Taxation- Direct and Indirect

December 2022 Examination

1. For the purpose of charging taxes, the Indian Income Tax Act, 1961 has identified and
defined the specific heads of income. The charging sections of each head define the scope of
income to be charged under each head. Discuss precisely all the heads of income as
mentioned under the Income Tax Act 1961. (10 Marks)

Ans 1.
Introduction:

Welfare programs call for considerable costs, and the government is full of cash from tax
revenues for public coffers. The government levies tax obligations on residents to generate cash
for carrying out the mandated duties of promoting economic development and enhancing the
effectiveness of raising the standard of life of the population. As a result, tax obligations are the
necessary capital expenditures that the government uses and anticipates to execute rewarding
welfare procedures, i.e., nationwide development, framework development, populace wellness,
and several various other points.

According to Section 14 of the Income Tax Act of 1961, all income needs to be categorized
under one of the complying with heads of income to charge income tax obligation and compute
total income, unless or else authorized by this Act:

 Salaries.
 Income from a residential property.
 Gains and profits from a business or vocation.
 Gains in the capital.
 Alternative sources of income.
The section notes the incomes subject to taxation under the five headings. To undergo income
taxation, a person's income must fall under the abovementioned headings.

Concept and application

- The existing employer-employee connection between the payer and the recipient should
initially be developed to impose a tax obligation on salary income. Simply put, the company's
paycheck is salary; according to the legislation, an employment agreement marks the payer as
the company and the receiver as the employee. The profits will not be considered salary income
if there is no enduring connection. According to Section 15, ( a) of the Income Tax obligation
Act, no matter whether or not it has been paid, any kind of salary from the employer or former
company to the assesses (prior year) is taxed under this head. The Indian Taxation Legislation
allows for the complying with terms to be used to pay an employer: Charges, Fundamental
Salary, development settlement, Allocations, Pension, Gratuity, benefits of retired life, and
additional annual bonus offer.

- The computation of the entire income from the residential properties, including land and
buildings, that the worried private is discussed in Sections 22 to 27 of the Act of 1961.
According to Section 22 of the Act, the yearly value of residential property possessed by the
assesses, including any buildings or lands connected to it, apart from any parts he might inhabit
for any kind of business or occupation he engages in and the profits of which go through income
tax, shall go through income tax obligation under the heading "Income from House Residential
Or Commercial Property.". The rental income is taxed, and the revenue under this heading is
only chargeable after the residential property has been leased or leased.

- A person's business profit goes through taxation under this heading, and the cess will be
determined based on the difference between the profit and the costs sustained. However, just the
gains and the profit go through taxation; the business's revenue is excluded. It is essential to
subtract expenses from revenue to determine a person's overall income and estimate their profit.
Sections 28 to 44D of the Income Tax Act of 1961 describe this subject's computer techniques.
However, to abide by the Act, it is crucial to comprehend what "firms" and "professions" entail.
While Section 2( 36) defines the last as work, the term "business" [8] is defined as an activity
taken with the intent of making a profit. Regardless, they are both motivated by the need to make
money or make a profit.

- In layman's terms, capital gains are the profit the assesses made from offering or moving capital
possessions during the fiscal year. Long-lasting capital gains (LTCG) and temporary capital
gains have consisted of the income from capital gains based on taxation under this heading,
which connects to the holding duration of the capital possessions (STCG).

 LTCG refers to keeping properties for longer than 36 months before selling them for a
profit.

 STCG: offering assets at a profit after owning them for fewer than 36 months.

- This heading can be used to charge any type of earnings that the earlier stipulations leave
unclaimed. The following sources of income are categorized as "various other income" under
Section 56( 2) of the Income Tax Act:

 Deposit interest from a bank

 Dividend income
 Gifts
 Insurance contract
 Income from gambling, card games, and other activities, among others

Conclusion:

When computing income tax obligations, a person's actual income is critical. That is why
understanding the basics of income taxation are essential. The summary of the present five heads
of income under the Income Tax Obligation Act of 1961 is supplied.
2. GST N is a non-government body. This body handles the IT system of the GST Portal.
Discuss the functions discharged by the GSTN in detail (10 Marks)

Ans 2.
Introduction:

The introduction of GST in 2017 created confusion amongst all taxpayers because of its
complexity. The GST's "One Nation, One Tax" objective is difficult to achieve. The problems in
embracing a brand-new tax system are the source of the sea of difficulties. Compliances should
not be hard, yet they are a considerable resource of difficulty. The digital and electronic
infrastructure that will connect taxpayers with state and federal governments is the structure of
the whole tax system. The Goods and Services Tax Network (GSTN) was established to achieve
this objective.

