Unit –1

CONCEPTUAL ANALYSIS OF TAX

 The word tax is based on the latin word taxo which means to estimate. To tax means to impose a
financial charge or other levy upon a taxpayer, an individual or legal entity, by a state or the
functional equivalent of a state such that failure to pay is punishable by law.
 In General a tax is compulsory contribution, levied by government from owner of income without
direct benefit but for public benefit, and taxes should be arranged by the law
 According to Prof Seligman – A tax is compulsory contribution from the person to the government
to defray the expense incurred in the common interest of all without reference to special benefits
conferred.
 According to Hugh Dalton – A tax is a compulsory charges imposed by a public authority
irrespective of the exact amount of service rendered to the tax payer in return and not imposed as
a penalty for legal offence.
 The Supreme Court of India in Commissioner HR & CE v. Lakshmendra, (1954) cited with approval
the definition of tax given by the Australian High Court which is as follows :— "A tax is a
compulsory exaction of money by public authority for public purposes enforceable by law and is
not ‘payment for services rendered."
 According to Antonio de Viti de Marco, "The tax is the price which each citizen pays to the State to
cover his share of the cost of the general public services which he will consume."

CHARACTERISTICS OF TAXES .

1. Tax is compulsory – A tax is imposed by law. So tax is compulsory payment to the governments
from its citizens. Tax is duty from every citizen to bear his share for supporting the government.
The tax is compulsory payment, refusal or objection for paying tax due leads to punishment or is
an offence of the court of law.
2. Tax is contribution – Contribution means in order to help or provide something. Some wants are
common to everybody in the society like defence and security, so these wants cannot be satisfied
by individuals. These social wants are satisfied by governments, hence the people support
government for these social want .Tax is contribution from members of community to the
Government
3. Tax is for public benefit – Tax is levied for the common good of society without regard to benefit to
special individual. Government proceeds are spent to extend common benefits to all the people
 such as natural disaster - like floods, famine - defence of the country, maintenance of law and
establish infrastructure and order. Such benefits are given to all people.
4. No direct benefit – Tax is different from another government charges which may give direct
benefits to payers such as prices, fees, fines etc where the direct benefits are available , The
essence of tax as distinguished from other charges by governments is the absence of a direct quid-
pro-que between the taxpayer and the public authority.
5. Tax is paid out of income of the tax payer – Income means money received, especially on regular
basis, for work or through investment. Tax is paid out of income as long as the income becomes
realized, here the tax is imposed
6. Government has the power to levy tax – Governments are practicing sovereign authority upon its
citizens through levying of taxes. Only Govt. can collect tax from the people. Tax is transferring
resources from the private sector to the public sector.
7. Tax is not the cost of the benefit – Tax is not the cost of benefit conferred by the government on the
public. Benefit and taxpayer are independent of each other, and payment of taxation is of course
designed for conferring of benefits on general public
8. Tax is for the economic growth and public welfare – Major objective of the government is to
maximize economic growth and social welfare. Developmental activities of the nations generally
involve two operations, the raising of revenue and the spending of revenue, so the government
spent taxes for economic benefit, for entire community and for aggregate welfare of the society.

DIFFERENT TYPES OF TAX

1. Direct Taxes: Taxes which are directly levied on Income of the person and its burden can not be
shifted; for example Income Tax.
2. Indirect Taxes: Indirect taxes are imposed on price of goods or services. Person paying the indirect
tax can shift the incidence to another person; for example GST or Customs Duty.

TYPES OF DIRECT TAX.

1. Income Tax Act: The Income Tax Act is also called the IT Act, 1961. The income taxed by this act can
be generated from any source such as profits received from salaries and investments, owning a
property or a house, a business, etc. The IT Act also defines the tax benefit you can avail of on a life
insurance premium or a fixed deposit. It also decides the savings from your income via
investments and the tax slab for your income tax.
 2. Wealth Tax Act: If the net wealth of an individual exceeds Rs. 30 lakhs, then 1% of the exceeded
amount is payable as a tax. It was put to an end in the budget that was announced in 2015. Since
then, it has been substituted with a surcharge of 12% on individuals that generate an income of
more than Rs. 1 crore p.a. It is also applicable to companies which have generated revenue of over
Rs. 10 crores p.a.
3. Gift Tax Act: The Gift Tax Act, established in 1958, initially imposed a 30 percent tax on gifts like
shares, jewellery, and property. However, this tax was discontinued in 1998. Under the current
rules, gifts from family members and local authorities are tax-exempt. Gifts from others exceeding
Rs. 50,000 are taxable in full.
4. Corporate Tax: Corporate tax is a direct tax levied on the profits of companies registered in India.
The current corporate tax rate in India is 30% for domestic companies and 40% for foreign
companies. There are also various deductions and exemptions available to companies, which can
reduce their effective tax rate.
5. Securities Transaction Tax (STT): Securities Transaction Tax (STT) is a tax levied on the purchase
and sale of securities, such as stocks, mutual funds, and derivatives, on recognized stock
exchanges in India. The STT rate varies depending on the type of security being traded. For
example, the STT rate for equity shares is 0.1%, while the STT rate for futures contracts is
0.005%.
6. Capital Gains Tax (CGT): Capital gains tax is a tax on profits earned from the sale of assets, such as
stocks, bonds, real estate, or other investments. The CGT rate in India depends on the holding
period of the asset and the type of asset being sold. For example, short-term capital gains (STCG)
on equity shares are taxed at 15%, while long-term capital gains (LTCG) on equity shares are
exempt from taxation.

TYPES OF INDIRECT TAX.

1. Sales Tax: Sales tax is a consumption tax levied on the sale of goods and services. It is typically a
percentage of the retail price of the item being purchased. Sales tax is collected by the seller and
then remitted to the government.
2. Service Tax: Service tax is charged at a rate of 15%, and is applicable to services provided by
companies. Individual service providers pay when bills are settled, while firms pay upon
invoicing, regardless of bill payment. Restaurants charge service tax on 40% of the total bill to
avoid ambiguity.
 3. Goods and Service Tax (GST): GST is a consumption-based tax levied on goods and services at each
stage of the supply chain. It can be offset against the GST charged on subsequent supply, using the
tax credit method. GST is a significant reform in India's indirect tax structure.
4. Value Added Tax (VAT): VAT, or commercial tax, is imposed at all supply chain stages, excluding
zero-rated items like food and essential drugs. VAT is imposed by state governments, each
determining its own tax rates on goods sold within the state.
5. Customs Duty and Octroi: Customs duty is applied to imported goods, ensuring taxation on
products entering the country. Octroi, imposed by state governments, serves a similar purpose
but focuses on goods crossing state borders within India.
6. Excise Duty: Excise duty, also known as Central Value Added Tax (CENVAT), is imposed on
manufactured goods in India. It differs from customs duty as it applies only to domestically
produced goods. The Central Excise Rule mandates payment of duty on excisable goods,
restricting their movement without duty payment from the manufacturing point.
Difference Between Direct & Indirect Tax

Basis Direct Taxes Indirect Taxes

Meaning A direct tax is a tax levied An indirect tax is levied on
directly on a taxpayer and is goods and services and is paid
paid straight to the imposing by an individual to the
authority intermediaries who then
submit the tax to the
government
Governing authority Central Board of Direct Taxes Central Board of Indirect Taxes
(CBDT) and Customs (CBIC
Shift of burden The burden of direct taxes The burden of indirect taxes
cannot be shifted to another can be shifted to others
person.
Taxpayer Individuals, companies and Final consumer
HUFs (Hindu Undivided
Family)
Taxable condition. Direct taxes are levied when Indirect taxes are levied when
the income of the individual is the consumer sells and
 more or equivalent to the purchases goods and services
maximum limit
Tax evasion An event of tax evasion is Tax evasion is not possible
possible.
Tax collection. Tax collection is complex Tax collection is easy
DIFFERENCE BETWEEN TAX & FEES
1. Tax is a compulsory levy and is enforced by law. Fee is not always compulsory.
2. The tax collections are routed to the Consolidated Fund. But the amount collected by way of fees
are not merged with the Consolidated Fund.
3. It is left to the discretion of the Government to use the tax for any public benefit. But fee
collections are set apart only to cover the expenses for which it is collected.
4. There is no element of quid pro quo between the tax payment and the public authority. In the
case of fee, quid pro quo is an essential element. The fee is charged according to the magnitude of
the benefits received by the citizens.
5. Tax may be expropriatory in nature. Fee cannot be discriminatory
6. The ultimate object of tax in a welfare State is to bring about social order. The ultimate object of
fee can at the most only be for the regulation of social order.
7. Taxes change when base of tax changes and the capacity to pay principle is followed. Fees are
uniform and the capacity to pay does not form the basis.
8. The principle that no tax can be levied or collected without the authority of law, applies only in
respect of taxes. This prohibition does not apply in respect of a fee.
9. A tax is a common burden and the only return the tax-payer gets is the participation in the
common benefit of the State. A fee is a payment for services rendered, benefit provided or
privilege conferred. If one who is liable to pay fee, receives general benefit from the authority
levying the fee, the element of service required for collecting fee is satisfied.
10.

TAX EVASION & TAX PLANNING/ AVOIDANCE.

 Tax Evasion:- An illegal practice where a person intentionally avoids paying his/her/its true tax
liability. Those caught evading taxes are generally subject to criminal charges and substantial
penalties. It is illegal.
 Tax Avoidance:- The art of dodging tax without breaking the law. It seems legal.
 In 1968, Nobel laureate economist Gary Becker first theorized the economics of crime, on the basis
of which Allingham and Sandmo produced in 1972 an economic model of tax evasion.
 Tax evasion is an activity commonly associated with the underground economy and one measure of
the extent of tax evasion is the amount of unreported income, namely the difference between the
amount of income that should legally be reported to the tax authorities and the actual amount
reported, which is also sometimes referred to as the tax gap.
 Eg., Smuggling is importation or exportation of foreign products by unauthorized means.
 Tax avoidance is the legal utilization of the tax regime to one's own advantage, to reduce the
amount of tax that is payable by means that are within the law
 Methods of Tax Avoidance.
 Country of residence,:- Some countries tax persons on the income generated in the country, so in
these case, tax can be avoided or reduced by transferring income-generating assets or activities to
a country with no or lower income-tax.
 Double taxation,:- To avoid tax, it is usually not enough to simply move one’s assets to a tax haven.
One must also personally move to a tax haven to avoid tax.
 Legal Entities :- Without changing country of residence personal taxation may be legally avoided by
the creation of a separate legal entity to which one's property is donated. The separate legal entity
is often a company, trust, or foundation.
 Legal Vagueness :- Tax results depend on definitions of legal terms which are usually vague. ` For
example, vagueness of the distinction between "business expenses" and "personal expenses" is of
much concern for taxpayers and tax authorities.
 Difference Between Tax Evasion and Tax Avoidance
 To understand what tax evasion is and how it is different from tax avoidance, you can refer to the
following points:
 1. Nature
 Tax evasion is an illegal method of minimizing tax liability. Tax avoidance, on the other hand, is a
legal method of reducing the amount of taxes that you owe.
 2. Motive
 The motive behind tax evasion is to eliminate taxes completely. Tax evasion aims to lie to
authorities and find immoral ways to reduce tax liability. Tax avoidance is a moral and legal
method to minimize tax liability. The motive is to reduce the amount of tax that you owe.
 3. Consequence
  Tax evasion is illegal, thereby attracting imprisonment, fines or both, if found out. Tax avoidance
can be done legally. If you have deliberately used loopholes to avoid taxes, you may attract legal
penalties. Tax avoidance is usually not considered a criminal offence.
 4. When Does it Happen?
 Tax evasion usually happens once the tax has become due. Tax avoidance, on the other hand, can
occur before the tax liability.
 5. How it is Done
 When it comes to tax evasion, it is usually done through illegal means. Tax avoidance is done legally
through acts such as tax planning.

CONSTITUTIONAL PROVISION RELATING TO TAXATION.

1. "No Tax Shall be Levied or Collected Except by Authority of Law." (Article 265).
 Article 265 of the Constitution of India is mandatory and it lays a limitation upon the State.
Any Act of the State which seeks to impose a tax without a legislative action will be held to be
void.
 This is based on the principles of English Common Law. They are :— (1) No taxation without
representation (2) No taxation without the authority of law.
 S. Gopalan vs State of Madras “Law” means an act of legislature and it:- 1 should be within
the legislative competence of the legislature
2.Should not be prohibited by any constitutional provisions like Article 27, 276, 286 and 301
etc. 3.Should not be in violation of any fundamental right
4.Should not be violative of any constitutional limitations like Article 301 and Article 304
2. Consolidated Fund and Public Account (Article 266)
 Article 266 of the Constitution of India deals with the Consolidated Funds and Public Accounts
of India and the States. It states that the following shall form one consolidated fund to be
entitled the Consolidated Fund of India:
 The whole or part of the net proceeds of certain taxes and duties to States
 All loans raised by the Government by the issue of treasury bills
 All money received by the Government in repayment of loans
 All revenues received by the Government of India
 Loans or ways and means of advances The same holds for the revenues received by the
Government of a State which it is called the Consolidated Fund.
3. Article 268
 Article 268 of the Constitution of India deals with duties levied by the Union government but
collected and claimed by the State governments. These duties include stamp duties, excise on
medicinal and toilet preparations, etc. These duties collected by states do not form a part of
the Consolidated Fund of India but are with the state only.
4. Taxes levied and collected by the Union but assigned to the States ( Article 269)
 The taxes mentioned in Article 269 are levied and collected by the Union government, but the
proceeds are assigned to the States. This is done to ensure that the States have a fair share of
the tax revenue and that they are able to raise the resources they need to provide essential
services to their citizens.
5. ( Article 269-A)
 This article gives the power to collect goods and services tax (GST) on supplies in the course
of inter-state trade or commerce to the Government of India. The proceeds of this tax are then
apportioned between the Union and the States in the following manner: 50% of the proceeds
are directly apportioned to the States. The remaining 50% is credited to the Consolidated
Fund of India (CFI). Out of this amount, a prescribed percentage is then distributed to the
States.
6. Article 270
 It states that the following taxes are levied and collected by the Union government and the
proceeds are distributed between the Union and the States in the following manner:
 All taxes and duties mentioned in the Union List, except the duties and taxes mentioned in
Articles 268, 269 and 269A.
 Taxes and surcharges on taxes, duties and cess on particular functions are specified in Article
271 under any law created by Parliament.
 The distribution of the proceeds of taxes between the Union and the States is determined by
the Finance Commission, which is a body constituted by the Parliament every five years.
7. Article 271
 Article 271 of the Constitution of India allows the Parliament to increase any of the taxes or
duties mentioned in Articles 269 and 270 by levying an additional surcharge for a particular
purpose. The proceeds from the surcharge are credited to the Consolidated Fund of India.
 a surcharge which is nothing but an additional tax on the existing tax collected by the union
for a particular purpose.
8. Article 275
  Article 275 This article provides for grants-in-aid to the States by the Union government. The
grants are to be made on the recommendation of the Finance Commission. The grants are to
be used for the development of the States and for the welfare of the people.
 Grants-in-aid are financial assistance provided by the Union government to the States to help
them meet their financial needs
9. Article 276
 This article provides for taxes that are levied by the States. The taxes are to be levied and
collected by the States. The taxes that can be levied by the States include sales tax, value-
added tax (VAT), professional tax and stamp duty.
10. Article 277
 Except for cesses, fees, duties or taxes which were levied immediately before the
commencement of the constitution by any municipality or other local body for the purposes of
the State, despite being mentioned in the Union List can continue to be levied and applied for
the same purposes until a new law contradicting it has been passed by the parliament.
11. Article 279.
 This article deals with the calculation of “net proceeds” etc. Here ‘net proceeds’ means the
proceeds which are left after deducting the cost of collection of the tax, ascertained and
certified by the Comptroller and Auditor-General of India.
12. Article 245
 The Constitution of India is quasi-federal in nature with clear, precise and ‘detailed
demarcation or delegation of legislative powers between the Union and the States) The Union
Parliament and State Legislatures are . empowered under the Constitution to make laws for
the levy and collection of taxes within the ambit of their legislative jurisdiction as per Articles
245(1), 246(1) arid 246(3) of the Constitution of India) The Seventh Schedule to the Indian
Constitution gives three lists.
 Central Government
 Taxes on Income other than Agricultural Income
 Customs including export duties
 Excise on Tobacco and other goods manufactured in India except alcoholic liquors
for human consumption, opium, narcotic drugs
 Corporation Tax
 Taxes on interstate trade of goods other than newspapers
 Taxes on interstate consignment of goods
  Any other matter not included in List II or III
 State Government
 Taxes on agricultural income
 Excise duty on alcoholic liquors, opium and narcotics
 Octroi or Entry Tax
 Tax on intra state trade of goods other than newspapers
 Tax on advertisements other than that in newspapers
 Tax on goods and passengers carried by road or inland waterways
 Tax on professionals, trades, callings and employment

INTER-GOVERNMENT TAX IMMUNITIES [THE DOCTRINE OF IMMUNITY OF INSTRUMENTALITY].

