“WITH BLESSINGS OF MAA SARASWATI”

PREFACE

Dear Professionals/Student friends,

I feel pleasure in presenting before you the notes on “TALLY WITH TAX”. In this
book as per suggestions received from many well- wishers, professionals we have
incorporated following exclusive features:

 Screenshot of Practical Data

 To the point discussion of Law
 Tabular presentation for better grip over the topic.
 Written in a very simple and lucid manner.
 Eye soothing font and presentation.
 Wherever required, ‘Notes’ has been used to explain the provisions.
 Better understanding of the topic through Chart.

Any error, omissions, suggestions for the improvement of this book brought to our
notice will be thankfully acknowledged and incorporated in the next edition.

Your suggestions and Feedbacks are welcome at-

Email: tallywtax@[Link]

Yours as ever,
CA. ASHISH B. DEOLASI
([Link], Lic. CS, ACA)
Mob. 8007858173
All good in my life happened due to the
Blessings of my parents:

Shri. Bharatkumar Deolasi

Smt. Bharati B. Deolasi

They are my living God.

 INDEX
Sr. Topics Page No.
No.

1 How to Start a Business?? 1

2 Basic Concept 13

3 Overview of GST 54

4 Working with Tally 68

5 Groups, Ledgers & Voucher Types 82

6 Income Under the Head Business & Profession 93

7 Input Tax Credit 113

8 Composition Levy 164

9 Voucher Entries 177

10 Tax Deducted at Source 239

11 GST Registration & Cancellation 315

12 Returns 344

13 E-Way Bill 352

14 Advance Tax & Interest 383

15 Balance Sheet 389

16 Miscellaneous Topics 407

17 Finalization of Accounts 422

BY CA/CS ASHISH DEOLASI

CHAPTER

1 HOW TO START A BUSINESS??

When Client Comes to your office

He asks He wants to start the Business,

How should I proceed ?????

Q.1 Have you the PAN Card???

Answer - No

Q.2 How to Apply??

Application for Pan Card to be made in Form No 49A

(Link to open Form 49A - [Link]

(Correction Form - [Link]

BY CA/CS ASHISH DEOLASI 1

PAN (Permanent Account Number)
What is the PAN Card?
A PAN card is a card issued under the Income Tax Act, 1961 and it contains a
unique 10-digit alphanumeric code. This code is computer-generated and is
unique to the holder of the card.

Who can avail a PAN Card?

The PAN Card is not only issued to individuals. Companies and partnership
firms can also avail a PAN Card and it becomes mandatory for such entities to
have a PAN number when they are filing their income tax returns. Even in case
of individuals, minors, students and Non-Resident Indians can also apply
PAN Card online.

What Do the Alphabets and Numbers on Your PAN Mean?

Your Permanent Account Number is not a series of random numbers and letters.
The structure of PAN is actually quite interesting.

Here's what each component of PAN means:

First Three Characters: These are a sequence of alphabets from AAA to ZZZ.

Fourth Character: The fourth character signifies the type of taxpayer that you
are.

A - Association of Persons (AOP)

B - Body of Individuals (BOI)

C - Company

F - Firm/Limited Liability Partnership

G - Government Agency

H - HUF (Hindu Undivided Family)

L - Local Authority

J - Artificial Judicial Person

P - Individual
T - Trust

BY CA/CS ASHISH DEOLASI 2

Fifth Character: The fifth character in PAN is the first letter of your surname.
So, if a person is named 'Rajesh Khanna', the fifth character of his PAN will be
'K'.

Sixth to Ninth Characters: This is from a sequence of numbers between 0001

and 9999.

Last Characters: This is an alphabet check letter.

Format of PAN Card

Documents Required for Application of PAN Card

Individuals & HUF Proof of Identity

a. Aadhaar Card issued by the Unique Identification
Authority of India
b. Elector’s photo identity card;
c. Driving License;
d. Passport
e. Ration card having photograph of the applicant;
Proof of Address
a. Aadhaar Card issued by the Unique Identification
Authority of India
b. Elector’s photo identity card;
c. Driving License;
d. Passport
e. Post office passbook having address of the
applicant;

BY CA/CS ASHISH DEOLASI 3

 Proof of date of birth
a. Aadhaar Card issued by the Unique Identification
Authority of India
b. Elector’s photo identity card;
c. Driving License;
d. Passport
e. Matriculation certificate or Mark sheet of
recognized board;
f. Birth certificate issued by the municipal
authority or any office authorised to issue birth
and death certificate by the Registrar of Birth and
Deaths
Note : For HUF, an affidavit made by the Karta of
Hindu Undivided Family stating name, father’s
name and address of all the coparceners on the date
of application and copy of any of the above
documents in the name of Karta of HUF is required
is required as proof of identity, address and date of
birth.
Company Copy of certificate of registration issued by Registrar
of Companies.
Partnership Firm a. Copy of certificate of registration issued by
Registrar of firms or
b. Copy of Partnership Deed.
Limited Liability Copy of Certificate of Registration issued by the
Partnership Registrar of LLPs
Association of Persons a. Copy of trust deed or
(Trust) b. Copy of certificate of registration number issued
by Charity Commissioner.
Association of Person, a. Copy of Agreement or
Body of Individuals, b. Copy of certificate of registration number issued
Local Authority, or by charity commissioner or registrar of
Artificial Juridical cooperative society or any other competent
Person authority or any other document originating
from any Central or State Government
Department establishing identity and address of
such person.

BY CA/CS ASHISH DEOLASI 4

Q.3 Whether to open
1. A Proprietorship
2. Partnership
3. LLP (Limited Liability Partnership)
4. Private Limited Company
5. OPC etc.

Each entity has its Advantages & Disadvantages.

GENERAL POINTS TO DISCUSS

1. Taxation Rates
2. Legal Compliances
3. Expenses for incorporation
4. Time for incorporation
5. GST Compliances

We will Discuss one by one now,

1. PROPRIETORSHIP
Following Compliances, you need to do in proprietorship:
i. Gumasta/Shop Act
ii. PTEC/PTRC
iii. GST Registration
iv. Yearly Income Tax Return and Audit

Note : Accounting is very important for every business.

2. PARTNERSHIP
Partnership Deed

It can be registered It might not be registered

with ROF with ROF

BY CA/CS ASHISH DEOLASI 5

 For formation of Partnership Deed,

Requirement
i. Stamp Paper – Value (depending upon capital)
Eg. In Maharashtra, If Capital of Partnership is upto 50,000/- Rs. 500
Stamp Paper is required. (1% of the amount of share contribution)
Note : The Stamp Paper must be in name of Firm or Partners. You can
make Notary to Stamp Paper after preparation of Deed.

(Format for Partnership Deed : [Link] )

ii. Name of Partners

iii. Name of Business
iv. Date of Commencement of Business
v. Registered Office Address
vi. Nature of Business
vii. Initial Contribution & Partners Sharing Ratio

Documents required for Registration of Partnership Firm

 Blank Stamp Paper of value of Rs. 100/-

 Covering letter with Rs. 5 Court Fees Stamp on it.
 Online uploaded Form A Duly Notarized
 Copy of English Partnership Deed Duly attested
 Converted Marathi Partnership Deed Duly attested
 Letter of Authority duly signed by all the partners and CA/ Advocate who
is submitting form.
 Any particular business requiring License to carry out the business the
copy of License is to be submitted along with the submission.
 Envelope with Postal Stamp of Rs. 30/-

BY CA/CS ASHISH DEOLASI 6

3. LLP (LIMITED LIABILITY PARTNERSHIP)
It offers limited liability, offers tax advantages, can accommodate an
unlimited number of partners, and is credible in that it is registered with
the Ministry of Corporate Affairs (MCA).
At the same time, it has fewer compliances than a private limited company
and is also significantly cheaper to start and maintain.
Minimum Requirement to Start A LLP
 Minimum Two People: Two people are needed to register the LLP.
However, there is no limit on maximum partners.
 No Minimum Capital: Capital in case of LLP is depending on the need
of the business and contribution to partnership by partners. The Stamp
Duty on the deed is based on the amount of capital.
 Resident Person requirement: One Designated partner of LLP must
be from India.
 Unique Name: Name of the LLP should be unique, and it must not be
same or similar to the name of any existing company, LLP or trademark
which is registered or applied for.
Documents Required For LLP Registration
 Latest passport size Photographs of all partners
 PAN (Permanent Account Number) of all Partners (Minimum 2)
 Identity Proof of each partner, (Aadhar Card, Passport, Driving
License or Voter ID Card)
 Address Proof of all partners (Bank Statement or Passbook,
electricity bill, telephone bill, Aadhar card or any utility bill)
 Copy of Mobile bill, telephone bill, electricity bill or Bank
Statement of all Partners with Present address
 Registered Office Address Proof – Electricity Bill along with Rent
Agreement / ownership proof of proposed registered office.
 Stamp paper for LLP Agreement of State where LLP is to be
Incorporated
 Documents Must be self attested

BY CA/CS ASHISH DEOLASI 7

4. PRIVATE LIMITED COMPANY
 To register a private limited company, a minimum of two adult persons
are required to act as Directors of the company.
 A private limited company must have a minimum of 2 Directors and can
have a maximum of 15 directors.
 One of the Director of a private limited company has to be an Indian
Citizen and Indian Resident. The other director(s) can be a Foreign
National.
 Two persons are also required to act as shareholder of a company. The
shareholders can be natural persons or an artificial legal entity. Hence,
a company can be owned by two corporate, which are domiciled in India
or abroad.

5. OPC
Choose OPC because
The following is the eligibility guidelines for OPC Registration in India.
 Can have more than 1 director, but the shareholder cannot be more than
1.
 Not affected by the death of a member or shift in ownership.
 Effortless to set up and maintain comparatively.
 Restricts the liabilities of its members
 Minimum Paperwork is needed.
 Can work as Stockbroker or Sub-broker
 Not multiple compliances
 No interference from any third party is seen
 Even no person is permitted to incorporate more than 1 one-person
company.

BY CA/CS ASHISH DEOLASI 8

 Documents Required For OPC Registration
• Copy of PAN Card of owner
• Passport size photograph of the owner
• Copy of Aadhar Card/ Voter identity card
• Copy of Rent agreement (If rented property)
• Electricity/ Water bill (Business Place)
• Copy of Property papers (If owned property)
• Landlord NOC (Format will be provided)

DSC (Digital Signature Certificate)

A Digital Signature Certificate is a secure digital key that is issued by the
certifying authorities for the purpose of validating and certifying the identity of
the person holding this certificate. Digital Signatures make use of the public key
encryptions to create the signatures.
A digital signature certificate (DSC) contains information about the user’s name,
pin code, country, email address, date of issuance of certificate and name of the
certifying authority.

