SMB105 6 PDF

Business Environment and Law
Block
6
TAX LAWS
UNIT 16 Direct Taxes 5
UNIT 17 Indirect Taxes
49
Expert Committee
Dr. O. P. Gupta Vice Chancellor IU, Nagaland Prof. Bratati Ray IBS Kolkata Dr. B.Padma IBS Bangalore Dr. Vunyale Narender IBS Hyderabad Prof. Hilda Amalraj IBS Hyderabad
Prof.Marzun E Jokhi IBS Ahmedabad Dr. Vijaya Lakshmi S IBS Hyderabad
Course Preparation Team

Prof. T.S.Rama Krishna Rao IFHE (Deemed to be University) Ms. C.Padmavathi IFHE (Deemed to be University) Ms. Sunitha Suresh IFHE (Deemed to be University) Ms. Anita IFHE (Deemed to be University) Ms. Mrudula IFHE (Deemed to be University) Prof. Vivek Gupta IFHE (Deemed to be University) Ms.Pushpanjali Mikkilineni IFHE (Deemed to be University) Prof. Tarak Nath Sha IU, Dehradun Ms.Padmaja IU, Meghalaya Ms.Anurita Jois IU, Sikkim
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Ref. No. BEL SLM 11 2K11R 21 B6
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The ICFAI University Press, Hyderabad
BLOCK 6
TAX LAWS
Ignorance of Law is no excuse. Taxes are vital inflows for social and economic development of a nation. Taxes form an important component of State revenue in most developing economies. Business organizations must keep themselves abreast with the various tax laws of the State. Businesses need to take advantage of certain incentives, exemptions provisions and embedded in the prevailing Tax laws to reduce their tax burden. This calls for proper planning on the part of business. There are two types of taxes Direct Taxes and Indirect Taxes. While the direct taxes is based on principle of ability to pay indirect tax are not. Unit 16 outlines the important provisions of direct taxes. Direct Taxes are the taxes that are borne completely by the business entity on which the tax is levied and has been paid. The Income Tax and Wealth Tax fall under this category. The income tax levied on the income of an entity is governed by Income Tax Act, 1961 and the wealth tax levied on wealth (property) of an entity is governed by Wealth Tax Act, 1957 in India. Unit 17 deals with indirect taxes. Indirect Taxes are the taxes levied on expenditure, consumption right or privilege. These are taxes that are passed on from one entity to another till the ultimate consumer. The Customs duties levied on imports is governed by Customs Act 1962, the excise duties levied on production is governed by Central Excise Act, 1944, the Value Added Tax (VAT) levied on value added in production process is governed by, the Central Sales tax levied on sale of goods is governed by Central Sales Tax Act, 1956 and Service Tax levied on services rendered is governed by Service Tax, Finance Act, 1994 in India.
UNIT 16 DIRECT TAXES

Structure
16.1 Introduction 16.2 Objectives 16.3 Classification of Taxes 16.4 Income Tax 16.4.1 Residential Status and Tax Incidence 16.4.2 Incomes that are Exempted 16.4.3 Income from Salaries 16.4.4 Income from House Property 16.4.5 Income from Profits and Gains of Business or Profession 16.4.6 Capital Gains 16.4.7 Income from Other Sources 16.4.8 Deductions from Gross Total Income 16.5 Wealth Tax 16.5.1 Debt Owed 16.5.2 Current Developments 16.6 Summary 16.7 Glossary 16.8 Suggested Readings/Reference Material 16.9 Suggested Answers 16.10 Terminal Questions
16.1 INTRODUCTION
The origin of the word tax is derived from the term taxation, which means an estimate. The word tax refers to the required payments of money made to governments that provide public goods and services for the benefit of the community as a whole. Taxes on income in some form or other were levied existed even in primitive and ancient communities, and were levied on the sale and purchase of merchandise and livestock and were collected in a haphazard manner from time to time. In India, the system of taxation existed even in ancient times, which find references in Manu Smriti and Arthasastra. A detailed analysis given by Manu on the subject clearly shows the existence of a well-planned taxation system in ancient India. Taxes were paid as gold coins, cattle, grains, raw materials and also by rendering personal service. In this unit, we shall identify the different types of taxes and the various taxes that fall under each category. First, we shall deal with the first category of taxes Direct taxes in detail.
16.2 OBJECTIVES
After going through the unit, you should be able to: Classify the various types of taxes; List a few important incomes that are exempted from tax; Summarize important provisions that fall under the head of Salaries; Reproduce the various deductions that can be claimed under the head of House Property;
Recognize the expenditure that is allowable as deduction, and the expenditure that is disallowed for the purpose of computation of Profits and Gains of Business or Profession; List the items that will be considered Deemed Income for the purpose of taxation under the head of Profits and gains of Business or Profession; State the important deductions that are allowed from Gross Total Income; and State the important provisions pertaining to Wealth Tax.
16.3 CLASSIFICATION OF TAXES

Today the system of taxation in India is divided into the direct tax system and the indirect tax system (see Figure 1). Direct tax is a tax that cannot be shifted to others, such as the income tax, wealth tax etc. Indirect tax, on the other hand, is a tax that can be shifted to others, such as sales tax, excise duty, custom duty etc.
System of Tax
Direct Tax
Indirect Tax
Income Tax
Wealth Tax
Excise Duties
Custom Duties
Sales Tax
Figure 1 DIRECT TAXES The Government directly collects these taxes from the pockets of the earners out of their income. These taxes are collected from certain category of people only. Income tax, professional tax, wealth tax and estate tax are such kind of taxes. INDIRECT TAXES Though these taxes are paid by the people of the country, these taxes need not be paid by them directly. These taxes are collected through the manufacture and sale of products and services i.e., the amount of tax is inclusive in the price of the product or service. The only difference is that every person who becomes a consumer for a product or service needs to pay this tax irrespective of his earnings. Sales tax/VAT, excise duty, customs duty and service tax etc., comes under this category. These taxes are also known as commercial taxes as these are imposed on traded items. According to the Indian Constitution, the revenues that are generated in the form of levying taxes are divided between Central and State Governments on ratio basis. Accordingly both Center and States will share the revenue as per the subjects listed under Union List and State List of the VIIth Schedule of the Indian Constitution. According to this, Taxes collected by Center: The Central Government collects wholly indirect taxes like customs duty, excise duty, Central Sales Tax (CST), and direct taxes like income tax, wealth tax, estate duty and education cess, etc. Taxes collected by State: Indirect taxes like Sales Tax/VAT, excise duty on liquor etc., and direct taxes like property tax, professional tax are collected by the concerned State Government. Taxes are applied to every citizen of India if he comes under the purview of the tax. Taxes are calculated on the basis of revenues generated or expected to be generated on the particular entities. Direct taxes are mainly collected from the individuals and companies or organizations etc. Whereas indirect taxes are collected from the entrepreneurs or manufacturers or traders on the basis of their turnover during the financial year. 6
Direct Taxes
16.4 INCOME TAX

Income Tax is a species of direct tax and is governed by the Income Tax Act, 1961. By virtue of the power conferred on the Central Government by the Constitution of India, the former enacted the Income Tax Act, 1961 (herein the chapter referred to as the Act). The Act extends to whole of India and came into force on the first day of April 1962. Part B of the Finance Act contains detailed tax proposals. Once it is approved by the Parliament and acquires the assent of the President, the income shall be charged according to the rates of tax prescribed in Schedule I of the Finance Act. The Act is administered by Central Board of Direct Taxes (CBDT), which is empowered to frame rules to achieve the purpose of the enactment and ensure proper governance of the Act. The CBDT issues circulars from time to time: to clarify any doubts regarding the scope and meaning of the Act; to act as a guide for officers and assessees.
However, the circulars of CBDT, an executive authority, are binding on assessing officers but not on assessees and courts. The Central Government is empowered to constitute an independent authority, settlement commission, a quasi-judicial body to subordinate the CBDT. Income tax can be levied on both individuals (personal income taxes) and businesses (tax on business and corporate income) with respect to the income, both earned (salaries, wages, tips, commissions) and unearned (interest, dividends). Before discussing about the other aspects of the Act, let us have a look at the important terminology pertaining to the Income Tax Act. Assessee (Section 2(7)): An assessee is a person by whom any tax or any other sum of money is payable under the Act. Assessment Year (Section 2(9)): Assessment year means the period of 12 months starting from 1st April of every year and ending on 31st March of the next year. Previous Year (Section 3): Income earned in a year is taxable in the next year. The year in which income is earned is known as the previous year and the next year in which income is taxable is known as the assessment year. Receipt vs. Accrual of Income: Income is said to have been received by a person when payment has been actually received whereas income is said to have accrued if there arises in the person a fixed and unconditional right to receive it. Belated Return: Section 139(4) provides that a return which has not been furnished by the due date may still be furnished as a belated return before the expiry of one year from the end of the assessment year or before the completion of assessment, whichever is earlier. Revised Return: If a person having filed his return within the due date discovers any omission or wrong statement therein, he may file a revised return before the expiry of one year from the end of the assessment year or completion of assessment whichever is earlier. Income: The definition of income under Section 2(24) of the Income Tax Act, 1956, is of an inclusive nature, i.e., apart from the items listed in the definition, any receipt which satisfies the basic condition of being income is also to be treated as income and charged to income tax accordingly. Income includes: a. b. Profits and gains of business or profession including any benefit, amenity, perquisite obtained in the course of such business or profession. Salary income including any benefit, allowance, amenity or perquisite obtained in addition to or in lieu of salary. 7
c. d. e. f. g.
Income from house property. Dividend Income. Winnings from lotteries, crossword puzzles, races, games, gambling or betting. Capital gains on sale of capital assets. Amounts received under a Keyman Insurance Policy, i.e., a life insurance policy taken by a person on the life of another person who is or was the employee of the first mentioned person or is or was connected in any manner whatsoever with the business of the first mentioned person. Voluntary contributions received by a religious or charitable trust or scientific research association or a sports promotion association. Any allowance granted to the assessee either to meet the personnel expenses at the place where the duties of his office or employment of profit are ordinarily performed by him or at a place where he ordinarily resides or to compensate him for the increased cost of living. Any sum received from an individual or HUF on or after 1st September 2004 in cash or by cheques or by any other mode or credit in excess of Rs.50,000, then the whole of such sum, Which excludes, i. ii. iii. iv. v. vi. Amounts received or credited to by an individual from a relative out of natural love and affection. Amounts received or credited to by an individual or HUF under a will or by way of inheritance. Any sum received in contemplation of death of an individual or karta/member of a HUF. Any sum received on occasion of marriage of the individual. Money received from a local authority. Money received from any fund, foundation, university, other educational institutions, hospital, medical institution, any trust or institution referred to in Section 10(23C).
h. i.
j.
vii. Money received from a charitable institute registered under Section 12AA Gross Total Income. According to Section 14 income of a person is computed under the following five heads: (a) Income from Salaries, (b) Income from House Property, (c) Profits and Gains of Business or Profession, (d) Capital Gains and (e) Income from Other Sources. APPLICABILITY The Income Tax Act, 1961 is applicable to all persons of India. According to Section 2(31) of the Income Tax Act, a person means and includes: i. ii. iii. iv. 8 an individual; a Hindu Undivided Family (HUF); a company; a firm;
Direct Taxes
v. vi
an Association of Persons (AOP) or a body of individuals, whether incorporated or not; a local authority; and
vii. every artificial juridical person, not falling within any of the above clauses. BASIS OF CHARGE According to Section 4 of the Income Tax Act, 1961 the gross taxable income of every person during the previous year is the basis of calculation of income tax. The rate of tax depends upon the class of assessee he belongs to, and the tax rates prescribed by the Finance Act. TAX RATES Tax rates are given by the Finance Act which is passed by the Parliament every year. Income tax is computed according to the relevant Finance Act. The tax rates are contained in the First Schedule (Parts i, ii and iii). For the Assessment Year 2009-2010, the rates are i. In the case of Individuals a. In case of an individual (man or woman) being resident in India who is of the age of 65 years and above Income Up to Rs.2,25,000 Rs.2,25,001 Rs.3,00,000 Rs.3,00,001 Rs.5,00,000 Above Rs.5,00,000 b. Tax Rates Nil 10% 20% 30%
In case of a woman, resident in India and below the age of 65 years Income Up to Rs.1,80,000 Rs.1,80,001 Rs.3,00,000 Rs.3,00,001 Rs.5,00,000 Above Rs.5,00,000 Tax Rates Nil 10% 20% 30%
ii.
In case of other individuals, HUF, AOP Income Up to Rs.1,50,000 Rs.1,50,001 Rs.3,00,000 Rs.3,00,001 Rs.5,00,000 Above Rs.5,00,000 Tax Rates Nil 10% 20% 30%
In case of Individuals, HUF, AOP (other than co-operative societies): Surcharge is not leviable, if the total income does not exceed Rs.10,00,000. Where the total income exceeds Rs.10,00,000, surcharge will be levied @ 10% of the income tax payable. Education Cess In addition to income tax and surcharge, an additional levy of 3% towards education cess is to be made on the aggregate of income tax and surcharge payable for the Assessment Year 2009-10. 9
iii. Companies Domestic companies are levied a tax @30%; surcharge @10% and education cess of 3% levied on tax plus surcharge. The tax rate in the case of foreign companies is @40%, surcharge of @ 2.5% and education cess of 3%. In addition to the tax rates prescribed by relevant Finance Act, special rates are prescribed under Income Tax Act. For example, the long-term capital gains are taxable at the rate of 20% under Section 112, winnings from lotteries, crossword puzzles, races, card games is taxable at 30% under Section 115 BB.
16.4.1 Residential Status and Tax Incidence

As per Section 5 of the Income Tax Act, the total income of any person in the previous year is determined according to his residential status (Resident and Ordinary Resident, Resident but not Ordinarily Resident and Non-Resident) of that person for the relevant assessment year. RESIDENTIAL STATUS OF AN INDIVIDUAL The basis for determination of residential status of the same is presented an individual is laid down in Section 6. There are a few conditions to be taken into consideration for determining the residential status of an individual. In the case of an individual In the case of an Indian [other than that mentioned in citizen who leaves India columns (2) and (3)]. during the previous year for the purpose of employment or, in the case of an Indian citizen who leaves India during the previous year as a member of the crew of an Indian ship. (1) a. Presence for at least 182 days in India during the previous year. b. (2) a. Presence for at least 182 days in India during the previous year. In the case of an Indian citizen or a person of Indian origin (who is abroad) who comes to India on a visit during the previous year.
(3) a. Presence for at least 182 days in India during the previous year. b. Non-functional.
Presence of at least 60 b. Non-functional. days in India during the previous year and 365 days during 4 years immediately preceding the relevant previous year.
Table 1: Basic Conditions at a Glance i. Resident India in at least 2 out of 10 years preceding the previous year [or must satisfy at least one of the basic conditions, in 2 out of 10 preceding previous years].
ii. Presence of at least 730 days in India during 7 years preceding the previous year. Table 2: Additional Conditions at a Glance 10
Direct Taxes
RESIDENTIAL STATUS OF A HUF, FIRM, AND AOP According to Section 6(2) a hindu undivided family, firm or other association of persons is said to be resident in India, if control and management of its affairs is wholly or partly situated in India. They are treated as Non-Resident in India if control and management of its affairs is wholly situated outside India. Note: Only an individual and a HUF can be resident but not ordinarily resident. Whereas Firm, AOP, BOI, Company and other persons can be either be residents or nonresidents only. Therefore if the control and management of the affairs of the HUF is wholly or partly situated in India and if the manager or Karta of the family satisfies any of the following conditions, the HUF shall be considered as Resident and Ordinarily Resident: a. b. Resident in India in at least 2 out of 10 years preceding the previous year [or must satisfy at least one of the basic conditions, in 2 out of 10 preceding previous years]. Presence of at least 730 days in India during 7 years preceding the previous year.
If the control and management of the affairs of the HUF is wholly or partly situated in India and if the manager or Karta of the family fails to satisfy any of the above conditions, the HUF shall be considered as Resident and not Ordinarily Resident. RESIDENTIAL STATUS OF A COMPANY According to Section 6(3) an Indian company is always resident in India. A foreign company is resident in India only, if during the relevant previous year, control and management of its affairs is situated wholly in India. A foreign company is treated as nonresident if, during the previous year, control and management of its affairs is either wholly or partly situated out of India. RESIDENTIAL STATUS OF EVERY OTHER PERSON According to Section 6(4) every other person is resident in India if during the relevant previous year control and management of its affairs is wholly or partly situated within India. On the other hand, every other person is non-resident in India if control and management of its affairs is wholly situated outside India.
16.4.2 Incomes that are Exempted

Section 10 of the Act provides exemption for certain incomes from the calculation of Total Income. That means those incomes need not to be considered as taxable income. Some of those incomes are: i. ii. iii. iv. v. vi. vii. viii. Agricultural income. Receipts by an individual HUF member out of the income of the family. Share of profit of a partner in a partnership firm. Salary received by a ships crew. Remuneration to foreign trainee. Technical fees received by a notified foreign company. Payment from public sector company at the time of voluntary retirement [Section 10(10C)]. Tax on perquisite paid by employer [Section 10(10CC)]. 11
ix. x. xi. xii. xiii.
Amount received on life insurance policies [Section 10(10D)]. Payment from provident fund [Section 10(11), (12)]. Payment from an approved superannuation fund [Section 10(13)]. Scholarships granted to meet the cost of education. Any long-term capital gain arising out of transfer or a listed security being equity in a listed company.
xiv. xv. xvi. xvii.
Income and allowances of MLAs and MPs arisen from such position. Income of former rulers. Income of local authorities. Incomes of political parties.
xviii. Incomes of trade unions. xix. xx. xxi. xxii. Incomes of charitable and religious trusts. Income of a mutual fund [Section 10(23D)]. Income of provident funds [Section 10(25)]. Income of employees state insurance fund [Section 10(25A)].
xxiii. Income of investor protection fund set up by recognized stock exchange [Section 10(23EA)]. xxiv. Income of venture capital funds and venture capital undertakings [Section 10(23FB)]. xxv. Income of trade unions [Section 10(24)].
xxvi. Income of a member of scheduled tribe [Section 10(26)]. xxvii. Exemption of commodity boards and authorities from income tax [Section 10(29A)]. xxviii. Income of a minor [Section 10(32)]. xxix. Exemption of capital gain on transfer of a unit of unit scheme, 1964 (US 64) [Section 10(33)]. xxx. Dividend to be exempt in the hands of the shareholders [Section 10(34)].
xxxi. Interest to be exempt in the hands of the unit holders [Section 10(35)]. xxxii. Long-term capital gains on transfer of listed equity shares [Section 10(36)]. xxxiii. Capital gain on compulsory acquisition of urban agriculture land [Section 10(37)]. xxxiv. Income from transfer of long-term capital asset covered by Securities Transaction Tax (STT) [Section 10(38)]. xxxv. Capital gains on transfer of business to an Indian Company [Section 10(41)]. xxxvi. Income of new undertakings in FTZ/EPZ/SEZs. xxxvii. Income of new undertaking which are 100% export oriented units.
12
Direct Taxes
Self-Assessment Questions 1 a. What is scope/applicability of Indian Income Tax Act in terms of geographical area and when did it come into force? .. . . b. Can January 1st to December 31st, the period of 12 months be considered as assessment year under Income Tax Act, 1961? .. . . c. Mr. Xs (below 65 years) total income for the assessment year 2009-10 is Rs.4,50,000. Compute his tax liability. .. . .
16.4.3 Income from Salaries

For the income to be taxable under this head, the relationship of employer and employee must exist between the payer and payee. The person employed may be on a full-time or part-time basis. The remuneration received by an individual is taxable under the head Salaries irrespective of whether the remuneration is termed as salary or wages as both are compensation for work done or services rendered. The salary payable must be real and not fictitious and there must be an intention to pay on the part of employer and receive on the part of employee. Under Section 17(1), salary includes: wages, any annuity or pension, any gratuity, any fees, commission, perquisite or profits in lieu of or in addition to any salary or wages, any advance of salary, any payment received in respect of any period of leave not availed by the employee, portion of the annual accretion in any previous year to the balance at the credit of an employee participating in recognized provident fund to the extent it is taxable and transferred balance in a recognized provident fund to the extent it is taxable.
ADVANCE SALARY Any salary received in advance is taxable on receipt basis in the year in which it is received, irrespective of incidence of tax in the hands of the employee. For this purpose, any loan taken from the employer is not regarded as advance salary. 13
ARREARS OF SALARY If there are any arrears of salary which have not been taxed in the past, such arrears will be taxed in the year in which these arrears are paid or allowed to the employee. SURRENDER OF SALARY If any employee opts to surrender his salary to the Central Government under Section 2 of the Voluntary Surrender of Salaries (exemption from taxation) Act, 1961, the salary so surrendered is excluded while computing his taxable income. TAX-FREE SALARY When the employee receives tax-free salary from his employer, it means that the employer himself pays the tax which is due on the salary of such employee. The amount of tax, so paid by the employer, is also to be considered as the income of the employee and will be added to his salary. LEAVE SALARY Any amount received as cash equivalent of leave salary in respect of period of earned leave at his credit at the time of retirement whether on superannuation or otherwise is exempt from tax in the case of government employees. Similar provisions with certain limits apply to leave salary in the case of other employees. GRATUITY Gratuity is paid for the long and meritorious services rendered by an employee. Under Payment of Gratuity Act, 1972, gratuity payment has become legally compulsory in most of the cases and where it is not applicable the employee can claim gratuity under the terms of contract of employment. In the case of government employees gratuity is wholly exempt in the case of employees covered under Payment of Gratuity Act, 1972, the amount is limited to 15 days salary, actual gratuity received or Rs.3,50,000 whichever is less. When the gratuity is received from more than one employer the maximum amount that is exempt. PENSION Pension is a periodical payment of money for past service and it is received by employee after his retirement and is taxed as salary. Pension earned and received abroad but later remitted to India is exempt from tax, in the case of a non-resident and a resident but not ordinarily resident. It is chargeable to tax if the pensioner is resident and ordinarily resident. Pension may be received by the assessee either in lump sum or periodically. The former is known as commuted pension and the latter is known as uncommuted pension. Uncommuted pension is treated as salary, taxable in the hands of the recipient irrespective whether he is a government or non-government employee. Any amount received by a Government employee as commutation of pension is fully exempted from tax under Section 10(10A)(i). But in case of non-government employee the amount exempt from tax is limited to commuted value of 1/3 of pension or 1/2 of pension depending on whether he is receipt of gratuity or not. BONUS It is taxable in the year of receipt. Contractual bonus is treated as salary while gratuitous bonus is treated as perquisite. An assessee may claim relief under Section 89(1) where he receives bonus in arrears. 14
Direct Taxes
FEES AND COMMISSION They are taxable as salary irrespective of the fact that they are paid in addition to or in lieu of salary. However, commission paid to a director (not being an employee) for his giving guarantee for repayment of loan is taxable under the head Income from Other Sources. DEARNESS ALLOWANCE (DA) It is taxable under the head Income from Salaries. CITY COMPENSATORY ALLOWANCE It is taxable whether given for meeting personal and other expenses that an employee may have to incur either due to the special circumstances he works in or posting at a particular place. HOUSE RENT ALLOWANCE The least of the following will be allowed as deduction: i. 50 percent of salary in case the residential house is situated at Mumbai, Delhi, Kolkata, and Chennai; 40 percent of salary in case the residential house is situated at any other place; ii. iii. Actual house rent allowance received by the employee in the previous year; The excess of rent paid over 10 percent of the salary.
For the purpose of calculating HRA, Salary includes DA if the terms of employment so provide and it also includes commission based on a fixed percentage of turnover achieved by an employee as per terms of contract of employment but it excludes all other allowances and perquisites. Exemption in case of HRA is denied where rent paid does not exceed 10 percent of salary or when employee lives in his own house or when he lives in a house for which he does not pay any rent. SPECIAL ALLOWANCES Special allowance will be allowed as exemption which is not in nature of a perquisite within the meaning of Section 17(2) and which is specifically granted to meet expenses incurred wholly, necessarily and exclusively for the performance of the official duties or employment for profit, as notified by the Central Government in the Official Gazette. PERQUISITES Perquisite is defined as any casual emolument or benefit attached to an office or position in addition to salary or wages. They may be provided either in cash or in kind. Perquisites are included in salary only if they are: a. b. c. d. e. received by an employee from his employer, allowed during the continuance of employment, directly dependent upon service, resulting in the nature of personal advantage to the employee, and derived by virtue of employers authority. 15
According to Section 17(2), perquisite includes: a. b. c. The value of rent-free accommodation provided to the assessee by his employer: [Section 17(2)(i)]. The value of any concession in the matter of rent in respect of any accommodation provided to the assessee by his employer [Section 17(2)(ii)]. The value of any benefit or amenity granted or provided free of cost or at concessional rate in any of the following cases: i. ii. iii. By a company to an employee who is a director thereof; By a company to an employee, being a person who has substantial interest in the company; By any employer (including a company) to an employee to whom provisions of (i), (ii) above do not apply and whose income under the head Salaries exclusive of the value of all benefits or amenities not provided for by way of monetary benefits, exceeds Rs.50,000 [Section 17(2)(iii)]. d. Any sum paid by the employer in respect of any obligation which but for such payment would have been payable by the assessee [Section 17(2)(iv)]. Any sum payable by the employer, whether directly or through a fund other than a recognized provident fund or approved superannuation fund or a deposit-linked insurance fund, to effect an assurance on the life of the assessee or to effect a contract for an annuity [Section 17(2)(v)]. f. The value of any other fringe benefit or amenity as may be prescribed [Section 17(2)(vi)] excluding the fringe benefits chargeable to tax under Chapter XII-H [Section 17(2)(vi)]. DEDUCTIONS UNDER THE HEAD SALARY The income chargeable under the head Salaries shall be computed after making the following deductions from gross salary: i. ii. Deduction for entertainment allowance. Deduction for profession tax.
e.
16.4.4 Income from House Property

