Taxation Theory Questions

Q.1) what do you mean by person and discuss the various elements of Person?
The term ‘person’ as defined under the Income-tax Act covers in its ambit natural as well as
artificial persons, i.e. apart from a natural person/ individual, any sort of artificial entity will also
be liable to pay Income-tax.
For the purpose of charging Income tax , the term “person” under section 2(31) of income tax ,
includes individual , hindu undivided family, Association of persons, body of individuals, firm,
LLps, companies, local authorities and artificial juridical person.
Q.2) What is previous year and assessment year? Discuss the exemption of previous year?
Previous Year :- As per the section 3 of the income tax Act,1961 previous year is the year
immediately preceding the assessment year. Previous year is also know as financial year. It is
basically means the period starting from April 1 and ending on March 31 of the next year in
which the assesse earns the income.
Assessment Year :-
Section 2(9) of the income tax, 1961, the term “assessment year” means the period of
12months commencing on the 1st day of April every year.
The assessment year is the financial year of the government of India during which income of a
person relating to the relevant previous year is assessed to tax. Every person who is liable to
pay tax under this Act. Files return of income by prescribed dates.
Tax on income earned in previous year is paid in the assessment year.
However there are few exemptions where the tax on previous year income earned is paid in the
previous year itself. These exemption are:-
1.) AS per Section 172 of the income tax act 1961, the income earned by a non- resident
from a shipping business in India, has to be taxed in the previous year itself.
2.) As per section 174 of the income tax Act, 1961, income earned by the person who is
leaving India Permanently or for a long period of time has to pay the income tax in the
previous year itself.
3.) As per section 174A of the income tax act, 1961, Income earned by those bodies which are
formed for a short period of time, has to pay the tax in the previous year itself.
4.) As per the section 175 of the income tax act, 1961, income earned by those person who are
likely to transfer their property in order to avoid the tax must have to pay tax in the previous
year itself.
5.) As per section 176 of the income tax act, 1961, income earned from discontinued business has
to pay the tax in the previous year itself.
Q.3) Define Residential Status. Explain the condition of Residential status of the Individual.

Residential status refers to a person’s status with reference to the question how long the person has
stayed in India for the past five year. The Income Tax liability of a taxpayer is based on the residential
status in the financial year, and four year preceding the financial year.

While filing income tax returns, the taxpayer must declare the applicable residential status in the tax
return.

Under the income tax, taxpayer are divided into three categories of residential status, which are as
follows:-

1) Resident but not ordinary resident

An individual is a resident but not ordinary resident in India in any financial year if the assesse
fulfils any one of the following two conditions:-
i. The taxpayer is in India in a particular financial year for 182 days or more or
ii. The Taxpayer has been in India for at least 365 days in the four year immediately
preceding a particular financial year and in India for 182 days or more in that year.
2) Ordinary Resident
A person is said to be “ ordinary resident” in India in any financial year if the person is :-
i) An Individual who has been a non resident in India in nine out of the ten previous year
preceding a particular financial year or has during the seven financial years preceding
that year been in India for a period of , or periods amounting in all to seven hundred and
twenty nine days or less; or
ii) Hindu undivided family whose head of the member has been a non-resident in India in
nine out of ten financial years preceding the relevant financial year or has during the
seven financial years preceding that year in India for a period of, or period amounting in
all to, seven hundred and twenty-nine days or less. Thus an “ ordinary Resident” would
be resident who is outside the purview of the above definition.
3) Non-Resident
An individual is non-resident in India in any financial year if the taxpayer does not fulfil any of
the above mentioned conditions required for a resident but not ordinary resident and an
ordinary resident.
Q.4) Explain the General and specific Income under the head of other source?

Income from other sources, which is the last among the five heads of income sketched out in
the Income Tax Act, is essentially a head of income that includes all receipts that cannot
otherwise be classified under any of the other heads of income.
According to section 56 of the Income Tax Act, the following three conditions need to be
satisfied for a receipt to be categorized as income from other sources.

i. There is an income.
ii. Such income is not exempted under any other provisions of the Income Tax Act.
iii. Such Income Cannot be charged as Salary, income from house property, profits and gains
from business and profession.

Here is the list of General Income under the head Income from other source :-

i. Dividends
a. Dividends from an Indian Company
b. Dividend from other foreign company
ii. One time Income
iii. Interest on compensation
iv. Gifts

The list of Specific Income under the Head Income from other source if they are not chargeable as profit
and gains from business and profession :-

i. Employees contribution to welfare schemes

ii. Interest on securities like government bonds or debentures

iii. Rental income from letting out plant, machinery, or furniture owned by the
assesse
iv. Rental income from letting out plant, machinery, or furniture, along with a
building, where these two cases of letting out are inseparable
v. Receipts under Key-man Insurance Policy.
vi. Income from subletting of a house property by a tenant
vii. Casual income
viii. Insurance commissions received by the assessee
ix. Family pension payments received by the legal heirs of dead employees
x. Interest on bank deposits and deposits with companies
xi. Interest on loans given
xii. Remuneration received by Members of Parliament
xiii. Rent earned from a vacant plot of land
 xiv. Agricultural income from agricultural land situated outside India
xv. Interest paid by the Government on excess payment of advance tax

Q5) Explain the deduction in respect of certain Income.