In addition, as the GST is a destination-based tax, a specific settlement mechanism between the
states and the federal government would be required for interstate business in goods and services
(IGST). This system can be implemented if a vital IT facility and service backbone enable data
collection, processing, and sharing among stakeholders of taxpayers, States, Central
Governments, banks, and RBI.

Concept and application

A non-profit, non-governmental company called the Goods and Services Tax Network (GSTN)
offers IT framework and services to the federal government, state governments, taxpayers, and
various other stakeholders. GSTN functions as a bridge between the government and the public
by providing all taxpayers with frontend services including registration, returns, and repayments.
Because of this integrated System and IT system, the Goods and Services Tax (GST) has
successfully achieved its primary objective of One Nation, One Tax, and One Market. The GST
System Project is a facility and unique IT initiative to develop a consistent individual experience
for taxpayers.
The government holds 49 percent of the GSTN, split evenly between the Central and State
governments. Personal financiers and business financial institutions own the other 51 percent.
The central and state governments each own a quarter of GSTN's stock, HDFC, HDFC, and
ICICI banks, in addition to NSE Strategic Investment Co. and LIC Housing Finance Ltd.

 The GSTN can deal with many complex treatments, such as interstate GST changes
(IGST). The advanced IT infrastructure allows taxpayers and the GSTN to exchange data
rapidly.

 The most qualified National Information Utility (NIU) for exchanging validated
information is the GSTN.

 To preserve the protection and confidentiality of taxpayer information, the government

would work out critical control over the GSTN. The federal government will have
authority over the Board's make-up, special resolution procedures, shareholder
agreements, and agreements between the GSTN and various other state governments.

 User charges are equally split between the state and government governments.

GSTN rigorously verifies the information provided by the taxpayer before being sent to the ideal
state and national firms for clearance. A distinctive GSTIN is created and assigned to the
customer after enrollment. The appropriate government companies are then notified of the
GSTIN information. For the taxpayer to take advantage of the Input Tax Credit (ITC)
advantages, the GSTN's main task is to find and correct any incongruities between purchase and
sales billings. The convenient declaring of GST returns among GSTN's essential tasks.
Taxpayers have assured a burden-free filing process for their CGST, SGST, or IGST returns.

The GSTN's objectives are as follows:

 To provide Main and State Governments, taxpayers, and other GST implementation and
performance related to typical and solid IT sustain.
  To provide various GST services to the taxpayers, such as enrollment, return filing, and
payment.

 To collaborate with multiple organizations to develop an easy to use GST eco-system.

 To help taxpayers by working and helping with GST Suvidha Providers (GSPs) to make
it possible for uncomplicated GST applications.

 To aid tax authorities in guaranteeing openness and specifying tax conformity.

 It assists tax authorities and other stakeholders while researching and studying the most
effective techniques in the business.

 To create a Taxpayer Profiling Utility (TPU) for the operation of the Central and State
Tax Administration.

 To provide aid when the Central and State governments and other interested parties are
requested.

Conclusion:

GSTN is a sophisticated information technology network that enhances taxpayers' tax process. A
nation's vision of a digital India is also introduced, and tax earnings are crucial for the national
economic climate growth. There would be fewer tax evaders since more people go through the
tight laws of the GST. The GSTN was founded with the primary goal of incorporating an IT
framework into the GST system. A protected and secure strategy is required for the essential
framework needed for such a large arrangement of suppliers, tax specialists, and people. As a
result, a connected formation comparable to the GSTN was established. Due to the Digital India
movement, many new computerized programs and services have arisen to offer companies. The
GSTN offers the basis for these services regarding GST and its affiliates. The government has
pressed the GSTN to be used with other innovative applications. The GSTN grants permission to
numerous companions to carry out imaginative work on data analysis and tax evaluation. That
consists of the growth of market requirements and the most acceptable methods.

