AIBE: Taxation, prepare for the Laws relating to Taxation with an exhaustive quiz on topics covering Income Tax, GST, Service Tax and Central Excise Tax. 

Income Tax

• Income tax is a direct tax levied on the total income of the previous year of every person. The governing legislation in India is Income Tax Act, 1961, which defines “person to include an individual, a HUF, a company, firm, an association of persons or a body of individuals, a local authority and every other artificial judicial person. 
• Other legal provisions relevant to the levy of Income Tax are the Finance Act which is amended by the budget every year, Income Tax Rules, 1962, circulars and notifications, and case laws. 
• The total income of an assessee is computed under five heads- Income from House Property, Profits and Gains from Business or Professions, Salaries, Income from Capital Gains and Income from Other Sources. 
• Income generally means revenue receipts. Only certain capital receipts have been included within the purview under the head- Income from Capital Gains. Income earned in a previous year is chargeable to tax in the assessment year. 

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Steps to calculate total income and Tax payable 

• Determination of residential status, and scope of income- This will be decided in accordance with Section 5 of the Act, read with Section 6. 
• Classification under different heads- The second step is assessing the head under which the income falls. 

Income from House Property- Section 22 of the Act levies a tax on home owners on basis of the annual value of the property belonging to the assessee, provided the property is not used for any business or profession conducted by the assessee. 

Salaries- As per Section 17 of the Act, this includes various receipts received by an employee from her employer during an existing employer-employee relationship, including but not limited to compensation, pension or annuity, gratuity, commission, fees, benefits or profits in addition to salary. 

Profits and Gains from Business or Professions- This head charges profit and gains from any business or profession carried on by the assessee at any time during the previous year. The term “business” has been defined under Section 2(13) of the Act; however the term “profession” is not defined. 

Income from Capital Gains- Any property whether or not connected with the business or profession of the assessee is a capital asset. Additionally, securities held by FII (Foreign Institutional Investor) according to SEBI Regulations are capital assets. Section 2(14) of the Act also gives a list of exclusions for the definition. A capital asset may be a short-term capital asset or a long-term capital asset. The profits arising from transfer a capital asset are chargeable under this head. 

Income from Other Sources- This is the residuary head of Income-tax chargeability. Any income that is not covered in the other four heads of income is taxable under income from other sources. Section 56 lays down the incomes taxable under this head, inter alia, dividend income, income earned from winning lotteries, crossword puzzles, races (including horse race), gambling or betting of any kind, money or movable/immovable property received without consideration or inadequate consideration during the previous year. 

• Computation of income under each head- Under each head, there are computation as well as charging provisions. The deductions, exemptions and allowances are mentioned for each head. 
• Clubbing of income- In case of individuals, rules have been enacted for clubbing of their incomes in certain scenarios. 
• Setting off and carry forward- The carry forward and set-off provisions of the Act allow the loss under business head except speculation loss, to be adjusted against the income from any other head in the same assessment year. If the whole business loss cannot be set-off because of insufficiency of income under other heads in the same assessment year, such business loss shall be carried forward and set-off against the income of any business or profession carried on by the assessee and assessable in that assessment year. 
• Computation of Gross Total Income- This will be calculated by adding up the income computed under the five heads. 
• Deductions from Gross Total Income- These deductions are listed under Chapter VI-A of the Act. 

•  Application of rates of tax- Prevalent rate of Income tax for F.Y. 2017-18 as per Finance Bill, 2017 Upto Rs. 2,50,000: Nil. Rs. 2,50,001 to Rs. 5,00,000 5 per cent. Rs. 5,00,001 to Rs. 10,00,000 20 per cent. Above Rs. 10,00,000 30 per cent.

See Schedule I of the Finance Act, for different rates charged from senior citizens. – 

The following surcharge is also applicable- 

(i) Ten per cent. of such income-tax in case of a person having a total income exceeding fifty lakh rupees but not exceeding one crore rupees; and 

(ii) Fifteen per cent of such income-tax in case of a person having a total income exceeding one crore rupees. 

Quiz on Income Tax

1.) Which of the following is a capital asset as defined under the Income Tax? 

