tax laws and practice - The Institute of Company Secretaries of India

788 Pages·2009·7.11 MB·English

STUDY MATERIAL
EXECUTIVE PROGRAMME
TAX LAWS
AND
PRACTICE
MODULE I
PAPER 4
ICSI House, 22, Institutional Area, Lodi Road, New Delhi 110 003
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email [email protected] website www.icsi.edu
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© THE INSTITUTE OF COMPANY SECRETARIES OF INDIA
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EXECUTIVE PROGRAMME – TAX LAWS AND PRACTICE
This study material has been published to aid the students in preparing for the Tax Laws and Practice paper of the
CS Executive Programme. It is part of the educational kit and takes the students step by step through each phase
of preparation stressing key concepts, pointers and procedures. Company Secretaryship being a professional
course, the examination standards are set very high, with emphasis on knowledge of concepts, applications,
procedures and case laws, for which sole reliance on the contents of this study material may not be enough.
Besides, as per the Company Secretaries Regulations, 1982, students are expected to be conversant with the
amendments to the laws made upto six months preceding the date of examination. The material may, therefore, be
regarded as the basic material and must be read alongwith the original Bare Acts, Rules, Orders, Case Laws,
Student Company Secretary bulletin published and supplied to the students by the Institute every month as well as
recommended readings given with each study lesson.
The subject of Tax Laws is inherently complicated and is subjected to constant refinement through new primary
legislations, rules and regulations made thereunder and court decisions on specific legal issues. It therefore becomes
necessary for every student to constantly update himself with the various changes made as well as judicial
pronouncements rendered from time to time by referring to the Institutes journal ‘Chartered Secretary’ and bulletin
‘Student Company Secretary’ as well as other law/professional journals on tax laws.
The purpose of this study material is to impart conceptual understanding to the students of the provisions of the
Direct Tax Laws (Income Tax and Wealth Tax) and Indirect Tax Laws (Service Tax, Value Added Tax and Central
Sales Tax) covered in the Syllabus. The study material contains all relevant amendments made by Finance Act,
2013 and is applicable for the Assessment Year 2014-15 relevant for June 2014 and December 2014 examination.
However, it may so happen that some developments might have taken place during the printing of the study material
and its supply to the students. The students are therefore, advised to refer to the Student Company Secretary
bulletin and other publications for updation of the study material.
The students may note that Assessment Year for June 2014 and December 2014 examination is 2014-15. Besides
all other changes made through Notifications etc. and made effective six months prior to the examination will also
be applicable.
In the event of any doubt, students may write to the Directorate of Academics and Prospective Planning in the
Institute for clarification.
Although care has been taken in publishing this study material yet the possibility of errors, omissions and/or
discrepancies cannot be ruled out. This publication is released with an understanding that the Institute should not
be responsible for any errors, omissions and/or discrepancies or any action taken in that behalf.
Should there be any discrepancy, error or omission noted in the study material, the Institute shall be obliged if the
same are brought to its notice for issue of corrigendum in the Student Company Secretary bulletin.
This study material has been updated upto 31st December 2013.
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SYLLABUS
MODULE (I) PAPER 4: TAX LAWS AND PRACTICE
Level of Knowledge: Working Knowledge
Objective: To acquire expert knowledge of practical and procedural aspects relating to Direct Tax Laws, Service
Tax and VAT.
