Tax Management:

• Definition: Tax management is the process of fulfilling all tax-related obligations by

adhering to tax laws and regulations. It involves efficient handling of all matters related
to taxes, including timely filing of returns, maintaining proper records, and complying
with legal requirements.

Tax Planning:

• Definition: Tax planning involves strategizing financial affairs to minimize tax liability
in a legal manner. It encompasses various practices such as income deferral, investment
planning, and taking advantage of tax deductions and credits.
•

Tax Evasion:

• Definition: Tax evasion is the illegal act of not paying taxes by underreporting income,
inflating deductions, or hiding money and income altogether. It involves deliberate
actions to avoid paying the due amount of taxes.

Tax Avoidance:

• Definition: Tax avoidance is the legal use of tax laws to reduce one's tax burden. It
involves structuring transactions and financial activities to take advantage of loopholes
and exemptions provided by the tax code.

Objectives of Tax Management

1. Compliance with Tax Laws: Ensure that all tax-related activities adhere to the current
tax laws and regulations to avoid legal issues.
2. Timely Filing: Ensure timely submission of tax returns and other required documents to
avoid penalties and interest.
3. Accurate Record-Keeping: Maintain accurate and comprehensive records of financial
transactions to support tax filings and audits.
4. Minimize Legal Risks: Reduce the risk of legal disputes and audits by adhering strictly
to tax regulations.
5. Cash Flow Management: Optimize cash flow by planning for tax payments and refunds,
ensuring that sufficient funds are available when taxes are due.
6. Efficient Use of Resources: Allocate resources effectively to manage tax obligations
without unnecessary expenditures.
7. Strategic Decision Making: Use tax considerations to inform strategic business
decisions, such as investment and expansion plans.
8. Avoidance of Penalties: Implement measures to avoid fines, penalties, and interest due
to non-compliance or late payments.

Objectives of Tax Planning

 1. Minimize Tax Liability: Strategically plan financial activities to reduce the overall tax
burden within the legal framework.
2. Maximize After-Tax Income: Increase the amount of income retained after taxes
through efficient tax planning.
3. Utilize Tax Benefits: Take full advantage of all available tax deductions, credits, and
exemptions.
4. Investment Optimization: Plan investments in a way that maximizes tax benefits and
aligns with financial goals.
5. Retirement Planning: Use tax-efficient strategies to enhance retirement savings and
benefits.
6. Estate Planning: Develop strategies to minimize taxes on estate transfers and gifts.
7. Business Growth: Support business growth and expansion by optimizing tax obligations
and reinvesting tax savings.
8. Tax Efficient Transactions: Structure transactions such as mergers, acquisitions, and
sales in a tax-efficient manner.

Objectives of Tax Evasion (Illegal and Unethical)

1. Illegally Reduce Tax Payments: Intentionally underreport income or inflate deductions

to lower tax liabilities.
2. Avoid Detection: Conceal income and assets to evade scrutiny by tax authorities.
3. Increase Disposable Income: Illegally retain more income by not paying due taxes.
4. Hide Financial Activities: Use offshore accounts or other methods to hide financial
activities from tax authorities.
5. Circumvent Tax Laws: Find and exploit illegal methods to circumvent tax obligations.
6. Short-Term Financial Gain: Achieve immediate financial benefits by evading taxes,
despite the risk of severe penalties.

Objectives of Tax Avoidance (Legal but Controversial)

1. Legally Minimize Tax Liability: Use legal methods and strategies to reduce the amount
of taxes owed.
2. Optimize Tax Efficiency: Plan financial and business activities to maximize tax
efficiency and savings.
3. Leverage Tax Loopholes: Identify and utilize loopholes and ambiguities in tax laws to
reduce tax obligations.
4. Ensure Compliance: Stay within the bounds of the law while minimizing tax payments.
5. Long-Term Tax Strategy: Develop and implement long-term tax strategies that align
with overall financial goals.
6. Ethical Considerations: Balance tax avoidance strategies with ethical considerations and
potential reputational risks.
7. Utilize Tax Incentives: Take advantage of government-provided tax incentives, credits,
and deductions.
8. Avoid Legal Issues: Ensure that tax avoidance practices do not cross into illegal
territory, avoiding potential legal issues and penalties.
Differences Between Tax Planning, Tax Management, Tax Avoidance, and Tax Evasion

1. Definition:
o Tax Planning: Organizing financial affairs to minimize tax liability within legal
bounds.
o Tax Management: Handling all tax-related obligations accurately and timely,
ensuring compliance with tax laws.
o Tax Avoidance: Structuring financial activities to minimize tax payments legally,
often exploiting loopholes.
o Tax Evasion: Illegally misrepresenting or hiding information to reduce tax
liability.
2. Legality:
o Tax Planning: Legal
o Tax Management: Legal
o Tax Avoidance: Legal
o Tax Evasion: Illegal
3. Ethics:
o Tax Planning: Generally considered ethical as it follows the law.
o Tax Management: Ethical and necessary for compliance.
o Tax Avoidance: Often ethically questionable, exploiting loopholes.
o Tax Evasion: Unethical and criminal.
4. Intent:
o Tax Planning: To minimize tax liability within the legal framework.
o Tax Management: To ensure compliance with tax laws and manage tax-related
affairs efficiently.
o Tax Avoidance: To minimize tax payments using legal strategies.
o Tax Evasion: To illegally reduce tax payments by deception.
5. Methods:
o Tax Planning: Utilizing legal deductions, credits, and tax-advantaged accounts;
timing income and expenses.
o Tax Management: Accurate record-keeping, timely filing of tax returns, staying
informed about tax law changes.
o Tax Avoidance: Utilizing tax shelters, offshore accounts, strategic timing of
income and expenses.
o Tax Evasion: Underreporting income, falsifying records, hiding income or assets.
6. Objective:
o Tax Planning: Minimize tax liability while remaining fully compliant with tax
laws.
o Tax Management: Ensure compliance with tax laws, avoid penalties, and
manage tax-related affairs efficiently.
o Tax Avoidance: Legally reduce tax payments to the minimum possible amount.
o Tax Evasion: Illegally reduce or eliminate tax payments.
7. Consequences:
o Tax Planning: Results in tax savings; no legal consequences if done properly.
o Tax Management: Avoidance of penalties and interest; ensures smooth financial
operations.
 o
Tax Avoidance: Potential legislative changes; reputational risks.
o
Tax Evasion: Legal penalties, fines, imprisonment.
8. Examples:
o Tax Planning: Investing in retirement accounts, claiming education credits,
charitable donations.
o Tax Management: Filing tax returns on time, maintaining detailed financial
records.
o Tax Avoidance: Using tax havens, income splitting, setting up trusts.
o Tax Evasion: Underreporting cash income, creating fake invoices, hiding money
offshore.
9. Risk:
o Tax Planning: Low risk if done within the legal framework.
o Tax Management: Low risk as it focuses on compliance.
o Tax Avoidance: Moderate risk due to potential scrutiny and changes in law.
o Tax Evasion: High risk due to illegal nature and severe penalties.
10. Impact on Financial Planning:
o Tax Planning: Positive impact by maximizing after-tax income and aligning with
financial goals.
o Tax Management: Positive impact by ensuring compliance and avoiding
unexpected tax liabilities.
o Tax Avoidance: Can have a positive short-term impact but may lead to future
scrutiny and ethical concerns.
o Tax Evasion: Negative impact due to legal repercussions and potential financial
penalties.