CLASSES OF DSC
The type of applicant and the purpose for which the Digital Signature Certificate
is obtained defines the kind of DSC one must apply for depending on the need.
There are three types of Digital Signature certificates issued by the certifying
authorities.
Class 1 Certificates: These are issued to individual/private subscribers and are
used to confirm that the user’s name and email contact details from the clearly
defined subject lie within the database of the certifying authority.
Class 2 Certificates: These are issued to the director/signatory authorities of
the companies for the purpose of e-filing with the Registrar of Companies (ROC).
Class 2 certificate is mandatory for individuals who have to sign manual
documents while filing of returns with the ROC.
Class 3 Certificates: These certificates are used in online participation/bidding
in e-auctions and online tenders anywhere in India. The vendors who wish to
participate in the online tenders must have a Class 3 digital signature certificate.

BY CA/CS ASHISH DEOLASI 9

How to Apply for DSC?
Following are the requirements for Applying for Digital Signature
Certificate
1. Submission of DSC Application form duly filled in by the applicant
(DSC Application Form - [Link] )
2. Producing Photo ID proof
3. Producing Address proof

Points to Remember
 Digital signatures are issued for 1 or 2 years. After their validity has expired,
they need to be renewed
 A person can have different DSCs – one for official purpose and the other DSC
for personal purpose
 Digitally signed documents are acceptable in legal courts as an evidence or
proof

Documents that are required to obtain a Gumasta License?

(Format of Gumasta - [Link] )
General/ Sole Partnership Private Company
Proprietorship
Aadhar card/ Pan Partnership Deed Memorandum and Article
Card/ photo Of association
Address proof Partnership Firm’s Pan Certificate of Incorporation
(like Electricity bill)
Partner’s ID proof Company Director’s ID
(Any one) – proof (Any one) –

Address and Identity Address and Identity (like

(like PAN & Aadhar) PAN & Aadhar)

BY CA/CS ASHISH DEOLASI 10

(For GST Registration - [Link] )
Concern Proof of Photo of Proof of Proof of
Constitution of the Appoint- Principal
Business Autho- ment of Place of
(Any One) rised Authorised business
Signatory Signatory (Any One)
(Any One)
1. Proprietorship NA

2. Partnership 1. Partnership 1. Consent

Deed Letter
2. Any proof 2. Electricity
substantiatin Letter of Bill
g Constitution Authori- 3. Legal

3. Private Certificate of sation or ownership

Limited Incorporation Copy of document

Company Resolution 4. Municipal

Certificate of passed by Khata Copy

4. Limited
Incorporation Photo BoD/ 5. Property
Liability
Managing Tax Receipt
Partnership
Committee 6. Rent /
5. Society/ Club/ 1. Registration
and Lease
Trust/ AOP Certificate
Acceptance agreement
2. Any proof
letter 7. Rent receipt
substantiatin
with NOC
g
(In case of
Constitution
no/expired
6. Local Any proof
agreement)
Authority substantiating
Constitution

BY CA/CS ASHISH DEOLASI 11

For PTEC & PTRC
Concern PAN Proof of Proof of Bank
Constitution of Principal Place Details
Business of business
1. Proprietor- Proprietor’s NA a. Owned Cancelled
ship PAN i. Latest Cheque of
Electricity Current
2. Partnership PAN of Partnership Bill
Partnership Deed (Registered Account in
ii. Latest the name
Firm or Unregistered) Landline Bill of Firm/
3. Private PAN of Certificate of iii. Latest Bill of Business
Limited Company Incorporation Domestic or
Company Gas Agency Certificate
PAN of LLP Certificate of iv. First page of from Bank
4. Limited
Firm Incorporation Passbook of Bank
Liability
Saving Bank mentionin
Partnership
Account g the bank
5. Co- PAN of Deed Registered b. Rented Account
Operative Society with appropriate i. Rent details
Society Authority and Agreement
Certificate of c. On Consent
Registration of i. Consent
Society Letter from
Family
6. Trust Pan of Trust Deed
Member’s in
Trust Registered at
the name of
office of the
Applicant
Charity
(Owner or
Commissioner
Co-owner of
and Certificate of
premises)
Registration of
alongwith
Trust
document
7. Association PAN of Deed Registered showing
of Person Club/ at office of the signature of
Society Registrar and consenter
Certificate of
Registration
issue by
appropriated
Authority

BY CA/CS ASHISH DEOLASI 12

CHAPTER

2
BASIC CONCEPTS

CONCEPT OF DELEGATED LEGISLATION:

CONSTITUTION

CENTRAL GOVERNMENT STATE GOVERNMENT

POWERS GIVEN THROUGH

VIIth SCHEDULE

LIST I LIST II LIST III

STATE CONCURRENT
CENTRAL
GOVERNMENT GOVERNMENT

FINANCE MINISTERY

PARLIAMENT

LOK RAJYA
SABHA SABHA

PRESIDENT OF INDIA
(FOR HIS ASSENT)

BECOMES
LAW/ACT

BY CA/CS ASHISH DEOLASI 13

OVERVIEW OF TAX

What is a TAX?

 Tax is mandatory payment to be made by the people including corporate

entities to the Government. In other words, it is a necessary consideration
for living in a civilized society.
 The Taxation Structure of the country can play a very important role in the
working of economy.
 Earlier very few people were paying the income tax and hence the government
implemented very high rates of taxes to maximize the collection. But
currently the government wants more and more people to fall under the
ambit of tax and increase the vase of taxpayers. Hence the government has
decreased the rates and intends to realize the collection of taxes from more
people.

Why the need for taxes?

The Government has to incur expenditure on variety of functions which include:
 Welfare and Public Services like education systems, health care systems and
public transportation.
 Energy, water and waste management systems.
 Enforcement of law and public order.
 Maintaining defence forces and securing borders of the country.
 Funding Research and Development projects.
 Development of economic infrastructure, public works, subsidies and the
operation of government itself.
 Payment of the state’s debt and the interest thereon.

The Government, by its own accord cannot raise the funds required for meeting
these expenses. Hence, the people contribute money towards all these expenses
through TAXES.

The resource collected from the public through taxation can then be used by the
government for all the above mentioned purposes.

BY CA/CS ASHISH DEOLASI 14

 TYPES OF
TAXES

DIRECT INDIRECT
TAXES TAXES

INCOME WEALTH CUSTOMS

GST DUTY
TAX TAX

INTRODUCTION OF INCOME TAX IN INDIA

HISTORY
The Income Tax was introduced in India for the first time in 1860 by British
rulers following the mutiny of 1857. The period between 1860 and 1886 was a
period of experiments in the context of Income Tax. This period ended in 1886
when first Income Tax Act came into existence.

The pattern laid down in it for levying of Tax continues to operate even today
though in some changed form.

In 1918, another Act – Income Tax Act, 1918 was passed but it was short lived
and was replaced by Income Tax Act, 1922 and it remained in exis tence and
operation till 31st March, 1961.

PRESENT ACT
On the recommendation of Law Commission & Direct Taxes Enquiry Committee
and in consultation with Law Ministry a Bill was framed. This Bill was referred
to a select committee and finally signed by the President on 13th Sept. 1961.
This Act came into force from 1st April 1962 in whole of the country.

Income Tax Act, 1961 is a comprehensive Act and consists Sections 1 to 298,
Sub-Sections running into thousands of Clauses, sub-clauses, etc. and is
supported by the other Acts and Rules. This Act has been amended by several
amending Acts since 1961. The Annual Finance Bills presented to Parliament
along with Budget make far-reaching amendments in this Act every year.

BY CA/CS ASHISH DEOLASI 15

CONSTITUTIONAL BACKGROUND

Concept of Delegated Legislation

Article 246 of the Indian Constitution, distributes legislative powers including
taxation, between the Parliament of India (Central Government) and the State
Legislature. Schedule VII enumerates these subject matters with the use of three
lists;

 List – I (Union List) – Entailing the areas on which only the Central
Government is competent to make Law.
 List – II (State List) – Entailing the areas on which only the State Legislature
can make laws.
 List – III (Concurrent List) – Listing the areas on which both the Parliament
and the State Legislature can make laws upon concurrently.

INCOME TAX ACT

Under the Entry 82 of Union List of Constitution of India, the Parliament has
exclusive power to make laws with respect to "Taxes on income other than
agricultural income". Compliance with this power gave birth to the formation of
the Income Tax Act. The Income Tax Bill was passed by both the houses of the
parliament and received the assent of the President on 13th of September 1961.
Thus was born The Income Tax Act (Hereinafter referred to as the Act), which
came into force on the 1st day of April; 1962. It contains 298 sections, subdivided
into several subsections and clauses, and XIV schedules.

CENTRAL BOARD OF DIRECT TAXES (CBDT)

To look after the Administration of the Act, the
Central Board of Direct Taxes (CBDT) was
established. For the fulfillment of this obligation and
in exercise of the powers conferred under section
295 of the Act, The CBDT time and again frames
Income Tax Rules by issuing Notifications in the
Official Gazette.

BY CA/CS ASHISH DEOLASI 16

AMENDMENTS
Time changes many things and thus the need to change with them arises. Thus
change or Amendments in the law is a must. Since inception, the Act has
undergone, in the name of simplification and rationalization, various
amendments by which various new sections have been inserted apart from the
amendments in the existing sections. The changes to be brought in the Act are
incorporated through the Annual Finance Act.

CLARIFICATIONS & CIRCULARS

Law signifies simplicity but sometimes it creates ambiguity. The words of law
might sometimes have two or more meanings but the intent of legislation can't.
In such situations CBDT may issue Clarifications as to what the intention of
Government is. CBDT may also issue Circulars which shall be binding on the
officers of the Income Tax Department. However, circulars are neither binding
on the assessee nor the courts.

JUDICIAL DECISIONS
It is not within human power to foresee the manifold sets of interpretations which
may arise and that, even if it were, it is not possible for draftsmen to provide for
them in terms free from all ambiguity. The judiciary will hear the disputes
between Assessee and department and give decisions on various issues.
Supreme Court is the Apex court of the country and the decision awarded by it
is binding on all. Decisions given by various High courts will apply in respective
states in which such High courts have jurisdiction.