A.) jewellery 

B.) paintings 

C.) sculpture 

D.) None of the above 

2.) Any profit or gain arising from the receipt of money from an insurer on account of damage to any capital asset would- 

A.) be considered part of Income from Other Sources 

B.) be considered part of Income from Capital Gains 

C.) be not chargeable with income tax at all 

D.) None of the above 

3.) Introduction of car to a business by a partner (to a partnership firm) at a higher price would be chargeable with Income Tax under Income from Capital GainsA.) Yes, because car is a capital asset 

B.) No, because car is a personal effect 

C.) No, because it is not a sale but a transfer 

D.) None of the above 

4.) What section of Income Tax governs transfer of asset without transfer of income? 

A.) Section 60 

B.) Section 62 

C.) Section 80 

D.) Section 82 

5.) Any income arising to the transferee from a transfer of an asset from one spouse to another for inadequate consideration would be chargeable as income of the transferor- 

A.) Yes, that is what the Act stipulates 

B.) Yes, but not in case of transfer of house property 

C.) No, it would be chargeable as income of the transferee because the transfer has already taken place 

D.) None of the above 

6.) What is the difference between Section 61 and 64 of the Income Tax Act 

A.) Section 61 talks only of self-acquired property 

B.) Section 64 only covers minor’s property 

C.) Section 61 applies only to revocable transfers of property 

D.) Section 64 applies only to transfers between spouses 

7.) Which Section excludes agricultural income from the computation of total income of an assessee? 

A.) Section 14 

B.) Section 12 

C.) Section 10 

D.) Section 8 

8.) Which of the following qualifies as an exemption to Income Tax? 

A.) Leave Travel Concession 

B.) Interest on Savings Certificates 

C.) Amounts received by a member from the income of the HUF 

D.) All of the above 

9.) Employees of which of the following undertakings do not get exemption under Income tax for compensation received by them on voluntary retirement? 

A.) Public Sector Company 

B.) A co-operative society 

C.) A National Law University 

D.) All of the above 

10.) The commission received by a Director from a company is salary, to be chargeable under the head ‘Income from Salaries’ under the Income Tax Act- 