(ARTICLES 285 TO 289).

 The doctrine of inter-Government immunities was for the first time recognized by the American
Supreme Court in the leading case of Mechulloch v. Maryland. In America, the Congress had
established a bank in the State of Maryland. The State of Maryland levied a tax which Mechulloch,
the cashier, refused to pay on the ground that a State could not tax on instrumentality of the
Central Government. Marshall, and the Supreme Court of America held that the State had no
power a tax on centre’s property. Later on, in Collector v. Day, the rule “was applied to give
immunity to State properties from’ Central taxation. This doctrine was very strictly applied in
America and Australia but in India and Canada, the doctrine of mutual exemption from taxation is.
applied in a_restricted sense. The rule of mutual exemption from taxation has been recognized by
Art. 285 & Art. 289 of the Indian Constitution. The rule of immunity from State taxation applies
only ‘to the Instrumentalities of the Union of India and not to private bodies.
1. Exemption of Union Property from State Taxation (Art. 285).
 The property of the Union shall, save in so far as Parliament may by law otherwise provide, be
exempt from all taxes imposed by a State or by any authority within a State.
 Nothing in clause (1) shall, until Parliament by law otherwise provides, prevent any authority
within a State from levying any tax on any property of the Union to which such property was
immediately before the commencement of this Constitution liable or treated as liable, so long as
that tax continues to be levied in the State.
2. Restrictions as to Imposition of Tax on the Sale and Purchase of Goods Outside the State (Art.
286).
 (1) No law of a State shall impose or authorize the imposition of, a tax on the sale or purchase of
goods where such sale or purchase takes place :
(a) outside the State, or
(b) in the course of the import of the goods into or export of the goods out of the territory of
India.
(2) Parliament may by law formulate the principles for determining when a sale or purchase of
goods takes place in any of the ways mentioned in clause (1).
(3) Any law of a State shall, in so far as it imposes, or authorizes the imposition of,—
(a) 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; or
(b) a tax on the sale or purchase of goods, being a tax of the nature referred to in sub-clause (b),
sub-clause (c) or sub-clause (d) of clause (29-A) of Article 366 of the Constitution. of India 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
3. Exemption from Taxes on Electricity (Art. 287).

Save in so far as Parliament may by law otherwise provide, no law of a State shall impose, or
authorize the imposition of, a tax on the consumption or sale of electricity (whether produced by a
Government or other persons) which is :—

(a) consumed by the Government of India, or sold to the Government of India for consumption by that
Government; or

(b) consumed in the construction, maintenance or operation of any railway by the Government of
India or a railway company operating that railway, or sold to that Government or any such railway
company for consumption in the construction, maintenance or operation of any railway, and any such
law imposing, or authorizing the imposition of, a tax on the sale of electricity shall secure that the
price of electricity sold to the Government of India for consumption by that Government, or to any
such railway company as aforesaid for consumption in the _ construction, maintenance or operation
of any railway shall be less by the amount of the tax than the price charged to other consumers of a
substantial quality of electricity.

4. Exemption from taxation by States in respect of water or electricity in certain cases Article
288
  of the Indian Constitution deals with the prohibition on States from imposing a tax on water
or electricity stored, generated, consumed, distributed, or sold by any authority established
by an existing law or a law made by the Parliament for regulating or developing any inter-
State river or river-valley.
 The President of India has the power to exempt certain cases from this prohibition by
issuing an order.
 The clauses of Article 288 provide that with the power of the Legislature of a State to
impose or authorise the imposition of a tax on water or electricity. However, such a law can
only be effective if it has received the approval of the President of India after being reserved
for his consideration.
 If the law provides for the fixation of the rates and other incidents of the tax through rules
or orders to be made under the law by any authority, then the law must also provide for the
prior consent of the President of India to be obtained before making such rules or orders.
5. Exemption of Property and Income of a State from Union Taxation (Art. 289).

(1) the property and income of a State shall be exempt from Union taxation.

(2) Nothing in clause (1) shall prevent the Union from imposing or authorizing the imposition of, any
tax to such extent, if any, as Parliament may by law provide in respect of a trade or business of any
kind carried on by, or on behalf of, the Government of a State, or any operations connected therewith,
or any property, used or occupied for the purposes of such trade or business, or any income accruing
or arising in connection therewith.

(3) Nothing in clause (2) shall apply to any trade or business, or to any class of trade or business,
which Parliament may by law declare to be incidental to the ordinary functions of Government.
 Unit 2

The Concept of Income S.2(24)

 Profits and gains;

 Dividend;
 Voluntary contributions received by a trust which is created wholly or partly for charitable
or religious purposes; or by educational institutions, hospitals or electoral trust;
 The value of any perquisite or profit in lieu of salary taxable u/s 17;
 Any special allowance granted to the assessee to meet expenses wholly, necessarily and
exclusively for the performance of office or employment duties
 The value of benefit or perquisite to a representative assessee like a trustee appointed under
a trust;
 Any sum chargeable to income-tax under clauses (ii) and (iii) of sec. 28 or sec. 41 or sec. 59;
 Any sum chargeable to income-tax under clauses (iiia), (iiib), (iiic), (iv), (v), (va) and (via) of
sec. 28;
 Any capital gains chargeable u/s 45;
 The profits and gains of any insurance business carried on by a mutual insurance company
or by a co-operative society, computed in accordance with section 44 or any surplus taken to
be such profit and gains by virtue of provisions contained in the First Schedule;
 The profits and gains of any of banking business carried on by a co-operative society with its
members;
 Winnings from lottery, crossword puzzles, races card games or other games of any sort or
from gambling or betting;
 Any sum received by the assessee from his employees as contributions to any provident fund
or superannuation fund or any fund
 Any amount received under the Key man insurance policy including the sum allocated by
way of bonus;
 Any sum of money or specified movable or immovable properties received without
consideration or inadequate consideration
 Any consideration received for issue of shares as exceeds the FMV of shares referred to in
section 56(2)(viib);
 Any sum of money received as advance in the course of negotiation for transfer of a capital
asset, if such sum is forfeited as the negotiation do not resulted in transfer of the asset 56(2)
(ix);
 Any sum chargeable to income-tax .

As per section 2(1A) of the Act, agricultural income means any income which includes the
following:

 Income should be derived from land

The very first requirement is the income should be derived from land not from any other assets.
Land can be owned or occupied by a cultivator who produces on that land, or a rent receiver of that
produce. Land can be farming land or a building that should be occupied or owned by a cultivator or
a rent receiver. That building or farmhouse should be on the same land and used as a dwelling-
house, store-house or other outbuildings.

Income should be in the form of rent or revenue,

Rent is payment, it can be in cash or in-kind, by one person to another in respect of a grant of right
to use that land.

Revenue is used in a broader sense, In the case of Durga Narain Singh v. CIT [ (1947) 15 ITR 235]

“Revenue” covers income other than rent. Mutation fees extracted from tenants upon their
succeeding to occupancy holding are revenue derived from land.

 Land must be situated in India

Another condition is the land must be situated in India, whether situated in urban areas or rural
areas. The areas are also mentioned in Sec. 2(1A) of the Income Tax Act. The area where land
revenue can be collected by officers of the government:

1. If it is situated in an area which comes within the jurisdiction of the municipality or

cantonment board where the population is not less than ten thousand.

2. Any area within the distance,

 3. Not being more than two kilometers from the local limits of any municipality or
cantonment board and which has a population of more than ten thousand but not
exceeding one lakh.

4. Not being more than six kilometers from the local limits of any municipality or
cantonment board and which has a population of more than one lakh but not exceeding
ten lakh.

5. Not being more than eight kilometers from the local limits of any municipality or
cantonment board and which has a population of more than ten lakh.

 Land must be used for basic operations of Agriculture

For exemption under agricultural income, the operation must be related to agricultural. That means
land should be used for the agricultural purpose.

Now, what can be understood by the term ‘Agricultural Purpose’. In the case of CIT v. Raja Benoy
Kumar Suhas Roy [1957] 32 ITR 466, the Supreme Court laid down the principles in regard to the
term ‘Agriculture’ and ‘Agricultural Purposes’.

SC divided operations into two types-

 Basic operation.- Basic operation includes the expenditure of human skill and labor upon the
land itself, merely having an agricultural land will not constitute agricultural purposes.
Some operations like tilling of land, sowing of the seeds, planting, etc.

 Subsequent operation.- Subsequent operations are performed after the produce sprouts from
the land. Like weeding (removal of wild plants), digging the soil around the growth, removal
of undesirable undergrowths, removal of the crop from insects and pests, cutting, harvesting,
rendering the produce fit for the market etc.. Subsequent operation must be in continuation
of basic operations, mere performance of these activities on the land will not constitute
agricultural operation.
 Income from a Nursery

In the case of CIT v. Saundarya Nursery [2000] 241 ITR 530 (Mad.), the Madras High Court held that
nursing activities involve carrying out of several operations on land before the sapling were
transplanted in a particular pot and then put them in shades for further operation and growth.
Therefore, the income from the nursery will consider being an agricultural income.
Income derived from Agricultural produce and marketing processes

Any income derived by a cultivator or receiver of rent-in-kind from agriculture by the sale of
agricultural produce on which necessary operations( maybe or may not be needed)are carried on
to render the produce fit for consumption and taking it to market is called as agricultural income.

Income from Farm building

Income from farm building which is derived from Agricultural operation is exempted from tax. But
to satisfy that property is used for agricultural purposes there are some essential requirements that
need to be fulfilled. Those conditions are:

1. The building must be occupied by the cultivator or the receiver of rent-in-kind;

2. The land must be situated in India and used for agricultural purposes;

3. The building which is used for agricultural operations by the cultivator or the rent
receiver must be as a dwelling house, storehouse.

4. The land is assessed to land revenue or local rates or land is situated in rural areas.

Rural Areas for the above purpose are given under Sec.2(1A)(c)(ii) of the Act, any area not situated:

1. within the jurisdiction of municipality or cantonment board and where the population is
not more than ten thousand.

2. within 2km from the local limits of municipality or cantonment board, where the
population is more than 10000 but less than 1 lakh.

3. Within 6km from the local limits of municipality or cantonment board, where the
population is more than 1 lakh but less than 10 lakh.

4. Within 8km from the local limits of municipality or cantonment board, where the
population is more than 10 lakh.
Rules Provisions (type of Agricultural Business
income) income (% income (%
exempt of such not-exempt
income) of such
 income)

Income derived from

growing and
Rule 7A 65% 35%
manufacturing of
rubber

Income from sale of

Rule
coffee grown and 75% 25%
7B(1)
manufactured in India

Income accruing from

Rule the sale of coffee
60% 40%
7B(1A) grown, cured, roasted
and grounded in India

Income derived from

sale of tea
Rule 8 60% 40%
manufactured or
grown in India

RESIDENTIAL STATUS

1.Residential Status of an Individual.

 An individual may be : (a) resident and ordinarily resident, (b) resident but not ordinarily
resident, or (c) non-resident.
i. Resident
Under Section 6(1) of the Income-tax Act, an individual is said to be resident in India in any
previous year if he:
 (a) is in India in the previous year for a period or periods amounting in all to one hundred
and eighty-two days or more i.e., he has been in India for at least 182 days during the
previous year; or
(b) has been in India for at least three hundred and sixty-five days (365 days) during the
four years preceding the previous year and has been in India for at least sixty days (60
days) during the previous year.
ii. Resident and Ordinarily Resident (ROR)
An individual may become a resident and ordinarily resident in India if he satisfy both the
following conditions given u/s 6(1)besides satisfying any one of the above mentioned
conditions:
(i) he is a resident in atleast any two out of the ten previous years immediately preceding
the relevant previous year, and
(ii) he has been in India for 730 days or more during the seven previous years immediately
preceding the relevant previous year.
2.Residential Status of a Hindu Undivided Family [Sec. 6(2)].
 A Hindu undivided family is either resident in India or non-resident in India. A resident Hindu
undivided family is either ordinarily resident or not ordinarily resident. .
 According to section 6(2), a Hindu undivided family is said to be resident in India if control
and management of its affairs is wholly or partly situated in India. A Hindu undivided family
is non-resident in India if control and management of its affairs is wholly situated outside
India.
 According to the rulings given in Subbayya Chettiar v. CIT, (1951) 19 ITR 163 (SC), the
following propositions can be stated :
 (i) Generally, HUF shall be taken to be resident in India unless control and management of its
affairs is situated wholly outside India. Control and management means de facto control and
management and not merely the right to control or manage.
 HUF may be residing in one place and doing a great deal of business in other place.
 (iii) Occasional visit of a non-resident karta to the place of HUF’s business in India would be
insufficient to make HUF ordinarily resident in India.
 According to Section 6(6)(b), a resident Hindu undivided family is ordinarily resident in
India
  if the karta or manager of the family satisfies the following two additional conditions : (Gi) he
has been resident in India in at least 9 out of 10 previous years immediately preceding the
relevant previous year, and
 (ii) he has been present in India for a period of 730 days or more during 7 years immediately
preceding the previous year. If the karta or manager of a resident Hindu undivided family
does not satisfy the two additional conditions, the family is treated as resident but not
ordinarily resident in India.
3. Residential Status of the Firm and Association of Persons [Sec. 6(2)]}.
A partnership firm and an association of persons are said to be resident in India if control and
management of their affairs are wholly or partly situated within India during the relevant
previous year. They are, however, treated as non-resident in India if control and management of
their affairs are situated wholly outside India.
4. Residential Status of a Company [Sec. 6(3)].
 An Indian company is always resident in India. A foreign company is resident in India only if,
during the previous year, control and management of its affairs is situated wholly in India. In
other words, a foreign company is treated as non-resident if, during the previous year, control
and management of its affairs is either wholly or partly situated out of India.
5. Residential Status of Every Other Person [Sec. 6(4)].
 Every other person is resident in India if control and management of his affairs is wholly or
partly situated within India during the relevant previous year. On the other hand, every other
person is non-resident in India if control and management of his affairs is wholly situated
outside India.