The annual value of property consisting of any buildings or lands appurtenant thereto, of which the assessee is owner, is chargeable to tax under the head, Income from House Property. Any house property occupied by the assessee for the purpose of business or profession carried on by him, the profits of which are chargeable to tax, annual value of such property is not chargeable to tax under this head. According to Sec.22 of the Income Tax Act, 1961, tax is charged only if (a) the property consists of any building or land appurtenant thereto; (b) the assessee is the owner of house property; and (c) the property should not be used by the owner for purpose of his business or profession, the profits of which are chargeable to tax. If the house property is sublet, it is not taxable under this head but it is taxed under the head Income from Other Sources. Tax on house property is levied only if the assessee is the owner of the property. Owner includes legal as well as deemed owners. Under this section owner may be an individual, firm, company, co-operative society, or association of persons. 16
Direct Taxes
Under Section 27 of the Act the following persons will be treated as deemed owners an individual, who transfers house property otherwise than for adequate consideration to his or her spouse or to minor child, the holder of impartible estate, a member of co-operative society, company or association of persons to whom a building or a part thereof is allotted or leased under a house building scheme of the society, company or association, a person who is allowed to take or retain possession of any building in part performance of a contract entered into under Section 53A of the Transfer of Property Act. Tax is levied on the annual value of the property and not on rent. ANNUAL VALUE The annual value is calculated by taking the following factors into consideration (i) the rent payable by the tenant, (location of property), (ii) municipal valuation of the property, (iii) fair rent of the property, and (iv) the standard rent under the Rent Control Act. Income from house property is referred to as annual value. For the purpose of taxation, the annual value of house property is determined as follows: 1. 2. The annual value is taken as nil if the house property is occupied by the owner. If the house cannot be occupied by the owner because of his employment, business or profession being at some other place forcing him to reside there, the annual value is again taken as nil. However, these two clauses are applicable only for one house, and that too only if the owner does not let-out the house during any part of the year, nor does he derive any other benefit from such house. 3. In other cases, the annual value of any property is taken as: a. b. The sum for which the house may reasonably be expected to let from year to year; or Where the house is let-out for a sum higher than one mentioned in (a) above, the actual rent; or c. Where the house is let-out for a part of the year, and the rent received is lower than the sum mentioned in (a) above due to the house being vacant for a part of the year, the actual rent received. For the above purpose Reasonably expected rent means municipal valuation or fair rent, whichever is higher subject to a maximum of standard rent under Rent Control Act. COMPUTATION OF INCOME FROM HOUSE PROPERTY Gross Annual Value Less: Municipal Taxes Net Annual Value Less: Deductions under section 24 Standard deduction Interest on borrowed Capital xxx xxx xxx xxx xxx
Income from House Property
17
PROPERTY EXEMPT FROM TAX There are certain properties which are completely exempt from tax under this head. They are: i. ii. iii. iv. Income from farm house. Annual value of any one palace of an ex-ruler. Property income of local authority. Property income of an authority constituted for the purpose of planning, development or improvement of cities, towns and villages. v. vi. Property income of an approved scientific research association. Property income of a university or other educational institutions, hospital or other medical institution, games association, trade union. vii Property income of a trade union.
viii. House property held for charitable purposes. ix. x. Property income of a political party. Property used for own business or profession and one self-occupied property.
DEDUCTIONS UNDER THE HEAD OF HOUSE PROPERTY i. ii. Municipal rates and taxes. 30% of Net Annual Value: 30% of the Net Annual Value is allowed as deduction under this head. This deduction is automatic and does not depend on the quantum of actual expenditure incurred in respect of repairs, collection charges etc. This deduction is allowed even if no expenditure is incurred by the assessee. The assessee can avail this deduction even if the tenant undertakes to do the repairs. iii. Interest on Loans: Interest payable on the loans borrowed for the purpose of acquisition, construction, renovation, repairing or reconstruction can be claimed as deduction. Interest relating to the year of completion of construction can be fully claimed in that year irrespective of the date of completion. Interest accrued during the construction period preceding the year of completion of construction can be accumulated and claimed as deduction over a period of five years in equal installments commencing from the year of completion of construction. In the case of self-occupied property interest on loan borrowed on or after April 1, 1999 is limited to Rs.1,50,000. In the case of others there is no such ceiling. iv. Unrealized rent from the tenant.
TAX TREATMENT OF LOSS FROM HOUSE PROPERTY If the assessee incurs a loss under the head Income from House Property, the loss can be set-off against any other head of income. Any unadjusted loss can be carried forward for a period of 8 years for being set-off against any future income under the same head.
18
Direct Taxes
Self-Assessment Questions 2 a. The maximum exemption of gratuity in case of non-government employees covered under Payment of Gratuity Act, 1972 for the assessment year 2009-2010 is? .. . . b. If the rent is paid for a house situated in Delhi, the HRA shall be exempt to the maximum extent of ? .. . . c. The municipal value of a let-out property of Mr.Naidu was Rs.90,000; its fair value was Rs.1,05,000; and the standard rent fixed under Rent Control Act is Rs.95,000. What can be taken as reasonable rent for this property? .. . .
16.4.5 Income from Profits and Gains of Business or Profession

Meaning of Business In view of Section 2(13) business includes any (a) trade (b) commerce (c) manufacture or (d) any adventure or concern in the nature of trade, commerce or manufacture. Though the definition is not exhaustive, it covers every facet of an occupation carried on by a person with a view to earning profit. Production of goods from raw material, buying and selling of goods to make profits and providing services to others are different forms of business. Profits arising therefrom are, therefore, chargeable to tax under the head Profits and Gains of Business or Profession. The term business is a word of wide import and in fiscal statutes it must be construed in a broad rather than a restricted sense. EXPENSES EXPRESSLY ALLOWED AS DEDUCTIONS i. ii. iii. iv. v. vi. vii. Rent, rates, taxes, repairs and insurance for buildings. Repairs and insurance of machinery, plant and furniture. Depreciation. Expenditure on scientific research. Expenditure on acquisition of patent rights and copyrights. Expenditure on know-how. Amortization of telecom licence fees.
19
viii. ix. x. xi. xii. xiii. xiv. xv. xvi. xvii. xix. xx. xxi. xxii.
Expenditure on eligible projects or scheme used for promoting social and economic welfare or upliftment of the public as may be specified by the Central Government. Amortization of preliminary expenses. Amortization of expenditure on prospecting, etc., for development of certain minerals. Insurance against risk of damage or destruction of stocks or stores, used for the purposes of business. Insurance premium paid by a federal milk co-operative on the lives of cattle. Premia for insurance on health of employees. Bonus or commission to employees. Interest on borrowed capital. Employers contribution to recognized provident fund and approved superannuation fund. Employers contribution towards an approved gratuity fund. Provisions for bad and doubtful debts in case of certain banks and financial institution. 20 percent of the profits derived from business of providing long-term finance carried on to a special reserve account. Revenue expenditure incurred for the purpose of promoting family planning among its employees. Any sum paid by a public financial institution by a way to contribution towards any exchange risk administration fund.
xviii. Employees contribution towards staff welfare schemes amount of any debt or part.
xxiii. Banking cash transaction tax paid by an assessee during the previous year on taxable banking transactions. xxiv. Expenses not in the nature of a capital expenditure, not represent any item of personal nature, wholly and exclusively for the purpose of business or profession. EXPRESSLY DISALLOWED EXPENSES a. Any interest, royalty, fees for technical services or other sum chargeable under Income Tax Act which is payable: i. ii. Out of India; or In India to a non-resident, not being a company or to a foreign company on which tax has not been paid or after deduction, has not been paid during the previous year, or in the subsequent year before the expiry of the time prescribed under law. In case the tax is deducted in any subsequent year or has been deducted in the previous year but paid in any subsequent year after the expiry of time prescribed under law, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid [Section 40(a)(i)]: a. Any interest, commission or brokerage, fee for professional services or fees for technical services payable to a resident contractor or sub-contractor on which tax is deductible at source shall be disallowed if on which tax has not been paid or after deduction, has not been paid during the previous year, or in the subsequent year before the expiry of the time prescribed under law;
20
Direct Taxes
b.
In case the tax is deducted in any subsequent year or has been deducted in the previous year but paid in any subsequent year after the expiry of time prescribed under law, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid [Section 40(a)(ai)];
c.
Any sum paid on account of Income Tax, Wealth Tax, Fringe Benefit Tax and Securities transaction tax are not deductible;
d. e.
Salary payable out of India if tax has not been paid or deducted at source; and Any payment to a provident or any other fund established for the benefit of employees of the assessee in respect of which the assessee has not made effective arrangement to secure that tax shall be deducted at source from any payment, made from the fund; Tax paid by employer at his option on non-monetary perquisites of the employee on behalf of the latter; Expenditure incurred by an assessee in respect of which payment has been made to relative; Any expenditure in excess of Rs.20,000 spent in a mode otherwise than by a crossed cheque or crossed bank draft; Any provision made by the assessee for payment of gratuity to his employees in respect of Provision for Unapproved Gratuity;
f. g. h. i.
j.
Contribution to Non-statutory Funds;
DEEMED PROFITS Deemed profits are those receipts which have to be treated as income for the sake of inclusion under the head profits and gains of business or profession even though these incomes are not considered as one as per the accounting norms of the company. i. ii. iii. iv. v. vi. Any recovery or salvage obtained from items allowed as deduction in any of the previous years, is chargeable to tax as business income. Balancing charge on asset of an undertaking engaged in generation or generation and distribution of power. Sale of assets used for scientific research. Recovered bad debts earlier allowed as deduction. Amount withdrawn from special reserve created and maintained by certain financial institutions. Any amounts in the form of unexplained investments; Unexplained money. investments not fully disclosed; Unexplained and amount borrowed or repaid on hundi are considered as deemed incomes. ACCOUNTING METHOD The accounting method regularly employed by the assessee has to be used to calculate the income under the head Profits and Gains of Business or Profession. That is, it shall be computed only in accordance with either the cash or the mercantile system of accounting regularly employed by an assessee.
21
COMPULSORY MAINTENANCE OF BOOKS OF ACCOUNT This section provides for compulsory maintenance of books of account by certain specified persons. a. Persons carrying on specified profession Gross receipts does not exceed Rs.1,50,000 in any of the three preceding previous years. The persons falling under this category should maintain books of account and other documents to the satisfaction of Assessing Officer. Gross receipts from the The persons falling in this profession exceeds category should maintain Rs.1,50,000 in any of the such books of account as three preceding previous are prescribed under Rule years. 6F. Income from profession or Not required to maintain business or business does any books of account. not exceed Rs.1,20,000 or the total sales turnover or gross receipts thereof are not in excess of Rs.10,00,000 in any of the three years immediately preceding the previous year. Income from such Should maintain books profession or business and other documents to the exceeds Rs.1,20,000 or the satisfaction of Assessing total sales, turnover or Officer. gross receipts thereof are in excess of Rs.10,00,000 in any of the three years immediately preceding the previous year.
b.
Persons carrying on specified profession
c.
Persons carrying on nonspecified profession or carrying on business
d.
Persons carrying on nonspecified profession
Table 3: Compulsory Maintenance of Books by Specified Persons For (a) and (b), the income limit is Rs.80,000 in the case of a person who, in the course of medical profession, dispenses drugs and medicines. AUDIT OF CERTAIN PERSONS This section provides for audit of accounts of certain persons. Different taxpayers A person carrying on business A person carrying on profession A person covered under Section 44AD, 44AE, 44AF, 44BB, 44BBB When then are covered by the provisions of compulsory audit under Section 44AB. If the total sales, turnover or gross receipts in business for the accounting year or years relevant to the assessment year exceeds Rs.40 lakh. If the gross receipts in profession for an accounting year relevant to any of the assessment year, exceeds Rs.10 lakh. If such person claims that the profits and gains from the business are lower than the profits and gains computed under these sections (irrespective of his turnover). Table 4: Audit of Certain Persons
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Direct Taxes
MINIMUM ALTERNATE TAX Section 115JB provides that, where in the case of an assessee, being a company, the income tax, payable on the total income as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 2001, is less than seven and one-half percent of its book profit, the tax payable for the relevant previous year shall be deemed to be seven and one-half percent of such book profit and such book profit shall be deemed to be the total income.
16.4.6 Capital Gains

Section 2(14) defines a Capital Asset as property of any kind whether fixed or circulating, movable or immovable, tangible or intangible. The term Capital Asset does not include the following: Any stock-in-trade, consumable stores or raw materials held for the purpose of business or profession; Personal effects of the assessee, that is movable property including wearing apparel, furniture and jewelry held for personal use or for the use of any member of his family dependent upon him; Agricultural land in India provided it is not situated in any area within the jurisdiction of a municipality or a cantonment board, having a population of 10,000 or more or in any such notified area; 6 percent Gold Bonds, 1977 or 7 percent Gold Bond, 1980 or National Defence Gold Bonds, 1980 issued by the Central Government; and with effect from assessment year 2000-01, Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999 shall not be included; Special Bearer Bonds 1991; Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999.
The goodwill of a business is capital asset and any excess realized over its book value would be a capital gain chargeable to tax, right to subscribe to shares, partners share in a firm, leasehold in mines and license to manufacture an item, dealership rights, right of tenancy under Tenancy Act, a right to obtain conveyance of an immovable property, a business undertaking, and route permits are included as capital assets. COMPUTATION OF CAPITAL GAINS Steps Computation of short-term capital gain. I II Full value of consideration received. Deduct a. Computation of long-term capital gain. Full value of consideration received. Deduct Expenditure incurred wholly and exclusively in connection with such transfer Indexed cost of acquisition Indexed cost of improvement
Expenditure incurred wholly and a. exclusively in connection with such transfer Cost of acquisition Cost of improvement b. c.
b. c.
III From the above resultant deduct exemptions. IV Balance is short-term capital gains.
From the above resultant deduct exemptions. Balance is long-term capital gains.
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TRANSACTIONS NOT REGARDED AS TRANSFER For the purpose of capital gain tax, certain transactions are not regarded as transfer. Hence, for these transactions, there is no liability towards capital gains; Any distribution of capital assets on the total or partial partition of a Hindu Undivided Family (HUF). Any transfer of a capital asset under a gift, or will or an irrevocable trust. Any transfer by way of conversion of bonds or debentures, debenture-stock or deposit certificates in any form, of a company into shares or debentures of that company. Transfer of shares in certain schemes of amalgamations, etc. Transfer of a capital asset being any work of art, archaeological, scientific or art collection, book, drawing, painting etc. to the government or any university or museum notified by the Central Government. Any transfer involved in a scheme entered into by the assessee with borrower of securities for lending of any securities under an agreement or arrangement subject to guidelines issued by SEBI. Any transfer of capital asset in a transaction of reverse mortgage under a scheme made and notified by the Central Government shall not be regarded as transfer. The revenue received from reverse mortgage scheme by senior citizens would not be taxable income.
TAX TREATMENT IS DIFFERENT FOR SHORT-TERM CAPITAL GAINS AND LONG-TERM CAPITAL GAINS Short-term Capital Gains A short-term capital asset is one which is held for 36 months or less 12 months or less in the case of equity shares, units of mutual funds/UTI and listed securities immediately preceding the date of transfer. Short-term capital gains, i.e. gains arising from the transfer of short-term capital assets, are treated as a part of total income in the year in which the transfer is effected, and taxed at the normal rates of tax. Prior to amendment made in Finance Act 2004 the short-term capital gains are taxed at applicable tax rates (i.e., slab rates). This treatment continues to apply to all short-term capital assets except short-term capital gains from sale of securities. A new section 111A has been introduced, to tax the short-term capital gains arising from the sale of securities to investors @ fifteen per cent. Cost of Acquisition To determine capital gains arising out of the transfer of a long-term capital asset, the cost of acquisition and the cost of improvement are allowed as a deduction from the sales proceeds. The cost of acquisition and the cost of improvement of asset are linked to the Cost Inflation Index. Long-term capital gains are therefore computed by deducting from the full value of the consideration the expenditure incurred in connection with the transfer, the indexed cost of acquisition, and the indexed cost of improvement.
24
Direct Taxes
Cost Inflation Index Financial Year 1981-82 1982-83 1983-84 1984-85 1985-86 1986-87 1987-88 1988-89 1989-90 1990-91 1991-92 1992-93 1993-94 1994-95 Cost of Inflation Index 100 109 116 125 133 140 150 161 172 182 199 223 244 259 Financial Year 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 Cost of Inflation Index 281 305 331 351 389 406 426 447 463 480 497 519 551 582
Taking 1981-82 as the base year, the Central Government notified cost inflation index in August 1992 and further as amended in 1993 (table 1), based on 75% of the increase in consumer price index for urban and non-manual employees. Indexed cost of acquisition means an amount which bears to the cost of acquisition the same proportion, as the Cost Inflation Index (CII) for the year in which the asset is transferred bears to the Cost Inflation Index for the first year in which the asset was held by the assessee or for the year beginning on 1 April, 1981, whichever is later. In other words, indexed cost of acquisition for financial year 2008-09 = [(CII for 2008-09) (CII for 1981-82 or later)] x Cost of Acquisition. The indexed cost of improvement will also be similarly computed. LONG-TERM CAPITAL GAINS Assets other than short-term capital assets are regarded as long-term capital assets. Under Section 112, individual assesses and HUFs will pay a flat rate of tax @ 20% on long-term capital gains (except on securities). The long-term capital gains on sale of securities are fully exempt. Instead a tax of 0.125 % on the value of all the transactions of purchase of securities that take place in recognized stock exchange in India has been introduced. The threshold exemption of Rs.1,50,000 is fully available in cases where there is no income other than long-term capital gains and partially to the extent of unabsorbed threshold exemption after set-off of any other income if it falls below Rs.1,50,000. A cess of 3% is applicable in the case of all assesses and (cess of 3% + 10% surcharge) is applicable in the case of assessees with total income exceeding Rs.10,00,000.
25
EXEMPTIONS FROM CAPITAL GAINS Certain exemptions are provided from taxation of capital gains. Exemption on Transfer of Residential House Property (Section 54) Under Section 54, exemption from long-term capital gains tax on transfer of residential house property is available if the whole or part of the capital gains are used to purchase another residential house within a period of one year before the date of such transfer or within two years of the date of transfer. In case of construction of residential property, the construction must be completed before three years of the date of transfer. The condition is that the new residential house should be held for a minimum period of 3 years from date of its acquisition. In case the individual is unable to utilize the amount for the aforesaid purpose before the date for furnishing the return of income, it shall be deposited in a Deposit Account notified in accordance with Capital Gains Account Scheme, 1988. Exemption from Long-term Capital Gains Invested in Bonds (Section 54EC & 54F) Under Section 54EC, exemption from long-term capital gains tax is available if the whole or part of the capital gains are invested within six months of the date of transfer of the asset in bonds which are redeemable after three years. Such exemption is available only in respect of investment in bonds issued by National Highways Authority of India (NHAI) or by Rural Electrification Corporation Limited. The investment is proposed to be restricted upto Rs.50,00,000 per assessee per financial year for investments made on or after 1 April 2007. The condition is that such investments should not be used as security for taking loans during this lock-in period. In the case of individuals and HUFs, long-term capital gains arising out of transfer of capital assets other than a residential house are protected from tax under Section 54F provided the sales proceeds are invested to either purchase a residential house within two years or construct one within three years, subject to other conditions. Exemption on Transfer of Assets in case of shifting of Industrial Undertaking from Urban Area (Section 54G) Capital gains arising on transfer of plant, machinery, land, building or any rights in land / building effected in course of or in consequence of the shifting of an industrial undertaking situated in an urban area to any area (other than an urban area), shall be exempt to the extent of the amount of capital gains utilized within a period of 1 year before or 3 years after the date of transfer of the above assets, for purchase of new plant and machinery, land and building and for shifting expenses. Exemption on Transfer of Assets in case of shifting of Industrial Undertaking from Urban Area to Special Economic Zone (Section 54GA) Capital gains arising on transfer of plant, machinery, land, building or any rights in land/ building effected in course of or in consequence of the shifting of an industrial undertaking situated in an urban area to any SEZ, shall be exempt to the extent of the amount of capital gains utilized within a period of 1 year before or 3 years after the date of transfer of the above assets, for purchase of new plant and machinery, land and building and for shifting expenses, subject to specified conditions.
26
Direct Taxes
ADJUSTMENT OF CAPITAL LOSSES Losses due to transfer of short-term or long-term capital assets cannot be set-off against any other income. Long-term capital losses can be set-off only against long-term capital gains. However, Short-term capital losses can be set-off against both short-term capital gains and long-term capital gains. Any unadjusted capital loss may be carried forward and set off against income under the head, capital gains of the subsequent years. However such loss cannot be carried forward for more than 8 assessment years. Self-Assessment Questions 3 a. X purchases a house property on March 10, 2006 and transfers it on June 6, 2008. Is this a short-term asset or long-term asset? Justify. .. .. .. b. Mr.Ramesh claims Rs.42,500 as deduction in respect of Income tax paid on May 15th, 2008 in respect of earlier year. Is the amount allowable as deduction under the head of Profits and Gains of Business or Profession? .. .. .. c. Ms.Jasmine purchased a house on June 30th, 1981 for Rs.6,50,000. She sold the property on June 15, 2008 for Rs.75,00,000. The expenses incurred on transfer were Rs.50,000. Compute the capital gains. .. .. ..
16.4.7 Income from Other Sources

Incomes like dividends; any winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or from gambling or betting of any form or nature; any sum received by the assessee from his employees as contributions to any staff welfare scheme (if not taxable under Section 28); interest on securities, if not charged to tax under the head Profits and gains of business or profession; income from machinery, plant or furniture let on hire [if it is not taxable in profits and gains of business or profession]; income from letting of plant, machinery or furniture along with the building and letting of building is inseparable from the letting of plant, machinery or furniture (if it is not taxable under Section 28); and any sum received under a keyman insurance policy, including bonus, if not taxable as salary or business income. 27
The treatment of each of the incomes that may be included in the head income from other sources is detailed in the following paragraphs: EXEMPTED ASSESSES Interest on securities is not taxable in the hands of the following assessees: i. ii. iii. iv. v. vi. Local authority. An authority constituted in India for town planning, etc. Approved scientific research association. A regiment fund or non-public fund. An approved hospital. An approved athletic association.
vii. A registered trade union. viii. A statutory, recognized provident fund and approved superannuation fund and an approved gratuity fund. ix. A charitable trust. DEDUCTIONS [SECTION 57] The income that is taxable under the head income from other sources will be arrived at after making the following deductions under Section 57: a. Any reasonable sum paid by way of commission or remuneration to a banker or any other person for the purpose of realizing such dividend or interest on behalf of the assessee is allowed as deduction. The amount credited by the employer on or before the due date in the employees accounts towards provident fund/superannuation/other funds with the amounts of contribution received is allowed as deduction. Repairs in respect of building, insurance premium paid in respect of insurance against risk of damage or destruction of the premises, repairs and insurance of machinery, plant and furniture and depreciation are deductible in case of income chargeable under Section 56 (ii)/(iii). Rs.15,000 or 33 1/3% of income in the nature of family pension under Section 57(iia) whichever is less. Any other expense not being personal/capital in nature, expended in the previous year wholly and exclusively for the purpose of making or earning income.
b.
c.
d. e.
INADMISSIBLE EXPENSES [SECTION 58] The following expenses are not deductible by virtue of Section 58: i. ii. iii. iv. v. Personal Expenses. Wealth Tax. Expenses of the nature described in Section 40A. Interest and salary payable outside India, if tax has not been paid or deducted at source. No deduction shall be allowed in respect of winnings from lotteries, card games, races including horse races, gambling, betting, etc. (These incomes are charged to tax under Section 115BB at a flat rate of 40% subject to availability of exemption under Section 10(3) of the Income Tax Act.)
In respect of the activity of owning and maintaining race horses, expenses incurred shall be allowed even in the absence of any stake money earned. Such loss shall be allowed to be carried forward in accordance with the provisions of Section 74A. 28
Direct Taxes
16.4.8 Deductions from Gross Total Income

