or advantages to members by a club, organization, society, or

other similar entity (for a subscription or other compensation);
(f) admission, for a consideration, of persons to any premises;
(g) services supplied by a person as the holder of an office which has been accepted by him in
the course or furtherance of his trade, profession or vocation;
(h) services provided by a race club by way of totalisator (i.e. computer that registers bets and
divides the total amount bet among those who won) or a licence to book maker in such
club; w.e.f. 1-2-2019, activities of a race club including by way of totalisator or a license
to book maker or activities of a licensed book maker in such club; and
(i) any activity or transaction undertaken by the Central Government, a State Government or
any local authority in which they are engaged as public authorities.
Sec. 2(20) “Casual taxable person” a person who occasionally undertakes transactions
involving supply of goods or services or both in the course or furtherance of business,
whether as principal, agent or in any other capacity, in a State or a Union territory where he
has no fixed place of business.
20
Sec. 2(30) “Composite supply” means a supply made by a taxable person to a recipient
consisting of two or more taxable supplies of goods or services or both, or any combination
thereof, which are naturally bundled and supplied in conjunction with each other in the
ordinary course of business, one of which is a principal supply.
Sec. 2(31) “Consideration” is in relation to the supply of goods or services or both includes
(a) any payment made or to be made, whether in money or otherwise, in respect of, in
response to, or for the inducement of, the supply of goods or services or both, whether by
the recipient or by any other person but shall not include any subsidy given by the
Central Government or a State Government
(b) the monetary value of any act or forbearance, in respect of, in response to, or for the
inducement of, the supply of goods or services or both, whether by the recipient or by
any other person but shall not include any subsidy given by the Central Government or a
State Government.
Sec. 2(32) “Continuous supply of goods” means a supply of goods which is provided, or
agreed to be provided, continuously or on recurrent basis, under a contract, whether or not by
means of a wire, cable, pipeline or other conduit, and for which the supplier invoices the
recipient on a regular or periodic basis and includes supply of such goods as the Government
may, subject to such conditions, as it may, by notification, specify.
Sec. 2(33) “Continuous supply of services” means a supply of services which is provided,
or agreed to be provided, continuously or on recurrent basis, under a contract, for a period
exceeding three months with periodic payment obligations and includes supply of such
services as the Government may, subject to such conditions, as it may, by notification,
specify.
Sec. 2(45) “Electronic Commerce Operator” means any person, who owns, operates or
manages digital or electronic facility or platform for electronic commerce.
Sec. 2(50) “Fixed Establishment” means a place (other than the registered place of
business) which is characterised by a sufficient degree of permanence and suitable structure
in terms of human and technical resources to supply services, or to receive and use services
for its own needs.
21
Sec. 2(52) “Goods” means every kind of movable property other than money and securities
but includes actionable claim, growing crops, grass and things attached to or forming part of
the land which are agreed to be served before supply or under a contract of supply.
Sec. 2(56) “India” means the territory of India as referred to in Article 1 of the Constitution,
its territorial waters, seabed and sub-soil underlying such waters, continental shelf, exclusive
economic zone or any other maritime zone as referred to in the Territorial Waters,
Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976, and the
air space above its territory and territorial waters.
Sec. 2(78) “Non-taxable supply” a supply of goods or services or both which is not leviable
to tax under this Act or under the Integrated Goods and Services Tax Act.
Sec. 2(84) “Person” includes— (a) an individual; (b) a Hindu Undivided Family; (c) a
company; (d) a firm; (e) a Limited Liability Partnership; (f) an association of persons or a
body of individuals, whether incorporated or not, in India or outside India; (g) any
corporation established by or under any Central Act, State Act or Provincial Act or a
Government company as defined in clause (45) of section 2 of the Companies Act, 2013 (h)
anybody corporate incorporated by or under the laws of a country outside India; (i) a co-
operative society registered under any law relating to co-operative societies; (j) a local
authority; (k) Central Government or a State Government; (l) society as defined under the
Societies Registration Act, 1860; (m) trust; and (n) every artificial juridical person, not falling
within any of the above.
Sec. 2(90) “Principal supply” the supply of goods or services which constitutes the
predominant element of a composite supply and to which any other supply forming part of
that composite supply is ancillary.
Sec. 2(93) “Recipient” of supply of goods or services or both, means
(a) where a consideration is payable for the supply of goods or services or both, the person
who is liable to pay that consideration
(b) where no consideration is payable for the supply of goods, the person to whom the goods
are delivered or made available, or to whom possession or use of the goods is given or
made available; and
(c) where no consideration is payable for the supply of a service, the person to whom the
service is rendered.
22
Sec. 2(98) “Reverse charge” The liability to pay tax by the recipient of supply of goods or
services or both instead of the supplier of such goods or services or both under sub-section
(3) or sub-section (4) of section 9, or under sub-section (3) or subsection (4) of section 5 of
the Integrated Goods and Services Tax Act.
Sec. 2(102) “Services” Anything other than goods, money and securities but includes
activities relating to the use of money or its conversion by cash or by any other mode, from
one form, currency or denomination, to another form, currency or denomination for which a
separate consideration is charged.
Sec. 2(107) “Taxable person” A person who is registered or liable to be registered under
section 22 (that is, registration required if turnover exceed threshold limit and so on) or
section 24 (that is, Compulsory registration under GST).
Sec. 2 (108) “Taxable supply” A supply of goods or services or both which is leviable to
tax under this Act.
10.6 GST (COMPENSATION TO STATE) ACT, 2017

The Goods and Services Tax (Compensation to States) Bill, 2017 was introduced in
Lok Sabha on March 27, 2017. The Bill provides for compensation to states for any loss in
revenue due to the implementation of GST.
Compensation will be provided to a respective state for a period of five years from the
date on which the state introduce its State GST Act came into force.
For the purpose of calculating the compensation amount in any financial year, year
2015-16 will be assumed to be the base year, from revenue will be projected
The base year tax revenue consists of the states’ tax revenues from state Value Added
Tax, central sales tax, entry tax, Octroi, local body tax, taxes on luxuries, taxes on
advertisements and other indirect taxes. However, any revenue among these taxes arising
related to supply of alcohol for human consumption, and certain petroleum products, will not
be accounted as part of the base year revenue.
The compensation payable to a state has to be provisionally calculated and released at

the end of every two months. Further, an annual calculation of the total revenue will be
undertaken, which will be audited by the Comptroller and Auditor General of India.
GST Compensation Cess may be levied on the supply of certain goods and services,
as recommended by the GST Council. The receipts from the cess will be deposited to a GST
23
Compensation Fund. The receipts will be used for compensating states for any loss due to
the implementation of GST.
Any unutilised money in the Compensation Fund at the end of the compensation
period will be distributed in the following manner of 50% of the fund to be shared between
the states in proportion to revenues of the states, and the remaining 50% will be part of the
centre’s divisible pool of taxes.
Central Tax-Sec. 2(21): means the central goods and services tax levied under section 9Tax
levied under this Act is referred to as “Central tax”. It refers to the tax charged under this Act
on inter-State supply of goods or services or both (other than supply of alcoholic liquor for
human consumption).
Cess-Sec. 2(22): cess’ levied on certain supplies (inter-State or intra-State) as may be

notified, for the purpose of providing compensation to the States for loss of revenue arising
on account of implementation of GST, for a period of 5 years (or extended period, as may be
prescribed). GST Compensation Cess is leviable on pan masala, tobacco products, coal,
aerated waters and motor cars.
Integrated Tax-Sec. 2(58): Integrated tax” means the integrated goods and services tax
levied under the Integrated Goods and Services Tax Act. It refers to the tax charged under the
IGST Act on inter-State supply of goods or services or both (other than supply of alcoholic
liquor for human consumption). The rate of integrated tax cannot exceed 40%.

1. ______ shall be leived on inter-state supply.

2. ______ shall be leived on intra-state supply.
3. GST is payable in the State where the goods or services or both are finally______.
4. GST implemented in the State of Jammu & Kashmir on______.
5. The GST Compensation to States bill, 2017 was introduced in Lok Sabha on______.
1. IGST
2. CGST and SGST
3. Consumed.
4. 8th July 2017
5. March 27, 2017
24
10.8 SUMMARY
In the present unit, we had covered important provisions of CGST Act, SGST Act,
IGST Act and GST (Compensation to States) Act. CGST Act extends to whole of India
excluding the states of Jammu and Kashmir later on 8th July 2017, the act was implemented
to Jammu and Kashmir also. CGST and SGST/UTGST is levied on intra-state supply along
with different specified rates and similarly in case of interstate supply IGST is levied.
10.9 KEYWORDS
Central Tax [Sec. 2(21)] : “Central tax” means the central goods and
services tax levied under section 9.
State Tax [Sec. 2(104)] : “State tax” means the tax levied under any State
Goods and Services Tax Act.
Union Territory Tax [Sec. 2(115)] : Union territory tax refers to the tax charged
under the UTGST Act on intra-State supply of
goods or services or both.

1. Discuss salient features of GST Act.
2. Briefly explain about CGST Act and its features.
3. Discuss SGST Act.
4. Discuss about IGST Act.
10.11 REFERENCES
1. Vinod K. Singhania - GST and Customs Law - Taxmann Publications Private Limited
- 6th Edition- January 2022.
Publication – 2022.
25
Institute of Cost Accountants of India (ICAI) - Kolkata- Revised Edition – January
2022.
7. icmai.in
8. www.icsi.edu
9. cbic-gst.gov.in
11. www.cleartax.in
26
UNIT – 11 LEVY AND COLLECTION OF TAX
Structure:
11.0 Objectives
11.1 Introduction
11.2 Supply
11.3 Scope of Supply
11.4 Composite Supply and Mixed Supply
11.5 Intra-State Supply
11.6 Inter-State Supply
11.7 Levy and Collections
11.8 Composition Levy
11.9 Person Liable to Pay GST
11.10 Exempt Supply, Non-Taxable Supply and Non-GST Supply
11.11 Rates of GST
11.12 E-Way Bill
11.14 Summary
11.15 Keywords
11.17 References
27
11.0 OBJECTIVES
 Analyse the concept of supply, taxable event and different types of supplies under GST.
 Describe the levy and collection of GST.
 Analyse different persons who are liable to pay GST.
 Identify GST rates and E-way bill under GST.
11.1 INTRODUCTION
In the previous units, we have gone through the various concepts of GST, GST Acts,
CGST Act, SGST Act, important definitions and related provisions. This unit focuses on
supply, rates of GST, E-Way bill and others. Under the old indirect tax regime, taxable events
for various taxes were different as payment of excise duty for that the taxable event was
manufacture or production of goods. In India, for service, the taxable event was provision of
service, similarly under VAT/CST it was sale of goods. To replace such multiplicity, GST
has brought a single and unified taxable event which is supply, that is, tax would be payable
on the supply of goods or services or both.
11.2 SUPPLY
Under GST, supply is considered a taxable event for charging tax. The liability to pay
tax arises at the ‘time of supply of goods or services’. Thus, determining whether or not a
transaction falls under the meaning of supply, is important to decide GST’s applicability.
Supply includes sale, transfer, exchange, barter, license, rental, lease and disposal. If a
person undertakes either of these transactions during the course or furtherance of business for
consideration, it will be covered under the meaning of Supply under GST.
The meaning and scope of supply under GST can be understood in terms of following
six parameters, which can be adopted to characterize a transaction as supply:
1. Supply of goods or services: Supply of anything other than goods or services does not
attract GST.
2. Supply should be made for a consideration.
3. Supply should be made in the course or furtherance of business.
4. Supply should be made by a taxable person.
5. Supply should be a taxable supply.
6. Supply should be made within the taxable territory.
28
11.3 SCOPE OF SUPPLY (SECTION-7)
11.3.1 Supply Includes [Section 7(1)]
11.3.1.a All forms of supply of goods or services or both such as[Section 7 (1) (a)]
 Sale
 Transfer
 Barter
 Exchange
 License
 Rental
 Lease or
 Disposal made or agreed to be made for a consideration by a person in the course or
furtherance of business.
11.3.1.b Import of services for a consideration whether or not in the course or

furtherance of business[Section 7 (1) (b)]
(1) It is applicable only for services and not for goods
(2) It should be import of services (as referred under Section 2(11) of IGST Act, 2017),
where
 The supplier of service is located outside India;

 The recipient of service is located in India; and
 The place of supply of service is in India.
(3) Services shall be provided with consideration
(4) Services may be in the course or furtherance of business or not in the course or
11.3.1.c The activities specified in Schedule-I made or agreed to be made without a

consideration[Section 7 (1) (c)]
1. Permanent transfer or disposal of business assets where input tax credit has been availed
on such assets.
2. Supply of goods or services or both between related persons or between distinct persons
(gifts not exceeding ` 50,000/- in value in a financial year by an employer to an
employee shall not be treated as supply of goods or services or both)
29
3. Supply of goods
(a) by a principal to his agent where the agent undertakes to supply such goods on behalf
of the principal; or
(b) by an agent to his principal where the agent undertakes to receive such goods on
behalf of the principal.
4. Import of services by a taxable person from a related person or from any of his other
establishments outside India, in the course or furtherance of business.
11.3.1.d The activities to be treated as supply of goods or supply of services

[Section 7(1)(d)]
1. Supply of Goods
 Transfer of the title in goods.

 Transfer of title in goods under an agreement which stipulates that property in goods
shall pass at a future date upon payment of full consideration as agreed.
 Goods forming part of business are transferred or disposed of by the owner whether or
not for a consideration.
 Supply of goods by any unincorporated association or body of persons to a member
thereof for cash, deferred payment or other valuable consideration.
 Supply of goods by any unincorporated association or body of persons to a member
thereof for cash, deferred payment or other valuable consideration.
2. Supply of Services
 Transfer of right in goods or share (undivided) in goods without the transfer of title.
 Lease, tenancy, easement, licence to occupy land.
 Lease or letting of any building including for business or commerce (building might
be a commercial, industrial or residential complex rent out wholly or partly).
 Any treatment or process which is applied to another person’s goods.
 The owner (person carrying on business) uses or allows to use business assets for
personal use.
 Renting of immovable property (however, residential dwelling is exempted from
GST).
 Construction of a complex, building, civil structure or a part thereof, including a
complex or building intended for sale to a buyer, wholly or partly, except where the
entire consideration has been received after issuance of completion certificate, where
30
required, by the competent authority or after its first occupation, whichever is earlier.
 Temporary transfer or permitting the use or enjoyment of any intellectual property
right.
 Development, design, programming, customization, adaptation, upgradation,
enhancement, implementation of information technology software.
 Agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or
to do an act.
 Transfer of the right to use any goods for any purpose (whether or not for a specified
period) for cash, deferred payment or other valuable consideration.
 Works contract services.
 Supply by way of or as part of any other service or in any other manner whatsoever,
of goods being food or any other article for human consumption or any drink (other
than alcoholic liquor for human consumption).
11.3.2 Supply Excludes [Section 7(2)]
1. Activities specified in Schedule III (that is, negative list) Section 7(2)
 Services by employee to employer in the course of or in relation to his
employment.
 Services by court or tribunal established under any law. Court for the purpose
include district court, high court and supreme court.
 Services by Member of Parliament, Member of legislature, member of
municipality, member of panchayat and member of local authorities.
 Services by funeral, burial, crematorium, mortuary including transportation.
 Sale of land/building
 Actionable claim other than lottery, betting and gambling.
2. Such activities or transactions undertaken by the Central Government, a State
Government or any local authority in which they are engaged as public authorities, as
may be notified by the Government on the recommendations of the Council.
11.4 COMPOSITE SUPPLY AND MIXED SUPPLY

11.4.1 Composite Supply
Composite supply means a supply is comprising two or more goods/services, which

are naturally bundled and supplied in with each other in the ordinary course of business, one
31
of which is a principal supply. It means that the items are generally sold as a combination.
The items cannot be supplied separately.
The elements in a composite supply of goods and services are generally classified as:
 Principal Supply: The pre-dominant element in the Composite Supply of goods or

services.
 Dependent Supply: Dependent on the principal supply.
For Example: A five-star hotel in Mysuru is providing a stay package with breakfast. This
will be a Composite Supply as the package of accommodation facilities and breakfast is a
natural combination in the ordinary course of business for a hotel. In this case, the hotel
accommodation is the principal supply, and breakfast is the dependent supply.
11.4.2 Mixed Supply
Mixed supply under GST means a combination of two or more goods or services
made together for a single price. Each of these items can be supplied separately and is not
dependent on any other.
11.4.3 Differences between Composite Supply and Mixed Supply
Particulars Composite Supply Mixed Supply
Bundled Naturally bundled Not naturally bundled

supply
Main item Principal item Item with highest tax rate
Tax rate Tax rate of principal item Highest tax rate of all the items
applicable
Examples Five- star hotels often provide A Diwali gift box consisting of
free laundry services on canned foods, sweets, chocolates,
staying at the hotel. Renting cakes, dry fruits, aerated drink
the room is the primary service and fruit juices supplied for a
and laundry is ancillary. single price.
32
11.5 INTRA-STATE SUPPLY
The intra-state supply in GST is when the supply of goods and services takes place
within the state. However, the supply of goods or services to a Special Economic Zone
developer or Special Economic Zone unit situated within the same state would not be
intra- state supply. Under this, the individual has to pay both CGST and SGST.
11.6 INTER-STATE SUPPLY

According to GST, when the supply of goods and services takes between
 Two different States; or

 Two different Union territories; or
 State and a Union territory.
Under the inter-state supply, one has to pay only the IGST. The GST inter-state also includes
the supplies made by the SEZ (Special Economic Zone).
Location of Location of Intra-State Inter-State

Applicable Tax
supplier Recipient Supply Supply
Karnataka Karnataka Yes ----- CGST & SGST
Karnataka Maharashtra --- Yes IGST
Andaman Andaman Yes ---- CGST & UTGST
SEZ in Non SEZ in --- Yes IGST

Karnataka Karnataka
For example, if an electronics store in Karnataka sold a laptop worth ` 1,00,000 to a customer
in Andra Pradesh and the sale shall attract a GST rate of 18%. The invoice for the sale shall
add ` 18,000 along with the total value of the product. In the case where an electronics store
in Karnataka sells the laptop to a customer in Karnataka, then the invoice shall reflect CGST
of ` 9,000 and SGST of ` 9,000 along with the total value of the product.
11.7 LEVY AND COLLECTIONS

Supply of Goods or Services or both is “Taxable Event” in GST Goods and Services
Tax on supply of goods or services, or both, except taxes on the supply of alcoholic liquor for
human consumption [Article 366(12A) of Constitution of India].
33
Levy and Collections
Tax levied
Type of supply
Basis of charge as per CGST Act 2017
Intra-state supply (Supply within state)
Basis of charge as per SGST Act 2017
Basis of charge as per UTGST Act 2017
Basis of charge as per IGST Act 2017

Inter-state supply (Supply from one state to another)
11.7.1 Levy and collection as per CGST Act, 2017
(a) Section 9(1) of CGST Act, 2017,
 Tax levied by the Central Government as per this act is called the Central Goods and
Services Tax(CGST);
 Tax shall be levied on all the intra-state supplies of goods or services or both, except
on supply of alcoholic liquor for human consumption;
 Tax is levied on the value determined u/s 15; and
 Tax shall be levied at such a rate (maximum 20%,) as notified by the Central
Government on recommendation of GST Council; and
 Tax collected in such a manner as may be prescribed; and
 Tax shall be paid by the taxable person.
(b) Section 9(2) of CGST Act 2017, the CGST of following supply shall be levied with
effect from such date as notified by the Central Government on recommendation of GST
Council:
 Petroleum crude
 High speed diesel
 Motor spirit (commonly known as petrol)
 Natural gas
 Aviation turbine fuel.
(c) Section 9(3), CGST is to be paid on reverse charge basis by the recipient on notified
goods/ services or both (liability to pay tax by the recipient of supply of goods / services
rather than supplier of goods/ services under forward charge)
34
(d) Section 9(4), CGST on taxable supply of goods/ services to registered supplier from
unregistered supplier is to be paid on reverse charge basis by the recipient.
(e) Section 9(5), E-Commerce operator is liable to pay CGST on notified intra-state
supplies.
11.7.2 Levy and collection as per IGST Act, 2017
(a) U/s 5(1) of IGST Act, 2017, there shall be levied a tax –
 Tax levied as per the sec 5 (1) of IGST Act, 2017 is called the Integrated Goods and
Services Tax (IGST);
 Tax levied on all the inter-state supplies of goods or services or both, except on
supply of alcoholic liquor for human consumption;
 Tax levied on the value determined u/s 15 of CGST Act, 2017; and
 Tax shall be levied at a rate (maximum 40%,) as notified by the Central Government
on recommendation of GST Council; and
 Tax collected in such a manner as may be prescribed; and
 Tax shall be paid by the taxable person, provided further that IGST will be imposed
on goods/ services imported into India.
(b) U/s 5(2) of IGST Act, 2017, the CGST of following supply shall be levied with effect
from such date as notified by the Central Government on recommendation of GST Council
 Petroleum crude
 High speed diesel
 Motor spirit (commonly known as petrol)
 Natural gas
 Aviation turbine fuel
(c) U/s 5(3), IGST is to be paid on reverse charge basis by the recipient on notified goods/
services or both (liability to pay tax by the recipient of supply of goods / services rather than
supplier of goods/ services under forward charge).
(d) U/s 5(4), IGST on taxable inter-state supply of goods/ services to registered supplier from
unregistered supplier (agriculturist) is to be paid on reverse charge basis by the recipient.
(e) U/s 5(5), E-Commerce operator is liable to pay IGST on notified inter-state supplies.
35
11.8 COMPOSITION LEVY
11.8.1 Composition Levy – Section 10
Composition levy is an alternative method of levy of tax designed for small tax payer whose
aggregate turnover in preceding financial year does not exceed ` 150 lakhs (for special
category of states ` 75 lakhs).
11.8.2 Turnover Limit for composition Levy (section 10(1))
Limit of Annual Turnover in the preceding Financial Year for availing Composition Scheme
for Goods increased to ` 1.5 crore. But, special category States of Arunachal Pradesh,
Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura and Uttarakhand have the said
limit as ` 75 lakhs.
11.8.3 Composition levy applicable tax rates are as follows
Category of Registered Persons CGST SGST Effective

Rate %
Manufacturers, other than manufacturers of such goods as may 0.5% 0.5% 1%

be notified by the Government
Any other supplier (trading business) 0.5% 0.5% 1%
Restaurant services and outdoor catering services 2.5% 2.5% 5%
Any other services provider (other than restaurant and outdoor 3% 3% 6%

catering services)
11.8.4 Person eligible to opt for composition scheme
Eligibility Criteria:
 A person can opt for a composition scheme if his turnover during the preceding financial
year does not exceed ` 1.5 crore.
 However, in the case of eight states (that is Arunachal Pradesh, Manipur, Meghalaya,
Mizoram, Sikkim, Nagaland, Tripura, and Uttarakhand) the limit of ` 75 lakhs shall apply
instead of ` 1.5 crore
Aggregate Turnover:
Eligible to opt for composition scheme is based on aggregate turnover of the preceding
financial year. Therefore, it becomes important to know the items which are to be
included/excluded at the time of computation of aggregate turnover. Turnover of all the
36
entities which are registered under a common Permanent Account Number (PAN) across
India has to be aggregated to determine the eligibility of an assessee to opt for composition
scheme.
Inclusion and Exclusion in Aggregate turnover:
Inclusion Exclusion
 Inward supply on which

