Law Of Taxation VIth Semester

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Law Of Taxation VIth Semester

1. Explain concept of Income Tax & method of computation of Income Tax relating to taxable
income under Income Tax Act 1961.
Ans. Taxation is major source of income for state & central government. Central government & state
government collect the taxes according to respective statutes. There are two types of taxes.
1. Direct Tax. 2. Indirect Tax.
1. Direct Tax:- These tax is paid by relevant party called as assesses. Income tax & wealth tax
are direct taxes.
2. Indirect Taxes:- These taxes are collected by traders, sellers, dealer, from customer &
makes payment in tax department having jurisdiction.
Ex:- Central sale tax, state sale tax, service tax, VAT, Value added tax (or) indirect tax.
Constitutional validity of income tax act:-
1. Taxes can be collected by central government specified under article 245 & 265 of constitution &
7th schedule of constitution.
2. In preamble of constitution government have to do social economic & political justices collection
of taxes comes under economic justice.
3. In in directive principle of constitution it is mentioned that government to minimize concentration
of wealth & therefore income tax is collected from rich people.
4. Standard of living of poor people to be increased & it is possible by collection.
5. Wealth of the country to be distributed among the people of the country.
6. State have to do welfare activities & it is possible through income from taxes.
Computation of Income:- Following are the incomes which are considered in computation of
income tax.
1. Income from Salary:- Person who are earning salary have to pay income tax when it becomes
more than 2.5 lacs per year for senior citizens it is 3lacs. It includes basic pay, DA, HRA, CCA &
Arrears of allowances. There are also some permissible deductions in salary.
2. Income from Property:- There is income from immovable property by collection of rent it
includes rent of shop, house, godwon, these rent is also calculated in total income of assesses.
3. Agricultural Income:- Agriculture income is exempted from income tax, agriculture income
includes income from following sources.
a. All the grains produced in agriculture land.
b. Production & sale of vegetable, flowers & fruits.
c. Income from teak wood & medicinal plants.
d. Poultry firm income.
e. Dairy farm income.
f. Medicinal plants from which income is made by owner.
There is no tax on agricultural income but if he purchased property then he have to pay
income tax.
4. Income from Business:- When anybody do business & make income in assessment year then
he has to pay income tax. When it cross permissible limit.
5. Income from capital gains:- Capital gain means investment done in share market, debentures,
fixed deposit, loan transactions. Income of interest (or) profit also comes in income tax.
6. Income through profession:- There are various professions such as Actor, Doctor, Architect,
Advocate, Charted Accountant, Tuition classes (or) Coaching classes then they have to maintain
record & pay income tax.
7. Income from Skill:- When anybody makes income through skills (or) Talent then it is also
taxable, cross puzzle, KBC, Horse Race, Writing Books & Articles, Royalty, Income on trade
mark, copy right, patent right.
Law Of Taxation VIth Semester

These is details about different type of Income which come under income tax act 1961.

Q2. Explain provisions of income from salary, property, profit of business & capital gains & other
sources & permissible deduction.
Ans. Income tax is collected after all permissible deductions. In income tax act 1961no of provisions
made about deductions after all deductions income tax is computed on left over income
according to rules.
1. Income from Salary:- Salary income is on record & it includes basic pay, DA, HRA, CCA &
all the arrears when there is revision in pay scale & also benefit given by employers, following
are the permissible deductions in income from salary.
a. There is deduction of provident fund.
b. There is also deduction of the rent paid for accommodation by the employee.
c. There is deduction of fee paid in the school & colleges for children.
d. If employee has taken loan then interest paid for loan amount in the year is deducted.
e. If there is hospital expenditure of employee (or) his family member for treatment in financial
year then it is allowed in deduction.
f. If vehicle is maintained then expenses for petrol (or) diesel.
g. There is deduction of donations given for religion & charactable purpose.
All these deduction should not exceed one lakh rupees.
2. Deduction from property:- There is also income from through rent such as rent of shop,
house, godwon, following are the permissible deduction in income from property.
a. If property is purchase by taking loan then interest paid on loan amount is deducted.
b. Municipal tax paid by the property owner in financial year is also deducted.
c. There is also repairing of the property amount spent for repairing work in the year is also
deducted.
d. If employees are appointed for management of the property such as watchman, attendar,
clerk, gardener, then payment of there salaries is also deducted.
After all about deductions income tax is collected on remaining income according to
rules.
3. Profits from Business:- There are many business carried by people. It includes
occupation,, Trade, profession, following are the deduction allowed in profit of business.
a. If place of business is taken on rent then yearly rent paid by business is deducted.
b. If there are employees to run the business then salaries of employee is deducted.
c. If loan is barrowed for business then interest on loan is also deducted.
d. If loss is caused in business because of any reason then it is also deducted.
e. There is also deduction of amounts spends on maintenance of vehicle.
f. If there is insurance of business then premium paid for insurance.
4. Deduction of Capital Gain:- Capital gain means earning done through investment it
includes investment in share market, investment in mutual funds, interest on fixed deposit,
such income is subjected to deduction at the rate of 10% of income of the party is not taxable
then TDS can be claimed by filing return.
5. Income from other sources:- There are many other sources of income such as income
from games, sports, income form modeling, advertisement, horse race, lottery, there is
deduction of income tax done by relevant authority & payment is made to the party. These is
details about various income & permissible deduction specified in income tax act 1961.
Law Of Taxation VIth Semester

