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CAIIB Paper 4 BRBL Module C Unit 21 : Tax Laws (New Syllabus)
IIBF has released the New Syllabus Exam Pattern for CAIIB Exam 2023. Following the format of the current exam, CAIIB 2023 will have now four papers. The CAIIB Paper 4 (BANKING REGULATIONS AND BUSINESS LAWS) includes an important topic called “Tax Laws”. Every candidate who are appearing for the CAIIB Certification Examination 2023 must understand each unit included in the syllabus.
In this article, we are going to cover all the necessary details of CAIIB Paper 4 (BRBL) Module C (IMPORTANT ACTS/LAWS & LEGAL ASPECTS OF BANKING OPERATIONS – PART B) Unit 21 : Tax Laws, Aspirants must go through this article to better understand the topic, Tax Laws and practice using our Online Mock Test Series to strengthen their knowledge of Tax Laws. Unit 21 : Tax Laws
The Income Tax Act 1961 came into force from April 1st 1962 and extends to the whole of India to govern the law relating to taxation on Income of individuals, corporates etc.
This Act envisages taxation of income of an assesse on the basis of his (a) Residence (b) Place of source of income.
- Assessment Year: The income accruing, or arising, to a person (called ‘Assesse’) is taxed on the basis of ‘Assessment Year’. The term Assessment Year represents the period of 12 months beginning from 1st April every year. The income arising in the ‘previous year’ and the tax paid thereon including the tax deducted at source, self assessed tax paid thereon is assessed in the assessment year.
- Previous year has been defined in Section 3 of the Income Tax Act 1961 as “—for the purposes of this Act, “previous year” means the financial year immediately preceding the assessment year.
- Total Income: As per Section 5 of the statute “(1) Subject to the provisions of this Act, the total income of any previous year of a person who is a resident includes all income from whatever source derived which—
- Is received or is deemed to be received in India in such year by or on behalf of such person; or
- Accrues or arises or is deemed to accrue or arise to him in India during such year; or
- Accrues or arises to him outside India during such year
Residential Status: The residential status of an assesse is determined on the basis of the number of days an assesse was present in India during the previous year.
- In the case of corporates, it is determined on the basis of location of control and management of the company and also the place of registration. There is also a third category called resident but not ordinarily resident which is relevant only for assesses who are individuals and Hindu undivided families.
- The income declared by the resident assesse from anywhere in the world is taxable under Income Tax Act in India. As against this, in the case of non-resident and persons who are not ordinarily resident in India, any income derived abroad is not taxable and only income accruing or arising in India is liable to tax in India.
Under IT Act – Other norms are:
- Quoting PAN for opening a/c, purchase of DD, Term Deposit above Rs. 50,000.
- Declaration in Form 60 and 61.
- Repayment of Term Deposit above Rs. 20,000 by pay-order/credit to a Bank Account.
- Limit of deposit of cash in a Savings Account up to Rs. 10 lacs and Rs. 50 lacs in a Current Account in a Financial Year.
Computation of income:
Income Tax Act, 1961 envisages taxation of income under following heads:
- Income from house property
- Profits and gains from business or profession
- Capital gains
- Income from other sources
Computation of Taxable income involves the following steps namely
- Income arising under various heads to income is computed separately as per the relevant sections covering such incomes.
- After having computed the income under each head separately, the ‘gross total income’ representing the sum of above amounts computed under such heads is arrived at.
- Chapter VIA etc. of the Income Tax Act provides for various deductions allowable from the gross total income. The deductions so allowed are reduced from the gross total income to derive the taxable income.
- Income Tax as per relevant slabs and cess, if any, applicable, and interest, if any, applicable, at given rates is calculated on the Taxable Income
Income not included in Taxable Income:
Certain categories of income are exempt from tax and such income is not taken into account in the computation of income. These exempt incomes have been described in Section 10 of the IT Act.
- Agricultural income
- Any sum received by an individual as a member of a Hindu Undivided Family, where such sum has been paid out of the income of the family,
- In the case of a non-resident, any income by way of interest on such securities or bonds as the Central Government may, by notification in the Official Gazette, specify in this behalf, including income by way of premium on the redemption of such bonds
- in the case of an individual, any income by way of interest on moneys standing to his credit in a Non-Resident (External) Account in any bank in India in accordance with the Foreign Exchange Management Act, 1999, Provided that such individual is a person resident outside India.
- In the case of an individual, being a citizen of India or a person of Indian origin, who is a non-resident, any income from interest on such savings certificates issued before the 1st day of June, 2002 by the Central Government.
- Every person whose total income in a previous year exceeds the maximum amount which is not liable to tax is required to file his return by the due date prescribed in section 139. A company or partnership firm has to file its return of income.
- Income Tax department has prescribed different forms known as ITRs applicable to various categories of assesses which are compulsorily required to be filed on-line except Super Senior Citizens are given option to submit ‘return’ in paper mode provided the computation does not have any income chargeable under head of ‘Profits and Gains from Business or Profession’.
- Now with insertion of sub-section 5E to Section 139A in the IT Act, has made Aadhar and PAN interchangeable meaning that an individual having an Aadhar number but not having a PAN number will be able to file his/her return on the basis of the Aadhar number
- The AO determines the total income and issues an assessment order along with the notice of demand. The demand if any, raised after scrutiny assessment is payable within 30 days of the service of the Assessment order and the demand notice on the assesse.
Payment of Taxes:
Advance tax is payable as per the provisions of section 210 of the Income Tax Act. Advance tax arises from the concept of ‘pay as you earn’. In the case of corporate assesses, advance tax is payable in four instalments as given below:
- By June 15–15 per cent
- By September 15–45 per cent
- By December 15–75 per cent
- By March 15–100 per cent of the advance tax payable.