 The value of outward supply of all goods or
recipient is required to pay tax
services
under RCM
 Taxable supplies
 CGST, SGST, UTGST and
 Exempt supplies
IGST
 Export  Cess under GST
 Supply on own account and on behalf of principal
 Interstate supplies between distinct person having
same PAN
11.8.5 Person not eligible to opt for composition scheme
The following person cannot opt for composition scheme and therefore, such a person is
required to discharge their tax liability, if any, in the normal manner.
1. Supplier of services other than supplier of food articles (restaurant and outdoor catering).
2. Supplier of goods which are not taxable under the CGST Act / SGST Act/ UTGST Act.
3. Supplier of interstate outward supplier of goods.
4. Person supplying goods through an electronic commerce operator (ECO).
5. Manufacturer of notified goods, that is, ice cream, pan masala, tobacco and tobacco
substitute.
6. Casual Taxable person as well as Non-Resident taxable person.
11.8.6 Illustration on Composition Levy
Problem-1:
ABC Company Ltd manufacturing concern in Mysore, Karnataka, made total value of
supplies (exclusive tax and the break up supplies) in financial year 2022-2023 are as follows.
37
Particulars Amount in `
Intra-state supplies made under forward charge 75,00,000
Intra state supplies made which are chargeable GST at Nil rate 30,00,000
Intra state supplies which are wholly exempt under section 11 of 50,00,000
CGST Act 2017
Value of inward supplies on which tax payable under RCM 5,00,000
Briefly explain whether ABC Company Ltd, is eligible to opt for composition scheme in
financial year 2022-2023.
Solution: Computation of Aggregate Turnover
Particulars Amount (`) Remarks
Intra state supplies made under forward 75,00,000 Included in aggregate

charge turnover
Intra state supplies made which are 30,00,000 Included in aggregate

chargeable GST at Nil rate turnover
Intra state supplies which are wholly exempt 50,00,000 Included in aggregate
under section 11 of CGST Act 2017 turnover
Value of inward supplies on which tax ----- Excludes from

payable under RCM aggregate turnover
Total 1,55,00,000
Since, aggregate turnover exceeds ` 1.5 crore during the financial year 2022-2023, ABC
Company Ltd. is not entitled for composition scheme for financial year.
Problem-2:
ABC Traders in Bangalore is a registered person under GST having turnover of ` 140 lakhs
during financial year 2022-23. Applicable GST is 18%. Inputs cost ` 10,00,000 (exclusive of
38
GST 18%). Profit margin is 20% on cost. Find the invoice price and advice the best option to
pay tax if any. There is no opening balance and closing balance for the tax period.
Solution: Calculation of tax liability under normal provision and composition scheme
I. Total tax payable under normal provision
Particulars Values in ` Working note
Cost of inputs 10,00,000
Add: GST 18% on inputs No cost
Total Cost 10,00,000
Add: profit margin 20% on cost 2,00,000 ` 10,00,000 x20%
Total 12,00,000
Add: 18% CGST and SGST 2,16,000 ` 12,00,000 x 18%
Invoice price 14,16,000
CGST @ 9% 1,08,000 ` 12,00,000 x 9%
SGST @ 9% 1,08,000 ` 12,00,000 x 9%
Total GST 2,16,000
Less: Input Tax Credit
CGST @ 9% 90,000 ` 10,00,000 x 9%
SGST @ 9% 90,000 ` 10,00,000 x 9%
Total GST liability 36,000
39
II. Total tax payable under composition Scheme
Particulars Values in ` Working note
Cost of inputs 10,00,000
Add: GST 18% on inputs 1,80,000 ` 10,00,000 x 18%
Total Cost 11,80,000
Add: profit margin 20% 2,36,000 ` 11,80,000 x 20%
Invoice price 14,16,000 Total cost + profit
CGST @ 0.5% 7,080 ` 14,16,000x 0.5%
SGST @ 0.5% 7,080 ` 14,16,000x 0.5%
Total GST 14,160
Less: Income Tax Credit (ITC) No ITC in case of composite levy scheme
CGST Nil
SGST Nil
Total GST liability 14,160
Conclusion: Total GST liability in composition scheme is lesser than normal scheme so
ABC traders Mysuru suggested to paying tax under composition scheme.
Note:
1. In the above case tax rate is taken at 1 %, because it is trading business

2. No Income Tax Credit is available under composition scheme.
11.9 PERSON LIABLE TO PAY GST

Any person who is supplying goods or services or both is liable to pay GST.
The government has also set up the basic exemption limit for small suppliers of goods and
services. Any business involved in the supply of goods whose turnover in a financial year
exceeds ` 40 lakhs for normal category states (` 20 lakhs for special category states) and
40
any business involved in the supply of services whose turnover in a financial year exceeds
` 20 lakhs for Normal Category states (` 10 lakhs for special category states)
Important points relating to basic exemption:
 If you make any interstate sale, then the basic exemption limit shall not apply.
 If you are registered casually under GST, that is, casual registration, then the basic
exemption limit shall not apply.
 If you are liable to pay tax under reverse charge, then also basic exemption limit shall
not apply.
 E-commerce vendors and the aggregator are not eligible for basic exemption limit.
Also, the following category of person are liable to be registered under the act without any
basic exemption limit;
 Every electronic commerce operator.
 Every person supplying digital services from a place outside India to a person in
India, other than a registered taxable person.
 Such other person or class of persons as may be notified by the Central Government
or a State Government on the recommendations of the Council.
 Any person who is required to collect tax at the source.
 Non-resident taxable persons.
 Persons who are required to deduct tax under section 46, whether or not separately
registered under this Act.
 Persons who are required to collect tax under 56, whether or not separately registered
under the Act.
 Persons who supply goods and/or services on behalf of other taxable persons whether
as an agent or otherwise.
 Input service distributor.
11.9.1 Person under GST [Section 2(73)]
The term “person” has been defined in Section 2(73) of the GST Act as follows:
 An Individual
41
 A Hindu Undivided Family
 A Company
 A Partnership Firm
 A Limited Liability Partnership
 An Association of Persons or a Body of Individuals, whether incorporated or not, in

India or outside India.
 Any Corporation established by or under any Central, State or Provincial Act, or a

Government Company.
 Anybody corporate incorporated by or under the laws of a country outside India.
 A co-operative society registered under any law relating to cooperative societies.
 A local authority.
 Government.
 Society as defined under the Societies Act, 1860.
 Trusts Artificial judicial person, not falling within any of the above categories.
11.9.2 Person liable to pay GST
 Supplier (Forward Charge)
 Recipient (Reverse Charge)
42
(Source: Taxadda)
11.9.3 Reverse Charge Mechanism
Reverse Charge Mechanism is the process of payment of GST by the receiver of

goods and services, instead of the supplier. That is, the liability of tax payment is transferred
to the recipient/receiver instead of the supplier. As per section 2(98) of CGST Act’ 2017,
“reverse charge” means the liability to pay tax by the recipient of the supply of goods or
services or both instead of the supplier of such goods or services or both.
List of Services Taxable under Reverse Charge Mechanism
Sl. Category of Supply

Supplier of Services Recipient of Services
No of Services
Any factory registered under or

Supply of services by governed by the factories act
1 Goods transport
a Goods and 1948.
agency
transportation agency Any society registered under
societies registration act 1860.
43
Any co-operative society
established by or under any law.
Any person registered under the
CGST act or the IGST act or
SGST act or the UTGST act.
Anybody corporate established by
or under any law.
Any partnership firm whether
registered or not under any law
including associations of person.
Any causal taxable person.
Services provided by
an individual advocate
An individual
including a senior
2 advocate including a Any business entity located in
advocate or firm of
senior advocate or taxable territory.
advocates by way of
firm of advocates.
legal services, directly
or indirectly
Services supplied by
3 Any business entity located in the
an arbitral tribunal to An arbitral tribunal
taxable territory
a business entity.
Services provided by
4 way of sponsorship to Anybody corporate or partnership
Any person
anybody corporate of firm located in taxable territory
partnership firm.
the central Central government,
Any business entity located in the
5 government, state state government,
taxable territory.
government, union union territory or local
territory or local authority.
authority to a business
44
entity excluding
1. Renting of
immovable
property
2. Services specified
below
Services by the
Department of posts
by way of speed post,
express parcel post,
Life insurance and
agency services
provided to a person
other central
government, and state
government or union
territory or local
authority.
Services in relation to
an Air craft other
vessel, inside or
outside the precincts
of a court or an
Airport
Transport of goods or
passengers.
Services supplied by a
director of a company/
6 A director of company The company or a body corporate
body corporate to the
or a body corporate located in the taxable territory.
said company / body
corporate
45
Any person carrying on insurance
7 an insurance agent to
An insurance agent business located in taxable
any person carrying
territory.
on insurance business
Services supplied by a
recovery agent to a a banking company or financial
8 banking company or institution or non-banking financial
Recovery agent
financial institution or company, located in taxable
non-banking financial territory.
company
Supply of services by
an author, music
composer,
photographer, artist or
the like by way
transfer or permitting
the use or enjoyment
Author or music
of the copy right Publisher, music company,
9 composer,
covered under sec 13 producer located in taxable
photographer and
(1)(a) of the copy territory.
artist
right act 1957 relating
to original literacy,
dramatic, musical or
artistic works to
publisher, music
company and
producer.
Supply of services but members of

10 the members of overseeing committee
Reserve Bank of India
overseeing committee constituted by the
to reserve bank of Reserve Bank of India
46
India.
Radio taxi or
passenger transport
Taxi driver or rent a
11 services provided Any person
cab operator
through electronic
commerce operator
List of Goods Taxable Under Reverse Charge Mechanism
Recipient of
SI.NO Supply of goods Supplier of goods
goods
Any registered
1 Agriculturist
Cashew nuts, not shelled or peeled person
Any person who

manufactures silk yarn
Any registered
2 Silk yarn from raw silk or silk
person
worm cocoons for
supply of silk yarn
Any registered
3 Raw cotton Agriculturist
person
Central Government,
Used vehicles, seized and
State Government, Any registered
4 confiscated goods, old and used
Union territory or a person
goods, waste and scrap
local authority
11.10 EXEMPT SUPPLY, NON-TAXABLE SUPPLY AND NON-GST SUPPLY

11.10.1 Exempted Supply
Exempted supply means the supply of goods or services or both which are not taxable under
GST. These supplies are exempt by virtue of exemption notifications issued under GST Act.
For example, live animals (except horses), cereals, puja samagri, and others. No input tax
47
credit can be claimed with respect to inputs and/or input services used for making exempt
supplies.
Points are to be noted for exempted supply
 There is no GST applicable on outward exempted supplies;
 Input tax credit of inputs and / or input services used in providing exempted supply is
not available, that is, no input tax credit on exempted supplies.
 A registered person supplying exempted goods or services or both shall issue ‘bill of
supply’ instead of tax invoice.
11.10.2 Zero Rated Supply
Export of goods or services or both; or Supply of goods or services or both to a Special

Economic Zone developer or a Special Economic Zone unit.
11.10.3 Nil Rated Supply
Supply of goods or services or both on which nil or 0% GST rate is applicable are called NIL
rated supply. Schedules I of the GST act contains the goods which are nil-rated supply. For
example, cereals, fresh fruits, and vegetables, salt, natural honey, milk, human blood, and
other goods.
No input tax credit of inputs and/or input services used in providing nil rated supply is
available. In other words, if any GST is paid on the goods or services or both used in
providing nil rated supply then such GST credit is not available to the registered dealer.
11.10.4 Non-Taxable Supply
Supply of goods or services or both which are outside the purview of GST Act. In other
words, they are not taxable under the GST Act and may be chargeable to tax under any local
sales tax law or any other act. Currently, the only goods falling under this category include
petroleum products and alcohol for human consumption.
48
11.10.5 Differences between Zero-Rated Supplies, Nil-Rated Supply, Non-GST Supply
and Exempt Supply.
Particulars Zero-Rated Supplies Nil-Rated Non-GST Exempt

Supply Supply Supply
Meaning Goods or services Supply which Supply which Supplies which

which are exported or attracts 0% is outside the are exempt
supplied to Special GST rate. purview of from payment
Economic Zone GST Act. of GST
developer or a Special
Economic Zone unit.
GST Falls within GST Falls within Doesn’t fall Falls within
Applicability ambit GST ambit within GST GST ambit
ambit
Input Tax Available Not available Not available Not available

Credit
Availability
11.11 RATES OF GST

11.11.1 In GST Act four different rates have been notified as 5%, 12%, 18% and 28%.
Rates Inter-state Intra-state supply

Supply
IGST CGST SGST/UTGST Total GST
Category I-5% 5% 2.5% 2.5% 5%
Category II-12% 12% 6% 6% 12%
Category III-18% 18% 9% 9% 18%
Category IV-28% 28% 14% 14% 28%
49
11.11.2 GST Rates for Goods Under CGST
GST Rate Goods

SI No
Milk, Egg, Curd, Lassi, Salt, Unbranded Honey, Unpacked Food grain,
Un packed Paneer, Fresh fruits and Vegetables, Bread, Condoms, and
Contraceptive, Human Blood, Judicial and Non- Judicial Stamp Paper,
1 0%
printed books, Raw silk, Newspaper, periodicals. Khadi yarn, Earthen
pot, manually operated or animal driven Agricultural tools and trackless
and equipment, passenger baggage and other essential goods.
0.25% Diamonds, precious and semi-precious stone un-worked or simply sawn.

2
Pearls, Diamond, Precious stone, Silver, base metal gold, coin,
3 3%
jewellery, limitation jewellery, waste and scrap of previous metal.
Tea, coffee, sugar, edible oil, Herb, Jaribooti, life savings drugs, packed
food grain, branded milk power and honey, spices, fertilizer, fabric, foot
4 5%
wear (less than ` 500), apparel (less than ` 1000) LPG, coal, e-waste and
other essential goods.
Butter, cheese, Ghee, almonds, fruit jice, curry paste, Fruit jam,
Namkenn, Bhujia, Curry paste, Diabetic food, computer, printer, mobile,
umbrella, Ball pen, pencil, diagnostic kit, medical oxygen, kitchen ware,
12% Medical grade oxygen, paper board, exercise book, Architect plan,
5
carpet, Hand bag, shopping bag, school bag, harvesting machine, sewing
machine, Led lamps. Electric vehicle, Bicycle, sports goods, Tractor (<
1800cc), Armed vehicles and many more.
50
Sugar cube, confectionery, pasta, corn flake, soups, Ice cream, non-
alcoholic beverage, oral hygiene product, Vinegar, lubricants, bitumen,
printing /drawing ink, Hair oil, soap, shampoo, perfumes, beauty
preparation, photo graphics film, tubes, pipes, school bag, vanity bag,
register, account books, tanks, drums, LPG stoves, machine tools.
6 18%
Marble, Granite, Chocolate, chewing gum, Tyres, tubes, furniture’s,
lighter, wrist watch, Bath sinks, wash basin, Doors, windows, Electric
weighing machine, lighting and signaling system, office machine piano,
musical instruments, matters bedding, sports bag, travel bag, fire
extinguisher and many more.
Pan masala, cigar, molasses, aerated water, paints and vanishes, fuel
pumps, AC, Refrigerator, washing machine, Portland cement, slag
cement, Glaziers’ putty vacuum cleaner, motor cycle, motor car,
28% transport vehicle, Aircraft/yacht for personal use, Video games consoles
7
and machines, Digital and Video camera, monitor and projector (above
20 inch), Pistol, lottery of state government, all dutiable articles intended
for personal use and other luxury goods.
11.11.3 Rate of GST for Services:
Broadly, four rates of GST have been notified for services, viz., 5%, 12%, 18% and 28%.
Equivalent rate of SGST/UTGST and CGST will be levied.
GST
Sl.No Services
Rate
Renting of motor cab (including Fuel, o ITC), advertisement in print media
(principal to principal), Transport of passenger by Rail (AC/First Class),
5% Transport of goods by road/rail/vessel, Tour operator service, transport of
1 passenger by road in AC Bus / Radio Taxi, transport of passenger by Air,
(economy class), food/drinks in restaurant, GTA (Reverse charge), Works
contract service provided to government or local authority.
Civil construction works ( where value include cost of land), service

12%
2 provided by foreman of chit fund, Hotel room rent (> ` 1000 < ` 2500) per
day, GTA (forward charge, with ITC,) service provided by way of printing
51
of books newspapers, periodicals, renting of motor cab including fuel (ITC
available)
Advertisement in print media (though agent), works contract service, repair/

maintenance service, installation service, postal services, courier service,
18% security service, brokerage service, IT service, fine /penalty, bond money,
3 financial service, Hotel room rent (>` 2500 <` 5000 per day, put door
catering, legal/arbitration/engineering services, telecom service, day
cleaning, beauty parlor service, admission of planetarium.
Hotel room rent (>` 500/day), admission to amusement, park, casino and
4 28%
race course, services provided by race club, Gambling.
11.12 E-WAY BILL

E-way Bill is an Electronic Way Bill for the movement of goods from one place to
another which is to be generated on the E-way bill portal, If the value of goods exceeds
` 50,000. GST registered person cannot transport goods in a vehicle without an E way Bill.
When an E-way bill is generated, a unique E way Bill Number (EBN) is allocated and is
available to the supplier, recipient, and transporter.
11.12.1 Persons required generating E-way bill
 Registered Person: E-way bill must be generated when there is an inter-state movement of
goods of more than ` 50,000 (Including GST) in value to or from a registered person. For the
intra-state movement of goods, an E-way bill must be generated for the movement of goods
of more than the amount as notified by the state governments. For example, amount notified
for Delhi is ` 1,00,000, For Haryana ` 50,000 and for Utter Pradesh ` 50,000. Registered
person or the transporter may choose to generate and carry E-way bill even if the value of
goods is less than the above limits.
 Unregistered Person: Where a supply is made by an unregistered person to a registered
person, the receiver will have to ensure all the compliances are met as if they were the
supplier.
 Transporter: Transporters carrying goods by road, air, rail and any other way. also need to
generate e - Way Bill if the supplier has not generated an e-Way Bill.
11.12.2 Documents required generating E-Way Bill
In order to generate an E-way Bill, a consigner should be prepared with the following details:
52
1. Invoice/ Bill of Supply / Challan related to the consignment of goods.
2. Transportation by road – Vehicle number/Transporter ID, Part B of E-way bill has to be

filed.
3. Transportation by rail, air, or ship – Transporter ID, Transport document number, and date
on the document.
11.12.3 Consequences of not generating E-way bill or wrong E-way bill
 Detention or seizer of vehicle during movement.
 Detention or seizer of Goods during the movement.
 Confiscation of vehicle or goods on non-payment of penalty within 7 days of detention.
 Sale of vehicle or goods by the officials after confiscation.
 Imposition of penalty of ` 10,000 or equivalent amount of tax of goods in transit,

whichever is higher.
11.12.4 Specific Goods that are exempt from e-way bill rule
1. Transportation of those goods laid down in the annexure to rules as specified below:
 Liquid petroleum gas for supply to household and non-domestic exempted category
customers.
 Kerosene oil sold under Public Distribution System (PDS).
 Postal baggage transported by Department of Posts.
 Natural or cultured pearls and precious or semi-precious stones; precious metals and
metals clad with precious metal.
 Jewellery, goldsmiths’ and silversmiths’ wares and other articles.
 Currency.
 Used personal and household effects.
 Unworked and worked coral.
2. Goods transported are alcoholic liquor for human consumption, petroleum crude, high-
speed diesel, petrol, natural gas or aviation turbine fuel.
53
3. Goods being transported are not treated as supply under Schedule III of the Act. Schedule
III consists of activities that would neither be a supply of goods nor service like service of
an employee to an employer in his employment, functions performed by MP, MLA etc.
4. Goods transported are empty cargo containers
5. Goods other than de-oiled cake being transported are specified in notification No. 2/2017–
Central Tax (Rate) dated the 28th June 2017. A few of the goods that are included in the
above notification are as follows:
 Curd, lassi, buttermilk
 Fresh milk and pasteurised milk not containing added sugar or other sweetening matter
 Vegetables
 Fruits
 Unprocessed tea leaves and unroasted coffee beans
 Live animals, plants and trees
 Meat
 Cereals
 Unbranded rice and wheat flour
 Salt
 Items of educational importance (books, maps, periodicals)
11.12.5 Cases when E-Way Bill is not required
In the following cases it is not necessary to generate e-Way Bill:
1. The mode of transport is non-motor vehicle
2. Goods transported from Customs port, airport, air cargo complex or land customs
station to Inland Container Depot (ICD) or Container Freight Station (CFS) for
clearance by Customs.
3. Goods transported under Customs supervision or under customs seal
4. Goods transported under Customs Bond from ICD to Customs port or from one
custom station to another.
5. Transit cargo transported to or from Nepal or Bhutan
54
6. Movement of goods caused by defence formation under Ministry of defence as a
consignor or consignee
7. Empty Cargo containers are being transported
8. Consignor transporting goods to or from between place of business and a weighbridge

for weighment at a distance of 20 kms, accompanied by a Delivery challan.
9. Goods being transported by rail where the Consignor of goods is the Central
Government, State Governments or a local authority.
10. Goods specified as exempt from E-Way bill requirements in the respective
State/Union territory GST Rules.
11. Transport of certain specified goods- Includes the list of exempt supply of goods,
Annexure to Rule 138(14), goods treated as no supply as per Schedule III, Certain
schedule to Central Tax Rate notifications.
11.12.6 Validity of E-Way Bill
An e-way bill is valid for periods as listed below, which is based on the distance travelled by
the goods. Validity is calculated from the date and time of generation of e-way bill
Type of conveyance Distance Validity of EWB
Other than Over Less Than 100 Kms 1 Day

dimensional cargo
For every additional 100 Additional 1 Day
Kms or part thereof
For Over dimensional cargo Less Than 20 Kms 1 Day
For every additional 20 Kms Additional 1 Day

or part there of

1. Gifts not exceeding ` ______ in a year by an employer to employee shall not be

treated as supply.
2. Supply of two or more taxable supplies naturally bundled is ______supply.
55
3. Supply of two or more taxable supplies not naturally bundled is ______supply.
4. The lowest tax rate under GST Act is ______.
5. Maximum tax rate under IGST Act is______.
6. Composite tax is applicable for dealer if turnover is up to______.
7. In composite supply the ______rate is the tax rate.
8. In mixed supply the rate of tax is______.
9. The rate under composition levy tax rate of 1% for______and 5% for services of
______.
10. Composition scheme is not allowed if person is making ______state transactions.
1. ` 50,000
2. Composite supply
3. Mixed supply
4. 0.25%
5. 40%
6. ` 1.5 Crore
7. Principal supply
8. Highest rate supply
9. Trading firms and restaurant
10. Inter
11.14 SUMMARY
Concepts and provisions relating to supply GST rates and E-way bill are discussed in
this unit. Taxable event under GST is supply of goods or services or both. CGST and SGST/
UTGST will be levied on intra-State supplies of goods or services. Similarly, IGST will be
levied on inter-State supplies. In Composite supply two or more goods or services which are
naturally bundled supplies and principal supply rate to be considered for levy of GST. Mixed
supply would be treated as supply of that particular goods or services which attracts the
highest rate of tax, instead of the in forward charge mechanism the supplier of such goods or
services is liable to pay tax. Whereas, under the reverse charge mechanism the liability to pay
tax is on the recipient of goods and services or both. Further, the threshold limit to opt
composition scheme is ` 150 lakhs of aggregate turnover in the preceding financial year.
56
11.15 KEYWORDS
Goods-Sec. 2(52) : Every kind of movable property, other than-
Money, and Securities. But includes actionable
claim and growing crops, grass and things
attached to or forming part of the land which are
agreed to be severed before supply or under a
contract of supply.
Casual Taxable Person-Sec. 2(20) : A person who occasionally undertakes

transactions involving supply of goods or
services or both in the Course or furtherance of
business whether as principal, agent or in any
other capacity in a State or a Union territory
where he has no fixed place of business.
Fixed Establishment-Sec. 2(50) : Fixed establishment means a place (other than

the registered place of business) which is
characterized by a sufficient degree of
permanence and suitable structure in terms of
human and technical resources to supply of
services, or to receive and use services for its
own needs.
Money-Sec. 2(75) : Money means the Indian tender or any foreign

currency, cheque, promissory note, bill of
exchange, letter of credit, draft, pay order,
traveller cheque, money order, postal or
electronic remittance or any other instrument
recognized by the Reserve Bank of India when
used as a consideration to settle an obligation or
exchange with Indian legal tender of another
denomination but shall not include any currency
that is held for its numismatic value.
Non-Resident Taxable Person : Non-resident taxable person means any person

- Sec. 2(77) who occasionally undertakes transactions
57
involving supply of goods or services or both,
whether as principal or agent or in any other
capacity, but who has no fixed place of
business or residence in India.
Principal Supply- Sec. 2(90) : Principal supply means the supply of goods or
services-
 Which constitutes the predominant element
of a composite supply. and
 To which any other supply forming part of
that composite supply is ancillary.