Q3. Explain procedure for assessment, prosecution, penalties, appeal & double taxation relief.
Ans. Income tax return have to be filed during financial year (or) assessment year. It is from 1 st April to
31st March, again 3months grace period is given & income tax return can be filed upto end of june
month. There us power of tax authorities to extend the period on reasonable grounds to file
income tax return. The person who files income tax return is called as ASSESSE & the year is
called as ASSESSMENT YEAR (or) FINANCIAL YEAR.
Procedure of filing income tax return:-
a. Printed proforma application:- Assessee who wants to file income tax return have to
obtain printed proforma application which is available from income tax office free of cost,
there is separate number to every application, such as for service people, for partnership
firm, capital gain, company assessment, business assessment there are separated printed
application. Assess have to fillup the application & give complete details of relevant
information.
b. Documents:- Assesses have to enclose all the documents either original (or) copy such as
salary certificate, claim of permissible deduction, receipt of rent, net income certificate,
hospital expenses bills, insurance bills, if loss is caused then relevant documents can be
enclosed.
c. Assessment of Return:- There are assessment officers in tax department who makes
assessment of all the tax returns if there is clarification then notice will be issued to assessee
about payment of amount of income tax. If advance payment of tax is done then it is
deducted & balance of the amount is claimed by issue of notice.
d. Explanation:- If there is no clarification in the return then notice is issued to appear
personally (or) through tax practioner on particular date & time. They take relevant
explanation & information about the facts specified in return.
e. Tax & Penalty:- After assessment tax authority have power to fix income tax & also
imposed the penalty. Notice is given immediately (or) sent on the address of the assesse.
f. Claim of refund:- If excess income tax is paid then asssesse can claimed the refund on
printed proforma, refund is deposited in account of assesse with reasonable interest.
Appeal:- After decision of tax authorities in the dispute is allowed before income tax
appellate tribunal within 3months period. Appellate tribunals gives decision after hearing both
the sides appeal from tribunal is allow to High court & lastly to Supreme court.
Penalties:- Following are the provisions relating to penalties & prosecutions.
a. If tax return is not filed intentionally then there can be penalty not exceeding double the
amount (or) 3months imprisonment (or) both.
b. If any false (or) misleading information is given in the return then penalty is upto 1lac rupees
(or) imprisonment upto 6months.
c. If anybody makes black money by avoiding the tax then penalty upto 5lacs (or) 1year
imprisonment.
d. If default is done for 5years (or) more period then there can be 2years imprisonment (or)
arrears of income tax with penalty is collected.
Double Taxation Relief:- There is relief from double taxation policy, if income tax has been
paid in other country (or) any other state then there is no need to pay income tax on same
income burden of prove is on party.
These is details about assessment, penalties, appeal & double taxation relief in Income Tax
Act.
Law Of Taxation VIth Semester

Q4. Explain various authorities constituted under Income Tax Act & their powers & functions.
Ans. In income tax act 1961 there are no. of authorities appointed under the act, it is big network
because taxation is main source of income for the government. Income tax is collected by central
government from all the states.
Following are the authorities appointed under income tax act.
1. Commissioner of income tax.
2. Additional income tax commissioner.
3. Deputy income tax commissioner.
4. Joint income tax commissioner.
5. Assistant income tax commissioner.
6. Chief income tax officer.
7. Income tax officer.
8. Assessment officer.
These are the authorities according to rank commissioner is big post which is generally in
city. Income tax officer is sub ordinate post having particular jurisdiction to collect the tax,
superior officer can give instruction to sub ordinate officer to enforce income tax act.
Powers & functions of Income Tax authority:-
1. Powers to give notification in news papers for filing income tax return.
2. Powers to extend the period on reasonable grounds.
3. Superior authority can make super vision on tax offices in the jurisdiction.
4. There is power to make consultation & correspondence with finance ministry.
5. There is power to make scrutiny & assessment of income tax return.
6. There is power to issue notice & call assessee to give explaination.
7. Powers to impose penalty for violation of rules.
8. There is power to entertain complaint about black money & take necessary action.
9. There is power to issue notice to file income tax return.
10. There is power to raid any premises such as house, shop, industry within the jurisdiction.
11. There is power of authority to carry black money & objectionable documents found at the time
of raid & book the case.
12. Power to file cases in criminal court & income tax appellate tribunal.
13. There is power to collect arrears of income tax with penalties from the defaulters.
14. Power to issue notices to take to take explanation about deposits in bank accounts &
purchase of properties about payment of income tax.
These is details about various authorities & there powers under Income Tax Act 1961.
Law Of Taxation VIth Semester

