CHAPTER- 1

INTRODUCTION

BRIEF HISTORY OF TAX

The history of taxation suggests that the process of levying and the
manner of tax collection were unorganized. But it suggests that all
historical leaders and head countrymen collected taxes to run its
authority. In other words taxes on income, sale, purchase and properties
were collected to run the ruling government machineries. Further, these
taxes were collected to meet their military and civil expenditure and also
to meet the common needs of the subjects like maintenance of roads,
drainage system, government buildings, administration of justice and
other functions of the region.
Although, there were no homogeneous tax rate structures but it depended
on the production capacity and commodity of that particular country or
religion. Moreover, the tax rates and quantum varied according to the
annual production. These taxes were collected in cash or in kind and it
entirely depended on the type of commodity or service on which it was
levied upon. For example, there was a very common practice of selling
food crops and cash crops to government machineries against no money.
In India, the tradition of taxation has been in force from ancient times. It
finds its references in many ancient books like Manu Smite and
Arthasastra. There was a perfect admixture of direct taxes with indirect
taxes and they were varied in nature. Indias history of taxation suggests
existence of a large and composite taxable population. With the advent of
the moguls in India the country witnessed a sea of change in the taxation
system of India. Although, they also practiced the same norm of taxation
but it was more homogeneous in structure and collection. The period of
British rule in India witnessed some remarkable change in the whole
taxation system of India. Although, it was highly in favour of the British
government and its exchequer but it incorporated modern and scientific
method of taxation tools and systems. In 1992, the country witnessed a
paradigm shift in the overall Indian taxation system. Setting up of
administrative system and taxation system was first done in the history of

taxation system in India. The period thereafter witnessed rapid growth

and modernization of the Indian system and the present.

MEANING OF TAX
The term Tax may be defined as a compulsory collection of money by
public authorities for public good. Taxes are compulsory contributions
imposed by the government on its citizens to meet its general expenses
incurred for the common good, without any corresponding benefits to the
tax payer.
It is compulsory levy under certain conditions and it is meant for the
general purposes of the state. Taxes are of two types Direct Tax and
Indirect Tax.
In general, tax can be defined as a levy or other type of a financial charge
or fee imposed by state or central governments on legal entities or
individuals.

FEATURES OF TAX

Tax is a compulsory payment.

The tax payer cannot claim reciprocal benefits against tax paid.

Tax is levied to meet public spending incurred by the government

in the general interest of the nation.

A Tax is payable regularly and periodically as determined be the

tax authorities.

OBJECTIVES OF TAX

Generation of Revenue.

Maintenance of Welfare State.

Prevention of concentration of economic power.

Re-distribution of wealth for the common goods .

Encourage savings and there by investment.

Rapid economic development .

Generation of employment avenues.

CONSTITUTION OF INDIA
In India, Constitution which came into effect on 26 th January, 1950 is supreme
and all laws and Government actions are subordinates to our Constitution. Clear
understanding of concepts is vital for any taxation matters as power to levy and
collect tax is derived from Constitution.
If it is found that any Act, Rule, Notification or Government order is not according
to the Constitution, it is illegal and void and it is called ultra vires the
Constitution.
India is a Union of States Government of India (Central Government) has certain powers in respect of
whole country. India is divided into various States and Union Territories and each
State and Union Territory has certain powers in respect of that particular State.
Bifurcation of powers between Union and States
Article 246(1) of Constitution of India states that Parliament has exclusive powers
to make laws with respect to any of matters enumerated in List 1 in the Seventh
Schedule of Constitution (called Union List).
As per Article 246(3), State Government has exclusive powers to make laws for
State with respect to any matters enumerated in List 2 of Seventh Schedule to
Constitution.
Seventh Schedule to Constitution consists of following three lists;

List 1 (Union List) contains entries under exclusive jurisdiction of Union

Government.

List 2 (State List) contains entries under exclusive jurisdiction of States.

List 3 (Concurrent List) contains entries where both Union and State
Governments can exercise powers.
[In case of Union Territories, Union Government can make laws in respect of all

the entries in all three lists.]

TYPES OF TAXES
Taxes are broadly classified into two types. They are:DIRECT TAX

INDIRECT TAX

DIRECT TAX
It is a kind of Tax where in incidence and impact is on the same person.
Incidence means liability to pay tax to the government and impact
means burden of paying the tax.
A Direct tax is a kind of charge, which is imposed directly on the
taxpayer and paid directly to the government by the persons (juristic or
natural) on whom it is imposed. A direct tax is one that cannot be shifted
by the taxpayer to someone else
Features of Direct Taxes :

Invigilation of transactions are virtually impossible.

Paid directly to the Government.