Minimum Alternate Tax (MAT)

Concept

• Definition: Minimum Alternate Tax (MAT) is a tax provision in India that ensures
companies with substantial book profits but lower taxable income due to exemptions and
deductions pay a minimum amount of tax.

• Applicability: MAT applies to all companies, including foreign companies, but certain
exemptions exist (e.g., companies engaged in infrastructure and power sectors).

• Calculation: MAT is calculated at a prescribed percentage (currently 15%) of the book

profits, as shown in the profit and loss account prepared as per the Companies Act.

Objectives

1. Prevent Tax Avoidance: Ensure that companies with large book profits cannot avoid
paying taxes by taking advantage of various deductions and exemptions.

2. Ensure Fair Tax Contribution: Guarantee that all companies contribute a minimum
amount of tax to the government revenue.
 3. Promote Transparency: Encourage companies to maintain proper accounting records as
per statutory requirements.

4. Broaden Tax Base: Increase the tax base by bringing more companies into the tax net,
even those with significant book profits but low taxable income.

Key Features

1. MAT Rate: The current MAT rate is 15% of book profits, plus applicable surcharge and
cess.

2. Book Profits: Book profits are calculated as per the profit and loss account prepared
according to the Companies Act, subject to certain adjustments.

3. Carry Forward: Companies can carry forward MAT credit (the difference between
regular tax liability and MAT paid) for 15 assessment years and use it to offset future tax
liabilities.

4. Exemptions: Certain categories of companies and income are exempt from MAT, such
as income from life insurance business, shipping income under the tonnage tax scheme,
etc.

Alternate Minimum Tax (AMT)

Concept

• Definition: Alternate Minimum Tax (AMT) is similar to MAT but applies to non-
corporate taxpayers, including individuals, partnership firms, and LLPs, who claim
certain deductions and exemptions under the Income Tax Act.

• Applicability: AMT applies to all non-corporate taxpayers whose adjusted total income
exceeds a specified threshold and who claim certain deductions (e.g., Section 80H to
80RRB, Section 35AD, etc.).

• Calculation: AMT is calculated at a prescribed percentage (currently 18.5%) of the

adjusted total income.

Objectives

1. Prevent Tax Avoidance: Ensure that non-corporate taxpayers with significant adjusted
total income pay a minimum amount of tax, despite claiming various deductions.

2. Equity in Taxation: Ensure a fair tax system by making high-income individuals and
entities contribute to tax revenue even when they claim substantial deductions.
 3. Widen Tax Base: Bring more non-corporate taxpayers into the tax net, increasing overall
tax compliance and revenue.

4. Transparency: Encourage proper disclosure and adherence to tax laws by non-corporate

taxpayers.

Key Features

1. AMT Rate: The current AMT rate is 18.5% of adjusted total income, plus applicable
surcharge and cess.

2. Adjusted Total Income: Adjusted total income is calculated by adding back certain
deductions claimed under the Income Tax Act to the total income.

3. Threshold: AMT applies only if the adjusted total income exceeds a specified threshold
(e.g., INR 20 lakhs).

4. Carry Forward: Non-corporate taxpayers can carry forward AMT credit for 15
assessment years and use it to offset future tax liabilities.

Comparison of MAT and AMT

Feature MAT AMT

Companies (domestic and Non-corporate taxpayers (individuals,

Applicability
foreign) LLPs, partnerships)

Prevent tax avoidance by Prevent tax avoidance by non-corporate

Objective
companies taxpayers

Tax Rate 15% of book profits 18.5% of adjusted total income

Basis of Book profits as per profit and Adjusted total income after adding back
Calculation loss account certain deductions

Applies if adjusted total income exceeds a

Threshold No specific threshold
specified amount (e.g., INR 20 lakhs)

Carry Forward of
15 years 15 years
Credit

Certain companies (e.g., Certain incomes (e.g., income from

Exemptions
infrastructure, power sectors) shipping under tonnage tax scheme)
Chapter VIA - Deductions from Gross Total Income

Chapter VIA of the Income Tax Act, 1961, provides for various deductions that taxpayers can
claim from their gross total income (GTI) to arrive at the taxable income. These deductions help
in reducing the overall tax liability and promote savings, investments, and expenditure on
specified areas such as education, healthcare, and social welfare.

Here are the key sections under Chapter VIA:

Section 80C: Deductions in Respect of Certain Investments

• Eligible Amount: Up to INR 1.5 lakh per annum.

• Eligible Investments:
o Life Insurance Premiums
o Contributions to Public Provident Fund (PPF)
o Employee Provident Fund (EPF)
o National Savings Certificates (NSC)
o Tax-saving Fixed Deposits (FDs)
o Equity Linked Savings Scheme (ELSS)
o Principal repayment on home loan
o Tuition fees for children
o Sukanya Samriddhi Yojana (SSY)
o Unit-linked Insurance Plans (ULIPs)

Section 80CCC: Contribution to Pension Funds

• Eligible Amount: Up to INR 1.5 lakh per annum.

• Purpose: Contributions to certain pension funds, such as those managed by LIC or other
approved insurers.

Section 80CCD: Contribution to Pension Schemes

• 80CCD(1):
o Eligible Amount: Up to 10% of salary (for salaried individuals) or 20% of gross
total income (for self-employed), subject to a maximum of INR 1.5 lakh.
• 80CCD(1B):
o Eligible Amount: Additional deduction up to INR 50,000 for contributions to the
National Pension System (NPS).
• 80CCD(2):
o Eligible Amount: Employer's contribution to NPS up to 10% of salary.

Section 80D: Deduction for Health Insurance Premiums

• Self, Spouse, and Children: Up to INR 25,000 per annum.

• Parents (less than 60 years): Additional INR 25,000 per annum.
• Parents (60 years and above): Additional INR 50,000 per annum.
 • Preventive Health Check-up: Up to INR 5,000 within the overall limit.

Section 80DD: Deduction for Maintenance and Medical Treatment of Disabled Dependents

• Eligible Amount:
o Up to INR 75,000 for normal disability (40% to 80% disability).
o Up to INR 1.25 lakh for severe disability (more than 80% disability).

Section 80DDB: Deduction for Medical Treatment of Specified Diseases

• Eligible Amount:
o Up to INR 40,000 per annum for individuals below 60 years.
o Up to INR 1 lakh for senior citizens (60 years and above).

Section 80E: Deduction for Interest on Education Loan

• Eligible Amount: Full interest paid on the education loan.

• Purpose: Loans taken for higher education for self, spouse, or children.

Section 80EE: Deduction for Interest on Home Loan for First-Time Homebuyers

• Eligible Amount: Up to INR 50,000 per annum.

• Conditions: The loan amount should not exceed INR 35 lakh, and the property value
should not exceed INR 50 lakh.