1. What is supply under GST? How you identify supply involves supply of goods and
supply of services
2. What are all the different types of supplies under GST?
3. Which are the activities to be treated as supply made without consideration?
4. Briefly explain scope of supply under Section 7 of GST?
5. Explain taxable event under Supply.
6. What is mixed supply? How you determine tax liability in mixed supply.
7. What is composite mixed supply? How you determine tax liability in composite supply.
8. What are the differences between composite and mixed supply?
9. Briefly explain about reverse charge mechanism and provision of RCM to payment of
tax.
10. Explain person who liable to pay tax under GST Act.
11. Explain the provision relating to levy and collection under CGST Act 2017.
12. Explain the provision relating to levy and collection under IGST Act 2017.
13. What is composite levy and explain the provision relating to composite levy under GST.
14. Briefly explain about turnover limit per composition levy u/s 10 (1).
15. Briefly explain about eligible person to composition levy u/s 10 of CGST.
16. Explain about aggregate turnover under composition levy.
17. What is E-way bill? Who is liable to generate E-way bill?
18. Explain documents required to generate E-Way Bill.
19. Explain cases when E-Way Bill is not required.
20. Explain validity of E-way bill.
58
11.17 REFERENCES
Publication - 2022.
Institute of Cost Accountants of India (ICAI) - Kolkata- Revised Edition – January 2022.
7. icmai.in
8. www.icsi.edu
9. cbic-gst.gov.in
11. www.cleartax.in
59
UNIT – 12 INPUT TAX CREDIT
Structure:
12.0 Objectives
12.1 Introduction
12.2 Meaning of Input Tax Credit
12.3 Eligibility and Conditions for taking Input Tax Credit
12.4 Input Tax Credit in respect of Job Work
12.5 Reverse Charge Mechanism
12.6 Distribution of Credit by Input Service Distributor (ISD)
12.7 Recovery of Input Tax Credit.
12.9 Summary
12.10 Keywords
12.12 References
60
12.0 OBJECTIVES
 Analyse concept of ITC under GST.

 Identify availability and non-availability of ITC on various activities.
 Evaluate ITC on job work and input service distributor.
 Analyse set off and recovery of ITC under GST.
12.1 INTRODUCTION
When a registered person purchases goods or services or both, GST is paid on such
purchases, that is, inward supplies. These supplies are used for furtherance of business and
the outward supplies are made by using same inward supplies and on such outward taxable
supplies, GST is collected from the recipient of goods or services. The total GST collected on
outward supplies by supplier will not be payable to the Government, but it will get reduced
on account of adjustment of tax paid on inward supplies of goods or services, subject to
certain conditions. This mechanism in which tax paid on inward supply of goods or services
is adjusted towards tax paid on outward supply of goods or services is known as Input Tax
Credit (ITC). The GST laws provide the benefit of ITC not only on input goods/services but
also which extended to capital goods. Thus, this unit covers the important provisions and
simple illustrations relating to input tax credit.
12.2 MEANING OF INPUT TAX CREDIT

12.2.1 Concept of ITC
As per Section 2 (63) of the CGST Act, 2017 “input tax credit” means the credit of input
tax. Input-tax is defined under section 2(62) of the CGST Act as follows:
It means the Central tax, State tax, Integrated tax or Union territory tax charged on any
supply of goods or services or both made to a registered person but does not include the tax
paid under the composition levy.
It shall also include:
(a) The integrated goods and services tax which is charged on import of goods
(b) The tax payable as per section 9(3) and (4) of the CGST Act
(c) The tax payable as per section 5(3) and (4) of the IGST Act
(d) The tax payable as per section 9(3) and (4) of the respective SGST Act
61
(e) The tax payable as per section 7(3) and (4) of the UTGST Act.
12.2.2 Important terms regarding GST Input Tax Credit
a) Input Tax Credit can be availed by a registered person only if all the applicable
particulars as prescribed in the Invoice Rules are mentioned in the Invoice.
b) If the tax paid on inputs is more than the tax paid on output, the ITC can either be carried
forward or claimed as refund.
c) The balance tax after claiming the input tax credit shall be deposited with the
government by the 20th of the next month in GSTR 3.
d) Claiming of ITC would not be allowed beyond September of the following Financial
Year to which the invoice pertains or the date of filing of Annual Return whichever is
earlier.
e) A person who has applied for GST Registration within 30 days of becoming liable for
Registration is entitled to claim ITC in respect of goods held in stock on the day
immediately preceding the date from which he becomes liable to pay tax.
f) A person switching over to the normal scheme from the composition scheme under
Section 10 is entitled to ITC in respect of goods held in stock and capital goods on the
day immediately preceding the day from which he becomes liable to pay tax as a normal
taxpayer.
g) Where an exempt supply of goods or services or both becomes taxable, the person
making such supplies shall be entitled to take ITC in respect of goods held in stock
relatable to exempt supplies. He shall also be entitled to take credit on capital goods used
exclusively for such exempt supply.
h) In case of change of constitution of a registered person on account of sale, merger,

demerger and other, the unutilised ITC shall be allowed to be transferred to the
transferee.
i) The GST paid under the Reverse Charge Mechanism can also be claimed as Input Tax
Credit.
j) The Input Tax Credit is also allowed on GST paid on Capital Goods.
k) No ITC would be allowed, if Depreciation has been claimed on the Tax component of
the Capital Goods.
62
l) The details of GST paid on inputs would be auto-populated in the GSTR 2. However, the
details of GST paid on Inputs on Reverse Charge basis would not be auto-populated. The
details of GST paid on Reverse Charge Basis would be manually required to be furnished
in the GSTR.
12.3 ELIGIBILITY AND CONDITIONS FOR TAKING INPUT TAX CREDIT

Only a Registered Person would be able to claim the benefit of Input Tax Credit of
GST. Moreover, a registered person would be eligible to claim input tax credit on
fulfilment of the following conditions:
12.3.1 Eligibility for Availing ITC [Section 16(1)]
As per section 16(1), “Every registered person shall, subject to such conditions and
restrictions as may be prescribed and in the manner specified in section 49, be entitled to take
credit of input tax charged on any supply of goods or services or both to him which are used
or intended to be used in the course or furtherance of business and the said amount shall be
credited to the electronic credit ledger of such person.”
The analysis of above statutory provision reveals the following:
a. Registered Person [Section16 (1)]: Input tax credit is available only to a registered
person. When a registered person is supplied with goods or services or both, on which tax
has been charged, he is allowed to take credit of the input tax paid. This means, if a person
is unregistered he will not be eligible to claim Input tax credit, except the tax paid under
Composition levy does not fall within the definition of Input tax.
b. In the course of or in furtherance of business: The goods/services must be used or

intended to be used in the course of or in furtherance of his business. However, no such
credit is available in respect of inputs used for outward supply of exempted goods or
services and same used for personal use.
c. Credit Ledger: Registered person is eligible to get ITC interest amount of ITC shall be
credited to the Electronic Credit Ledger.
d. Manner of Utilisation: The ITC shall be utilised in the manner specified in section 49.
e. Rules under CGST Rules, 2017: The conditions and restrictions have been specified in
Chapter V of CGST Rules, 2017 (Rule 36 to Rule 45).
63
12.3.1. a Registration under GST
Problem-1:
ABC Company Ltd. Provide for following information for the month of May 2022.
1. Purchase of input from XYZ Ltd. a registered dealer for ` 50,000 + GST at 18%
2. Purchase of capital goods for ` 1,00,000 + GST at 28%
3. Audit service from C A Krishna and Co. for ` 1,00.000 +GST 12%
4. Health insurance service for employees at ` 20,000 + 12% GST
5. Market research service provided by XYZ Company Ltd. For ` 50,000 + 12% GST
Find out eligible ITC in the hands of ABC Company Ltd. For the month May 2022.If
a. ABC Company Ltd. is registered company.

b. ABC Company Ltd. is not registered company.
Solution:
Case-a: Calculation of Availability of ITC in the Hands of ABC Company Ltd. If it is

registered company
Particulars Value (`) Input tax Eligible

paid (`) ITC (`)
1. Purchase of input GST at 18% 50,000 9,000 9,000
2. Purchase of capital goods GST at 28% 1,00,000 28,000 28,000
3. Audit service from Krishna and Co GST at 1,00.000 12,000 12,000

12%
4. Health insurance service for employees at 20,000 4,000 Nil

12% GST
6. Market research service provided by XYZ 50,000 6,000 6,000

Company Ltd. at 12% GST
Total ITC available 55,000
64
Case-b: If ABC Company Ltd. is not registered company, then no ITC is available (only
registered person will get ITC).
Note: On health insurance service no ITC available U/S 17(5) (b).
12.3.1.b Goods/services to be used for business purposes
Problem-2
Ram Rao Company Ltd. purchased 1,000 kgs of raw material at ` 100 per kg plus 12%
GST. Out of 1,000 kgs of raw materials 900 kgs of raw materials used for business
purpose and rest of 100 kgs for personal use. Find out eligible ITC from the given
information.
Solution: Calculation of Eligible ITC
Particulars `
Input Tax paid 12,000

(1000 kgs x ` 100 x 12%)
(-) Tax on materials used for personal use 1,200
(100 kgs x ` 100 x 12%)
Eligible ITC 10,800
12.3.2 Conditions to be satisfied for Availing ITC [Section 16(2)]
The registered person is entitled to the credit of any input tax credit on a supply only if all the
following FOUR conditions are fulfilled:
1. Possession of Tax Invoice or Debit Note
2. Receipt of Goods and Services
3. Payment of tax to the Government
4. Filing of Valid Return
12.3.2. a Documents on the basis of which the ITC can be claimed
1. Invoice issued by supplier of goods or services or both.
2. Invoice issued by recipient along with proof of payment of tax.
3. A debit note issued by the supplier.
65
4. Bill of entry or similar document prescribed under the Customs Act.
5. Revised invoice.
6. Document issued by the Input Service Distributer.
Problem-3:
ABC Ltd provides the following information; determine the amount of input tax credit
eligible to ABC Ltd. In respect of various input purchased during the month June 2022.
Inwards Supplies GST in `
Goods purchased without invoice 75,000
Goods purchased with invoice 58,000
Goods purchased from XYZ Ltd. (full payment is made by ABC Ltd. to 80,000
XYZ Ltd. against such supply but tax has not been deposited by XYZ ltd. to
Government)
Goods purchased against valid invoice from RST Ltd. (Tax have been 40,000
deposited by RST Ltd. to the government.)
Purchase of goods and used for further business 1,20,000
Purchase of goods not to be used for further business (personal use) 20,000
Purchases of goods from PQR Ltd. (invoice of PQR Ltd. is received in the 25,000
month of December 2021. But goods where received in the month of January
2021.)
ABC Ltd. purchased goods from BCD Ltd. but for same transaction GST 40,000
return not filed during the month.
66
Solution:
Calculation of eligible ITC two VKC Ltd. For the month of June 2022.
Particulars Eligible Remarks

ITC
Goods purchased without invoice ---- Without invoice
Goods purchased with invoice 58,000 Conditions satisfied as per sec

16(2) (a)
Goods purchased from XYZ Ltd ---- Tax has not deposited by XYZ Ltd
to Government
Goods purchased against valid invoice from 40,000 Conditions satisfied as per sec
RST Ltd. (Tax have been deposited by RST 16(2) (a)
Ltd. to the government.)
Purchase of goods and used for further 1,20,000 Conditions satisfied as per sec
business 16(2) (a)
Purchase of goods not used for further ---- Goods purchased for personal
business (personal use) purpose
Purchase of goods from PQR Ltd. ---- Goods not yet received
Goods purchased against valid invoice from 40,000 Conditions satisfied as per sec
RST Ltd. 16(2) (a)
ABC Ltd. purchased goods from BCD Ltd. ----- GST Return not filed during the
but for same transaction GST return not month
filed during the month.
67
12.3.2.b Receipt of Goods and Services
Problem-4:
Nandhi Wheat Flour Manufacturer, Mysuru, a registered company makes order for 20,000
kgs of input at ` 100 per kg +GST 12% at single invoice. Inputs are received by wheat flour
manufacturer Mysuru, are as follows.
Date of dispatch Date of receipt

SI. No of Kgs dispatched
No
01-01-2022 10-01-2022 6,000
1
20-01-2022 25-01-2022 5,000

2
10-02-2022 26-02-2022 4,000

3
05-03-2022 25-03-2022 5,000

4
You are required to calculate:
1. Is Nandhi wheat flour manufacturer Mysuru eligible for input tax credit?
2. If company eligible for ITC, when ITC availed?
3. What is the taxable value and how much input tax credit is eligible?
Solution:
Calculation of ITC in different terms
1. Nandhi wheat flour manufacturer Mysuru eligible for ITC being a registered person and
input purchased for further business process.
2. If inputs are received in lot but order in single invoice, then, ITC allowed on lot received,
that is, on 25-03-2022
3. Eligible ITC = 20,000 kgs X ` 100 X 12% = ` 2,40,000
68
12.3.3 Provision of ITC U/S 16 and 17
ITC
Section Description allowable/not
allowable
Depreciation claimed with GST (i.e. on

No ITC
purchase price + GST paid on purchase)
Depreciation
16(3)
Claimed
Depreciation claimed without GST (i.e. on Eligible for
purchase price only) ITC
17 Apportionment of Credit & Blocked Credits
Goods or services Business purpose ITC available

or both are used
17 (1)
by the registered ITC not
Non business purpose
Person available
Taxable supplies
ITC available
Zero rate supplies
Goods or services
17 (2) or both are used Non-taxable supplies
for ITC not
Exempted supplies
available
Nil rated supplies
The Recipient is liable to pay tax on reverse charge basis, transactions in

17 (3)
securities, sale of land and building
A banking Inputs, Capital Goods and input services on 50% of

17 (4)
company or a monthly basis eligible ITC
financial
institution Rest of 50%
Not available
including a non-
banking financial
69
company,
engaged in
supplying services
by way of
accepting
deposits,
extending loans or
advances
17 (5) Blocked Credits (ITC shall not available)
Acquire motor vehicle for transportation of

passenger and seating capacity including No ITC
driver less than 13 person
 Motor vehicle used for making

taxable supply of
17(5)(a) Motor vehicles  Further supply of such vehicle
 Transportation of Passengers
ITC available
 Training for driving
 Flying
 Navigating such vehicle / Conveyance
Vessel and aircraft used for making taxable

supply of
 Further supply of such Vessel and

aircraft
Vessel and
17(5)(aa) ITC available
aircraft  Transportation of Passengers
 Imparting training on navigation of

such vehicles
 Transportation of goods
70
In any other cases No ITC
Supply of goods Are used towards making taxable Outward

and services Supplies of Same Category or composite
pertaining to Food supply. ITC
& Beverage, Where Services are notified as obligatory available
Outdoor Catering, for an employees and provided from
Beauty Treatment, employee to employees
Health Service,
17(5)
Cosmetic &
(b)(i)
Plastic Surgery,
Life / Health
Insurance,
Renting or hiring In other cases No ITC
of Motor vehicles
and Vessel and
aircraft.
Where Services are notified as obligatory ITC

Membership of for an employees and provided from available
17(5)
club, health and employee to employees
(b)(ii)
fitness centre
In other cases No ITC
17(5) Travelling Travelling benefits to employees on No ITC

(b)(iii) benefits to vacation ( such as leave or home travel
employees concession)
Where Services are notified as obligatory ITC

for an employees and provided from available
employee to employees
71
17(5)(c) Work Contract  Work Contract service where it is an ITC
Service on input Service for further supply of available
Construction of work contract service or
Immovable  Work contract service on plant &
Property Machinery
Any other cases of work contract (other No ITC

than plant and machinery)
17(5) (d) Goods or Services Work contract service on plant & machinery ITC
received by available
taxable person for
construction
Construction of Immovable property on his No ITC
own account even when used in course or
17(5) (e) Composition levy Goods / Services or both on which tax has No ITC
been paid u/s 10 composition levy.
17(5) (f) Non-resident Goods / Services or both received by a non- No ITC

taxable person resident taxable person
Goods imported by him ITC

available
17(5)( g) Personal Goods / Services or both used for Personal No ITC

consumption consumption
17(5) (h) Goods, lost, stolen, destroyed, written off, disposed by way of No ITC
gift or free samples.
17(5) (i) Any tax paid in accordance with the provision, fraud, detention, No ITC
seizure and confiscation of goods / conveyance.
72
Tax on Depreciation [Section 16(3)]
Problem-5:
ABC company Ltd. is a registered person under GST purchased machinery for ` 20,00,000,
on which GST paid at 18% and life of machine is 10 years. Determine eligibility of ITC in
the following two cases.
1) Claimed depreciation on purchase price of machinery with GST.
2) Claimed depreciation on purchase price only.
Solution: Calculation of Depreciation and ITC
Particulars Case-1 (`) Case-2 (`)
Purchase Price 20,00,000 ` 20,00,000
GST 3,60,000 Nil
Total 23,60,000 20,00,000
Depreciation 2,36,000 2,00,000
ITC Nil 3,60,000
Total 2,36,000*10= 23,60,000 2,00,000*10 = 20,00,000
Add : GST= 3,60,000
Total = 23,60,000
Case-1: No ITC – because in this case company is not eligible to take ITC on
input tax paid on purchase of machinery because company claimed depreciation
on purchase price + Input tax paid.
Case-2: Eligible for ITC - In this case company is eligible to take ITC on input tax
paid on purchase of machinery because company claimed depreciation on
purchase price only.
73
Blocked Credits-Motor Vehicles [Section 17(5) (a)]
Problem-6:
From the following independent cases, calculate availability of ITC
1. ABC Company Ltd. purchased Truck for ` 10,00,000 + GST 28% for transportation of
inputs within the factory
2. Maruthi car dealer, a registered person in Mysuru purchased 10 cars at ` 15,00,000 each
+ GST 28% for further sales
3. ABC company Ltd. Purchased motor vehicle for ` 22,00,000 + GST 28% for
transportation of employees from residence to factory, factory to residence
4. PQR Company a registered dealer purchased a car for ` 50,00,000 + GST 28% to conduct
car race
5. Kangroo hospital Mysuru purchased Ambulance for ` 12,00,000 + GST 28%
6. Mr. Narendra a registered person under GST law, purchased school van for `.10,00,000 +
GST 28%
7. Raju Driving School, Bangalore, purchased car for ` 8,00,000 + GST 28%, to provide
taxable service in the form of training and driving.
8. Mr. Sharma, a registered person purchased a Volvo Bus for ` 80,00,000 + GST 28% for
provides taxable service as transportations of passengers.
Find out eligible ITC for each independent case
Solution: Calculation of eligible ITC in each case
GST
Value Eligibility Eligible ITC
Sl No Particulars paid
(`) for ITC (`)
(%)
1 Truck purchased 10,00,000 28% Yes 2,80,000
2 Maruthi company 15,00,000 28% Yes 4,20,000*10

purchased car for cars =
further sales 42,00,000
3 Motor vehicle 22,00,000 28% No ----

purchased for
74
transportation of
employees
4 Car purchased to 50,00,000 28% No ----

conduct car race
5 Ambulance purchased 10,00,000 28% No ----
6 School van purchased 10,00,000 28% Yes 2,80,000
7 Car purchased to 8,00,000 28% Yes 2,24,000

training and driving
8 Volvo bus purchased 80,00,000 28% Yes 22,40,000
Note:
1. Truck used for further business so, ITC available.

2. Car purchased for further sales so, ITC available.
3. If the taxable person transports its own employees at free of cost no ITC is available.
4. Car purchased for car racing is not treated as passenger vehicles then no ITC is available.
5. Supply of services from hospital is exempted from GST then no ITC is available.
6. Mr. Sharma, a registered person supplying taxable services in the nature of transportation
of passengers then, eligible for ITC.
7. Motor vehicle used for supplying taxable service in the form of training on driving is
eligible for ITC.
8. Volvo bus purchased for transportation of passengers then eligible for ITC.
Supply of Goods and Services [Section 17(5) (b)]
Problem-7:
ABC Company Ltd, provides the following information for the month of June 2022.
Sl Inward supplies GST

No Paid
1 Accounting and audit service by CA Ram Rao and Company 12,500
75
2 Health insurance service for its employees 25,000
3 Routine maintenance of manufactured machine 10,000
4 Outdoor catering form Mrs. Annapurna (for the company general meeting 10,000
purpose)
5 Repairs service of office building 15,000
6 Hotel accommodation and convince facilities to its employees on vacation 25,000
7 Testing services availed for part of machine 10,000
8 Sales promotion services to sale of machine 18,000
9 Health and fitness facilities services to employees 20,000
10 Travel benefits extend to employees on vacation 8,000
11 Beauty treatment services to female employees 5,000
12 Market research services 7,500
13 Quality control services 5,000
Solution: Calculation of ITC available in the hands of ABC Company Ltd. for the
month June 2022.
Sl No Inward supplies Input Eligibility Eligible

tax paid for ITC ITC (`)
(`)
1 Accounting and audit service 12,500 Yes 12,500
2 Health insurance service for employees 25,000 No -----
3 Routine maintenance of manufactured machine 10,000 Yes 10,000
4 Outdoor catering form Mrs. Annapurna (for the 10,000 No -----
76
general meeting purpose)
5 Repairs service of office building 15,000 Yes 15,000
6 Hotel accommodation and convince facilities to No

25,000 -----
its employees on vacation
7 Testing services availed for part of machine 10,000 Yes 10,000
8 Sales promotion services to sale of machine 18,000 Yes 18,000
9 Health and fitness facilities services to No

20,000 -----
employees
10 Travel benefits extend to employees on vacation 8,000 No -----
11 Beauty treatment for female employees 5,000 No -----
12 Market research services 7,500 Yes 7,500
13 Quality control services 5,000 Yes 5,000
Note: 1. Serial No 1, 3, 5, 7, 8, 12 and 13, inward supplies are not covered under section 17 (5)
and these inward supplies are used for further business so ITC available.
2. Serial No 2, 4, 6, 9 and 10, inward supplies are covered under section 17 (5) then ITC
not available on these inward supplies.
Work Contract Service on Construction of Immovable Property [Section 17 (5) (c)]
Problem-8:
From the following information, identify availability of ITC:
1. Cement purchased for construction of administrative building for that GST paid ` 60,000
2. Cement is used for foundation of pillars supporting to plant and machinery for that GST
paid ` 10,000
3. Works contract services is provided by sub-contractor to a contractor for that GST paid
` 5,000
4. Steel and other structural supports are used for land, building or any other civil structures,
GST paid ` 8,000
77
5. Setting up a telecommunication tower and GST paid ` 12,000
6. Pipelines laid outside the factory premises and paid GST ` 10,000
7. Capital goods and other materials used for construction of telecommunication towers or
parts of pipelines for that paid GST of ` 22,000.
Solution: Identification of availability of ITC
Nature of services ITC (`) Availability

SL No
of ITC
Cement is used for construction of ---- Not allowed

1
administration building
Cement is used for foundation of pillars 10,000 Allowed

2
supporting a plant and machinery
Works contract services is provided by sub- 5,000 Allowed

3
contractor to a contractor
Steel and other structural supports are used for ---- Not allowed
4
Land, building or any other civil structures;
5 Setting up a telecommunication tower; ---- Not allowed
6 Pipelines laid outside the factory premises ---- Not allowed
Capital goods and other materials used for ---- Not allowed
7 construction of telecommunication towers or
parts of pipelines.
Problem-9:
From the following each independent cases calculate availability of ITC
1. ABC Company assigned the contractor to constructing support to plant and machinery
at ` 1,00,000 + GST 18%, which is used for making taxable supply
2. Chamundeshwari Sugar Manufacturer registered under GST law and appointed
Krishna Ltd. for construction of factory building in the factory premises with contract
78
price is ` 50,00,000 + GST 18%. Krishna Ltd. supplied cement, steel and labour
during the execution of contract.
3. Ram Rao company appoints Mr. Ramesh a contractor who undertaken construction
work for ` 10,00,000 + GST 18% for an individual residential unit as part of
residential complex by providing labours and material.
4. ABC Company appoints Mr. Vijay a contractor for providing service of plastering of
walls at ` 20,00,000 + GST 18%. ABC company provided all necessary materials and
Mr. Vijay a contractor not use any materials.
Solution: Calculation of eligible ITC
Rate of
Availability
Value GST
Sl.No Particulars of ITC
(`) paid
(`)
(%)
1 ABC Company assigned the contractor to 1,00,000 18% 18,000

constructing support to plant and
machinery
2 Chamundeshwari Sugar Manufacturer 50,00,000 18%

registered under GST law and appointed -----
Krishna Ltd. for construction of factory
building in the factory premises.
3 RamRao company appoints Mr. Ramesh 10,00,000 18% 1,80,000

a contractor who under taken construction
work
4 ABC Company appoints Mr. Vijay a 20,00,000 18% -----

contractor for providing service of
plastering of walls.
79
Note:
1. Constructing structural support to plant and machinery is eligible for ITC