DEDUCTIONS MADE IN RESPECT OF CERTAIN PAYMENTS AND EXPENDITURE The deductions that are allowed for payment or expenditure for computation of gross total income are as follows: DEDUCTIONS IN RESPECT OF CERTAIN PAYMENTS Deduction in Respect of Life Insurance Premia, Contribution to PF etc. (Sec. 80C) a. b. Premia paid on life insurance policies. Sum paid for a deferred annuity as is not in excess of 20% of the actual capital sum assured. c. d. Provident fund contributions. Subscriptions to any savings certificates as the Central Government may specify on this behalf in the Official Gazette. Contribution by an individual towards an approved superannuation fund. Premium to keep in force a contract for annuity plan of the LIC or any other insurer as the Central Government may notify. Subscription to National Savings Certificates (VIII issue), issued under the Government Saving Certificates Act, 1959. Subscription of any security of the Central Government. Any unit-linked insurance plan of LIC mutual fund. Subscription to any units of the mutual fund notified under section 10 (23D). Contribution to any pension fund set-up by any mutual fund notified under section 10 (23D). Subscriptions to home loan account scheme or a notified pension fund of the National Housing Bank. Any sum paid on account of repayment of the sum borrowed for the purchase or construction of house property from approved agencies. Education expenses for the purpose of full time education (restricted to two children). Amount invested in equity shares, debentures of a public company engaged in infrastructure including power sector. From the AY 2007-08, investment in term deposit for a fixed period of not less than five years with any scheduled bank. Five year time deposit in an account under post office time deposit rules, 1981. Deposit in an account under the senior citizens savings scheme rules, 2004.
e. f.
g.
h. i. j. k.
l.
m.
n. o.
p.
q. r.
Deduction in Respect of Contribution to Pension Fund (Section 80CCC) This section provides a deduction to an individual for any amount paid by him in any annuity plan of LIC for receiving pension. This contribution under this section is limited to, the overall ceiling of Rs.1,00,000 laid down under Section 80CCE. 29
Deduction in Respect of Contribution to New Pension Scheme (Section 80CCD) A new pension scheme has been introduced and is applicable to new entrants to Government service. This section provides a deduction of the amounts paid or deposited by an individual employed by the Central Government on or after 1st January 2004, in the pension account subject to a maximum of ten per cent of his salary as per the scheme notified by the Central Government. From the AY 2008-09, an individual employed by any other employer on or after the 1 January 2004 and who has paid or deposited the specified amount in his account under the pension scheme referred to in section 80CCD(1) of the said section is also eligible for deduction. An assessee claiming deduction under this section cannot claim deduction under 80C for the same amount. However, the total of the deductions under 80C, 80CCC and 80CCD shall not exceed Rs.1,00,000 (inserted by Section 80CCE). Deduction in Respect of Medical Insurance Premium (Section 80D) A deduction of Rs.15,000 is allowed under Section 80D in respect of any sum paid by an assessee to effect or keep in force mediclaim insurance policy. Additionally, with effect from AY 2009-2010, a deduction of Rs.15,000 is allowed on any payment made to effect or keep in force an insurance on the health of parent or parents. If however, either of the parents is a senior citizen, the additional deduction would be Rs.20,000. Medical Treatment of Handicapped Dependents (Section 80DD) Section 80DD provides that if a person makes some expenditure on the maintenance or medical treatment of a handicapped dependent, or deposits money in an approved scheme for the maintenance of such dependent, a deduction of Rs.50,000 from taxable income will be allowed in respect of a person with disability and Rs.75,000 in case of a person with severe disability irrespective of the expenditure actually incurred, or the amount actually deposited. The deduction under this section has been extended to persons suffering from autism, cerebral palsy and multiple disability. Deduction in Respect of Medical Treatment (Section 80DDB) An individual can claim a deduction of Rs.40,000 limited to the actual expenditure incurred towards expenditure for the medical treatment for individual himself or for his relative or for any member of hindu undivided family in respect of selected serious diseases. The amount of deduction is irrespective of the amount actually incurred. If the amount is spend on a senior citizen, a deduction of Rs.60,000 limited to the actual expenditure incurred is allowed. Interest on Loan taken for Higher Education (Section 80E) A deduction is allowed in respect of interest on loan taken for pursuing higher studies. The loan should be from an approved institution. The loan can be taken for higher education of himself or his relative being spouse and children. The deduction is allowed from the year the assessee starts paying interest on the loan and subsequent seven years. Deduction in Respect of Donations (Section 80G) Under this section, certain specified donations are eligible for deductions from income. For some kind of donations, the amount deductible is 50% of the donation, while for some others, it is 100% of the donation. The total deduction under this section, is however, limited to 10% of gross total income after being adjusted for certain items. Deduction in Respect of Rent Paid (Section 80GG) Any amount paid in respect of an expenditure towards payment of rent by a self-employed person and/or salaried employee who is not in receipt of any house rent allowance is allowed as deduction under this section. Only individuals are eligible for deduction under this section. 30
Direct Taxes
The amount deductible under this section is the least of the following amount: i. ii. iii. Rs.2,000 per month; or 25 percent of total income; or The excess of actual rent paid over 10 percent of total income.
Donations for Scientific Research or Rural Development (Section 80GGA) Under this section, certain donations to specific kinds of institutions are eligible for 100% deduction. Deduction in Respect of Contributions given to Political Parties Sec. 80GGB and 80GGC Deduction shall be allowed in respect of contribution given to political parties during the previous year, while computing the total income of an assessee (including an Indian Company). Deductions in Respect of Certain Incomes Deduction in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development etc. (Section 80-IA) Deduction under Section 80-IA is available to the industrial undertakings engaged in the following activities: i. ii. iii. iv. v. vi. Provision of infrastructure facility. Telecommunication facility. Industrial park or special economic zone. Power generation, transmission and distribution. Undertaking set up for reconstruction of a power unit. A cross-country natural gas distribution network (from the assessment year 2008-09).
Deduction under Section 80-IB in Respect of profits and Gains from certain Industrial Undertakings other than Infrastructure Development Undertakings Section 80-IB of the Income Tax Act, 1961 provides exemption from tax in respect of profits and gains from certain industrial undertakings engaged in the following activities (other than infrastructure development): i. ii. iii. iv. v. vi. Business of industrial undertaking. Operation of ship. Hotels. Industrial research. Production of mineral oil. Developing and building housing projects.
vii. Integrated handling, storage and transmission of foodgrains units. viii. Multiplex theatres. ix. Convention center. Deduction under Section 80-IC in respect of profits and gains of certain undertakings in certain special category of states. Deduction under Section 80-IC is available to any undertaking or enterprise which has begun or begins to manufacture or produce any article or thing, not being any article or thing specified in the thirteenth schedule, or which manufactures or produces any article or thing specified in the thirteenth schedule and undertakes substantial expansion. 31
Tax Holiday under Section 80-ID Introduced for Hotels and Convention Centers in National Capital Territory and Specified Areas 100% deduction of the profits and gains derived from such business shall be allowed for 5 consecutive assessment years beginning from the initial assessment year. Deduction in Respect of Certain Undertaking in North Eastern States Section-80IE from Assessment Year 2008-09 100% of the profits from the aforesaid business shall be deductible for 10 consecutive years beginning with the assessment year relevant to the previous year in which the undertaken begins to manufacture/ produce articles or things or complete substantial expansion. Deduction in Respect of Profits and Gains from Business of Collecting and Processing of Bio-degradable Wastes: Section 80JJA The whole of the profits and gains of these units shall be deductible for a period of five consecutive assessment years beginning with the assessment year relevant to the previous year in which such business commences. Deduction in Respect of Employment of New Workmen: Section 80JJAA Where the gross total income of an assessee, being an Indian company, includes any profits and gains derived from any industrial undertaking engaged in the manufacture or production of article or thing, there shall, subject to the conditions, allowed a deduction of an amount equal to 30%, of additional wages paid to the new regular workmen employed by the assessee during the previous year will be allowed a deduction. Deduction in Respect of Certain Income of Offshore Banking Units and International Financial Services Center: Section 80LA The assessee being a scheduled bank and having an offshore banking unit in a special economic zone or a foreign bank having an offshore banking unit in a special economic zone or a unit of international financial services center is eligible for a deduction of 100 percent of the gross total income for five consecutive assessment years beginning with the assessment year relevant to the previous year in which the permission from SEBI or under other law is obtained, and 50 percent of such income for the next five years is allowed as deduction. Deduction under Section 80P in Respect of Income of a Co-operative Society In the case of a co-operative society, the following amounts are allowed as deductions: The whole of the amount of the profits attributable to any one or more of the following activities in the case of a co-operative society engaged in: a. b. c. d. e. f. g. Carrying on the business of banking or providing credit facilities to its members; or A cottage industry; or Marketing of the agricultural produce of its members; or Purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for the purposes of supplying them to its members; or Processing, without the aid of power of the agricultural produce of its members; or Collective disposal of the labor of its members; or Fishing or allied activities, that is to say, catching, curing, processing, preserving, storing or marketing of fish or the purchase of materials and equipment in connection therewith for the purpose of supplying them to its members. 32
Direct Taxes
Deduction in Respect of Royalty Income, etc. of Authors of Certain Books other than Text Books: Section 80QQB Section 80QQB provides deduction up to Rs.3,00,000 to an individual resident, being an author, in respect of any income derived from the exercise of his profession, on account of any lump sum consideration for the assignment or grant of any of his interests in the copyright of any book, or of royalties or copyright fees (whether receivable in lump sum or otherwise) in respect of such book. Deduction for Royalty on Patents: Section 80RRB Section 80RRB provides for tax breaks on royalty income earned from patents to a resident in India. A deduction equivalent to the royalty income received or Rs.3 lakh, whichever is less, is allowed as deduction to an individual who is registered under the Patents Act as the true and first inventor in respect of an invention. Even a co-owner of a patent can opt for the deduction. Deduction in the Case of a Permanent Physical Disability (Including Blindness) or Mental Retardation: Section 80U The amount of deduction permitted under this section is Rs.50,000 and Rs.75,000 in the case of a person with severe disability. The deduction under this section has been extended to persons suffering from autism, cerebral palsy and multiple disability. Self-Assessment Questions 4 a. Mr.Sagar does not own any house and stays in a rented house and pays a rent of Rs.3,500 per month. Compute the amount of deduction that can be claimed by Mr.Sagar for the Assessment Year 2009-10 if his total income is Rs.2,30,000. .. .. .. b. Ms.Latha has taken a loan of Rs.7,00,000 to pursue her post graduation. She repays an amount of Rs.30,000 towards principle and an amount of Rs.42,000 towards interest on loan for the previous year 2008-09. How is the amount she can claim as deduction under section 80E. .. .. .. c. Sheela (widow of Arvind) was in receipt of Rs.1,00,000 family pension for AY 2009-2010. Is she eligible for any deduction under this income? If so how much? .. .. .. 33
16.5 WEALTH TAX

Wealth Tax is another species of direct tax. It is governed by Wealth Tax Act, 1957 that came into force on the 1st day of April, 1957. This Act is applicable to the whole India. CHARGEABILITY The wealth tax is chargeable in respect of net wealth of every individual, hindu undivided family and company in respect of every assessment year at the rate of 1 percent of the amount where the net wealth exceeds Rs.15 lakh (For AY 2009-10). The net wealth on valuation date is chargeable to wealth tax in the immediately following assessment year. Valuation date is March 31 immediately preceeding the assessment year. However, according to Section 45 of the Act, no wealth tax is chargeable in respect of the wealth of: Any company registered under Section 25 of the Companies Act, 1956. Any co-operative society. Any social club. Any political party. A mutual fund specified under Section 10(23D) of the Income Tax Act.
COMPUTATION Net wealth for the purpose of Wealth Tax is computed as follows: Assets (Sec. 2(ea)) Add: Deemed Assets (Sec. 4) Total Less: Exempted Assets (Sec. 5) Assets Chargeable to Wealth Tax Less: Debt Owed (Sec. 2(m)) Net Wealth NET WEALTH [SECTION 2(M)] The term net wealth means taxable wealth. It represents the excess of assets over debts. Assets include deemed assets but do not include assets exempted under Section 5. The net wealth is calculated on the consideration of certain assets. For the purpose of calculation of net wealth, the term Assets Sec. 2(ea) includes: i. Any building or land appurtenant thereto hereinafter referred to as house, whether used for residential or commercial purposes or for the purpose of maintaining a guest house or otherwise including a farm house situated within twenty five kilometers from local limits of any municipality whether known as municipality, municipal corporation or by any other name or a cantonment board, but does not include. a. A house meant exclusively for residential purposes and which is allotted by a company to an employee or an officer or a director who is in whole-time employment, having a gross annual salary of less than five lakh rupees; Any house for residential or commercial purposes which forms part of stock-intrade; Any house which the assessee may occupy for the purposes of any business or profession carried on by him; xxx xxx xxx xxx xxx xxx xxx
b. c. 34
Direct Taxes
d. e. ii. iii.
Any residential property that has been let-out for a minimum period of three hundred days in the previous year; and Any property in the nature of commercial establishments or complexes.
Motor cars (other than those used by the assessee in the business of running them on hire or as stock-in-trade); Jewelry, bullion, furniture, utensils or any other article made wholly or partly of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals, provided if the above said are forming part of any stock-in-trade they are not considered as assets. If above jewelry or ornaments made of gold, silver, platinum or any other precious metal and contain any precious stones are also included for this purpose; Yachts, boats and aircrafts (other than those used by the assessee for commercial purposes); Urban land (which is comprised within the jurisdiction of a municipality or a cantonment board and which has a population of not less than ten thousand. If the same land is held as stock-in-trade by the assessee is not considered as asset); and Cash-in-hand, in excess of fifty thousand rupees, of individuals and hindu undivided families and in the case of other persons any amount not recorded in the books of account.
iv. v.
vi.
DEEMED ASSETS [SECTION 4] Assets Transferred by One Spouse to Another Section 4(1)(a)(i): The assets which have been transferred after March 31, 1956 by an individual, directly or indirectly, to his or her spouse otherwise than for adequate consideration or in connection with an agreement to live apart are included in the net wealth of the transferor. Assets held by Minor Child Section 4(1)(a)(ii): All the assets held by a minor child are included in the net wealth of the individual. However, if such a minor is (i) suffering from any disability of the nature specified in Section 80U of the Income Tax Act or (ii) a married daughter of such individual, there will be no such clubbing of wealth. The clubbing provision will not apply in respect of assets acquired by the minor child out of his income earned from any manual work done by him or activity involving application of his skill, talent or specialized knowledge and experience. The net wealth of a minor will be included in the net wealth of that parent whose net wealth excluding the assets of minor child so includible under Section 4(1) is greater. Asset Transferred to a Person or Association of Persons [Section 4(1)(a)(iii)]: Any asset transferred directly or indirectly by an individual to a person or association of persons for the immediate or deferred benefit of the transferor, his or her spouse without adequate consideration is included in the net wealth of the transferor. Assets Transferred under Revocable Transfers [Section 4(1)(a)(iv)]: Assets transferred by an individual after March 31st, 1956, to a person or association of persons under a revocable transfer are included in the net wealth of the transferor. Assets Transferred to Sons Wife [Section 4(1)(a)(v)]. Assets transferred after May 31, 1973 by an individual, directly or indirectly to his or her sons wife without adequate consideration are included in the net wealth of the transferor.
35
Interest of Partner [Section 4(1)(b)]: Where the assessee is a partner in a firm or a member of an association of persons, the value of his interest in the assets of the firm or association determined in the manner laid down in Schedule III to the Wealth Tax Act will be includible in his net wealth. Conversion of Self-acquired Property by an Individual into Joint Family Property [Section 4(1A)]: Where an individual converts his self-acquired property after December 31, 1969 into a joint family property of the HUF by impressing such property with the character of joint family property or by throwing it into the common stock of the family or makes a gift of separate property or transfers property otherwise than for adequate consideration to the family, such property is deemed to be the asset of the transferor and is includible in his net wealth. In case of partition of the HUF, only so much of the converted property which is received by the spouse of the transferor is deemed to be the asset of the transferor and is includible in his net wealth. Gifts by Book Entries [Section 4(5A)]: Where a gift of money is made by means of book entries in the books of account maintained by the person making the gift, or by an individual, or HUF, or a firm or an association of persons or a body of individuals with whom he has business connection, the value of such gift will be included in the net wealth of the person making the gift unless Wealth Tax Officer is satisfied that the money had actually been delivered to the other person at the time of entry of gift. Property held by a Member of Housing Society [Section 4(7)]: The building or part thereof allotted or leased to an assessee who is a member of co-operative housing society, company or an association of persons will be deemed to be the asset of the assessee and the value of that building or part thereof will be included in the net wealth of the assessee. While determining the value of the building any outstanding installments payable by the assessee towards the cost of such house are deductible as debt owed by the assessee. Property held by a person in part performance of a contract [Section 4(8)] will be included in the net wealth of the assessee.
ASSETS THAT ARE EXEMPTED The following assets are exempt from tax: Property held under a Trust [Section 5(i)]: Any property held by an assessee under a trust or other legal obligation for any public purpose of charitable or religious nature in India, is totally exempt from tax. Coparcenary Interest in a Hindu Undivided Family [Section 5(ii)]: The interest of the assessee in the coparcenary property of the hindu undivided family is exempt from tax. Residential Building of a Former Ruler [Section 5(iii)]: The value of any one building used for residential purpose by a former ruler is exempt from tax. Jewelry of Former Ruler [Section 5(iv)]: Jewelry in possession of a former ruler not being his personal property, which is recognized as his heirloom by the Central Government before April 1, 1957 or by the board is exempt from tax. Assets belonging to Indian Repatriates [Section 5(v)]: Wealth Tax exemption is provided to assessee who is Indian repatriate in respect of: i. ii. iii. 36 Money bought by him into India; Value of assets brought into India; Value of assets acquired out of such money brought into India;
Direct Taxes
iv.
Monies standing to the credit of such assessee in a Non-resident (External) Account in any bank in India on the date of his return to India; and
v.
Value of assets acquired by him out of money referred to in (i) and (iv) within one year prior to the date of his return to India.
The exemption is provided (for 7 years from the date on which such person returned to India) to an assessee who is a person of Indian origin or a citizen of India who is ordinarily resident abroad and returns to India with an intention of permanently residing in India. One House or a Part of House [Section 5(vi)]: A house or part of house or a plot of land not exceeding 500 square metres in area belonging to individual or a hindu undivided family is exempt from tax. If the house is owned by more than one person, the exemption is available to each of the co-owner of the house.
16.5.1 Debt Owed

From the aggregate of all assets (including deemed assets but excluding exempted assets) the debts owed by the assessee on the valuation date in relation to the assets included in the net wealth of the assessee shall be deducted. The term debt owed within the meaning of Section 2(m) may be defined to pay in present or in future unascertainable money. Owe means to be under an obligation to pay. The value of any asset other than cash is determined in the manner laid down in the Schedule III to the Wealth Tax Act, on the valuation date. Self-Assessment Questions 5 a. A commercial multi-storeyed building given on rent by X (not being held as stock-in-trade). Is it an asset for the purpose of Wealth Tax? .. .. .. b. Geet gifts a house property to his wife Geeta. The property is valued at Rs.45,00,000. In whose net wealth does the value of property be included? .. .. .. c. X, an Indian citizen, was ordinarily residing in Canada. He purchased a house in Bangalore for Rs.5 crore out of the money remitted from Canada on August 3rd, 2007. He comes to India permanently on July 8th, 2008. Will the value of house be included in the net wealth for Wealth Tax purpose? .. .. ..
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16.5.2 Current Developments

With an aim to establish an economically efficient, effective and equitable direct tax system, 2009 New Direct Tax Code was introduced by the Finance Minister. This new code is to replace the Income Tax Act, 1961 and other Direct tax laws. Hence, it is to become a single code for direct taxes. Some of the features are: i. Simplifying the Language: With a view to facilitate voluntary compliance and keep the compliance costs low, the language of the New Code has been kept simple with clear intent and scope. ii. Reduction in Scope of Litigation: Attempt has been made to avoid ambiguity in the provisions with an intent to reduce rival interpretations and hence reduce the scope for litigations. Power to avoid protracted litigation on procedural issues has been delegated to Central Government. iii. Flexibility: The flexibility embedded in the New Code allows for any future changes to suit the growing economy without resorting to frequent amendments. While the general and essential principles are contained in the Statute, the matters of detail are contained in the rules and schedules. The structure of the tax laws has been so designed so that it can be logically reproduced and reflected in a Form. iv. v. Consolidation of Provisions: With an aim to better understand the law, provisions pertaining to definition, exemptions, incentives and rates have been consolidated. Elimination of Regulatory Functions: The traditional mode of using taxing statute as a regulatory tool has been eliminated. With withdrawal of regulatory function of the taxing statute the law is expected to further simplify. vi. Less Ambiguity: With the rates of tax being prescribed in the First to the Fourth schedule to the Code itself, the annual uncertainty prevailing the rate of taxes which are pronounced by Annual Finance Acts is minimized. See Annexure for Highlights of Direct Taxes Code Bill, 2009.
16.6 SUMMARY
The Income Tax Act, 1961 provides the basic framework and guidelines for the determination of taxable income and tax liability. Assessment year means the period of 12 months starting from April 1 of every year and ending on March 31 of next year. The year in which the income is earned is known as Previous Year. It is the financial year immediately preceding the assessment year. Sections 10 and 11 to 13A of the Income Tax Act deal with certain incomes that are not part of the total income of an assessee or in other words incomes that are exempt from tax. Salary includes basic salary, encashment of leave salary, advance of salary, arrears of salary, various allowances such as dearness allowance, entertainment allowance, house rent allowance, conveyance allowance and also includes perquisites by way of free housing, free car, free schooling for children of employees. Annual value of a house property consists of buildings or land adjacent thereto and is owned by the assessee. The income from such property is taxable under the head Income from House Property. 38
Direct Taxes
Business includes any trade, commerce, manufacture or any adventure or concern in the nature of trade, commerce or manufacturing. Rent, rates, taxes, land revenue, municipal taxes and repairs and insurance premium paid or payable for business premises and machinery, plant and furniture are deductible from business income. Profit/Gain from the transfer or sale of a capital asset is chargeable to tax under the head Capital Gain in the year in which capital asset is sold or transferred. In order to obtain the amount of long-term capital gain on sale of a long-term capital asset, from the sale proceeds the expenses on transfer are to be reduced. From the balance amount the indexed cost of acquisition and indexed cost of improvement are to be deducted to get the amount of taxable capital gains. Incomes not chargeable under any specific heads i.e., salaries, houseproperty, business or profession or capital gains are chargeable to tax under the head of Income from other sources. Winnings from lotteries, crosswords, puzzles, races including horse races, card games or other games of any sort or gambling or betting of any form or nature are taxable under this head. Aggregate of income under all heads will give the Gross Total Income. From that income certain deductions are available on satisfaction of certain conditions. As per the provisions of Wealth Tax Act, net wealth of an assessee on valuation date in excess of Rs.15 lakh is taxable @ of 1%. Net wealth means taxable wealth, it represents the excess of assets over debts. Assets include deemed assets but do not include assets exempted under the Section 5. The valuation of assets for Wealth Tax purposes will be made on the basis of provisions laid down in the Schedule III to the Wealth Tax Act, on the valuation date.
16.7 GLOSSARY
Assessee means a person by whom any tax, or any other sum of money is payable under the Act. Assessment Year means the period of 12 months commencing on the 1st day of April every year. It is also called a financial year, but it immediately succeeds the relevant previous year. Cost Inflation Index for any Year means such index as the central government may, having regard to 75% of average rise in the consumer price index for urban non-manual employees for that year, by notification in the Official Gazette specify in this behalf. Cost of Acquisition of an Asset means the value for which the asset was acquired by the assessee. The expenses of capital nature for completing or acquiring the title to the property are to be included in the cost of acquisition. Depreciation means loss or decline in value, which occurs gradually over the useful life of a material thing, due to physical wear, tear and decay, and is generally limited to losses or declines in value which are not restored by current repairs and maintenance. Gratuity denotes a gratuitous payment made by an employer to his/her employee for the services rendered to him. Long-term Capital Asset is a capital asset that is held for more than 36 months before the date of its transfer. Long-term Capital Gains means capital gain arising from the transfer of long-term capital asset. 39
Pension is a periodical payment received by an employee after his/her retirement and is taxed as salary. Perquisite signifies some benefit in addition to the amount that may be legally due by way of contract for the services rendered. Previous Year means the financial year in which income earned is referred to as the previous year. It also means the financial year immediately preceding the assessment year. Recognized Provident Fund is a fund, which is recognized by the Commissioner of Income Tax in accordance with the rules contained in Part A of the Fourth Schedule of the Income Tax Act. Short-term Capital Gain means capital gain arising on the transfer of a short-term capital asset.
16.8 SUGGESTED READINGS/REFERENCE MATERIAL