A.) true 

B.) True, only if the director is an employee of the Company 

C.) True, only if the salary is above 40 lakhs 

Answers for Quiz on Income Tax

1.) D 2.) B 3.) B 4.) A 5.) B 6.) C 7.) C 8.) D 9.) D 10.) B 

Service Tax

• Service tax refers to tax collected by the government of India from certain service providers for providing certain services. The person who pays service tax can be either a service provider or a service receiver or any other person who is responsible for providing certain services. 
• Chapter V of the Finance Act along with various rules, such as Service Tax Rules 1994, Service Tax (Publication of Names), 2008 and Point of Taxation Rules, 2011 
• Till 2012, service tax was levied upon only taxable services. However, with effect from 1st July, 2012, negative list of taxation approach has been introduced. Hence, service tax is leviable on all services barring those mentioned in the negative list under Section 66D of Finance Act, 1994 
• Section 65B (51) defines “taxable service” as any service on which service tax is leviable under Section 66B. 
• Service tax is leviable only if the service is rendered in the taxable territory. Taxable territory has been defined in section 65B of the Finance Act, 1994 as the territory to which the Finance Act, 1994 applies i.e. the whole of territory of India other than the State of Jammu and Kashmir. 
• Service tax is a destination based consumption tax. Thus, though Section 64(1) holds that service tax provisions don’t extend to Jammu and Kashmir, service provided in Maharashtra from Jammu and Kashmir would be liable to service tax. 
• As Service tax is destination based tax, it is important to ascertain where a particular service is rendered. Section 66C along with Place of Provision of Services Rules, 2012 assist in the same. Section 67A entail provisions regarding date of determination of rate of tax. Point of Taxation Rules, 2011 help ascertain at what stage of the transaction would service tax be payable. Section 68 along with Registration of Special Persons Rules, 2005 facilitate the payment of Service Tax. 
• As per the latest regulations, service tax is charged from individual providers as well as companies in India. Individual service providers can pay this tax via cash while companies can pay it on accrual basis. However, they need to pay this tax only if the value of services provided by them exceeds Rs. 10lakh in a single financial year. 
• Section 66B is the charging section for service tax. It states that “there shall be levied a tax (hereinafter referred to as the service tax) at the rate of fourteen per cent. on the value of all services, other than those services specified in the negative list, provided or agreed to be provided in the taxable territory by one person to another and collected in such manner as may be prescribed.” Service tax from 1 June 2015 was hiked from 12.36% to 14%. A 0.5% Swachh Bharat Cess was levied on all services, taking the total incidence of service tax to 14.5%. In 2016 budget, the Finance Minister imposed a Krishi Kalyan Cess at the rate of 0.5% on all taxable services to take the levy to 15%. Other changes in Service tax provisions introduced in 2016 can be found here-  
• Section 69 of the Finance Act mandates every person liable to pay service tax to get himself registered by making an application to the Superintendent of Central Excise. Exception- Wipro BPO Solutions Ltd.V .Commissioner of Service Tax [2012] 17 taxmann.com 4 (New Delhi – CESTAT) – the assesse was involved in the business of providing business auxiliary services only to its clients abroad. Hence, in terms of the provisions of section 69 of the Finance Act, 1994, assessee was not required to obtain any registration, as the requirement of obtaining registration thereunder is linked with liability for paying service tax, not with mere providing of taxable services. 
• Reverse Charge Mechanism- In certain specified situations, the liability of payment of service tax is shifted, and it is the service receiver that has to pay the service tax. Service Tax Rules, 1994, Rule 2 (1) (d) (i) (G), gives a list of people upon whom the liability to pay Service Tax lies in different situations. This shift of burden may be partial or complete. Notification 30/2012 gives a list of case situation where reverse charge applies. The notification can be accessed here-  
• Section 73 requires the Central Excise Officer to issue a show-cause notice if the payment is not made on time. There will be no penalty under Section 76 of FA, 1994 if ST liability with interest discharged before issuance of show cause notice. Moreover, if the assessee is found to have evaded the payment of service tax unintentionally, then the penalty levied shall not be more than 10% of the actual amount of service tax to be paid, i.e. after the show cause is issued. 
• Section 75 of the Finance Act lays down the rule for charging interest on delayed payment of service tax. The rates for interest are laid down by the Central Government via notifications. For the F.Y. 2016-2017, the rates are laid down via Notification No. 13/2016-ST, dated 1/3/2016. 

Quiz on Service Tax

1.) Which one of the following qualifies for a reverse charge? 

A.) Goods Transport Agency services 

B.) Telecommunication services 

C.) Management Consultancy services 

D.) Information Technology Services 

2.) An assessee may rectify mistakes and file a revised return 

A.) Within 90 days from the date of filing of the original return 

B.) Within 180 days from the date of filing of the original return 

C.) Any time 

D.) Never 

3.) Orders under section 93 of finance act, 1994 are issued by 

A.) The Finance Minister 

B.) CBEC or Central Government 

C.) The Office of Prime Minister 

D.) None of the above 

4.) Services are taxable services only when they are defined under- 

A.) Any section of the Finance Act 

B.) Section 65 (105) of the Finance Act 

C.) Section 64 (10) of the Finance Act 

D.) None of the above 

5.) Which of the following statements is true? 

A.) Payment of fines and penalties can be considered a service 

B.) An assessee has to pay penalty for not paying the service tax, even if no show cause notice has been issued 

C.) Both monetary and non monetary consideration needs to be taken into account while assessing a taxable service 

D.) To be taxable, a service need not be provided in exchange for consideration 

6.) Which of the folowing is not a service? 

A.) a service provided by an employee to an employer in the course of the employment 

B.) fees payable to a court or a tribunal set up under a law for the time being in force 

C.) any activity that constitutes only a transfer in title of goods or immovable property by way of sale, gift or in any other manner 

D.) None of the aboe is a service within the ambit of the definition under Finance Act 

7.) The provisions relating to service tax are given in 

A.) Service Tax Act, 1994 

B.) Chapter V of the Finance Act, 1994 

C.) Chapter V and VA of the Finance Act, 1994 

D.) None of the above 

8.) On the recomendation of which of the following Committees, was Service Tax introduced in India? 

