TAX PRESENTATION
TAX PRESENTATION
TAX PRESENTATION
Key Points:
Definition of Taxation: Mandatory financial charge imposed by governments to fund
public expenditure.
Types of Taxes:
Direct Taxes: Income tax, corporate tax (levied on income/profits).
Indirect Taxes: GST, customs duties (levied on goods/services consumption).
Purpose of Taxation:
Funds government responsibilities (public welfare, infrastructure, defense,
economic stability).
Challenges in Taxation:
Tax Evasion: Illegal practices (e.g., underreporting income, falsifying
deductions).
Tax Avoidance: Exploiting legal loopholes to minimize tax obligations.
Impact of Tax Evasion and Avoidance:
Loss of government revenue.
Disruption of economic equity.
Global and local statistics:
Developing countries lose $100 billion annually due to illicit financial
flows (UNCTAD, 2020).
MNCs’ profit shifting costs $240 billion annually (OECD, 2015).
India’s revenue loss is ₹6 lakh crore annually (CBDT, 2020), ~2.5% of
GDP.
Consequences:
Hinders funding for infrastructure, welfare, and public services.
Exacerbates socioeconomic inequalities.
Policy Approaches:
Address Tax Evasion: Stringent enforcement and penalties.
Address Tax Avoidance: Legislative reforms, international cooperation, robust
compliance frameworks.
Need for Understanding: Essential to distinguish between tax evasion and avoidance
to devise effective countermeasures for a balanced and equitable tax system.
Emergence of the Problem of Tax Evasion and Avoidance: Key Points PG 6-7
1. Early Tax Implementation in India
Low tax rates initially reduced the temptation to evade taxes.
2. Rise in Evasion (1930s)
Wealthier taxpayers began underreporting income.
World War II created conditions favoring tax avoidance and evasion.
3. Post-Independence Worsening
Economic controls and licensing policies led to black markets, increasing
evasion.
4. 1956 Kaldor Reforms
Proposed integrated taxation system to address evasion under the assumption
that if a taxpayer evaded tax on one income base, they could be taxed on
another.
Approach proved ineffective as tax evasion persisted.
5. High Tax Rates (Pre-1973-74)
Increasing rates incentivized evasion.
Bribery and corruption grew alongside costly electoral processes.
6. ‘No Harassment Tax’ (NHT)
Illegal payments to tax officials to avoid harassment in tax procedures.
7. Complex Tax Code
Numerous provisions added to curb evasion complicated administration and
enforcement.
8. Lack of Scientific Tax Management
Ineffective administration allowed exploitation by evaders.
9. Impact of Inflation
Persistent inflation from the First Five-Year Plan exacerbated the issue.
Black money fueled inflation, undermining controls and increasing tax
liabilities.
Inflation led to higher property values, raising taxes in monetary terms.
Background:
According to the A.P. Excise Act, excise duty must be paid before liquor leaves the
distillery.
Initially, buyers directly paid this duty to the Excise Department, while manufacturers
only collected the liquor’s price (not including the duty).
Manufacturers paid sales tax only on the price they received (excluding excise duty).
First Supreme Court Decision (1977):
The Court ruled that excise duty paid directly by buyers should not be included in the
manufacturer’s turnover.
Rule Change and New Problem:
After this decision, the rules were changed to make manufacturers responsible for excise
duty, but buyers continued paying it directly.
The tax authorities argued that excise duty must now be included in the manufacturer’s
turnover, and the High Court agreed.
Supreme Court Constitution Bench Ruling:
Maneklal Agarwal leased his property to family members at very low rents, who then sublet it
at higher rents.
Tax authorities assessed the property’s rental income based on its fair market value (Rs.
6,38,400 after deductions), dismissing the lower income reported by the appellant.
The High Court upheld the assessment, ruling that the income belonged to the appellant.
Key Issues:
The case highlights tax avoidance, where an individual manipulates transactions to report
lower income.
The Supreme Court supported lower authorities' factual findings, emphasizing that income
earned by the appellant must be taxed in his hands.