Section 80G: Deduction for Donations to Charitable Institutions

• Eligible Amount: Varies from 50% to 100% of the donation amount, subject to certain
qualifying limits.

Section 80GG: Deduction for House Rent Paid

• Eligible Amount: Least of the following:

o INR 5,000 per month
o 25% of total income
o Rent paid minus 10% of total income

Section 80GGA: Deduction for Donations for Scientific Research or Rural Development

• Eligible Amount: 100% of the donation amount.

Section 80GGB: Deduction for Contributions to Political Parties

• Eligible Amount: 100% of the contribution, subject to certain conditions.

Section 80GGC: Deduction for Contributions by Individuals to Political Parties

• Eligible Amount: 100% of the contribution, subject to certain conditions.

Section 80RRB: Deduction for Income from Patents

• Eligible Amount: Up to INR 3 lakh per annum.

Section 80TTA: Deduction for Interest on Savings Account

• Eligible Amount: Up to INR 10,000 per annum.

• Eligible Accounts: Savings accounts with banks, post offices, or cooperative societies.

Section 80TTB: Deduction for Interest on Deposits for Senior Citizens

• Eligible Amount: Up to INR 50,000 per annum.

• Eligible Accounts: Savings and fixed deposit accounts with banks, post offices, or
cooperative societies.

Section 80U: Deduction for Disabled Individuals

• Eligible Amount:
o Up to INR 75,000 for normal disability (40% to 80% disability).
o Up to INR 1.25 lakh for severe disability (more than 80% disability).

Tax Planning in Special Economic Zones (SEZs)

Concept of SEZs

Special Economic Zones (SEZs) are designated areas within a country that operate under
different economic regulations than the rest of the country. SEZs are created to promote
economic growth, attract foreign investment, boost exports, and create employment
opportunities. In India, SEZs offer various tax incentives to businesses to stimulate economic
activity and development.

Key Tax Benefits in SEZs

1. Income Tax Exemptions:

o Section 10AA: This section provides a tax holiday for SEZ units. The income of
SEZ units is exempt from income tax for the first five years of operation,
followed by a 50% exemption for the next five years, and a further 50%
exemption on the reinvested profit for the subsequent five years.
2. Exemption from Minimum Alternate Tax (MAT):
 o Initially, SEZ units were exempt from MAT. However, this exemption was
withdrawn in 2011. Currently, SEZ units are subject to MAT, but this can be
offset against future tax liabilities as per the carry-forward provisions.
3. Exemption from Dividend Distribution Tax (DDT):
o SEZ developers and units were exempt from DDT on dividends declared,
distributed, or paid on or after April 1, 2005. This exemption has been removed in
recent amendments, making SEZ units and developers liable to pay DDT.
4. Indirect Tax Exemptions:
o Customs Duty: SEZ units are exempt from customs duty on the import of capital
goods, raw materials, consumables, spares, and other goods.
o Central Excise Duty: Exemption from central excise duty on the procurement of
goods and services from the Domestic Tariff Area (DTA).
o Goods and Services Tax (GST): SEZ units can procure goods and services
without payment of IGST, subject to certain conditions and compliance with
prescribed procedures.
5. Exemption from State Taxes:
o SEZ units may be exempt from various state taxes and levies, such as sales tax,
value-added tax (VAT), and stamp duty, depending on the state government's
policies.

Tax Planning Strategies for SEZ Units

1. Maximizing Profit During Tax Holiday Period:

o Plan operations to maximize profits during the initial tax holiday period (first 5
years) to take full advantage of the 100% income tax exemption.
2. Profit Reinvestment:
o Reinvest profits during the second 10-year period to benefit from the 50%
exemption on reinvested profits under Section 10AA. This can be achieved
through expansion, modernization, or diversification of business activities.
3. Efficient Utilization of MAT Credit:
o While MAT is applicable to SEZ units, the credit can be carried forward for 15
years. Plan the financials to utilize MAT credit efficiently against future tax
liabilities.
4. Leverage Indirect Tax Benefits:
o Structure procurement and supply chain management to take advantage of
customs and central excise duty exemptions. Optimize the use of the zero-rated
supply provisions under GST to minimize indirect tax costs.
5. Compliance with Regulations:
o Ensure strict compliance with SEZ regulations to avoid penalties and maintain
eligibility for various tax benefits. This includes timely filing of required
documentation and adherence to operational guidelines.
6. Dividends and DDT:
o While the DDT exemption has been removed, plan dividend distribution
considering the current tax implications and explore alternative ways to return
profits to shareholders.
7. Cost Management:
 o Utilize SEZ benefits to reduce the cost of production by importing duty-free
capital goods and raw materials, leading to higher profit margins.
8. Inter-Unit Transactions:
o Plan inter-unit transactions within the SEZ and between SEZ and DTA units to
optimize tax benefits. Properly document and price these transactions to comply
with transfer pricing regulations.

Conclusion

Tax planning in SEZs requires a strategic approach to maximize the available tax benefits while
ensuring compliance with legal and regulatory requirements. Businesses operating in SEZs can
significantly reduce their tax liabilities and enhance profitability by leveraging income tax
exemptions, indirect tax benefits, and efficient financial planning. Proper planning and adherence
to SEZ policies and guidelines are essential to fully exploit the advantages offered by SEZs.

What is Dividend Income?

A dividend usually refers to the distribution of profits by a company to its shareholders. If you
are the one who invests in stocks, ULIPs, or mutual funds, you will receive a dividend. However,
in view of Section 2(22) of the Income-tax Act, the dividend shall also include the following:

• Distribution of accumulated profits to shareholders entailing release of the company's

assets;
• Distribution of debentures or deposit certificates to shareholders out of the accumulated
profits of the company and issue of bonus shares to preference shareholders out of
accumulated profits;
• Distribution made to shareholders of the company on its liquidation out of accumulated
profits;
• Distribution to shareholders out of accumulated profits on the reduction of capital by the
company;
• Loan or advance made by a closely held company to its shareholder out of accumulated
profits.

Source of dividend

You can receive dividends from the following sources –

• From a domestic company in whose shares you have invested

• From a foreign company in whose shares you have invested
• From equity mutual funds if you have chosen the dividend option
• From debt mutual funds if you have chosen the dividend option
Depending on the source of dividend income, relevant tax incidence would be applicable. So,
let’s understand the tax implication on the above-mentioned sources of income independently.

Tax on Dividend Income

Previously i.e, up to Assessment Year 2020-21, if a shareholder gets a dividend from a domestic
company then he shall not be liable to pay any tax on such dividend as it is exempt from tax
under section 10(34) of the Act subject to Section 115BBDA which provides for taxability of
dividend more than Rs. 10 lakh. However, in such cases, the domestic company is liable to pay a
Dividend Distribution Tax (DDT) under section 115-O.

The Finance Act, 2020 has abolished the DDT and moved to the classical system of taxation
wherein dividends are taxed in the hands of the investors. So now, dividend income will become
taxable in the hands of taxpayers irrespective of the amount received at applicable income tax
slab rates.

Taxability of dividend will depend upon whether the dividend receiver deals in securities either
as a trader or as an investor. The income earned by the person from the trading activities is
taxable under the head business income. Thus, if shares are held for trading purposes then the
dividend income shall be taxable under the head income from business or profession.