PART A: INCOME TAX AND WEALTH TAX (70 MARKS)
1. Basics and Definitions – Income Tax Act , 1961
– Background, Concept and Mechanism of Income Tax
– Definitions, Concept of Income, Previous Year, Assessment Year, Distinction between Capital and Revenue
Receipts and Expenditure, Residential Status
– Basis of Charge and Scope of Total Income
2. Incomes which do not form part of Total Income
3. Computation of Total Income under Various Heads
Salaries, Income from House Property, Profit and Gains of Business or Profession, Capital Gains, Income
from Other Sources
4. Clubbing Of Income, Set-off and Carry-Forward of Losses and Deductions from Total Income
Income of Other Persons included in Assessee’s Total Income; Aggregation of Income and Set Off or Carry
Forward of Losses; Various Deductions to be made in Computing Total Income, Rebates and Relief’s; Applicable
Rates of Taxes and Tax Liability
5. Taxation of different kinds of persons
Taxation of Individuals including Non-Residents, Hindu Undivided Family, Firms, LLP, Association of Persons,
Cooperative Societies, Trusts, Charitable and Religious Institution
6. Classification and Tax Incidence on Companies
Computation of Taxable Income and Assessment of Tax Liability, Dividend Distribution Tax, Minimum Alternate
Tax and Other Special Provisions Relating to Companies
7. Collection and Recovery of Tax
Tax Deduction at Source, Tax Collection at Source, Recovery and Refund of Tax; Provisions of Advance Tax
8. Procedure for Assessment, Appeals, Revisions, Settlement of Cases and Penalties & Offences
Provisions concerning Procedure for Filing Returns, Signatures, E-Filing, Assessment, Reassessment
and Settlement of Cases, Special Procedure for Assessment of Search Cases, E-Commerce Transactions,
Liability in Special Cases, Refunds, Appeals and Revisions; Penalties Imposable, Offences and Prosecution.
9. Tax Planning & Tax Management
Concept of Tax planning, Tax planning with reference to setting up a New Business; Location; Nature of
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Business; Tax Holiday, etc. Tax Planning with regard to Specific Management Decisions such as Mergers and
Takeovers; Employees’ Remuneration; Voluntary Retirement Tax Planning with reference to Financial
Management Decisions such as Borrowing or Investment Decisions; Reorganization or Restructuring of Capital
10. Wealth Tax Act, 1956
– Background, Concept and Charge of Wealth Tax
– Assets, Deemed Assets and Assets Exempt from Tax
– Valuation of Assets, Computation of Net Wealth
– Return of Wealth Tax and Provisions concerning Assessment
11. Basic Concepts of International Taxation
Residency Issues; Source of Income; Tax Havens; Withholding Tax, Unilateral Relief and Double Taxation
Avoidance Agreements, Controlled Foreign Corporation, Advance Rulings and Tax Planning, Authority for
Advance Rulings,
12. Transfer Pricing
– Concepts, Meaning of International Transactions
– Computation of Arm’s Length Price & Methods
– Documentation and Procedural Aspects
13. General Anti Avoidance Rules (GAAR)
PART B - SERVICE TAX & SALES TAX (30 Marks)
14. An Overview of Service Tax
Background, Negative List Approach, Taxable Services, Administrative Mechanism, Registration and Procedural
Aspects, Rate and Computation of Tax, Levy, Collection and Payment of Service Tax.
15. An Overview of Value Added Tax
Legislative Background, Concept of VAT, Declared Goods, Administrative Mechanism, Registration and
Procedural Aspects, Rate and Computation of Tax, Levy, Collection and Payment of VAT.
16. Central Sales Tax
Tax on Inter- State Trade and Exports - Registration, Preparation and Filing of E-Returns, Rates of Tax,
Assessment and Refunds.
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LIST OF RECOMMENDED BOOKS
PAPER 4: TAX LAWS AND PRACTICE
READINGS
I. Income Tax and Wealth Tax :
1. Dr. V. K. Singhania : Students Guide to Income-tax including Service Tax/VAT; Taxmann
Publications Pvt. Ltd., 59/32, New Rohtak Road, New Delhi – 110 005
(Edition based on provisions applicable for AY 2013-14)
2. Girish Ahuja and : Systematic Approach to Income-tax, Service Tax and VAT; Bharat Law
Ravi Gupta House, T-1/95, Mangolpuri Industrial Area, Phase I, New Delhi-110 083.