INCOME UNDER HEAD OF SALARY

 [Section 17(1)] Salary would include wages, allowances, annuity, pension, gratuity, fees,
commission, advance, leave encashment and also perquisites and profits in lieu of salary etc
 Section 15 Essential
i. Employer-Employee Relationship.
 There must be employer and employee relationship, either in the present or in the past,
between the person liable to pay the amount and the person entitled to receive the amount. If
such a relationship does not exist, then the income falls outside the scope of the head
‘Salaries.’
 If a person is acting as an agent for his principal during the course of his carrying on of
business, there is no relationship between them as master and servant and, therefore, any
commission or remuneration earned by the agent is chargeable to tax” under ‘Pronts and
gains of business or profession’ but not under ‘salaries
ii. Year of Chargeability.
 Salary is chargeable to tax either on due basis or on receipt basis whichever is earlier.
 Salary due in a previous year is taxable whether it is “received or not during that previous
year.
 Salary received in advance during the previous year is taxable even if it is not due.
 Similarly, arrears of salary received during the previous year is taxable if it was not taxed in
earlier years.
 Where any salary paid in advance is included in the total income of any previous year, it shall
not be included again when it becomes due.
iii. Place of Accrual.
 Normally, the place of accrual of salary is the place where the services are rendered.
Therefore, even if a non-resident is paid salary outside India in respect of services rendered
in India, it is deemed to accrue or arise in India by virtue of section 9.
a) Allowances
 The employer pays allowances to his employees in order to fulfill his personal
expenses. Allowances can be fully taxable or partly taxable.
 Partly taxable allowances include house rent allowance and special allowances under
section 10(14) (i)&(ii).
 Fully taxable allowances are: Dearness Allowance Overtime allowance Fixed Medical
Allowance Tiffin Allowance Servant Allowance Non-practicing Allowance Hill Allowance
Warden and Proctor Allowance Deputation Allowanc
b) Perquisites
 In addition to their salary, the employees are often given some other benefits which may or
may not be in cash form. For example, rent-free accommodation or car given by the
employer to the employee.
 Reimbursement of bills is not a perquisite. Perquisites are only given during the
continuance of employment
 Taxable perquisites include Rent free accommodation, Interest free loans ,Movable assets
Educational expenses, Insurance premium paid on behalf of employees.
 Exempted perquisites include: Medical benefits Leave travel concession Health Insurance
Premium Car, laptop etc. for personal use. Staff Welfare Scheme
c) Meaning of Profit in Lieu of Salary.
 ‘Profits in lieu of salary means the payments made to _an_employee in lieu of salary even if
these payments have no connection with the profits of the employer. — According to
section 17(3), profit.
 In head of salary includes :— (i) the amount of compensation due to or received by an
assessee from his employer or former employer at or in connection with (a) the
termination of employment, or (b) the modification “of the terms and conditions of
employment;
 (ii) any payment due to or received by the assessee from his employer or former |
employer | or from | provident. fund or any other fund.
d) Gratuity
 Gratuity is the payment made by the employer to an employee in appreciation of past
services rendered by the employee. It is received by the employee on his retirement.
Gratuity is exempted up to certain limit depending upon the category of employee.
 Gratuity received during continuation of service is fully taxable in the hands of all employee
(whether Government or non-Government employee).
 Gratuity received at the time of termination of service by Government employee: Gratuity
received at the time of termination of service by Government employee is fully exempt from
tax
e) Leave Salary
 Employees are entitled to various types of leave. The leave generally can be taken (casual
leave/medical leave) or it lapses. Earned leave is a kind of leave which an employee is said
to have earned every year after working for some time. This leave can either be availed
every year, or get encashment for it. If leave is not availed or encashed, it is allowed to be
carried forward. This leave keeps getting accumulated and is encashed by employee on his
retirement.
The tax treatment of leave encashment is as under
 Leave salary during continuation of service is fully taxable in the case of the Government
employee as well as other employees
  Leave salary received by Government employee on termination of service: At the time of
termination of service, leave salary received by the Central or State Government employee
is fully exempted

Déductions from Salaries (Sec. 16).

The income chargeable under the head ‘Salaries’ is computed after making the following deductions
:— (i). Entertainment Allowance [Section 16(ii]

Entertainment allowance is not eligible for exemption but it only qualifies for deduction. Therefore
entertainment allowance is first included in gross salary & then deduction is allowed under s.
16(ii)as under

- In the case of a Government employee, the least of : (a) Rs. 5,000; (b) 20 per cent of salary; or (c)
amount of entertainment allowance granted during the previous year, is deductable.

(ii) Professional Tax.

A deduction of any sum paid by the assessee on account of a tax on employment within the meaning
of clause (2) of Article 276 of the Constitution, leviable by or under any law. Under Article 276(2),
the total amount payable in respect of anyone person to the State or to anyone municipality, district
board, local board or other local authority in the State by way of taxes on professions, trades,
callings and employments shall not exceed_Rs.2,500.per..annum. In case the profession tax_is paid
by the employer on behalf of the employee, the amount so. paid should be included in gross salary
as a perquisite and then deduction under section 16(iii) can be claimed:

Section 16(iii) states that: a deduction of any sum paid by the assessee on account of a tax on
employment within the meaning of clause (2) of Article 276 of the Constitution, leviable by or under
any law.

HOUSE PROPERTY

I. Chargeability (Sec. 22)

 The annual value of any property comprising of building or land thereto, of which the
assessee is the owner, is chargeable to tax under the head ‘Income from house property’.
  The annual value of any building or a portion of building occupied by the assessee for the
purpose of business or profession carried on by him is not chargeable to tax.
 It is to be specifically noticed that what is taxable under the head ‘Income from house
property’ is the annual value of a ‘building property and not the rental income. No doubt,
rental income is also taken into considération for determination of annual value in the case
of a let out property but fair’ rent plays an important role in determination of annual value. :
 “Rental income is taxable under the head ‘Income from house property’, if the following
three conditions are satisfied :— the property should consist of any building or lands
appurtenant thereto;
 the assessee should be the owner of the property; and
 ii) the property should not be used by the owner for the purpose of any business or
profession carried on by him, the profits of which are chargeable to income-tax.
II. Owner of House Property
 Ownership of house property It is only the owner (or deemed owner) of house property
who is liable to tax on income under this head. Owner may be an individual, firm, company,
co-operative society or association of persons. The property may be let out to a third party
either for residential purposes or for business purposes
 Deemed ownership
 Section 27 provides that certain persons are not legal owners of a property but are still
considered to be deemed owners under certain conditions.
 Condition 1 – Transfer of property to a child or spouse, without consideration.
 Condition 2 – Holder of an impartible estate is deemed to be the owner of the entire estate.
 Condition 3 – Members of a co-operative society or company or association of person
 Condition 4 – Person in possession of a property on lease for more than 12 years as per
Section 269UA(f).
III. Property Income Exempt from Tax Property
 income is exempt from tax in the following cases :—
 income from farm house. [Sec. 2(1a)(c) read with Sec. 10(1)].
 annual value of anyone palace of an ex-ruler. ([Sec. 10(1
 property income of a local authority. [Sec. 10(20)].
 property income of an approved scientific research association.)
 property income of a university or other educational institutions. [Sec. 10(23C)].)
 property income of a hospital or other medical institution. [Sec. 10 (23C)].
  property income of a trade union. [Sec. 10(24)].
 property income in the case of a person resident of Ladakh.
 house property held for charitable purposes. (Sec. 11)
 property income of a political party. (Sec. 134A). bx)
 property used for own business or profession (Sec. 22);
 one self-occupied property (Sec. 23(2)).
IV. Co-owners of a property
 Section 26 If there are two or more owners of a property and if the share of co-owners is
determinate, the income generated from such property is calculated as income from one
property and it is divided amongst coowners. They are entitled to relief under section 23
V. Annual value how determined S.23
 Let out property
 In the case of a let out property the procedure for determining taxable income is as
follows :— (i) Find out gross annual value. Annual value is the artificial income.
Annual value is the sum for which the property might reasonably be expected to let
from year to year.
 Gross Annual Value is determined by comparing fair rent or annual rent & adopting
whichever is higher
 Fair rent means rent which similar property in the same location would fetch. But if
municipal valuation is also furnished, fair rent is taken as municipal valuation or the
rent which similar property in the same locality would fetch, whichever is higher.
However, if standard rent is fixed for that property, then fair rent cannot exceed the
standard rent.
 Annual rent is the actual rent received or receivable by the assesses during the
relevant previous year. If the let out property is vacant for part of the year, even
then rent for the entire previous year should be calculated and adopted as annual
rent.
 Self-Occupied Property [Sec. 23(2)].
o Where the property consists of a house or part of a house in the occupation of the
owner for his own residence or cannot actually be occupied by the owner..by reason
of the fact that owing to his emplovment, business or profession carried on at any
other place he has to reside at that other place in a building not belonging to him.
The annual value of such house shall be take as Nil
  The provisions of sub-section (2) shall not apply if— (a) the house or part of the house is
actually let during the whole or any part of the previous year; or (b) any other benefit
therefrom is derived by the owner
 Where the property referred to in sub-section (2) consists of more than 3 [two houses]—
(a) the provisions of that sub-section shall apply only in respect of 4 [two] of such houses,
which the assessee may, at his option, specify in this behalf; the annual value of the house or
houses, 1 [other than the house or houses] in respect of which the assessee has exercised an
option under clause (a), shall be determined under sub-section (1) as if such house or
houses had been let.]
 Where the property consisting of any building or land appurtenant thereto is held as stock-
in-trade and the property or any part of the property is not let during the whole or any part
of the previous year, the annual value of such property or part of the property, for the
period up to 3 [two years] from the end of the financial year in which the certificate of
completion of construction of the property is obtained from the competent authority, shall
be taken to be nil
VI. Deductions from income from house property S.24
 the following deductions are made under section 24 from the net adjusted annual value in
order to arrive at taxable income :—. (a) a sum equal to thirty per cent of the annual value;
(b) where the property has been acquired, constructed, repaired, renewed or reconstructed
with borrowed capital, the amount of any interest payable on such capital.
 In respect of such property, interest on capital borrowed for purchase, construction, etc. of
house property is deductible subject to a maximum of Rs. 30,000 under proviso to ‘section
24.
 The loan taken prior to April 1, 1999 will carry deduction of interest up to Rs. 30,000 only.
From the assessment year 2000-01, & such acquisition or construction is completed 6
[within 7 [five years] from the end of the financial year in which capital was borrowed], the
amount of deduction 5 [or, as the case may be, the aggregate of the amounts of deduction]
under this clause shall not exceed 8 [two lakh rupees]
 Deduction of municipal taxes is permissible in respect of property taxes subject to the
following two conditions :— (i) it should be borne by the assessee; (ii) it should be actually
paid during the previous year then we get’ rent annual value.

WHAT IS ASSESSMENTS & TYPES OF ASSESSMENT

  Every taxpayer has to furnish the details of his income to the Income-tax Department. These
details are to be furnished by filing up his return of income. Once the return of income is
filed by the taxpayer, the next step is processing the income return 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
“Assessment”.
1. Assessment under section 140A | Self-Assessment
The assessee himself determines the income tax payable while filing the return of income. Before
filing the return of income assessee is supposed to find whether he is liable to pay any tax, for this
purpose this section has been introduced in the income tax act. This process is generally known as
self-assessment

2. Assessment under section 143(1) | Intimation/Summary Assessment/Refund Order or

Demand Order
 It is a type of assessment carried out without any human intervention. In this type of
assessment, the information submitted by the assessee in his return of income is cross-
checked against the information that the income tax department has access to. In the
process, the reasonableness and correctness of the return are verified by the department.
The return gets processed online, and adjustment for arithmetical errors, incorrect claims,
and disallowances are automatically done
 Example, credit for TDS claimed by the taxpayer is found to be higher than what is available
against his PAN as per department records. Making an adjustment in this regard can
increase the tax liability of the taxpayer. After making the aforementioned adjustments, if
the assessee is required to pay tax, he will be sent an intimation under Section 143(1). The
assessee must respond to this intimation accordingly.
3. Assessment under section 143(3) | Limited Scrutiny Assessment/Regular Assessment
 This is a detailed assessment and is referred to as a scrutiny assessment. At this stage,
detailed scrutiny of the return of income will be carried out to confirm the correctness and
genuineness of various claims, deductions, etc., made by the taxpayer in the return of
income. 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 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. To carry out an assessment under section
143(3), the Assessing Officer shall serve such notice in accordance with provisions of
section 143(2).
 In a case where the return of income is not filed by the taxpayer, then notice under
section 142 (1) is issued by the assessing officer for filing the return of income after the
time allowed under sub-section (1) of section 139 for filing the return has expired, but the
return of income is already filed by the taxpayer then the assessing officer directly issued
a notice under section 143 (2) to carry out an assessment under section 143(3)
4. Best Judgment Assessment (Sec. 144).

The Assessing Officer, after considering all relevant material which he has gathered, is under an
obligation to make an assessment of the total income or loss to the best of his judgment in the
following cases :—
(i) if the person fails to make the return as required under section 139(1) and has not made a
return or a revised return under sub-section (4) or (5) of that section [Sec. 144(1)(a)]; or
(ii) if any person fails to comply with all the terms of a notice under section 142(1) or fails to
comply with the direction requiring him to get his accounts audited in terms of section 142 (2A)
[Sec. 144(1)(b)]; or
(iii) if any person, after having filed a return, fails to comply with the terms of a notice under
section 143(2) requiring his presence or production of evidence and documents [Sec. 144(1)(c)!;
or
(iv) if the Assessing Officer is not satisfied about the correctness or the completeness of the
accounts of the assessee or if no method of accounting has been regularly employed by the
assessee. [Sec. 145(3)].
2) The provisions of section 144 are mandatory in nature.
(3) The best judgment assessment can only be made after giving the assesses an opportunity of
being heard. Such opportunity shall be given by issue of notice to the assesses to show cause why
the assessment should not be completed to the best of judgment on a date and time specified and
that opportunity for hearing will not be necessary where notice under section 142(1) has already
been issued.
(4) An assessment under section 143 or 144 shall be completed within 2 years from the end of the
relevant assessment year.
 (5) In the case of best judgment assessment, an assesses has a right to file an appeal under section
246 or to make an application for revision under section 264 to the Commissioner.
(6) A refund cannot be granted under section 144.
5. Assessment under section 147 | Re-assessment/Income escaping
assessment/Recomputation
 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 recomputed the loss or the
depreciation allowance or any other allowance, as the case may be, for the such assessment
year.
 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 assessable
under this Act during the previous year corresponding to the relevant assessment year.
 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 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.
 Search and Seizure under section 132 and Powers to requisition books of account, etc. under
section 132A is also covered under Assessment under section 147 | Re-assessment/Income
escaping assessment/Recompilations,
 Search and Seizure are conducted by the Income Tax Department, also called raids, when they
suspect any person is in possession of illegal money in any form. Let’s understand in detail
about Income Tax Raids.

AUTHORITIES & THEIR POWER

.The various income tax authorities for the purposeful existence of the Act are

1. CBDT or the Central Board of Direct Taxes which has been constituted under the Central Board
of Revenue Act 1963
2. Director general of income tax

3. Chief commissioner of income tax

4. Directors and commissioner of income tax

5. Additional directors and additional commissioners of income tax

6. Joint directors and joint commissioners of income tax

7. Deputy directors and deputy commissioners of income tax

8. Assistant directors and assistant commissioners of income tax

9. Income tax officers

10. Income tax inspector

THE CBDT OR CENTRAL BOARD OF DIRECT TAXES

Consolidate under the Department of Revenue in the Ministry of Finance the CBDT holds the
highest position on the direct tax world in the country. It lays down the policies and planning’s for
all direct tax related matters in India. With the help of the Income Tax Department it makes sure
that direct taxes are properly administered on the workforce of the country. The Chairperson along
with the 6 members of the body of the CBDT are all ex officio Special Secretaries in the government
and function as a division of the ministry that deals with levy and collection of all direct taxes in
India.