Whereas, if shares are held as an investment then income arising in the nature of dividend shall
be taxable under the head of income from other sources.

Where the dividend is assessable to tax as business income, the assessee can claim the
deductions of all those expenditures which have been incurred to earn that dividend income such
as collection charges, interest on loan, etc. Whereas if the dividend is taxable under the head of
income from other sources, the assessee can claim a deduction of only interest expenditure which
has been incurred to earn that dividend income to the extent of 20% of total dividend income. No
deduction shall be allowed for any other expenses including commission or remuneration paid to
a banker or any other person for the purpose of realising such dividend.

Tax rates on Dividend Income

Tax Rates on dividend depends upon the type of assessee receiving dividend and the instrument
on which dividend is distributed. This can be easily understandable via the following table:-
 Category of Assessee Dividend nature Rate of Tax

Resident Dividend received from domestic company Normal rate of tax applicabl
to the assessee

NRI Dividend on GDR of Indian co./PSU 10%

(purchased in foreign currency)

NRI Dividend on shares of Indian co.(purchased 20%

in foreign currency)

NRI Any other Dividend income 20%

FPI Dividend on securities other than 115AB 20%

Investment Division of Dividend on securities other than 115AB 10%

offshore banking unit

When to Tax Dividend Income?

Section 8 of the Act provides that the final dividend, including the deemed dividend, shall be
taxable in the year in which it is declared, distributed, or paid by the company, whichever is
earlier. Whereas an interim dividend is taxable in the previous year in which the amount of such
dividend is unconditionally made available by the company to the shareholder. In other words,
an interim dividend is chargeable to tax on a receipt basis.

TDS on Dividend Income

As per Section 194, TDS shall be applicable to dividends distributed, declared, or paid on or
after 01-04-2020; an Indian company shall deduct tax at the rate of 10% from dividend
distributed to the resident shareholders if the aggregate amount of dividend distributed or paid
during the financial year to a shareholder exceeds Rs. 5,000. However, no tax shall be required to
be deducted from the dividend paid or payable to Life Insurance Corporation of India (LIC),
General Insurance Corporation of India (GIC), or any other insurer in respect of any shares
owned by it or in which it has full beneficial interest.

However, where the dividend is payable to a non-resident or a foreign company, the tax shall be
deducted under Section 195 in accordance with the relevant DTAA

Old vs. New provision for taxability of dividend income

• Exemption Until March 31, 2020 (FY 2019-20): Until March 31, 2020, dividends
received from Indian companies were exempt from income tax in the hands of the
investor/shareholder. This exemption was because the company declaring the dividend
was already liable to pay Dividend Distribution Tax (DDT) before making the payment
to shareholders.
• Change in Dividend Taxation (Effective April 1, 2020): The Finance Act, 2020
brought about a fundamental change in the taxation of dividends. Starting from April 1,
2020 (FY 2020-21), all dividends received by investors/shareholders from Indian
companies are taxable in the hands of the recipient. This means that individuals, Hindu
Undivided Families (HUFs), and firms are now responsible for paying tax on the
dividends they receive.
• Withdrawal of DDT Liability on Companies and Mutual Funds: With the change in
dividend taxation, the liability of paying Dividend Distribution Tax (DDT) by companies
and mutual funds was withdrawn. Instead, the tax on dividends shifted to the individual,
HUF, or firm receiving the dividend income.
• Withdrawal of 10% Tax on Dividend Receipts in Excess of Rs 10 Lakh: The Finance
Act, 2020 also withdrew the provision of taxing dividends received by resident
individuals, HUFs, and firms at a rate of 10% if the dividend income exceeded Rs 10 lakh
(Section 115BBDA). This means that there is no specific tax rate applied to dividend
income in excess of Rs 10 lakh; it is now taxed as per the individual's applicable income
tax slab rates.

Advance Tax and Dividend Income

If the shortfall in the advance tax installment or the failure to pay the same on time is on account
of dividend income, no interest under section 234C shall be charged provided the assessee has
paid full tax in subsequent advance tax installments. However, this benefit shall not be available
in respect of the deemed dividend as referred to in Section 2(22)(e)
Double Taxation Relief

Though any dividend received from a foreign company is taxable in India if it has also been
taxed in the country where the foreign company operates, there is a case of double taxation. In
these cases, you can claim relief on double taxation. You can claim the relief as per the
provisions of the Double Tax Avoidance Agreement (DTAA), which the Indian Government has
with the Governments of other countries. If the agreement is not available, you can also claim
relief under Section 91 of the Income Tax Act and avoid paying double taxes on the same
income.

As per most of the DTAAs India has entered into with foreign countries, the dividend is taxable
in the source country in the hands of the beneficial owner of shares at a rate ranging from 5% to
15% of the gross amount of the dividends. In DTAA with countries like Canada, Denmark, and
Singapore, the dividend tax rate is further reduced where the dividend is payable to a company
that holds a specific percentage (generally 25%) of shares of the company paying the dividend.
However, no minimum time limit has been prescribed in these DTAAs for which such
shareholding should be maintained by the recipient company. Therefore, MNCs were often
found misusing the provisions by increasing their shareholding in the company, declaring
immediately before the declaration of the dividend, and offloading the same after getting the
dividend.

Inter-corporate Dividend

From AY 2020-21, the taxability of dividends has been shifted from companies to shareholders.
Therefore, the Government has introduced a new section 80M under the Act to remove the
cascading effect where a domestic company receives a dividend from another domestic
company.

However, nothing has been prescribed where a domestic company receives a dividend from a
foreign company and further distributes the same to its shareholders. The taxability in such cases
shall be as under:

• Domestic co. receives a dividend from another domestic co.

The provisions of section 80M remove the cascading effect by providing that
intercorporate dividend shall be reduced from the total income of the company receiving
the dividend if the same is further distributed to shareholders one month prior to the due
date of filing of return.
 • Domestic co. receives a dividend from a foreign co.
Dividend received by a domestic company from a foreign company, in which such
domestic company has 26% or more equity shareholding, is taxable at a rate of 15% plus
Surcharge and Health and Education Cess under Section 115BBD. Such tax shall be
computed on a gross basis without allowing a deduction for any expenditure.
Dividend received by a domestic company from a foreign company, in which equity
shareholding of such domestic company is less than 26%, is taxable at the normal tax
rate. The domestic company can claim a deduction for any expense incurred by it for the
purposes of earning such dividend income.

Need help with your dividend income and tax-related matters? Hire an eCA now for a seamless
and easy e-filing of your Income Tax Return (ITR). Get expert assistance and ensure accurate tax
computations.

DTAA refer copy

Arm's Length Price (ALP)

Concept

The Arm's Length Price (ALP) is a principle used in transfer pricing to ensure that transactions
between related parties are conducted as if they were between independent entities in a free
market. The objective is to prevent profit shifting and tax avoidance by ensuring that the prices
charged in inter-company transactions are consistent with the prices charged in comparable
transactions between unrelated parties.