(Edition based on provisions applicable for AY 2013-14)
3. B. B. Lal and N. Vashist : Direct Taxes, Income Tax, Wealth Tax and Tax Planning; Darling
Kindersley (India) Pvt. Ltd., 482, FIE, Patparganj, Delhi.-110092 (Edition
based on provisions applicable for AY 2013-14)
4. Dr. H. C. Mehrotra and : Direct Taxes (with Tax Planning); Sahitya Bhawan, Agra. (Edition based
Dr. S.P. Goyal on provisions applicable for AY 2013-14)
5. Girish Ahuja and : Professional Approach to Direct Taxes Law & Practice; Bharat Publications
Ravi Gupta (Edition based on provisions applicable for AY 2013-14)
II. Service Tax and Value Added Tax
1. V. S. Datey : Service Tax Ready Reckoner; Taxmann Publications, 59/32, New Rohtak
Road, New Delhi
2. J. K. Mittal : Law, Practice & Procedure of Service Tax; CCH India, (Walters Kluwer
(India) Pvt. Ltd.), 501-A, Devika Tower, 6 Nehru Place, New Delhi.
3. Balram Sangal and : All India VAT manual (4 Vols.); Commercial Law Publisheres (India) Pvt
Jagdish Rai Goel Ltd., 151, Rajindra Market, Opp. Tis Hazari Courts, Delhi – 110 054
REFERENCES
1. Bare Act : Income Tax Act, 1961 & Income Tax Rules, 1962
2. Sampath Iyengars : Law of Income Tax, 11th Edition; Bharat Law House Pvt. Ltd., T-1/95,
Mangolpuri Industrial Area, Phase I, New Delhi-110 083.
Note :
(i) Students are advised to read the relevant Bare Acts. ‘Student Company Secretary’ and ‘Chartered Secretary’
regularly for updating the knowledge.
(ii) The latest editions of all the books relevant for the applicable assessment year referred to above should be read.
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ARRANGEMENT OF STUDY LESSONS
PART A
1. Introduction and Important Definitions
2. Basis of Charge, Scope of Total Income and Residential Status
3. Incomes which do not Form Part of Total Income
4. Computation of Total Income under Various Heads :
Part I – Income under head Salaries
Part II – Income under head House Property
Part III : Income From Business or Profession
Part IV – Income from Capital Gains
Part V – Income from Other Sources
5. Income of Other Persons Included in Assessee’s Total Income and Set-Off or Carry Forward of
Losses
6. Deductions from Total Income
7. Computation of Tax Liability of Hindu Undivided Family/ Firm/Association of Persons/Co-
operative Societies
8. Computation of Tax Liability of Companies
9. Computation of Tax Liability of Non-resident Assessees
10. Collection and Recovery of Tax
11. Procedure for Assessment
12. Appeals, Revisions, Settlement of Cases and Penalties & Offences
13. Tax Planning & Tax Management
14. Wealth Tax Act, 1956
15. Basic Concepts of International Taxation
16. Advance Ruling and GAAR
PART B
17. Background, Administration and Procedural Aspects of Service Tax
18. Levy, Collection and Payment of Service Tax
19. Value Added Tax – Introduction, Computation and Other Procedural Aspects
20. VAT provisions in India and VAT System in other Countries and Scope for Company Secretaries
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CONTENTS
PART A: THE INCOME TAX AND WEALTH TAX ACT
LESSON 1
INTRODUCTION AND IMPORTANT DEFINITIONS
Introduction 3
Basic Concepts of Income Tax Act 3
– Income 4
– Assessee 11
– Person [Section 2(31)] 12
– Assessment Year [Section 2(9)] 13
– Previous Year (Section 3) 13
Computation of Taxable Income and Tax Liability of an Assessee 14
Tax Rates 15
LESSON ROUND UP 16
SELF TEST QUESTIONS 17
LESSON 2
BASIS OF CHARGE, SCOPE OF TOTAL INCOME AND RESIDENTIAL STATUS
Residential Status and Tax Liability (Section 6) 22
– Test for Residence of individuals 22
– Tests of Residence for Hindu Undivided Families, Firms and other Associations of Persons 27
– Tests of Residence for Companies 29
Charge of Income-tax (Section 4) 29
Meaning and Scope of total Income (Section 5) 31
Apportionment of Income between Spouses Governed by Portuguese Civil Code (Section 5A) 39
Tax incidence vis-a-vis Residential Status 40
LESSON ROUND UP 44