APPOINTMENT OF CBDT MEMBERS AND CHAIRPERSON

A person who desires to work with the CBDT board as the chair person or the body needs to clear
IRS i.e. Indian Revenue Services. The central government has full rights to decide who the members
shall be. The office memorandum of the government states the following requirements for the post
of members of the CBDT

1. Officer shall be an office holder in the central government with a minimum of one- year regular
service in level 15
 2. Officer shall have minimum of 15 years of experience in administration and running direct tax
administration in the central government along with 10 years of experience in field of CBDT

3. High professional merit and excellence

4. High impeccable reputation of integrity

5. Maximum age limit of 56 although exemptions provided in case of absorption

6. The person shall have at least 1 year of residual service on the date of occurrence of vacancy

All the posts for income tax authorities and filled by the central government as per the income tax
ordinance. The government has to decide as to who is fit, has proper professional skills and
experience to hold office

1. Power to Transfer Cases [Section 127]

CBDT can transfer the case from Assessing Officer to another A.O. subordinate to him after giving a
reasonable opportunity of being heard to the concerned assessee. However, no opportunity of
being heard shall be required if the case is to be transferred from one A.O. to another A.O. within
the same city, town or locality. Disputes regarding jurisdiction shall be resolved by the concerned
CCIT or CIT on mutual understanding. However, for any disagreement, the matter shall be referred
to CBDT and CBDT shall resolve the dispute by way of issuing a notification in the Official Gazette of
India.

2. Opportunity of Being Reheard [Section 129]

Whenever, an Income Tax Authority ceases to exercise jurisdiction over a particular case and is
being succeeded by another Income Tax Authority, then the successor Income Tax Authority shall
continue the pending proceeding from the same stage at which it was left over by the predecessor
Income Tax Authority. There shall be no requirement on the part of the successor Income Tax
Authority to reissue any notice already issued by his predecessor. However, if the concerned
assessee demands that before the successor Income Tax Authority continues the proceeding, he
shall be given an opportunity of being reheard to explain his case to the successor Income Tax
Authority, then in such case, an opportunity of being reheard has to be given to the assessee.
(However, such an opportunity of being reheard is required to be given only if the concerned
assessee demands for it and not otherwise).The time of A.O. lost in giving such opportunity of
 being reheard to the assessee, shall be excluded while calculating time limit to complete the
assessment.
3. Discovery, Production of Evidence etc. [Section 131]
The Assessing Officer, Deputy Commissioner (Appeals), Joint Commissioner, Commissioner
(Appeals), the Chief Commissioner and the Dispute Resolution Panel referred to in section 144C
have the powers vested in a Civil Court under the Code of Civil Procedure, 1908 while dealing
with the following matters: (i) discovery and inspection; (ii) enforcing the attendance of any
person, including any officer of a banking company and examining him on oath; (iii) compelling
the production of books of account and documents; and (iv) issuing commissions
4. Search and Seizure [Section 132]
Today it is not hidden from income tax authorities that people evade tax and keep unaccounted
assets. When the prosecution fails to prevent tax evasion, the department has to take actions like
search and seizure. Under this section, wide powers of search and seizure are conferred on the
income-tax authorities. The provisions of the Criminal Procedure Code relating to searches and
seizure would, as far as possible, apply to the searches and seizures under this Act. Contravention
of the orders issued under this section would be punishable with imprisonment and fine under
section 275A.
5. Power to Requisition Books of Account etc. [Section 132A]
Where the Director or the Director-General or Commissioner or the Chief Commissioner in
consequence of information in his possession, has reason to believe that (a), (b), or (c) as
mentioned under section 132(1) and the book of accounts or other documents or the assets have
been taken under custody by any authority or officer under any other law, then the Chief
Commissioner or the Director General or Director or Commissioner can authorize any Joint
Director, Deputy Director, Joint Commissioner, Assistant Commissioner, Assistant Director, or
Income tax Officer to require the authority to provide sue books of account, assets or any
documents to the requisitioning officer, when such officer is of the opinion that it is no longer
necessary to retain the same in his custody.
6. Application of Retained Assets [Section 132B]
This section provides that the seized assets can be appropriated against all tax liabilities of the
assessee. However, if the nature of source of acquisition of seized assets is explained satisfactorily
by the assessee, then, such assets are required to be released within a period of 120 days from the
date on which last of the authorisations for search under section 132 is executed after meeting
any existing liabilities. For this purpose, it has been provided that the assessee should make an
 application to the Assessing Officer within a period of 30 days from the end of the month in which
the asset was seized. The assessee shall be entitled to simple interest at ½% per month or part of
a month, if the amount of assets seized exceeds the liabilities eventually, for the period
immediately following the expiry of 120 days from the date on which the last of the authorizations
for search under section 132 or requisition under section 132A was executed to the date of
completion of the assessment under section 153A or under Chapter XIV-B.
7. Power to call for information [Sections 133]:
The Commissioner The Assessing Officer or the Joint Commissioner may for the purpose of this
Act: (a) Can call any firm to provide him with a return of the addresses and names of partners of
the firm and their shares; (b) Can ask any Hindu Undivided Family to provide him with return of
the addresses and names of members of the family and the manager; (c) Can ask any person who
is a trustee, guardian or an agent to deliver him with return of the names of persons for or of
whom he is an agent, trustee or guardian and their addresses; (d) Can ask any person, dealer,
agent or broker concerned in the management of stock or any commodity exchange to provide a
statement of the addresses and names of all the persons to whom the Exchange or he has paid any
sum related with the transfer of assets or the exchange has received any such sum with the
particulars of all such payments and receipts;
8. Power of Survey [Section 133A]:
The term 'survey' is not defined by the Income Tax Act. According to the meaning of dictionary
'survey' means casting of eyes or mind over something, inspection of something, etc. An Income
Tax authority can have a survey for the purpose of this Act. The objectives of conducting Income
Tax surveys are: (a)To discover new assessees; (b)To collect useful information for the purpose of
assessment; (c)To verify that the assessee who claims not to maintain any books of accounts is in-
fact maintaining the books; (d)To check whether the books are maintained, reflect the correct
state of affairs.
9. Power to Collect Certain Information [Section 133B]:
For the purpose of collection of information which may be useful for any purpose, the Income tax
authority can enter any building or place within the limits of the area assigned to such authority,
or any place or building occupied by any person in respect of whom he exercises jurisdiction.
10. Power to Inspect Registers of Companies [Section 134]:
The Assessing Officer, the Joint Commissioner or the Commissioner (Appeals), or any person
subordinate to him authorised in writing in this behalf by the Assessing Officer, the Joint
Commissioner or the Commissioner (Appeals), as the case may be, may inspect and if necessary,
 take copies, or cause copies to be taken, of any register of the members, debenture holders or
mortgagees of any company or of any entry in such register.
11. Other Powers [Sections 135 and 136]:
The Director General or Director, the Chief Commissioner or Commissioner and the Joint
Commissioner are competent to make any enquiry under this act and for all purposes they shall
have the powers vested in an Assessing Officer in relation to the making of enquiries. If the
Investigating officer is denied entry into the premises, the Assessing Officer shall have all the
powers vested in him under sections 131(1) and (2). All the proceedings before Income tax
authorities are judicial proceedings for purposes of section 196 of the Indian Penal Code, 1860,
and fall within the meaning of sections 193 and 228 of the Code. An income-tax authority shall be
deemed to be a Civil Court for the purposes of section 195 of the Criminal Procedure Code, 1973

SETOFF AND CARRYFORWARD OF LOSSES

For computation of Gross Total Income (GTI), income from various sources is computed under the
five heads of income. If all the sources and heads are having positive income (i.e. profit) then the
same can simply be added to compute GTI. However, if certain source(s) or certain head(s) have
negative income (i.e. loss) then such loss needs to be adjusted with income of another source(s) or
head(s).

 Set off means adjustment of loss from one source or one head against income from another
source or another head.
1. INTER SOURCE ADJUSTMENT (INTRA- HEAD ADJUSTMENT) [SEC. 70]

When the net result of any source of income is loss, it can be set off against income from any other
source under the same head. Sec. 70 deals with the set off of loss from one source against income from
another source under the same head of income, subject to the following exceptions –

I. Long term capital loss can be set off only against long term capital gain [Sec. 70(3)].
However, short-term capital loss can be set off against short term as well as long term
capital gains [Sec. 70(2)].
II. Loss of a speculation business can be set off only against the profits of a speculation
business, under the head ‘Profits and gains of business or profession’. However, loss from a
non-speculative business can also be set off against income from speculation business [Sec.
73(1)] 3.
 III. Loss of a specified business covered u/s 35AD can be set off only against the profits of other
specified business. However, loss from a non-specified business can be set off against
income from specified business.
IV. Loss incurred in activity of owning and maintaining race horses can be set off against
income from such activity only [Sec. 74A]
V. Loss from a source, income of which is exempt u/s 10, cannot be set off against any income.
VI. No loss can be set off against winning from lotteries, crossword puzzles, races, card games,
gambling or betting, etc. [Sec. 58(4) & 115BB]

2. INTER HEAD ADJUSTMENT [SEC. 71]

Where in respect of any assessment year, the net result of any head of income is a loss, the same
can be set off against the income under any other heads for the same assessment year, subject to
the following exceptions:

I. Capital gains: Loss under the head ‘Capital gains’ cannot be set off against income under any
other head. However, loss under any other head, e.g. business loss, shall be allowed to be set
off against income under the head ‘Capital gains’
II. Loss of a speculation business: Loss under the head ‘Profits and gains of business or
profession’ due to speculation business cannot be set off against any other income except
profits of speculation business. However, loss under any other head, e.g. loss from house
property, shall be allowed to be set off against income of a speculation business.
III. Loss of a specified business covered u/s 35AD cannot be set off against income taxable
under other head. However, loss from other head can be set off against income from
specified business.
IV. Loss from activity of owning and maintaining race-horses: Loss under the head ‘Income
from other sources’ due to activity of owning and maintaining race-horses cannot be set off
against any other income except profit from activity of owning and maintaining race-horses
[Sec. 74A]. However, loss under any other head, e.g. business loss, shall be allowed to be set
off against income from activity of owning and maintaining race-horses. Taxpoint: Above
provisions provides restriction on losses, however income from aforesaid source (i.e. a to d)
is available for setting off any loss from any other head of income
 V. Loss under the head ‘Income from house property’: Loss in excess of ` 2,00,000 under the
head ‘Income from house property’ cannot be set off with income under other heads of
income.
VI. Income under the head Salaries: Loss under the head “Profits and gains of business or
profession” cannot be setoff from income under the head “Salaries”.
VII. Loss from a source, income of which is exempt u/s 10: Such loss cannot be set off against
any taxable income. 8. Income from winning from lotteries, etc.: Any loss cannot be set off
against winning from lotteries, crossword puzzles, races, card games, gambling, betting, etc.
[Sec. 58(4) & 115BB]

3. CARRY FORWARD OF LOSS

In case where the income of an assessment year is insufficient to set off the losses of the year then
such losses (which could not be set off) can be carried forward to subsequent assessment year(s)
for set off against income of such subsequent year(s). However, all losses cannot be carried
forward, e.g. losses under the head ‘Income from other sources’ (other than loss from ‘Activity of
owning and maintaining race-horses’) cannot be carried forward. Following losses can be carried
forward:

1. Loss under the head ‘Income from house property’ [Sec. 71B]

2. Loss under head “Profits and gains of business or profession” other than speculation loss [Sec.
72]

3. Loss from speculation business [Sec. 73]

4. Loss from specified business covered u/s 35AD [Sec. 73A]

5. Loss under the head ‘Capital gains’. [Sec. 74]

6. Loss from ‘Activity of owning and maintaining race horses’. [Sec. 74A]

Set-off and carry forward of loss from house property [Section 71B]
 1. In any assessment year, if there is a loss under the head ‘Income from house property’, such Loss
will first be set-off against income from any other head during the same year.

2. If such loss cannot be so set-off, wholly or partly, the unabsorbed loss will be carried forward to
the following assessment year to be set-off against income under the head ‘Income from house
property’.

3. The loss under this head is allowed to be carried forward up to 8 assessment years immediately
succeeding the assessment year in which the loss was first computed.

4. For example, loss from one house property can be adjusted against the profits from another
house property in the same assessment year. Any loss under the head ‘Income from house property’
can be set off against any income under any other head in the same assessment year. However, if
after such set off, there is still any loss under the head “Income from house property”, and then the
same shall be carried forward to the next year.

5. It is to be remembered that once a particular loss is carried forward, it can be set off only against
the income from the same head in the forthcoming assessment years.

4. Carry forward and set-off of business losses [Sections 72 & 80]

Under the Act, the assessee has the right to carry forward the loss in cases where such loss cannot
be set-off due to the absence or inadequacy of income under any other head in the same year. The
loss so carried forward can be set-off against the profits of subsequent previous years. Section 72
covers the carry forward and set-off of losses arising from a business or profession. The assessee’s
right to carry forward business losses under this section is, however, subject to the following
conditions:-

● The loss should have been incurred in business, profession or vocation

. ● The loss should not be in the nature of a loss in the business of speculation.

● The loss may be carried forward and set-off against the income from business or profession
though not necessarily against the profits and gains of the same business or profession in which the
loss was incurred. However, a loss carried forward cannot, under any circumstances, be set-off
against the income from any head other than “Profits and gains of business or profession”.
 ● The loss can be carried forward and set off only against the profits of the assessee who incurred
the loss. That is, only the person who has incurred the loss is entitled to carry forward or set off the
same. Consequently, the successor of a business cannot carry forward or set off the losses of his
predecessor except in the case of succession by inheritance.

● A business loss can be carried forward for a maximum period of 8 assessment years immediately
succeeding the assessment year in which the loss was incurred

. ● As per section 80, the assessee must have filed a return of loss under section 139(3) in order to
carry forward and set off a loss. In other words, the non-filing of a return of loss disentitles the
assessee from carrying forward the loss sustained by him. Such a return should be filed within the
time allowed under section 139(1). However, this condition does not apply to a loss from house
property carried forward under section 71B and unabsorbed depreciation carried forward under
section 32(2)

5. Carry forward and set off speculation business losses (section 73)

The loss of a speculation business of any assessment year is allowed to be set off only against the
profits and gains of another speculation business in the same assessment year. If a speculation loss
could not be set off from the income of another speculation business in the same assessment year, it
is allowed to be carried forward for 8 assessment years immediately succeeding the assessment
year for which the loss was first computed. Also, it can only be set off against

the income of only a speculation business. It may be observed that it is not necessary that the same
speculation business must continue in the assessment year in which the loss is set off. However,
filing of return before the due date is necessary for carry forward of such a loss.

6. Losses in speculation business (sec 73)

1. Any loss, computed in respect of a speculation business carried on by the assessee, shall not be
set off except against profits and gains, if any, of another speculation business.

2. Where for any assessment year any loss computed in respect of a speculation business has not
been wholly set off under sub-section (1), so much of the loss as is not so set off or the whole loss
where the assessee had no income from any other speculation business, shall, subject to the other
provisions of this Chapter, be carried forward to the following assessment year, and
 ● it shall be set off against the profits and gains, if any, of any speculation business carried on by
him assessable for that assessment year ; and

● if the loss cannot be wholly so set off, the amount of loss not so set off shall be carried forward to
the following assessment year and so on

7. Losses under the head Capital gains (sec 74)

1. Where in respect of any assessment year, the net result of the computation under the head
Capital gains is a loss to the assessee, the whole loss shall, subject to the other provisions of this
Chapter, be carried forward to the following assessment year, and

a. in so far as such loss relates to a short-term capital asset, it shall be set off against income, if any,
under the head Capital gains assessable for that assessment year in respect of any other capital
asset;

b. in so far as such loss relates to a long-term capital asset, it shall be set off against income, if any,
under the head Capital gains assessable for that assessment year in respect of any other capital
asset not being a short-term capital asset;

c. if the loss cannot be wholly so set off, the amount of loss not so set off shall be carried forward to
the following assessment year and s
 Unit 3

SALIENT FEATURES OF GST IN INDIA

The salient features of GST in India have been highlighted below:

1. Supply as the base: GST would be applicable on “supply” of goods or services as against the
erstwhile concept of tax on the manufacture of goods or on sale of goods or on provision of services.