Methods of Computation of Arm's Length Price

The Indian Income Tax Act, 1961, prescribes several methods for computing the Arm's Length
Price as per Section 92C. These methods are based on internationally accepted guidelines from
the Organisation for Economic Co-operation and Development (OECD). Here are the primary
methods:

1. Comparable Uncontrolled Price (CUP) Method

o Description: Compares the price charged in a controlled transaction to the price
charged in a comparable uncontrolled transaction.
o Application: Best used when identical or very similar goods or services are
traded in the open market.
o Example: If Company A sells a product to its subsidiary Company B, the CUP
method compares this price with the price at which Company A sells the same
product to an independent third party.
2. Resale Price Method (RPM)
o Description: Determines the ALP by subtracting an appropriate gross margin
from the resale price at which a product purchased from an associated enterprise
is resold to an independent enterprise.
 o Application: Suitable when the goods purchased from an associated enterprise
are resold to an independent party without significant value addition.
o Example: If Company A (a distributor) buys products from its parent company
and resells them to independent retailers, the gross margin in similar uncontrolled
sales by independent distributors is used to determine the ALP.
3. Cost Plus Method (CPM)
o Description: Adds an appropriate markup to the costs incurred by the supplier of
goods or services in a controlled transaction.
o Application: Suitable for manufacturing or assembly activities, and provision of
services.
o Example: If Company A manufactures goods for its subsidiary Company B, the
CPM determines the ALP by adding a standard gross profit margin to the
production cost.
4. Profit Split Method (PSM)
o Description: Allocates the combined profits from controlled transactions among
the associated enterprises based on the relative value of their contributions.
o Application: Suitable for transactions involving integrated operations and highly
interdependent activities.
o Example: If Company A and Company B, both part of the same group, jointly
develop and market a new product, the profits from this venture are split based on
the value of their respective contributions.
5. Transactional Net Margin Method (TNMM)
o Description: Examines the net profit margin relative to an appropriate base (e.g.,
costs, sales, assets) that a taxpayer realizes from a controlled transaction.
o Application: Suitable when traditional transaction methods (CUP, RPM, CPM)
are not applicable or reliable.
o Example: If Company A provides services to its subsidiary Company B, the
TNMM compares the net profit margin of Company A with the net profit margins
earned by independent companies providing similar services.

Transfer Pricing: Concept and Methods

Concept of Transfer Pricing

Transfer Pricing refers to the pricing of goods, services, and intangibles between related entities
within a multinational enterprise (MNE). The aim of transfer pricing regulations is to ensure that
the transactions between related parties are conducted at arm's length prices, which are the prices
that would be charged between unrelated parties in similar circumstances. The arm's length
principle helps prevent profit shifting and ensures that the tax bases of the involved countries are
not eroded.

Methods are same as above

Who Should Pay Advance Tax?

Salaried individuals, freelancers and businesses– If your total tax liability is Rs 10,000 or
more in a financial year, you have to pay advance tax. The advance tax applies to all taxpayers,
salaried individuals, freelancers, and businesses.

Senior citizens– People aged 60 years or more who do not run a business are exempt from
paying advance tax. So, only senior citizens (60 years or more) having business income must
pay advance tax.

Presumptive income for businesses–The taxpayers who have opted for the presumptive
taxation scheme under section 44AD have to pay the whole amount of their advance tax in one
instalment on or before 15th March. They also have the option to pay all of their tax dues by
31st March.

Presumptive income for professionals– Independent professionals such as doctors, lawyers,

architects, etc. come under the presumptive scheme under section 44ADA. They have to pay the
whole of their advance tax liability in one instalment on or before 15th March. They can also pay
the entire amount by 31st March.

Due Date Advance Tax Payment Percentage

On or before 15th June 15% of advance tax

On or before 15th September 45% of advance tax (-) advance tax already paid

On or before 15th December 75% of advance tax (-) advance tax already paid

On or before 15th March 100% of advance tax (-) advance tax already paid
For taxpayers who have opted for Presumptive Taxation Scheme under sections 44AD &
44ADA – Business Income

Due Date Advance Tax Payment Percentage

On or before 15th March 100% of advance tax

Delay in payment of advance tax will attract interest under 234C:

Rate of Period of Amount on which

Particulars
Interest Interest interest is calculated

If Advance Tax paid by 15th 1% per 15% of Amount* (-) tax

3 months
June is less than 15% month paid before June 15

If Advance Tax paid by 15th 1% per 45% of Amount* (-) tax

3 months
September is less than 45% month paid before September 15

If Advance Tax paid by 15th 1% per 75% of Amount* (-) tax

3 months
December is less than 75% month paid before December 15

If Advance Tax paid by 15th 1% per 100% of Amount* (-) tax

1 month
March is less than 100% month paid before March 15

Tax payable/Tax Refundable

Advance tax is the payment of tax during the financial year in 4 instalments based on the
estimated income for the year to avoid lump sum tax payment at the year end. If there is a
shortage/excess of tax payment after adjusting advance tax, tax deducted at source & tax
collected at source, the assessee would arrive at the tax payable or tax refundable, respectively.
Composite Scheme and Mixed Supply Concept

Composite Supply

Definition: A composite supply refers to a supply comprising two or more goods or services,
which are naturally bundled and supplied together in the ordinary course of business. In a
composite supply, one component is considered the principal supply, and the other(s) are
ancillary to it.

Characteristics:

1. Naturally Bundled: The goods or services in a composite supply are naturally bundled
together and are generally not available separately.
2. Principal Supply: One component of the supply is considered the principal supply, i.e.,
the main reason for the transaction.
3. Tax Treatment: The entire supply is taxed at the rate applicable to the principal supply.

Mixed Supply

Definition: A mixed supply refers to a supply comprising two or more individual goods or
services that are supplied together for a single price but do not constitute a composite supply. In
a mixed supply, each component retains its independent character and can be supplied
separately.

Characteristics:

1. Not Naturally Bundled: The goods or services in a mixed supply can be supplied
separately and are not necessarily dependent on each other.
2. Independent Components: Each component of the supply retains its independent
character, and there is no principal supply.
3. Tax Treatment: Each component of the supply is taxed separately at the applicable rate.

Differences between Composite Supply and Mixed Supply

1. Nature of Components:
o Composite Supply: Components are naturally bundled and are supplied together
in the ordinary course of business.
o Mixed Supply: Components are not naturally bundled and can be supplied
separately.
2. Principal Supply:
o Composite Supply: One component is considered the principal supply, and the
tax treatment is based on the rate applicable to the principal supply.
o Mixed Supply: There is no principal supply; each component retains its
independent character.
3. Tax Treatment:
 o
Composite Supply: Taxed at the rate applicable to the principal supply for the
entire supply.
o Mixed Supply: Each component is taxed separately at the applicable rate.
4. Examples:
o Composite Supply: A package deal offering a hotel stay with complimentary
breakfast.
o Mixed Supply: A laptop sold with optional accessories like a mouse, bag, and
antivirus software.
5. Legal Treatment:
o Composite Supply: Treated as a single supply under GST law, with the principal
supply determining the tax rate.
o Mixed Supply: Treated as separate supplies under GST law, with each
component taxed independently.
6. Supplier's Intent:
o Composite Supply: The supplier intends to provide a single supply with one
main component and other ancillary components.
o Mixed Supply: The supplier intends to offer multiple components together, but
each component retains its independent character.