There is psychological resistance.

Paid directly from taxpayers income/wealth/estate.

Tax evasion is comparatively more.

Collection costs as percentage of tax collected are higher.

Can control wasteful expenditure indirectly.

ADMINISTRATIVE SET-UP OF DIRECT TAX

Government of India

(represented by Union Finance Ministry)

Central Board of Direct Taxes [CBDT]

Chief Commissioner/ Director General.

Commissioner/ Director.

Additional Director/ Commissioner.

Joint Commissioner.

Deputy Commissioner.

Assistant Commissioner.

Tax Officers/ Tax Recovery Officers.

Tax Inspectors

The major direct taxes are as under:

Income Tax

Gift Tax

Professional tax
Property tax
Agricultural tax Etc

INCOME TAX
Income Tax Act of 1961:In India, this tax was introduced for the first time in 1860, by Sir
James Wilson in order to meet the losses sustained by the Government on

account of the Military Mutiny of 1857.Thereafter; several amendments

were made in it from time to time. At last in 1886, a separate Income tax
act

was

passed.

This

act

remained

in

force up

to,

with

various amendments from time to time. In 1918, a new income tax was
passed and again it was replaced by another new act which was passed in
1922.
This Act remained in force up to the assessment year 1961-62 with
numerous amendments
The Income Tax Act of 1922 had become very complicated on account of
innumerable amendments. The Government of India therefore referred it
to the law commission in1956 with a view to simplify and prevent the
evasion of tax
The law commission submitted its report-in September 1958, but in the
meantime the Government of India had appointed the Direct Taxes
Administration Enquiry Committee submitted its report in 1956. In
consultation with the Ministry of Law finally the Income Tax Act, 1961 was
passed.
The

Income

Tax

Act

1961

has

been

brought

into

force

with

1 April 1962.It applies to the whole of India and Sikkim (including Jammu
and Kashmir).Since 1962 several amendments of far-reaching nature have
been made in the Income Tax Act by the Union Budget every year. Which
also contains Finance Bill? After it is passed by both the houses of
Parliament and receives the assent of the President of India, it becomes
the Finance act. Besides this, amendments have also been made by
various Amendment acts, for instance, Taxation laws Amendment Act,
1984, Direct Taxes Amendment Act, 1987, Direct Taxes Law (Amendment)
Acts of 1988 and 1989, Direct Tax Law
(Second amendment)
Act, 1992 and1993, is mostly based on the recommendation of Chelliah
Comity Report. As a matter of fact, the Income Tax Act, 1961, which came
into force on 1st April, 1962, has been amended and re-amended

drastically. It has therefore become very complicated both for the

administering authorities and the tax-payers.
According to income Tax Act 1961, every person, who are an assessed and
whose total income exceeds the maximum exemption limit, shall be
chargeable to the income tax at the teat or rates prescribed in the finance
Act. Such income tax shall be paid on the total income of the previous
year in the relevant assessment year.
It is collected under 5 heads of income i.e.

Income from salary

Income from house property

Profits and gains of business or professions

Income from capital gains

Income from other sources.

SLAB RATES FOR ASSESSMENT YEAR 2015-16

The following INCOME TAX RATES ARE applicable for the Financial Year
ending March 31, 2015 (Financial Year 2014-15)-Assessment Year 201516):

For Individuals below 60 years age (including Woman Assesses)

Income tax Slab (in Rs)

Tax Rate

Up to 2,50,000

Nil

200,001 to 500,000

10%

500,001 to 10,00,000

20%

10,00,000 & above

30%

For Individuals aged 60 years and above but below 80 years

(Senior Citizen)
Income tax Slab (in Rs)

Tax Rate

Up to 3,00,000

Nil

3,00,001 to 5,00,000

10%

500,001 to 10,00,000

20%

10,00,000 & above

30%

For Individuals aged 80 years and above (Very Senior Citizen)

Income tax Slab (in Rs)

Tax Rate

Up to 500,000

Nil

5,00,001 to 10,00,000

20%

10,00,000 & above

30%

Tax Credit: Rs. 2,000 for every person whose income doesnt exceed Rs.
500,000

Surcharge on Income Tax: 10% of the Income Tax payable, in case the
total taxable income exceeds Rs.10, 000,000. Surcharge shall not exceed
the amount of income that exceeds Rs.10, 000,000.Education Cess: 3% of
Income

Tax

plus

Surcharge

AGRICULTURAL INCOME TAX

It is a Direct tax: it extends to the whole of Karnataka. Tax is levied on
income derived plantation crop namely Coffee, tea, pepper, cardamom,
rubber, orange and linalool.