2. Destination-based tax: As opposed to the previous principle of origin-based taxation, GST would
be based on the principle of destination-based consumption taxation.

3. Dual GST: The Centre and the States would simultaneously levy tax on a common base. The GST
to be levied by the Centre would be called Central GST (CGST) and the GST to be levied by the States
(including Union territories with legislature) would be called State GST (SGST). Union territories
without legislature would levy Union territory GST (UTGST).

4. Inter-State supply: An integrated GST (IGST) would be levied on inter-State supply of goods or
services. This would be collected by the Centre so that the credit chain is not disrupted. Imports of
goods and services would be treated as inter-State supplies and would be subject to IGST. (This
would be in addition to applicable customs duties).

5. Central taxes subsumed: GST would subsume the following taxes that were levied and collected
by the Centre: Central excise duty; Additional duties of excise; Additional duties of customs
(commonly known as countervailing duty); special additional duty of customs (SAD); service tax;
and cesses and surcharges insofar as they relate to supply of goods or services.

6. State taxes subsumed: GST would subsume the following taxes that were levied and collected by
the State: State VAT; Central Sales Tax; purchase tax; luxury tax; entry tax; entertainment tax
(except those levied by the local bodies); taxes on advertisements; taxes on lotteries, betting and
gambling; and State cesses and surcharges insofar as they relate to supply of goods or services.

7. Applicability: GST would apply to all goods and services except alcohol for human consumption.
GST on five specified petroleum products (crude, petrol, diesel, aviation turbine fuel, natural gas)
would be applicable from a date to be recommended by the GST Council.
 8. Threshold for GST: A common threshold exemption would apply to both CGST and SGST.
Taxpayers with an annual turnover of ` 20 lakh (` 10 lakh for special category States (except J&K) as
specified in article 279A of the Constitution) would be exempt from GST. A compounding option
(i.e. to pay tax at a flat rate without credits) would be available to small taxpayers (including to
manufacturers other than specified category of manufacturers and service providers) having an
annual turnover of up to ` 1 crore (` 75 lakh for special category States (except J&K and
Uttarakhand) enumerated in article 279A of the Constitution). The threshold exemption and
compounding scheme is optional.

9. Exports: All exports and supplies to Special Economic Zones (SEZs) and SEZ units would be zero-
rated. 10. Input tax credit: Credit of CGST paid on inputs may be used only for paying CGST on the
output and the credit of SGST/UTGST paid on inputs may be used only for paying SGST/ UTGST. In
other words, the two streams of input tax credit (ITC) cannot be cross utilized, except in specified
circumstances of inter-State supplies for payment of IGST. (For details, see the Chapter on Input Tax
Credit).

11. Electronic filing of returns: There will be electronic filing of returns by different class of
persons at different cut-off dates. Various modes of payment of tax available to the taxpayer
including internet banking, debit/credit card and National Electronic Funds Transfer (NEFT)/Real
Time Gross Settlement (RTGS).

12. Tax deduction on payment made: While the provision for TDS has not been notified yet, it is
obligatory on certain persons including government departments, local authorities and government
agencies, who are recipients of supply, to deduct tax at the rate of 1% from the payment made or
credited to the supplier where total value of supply, under a contract, exceeds ` 2,50,000.

13. Tax collection at source by E-commerce operators: While the provision for TCS has not been
notified yet,it is obligatory for electronic commerce operators to collect ‘tax at source’, at such rate
not exceeding 2% of net value of taxable supplies, out of payments to suppliers supplying goods or
services through their portals.

14. Refund: Refund of tax can be sought by taxpayer or by any other person who has borne the
incidence of tax within two years from the relevant date. Refund is to be granted within 60 days
from the date of receipt of complete application and interest is payable if refund is not sanctioned
within 60 days.
15. Anti-profiteering clause: An anti-profiteering clause has been provided in order to ensure that
business passes on the benefit of reduced tax incidence on goods or services or both to the
consumers.

PROPOSED BENEFITS OF GST THE IMPLEMENTATION OF GST IS EXPECTED TO BRING IN

VARIOUS BENEFITS AS DISCUSSED BELOW:

1. Dynamic common market: GST would make India a dynamic common market and result in
generation of positive externalities. By ensuring uniformity of indirect tax rates across the country,
it will substantially improve the ease of doing business.

2. Elimination of cascading effect: Under GST, provision of seamless input tax credit across
transactions will avoid tax cascading, eliminate double taxation and improve resource allocation.

3. Efficiency: Subsuming of all major indirect taxes will result in the removal of inefficient taxes.
With as single tax to be paid, manufacturers will become more competitive and this could lead to
growth in exports.

4. Reduced compliance costs: Harmonization of tax rates and laws along with seamless input tax
credits and a sound IT infrastructure is expected to lead to reduced compliance costs. As all the
taxpayer services like registrations, payments, returns etc. will be available online, the compliance
process would become simpler.

5. Reduction in tax evasion: Uniform rates of taxation would reduce the incentive for tax evasion by
eliminating rate arbitrage opportunities between neighbouring states and that between intra-State
and inter-State sales.

6. Improved collection efficiency: GST is also desirable from the point of view of tax policy and
collection. Even if the taxes are lowered, the revenue of the Union and the states is expected to be
buoyant due to less evasion. A single rate across all goods and services will eliminate classification
disputes and make tax assessment more predictable. Harmonisation of tax assessment, levy and
collection procedures across states will reduce compliance costs, limit evasion, enhance
transparency and improve collection efficiency.
7. Revenue generation: By controlling tax leakage from the system and having a wider base, GST
would generate more tax revenues for both the Central and State Governments.

8. Encourages savings and investment: As GST is a tax on consumption and not on income, so the
tax system inherently encourages savings and investments instead of consumption. Further, input
tax credit would lead to a decrease in the cost of capital goods and provide boost to investments.

9. Improved efficiency of logistics : Due to GST implementation, the restriction on inter-State

movement of goods is likely to be lessened and the logistics sector is anticipated to start
consolidating warehouses across the country. In the erstwhile indirect tax structure, decisions
related to logistics and distribution centres were based on tax considerations as opposed to
operational efficiency. With GST in place, these decisions will now be based on operational
efficiency and warehouses would be set up at locations that would help in reaching customers
faster and reduce costs.

10. Regulation of the unorganized sector : For a large unorganized sector that exists in business,
GST has provisions for online compliances and payments, and availing of input credit only when the
supplier has accepted the amount, thereby bringing accountability and regulation to these
businesses.

11. Export competitiveness : With GST in place, the export industry in India would be able to have
internationally competitive prices due to the smooth process of claiming input tax credit and the
availability of input tax credit on services. The exports of goods or services would be a zero rated
supply under GST implying that GST would not be levied on export of goods or services. All this, in
turn, would provide a push to government’s ‘Make in India’ campaign

12. Higher threshold for registration: As per the current VAT structure, any business with a
turnover of more than ` 5 lakh (in most states) is liable to pay VAT (different rates in different
states). Similarly, for service tax, service providers with turnover less than ` 10 lakhs are exempted.
Under GST this threshold has been increased to ` 20 lakhs thus exempting many small traders and
service providers.
13. Composition scheme for small businesses: The composition scheme under the GST regime is a
method of levy of tax designed for small taxpayers whose turnover is up to ` 1 crore (` 75 lakhs in
case of 9 Special Category States). Those who opt for this scheme can file returns on a quarterly
basis unlike the others who have to file returns on a monthly basis. Under the scheme, small
businesses, manufacturers and restaurants will be subject to a GST rate of 0.5%, 1% and 2.5%
respectively on turnover. The Composition scheme has been designed to simplify and reduce the
burden of compliance for smaller taxpayers.

14. Benefits to consumers: The final price of goods is expected to be lower due to seamless flow of
input tax credit between the manufacturer, retailer and supplier of services. Average tax burden on
companies is likely to come down which is expected to reduce prices and hence benefit the
consumer.

BENEFITS OF DUAL GST MODEL

The Dual GST model, as implemented in India, involves the concurrent administration of two
parallel systems of GST – namely the Central Goods and Services Tax (CGST) levied by the central
government and the State Goods and Services Tax (SGST) imposed by the state governments. This
model was adopted to ensure a cooperative federal structure where both the central and state
governments have the authority to levy and collect taxes on the same transaction. Here are the key
features of the Dual GST model:

1. Dual Administration:

- Under the Dual GST model, both the central and state governments have the power to levy and
collect GST on the supply of goods and services within their respective jurisdictions. This dual
administration allows for a shared responsibility in tax collection and fosters cooperative
federalism.

2. Central Goods and Services Tax (CGST):

- The CGST is the component of GST collected by the central government on intra-state supplies of
goods and services. The central government formulates the rules and regulations governing CGST
and is responsible for administering and collecting this tax.

3. State Goods and Services Tax (SGST):

 - The SGST is the portion of GST levied by state governments on intra-state transactions of goods
and services. Each state formulates its own SGST laws, rates, and compliance mechanisms, ensuring
autonomy in tax administration and revenue collection.

4. Interstate Transactions

- For interstate transactions of goods and services, the Integrated Goods and Services Tax (IGST)
is levied by the central government. IGST replaces Central Sales Tax (CST) in inter-state trade and
ensures that the tax revenue is appropriately distributed between the center and the states.

5. Uniform Tax Rates

- The Dual GST model aims for uniform tax rates across states and union territories to create a
harmonized tax structure. This uniformity simplifies compliance for businesses operating in
multiple states, eliminates tax differentials, and promotes a seamless flow of goods and services
across the country.

6. Input Tax Credit (ITC):

- Businesses registered under the Dual GST system are eligible to claim Input Tax Credit on the
taxes paid on inputs used in the production or supply of goods and services. ITC ensures that taxes
paid at each stage of the supply chain are offset against the final tax liability, preventing cascading
of taxes.

7. Harmonization of Laws:

- The Dual GST model necessitates coordination and harmonization between the central and state
tax authorities to ensure consistency in tax laws, procedures, and compliance requirements. This
harmonization promotes efficiency in tax administration and facilitates ease of doing business.

8. Revenue Sharing

- The revenue generated from CGST and SGST is shared between the central and state
governments based on a pre-defined formula. This revenue-sharing mechanism ensures equitable
distribution of tax proceeds and financial autonomy for both levels of government.
 9. GST Council - The GST Council, comprising representatives from the central and state
governments, plays a crucial role in overseeing the implementation of the Dual GST model. The
Council deliberates on tax rates, exemptions, amendments to laws, and other policy decisions to
ensure a cohesive GST framework.

10. Compliance and Administration

- Businesses operating under the Dual GST model are required to comply with both central and
state GST regulations. The administration of GST involves online registration, filing of returns,
payment of taxes, and adherence to prescribed compliance procedures to maintain tax
transparency and accountability.

REGISTRATION OF GST [ 22-27]

Person liable for registration. (S.22)

 GST Act provides that every supplier of goods or services or both who has an aggregate
turnover of more than Rs. 20 lakhs in a year (Rs.10 lakhs in Special Category States) have
to obtain GST registration.
 The govt may at request of state & on recommendation of the council may increase
enhance the aggregate turnover from twenty lakh rupees to such amount not exceeding forty
lakh rupees in case of supplier who is engaged exclusively in the supply of goods However,
there are certain categories of suppliers who are required to obtain mandatory
registration irrespective of their turnover limit.
 Every person who, on the day immediately preceding the appointed day, is registered or holds a
license under an existing law, shall be liable to be registered under this Act with effect from the
appointed day.
 Where the business of taxable is transferred whether on account of succession or otherwise in
such case the transferee shall be liable to registration.
 in a case of transfer pursuant to sanction of a scheme or an arrangement for amalgamation or,
demerger of two or more companies pursuant to an order of a High Court, Tribunal or otherwise,
the transferee shall be liable to be registered,

Persons not liable for registration.(S. 23)

(1) The following persons shall not be liable to registration, namely:–– (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; (b) an
agriculturist, to the extent of supply of produce out of cultivation of land.

(2) The Government may, on the recommendations of the Council, by notification, specify the
category of persons who may be exempted from obtaining registration under this Act.

Who is required to take mandatory GST Registration ( S.24)

The following categories of suppliers are required to obtain mandatory registration irrespective of
any turnover limit:

1. Persons making any inter-state taxable supply of goods

2. Casual taxable persons making taxable supply (However casual taxable persons making supplies
of specified handicraft goods need not take compulsory registration and are entitled to the
threshold exemption of Rs. 20 Lakh.)

3. Persons required to pay tax under reverse charge

4. Non-resident persons making taxable supply

5. Persons required to deduct tax under section 51

6. Persons required to collect tax under section 52

7. Persons who make taxable supply on behalf of other taxable persons whether as an agent or
otherwise

8. Input Service Distributor

9. Person selling goods or services through e-commerce operator

10. Every e-Commerce operator who is required to collect tax at source

 11. Person supplying online information, data base access or retrieval services (OIDAR) from a
place outside India to an unregistered person in India

Manner of registration under GST Section 25 of the CGST Act, specified the manner of

 Every person who is liable to be registered apply for registration in every such State or Union
territory in which he is also liable within 30 days from the date on which he becomes liable to
registration.
 In case of a casual taxable person or a non-resident taxable person shall apply for registration at
least 5 days prior to the commencement of business.
 In case of any person who makes a supply from the territorial waters of India shall obtain
registration in the coastal State or Union territory
 Any person who is seeking registration under GST shall be granted a single registration in a State or
Union territory.
 In case a person having multiple business verticals in a State or Union territory may be granted a
separate registration for each business vertical.
 A person who is not liable for registration may get himself voluntarily and comply the all provisions
of GST Act as applicable to a registered person.
 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 the GST Act.
 Every person shall have a Permanent Account Number issued under the Income-tax Act, 1961 in
order to be eligible for grant of registration
 Every registered person shall undergo authentication, or furnish proof of possession of Aadhaar
number
 If Aadhaar number is not assigned to registered person, then such person is offered other alternate
or viable means of identification.
 in case of failure to undergo authentication or furnish proof of possession of Aadhaar number or
furnish alternate and viable means of identification, registration allotted to such person shall be
deemed to be invalid
 every person, other than an individual, shall, in order to be eligible for grant of registration,
undergo authentication, or furnish proof of possession of Aadhaar number of the Karta, Managing
Director, whole time Director Etc…
 a non-resident taxable person may be granted registration on the basis of such other documents as
may be prescribed.
 Where an eligible person fails to obtain registration, the proper officer may take suitable action as
per law.
 Any specialized agency of the UNO or any other organisation as notified by the commissioner shall
be granted Unique Identity Number for all purposes including refund of taxes.
 The registration or Unique Identity Number shall be issued as per procedure or shall be deemed to
have been granted within period of 7 days.
 A certificate of registration shall be issued in such form and with effect from such date as may be
prescribed.

Deemed Registration (S.26)

 The grant of registration or the Unique Identity Number under the State Goods and Services Tax Act
or the Union Territory Goods and Services Tax Act shall be deemed to be a grant of registration or
the Unique Identity Number under this Act subject to the condition that the application for
registration or the Unique Identity Number has not been rejected under this Act
 any rejection of application for registration or the Unique Identity Number under the State Goods
and Services Tax Act or the Union Territory Goods and Services Tax Act shall be deemed to be a
rejection of application for registration under this Act.