2. Work contract services which is used for land building or any other civil structure
excluded from availability of ITC U/S 17 (5) (c).
3. In this case Mr. Ramesh providing service with both labour and materials considered
as work contract then ITC will be availed.
4. Plastering of walls of Mr. Vijay cannot be considered as works contract service as it
does not involve the transfer of property then no ITC is available.
Problem-10:
From the following information, calculate eligible ITC in case of works contract
1. Cement used for making foundation and structure support to plant and machinery, GST
paid ` 40,000
2. Work contract service for construing of office building and GST paid ` 50,000
3. Cement and other materials used for installing telecommunication tower and GST paid
` 10,000
4. Bricks, Cement, and other materials and used for pipe line laid outside the factory premises
and GST paid ` 40,000
5. Cement and other materials used for foundation of pillar support to boiler and GST paid
` 25,000
Solution: Calculation of eligible ITC
SI. Particulars GST Eligible

No Paid GST
1 Cement used for making foundation and structure support 40,000 40,000
to plant and machinery
2 Work contract service for construing of office building 50,000 -----
3 Cement and other materials used for installing of 10,000 -----

telecommunication tower
80
4 Bricks, Cement, and other materials and used for pipe line 40,000 -----
laid outside the factory premises
5 Cement and other materials used for foundation of pillar 25,000 20,000
support to boiler
Note:
1. Construction of support to plant and machinery is eligible for ITC U/S 17 (5) (c)
2. Work contract service for construing of office building not considered as eligible input
service
3. Cement and other materials construction of telecommunication tower is excluded from
meaning of plant and machinery then no ITC U/S 17 (5) (c).
4. Bricks. Cement, and other materials and used for pipe line laid outside the factory
premises excluded from meaning form plant and machinery then no ITC
5. Cement and other materials used for foundation of pillar support to boiler as such
structural support for plant and machinery is included for definition of plant and
machinery.
Goods or services or both used for personal consumption [Section 17 (5) (g)]
Problem-11:
Discuss availability of ITC for the following independent Cases:
1. ABC Company Ltd. purchased dress materials (uniform) and shoes for their employees
given as gift in the occasion of Ugadi festival.
2. XYZ company Ltd. purchased hand glouse and shoes for worker as mandatory for
safety purpose at workplace
3. PQR Company Ltd. purchased 500 kgs of input, out of which 250 kgs as a raw material
for further process and 250 kgs for employees as gift hamper.
4. ABC Company Ltd. purchased 100 pairs of dresses for employees out of which 50 pairs
as uniform at the work place and remaining as a gift for festival.
5. XYZ Company Ltd. purchased 100 safety goggles out of which 70 for work place as a
mandatory remaining 30 distributed for employees’ personal purpose.
81
Solution: Determination of eligibility of ITC
Particulars Availability Remarks

Sl No
ITC
Personal use
1 ABC company Ltd. purchased dress Not allowed
materials and shoes for their
employees given as gift in the
occasion of Ugadi festival.
2 XYZ company Ltd. purchased hand Allowed Furtherance

glouse and shoes for worker as business purpose
mandatory for safety purpose at
workplace
3 PQR company Ltd. purchased 500 kgs For 250 kgs ITC Furtherance
of input, out of which 250 kgs as a raw allowed business purpose
material for further process and 250
For 250 kgs ITC Personal use
kgs for employees as gift hamper.
not allowed
4 ABC company Ltd. purchased 100 For 50 pairs ITC Furtherance

pairs of dresses for employees out of allowed business purpose
which 50 pairs as uniform at the work
For 50 Pairs ITC Personal use
place and remaining as a gift for
not allowed
festival.
5 XYZ Company Ltd. purchased a For 70 safety Furtherance

safety goggles out of which 100 for goggles ITC business purpose
work place as a mandatory remaining allowed
distributed for employees personal
For 30 Safety Personal use
purpose.
Goggles ITC not
allowed
82
Goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples
[Section 17 (5) (h)]
Provisions relating to goods lost (loss of input)
Loss Type of loss Eligibility of ITC
1. Loss during manufacturing process Normal loss ITC allowed
Abnormal loss ITC allowed
2. Loss during transit Normal loss ITC allowed
Abnormal loss ITC not allowed
Problem-12:
ABC Company Ltd. Mysore purchased 20,000 kgs input at ` 100 per kg + GST 12% from
XYZ ltd. Bangalore and these goods received by ABC Company as under.
Date of Date of No of Kgs Goods Goods Normal No of

dispatch receipt dispatched stolen in destroyed loss Kgs
transit in transit received
(in Kgs) (in Kgs)
28-01-2022 8,000 ----- 150 100 7,750

15-01-2022
06-01-2022 5,000 150 100 70 4,680
25-01-2022
15-02-2022 5,000 ----- 50 60 4,890
02-02-2022
30-03-2022 2,000 50 ----- 20 1,930
20-03-2022
Find out how much input tax allowed in terms of normal and abnormal loss during transit
83
Solution: Calculation of input tax allowable in terms of normal and abnormal loss
during transit
Total abnormal loss 200 kgs + 300 kgs (ITC not allowed) =500kgs
Total normal loss 250 kgs (ITC allowed) [100+70+60+20]
Eligible ITC 19,500 kgs x ` 100 x 12% = ` 2,34,000
12.4 INPUT TAX CREDIT IN RESPECT OF JOB WORK

12.4.1 Concept of Job work
As per Section 2(68) of the CGST Act, 2017 job work means “Any treatment or process
undertaken by a person on goods belonging to another registered person”. Therefore, job
worker is the person (registered or unregistered) who is processing or treating the goods of
another registered person and the owner of the goods is called the Principal in this respect.
Section 19 of the CGST act, 2017 explains the definition of the Principal as ‘a person
supplying goods to the job-worker.
12.4.2 Registration
Job worker would be required to obtain registration if his aggregate turnover exceeds the
prescribed limit. However, the value of goods or services used by the job worker for carrying
out the job work will be included in the value of services supplied by the job worker.
Registration
Situation
Mandatory
Job worker making inter-state taxable supply Yes
Job worker making intra-state taxable supply:
Aggregate turnover exceeds the prescribed threshold limit of ` 20 lakhs (` 10 Yes

lakhs for special category states)
Aggregate turnover exceeds the prescribed threshold limit of ` 20 lakhs (`10 No (job
lakhs for special category states) worker may
take
voluntary
registration)
84
12.4.3 The Responsibilities of the Principal in case of job work
 Principal can send goods for job work purpose without payment of GST through
cover of delivery Challan (as specified in rule 10 of invoices rules under GST).
 Maintaining the accounts of input and capital goods
 Intimate the jurisdictional officer for the detailing of the intended input goods and the
nature of the processing being delivered by the job-worker
 Declare the premise of job-worker as additional place of his business in case of export
the goods to the third party directly and the job-worker is not registered under GST.
12.4.4 Procedure for supplying goods to job worker
 Principal can send goods (inputs / Capital Goods) for job work purpose without
payment of GST under the cover of delivery Challan.
 As per Sections 19(2) and 19(5) of CGST Act, 2017, the principal can also send
goods directly to the place of job worker without receiving the said goods in his
premises first and Input Tax Credit can also be availed in such cases though the
principal has not received the goods. On the job work charges, GST will be charged
by the job worker if the job worker is registered. Credit of the same can be availed by
the principal.
 The inputs or capital goods sent to a job worker are required to be received back to
the principal manufacturer within the particular period:
 Input Goods – 1 year
 Capital Goods - 3 years
 Moulds and dies, jigs and fixtures or tools- no time limit. Effective dates of being
goods sent out or acquired by the job worker, it totally depends on the place of
business from where goods are sent out.
 If in case capital and input goods are not received within 3 years and 1 year
respectively. These goods will be considered as supply on the day when the said
inputs were sent out and the tax will be applicable on such deemed supply.
 After processing of goods, the job worker may clear the goods to
a) Another Job Worker for further processing
b) Despatch the goods to any of the place of business of the principal without payment
of tax
c) Remove the goods on payment of tax within India or without payment of tax for
export outside India on fulfilment of condition
85
12.4.5 Input Tax Credit in case of Job-work
 As per Section 19(1) of CGST Act, 2017, the principal is allowed to take credit on
inputs / capital goods sent to the job worker.
 As per Section 19(2) and Section 19(5) of CGST Act, 2017, ITC can be availed by the
principal even if such inputs / capital goods are not being first received by the
principal and are directly sent to job worker.
12.4.6 Rules and Restrictions to Claim Input Tax Credit under Job Work
(a) Challan
1. All goods sent for job work must be accompanied by a challan.
2. The challan will be issued by the principal.
3. It will be issued even for the inputs or capital goods sent directly to the job-worker.
4. The details of challans must be shown in FORM GSTR - 1.
5. Details of challans must also be filed through Form GST ITC - 04.
The challan issued must include the following particulars:
1. Date and number of the delivery challan.

2. Name, address and GSTIN of the consigner and consignee.
3. HSN code, description and quantity of goods.
4. Taxable value, tax rate, tax amount- CGST, SGST, IGST, UTGST separately.
5. Place of supply and signature.
(b) E way Bill:
Where goods are sent by a principal located in one State to a job worker located in
any other State, the e-way bill shall be generated by the principal irrespective of the value of
the consignment. In other words, for every inter-state supply of goods to job worker,
generation of e-way bill is mandatory even if value of consignment is less than ` 50,000.
Waste and Scrap Waste & Scrap generated during job work can be supplied as under:
 If the job worker is registered, then it can be supplied by the job worker directly from
his place of business, on payment of appropriate tax applicable on the said waste /
scrap
86
 If he is not registered, then the waste / scrap generated should be returned to the
principal along with the goods and such waste / scrap would be supplied by the
principal on payment of tax. Alternatively, the principal may supply waste / scrap
directly from premises of job worker under his invoice on payment of tax.
The principal should also maintain proper records of clearance of waste / scrap from
the premises of the job worker.
(c) The information details of challan should be shown in GSTR-1 Form
(d) Information details of input/ capital goods sent out to the job worker must be claimed
through GST ITC- 4.
12.5 REVERSE CHARGE MECHANISM

Reverse Charge Mechanism (RCM) applicable for Job Work Transactions:
In forward charge, the supplier of goods or services is required to pay GST. RCM
means that the liability to pay tax falls on the recipient of supply of goods or services, instead
of the supplier.
Section 9(4) of CGST Act, 2017 provides that the tax in respect of the supply of
taxable goods or services or both by a supplier, who is not registered, to a registered person
shall be paid by such person on reverse charge basis. In simple words, if the job worker is not
a registered person, then on the amount charged by him towards job work charges, principal
needs to pay tax under RCM.
Problem-13:
LG TV Company Ltd. has supplied inputs to his job worker ABC Ltd. on 12-09-2022.
Discuss the availability of ITC in the hands of LG Company Ltd (principal) it inputs are sent
back by ABC Ltd after processing, on
(a) 30-08-2022
(b) 10-09-2022
(c) 12-09-2022
87
Solution: Discussion of availability of ITC for LG Company Ltd.
Input received back on Availability of ITC Remarks
30-08-2022 Yes Input received back within a year
10-09-2022 Yes Input received back within a year
12-09-2022 No Input received after one year
Problem-14:
Honda Motor car manufacture purchased capital goods for ` 80,00,000 + GST @18% on 20-
01-2022. Capital Goods purchased by Honda motors supplied to his job worker XYZ Ltd for
further process on 25-01-2022. Calculate eligibility of ITC in the hands of Honda motors in
following cases:
1. 10-06-2022
2. 31-06-2022
3. Capital Goods supplied to job worker from principal place.
4. Capital Goods supplied to job worker directly from supplier place.
Solution: Calculation of eligible ITC in terms of Honda Motor Car
Case Particulars ITC (`) Remarks
1 Capital Goods received back on 14,40,000 → 80,00,000 x 18%

10-06-2022 → Capital Goods received back
within 3 years
→ ITC allowed
2 Capital Goods received back on - → ITC not allowed

31-06-2022 → Capital Goods not received back
within 3 years
3 Capital Goods supplied to job 14,40,000 → ITC allowed

worker from principal place → Capital Goods supplied from
88
principal place
4 Capital Goods supplied to job 14,40,000 → ITC allowed

worker directly from supplier → Even Capital Goods supplied
directly from supplier
12.6 DISTRIBUTION OF CREDIT BY INPUT SERVICE DISTRIBUTOR (ISD)

12.6.1 Concept of Input Service Distributor
The statutory definition of “Input Service Distributor” which is provided under

section 2(61) of the Central Goods and Services Tax, Act 2017 (“CGST Act”) reads as under,
“Input Service Distributor” means an office of the supplier of goods or services or both which
receives tax invoices issued under section 31 towards the receipt of input services and issues
a prescribed document for the purposes of distributing the credit of central tax, State tax,
integrated tax or Union territory tax paid on the said services to a supplier of taxable goods or
services or both having the same Permanent Account Number as that of the said office.
From the above definition, following inferences can be drawn:
1. It is an office of supplier of goods or services or both.

2. ISD shall deal with only input services and not with goods including capital goods.
3. ISD shall receive tax invoices for taxable supplies and distribute the tax charged on such
invoice to appropriate supplier having the same Permanent Account Number (PAN).
4. ISD must issue an appropriate document to distribute the ITC.
12.6.2 Registration of Input Service Distributor
Section 24 of the CGST Act (read with rule 8 of CGST Rules, 2017), requires an
office of the supplier which intends to act as Input Service Distributor (ISD), to separately
obtain registration as ISD. In other words, a registration number of an establishment as an
ISD is different from the registration number of such establishment under section 22 of the
Act. An ISD is compulsorily required to obtain a separate registration as an ISD even though
it may be separately registered. There is no threshold limit for registration for an ISD. The
other location may be registered separately. Since the invoice related to service for other
location are received by ISD the corresponding credit should be transferred to such location
(having separate registration) as the output service are provided there.
89
12.6.3 Manner of Distribution of ITC (Section 20 of CGST Act and Rule 39 of CGST
Rules, 2017)
12.6.4 Conditions for availing of ITC
 Taxpaying documents such as tax invoice, debit note etc.

 Goods / service should have been received/deemed to be received by the taxable person
 Tax charged on the invoice and should have been paid to the credit of government.
 Return should have been furnished by the tax payer.
 Credit for goods against an invoice received in lots / instalments can be availed only on
last lot in instalment.
 The timelines for entitlement of credit against a particular invoice shall lapse on the
expiry of one year from date of issue of invoice.
12.6.5 Procedure for distribution of input tax credit by Input Service Distributor
- Rule 39
Credit Available with ISD Recipient unit is located Recipient unit is located
in same state as that of in different state than
ISD that of ISD
Central Tax CGST CGST or IGST
State Tax SGST SGST or IGST
UT Tax UTGST UTGST or IGST
Integrated Tax IGST IGST or CGST
Problem-15:
Adidas Ltd. is located in Bangalore is registered as ISD and also have units located in
Mysore, Delhi, and Hyderabad, the ISD procure bulk services in which are distributed to
other unit and other information are as follows
Units Turnover in `
Mysore 35,00,000
Delhi 40,00,000
Hyderabad 25,00,000
Total turnover 1,00,00,000
90
Inputs service tax paid and its details for the month of April 2022 as follows
Input Value in GST in Services

CGST SGST IGST Total
services ` % provided to
Advertisement 1,20,000 12 Mysore, Delhi, 7,200 7,200 ----- 14,400
Hyderabad
Audit 1,00,000 12 Mysore 6,000 6,000 ----- 12,000
Research 2,00,000 12 Mysore, Delhi ----- ----- 24,000 24,000
Marketing 1,80,000 12 Delhi, ----- ----- 21,600 21,600
Hyderabad
Solution: Distribution of ITC for the month of April 2022.
Input service Credit on input service Mysore Delhi Hyderabad

CGST SGST IGST Total CGST SGST IGST IGST IGST
Advertisement 7,200 7,200 ----- 14,400 2,520 2,520 ----- 5,760 3,600
Audit 6,000 6,000 ----- 12,000 6,000 6,000 ----- ----- -----
Research ----- ----- 24,000 24,000 ----- ----- 11,200 12,800 -----
Marketing ----- ----- 21,600 21,600 ----- ----- ----- 13,292 8,308
Note: GST amount is distributed based on turnover among Mysore, Delhi and Hyderabad
12.7 RECOVERY OF INPUT TAX CREDIT

Section 21 of Central Goods and Services Tax Act 2017 - Manner of recovery of credit
distributed in excess
Where the Input Service Distributor distributes the credit in contravention of the provisions
contained in section 20 resulting in excess distribution of credit to one or more recipients of
credit, the excess credit so distributed shall be recovered from such recipients along with
interest, and the provisions of section 73 or section 74, as the case may be, shall, mutatis
mutandis, apply for determination of amount to be recovered.

1. Input tax credit is allowed to ______ under GST.

2. Input tax credit shall be allowed only on the support of ______ document.
3. Input tax credit shall be set off and allowed only against______.
91
4. Input tax credit in respect of food and beverages, outdoor catering, beauty treatment,
health services, cosmetic and plastic surgery belong to______.
5. Recipient does not pay the amount within ______days reversal of input tax credit will
happens.
6. Office of distributing common input tax credit is known as ______.
7. The ______can claim tax credit in respect of goods or inputs sent for job work.
1. Any dealer
2. Tax invoice
3. Output tax
4. Blocked credit category
5. 180 days
6. Input Service Distributor
7. Principal.
12.9 SUMMARY
So far, we have discussed the concepts, provisions and some illustrations on input tax
credit. A registered person who is supplier/recipient of goods or services which are used or
intended to be used in the course or furtherance of business is entitled to take credit of input
tax, subject to other conditions and restrictions. But he is required to pay the consideration
along with tax within 180 days from the date of issue of invoice and same condition is not
applicable where tax is payable on RCM. The person who obtains voluntary registration is
entitled to take the input tax credit of input tax on inputs in stock, inputs in semi- finished
goods and finished goods in stock, held on the day immediately preceding the date of
registration. In case of job work, the principal shall be entitled to take credit of taxes paid on
inputs or capital goods sent to a job worker from his place of business or from other places
and after completion of job work, and principle is required to be received back from job
worker’s premises, within a period of one year and three years in case of raw materials and
capital goods respectively.
12.10 KEYWORDS
Capital goods [Section 2(19)] : Capital Goods means goods, the value of which
is capitalized in the books of account of the
person claiming the input tax credit, and which
92
are used or intended to be used in the course or
Input [Section 2(59)] : Input means any goods, other than capital goods,
used or intended to be used by a supplier in the
course or furtherance of business.
Input services [Section 2(60)] : Input service means any service used or
intended to be used by a supplier in the course or
Input Service Distributor : Input Service Distributor means an office of the

[Section 2(61)] supplier of goods or services or both which-
Receives tax invoices issued under Section

31 towards the receipt of input services, and
Issues a prescribed document for the purposes

of distributing the credit of Central tax, State
tax, integrated tax or Union territory tax paid
on the said serviced.
To a supplier of taxable goods or services or

both having the same Permanent Account
Number as that of the said office.
Input tax credit [Section 2(63)] : Input tax credit means the credit of input tax.
Inward supply [Section 2(67)] : Inward supply in relation to a person, shall

mean, receipt of goods or services or both
whether by purchase, acquisition or any other
means with or without consideration.
Non-taxable supply [Section 2(78)]: Non-taxable supply means supply of goods or

services or both which is not liveable to tax
under this Act or under the Integrated Goods and
Services Tax Act.
Output tax [Section 2(82) : Output tax in relation to a taxable person,

means, the tax chargeable under this Act on
taxable supply of goods or services or both made
93
by him or by the agent but excludes tax payable
by him on reverse charge basis.
Outward supply [Section 2(83)] : Outward supply in relation to a taxable person,

means – Supply of goods or services or both,
whether by sale, transfer, barter, exchange,
licence, rental, lease or disposal or any other
mode made agreed to be made by such person in
the course or furtherance of business.
Registered person [Section 2(94)] : Registered person means a person who is

registered under section 25 but does not include
a person having a Unique Identity Number.
Taxable supply [Section 2(108)] : Taxable supply means a supply of goods or

services or both which is liable to tax under this
Act.

1. What is input tax credit? Explain eligibility and condition to avail ITC.
2. What are the different types of inputs used in a business?
3. Explain the provisions relating to availability of ITC in case of input.
4. Explain the provisions relating to availability of capital goods in case of input.
5. What are the restrictions in claiming input tax credit?
6. Explain the provisions of ITC relating to job worker.
7. Who is input service distributor? What are the conditions and procedures for distribution
of credit by ISD?
8. Explain set off rules of ITC.
9. Explain the eligibility of ITC in case of depreciation.
10. Explain about apportionment of blocked credits.
11. Explain the provisions relating to recovery of credit distribution in excess.
12. Explain ITC in case of taxable supply, non-taxable supply exempted supply and zero rate
supply.
13. Ananya Company Ltd. provide the following information for the month of June
2022.
a. Purchase of input from Krishna Ltd. a registered dealer for ` 25,000 + GST at 12%
94
b. Purchase of capital goods for ` 50,000 + GST at 28%
c. Audit service C A Balakrishna and Co. for ` 1,00.000 +GST 12%
d. Health insurance service for employees at ` 30,000 + 12% GST
e. Market research service provided by Sri Ram Company Ltd. For ` 20,000 + 12%
GST
Find out eligible ITC in the hands of Ananya Company Ltd. For the month May 2022.If
a. Ananya Company Ltd. Is registered company

b. Ananya Company Ltd. Is not registered company.
14. Ankith Company Ltd. purchased 5000 kgs of raw material at ` 100 per Kg plus 12%
GST. Out of 5000 Kgs of raw materials 4,000 kgs of raw materials used for business
purpose and rest of 1,000 kgs for personal use. Find out eligible ITC from the given
information.
15. ABC Ltd provides the following information, from the given information determine the
amount of input tax credit eligible to ABC Ltd. In respect of various input purchased
during the month March-2022.
Inwards Supplies GST in `
Goods purchased without invoice 1,00,000
Goods purchased with invoice 75,000
Goods purchased from XYZ Ltd. (full payment is made by ABC Ltd. To XYZ ltd. 60,000
Against such supply but tax has not been deposited by XYZ ltd. to government)
Goods purchased against valid invoice from RST Ltd. Tax have been deposited by 50,000
RST Ltd. to the government.)
Purchase of goods and used for further business 1,25,000
Purchase of goods not to be used for further business (personal use) 40,000
Purchases of goods from PQR Ltd. (invoice of PQR Ltd. is received in the month 50,000
of March- 2022. But goods were received in the month of January 2022.)
ABC Ltd. purchased goods from BCD Ltd. but for same transaction return not file 30,000
during the month.
95
16. Aashirvad wheat flour manufacturer at Mysuru, a registered company makes an order
for 25,000 kgs of input at R ` 150 per kg + GST 12% at single invoice. Inputs are
received by wheat flour manufacturer Mysuru, are as follows.
SI. No Date of dispatch Date of receipt No of Kgs

dispatched
1 10-01-2022 18-01-2022 9,000
2 20-01-2022 26-01-2022 7,000
3 05-02-2022 22-02-2022 6,000
4 12-03-2022 28-03-2022 3,000
You are required to calculate:
Aashirvad wheat flour manufacturer Mysuru is eligible for input tax credit. If
company eligible for ITC, when ITC availed and find the taxable value and how much input
tax credit is eligible?
17. Sunpure Company Ltd. is a registered person under GST purchased machinery for `
25,00,000 with life of machine is 10 years and on which GST paid at 18%. Determine
eligibility of ITC in the following two cases:
a. Claim depreciation on purchase price of machinery with GST.
b. Claim depreciation on purchase price only.
18. Calculate availability of ITC in each of the following independent case:
a. Arun Company Ltd. purchased Truck for ` 20,00,000 + GST 28% for transportation
of inputs within the factory
b. Maruthi car dealer, a registered person in Mysuru purchased 10 cars at ` 15,00,000
each + GST 28% for further sales
c. Ankith company Ltd. Purchased motor vehicle for ` 22,00,000 + GST 28% for
transportation of employees from residence to factory, factory to residence
d. ABC Company a registered dealer purchased a car for ` 60,00,000 + GST 28% to
conduct car race
e. Apolo hospital Mysuru purchased Ambulance for ` 15,00,000 + GST 28%
f. Mr. Ganesh a registered person under GST law. Purchased school van for `
10,00,000 + GST 28%
96
g. Safe driving school Bangalore purchased car for ` 10,00,000 + GST 28%, to provide
taxable service in the form of training and driving.
h. Mr. Dhanaraj a registered person purchased a Volvo Bus for ` 75,00,000 + GST
28% for provides taxable service as transportations of passengers.
19. From the following information calculate availability of ITC:
a. Cement purchased for construction of office building for that GST paid ` 75,000
b. Cement is used for foundation of pillars supporting to plant and machinery for that
GST paid ` 20,000
c. Steel and other structural supports are used for land, building or any other civil
structures, GST paid ` 10,000
d. Works contract services is provided by sub-contractor to a contractor for that GST
paid ` 7,500
e. Pipelines laid outside the factory premises and paid GST ` 12,000
f. Capital goods and other materials used for construction of telecommunication towers
or parts of pipelines for that paid GST of ` 25,000.
20. From the following information calculate eligible ITC in case of works contract:
a. Cement used for making foundation and structure support to plant and machinery,
for that GST paid ` 40,000
b. Work contract service for construing of administrative building and GST paid
` 60,000
c. Cement and other materials constitution of telecommunication tower and GST paid
` 15,000
d. Bricks. Cement, and other materials and used for pipe line laid outside the factory
premises and GST paid ` 50,000
e. Cement and other materials used for foundation of pillar support to boiler and GST
paid ` 30,000.
21. Discuss availability of ITC for the following each independent case:
a. Unicorn company Ltd. purchased dress materials (uniform) and shoes for their
employees given as gift in the occasion of Ugadi festival.
b. Honda company Ltd. purchased hand glouse and shoes for worker as mandatory
for safety purpose at workplace.
97
c. Bajaj company Ltd. purchased 1,000 kgs of input, out of which 750 kgs as a raw
material for further process and 250 kgs for employees as gift hamper.
d. Mahindra company Ltd. purchased 100 pairs of dresses for employees out of
which 50 pairs as uniform at the work place and remaining as a gift for festival.
e. Maruthi company Ltd. purchased 500 safety goggles out of which 400 for work
place as a mandatory remaining 100 distributed for employees’ personal purpose.
22. Philips Electronics Company Ltd. has supplied inputs to his job worker ABC Ltd.
on 15-09-2022. Discuss the availability of ITC in the hands of LG Company Ltd
(principal) it inputs are sent back by ABC Ltd after processing, on
(a) 30-08-2022
(b) 10-09-2022
(c) 15-09-2022.
12.12 REFERENCES
7. icmai.in
8. www.icsi.edu
9. cbic-gst.gov.in
11. www.cleartax.in
98
BLOCK
4
Page No.
UNIT - 13: PLACE, TIME AND VALUE OF SUPPLY 1-41
UNIT - 14: GST REGISTRATION 42-52
UNIT – 15. ASSESSMENT AND RETURNS 53-65
UNIT - 16: GST AND TECHNOLOGY 66-73