Commissioner of
High Court Supreme Court
Income Tax Tribunals
(States) (India)
(Appeals)

BY CA/CS ASHISH DEOLASI 17

Pradumnya Paranjape Vs. CIT 192 CTR 256 (2017) SC

 Appellant - Pradumnya Paranjape

 Respondent - CIT (Commissioner of Income Tax)
 Publication - CTR (Current Tax Reporter)
 Volume Number - 192
 Page Number - 256
 Year - 2017
 Court - Supreme Court

Types of definition
Every Act uses the application of a few common terms which is defined under
the Act. These definitions may be of any of these three types:

Inclusive Exclusive Exhaustive

Definitions: Definitions: Definitions:
These Definitions The Terms which cover When the scope of an
generally start with the everything within scope Item is to be restricted
word "includes". except a few are defined area an Exhaustive

are using an exclusive definition is used.

Such Definitions
used to keep the scope definition. An exhaustive definition
wide enough to cover the The Definition covers covers within its ambit
matters covered in it and the matters to be only the matters
also those which may excluded and everything specified in it.
not specifically not included in
the Example of an
expressed but form part definition but coming Exhaustive Definition is
of its natural meaning. within its natural
the definition of
The best example is the meaning shall form part Assessment year u/s
definition of Income of its scope. 2(9).
defined under section Example of an exclusive
2(24). definition is the of
Capital Asset u/s 2 (14).

BY CA/CS ASHISH DEOLASI 18

SEC 2(31) PERSON

An
Individual

HUF AJP

PERSON
SEC 2(31)
Local
Company
Authority

AOP/
Firm
BOI

DEFINITIONS:

"Person" includes-
a. An individual- means a single natural person i.e. human being and
includes a male, female, minor, or a lunatic. However, sometimes
income of a minor is included in income of a parent.
b. A Hindu undivided family-(HUF) -As per Hindu law
HUF means a family having all persons, lineally
descended from a common ancestor including their
wives and daughters. W.e.f. 9.9.05, due to the
amendment of the Hindu Succession Act, even after
marriage, daughter can continue to remain a
member of HUF. For tax purposes such a family
should have a common source of income for all persons. HUF always remains
HUF unless HUF is partitioned.
c. For E.g., a joint family consisting of Mr. J Kapoor, Mrs. Kapoor, Son T. Kapoor
and unmarried daughter E. Kapoor.

BY CA/CS ASHISH DEOLASI 19

d. A Company- As per clause (17) to Section 2. "Company" means-
e. Any Indian company, or
f. Any Body corporate incorporated by or under the laws of a country outside
India, or
g. Any institution, association or body, whether incorporated or not and
whether Indian or Non-Indian, which is declared by general or special order
of the Board to be a company.
h. A firm means a partnership firm i.e. "relationship between persons who
have agreed to share the profits of a business carried on by all or any of them
acting for all". Persons who have entered into partnership with one another
are called partners, and the name under which the firm is run is called the
firm's name. It includes Limited Liability Partnership (LLP)
i. An Association of Persons (AOP) or a Body of Individuals (BOI),
whether incorporated or not;
 Association of Persons: means when two or more persons join for a
common purpose with a view to earn income.
 Body of Individuals: When two or more individuals carry on certain activity
with the purpose with a view to earn income it is called Body of Individuals
(BOI).
AOP BOI

AOP may consist of non-individuals BOI consists of only individuals

such as company, firm, HUF, etc. as its persons and non-
individuals cannot form a BOI.

In an AOP there should be a Whereas in BOI there may or

common meeting of minds or a may not be such a common
common will to carry on a certain design or will to carry on a
venture. certain activity.

BY CA/CS ASHISH DEOLASI 20

j. A Local Authority: It means any Government body formed with the purpose
of controlling and managing a local fund. It can be a municipal corporation,
district board, Public works department, or other authority legally entitled to
or entrusted by Govt. to handle public funds.
k. Every Artificial juridical person (AJP): not falling within any of the preceding
sub- clauses: These are not natural persons but are separate entities in the
eyes of law. They can be sued directly or through its management.
For e.g. religious deities, Universities, research centers, etc. which earn a
certain income, fall under this category.

SEC 2(27) ASSESSEE

An assessee means a person by whom any tax or any other sum of money
is payable under the Act.

An assessee also includes the following:

a) Person in respect of whom any proceeding under the Act has been taken for-
 Assessment of his income, or
 Determination of the loss sustained by him, or
b) A deemed assessee: Every person who is deemed to be an assessee under
any provision of this Act. Example: A trustee of a trust is a representative
assessee and is deemed to be an assessee.
c) An Assessee in Default: Every person who is deemed to be an assessee in
default under any provision of this Act i.e. an assessee who has failed to
comply with any of the duties imposed upon him by the Income-tax Act.
Example: As per Section 140A (3), if an assessee fails to pay the self-
assessment tax in accordance with Section 140(1), then he shall be
considered as 'assessee in default'.

BY CA/CS ASHISH DEOLASI 21

ASSESSMENT

Assessment means the complete procedure, which consist of two stages:

(a) Computation of total income and

(b) Determination of the tax payable.

Computation of total Income is made after allowing various exemptions and

deductions on the total income of previous year from various sources.
Computation is carried out according to the provisions of the I T Act.

ASSESSMENT YEAR

Assessment Year [Section 2(9)]: "Assessment year" means the period of 12

months beginning with the 1st day of April and ending on 31st March of the
next year. Income earned in previous year is taxed in the assessment year.

Example: The assessment year 2020-21 is a period of 12 months starting from

the 1st April, 2020 and ending on the 31st March 2021.

PREVIOUS YEAR

Previous Year [Section 3] : As per Section 2(34) read with Section 3 of the Act,
the term "Previous year" means the financial year immediately preceding the
assessment year.

Previous year is same as Financial year. “The previous year is used in Tax
terminology whereas a Financial year is used in economic matters.”

Example: For the assessment year 2020-21, the previous year shall be the period
from 1st April, 2019 to 31st March, 2020 and the total income of an assessee
earned in the previous year 2019-20 is assessed in the assessment year 2020-
21.

BY CA/CS ASHISH DEOLASI 22

What will be the previous year in case of newly set-up business or
profession?

Ans: In case, a business or profession is newly set-up, the previous year shall
commence from the date of setting up of the business or profession and end with
the said financial year.

What will be the previous year in case where a new source of income comes
into existence?

Ans: In case, where a new source of income comes into existence, the previous
year shall commence from the date on which the said source comes into
existence and end with the said financial year.

ILLUSTRATION:

a) Mr. Pankaj sets up a business on September 20, 2020.

The previous year for the business income earned by Pankaj will commence
from September 20, 2020 and end on March 31, 2021
b) Mr. Partho was appointed as the manager in an Indian Company on July
1st 2020.
The previous year shall be July 1st 2020 to March 31st 2021.

UNIFORM PREVIOUS YEAR

It is important to understand that Accounting year & previous year are two
distinct concepts. Accounting year is seen from the view point of the accounts of
the assessee whereas previous year is from the view point of the Income Tax
Department Prior to 1989-90 different assessees used to follow different
accounting years say for e.g. calendar year or July to June etc. This created
Administrative difficulties for the Income Tax Department. Thus from 89-90
onwards Assessees are statutory required to follow a uniform previous year i.e.
1st April to 31st March of the following year.

BY CA/CS ASHISH DEOLASI 23

Thus if an assessee maintains books of accounts on calendar ear basis, taxable
income shall be determined as under:

Accounting Year Income as per Income earned during

Books of Accounts
Jan to Mar April to Dec
Jan to Dec 2017 1,75,000 60,000 1,15,000
Jan to Dec 2018 1,90,000 70,000 1,20,000

In this case Taxable Income shall be

Assessment Year Previous Year Income

2018-2019 2017-2018 1,15,000+70,000 = 1,85,000

SPECIAL CASES WHERE INCOME IS TAXED IN THE SAME YEAR

The general principle enunciated u/s.4 is that the income of a previous

year is charged to income tax at the rates applicable to the relevant
assessment year. There are certain circumstances under which the income
of a previous year is chargeable to tax in the same year and those
exceptional situations are as follows:

1. Shipping business of non-resident - Sec. 172:

Where a ship belonging to or chartered by a non-

resident carrying passengers, livestock, mail or
goods is shipped at a port in India, the ship is
allowed to leave the port only if the tax due thereon
has been paid or satisfactory arrangements have been made for
payment thereof.

2. Persons leaving India - Sec. 174:

When it appears to the Assessing Officer that any

individual may leave India during an assessment
year or shortly after its expiry and he has no present
intention of returning to India.

BY CA/CS ASHISH DEOLASI 24

3. Assessment of AOP/BOI or artificial juridical person formed for a
particular event or purpose - Sec. 174A:

Where it appears to the Assessing Officer that any AOP or BOI or an

artificial juridical person formed for a particular event or purpose is
likely to be dissolved in the assessment year in which such
AOP/BOI/AJP was formed or immediately after such assessment year.

4. Persons likely to transfer property to avoid tax - Sec. 175:

During any year if it appears to the Assessing Officer

that a person is likely to charge, sell, transfer, dispose
of or part with any of his assets to avoid payment of
any tax liability, then the total income of such person
shall be chargeable to tax in the same year.

5. Discontinued business -Sec.176:

Where any business or profession is discontinued in

any year, any income received after the discontinuance
shall be deemed to be the income of the recipient from
such discontinued business or profession and charged
to tax accordingly in the year of receipt.

BY CA/CS ASHISH DEOLASI 25

REVENUE RECEIPT AND CAPITAL RECEIPT
1) Receipts relating to fixed capital Receipts relating to circulating
are capital receipts. capital are revenue receipts.
E.g.: Receipt on sale of asset is a E.g.: Receipt on sale of stock-in-
capital receipt. trade is a revenue receipt.
2) Compensation received for Compensation received for loss of
extinction of a profit earning profits or earnings is a revenue
source (in whole or in part) is a receipt
capital receipt.
3) Receipt in substitution of source A receipt in substitution of income
of income is a capital receipt. is revenue receipt.
E.g.: Compensation for loss of
employment is a capital receipt.
4) Capital receipts are exempt from Revenue receipt are taxable unless
tax unless expressly taxable. expressly exempt from tax.
E.g.: Capital gains. E.g.: Income exempt under section
10 to 13A.
5) Compensation received for Compensation received for
relinquishing interest (in whole relinquishing interest in stock-in-
or in part) in a capital asset is a trade of the business is a revenue
capital receipt. receipt.
6) Profits from transactions outside Profits from transactions entered
the purview of regular trading into the course of business
activities of the assessee are regularly carried on by the
capital receipts. assessee or are incidental to or are
associated with business, are
revenue receipts.
7) Subsidy is treated as capital Subsidy is treated as revenue
receipt if it is given to set-up a receipt if it is given for an existing
new business or to complete a business or to meet any specific
project or to acquire an asset. revenue expenditure or by way of
reimbursement of such
expenditure.
8) Profits from sale of shares or Profits from sale of shares, which
securities, which were were acquired in the ordinary
purchased as an investor, are course of business as a dealer in
capital receipts. shares, are revenue receipts.