GST Registration for casual taxable or non-resident taxable person (S.27)

 The certificate of registration issued to a casual taxable person or a non-resident taxable person
shall be valid for the period specified in the application for registration or ninety days from the
effective date of registration, whichever is earlier and such person shall make taxable supplies
only after the issuance of the certification of registration.
 on sufficient cause being shown by the said taxable person, extend the said period of ninety days by
a further period not exceeding ninety days.
  A casual taxable person or a non-resident taxable person shall, at the time of submission of
application for registration , make an advance deposit of tax in an amount equivalent to the
estimated tax liability of such person for the period for which the registration is sought
 where any extension of time is sought by such taxable person shall deposit an additional amount of
tax equivalent to the estimated tax liability of such person for the period for which the extension
is sought.

COMPENSATION TO STATE ON GST .

 GST compensation to states refers to the reimbursement of losses incurred by the states due to
the implementation of GST. According to the GST Act, the central government is obligated to
compensate the states for any revenue loss incurred due to the introduction of GST for a
period of five years from the date of its implementation. The compensation is calculated based on
the revenue of the states in the base year of 2015-16, and a growth rate of 14% has been
assumed.
 S.2(q) “transition date” shall mean, in respect of any State, the date on which the State Goods and
Services Tax Act of the concerned State comes into force;
 S.2(r) “transition period” means a period of five years from the transition dat

S.3 Projected growth rate.

 The projected nominal growth rate of revenue subsumed for a State during the transition period
shall be fourteen per cent per annum.

S.4 Base year.

 For the purpose of calculating the compensation amount payable in any financial year during the
transition period, the financial year ending 31st March, 2016, shall be taken as the base year.

S. 5. Base year revenue.

the base year revenue for a State shall be the sum of the revenue collected by the State and the local
bodies during the base year, on account of the taxes levied by the respective State or Union and net of
refunds, with respect to the following taxes, imposed by the respective State or Union, which are
subsumed into goods and services tax, namely:

 the value added tax, sales tax, purchase tax, tax collected on works contract, or any other tax
levied by the concerned State
 the central sales tax
 the entry tax, octroi, local body tax or any other tax levied by the concerned State
 the taxes on luxuries, including taxes on entertainments, amusements, betting and gambling
 the taxes on advertisement or any other tax
 the duties of excise on medicinal and toilet preparations levied by the Union but collected and
retained by the concerned State Government
 any cess or surcharge or fee leviable under entry 66

S. 6 Projected revenue for any year.

 The projected revenue for any year in a State shall be calculated by applying the projected growth
rate over the base year revenue of that State.

Illustration.—If the base year revenue for 2015-16 for a concerned State, calculated as per section 5
is one hundred rupees, then the projected revenue for financial year 2018-19 shall be as follows—
Projected Revenue for 2018-19=100 (1+14/100)3

S. 7 Calculation and release of compensation

 The compensation payable to a State shall be provisionally calculated and released at the end of
every two months period, and shall be finally calculated for every financial year after the receipt
of final revenue figures
 in case any excess amount has been released as compensation to a State in any financial year
during the transition period, the excess amount so released shall be adjusted against the
compensation amount payable to such State in the subsequent financial year.
 The total compensation payable for any financial year during the transition period to any State shall
be calculated in the following manner,
 the projected revenue for any financial year during the transition period, which could
have accrued to a State in the absence of the goods and services tax, shall be calculated as
per section 6;
  the actual revenue collected by a State in any financial year during the transition period
shall be
I. the actual revenue from State tax collected by the State & net of refunds given
by the said State
II. the integrated goods and services tax apportioned to that State
III. any collection of taxes on account of the taxes levied by the respective State
 The loss of revenue at the end of every two months period in any year for a State during the
transition period shall be calculated:-
I. It shall be calculated on a pro-rata basis as a percentage of the total
projected revenue for any financial year during the transition period,
calculated in accordance with section 6
II. the actual revenue collected by a State till the end of relevant two months
period in any financial year during the transition period Shall be the as
above
 In case of any difference between the final compensation amount payable to a State
calculated then the same shall be adjusted against release of compensation to the State in
the subsequent financial year
 Where no compensation is due to be released in any financial year, and in case any excess
amount has been released to a State in the previous year, this amount shall be refunded by
the State to the Central Government.

BENEFITS TO TRADE:

1. Simplified Tax Structure

- GST replaces a multitude of indirect taxes like excise, service tax, VAT, etc., with a single,
comprehensive tax. This simplification reduces the compliance burden on businesses as they only
need to deal with one tax rather than multiple taxes.

2. Uniformity of Tax Rates

- GST brings uniformity in tax rates across the country, making it easier for businesses to
understand and comply with the tax structure. This consistency streamlines operations and
eliminates the need to account for varying tax rates in different states.
3. Input Tax Credit:

- Under GST, businesses can claim input tax credit on the tax paid on inputs used in the production
of goods or services. This mechanism prevents tax on tax, reduces the overall tax liability of
businesses, and promotes cost savings.

4. Transparent Tax System:

- GST promotes transparency in the tax system through the integration of technology. The online
filing of returns, digitization of invoices, and real-time tax reporting enhance transparency, making
it easier for businesses to track and reconcile their tax liabilities.

5. Efficient Supply Chain Management:

- GST facilitates smoother supply chain management by eliminating inter-state barriers and
reducing compliance costs related to the movement of goods. Businesses can optimize their
logistics and inventory management, leading to cost savings and improved operational efficiency.

6. Competitiveness

- With the removal of cascading taxes and input tax credit benefits, businesses become more
competitive in pricing their products or services. This competitiveness can lead to increased market
share, enhanced productivity, and better profitability for businesses.

BENEFITS TO CONSUMERS:

1. Reduction in Prices:

- One of the primary benefits for consumers is the potential reduction in prices of goods and
services following the implementation of GST. The elimination of cascading taxes and input tax
credit mechanisms can lead to lower prices for consumers.

2. Simplified Tax Structure

- With a standardized tax system under GST, consumers can have a clearer understanding of the
taxes included in the prices of goods and services they purchase. This transparency helps
consumers make informed decisions and reduces confusion about tax components.
 3. Wider Variety of Choices

- GST fosters a more competitive market environment, encouraging businesses to innovate,

diversify their offerings, and improve quality to attract consumers. Consumers benefit from a wider
variety of products and services at competitive prices.

4. Quality Improvement

- Businesses, under the GST regime, may focus more on improving the quality of their products or
services rather than tax planning. Enhanced product quality, customer service, and innovation
benefit consumers by providing better value for their money.

5. Consumer Protection

- GST includes measures such as anti-profiteering provisions to safeguard consumers from

arbitrary price increases post-GST implementation. These provisions ensure that businesses pass
on the benefits of reduced taxes to consumers, protecting their interests.

6. Easier Dispute Resolution

- With the digitization and transparency brought by GST, consumer grievances related to taxes or
pricing can be addressed more efficiently. The availability of digital records and streamlined
processes can expedite dispute resolution and improve consumer confidence.

LEVY & COLLECTION OF GST ON SUPPLY

S. 7 Scope of supply ., Supply includes :-

 All forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence,
rental, lease or disposal made or agreed to be made for a consideration.
 import of services for a consideration
 the activities specified in Schedule I
 Permanent transfer or disposal of business assets
 Supply of goods or services or both between related persons or between distinct persons
  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.
 Import of services by a person from a related person or from any of his other
establishments outside India
 the activities specified in Schedule II
 any transfer of the title in goods
 any transfer of right in goods or of undivided share in goods without the transfer of title
 any lease, tenancy, easement, licence to occupy land
 Any treatment or process which is applied to another person's goods
 renting of immovable property etc..
 Activities treated neither as a supply of goods nor a supply of services Are as follows
 activities or transactions specified in Schedule III
 Services by an employee to the employer in the course of or in relation to his employment
 Services by any court or Tribunal
 the functions performed by the Members of Parliament, Members of State Legislature,
Members of Panchayats etc…,
 Services of funeral, burial, crematorium or mortuary including transportation of the
deceased
 Actionable claims, other than lottery, betting and gambling
 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,

S. 8. Tax liability on composite and mixed supplies.

 (a) a composite supply comprising two or more supplies, one of which is a principal supply,
shall be treated as a supply of such principal supply; and
 (b) a mixed supply comprising two or more supplies shall be treated as a supply of that
particular supply which attracts the highest rate of tax.

S.9 Levy and collection

 there shall be levied a tax called the central goods and services tax on all intra-State supplies of
goods or services or both, except on the supply of alcoholic liquor for human consumption, on the
 value determined under section 15 and at such rates, not exceeding 20% or as notified by Govt s.,
shall be paid by taxable person.
 The central tax on the supply of petroleum crude, high speed diesel, motor spirit (commonly known
as petrol), natural gas and aviation turbine fuel shall be levied with effect from such date as may
be notified by the Government
 The Government may, on the recommendations of the Council, by notification, specify categories of
supply of goods or services or both, the tax on which shall be paid on reverse charge basis by the
recipient of such goods or services or both
 The Government may, on the recommendations of the Council, by notification, specify a class of
registered persons who shall, in respect of supply of specified categories of goods or services or
both received from an unregistered supplier, pay the tax on reverse charge basis as the recipient
of such supply of goods or services or both,
 The Government may, on the recommendations of the Council, by notification, specify categories of
services the tax on intra-State supplies of which shall be paid by the electronic commerce
operator if such services are supplied through it
 Provided that where an electronic commerce operator does not have a physical presence in the
taxable territory, any person representing such electronic commerce operator for any purpose in
the taxable territory shall be liable to pay tax

S. 10 Composition of Levy

Even if other parts of this law say something different, a business that registered for GST and made
less than 50 lakh rupees in the year before can choose to pay a fixed rate of tax instead of the
normal GST rates. This rate will be set by the government and won't be more than:

• (a) 1% for manufacturers,

• (b) 2.5% for certain service providers, and

• (c) 0.5% for other suppliers.

The government can raise this 50 lakh rupee limit to up to 1.5 crore rupees if the GST Council
agrees.
Businesses using these special rates can also provide services (not including some specific services)
up to 10% of their turnover or 5 lakh rupees, whichever is more.
Explanation: When calculating this 10%, don't count services like loans or deposits where you only
make money through interest or discounts.

(2) To choose this special tax rate, a business must not:

• (a) mainly provide services,

• (b) sell goods that aren't taxed,

• (c) sell goods to other states,

• (d) sell through online platforms that collect GST,

• (e) make goods that the government says can't use this scheme, or

• (f) be a temporary or foreign business.

If a business shares a tax ID with others, all must choose this special rate together.

(2A) Businesses that can't use the special rate in (1) and (2) but made less than 50 lakh rupees can
still choose to pay a fixed rate, not more than 3%, if they don't:

• (a) sell goods or services that aren't taxed,

• (b) sell goods or services to other states,

• (c) sell through online platforms that collect GST,

• (d) make goods or provide services that are excluded,

• (e) be a temporary or foreign business.

The same rule about sharing a tax ID applies here, too.

(3) If a business's earnings go over the limit during the year, they can't use these special rates
anymore.

(4) Businesses using the special rates can't charge GST to customers and can't claim GST credits for
their purchases.

(5) If a business wrongly uses these special rates, they'll have to pay a penalty plus any other GST due,
and they might be investigated.
GST INVOICE

Tax Invoices for Goods:

 If you're a registered business, you need to issue a tax invoice when you:

• Send goods to a customer, and the goods need to be moved; or

• Hand over goods to a customer, or make the goods available in any other way.

This invoice must list what you're selling, how much, the price, the tax, and any other required details.
The government can decide specific rules about when and how these invoices are issued for certain
goods.

2. Tax Invoices for Services:

 For services, you must issue a tax invoice either before or after the service is provided, but within a
set time frame. This invoice should include the service description, value, tax, and other required
details. The government can also allow different documents to be used as tax invoices or decide
that no invoice is needed for certain services.

3. Special Cases:

• If you just registered your business, you can issue a revised invoice for any sales made between the
start date of your registration and the date you got your registration certificate, as long as it's within
one month.

• You don't need to issue a tax invoice for sales under two hundred rupees unless required by specific
conditions.

• If you're selling goods or services that aren't taxed, or if you're under a special tax scheme (like
section 10), you should issue a 'bill of supply' instead of a tax invoice, unless the sale is under two
hundred rupees.

• When you receive an advance payment for goods or services, you need to issue a receipt. If the sale
doesn't happen later, you should give the customer a refund voucher.

• If you buy from an unregistered supplier and you have to pay tax under certain sections, you need
to issue an invoice on the date you receive the goods or services.
• When making payments to an unregistered supplier, you should issue a payment voucher.

4. Continuous Supply of Goods:

For ongoing sales of goods that involve regular payments or accounts, you should issue an invoice
each time a payment is made or an account statement is issued.

5. Continuous Supply of Services:

• If a contract specifies when payments for services are due, issue an invoice on or before that date.

• If the contract doesn't specify, issue an invoice when you get paid.

• If the payment is tied to finishing an event, issue an invoice on or before the event is completed.

6. Cessation of Services:

If you stop providing a service before it's finished, you need to issue an invoice for whatever part of
the service you did provide, at the time the service stops.

7. Goods on Approval:

When you send goods on an approval basis (where the sale isn't final until the customer approves),
you should issue an invoice either when the sale is confirmed or within six months from when the
goods were sent, whichever comes first.

Note: In this section, "tax invoice" also includes any corrected invoices for previous sales.

Information required in a GST invoice

Rule 46 of the CGST Rules deals with the contents of invoice. The tax invoice issued must clearly
mention information under the following 16 headings:

• Name, address and GSTIN of the supplier

• Tax invoice number up to 16 characters (it must be generated consecutively and each tax invoice
will have a unique number for that financial year)

• Date of issue
• If the buyer (recipient) is registered then the name, address and GSTIN of the recipient

• If the recipient is not registered and the value is more than Rs.50,000* then the invoice should
carry:

i. Name and address of the recipient

ii. Address of delivery

iii.State name and state code

• HSN code of goods or service accounting code for services

• Description of the goods/services

• Quantity of goods (number) and unit in UQC (metre, kg etc.)

• Total value of supply of goods/services

• Taxable value of supply after adjusting any discount

 Unit 5

VALUATION OF GOODS

 As per Section 14 of the Customs Act, the value of imported goods or export goods is the transaction
value. The Transaction Value is defined as ‘price paid or payable for the goods’. If the value cannot
be determined under Section 14, the importer shall resort to Customs Valuation (Determination
of Value of Imported Goods) Rules, 2007 (hereinafter referred to as ‘Import Valuation Rules’) or
Customs Valuation (Determination of Value of Export Goods) Rules, 2007

 Meaning of Transaction Value

As per Section 14 of the Customs Act, the value of imported goods or exported goods shall be the
transaction value that is to say

 the price actually paid or payable

 for the goods when sold for export to India for delivery at the time and place of importation,
or as the case may be, for export from India for delivery at the time and place of exportation,
 where the buyer and seller of the goods are not related and
 price is the sole consideration for the sale subject .

 Section 14(2) provides that CBIC may notify tariff value for any class of imported/ export goods.