A.) Rangrajan Committee 

B.) Dr. Raja J Challiah Committee 

C.) Kelkar Committee 

D.) None of the above 

9.) Return of service tax is to be filed in: 

A.) Form ST-3 

B.) Form ST-2 

C.) Form ST-1 

D.) None of the above 

10.) The power to levy service tax is now provided by the Constitution vide entry No. 

A.) 90 of the Union List 

B.) 94 of the State List 

C.) 95 of the State List 

D.) 97 of the Union list 

Answers of Quiz on Service Tax

1.) A 2.) A 3.) B 4.) B 5.) C 6.) D 7.) C 8.) B 9.) A 10.) D 

Goods and Service tax

STATUS 

• Goods and Service Tax Bill received the Presidential nod on September 8, 2016, and was agreed upon by the States on February, 2017. It was decided to be implemented by July, 2017. 
• The Central Bureau of Excise and Customs released the Model Central and State Goods and Services Tax (GST) Bills in November 2016 

STRUCTURAL CHANGES INTRODUCED 

• The GST regime would consolidate the different tax legislations into the one single consolidated one. Dual structure of GST is being implemented. There would be a Central statute, the Central Goods and Services Tax Act (CGST) and every state would have their own State Goods and Services Tax Act (SGST). 
• GST is one indirect tax for the nation. It subsumes many of the indirect taxes at both the Central and the State level. At the Central level, the following taxes are being subsumed: 

1. Central Excise Duty, b. Additional Excise Duty, c. Service Tax, d. Additional Customs Duty commonly known as Countervailing Duty, and e. Special Additional Duty of Customs. At the State level, the following taxes are being subsumed: 
2. Subsuming of State Value Added Tax/Sales Tax, b. Entertainment Tax (other than the tax levied by the local bodies), Central Sales 

Tax (levied by the Centre and collected by the States), c. Octroi and Entry tax, d. Purchase Tax, e. Luxury tax, and f. Taxes on lottery, betting and gambling. 

TAXATION STRUCTURE OF GST 

• It is a consumption type VAT where consumption of the good by the customer is the considered the only final use of a good. The GST scheme proposes to initiate a continuous chain of set-off from the level of the original producer/ service provider to the level of the ultimate retailer. 
• Under the GST scheme, no distinction is made between goods and services for levying of tax. In other words, goods and services attract the same rate of tax. GST is a multi-tier tax where ultimate burden of tax falls on the consumer of goods/ services. 
• It is called value added tax because at every level, tax is being levied on the value addition. Under the GST system, a person who was liable to pay tax on his output, whether for provision of service or sale of goods, is entitled to get input tax credit on the tax paid on its inputs. 

RATE OF TAXATION UNDER GST 

• Zero Tax rate : There won’t be any tax on almost 50 % of items in the Consumer Price Index basket, including grains used by the common man. 
• 5% Tax slab : This is applicable on items of mass consumption used by common people. 
• There would be two standard rates of 12% and 18% under the GST regime. 
• All the items (especially luxury items) which are now taxed at around 30% will fall under28% GST rate slab. 
• An additional cess would also be levied on luxury cars, tobacco products & aerated drinks besides the highest tax rate (28%). 

Quiz on GST

1.) Which of the following Bills introduced Goods and Service Tax in India? 

A.) Constitution (122nd) Amendment Bill, 2014 

B.) Constitution (124th) Amendment Bill, 2014 

C.) Constitution (120th) Amendment Bill, 2014 

D.) None of the above 

2.) Which of the following entries would be omitted as a result of the implementation of GST? 

A.) Entry 92 of Union List 

B.) Entry 92F of the Union List 

C.) Entry 57 of the State List 

D.) Entry 59 of the State List 

3.) Which of the following taxes is not subsumed at the Central level by GST? 

A.) Countervailing duty 

B.) Central Excise Duty 

C.) Sales Tax 

D.) Service Tax 

4.) Which of the following taxes is not subsumed at the State level by GST? 