Agriculture income is exempt under the

Indian Income Tax Act. This means that income earned from agricultural
operations is not taxed.

PROFESSIONAL TAX
Professional Tax is the tax charged by the state governments in India. Any
one earning an income from salary or any one practicing profession such
as chartered accountant, lawyer, doctor etc. are required to pay
this professional tax. Different states have different rate and method of
collection.

PROPERTY TAX

Property tax is the annual amount paid by a land owner to the local
government or the municipal corporation of his area. Following are the
kinds of properties that are liable to be taxed under property tax India:

Residential houses.

Office building.

Go downs.

Flats.

Shops.

In India, the municipal corporation of a particular area assesses and

imposes the property tax annually or semi annually. The tax amount is
based on the area, construction, property size, building etc. The collected
amount is mainly used for public services like repairing roads, construction
schools, buildings, sanitation.

INDIRECT TAXES
MEANING OF INDIRECT TAXES
Indirect tax is a kind of tax where in incidence and impact is on two
different persons.
Incidence means liability to pay tax to the government whereas Impact
means the burden of paying the tax.
A tax imposed on consumption, sales, shipping, or production, rather
than directly on

the property or income of

the consumer.

Indirect taxes are generally included in the price of goods and services, so
are less obvious to those paying the taxes than direct levies.

Features of Indirect taxes :

Indirect taxes increase the prices of products & services.

They are often perceived as inflationary.

Do not depend on the paying capacity of taxpayer.

They are partially regressive.

Can be judiciously used to support development of desired area.

Reduces wasteful expenditure.

Collection cost as percentage of tax are comparatively lower.

Easier to collect and administer.

Indirectly paid to he Government by the taxpayer.

They are paid before the good & services reach the taxpayer.

Risk of tax evasion exists.

Psychological advantage to the taxpayers.

ADMINISTRATIVE SET-UP OF INDIRECT TAXES

Government of India [Represented by Union Finance Ministry]

Central Board of Excise & Customs {CBE&C}

Chief Commissioner

Commissioner.

Additional Commissioner.

Joint Commissioner.

Deputy Commissioner.

Assistant Commissioner.

Tax Officers.

Tax inspectors.

The major indirect taxes are as follows:

Central Excise Duty

Customs duty

Value Added Tax (VAT)

Service tax

Central sales tax

Entertainment tax
Sales tax
Luxury tax
Betting tax etc.

CENTRAL EXCISE ACT

Central Excise Act, 1944
Central Excise Tariff Act 1985
Central excise act 1944 has come in to force with effect from 28-2-1944. It
extends to the whole of India including Indias exclusive economic zone
.which extends to 200 nautical miles inside the sea from costal base line.
Accordingly goods produced inside the sea up to 200 NMS will be liable for
Central excise duty. For ex Crude oil drilled by the ONGE in the sea
attracts excise duty
Central excise duty is an Indirect tax levied by the government of India on
the goods manufactured or produce in India. However manufacture of
liquor, narcotics and opium are subject state excise duty under the
constitutional provision.

Basic Condition for central excise levy:

There are four basic conditions for levy of central excise duty they are:

The Duty is on goods (Movable goods)

The goods must be manufactured or produced

Such goods must be manufactured or produced in India and

The goods must be excisable.

If anyone the above conditions are absent, then the goods in question will
not attract central excise levy
According to central excise law, the central excise act charges levy of duty
and the rate of duty chargeable is specified under the Central Excise Tariff
Act
Few examples of taxable services

Accounts payable

Accounts receivable billing

Check preparation

Data conversion services

Data storage

Manipulating client's data

Producing reports from client's data

Transcription services

Scanning document
CUSTOMS ACT OF 1962:

CUSTOMS TARIFF ACT 1975

In India customs duty is levied under the customs act 1962 read with
customs tariff act 1975
Customs Duty is a type of indirect tax levied on goods imported into India
as well as on goods exported from India. Taxable event is import into or
export from India. Import of goods means bringing into India of goods
from a place outside India. India includes the territorial waters of India
which extend up to 12 nautical miles into the sea to the coast of India.
Export of goods means taking goods out of India to a place outside India.

In India, the basic law for levy and collection of customs duty is Customs
Act, 1962. It provides for levy and collection of duty on imports and
exports,
Import/export procedures, prohibitions on importation and exportation of
goods, penalties, offences, etc.
Functions of Custom Department

Collection of duty and recovery of penalty

Discharge

of various agency functions, & enforcing various

prohibitions & restriction on imports & exports

Enforcement of various provisions of customs Act governing imports

& exports of cargo, baggage, postal articles etc

Prevention of smuggling including interdiction on narcotics drugs

trafficking

International passenger processing.