SELF TEST QUESTIONS 45
LESSON 3
INCOMES WHICH DO NOT FORM PART OF TOTAL INCOME
General Exemption 50
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Specific Exemption 93
Special Provisions in respect of Newly Established Units in Special Economic Zone (Section 10AA) 93
Tax Exemptions for Charitable Trusts and institutions 95
Tax Exemptions to Political Parties (Section 13A) 106
Voluntary Contributions received by an Electoral Trust (Section 13B) 107
LESSON ROUND UP 107
SELF TEST QUESTIONS 107
LESSON 4
COMPUTATION OF TOTAL INCOME UNDER VARIOUS HEADS
PART I – INCOME UNDER THE HEAD SALARIES
Basis of Charge 112
Salary [Section 17(1)] 116
Allowances 117
Perquisites [Section 17(2)] 118
Valuation of Perquisites 126
Profits in Lieu of or in Addition to Salary 131
Deductions Allowed from Salaries (Section 16) 133
Provident funds - Treatment of Contributions to and Money Received from the Provident Fund 134
Incomes exempt from Tax and not includible in ‘Salary’ 135
Tax Deducted at Source 135
LESSON ROUND UP 147
SELF TEST QUESTIONS 148
PART II – INCOME UNDER THE HEAD HOUSE PROPERTY
Basis of Charge 154
Determination of Annual Value Under Section 23 157
Computation of Annual Value/Net Annual Value 158
Deductions from Income under the head House Property (Section 24) 165
Deduction in respect of interest on Housing Loan under section 80EE 166
Special Provision for Cases where Unrealised Rent allowed as Deduction is realised 166
subsequently (Section 25A)
Unrealised Rent received subsequently to be Charged to Income-tax (Section 25AA) 167
Taxation of arrears of rent in the year of receipt (Section 25B) 167
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Loss from House Property 167
Exemptions 173
LESSON ROUND UP 174
SELF TEST QUESTIONS 175
PART III : INCOME FROM BUSINESS OR PROFESSION
‘Business’ or ‘Profession’ 182
Income Chargeable to Income-Tax (Section 28) 184
Point for consideration while computing income under the head Business or Profession 186
Profits and Losses of Speculation Business 188
Computation of Income under the head “Profits and Gains from Business or Profession” 190
Deductions Allowable 190
Expenses Restricted/Disallowed (Section 40 and Section 40A) 229
Deemed Profits 236
Special Provision for Deductions in the Case of Business for prospecting etc. for Mineral Oil (section 42) 238
Special Provisions Consequential to the Changes in the Rate of Exchange of Currency [Section 43A] 239
Special Provision for Computation of Cost of Acquisition of Certain Assets (Section 43C) 240
Special Provision in Case of Income of Public Financial institutions, Etc. (Section 43D) 241
Insurance Business (Section 44) 241
Special Provisions for Deduction in Case of Trade, Professional or Similar Associations (Section 44A) 241
Maintenance of Accounts (Section 44aa) 242
Compulsory Audit of Accounts of Certain Persons Carrying on Business or Profession (Section 44AB) 243
Special Provision for Computing Profits and Gains of Business on Presumptive Basis (Section 44AD) 244
Special Provisions for Computing Profits and Gains of Business of Plying, Hiring or 244
Leasing Goods Carriages (Section 44AE)
Special Provisions for Computing Profits and Gains of Shipping Business in the Case of Non-Residents 245
(Section 44B)
Special Provision for Computing Profits and Gains in Connection with the Business of Exploration Etc., 245
of Mineral Oils (Section 44BB)
Special Provision for Computing Profits and Gains of the Business of Operation of Aircraft in the Case of 246
Non-Residents (SECTION 44BBA)
Special Provision for Computing Profits and Gains of foreign Companies Engaged in the Business of 246
Civil Construction Etc. in Certain Turnkey Power Projects [Section 44BBB]
Deduction of Head Office Expenditure in the Case of Non-Residents (Section 44C) 247
Computation of Income By Way of Royalty Etc. in Case of foreign Companies (Section 44DA) 247
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