A.) Entertainment Tax 

B.) Taxes on Lottery 

C.) State Value Added Tax 

D.) Tax on agricultural land 

5.) Which of the following mode can be used for payment under GST? 

A.) Electronic payment 

B.) Payment through challan 

C.) Common Accounting Codes 

D.) All of the above 

6.) Who is the highest ranking officer under CGST law who is responsible to the CBEC? 

A.) Principal Chief Commissioners 

B.) Joint Chief Commissioner 

C.) Additional Revenue Commissioner 

D.) None of the above 

7.) Under which Section of CGST law are the various classes of officers prescribed? 

A.) Section 10 

B.) Section 8 

C.) Section 5 

D.) Section 4 

8.) What is the maximum period of maintenance of books of account? 

A.) 12 months 

B.) 60 months 

C.) 24 months 

D.) 120 months 

9.) Who can appoint an officer of the rank Assistant Commissioner under CGST law? 

A.) Commissioner of CGST 

B.) CBEC 

C.) Principal Director General 

D.) Finance Minister 

10.) Special audit cannot be conducted by any officer below the rank of – 

A.) Chief Commissioner 

B.) Joint Commissioner 

C.) Assistant Commissioner 

D.) Principal Commissioner 

Answer Key for quiz on GST

1.) A 2.) A 3.) C 4.) D 5.) D 6.) A 7.) D 8.) B 9.) B 10.) C 

Quiz on Central Excise Tax

1.) Which of the following would constitute ‘manufacturing’ as under the Central Excise Act, 1944? 

A.) Stirring of cream 

B.) Reprocessing of cream 

C.) Chilling of water 

D.) Rolling of tobacco 

2.) Within how many days may a Central Excise officer serve notice on the person chargeable with the duty which has not been levied or paid (or to whom the refund has been erroneously made)? 

A.) 3 months from the relevant date 

B.) 12 months from the relevant date 

C.) 4 months from the relevant date 

D.) 8 months from the relevant date 

3.) Central Excise is also known as CENVAT 

A.) true 

B.) True only if levied on capital goods 

C.) The position is unclear under the current law 

4.) Which of the following is a false statement about Central Excise tax levy? 

A.) Excise is a tax attracted by the event of manufacture 

B.) Excise is collected at a convenient stage, which may be at a point after manufacture 

C.) Levy of excise depends on who is the end consumer 

D.) Central Excise levy in India is now a tax on value addition 

5.) Central excise duty is levied on 

A.) Moveable goods only 

B.) Immoveable goods only 

C.) Both moveable and immoveable goods 

D.) It is not levied on goods, but the factory premises 

6.) For goods manufactured at site to be dutiable, they should 

A.) have a new identity 

B.) should be innovative 

C.) should be useful to the society at large 

D.) All of the above 

7.) What is the full form of CENVAT? 

A.) Compounded Excise and Value Added Tax 

B.) Central Excise and Value Added Tax 

C.) Central Value Added Tax 

https://www.lawsikho.com/mock_tests/14356/question_paper 1/3 

11/6/2017 LawSikho 

D.) None of the above 

8.) When was the concept of CENVAT credit introduced in India? 

A.) 2004 

B.) 2002 

C.) 2010 

D.) 2012 

9.) Does the Central Excise Tariff Act, 1985 extend to Continental Shelf and Exclusive Economic Zones of India? 

A.) Yes, to the entire Continental Shelf and Exclusive Economic Zones 

B.) Yes, only to areas designated within the Continental Shelf and Exclusive Economic Zones 

C.) Yes, only if the population is above 1 lakh in such area 

D.) No 

10.) Can CENVAT Credit be claimed for capital goods? 

A.) Only if depreciation for such goods has not been claimed under Section 32 of the Income Tax Act 

B.) Yes, in all cases 

C.) No 

D.) Position under law is unclear 

Answer Key for quiz on Central Excise Tax

1.) A 2.) A 3.) A 4.) A 5.) A 6.) A 7.) A 8.) A 9.) A 10.) A 

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