BY CA/CS ASHISH DEOLASI 26

DISPUTED INCOME

The Income Tax Act doesn't make any difference, whether the income is in
cash or in kind; both are taxable. Similarly, it makes no difference whether
the income is legal or illegal.

DIVERSION OF INCOME AND APPLICATION OF INCOME

Diversion of Income Application of Income

(1) Income never reaches to the Income reaches to the assessee
assessee as his own income. By as his own income and is
virtue of an obligation the income subsequently applied to
is diverted at source before it discharge an obligation.
reaches the assessee.
(2) The obligation is on the source of The obligation is on the receipt of
income. income i.e. after income reaches
to the assessee.
(3) There is an overriding title by virtue There is no over riding title in this
of which diversion of income takes case.
place.
(4) In case of diversion, the income is In case of application, income is
not included in the income of the included in the income of the
assessee. assessee.
(5) Since the assessee do not have Income is said to have accrued or
title, Income cannot be said to arisen and therefore is taxable in
have accrued or arisen. the hands of assessee.

SURPLUS FROM MUTUAL ACTIVITY

An assessee cannot earn profit out of a transaction with himself. Profits
should arise from a source outside the concern. In Chelmsford club v/s
CIT in was held that rent charged by the club to members for room and
other facilities provided by the club, not assessable to income tax on the
grounds of mutuality.

BY CA/CS ASHISH DEOLASI 27

INCOME SEC. 2(24)

To the fact that it is difficult to give an exhaustive definition to the word

“income”, the legislature defines “income” u/s. 2(24) in an illustrative
manner to include-

i. Profits and Gains of business or Profession.

ii. Dividend;
(iia) Voluntary contributions received by a charitable or religious
trust or institution or association or university or educational
institutions or hospitals or electoral trusts;
iii. Value of any perquisite or profit in lieu of salary taxable u/s. 17(2)
or (3).
(iiia) Any special allowance or benefit, specifically granted to the
assessee to meet expenses wholly, necessarily and exclusively for the
performance of duties of an office or an office;
(iiib) All allowance granted to the assessee either to meet the personal
expenses at the place where the duties of his office or employment of
profit are ordinarily performed by him or at a place where he
ordinarily resides or to compensate him for the increased cost of
living.
iv. The value of any benefits or perquisite, whether convertible into
money or not, obtained from a company either by a director or by a
person who has a substantial interest in the company, or by a
relative of the director or such person, and any sum paid by any such
company in respect of any obligation which, but for such payment,
would have been payable by the director or other person aforesaid;
(iva) The value of any benefit or perquisite, whether convertible into
money or not, obtained by any trustee of a discretionary trust or by
any beneficiary of such trust;

BY CA/CS ASHISH DEOLASI 28

v. Any sum chargeable u/s 28(ii) (i.e., compensation received by an
agent against termination or modification of the terms of contract) &
28(iii) (i.e., income derived by a trade, professional or similar
association from specific services performed for its members), or sec
41 or sec 59.
(va) Any sum received as export incentives chargeable u/s 28(iiia),
(iiib), (iiic), (iiid) or (iiie);
(vd) The value of any benefit or perquisite taxable u/s 28(iv);
(ve) Any sum chargeable to income-tax u/s 28(v) (remuneration /
interest received by partner from th+9+e firm);
vi. Any capital gains chargeable to u/s 45;
vii. The profits and gains of any business of insurance carried on by a
mutual insurance company or by a co-operative society, computed
in accordance with section 44 or any surplus taken to be such profits
and gains by virtue of provisions contained in the First Schedule,
viii. The profits and gains of any business of banking (including providing
credit facilities) carried on by a co-operative society with its
members,
ix. Any winnings from lotteries, crossword puzzles, races including
horse races, card games and other games of any sort or from
gambling or betting of any form or nature whatsoever.
x. Any sum received by the assessee from the employees as
contributions to any provident fund or superannuation fund or any
other such fund set up for the benefit of the employees.
xi. Any sum received under a Keyman insurance policy including any
bonus.
xii. Any sum referred to in section 28(va). (Amount received for not
carrying on any business, etc.)
xiii. Value of property referred to in section 56(2)(vii),or 56(2)(viia).
xiv. Any consideration received for issue of shares as exceeds the FMV of
the shares referred to in section 56(2)(viib)
xv. Any sum of money referred to in section 56(2)(ix). (Any sum of money
received as an advance in course of negotiation for transfer of a
capital asset is not effected.)

BY CA/CS ASHISH DEOLASI 29

xvi. Any sum of money or value of property referred to in section 56(2)(x)
(gift of Money, Movable and Immovable property w-e-f 01-04-2017)
xvii. Assistance in the form of a subsidy or grant or cash incentive or duty
drawback or waiver or concession or reimbursement (by whatever
name called) by the Central Government or a State Government or
any authority or body or agency in cash or kind to the assessee other
then-
a. The subsidy or grant or reimbursement which is taken into
account for determination of the actual cost of the asset in
accordance with the provisions of Explanation 10 to Clause (1) of
section 43; or
b. The subsidy or grant by the Central Government for the purpose
of the corpus of a trust or institution established by the Central
Government or a State Government, as the case may be;
[Point (a) & (b) inserted by FA16]

SECTION 4: LEVY OF INCOME TAX

a) Every person is liable to pay tax as per the rates prescribed under the
Finance Act applicable to the relevant assessment year.
b) If on the 1st of April of an assessment year the parliament has not
passed the Finance bill, then the rates in force in the preceding
assessment year or the rates proposed in the new Finance bill,
whichever is more beneficial to the assessee, will be take in into
consideration.
c) For the purpose of computing the taxable income, the provisions of the
Income tax act, shall apply, as they stand on the 1stApril of the
assessment year. Any amendment made after 1st April shall not apply
for that assessment year & is wholly irrelevant. Such amendment shall
apply from the next following assessment year.
d) If however, the amendment is purely procedural then it shall take effect
from the date of amendment.

BY CA/CS ASHISH DEOLASI 30

TAX RATES BASED ON TYPE OF ASSESSEE

OPTION – 1

TAX RATES FOR INDIVIDUAL, HUF, AOP, BOI AND AJP

In India we follow Progressive Taxation for Individuals and HUFs. To

achieve this goal, the Finance Act provides slab rates for the taxation of
income. There is no section for these slab rates since tax rates are not
given under Income-tax Act, 1961. These slab rates are fixed in Part III of
First Schedule of Finance Act. The slabs rates for the AY 2021-2022 i.e.
PY 2020-2021 are as follows:

A. Slab A applies to:

1. Every resident male and every resident female whose age is less than
60 years,
2. Every non-resident male and non-resident female irrespective of
their age.
3. Every HUF, AOP/BOI and AJP whether resident or non-resident,
of India.

Up to first Rs. 2,50,000 NIL

Rs. 2,50,000 to Rs. 5,00,000 5%

Rs. 5,00,000 to Rs. 10,00,000 20%

Above Rs. 10,00,000 30%

The tax calculated as above shall be increased by Surcharge and

Health and Education Cess.

BY CA/CS ASHISH DEOLASI 31

B. Slab B is used for every male and every female who is resident in
India and who is of the age of 60 years or more but is of less than
80 years of age,

Up to first Rs. 3,00,000 NIL

Rs. 3,00,000 to Rs. 5,00,000 5%

Rs. 5,00,000 to Rs. 10,00,000 20%

Above Rs. 10,00,000 30%

The tax calculated as above shall be increased by Surcharge and

Health and Education Cess.

C. Slab C is used for every male and every female who is resident in
India and who is of the age of 80 years or more,

Up to first Rs. 5,00,000 NIL

Rs. 5,00,000 to Rs. 10,00,000 20%

Above Rs. 10,00,000 30%

The tax calculated as above shall be increased by Surcharge and

Health and Education Cess.

NEW TAX REGIME

OPTION – 2 (NOT APPLICABLE TO AOP, BOI, AJP)

Sl. No. Total Income Rate of Tax

1. Upto Rs 2,50,000 Nil

2. From Rs 2,50,001 to Rs 5,00,000 5 per cent.

3. From Rs 5,00,001 to Rs 7,50,000 10 per cent.

4. From Rs 7,50,001 to Rs 10,00,000 15 per cent.

5. From Rs 10,00,001 to Rs 12,50,000 20 per cent.

6. From Rs 12,50,001 to Rs 15,00,000 25 per cent.

7. Above Rs 15,00,000 30 per cent.

BY CA/CS ASHISH DEOLASI 32

Important Points -
 Please note that the tax rates in the New tax regime is the same for all
categories of Individuals & HUF upto 60 years of age, Senior citizens above
60 years upto 80 years , and super senior citizens above 80 years. Hence no
increased basic exemption limit benefit will be available to senior and super
senior citizens in the New Tax regime.
 Individuals with Net taxable income less than or equal to Rs 5 lakh will be
eligible for tax rebate u/s 87A i.e tax liability will be nil of such individual in
both – New and old /existing tax regimes.
 Basic exemption limit for NRls is of Rs 2.5 Lakh irrespective of age.

The taxpayer opting for concessional rates in the New Tax regime will have to
forgo certain exemptions and deductions available in the existing old Tax regime.
In all there are 70 deductions and exemptions that are not allowed, out of
which the most commonly used are listed below:

List of common Exemptions and List of deductions “allowed” under

deductions “not allowed” under new Tax rate regime
New Tax rate regime

Leave Travel Allowance Transport allowance for specially

abled people

House Rent Allowance Conveyance allowance for expenditure

incurred for travelling to work

Conveyance allowance Investment in Notified Pension Scheme

under Section 80CCD(2)

Daily expenses in the course of Deduction for employment of new

employment employees under section 80JJAA

Relocation allowance Depreciation u/s 32 of the income tax

act except additional depreciation.

BY CA/CS ASHISH DEOLASI 33

 Helper allowance Any allowance for travelling for
employment or on transfer

Children education allowance

Other special allowances

[Section 10 (14)]

Standard deduction on salary

Professionaal Tax

Interest on Housing loan (Section 24)

Deduction under chapter VI-A

deduction (80C, 80D, 80E and so on)
(Except Section 80CCD(2))

AUTHORS NOTE :

The new tax regime can largely benefit middle class taxpayers who have a taxable
income upto Rs 15 Lakh. Old Regime is a better option for high- income earners.

The new income tax regime is beneficial for people who make low investments.
As the new regime offers Seven lower income tax slabs, anyone paying taxes
without claiming tax deductions can benefit from paying a lower rate of tax under
the new tax regime. For instance, assessee having total income before deduction
up-to Rs 12 lakh will have higher tax liability under the old system if they have
investments less than Rs 1.91 lakh. Therefore, if you invest less in tax –saving
schemes, go for the new regime.