Credit Page
Programme : M.Com Year/Semester: Second Block No :IV
Vice-Chancellor,
Dean (Academic)
BOS Chairman,
Smt. Usha C. Member
Chairperson,
Dr. Srinivas K.R. Smt. Usha C.
PBMMEC, Mysuru. KSOU, Mysuru
Editorial Committee
BOS Chairman,

Professor,Department of Commerce,

Chairperson,
Copy Right
Registrar,
Developed by the Department of Studies and Research in Commerce , KSOU, under the guidance of Dean
2022.
Preface
Dear Learner,
With best wishes,
Smt. Usha C.
Chairperson
BLOCK – IV
INTRODUCTION
Under GST regime there are three types of taxes can be levied and same charged in
the invoice. Supply of goods/services within state i.e. for intra-state transaction, SGST and
CGST are charged and in case of supply from one state to another state i.e. an inter-state
transaction, IGST is levied. Deciding whether a particular transaction i.e. supply of goods or
services or both is intra or inter-state is not an easy work. Therefore, to identify the address
for different transaction in different situation, the IGST act lays down certain provisions and
rules under the act, these rules are called the place of supply rules. Further, time of supply is
the point in time when goods/services or both are considered supplied’ which helps to
identify rate of tax and due date for payment of taxes. Under GST, the time of supply is
identified based on goods and services. Under GST law, taxable value or transaction value
the is price actually paid or payable, provided the supplier and the recipient of goods/ services
are not related and price is the sole consideration. Determination of Value of Supply rules
have been prescribed in CGST Rules 2017. Further, The GST Act provides that every
supplier of goods or services or both has to take compulsory registration if an aggregate
turnover of cross more than ` 20 lakhs in a year (` 10 lakhs in Special Category States) in
case of services, and the threshold limit of ` 40 lakhs, (` 20 lakhs in Special Category States)
in case of goods. However, there are certain categories of suppliers who are required to
obtain mandatory registration irrespective of their specified threshold turnover limit.
Similarly, a person supplying only exempt goods or services, would not be required to obtain
registration, if his aggregate turnover during the year exceeds ` 20/40 lakhs.
Unit-13: Place, Time and Value of Supply
Unit-14: GST Registration
Unit-15: Assessment and Returns
Unit-16: GST and Technology

BLOCK-IV
UNIT-13 PLACE, TIME AND VALUE OF SUPPLY

Structure:
13.0 Objectives
13.1 Introduction
13.2 Time of Supply of Goods and Services
13.2.1 Time of Supply of Goods
13.2.2 Time of Supply of Services
13.3 Place of Supply of Goods and Services
13.3.1 Place of Supply of Goods
13.3.2 Place of Supply of Services
13.4 Value of Supply and Computation of Taxable Value and Tax Liability
13.6 Summary
13.7 Keywords
13.9 References
1
13.0 OBJECTIVES
 Analyse the place of supply on different transactions of goods and services under GST.
 Analyse the time of supply on different transactions of goods and services under GST.
 Evaluate the value of supply on different transactions of goods and services under GST.
 Compute taxable value of supply and tax liability in different transactions.
13.1 INTRODUCTION
As we have discussed various concepts of GST and its provisions, input tax credit and
other related concepts in the previous blocks, let us look into the other important provisions
of GST, that is place, time and value of supply along with some illustrations. In GST Act,
concepts of place, time and value of supply are very important to learn as determination of
place of supply which helps to determine right tax to be charged on the invoice, by knowing
whether IGST in case of inter transactions or CGST/SGST in case of intra-state transactions.
Similarly, time of supply means the point in time when goods/services are supplied’. When
the seller knows the time, it helps him identify due date for payment of taxes and apply rate
of tax. Value of supply is important because GST is calculated on the basis of value of
supplies of goods or services.
13.2 TIME OF SUPPLY OF GOODS AND SERVICES

13.2.1 TIME OF SUPPLY OF GOODS [Section 12]
This section covers the determination of time of supply in the following situations:
 Supply of goods where supplier is liable to pay tax, that is, Forward Charge [Section
12(2)]
 Receipt of goods that are taxable under Reverse Charge [Section 12(3)]
 Supply of Vouchers [Section 12(4)]
 Residual Cases [Section 12(5)]
 Addition to the value of Supply [Section 12(6)]
2
Case-1: Supply of goods where supplier is liable to pay tax, that is, forward Charge
[Section 12(2)]
Sl.No Provision Time of Supply

1 Date of issue of invoice / Last date of issue
of invoice U/S 31
Whichever is
2 Date on which the payment is recorded in earlier
the books of account of the supplier
3 Date on which the payment is credited to
the supplier’s bank account
Problem-1:
Determine time of supply on each of following independent cases according to provision of

sec 12 (2):
Date of receipt
Sl.No Date of removal Date of invoice Receipt of goods
of payment
1 15-06-2022 16-06-2022 17-06-2022 29-06-2022
2 04-06-2022 02-06-2022 05-06-2022 26-06-2022
3 10-07-2022 10-07-2022 12-07-2022 03-05-2022
Solution: Time of supply of goods on each of the above cases has been given in following
table.
Date of
Sl. Date of Date of Receipt of Time of
receipt of
No removal invoice goods supply
payment
1 15-06-2022 16-06-2022 17-06-2022 29-06-2022 15-06-2022
2 04-06-2022 02-06-2022 05-06-2022 26-06-2022 02-06-2022
3 10-07-2022 10-07-2022 12-07-2022 03-05-2022 03-05-2022
3
Case - II: Receipt of goods that are taxable under Reverse Charge [Section 12(3)]
Sl.No Provision Time of

Supply
1 The date of receipt of goods
The date of payment as entered in the books of account of the
2
recipient Whichever
The date, on which the payment is debited in his bank account, is earlier
3
Date immediately following 30 days from the date of issue of invoice

4
by the supplier.
Problem-2:
Determine the time of the supply in each of the following independent cases in accordance
with provision of section 12 (3):
Date of invoice Date of receipt Date of Payment debited in bank

Sl. No of goods payment in account
goods
1 08-06-2022 13-06-2022 18-06-2022 20-06-2022
2 08-06-2022 23-06-2022 18-06-2022 20-06-2022
3 08-06-2022 23-06-2022 20-06-2022 18-06-2022
4 08-06-2022 23-07-2022 26-07-2022 28-07-2022
Solution: Time of supply of goods in each of the above cases has been given in following
table
Sl Date of invoice Date of Date of Payment debited Time of

No receipt of payment in in bank account Supply
goods goods
1 08-06-2022 13-06-2022 18-06-2022 20-06-2022 13-06-2022
2 08-06-2022 23-06-2022 18-06-2022 20-06-2022 18-06-2022
3 08-06-2022 23-06-2022 20-06-2022 18-06-2022 18-06-2022
4 08-06-2022 23-07-2022 26-07-2022 28-07-2022 08-07-2022
4
Case- III: Supply of Vouchers [Section 12(4)]
Sl.No Identifiability Time of supply

1 If supply is identifiable that time Date of issue of voucher
2 If supply is not identifiable that time Date of redemption of voucher
Problem-3:
Peter England a readymade garment manufacturer, issued the voucher on 15-06-2022 to their
prospective customer for enabling them to buy readymade garments manufactured by them
from their shop. Customer purchased readymade garments on 25th July 2022. Find the time of
supply of goods in following cases.
1. If voucher is identifiable
2. If voucher is not identifiable.
Solution: Time of supply of goods
Case Identifiability Time of supply

1 If supply is identifiable that time Date of issue i.e. 15-06-2022
2 If supply is not identifiable that time Date of redemption i.e. 25-07-2022
Case-IV: Residual Cases [Section 12(5)]
 Due date for filing of the periodical return, or
 In any other case, date on which GST is paid.
Case-V: Addition to the value of Supply [Section 12(6)]
Section 12(6) prescribes that, time of supply in case of addition in value by way of interest/
late fee/penalty for delayed payment of consideration for goods is the date on which the
supplier receives such addition in value.
Problem-4:
ABC Company, Mysore supplied goods to XYZ Company, Bangalore for consideration of
` 1,00,000 on 01-06-2022 and same day consideration is to be received by ABC Company.
because of sum unavoidable reason XYZ Company paid consideration on 15-09-2022. Along
with interest of ` 2,500 on delayed payment. Find out time of supply for the interest portion.
Solution: Time of supply is 15-09-2022 (i.e. the date on which amount and interest received).
5
Problem-5:
Mr. Mohan, a registered person supplied goods to Mr. Kumar for ` 50,000 for the month of
June 2022, for same month consideration is to be received. Because of sum unavoidable
reason Mr. Mohan received consideration on 31-08-2022 along with the interest of ` 3000 for
delayed payment.
Find the time of supply for the interest portion and due date of payment.
Solution: Time of supply = 31-08-2022 that is, consideration on interest payment received on
31-08-2022 by the supplier and due date of tax liability = 20-09-2022.
13.2.2 TIME OF SUPPLY OF SERVICES [Section 12]
This section covers the determination of time of supply in the following situations:
 Supply of services where supplier is liable to pay tax, that is, Forward Charge
[Section 13(2)]
 Receipt of services that are taxable under Reverse Charge [Section 13(3)]
 Supply of Vouchers [Section 13(4)]
 Residual Cases [Section 13(5)]
 Addition to the value of Supply [Section 13(6)].
Case-I: Supply of services where supplier is liable to pay tax, that is, Forward Charge
[Section 13(2)]
Sl. Time of
Provision
No Supply
1 Date of issues of invoice
2 Date of provision of service
Whichever
Date of recording the payment in the books of accounts of the
3 is earlier
supplier
Date on which payment is credited in the bank account of the
4
supplier.
6
Problem-6: From the following information determine the time of supply of services.
Payment Entry in
SI.No Date of Completion Crediting Bank
Invoice Date the Books of
of Services Account
Supplier
1 05-06-2022 06-06-2022 11-06-2022 15-06-2022
2 05-06-2022 15-06-2022 09-06-2022 07-06-2022
3 01-07-2022 11-08-2022 13-09-2022 14-09-2022
4 16-08-2022 15-06-2022 15-06-2022 15-06-2022
5 Nil 15-06-2022 21-08-2022 23-08-2022
Supplier as received ` 500,000 as advances on 15-01-2022 and balance amount of ` 100,000

is received on 21-03-2022.
Solution: Time of supply of services in each independent cases are as follows:
SI. Date of Payment Entry Crediting

Time of
No Completion of Invoice Date in the Books of Bank
Supply
Services Supplier Account
1 05-06-2022 06-06-2022 11-06-2022 15-06-2022 06-06-2022
2 05-06-2022 15-06-2022 09-06-2022 07-06-2022 07-06-2022
3 01-07-2022 11-08-2022 13-09-2022 14-09-2022 01-07-2022
4 16-08-2022 15-06-2022 15-06-2022 15-06-2022 15-06-2022
5 Nil 15-06-2022 21-08-2022 23-08-2022 15-06-2022
Case-II: Receipt of services that are taxable under Reverse Charge [Section 13(3)]
Sl. Time of
Provision
No Supply
Date of recording the payment in the books of accounts of the
1
recipient of services.
Date on which payment is debited from the bank account of recipient Whichever
2
of services is earlier
Date immediately following 60 days from the date of issue of invoice
3
by the supplier.
7
Problem-7:
ABC Co. Ltd. is a registered person in Mysore and XYZ Co. Ltd (Japan) is associate
enterprises. ABC Ltd. received the services from XYZ Ltd. an unregistered firm. Determine
the time of supply in following independent cases.
1. ABC Co Ltd. recorded the liability in the books on 15-06-2022 and payment will be made
in the next month.
2. ABC Co Ltd. advance payment to XYZ Co Ltd on 10-06-2022 and recorded liability in
the books on 15-07-2022.
Solution: Determination of time of supply
1. Time of supply = 15-06-2022

Note: as the date of entry in the books is prior date of payment.
2. Time of supply = 10-06-2022.
Note: as the payment is made earlier to the date of entry in the books.
Case-III: Supply of Vouchers [Section 13(4)]
Sl.No Identifiability Time of supply

1 If supply is identifiable that time Date of issue of voucher
2 If supply is not identifiable that time Date of redemption of voucher
Case-IV: Residual Cases [Section 13(5)]
If the situation is not covered by any of the provisions discussed above, the time of supply is
fixed under sub-section (5) of section 13, in the following manner:
a. Date on which periodical return for the period is required to be filed, or
b. In any other case, date on which GST is paid.
Case-V: Addition to the value of Supply [Section 13(6)]
The provisions for time of supply in case of addition in value by way of interest, late
fee/penalty for delayed payment of consideration are same for goods and services. Section
13(6) prescribes that time of supply in case of addition in value by way of interest/ late
fee/penalty for delayed payment of consideration for a service is the date on which the
supplier receives such addition in value.
8
Change in Rate of Tax in respect of Supply of Goods and Services (Section- 14)
Particulars Goods or services supplied before/ after change in rate of tax

Supplied B/A Before After
Supply is
Yes Yes Yes No No No
completed
Invoice issue No Yes No Yes No Yes
Payment date No No Yes Yes Yes No
Earliest of Earliest of
Date of Date of Date of Date of
Time of the date of the date of
issue of receipt of issue of receipt of
supply invoice or invoice or
invoice payment invoice payment
payment payment
New rate Old rate Old rate of Old rate of New rate
Rate of tax New rate
of tax of tax tax tax of tax of tax
13.3 PLACE OF SUPPLY OF GOODS AND SERVICES

13.3.1 Place of Supply of Goods
Case-I: Place of Supply of Goods other than Supply of Goods Imported into or
Exported from India [Section- 10]
Section Nature of Transaction Place of Supply

10 (1) (a) Supply involves movement of goods whether Location of the goods at the
by supplier or recipient or by any other person. time at which the movement of
goods terminates for delivery
to the recipient.
10 (1) (b) Goods are delivered by the supplier to a It shall be deemed that the said
recipient or any other person on the direction of third person has received the
a third person, whether acting as an agent or goods and the place of supply
otherwise, before or during movement of goods of such goods shall be the
by way of transfer of documents of title to the principal place of business of
goods or otherwise. such person.
10 (1) (c) Where the supply does not involve movement Location of such goods at the
of goods, whether by the supplier or the time of the delivery to the
recipient. recipient (This place of supply
is irrespective of the location
9
of the buyer and seller)
10 (1) (d) Where the goods are assembled or installed at Place of such installation or
site. assembly
10 (1) (e) Where the goods are supplied on board a Location at which such goods
conveyance including a vessel, an aircraft, a are taken on board.
train or a motor vehicle.
10 (2) Anything not covered under sub-section (a) to Determined in such manner as
(e) of section 10(1) of the IGST Act, 2017 may be prescribed (i.e. as
recommended by GST
Council)
Case-II: Place of Supply of Goods Imported into, or Exported from India [Section-11]
Sl.No Nature of Transaction Place of Supply

1 Import Location of Importer ( India)
2 Export Location outside India
13.3.2 Place of Supply of Services
Case-I: Place of Supply of Services where Location of Supplier and Recipient in India
[Section 12]

Section 12(1) Determination of the place of supply of services where the location of
supplier of services and the location of recipient of services in India.
Section 12(2) is applicable only when
Section12(2) Section 12(3) to Section 12(14) is not
applicable.
a. Supply of service to a registered Location of recipient of
person [Section 12(2)(a) ]: services
b. Supply of service to a unregistered Location of recipient of
person [Section 12(2)(b)(i) (where where the address on records
the address on records exists)] exists.
c. Supply of service to a unregistered Location of supplier of
person [Section 12(2)(b)(ii) (where services.
the address on records NOT exists)]:
10
Section 12(3) Place of supply of services directly in
relation to an immovable property
[Section 12(3)(a) of IGST Act, 2017]:
1. Architects Immovable property located
2. Interior decorator or intended to be located
3. Surveyors India:
4. Engineers and other related exports •Location of immovable
or estate agents property.
5. Any service provided by way of Outside India:
grant of rights to use immovable • Location of the recipient
property
6. for carrying out or co-ordination of
construction work
Place of supply of services by way of
lodging accommodation by a [Section
12(3)(b)]: Property located or intended
1. Hotel to be located in India:
2. Inn •Location of Immovable
3. Guest house property or boat or vessel.
4. Home stay Outside India:
5. Club or campsite by whatever • Location of the recipient.
name called and including
ahouse boat or any other vessel
Place of supply of services by way of
accommodation in any immovable
property for organizing [Section 12(3)(c) Property located or intended
1. Any marriage or reception or to be located in India:
matters related thereto, •Location of immovable
2. Official, social, cultural, religious property.
or business function including Outside India:
services provided in relation to • Location of the recipient.
such function at such property
11
Section 12(4) Place of supply of services in relation to
[Section 12(4)]
1. Restaurant
2. Catering services Location where the services
3. Personal grooming are actually performed.
4. Fitness services
5. Beauty treatment services
6. Health services including cosmetic
and plastic surgery
Section 12(5) Place of supply of services in relation to  Provided to a registered
training and performance appraisal person:
[Section 12(5)] • Location of recipient
1. Services in relation to training and of Service.
performance appraisal.  Provided to an un-
registered person:
• Location where the
services are actually
performed.
Section 12(6) Place of supply of services provided by
way of admission to a [Section 12(6)]
1. Cultural Where the event is actually
2. Artistic held or
3. Sporting Where the park or such other
4. Scientific place is located.
5. Educational
6. Entertainment event or Amusement
part or any other place.
Section 12(7) Place of supply of services provided by  Provided to a registered
way of organization of a [Section 12(7)] person:
1. Cultural  Location of recipient
2. Artistic of Service
3. Sporting  Provided to an un-
4. Scientific registered person:
12
5. Educational  Location where the
6. Entertainment event including event is actually held
supply of services in relation to a and
conference, fair, exhibition,  If the event is held
celebration or similar events. outside India, the
place of supply shall
be the location of the
recipient.
Section12(8) Place of supply of services by way of  Provided to a registered
Transportation of goods including by person:
mail or courier [Section 12(8)]  Location of recipient
of Service.
 Provided to an un-
registered person:
 Location at which
such goods are
handed over for their
transportation.
Section12(9) Place of Supply of passenger  Provided to a registered
transportation service to [Section 12(9)] person:
1. Passenger transportation service.  Location of recipient
Including: Rail, Mono Rail, Metro of Service.
Rail, Road, Air, Vessel, boat,  Provided to an un-
Cycle rickshaw, Bullock cart, registered person:
Camel etc.  Place where the
passenger embarks
on the continuous
journey
2. Right to passage is given for future  Provided to a registered
use and point of embarkation is person:
not known at the time of issue of  Location of recipient
such right of service.
 Provided to an un-
13
registered person:
 Location of recipient
when address on
record is available.
 Location of supplier
in other cases
Section:12(10) Place of supply of service on board a
conveyance [Section 12(10)] Location of the first scheduled
1. Vessel point of departure of that
2. Air craft conveyance for the journey.
3. Train
4. Motor vehicle
Section:12(11) Place of supply of telecommunication
services [Section 12(11)]
1. Fixed Line Location where the line is

installed
2. Post paid Billing Address
3. Pre-paid Location where the prepaid
voucher is sold
4. Prepaid sold through internet Billing Address
Section;12(12) Place of supply of banking and NBFC • Location of recipient of
service including stock broking services service on the records of the
[Section 12(12) ] supplier of service. otherwise:
• Location of supplier of
service.
Section12(13) Place of supply of insurance services  Provide to a registered

[Section 12(13)] person:
 Location of recipient
of service.
 Provide to a person other
than registered person:
 Location of the
14
recipient of services
on the records of the
supplier of service.
Section 12(14) Place of supply of advertisement services Located in each of such states
to specified persons [Section 12(14)] and the value of such supplies
Advertisement services to specific to each state shall be
• Central Government in proportion to amount
• State Government attributable to service
• Statutory Body provided by way of
• Local Authority dissemination in the
respective states.
Case-II: Place of Supply of Services where Location of Supplier or Location of

Recipient is Outside India [Section-13]