 ‘Related person’ is defined in Rule 2(2) of the Customs Valuation (Determination of Value of
Imported/Export Goods) Rules, 2007 as follows:

 They are officers or directors of one another’s businesses;

 They are legally recognized partners in business;
 They are employer and employee;
 Any person directly or indirectly owns controls or holds five percent or more of the
outstanding voting stock or shares of both of them;
 One of them directly or indirectly controls the other;
 Both of them are directly or indirectly controlled by a third person;
 Together they directly or indirectly control a third person; or
 They are the members of the same family
A.VALUATION OF IMPORTED GOODS
Customs Valuation (Determination of Value of Imported Goods) Rules, 2007

Rule 3: (Determination of the method of Valuation)

Transaction value shall be accepted provided;

 No restriction on disposition or use of goods by the buyer except restriction imposed by any
statutory provisions or limiting the geographical area or restriction does not substantially
affect the value of the goods
 Sale or price not subject to conditions or consideration for which value cannot be
determined
 No further consideration to accrue directly or indirectly to seller unless adjustable as per
Rule 10
 Buyer and seller are Unrelated

If they are related, the Transaction Value is accepted on examination of circumstances of sale which
shall indicate that relationship did not influence the price and importer proves that prise is close to
the transaction value of identical/ similar goods, in sales to unrelated buyers; deductive/ computed
value of identical/ similar goods

Rule 4 : Transaction Value of Identical Goods

 identical goods sold for export to India and imported at or about the same time as the goods
being valued
 at the same commercial level and in substantially the same quantity as the goods being
valued
 Otherwise appropriate adjustments of value of goods in terms of commercial level and
quantity;

In applying this rule, if more than one transaction value of identical goods is found, the lowest such
value shall be used to determine the value of imported goods

Rule 5 : Transaction value of similar goods.

 identical goods sold for export to India and imported at or about the same time as the goods
being valued
  at the same commercial level and in substantially the same quantity as the goods being
valued
 Otherwise appropriate adjustments of value of goods in terms of commercial level and
quantity;

Rule 6 : Determination of value where value can not be determined under rules 3, 4 and 5.-

If the value of imported goods cannot be determined under the provisions of rules 3, 4 and 5, the
value shall be determined under the provisions of rule 7 or, when the value cannot be determined
under that rule, under rule 8.

Provided that at the request of the importer, and with the approval of the proper officer, the order
of application of rules 7 and 8 shall be reversed

Rule 7 : Deductive value based on identical/ similar imported goods –

If goods being valued or identical or similar goods are sold in India, in same condition as imported
at or about the same time, the assessable value shall be Unit Price at which
imported/identical/similar imported goods are sold in greatest aggregate quantity to unrelated
persons in India but subject to following deductions-

 commission usually paid or agreed to be paid or the additions usually made for profits and
general expenses;
 usual costs of transport and insurance and associated costs incurred within India;
 the customs duties and other taxes payable in India by reason of importation or sale of the
goods

if neither the imported goods nor identical nor similar imported goods are sold then the value of
imported goods shall be based on the unit price at which the imported goods or identical or similar
imported goods are sold in India

Rule 8: Computed Value-

Value of imported goods shall be based on a computed value, which is sum of =

  Cost of materials and fabrication or other processing employed in producing the imported
goods;
 Amount of profit and general expenses equal to that reflected in sale of same class or kind of
goods made by producers in the country of exportation for export to India;
 The cost or value of expenses under Rule 10(2

Rule 9 : Best Judged Value/ Residual Method-

If the value cannot be determined based on the above rules, it shall be determined by applying
reasonable means consistent with the principles and general provisions of these rules and on the
basis of data available in India

Value so determined shall be less than or equal to the Normal price of such goods in the course of
international trade

Rule 10(1) Cost and services to be included in Transaction Value-

The adjustments shall be made for the following cost and services and cost to be added if not
included-

a. Expenses incurred by the buyer, but not included in the value of imported goods, namely:
o Commissioners and brokerage, except buying commissions;
o Cost of containers;
o Cost of packing (whether for labour or material).
b. Goods and services supplied by the buyer free of charge or at reduced price for use in
connection with production and sale for export of imported goods namely-
o Materials, components, parts and other similar items incorporated in the imported
goods;
o Tools, dies, moulds and similar items used in the production of the imported goods;
o Materials consumed in the production of the imported goods;
o Engineering, development, art work, design work and plans and sketches
undertaken elsewhere than in India and necessary for the production of the
imported goods
c. Royalties and License fee related to the imported goods- payable by Buyer if such royalties
are paid as a condition of the sale
 d. Proceeds of any subsequent resale, disposal or use of the imported goods that accrues,
directly or indirectly to the Seller
e. All other payments actually made or to be made as a condition of sale of the Imported
Goods, by the Buyer to Seller/ Third Party, agreed as a ‘condition of sale’ or to satisfy an
obligation of the Seller is to be included in the value

Rule 10(2) transaction Value shall include-

a. Transportation Cost, upto the place of Importation (Transaction Cost also includes ship
demurrage charges on chartered vessels, lighterage/ barge charges)
b. Cost of Insurance to the place of Importation

If Transportation cost is not ascertainable, 20% of the FOB value of the goods shall be added to such
cost.

Provided where FOB value is not ascertainable but sum of FOB value and Insurance Cost is
ascertainable, Transport Cost shall be 20% of such sum.

If Insurance Cost is not ascertainable, cost shall be 1.125% of FOB value of the goods.

Provided where FOB value is not ascertainable but sum of FOB value of the goods and
transportation cost is ascertainable, cost of insurance shall be 1.125% of such sum.

In case where import is by air and Transaction Cost is ascertainable, Transaction Cost should not
exceed 20% of FOB

In case goods are imported by sea or air and transshipped to another customs station in India, the
cost of insurance, transport, loading, unloading, handling charges associated with such
transshipment shall be excluded.

Rule 11 : Valuation declaration for determination of value of Imported Goods-

Importer or his agent shall furnish declaration disclosing full and accurate details relating to the
value of imported goods; any other statement, information or document including an invoice of the
manufacturer or producer of the imported goods where the goods are imported from or through a
person other than the manufacturer or produce
Export Valuation Rules-

In case, the value cannot be determined under Section 14 of the Customs Act, the value shall be
determined on the basis of provisions contained in Customs Valuation (Determination of Value of
Export Goods) Rules, 2007

3. Determination of the method of valuation. -

(1) Subject to rule 8, the value of export goods shall be the transaction value.
(2) The transaction value shall be accepted even where the buyer and seller are related, provided
that the relationship has not influenced the price.
(3) If the value cannot be determined under the provisions of sub-rule (1) and sub-rule (2), the
value shall be determined by proceeding sequentially through rules 4 to 6.

4. Determination of export value by comparison.-

(1) The value of the export goods shall be based on the transaction value of goods of like kind and
quality exported at or about the same time to other buyers in the same destination country of
importation or in its absence another destination country of importation adjusted in accordance
with the provisions of sub-rule (2).
(2) In determining the value of export goods under sub-rule (1), the proper officer shall make
such adjustments as appear to him reasonable, taking into consideration the relevant factors,
including-
(i) difference in the dates of exportation,
(ii) difference in commercial levels and quantity levels,
(iii) difference in composition, quality and design between the goods to be assessed and the
goods with which they are being compared,
(iv) difference in domestic freight and insurance charges depending on the place of
exportation.

5. Computed value method. -

If the value cannot be determined under rule 4, it shall be based on a computed value, which shall
include the following:-
(a) cost of production , manufacture or processing of export goods;
(b) charges, if any, for the design or brand;
(c) an amount towards profit.

6. Residual method. -
(1) Subject to the provisions of rule 3, where the value of the export goods cannot be determined
under the provisions of rules 4 and 5, the value shall be determined using reasonable means
consistent with the principles and general provisions of these rules provided that local market price
of the export goods may not be the only basis for determining the value of export goods.

7. Declaration by the exporter.-

The exporter shall furnish a declaration relating to the value of export goods in the manner
specified in this behalf.

8. Rejection of declared value.-

(1) When the proper officer has reason to doubt the truth or accuracy of the value declared in
relation to any export goods, he may ask the exporter of such goods to furnish further information
including documents or other evidence and if, after receiving such further information, or in the
absence of a response of such exporter, the proper officer still has reasonable doubt about the truth
or accuracy of the value so declared, the transaction value shall be deemed to have not been
determined in accordance with sub-rule (1) of rule 3.
2) At the request of an exporter, the proper officer shall intimate the exporter in writing the
ground for doubting the truth or accuracy of the value declared in relation to the export goods by
such exporter and provide a reasonable opportunity of being heard, before taking a final decision
under sub-rule (1).
Explanation. - (1) For the removal of doubts, it is hereby declared that-
(i) This rule by itself does not provide a method for determination of value, it provides a
mechanism and procedure for rejection of declared value in cases where there is reasonable doubt
that the declared value does not represent the transaction value; where the declared value is
rejected, the value shall be determined by proceeding sequentially in accordance with rules 4 to 6.
(ii) The declared value shall be accepted where the proper officer is satisfied about the truth or
accuracy of the declared value after the said enquiry in consultation with the exporter.
(iii) The proper officer shall have the powers to raise doubts on the declared value based on
certain reasons which may include -
 (a) the significant variation in value at which goods of like kind and quality exported at or
about the same time in comparable quantities in a comparable commercial transaction were
assessed.
(b) the significantly higher value compared to the market value of goods of like kind and quality
at the time of export.
(c) the misdeclaration of goods in parameters such as description, quality, quantity, year of
manufacture or production.

LEVY & ASSESSMENT

S.15 Dutiable goods.—
duties of customs shall be levied at such rates as may be specified under the Customs Tariff Act,
1975 or any other law for the time being in force, on goods imported into, or exported from, India.
17. Assessment of duty.—
 An importer entering any imported goods under section 46, or an exporter entering any export
goods under section 50, self-assess the duty, if any, leviable on such goods.
 The proper officer may verify the entries made under section 46 or section 50 and the self-
assessment of goods and for this purpose, examine or test any imported goods or export goods
or such part
 the proper officer may require the importer, exporter or any other person to produce any
document or information, whereby the duty leviable on the imported goods or export goods, can
be ascertained , the importer, exporter or such other person shall produce such document or
furnish such information.
 Where it is found on verification, examination or testing of the goods or otherwise that the self-
assessment is not done correctly, the proper officer may, without prejudice to any other action
which may be taken under this Act, re-assess the duty leviable on such goods
 Where any re-assessment done is contrary to the self-assessment done by the importer or
exporter and in cases other than those where the importer or exporter, as the case may be,
confirms his acceptance of the said re-assessment in writing, the proper officer shall pass a
speaking order on the re-assessment, within fifteen days from the date of re-assessment of the
bill of entry or the shipping bill, as the case may be.

S. 18. Provisional assessment of duty

 where the importer or exporter is unable to make self-assessment under sub-section (1) of section
17 and makes a request in writing to the proper officer for assessment; or
(b) where the proper officer deems it necessary to subject any imported goods or export goods to
any chemical or other test; or
(c) where the importer or exporter has produced all the necessary documents and furnished full
information but the proper officer deems it necessary to make further enquiry; or
(d) where necessary documents have not been produced or information has not been furnished and
the proper officer deems it necessary to make further enquiry.

 the proper officer may direct that the duty leviable on such goods be assessed provisionally if the
importer or the exporter, as the case may be, furnishes such security as the proper officer deems
fit for the payment of the deficiency, if any, between the duty as may be finally assessed or re-
assessed as the case may be, and the duty provisionally assessed..
 Where, pursuant to the provisional assessment if any document or information is required by the
proper officer for final assessment, the importer or exporter, as the case may be, shall submit such
document or information within such time, and the proper officer shall finalise the provisional
assessment within such time and in such manner, as may be prescribed.
 When the duty leviable on such goods is assessed finally or re-assessed by the proper officer
in the case of goods cleared for home consumption or exportation, the amount paid shall be
adjusted against the duty & finally assessed or re-assessed, as the case may be,and if the amount so
paid falls short of, or is in excess the duty 4 finally assessed or re-assessed, as the case may be, the
importer or the exporter of the goods shall pay the deficiency or be entitled to a refund, as the case
may be;
 (b) in the case of warehoused goods, the proper officer may, where the duty is to finally assessed or
re-assessed, as the case may be is in excess of the duty provisionally assessed, require the
importer to execute a bond, binding himself in a sum equal to twice the amount of the excess duty.
 The importer or exporter shall be liable to pay interest, on any amount payable to the Central
Government, consequent to the final assessment order or re-assessment order.
 if any refundable amount is not refunded under that sub-section within three months from the date
of assessment, of duty finally 3 [or re-assessment of duty, as the case may be,] there shall be paid
an interest on such un-refunded amount at such rate fixed by the Central Government.
 The amount of duty refundable and the interest if any, shall, instead of being credited to the Fund,
be paid to the importer or the exporter, as the case may be, if such amount is relatable to—

(a) the duty and interest, if any, paid on such duty paid by the importer, or the exporter, as the case
may be, if he had not passed on the incidence of such duty and interest, if any, paid on such duty to
any other person;
(b) the duty and interest, if any, paid on such duty on imports made by an individual for his
personal use;
(c) the duty and interest, if any, paid on such duty borne by the buyer, if he had not passed on the
incidence of such duty and interest, if any, paid on such duty to any other person;
(d) the export duty as specified in section 26; (e) drawback of duty payable under sections 74 and
75.]

Power to prohibit importation or exportation of goods.

S. 29. Arrival of vessels and aircrafts in India.— The person-in-charge of a vessel or an aircraft
entering India from any place outside India shall not cause or permit the vessel or aircraft to call or
land—
(a) for the first time after arrival in India; or
(b) at any time while it is carrying passengers or cargo brought in that vessel or aircraft; at any
place other than a customs port or a customs airport, as the case may be

CLEARANCE OF IMPORTED GOODS

the imported goods before clearance for home consumption or for warehousing are required to
comply with prescribed Customs clearance formalities. This includes presentation of a Bill of Entry
containing details such as description of goods, value, quantity, exemption notification, Customs
Tariff Heading etc.

S.45 Restrictions on custody and removal of imported goods.

all imported goods unloaded in a customs area shall remain in the custody of such person as may be
approved by the 2 [Principal Commissioner of Customs or Commissioner of Customs] until they are
cleared for home consumption or are warehoused or are transshipped

The person having custody of any imported goods in a customs area, whether under the provisions
of sub-section (1) or under any law for the time being in force

shall keep a record of such goods and send a copy thereof to the proper officer;

shall not permit such goods to be removed from the customs area, except in accordance with the
permission in writing of the proper officer

if any imported goods are pilferred after unloading in a customs area while in the custody of a
person referred to in charge , that person shall be liable to pay duty on such goods at the rate
prevailing on the date of delivery of an arrival manifest or import manifest or, as the case may be,
an import report to the proper officer under section 30 for the arrival of the conveyance in which
the said goods were carried.

46. Entry of goods on importation

The importer of any goods, other than goods intended for transit or transshipment, shall make
entry by presenting a bill of entry for home consumption or warehousing electronically on the
customs automated system to the proper officer .

if the importer makes and subscribes to a declaration before the proper officer, to the effect that he
is unable to furnish full information of all the particulars of the goods required to the proper officer
then officer may during pending the production of such information, permit him, previous to the
entry to examine the goods in the presence of an officer of customs, to deposit the goods in a public
warehouse appointed

a bill of entry shall include all the goods mentioned in the bill of lading or other receipt given by the
carrier to the consignor

a bill of entry may be presented at any time not exceeding thirty days prior to the expected arrival
of the aircraft or vessel or vehicle by which the goods have been shipped for importation into India
where the bill of entry is not presented within the time so specified and the proper officer is
satisfied that there was no sufficient cause for such delay, the importer shall pay such charges for
late presentation of the bill of entry

The importer while presenting a bill of entry shall make and subscribe to a declaration as to the
truth of the contents of such bill of entry and shall, in support of such declaration, produce to the
proper officer the invoice, if any, such other documents relating to the imported goods .

The importer who presents a bill of entry shall ensure the following, namely:

(a) the accuracy and completeness of the information given therein;

(b) the authenticity and validity of any document supporting it; and

(c) compliance with the restriction or prohibition, if any, relating to the goods under this Act or
under any other law.