That being said, if you already have in place a financial plan for wealth creation
by making investment in tax-saving instruments; mediclaim and life insurance;
making payments of children’s tuition fees; payments of EMIs on education loan;
buying a house with a home loan; and so on, the old regime helps you with
higher tax deductions and lower tax outgo.

BY CA/CS ASHISH DEOLASI 34

In light of the above and considering the new income tax regime, if taxpayers
want to opt for the concessional tax rates, they may evaluate both regimes.
Hence, It is advisable to do a comparative evaluation and analysis under both
regimes and then choose the most beneficial one as it may vary from person to
person.

HEALTH AND EDUCATION CESS

@4% of such income-tax and surcharge (all assessee's)

Health and Education Cess is Commonly known as Cess.

ROUNDING OFF

Sec. 288A- Rounding-off of income:

The taxable income shall be rounded off to the nearest multiple of Rs. 10.

Sec 288B- Rounding-off of tax:

The amount of tax payable by an assessee or the amount of refund due shall be
rounded off to the nearest multiple of Rs. 10.

REBATE OF INCOME-TAX IN CASE OF CERTAIN INDIVIDUALS-

SEC 87A: The rebate is available to a resident individual if his total income does
not exceed Rs. 5,00,000.

The amount of rebate shall be

1. 100% of the income tax or

2. Rs. 12,500/

whichever is less.

BY CA/CS ASHISH DEOLASI 35

SURCHARGE

Income- Rate of surcharge

TI> 50 lakhs but not exceeding 1 10%
crore
TI > 1 crore 15%

MARGINAL RELIEF

Provided that in the case of persons mentioned above having total income
exceeding,-

a) fifty lakh rupees but not exceeding one crore rupees, the total amount
payable as income-tax and surcharge on such income shall not exceed the
total amount payable as income -tax on a total income of fifty lakh rupees by
more than the amount of income that exceeds fifty lakh rupees;
b) one crore rupees, the total amount payable as income-tax and surcharge on
such income shall not exceed the total amount payable as income -tax
surcharge on a total income of one crore rupees by more than the amount of
income that exceed one crore rupees.

Note : On Unexplained income chargeable to tax under Section 115BBE @

25% (Amended from AY 2020-2021)

BY CA/CS ASHISH DEOLASI 36

Rate of Surcharge applicable to Individuals/ HUF/ AOP/ BOIs
[Taxation laws (Amendment) Ordinance, 2019]
Sr. Particulars Rate of Example
No. surcharge
Components of Applicable rate
on income-
total income of surcharge
tax
(i) Where the total 10%  STCG u/s Surcharge would
income (including 111A Rs. 10 be levied @ 10%
income u/s 111A lakhs; on income-tax
and 112A)  LTCG u/s computed on total
exceeds Rs. 50 112A Rs. 5 income of Rs. 55
lakhs but does not lakhs; and lakhs.
exceed Rs. 1 crore  Other income
Rs. 40 lakhs
(ii) Where total 15%  STCG u/s Surcharge would
income (including 111A Rs. 20 be levied @15% on
income under lakhs; income-tax
section 111A and  LTCG u/s computed on total
112A) exceeds Rs. 112A Rs. 25 income of Rs. 1.25
1 crore but does lakhs; and crores.
not exceed Rs. 2  Other income
crore Rs. 80 lakhs
(iii) Where total 25%  STCG u/s Surcharge would
income (excluding 111A Rs. 24 be levied @15% on
income u/s 111A lakh; income-tax on:
and 112A)  LTCG u/s  STCG of Rs. 24
exceeds Rs. 2 112A Rs. 25 lakhs
crore but does not lakh; and chargeable to
exceed Rs. 5 crore  Other income tax u/s 111A;
The rate of 15% Rs. 3 crores and
surcharge on the  LTCG of Rs. 25
income-tax lakhs
payable on the chargeable to
portion of income tax u/s 112A.
chargeable to tax Surcharge @ 25%
u/s 111A and would be leviable
112A on income-tax
computed on
other income of
Rs. 3 crores
included in total
income.

BY CA/CS ASHISH DEOLASI 37

Marginal Relief
[Amended by Finance (No. 2) Act, 2019 w.e.f. 01-04-2020 i.e.
w.e.f. AY 2020-21]:
a) Marginal relief is available in case total income exceeds Rs. 50 lakhs. The
additional amount of income-tax payable (together with surcharge) on the
excess of income over Rs. 50 lakhs should not be more than the amount of
income exceeding Rs. 50 lakhs.
b) Where total income exceeding Rs. 1 crore rupees, the total amount payable
as income-tax and surcharge on such income shall not exceed the total
amount payable as income-tax and surcharge on a total income of Rs. 1
crores by more than the amount of income that exceeds Rs. 1 crores.
c) Where total income exceeds Rs. 2 crore, the total amount payable as income-
tax and surcharge on such income shall not exceed the total amount payable
as income-tax and surcharge on a total income of Rs. 2 crores by more than
the amount of income that exceeds Rs. 2 crores.
d) Where total income exceeds Rs. 5 crore, the total amount payable as income-
tax and surcharge on such income shall not exceed the total amount payable
as income-tax and surcharge on a total income of Rs. 5 crores by more than
the amount of income that exceeds Rs. 5 crores.

If TOTAL Income

Is Upto 50 Exceeds 50 Lacs Exceeds 1Cr Exceeds 2Cr

Lakhs But Upto But Upto Exceeds 5 Core
But Upto 1 Crore
2 Core 5 Core Surcharge @37 %
No Surcharge Surcharge @10 % Surcharge @15 % Surcharge @25 %

Note :
Exceeds Rs 50 Lacs

If TOT Income Sec. 111 A ( STCG ) Surcharge @10 %

But Upto 1 Cr
OR

If TOT Income Sec. 112 A (LTCG) Surcharge @15 %

Exceeds Rs. 1 Cr

BY CA/CS ASHISH DEOLASI 38

Illustration 1: Mrs. Jasmin was born on 1/4/1920 and she is a resident of India.
She has gross total income of Rs. 19,70,000. Her Deduction U/s 80C for LIC is
Rs. 1,50,000. Calculate her income tax liability.

Solution: Option 1

Mrs. Jasmin has attained age of 80 + years and thus Slab C of Option 1 will be
applicable for calculation of income tax liability.

Calculation of income tax liability -

Gross Total Income Rs. 19,70,000

Less : Deduction U/Chapter VI - A

80C- LIC Rs. 1,50,000

Taxable Income Rs. 18,20,000

First Rs. 5,00,000 NIL

Rs. 5,00,000 to Rs. 10,00,000 20% Rs. 1,00,000

Balance of Rs. 8,20,000 30% Rs. 2,46,000
Total Rs. 3,46,000

Add: surcharge NIL

Tax plus surcharge Rs. 3,46,000

Add: Health and Education cess on tax plus 13,840

surcharge @4%
Total tax rounded off u/s 288B Rs. 3,59,840

BY CA/CS ASHISH DEOLASI 39

Option 2

Slab of Option 2 will be applicable for calculation of income tax liability.

Calculation of income tax liability -

Taxable Income 19,70,000

Upto Rs 2,50,000 NIL NIL

From Rs 2,50,001 to Rs 5,00,000 5% Rs. 12,500

From Rs 5,00,001 to Rs 7,50,000 10% Rs. 25,000
From Rs 7,50,001 to Rs 10,00,000 15% Rs. 37,500
From Rs 10,00,001 to Rs 12,50,000 20% Rs. 50,000
From Rs 12,50,001 to Rs 15,00,000 25% Rs. 62,500
Balance of Rs. 4,70,000 30% Rs.1,41,000
Total Rs. 3,28,500

Add: surcharge NIL

Tax plus surcharge Rs. 3,28,500

Add: Health and Education cess on tax plus Rs. 13,140

surcharge @4%
Total tax rounded off u/s 288B Rs. 3,41,640

So from above working we can say Option 2 is better for Mrs. Jaasmine.

BY CA/CS ASHISH DEOLASI 40

Illustration 2: Mr. Akash is 55 years old and is a resident of India and has
earned a gross total income of Rs. 6,35,670. He paid Rs. 18,150 for his
mediclaim. Calculate his tax liability.

Solution: Calculation of income tax liability –

Option 1:

Slab A of Option 1 will be applicable for calculation of income tax liability.

Gross Total Income Rs. 6,35,670

Less : Deduction U/Chpt VI - A
80D- Mediclaim Rs. 18,150
Taxable Income Rs. 6,17,520
First Rs. 2,50,000 Nil
Rs. 2,50,000 to Rs. 5,00,000 5% Rs. 12,500
Balance of Rs. 1,17,520 20% Rs. 23,504
Total Rs. 36,004
Add: surcharge NIL
Tax plus surcharge Rs. 36,004
Add: Health and Education Cess on tax plus Rs. 1,440.16
surcharge @ 4%
Total tax Rs. 37,444.16
Tax rounded off u/s 288B Rs. 37,440

BY CA/CS ASHISH DEOLASI 41

Option 2

Slab of Option 2 will be applicable for calculation of income tax liability.

Taxable Income 6,35,670

Upto Rs 2,50,000 NIL NIL
From Rs 2,50,001 to Rs 5,00,000 5% Rs. 12,500
Balance of Rs. 1,35,670 10% Rs. 13,567
Total Rs. 26,067
Add: surcharge NIL
Tax plus surcharge Rs. 26,067
Add: Health and Education cess on tax plus Rs. 1,042.68
surcharge @4%
Total tax Rs. 27,109.68
Total tax rounded off u/s 288B Rs. 27,110

Illustration 3: Mr. Nayan, 50 years of age is a resident of India and his salary
income is Rs. 15,00,000. His interest on house property is Rs. 2,00,000 and he
paid mediclaim of Rs. 25,000. Calculate his tax liability.

Solution: Calculation of income tax liability –

Option 1:

Slab A of Option 1 will be applicable for calculation of income tax liability.

Salary Rs. 15,00,000

Less: Std. Deduction Rs. 50,000

Rs. 14,50,000

Less: Interest on House Property Rs. 2,00,000

Gross Total Income Rs. 12,50,000

Less : Deduction U/Chpt VI - A

BY CA/CS ASHISH DEOLASI 42

 80D- Mediclaim Rs. 25,000

Taxable Income Rs. 12,25,000

Up to Rs. 2,50,000 NIL

Rs. 2,50,000 to Rs. 5,00,000 5% Rs. 12,500

Rs. 5,00,000 to Rs. 10,00,000 20% Rs. 1,00,000

Balance of Rs.2,25,000 30% Rs. 67,500

Total Rs. 1,80,000

Add: Health and Education Cess @ 4% Rs. 7,200

Total Tax rounded off u/s 288B Rs. 1,87,200

Option 2

Slab of Option 2 will be applicable for calculation of income tax liability.