Taxable event for custom duty

In respect of imported goods where they cross customs frontiers of

India after crossing the Indian territorial waters and which such
goods mix up with the land mass of goods . there will be taxable
event

In respect of export goods the taxable event will be on which the

goods meant for export after they cross the customs frontiers they
should also cross Indian territorial waters and then only export
goods will attract customs duty.

In respect of imported goods where the taxable event will be when

the warehoused goods are cleared for home consumption.

Karnataka Entertainment Tax 1958:It was enacted by the Karnataka legislature for making provision for levy
of tax on like horse race, live telecast, video shows, cable, television
connectivity, cinematography, amusement recreation, any entertainment
provided by multi system operator exhibition, regional games and sports
etc.
Exemptions: surplus shows, dramas, magic shows etc. (no entertainment
tax).
BETTING TAX
It is levied on bets places on horse races, paper and electronic lotteries.
But now paper and electronic lotteries are discontinued. Betting tax is
levied on horse races both on course and off course. The person who
receives bets are called bookies.
KARNATAKA VALUE ADDED TAX
What is VAT ?
Value added tax is an indirect tax on consumption and resale. VAT is
changed

and

collected

at

each

stage

of

sale

of

goods

from

production/processing stage to the consumption stage of a trading on the

value addition.
Tax paid on purchases input tax is set off against the tax payable on sales
(Output tax) VAT contemplates giving credit of tax paid on input/capital
goods and on account of this, it does not have any cascading effect.
Value added in manufacturing activity is the difference between the price
at which commodity is sold and the cost of input arise the case of trading
the difference between value of sales and purchases.
Vat in India:

VAT

in

India

was

first

introduced

under

central

excise

act

for

manufacturing in the year 1986 as MODVAT and with effect from the year
2000 MODVAT has been changed to CENVAT (Central Value added Tax)
VAT in place of the sales tax for commodity taxation at the states level
was introduced from 1-4-2005 in many states in Indian Union including the
state of Karnataka. It is believed that the tax effect on common
consumers under VAT would be lower than the tax burden under the sales
tax system.
VAT is a simple transparent tax collected on sale of goods. Tax paid on
purchase (input Tax) is given credit against tax payable on sales (output
tax).
Since VAT will have only four rates of Tax instead of the large number of
rates of sales tax would be beneficial to traders and government and easy
for tax collectors. Concepts like, Business, Dealer, goods, sales under the
VAT, Karnataka sales Tax and Central sales tax are similar and they carry
the same meaning under all these three tax laws.
The term tax may be defined as compulsory extra of money of
public authorities for public purposes enforceable by law and does not
mean payment for services rendered. Taxes are compulsory contributions
infused by the government on its citizens to meet its general expenses
incurred for the common goods, without any corresponding benefits to the
tax payer.
Objectives of KVAT: It widens the tax based by levying tax on sale of goods at every
point of sale.
It makes the levy of tax transparent and remove cascading effect.
It compels issue of tax invoices by dealers indicating the tax
charged separately.
It provides limited rebating of tax paid in excess of 2% to input used
in the goods sent out of the state on stock or consignment.

SERVICE TAX
Introduction
Service tax was introduced through Chapter V of the Finance Act 1994
providing for a levy of service tax on telephones, insurance and stock
broking. There is no separate enactment for service tax and is still
governed by Chapter V and VA of the Finance Act, 1994, as amended. The
parliament expanded the scope of the levy by adding new and new
services every year.
Jammu & Kashmir
Chapter V of the Finance Act, 1994 deals with service tax and Section 64
provides that this Chapter extends to the whole of India except Jammu &
Kashmir.
Service
Section 65B (44) of the Finance Act, 1994 defines service as under:Service means any activity carried out by a person for another for
consideration and includes a declared service but shall not include:
(a) An activity which constitutes merely:i.

a transfer of title in goods or immovable property by way of sale,

gift or any other manner; or

ii.

Such transfer, delivery or supply of any goods which is deemed

to be a sale within the meaning of clause (29A) of Article 366 of
the constitution; or

iii.

a transfer in money or actionable claim;

(b)a provision of service by an employee to the employer in the course

of or in relation to his employment;
(c) Fees taken in any Court or Tribunal established under any law for
time being in force.
CENTRAL SALES TAX

This Act imposes tax on inter-state sale of goods. It has come into force
W.E.F 1-7-1957 throughout India. The tax collected by state will be
retained by state government.
Objectives of CST:

To formulate principles for determining

a) When a sale or purchase taken place in the course of inter-state
trade or commerce
b) When a sale or purchase takes place outside a state.
c) When a sale or purchase takes place in the course of imports into
and exports from India.