The "Place of Effective Management" (POEM) is a significant concept in international taxation

used to determine the tax residency status of a company incorporated outside India. The POEM
rules help prevent tax avoidance and ensure that companies are taxed in the jurisdictions where
their management and control activities are effectively carried out. Here's an overview:

Definition

The POEM concept was introduced in the Indian Income Tax Act, 1961, through the Finance
Act, 2015. It defines the place where key management and commercial decisions necessary for
the conduct of the company's business are made.

Determination of POEM

The determination of a company's POEM involves analyzing various factors, including:

1. Board Meetings: The frequency, location, and nature of board meetings held by the
company's board of directors.
2. Key Management Personnel: The location where key managerial decisions are made or
actions are taken by senior management.
3. Operational Control: The place where strategic and operational decisions are made
concerning the company's business activities.
4. Overall Control and Management: The jurisdiction where the overall control and
management of the company's affairs are exercised.
5. Delegation of Authority: The extent of delegation of decision-making powers to
subsidiaries, affiliates, or employees in different jurisdictions.

Tests for Determination

To determine the POEM of a company, the Indian tax authorities apply a two-stage test:

1. Control and Management Test:

o This test examines the location where the company's key management and
commercial decisions are made.
o It focuses on the substance of decision-making rather than the formality of board
meetings or the place of incorporation.
2. Residential Status Test:
o If the control and management of the company's affairs are found to be wholly or
partly in India during the financial year, the company is treated as a tax resident of
India.
o Otherwise, the company is considered a non-resident for tax purposes.

Applicability

The POEM rules apply to foreign companies that conduct business operations outside India but
have significant management activities or decision-making processes taking place within the
country.

Impact on Taxation

For companies classified as tax residents of India based on their POEM, their global income is
subject to taxation in India. This includes income earned both within and outside India.

Compliance and Reporting

Companies falling within the ambit of POEM rules are required to comply with Indian tax
regulations, including filing income tax returns and maintaining proper documentation to support
their tax residency status.

Conclusion

The Place of Effective Management (POEM) rules play a crucial role in determining the tax
residency status of foreign companies operating in India. By focusing on the substance of
decision-making and managerial control, these rules help ensure that companies are taxed in the
jurisdictions where their business activities are effectively managed and controlled. Compliance
with POEM regulations is essential to avoid potential tax disputes and ensure proper adherence
to Indian tax laws.

The Reverse Charge Mechanism (RCM) is a mechanism under the Goods and Services Tax
(GST) system where the liability to pay tax is shifted from the supplier to the recipient of the
goods or services. In traditional taxation systems, the supplier of goods or services is responsible
for collecting and remitting the tax to the government. However, under the RCM, the recipient of
the goods or services becomes liable to pay the tax directly to the government, instead of the
supplier.
Key Points about Reverse Charge Mechanism (RCM):

1. Applicability:
o RCM applies to specific categories of goods and services as notified by the
government.
o It typically applies to transactions involving unregistered suppliers or specified
goods and services.
2. Recipient's Liability:
o Under RCM, the recipient of goods or services is responsible for calculating,
paying, and reporting the tax to the government.
o The recipient needs to self-invoice for the inward supply and then pay the tax
liability directly to the government.
3. Registered and Unregistered Suppliers:
o RCM applies mainly to transactions involving unregistered suppliers, but there
are exceptions where it applies to registered suppliers as well.
o When the supplier is unregistered, the recipient (who is typically a registered
taxpayer) becomes liable to pay the tax under RCM.
4. Notification by Government:
o The government notifies specific goods and services to which RCM applies.
o The Central Board of Indirect Taxes and Customs (CBIC) periodically issues
notifications specifying the categories of goods and services covered under RCM.
5. Input Tax Credit (ITC):
o Recipients who pay tax under RCM are eligible to claim Input Tax Credit (ITC)
for the tax paid.
o The ITC can be utilized to offset the recipient's output tax liability, thus avoiding
double taxation.
6. Compliance Requirements:
o Recipients liable to pay tax under RCM must comply with GST registration,
invoicing, and filing requirements.
o They need to maintain proper records of inward supplies and tax payments made
under RCM.
7. Exemptions and Thresholds:
o Certain categories of taxpayers or transactions may be exempt from RCM, as
notified by the government.
o Threshold limits may apply, below which RCM may not be applicable.

Examples of Reverse Charge Mechanism (RCM) Transactions:

1. Goods and Services from Unregistered Dealers:

o Supply of goods or services by an unregistered dealer to a registered taxpayer.
2. Specific Services:
o Certain services, such as legal services, consultancy services, etc., provided by
specific categories of service providers may be subject to RCM.
3. Goods and Services Imported:
o Import of goods or services into India is also subject to RCM, where the importer
becomes liable to pay the tax.
Conclusion:

The Reverse Charge Mechanism (RCM) is an important aspect of the GST system, shifting the
tax liability from the supplier to the recipient for specified goods and services. It aims to ensure
tax compliance, especially in cases involving unregistered suppliers or specific categories of
transactions. Understanding the applicability and compliance requirements of RCM is essential
for businesses to avoid penalties and maintain GST compliance.

Definition

Input Tax Credit (ITC) refers to the mechanism whereby a taxpayer can claim a credit against the
tax paid on inputs (goods or services) that are used or intended to be used in the course of their
business or for furtherance of business activities. In simpler terms, it allows taxpayers to claim a
credit for the tax they have paid on their purchases, reducing their overall tax liability.

Key Features of Input Tax Credit:

1. Eligibility Criteria:
o To claim ITC, the goods or services on which credit is sought must be used in the
course or furtherance of business.
o The taxpayer must possess valid tax invoices or other prescribed documents
evidencing the payment of tax on the purchases.
2. Conditions for Claiming ITC:
o The recipient must receive the goods or services.
o The supplier must have deposited the tax collected on the supplies with the
government.
o The recipient must file their GST returns, including the details of the inward
supplies, to claim ITC.
3. Types of ITC:
o Input Tax Credit on Inputs: Tax paid on purchases of goods used in the
manufacture or supply of taxable goods.
o Input Tax Credit on Capital Goods: Tax paid on purchases of capital goods
(machinery, equipment, etc.) used in the business.
o Input Tax Credit on Input Services: Tax paid on services used in the business,
such as legal, accounting, or consulting services.
4. Utilization of ITC:
o ITC can be utilized to offset the tax liability on output supplies (sales) of goods or
services.
o It can be used to pay Integrated GST (IGST), Central GST (CGST), State GST
(SGST), or Union Territory GST (UTGST) liabilities.
5. Cross-Utilization of ITC:
o ITC of IGST can be used to offset IGST, CGST, SGST, or UTGST liabilities in a
prescribed order.
o CGST can be utilized only for payment of CGST and IGST.
o SGST can be used only for payment of SGST and IGST.
6. Time Limit for Claiming ITC:
 oITC can be claimed in the same month's GST return in which the tax invoice or
debit note is uploaded or any subsequent return before the filing of the annual
return, whichever is earlier.
7. Reversal of ITC:
o ITC claimed on purchases that are used partly for business and partly for non-
business purposes may require reversal of credit attributable to non-business use.
o In case of non-payment to suppliers within the prescribed period, the ITC availed
on such invoices may need to be reversed.
8. Compliance and Documentation:
o Taxpayers must maintain proper records of invoices, credit notes, and debit notes
to support their ITC claims.
o Compliance with GST return filing requirements is essential for claiming and
maintaining ITC.