Taxable Income 15,00,000

Upto Rs 2,50,000 NIL NIL
From Rs 2,50,001 to Rs 5,00,000 5% Rs. 12,500
From Rs 5,00,001 to Rs 7,50,000 10% Rs. 25,000
From Rs 7,50,001 to Rs 10,00,000 15% Rs. 37,500
From Rs 10,00,001 to Rs 12,50,000 20% Rs. 50,000
From Rs 12,50,001 to Rs 15,00,000 25% Rs. 62,500
Total Rs.1,87,500

Add: surcharge NIL

Tax plus surcharge Rs.1,87,500

Add: Health and Education cess on tax plus Rs. 7,500

surcharge @4%
Total tax Rs. 1,95,000

Total tax rounded off u/s 288B Rs. 1,95,000

So from above working we can say Option 1 is better for Mr. Nayan.

BY CA/CS ASHISH DEOLASI 43

Illustration 4: Mr. Mayank is 35 years old and is a resident of India and has
earned a total income of Rs. 59,50,000. He paid Rs. 1,50,000 for LIC. Calculate
his tax liability.

Solution: Calculation of income tax liability-

Option 1:

Slab A of Option 1 will be applicable for calculation of income tax liability.

Gross Total Income Rs. 59,50,000

Less : Deduction U/Chpt VI - A

80C- LIC Rs. 1,50,000

Taxable Income Rs. 58,00,000

First Rs. 2,50,000 Nil

Rs. 2,50,000 to Rs. 5,00,000 5% Rs. 12,500

Rs. 5,00,000 to Rs. 10,00,000 20% Rs. 1,00,000

Balance income = Rs. 48,00,000 30% Rs. 14,40,000

Total Rs. 15,52,500

Add: surcharge @ 10% of tax Rs. 1,55,250

Tax plus surcharge Rs. 17,07,750

Add: Health and Education Cess on tax plus Rs.68,310

surcharge @ 4%
Total tax Rs. 17,76,060

Tax rounded off u/s 288B Rs. 17,76,060

BY CA/CS ASHISH DEOLASI 44

Option 2

Slab of Option 2 will be applicable for calculation of income tax liability.

Taxable Income 59,50,000

Upto Rs 2,50,000 NIL NIL

From Rs 2,50,001 to Rs 5,00,000 5% Rs. 12,500

From Rs 5,00,001 to Rs 7,50,000 10% Rs. 25,000
From Rs 7,50,001 to Rs 10,00,000 15% Rs. 37,500
From Rs 10,00,001 to Rs 12,50,000 20% Rs. 50,000
From Rs 12,50,001 to Rs 15,00,000 25% Rs. 62,500
Balance Rs. 44,50,000 30% Rs. 13,35,000

Total Rs.15,22,500

Add: surcharge @ 10% of tax Rs. 1,52,250

Tax plus surcharge Rs.16,74,750

Add: Health and Education cess on tax plus Rs. 66,990

surcharge @4%
Total tax Rs. 17,41,740

Total tax rounded off u/s 288B Rs. 17,41,740

So from above working we can say Option 2 is better for Mr. Mayank.

TAX RATES FOR PARTNERSHIP FIRMS, LLP AND LOCAL AUTHORITY

Tax rate 30% flat, without any basic exemption limit

Surcharge Income is < / = Rs. 50 lakhs NIL

Income is > Rs. 50 lakhs 12% of tax

Health and Education Cess 4% (tax + surcharge)

BY CA/CS ASHISH DEOLASI 45

Illustration 5: M/S PQR is a partnership firm which has earned the business
profits of Rs. 2,00,000. House property income of Rs. 2,00,000. Donations to
PMNRF are Rs. 1,70,000 (Deduction u/s 80G). Calculate the tax liability.

Solution: Calculation of Total Income & tax liability-

Gross Total Income Rs. 4,00,000

Less: deduction under Section 80G Rs. 1,70,000

Total Income Rs. 2,30,000

Tax on this total income @ 30% Rs. 69,000

Add: surcharge NIL

Tax plus Surcharge Rs. 69,000

ADD: Health and Education Cess @ 4% Rs. 2,760

Total Tax Rs. 71,760

Tax rounded off u/s 288B Rs. 1,760

TAX RATE OF CO-OPERATIVE SOCIETIES

Tax Rate Up to first Rs. 10,000 10%

Rs. 10,000 to Rs. 20,000 20%

Above Rs. 20,000 30%

Surcharge Income is < / = Rs. 50 lakhs NIL

Income is >Rs. 50 lakhs 12% of tax
Health and Education 4% (tax + surcharge)
Cess

BY CA/CS ASHISH DEOLASI 46

TAX RATE FOR FOREIGN COMPANIES
Tax rate 40% flat, without any basic exemption limit

Surcharge Income is < / = Rs. 50 lakhs NIL

Income is >Rs. 50 lakhs but Income is < = Rs. 100 NIL

lakhs (Rs.1 Crore )
Income is >Rs. 100 lakhs but Income is < = Rs. 2%
1,000 lakhs (Rs. 10 Crore)
Income is > Rs. 1,000 lakhs (Rs. 10 Crore) 5%

Health and 4% (tax + surcharge)

Education Cess

TAX RATE FOR DOMESTIC COMPANIES

SECTION TAX CONDITIONS
RATE
Section 115BA 25% (1) Company is registered on or after 1/3/2016
(2) Company is engaged in manufacture or
production of any article or thing
(3) Company does not claim specified exemption,
incentive or deduction (Eg. 10AA, 32AC, 32AD,
35AC, 35AD, 35CCC, 35CCD or Chapter VI A)
Section 115BAA 22% Company does not claim specified exemption,
incentive or deduction
Section 115BAB 15% (1) Company is registered on or after 1/10/2019
(2) Company is engaged in manufacture or
production of any article or thing
(3) Company commences manufacturing on or
after 1/10/2019 but on or before 31/3/2023
First Schedule to 25% When total turnover or gross receipts for the PY
Finance Act 2017-2018 < = Rs. 400 Crores
First Schedule to 30% Any other domestic company such as a
Finance Act company which has total turnover or gross
receipts for the PY 2017-2018 > Rs. 400 Crores

BY CA/CS ASHISH DEOLASI 47

RATES OF TAX ON DOMESTIC COMPANIES – 25% or 30%

17-18 18-19 PY 19-20 PY 20- 21 PY 21-22

1. For the previous year 2019-20, If, the turnover of PY 2017-18 is less than or
equal to 400 Crores then, the Tax rate applicable to company in PY 2019-20
will be – 25%
2. For the previous year 2020-21, If, the turnover of PY 2018-19 is less than or
equal to 400 Crores then, the Tax rate applicable to company in PY 2020-21
will be – 25%

Otherwise, The Tax rate would be 30%

SURCHARGE

T. I RATE OF SURCHARGE

A] 1Cr. < T.I > 10Cr 7% of Income Tax

B] T. I > 10Cr. 12% of Income Tax

CESS
Health & Edu. Cess @ 4% = on = Income Tax + Surcharge

EFFECTIVE RATES OF TAX

To < 400 Cr To > 400 Cr.
1. If, TI < 1 Cr. 25 + 1 = 26% (25 x 4%) 30 + 1.2 = 31.2% (30 x 4%)
No surcharge
2. If, 1 Cr < TI 25 + 1.75 + 1.07 (25x7%) 30 + 2.1 + 1.284 (30x7%)
> 10 Cr [(25+1.75) x 4%] [(30+2.1) x 4%]
27.82% 33.38%
3. TI > 10 Cr. 25 + 3 + 1.12 (25x12%) 30 + 3.6 + 1.344 (30x12%)
[(25+1.12) x 4%] [(30+3.6) x 4%]
29.12% 34.944%

BY CA/CS ASHISH DEOLASI 48

Sec. 115 BA: TAX RATES FOR CERTAIN MANUFACTURING
COMPANIES

Applicable to Domestic
Companies

111A – 15% Overrides entire Act Subject to

this chapter But not 115 BA &
112A - 20% 115 BAB

TAX RATE – 25%

CONDITIONS

 Incorporation – 1-3-2016, onwards,

 Manufacturing and research companies
 Restriction

10AA, 32AC, 32AD,33AB, 33ABA, 35, 35AC, 35AD, 35CCC, 35CCD. Deduction
under Chapter VI A

 If you have loss – Earlier, because of these above section – you cannot carry
forward & set off
 Option should be exercised in 1st Return of Income - You Can Not withdraw
latter

 1st Return - 2016-2017

To > 400Cr Can Opt 115 BA,

If you have to =< 400 Cr Don’t Opt 115BA

Because , You will have already TAX @ 25% Rate

BY CA/CS ASHISH DEOLASI 49

 Sec . 115 BAA from Tax Ordinance which came
(A.Y. 2020-21) in Sept

 Applicable to Domestic Co.

Overrides entire act 111A 15% 112A
 Subject to Special Rate

But Not to 115BA & 115BAA.

TAX Rate 22 % So , Effective Rate pf TAX
Plus
SURCHARGE 10 %
(Compulsory ) 25.168 %
Plus
CESS 4%

For this Section

Entry Always Open [ i.e. in any year ]

Also ,
No Restriction to Nature of Business
[ i.e. Manufacturer , Retailers , Wholesalers etc. ]

 Once Entered in this Section Can Not Withdraw

Restriction -
10AA , 32AC , 32AD , 33AD , 33AB , 33ABA , 35, 35 AD , 33CCC , 33CCD
Deduction under chapter VI A
(In 15 BA, There is - 32AC.. Which is not here in this section )
* Loss cannot be c/f and set off - (Earlier Loss )

Sec. 15 BAB Domestic Company

TAX Rate 15%

Surcharge 10% Effective Rate
Cess 4% 17.167

Option Can Be Exercised At the Time of filing of 1st Return

Incorporation Date 1.10.2019 to 31.03.2023

Only Manufacturing & Research Clients

BY CA/CS ASHISH DEOLASI 50
Conditions for 15 BAB
1) It’s not set up (i.e. It should not be set up as a result of reconstruction )
2) New Plant & Machinery - Should be used
Exception :-
 2nd Hand Imported
 Old Pl & M accepted provided it is 20% of Total Used P & M
3) Does not use any building, Previously used for Hotel OR Convention

Summery
Turnover 115 BA 115 BAA 115BAB
Business Any Manufacturing Any Manufacturing
Start Anytime 1.3.2016 Ant Time 1.10.19 to
31.3.23
Effective Already 26 % OR
Tax Rate Discounted 27.82 % OR 25.168 % 17.16 %
29.12 %
Deductions Allowed Not Allowed Not Allowed Not Allowed

SURCHARGE RATES
RANGE OF TOTAL INCOME

Income is >Rs. Income is > 1 Income

50 lakhs But Crore But is > Rs.
Income is < = Income is < = 10 Crore
Rs. 1 Crore Rs. 10 Crore
Domestic Company opting Nil 7% 12%
for section 115BA
Domestic Company opting 10% 10% 10%
for section 115BAA
Domestic Company opting 10% 10% 10%
for section 115BAB
Any other company Nil 7% 12%

BY CA/CS ASHISH DEOLASI 51

 Surcharge shall be levied at a flat rate of 10% only on income offered to tax under
Section 115BAA or Section 115BAB. Surcharge on all other incomes, which are
chargeable to tax at special rate, shall be levied as per the existing provisions,
i.e., at the rate of 7% or 12%, as the case may be.