3. Mrs Meera purchased a residential house property on August 6, 2019, for Rs 30 lakhs.
She made certain capital expenditures for the house in the month of January 2020 for Rs2
lakhs. She disposed of the property in April 2021, for Rs 40Lakhs.
a. Discuss the exemption available under section 54 (5 Marks)

Ans 3a.
Introduction:

The sale of residential property generates "Long-term Capital Gain," omitted under Section 54 of
the Income Tax Obligation Act. According to section 2( 14) of the Income Tax Obligation Act of
1961, "capital asset" refers to any property possessed by an assesses, whether moveable or
unmovable, tangible or abstract and so on. Relying on the assessments, such property may or
may not be associated with their trade or occupation. The term "capital possession" is
categorized as either "Long Term Capital Asset" or "Short-term Capital Asset," depending on
how long it will be held. Comparable to this, the gain realized by offering capital properties is
described as a "Long Term Capital Gain" or "Short Term Capital Gain".

Concept and application

Only the specific HUF that marketed the residential property and bought one more residential
property is qualified for the exception under section 54 of the Income Tax Obligation Act if all
prerequisites are fulfilled. The following is a listing of requirements that must be met to declare
an exemption under Section 54.--.
  An individual or a Hindu Undivided Family qualifies for the exception benefit under
section 54. (HUF).

 A "Residential House Property" should be the type of transferred capital asset.

Additionally, a residential residence's income should be billed under the heading "Income
from House Property.".

 The moved capital property need to be a "Long-term Capital Possession.".

 The vendor of "Residential House Property" was needed to either acquire one domestic
home in India within one year of the transfer date or within two years of the transfer date
or Build one domestic house in India within three years of the transfer date. According to
a recent alteration, the benefit of the section 54 exception is just obtainable in cases of the
repurchase or building of two residential properties, and only if the amount of "Long
Term Capital Gain" does not go beyond INR 2 Crores.

If all of the requirements outlined in Section 54 are fulfilled, the amount of the exception would
be the lower of either the Long-term Capital Gain resulting in the Transfer of the Residential
House Property or Investment made towards the Acquisition or Building and Construction of the
Residential House Property.

Conclusion:

In the event of lasting capital gain resulting from the sale of residential property, the exemption
offered by Section 54 of the Income Tax obligation Act might be declared. The assesses should
reinvest the cash in acquiring or constructing a new residential residence property to get the
exemption. Mrs. Meera, in the here-and-now situation, can claim no exemption as she did not
hold the property for a minimum duration of 24 months. Therefore, the residential home property
does not qualify as a long-term capital asset. Exemption under section 54 is readily available just
for LTCA.
b. Considering Section 54, Discuss the amount of exemption if any, amount of type of
capital gain taxable in the hands of Mrs Meera if she purchased another property from the
sales proceeds in the month of May 2021. (5 Marks)

Ans 3b.
Introduction:

Due to a specific reason, an individual decided to move; as a result, he marketed his old home
and used the funds to buy a new one. In these circumstances, the seller's goal was to buy another
suitable residence instead of earning money by selling the old one. In this circumstance, it would
be challenging for the vendor if he had to pay income tax obligations on resource gains on the
sale of the old residence. Such a challenge is eased by Section 54. A taxpayer who offers his
primary residence and acquires another one with the profits is given alleviation under Section 54.

Concept and application

For section 54 to be used, the following demands must be met.

 Section 54's advantage is solely readily available to HUFs or people.

 The moved asset, which ought to be a property, must be lasting capital property.

 The taxpayer must either acquire another domestic house within a period of one year
before or two years after the date of transfer of the previous home or develop a domestic
house within three years adhering to the day of transfer of the old house. The period of
procurement or construction in the event of a mandatory acquisition will be computed
starting on the day that settlement is obtained (whether initial or additional).
The exemption is readily available with one property bought or integrated in India. Only one
residence will be qualified for the exemption under section 54 if more than one house is gotten or
built. No exception may be asked for a residence purchased outside of India.

It is possible to assert an exemption under section 54 for capital gains that arise from the sale of
long-term household realty. Unmovable building, such as a structure, tract, or both, has a shorter
holding period of 24 months to be considered a long-term capital asset. Given that the house
property in this example was marketed after being possessed for less than 24 months, it qualifies
as the possession of a short-term resource. Because a short-term funding possession is not
eligible for the benefit of section 54, Mrs. Meera is not able to do so in this situation.

Conclusion:

In the event of long-term capital gain resulting from the home's sale, the exemption offered by
Section 54 of the Income Tax obligation Act might be declared. To get the exemption, the
assesses must reinvest the money in the acquisition or building and construction of a new home
residential property.