To provide for levy, collection and distribution of taxes on sales of

goods in the course of inter-state or commerce.

To declare certain goods to be of special importance in interstate

trade or commerce and specify the restrictions and conditions to
which the state laws imposing taxes on sale or purchase of such
goods of special importance called as declared goods in the course
of inter-state trade.

DIFFERENCES BETWEEN DIRECT AND INDIRECT TAXES

DIRECT TAX
i.

ii.

iii.

Income tax, corporate tax,

INDIRECT TAX
i.

Central Sales tax, Central

wealth tax, gift tax,

Excise Duty, Service tax, Entry

expenditure tax etc. are

tax, Customs Duty etc. are

important direct taxes.

major indirect taxes.

These are directly paid to

ii.

They are paid to Government

Government by the person

by one person, but hr recovers

liable to pay tax.

the same from another person.

Broadly speaking, direct taxes

Thus, the person who actually

are those which are paid after

bears the tax burden pays it

the income reaches hands of

indirectly to Government.

tax payer.
iv.

goods/ services reach the

the taxpayer pays directly from

taxpayer.
indirectly.
v.

They are easier to collect as

they are mainly on goods/

where millions of transactions

commodities/services, for

are carried out in lakhs of

which record keeping,

places and keeping an eye

verification and control is

over all such transactions is

relatively easy.
vi.

Tax evasion is comparatively

Tax evasion is comparatively

less in Indirect tax in organized

more in direct taxes where it is

sector due to convenience of

on unorganized sector, since

control.

control is difficult.

viii.

They are those which are paid

firms or corporate bodies,

virtually impossible.

vii.

iv.

They are mainly on

income/wealth of individuals,

vi.

They are paid before the

Direct taxes are those which

his income/wealth/estate etc.

v.

iii.

vii.

Tax on goods & services

They do not affect prices of

increases its prices, which

goods and services.

reduces demand for those

They are not inflationary.

goods and services.

viii.

Indirect taxes increase the

prices of products and hence
are often perceived as
inflation.

CHAPTER- 2
THEORETICAL
FRAMEWORK

INTRODUCTION OF INCOME-TAX
Following Sepoy Mutiny, 1857, Britishers introduced IT for the first
time in 1860 in India. After many amendments, on the recommendations
of Law Commission and Direct Tax Enquiry Committee and in consultation
with Law Ministry, a Bill was framed, which was finally passed in Sept,
1961. IT Act came into force from 1.4.62 and is applicable to the whole of
India. IT Act consists of 298 sections, sub-sections running into thousands,
schedules, rules and sub-rules etc., Several amendments were passed
later and the Annual Finance Bill (Finance Budget) presented every year
make further amendments to the IT Act every year.
DEFINITIONS OR BASIC CONCEPTS OF IT

U/s 2(7) ASSESSEE:

It means a person by whom any tax or other sum of money is payable

under this Act and includes:
1) Every person in respect of whom any proceedings under this Act
have been taken up for the assessment of his income or of the
income of any other person in respect of which he is assessable or
loss sustained by him or by such other person or of the amount of
refund due to him or to such other person-Ordinary Assessee.
2) Every person who is deemed to be an assessee under any provision
of this Act Deemed/Representative Assessee.
3) Every person who is deemed to be an assessee-in-default under any
provision of this Act-Assessee-in-default.
Ordinary Assesse:
1) Any person against whom any proceedings under this Act is going
on
2) Any person by whom some amount of tax, interest or penalty is
payable under this Act.

3) Any person who claims for refund i.e., difference between amounts
of tax deposited and the amount of tax determined at the time of
assessment.
4) In case a person is carrying on business and has incurred loss, he
can carry forward such loss to succeeding previous years only, if he
has filed return of loss. As soon as he files such return, he becomes
an assessee.
Deemed/Representative Assessee:
A person may not be liable only for his own income or loss but also
on the income or loss of other persons. Eg: guardian of a minor or lunatic,
agent of a non-resident, the executor of the property of a deceased
person etc., in such case, the person responsible for the assessment of
the income of such persons is called Deemed Assessee.
A person is deemed to be an assessee-in-default if he fails to fulfil
his statutory obligations. For eg: If a company fails to deduct tax at source
or deduct tax but does not deposit the same in the Treasury, then it is
known as Assessee-in-default.