AGGREGATION OF NET AGRICULTURAL INCOME

Aggregation of net agricultural income with taxable income for

computation of tax:
 Applicable to: Individual, HUF,AOP, BOI
 When Applicable : Where the assessee has, in the previous year-
i. Net agricultural income > Rs. 5000/-, and
ii. Total income > Basic Exemption Limit (i.e., Rs.2,50,000/- or Rs.
3,00,000/- or Rs. 5,00,000/- as the case may be),
then,

The income-tax shall be computed are as follows: -

i. the amount of income-tax shall be determined on the aggregate of (Total

Income + Net Agricultural income) at the rates specified in the Paragraph A;
ii. the amount of income tax shall be determined on the aggregate of (Net
Agricultural income+ Basic exemption limit) at the rates specified in the
Paragraph A;
iii. the income-tax payable = tax under (i) - tax under (ii)

Tax on
Tax on (net
(total
agricultural INCOME
income +
income + TAX
net
basic PAYABLE
agricultural
exemption)
income)

BY CA/CS ASHISH DEOLASI 52

The procedure for computation of tax payable on non-agricultural income
after aggregation of agricultural income is as follows:

Particular Reference Amount

Agricultural income (a) XXX
Non-agricultural income (total income) (b) XXX
Aggregation of (a) and (b) (c) XXX
Tax payable on (c) (d) XXX
Aggregation of (a) and basic exemption limit (e) XXX
Tax payable on (e) (f) XXX
Net taxable (d)-(f) (g) XXX

BY CA/CS ASHISH DEOLASI 53

CHAPTER

3
OVERVIEW OF GST

SALIENT FEATURES OF GST

1 Applicability GST is applicable to whole of India including

Jammu and Kashmir.

2 Levy GST would be applicable on “supply” of goods or

services as against the present concept of tax on
the manufacture of goods or on sale of goods or on
provision of services. The same is applicable on
importation of service whether for consideration or
not. Import of goods are subject to custom duty and
GST.

3 Destination GST would be based on the principle of destination

based based consumption taxation as against the present
consumption principle of origin based taxation. Tax revenue will
tax be levied and collected by the consuming State.

4 Dual GST It would be a dual GST with the Centre and the
States simultaneously levying it on a common base.
The GST to be levied by the Centre would be called
Central GST (CGST) and that to be levied by the
States [including Union territories with legislature]
would be called State GST (SGST). Union territories
without legislature would levy Union territory GST
(UTGST).

BY CA/CS ASHISH DEOLASI 54

 An Integrated GST (IGST) would be levied on inter-
State supply (including stock transfers) of goods or
services. This would be collected by the Centre so
that the credit chain is not disrupted.

5 GST on Import of goods would be treated as inter-State

import supplies and would be subject to IGST in addition
to the applicable customs duties.

Import of services would be treated as inter-State

supplies and would be subject to IGST,

6 Export Exports would be zero-rated.

7 Applicable to GST would apply to all goods and services except

all goods and Alcohol for human consumption.
services GST on five specified petroleum products (Crude,
Petrol, Diesel, ATF & Natural gas) would be
applicable from a date to be recommended by the
GSTC.

Tobacco and tobacco products would be subject to

GST. In addition, the Centre would continue to levy
Central Excise duty.

8 Threshold Every supplier of goods and/or services is required

exemption to obtain registration in the State/UT from where
he makes the taxable supply if his aggregate
turnover exceeds Rs. 20 lakh during a financial
year.

With effect from 01.04.2019, Notification No.

10/2019 CT dated 07.03.2019 is issued which
exempts any person who is engaged in exclusive
supply of goods and whose aggregate turnover in
the financial year does not exceed Rs. 40 lakh.

BY CA/CS ASHISH DEOLASI 55

 Every supplier of goods and/or services is required
to obtain registration in the special categories of
State -Manipur, Mizoram, Nagaland and Tripura
if he makes the taxable supply of goods and/ or
services, if his aggregate turnover exceeds Rs. 10
lakh during a financial year.

Every supplier of goods and/or services is required

to obtain registration in the special categories of
State – Arunachal Pradesh, Meghalaya, Sikkim,
Uttarakhand, Puducherry, Telangana

if he makes the taxable supply of goods and/ or

services, if his aggregate turnover exceeds Rs. 20
lakh during a financial year.

This can be summarized in below mentioned

diagram:

States with threshold

States with threshold States with threshold
limit of Rs. 20 lakh for
limit of Rs. 10 lakh for both limit of Rs. 20 lakh for both
services and Rs. 40 lakh
goods and services goods and services
for goods

Arunachal Pradesh
Manipur Jammu & Kashmir
Meghalaya
Mizoram Assam
Sikkim

Uttrakhand
Nagaland Himachal Pradesh
Puducherry
Tripura All Other States
Telangana

9 Reverse There is concept of reverse charge on notified

charge supply and supply received from unregistered
person.

BY CA/CS ASHISH DEOLASI 56

10 Input tax Input Tax Credit (ITC) to be broad based by making
credit it available in respect of taxes paid on any supply
of goods or services or both used or intended to be
used in the course or furtherance of business.

11 Tax deduction Obligation on certain persons including

at source Government departments, local authorities and
Government agencies, who are recipients of supply,
to deduct tax at the rate of 2% from the payment
made or credited to the supplier where total value
of supply, under a contract, exceeds two lakhs
and fifty thousand rupees (Rs. 2.5 lac).

12 Tax collection Obligation on electronic commerce operators to

at source collect 'tax at source', at such rate not exceeding
two per cent (2%) of net value of taxable supplies,
out of payments to suppliers supplying goods or
services through their portals.

13 Advance Advance Ruling Authority would be constituted by

Ruling States in order to enable the taxpayer to seek a
binding clarity on taxation matters from the
department. Centre would adopt such authority
under CGST Act.

BY CA/CS ASHISH DEOLASI 57

BENEFIT OF GST

Benefit to (i) A unified common national market to boost Foreign

Government Investment and “Make in India” campaign;
(ii) Boost to export/manufacturing activity, generation
of more employment, leading to reduced poverty
and increased GDP growth;
(iii) Improving the overall investment climate in the
country which will benefit the development of States;
(iv) Uniform SGST, CGST and IGST rates to reduce the
incentive for tax evasion.

Benefit to (i) Simpler tax system;

customer (ii) Reduction in prices of goods and services due to
elimination of cascading;
(iii) Uniform prices throughout the country;
(iv) Transparency in taxation system.

Benefit to (i) Reduction in multiplicity of taxes;

Trade and (ii) Mitigation of cascading/double taxation;
industry (iii) More efficient neutralization of taxes especially for
exports;
(iv) Development of common national market.

TAXES SUBSUMED IN GST

Central taxes a. Central Excise Duty;

subsumed b. Duties of Excise (Medicinal and Toilet Preparations);
c. Additional Duties of Excise (Goods of Special
Importance);
d. Additional Duties of Excise (Textiles and Textile
Products);
e. Additional Duties of Customs (commonly known as
CVD);
f. Special Additional Duty of Customs (SAD);
g. Service Tax;
h. Cesses and surcharges insofar as they relate to supply
of goods or services.

BY CA/CS ASHISH DEOLASI 58

 State taxes a. State VAT;
subsumed b. Central Sales Tax;
c. Purchase Tax;
d. Luxury Tax;
e. Entry Tax (All forms);
f. Entertainment Tax (except those levied by the local
bodies);
g. Taxes on advertisements;
h. Taxes on lotteries, betting and gambling;
i. State cesses and surcharges insofar as they relate to
supply of goods or services.

CONSTITUTION (ONE HUNDRED AND FIRST AMENDMENT) ACT,

2016
Short title and commencement [Sec. 1]

Name of the This Act may be called the Constitution (One Hundred
Act and First Amendment) Act, 2016.

[Sec. 1(1)]

Applicability It shall come into force on such date as the Central

Government may, by notification in the Official Gazette,
[Sec. 1(2)]
appoint, and different dates may be appointed for
different provisions of this Act and any reference in any
such provision to the commencement of this Act shall be
construed as a reference to the commencement of that
provision.

BY CA/CS ASHISH DEOLASI 59

Special Provision with respect to goods and services tax [Sec. 2]

Insertion of After article 246 of the Constitution, the following article

new article shall be inserted, namely 246A

Legislature of (1) Notwithstanding anything contained in articles 246

every State and 254, Parliament, and, subject to clause (2), the
has power to Legislature of every State, have power to make laws with
make laws respect to goods and services tax imposed by the Union
or by such State.

Parliament (2) Parliament has exclusive power to make laws with

power to make respect to goods and services tax where the supply of
laws goods, or of services, or both takes place in the course of
inter-State trade or commerce

Explanation.—The provisions of this article, shall, in

respect of goods and services tax referred to in clause (5)
of article 279A, take effect from the date recommended
by the Goods and Services Tax Council.

AMENDMENT OF SEVENTH SCHEDULE [SEC. 17]

In the Seventh Schedule to the Constitution,—

(a) in List I — Union List,—

(i) for entry 84, the following entry shall be substituted, namely:—

"84. Duties of excise on the following goods manufactured or produced in

India, namely:

a) petroleum crude;
b) high speed diesel;
c) motor spirit (commonly known as petrol);
d) natural gas;
e) aviation turbine fuel; and
f) tobacco and tobacco products.";

(ii) entries 92 and 92C shall be omitted;

BY CA/CS ASHISH DEOLASI 60

(b) in List D - State List, -

(i) entry 52 shall be omitted;

(ii) for entry 54, the following entry shall be substituted, namely:—

“54. Taxes on the sale of petroleum crude, high speed diesel, motor spirit
(commonly known as petrol), natural gas, aviation turbine fuel and
alcoholic liquor for human consumption, but not including sale in the
course of inter-State trade or commerce or sale in the course of
international trade or commerce of such goods.’';

(iii) entry 55 shall be omitted;

(iv) for entry 62, the following entry shall be substituted, namely:—

Taxes on entertainments and amusements to the extent levied and

collected by a Panchayat or a Municipality or a Regional Council or a
District Council.".