Benefits of Input Tax Credit:

1. Reduction in Tax Burden: ITC allows businesses to reduce their overall tax liability by
offsetting the tax paid on purchases against the tax collected on sales.
2. Cost Savings: It helps in avoiding tax cascading, leading to cost savings for businesses
and consumers.
3. Competitive Advantage: Businesses that efficiently manage their ITC can offer
competitive prices in the market, enhancing their competitiveness.

Conclusion:

Input Tax Credit (ITC) is a fundamental aspect of the GST system, facilitating seamless flow of
credit and reducing the cascading effect of taxes. Understanding the eligibility criteria,
conditions for claiming, utilization, and compliance requirements of ITC is essential for
businesses to effectively manage their tax liabilities and maintain GST compliance.

he time and value of supply are fundamental concepts under the Goods and Services Tax (GST)
regime, determining when and how much tax is payable on a supply of goods or services. Let's
delve into the basic concepts of time and value of supply:

Time of Supply:

The time of supply refers to the point in time when a transaction is considered to have occurred
for GST purposes. It determines when the liability to pay GST arises. The time of supply varies
for goods and services and is essential for determining the applicable tax period and rate.

Time of Supply for Goods:

The time of supply for goods is determined based on the earliest of the following dates:
 1. Date of Invoice: The date on which the supplier issues the invoice for the supply of
goods.
2. Date of Receipt: The date on which the recipient receives the goods or takes possession,
if the invoice is issued within the prescribed time.
3. Date of Payment: The date on which the payment for the supply is recorded in the books
of accounts of the supplier or the date on which the payment is credited to the supplier's
bank account.

Time of Supply for Services:

The time of supply for services is determined based on the earliest of the following dates:

1. Date of Invoice: The date on which the supplier issues the invoice for the supply of
services.
2. Date of Provision: The date on which the service is provided or completed.
3. Date of Payment: The date on which the payment for the supply is recorded in the books
of accounts of the supplier or the date on which the payment is credited to the supplier's
bank account.

Value of Supply:

The value of supply is the monetary worth of goods or services supplied, and it forms the basis
for calculating the GST liability. It includes the consideration received or receivable by the
supplier for the supply of goods or services.

Components of Value of Supply:

1. Transaction Value: The actual consideration paid or payable for the supply, including
any taxes, duties, cesses, fees, and charges levied under any law.
2. Incidental Expenses: Any incidental expenses incurred by the supplier in connection
with the supply, including packing, transportation, and insurance charges, if not included
in the transaction value.
3. Subsidies and Grants: Any subsidies, grants, or incentives directly linked to the price of
the supply and received by the supplier.
4. Any Reimbursable Expenses: Any expenses incurred by the supplier on behalf of the
recipient and charged separately.

Exclusions from Value of Supply:

1. Taxes and Duties: Any taxes, duties, cesses, fees, and charges levied under any law
other than the GST law.
2. Discounts: Trade discounts allowed in the ordinary course of business, which are duly
recorded in the invoice.

Conclusion:
Understanding the concepts of time and value of supply is crucial for businesses to determine
their GST liability accurately and comply with GST regulations. Proper invoicing, recording of
transactions, and consideration of all relevant factors are essential to ensure correct
determination of the time and value of supply for GST purposes.

Under the Goods and Services Tax (GST) regime in India, the levy of tax refers to the authority
granted to the central and state governments to impose taxes on the supply of goods and services.
GST replaced multiple indirect taxes, such as excise duty, service tax, value-added tax (VAT),
and others, with a unified tax system. Here's an overview of the levy of tax under GST:

Basic Concept:

1. Constitutional Authority: The authority to levy GST is derived from the Constitution of
India, which empowers both the central and state governments to impose taxes on the
supply of goods and services.
2. Dual GST Structure: GST in India is a dual tax system, where both the central and state
governments have the power to levy and administer GST on intra-state (within the state)
and inter-state (between states) supplies of goods and services.
3. Central Goods and Services Tax (CGST): The central government levies and collects
CGST on intra-state supplies of goods and services. It is governed by the Central Goods
and Services Tax Act, 2017.
4. State Goods and Services Tax (SGST): The state governments levy and collect SGST
on intra-state supplies of goods and services. It is governed by the respective State Goods
and Services Tax Acts.
5. Integrated Goods and Services Tax (IGST): The central government levies and collects
IGST on inter-state supplies of goods and services, as well as on imports and exports.
IGST replaces the earlier Central Sales Tax (CST) on inter-state transactions.

Key Elements of Tax Levy under GST:

1. Taxable Event: The levy of tax under GST is triggered by the supply of goods or
services. Any transaction involving the transfer of goods or services for consideration is
considered a supply and may be subject to GST.
2. Taxable Person: GST is applicable to any person or entity engaged in the supply of
goods or services, including manufacturers, traders, service providers, importers,
exporters, and e-commerce operators.
3. Taxable Value: The value on which GST is levied is determined based on the transaction
value, which includes the consideration paid or payable for the supply of goods or
services.
4. Tax Rates: GST is levied at multiple rates, including 0%, 5%, 12%, 18%, and 28%,
depending on the nature of the goods or services supplied.
5. Exemptions and Thresholds: Certain goods and services may be exempt from GST, and
small businesses may be eligible for threshold exemptions from registration and tax
payment.

Compliance and Administration:

 1. GST Registration: Taxable persons are required to register under GST if their aggregate
turnover exceeds the prescribed threshold limit.
2. GST Returns: Registered persons must file periodic GST returns, such as GSTR-1 (for
outward supplies), GSTR-3B (summary return), and others, to report their taxable
transactions and pay GST liabilities.
3. Input Tax Credit (ITC): Registered persons can claim input tax credit for GST paid on
inputs, capital goods, and input services used in the course of business, subject to
prescribed conditions.
4. Anti-Profiteering Measures: Businesses are required to pass on the benefit of reduced
tax rates or input tax credit to consumers through lower prices, as mandated by anti-
profiteering provisions under GST law.

Conclusion:

The levy of tax under GST represents a comprehensive and unified approach to indirect taxation
in India, aimed at simplifying the tax structure, eliminating tax cascading, and promoting ease of
doing business. Understanding the basic concepts of tax levy under GST is essential for
businesses to comply with GST regulations and fulfill their tax obligations effectively.