Dr. Singhania, V.K. and Dr. Kapil Singhania. Direct Taxes Law and Practice. 40th ed. New Delhi: Taxmann Publications Pvt. Ltd., 2008. Dr. Singhania, V.K. and Dr. Monica Singhania. Students Guide to Income Tax. 39th ed. New Delhi: Taxmann Publications Pvt. Ltd., 2008. Dr. Singhania, V.K. and Dr. Monica Singhania. Direct Taxes Planning and Management. 11th Ed. New Delhi: Taxmann Publications Pvt. Ltd., 2007. Girish Ahuja, and Ravi Gupta. Direct Tax Laws and Practice. 17th Ed. New Delhi: Bharat Law House Pvt. Ltd., 2008.
16.9 SUGGESTED ANSWERS Self-Assessment Questions 1

a. b. The Income Tax Act, 1961 extends to whole of India. It came into on 1st April 1962. According to Section 2(9), assessment year means the period of 12 months starting from April 1 of every year and ending on March 31 of the next year. Hence period from Jan 1st to December 31st cannot be considered as assessment year. Mr. X tax liability is Income Up to Rs.1,50,000 Rs.1,50,001 Rs.3,00,000 Rs.3,00,001 Rs.4,50,000 Cess @3% Tax Rates Nil 10% 20% Total Nil 15,000 30,000 45,000 1,350 46,350
c.
Self-Assessment Questions 2
a. In the case of employees covered under Payment of Gratuity Act, 1972, the amount is limited to 15 days salary, actual gratuity received or Rs.3,50,000 whichever is less. Hence the monetary limit specified is Rs.3,50,000. 50 percent of salary in case the residential house is situated at Mumbai, Delhi, Kolkata, and Chennai. For the above purpose Reasonably expected rent means municipal valuation or fair rent, whichever is higher subject to a maximum of standard rent under Rent Control Act. In the case of Mr. Naidus let out Property though the fair value is Rs.1,10,000, reasonable rent will be limited to Rs.95,000 (standard rent under Rent Control Act).
b. c.
40
Direct Taxes
a. House property held by X from March 10, 2006 to June 6, 2008 i.e., for 26 months and 27 days is a short-term asset because the minimum period for which it should be held to be a long-term asset is 36 months. b. Any sum paid on account of any tax levied on the profits or gains of any business or profession is expressely disallowed as deduction under section 40(a). So, Rs.42,500 cannot be allowed as deduction. c. Sale consideration Rs.75,00,000 Less: Expenses on transfer (Rs.50,000) Less: Indexed cost of acquisition (Rs.37,83,000) (6,50,000 x 582/100) Long-term capital gains Rs.36,67,000.
a. Deduction under Section 80GG is least of the following: i. ii. Rs.2,000 per month = Rs.24,000 per annum. 25% of total income (excluding long-term capital gains) i.e., Rs.2,30,000 x 25% = Rs.57,500. iii. Excess of rent paid over 10% of total income (excluding long-term capital gains) = (Rs.3,500 x 12) (Rs.2,30,000 x 10%) = Rs.19,000. Hence, deduction under Section 80GG is Rs.19,000. b. Ms. Latha can claim deduction of Rs.42,000 paid towards interest on loan under Section 80E. Principle amount repaid on loan taken for education cannot be claimed under Section 80E. Rs.15,000 or 33 1/3% of income in the nature of family pension under Section 57(iia) whichever is less. Since the amount of Rs.15,000 is less than 33.33% of Rs.1,00,000. Hence Rs.15,000 is allowed as deduction under the head of income from other sources to Ms. Sheela.
c.
a. Any building or land appurtenant thereto hereinafter referred to as house, whether used for residential or commercial purposes or for the purpose of maintaining a guest house or otherwise including a farm house situated within twenty five kilometers from local limits of any municipality whether known as municipality, municipal corporation or by any other name or a cantonment board, but does not include any house for residential or commercial purposes which forms part of stock-in-trade. The value of property is to be included in the net wealth of the husband Geet and not in Geetas. Value of assets acquired by him out of money referred to in (i) and (iv) within one year prior to the date of his return to India. Hence, in the above case the value of the house will not be included as part of net wealth.
b. c.
41
16.10 TERMINAL QUESTIONS

A. Multiple Choice 1. Standard deduction under the head House property is: a. b. c. d. e. 2. 30% of gross annual value 30% of net annual value 33 1/3% of gross annual value 33 1/3% of net annual value 25% of income from house property.
According to Section 2(13), Business means: a. b. c. d. e. Trade Commerce Manufacture Adventure or concern in the nature of trade, commerce or manufacture All of the above.
3.
Which of the following is not treated as a capital asset for the purpose of capital gains? a. b. c. d. e. Land and Buildings Plant and Machinery Goodwill of a Business Rural agricultural land in India Jewelry.
4.
Identify the contribution which is not allowed as deduction under Section 80G? a. b. c. d. e. Interest on deposit with state housing board. Donations given to national defense fund. Donations given from non-taxable income. Both (b) and (c) of the above. Both (a) and (c) of the above.
5.
Which of the following is not an asset u/s 2(ea) of The Wealth Tax Act, 1957? a. b. c. d. e. A commercial complex. A residential house. Jewelry. Cash in hand Rs.60,000. All of the above.
B. Descriptive 1. 2. 3. What is an allowance? Briefly explain the taxability of various allowances under the head Income from Salaries. What is a capital asset? What are the two kinds of capital assets? What are the assets exempt from wealth tax?
These questions will help you to understand the unit better. These are for your practice only.
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Direct Taxes
Annexure
DIRECT TAXES CODE BILL HIGHLIGHTS K.RAVI, BA, LLB, FCA, Chairman, Central Taxes Committee, FKCCI The Honourable Finance Minister released the draft Direct Taxes Code and the Discussion paper on 12th August 2009. An attempt has been made to simplify the language to enable better comprehension and to remove ambiguity to foster voluntary compliance. 1. PRELIMINARY This Code shall be called the Direct Taxes Code, 2009 It extends to the whole of India. It shall come into force on the 1st day of April, 2011; i.e. Financial Year 2011-12.
2. BASIS OF CHARGE Residential Status: Only status of Non Resident and Resident of India exists. The other status of resident but not ordinarily resident has been removed. Total Income: Total Income to include income of any other person. Total Income to include income of spouse, minor child etc. Also, the total income for a financial year of any person shall not include any of the income.
3. COMPUTATION OF TOTAL INCOME Classification of Sources of Income: For the purpose of computation of total income of any person for any financial year, income from all sources shall be classified into : a. Income from Special sources are given no deduction and what is earned is taxed directly. The steps for computation of income from special sources are as under: Step 1: Compute the income in respect of each of these special sources in accordance with the provisions of the Fourth Schedule. The income so computed with respect to each of such special sources shall be called current income from the special source. Step 2: Aggregate the current income from the special source with the unabsorbed loss from that special source at the end of the immediate preceding the financial year, if any. The result of such aggregation shall be the gross income from the special source. If the result of aggregation is a loss, the gross total income from the special source shall be nil and the loss will be treated as the unabsorbed current loss from the special source, at the end of the financial year. The gross total income from the special source shall be computed with respect to each of the special sources. Step 3: The gross total income from all such special sources and the result, of this addition shall be the total income from special sources. b. Income from Ordinary sources are divided into further categories, namely: 1. 2. 3. Income from employment (Presently called Salaries) Income from House Property Income from Business 43
4. 5.
Capital gains Income from Residuary Sources (Presently called other sources).
The steps for computation of income from ordinary sources are as under: Step 1: Compute the income in respect of each of these sources. This could either be income or loss (negative income). For example, if a person carries on several businesses, the income from each and every such business will have to be separately computed. Step 2: Aggregate the income from all the sources falling within a head to arrive at a figure of income assessable under that particular head. The result of such computation may be a profit or loss under that head. The aforesaid two steps will be followed to compute the income under each head. Step 3: Aggregate the income under all the heads to arrive at the current income from ordinary sources. Step 4: Aggregate the current income with the unabsorbed loss at the end of the immediate preceding financial year, if any, to arrive at the gross total income from ordinary sources. If the result of aggregation is a loss, the gross total income from ordinary sources shall be nil and the loss will be treated as the unabsorbed current loss from ordinary sources at the end of the financial year. Step 5: Gross total income from ordinary sources, so arrived, will be further reduced by incentives in accordance with sub-chapter I of Chapter III. The resultant amount will be total income from ordinary sources. Amount not Deductible where Tax is not Deducted at Source: Any amount on which tax is deductible at source under Chapter XI during the financial year shall not be allowed as a deduction in computing the total income if: a. b. the tax has not been deducted during the financial year; or the tax, after such deduction, has not been paid during the financial year, or in the subsequent year, before the expiry of the time prescribed under sub section (1) of Section 198. However, the provision of sub section (1) shall not apply, if the tax has been deducted during the last quarter of the financial year and the tax is paid before the due date of filing the return of tax bases. 4. INCOME FROM EMPLOYMENT Income from employment will be the gross salary on due or receipt basis, whichever is earlier including value of perquisites and profits in lieu of salary as reduced by the aggregate amount of the following permissible deduction: a. b. c. d. e. f. g. 44 Professional Tax paid; Transport Allowance to the extent prescribed; Prescribed Special Allowance or benefit to meet expenses wholly and exclusively incurred in the performance of duties, to the extent actually incurred; Compensation under Voluntary Retirement Scheme Amount of gratuity received on retirement or death; Amount received on commutation of Pension; and Pension received by gallantry awardees.
Direct Taxes
The value of rent free accommodation will be determined for all employees in the same manner as is presently determined in the case of employees in the private sector. All perquisites to be included in Salary Income. There is no deduction on HRA and medical reimbursement.
5. INCOME FROM HOUSE PROPERTY Income from house property, which is not occupied for the purpose of any business or profession by its owner, will be taxed under the head Income from house property. The income from property shall include income from the letting of any buildings along with any machinery, plant, furniture or any other facility if the letting of such building is inseparable from the letting of the machinery, plant, furniture or facility. No deduction in respect of municipal taxes and interest for self occupied house whose gross rent is taken as Nil. Only Let out properties are considered and the Gross rent and specified deductions are allowed. The Income from house property shall be the gross rent less specified deductions. The following deduction will be admissible against the gross rent:a. b. c. Amount of taxes levied by a local authority and tax on services, if actually paid. Twenty per cent of the gross rent towards repairs and maintenance Amount of any interest payable on capital borrowed for the purpose of acquiring, constructing, repairing, renewing or re-constructing the property.
6. INCOME FROM BUSINESS Every business will constitute a separate source and, therefore, income will be computed separately for each business. A business will be treated as distinct and separate from another business if there is no interlacing or independence or unity embracing the two businesses. The computation of income from business under the Code will be based on the income-expenses model where the taxable income under this head will be equal to gross income minus allowance deductions. Indefinite carry forward of business losses to be allowed.
7. CAPITAL GAINS Income from transactions in all investment assets (i.e. any capital asset other than business capital asset) will be computed under the head Capital Gains. The present distinction between short term investment asset and long term investment asset on the basis of the length of holding of the asset will be eliminated. The Securities Transaction Tax will be abolished. Therefore, all capital gains (loss) arising from the transfer of equity shares in a company or units of an equity oriented fund will form part of the computation process.
8. INCOME FROM RESIDUARY SOURCES The gross residuary income will comprise of any income which does not from part of any other head of income. Any amount exceeding Rs.20,000 taken or accepted or repaid as loan or deposit otherwise than by account payee cheque or draft shall be deemed to be income from residuary sources and taxed accordingly. 45
Any sum received under Life Insurance Policy, including any bonus, shall be exempt from Income Tax, provided it is a pure life insurance policy (i.e. the premium payable for any of the years during the terms of the policy does not exceed 5 percent of the capital sum assured). Consequently, in all other cases, the sum received under the policy, including any bonus, will be taxed as income from residuary sources.
9. EET METHOD OF TAXING SAVINGS The Code proposes to introduce the Exempt-Exempt-Taxation method of taxation of savings. Only new contributions on or after the commencement of this Code will be subject to the EET method of taxation. An individual or HUF will also be allowed deduction for amount paid towards tuition fees for children. The aggregate amount of deduction for payment into the account maintained with any permitted savings intermediary and for tuition fees shall not exceed Rs. 3 Lakhs.
10. TAX INCENTIVES Major Deductions applicable under the Tax Incentives for an individual are: a. b. c. d. e. f. g. h. Investments through PFRDA approved agencies Payment of tuition fees Medical treatment Health insurance Donations Interest on loan taken for higher education Maintenance of a disabled dependant Interest income on Government Bonds.
Earlier terms Deductions under Chapter VI A will be treated as Tax incentives. Medical treatment, higher education loan interest, donation and rent paid by selfemployed individual are deductible. New provision comes for Handicapped individuals to get deductions upto Rs.75,000.
11. TAXATION OF COMPANIES Dividend Distribution Tax (DDT) to be retained. Dividends which suffered DDT to be tax-free in shareholders hands. The Code provides for Minimum Alternate Tax calculated with reference to the value of the gross assets. The shift in the MAT base from book profits to gross assets will encourage optimal utilization of the assets and thereby increase efficiency. The rate of MAT will be 0.25 percent of the value of gross assets in the case of banking companies and 2 percent of the value of gross assets in the case of all other companies. Under the code, MAT will be a final tax. Hence, it will not be allowed to be carried forward for claiming tax credit in subsequent years.
12. WEALTH TAX The Code proposes to tax net wealth in the following manner: 46 Wealth-tax will be payable by an individual, HUF and private discretionary trusts. Wealth-tax will be levied on net wealth on the valuation date i.e. the last day of the financial year.
Direct Taxes
Net Wealth will be defined as assets chargeable to wealth-tax as reduced by the debt owed in respect of such assets. The net wealth of an individual or HUF in excess of Rs. 50 Crores will be chargeable to wealth tax at the rate of 0.25 per cent. The threshold limit of Rs. 50 Crores will not apply to a private discretionary trust.
13. NEW TAX RATES FOR INDIVIDUALS In the case of every individual, other than women and senior citizen: Slab 1 2 3 4 Income Between 0 - 1.60 Lakhs 1.60 Lakhs to 10 Lakhs 10 Lakhs to 25 Lakhs Above 25 Lakhs Tax Rate 0% 10% 20% 30%
In the case of woman below the age of sixty five years at any time during the financial year: Slab 1 2 3 4 Income Between 0 - 1.90 Lakhs 1.90 Lakhs to 10 Lakhs 10 Lakhs to 25 Lakhs Above 25 Lakhs Tax Rate 0% 10% 20% 30%
In the case of senior citizens: Slab 1 2 3 4 Income Between 0 - 2.40 Lakhs 2.40 Lakhs to 10 Lakhs 10 Lakhs to 25 Lakhs Above 25 Lakhs Tax Rate 0% 10% 20% 30%
14. DUE DATE FOR FILING RETURNS OF TAX BASES Sl. No 1 2 Type Non-Business / Non-Corporate Others Date 30th June 31st August First Filing (under Direct Taxes Code) 30/06/2012 31/08/2012
15. OTHERS The terms previous year and assessment year has been replaced with financial year to eliminate confusion. Income for the purposes of this Code will, in general, include all accruals and receipts of revenue and capital nature unless otherwise specified. Taxation for non-profit organizations rationalized. Mutual Funds, Venture capital funds, Life Insurance Companies to be treated as pass-thru entities.
47
Earlier Income Tax Act and Wealth tax Act (Covering Income Tax, TDS, DDT, FBT and Wealth taxes) are abolished and single code of Tax, DTC in place. Only status of Non Resident and Resident of India exists. The other status of resident but not ordinarily resident has been removed. Earlier the terminology of assessee was meant for the person who is paying tax and/or, who is liable for proceeding under the Act. Now it has been added with 2 more definitions namely a person, whom the amount is refundable, and/or, who voluntarily files tax return irrespective of tax liability. This helps any person to file his returns and maintain the record of tax return filing. No changes in the system of Advance Tax, Self Assessment Tax and also TDS. Amendment of TDS goes in line with earlier Notification 31/2009 which speaks of Form 17/UTN/etc. In TDS, a new return, if found required, will be introduced for Non TDS payments. Government assessee is covered in Direct Tax Code. Even though they are not liable for Income Tax/Wealth Tax, Government Assessees are required to Comply with provision of TDS and TCS. (Current act was not covered with Government Assessees). General anti-avoidance rule introduced to combat tax avoidance. Amalgamation and demerger provisions rationalized to allow for tax neutral business reorganization.
Conclusion To conclude, this code is broadly welcomed by the industry and the trade. However, there are reactions on some points which are shown below: Tax on interest on overseas borrowing is a negative factor and it may discourage leveraging and reduce investment. The proposal to apply MAT on Gross assets instead of book profit has come under heavy criticism from industry because it is not a tax on income, which direct tax should ideally be, but a tax on capital or assets. Also, because it is value of gross assets, even loss making companies have to pay MAT. MAT at 2% of gross assets is a very high rate. The issue of MAT on financial companies has also come under criticism because while MAT in the code for the Banking sector is set at 0.25%, it is at 2% for the NBFCs (Non Banking Finance Companies). Comments/feedback on the Direct Tax may be sent to FKCCI at dsm@fkcci.in Source: Federation of Karnataka Chambers of Commerce and Industry, Bangalore, India. www.fkcci.org/highlights_draft_direct09.pdf
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UNIT 17 INDIRECT TAXES

Structure
17.1 17.2 17.3 Introduction Objectives Central Excise 17.3.1 Chargeability of Duty 17.3.2 Valuation of Excise Goods 17.3.3 Central Excise Procedures 17.3.4 Latest Amendments in Central Excise Act 17.4 Customs Duty 17.4.1 Nature of Duty 17.4.2 Valuation as per Customs Act 17.4.3 Dutiable Goods (Section 12) 17.4.4 Procedures for Import and Export of Goods 17.4.5 Current Developments 17.5 Service Tax 17.5.1 Chargeability 17.5.2 Valuation of Taxable Services (Section 67) 17.5.3 Service Tax Procedures 17.6 Value Added Tax (VAT) 17.6.1 Liability under VAT 17.6.2 VAT Procedures 17.6.3 Current Developments 17.7 17.8 17.9 Summary Glossary Suggested Readings/Reference Material
17.10 Suggested Answers 17.11 Terminal Questions
17.1 INTRODUCTION
As discussed in our earlier unit, the tax system in India has two important components. One is Direct taxes and the other one is Indirect taxes. In our earlier unit, we have briefly discussed the important provisions under the Income Tax Act, 1961 and provisions under the Wealth Tax Act, 1957. Both these fall under the Direct tax category. In this unit, we shall discuss the important provisions of indirect tax. Indirect taxes are levied on a transaction and paid by a person by virtue of his involvement in such transaction. The most important indirect taxes are the excise tax levied on the manufacturers, sales tax levied on the sale of goods, service tax levied on rendering of services, value added tax, a comprehensive tax levied on all sorts of transactions at retail,
wholesale or manufacturers level. In this unit, we shall discuss a few important provisions pertaining to the Central Excise Act, 1944, the Sales Tax Act, 1935, the Customs Act, 1962, Value Added Tax and Service Tax.
17.2 OBJECTIVES
After going through the unit, you should be able to: State the need, applicability and the various types of excise duties; State the methodology for the valuation of excisable goods and the procedural aspects pertaining to central excise; Classify the various types of customs duties; State the important provisions pertaining to exemption and valuation of goods for the purpose of customs duty; State the methodology for the valuation of services; Discuss the procedural aspects pertaining to service tax; and Discuss the important provisions under value added tax system.
17.3 CENTRAL EXCISE

Central excise is the duty that is collected on a product that is manufactured or produced in India. It comes under indirect taxes as it is collected from the manufacturers or producers of the goods. It is levied on every product that is manufactured or produced, irrespective of its sale/realization of value. It is a duty that is levied on excisable goods that are manufactured/produced in India. The levy of excise is connected only to the manufacture/production of goods and is unrelated to the sale/realization of sale proceeds of goods. It is governed by the Central Excise Act, 1944. APPLICABILITY OF CENTRAL EXCISE The power to levy central excise duties lies with the Central Government. Excise duties are levied uniformly throughout the country and the duty rates/structure are governed through the Tariff/Budget notifications. The Central Government is vested with the power to levy excise duty by virtue of Entry 84, List I, Schedule VII of the Constitution of India. However, the Central Government has no power to impose duty on: Alcoholic liquors for human consumption; and Opium, Indian hemp and other narcotic drugs.
As alcoholic liquors, opium and other narcotic drugs found place in the States list, they are eliminated from the Central Governments list. TYPES OF EXCISE DUTIES a. b. Basic duty. Special duty of excise.
Basic Excise Duty: Basic excise duty (also termed as Cenvat as per Section 2A of CEA added with effect from 12-5-2000) is levied at the rates specified in First Schedule to Central Excise Tariff Act. Special Duty of Excise: Some commodities like pan masala, cars etc., are leviable with special duty which [Section 3(1)(b) of CEA] is levied at the rates specified in Second Schedule to Central Excise Tariff Act. 50
Indirect Taxes
Excise Duty in case of Clearances by EOU: The EOU are expected to export all their production. However, if they clear their final product in DTA (Domestic Tariff Area), the rate of excise duty will be equal to customs duty on like article if imported into India. [proviso to Section 3(1)]. Note that even if rate of customs duty is considered for payment of duty, actually the duty paid by them is Central Excise Duty. The rate of customs duty is taken only as a measure. The EOU can sell part of their final products in India at 50% of customs duty or normal excise duty in certain cases. National Calamity Contingent Duty: A National Calamity Contingent Duty (NCCD) has been imposed vide Section 136 of Finance Act, 2001. This duty is imposed on pan masala, chewing tobacco and cigarettes. It varies from 10% to 45%. Duties under Other Acts: Some duties and cesses are levied on manufactured products under other Acts. The administrative machinery of central excise is used to collect those taxes. Provisions of Central Excise Act and Rules have been made applicable for levy and collection of these duties/cesses. Additional Duty on Goods of Special Importance: Some goods of special importance are levied Additional Excise under Additional Duties of Excise (Goods of Special Importance) Act, 1957. Additional Duty on Textile Articles: Additional excise duty on certain textile and textile articles like articles of silk/wool/cotton, man-made filaments, metallized yarn etc., is imposed under Additional Duties of Excise (Textiles and Textile Articles) Act, 1978. Duty on Medical and Toilet Preparations: A duty of excise is imposed on medical preparations under Medical and Toilet Preparations (Excise Duties) Act, 1955. Additional Duty on Mineral Products: Additional Duty on mineral products (like motor spirit, kerosene, diesel and furnace oil) is payable under mineral products (Additional Duties of Excise and Customs) Act, 1958. Other Cesses: Cesses of excise duties are leviable on certain specified commodities under various Acts. The products covered are, jute, automobile, sugar, vegetable oil, etc.
17.3.1 Chargeability of Duty