Deduction Under Certain Income:-
Section Particulars Condition and Deduction
80 1A Income from Eligible 100% Deduction
Business, financial should 1. Determine amount
be audited by CA. of profit Eligible for
Deduction.
2. Audited Account
3. Transfer of Goods
and services.
80 1 AB Development of Special 100% Deduction
Economic Zone.
80 1B Setting Up new 100% deduction for
Undertaking industry
80 1BA Housing Property Deduction According to
Area.
80 1c Setting up industry in 100% of profit deduction
backward state
80 1d Profit form hotel business 100% of profit deduction.
in specific area.
80 1E Provision in respect of 100% of profit deduction.
certain undertaking in
north-Eastern state
80 JJA Profit from biodegrable 100% profit for deduction
waste Business. for 1st five years.
80 JJAA Employment of New 30% of addition employee
employees cost.
80 LA Income from international 100% of income 5 A.y.
financial service
80 P Income from co-operative 100% of income deduction
Society
 80 PA Income of farm producer 100% deduction
80 QQ B Royalty Income If rate of Royalty increase
15%.
80 RRB Royalty on Patents 300000 or actual
whichever is less
80 TTA Interest deposit below 60 10000 max
80 TTB Interest deposit in case of Max 50000
senior citizen
80 u Income of person with i. 75000 in case of
disability disability
ii. 125000 in sever
disability.

Q 6) Deduction Under Certain Payments :-

Sections Particulars Deductions and Condition
80 c LIC, PF, tuition fees, NSC, Maximum Deduction
MF, Housing Loan 150000.
Repayment
80 ccc Pension Fund Maximum 150000
80 CCD (1) National Pension Schemes Own contribution or 10% of
a) For Employees – salary whichever is less
b) For self employed – own contribution or 20% of
salary whichever is less
80 d Health and medical
Insurance
a) Health check up – Upto 5000
b) Policy for Parents/ Actual or 25000 (general)
dependence/ own 50000 (Senior Citizen)
whichever is less
c) For Senior Citizen Maximum 50000
80 DDB Medical treatment for Below 60 40000 max
Resident Above 60 100000 max
80 E Education Loan Full interest amount (But
financial Institution only)
 80 EE Residential House Upto 50000 (if from
Property interest payment financial institute)
(loan)
80 G Donation No limit donation- 100% or
50%
With limit :- Actual or 100%
of income
80 GG Rent Paid Whichever is less –
i. 5000 per month.
ii. Rent paid – 10%
of GTI
iii. 25% of GTI
80 GGA Donation for scientific i. 100% Deduction
Research or Rural ii. If Exceeds
Development 10000 then cash
paid deduction is
not allowed.
80 GGB/GGC Contribution in Political i. 100% deduction
Parties in kind
ii. Cash Paid is not
allowed.

Q.7) What is GST In India? Discuss its objectives.

GST or Good and service tax is an indirect Tax imposed on supply of goods and
services. It is multi stage destination oriented tax imposed on every value addition ,
replacing multiple indirect tax, including vat , excise duty service tax etc.
Goods and Service are included under a single domestic indirect taxation law for the
whole India. In this regime, tax is charged at each point of sale.

The objective of GST are as follows:-

i. TO SUBSUME ALL THE INDIRECT TAXES AT THE CENTRE AND STATE LEVEL
ii. TO REDUCE THE TAX EVASION AND CORRUPTION
iii. TO INCREASE THE PRODUCTIVITY
iv. TO INCREASE TAX COMPLIANCE
 v. TO INCREASE THE TAX TO GDP RATIO AND THE REVENUE SURPLUS
vi. TO BRING MORE PEOPLE UNDER THE TAX NET
vii. TO ACHIEVE THE POLICY OF ONE NATION ONE TAX
viii. TO PROVIDE A SEAMLESS CREDIT OF INPUT TAXES
ix. To Reduce the Cascading Effect of tax.

Q.8) Explain the advantages and disadvantages of GST.

Advantages is same as mention in the objectives of the GST in Q.7.
Disadvantages of GST are as follows:-

i.  GST Scheme has increased the cost of operation

ii.  Increased tax liability on SMBs

iii. Enhance burden of compliance
iv. Penalties for non-GST-compliant firms
v. Some retail products currently have only a four percent tax on them. After GST,
garments, and clothes could become more expensive.
vi. The aviation industry would be affected. Service taxes on airfares currently range
from six to nine percent. With GST, this rate will surpass fifteen percent and
effectively double the tax rate.