Legal Principles:
Tax authorities can assess the "right person" under ITO v. Ch. Atchaiah.
Tax planning is legal if genuine but becomes impermissible if it involves artificial
arrangements or colorable devices (McDowell and Co. Ltd. v. CTO).
Tax Avoidance vs. Evasion:
Avoidance: Minimizing tax within the law (e.g., CIT v. A. Raman and Co.).
Evasion: Illegal manipulation to reduce taxes.
The Ramsay principle stresses analyzing the overall outcome of transactions, not just
individual steps.
Implications:
3. Section 271B: Penalty for failing to audit accounts as per Section 44AB.
Offense Penalty Explanation
Penalty of 0.5% of total
Failure to get sales, turnover, or gross The taxpayer is required to get their
accounts audited as receipts, subject to a accounts audited under Section 44AB,
required under maximum penalty of Rs. which applies to businesses meeting
Section 44AB 1,50,000. certain thresholds.
Penalty of 0.5% of total
Failure to furnish sales, turnover, or gross This applies when a taxpayer fails to
tax audit report receipts, subject to a furnish the audit report as required
within the maximum penalty of Rs. under Section 44AB, even if the audit
prescribed time 1,50,000. is done.
4. Section 234E: Penalty for non-compliance with TDS/TCS rules (Rs. 200 per day, up
to total TDS amount).
6. Section 276C: Penalty for tax evasion (imprisonment 6 months to 7 years and fine) if
income understated by over Rs. 25 lakhs.
Provision Details
Section Offense of willful attempt to evade tax, penalty, or interest by concealing
276C(1) income or providing false information to the tax authorities.
- Imprisonment: The person will be punished with imprisonment for a term
Punishment of 6 months to 7 years.
for 276C(1) - Fine: A fine will also be imposed in addition to imprisonment.
The punishment mentioned above applies to any person who wilfully
Section attempts to evade tax by concealing income or providing false statements
276C(2) with the intent to evade tax.
A person will be deemed to have committed an offense under this section if
they deliberately conceal any income or make false representations to
Explanation evade tax.
7. Section 139A: Penalty for providing false PAN information during filing.
Provision Details
This section mandates that every person who is required to furnish
Section a return under the Act must quote their PAN in such return, and
139A(1) also in documents related to tax transactions.
If a person has provided false information while applying for or
Section furnishing PAN details, or if they have submitted incorrect PAN
139A(5) details during the filing of tax returns, a penalty may be levied.
- A penalty may be imposed for providing false PAN details or
submitting incorrect PAN.
- The penalty can be a sum of up to ₹10,000 for each instance of
Penalty false or incorrect PAN.
The penalty may be imposed by the Assessing Officer (AO) if
Section they are satisfied that the false PAN details were intentionally
139A(6) provided or the PAN itself is fabricated.
- Correct PAN is necessary for accurate tax processing.
PAN - False or incorrect PAN details may lead to misrepresentation in
Information income tax filings.
Provision Details
The penalty amount for providing false PAN information can be
Penalty up to ₹10,000. This is imposed by the Assessing Officer after an
Amount inquiry.
- The penalty is applicable if the PAN details provided during
filing are incorrect or false.
Imposition of - If the tax authorities believe the individual deliberately provided
Penalty false PAN details, they may impose the penalty.
Scope of The section applies to cases where false PAN details are provided
Section while filing a tax return or submitting tax-related documents.
2. Section 271A: Penalty of Rs. 25,000 for failing to maintain proper books of account.
3. Sections 220(1) & 221(1): Penalty for default in tax payments or failure to clear dues
Amount of The penalty can be a sum not exceeding the amount of tax in
Penalty arrears and can be imposed in addition to the tax due.
The penalty will not be imposed if the assessee proves that their failure
Section 221(2) to pay was due to reasonable cause (e.g., genuine financial hardship).
Non- If the assessee refuses or neglects to pay the tax, penalty can be imposed
Compliance without considering any reason for non-payment.