U/s2(31) Person:

The word person includes the following:

1) Individual it refers to a natural, living, human being whether
male or female, minor or major.
2) HUF it is a relationship created due to application of Hindu Law.
The Manager of HUF is called as Karta and its members are called
as Coparceners.
3) Company it is an artificial person registered under Companies
Act, 1956 or any other law.
4) Firm it is an entity which comes into existence as a result of
partnership agreement. The only condition for a partnership entity

to be assessed as a firm is that it must submit its partnership deed

duly authenticated by all partners except a minor partner. If the
number of partners exceeds 20, it is treated as Association of
Persons.
5) Association of Persons or Body of Individuals eg: Cooperative Societies.
6) Local Authorities Municipality, Panchayat, Cantonment Board
etc.,
7) Artificial Juridical Person A public corporation established under
Special Act of Legislature like University etc; are called as Artificial
Juridical Person.

U/s 2(9) Assessment Year:

It means the period of twelve months commencing on the 1 st day of
April every year. The Assessment Year is the financial year of the
Govt of India during which the income of a person relating to the
relevant previous year is assessed to tax.

U/s 3 Previous Year:

The year in which income is earned is called as the Previous Year. In
the words, it is the financial year preceding the Assessment Year.

U/s 2 (24) Income:

Following types of receipts are treated as income:

Profits and gains from business or profession.

Dividend

Voluntary contribution received by a trust created wholly or partly

for charitable or religious purposes.

Perquisites, allowances, benefits received by an employee from

his/her employer.

Capital Gains

Insurance profit

Banking income of Co-operative society

Winnings from lotteries, races, card games, betting etc

Employees contribution towards PF, Superannuation fund etc

Any amount received under Keyman Insurance Policy

Certain types of gifts

Any non-monetary benefits/perquisites given by the company to its

director or to a person having substantial interest in that company.

Features of Income
Definite source
Income should be received from outside.
Both legal as well as illegal incomes are treated as income and
taxable in the hands of the assessee.
Whether temporary or permanent, it is immaterial from tax point of
view.
Voluntary receipts purely of personal nature/ which do not arise from
the exercise of a profession are not included in the scope of the total
income.
In case of any dispute regarding title- the recipient of such income
should pay tax
Both incomes in money/moneys worth are taxable.

Canons of Taxation
The four main canons of taxation as prescribed by Adam Smith
are as follows:
1) Canon of equality: To bridge the gap between rich and poor, as
income increases, more tax is levied this is called progressive
taxation.
2) Canon of Certainty: The tax

which each individual is bound

to pay ought to be certain and not arbitrary. The time of payment,

the manner of payment, quantity to be paid should be clear.
3) Canon of Convenience:

Mode and time of payment should be

convenient to the tax payer.

4) Canon of Economy: Cost of collection of tax should be minimum
possible.

Additional Canons of Taxation

5) Canon of Productivity: The principle of taxation must be based
on the productive lines. Taxation is believed to accumulate enough
money for the government to run its administration efficiently. It
must be enough to enable the government to secure enough
facilities for the people.
6) Canon of elasticity: The yields of the taxes may be increased or
decreased according to the needs

of the government. The

government may need more funds to face droughts and floods or to

finance a war or for development purposes and for other reasons
also. The government resources can be raised quickly only when its
tax system is elastic.

7) Canon of diversity: This canon refers that diversity should exist in

the tax system of a country, the burden of tax should be scattered
among different kinds of people. The burden of tax should not
centralize on one group of the people but it should be diversified in
such a way that every tax payer must pay according to is ability to
pay.
8) Canon of simplicity:

Every tax should be simple, easy and

understandable to a common man. Its procedure must be simple in

nature so that tax payer is able to understand and calculate it. If the
tax system is complex and complicated, the tax payers will have to
seek the assistance of tax experts in order to understand its
implications.
9) Canon of expediency: Before imposition of any tax, all favourable
and unfavourable consideration from the point of view of economic,
social and political should be taken into account. In the opinion of
Prof. Dalton, the best system of taxation from economic point of
view is that which has the best or least bad economic effects.
10)

Canon

of

coordination:

There

must

be

coordination

between the different taxes that are imposed by different taxation

authorities. In democratic countries like India, taxes are imposed by
Central, state and local bodies. Therefore there should be close
coordination

between

the

various

taxes

imposed

by

public

authorities; otherwise there will be overlapping and unnecessary

inconvenience to all tax payers.