Section13 (1) The provision of this section shall apply to determine the place of supply of service
where the location of the supplier of the services or the location of recipient of
services its outside India
Section13 (2) Service not covered in section 13 (3) to 13 (13) Location of recipient services
If the above case where the location of the Location of supplier of services
recipient of services is not available in the
ordinary course of business
Section13 (3) “In respect of goods that are made physically Location where the services are
available, by the receiver to the service provider actually performed.
in order to provide the service” Section 13(3) (a)
Services provided by way of electronic means The actual location of goods
in relation to tangible goods, Section 13(3) (a)
15
Services supplied to an Individual, represented Location where the services are
either as the service receiver or a person acting actually performed.
on behalf of the receiver, which require physical
presence of the recipient or the person acting on
his behalf, with the supplier for the supply of
services. Section 13(3) (b)
Section13 (4) Place of supply of services supplied directly in

relation to an immovable property [Section
13(4)]
Lease or a right to use, occupation enjoyment or
provision of hotel accommodation by a hotel, Where immovable property is
guest house, club located or intended to be located
● Construction service
● Architects
● Interior decorators
● Renting of immovable property
● Real estate agents,
● Auctioneers, engineers and similar experts or
professional people, relating to land, buildings or
civil engineering works etc.
Section13 (5) Place of supply of services supplied by way of
admission to or organization of [Section 13(5)
of IGST Act]: Where event is actually held.
● Cultural
● Artistic
● Sporting
● Scientific
● Educational
● Entertainment event
● Celebration
● Conference
● Fair
● Exhibition
● Similar events and
16
● Services ancillary to such admission or
organization
Section13 (6) Services referred u/s 13(3) or (4) or (5) is
supplied at more than one location including Location in the taxable
location taxable territory [Section 13(6) of territory.
IGST Act]:
Section13 (7) Sec 13(3) or (4) or (5) Services performed in Place of supply of such services
more than one State or Union Territory, [Section shall be taken as deemed in each
13(7) of IGST Act]: of the State or Union Territories
in proportion to the value of
services so provided.
Section13 (8) Specified Services [Section 13(8) of IGST Act]
(a) Services provided by a banking company,
or financial company, or a NBFC to
account holders Location of the Service
(b) Intermediary services Provider
(c) Services consisting of hiring of means of
transport, other than,
i. aircrafts, and
ii. vessels except yachts up to a period of
one month
Section13 (9) Place of provision of a service of transportation
of goods other than by way of mail or courier Destination of such goods
[Section 13(9) of IGST Act]
Section13 (10) Passenger Transportation Services [Section Where the passenger embarks
13(10) of IGST Act]: on the conveyance for a
continuous journey.
Section13 (11) Services provided on board conveyances
[Section 13(11) of IGST Act]: The first scheduled point of
Any service provided on board a conveyance (air departure of that conveyance
craft, vessel, rail, or roadways bus) will be for the journey.
covered here.
Section13 (12) Online information and database access or Location of the recipient of
retrieval services [Section 13(12) of IGST Act]: service
17
Section13 (13) Power to notify supply of a services or The place of effective use and
circumstances [Section 13(13) of IGST Act]: enjoyment of a service.
In order to prevent double taxation or non-
taxation of the supply of a service, or for the
uniform application of rules, the Government
shall have the power to notify any description of
services
13.4 VALUE OF SUPPLY AND COMPUTATION OF TAXABLE VALUE AND

TAX LIABILITY (Sec 15)
Value of Supply: Value of supply in common terms is amount paid by recipient of supply to
the supplier as consideration for supply (known as transaction value). Tax will be levied on
value of supply as provision.
Case-I: Supplies to Unrelated Persons where Price is the Sole Consideration
Amount
Sl.No Particulars
in `
15(1):Value of supply - Price actually paid or payable for the supply XXX
1
(transaction value)
15(2): Value includes
2
Add: if not included in the above
15(2)(a): Taxes other than GST, if charged separately by the
supplier
Any taxes, duties, cesses, fees and charges levied under any law for the
time being in force other than this Act, the State Goods and Services Tax
Act, the Union Territory Goods and Services Tax Act and the Goods and
Services Tax (Compensation to States) Act, if charged separately by the
supplier.
15(2)(b): Supplies made by the recipient on behalf of the supplier
Any amount that the supplier is liable to pay in relation to such supply
but which has been incurred by the recipient of the supply and not
included in the price actually paid or payable for the goods or services or
both.
18
15(2)(c): Commission and packaging or incidental expenses
Incidental expenses, including commission and packing, charged by the
supplier to the recipient of a supply and any amount charged for
anything done by the supplier in respect of the supply of goods or
services or both at the time of, or before delivery of goods or supply of
services.
15(2)(d): Interest, late fees and penalty for delayed payment
Interest or late fee or penalty for delayed payment of any consideration
for any supply.
15(2)(e): Subsidy directly linked to the price other than government
subsidy.
Subsidies directly linked to the price excluding subsidies provided by the
Central Government and State Governments.
3 Less: if included in the above
15 (3): Discount XXX
Discount given before or at the time of supply and is recorded in the
invoice
Value of goods xxx
Less: discount xxx
Transaction value xxx
Discount given after supply but agreed upon before or at the time of
supply and is recorded in the invoice
Value of goods xxx
Less: discount xxx
Transaction value xxx
Discount given after supply and not known at the time of supply.
Cannot be claimed as deduction from transaction value
Transaction Value XXX
19
A. Payment of taxes, duties, cesses, fees and charges [Section 15(2)(a)]
Problem-8:
Admission to Inox Theatre is ` 120 per ticket for a Kannada movie as well as for a Hindi
Movie plus entertainment tax is 10% on Kannada movie and 20% on other languages. In the
month of January, Inox Theatre sold 1000 tickets of Kannada Movie and 1500 tickets of
Hindi Movie. Find the value of taxable supply of service. Applicable rate of GST 18%, Find
the GST liability if any?
Solution: Statement showing value of taxable supply of service and GST liability:
Particulars Kannada movie Hindi movie

Rate per ticket 120 120
Add: Entertainment tax 12 24
Value of taxable supply 132 144
CGST Liability 9% 11.88 12.96
SGST Liability 9% 11.88 12.96
Total GST Liability 23.76 25.92
B. Supplies made by recipient on behalf of supplier [Section 15(2)(b)]
Problem-9:
Mr. Ramesh sold goods to Mr. Bhuvan for ` 5,00,000. As per the contract of sale, Mr.
Ramesh is required to deliver the goods in the premises of Mr. Bhuvan. Mr. Ramesh arranged
transporter for transportation for delivery of goods as per pre-agreement. However, the
freight paid by Mr. Bhuvan to transporter. Freight paid ` 10,000. Find the transaction value
of supply of goods.
Solution: Calculation of taxable value of goods
Particulars Value in `
Value of supply of goods 5,00,000
Add: Freight paid by recipient of supply (which the supplier is so 10,000
liable to pay)
Taxable value of supply of goods 5,10,000
20
C. Commission and packing charges [Section 15(2)(c)]
Problem-10:Mr. Ashok sold a machine to Mr. Bharath for ` 25,00,000 with the condition
that to remove of old Machine from the premises of Mr. Bharath by charging ` 50,000. Find
the value of taxable supply of goods in the hands of Mr. Ashok.
Solution: Calculation of taxable value of Machinery
Value of machinery 25,00,000
Add: additional charge (incidental charges ) 50,000
Taxable value of supply of Machinery 25,50,000
D. Interest or late fee or penalty for delayed payment [Section 15(2)(d)]
Problem-11:
Mr. A sold a machine to Mr. B for ` 5,00,000 on 01-06-2022 with the condition that payment
to be made within three months from the date of sales but Mr. B made payment two months
after the deadline, so seller charged ` 10,000 as late fees. Find the value of taxable supply of
goods in the hands of Mr. Ashok.
Value of machinery 5,00,000
Add: additional charge as a late fee 10,000
Taxable value of supply of Machinery 25,10,000
E. Subsidy directly linked to the price (other than Govt. Subsidies) [Section 15(2)(e)]
Problem-12:
ABC coaching centres in Mysore giving training on tally and excels coaching and charge
` 20,000 per student. However, the course was subsidized from different institution as
follows:
 Karnataka State Government ` 1,000 per student

 Infosys Charitable Trust ` 500 per student
The institute charge ` 18,500 per student + 18% GST.
21
Solution: Calculation of taxable value and tax payable
Transaction value 18,500
Add: Subsidy by Karnataka State Government Nil
Subsidy by Infosys Charitable trust 500
Taxable value per student 19,000
CGST @ 9% of ` 19,000 1,710
SGST @ 9% of ` 19,000 1,710
Total 3,420
F. Discount under GST [Section 15(3)]
Problem-13:
Maruthi Cars Ltd. sells a car worth ` 15,00,000 to Star Automobiles. Maruthi Cars Ltd.
incurred packing charges of ` 10,000 on the car. Maruthi Cars Ltd provided a discount of 5%
on the car price, as part of the year end offer scheme and agreed three months’ credit. Due to
covid, Maruthi Cars Ltd. facing financial crunch and offer further discount of 1 % if Star
Automobiles makes payment within one month and Star Automobiles makes the payment
within a month. Find the Net GST liability in the hands of Best Cars Ltd. Applicable rate of
GST 18%.
Solution: Calculation of taxable value and GST payable
Particulars Value in ` Remarks

Value of the product 15,00,000
Add: packing charges 10,000
Sub-total 15,10,000
Less: Discount 5% on ` 15,00,000 (75,000) The discount was known at the
time of supply
Discount of 1 % --- Discount given and agreed upon
after supply not to be reduced.
Transaction value 14,35,000
Add: CGST 9% of 14,35,000 1,29,150
Add: SGST 9% of 14,35,000 1,29,150
Invoice price 16,93,300
22
Case-II: Supplies to Related Persons where price is not the Sole Consideration
Sl. Amount
Particulars
No in `
1 Transaction value not available Section15(4) read with CGST Rules, 2017 XXX
(i.e. Determination value of Supply)
2 Rule 27: Value of supply of goods or services where the consideration is XXX
not wholly in money
(a) open market value of such supply;
(b) if the open market value not available (a), sum total of consideration
equal to money, if such amount in known at the time of supply;
(c) if the value of supply is not determinable under clause (a) or clause (b),
be the value of supply of goods or services or both like kind and quality;
(d) if value is not determinable under clause (a) or clause (b) or clause (c),
be the sum total of consideration in money and such further amount in
money that is equivalent to consideration not in money as determined
by application of rule 30 or rule 31 in that order.
3 Rule 28: Value of supply or goods or services or both between distinct XXX
or related persons, other than through an agent.
(a) Open market value of such supply
(b) If the open market value not available (a), the value of supply like kind
and quality
(c) If the value is not determined under (a) and (b) the value is determined
by the application of rule 30 (110% on cost of production) and rule 31
residual method.
4 Rule 29: Value of supply of goods made or received through an agent XXX
a. The open market value of the goods being supplied or At the option of
supplier, 90% of the price charges for the supplied of goods like, kind
and quality by the recipient to his customer not being a related a person.
b. where the value of a supply is not determinable under clause (a), the same
shall be determined by application of rule 30 or rule 31 in that order.
Note: Out of the two option principal shall be select most economical (best
judgment method i.e. less taxable value)
23
5 Rule 30: Value of supply of goods or services or both based on cost XXX
Where the value of supply of goods or services or both is not determinable
by any of the preceding rules the value of supply of goods or services or
both shall be 110 %(100% cost + 10% profit margin) of the following:
1. Cost of production of manufacture of goods
2. Cost of acquisition of such goods
3. Cost of provision of such services
6 Rule 31: Residual method for determination of value of supply of goods XXX
or services or both
Where the value of supply of goods or services or both cannot be determined
under rules 27 to 30, the same shall be determined using reasonable means
consistent with the principles.
7 Rule 31A:Value of supply in case of Lottery, Betting, Gambling and
Horse Racing
 Value of supply of lottery authorised by State Governments shall
be deemed to be
 100/128 of the face value of ticket
 Price as notified in the Official Gazette by the organising
State
Whichever is higher
 Value of supply of lottery run by State Governments shall be
deemed to be
 100/112 of the face value of ticket
 Price as notified in the Official Gazette by the
organising State whichever is higher
8 Rule 32: Determination of Value in Respect of Certain Supplies
Rule 32(2): Foreign currency, including money changing
Rule 32(2)(a): For a currency, when exchanged from, or to, Indian Rupees
(INR), the value shall be equal to the difference in the buying rate or the
selling rate, for that currency at that time, multiplied by the total units of
currency.
Formula for value of supply:
{(Buying or selling Rate) – (RRR)}x No of Units of currency
24
Rule 32(2)(b): At the option of the supplier of services, the value in relation
to the supply of foreign currency, including money changing, shall be
deemed to be.
Amount of currency exchanged 1% of the gross amount of currency
up to ` 1 lakh exchanged or ` 250/-, whichever is
higher
Amount of currency exchanged ` 1000/- + 0.5% of the gross amount
exceeding ` 1 lakh and up to ` of currency exchanged above `
10 Lakhs 1,00,000
Amount of currency exchanged ` 5500/- + 0.1% of the gross amount
exceeding Rs.10 lakhs of currency exchanged above
10,00,000 or ` 60,000/- whichever is
lower.
Rule 32(3) Tickets for travel by Air
Air travel agent (type of Booking) Value of taxable supplies
Domestic booking 5% on Basic Fare
International booking 10% on Basic Fare
Rule 32(4) Life Insurance Business
Premium cover only risk 100 % premium collated is
taxable (pay GST 18% on
gross premium charged from
the policy holder).
Rule 32 (4) (a): Premium covers risk Gross premium -xxx
+ savings Less: saving -xxx
(1)The amount allocated for saving has Net premium -xxx
been intimated to policy holders at the GST payable 18% on net
time of providing service premium
(2)The amount allocated for saving has
been not intimated to policy holders at
the time of providing service.
(a) Rule 32(4)(b) Single premium annuity, 10%
of the premium is taxable
value
25
(b) Rule 32 (4) (c)  25% of the 1st year
premium is taxable value.
 12.5% of the subsequent
year’s premium is taxable
value
Rule 32(5) Buying and Selling of Second Hand Goods
If input tax credit availed Taxable value = sales value (i.e.
Transaction value)
If input tax credit not availed Sales value XXX

Less: purchase value XXX
Taxable value (margin) XXX
Defaulting borrower is Repossessing lender agency will
registered person discharge GST at the supply value
without any reduction from actual/
notional purchase value.
Defaulting borrower is an Purchase price (show room price of any
unregistered person goods) –xxx
Less: 5% for quarter from the date of
purchase to the date of disposal- xxx
Purchase price of repossessed goods -
xxx
Taxable value of supply

Sales price- Purchase price of
repossessed goods
Rule 32(6) Value of a Token, or a Voucher, or a Coupon, or a Stamp
(other than postage stamp)
Taxable value: money value of the goods or services or both redeemable
against such token, voucher, coupon, or stamp.
Rule 32(7) Such class of service providers as may be notified by the
Government
26
Case-III: Determination of value of supply when Transaction value is not available
[Section 15(4)]
Rule 27: Value of supply of goods or services where the consideration is not wholly in money
and
Rule-28: Value of supply or goods or services or both between distinct or related persons
other than through an agent.
Situation -1: Open market value
Problem-14:
Apoorva Mobile Showroom, a registered person in Mysore, sold mobile to customer for
` 25,000 along with the exchange of an old phone and if the price of the new phone without
exchange is ` 30,000, find out the open market value of the new phone.
Solution: Open market value of the mobile is ` 30,000.
Situation -2: Sum of total consideration is equal to money, if such amount is known at
the time of supply provided open Market value is not available.
The value of consideration which is non-monetary terms shall be determined in monetary

terms. The said value shall be added to the value in monetary terms in determination of value
of supply.
Problem-15:
Jnanabhutti Academy normally charges ` 30,000 for teaching the CA students. One of merit
student approaches the management of Jnanabhutti Academy and request for concession in
actual fees amount. Academy management considered his merit and agrees to charge only
` 20,000. From the given information find the value of taxable supply of service.
Solution: Since, Jnanabhutti Academy has not received any consideration from the student in
any other form, ` 20,000 itself is a sole consideration. GST will be levied on ` 20,000 only.
Situation -3: The value of supply of like kind and quality, if situation (1) and (2) not
applicable:
Problem-16:
Jnanabhutti Academy is giving coaching for MBA and M. Com students and fees amount not
disclosed properly. Similarly, Sharada Coaching Centre is giving coaching for same for MBA
27
and M. Com students for that they are charging ` 12,000 per student. Find out value of supply
in case of Jnanabhutti Academy.
Solution: Taxable value is ` 12,000, Coaching fee of Jnanabhutti Academy can be compared
with another academy of same kind and nature i.e. Sharada Coaching Centre.
Situation-4: Rule 30 or based on residual method if value not available in situation (1) to
(3).
Rule-30: Value of supply of Goods or Services based on Cost.
Problem-17:
A furniture manufacture company provides the following expenditure incurred by them to

find the transaction value for the purpose of paying GST.
Particulars `
Direct material cost per unit inclusive of IGST at 18% 1,180
Direct wages 500
Other direct expenses 200
Indirect materials 100
Factory overheads 600
Administrative overhead (25% relating to production 200
capacity)
Selling and distribution expenses 100
Research and development 25
Packing cost 20
Sale of scrap realized 50
Actual profit margin 20%
Find the value for the purpose of payment of GST as per Rule 30 of the CGST Rules, 2017.
Solution: Statement showing value of supply of goods as per Rule 30 of the CGST Rules,
2017:
Particulars Value in (`)

Direct material cost (` 1,180 x 100/118) 1,000
Direct wages 500
28
Administrative overhead (25% of ` 200) 50
Selling and distribution expense (post production cost) ---
Packing cost (post production cost) ---
Sub-total 2,475
Less: Sale of scrap 50
Cost of production 2,425
Add: 10% profit margin as per Rule 30 of the CGST Rules, 2017 243
Value of taxable supply of goods 2,668
Problem-18:
ABC Company provides from the following information for the month of April 2022. Find
out value of supply as per Rule – 30.
Sl. No Particulars Amount (`)

1 Direct material cost 25,000
2 Direct wages 10,000
3 Other direct expenses 7,500
4 Indirect materials 10,000
5 Factory overheads 12,000
Administration overheads (30% relating to 5,000
6
production capacity)
7 Selling and distribution expenses 6,000
8 Quality control 2,500
9 Research and development 3,000
10 Packing cost 1,000
11 Post sales service 800
12 Sale of scrap realized 3,000
13 Actual profit margin 15%
29
Solution: Calculation of Value of Supply of Goods as Per Rule 30
Particulars Amount `
Direct material cost 25,000
Direct wages 10,000
Other direct expenses 7,500
Indirect materials 10,000
Factory overheads 12,000
Administration overheads (30% relating to production 1,500
capacity)
Selling and distribution expenses ---
Quality control 2,500
Research and development 3,000
Packing cost ---
Post sales service ---
Subtotal 71,500
Less: Sale of scrap realized 2,500
Cost of production 69,000
Add: 10% profit Margin as per Rule 30 (10% on 6,900
75,000)
Value of taxable of supply of goods 75,900
Note: Selling distribution expenses, packing cost and post sales
service expenses incurred after production, i.e. post
production, so no need to consider.
Rule-32: Value of Certain Supplies
Rule-32(2): Foreign Currency, including Money Changing
Rule-32(3): Tickets for Travel by Air
Problem-19:
Samanth Airline arranges summer vacation trip to Singapore and sold 500 tickets at
` 2,00,000 each in the month of June 2022. The total amount charged is ` 10,00,00,000
which includes ` 50, 00,000 towards passenger taxes. Determine the value of taxable supply
of services of Samanth Airline and tax payable, if applicable rate of GST is 18%.
30
Solution: Calculation of taxable value of supply and GST payable:
Basis fare charged (500x 2,00,000) 10,00,00,000
Less: Government tax 50,00,000
Taxable Value 9,50,00,000
Value of taxable supply 10% of Basic fare (as a international) 95,00,000
CGST @ 9% on 95,00,000 8,55,000
SGST @ 9% on 95,00,000 8,55,000
Total GST Payable 17,10,000
Rule-32(4): Life Insurance Business
Problem-20:
ICICI Life Insurance Company Ltd. has started its operations in the year 2022-23 (w.e.f. 1-
10-2022). During the year 2022-23, Life Insurance Company Ltd. has charged gross premium
of ` 500 lakhs from policy holders with respect to life insurance policies; out of which ` 400
lakhs have been allocated for investment on behalf of the policy holders. Compute the GST
liability for the year 2022-23 under rule 32(4) of the CGST Rules, 2017
(i) If the gross premium charged by Life insurance company from policy holders is only
towards risk cover
(ii) If the amount allocated for investment has been intimated by Life Insurance Company to
policy holders at the time of providing of service.
(iii)If entire policy amount collected as single premium annuity policy
(iv) If amount allocated for investment not intimated policy holder
Applicable rate of GST 18%.
Solution: Calculation of GST payable
Premium Taxable
Case Type of Policy Rule collected in ` (in Rate Value (` in
lakhs) lakhs)
1 Only risk cover policy 32 (4) 500 18% 90
Variable insurance policies 32 (4) (a) 500 Nil 100
2
amount allocated for
investment (500-400)
31
3 Single premium annuity 32 (4) (b) 500 10% 50
policy
Amount allocated for 32 (4) (c) 500 25% 125
4
investment not intimated
policy holder *
Total taxable value of service supplied 365
GST payable at 18% 65.7
Note: *Taxable value = 25% of premium received because of business started in 2022-2023
and there is no subsequent year.
Rule-32(5): Buying and Selling of Second Hand Goods
Problem-21:
A Ltd, a registered person under GST, being a dealer dealing with second-hand goods in
Mysore. A Ltd. supplies a used car to a consumer in Bangalore for selling price of
` 15,00,000. The used car (i.e. second hand) was purchased for ` 10,00,000 from a registered
dealer in Mangalore, on which GST ` 2,80,000 was charged (i.e. GST rate applicable to car
is 28%). Find the net GST liability in the following independent cases:
a) if input tax credit not availed.

b) if input tax credit availed
Solution: Computation of Net GST Liability
Input tax credit not availed Input tax credit availed
Value (`) Particulars Value (`) GST 28%

Particulars
15,00,000 Output 15,00,000 4,20,000
Output supply
supply/Tax
10,00,000 Less: ITC on ---- 2,80,000
Less: purchase price
purchase
5,00,000 Net GST --- 1,40,000
Difference known as
margin Liability
1,40,000
Net GST Liability @ 28%
32
Problem-22:
ABC Ltd. has taken a loan from SBI on 15th Jan 2021 worth of ` one crore to purchase a
machine. Subsequently, ABC Ltd. defaulted in paying the loan amount along with interest.
At late date, bank repossessed the machine from ABC Ltd. on 15th October 2022. The banker
sells the said goods on 26th December 2021. Find the value of taxable supply of goods in the
hands of SBI in the following two independent cases: Case 1: Machine sold for ` 90,00,000.
Case 2: Machine sold for ` 70,00,000. Note: Applicable rate of IGST 18%.
Step-1: Determination of purchase value
Particulars Value in (`)
Purchase value of the machine 1,00,00,000
Less: 5% per quarter for 4 quarters (i.e. 20%) 20,00,0000
Purchase value at the time of disposal 80,00,000
Step-2: Taxable Value of supply in the hands of SBI bank
Particulars Case-1 (`) Case-2(`)
Sale price 90,00,000 70,00,000
Less: purchase price (as step-1) 80,00,000 80,00,000
Margin ( taxable value) 10,00,000 (10,00,000)
GST payable 18% 1,80,000 -----
In case the sale price is below ` 80,00,000, banker will not be liable to
pay GST as value is nil (i.e. negative margin)
Rule-32(5): Redeemable voucher/coupons/stamp (other than postage stamp)
Problem-23:
Raymond cloth merchant supplied gift voucher to its employees for ` 5,000 on 10th June
2022 to purchase cloth. Goods actually purchased by customer on 25th June 2022, for
33
` 5,500. Find the time of supply and value of supply with regard to gift voucher in the hands
of Raymond cloth merchant in following cases.
1) In voucher, mentioned specific type of cloth in specific showroom

2) In voucher mentioned any cloth in any showroom.
Solution: Identification of time of supply and value of supply
Particular Case-1 Case-2

Type of voucher Identifiable Non-identifiable
Time of supply 10th June 2022 25th June 2022
Value of supply ` 5,000 ` 5000
Remarks Value of supply= voucher value or Value of supply = voucher
redemption value (whichever is value or redemption value
lower) (whichever is lower)

1. The place of supply is______ when goods imported into India.

2. The place of supply is______ when goods exported from India.
3. The place of supply is______ for services to a registered person by way of
transportation of goods, including by mail or courier,.
4. The place of supply is______ in case of banking and financial services.
5. Time of supply means earlier of date of ______ and ______.
6. The ______ is time of supply in respect of the additional payment for value of supply
like interest, late fee, etc.
7. When the supply of goods or services is for a consideration not wholly in money, the
value of the supply shall be______ value of such supply.
8. Tax collected at the time of supply of goods or services is called______.
1. The location of the importer

2. The location outside India
3. The location of such person
4. Location of the recipient of services
5. Issue of invoice and date of payment
34
6. Date additional payment
7. Open market
8. Output tax
13.6 SUMMARY
Place of supply, time of supply and value of supply are the very important provisions
discussed in this present unit along with some illustrations. Taxable event under GST is
supply of goods or services or both and the tax is levied on price, that is, value of such goods
or services. The value of taxable supply of goods and services shall ordinarily be ‘the
transaction value’ which is the price paid or payable, when the parties are not related and
price is the sole consideration. Generally, valuation rules are applicable when consideration
either wholly or partly not in money terms, parties are related or not related, supply by any
specified category of supplier and transaction value declared is not reliable.
13.7 KEYWORDS
Supplier [Section 2(105)] : Supplier is the person supplying the said goods or
services or both, and shall include an agent acting
as such on behalf of such supplier in relation to the
goods or services or both supplied.
Location of the supplier of services Location of the supplier of services means-

[Section 2(71)] : (a) where a supply is made from a place of
business for which the registration has been
obtained, the location of such place of
business;
(b) where a supply is made from a place other
than the place of business for which
registration has been obtained (a fixed
establishment elsewhere), the location of
such fixed establishment;
(c) where a supply is made from more than one
establishment, whether the place of business
or fixed establishment, the location of the
establishment most directly concerned with
the provisions of the supply; and
(d) In absence of such places, the location of the
usual place of residence of the supplier.
35
Location of the recipient of services: Location of the recipient of services means-
[Section 2(70)] (a) where a supply is received at a place of
business for which the registration has been
obtained, the location of such place of
business,
(b) where a supply is received at a place other
than the place of business for which
registration has been obtained (a fixed
establishment elsewhere); the location of
such fixed establishment;
(c) where a supply is received at more than one
establishment, whether the place of business
or fixed establishment, the location of the
establishment most directly concerned with
the receipt of the supply; and
in absence of such places, the location of the usual
place of residence of the recipient.
Place of business [Section 2(85)] : Place of business includes

(a) A place from where the business is
ordinarily carried on, and includes a
warehouse, a godown or any other place
where a taxable person stores his goods,
supplies or receives goods or services or
both or
(b) a place where a taxable person maintains his
books of account; or
(c) a place where a taxable person is engaged in
business through an agent, by whatever
name called.
Fixed establishment [Section 2(50)] : Fixed establishment means a place (other than the
registered place of business) which is characterized
by a sufficient degree of permanence and suitable
structure in terms of human and technical resources
to supply of services, or to receive and use services
for its own needs
Usual place of residence [Section : Usual place of residence means in case of an

2(113)] individual, the place where the person ordinarily
resides and in other cases, the place where the
36
person is incorporated or otherwise legally
constituted.
Address of delivery [Section 2(2)] : Address of delivery means the address of the
recipient of goods or services or both indicated on
the tax invoice issued by a registered person for
delivery of such goods or services or both.
Address on record [Section 2(3)] : Address on record means the address of the
recipient as available in the records of the supplier.
Agent [Section 2(5) : Agent means a person, including a factor, broker,

commission agent, arhatia, del-credere agent, an
auctioneer or any other mercantile agent, by
whatever name called, who carries on the business
of supply or receipt of goods or services or both on
behalf of another.
Market value [Section 2(73)] : Market Value shall mean the full amount which a
recipient of a supply is required to pay in order to
obtain the goods or services or both of like and
quality at or about the same time and at the same
commercial level where the recipient and the
supplier are not related.