3.5

Under the Goods and Services Tax (GST) regime in India, taxpayers are required to make
payments of tax liabilities and may be eligible for refunds under certain circumstances. Here's an
overview of the payment and refund processes under GST:

Payment of Tax:

1. Tax Periods: Tax liabilities under GST are payable for each tax period, typically on a
monthly basis. The tax period is generally a calendar month.
2. Types of Taxes: Taxpayers are required to pay different types of taxes under GST,
including Central Goods and Services Tax (CGST), State Goods and Services Tax
(SGST), Integrated Goods and Services Tax (IGST), and cesses, as applicable.
3. Payment Modes: Tax payments can be made electronically through various modes,
including internet banking, credit/debit cards, NEFT/RTGS, or over-the-counter cash
payments at authorized banks.
4. Electronic Cash Ledger: Payments made by taxpayers are credited to their Electronic
Cash Ledger maintained on the GST portal. The taxpayer can utilize the balance in the
Electronic Cash Ledger to discharge their tax liabilities.
5. Due Dates: The due dates for payment of GST liabilities are specified based on the type
of taxpayer and their turnover. Generally, the due date for payment of GST liabilities for
regular taxpayers is the 20th of the following month.
6. Interest and Penalties: Late payment of GST liabilities attracts interest and penalties, as
prescribed under the GST law.

Refund of Tax:
 1. Eligibility Criteria: Taxpayers may be eligible for refunds under various circumstances,
such as excess payment of tax, inverted duty structure, export of goods or services, or
deemed exports.
2. Refund Application: Taxpayers eligible for refunds need to file a refund application
electronically on the GST portal within the prescribed time limit, along with supporting
documents and declarations.
3. Processing of Refund: The refund application is processed by the GST authorities, who
verify the eligibility criteria, documents submitted, and compliance with GST laws.
4. Refund Order: Upon approval of the refund application, a refund order is issued by the
GST authorities, specifying the amount of refund sanctioned.
5. Electronic Credit Ledger: The refunded amount is credited to the Electronic Credit
Ledger of the taxpayer, which can be utilized for making future tax payments or for
claiming input tax credit.
6. Interest on Delayed Refunds: In case of delay in processing refunds beyond the
prescribed time limit, interest is payable to the taxpayer on the refunded amount.
7. Appeal Mechanism: Taxpayers have the right to appeal against any adverse decision
regarding the refund application to the Appellate Authority.

Conclusion:

Understanding the processes for payment and refund of tax under GST is essential for taxpayers
to comply with GST regulations effectively and manage their tax liabilities and refunds
efficiently. Timely and accurate payment of tax and filing of refund claims help ensure smooth
business operations and compliance with GST laws.

Block credit refers to the input tax credit (ITC) that is ineligible for claiming under the Goods
and Services Tax (GST) regime. While GST allows businesses to claim ITC for taxes paid on
inputs, capital goods, and input services used in the course of business, there are certain
scenarios where the credit cannot be availed. These scenarios are outlined in Section 17(5) of the
Central Goods and Services Tax Act, 2017, and include the following:

1. Motor Vehicles and Conveyances: Input tax credit is not allowed for motor vehicles and
other conveyances, except when they are used for certain specified purposes, such as
transportation of passengers, imparting training, or for transportation of goods.
2. Food and Beverages, Outdoor Catering, and Beauty Treatment: ITC cannot be
claimed for goods or services related to food and beverages, outdoor catering, beauty
treatment, health services, cosmetic and plastic surgery, membership of a club, health and
fitness center, or travel benefits extended to employees on vacation.
3. Rent-a-Cab, Life Insurance, Health Insurance: Input tax credit is not available for
goods or services related to rent-a-cab, life insurance, health insurance, unless it is
mandated by law for employees, or it is a requirement under any contract or agreement.
4. Travel Benefits to Employees: ITC is blocked for goods or services related to travel
benefits extended to employees on vacation, such as leave or home travel concession.
5. Works Contract Services for Immovable Property: Input tax credit cannot be claimed
for works contract services when used for construction, alteration, repair, renovation, or
other works related to immovable property.
 6. Goods or Services Received for Personal Use: ITC is not available for goods or
services acquired for personal consumption or use by employees, partners, or proprietors.
7. Other Specified Goods and Services: Input tax credit is blocked for certain other goods
or services as notified by the government, which may not be used for business purposes
or may be subject to specific conditions.

Businesses need to be aware of these restrictions on input tax credit and ensure compliance with
GST regulations while claiming credit. Failure to comply with these provisions may lead to
penalties and interest under GST law. Proper documentation and record-keeping are essential to
support input tax credit claims and demonstrate compliance during audits or assessments by tax
authorities.

Registration under the Goods and Services Tax (GST) regime is mandatory for certain
businesses engaged in taxable supplies of goods or services. Here's an overview of the
registration process under GST:

Who Needs to Register?

1. Mandatory Registration:
o Businesses with an aggregate turnover exceeding the threshold limit specified by
the government are required to register for GST.
o The threshold limits for mandatory registration vary based on the nature of the
business and the location of the operation (i.e., whether it is in a special category
state or not).
o Certain businesses, such as those engaged in interstate supply, casual taxable
persons, and non-resident taxable persons, are required to register regardless of
their turnover.
2. Voluntary Registration:
o Businesses below the threshold limit may opt for voluntary registration to avail
benefits such as claiming input tax credit, participating in the supply chain, and
gaining credibility with suppliers and customers.

Registration Process:

1. Online Registration: The GST registration process is entirely online through the GST
Common Portal (www.gst.gov.in).
2. Application Submission: The taxpayer needs to submit the registration application
electronically along with required documents, such as PAN, proof of constitution of
business, address proof, bank account details, and authorized signatory details.
3. Verification: The application is verified by the GST authorities, and if any additional
information or documents are required, the applicant may be asked to provide them.
4. Approval and Issuance of GSTIN: Once the application is complete and accurate, the
GST registration certificate containing the Goods and Services Tax Identification
Number (GSTIN) is issued electronically.

Documents Required for GST Registration:

 1. Proof of Constitution of Business: Partnership deed, certificate of incorporation,
memorandum of association, articles of association, etc.
2. Identity and Address Proof of Promoters/Partners/Directors: Aadhaar card, PAN
card, passport, voter ID card, etc.
3. Address Proof of Place of Business: Lease agreement, rent receipt, electricity bill,
property tax receipt, etc.
4. Bank Account Details: Scanned copy of the first page of bank passbook or bank
statement containing name, address, and other details.
5. Authorized Signatory Details: PAN and identity proof of the authorized signatory.

Key Points to Note:

1. Unique GSTIN: Each registered taxpayer is assigned a unique Goods and Services Tax
Identification Number (GSTIN), which is used for all communications and compliance
under GST.
2. Composition Scheme: Taxpayers with aggregate turnover below the threshold limit may
opt for the composition scheme, which allows for simplified compliance and payment of
tax at a fixed rate based on turnover.
3. Amendment of Registration: Any changes in the details furnished at the time of
registration must be updated on the GST portal within prescribed timelines.
4. Cancellation of Registration: Registrations can be canceled voluntarily by the taxpayer
or by the GST authorities for non-compliance or other reasons.

Conclusion:

Registration under GST is a crucial step for businesses to comply with the GST law and fulfill
their tax obligations. Understanding the registration process, eligibility criteria, and
documentation requirements is essential for businesses to ensure smooth registration and
seamless compliance with GST regulations.