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Taxation Law in India | Law of Taxation

Article 265 of the constitution of India provides that No tax shall be levied or collected except by authority of law. Any additional tax can't be levied on any party unless or until there is a bill or legislation that is passed across by the Government. Article 265 is also referred to in the cases of Unjust Enrichment, where any individual who has been levied illegal tax must be refunded.

In terms of distribution of power for fixing of taxes by the State and Central Government in India. Government of India Act, 1935 lays down the provision. There are three kinds of subjects, they are Union (Central ), Provision (State) and Concurrent (Central and State). Article 246, Constitution Of India defines the distribution of subjects between Union and Provision.

Union: Article 246(1), It has exclusive power to make laws with respect to any of the matters enumerated in List I of the Seventh Schedule.

Provision: Article 246(3), the Legislature of any State has exclusive power to make laws for such State or any part thereof with respect to any of the matters enumerated in List II in the Seventh Schedule.

Concurrent: Parliament, and the Legislature of any State both, have power to make laws with respect to any of the matters enumerated in List III in the Seventh Schedule.

Income Tax Act 1961:

Income Tax Act 1961, lays down the provisions for levy, administration, collection and recovery of Income

Tax in India. According to the Income Tax Act, there are five sources of income that are liable to tax. 1) Income from Salaries

2) Income from House Property 3) Profits and Gains of business or Profession 4) Income from Capital Gains

5) Income from Other Sources.

Section 2(43) of Income Tax Act 1961, defines Tax. There are two kinds of Direct and Indirect tax. Direct Tax: It is paid directly to the revenue of the Government. Such as Income Tax, Wealth Tax and Gift tax. Indirect Tax: Unlike direct tax, where it is paid directly to the consumer. Here the amount is collected by middle men as part of a transaction in buying and selling of product or service and paid to the Government. Such as GST, VAT, Sales Tax, Central Sales Tax and Central Excise.

Resident and Ordinary Resident in India:

The tax liability of an individual is based on his residential status, this is also applicable to Foreigner who are working and staying in India. Under the Income Tax Act, there are three categories of residential status for the purpose of charging income tax:

1) Resident 2) Resident but not ordinary Resident 3) Non - Resident.

Resident: Any individual who has stayed in India for a period of 182 days or more. Any individual who has been residing in India for a period of 365 days (or) more within 4 years preceding the assessment year (or) for a period amounting in all to 60 days or more in that year.

Resident but not ordinary Resident: Any individual falls under this category when he has been a resident of India in at least 2 out of 10 years immediately previous years. Has stayed in India for at least 730 days in 7 immediately preceding years.

Exemptions and Deductions:

All sources of Income derived are taxable, but there are certain incomes defined under Chapter III of the Income tax act that are exempted from paying tax and a certain deduction is allowed. Provisions regarding Exemptions are defined in the Chapter III of the Income Tax Act. Section 10 to Sec 13 explains the provisions about the incomes which do not form a part of total income and are exempted from paying tax. Example: Income from Agriculture, Scholarships, Income from trusts, Gratuity, Family pension received by widow, children or nominated heirs.

Provisions relating to deductions are defined in Chapter VI (A). Section 80A to 80U of Chapter VI(A). Unlike exemptions where they are not constituted as part of income, and are totally exempted from paying tax. In deductions they are partly deducted from the income and not liable to pay tax on it. Example: 80C investments, National Saving Certificate and others.

Income Tax Appellate Tribunal:

Income Tax Appellate Tribunal (ITAT) is a quasi judicial institution that specialises in dealing with appeals under the Direct Taxes Acts. The orders passed by the ITAT are final, an appeal lies to the High Court only if a substantial question of law arises for determination. It functions under the Minister of Law and Justice.

The Commissioner of Income-Tax (Appeals) is the first appellate authority and the Income Tax Appellate Tribunal (ITAT) is the second appellate authority. Appeal to the ITAT can be filed by any of the aggrieved party either by the taxpayer or by the Assessing Officer. Monetary Limits are applicable while filling a appeal with ITAT.. The monetary limits are set by the Central Board of Direct Taxes.

The limits are set to ensure cases of complex nature are worked upon and to cut down on the number of cases.

Appeal before the Income Tax Appellate Tribunal is Rs.50 lakhs

Appeal before the High Court - Rs. 1 crore

Appeal before the Supreme Court - Rs. 2 crore



Revamping the Income Tax Appellate Tribunal: CBDT raises limit for appeals to reduce litigations: Resident Status for Income Tax:

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