Q5. Explain provisions of wealth tax & its assessment & person exempted from wealth tax.
Ans. There is a separate act called as wealth tax 1957, wealth tax is collected from super reach
persons, following are the constitutional provisions which support collection of wealth tax.
1. There is provision in constitution to maintain equality, there is much disparity between reach &
poor people, wealth tax is collected to minimize these disparity.
2. There is provision in directive principle of state policy that government have to reduce
concentration of wealth in hands of few people & therefore wealth tax is collected from reach
people.
3. There also provision of economic justice in permissible of constitution & these tax is collected.
4. Natural reserve to be distributed among people of the country.
5. Government have to carry welfare activity through income from taxes.
Provision of wealth tax:- If wealth is above 40lacs then printed proforma application is
available from wealth tax department which have to be filled up & submitted with relevant
documents.
1. One residential house come under exemptions.
2. There is exemption of one shop (or) one industry.
3. For farmers 54acres land come under exemption.
4. One vehicle which may be 2wheeler (or) four wheeler (or) truck is exempted.
5. For every women golf ornament up to 25tolas are brought under exempted.
6. Land up to 1000 sq mtrs in city is exempted.
7. Articles in domestic use such as TV, fridge, washing machine, wearing cloths are exempted. After
all above exemptions wealth tax is collected according to rules framed by central government
which are as follows;
1. If total valuation is less then 40lacs then there is no need to pay wealth tax.
2. If wealth is above 40lacs & under 5crs then wealth tax is 50,000/- rupees plus 1% of the wealth.
3. When wealth is above 5crs & under 10crs then it is 75,000/- rupees & plus 1.5% wealth.
4. If wealth is above 10crs & under 50crs then wealth tax is 5lacs rupees plaus 2% wealth tax.
5. If it is above wealth tax is 10lacs plus 3% of wealth.
These is details about constitutional validity of wealth tax, assessment of wealth tax &
permissible exemptions under wealth tax.
Law Of Taxation VIth Semester

Q6. What is valuation rules of immovable property, business assets, jewelry & computation of wealth
tax & filing of return of wealth tax.
Ans. In order to make assessment of wealth tax many properties are taken into consideration there are
recognized person as well as valuation of properties, it includes following assests.
1. Valuation of immovable property:- The term immovable property includes open land,
agriculture land, shop, godwon, complex, malls, valuation is done by considering following points.
a. Measurement of land, area, place & rate of the land fixed in that raea.
b. Total construction area on the land.
c. Furniture available in the house & cost of the furniture.
d. If there are luxury item in the house then it is also taken into consideration in valuation.
e. If it is shop then stock of goods kept in the shop.
f. If there are trucks (or) vehicles then it is also considered.
g. If it is industry (or) factory then price of machinery price of raw material & price of finiahing
product.
These points are considered in assessment of immovable property help of engineers,
architect is taken in computation of wealth related to immovable property.
2. Valuation of Business assests:- In business assests following points are considered.
a. If businessman is the owner of the shop then valuation of the shop is considered.
b. If investment is done by businessman then total amount of investment, if loan is barrowed
then it is not considered.
c. Yearly rotation of business & not profit of the businessman.
d. If losses have been caused then it is also deducted from income.
Therefore all business assessts are added in computation of wealth.
3. Valuation of Jewellery:- Jewellery includes platinum ornament, gold ornament, silver ornament,
there is valuation of metal in addition to these pearls, gems, rubys & daimonds which are affixed
to ornament are considered in valuation in computation of wealth.
Filing of wealth return:-
a. Wealth return have to be file in financial year.
b. Printed proforma application is submitted.
c. There should be details about permissible exemptions.
d. Certificate of the experts who have done valuation.
e. Total of net wealth.
f. Amount of wealth tax.
g. Wealth authorities examine return & approve it.
h. Authority have power to call the assessee by giving notice & take explanation if it is necessary.
i. Authorities have power to make personal inspection.
These is details about computation of wealth to immovable property, jewellery, business
& procedure of filing wealth tax return.
Law Of Taxation VIth Semester

Q7. Explanation provisions of AP general sales tax act 1957.