If the proper officer is satisfied that the interests of revenue are not prejudicially affected and that
there was no fraudulent intention, he may permit substitution of a bill of entry for home
consumption for a bill of entry for warehousing or vice versa

S.47 Clearance of goods for home consumption

Where the proper officer is satisfied that any goods entered for home consumption are not
prohibited goods and the importer has paid the import duty the proper officer may make an order
permitting clearance of the goods for home consumption

The importer shall pay the import duty—

(a) on the date of presentation of the bill of entry in the case of self assessment; or

(b) within one day (excluding holidays) from the date on which the bill of entry is returned to him
by the proper officer for payment of duty in the case of assessment, reassessment or provisional
assessment; or

(c) in the case of deferred payment

and if he fails to pay the duty within the time so specified, he shall pay interest on the duty not paid
or short paid till the date of its payment, at such rate, not less than ten per cent. but not exceeding
thirty-six per cent. per annum.

where the bill of entry is returned for payment of duty before the commencement of the Customs
(Amendment) Act, 1991 and the importer has not paid such duty before such commencement, the
date of return of such bill of entry to him shall be deemed to be the date of such commencement for
the purpose of this section

if the Board is satisfied that it is necessary in the public interest so to do, it may, by order for
reasons to be recorded, waive the whole or part of any interest payable

S. 48. Procedure in case of goods not cleared, warehoused, or transhipped within 9 [thirty
days] after unloading.

If any goods brought into India from a place outside India are not cleared for home consumption or
warehoused or transshipped within 30 days from the date of the unloading at a customs station or
within such further time as the proper officer may allow or if the title to any imported goods is
relinquished, such goods may, after notice to the importer and with the permission of the proper
officer be sold by the person having the custody .

animals, perishable goods and hazardous goods, may, with the permission of the proper officer, be
sold at any time;

(b) arms and ammunition may be sold at such time and place and in such manner as the Central
Government may direct

S. 49. Storage of imported goods in warehouse pending clearance or removal.

in the case of any imported goods, whether dutiable or not, entered for home consumption, the
Assistant Commissioner of Customs or Deputy Commissioner of Customs is satisfied on the
application of the importer that the goods cannot be cleared within a reasonable time;

(b) in the case of any imported dutiable goods, entered for warehousing, the Assistant
Commissioner of Customs or Deputy Commissioner of Customs is satisfied on the application of the
importer that the goods cannot be removed for deposit in a warehouse within a reasonable time,
the goods may pending clearance or removal, as the case may be, be permitted to be stored in a
public warehouse for a period not exceeding thirty days:

CLEARANCE OF EXPORT GOODS

S 50. Entry of goods for exportation.—

(1) The exporter of any goods shall make entry thereof by presenting electronically on the
customs automated system to the proper officer in the case of goods to be exported in a vessel or
aircraft, a shipping bill, and in the case of goods to be exported by land, a bill of export [in such
form and manner as may be prescribed].

The exporter of any goods, while presenting a shipping bill or bill of export, shall make and
subscribe to a declaration as to the truth of its contents.

The exporter who presents a shipping bill or bill of export under this section shall ensure the
following, namely:—

(a) the accuracy and completeness of the information given therein;

(b) the authenticity and validity of any document supporting it; and

(c) compliance with the restriction or prohibition, if any, relating to the goods under this Act or
under any other law for the time being in force.

51. Clearance of goods for exportation.— Where the proper officer is satisfied that any goods
entered for export are not prohibited goods and the exporter has paid the duty, if any, assessed
thereon and any charges payable under this Act in respect of the same, the proper officer may
make an order permitting clearance and loading of the goods for exportation:

Where the exporter fails to pay the export duty, either in full or in part, under the proviso to
subsection (1) by such due date as may be specified by rules, he shall pay interest on said duty
not paid or short-paid till the date of its payment at such rate, not below five per cent and not
exceeding thirty-six per cent per annum, as may be fixed by the Central Government
WAREHOUSING

S.57. Licensing of public warehouses.—The Principal Commissioner of Customs or Commissioner

of Customs may prescribed, licence a public warehouse wherein dutiable goods may be deposited.

S.58. Licensing of private warehouses.—The Principal Commissioner of Customs or

Commissioner of Customs, licence a private warehouse wherein dutiable goods imported by or on
behalf of the licensee may be deposited.

S.58A. Licensing of Special warehouses.— The Principal Commissioner of Customs or

Commissioner of Customs may, licence a special warehouse wherein dutiable goods may be
deposited and such warehouse shall be caused to be locked by the proper officer and no person
shall enter the warehouse or remove any goods there from without the permission of the proper
officer.

S.59. Warehousing bond.—The importer of any goods in respect of which a bill of entry for
warehousing has been presented should execute a bond in a sum equal to thrice the amount of the
duty assessed on such goods, binding himself––

(a) to comply with all the provisions of the Act and the rules and regulations made there under in
respect of such goods;

(b) to pay, on or before the date specified in the notice of demand, all duties and interest payable
under sub-section (2) of section 61; and

(c) to pay all penalties and fines incurred for the contravention of the provisions of this Act or the
rules or regulations, in respect of such goods.

the Assistant Commissioner of Customs or Deputy Commissioner of Customs may permit an

importer to execute a general bond for such amount as the Assistant Commissioner of Customs or
Deputy Commissioner of Customs may approve in respect of the warehousing of goods to be
imported by him within a specified period.

The importer shall, in addition to the execution of a bond should furnish such security as may be
prescribed.
Any bond executed under this section by an importer in respect of any goods shall continue to be in
force notwithstanding the transfer of the goods to another warehouse.

Where the whole of the goods or any part thereof are transferred to another person, the transferee
shall execute a bond in the manner as prescribed by law and furnish security as specified under
sub-section (3)

S.61. Period for which goods may remain warehoused.

in the case of capital goods intended for use in any hundred per cent. export oriented undertaking
or electronic hardware technology park unit or software technology park unit or any warehouse
wherein manufacture or other operations have been permitted , till their clearance from the
warehouse

in the case of goods other than capital goods intended for use in any hundred per cent. export
oriented undertaking or electronic hardware technology park unit or software technology park unit
or any warehouse wherein manufacture or other operations have been permitted till their
consumption or clearance from the warehouse

in the case of any other goods, till the expiry of one year from the date on which the proper officer
has made an order

in the case of any goods, the Principal Commissioner of Customs or Commissioner of Customs may,
on sufficient cause being shown, extend the period for which the goods may remain in the
warehouse, by not more than one year at a time

where such goods are likely to deteriorate, the period may be reduced by the Principal
Commissioner of Customs or Commissioner of Customs to such shorter period as he may deem fit.

Where any warehoused goods specified in clause (c) of sub-section (1) remain in a warehouse
beyond a period of ninety days from the date on which the proper officer has made an order under
sub-section (1) of section 60, interest shall be payable at such rate as may be fixed by the Central
Government under section 47, on the amount of duty payable at the time of clearance of the goods,
for the period from the expiry of the said ninety days till the date of payment of duty on the
warehoused goods:
Provided that if the Board considers it necessary so to do, in the public interest, it may,––

(a) by order, and under the circumstances of an exceptional nature, to be specified in such order,
waive the whole or any part of the interest payable under this section in respect of any warehoused
goods;

(b) by notification in the Official Gazette, specify the class of goods in respect of which no interest
shall be charged under this section;

(c) by notification in the Official Gazette, specify the class of goods in respect of which the interest
shall be chargeable from the date on which the proper officer has made an order under sub-section
(1) of section 60.

S. 64. Owner’s right to deal with warehoused goods.—The owner of any warehoused goods may,
after warehousing the same,––

(a) inspect the goods;

(b) deal with their containers in such manner as may be necessary to prevent loss or deterioration
or damage to the goods;

(c) sort the goods; or

(d) show the goods for sale.

S. 68. Clearance of warehoused goods for home consumption.— Any warehoused goods may be
cleared from the warehouse for home consumption, if—

(a) a bill of entry for home consumption is presented in the prescribed form;

The import duty, interest, fine and penalties payable in respect of such goods have been paid; and

(c) an order for clearance of such goods for home consumption has been made by the proper
officer.

The owner of any warehoused goods may at any time before an order for clearance of goods for
home consumption has been made in respect of such goods, relinquish his title to the goods upon
payment of penalties that may be payable in respect of the goods and upon such relinquishment, he
shall not be liable to pay duty

the owner of any such warehoused goods shall not be allowed to relinquish his title to such goods
regarding which an offence appears to have been committed under this Act.

S. 69. Clearance of warehoused goods for export.

Any warehoused goods may be exported to a place outside India without payment of import duty if
—

a shipping bill or a bill of export or the form as prescribed under section 84 has been presented in
respect of such goods

the export duty, fine and penalties payable in respect of such goods have been paid; and

an order for clearance of such goods for has been made by the proper officer.

If the Central Government is of opinion that warehoused goods of any specified description are
likely to be smuggled back into India, it may, by notification in the Official Gazette, direct that such
goods shall not be exported to any place outside India without payment of duty or may be allowed
to be so exported subject to such restrictions and conditions

Procedure for Clearance of ware house

S.46 provides that wither agent or owner provide a bill of entry

Bill of entry is noted in import manifest

Assessing officer checks the quantity, value, nature etc..

He classify the assessed goods

Counter check by group of assessing officer

Importer executes the bond equal to thrice the amount of duty assessed on such goods etc…
BAGGAGE

S. 77. Declaration by owner of baggage.—The owner of any baggage shall, for the purpose of
clearing it, make a declaration of its contents to the proper officer.

S. 78. Determination of rate of duty and tariff valuation in respect of baggage.—The rate of duty
and tariff valuation, applicable to baggage shall be the rate and valuation in force on the date on
which a declaration is made in respect of such baggage under section 77

S.79. Bona fide baggage exempted from duty

any article in the baggage of a passenger or a member of the crew in respect of which the said
officer is satisfied that it has been in his use for such minimum period

any article in the baggage of a passenger in respect of which the said officer is satisfied that it is
for the use of the passenger or his family or is a bona fide gift or souvenir; provided that the value
of each such article and the total value of all such articles does not exceed such limits as may be
specified in the rules.

the Central Government may make rules for the purpose of carrying out the provisions of this
section and, in particular, such rules may specify—

(a) the minimum period for which any article has been used by a passenger or a member of the
crew for the purpose of clause (a) of sub-section (1);

(b) the maximum value of any individual article and the maximum total value of all the articles
which may be passed free of duty under clause (b) of sub-section (1);

(c) the conditions to be fulfilled before or after clearance subject to which any baggage may be
passed free of duty.

S. 80. Temporary detention of baggage.—Where the baggage of a passenger contains any article
which is dutiable or the import of which is prohibited and in respect of which a true declaration
has been made, the proper officer may, at the request of the passenger, detain such article for the
purpose of being returned to him on his leaving India and if for any reason, the passenger is not
able to collect the article at the time of his leaving India, the article may be returned to him
through any other passenger authorized by him and leaving India or as cargo consigned in his
name

S. 81. Regulations in respect of baggage.—The Board may make regulations,

(a) providing for the manner of declaring the contents of any baggage;
(b) providing for the custody, examination, assessment to duty and clearance of baggage;
(c) providing for the transit or transhipment of baggage from one customs station to another or to
a place outside India.
 Unit 4

Section 5

A tax known as the integrated goods and services tax (IGST) will be charged on all goods or services
sold within a state (except for alcoholic drinks for drinking). The tax will be based on the value set out
in section 15, and the rate will be up to 40% as decided by the government following the council's
advice. The person selling the goods or services is responsible for paying this tax.

The IGST on certain items like petroleum and diesel will start on a date the government will announce
later, based on the council's advice.

the government can decide that for some goods or services, the buyer has to pay the tax instead of the
seller. This is called reverse charge, and the buyer is treated as if they were the one selling the goods
or services for tax purposes.

he government can also say that for certain goods or services bought from someone who isn't
registered for tax, the registered buyer has to pay the tax on behalf of the unregistered seller. This is
another example of reverse charge.

If services are sold through an online platform (like an e-commerce website), the platform has
to pay the tax as if it were the seller. However, if the platform doesn't have an office or a
representative in the region where the tax applies, it must appoint someone in that region to
handle the tax payments

S.6 Inter-State supply.––

supply of goods, where the location of the supplier and the place of supply are in––

(a) two different States;

(b) two different Union territories; or

(c) a State and a Union territory,

shall be treated as a supply of goods in the course of inter-State trade or commerce.

(2) Supply of goods imported into the territory of India, till they cross the customs frontiers of
India, shall be treated to be a supply of goods in the course of inter-State trade or commerce.
(3) Subject to the provisions of section 12, supply of services, where the location of the supplier and
the place of supply are in––

(a) two different States;

(b) two different Union territories; or

(c) a State and a Union territory, shall be treated as a supply of services in the course of inter-State
trade or commerce.

(4) Supply of services imported into the territory of India shall be treated to be a supply of services
in the course of inter-State trade or commerce.

(5) Supply of goods or services or both,––

(a) when the supplier is located in India and the place of supply is outside India;

(b) to or by a Special Economic Zone developer or a Special Economic Zone unit; or

(c) in the taxable territory, not being an intra-State supply and not covered elsewhere in this
section, shall be treated to be a supply of goods or services or both in the course of inter-State trade
or commerce

S.7 Intra-State supply.––(

supply of goods where the location of the supplier and the place of supply of goods are in the same
State or same Union territory shall be treated as intra-State supply: Provided that the following
supply of goods shall not be treated as intra-State supply, namely:––

(i) supply of goods to or by a Special Economic Zone developer or a Special Economic Zone unit;

(ii) goods imported into the territory of India till they cross the customs frontiers of India; or

(iii) supplies made to a tourist referred to in section 15.

(2) Subject to the provisions of section 12, supply of services where the location of the supplier and
the place of supply of services are in the same State or same Union territory shall be treated as
intra-State supply

Provided that the intra-State supply of services shall not include supply of services to or by a
Special Economic Zone developer or a Special Economic Zone unit.
Explanation 1.––For the purposes of this Act, where a person has,––

(i) an establishment in India and any other establishment outside India;

(ii) an establishment in a State or Union territory and any other establishment outside that State or
Union territory; or

(iii) an establishment in a State or Union territory and any other establishment registered within
that State or Union territory, then such establishments shall be treated as establishments of distinct
persons.

Explanation 2.––A person carrying on a business through a branch or an agency or a

representational office in any territory shall be treated as having an establishment in that territory.

6. Power to grant exemption from tax.––

Where the Government is satisfied that it is necessary in the public interest so to do, it may, on the
recommendations of the Council, by notification, exempt generally, either absolutely or subject to
such conditions as may be specified therein, goods or services or both of any specified description
from the whole or any part of the tax leviable thereon with effect from such date as may be
specified in such notification.

Where the Government is satisfied that it is necessary in the public interest so to do, it may, on the
recommendations of the Council, by special order in each case, under circumstances of an
exceptional nature to be stated in such order, exempt from payment of tax any goods or services or
both on which tax is leviable.

(3) The Government may, if it considers necessary or expedient so to do for the purpose of
clarifying the scope or applicability of any notification issued under sub-section (1) or order issued
under sub-section (2), insert an Explanation in such notification or order, as the case may be, by
notification at any time within one year of issue of the notification under sub-section (1) or order
under sub-section (2), and every such Explanation shall have effect as if it had always been the part
of the first such notification or order, as the case may be.

Explanation.––For the purposes of this section, where an exemption in respect of any goods or
services or both from the whole or part of the tax leviable thereon has been granted absolutely, the
registered person supplying such goods or services or both shall not collect the tax, in excess of the
effective rate, on such supply of goods or services or both