1. What is need for determination of place supply under GST?
2. How is the place of supply determined in respect of domestic transaction where supply
involve movement of goods?
3. Explain the provisions relating to determination of place of supply of goods imported
India and exported from India.
4. Explain provisions relating to determination of supply of services when location of
supplier and recipient is in India.
5. Explain the place of supply of insurance services.
6. Explain about time of supply U/S 12 of CGST.
7. What are the different situations covers U/ S 12 to determine time of supply?
8. What are the provisions relating to time of supply of goods under forward charge?
9. What are the provisions relating to time of supply of goods under reverse charge?
10. What are the provisions relating to time of supply of services under forward charge?
37
11. What are the provisions in case of continuous supply of goods and services?
12. What is the value of supply for levy of GST?

13. What are the provisions of supplies to unrelated persons?
14. Explain provisions relating to purchase or sale of foreign currency under rule 32 (2).
15. Explain provisions relating to life insurance business foreign currency under rule
32 (4).
16. Explain provisions relating to life air travel agent business foreign currency under rule
32 (3).
17. Admission to Cini Theatre is ₹ 150 “per ticket for a Kannada movie as well as for a
Hindi movie plus entertainment taxes are 10% on Kannada movie and 20% on other
languages. In the month of January, Cini Theatre sold 5,000 tickets of Kannada Movie
and 2,500 tickets of Hindi Movie. Find the value of taxable supply of service. Applicable
rate of GST 18%, Find the GST liability if any.
18. ABC Company sold goods to XYZ Company for ₹ 5,00,000. As per the contract of sale,
ABC Company is required to deliver the goods in the premises of XYZ company. ABC
Company arranged transporter for transportation for delivery of goods as per pre
agreement. However, the freight paid by XYZ Company to transporter. Freight paid ₹
20,000. Find the transaction value of supply of goods.
19. Lavanya Co. sold a machine to Ananya Co. for ₹ 20,00,000 with the condition that to
remove of old Machine from the premises of Ananya Co. by charging ₹ 40,000. Find the
value of taxable supply of goods in the hands of Lavanya Co.
20. Mr. A sold a machine to Mr. B for ₹ 10,00,000 on 10-08-2022 with the condition that
payment to be made three months from the date of sales but Mr. B made payment two
month later for that seller charge ₹ 5,000 as late fees. Find the value of taxable supply of
goods in the hands of Mr. A.
21. Saraswathi Coaching Centre at Mysore giving training on tally and advanced excel,
charge ₹ 25,000 per student. However, the course was subsidized from different
institution as Karnataka State Government ₹ 3,000 per student, Infosys Charitable Trust
₹ 2,000 per student and the institute charge ₹ 18,000 per student + 18% GST.
38
22. Mahindra Cars Ltd. sells a Car worth of ₹ 25,00,000 to Star Automobiles. Mahindra Cars
Ltd. incurred packing charges of ₹ 20,000 on the car. Further Mahindra Cars Ltd.
provided a discount of 5% on the car price, as part of year end offer scheme and agreed
three months’ credit. Due to covid Mahindra Cars Ltd. facing financial crunch and offer
further discount of 1 % if Star Automobiles makes payment within one month and Star
Automobiles makes the payment within a month. Find the Net GST liability in the hands
of Best Cars Ltd. Applicable rate of GST 18%.
23. Jnana Academy coaching for MBA and M. Com students and fees amount not disclose
properly. Similarly, Saradha Coaching Centre coaching for same MBA and M. Com
students for that they are charging ` 15,000 per student. Find out value of supply in case
of Jnana academy.
24. A TV Manufacture Company provides the following expenditure incurred by them to

find the transaction value for the purpose of paying GST.
Particulars ₹
Direct material cost per unit inclusive of IGST at 18% 11,800
Direct wages 1200
Administrative overhead (25% relating to production capacity) 500
Selling and distribution expense 250
Packing cost 100
Sale of scrap realized 80
Actual profit margin 20%
Find the value for the purpose of payment of GST as per Rule 30 of the CGST Rules,
2017.
39
25. On August 2022 ABC Ltd. (principal) supplies 1,000 quintals of raw maize to XYZ Ltd.
(his agent) at ₹ 10,000 p.q. On the same day another independent supplier of PQR is
supplying 1,100 quintals of raw maize of like kind and quality to the said agent at the
price of ₹ 11,000 per quintal. Further, XYZ Ltd. Supplies 900 quintals of like kind and
quality to his unrelated customer at price of ₹ 12,000 p.q. Find the value of taxable
supply in the hands of principal as per Rule 29(a) of the CGST Rules, 2017.
26. Happy Airline arranges summer vacation trip to Thailand and sold 1,000 tickets at ₹
2,50,000 each in the month of June 2022. The total amount charged is ₹ 10,00,00,000
which includes ₹ 50, 00,000 towards passenger taxes. Determine the value of taxable
supply of services of Happy Airline and tax payable if applicable rate If GST is 18%.
Given amount or exclusive of tax.
27. Ankith Co. Ltd, is a registered person under GST, being a dealer dealing with second-
hand goods in Mysore. Ankith Company Ltd. supplies a used car to a consumer in
Bangalore for selling price of ₹ 10,00,000. The used car (i.e., second hand) was
purchased for ₹ 6,00,000 from a registered dealer in Mangalore, on which GST
1,68,0,000 was charged (i.e., GST rate applicable to car is 28%). Find the net GST
liability in cases of input tax credit not availed and input tax credit availed.
28. Honnasiri Ltd. has taken a loan from the SBI bank on 15th Jan 2020 worth of ₹ one crore
to purchase a machine. Subsequently Honnasiri Ltd. defaulted in paying the loan amount
along with interest. At late date bank repossessed the machine from ABC Ltd. on 15th
March 2022. The banker sells the said goods on 26th May 2022. Find the value of taxable
supply of goods in the hands of SBI bank in the following two independent cases if
applicable rate of IGST 18%.
Case 1: machine sold for ₹ 80,00,000.
Case 2: machine sold for ₹ 60,00,000.

29. Nike Cloth Merchant supplied gift voucher to its employees for ₹ 5,000 on 10th August
2022 to purchase cloth. Goods actually purchased by employees on 25th August 2022, for
₹ 6,000. Find the time and value of supply with regard to gift voucher in the hands of
Nike Cloth Merchant in following cases.
1) In voucher mention specific type of cloth in specific showroom

2) In voucher mention any cloth in any showroom.
40
13.9 REFERENCES
7. icmai.in
8. www.icsi.edu
9. cbic-gst.gov.in
11. www.cleartax.in
41
UNIT-14 GST REGISTRATION
Structure:
14.0 Objectives
14.1 Introduction
14.2 Meaning of GST Registration
14.3 Advantages of Registration under GST
14.4 Persons not Liable for Registration (Section - 23)
14.5 Compulsory Registration (Section - 24)
14.6 Procedure for Registration (Section - 25)
14.7 Deemed Registration (Section - 26)
14.8 Cancellation of Registration (Section - 29)
14.9 Revocation of Registration (Section - 30)
14.11 Summary
14.12 Keywords
14.14 References
42
14.0 OBJECTIVES
 Analyse the concept registration and its advantage under GST.

 State the advantages of registration under GST.
 Explain compulsory registration and procedure for registration.
 Discuss different types registration under GST Act.
14.1 INTRODUCTION
The GST Act provides that every supplier of goods or services or both who has
crossed their aggregate turnover of more than ` 20 lakhs in a year and ` 10 lakhs in Special
Category States, have to obtain GST registration compulsory. If the supplier is supplying
goods only, then threshold limit is restricted to ` 40 lakhs in a year and ` 20 lakhs in Special
Category States. However, there are certain categories of suppliers who are required to obtain
mandatory registration irrespective of their turnover limit. Therefore, let us learn the concept
of registration under GST in the present unit.
14.2 MEANING OF GST REGISTRATION

The provision of GST registration has been prescribed under chapter VI of the CGST
Act, 2017 and Section 22 to Section 30 of the CGST Act, deals with the registration by every
supplier of goods and services.
The following taxable person must obtain registration under GST:
 Every person has to apply for registration in every State in which he is liable, within
thirty days from the date on which he becomes liable to registration.
 Casual / non-resident taxable persons should apply at least five days before their
commencement of business.
 Registration number in GST will be PAN based and hence, having PAN would be a
prerequisite for obtaining registration.
 The assessee must obtain separate registration for each State, as registration under
GST will be State-wise.
 The assessee has an option to obtain a separate registration for each of the ‘business
verticals’ in the same State.
43
14.3 ADVANTAGES OF REGISTRATION UNDER GST
The following are the advantages to a taxpayer who obtain registration under GST:
(1) He is legally recognized as supplier of goods or services or both.
(2) Registration is a basic requirement to run the network of GST.
(3) He is legally authorized to collect taxes from his customers and pass on the credit of
the taxes paid on the goods or services supplied to the purchasers/recipients.
(4) He can claim input tax credit of taxes paid and can utilize the same for payment of
taxes due on supply of goods or services.
(5) Seamless flow of input tax credit from suppliers to recipients at the national level.
(6) Registered person is eligible to apply for government bids or contracts or

assignments.
(7) Registered person under GST can easily gain trust from customers.
14.4 PERSONS NOT LIABLE FOR REGISTRATION (SECTION 23)

14.4.1 Persons shall not be liable to registration [Section 23 (1)]:
 23 (1) (a) any person engaged exclusively in the business of supplying goods or
services or both that are not liable to tax or wholly exempt from tax under this Act or
under the Integrated Goods and Services Tax Act.
 23 (1) (b) an agriculturist, to the extent of supply of produce out of cultivation of land
14.4.2 Notified Persons not liable for registration [Section 23 (2)]:
 Persons who are only making taxable supplies on which tax is payable by recipient
under RCM U/S 9 (3)
 Persons making inter-State supplies of taxable goods and having an aggregate
turnover, to be computed on all India basis, not exceeding an amount of forty lakh
rupees in a financial year. Turnover for special category states is twenty lakh rupees.
 Persons making inter-State supplies of taxable services and having an aggregate
turnover, to be computed on all India basis, not exceeding an amount of twenty lakh
rupees in a financial year. Turnover for special category states is ten lakhs rupees.
 Person having turnover upto ` 40 lakhs.
 Casual Taxable Persons.
 Casual taxable persons making taxable handicrafts goods.
44
 Job Workers exempted from registration subject to conditions.
 Supplier of Handicraft Goods
 Persons making supplies of services, other than supplies specified under subsection
(5) of this section of the said Act through an electronic commerce operator who is
required to collect tax at source under section 52 of the said Act.
14.5 COMPULSORY REGISTRATION (SECTION 24)

The following categories of persons are required to obtain registration compulsorily
under GST Act:
 Persons making any inter-State taxable supply;

 Casual taxable persons making taxable supply (A person who occasionally
supplies goods and/or services in a territory where GST is applicable but he
does not have a fixed place of business. Such a person will be treated as
a casual taxable person as per GST);
 Persons who are required to pay tax under reverse charge;
 Persons who are required to pay tax under sub-section (5) of section 9
(electronic commerce operator);
 Non-resident taxable persons making taxable supply (when a non-resident
occasionally supplies goods/services in a territory where GST applies, but he
does not have a fixed place of business in India. As per GST, he will be treated
as a non-resident taxable person);
 Persons who are required to deduct tax under section 51 (Tax Deducted at
Source-TDS);
 Persons who supply goods or services or both on behalf of other registered
taxable persons whether as an agent or otherwise;
 Input service distributor;
 Persons who supply goods and/or services, other than supplies specified under
subsection (5) of section 9, through such electronic commerce operator who is
required to collect tax at source under section 52;
 Every electronic commerce operator who is required to collect tax at source
under section 52;
 Every person supplying online information and database access or retrieval
services from a place outside India to a person in India, other than a registered
taxable person; and
45
 Such other person or class of persons as may be notified by the Central
Government or a State Government on the recommendations of the Council.
14.6 PROCEDURE FOR REGISTRATION (SECTION-25)

(1) Every person who is liable to be registered under section 22 or section 24 shall apply for
registration in every such State or Union territory in which he is so liable within thirty
days from the date on which he becomes liable to registration, in such manner and
subject to such conditions as may be prescribed:
Provided that a casual taxable person or a non-resident taxable person shall apply for
registration at least five days prior to the commencement of business.
Explanation: Every person who makes a supply from the territorial waters of India shall
obtain registration in the coastal State or Union territory where the nearest point of the
appropriate baseline is located.
(2) A person seeking registration under this Act shall be granted a single registration in a
State or Union territory:
Provided that a person having multiple business verticals in a State or Union territory
may be granted a separate registration for each business vertical, subject to such
conditions as may be prescribed.
(3) A person, though not liable to be registered under section 22 or section 24 may get
himself registered voluntarily, and all provisions of this Act, are applicable to a
registered person, shall apply to such person
(4) A person who has obtained or is required to obtain more than one registration, whether in
one State or Union territory or more than one State or Union territory shall, in respect of
each such registration, be treated as distinct persons for the purposes of this Act.
(5) Where a person who has obtained or is required to obtain registration in a State or Union
territory in respect of an establishment, has an establishment in another State or Union
territory, then such establishments shall be treated as establishments of distinct persons
for the purposes of this Act.
(6) Every person shall have a Permanent Account Number issued under the Income Tax Act,
1961 in order to be eligible for grant of registration: Provided that a person required to
deduct tax under section 51 may have, in lieu of a Permanent Account Number, a Tax
46
Deduction and Collection Account Number issued under the said Act in order to be
eligible for grant of registration.
(7) Notwithstanding anything contained in sub-section (6), a non-resident taxable person

may be granted registration under sub-section (1) on the basis of such other documents as
may be prescribed.
(8) Where a person who is liable to be registered under this Act fails to obtain registration,
the proper officer may, without prejudice to any action which may be taken under this
Act or under any other law for the time being in force, proceed to register such person in
such manner as may be prescribed.
(9) Notwithstanding anything contained in sub-section (1) any specialised agency of the
United Nations Organisation or any Multilateral Financial Institution and Organisation
notified under the United Nations (Privileges and Immunities) Act, 1947, Consulate or
Embassy of foreign countries; and any other person or class of persons, as may be
notified by the Commissioner, shall be granted a Unique Identity Number in such
manner and for such purposes, including refund of taxes on the notified supplies of
goods or services or both received by them, as may be prescribed.
(10) The registration or the Unique Identity Number shall be granted or rejected after due
verification in such manner and within such period as may be prescribed.
(11) A certificate of registration shall be issued in such form and with effect from such date
as may be prescribed.
(12) A registration or a Unique Identity Number shall be deemed to have been granted after
the expiry of the period prescribed under sub-section (10), if no deficiency has been
communicated to the applicant within that period.
14.7 DEEMED REGISTRATION (Section-26)

Registration under GST is not tax specific, which means that there is single
registration for all the taxes, that is, CGST, SGST/UTGST, IGST and Cesses. Grant of
registration/UIN under any SGST Act/ UTGST Act is deemed to be registration/UIN granted
under CGST Act provided application for registration has not been rejected under CGST Act.
Further, rejection of application for registration/UIN under SGST Act/UTGST Act is deemed
to be rejection of application for registration under CGST Act.
47
14.8 CANCELLATION OF REGISTRATION (SECTION-29)
(1) The proper officer may, either on his own motion or on an application filed by the
registered person or by his legal heirs, in case of death of such person, cancel the
registration, in such manner and within such period as may be prescribed, having regard
to the circumstances where,
 the business has been discontinued, transferred fully for any reason including death of
the proprietor, amalgamated with other legal entity, demerged or otherwise disposed
of; or
 there is any change in the constitution of the business; or
 the taxable person, other than the person registered under sub-section (3) of section
25, is no longer liable to be registered under section 22 or section 24.
(2) The proper officer may cancel the registration of a person from such date, including any
retrospective date, as he may deem fit, where:
 a registered person has contravened such provisions of the Act or the rules made
thereunder as may be prescribed; or
 a person paying tax under section 10 has not furnished returns for three consecutive
tax periods; or
 any registered person, other than a person specified in clause (b), has not furnished
returns for a continuous period of six months; or
 any person who has taken voluntary registration under sub-section (3) of section 25
has not commenced business within six months from the date of registration; or
 registration has been obtained by means of fraud, wilful misstatement or suppression

of facts: Provided that the proper officer shall not cancel the registration without
giving the person an opportunity of being heard.
(3) The cancellation of registration under this section shall not affect the liability of the
person to pay tax and other dues under this Act or to discharge any obligation under this
Act or the rules made thereunder for any period prior to the date of cancellation whether
or not such tax and other dues are determined before or after the date of cancellation.
48
(4) The cancellation of registration under the State Goods and Services Tax Act or the Union
Territory Goods and Services Tax Act, as the case may be, shall be deemed to be a
cancellation of registration under this Act.
(5) Every registered person whose registration is cancelled shall pay an amount, by way of
debit in the electronic credit ledger or electronic cash ledger, equivalent to the credit of
input tax in respect of inputs held in stock and inputs contained in semi-finished or
finished goods held in stock or capital goods or plant and machinery on the day
immediately preceding the date of such cancellation or the output tax payable on such
goods, whichever is higher, calculated in such manner as may be prescribed:
Provided that in case of capital goods or plant and machinery, the taxable person shall
pay an amount equal to the input tax credit taken on the said capital goods or plant and
machinery, reduced by such percentage points as may be prescribed or the tax on the
transaction value of such capital goods or plant and machinery under section 15,
whichever is higher
(6) The amount payable under sub-section (5) shall be calculated in such manner as may be
prescribed.
14.9 REVOCATION OF REGISTRATION (SECTION 30)

(1) Subject to such conditions as may be prescribed, any registered person, whose
registration is cancelled by the proper officer on his own motion, may apply to such
officer for revocation of cancellation of the registration in the prescribed manner within
thirty days from the date of service of the cancellation order.
(2) The proper officer may, in such manner and within such period as may be prescribed, by
order, either revoke cancellation of the registration or reject the application:
Provided that the application for revocation of cancellation of registration shall not be
rejected unless the applicant has been given an opportunity of being heard.
(3) The revocation of cancellation of registration under the State Goods and Services Tax
Act or the Union Territory Goods and Services Tax Act, as the case may be, shall be
deemed to be a revocation of cancellation of registration under this Act.
(4) The proper officer may, in such manner and within such period as may be prescribed, by
order, either revoke cancellation of the registration or reject the application:
49
Provided that the application for revocation of cancellation of registration shall not be
rejected unless the applicant has been given an opportunity of being heard.
(5) The revocation of cancellation of registration under the State Goods and Services Tax
Act or the Union Territory Goods and Services Tax Act, as the case may be, shall be
deemed to be a revocation of cancellation of registration under this Act.

Fill in the blanks with suitable answers
1. GST registration is mandatory in case of goods, if the aggregate turnover exceed

______ lakhs in a financial year.
2. GST registration is not compulsory for the person dealing with ______ goods.
3. A person who is liable to be registered shall apply for registration within ______ days
from the date on which he becomes liable to registration.
4. If a person liable to be registered is having operation in more than one State, then he
should obtain ______ in all states.
5. A casual taxable person or a non-resident taxable person shall apply for registration at
least ______ days prior to the commencement of business.
6. The certificate of registration issued to a casual taxable person or a non-resident taxable
person shall be valid only for a period of ______ days.
1. ` 40
2. Exempt
3. Thirty days
4. Registration
5. Five
6. Ninety
14.11 SUMMARY
As we have learnt the provision of registration under GST as per Section 22 of the
CGST and SGST Act 2017, every supplier including his agent, who makes a taxable supply
of goods or services or both, and his aggregate turn over in a financial year exceeds the
specified threshold limit should get registration under GST Law. A person without GST
registration can neither collect GST from his customers nor can claim any input tax credit of
GST paid by him. Further, a person should take a registration under GST law within thirty
50
days from the date on which he becomes liable to registration, in such manner and subject to
such conditions as is prescribed under the Registration Rules. A casual taxable person and a
non-resident taxable person should apply for registration at least five days prior to
commencement of his business.
14.12 KEYWORDS
Aggregate Turnover-Section 2(6) : Aggregate turnover means the aggregate value
of all taxable supplies (excluding the value of
inward supplies on which tax is payable by a
person on reverse charge basis), exempt
supplies, Exports of goods or services or both,
and Inter-State supplier of persons having the
same Permanent Account Number, to be
computed on all India bases but excludes –
Central tax, State tax, Union territory tax,
Integrated tax, and Cess.
Document-Section 2(41) : Document includes written or printed record of

any sort and electronic record as defined in
Section 2(t) of the Information Technology Act,
2000.
As per the Information Technology Act, 2000,

an electronic record means data, record or data
generated, image or sound stored, received or
sent in an electronic form or micro film or
Computer generated micro fiche. A document
includes both manual and electronic forms of
records.
Registered Person-Section 2(94) : Registered person means a person who is

registered under section 25 but does not include
a person having a Unique Identity Number.
51
Taxable Person-Sec- 2(107) : Taxable person means a person who is
registered or liable to be registered under section
22 or section 24.
14.13 QUESTIONS FOR SELF STUDY

1. What are the benefits of registration under GST law?
2. Explain the different types of registration under the GST Act.
3. Under what circumstances registration not required under GST.
4. Explain the provisions relating to revocation of cancelation of registration under GST Act.
5. Explain the time limit for taking registration.
14.14 REFERENCES
4. CA Raj K Agrawal and Shivangi Agrawal - Indirect Taxation for CMA Inter - Baharat’s
7. icmai.in
8. www.icsi.edu
9. cbic-gst.gov.in
11. www.cleartax.in
52
UNIT-15 ASSESSMENT AND RETURNS
Structure:
15.0 Objectives
15.1 Introduction
15.2 Meaning and Types of Assessment under GST
15.3 Furnishing Details of Outward Supplies and Inward Supplies
15.4 First Return, Annual Return and Final Return
15.5 Matching, Reversal and Reclaim of Input Tax Credit and Output Tax Liability
15.7 Summary
15.8 Keywords
15.10 References
53
15.0 OBJECTIVES
 Explain the concept of assessment under GST.