Ans. There is separate state tax act of every state AP sale tax act came into force in 1957, every
businessman have to obtain municipal license & sale tax license within 6months period from
commencement of business, sale tax is indirect tax & businessman have to collect it from
customer & maintain the account & make payment in sale tax department.
Authorities under the act:- There are no. of authorities to enforce sale tax & these authorities
are as follows.
1. Commissioner of sale tax.
2. Additional commissioner of sale tax.
3. Deputy sale tax commissioner.
4. Joint sale tax commissioner.
5. Assistant sale tax commissioner.
6. Chief sale tax officer.
7. Assistant sale tax officer.
8. Sale tax assessment officer.
Following are the powers of these officers.
1. There is jurisdiction given to every officer.
2. Sale tax officer have power to enter in the shop in his jurisdiction & examine the records relating
to purchase of the goods, sale of goods, & stock which is available.
3. Authorities have powers to stamp the receipt book that it can be maintain properly.
4. They have right direction to maintain stock position of the goods.
5. Sale tax officer have right to enter in any shop (or) business premises having jurisdiction &
examine purchase register, sale register, receipt book & all relevant document they can also
check pockets of the businessman.
6. There is powers to seize objectionable records & register & book the cases for violation of
payment of sale tax.
7. There is power to settle dispute between assessee & sale tax department.
8. Powers to impose the penalty for violation of the rules.
9. Appeal from decision of sale tax authority is allow to sale tax appellate tribunal & after that to high
court.
10. There is power to way bills & check the records to verify it.
11. If sale tax return is not filed then arrears are collected with penalty. Provision of sale tax:-
1. Monthly record to be filed relating to sale tax in the office & every year annual return is filed.
2. Minimum sale tax is 4% & maximum is 32% which is depend on goods, the slab of sale tax is 4%,
8%, 12%, 16%, 22%, 28% & lastly 32% on liquor.
3. There is no sale tax on some good called as exempted goods such as books, note book,
readymade cloths, fruits & vegetables.
4. In every budget state government have power to increase sale tax on some goods to reduce sale
tax on some goods & also exempted some goods from sale tax. These is details about AP sale
tax act 1957.
Law Of Taxation VIth Semester

Q8. Explain silents features of central sale tax act 1956.

Ans. There is also central sale tax (CST) to be paid by traders & businessmen selling the goods.
Businessmen have to obtain CST license in addition to ST license.
Authorities under the act:- Following are the authorities appointed by the central government
to enforce CST Act.
1. Commissioner of CST.
2. Additional commissioner of CST.
3. Deputy commissioner of CST.
4. Joint commissioner of CST.
5. Assistant commissioner of CST.
6. Chief CST officer.
7. CST officer.
8. Assessment officer.
These officers are generally in big cities, every officer has been given jurisdiction. Seller (or)
trader has to collect CST from the buyer as specified in CST act & maintain the record of CST. Powers
of authorities:-
1. Powers to enter in business premises & make inspection of relevant register & documents
relating to CST.
2. Power to impose penalty for violation of rules.
3. Powers to seize objectionable records & registers.
4. Power to give notification for filing CST return in financial year.
5. Power to give grace period to file CST return which is generally 3months after completion of
financial year.
6. Power to settle dispute between assesse & CST department.
7. Power to call assessee & take explanation about records & documents.
8. Power to entertain complaint & make enquiry in it.
9. Officer have power to enter in business premises within the jurisdiction & examine records of
CST.
Provisions relating to CST:- 1.
These tax is less than state sale tax.
2. It is minimum 2^ & maximum 8%.
3. Provision are made by central government.
4. In every budget finance minister have power to increase (or) decrease CST & also exempts some
goods from payment of CST.
5. Central government appoints CST tribunals to settle dispute relating to CST.
Therefore CST is similar to state sale tax act but these tax is less & it is collected by
central government by establishment of CST offices in all the states.
Law Of Taxation VIth Semester
Law Of Taxation VIth Semester

Q2. Agricultural Income.

Ans. The term agriculture income have been given brought definition in Income Tax Act. Agriculture
income has been exempted from payment of income tax. If property is being purchased by using
agriculture income then buyer have to pay income tax.
1. Production of all type of grains.
2. Income from flowers, fruits, vegetables.
3. Medicinal plants, rubber plants, teak wood, sandal wood from which there is income.
4. If there are animals from which there is sale of milk & milk product comes under agriculture
income.
5. Poultry firm comes under agriculture income.
6. Income from bamboo trees.
7. Income by selling water form well.
8. Income by selling dry grass.
These is details about agriculture income.