The advance tax which is paid by an assesse on the basis of estimation of income may at times fall short of the tax payable as per the return of income. Such a shortfall, if any, shall be paid by way of ‘self-assessment tax’ under Section 140A of the Income Tax Act.
Deduction/Collection of tax at source
Members of Co-operative bank are exempted from TDS. The following payments generally occur during the course of business activities of a bank and are covered under TDS under the Income Tax Act, 1961.
- Salaries – Section 192
- Interest on securities – Section 193
- Payment of interest, other than interest of securities – Section 194A
- Payment to contractors or sub-contractors – 194C
- Payment of brokerage and commission – Section 194H
- Payment by way of rent – Section 194I
- Payment of professional and technical fees – Section 194J
- Payment to non-resident – Section 195
Firstly, the person deducting tax at source is required to obtain Tax Deduction Account Number (TAN) by filing an application in Form 49B. Tax shall be deducted at source as per the rates given in the Finance Act of the respective years. The tax deducted at source is required to be deposited in the Government account, generally within one week from the end of the month in which tax is deducted at source.
The rate of deduction of tax on payments made to non-residents under Section 195 is also given in the Finance Act of the relevant year. The Government of India enters into agreements for avoidance of double taxation of income both on the basis of residence and source with other countries. The rate given in the Double Taxation Avoidable Agreement (DTAA) with the respective country where the recipient is resident will have to be taken into account. The rates applicable as per the DTAA will have to be applied for the purposes of TDS, when it is lower than the rates given in the Finance Act.
Non-compliance with provisions relating to TDS attracts:
- Levy of interest @ 12 per cent p.a. on the amount on tax payable at source from the date on which it is deductible until the date of payment.
- Recovery of tax deductible at source from the person responsible for deduction.
- Non-payment of tax deducted at source into Government a/c attracts prosecution proceedings and imprisonment from 3 months to 7 years under Section 276B of the Income Tax Act.
- Any failure to file returns/statements in this regard attracts penalty @ of Rs. 200 per day for the period of default. (Sec 234 E). The amount of fee shall not exceed the amount of tax deductible or collectible, as the case may be.
Permanent Account Number (PAN):
- Quoting of PAN has become mandatory in certain transactions.
- PAN is required to be quoted when an account is opened where amount of Fixed deposit/time deposit purchased by a depositor in any bank exceeds Rs. 50,000/-. Opening of bank accounts also require quoting PAN.
- Cash payments for purchase of bank drafts or pay orders or banker’s cheques from a banking company, for an amount aggregating to Rs. 50,000/- or more during any one day or cash deposits aggregating Rs. 50,000/- or more with any bank during any one day, require quoting of PAN.
- Payment in cash in connection with travel to any foreign country, of an amount exceeding Rs. 25,000/- at any one time, has also been prescribed.
Commodity Transaction Tax
- Commodities Transaction Tax is a tax levied on exchange-traded non-agricultural commodity derivatives in India. It taxes the commodity trading in India wherein both parties – buyer and seller – are taxed depending on the contract size.
- While agricultural commodities are exempted from CTT, non-agricultural commodities such as gold, silver, and other non-ferrous metals including copper will be taxed. Apart from this, energy products like crude oil and natural gas will also be taxed under the Commodity Transaction Tax.
- Section 119: The law makes the recognised stock exchange (assessee) dealing in commodity trading responsible for collection of the commodities transaction tax from the seller who enters into a taxable commodities transaction in that recognized stock exchange at the rate specified.
- The CTT collected during any calendar month in accordance with the provisions of sub-section (1) shall be paid by every assessee to the credit of the Central Government by the seventh day of the month immediately following the said calendar month.
- Section 117 deals with the rate of commodity transaction tax for various transactions.
Goods And Services Tax
- The Goods and Services Tax (GST) is one indirect tax for the whole nation which was enacted on April 12th 2017 and came into force in India from July 8th 2017.
- GST is a single tax on the supply of goods and services, right from the manufacturer to the consumer. Credits of input taxes paid at each stage will be available in the subsequent stage of value addition, which makes GST essentially a tax only on value addition at each stage.
- Advantages: Easy compliance, uniformity of tax rates and structures, removal of cascading of taxes, improved competitiveness, etc. The benefits to Central and State Governments are that GST is simple and easy to administer, there are better controls on leakage, higher revenue efficiency, etc. For the consumer, the benefits can be grouped under single and transparent tax proportionate to the value of goods and services, relief in overall tax burden.
- The GST subsumes taxes levied and collected by the Centre viz. Central Excise duty, Additional Excise Duty, Additional Duties of Customs (commonly known as CVD), Service Tax, etc. and at State level Entertainment Tax, Octroi and Entry tax, Luxury Tax, Purchase Tax, Taxes on lottery, betting and gambling, and other taxes levied by the State.
- The GST levied by the Centre on intra-State supply of goods and/or services called the Central GST (CGST) and that levied by the States/ Union territory is called the State GST (SGST)/ UTGST. Similarly, Integrated GST (IGST) is which is levied and administered by Centre on every inter-state supply of goods and services.
- GST is a destination based tax and received by state in which goods are consumed.
Imports in GST Regime
- The import of goods has been defined in the IGST Act, 2017 as bringing goods into India from a place outside India.
- Import of goods under GST or import of services under GST will be treated as deemed inter-State supplies and would be subject to Integrated tax in addition to the applicable Custom duties.
- As per the provisions contained in Section 21 of the IGST Act, 2017, all import of services made on or after the appointed day i.e 1st July, 2017 will be liable to integrated tax regardless of whether the transactions for such import of services had been initiated before the appointed day. However, if the tax on such import of services had been paid in full under the existing law, no tax shall be payable on such import under the IGST Act.