Section 3(1) of the Act states that They shall be levied and collected in such manner as may be prescribed. a. Duty of excise on all excisable goods which are produced or manufactured in India as, and at the rates, set forth in the first schedule to the Central Excise Tariff Act, 1985. A special duty of excise, in addition to the duty of excise specified in clause (a) above on excisable goods specified in the second schedule to the Central Excise Tariff Act, 1985 which are produced or manufactured in India as and at the rates set forth in the second schedule.
b.
It is clear from Section 3(1) that in order to attract excise duty, the following conditions need to be fulfilled: a. b. c. There should be goods; Such goods should be excisable goods; and Such goods should have been produced or manufactured in India. 51
GOODS The Central Excise Act does not define the term goods. However, we shall look into the meaning of goods as defined in the constitution and the Sale of Goods Act. The Constitution defines goods in Article 366(12) as goods includes all materials, commodities and articles. Under the Sale of Goods Act, goods have been defined as meaning every kind of movable property (other than actionable claims and money) including crops, grass and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale. Basically, goods are classified into excisable goods and exempted goods for the purpose of considering for levying excise duty. Depending upon the case laws and judicial interpretations, goods for the purposes of levy of excise duty must satisfy two preconditions their movability and marketability. Movability: The goods must be movable. Thus, immovable property or property attached to earth is not goods and hence duty cannot be levied on it. Various case laws have reiterated that the word manufacture or production is associated with being movable. On the other hand, immovable property like a building is constructed and not manufactured or produced. For levying the excise duty the goods must fulfill the following conditions: i. ii. iii. there should be goods; such goods should be excisable goods; and such goods should have been produced or manufactured in India.
Marketability: The item must be such that it is capable of being bought or sold. This is the test of Marketability. The goods must be known in the market. Unless this test of marketability is satisfied, duty cannot be levied as these will not be goods. This is also termed as Vendibility Test. In a famous case, it was held that to become goods an article must be something which can ordinarily come to market to be bought and sold.
EXCISABLE GOODS Having discussed the importance of goods being movable and marketable, let us now try to understand the concept of excisable goods. Section 2(d) of the Central Excise Act, 1944 defines excisable goods as goods specified in the schedule to the Central Excise Tariff, Act 1985 as being subject to a duty of excise. It can thus be held that all those goods which are specified in the Tariff Schedule are excisable goods. However, the question arises as to whether those goods which are exempted from duty by a notification, but find a place in the tariff schedule are excisable goods. The Allahabad Court held that goods exempted from duty were meant to be removed from the Tariff Schedule and hence could not be treated as excisable goods. Differing with this view, the Delhi, Andhra Pradesh and the Madras High Courts held that fully exempted goods continued to be excisable goods. However, it was the Apex Court decision in Wallace Flour Mills Limited vs. C.C.E (1989), which put to rest this controversy. The Supreme Court held that even fully exempted goods are excisable goods and will be liable to duty in case the exemption is withdrawn any time after manufacture but before the removal of goods. 52
Indirect Taxes
MANUFACTURE AND MANUFACTURER Once it is proved that the subject matter that comes up for assessment is excisable goods, the question of manufacture arises. This is because as per Section 3, excise duty can be levied on excisable goods that are manufactured or produced in India. Section 2(f) of the Act defines manufacture to include any process: a. b. Incidental or ancillary to the completion of a manufactured product; and Which is specified in relation to any goods in the section or chapter notes of the Schedule to the Central Excise Tariff Act, 1985, as amounting to manufacture.
Section 2(f) goes further and states that manufacturer, shall be construed accordingly and shall include not only a person who employs hired labor in the production or manufacture of excisable goods but also any person who is engaged in the production or manufacture on his own account. The inclusion of point (b) (as indicated above) in the definition of manufacture as given by Section 2(f) took effect from 28.2.1986. Thus, the new definition has conferred legal sanction upon deemed manufacture as well. Points to be Noted i. Where a process is interlinked or connected to the manufacture of the final product it will be said to be incidental or ancillary to the completion of the product. Such a process will amount to manufacture no matter how inessential it is. On the other hand where a process is not connected to the manufacture of the final product it cannot be termed as incidental or ancillary. The definition of manufacture as given by Section 2(f) would also mean that manufacture can take place even at an intermediate stage provided the intermediate product has a distinct character and is commercially identifiable as a different product. In Khandelwal Metal & Engineering Works vs. Union of India, the Supreme Court held that notwithstanding that waste and scrap arose as intermediate products, chargeability to duty would arise if the waste/scrap was marketable. Thus, waste/scrap would be chargeable to duty if it is marketable and is included in the tariff. The phrase incidental and ancillary activities as contained in Section 2(f) also includes packing activities. Packing is essential to put the final product in a deliverable state. Even for the purpose of accounting in the statutory excise records, goods in a packed state are taken into consideration. In other words, it is packing which renders the final product marketable and hence the activity of packing can be construed as manufacture.
ii.
iii.
iv.
CENTRAL EXCISE TARIFF ACT (CETA) The excise duty payable on excisable goods is dependent on the rate of duty that is indicated in the Tariff. The classification of goods assumes significance when it is necessary to determine the rate applicable to a particular good. This would involve identifying the headings and sub-headings of the Tariff under which the said goods are covered. Classification is also important when eligibility to exemptions needs to be determined. Prior to 28th February, 1986, the duty was charged at rates indicated by the First Schedule to the Central Excise Act, 1944. The Tariff Schedule was removed from the Act. Subsequently since it led to lot of complication. In its place a new Tariff Schedule based on the Harmonized System of Nomenclature (HSN) was brought into force under an independent enactment called the Central Excise Tariff Act, 1985. 53
Features of the New Tariff One of the distinguishing features of the new tariff is that it adopts the principles of classifying all goods of a kind, beginning with the raw materials and ending with the finished products within the same chapter. The new tariff is designed to group all goods relating to the same industry and all goods obtained from the same raw material under one chapter in a progressive manner. The Central Excise Tariff Schedule consists of 96 Chapters, grouped into twenty sections. Each of these sections relate to a broad class of goods. Each section has been divided into various chapters and each chapter contains goods of a particular class. Each chapter has been further divided into various headings, depending upon the different types of goods belonging to the same class of products.
17.3.2 Valuation of Excisable Goods

BASIS OF CALCULATION OF DUTY PAYABLE Excise duty is payable on one of the following basis: a. b. c. d. Specific duty. Duty as % of tariff value fixed under Section 3(2). Duty based on maximum retail price. Duty as % based on assessable value fixed under Section 4 (ad valorem duty).
Specific Duty It is the duty payable on the basis of certain unit like weight, length, volume, thickness etc. For example, duty on Cigarette is payable on the basis of length of the Cigarette, duty on sugar is based on per kg. basis etc. The calculation of duty payable is comparatively simple and easy. However, the disadvantage is that even if selling price of the product increases, revenue earned by Government does not increase correspondingly. Frequent revision of rates have to be done, which is a slow and time consuming process. Presently, specific duties are in vogue for: a. b. c. d. e. f. Cigarettes (length basis), Matches (per 100 boxes/packs), Sugar (per quintal basis), Marble slabs and tiles (square meter basis), Color TV when MRP is not marked on the package or when MRP is not the sole consideration (on the basis of screen size in cms.), Molasses resulting from extraction of sugar (per ton basis).
Tariff Value In some cases, tariff value is fixed by Government from time to time. This is a Notional Value for purpose of calculating the duty payable. Once Tariff Value for a commodity is fixed, duty is payable as percentage of this Tariff Value. Value based on Retail Sale Price Section 4A of The Central Excise Act, 1944, empowers Central Government to specify goods on which duty will be payable based on retail sale price. The provisions are as follows: i. The goods should be covered under provisions of Standards of Weights and Measures Act.
54
Indirect Taxes
ii.
Central Government can permit reasonable abatement (deductions) from the retail sale price. While allowing such abatement, Central Government shall take into account excise duty, sales tax and other taxes payable on the goods. If more than one retail sale price is printed on the same packing, the maximum of such retail price will be considered. The retail sale price should be the maximum price at which excisable goods in packaged forms are sold to ultimate consumer. It includes all taxes, freight, transport charges, commission payable to dealers and all charges towards advertisement, delivery, packing, forwarding charges etc. Central Government has to issue a notification in Official Gazette specifying the commodities for which the provision is applicable and the abatements permissible.
iii. iv.
v.
Ad valorem Duty Central Excise is payable on the basis of value. This is called ad valorem duty. The assessable value is arrived at on the basis of Section 4 of the Central Excise Act and duty is payable on the basis of such value. TRANSACTION VALUE SECTION 4 As per the new Section 4, excise duty is payable on the basis of transaction value, if the goods are sold at the factory gate to an unrelated buyer when price is the sole consideration. If these requirements are not satisfied, valuation will be done as per Valuation Rules. Under Section 4(3)(d), Transaction Value means the price actually paid or payable for the goods, when sold, and includes in addition to the amount charged as price, any amount that the buyer is liable to pay to, or on behalf of, the assessee, by reason of, or in connection with the sale, whether payable at the time of the sale or at any other time, including but not limited to, any amount charged for, or to make provision for, advertising or publicity, marketing and selling organization expenses, storage, outward handling, servicing, warranty, commission or any other matter; but does not include the amount of duty of excise, sales tax and other taxes, if any, actually paid or actually payable on such goods. INCLUSIONS IN TRANSACTION VALUE Packing Charges: Cost of normal packing will be covered, if it is in connection with or in respect of sales. In Union of India vs. Godfrey Philips Limited (1985), it was held that only that packing which was essential to put the goods in a marketable state would be included in the assessable value. Warranty Charges: If any assessee recovers warranty charges for any goods in a particular transaction, the warranty charges so recovered will be included in the transaction value for such goods, for the purpose of payment of duty. Advertisement Charges: If an assessee recovers advertising charges or publicity charges from his buyers, or the dealer incurs any expenditure on advertising or publicity of goods on behalf of the assessee, either at the time of sale of goods or even subsequently, such charges or expenditure would be included in the transaction value. EXCLUSIONS FROM TRANSACTION VALUE Excise Duties, Sales Taxes and other Levies: Section 4(3)(d)(ii) states that the transaction value in relation to any excisable goods does not include the amount of the duty of excise, sales tax and other taxes, if any, payable on such goods. Trade Discounts: A trade discount refers to a deduction from the regular catalogue price allowed by a manufacturer to a dealer. As per Section 4(3)(d)(ii), trade discount will be permitted as a deduction from the assessable value provided it is allowed in accordance with normal practice, and is not refundable. 55
Quantity Discounts: It is not essential that a trade discount should always be in the form of money. It can also be in the shape of goods. It is similar to a money discount as it has the effect of reducing the price charged to the buyer. A quantity discount is an acceptable form of discount and should be deducted from the assessable value. Cash Discounts: A cash discount refers to a deduction given in the price charged to the buyer when 100% payment is made in cash at the time of taking delivery. On the other hand a prompt payment discount is one where the buyer gets a reduction in the price, provided payment is made within a specified period. Freight Charges: Where, in relation to any excisable goods the price thereof for delivery at the place of removal is not known and the value thereof is determined with reference to the price for delivery at a place other than the place of removal, the cost of transportation from the place of removal to the place of delivery shall be excluded from such price [Section 4(2)]. Loading and Unloading Charges: Where loading and unloading charges are incurred by the manufacturer outside the place of removal of the goods, such charges will be reduced from the price to ascertain the assessable value. However, if such charges are incurred prior to the removal of goods from the factory premises, no deduction can be claimed. Depot and Other Expenses: Depot expenses are in no way connected with manufacture and hence such expenses are not included in the assessable value. TIME AND PLACE OF REMOVAL The term place of removal is defined by Section 4(4)(b). Prior to the amendment made by the Finance (No.2) Act, 1996, place of removal was the factory or the warehouse. However, it now includes a depot, premises of a consignment agent or any other place or premises from where the excisable goods are to be sold after clearance from the factory. Thus the ex-factory price or the factory gate wholesale price is the basis for determining the assessable value. RELATED PERSONS Where excisable goods are sold to related persons, the price at which such goods are sold will not be considered as the assessable value. A related person is one who is so associated with the assessee that they have interest directly or indirectly in the business of each other. A related person is of an inclusive nature and includes the following within the category of related person: a. b. c. d. Holding company. Subsidiary company. A relative and a distributor. A sub-distributor.
PRICE BEING THE SOLE CONSIDERATION FOR THE SALE It should be noted that even though the assessee and the buyer are not related persons, the price charged may not be acceptable as assessable value if it is not the sole consideration for the sale. DETERMINATION OF ASSESSABLE VALUE WHEN SECTION 4(1)(A) IS NOT APPLICABLE When the assessable value is not capable of being ascertained under Section 4, then it should be determined as Central Excise Valuation Rules, 2000. Thus, the valuation rules will come into force if the selling price is not acceptable as the assessable value or where there is no selling price (i.e., goods have been captively consumed). 56
Indirect Taxes
Given below is an extract of the Valuation Rules: Explanation to Rules 4 to 11 Rule 4 The value of the excisable goods shall be based on the value of such goods sold by the assessee for delivery at any other time nearest to the time of the removal of goods under assessment, subject, if necessary, to such adjustment on account of the difference in the dates of delivery of such goods and of the excisable goods under assessment, as may appear reasonable to the proper officer. Rule 5 Section 4 provides that where the goods are sold from the place of removal (factory gate), the actual price charged by the manufacturer to the buyer for such sale for each removal of goods shall form the assessable value of the goods (Transaction Value). However, where the goods are sold from a place other than the factory gate, then the price charged to the buyer shall be considered as the value of the goods (Transaction Value). Rule 6 This rule states that when the price is not the sole consideration for sale, the value of such goods shall be deemed to be the aggregate of such transaction value and the amount of money value of any additional consideration flowing directly or indirectly from the buyer to the assessee. This implies that where any additional consideration is flowing directly or indirectly from the buyer to the assessee over and above the price charged by the assessee for such sale, the money value of such additional consideration shall be added, to the transaction value to arrive at the value on which duty is charged. There is also an explanation to the above rule, which provides that where goods and services have been provided by the buyer either free of cost or at a reduced cost, for use in connection with the production and sale of such goods, an appropriate apportioned value of such goods and services provided by him to the manufacturer shall be treated to be the amount of money value of additional consideration flowing directly or indirectly, in relation to the sale of excisable goods. Rule 7 When the goods are sold through depot, there is no sale at the time of removal from the factory. In such cases, the price prevailing at the depot, at the time of removal from the factory shall be the basis of assessable value. The assessable value for the purpose of duty shall be the normal transaction value of such goods sold from the depot at the time of removal or at the nearest time of removal from the factory. Rule 8 This rule deals with a situation where the excisable goods are used for captive consumption. Captive consumption means goods are not sold but consumed within the factory. Where the goods are not sold but are used within the factory, the valuation shall be done on the basis of the cost of production plus fifteen percent. This rule may also be applied when the goods are sold to related persons and where the goods are not sold but are consumed for captive consumption by such related person in his factory, then as per Rule 8, the valuation shall be done on the cost of production or manufacture plus 15%. 57
Rule 9 The above rule deals with a situation where the excisable goods are sold by the assessee to or through related persons. The price at which such related persons make the sale to an independent buyer will be the Assessable Value. In case where such goods are sold by such related person to another person who is related to him, the normal transaction value of the goods at which the goods are sold by such related person to an independent buyer shall be the Assessable Value. Rule 10 This rule provides that where the goods are sold by the assessee to an interconnected undertaking, the assessable value of such goods shall be the normal transaction value of such goods sold by the said interconnected undertaking. However, where the interconnected undertaking is related in a manner they have interest, directly or indirectly in the business of each other, then the value shall be determined as prescribed in Rule 9. Rule 11 This rule states that if assessment is not possible under any of the foregoing rules, it will be done using reasonable means consistent with the principles and general provisions of these rules and sub-section (1) of Section 4 of the Act. For example, there are certain situations such as in the case: a. b. c. d. e. Of job-work. Where the assessee makes the sale partly to related persons and partly to others. When inputs or capital goods are cleared from factory but there was no sale. For any other purpose to another unit for further manufacture, for the purpose of supply under warranty claims, for repairs or for any other reason. Where goods are produced on behalf of the loan license holder.
No method of valuation has been provided either under the above rules and the provisions of sub-section (1) of Section 4, then in all such cases the valuation can be done under Rule 11. EXEMPTION FROM EXCISE DUTY The introduction of Section 5A in the Central Excise Act, 1944 has empowered the government to reduce the rates of duty from what the statutory rates are. This power will thus originate from a statutory provision itself and not from a rule. The Central Government is authorized to exempt any excisable goods from the whole of the excise duty prescribed or from a part of it. Such power is conferred upon it by Section 5A(1). Where the whole of the duty is exempted, it is referred to as total exemption, while in the latter case, it is referred to as partial exemption. The exemptions given may be either specific exemptions or general exemptions. Where goods falling under a particular heading in the tariff and attracting a specific rate of duty are given relief, such exemption is known as specific exemption. On the other hand a general exemption is that exemption whose coverage extends to goods falling in several chapters in the tariff. Exemptions (whether specific or general) may be either straight or conditional exemptions. Where no conditions are attached to the availment of the exemption, it is known as straight exemption. Where certain conditions need to be fulfilled before the exemption can be availed, such exemption is known as a conditional exemption. 58
Indirect Taxes
17.3.3 Central Excise Procedures

The Central Excise Rules, 1944 contained all provisions pertaining to all the aspects of procedures. These procedures prescribed under the Central Excise Rules, 1944, have considerably been simplified. New rules with effect from 1.3.2002 were framed to replace the earlier rules. CENTRAL EXCISE RULES, 2002 Some procedures are basic, which every assessee is required to follow. Besides, some procedures are required to be followed as and when required. Basic Procedures i. Every person who produces or manufactures excisable goods, is required to get registered, unless exempted. [Rule 9 of the Central Excise Rules, 2002]. If there is any change in information supplied in form A-1, the same should be supplied in form A-1. ii. iii. Manufacturer is required to maintain the Daily Stock Account (DSA) of goods manufactured, cleared and in stock. [Rule 10 of the Central Excise Rules, 2002]. Goods must be cleared under the invoice of assessee, duly authenticated by the owner or his authorized agent. In case of cigarettes, invoice should be countersigned by the Excise Officer. [Rule 11 of the Central Excise Rules, 2002]. iv. Duty is payable on monthly basis through TR-6 challan/CENVAT credit. [Rule 8]. Manufacturers of matches have to pay duty by affixing the Central Excise Stamps. [Rules 13 and 14 of the Central Excise Rules, 2002]. v. CENVAT records and return by 5th of the following month [CENVAT Credit Rules, 2001]. vi. Monthly return in form ER-1 should be filed by 10th of the following month. [Rule 17(3) of the Central Excise Rules, 2002] [EOU/EPZ/STP units to file return in form ER-2]. vii. Every assessee is required to submit a list in duplicate of records maintained in respect of the transactions of receipt, purchase, sales or delivery of goods including inputs and capital goods [Rule 22(2)]. viii. Inform the change in boundary of premises, address, name of authorized person, change in name of partners, directors or Managing Director in form A-1. These are the core procedures which each assessee has to follow: Procedures which are not Routine a. Export without payment of duty or under claim of rebate [Rules 18 and 19 of the Central Excise Rules, 2002]. b. Receipt of goods for repairs/reconditioning [Rule 16 of the Central Excise Rules, 2002]. c. d. e. f. g. Receipt of goods at concessional rate of duty for manufacture of excisable goods. Payment of duty under the compounded levy scheme. Provisional assessment [Rule 7 of the Central Excise Rules, 2002]. Warehousing of goods. Appeals and settlement. 59
Following changes have been made in Central Excise Rules, 2002 w.e.f. 1-3-2007: i. Payment of Amount by 5th /15th of Following Month: An explanation has been inserted in Rule 8 to provide that for the purposes of this rule, the expressions duty or duty of excise shall also include the amount payable in terms of the CENVAT Credit Rules, 2004. Therefore, all amount payable like payment under Rule 6(3) of the CENVAT Credit Rules, 2004 etc., can be paid along with duty payable by 5th or 15th of the next month. Mandatory E-payment if Annual Excise Duty Exceeds Rs.50 Lakh: Rule 8 has been amended to make e-payment mandatory for payment of duty by all assessees who have paid excise duty of Rs.50 lakh or more in cash during the preceding financial year. This provision would come into effect from 01-04-2007. iii. Invoice to Contain Address of Jurisdictional Central Excise Division: Rule 11(2) has been amended to provide that the invoice shall also contain address of the jurisdictional Central Excise Division to be a legally valid document. This change will come into force from 01.04.2007. iv. Powers of Granting Remission of Duty Enhanced: Powers of granting remission from duty under Rule 21 of Central Excise Rules has been enhanced. Quantum of Remission Less than Rs.10,000 Authority to Grant Remission Superintendent (present limit is Rs.1,000). Between Rs.10,000 and Rs.1,00,000 Deputy Commissioner (present limit Rs.2,500).
ii.
Between Rs.1,00,000 and Rs.5,00,000 Joint/Additional Commissioner (present limit Rs.5,000). Exceeds Rs.5,00,000 v. Commissioner.
Penalty Provisions: Minimum penalty has been reduced from Rs.10,000 to Rs.2,000. Rule 26(2) has been inserted to provide for penal action against the person who issues CENVAT invoices without delivery of goods mentioned therein and also against the person who is involved in fabricating Central Excise documents or any other document like shipping bill, bill of lading, etc., based on which the user of said document is likely to take or has taken any ineligible benefits like CENVAT credit, refund, etc.
vi.
Chief Commissioner can Transfer case to another Commissioner: Notification 11/2007-CE(NT) dated 1-3-2007 empowers Chief Commissioner of Central Excise to transfer any case for adjudication to another Commissioner. It is not necessary that another Commissioner should be within his jurisdiction.
CENVAT CREDIT RULES, 2004 Highlights of CENVAT Scheme are as follows: Credit of Duty Paid on Input The CENVAT scheme is principally based on the system of granting credit of duty paid on inputs and input services. Under CENVAT, a manufacturer has to pay duty as per normal procedure on the basis of Assessable Value (which is mainly based on selling price). However, he gets credit of duty paid on inputs and input services. 60
Indirect Taxes
Inputs Eligible for CENVAT Credit will be available for duty paid on: a. b. c. d. Raw materials (excluding few items). Material used in relation to manufacture like consumables, etc. Packaging materials. Paints.
Inputs should be used in or in Relation to Manufacture CENVAT credit is available only on inputs used in or in relation to the manufacture of a final product. Input may be used Directly or Indirectly The input may be used directly or indirectly in or in relation to manufacture. The input need not be present in the final product. No Credit on Hsd and Petrol Duty paid on high speed diesel, light diesel oil and motor spirit (petrol) is not available as CENVAT credit, even if these are used as raw materials. No Credit if Final Product is Exempt from Duty No credit is available if the final product is exempt from duty or final service is exempt from service tax Rule 6(1) of CENVAT Credit Rules, 2002 [earlier, Rule 57AD(1)]. If a manufacturer manufactures more than one product, it may happen that some of the products are exempt from duty. In such cases, duty paid on inputs used for manufacture of exempted products cannot be used for payment of duty on other products which are not exempt from duty. However, if the manufacturer uses common inputs both for exempted as well as unexempted goods, he has to pay an amount of 10% of the price of exempted goods. Credit on the basis of Specified Documents Credit is to be availed only on the basis of specified documents as proof of payment of duty on inputs or tax on input services. Credit Available Instantly Credit of duty on inputs can be taken up instantly, i.e., as soon as inputs reach the factory. In case of capital goods, 50% credit is available in the current year and balance 50% in the subsequent financial year. In case of input services, credit is available only after the amount of bill is paid to the person who provided the service. No Cash Refund In some cases, it may happen that duty paid on inputs may be more than duty payable on final products. In such cases, though the CENVAT credit will be available to the manufacturer, he cannot use the same and the same will lapse. There is no provision for refund of the excess CENVAT credit. However, the only exception is in case of exports where duty paid on input material used for exported goods is refundable. Other exception is tribunal can order, when CENVAT credit cannot be availed due to fault/wrong action of the department. 61
One to One Correlation not Required CENVAT rules do not require input-output correlation to be established. CENVAT on Capital Goods Credit of duty paid on machinery, plant, spare parts of machinery, tools, dies, etc., is available. 50% credit is available in the current year and the balance 50% in the subsequent financial year. CENVAT available only if there is Manufacture CENVAT on inputs or input services is available only if the process amounts to manufacture. Otherwise, CENVAT is not available. [In fact, in such cases, no duty is payable on the final product and the question of CENVAT does not arise at all]. CENVAT Credit is Indefeasible In CCE vs. Dai Ichi Karkaria Ltd. 1999 (112), it was held that CENVAT credit validly taken is indefeasible. It was also observed that correlation between the final product and raw materials is not required in the CENVAT scheme. OTHER PROVISIONS PERTAINING TO CENTRAL EXCISE ARE CONTAINED IN Central Excise (Appeal) Rules, 2001. Central Excise (Settlement of Cases) Rules, 2001. Central Excise (Removal of Goods & Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2001.
17.3.4 Latest Amendments in Central Excise Act

The Central Government has amended the Central Excise Act, 1944 through the Finance Bill, 2005. The following are the major changes: Changes with Respect to SSI: Increase in Limit for Determining Eligibility for the Exemption: With effect from 1.04.2005, the value of clearances in the preceding financial year, for determining eligibility for the exemption, is increased to Rs.4 crore from Rs.3 crore. Exemption Withdrawn: With effect from 1.4.2005, exemption scheme of concessional rate of 60% of normal rate with CENVAT credit up to clearances of Rs.1 crore has been withdrawn. Declaration required by SSI: Small Scale Industrial units whose turnover exceeds Rs.40 lakh per annum have to give a declaration in prescribed form. Insertion of Rule 12AA: Rule 12AA has been inserted after Rule 12 vide Notification No. 12/2005 CE (N.T.), dated 01.03.2005 to prescribe a special procedure for this purpose. Under this procedure, the duty liability, accountability and responsibility for complying with the excise procedures would be on the person who gets the articles of jewelry manufactured on job-work. The job-worker, however, at his option, can also undertake to comply with the excise law and pay duty. 62
Indirect Taxes
Self-Assessment Questions 1 a. The Central Government would like to impose excise duty on alcoholic liquor for household consumption. Can they do? Justify. .. .. .. b. Mr. Pradeep a manufacturer of iron and steel rods is of the opinion that steel scrap is not chargeable to excise duty. Is he correct? Justify. .. .. .. c. Duty on cigarette is payable on the basis of length of the cigarette and not on the value. What class of duties does this fall under? .. .. ..
17.4 CUSTOMS DUTY