Q5. Permissible exemptions.

Ans. Under wealth tax act 1956 there are some permissible exemptions, there is no computation of
wealth tax on exempted properties, these exemptions are as follows;
1. There is exemptions up to 40lacs rupees wealth.
2. One house for residence purpose.
3. One shop used for commercial purpose.
4. One vehicle which may be 2wheeler (or) 4wheeler.
5. One truck is used for transportation.
6. 25tolas gold ornaments for a women in family.
7. 54acres land allowed to a farmer.
8. If its is open land in city then it is up to 1000 sq mtrs.
These are permissible exemptions under wealth tax act 1956.

Q6. Permissible deductions.

Ans. Permissible deductions are relating to income from salary, income from business, income from
property, these deductions are as follows specified in income tax act 1961.
1. In salary income permissible deductions are such as deduction of medical bills, PPF(Public
Provident Fund) deposit, rent paid for rented accommodation, medical expenses done in the
year, payment of fee of children.
2. In business permissible deduction are rent of the shop, petrol bills of vehicle, electricity bills,
telephone bills, salaries of employees, municipal tax & losses caused in the year.
3. There are following deductions relating to income from property.
Expenses on repairing work in the year salaries of the staff, such as watchmen, gate keeper,
clerk, if loan is barrowed then interest paid on the loan amount in that year, payment of
electricity bills, water supply bills & municipal tax.
After all above deductions from gross income there is net income on which income tax is
calculated.

Q12. VAT.

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Law Of Taxation VIth Semester

Ans. Meaning of VAT is value added tax, sale tax is collected on purchase price of the goods but
under VAT it is collected on sale price, in Andhra Pradesh VAT act was passed in 2005, it is a
form of sale tax collected from buyer, there is benefit to government because tax is collected on
sale price which includes profit of the seller, there is power of the government to increase (or)
decrease VAT by giving details of the goods, minimum VAT at present is 12.5% & maximum
5.5% some states have not implemented the VAT.
Q13. PAN.
Ans. Meaning of PAN is Permanent Account Number, anybody can apply for PAN card in printed
proforma application in Income Tax department, it includes following points.
1. There should be name, father name, address, specified in application.
2. Photo have to be enclosed.
3. There should be documents relating to proof of address & proof of age.
4. Prescribed fee have to be paid for issue of PAN card.
5. Within 1month period tax authority do scanning of details & photo, name, age, signature on the
card & send it on address of applicant by register post.
6. Every PAN card has been given specific number.
In order to file income tax return, sale tax return, bank transactions, PAN card is necessary & no
have to be mentioned, it can be used as proof of identification.

Q14. TDS.
Ans. Meaning of TDS is Tax Deducted Source, there are instructions to companies & corporations to
deduct 10% TDS every month, bank also deduct TDS on our interest deducted TDS is deposited
quarterly in Tax department by management, certificate is given quarterly to employee about
deduction of TDS, if income of the employee (or) depositor does not come within income tax limit,
then online claim form can be submitted for refund of TDS income certificate have to be
enclosed, TDS may be refunded with 9% rate of interest per annum within 6month period, TDS is
deposited directly in account of claimant, if it is taxable income then TDS is adjusted & balance
amount may be refunded by tax department, tax department get tax in advance because of TDS.

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Page
Short Questions

Q1. Definition of Income.

Q2. Agricultural Income.
Q3. Assessment year.
Q4. Computation of income.
Q5. Permissible exemptions.
Q6. Permissible deductions.
Q7. Income from Dairy.
Q8. Income from property.
Q9. Gains of profession.
Q10. Gains of business.
Q11. Capital gains.
Q12. VAT.
Q13. PAN.
Q14. TDS.
Q15. Double taxation relief.

Long Questions.

Q1. Explain concept of Income Tax & method of computation of Income Tax relating to taxable
income under Income Tax Act 1961.
Q2. Explain provisions of income from salary, property, profit of business & capital gains & other
sources & permissible deduction.
Q3. Explain procedure for assessment, prosecution, penalties, appeal & double taxation relief.
Q4. Explain various authorities constituted under Income Tax Act & their powers & functions.
Q5. Explain provisions of wealth tax & its assessment & person exempted from wealth tax.
Q6. What is valuation rules of immovable property, business assets, jewelry & computation of wealth
tax & filing of return of wealth tax.
Q7. Explanation provisions of AP general sales tax act 1957.
Q8. Explain silents features of central sale tax act 1956.

Page

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