CHAPTER- 3
H.S SHIVARAM AND
COMPANY

NAME OF THE FIRM

H.S.SHIVARAM AND COMPANY

PROPRITER

H.S SHIVARAM

STATUS OF THE FIRM

INDIVIDUAL

FIRM REGISTRATION
NUMBER WITH ICAI

01711L

ADDRESS: NO 174/40, LUCKY

5

ADDRESS OF THE FIRM

PARADISE COMPLEX, NEAR ICICI

BANK, 22ND CROSS, 8TH F MAIN
ROAD, 3RD BLOCK, JAYANAGAR
BANGALORE- 560011

CONTACT NUMBER/EMAIL

9844757539
Puttu_1951@yahoo.co.in

7
EXPERIENCE

30 YEARS OF EXPERIENCE IN
PRATICE
IN
ACCOUNTING,
AUDTING AND TAXATION
GOOD INFRASTRUCTURE

INFRASTRUCTURE

AUDITING
9

AREA COVERED

ACCOUNTING
STATITORY ACCOUNTING
BANKING
FIANCIAL REPORTING
FINANCIAL ACCOUNTING

We are an Indian chartered accountant fi rm based in Jayanagar

Bangalore. We provide all sorts of chartered accountant services
related to accounting, auditing, income tax, fi nancial services,
company

law

matters,

foreign

collaborations,

import-export

consultancy, Sales Tax / VAT matter, Service Tax, STPI, Transfer

pricing

related

matters

etc.

In

order

to

meet

the

specifi c

requirements of the clients, we provide the best possible solution

and consultancy for their respective matters. With the active
support we receive from our competent team of professionals, we
have managed to provide the eff ective services to our various
esteemed clients.

Summary

Studied Certified General Accountant Course at British Columbia. Worked

at Canadian MetChem Limited and at a Public Sector in Bangalore. Over
30 years of practice in accounting, auditing and taxation. Represented
client's Case at Tribunal and High Court (with permission). Audited most of
the leading public sector Banks as Statutory Branch Auditor, Concurrent
auditor,

income/Revenue

auditor

etc.

Audited

many Public

Companies/Government Companies Public Companies

Sector

CHAPTER- 4
LEARNING
OUTCOME

RESIDENTIAL STATUS OF AN INDIVIDUAL

The incidence of tax on a tax payer depends on the residential status of
an individual.
RESIDENTIAL STATUS OF AN INDIVIDUAL

NON-RESIDENT (U/S 2 (30))

RESIDENT
(NR)

NOT-ORDINARY
ORIDINARY
RESIDENT
RESIDENT
(NOR)
(OR)

Basic conditions u/s 6(1)

6(1)(a) An individual should have stayed in India for at least 182 days or
more during the relevant previous year.
(OR)

6(1)(b) An individual should have stayed in India for 60 days or more

during the relevant previous year and 365 days or more during 4 years
preceding the relevant previous year.

Additional Conditions u/s 6(6)

6(6)(a) He should be a resident of India for at least 2 out of 10 years
preceding the relevant P.Y.
(AND)
6(6)(b) He should have stayed in India for at least 730 days or more
during 7 years preceding the relevant P.Y.

NOTE

If an individual satisfies any one of the Basic conditions, he is a

RESIDENT.

If an individual satisfies none of the Basic conditions, he is a NONRESIDENT.

If a resident satisfies both the additional conditions, he is an

ORDINARY RESIDENT.

If a resident satisfies one or more of the additional conditions, he is

a RESIDENT BUT NOT ORDINARILY RESIDENT.

staying in India can be anywhere in India including territorial

waters of India.

The number of days of stay mentioned in the conditions need not be

a continuous stay.

For counting the number of days of stay in India, both the date of
arrival into India and the date of departure from India must be
considered.

Chart showing the Incidence of Tax for Different Types of Status

Different Kinds of Incomes

Different Types of Status

Ordinar

Not-

Non-

Ordinary

Resident

Reside

Resident

nt
Income received in

Taxable

Taxable

Taxable

Taxable

Taxable

Taxable

Taxable

Taxable

Not-

India/Deemed to be received in
India during the previous year
whether earned/accrued in
India/Outside India.
Income earned/accrued in
India/Deemed to be
earned/accrued in India during
the previous year whether
received in India or outside
India.
Income earned/accrued outside
India and received outside
during the previous year from a
business/profession controlled

Taxable

from India.
Income accrued/earned outside

Taxable

Not-Taxable

India and received outside India

NotTaxable

during the previous year from

any other source.
Past untaxed foreign Income

Not-

brought to India during the

Taxable

Not-Taxable

NotTaxable

previous year.

Following incomes are exempted from tax and hence they are not
to be included while computing Gross Total Income u/s 10.

Agricultural income in India.

Sum received by a member of HUF.

Share of income of a partner from the firm.

Allowances and perquisites paying paid by the government for employees

posted outside India.

Income from transfer of units of UTI.

Dividend from domestic or Indian company.

Certain interest incomes notified u/s 10(15)

Interest on Post Office Savings Bank A/C (POSB)
Interest on Post Office National Savings Certificate (PONSC).

Income from units of UTI and other mutual funds.

Any amount received from UNO.