Customs duty is another part of the indirect taxes. This duty is collected by the Central Government on every product that is exported or imported from India. This duty is governed by the Customs Act, 1962. This duty is levied as a percentage on the assessed value of the product that is exported or imported from India. Customs duty is applicable equally to all over India at the time of importing or exporting the goods in India. Customs duty is applicable on transporting of goods by land, air and water, including the Indian Territorial Waters. Indian Territorial Waters spread around 12 nautical miles from the sea coast of India. The jurisdiction of the Customs authorities extends up to border of Indian waters. If they found any illegal transit is going on, the authorities have powers to search, confiscate, arrest and even shoot out the vessel if it is not stopped. RESTRICTIONS ON IMPORTS AND EXPORTS Section 11 of the Customs Act, 1962 gives power to the Central Government to prohibit import or export of goods of specified description, by notification in the Official Gazette, for certain purposes. The purposes for which such prohibitions can be made are provided in sub-section (2) of Section 11 of the Act, which are as follows: a. b. c. d. e. f. The maintenance of the security of India; The maintenance of public order and standards of decency or morality; The prevention of smuggling; The prevention of shortages of goods of any description; The conservation of foreign exchange and safe-guarding of balance of payments; The prevention of injury to the economy of the country by the uncontrolled import or export of gold or silver; 63
g. h. i. j. k. l. m. n. o. p. q. r. s.
The prevention of surplus of any agricultural product or fisheries; The maintenance of standards for the classification, grading or marketing of goods in international trade; The establishment of any industry; The prevention of serious injury to domestic production of goods of any description; The protection of human, animal or plant life or health; The protection of national treasures of artistic, historic or archaeological value; The conservation of exhaustible natural resources; The protection of deceptive practices; The carrying on of foreign trade in any goods by the State, by a corporation owned or controlled by the State to the exclusion, complete or partial, of the citizens of India; The fulfillment of obligations under the Charter of the United Nations for the maintenance of international peace and security; The implementation of any treaty, agreement or convention with any country; The compliance of imported goods with any laws which are applicable to similar goods produced or manufactured in India; The prevention of dissemination of documents containing any matter which is likely to prejudicially affect friendly relations with any foreign state or is derogatory to national prestige; The prevention of the contravention of any law for the time being in force; and Any other purpose conducive to the interest of the general public.
t. u.
17.4.1 Nature of Duty

It is a complete code that provides machinery for dealing effectively with the problems relating to levy and collection of duties. The rapid development of science and technology and the consequent industrial development and expansion of manufacturing as well as trading activities necessitated further reform and legislation. Thus the Customs Tariff Act, 1975 passed the recommendations of the Tariff Revision Committee in favor of adoption of Harmonized System of Nomenclature (HSN) to keep pace with the changing pattern of international trade. It contains two Schedules. Schedule I gives classification of goods and rates of duty as to imports, while Schedule II is concerned with classification of goods and rates of duty in case of exports. The objective of levying customs duty is: To restrict imports to preserve foreign exchange. To protect Indian Industry from undue competition. To prohibit imports and exports of goods for achieving the policy objectives of the Government. To regulate exports. To co-ordinate legal provisions with other laws dealing with foreign exchange such as Foreign Trade (Development & Regulation) Act, Foreign Exchange Management Act, Conservation of Foreign Exchange Prevention of Smuggling Act, etc.
64
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TYPES OF CUSTOMS DUTIES The following are the various types of duties that are levied during importation and exportation of goods: Basic Customs Duty This is the duty levied under Section 12 of Customs Act, 1962. Normally, it is levied as a percentage of value as determined under Section 14(1). Peak rate of duty on most non-agricultural products has been reduced from 12.5% to 10% w.e.f. 1-3-2007. Additional Customs Duty (CVD) This is often called Countervailing Duty (CVD). Additional duty is levied under Section 3(1) of Customs Tariff Act. This duty is imposed when excisable articles are imported, in order to counter balance the excise duty, which is leviable on similar goods if manufactured within the State. Protective Duties If the Tariff Commission recommends and Central Government is satisfied that immediate action is necessary to protect interests of Indian industry, protective customs duty at the rate recommended may be imposed under Section 6 of Customs Tariff Act. Countervailing Duty on Subsidized Goods If a country pays any subsidy (directly or indirectly) to its exporters for exporting goods to India, Central Government can impose Countervailing duty upto the amount of such subsidy under Section 9 of Customs Tariff Act. Anti-Dumping Duty on Dumped Articles Often, large manufacturer from abroad may export goods at very low prices compared to prices in his domestic market. Such dumping may be with intention to cripple domestic industry or to dispose of their excess stock. This is called dumping. In order to avoid such dumping, Central Government can impose, under Section 9A of Customs Tariff Act, antidumping duty upto margin of dumping on such articles, if the goods are being sold at less than its normal value. Levy of such anti-dumping duty is permissible as per WTO agreement. Anti-dumping action can be taken only when there is an Indian industry producing like articles. Safeguard Duty Central Government is empowered to impose safeguard duty on specified imported goods if Central Government is satisfied that the goods are being imported in large quantities and under such conditions that they are causing or threatening to cause serious injury to domestic industry. With effect from 11-5-2002, specific safeguard duty imposed on the goods imported from Peoples Republic of China by inserting Section 8C to Customs Tariff Act. NCCD of Customs A National Calamity Contingent Duty (NCCD) of customs has been imposed from 2003 on pan masala, chewing tobacco and cigarettes and 1% on PFY, motor cars, multi-utility vehicles and two wheelers. NCCD of Rs.50 per ton is imposed on domestic crude oil. NCCD is calculated same as CVD. 65
Export Duty Export duty of 15% is levied only on hides, skins and leather, and duty of 10% is levied on snakeskins, hides, skins and leathers, and fur lambskins. There is no export duty on any other product. It is charged on very few items. It can be refunded if, a. b. c. goods are re-imported within one year, the goods returned are not re-sale, and refund claim is lodged within six months from date of clearance by customs officer for re-importation.
17.4.2 Valuation as per Customs Act

For the purpose of Customs Act, Customs duty is generally payable as a percentage of Assessable Value. The value may be either (a) Value as defined under Section 14(1) of Customs Act or (b) Tariff Value prescribed under Section 14(2) of Customs Act. Tariff Value: Tariff Value is generally set by the CBE&C in case of any imported goods and export goods. Government should take into consideration the trend of value of such goods or like goods before fixing the tariff value. Fixing tariff value is not in convergence with the GATT convention, hence it is used very rarely. Customs Value [Section 14(1)] According to Section 14(1), the following are the main criteria for fixing the value for the purpose of customs duty: i. ii. iii. iv. v. vi. The Price at which such or like goods are ordinarily sold or offered for sale. The terms of the price should be for delivery at the time and place of importation or exportation, as the case may be. The sale or offer for sale should be in the course of international trade. There should be no mutuality of interest between the seller and the buyer. Price should be the sole consideration for sale or offer for sale. Rate of exchange as on the date of presentation of bill of entry as fixed by CBE&C (Board) by notification should be considered.
The above mentioned elements may be better understood with the help of the explanation given below: i. Price of such or like Goods: The price of such or like goods means the price of identical or similar goods. If the price of relevant goods are not available, prices of identical goods can be considered provided the sale should be at substantially same quantity, imported from the same country to India, sold at about the same time and produced by the same manufacturer. Goods should be Ordinarily Sold at that Price: Goods should be ordinarily sold at that price as per Section 14(1). Any abnormal discounts or reduction from ordinary competitive price or special discounts limited to exclusive agents cannot be accepted. Price Offered for Sale can be Considered: In case a sale price is not available, the offer for sale price may be construed as the basis for determining the assessable value. For example, in case a price list is available, such price list is the quotation as well. Price should be for Delivery at the Place and Time of Importation: Price at the place of importation does not mean that only expenses till goods enter Indian Customs Waters should be included but all expenses upto the destination port including freight, insurance, unloading and handling charges are to be included. Time of importation means price prevalent on the date of importation is relevant and not the date of contract.
ii.
iii.
iv.
66
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v.
Price should be in the Course of International Trade: In Satellite Engineering Limited vs. Union of India (1983). It was held that the price indicated in the two quotations were in the course of international trade and hence that rate will form the basis for determining the assessable value. There should not be Mutuality of Interest between the Buyer and the Seller: As per Section 14(1) as amended w.e.f. 11-5-2002, transaction value can be accepted if (a) Seller and buyer do not have interest in business of each other or (b) One of them has no interest in the other.
vi.
vii. Price being the Sole Consideration: Price should be the sole consideration for sale. If there is other consideration, it should be added to the transaction value. viii. Rate of Exchange for Valuation: Exchange rate as applicable on the date of presentation of bill of entry should be considered. These rates are prescribed periodically by CBE&C (Board) by way of a notification. ix. WTO Valuation Agreement: General Agreement on Tariff and Trade (GATT) was a global forum for discussion on custom and other related problems in order to create conducive environment to world trade. At the present there is no GATT and it is replaced by World Trade Organization (WTO). GATT Valuation Code was formed to set a common code for valuation to provide for greater certainty and utility. As per the WTO valuation agreement, the transaction value is considered as the yard stick. The transaction value involves the price at which the goods are sold.
CUSTOMS VALUATION RULES, 1988 Valuation in Customs Act is done as per the Customs Valuation Rules of 1988. The foundations for these rules are from WTO Valuation Agreement previously which was known as GATT Valuation Code. The applicability of these rules is only for valuation of imported goods and not in case of export goods. Transaction Value or the price at which the goods are actually sold is key benchmark under the WTO valuation agreement. Let us discuss these rules in the following section: Rule 4: Transaction Value: Transaction value is the price actually paid or payable for the goods sold for export in India after the adjustment provided in Rule 9. It is not mandatory that the payment should be in money and it may be by way of letter of credit or negotiable instrument. The payment can be direct or indirect. Eight circumstances under which transaction value can be accepted. a. b. c. d. The sale must be in the ordinary course of trade under fully competitive conditions. There should not be any abnormal discount or reduction from the ordinary competitive price. There should not be any special discount limited to exclusive agents. Transaction value under Rule 4 should be adjusted according to Rule 9 for such adjustments; there should be objective and quantifiable data. So if there is no reliable data for adjustment under Rule 9, the transaction value has to be rejected. There should not be any restriction on the disposition or use of the goods by the user. It means there should not be any condition for the sale. The sale price or the sale should not be subject to any condition or consideration whose value cannot be determined. For instance, the price quoted is with a condition that the buyer should buy some other goods in specific quantity. Any part of the money realised by the buyer by way of sale, disposing or using the goods shall accrue to the seller. This condition will not apply if the benefit enjoyed by the seller is quantifiable and the adjustments as per Rule 9 are made. 67
e. f.
g.
h.
The seller and buyer should not be related. If their relationship did not make any influence on the price, then transaction value can be accepted. However, if the relationship between buyer and seller does not make any influence on the price, then transaction value can be accepted.
Rule 5: Transaction Value of Identical Goods Rule 5 of Customs Valuation Rules provide that if valuation on the basis of Transaction Value is not possible, the Assessable Value will be decided on basis of transaction value of identical goods sold for export to India and imported at or about the same time, subject to making necessary adjustments. The identical goods considered for consideration should be at same commercial level and in substantially the same quantity as the imported goods are valued. In applying this rule, if more than one transaction value of identical goods is found, the lowest of such value shall be used to determine the value of imported goods. Rule 6: Transaction Value of Similar Goods Subject to the provisions of Rule 3 of these rules, the value of imported goods shall be the transaction value of similar goods sold for export to India and imported at or about the same time as the goods being valued. Rule 2(1)(e) defines similar goods as alike in all respects, have like characteristics and like components and perform same functions. The major distinction between identical goods and similar goods is that the identical goods should be same in all respects, except for minor differences in appearance, while in case of similar goods, it is enough if they possess like characteristics and like components and perform same functions. Rule 7: Deductive Value Rule 7 of Customs Valuation Rules deals with the deductive value. This method should be applied if transaction value of identical goods or similar goods is not available; but these products are sold in India. The assumption made in this method is that identical or similar imported goods are sold in India and its selling price in India is available. Under this method the value is arrived by inference. It starts with the price at which the importer sells the goods locally in the highest aggregate quantity. The deductions should be made from this price are, commission paid or payable, additions made for profit and general expenses and customs duty and sales tax payable in India. This method involves a reverse calculation which starts from sale point to import point. Rule 7A: Computed Value This rule is applied when the Rules 4, 5, 6, and 7 is tried and exhausted. Computation under this rule starts with the cost of production of imported goods in the country of export. The method will start with the raw material and the cost of processing in the manufacturing of imported goods is added. The profit and general expenses are added as usual in the country of exportation to India. The additions will be as for the same class or kind of goods in that country. Then additions as per Rule 9 are made. The result of this computation will be the value of imported goods. Rule 8: Residual Method This is the sixth method and it is also called fall back method. Sub-rule(1) of this rule provides that the value shall be determined by using reasonable means which are consistent with the principles and general provisions of these rules and Section 14 and on the basis of data available in India. The rule also provides items which should not be considered to arrive at best judgement price. 68
Indirect Taxes
Rule 9: Cost of Services According to Rule 9, there are provisions for adding some costs and services which are incurred by the buyer and not included in the price actually paid or payable by the buyer in the price of imported goods. These costs include, commissions and brokerages, costs of containers, cost of packing, and proportional value of goods and services directly or indirectly by the buyer free of charge at a reduced cost which is connected with the production and sale for export of imported goods to the extent that such value has not been included in the price actually paid or payable. Rule 10: Declaration by the Importer The importer or his agent shall furnish a. b. A declaration disclosing full and accurate details relating to the value of imported goods; and 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 producer as considered necessary by the proper officer for determination of the value of imported goods under these rules.
Rule 10-A: Rejection of Declared Value If the proper officer feels that the declaration made under Rule 10 are hard to believe, he can reject it as not appropriate in the determination of transaction value under Rule 4. The rejection mentioned in shall be after show cause notice. At the request of an importer, the proper officer, shall intimate the importer in writing the grounds for doubting the truth or accuracy of the value declared in relation to goods imported by such importer and provide a reasonable opportunity of being heard, before taking a final decision. Rule 11: Settlement of Disputes In case of dispute between the importer and the proper officer of customs valuing the goods, the same shall be resolved consistent with the provisions contained in Sub-section (1) of Section 14 of the Customs Act, 1962.
17.4.3 Dutiable Goods (Section 12)

Section 12(1) of Customs Act is the charging section, which provides duty on imports as well as exports. The liability to pay duty on dutiable goods will be attracted the moment the goods touch the land mass in India. If the goods are ordered to be confiscated, the goods will not be liable to duty. The rate of duty is as prescribed in Customs Tariff Act 1975, read with relevant exemption notifications. Customs duty is also payable by government. Thus there is no exemption to goods imported by government. However, various exemption notification have been issued and imports by Indian Navy, specific equipments required by police, ministry of defense, costal guards etc., are fully exempt from custom duty. Payment of customs duty may be exempted in the following cases: Duty on Pilfered Goods (Section 13): As per this Section if any goods are pilfered after the unloading thereof and before the proper officer has made an order for clearance for home consumption or deposit in a warehouse, the importer shall not be liable to pay the duty leviable on such goods except where such goods are restored to the importer after pilferage. Goods Derelict, Wreck, etc. (Section 21): All goods, derelict, jetsam, flotsam and wreck brought or coming into India, shall be dealt with as if they were imported into India, unless it be shown to the satisfaction of the proper officer that they are entitled to be admitted duty free under this Act. 69
The term derelict refers to any property, whether vessel or cargo, left or abandoned in the open sea by persons incharge of it without any hope of recovering or intention of returning to it. Jetsam is where the goods are thrown into the sea with a view to lighten the ship in order to prevent it from sinking. Flotsam is where the goods having been at sea in a ship, are separated from it by some peril. Wreck refers to the property cast ashore within the ebb and flow of the tide after shipwreck. Abatement of Duty on Damaged or Deteriorated Goods (Section 22): Where it is shown to the satisfaction of the Assistant Collector of Customs that any imported goods had been damaged or had deteriorated at any time before or during the unloading of the goods in India; or that any imported goods, other than warehoused goods, had been damaged at any time after the unloading thereof in India but before their examination not due to any willful act, negligence or default of the importer, his employee or agent; or that any warehoused goods have been damaged at any time before clearance for home consumption. Duty to be charged on such goods shall bear the same proportion to the duty chargeable on the goods before the damage or deterioration which the value of the damaged or deteriorated goods bear to the value of the goods before the damage or deterioration. Remission of Duty on Lost, Destroyed or Abandoned Goods (Section 23): Without prejudice to the provisions of Section 13, where it is shown to the satisfaction of the Assistant Collector of Customs that any imported goods have been lost otherwise than as a result of pilferage or destroyed at any time before clearance for home consumption, the Assistant Collector shall remit the duty on such goods. The owner of any imported goods may, at any time before an order for clearance of goods for home consumption under Section 17 or an order for permitting the deposit of goods in a warehouse under Section 60 has been made, relinquish his title to the goods and thereupon he shall not be liable to pay the duty thereon. Denaturing or Mutilation of Goods (Section 24): There are instances where goods when imported in the condition they are in, attract a higher rate of duty. However, the same goods could be charged with a lower rate of duty in case their nature is different (i.e. if they are either denatured or mutilated). Section 24 permits change in the form of such goods to the other form and charging of lower rate of duty on such goods. This process may be carried out only on a request by the owner. EXEMPTION FROM CUSTOMS DUTY As per sub-section (1) of Section 25, the Central Government can provide a general exemption to all imports of specified goods subject to the following norms: i. ii. iii. iv. v. 70 The exemption, if granted, should be in public interest; Exemption from duty may be granted wholly or partially; Exemption may either be conditional or unconditional; Exemption should be in respect of goods of specified description; and Exemption should be granted by issue of a notification in the Official Gazette.
Indirect Taxes
Apart from the power to grant a general exemption, the Central Government also has power to grant ad hoc exemption in each individual case. While granting this exemption, the following conditions should be fulfilled: a. b. Circumstances should be of an exceptional nature. The circumstances should be stated in the exemption order.
Also, the Central Government cannot only reduce the rate of duty, but can also modify the form and method of duty. For example, an ad valorem rate may be changed to a specific rate.
17.4.4 Procedures for Import and Export of Goods

PROCEDURES FOR IMPORT OF GOODS The person-in-charge is responsible for following the import or export procedure. According to Section 2(31), person-in-charge means (a) In case of a vessel its master, (b) In case of aircraft its commander or pilot in charge, (c) In case of train its conductor or guard and (d) In case of vehicle or other conveyance its driver or other person in charge. A person-in-charge is responsible for the following: i. Submitting Import or Export Manifest: The person-in-charge of a vessel or aircraft carrying imported goods, is required to deliver to the proper officer of customs, prior to the arrival of the conveyance at a customs station, an import manifest, and in the case of a vehicle, within twelve hours of arrival, an import report. The IM/IR should be delivered within twelve hours after the arrival of the conveyance. Ensure that the conveyance is arriving through the approved route to the approved destination. Ensure that Goods are Unloaded after Written Order at the Proper Place: Except, with the permission of the proper officer no imported goods shall be unloaded, and no export goods shall be loaded, at any place other than a place approved under clause (a) of Section 8 for the unloading or loading of goods. Ensure that Goods are not Sent without the Written Order: The person-in-charge of the conveyance which has brought any imported goods or has loaded any export goods at a customs station shall not cause or permit the conveyance to depart from that customs station until a written order to that effect has been given by the proper officer, and He can be penalized for, (a) Giving false declaration and statement, and (b) Shortages or non-accounting of goods in conveyance.
ii. iii.
iv.
v.
PROCEDURES FOR EXPORT OF GOODS Export procedures are to be followed by the person-in-charge and the exporter. As per this section, the person-in-charge of a conveyance shall not permit the loading at a customs station a. Of export goods, other than baggage and mail bags, unless a shipping bill or bill of export or bill of transhipment, as the case may be, duly passed by the proper officer, has been handed over to him by the exporter; and Of baggage and mail bags, unless their export has been duly permitted by the proper officer. Further, Section 39 stipulates that export goods are not to be loaded on a vessel until the entry outwards is granted by the proper officer: i. Loading of goods can start only after entry outward is granted. Steamer agents can file application for entry outwards 14 days in advance so that intending exporters can start submitting shipping bills. This ensures that formalities are completed as quickly as possible and loading in ship starts quickly. 71
b.
ii.
Export manifest in the prescribed should be submitted before departure. Such manifest is similar to import manifest and can be amended or supplemented with permission, if there is no fraudulent intention. Such report should be declared as true by the person-in-charge signing the export manifest. Along with the export manifest, shipping bill for export by sea or air and bill of export for export by road are to be submitted by the exporter. It should be submitted in quadruplicate. If drawback claim is to be made, one additional copy needs to be filed. This form contains details of the name of the exporter, consignee, invoice number, details of packing, description of goods, quantity, FOB value etc. Customs authorities give serial number to the shipping bill, when it is presented. Exporter also has to prepare other documents like (a) Four copies of commercial invoice (b) Four copies of packing list (c) Certificate of origin or preshipment inspection where required (d) Insurance policy (e) Letter of credit (f) Declaration of value (g) Excise ARE-1/ARE-2 forms as applicable (h) GR/SDF form prescribed by RBI in duplicate (i) Letter showing BIN number. After shipping bill is passed by export department, the goods are presented to appraiser in dock for examination. This inspection is necessary to ensure that prohibited goods are not exported, goods tally with the description and invoice and duty drawback is correctly claimed. Customs Officer on verification of the contents and after he is satisfied that goods are not prohibited for exports and that export duty if applicable is paid, will permit clearance by giving let ship or let export order. Export duty is levied only on some articles, although a cess is levied on export of certain commodities under various acts.
iii.
iv.
v.
vi.
vii. The vessel or aircraft which carry export goods cannot leave that customs station unless a written order is given by Customs Officer. Such order is given only after the submission of the export manifest; shipping bills; duties on stores consumed are paid; no penalty is leviable and export duty is paid. OTHER PROVISIONS i. The provisions relating to goods in transit are contained in Sections 52 to 56 of Chapter VIII. Any goods imported in a vessel or aircraft and mentioned in the import manifest as for transit in the same vessel or aircraft to any port or airport outside India or any customs port or customs airport, may be allowed to be so transited without payment of duty. The provisions relating transshipment of goods is contained in Section 54 of Chapter VIII. Transhipment means transfer from one conveyance to another. Goods imported in any customs station can be transhipped without payment of duty, under Section 54 of Customs Act. Provisions relating to coastal goods and vessels carrying coastal goods are contained in Chapter XII, Sections 91 to 99. Coastal goods means goods transported from one port in India to another port in India, but does not include imported goods. No export or import duty is levied, but control is necessary to ensure that coastal goods are not diverted illegally for export. The provisions relating to warehousing are contained in Chapter IX (Sections 57 to 73). The term warehouse has been defined by Section 2(43). As per this Section Warehouse means a public (bonded) warehouse appointed under Section 57 of the Customs Act or a private (bonded) warehouse licensed under Section 58 of the Customs Act, 1962. A public warehouse is one that is owned and managed by a government body and in most of the cases it is the central warehousing corporation. A private warehouse is one that is licensed in places where there is no public warehouse.
ii.
iii.
iv.
72
Indirect Taxes
v.
Duty drawback refers to the refund/rebate of duties of customs and central excise allowed to the exporter at the time of export which has been paid on imported goods or the indigenous inputs used in the manufacture of export goods. The main objective of duty drawback is to relieve the export goods from the duty burden and reduce the import duty loaded with the export goods. The duty drawbacks help the export goods more competitive in the foreign market. The duty drawback provisions are discussed in Sections 74 and 75 of the Customs Act 1962. The term baggage is defined by Section 2(3) as including unaccompanied baggage but excluding motor vehicles. Baggage includes all dutiable articles and personal effects imported by passenger or a member of a crew in his baggage. It may be accompanied unaccompanied. The baggage does not include motor vehicles, alcoholic drinks and goods imported through courier, articles imported under an import licence for his own use or on behalf of others. Provisions pertaining to baggage are contained in Sections 77 to 80 of the Customs Act, 1962.
vi.
vii. Just like baggage and courier, the import and export can be by post. Sections 82, 83, and 84 deal with the provisions related to postal parcels. viii. The term stores has been defined by Section 2(38) as goods for use in a vessel or aircraft, and includes fuel and spare parts and other articles of equipment, whether or not for immediate fitting. When a vessel enters into the territorial waters of India, the stores will be treated as imported goods and the customs duty will be levied. The provisions related to stores are dealt with in Sections 85 to 90 of the Customs Act, 1962. ix. The provisions relating to search, seizure, arrest and confiscation are contained in Chapter XIII of the Customs Act. These provisions are dealt with in Sections 100 to 110.