 Discuss the different types of assessment.
 Analyse the concept and different types of returns under GST.
 Describe the matching, reversal and reclaim of Input Tax Credit and output tax
liability.
15.1 INTRODUCTION
Under GST Act, every registered person determines his taxable value and the term
“assessment” means a determination of tax liability under this Act and includes self-
assessment, re-assessment, provisional assessment, summary assessment, and best judgment
assessment. Normally, persons having GST registration will file different GST returns as per
their transactions and pay GST every month based on different assessment of GST liability.
Thus, let us discuss different types of assessment and returns under GST in this unit.
15.2 MEANING AND TYPES OF ASSESSMENT UNDER GST

Meaning: As per section 2(11) of the GST Act, “assessment” means determination of tax
liability. Various types of assessment under GST are self-assessment, re-assessment,
provisional assessment, summary assessment and best judgement assessment.
Types of Assessment:
The CGST Act contemplates the following types of assessments:
Self-assessment (Section 59):
Self-assessment refers to the assessment made by registered person himself / itself

while all other assessments are undertaken by tax authorities. Every registered person would
be required to assess his tax dues and GST payable and furnish the return for each tax period
as specified U/S 39.
Provisional Assessment (Section 60):
Subject to the provision of sub-section (2), assessee can avail the facility of
provisional assessment in two cases:
 where the taxable person is unable to determine the value of goods or services or
both; or
54
 where the taxable person is unable to determine the rate of GST applicable to
particular goods or services or both.
Further, he may request the proper officer in writing by giving reasons for payment of
tax on a provisional basis and the proper officer shall pass an order within a period not later
than ninety days from the date of receipt of such request, allowing payment of tax on
provisional basis at such rate or on such value as may be specified by him.
Scrutiny Assessment (Section 61):
Scrutiny Assessment or re-assessment conducted by the proper officer who checks for
the correctness of the returns filed by the registered taxable person and intimates the
registered person of any discrepancies noticed. It is not mandatory for the officer to scrutinize
return. Scrutiny of returns is not a legal or judicial proceeding, that is, no order can be passed.
The officer will ask for explanations on discrepancies noticed.
Best Judgement Assessment (Section 62):
As per section 62 of the GST Act empowers the proper officer to make best
judgement assessment, if the registered person did not file the returns. Best judgement
assessment will be conducted due to the registered taxable person fails to furnish the
following:
 Return under Section 39

 Return of outward supplies
 Return of inward supplies
 Monthly return
 TDS return
 TCS returns
 Return by non-resident person
 Return by input service provider
 Final return under section 45
 Return to comply with the notice under section 46
Assessment of Unregistered Persons (Section 63)
In the following cases officer may pass the best judgment assessment within five years:
 If a person who is liable to obtain the registration but fails to obtain the registration.
 Person whose registration has been cancelled by officer but who is liable to pay tax.
55
 An opportunity of being heard shall be given before passing the order.
Summary Assessment (Section 64)
If the proper officer is having such evidences which proves that there are some
discrepancies in the tax liability, then the officer will take prior permission of the Joint
Commissioner / Additional Commissioner to assess the tax liability in the interest of the
revenue. Further, if the taxable person to whom the tax liability is imposed is not
ascertainable, then the person in charge shall be liable to pay the assessed tax or any other
dues.
15.3 FURNISHING DETAILS OF OUTWARD SUPPLIES AND INWARD

SUPPLIES
Furnishing details of outward supplies (Section- 37):
As per Section 37, every registered person furnishing details of outward supplies in form
GSTR-1 except following:
 Input Service Distributor;

 A non-resident taxable person;
 A person paying tax under composition scheme of U/S 10;
 Person paying TDS under section 51.
 Person collecting TCS under section 52.
Every registered person furnishing details of outward supplies shall furnish,

electronically, in form GSTR-1. The details of outward supplies of goods or services or both
effected during a tax period on or before the tenth day of the month succeeding the said tax
period and such details shall be communicated to the recipient of the said supplies within
such time and in such manner as may be prescribed.
Furnishing details of inward supplies (Section- 38):
Every registered person furnishing details of inward supplies in form GSTR-2 as per
section 38 of the GST Act the except following:
 Input Service Distributor;

 A non-resident taxable person;
 A person paying tax under composition scheme U/S 10;
 Person paying TDS under section 51;
 Person collecting tax TCS under section 52.
56
Every calendar month or part thereof, furnish, in such form and manner as may be
prescribed, a return, electronically, of inward and outward supplies of goods or services or
both, input tax credit availed, tax payable, tax paid and such other particulars as may be
prescribed, on or before the twentieth day of the month succeeding such calendar month or
part thereof.
15.4 FIRST RETURN, ANNUAL RETURN AND FINAL RETURN

First Return (Section- 40):
Every registered person who has made outward supplies in the period between the
date on which he become liable to registration till the date on which registration has been
granted, shall declare the same in the first return furnished by him after grant of registration.
Annual Return (Section- 44):
Every registered person, other than an Input Service Distributor, a person paying tax
under section 51 or section 52, a casual taxable person and a non-resident taxable person,
shall furnish an annual return for every financial year electronically in such form and manner
as may be prescribed on or before the thirty-first day of December following the end of such
financial year.
Final Return (Section- 45):
Every registered person who is required to furnish a return under sub-section (1) of
section 39 and whose registration has been cancelled shall furnish a final return within three
months of the date of cancellation or date of order of cancellation, whichever is later, in such
form and manner as may be prescribed.
Forms of GST Return:
Return Form: GSTR-1:
Description: Monthly statement of outward supplies of goods and services
Who files: Registered person
Periodicity and Due Date: Monthly, 10th of the next month
Return Form: GSTR-2
Description: Monthly statement of inward supplies of goods and services
57
Return Form: GSTR-3
Description: Monthly return for a normal tax payer
Periodicity and Due Date: Monthly, 20th of the next month.
Return Form: GSTR-4
Description: Annual return
Who files: Tax payer who have opted for composition scheme
Periodicity and Due Date: Yearly, April 30th after end of the financial year.
Return Form: GSTR-5
Description: Monthly return for a non-resident tax payer
Who files: Non-resident tax payer
Periodicity and Due Date: Monthly, 20th from end of the month or within 7 days after the
last day of validity of registration whichever is earlier.
Return Form: GSTR-5A
Description: OIDAR (Online Information Database Access and Retrieval Services)
Who files: Non-recident OIDAR service providers.
Return Form: GSTR-6
Description: Taxable person registered as Input Service Distributor
58
Who files: Input Service Distributor (ISD)
Return Form: GSTR-7
Description: Monthly return for authorities deducting tax at sources
Who files:Tax deductor
Return Form: GSTR-8
Description: Monthly statement by Electronic commerce operator (non being an agent)
Who files: Electronic commerce operator
Return Form: GSTR-9
Description: Annual return
Who files: Registered person (other than an ISD, TDS/TCS tax payer, casual taxable person
and non-resident tax payer)
Periodicity and Due Date: Annual, 31st December of next financial year
Return Form: GSTR-10
Description: Final return
Who files: Registered person and whose registration has been cancelled
Periodicity and Due Date: Within 3 months of the date of cancellation or date of
cancellation order, whichever is later
Return Form: GSTR-11
Description: Annual Return
59
Who files: Person having unique identity number and claim refund of taxes
Periodicity and Due Date: 31st December of next financial year
Return Form: GSTR-CMP -08
Description: Quarterly return
Who files: Taxable person opting for composition scheme or alternative composition scheme
Periodicity and Due Date: Quarterly, 18th of the month succeeding the quarter
15.5 MATCHING, REVERSAL AND RECLAIM OF INPUT TAX CREDIT AND

OUTPUT TAX LIABILITY
Every registered person shall, subject to such conditions and restrictions as may be
prescribed, be entitled to take the credit of eligible input tax, as self-assessed, in his return
and such amount shall be credited on a provisional basis to his electronic credit ledger.
Matching, reversal and reclaim of input tax credit (Section- 42):
The details of every inward supply furnished by a registered person (recipient) for tax
period are matched as follows:
 With the corresponding details of outward supply furnished by the corresponding

registered supplier in his valid return for the same tax period or any preceding tax
period
 With the integrated goods and services tax (IGST) paid under section 3 of the
Customs Tariff Act, 1975 in respect of goods imported by him and for duplication of
claims of input tax credit;
 The claim of input tax credit in respect of invoices or debit notes relating to inward
supply that match with the details of corresponding outward supply or with the
integrated goods and services tax paid under section 3 of the Customs Tariff Act,
1975 in respect of goods imported by him shall be finally accepted and such
acceptance shall be communicated, in such manner as may be prescribed, to the
recipient.
 Where the input tax credit claimed by a recipient in respect of an inward supply is in
excess of the tax declared by the supplier for the same supply or the outward supply is
not declared by the supplier in his valid returns, the discrepancy shall be
communicated to both such persons in such manner as may be prescribed.
60
 The duplication of claims of input tax credit shall be communicated to the recipient in
such manner as may be prescribed.
 The amount in respect of which any discrepancy is communicated under subsection
(3) and which is not rectified by the supplier in his valid return for the month in which
discrepancy is communicated shall be added to the output tax liability of the recipient,
in such manner as may be prescribed, in his return for the month succeeding the
month in which the discrepancy is communicated.
 The recipient shall be eligible to reduce, from his output tax liability, the amount
added under sub-section (5), if the supplier declares the details of the invoice or debit
note in his valid return within the time specified in sub-section (9) of section 39.
 A recipient in whose output tax liability any amount has been added under subsection
(5) or sub-section (6), shall be liable to pay interest at the rate specified under sub-
section (1) of section 50 on the amount so added from the date of availing of credit till
the corresponding additions are made under the said subsections.
 Where any reduction in output tax liability is accepted under sub-section (7), the
interest paid under sub-section (8) shall be refunded to the recipient by crediting the
amount in the corresponding head of his electronic cash ledger in such manner as may
be prescribed: Provided that the amount of interest to be credited in any case shall not
exceed the amount of interest paid by the supplier.
 The amount reduced from the output tax liability in contravention of the provisions of
sub-section (7) shall be added to the output tax liability of the recipient in his return
for the month in which such contravention takes place and such recipient shall be
liable to pay interest on the amount so added at the rate specified in sub-section (3) of
section 50.
Matching, reversal and reclaim of reduction in output tax liability (Section-43):
 The details of every credit note relating to outward supply furnished by a registered
person (hereafter referred to as the “supplier”) for a tax period shall, in such manner
and within such time as may be prescribed, be matched - (a) with the corresponding
reduction in the claim for input tax credit by the corresponding registered person
(hereafter referred to as the “recipient”) in his valid return for the same tax period or
any subsequent tax period; and (b) for duplication of claims for reduction in output
tax liability.
61
 The claim for reduction in output tax liability by the supplier that matches with the
corresponding reduction in the claim for input tax credit by the recipient shall be
finally accepted and communicated, in such manner as may be prescribed, to the
supplier.
 Where the reduction of output tax liability in respect of outward supplies exceeds the
corresponding reduction in the claim for input tax credit or the corresponding credit
note is not declared by the recipient in his valid returns, the discrepancy shall be
communicated to both such persons in such manner as may be prescribed.
 The duplication of claims for reduction in output tax liability shall be communicated
to the supplier in such manner as may be prescribed.
 The amount in respect of which any discrepancy is communicated under subsection
(3) and which is not rectified by the recipient in his valid return for the month in
which discrepancy is communicated shall be added to the output tax liability of the
supplier, in such manner as may be prescribed, in his return for the month succeeding
the month in which the discrepancy is communicated.
 The amount in respect of any reduction in output tax liability that is found to be on
account of duplication of claims shall be added to the output tax liability of the
supplier in his return for the month in which such duplication is communicated.
 The supplier shall be eligible to reduce, from his output tax liability, the amount
added under sub-section (5) if the recipient declares the details of the credit note in his
valid return within the time specified in sub-section (9) of section 39.
 A supplier in whose output tax liability any amount has been added under subsection
(5) or sub-section (6), shall be liable to pay interest at the rate specified under sub-
section (1) of section 50 in respect of the amount so added from the date of such claim
for reduction in the output tax liability till the corresponding additions are made under
the said sub-sections.
 Where any reduction in output tax liability is accepted under sub-section (7), the
interest paid under sub-section (8) shall be refunded to the supplier by crediting the
amount in the corresponding head of his electronic cash ledger in such manner as may
be prescribed: Provided that the amount of interest to be credited in any case shall not
exceed the amount of interest paid by the recipient.
 The amount reduced from output tax liability in contravention of the provisions of
sub-section (7) shall be added to the output tax liability of the supplier in his return for
the month in which such contravention takes place and such supplier shall be liable to
62
pay interest on the amount so added at the rate specified in sub-section (3) of section
50.

1. GSTR-1 gives the details of ______.

2. GSTR-2 gives the details of______.
3. GSTR-3 is containing the details of______.
4. GSTR-4A is generated quarterly for______.
5. Input Service Distributor has to file ______.
6. GSTR-7 contains details of ______.
7. E-Commerce seller has to furnish the details of all the supplies made in ______.
8. GSTR-9 is also called______.
9. Summary Assessment under section 64 is also called______.
1. Outward supplies
2. Inward supplies
3. outward as well as inward supplies
4. Composition scheme taxpayers
5. GSTR-6A
6. Tax Deducted at Sources
7. GSTR-8
8. Annual Return
9. Protective assessment
15.7 SUMMARY
As we know, assessment of GST is an important procedure to be conducted by the

GST payer. For calculation of their taxable income and determination of tax liability under
this Act. There are various types of assessment which includes self-assessment,
re-assessment, provisional assessment, summary assessment and best judgment assessment.
For the easy calculation various options are available to the assessee as per his or her comfort
zone and requirement. The assessment procedure helps to identify the amount of tax for
particular period of time. Further, once the calculation of tax liability is done, then it should
63
be paid within time period and GST return shall be filed using various type of GST returns on
monthly, quarterly and yearly basis on type of transaction the assessee made.
15.8 KEYWORDS
Assessment-2(11) : Assessment means determination of tax liability under
this Act and Includes, self-assessment, re-assessment,
provisional assessment, summary assessment, and best
judgment assessment
Proper Office-R2(91) : Proper officer in relation to any function to be

performed under this Act, means the Commissioner or
the officer of the central tax who is assigned that
function by the Commissioner in the Board.
Tax Period-2(106) : Tax period means the period for which the return is
required to be furnished.

1. What is assessment under GST?
2. What are the different types of assessment under GST Act?
3. What are the various returns filed by taxable person under GST law?
4. Who is required to furnish GSTR-1 and GSTR-3?

5. Explain advantages of filing GST returns.
6. Who is required to furnish the details of outward taxable supply as per GST Act?
7. What is first, annual and final return under GST?
15.10 REFERENCES
64
7. icmai.in
8. www.icsi.edu
9. cbic-gst.gov.in
11. www.cleartax.in
65
UNIT–16 GST AND TECHNOLOGY
Structure:
16.0 Objectives
16.1 Introduction
16.2 The Indian GSTN Structure
16.3 Goals of Goods and Services Tax Network
16.4 Power and Functions of Goods and Services Tax Network
16.5 Design and Implementation Framework of Goods and Services Tax Network
16.7 Summary
16.8 Keywords
16.10 References
66
16.0 OBJECTIVES
 Explain the concept of GST Technology and GST structure.

 Examine the power and functions of GSTN.
 Prepare GSTN design and implementation.
16.1 INTRODUCTION
So far we have discussed various important concepts and provisions under GST Act
namely, supply of goods and services, registration under GST, assessment and returns under
GST. In this unit, we shall throw a light on GST technology. The Goods and Service Tax
Network (or GSTN) is a non-profit and non-government organization. It will manage the
entire GST portal IT system and is the mother database for everything in GST. The
government will use this portal to track every financial transaction and provide taxpayers
with all services, from registration to filing the taxes and maintaining all tax details.
16.2 THE INDIAN GSTN STRUCTURE

The Authorised Capital of the company is ` 10,00,00,000 (` ten crore only). Central
and state government has share holdings of 24.5% each. The Government of India holds
24.5% equity in GSTN and all States of the Indian Union, including NCT of Delhi and
Puducherry, and the Empowered Committee (EC) of State Finance Ministers, together hold
another 24.5%. Balance 51% equity is with non-Government financial institutions. The
pattern of shareholdings is as follows:
Shareholdings and organisation structure of GSTN
Shareholders Shareholding
Central Government 24.5%
State Governments & Empowered 24.5%

Committee
HDFC 10%
HDFC Bank 10%
67
ICICI Bank 10%
NSE Strategic Investment Co 10%
LIC Housing Finance Ltd 11%
Total 100%
Shareholding pattern of GSTN:
(Source: GSTN)
16.3 GOALS OF GOODS AND SERVICES TAX NETWORK (GSTN)

GSTN has been set-up with the following objectives to act as a pass through interface
for dealers:
 Integration of the common GST Portal with the existing tax administration systems of
the Central/State governments and other stakeholders.
 Provide common PAN based registration, enable returns filing and payment
processing for all states on a shared platform.
 Facilitation, implementation and set standards for providing services to the taxpayer
through common GST portal;
 Build efficient and convenient interfaces with tax payers to increase tax compliance;
 Carry out research, study best practices and provide training to the stakeholders;
68
 GSTN has been entrusted with the responsibility to develop, operate and maintain a
common GST portal which would provide a common and shared IT infrastructure
between Central and State Governments, Banks, CBEC, Reserve Bank of India etc.
 For the purpose of simplicity for taxpayer, uniformity of tax administration, it is also
proposed to have digitization of all documents and automation of related processes
such as common PAN-based registration; common standardized return for all taxes
(with different account heads for CGST, SGST, IGST); common standardized challan
for all taxes (with different account heads for CGST, SGST, IGST) etc. Each tax
authority will have full flexibility in using this data for in-house automation,
integration and enforcement.
16.4 POWER AND FUNCTIONS OF GOODS AND SERVICES TAX NETWORK

(GSTN)
GSTN is the backbone of the Common Portal which is the interface between the
taxpayers and the government. The entire process of GST from registration to the filing of
returns is done online. It has to support about 3 billion invoices per month and the subsequent
return filing for 90 to 95 lakh taxpayers. Function of GSTN can be classified as statutory and
non-statutory functions. Further statutory function includes approval of registration,
assessment, audit, appeal, enforcement, abdication, recovery and analytics etc. Similarly non-
statutory function includes, registrations, returns, payments, help desk support and GST
settlement. The diagram below shows the work distribution.
69
Power and Functions of GSTN
(Source: GSTN)
70
16.5 DESIGN AND IMPLEMENTATION FRAMEWORK OF GSTN
(Image Source: GSTN)

1. GSTN stand for______.
2. In GSTN Structure ______ of shareholding held by both Central and state government
each.
71
3. In GSTN Structure ______ of equity shareholding held by non-government financial
institutions.
4. The GSTN portal helps to track ______ transaction.
5. Approval of registration, assessment and audit are GSTN ______ functions
1. Goods and Service Tax Network
2. 24.5%
3. 51%
4. Financial transaction
5. Statutory function
16.7 SUMMARY
So far we had discussed goods and services tax network, its design and
implementation and its power and functions. GSTN has been provided with a IT platform and
which provides interface to 80 lakhs plus taxpayers and thousands of tax officials. GSTN has
been made as a 25 private limited company with strategic control with the Government, to
function as a common pass-through portal for taxpayers which helps to taxpayers as submit
their registration applications, file returns, make tax payments, claim refunds and other
compliances. All filings under GST will be done electronically. Nearly twenty five
banks have been integrated with the GST common portal and will be providing e-payment
and over the counter payment facilities as well as payment through NEFT/RTGS and also
using debit and credit card.
16.8 KEYWORDS
The Goods and Service Tax Network : It is a non-profit and non-government
organization.
Statutory function : It includes approval of registration,

assessment, audit, appeal, enforcement,
abdication, recovery and analytics.
Non-Statutory Function : It includes registrations, returns,

payments, help desk support and GST
settlement.
72
16.9 QUESTIONS FOR SELF STUDY
1. Explain about Goods and Service Tax Network
2. Write an explanatory note on GSTN structure.
3. Explain functions of GSTN.
4. Explain GSTN design and implementation framework.
5. List out goals of GSTN.
16.10 REFERENCES
7. icmai.in
8. www.icsi.edu
9. cbic-gst.gov.in
11. www.cleartax.in
73

Business Taxation and GST 4 Blocks

Uploaded by

Copyright:

Available Formats

You might also like

Business Taxation and GST 4 Blocks

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Business Taxation and GST 4 Blocks

Uploaded by

Copyright:

Available Formats

Karnataka State Open University

Mukthagangothri, Mysuru - 570 006

Department of Studies and Research in Commerce

UNIT - 1: INTRODUCTION 1-19

UNIT - 2: DEFINITION OF COMPANY 20-32

UNIT - 3: HEADS OF INCOME 33-72

UNIT - 4: DEPRECIATION 73-91

Prof. Venkatesh S. External Member

Smt. Usha C. Member Convener

With best wishes,

This block comprises of 4 units:

Unit-1: Introduction to Taxation

Unit-2: Definitions of Company

Unit-3: Heads of Income

UNIT-1 INTRODUCTION TO TAXATION

1.2 Brief History of Taxation in India

1.3 Meaning of Tax and Income Tax

1.4 Types of Tax

1.5 Canons of Taxation

1.6 Basic Concepts of Taxation

1.6.1 Assessment Year

1.6.2 Previous Year

1.6.6 Gross Total Income

1.6.7 Total Income

1.6.8 Casual Income

1.7 Capital and Revenue

1.8 Exempted Incomes

1.9 Check Your Progress

1.12 Questions for Self-Study

 Give the meaning and types of tax.

1.2 BRIEF HISTORY OF TAXATION IN INDIA

In addition to funding a government's operations, progressive income taxation is

However, presence of tax ambiguities (whose number increases in direct proportion

1.4 TYPES OF TAX

Direct Tax Indirect Tax

Levied on income Levied on goods and services. Thus, this

E.g., GST and Customs Duty

1.5 CANONS OF TAXATION

The following canons of taxation have been identified by Adam Smit.

1.6 BASIC CONCEPTS OF TAXATION

1.6.2: PREVIOUS YEAR - Section 3

1. Income of non-residents from shipping;

3. Income of bodies formed for short duration;

5. Income of a discontinued business.

Previous Year (PY) in case of newly setup business

Illistration-1: What will be the PY in relation to AY 2023-24 in the following cases:

a) A sole trader keeping his accounts on financial basis.

b) Sri Murthy steps up a new business on 03-03-2023.

c) Mrs. Lavanya joins an Indian company on 23-01-2023.

Determination of Previous Year in relation to Assessment year 2023-24

Particulars Previous Year in relation to Assessment

a) A sole trader keeping his accounts on 1-4-2022 to 31-3-2023

b) Sri Murthy steps up a new business 03-03-2023 to 31-3-2023

c) Mrs Lavanya joins an Indian 23-01-2023 to 31-3-2023

d) Smt. Monika bought a house on 1-08-2022 to 31-3-2023

e) Smt. Pavithra is a registered doctor 1-04-2022 to 31-3-2023

1.6.3: ASSESSEE- Section 2(7)

1.6.4: PERSON- Section 2(31)