Any amount received from any person other than a relative not exceeding
Rs.50000.

Gifts and presents from parents and relatives.

Overview of TDS

When an individual is employed, it is a responsibility of the

employer to do the following:
a) Deduct income tax from salary on monthly basis by estimating the
total salary for the year. The employee can inform the employer
savings name by him to reduce monthly deduction of tax. Various
types of savings allowable under IT Act are stated in sec 80 of the IT
Act.
b) The employer has to issue a statement (yearly) in the Form 16 to
the employee stating the details of salary paid, exemption claimed
by employee, tax deducted and tax paid.
After the receipt of Form 16 (received by employee) the employee
may e-file Income Tax return in ITR 1 or ITR 2.
ITR 1 contains:Income from salary, Income from house property and Income from
other sources.
ITR 2 contains in addition to the above, capital gain and
more particulars.

TAN of the deductor, where an employer is deducting IT from

the salary of an employee, he (employer) has to obtain TAN
No. from IT/NSDL etc.

The employer has to pay IT deducted (TDS) on quarterly basis.

The employer has to deduct professional tax by registering

the employers name or company. The professional tax to be
shown in the Form 16.

The employee in the year has to deduct PF monthly and retain

the amount separately in provident fund account. Similarly,
the employer will also contribute same amount to the A/C of
the employee for future savings of the employee. In case the
employee resigns from employment, he may withdraw the
entire amount along with the interest periodically credited to
the account.

Form-16 Part A / Traces Form-16

When you fill your I-T Return, you need to enter the following details.

TDS Deducted by Employer

PAN of Employer

Current Assessment Year

Your PAN

TAN of Employer

Name and Address of Employer

Your (Taxpayer's) Name and Address

Form-16 Part B / Annexure / Salary Statement

When you fill your I-T Return, you need to enter the following details.

Taxable Salary

Aggregate of Section 80C Deductions

(Gross & Deductible Amount)

Tax Payable or Refund Due

Breakup of Section 80C Deductions

TDS (Tax Deducted at Source)

Advance Tax
As stated in the case of salary, employer has to deduct TDS. In the case of
business, the assessee has to pay income tax in 3 instalments i.e.;
Before 15 September - 30% of IT
Before 15 December 30% of IT

ear, he/she has to pay in these

Self assessment tax

the tax before submitting the

es of filing returns of income.

a)In case of companies by 30th September
b)In case of other assessees by 31st July
Compulsory audit
In case of Professional, CA, Doctors Etc if the total income is above
Rs.2500000 in a year, the accounts have to be audited by CA.
In case of Business, compulsory auditing is required, if the turnover is
more than 1 crore in a year.
The above has to be submitted online by digital signature.

CHAPTER- 5
FINDINGS,
SUGGESTION,
CONCLUTION

FINDINGS
Change in government policies and procedures may act as threat for
company.
H.S.Shivaram

and

co.

has

many

competitors.

certain

circumstances these competitors may act as a major threat for the

firm.

They have less number of staff in their firm.

Weakness in the internal control and accounting systems.

Under

No updated technologies.
Poor time management.
SUGGESTIONS
A number of suggestions have been made to improve the audit market,
ranging from right alterations to major overhauls involving changes to the
law and redrawing company structures. This section sets out some of the
most likely options
Try to adopt new technologies that the competitors are not using.
Make a network that allows its customers to negotiate with them
easily.
The infrastructure and working conditions reviews can improve the
working efficiency of the trainees.
The firm should have any of its website to attract customers and their
timely feedback as most of the god firms have their and well
organised.
Update social networks: social networks can help you get attention
and may be a few clients.

Conclusion
H.S.Shivaram and co. is overall one of the profit making and reputed firm.
The firm since its very first day is devoted to providing quality services.
The detailed and through review of work and clients trust shows the
perfection with which is working.
Evaluating the work place through audits and inspections is the best way
to evaluate the performance of a company. Not every company needs a
full audit, and many Companies and more than just an inspection. Based
on the type of business you have, and the equipment and processed your
company uses, choose the tool that works best for your business. Perform
a baseline audit or inspections. Make some improvements and then
perform the same audit or inspections again after a determined period of
time (usually six months as an initial re-do, then once per year after that
is recommended). Full audits should be done at least every 3 to 5 years to
assure that the company is in compliance with applicable regulations and
that the required written documentation is in place and utilized.
The Institute of Chartered Accountants of India has also carried out the
Quality Control Review and has issued satisfactory QCR report stating that
the firm has conducted the audits of the clients in accordance with
International Standards on Auditing.

BIBLIOGRAPHY

www.google.com
www.incometax.gov.in
www.taxsites.com

ANNEXURES