CHANGES MADE BY FINANCE ACT, 2007 Presently, the customs value is deemed value. Now it is proposed to change the concept to valuation on basis of transaction value. Customs valuation on basis of transaction value customs proposed Section 14(1) now states that value of imported and export goods will be transaction value of such goods as determined in accordance with Rules. Addition to Transaction Value: Proviso to proposed Section 14(1) states that such transaction value in the case of imported goods shall include, in addition to the price actually paid or payable for the goods when sold for export to India, any amount that the buyer is liable to pay for costs and services, including commissions and brokerage, assists, engineering, design work, royalties and licence fees, costs of transportation to the place of importation, insurance, and handling charges. Rate of Foreign Exchange: Second provision to proposed Section 14(1) states that such price shall be calculated with reference to the rate of exchange as in force on the date on which a bill of entry is presented under Section 46, or a shipping bill or bill of export, as the case may be, is presented under Section 50. The rate of exchange will be determined by CBE&C. Tariff Value: Proposed Section 14(2) empowers CBE&C to fix tariff values of imported goods or export goods by issuing a notification. Valuation Rules if Transaction Value is not Determinable: If transaction value is not determinable, value of the goods will be determined as per valuation rules. 73
Self-Assessment Questions 2 a. The Airlines staff carry a few personal effects in a bag when on duty on International flights. Do such personal effects when carried to India from other countries attract customs duty? .. .. .. b. When applying Rule 5 of Customs Valuation Rules that provide that if valuation on the basis of Transaction Value is not possible, the Assessable Value will be decided on basis of transaction value of identical goods, it was found that there were two identical goods. One with higher value and another with lower value. Which identical good should be selected? .. .. .. c. A ship containing goods was stationed at 8 nautical miles away from Indian sea coast in Indian territorial waters. The customs authorities charge the goods to customs duty. Mr. A the capital and owner of the goods refutes the authorities demand. Is he justified? .. .. ..
17.5 SERVICE TAX

Service tax is a form of indirect tax levied on specified services called taxable services. It is levied on the gross or aggregate value of services provided. As service tax is an indirect tax, though the tax is payable by the service provider it is ordinarily recovered from the recipient of services. If there are no services rendered, then there is no service tax. The provisions relating to service tax were brought into force with effect from 1st July 1994. It extends to whole of India (India includes territorial waters) except the state of Jammu & Kashmir. Administration of service tax has been vested with Central Excise Commissionerates who work directly under the Central Board of Excise and Customs, Department of Revenue, Ministry of Finance, Government of India. Previously the power to levy service tax was exercised by the parliament in terms of entry 97 (a residuary entry) of the union list since there was no specific entry in the union list for levying service tax. Later on as per the recommendations of the various expert committees the seventh schedule to the constitution was amended by introducing in the parliament, the constitution (92nd amendment) Act, 2003. This enabled the parliament to formulate principles for determining the modalities of levying the service tax by the Central Govt. and collection of the proceeds there of by the Central Govt. and the State. As a result of this, entry 92C has been inserted in the Schedule VII to the constitution of India for taxes on services as well as article 270 of the constitution the clause (1) was amended to insert a new article 268A. 74
Indirect Taxes
There is no separate enactment for service tax since it was introduced in 1994. It is still governed by Finance Act, 1994; Finance Act, 2003; Rules; Notifications; Circulars; Orders and Trade Notices.
17.5.1 Chargeability
Service tax shall be levied at the rate of twelve per cent of the value of taxable services provided under section 65(105). A per section 65(105) taxable service shall not only include service provided but also the service to be provided. In addition education cess of 3% is also payable on the service tax. Thus the effective rate of service tax payable will be 12.36%.
17.5.2 Valuation of Taxable Services (Section 67)

The value of taxable service shall be determined as per the provisions made under Section 67 of the Finance Act, read with Service Tax (Determination of Value) Rules, 2006. The provisions of section 67 is discussed below: i. Where the provision of service is for a consideration in money, the value of service shall be the gross amount charged by the service provider for such service provided or to be provided by him. Where the provision of service is for a consideration not wholly or partly consisting of money, be such amount in money, with the addition of service tax charged, is equivalent to the consideration. Where the provision of service is for a consideration which is not ascertainable, the value of such service may be determined as per the provisions of the Service Tax (Determination of Value) Rules, 2006. Where the gross amount charged by a service provider, is inclusive of service tax payable, the value of such taxable service shall be such amount as, with the addition of tax payable, is equal to the gross amount charged. The gross amount charged for the taxable service shall include any amount received towards the taxable service before, during or after provision of such service. consideration includes any amount that is payable for the taxable services provided or to be provided; money includes any currency, cheque, promissory note, letter of credit, draft, pay order, travellers cheque, money order, postal remittance and other similar instruments but does not include currency that is held for its numismatic value; and gross amount charged includes payment by cheque, credit card, deduction from account and any form of payment by issue of credit notes or debit notes and book adjustment.
ii.
iii.
iv.
v.
For the purposes of this section, a. b.
c.
Service Tax (Determination of Value) Rules, 2006 These rules were issued by the Central Government through Notification No.12/2006-ST dated 19-04-2006 and has been given in the Appendix-II.
17.5.3 Service Tax Procedures

1. Registration: Every person liable to pay the service tax shall, within 30 days from the date on which the service tax is levied or within 30 days from the date of commencement of business, whichever is later, make an application in Form ST-1 for registration to the Superintendent of Central Excise. [Section 69(1), Rule 4 of Service Tax Rules, 1994]. 75
2.
The following person or class of persons has been notified through Service Tax (Registration of Special Category of Persons) Rules, 2005 by the Central Government who shall make an application to the jurisdictional Superintendent of Central Excise for registration under Section 69(2). i. ii. The input service distributor shall make an application for registration within a period of 30 days of the commencement of business. Any provider of taxable service whose aggregate value of taxable service in a financial year exceeds Rs.700,000 shall make an application within a period of 30 days of exceeding the aggregate value of taxable service of Rs.700,000.
3.
Payment of Service Tax: Every person providing taxable service to any person shall pay service tax at the rate of 12% of the value of taxable services received and not on the value of taxable services billed to the client. The service tax on the value of taxable services received during a particular month or quarter shall be paid to the credit of the Central Government by the 5th of the month following the said month or the said quarter. However, tax for the month of March is required to be deposited by March 31 in case duty is deposited electronically through internet banking then it has to be paid by the 6th of the month. Due dates for payment of service tax.
Service Tax Payable on Amounts Received During 1st April to 30th April 1st May to 31st May 1st June to 30th June 1st July to 31st July 1st August to 31st August 1st September to 30th September 1st October to 31st October 1st November to 30th November 1st December to 31st December 1st January to 31st January 1st February to 29th February 1st March to 31st March Other Assessees 5th May 5th June 5th July 5th August 5th September 5th October 5th November 5th December 5th January 5th February 5th March 5th April Amount Payable by Individuals, Proprietary Concerns and Partnership Firms 5th July
4.
5th October
5th January
5th April
5.
Return to be Filed: Every person liable to pay the service tax shall himself assess the tax due on the services provided by him and shall submit a half yearly return in Form ST-3 or ST-3A, as the case may be, along with a copy of the Form TR-6, in triplicate for the months covered in the half-yearly return to the Superintendent of Central Excise. A single service tax return should be filed in respect of all taxable services provided by an assessee. Due dates are as follows:
Half Year Ended 1st April to 30th September 1st October to 31st March Return to be Filed by 25th October 25th April
6.
Record to be Maintained: The records including computerized data as maintained by an assessee in accordance with the any other law in force from time to time shall be acceptable for the purpose of service tax. Issuance of Invoices, Bills, Challans, Consignment Notes and other Documents: Every person providing taxable service/input service distributor is required to issue a invoice, bill or challan within 14 days from either the date of completion of such taxable service or receipt of any payment towards the value of such taxable service whichever is earlier.
7.
76
Indirect Taxes
8.
Deposit of Service Tax Collected: Any person who is liable to pay service tax under the provisions of this chapter or the rules made thereunder, and has collected any amount in excess of the service tax assessed or determined and paid on any taxable service under the provisions of this chapter or the rules made thereunder from the recipient of taxable service in any manner as representing service tax, shall forthwith pay the amount so collected to the credit of the Central Government.
EXEMPTION FROM SERVICE TAX As per section 93 of Finance Act, 1994 if it is necessary in the public interest, Central Government can grant partial or total exemption from service tax, by issuing an exemption notification in the Official Gazette. Such exemption may be partial or total, conditional or unconditional. The only limitation is that exemption cannot be granted by Central Government with retrospective effect. The following general exemptions are available to the assessee subject to the conditions specified in the respective notifications: 1. Small service providers whose aggregate value of taxable services is less than Rs.8 lakh in a financial year are exempt from service tax. [Notification No. 4/2007-ST dated 1.3.2007]. If service is exported as per Export of Service Rules 2005, then the services are exempt from service tax. Services provided to UN or International Agencies are exempt from service tax [Notification No. 16/2002-ST dated 2-8-2002 in respect of UN and International Agencies]. Services provided to supplies to SEZ or developer of SEZ are exempt from service tax [Notification No. 4/2004-ST dated 31-3-2004 in respect of SEZ earlier No. 17/2002ST dated 21-11-2002]. All taxable services provided by Reserve Bank of India is exempt from service tax [Notification No. 7/2006-ST dated 1.3.2006]. Service tax is not payable on value of goods and material sold by the service provider to the service recipient. Such exclusion is permissible only if CENVAT credit on such goods and material is not taken [Notification No. 12/2003-ST dated 20.6.2003]. Services provided by a banking company or a financial institution including non-banking financial company or any other body corporate or a commercial concern, to the government of India or government of a state, in relation to collection of any duties or taxes leived by government of India or government of a state, is exempt from tax. With effect from 1st April, 2007, exemption from service tax has been provided to i. ii. Services provided by resident welfare associations to their members, where the monthly contribution does not exceed Rs.3,000 per month. All taxable services provided by Technology Business Incubators (TBI)/Science and Technology Entrepreneurship Parks (STEP), recognized by National Science and Technology Entrepreneurship Board of Department of Science and Technology, also known as incubators. Taxable services upto Rs.50 lakh in a financial year provided by incubatee entrepreneur who is located within the premises of an incubator where the total business turnover of the incubatee entrepreneur does not exceed Rs.50 lakh in a financial year/preceding financial year. Exemption is available to an incubatee for a period of three years w.e.f. the date of signing an agreement with the incubator. 77
2. 3.
4.
5. 6.
7.
8.
iii.
iv.
Technical testing and analysis services provided in relation to testing of newly developed drugs including vaccines and herbal remedies on human participants by a clinical research organization approved to conduct clinical trials by the Drugs Controller General of India. Services provided in relation to delivery of content of cinema in digital form after encryption, electronically.
v. 9.
Apart from above, abatement from the value of taxable services is allowed for certain specified services.
SPECIFIC EXEMPTIONS In case of some services, partial abatement from the value of taxable services is allowed for certain specified services as a result of which, service tax is payable at lower rates, i.e. partial abatement is available from gross value. The lower rate is applicable if the service provider does not avail CENVAT credit of duty/tax on inputs, input services and capital goods. Given below are some important exemptions where partial abatement is available.
Taxable Service Accommodation booking service by tour operator Air Travel Agent Partial Abatement Available 10% of gross amount charged Relevant Notification w.e.f. 1.3.2006 1/2006-ST dated 1-3-2006.
Option to pay service tax at flat rate Rule 6(7). on basic fare @ 0.6% in case of domestic booking and 1.2% in case of international booking Tax on 70% of gross amount if gross 1/2006-ST dated 1-3-2006. amount is inclusive of cost of inputs and input services, whether or not supplied by the client (Is it exemption or punishment?) Tax on 33% of gross amount if gross 1/2006-ST dated 1-3-2006. amount includes value of material Tax on 33% of gross amount if gross 1/2006-ST dated 1-3-2006. amount includes value of material Tax only on 25% amount in his 1/2006-ST dated 1-3-2006. invoice [Payment will be made by consignor/consignee who is actually paying freight] Tax on 60% gross amount charged 1/2006-ST dated 1-3-2006.
Business auxiliary service in relation to processing of parts and accessories used in manufacture of cycle, cycle rickshaws and hand operated sewing machines Commissioning and installation services Construction service Goods Transport Agency (GTA)
Mandap keeper, hotels and convention services, providing full catering services Outdoor caterer Package tours and other than package tour Pandal and shamiana service Rent-a-cab operator
Tax on 50% amount if he provides full 1/2006-ST dated 1-3-2006. and substantial meal Tax is payable only on 40% of gross 1/2006-ST dated 1-3-2006. amount charged 70% of gross amount charged if full 1/2006-ST dated 1-3-2006. catering service provided Tax payable on 40% of gross amount 1/2006-ST dated 1-3-2006. charged
Transport of goods in container by rail Tax payable on 30% of gross amount 1/2006-ST dated 1-3-2006. charged
The exemptions provided above are based on the assumption that service tax is otherwise payable on the value of goods used in providing taxable service. This assumption seems to be of doubtful validity because section 67 makes it clear that tax is payable on gross amount charged for the taxable service. Service tax is not payable on total value of contract. 78
Indirect Taxes
CREDIT OF SERVICE TAX The CENVAT scheme is principally based on system of granting credit of duty paid on inputs, input services and capital goods. The provisions relating to credit of service tax paid on inputs, input services and capital goods are dealt in CENVAT credit Rules, 2004. Duties that can be availed as CENVAT Credit: An output service provider has to charge service tax in his invoice as per normal procedure. However, he can take credit of (a) Excise duty and countervailing customs duty paid on inputs and capital goods, and (b) Service tax paid on input services for payment of service tax on his output services. Similarly the credit of education cess paid on service tax can be utilized only for payment of education cess on final product or output services. Further, no separate registration is required for the purpose of availing CENVAT Credit. Cenvat Credit on Capital Goods: The credit with respect to capital goods can be availed only upto 50% in current year immediately on receipt of capital goods along with relevant documents and balance in subsequent financial year or years. A service provider can take out capital goods from his premises, provided that he brings them back within 180 days. This period can be extended by Assistant/Deputy Commissioner. Utilization of CENVAT Credit: The Cenvat Credit can be utilized for payment of any of following: i. ii. Payment of service tax on output services. Payment of amount if inputs are removed as such or after partial processing [Rule 3(4)(b)]. iii. Payment of [Rule 3(4)(c)]. iv. Payment of amount if goods sent for job work are not returned within 180 days Rule 4(5)(a). Documents prescribed for availment of the CENVAT Credit: The CENVAT credit shall be availed by the manufacturer or the provider of output service or input service distributor, as the case may be, on the basis of an invoice issued by a manufacturer for clearance of inputs or capital goods from his factory or depot. An invoice issued by an importer from his depot or from the premises of the consignment agent or the premise. Invoice issued by a first stage dealer or a second stage dealer; A bill of entry; supplementary invoice or TR-6 challan of payment of tax where service tax is payable by other than input service provider. No Cenvat Credit if Output Service Exempt from Service Tax: As per basic principle of VAT, credit of duty or tax can be availed only for payment of service tax on output services. As a natural corollary, if no duty is payable on final product or output services, credit of duty/tax paid on inputs or input services cannot be availed. No Cash Refund, Except in Case of Exports: In some cases the duty paid on inputs and service tax paid on input services may be more than tax payable on output services. In such cases, though the CENVAT credit will be available to the service provider, he cannot use the same and the same will lapse. There is no provision for refund of the excess CENVAT credit. 79 amount on capital goods if they are removed as such
Self-Assessment Questions 3 a. The due date for payment of service tax in respect of receipt received on December 31, 2008 by a company for rendering of service is? .. .. .. b. An incubatee entrepreneur is located within the premises of an incubator. The total business turnover of the incubatee entrepreneur is Rs.40 lakh in the financial year/preceding 2008-09. Is service tax chargeable on incubate entrepreneur? .. .. .. c. What is the threshold limit provided for exemption under service tax of small service providers? .. .. ..
17.6 VALUE ADDED TAX (VAT)

Value Added Tax, widely known as VAT, is a special type of indirect tax which is imposed on goods and services at each stage of production, starting from raw materials to final product. VAT is levied on the value additions at different stages of production. VAT is the most progressive way of taxing consumption rather than business. Definition of sale under the VAT may include: The conventional sale, i.e., transfer of property in goods. Supply of goods by a society, club, firm and company to its members. Transfer of property in goods involved in execution of works contract. Delivery of any goods on hire purchase or any other system of payment by installments. Transfer of right to use any goods for any purpose, whether or not for a specified period. Supply, by way of or as part of any service or in any other manner whatsoever, of goods being food or any other article for human consumption of any drink (whether or not to intoxicating).
Figure 1: VAT System 80
Indirect Taxes
This indicates that VAT is collected at each stage of production and distribution process and in principle, its burden falls on final consumers only. Thus, it is a broad-based tax covering the value added of each commodity by a firm during all stages of production and distribution. It is the multi-point taxation which levy tax at every time value is added to a product whether by manufacturer or trader with set-off for tax paid on purchases. The tax is collected in installments at each transaction in the production-distribution cycle and does not have cascading (tax on tax). In many respects it is equivalent to a last point sales tax. The advantages of value added tax are: i. No Tax Evasion: Under VAT, credit of tax paid on purchases is allowed against the liability on the final product manufactured or sold. Therefore, unless proper records are kept in respect of various inputs, it is not possible to claim credit. Hence, suppression of purchases or production is difficult as it leads to loss of revenue. ii. Transparency: Under the VAT system, the buyer knows the tax component in the total consideration paid for purchase of material. Thus, the system ensures transparency also. iii. Neutrality: The greatest advantage of the system is that it does not interfere in the choice of decision for purchases. This is because the system has anti-cascading effect. How much value is added and at what stage it is added in the system of production/distribution is of no consequence. The system is neutral with regard to choice of production technique, as well as business organization. iv. Certainty: VAT system is simply based on transactions. Thus, there is no need of complicated definitions like sales, sales price, turnover of purchases and turnover of sales. It is also broad-based and applicable to all sales in business leaving little room for different interpretations. Thus, this system brings certainty to a great extent. v. Better Accounting Systems: Since the tax paid at an earlier stage is to be received back, the system promotes better accounting systems.
17.6.1 Liability under VAT

VAT is tax on value addition to the goods and the essence of VAT is in providing set-off for the tax paid earlier. Therefore the VAT liability of the dealer is the net tax payable by a registered dealer for a tax period. It is the difference between the output tax and the input tax credit, which can be determined from the following formula. Net tax payable = O I Where O denotes the output tax payable for any tax period, and I denotes the input tax paid or payable for the said tax period. The net tax payable by a dealer liable to pay tax but not registered under this Act for a tax period shall be equal to the output tax payable for the said tax period. If the amount calculated above is negative, the same shall be carried forward to the next tax period or periods for adjustment against the output tax payable. 81
TAX RATES There are only two basic rates under VAT namely 4% and 12.5% on goods. 1. 4% Rate 4% rate is levied for the following items: i. ii. iii. iv. v. 2. Goods of basic necessities. Industrial and Agricultural inputs. Declared goods. Capital goods. Drug and medicine.
12.5% Rate For all other goods there will be a general VAT rate of 12.5% as per consensus among the states.
3.
Exceptions Special Rate Gold and silver ornaments and articles thereof, precious and semi-precious stones will have a VAT rate of 1%.
INPUT TAX CREDIT (ITC) One of the distinguishing aspects of VAT from traditional method of levying tax on sales is allowing the registered dealer credit for tax paid on input. The whole concept of VAT is based on the basic principle of levying tax on value added. There are various methods for arriving at the amount of value added by the selling registered dealer. However, the most common method prevailing amongst various countries is tax credit method or invoice method which allows credit for tax paid on the goods purchased from the tax payable on sales consideration. Thus, input tax credit is at the core of VAT System. Input tax credit is an aggregate total amount of tax paid by a registered dealer on the total purchases made by him within the State from other registered dealers (for a particular period); but not eligible in some cases. The input tax credit can be adjusted against the tax payable by the purchasing dealer on his sales. Where the purchased goods are used partially for the purpose of taxable goods and partially for tax free goods, input tax credit shall be allowed proportionately to the extent the purchases are used for the purposes of taxable goods. One of the important conditions for set-off under VAT is that, the set-off on any goods should not exceed the tax received on the same goods in government treasury. That is the dealer will not be entitled to set-off more than the amount received in the government treasury. Therefore the purchasing dealer, desirous of claiming the set-off, should also look into the credentials of the vendor so as to be sure that he will get the set-off of tax paid to him. Because, if the vendor fails to make the payment of tax to the Government, the purchasers claim of set-off will be denied in spite of the fact that he has paid the tax to the vendor. ELIGIBILITY The dealers are not eligible for input tax credit on all inputs. There are certain restrictions and conditions on eligibility of input tax credit. Purchases Eligible for Input Tax Credit Input tax credit shall be allowed for the purchase of goods made within the State from a registered dealer and which are for the purpose of i. ii. 82 sale or re-sale by him within the State; use as inputs in the manufacturing or processing of goods in the State;
Indirect Taxes
iii. iv. v. vi.
use as containers, labels and other materials for packing of goods in the State; use as capital goods in the manufacture of taxable goods; transfer of stock of taxable goods other than by way of sale, to any place outside the State; and sale of goods subject to levy of tax at zero rate under section 18.
Input tax credit on capital goods shall be allowed only after the commencement of commercial production and shall be adjusted against the output tax over a period not exceeding three years. After the expiry of three years, the unavailed input tax credit shall lapse to Government. Input tax credit on purchases intended for the purpose of stock transfer to any place outside the State shall only be allowed in respect of the amount of tax paid or payable in excess of tax @ 4%. Purchases Not Eligible for Input Tax Credit a. b. c. d. e. f. g. h. i. Sale of exempted goods. Purchase of goods from outside the State. Goods purchased in the course of business, but used for personal facility of proprietor, partner or director. Goods damaged in transit. Goods stolen, destroyed or lost. Goods sold in the course of inter-state sale without support of C form. Goods transferred to outside the State for sale either by branch or agent without support of Form F. Goods returned. Goods used for self consumption or as gift.
Exempted Goods i. ii. iii. iv. Natural and Unprocessed products which are in un-organized sector. Items which are legally barred from taxation on sale. Items which have social implications. AED goods, namely sugar, textile and tobacco.
Goods outside VAT Liquor, petrol, diesel, aviation turbine fuel and other motor spirit will remain outside VAT. Those will continue to be taxed under the sales tax act. These commodities will be subjected to tax @ 20% floor rate. Other Goods All other goods including declared goods will be subjected to VAT and will get the benefit of input tax credit. Stock Transfer Inter-state transfers are not considered as sale and they are therefore not subjected to VAT. However the input tax credit will be available after retention of 4% of such tax by the State Government on tax paid on i. ii. inputs used in the manufacture of finished goods which are stock transferred, or purchase of goods which are stock transferred. 83
17.6.2 VAT Procedures

1. Registration: Small dealers whose total turnover in respect of purchase and sales in the State is not less than Rs.10 lakh for a year, other dealers whose total turnover for a year is not less than Rs.5 lakh, casual traders, agent of non-resident dealer and dealers irrespective of quantum of turnover shall obtain registration. If the dealer fails to obtain the registration, then the commissioner may compulsorily register the dealer and assess the tax due from the dealer based on the evidence available with him. Maintenance of Accounts: Every registered dealer shall maintain true, correct and complete account showing the goods produced or manufactured, bought, sold, delivered or supplied. Accounts maintained by a registered dealer shall be preserved by him for a period of five years from the date of assessment. Issue of Invoice: Invoices are crucial documents for administering VAT. In the absence of invoice VAT paid by the dealer earlier cannot be claimed as set-off. Therefore, every registered dealer shall issue invoice for each sale in triplicate showing the particulars of goods and quantity sold with its value, one copy of which must be retained for check by the officials of the commercial taxes department, the original for purchaser and another to be retained by the selling dealer. The invoice shall contain the rate and tax charged, the Taxpayer Identification Number (TIN) of the seller and that of the buyer, in case the buyer is a registered dealer. VAT Account: Every registered dealer, who claims input tax credit shall maintain an input tax adjustment account with details of month, input tax credit brought forward, total input tax credit, output tax, tax payable and other details. Filing of Returns: Every dealer, liable to pay tax under this Act, shall file return monthly/quarterly/annually as per the provisions of the state Act/Rules, in the prescribed form showing the total and taxable turnover within the prescribed period in the prescribed manner, along with proof of payment of tax. Assessment: All the assessments are self-assessments as all returns filed are to be accepted. The dealers need not appear before assessing authority or produce the accounts for annual assessments. The assessing authority shall accept the returns filed by the dealer and pass assessment order after the assessment year is over. Audit: Apart from the routine assessment work, considerable weightage has been placed on audit work. The correctness of self-assessment procedure that is self-determination of tax liability by dealer through periodical returns is checked through a system of departmental audit.
2.
3.
4.
5.
6.
7.

Empowered Committee of State Finance Ministers was set up by the Union Finance Minister to examine all aspects of sales tax reform, including the introduction of VAT. The major recommendations of the committee included i. Simplification of the rate structure the adoption of four general rates (0,4,8,12) and two special floor rates (1 and 20) in place of existing multiple rates levied in different States. Minimization of the Exemptions: Preparing a list of exempt goods and fixing a target date beyond which no State/Union Territory should exempt goods other than those mentioned in the list thereby keeping the exemptions to a minimum. Doing away with sales tax incentives for industrialization. Enhancement of transparency.
ii.
iii. iv. 84
Indirect Taxes
Through repeated discussions and collective efforts of the Empowered Committee within a period of one and a half-year the committee was able to achieve remarkable success in the area of harmonization of sales tax structure through implementation of uniform floor rates of sales tax and discontinuation of sales tax related incentive schemes. After reaching this stage, steps were initiated by the Committee for the systematic preparation for the introduction of state-level VAT. The Empowered Committee of State Finance Ministers with repeated discussions and collective efforts brought out a White paper on 17.01.2005, which provided a base for the preparation of various State VAT legislations. The White paper consists of the following: i. ii. iii. Justification of VAT and background. Design of state-level VAT. Steps taken by the States.
Thus the implementation of VAT is a milestone in the tax reforms process initiated by the Government to make India a competitive global economy. Self-Assessment Questions 4 a. What are the two basic rates under VAT? .. .. .. b. What is the threshold limit for small dealers in a State for registration under VAT? .. .. .. c. What is the VAT rate on gold and silver ornaments? .. .. ..
17.7 SUMMARY
Excise duty is a duty on goods that are indigenously manufactured. It is a duty on manufacture. Section 4 of the Central Excise Act, 1944 provides that the value of the goods for levy of excise duty as the price as determined by the Central Excise Valuation Rules. The CENVAT scheme is principally based on the system of granting credit of duty paid on inputs and input services. A manufacturer will get credit on duty paid on inputs and input services at the time of payment of duty on final products. Section 11 of the Customs Act, 1962 gives power to the Central Government to prohibit import or export of goods of specified description, by notification in the Official Gazette for certain purposes. Duties of Custom shall be levied at such rates as may be specified under the Customs Tariff Act, 1975. 85
Section 25 of the Customs Act, 1962 empowers the Central Government to grant exemption from customs duty in public interest. Service tax is a form of indirect tax levied on specified services called taxable services. It is levied on the gross or aggregate value of services provided. As service tax is an indirect tax, though the tax is payable by the service provider it is ordinarily recovered from the recipient of services. If there are no services rendered, then there is no service tax. Value Added Tax, widely known as VAT, is a special type of indirect tax which is imposed on goods and services at each stage of production, starting from raw materials to final product. VAT is tax on value addition to the goods and the essence of VAT is in providing set-off for the tax paid earlier. Therefore, the VAT liability of the dealer is the net tax payable by a registered dealer for a tax period. It is the difference between the output tax and the input tax credit. There are only two basic rates under VAT namely 4% and 12.5% on goods. Stringent penal provisions have been introduced to discourage the evasion of taxes because the dealer is also allowed the benefit of input tax credit which was not allowed earlier.
17.8 GLOSSARY
Appellate Tribunal means the Customs, Excise and Gold (Control) Appellate constituted under section 129 of the Customs Act, 1962 (52 of 1962). Assessee means a person liable to pay the service tax and includes his agent. Board means the Central Board of Excise and Customs constituted under the Central Boards of Revenue Act, 1963 (54 of 1963). Body Corporate has the meaning assigned to it under Section 2(7) of the Companies Act, 1956 (1 of 1956). Exported Goods (According to Section 2(19)) means any goods, which are to be taken out of India to a place outside India. They include: goods exported by sea, air, land, post, passengers as baggage and stores and fuel supplied to foreign going vessel/ aircraft/etc. which are considered to be exports. Export (According to Section 2(18)) means any goods which are to be taken out of India to a place outside India. Exporter (According to Section 2(20)), exporter in relation to any goods at any time between their entry for export and the time when they are exported includes any owner or any person holding himself out to be the exporter. Goods have the meaning assigned to them in clause (7) of Section 2 of the Sale of Goods Act, 1930 (3 of 1930). Import (According to Section 2(23)), means goods bringing into India from a place outside India. Imported Goods (According to Section 2(25)), means any goods brought into India from a place outside India, but do not include goods, which have been cleared for home consumption. They include: goods imported by sea, air, land, post, passengers as baggage and ship stores considered to be imported and charged to customs duty. Information has the meaning assigned to it in clause (v) of sub-section (1) of Section 2 of the Information Technology Act, 2000 (21 of 2000). 86
Indirect Taxes
17.9 SUGGESTED READINGS/REFERENCE MATERIAL

Datey. V.S. Indirect Taxes Law and Practice. 21st Ed. New Delhi: Taxmann Publications. Pvt. Ltd., 2008. Datey. V.S. Students Workbook on Indirect Tax Laws. 3rd Ed. New Delhi: Taxmann Publications. Pvt. Ltd., 2008. Vaitheeswaran. K. Students Hand Book on Indirect Taxes. 7th Ed. Mumbai: Snow White Publications Pvt. Ltd., 2008.
17.10 SUGGESTED ANSWERS Self-Assessment Questions 1

a. The Central Government is vested with the power to levy excise duty by virtue of Entry 84, List I, Schedule VII of the Constitution of India. However, the Central Government has no power to impose duty on: Alcoholic liquors for human consumption; and Opium, Indian hemp and other narcotic drugs.
As alcoholic liquors, opium and other narcotic drugs found place in the States list, they are eliminated from the Central Governments list. b. In Khandelwal Metal and Engineering Works vs. Union of India, the Supreme Court held that notwithstanding that waste and scrap arose as intermediate products, chargeability to duty would arise if the waste/scrap was marketable. Thus, waste/scrap would be chargeable to duty if it is marketable and is included in the tariff. c. This falls under the specific duty of excise. It is the duty payable on the basis of certain unit like weight, length, volume, thickness etc. For example, duty on cigarette is payable on the basis of length of the cigarette, duty on sugar is based on per kg. basis etc.
a. The term baggage is defined by Section 2(3) as including unaccompanied baggage but excluding motor vehicles. Baggage includes all dutiable articles and personal effects imported by passenger or a member of a crew in his baggage. It may be accompanied unaccompanied. The baggage does not include motor vehicles, alcoholic drinks and goods imported through courier, articles imported under an import licence for his own use or on behalf of others. Provisions pertaining to baggage are contained in sections 77 to 80 of the Customs Act, 1962. In applying this rule, if more than one transaction value of identical goods is found, the lowest of such value shall be used to determine the value of imported goods. Customs duty is applicable on transporting of goods by land, air and water, including the Indian Territorial Waters. Indian Territorial Waters spread around 12 nautical miles from the sea coast of India. The jurisdiction of the Customs authorities extends up to border of Indian waters.
b. c.
a. In case of a company, service tax for a calendar month is payable by the 5th of the month immediately following the said calendar month. Therefore, the due date for payment of service tax in respect of receipt received on December 31, 2008 is 05.01.2009. 87
b.
Exemption is provided in respect of taxable services upto Rs.50 lakh in a financial year provided by incubatee entrepreneur who is located within the premises of an incubator where the total business turnover of the incubatee entrepreneur does not exceed Rs.50 lakh in a financial year/preceding financial year. Exemption is available to an incubatee for a period of three years w.e.f. the date of signing an agreement with the incubator. Hence in the above case, no service tax is chargeable. Small service providers whose aggregate value of taxable services is less than Rs.8 lakh in a financial year are exempt from service tax. [Notification No. 4/2007-ST dated 1.3.2007].
c.
a. b. There are only two basic rates under VAT namely 4% and 12.5% on goods eligible for input tax credit. Registration: Small dealers whose total turnover in respect of purchase and sales in the State is not less than Rs.10 lakh for a year, other dealers whose total turnover for a year is not less than Rs.5 lakh, casual traders, agent of non-resident dealer and dealers irrespective of quantum of turnover shall obtain registration. If the dealer fails to obtain the registration, then the commissioner may compulsorily register the dealer and assess the tax due from the dealer based on the evidence available with him. Gold and silver ornaments and articles thereof, precious and semi-precious stones will have a VAT rate of 1%.
c.
17.11 TERMINAL QUESTIONS

A. Multiple Choice 1. Special additional duty of customs is imposed with object of: a. b. c. d. e. 2. Off-setting the effect of local sale tax Off-setting the effect of excise duty Protecting the interests of Indian industry Preventing the act of dumping from the foreign large manufacturers Countervailing the subsidies given by foreign countries to its exporters.
This term refers to any property, whether vessel or cargo, left or abandoned in the open sea by persons incharge of it without any hope of recovering or intention of returning to it: a. b. c. d. e. Derelict Jetsam Flotsam Wreck Seizure.
3.
Which of the following will not be included while arriving at the assessable value in order to determine the excise duty payable? a. b. c. d. e. Cost of secondary but returnable packaging. Sales tax paid. Quantity discount. All of the above. Both (a) and (c) of the above.
88
Indirect Taxes
4.
What is the due date for filing service tax returns for the half year ended September 30th? a. b. c. d. e. October 25th. September 30th. June 30th. December 31st. March 31st.
5.
Basic exemption limit in case of small service providers is a. b. c. d. e. Rs.4,00,000 Rs.5,00,000 Rs.6,00,000 Rs.10,00,000 Rs.8,00,000.
B. Descriptive 1. 2. 3. What are the purposes for which the Central Government can exercise the power to prohibit the import and export of goods? What are the situations where transaction value under Section 4 of the Central Excise Act does not apply? What are the advantages of VAT?
These questions will help you to understand the unit better. These are for your practice only.
89
NOTES
90
DIRECT TAXES CODE BILL HIGHLIGHTS K.RAVI, BA, LLB, FCA, Chairman, Central Taxes Committee, FKCCI The Honourable Finance Minister released the draft Direct Taxes Code and the Discussion paper on 12th August 2009. An attempt has been made to simplify the language to enable better comprehension and to remove ambiguity to foster voluntary compliance. 1. PRELIMINARY This Code shall be called the Direct Taxes Code, 2009 It extends to the whole of India. It shall come into force on the 1st day of April, 2011; i.e. Financial Year 2011-12.
2. BASIS OF CHARGE RESIDENTIAL STATUS: Only status of Non Resident and Resident of India exists. The other status of resident but not ordinarily resident has been removed. TOTAL INCOME: Total Income to include income of any other person. Total Income to include income of spouse, minor child etc. Also, the total income for a financial year of any person shall not include any of the income.
3. COMPUTATION OF TOTAL INCOME: CLASSIFICATION OF SOURCES OF INCOME: For the purpose of computation of total income of any person for any financial year, income from all sources shall be classified into : a) Income from Special sources are given no deduction and what is earned is taxed directly. The steps for computation of income from special sources are as under: STEP 1: Compute the income in respect of each of these special sources in accordance with the provisions of the Fourth Schedule. The income so computed with respect to each of such special sources shall be called current income from the special source. STEP 2: Aggregate the current income from the special source with the unabsorbed loss from that special source at the end of the immediate preceding the financial year, if any. The result of such aggregation shall be the gross income from the special source. If the result of aggregation is a loss, the gross total income from the special source shall be nil and the loss will be treated as the unabsorbed current loss from the special source, at the end of the financial year. The gross total income from the special source shall be computed with respect to each of the special sources. STEP 3: The gross total income from all such special sources and the result, of this addition shall be the total income from special sources. b) Income from Ordinary sources are divided into further categories, namely: 1. 2. 3. 4. 5. Income from employment (Presently called Salaries) Income from House Property Income from Business Capital gains Income from Residuary Sources (Presently called other sources)
Annexure (Direct Taxes)
The steps for computation of income from ordinary sources are as under: STEP 1: Compute the income in respect of each of these sources. This could either be income or loss (negative income). For example, if a person carries on several businesses, the income from each and every such business will have to be separately computed. STEP 2: Aggregate the income from all the sources falling within a head to arrive at a figure of income assessable under that particular head. The result of such computation may be a profit or loss under that head. The aforesaid two steps will be followed to compute the income under each head. STEP 3: Aggregate the income under all the heads to arrive at the current income from ordinary sources. STEP 4: Aggregate the current income with the unabsorbed loss at the end of the immediate preceding financial year, if any, to arrive at the gross total income from ordinary sources. If the result of aggregation is a loss, the gross total income from ordinary sources shall be nil and the loss will be treated as the unabsorbed current loss from ordinary sources at the end of the financial year. STEP 5: Gross total income from ordinary sources, so arrived, will be further reduced by incentives in accordance with sub-chapter I of Chapter III. The resultant amount will be total income from ordinary sources. AMOUNT NOT DEDUCTIBLE WHERE TAX IS NOT DEDUCTED AT SOURCE: Any amount on which tax is deductible at source under Chapter XI during the financial year shall not be allowed as a deduction in computing the total income if: a. b. the tax has not been deducted during the financial year; or the tax, after such deduction, has not been paid during the financial year, or in the subsequent year, before the expiry of the time prescribed under sub section (1) of Section 198.
However, the provision of sub section (1) shall not apply, if the tax has been deducted during the last quarter of the financial year and the tax is paid before the due date of filing the return of tax bases. 4. INCOME FROM EMPLOYMENT: Income from employment will be the gross salary on due or receipt basis, whichever is earlier including value of perquisites and profits in lieu of salary as reduced by the aggregate amount of the following permissible deduction. a. b. c. Professional Tax paid; Transport Allowance to the extent prescribed; Prescribed Special Allowance or benefit to meet expenses wholly and exclusively incurred in the performance of duties, to the extent actually incurred; Compensation under Voluntary Retirement Scheme Amount of gratuity received on retirement or death; Amount received on commutation of Pension; and Pension received by gallantry awardees.
d. e. f. g.
The value of rent free accommodation will be determined for all employees in the same manner as is presently determined in the case of employees in the private sector. All perquisites to be included in Salary Income. There is no deduction on HRA and medical reimbursement.
5. INCOME FROM HOUSE PROPERTY: Income from house property, which is not occupied for the purpose of any business or profession by its owner, will be taxed under the head Income from house property. The income from property shall include income from the letting of any buildings along with any machinery, plant, furniture or any other facility if the letting of such building is inseparable from the letting of the machinery, plant, furniture or facility. No deduction in respect of municipal taxes and interest for self occupied house whose gross rent is taken as Nil. Only Let out properties are considered and the Gross rent and specified deductions are allowed. The Income from house property shall be the gross rent less specified deductions. The following deduction will be admissible against the gross rent:a. b. c. Amount of taxes levied by a local authority and tax on services, if actually paid. Twenty per cent of the gross rent towards repairs and maintenance Amount of any interest payable on capital borrowed for the purpose of acquiring, constructing, repairing, renewing or re-constructing the property.
6. INCOME FROM BUSINESS: Every business will constitute a separate source and, therefore, income will be computed separately for each business. A business will be treated as distinct and separate from another business if there is no interlacing or independence or unity embracing the two businesses. The computation of income from business under the Code will be based on the income-expenses model where the taxable income under this head will be equal to gross income minus allowance deductions. Indefinite carry forward of business losses to be allowed.
7. CAPITAL GAINS Income from transactions in all investment assets (i.e. any capital asset other than business capital asset) will be computed under the head Capital Gains. The present distinction between short term investment asset and long term investment asset on the basis of the length of holding of the asset will be eliminated. The Securities Transaction Tax will be abolished. Therefore, all capital gains (loss) arising from the transfer of equity shares in a company or units of an equity oriented fund will form part of the computation process.
8. INCOME FROM RESIDUARY SOURCES The gross residuary income will comprise of any income which does not from part of any other head of income. Any amount exceeding Rs.20,000 taken or accepted or repaid as loan or deposit otherwise than by account payee cheque or draft shall be deemed to be income from residuary sources and taxed accordingly. Any sum received under Life Insurance Policy, including any bonus, shall be exempt from Income Tax, provided it is a pure life insurance policy (i.e. the premium payable for any of the years during the terms of the policy does not exceed 5 percent of the capital sum assured). Consequently, in all other cases, the sum received under the policy, including any bonus, will be taxed as income from residuary sources. Annexure (Direct Taxes)
9. EET METHOD OF TAXING SAVINGS The Code proposes to introduce the Exempt-Exempt-Taxation method of taxation of savings. Only new contributions on or after the commencement of this Code will be subject to the EET method of taxation. An individual or HUF will also be allowed deduction for amount paid towards tuition fees for children. The aggregate amount of deduction for payment into the account maintained with any permitted savings intermediary and for tuition fees shall not exceed Rs. 3 Lakhs.
10. TAX INCENTIVES: Major Deductions applicable under the Tax Incentives for an individual are: a. b. c. d. e. f. g. h. Investments through PFRDA approved agencies Payment of tuition fees Medical treatment Health insurance Donations Interest on loan taken for higher education Maintenance of a disabled dependant Interest income on Government Bonds.
Earlier terms Deductions under Chapter VI A will be treated as Tax incentives. Medical treatment, higher education loan interest, donation and rent paid by selfemployed individual are deductible. New provision comes for Handicapped individuals to get deductions upto Rs.75,000.
11. TAXATION OF COMPANIES: Dividend Distribution Tax(DDT) to be retained. Dividends which suffered DDT to be tax-free in shareholders hands. The Code provides for Minimum Alternate Tax calculated with reference to the value of the gross assets. The shift in the MAT base from book profits to gross assets will encourage optimal utilization of the assets and thereby increase efficiency. The rate of MAT will be 0.25 percent of the value of gross assets in the case of banking companies and 2 percent of the value of gross assets in the case of all other companies. Under the code, MAT will be a final tax. Hence, it will not be allowed to be carried forward for claiming tax credit in subsequent years.
12. WEALTH TAX: The Code proposes to tax net wealth in the following manner: Wealth-tax will be payable by an individual, HUF and private discretionary trusts. Wealth-tax will be levied on net wealth on the valuation date i.e. the last day of the financial year. Net Wealth will be defined as assets chargeable to wealth-tax as reduced by the debt owed in respect of such assets. The net wealth of an individual or HUF in excess of Rs. 50 Crores will be chargeable to wealth tax at the rate of 0.25 per cent. The threshold limit of Rs. 50 Crores will not apply to a private discretionary trust. Annexure (Direct Taxes)
13. NEW TAX RATES FOR INDIVIDUALS: In the case of every individual, other than women and senior citizen: Slab 1 2 3 4 Income Between 0 - 1.60 Lakhs 1.60 Lakhs to 10 Lakhs 10 Lakhs to 25 Lakhs Above 25 Lakhs Tax rate 0% 10% 20% 30%
In the case of woman below the age of sixty five years at any time during the financial year: Slab 1 2 3 4 Income Between 0 - 1.90 Lakhs 1.90 Lakhs to 10 Lakhs 10 Lakhs to 25 Lakhs Above 25 Lakhs Tax rate 0% 10% 20% 30%
In the case of senior citizens: Slab 1 2 3 4 Income Between 0 - 2.40 Lakhs 2.40 Lakhs to 10 Lakhs 10 Lakhs to 25 Lakhs Above 25 Lakhs Tax rate 0% 10% 20% 30%
14. DUE DATE FOR FILING RETURNS OF TAX BASES: Sl. No Type Date 1 2 15. OTHERS: Non-Business / Non-Corporate Others 30th June 31st August
First filing (under Direct Taxes Code) 30/06/2012 31/08/2012
The terms previous year and assessment year has been replaced with financial year to eliminate confusion. Income for the purposes of this Code will, in general, include all accruals and receipts of revenue and capital nature unless otherwise specified. Taxation for non profit organizations rationalized. Mutual Funds, Venture capital funds, Life Insurance Companies to be treated as pass thru entities. Earlier Income Tax Act and Wealth tax Act (Covering Income Tax, TDS, DDT, FBT and Wealth taxes) are abolished and single code of Tax, DTC in place.
Only status of Non Resident and Resident of India exists. The other status of resident but not ordinarily resident has been removed. Earlier the terminology of assessee was meant for the person who is paying tax and/or, who is liable for proceeding under the Act. Now it has been added with 2 more definitions namely a person, whom the amount is refundable, and/or, who voluntarily files tax return irrespective of tax liability. This helps any person to file his returns and maintain the record of tax return filing. No changes in the system of Advance Tax, Self Assessment Tax and also TDS. Amendment of TDS goes in line with earlier Notification 31/2009 which speaks of Form 17/UTN/etc. In TDS, a new return, if found required, will be introduced for Non TDS payments. Government assessee is covered in Direct Tax Code. Even though they are not liable for Income Tax / Wealth Tax, Government Assessees are required to Comply with provision of TDS and TCS. (Current act was not covered with Government Assessees). General anti avoidance rule introduced to combat tax avoidance. Amalgamation and demerger provisions rationalized to allow for tax neutral business reorganization.
Conclusion
To conclude, this code is broadly welcomed by the industry and the trade. However, there are reactions on some points which are shown below: Tax on interest on overseas borrowing is a negative factor and it may discourage leveraging and reduce investment The proposal to apply MAT on Gross assets instead of book profit has come under heavy criticism from industry because it is not a tax on income, which direct tax should ideally be, but a tax on capital or assets. Also, because it is value of gross assets, even loss making companies have to pay MAT. MAT at 2% of gross assets is a very high rate The issue of MAT on financial companies has also come under criticism because while MAT in the code for the Banking sector is set at 0.25%, it is at 2% for the NBFCs (Non Banking Finance Companies)
Comments / feedback on the Direct Tax may be sent to FKCCI at dsm@fkcci.in

Block Unit Nos. I 1. 2. 3. 4. II 5. 6. 7. 8. III 9. 10. 11. IV 12. 13. V 14. 15. VI 16. 17. Unit Title THE SOCIO-POLITICAL ENVIRONMENT OF BUSINESS Business Environment: An Introduction Demographic and Social Environment Cultural Environment Political Environment THE ECONOMIC AND TECHNOLOGICAL ENVIRONMENT OF BUSINESS Economic Environment Financial Environment Trade Environment Technological Environment THE LEGAL AND ETHICAL ENVIRONMENT OF BUSINESS Legal and Regulatory Environment Tax Environment Ethical Environment BUSINESS CONTRACTS Law of Contracts Special Contracts LAW RELATING TO CORPORATE BUSINESS ENTITIES Formation and Organization of Companies Company Management and Winding Up TAX LAWS Direct Taxes Indirect Taxes

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Business Environment and Law

UNIT 17 Indirect Taxes

Prof.Marzun E Jokhi IBS Ahmedabad Dr. Vijaya Lakshmi S IBS Hyderabad

Course Preparation Team

The ICFAI University Press, Hyderabad

UNIT 16 DIRECT TAXES

Business Environment and Law

16.3 CLASSIFICATION OF TAXES

16.4 INCOME TAX

Business Environment and Law

Business Environment and Law

16.4.1 Residential Status and Tax Incidence

16.4.2 Incomes that are Exempted

Business Environment and Law

ix. x. xi. xii. xiii.

xiv. xv. xvi. xvii.

16.4.3 Income from Salaries

Business Environment and Law

Business Environment and Law

16.4.4 Income from House Property

Income from House Property

Business Environment and Law

16.4.5 Income from Profits and Gains of Business or Profession

Business Environment and Law

Contribution to Non-statutory Funds;

Business Environment and Law

Persons carrying on specified profession

Persons carrying on nonspecified profession or carrying on business

Persons carrying on nonspecified profession

16.4.6 Capital Gains

Business Environment and Law

Business Environment and Law

16.4.7 Income from Other Sources

Business Environment and Law

16.4.8 Deductions from Gross Total Income

Business Environment and Law

Business Environment and Law

Business Environment and Law

16.5 WEALTH TAX

Business Environment and Law

16.5.1 Debt Owed

Business Environment and Law

16.5.2 Current Developments

Business Environment and Law

16.8 SUGGESTED READINGS/REFERENCE MATERIAL

16.9 SUGGESTED ANSWERS Self-Assessment Questions 1

Business Environment and Law

16.10 TERMINAL QUESTIONS

Business Environment and Law

Business Environment and Law

Business Environment and Law

UNIT 17 INDIRECT TAXES

17.10 Suggested Answers 17.11 Terminal Questions

Business Environment and Law

17.3 CENTRAL EXCISE

17.3.1 Chargeability of Duty

Business Environment and Law

Business Environment and Law

17.3.2 Valuation of Excisable Goods

Business Environment and Law

Business Environment and Law

17.3.3 Central Excise Procedures

Business Environment and Law