COMPENSATION TO STATES FOR LOSS OF REVENUE ON ACCOUNT OF

INTRODUCTION OF GOODS AND SERVICES TAX [SEC. 18]

Parliament shall, by law, on the recommendation of the Goods and Services Tax
Council, provide for compensation to the States for loss of revenue arising on
account of implementation of the goods and services tax for a period of five years.

TRANSITIONAL PROVISIONS [SEC. 19]

Notwithstanding anything in this Act, any provision of any law relating to tax on
goods or services or on both in force in any State immediately before the
commencement of this Act, which is inconsistent with the provisions of the
Constitution as amended by this Act shall continue to be in force until amended
or repealed by a competent Legislature or other competent authority or until
expiration of one year from such commencement, whichever is earlier.

BY CA/CS ASHISH DEOLASI 61

MANNER OF UTILISATION OF ITC
Input Tax Credit (ITC) of CGST and SGST/UTGST will be available throughout
the supply chain, but cross utilization of credit of CGST and SGST/UTGST will
not be possible, i.e. CGST credit cannot be utilized for payment of SGST/UTGST
and SGST/UTGST credit cannot be utilized for payment of CGST. However, cross
utilization will be allowed between CGST/SGST/UTGST and IGST, i.e. credit of
IGST can be utilized for the payment of CGST/ SGST/ UTGST and vice versa.

Summary Chart of flow of ITC under GST:

Seamless flow of credit: Since GST is a destination based consumption tax,

revenue of SGST will ordinarily accrue to the consuming States. The inter-State
supplier in the exporting State will be allowed to set off the available credit of
IGST, CGST and SGST/UTGST (in that order) against the IGST payable on inter-
State supply made by him. The buyer in the importing State will be allowed to
avail the credit of IGST paid on inter-State purchase made by him. Thus, unlike
the existing scenario where the credit chain breaks in case of inter-State sales
on account of non-VATable CST, under GST regime there is a seamless credit
flow in case of inter-State supplies too.
The revenue of inter-State sale will not accrue to the exporting State and the
exporting State will be required to transfer to the Centre the credit of
SGST/UTGST used in payment of IGST. The Centre will transfer to the importing
State the credit of IGST used in payment of SGST/UTGST. Thus, the inter-State
trade of goods and services (IGST) would need a robust settlement mechanism
amongst the States and the Centre. A Central Agency is needed which can act
as a clearing house and verify the claims and inform the respective Governments
to transfer the funds. This is possible only with the help of a strong IT
Infrastructure.

BY CA/CS ASHISH DEOLASI 62

Illustration 1 - Intra-State Supply: Mr. A a manufacturer in Rajasthan has
supplied goods valued Rs. 1,00,000 to Mr. B a dealer in Rajasthan. Mr. B
supplied the said goods to Mr. C in Rajasthan after making value addition of
20%. You are required to determine the tax payable by Mr. A and Mr. B in respect
of the said transactions assuming the rate of GST is 18%. Also determine the
amount of revenue earned by Central and State Government.

Solution: In case of local supply of goods, the supplier would charge dual GST
i.e., CGST and SGST at specified rates on the supply. Thus, the tax to be levied
by Mr. A on supply of goods to Mr. B will be as under :

(i) Supply of goods by Mr. A to Mr. B :

Particulars Rs.

Value charged for supply of goods 1,00,000

Add: CGST @ 9% 9,000

Add: SGST @ 9% 9,000

Total price charged by Mr. A from Mr. B for local supply of 1,18,000
goods

The CGST & SGST charged from Mr. B for supply of goods will be remitted by
Mr. A to the appropriate account of the Central and State Government
respectively.

A is the first stage supplier of goods and hence, does not have credit of CGST,
SGST or IGST.

(ii) Supply of goods by Mr. B to Mr. C - Value addition @ 20%:

Mr. B will avail credit of CGST and SGST paid by him on the purchase of goods
and will utilise such credit for being set off against the CGST and SGST payable
on the supply of goods made by him to Mr. C.

BY CA/CS ASHISH DEOLASI 63

Particulars Rs.

Value charged for supply of goods(Rs. 1,00,000 × 120%) 1,20,000

Add: CGST @ 9% 10,800

Add: SGST @ 9% 10,800

Total price charged by Mr. B from Mr. C for local supply 1,41,600
of goods

Computation of CGST, SGST payable by Mr. B to Government:

Particulars Rs.

CGST payable 10,800

Less: Credit of CGST 9,000

CGST payable to Central Government 1,800

SGST payable 10,800

Less: Credit of SGST 9,000

SGST payable to State Government 1,800

Statement of revenue earned by Central and State Government:

Transaction Revenue to Central Revenue to State

Government (Rs.) Government (Rs.)

Supply of goods by Mr. A to Mr. B 9,000 9,000

Supply of goods by Mr. B to Mr. C 1,800 1,800

Total 10,800 10,800

BY CA/CS ASHISH DEOLASI 64

Illustration 2 - Inter-State Supply: Mr. X a manufacturer in Rajasthan has
supplied goods valued Rs. 1,00,000 to Mr. A a dealer in Rajasthan. Mr. A
supplied the said goods to Mr. B in Madhya Pradesh after making value addition
of 20%. Mr. B further supplied the goods to Mr. C of Madhya Pradesh after
making value addition of 20%. You are required to determine the tax payable by
Mr. X, Mr. A and Mr. B in respect of the said transaction assuming the rate of
GST is 18%.Also determine the amount of revenue earned by Central and State
Government.

Solution: In case of inter-State supply of goods, the supplier would charge IGST
at specified rates on the supply.

(i) Supply of goods by Mr. X of Rajasthan to Mr. A of Rajasthan :

Particulars Rs.

Value charged for supply of goods 1,00,000

Add: CGST @ 9% 9,000

Add: SGST @ 9% 9,000

Total price charged by Mr. X from Mr. A for intra-State 1,18,000

supply of goods

Mr. X is the first stage supplier of goods and hence, does not have any credit of
CGST, SGST or IGST.

(ii) Supply of goods by Mr. A of Rajasthan to Mr. B of Madhya Pradesh -

Value addition 20% :

Particulars Rs.

Value charged for supply of goods (Rs. 1,00,000 × 120%) 1,20,000

Add: IGST @ 18% 21,600

Total price charged by Mr. A from Mr. B for inter-State 1,41,600

supply of goods

BY CA/CS ASHISH DEOLASI 65

Computation of IGST payable to Government:

Particulars Rs.
IGST payable 21,600
Less: Credit of CGST 9,000
Less: Credit of SGST 9,000
IGST payable to Central Government 3,600
The IGST charged on Mr. B of Madhya Pradesh for supply of goods will be
remitted by Mr. A of Rajasthan to the appropriate account of the Central
Government. Rajasthan Government will transfer SGST credit of Rs. 9,000
utilised in the payment of IGST to the Central Government.

(iii) Supply of goods by Mr. B of Madhya Pradesh to Mr. C of Madhya Pradesh

- Value addition @ 20% :

Mr. B will avail credit of IGST paid by him on the purchase of goods and will
utilise such credit for being set off against the CGST and SGST payable on the
local supply of goods made by him to Mr. C.

Particulars Rs.
Value charged for supply of goods/ services 1,44,000
(Rs. 1,20,000 × 120%)
Add: CGST @ 9% 12,960
Add: SGST @ 9% 12,960
Total price charged by Mr. B from Mr. C for local supply 1,69,920
of goods
Computation of CGST, SGST payable to Government:

Particulars Rs.
CGST payable 12,960
Less: Credit of IGST to the extent of CGST payable 12,960
CGST payable to Central Government NIL
SGST payable 12,960
Less: Credit of IGST (Rs. 21,600 - Rs. 12,960) 8,640
SGST payable to State Government 4,320

BY CA/CS ASHISH DEOLASI 66

Central Government will transfer IGST credit of Rs. 8,640 utilised in the payment
of SGST to Madhya Pradesh (Importing State).

Statement of revenue earned by Central and State Governments

Transaction Revenue to Revenue to Revenue to
Central Government Government
Government of Rajasthan of Madhya
(Rs.) (Rs.) Pradesh
(Rs.)
Supply of goods by Mr. X to Mr. 9,000 9,000
A
Supply of goods by Mr. A to Mr. 3,600
B
Transfer by Rajasthan State to 9,000 -9,000
Centre
Supply of goods by Mr. B to Mr. 4,320
C
Transfer by Centre to Madhya -8,640 8,640
Pradesh State
Total 12,960 Nil 12,960
[Note – Order of utilization is discussed in detail in ITC chapter]

BY CA/CS ASHISH DEOLASI 67

 CHAPTER

4
WORKING WITH TALLY

1. HOW TO START TALLY.ERP9

- Double click on Tally ERP 9 icon from computer desktop or
- Follow the Path: Start > Programs > [Link] 9

The welcome screen [Link] 9 – Power of Simplicity appears while the software
loads. You will be ready to explore [Link] 9, the moment the [Link] 9 start
up screen appears.

BY CA/CS ASHISH DEOLASI 68

The [Link] 9 Start-up Screen appears as shown below:

2. COMPANY INFO
Company Info is used to perform all the Company related actions like Selecting,
Creating, Altering, Backing up, and Restoring Company in [Link] 9
Accounting Software.

A. CREATE COMPANY
Step-1 :
Go to Gateway of Tally > Company Info. > Create Company
OR

Gateway of Tally > Alt + F3 > Company Info. > Create Company

This is the first function to perform a user to start tally for the first time
when he opens Tally application. This redirects the user to create company
for his business accounts.

BY CA/CS ASHISH DEOLASI 69

 Step-2: The Company Creation screen displays as shown.

Step 3: On company creation screen, update the following details -

Directory: It is a path where the company data will be stored on system.

By default, the tally directory will updated as
C:\Users\Public\Tally.ERP9\Data and you can change the path as per
your requirements.

Name: Update the name of company that identifies in Tally ERP 9.

Primary Mailing Details

Mailing Name: The mailing name of company will be automatically

updated as per the given name of company, however the mailing name can
be changed as per the requirements.

Address: Update the complete address details of company

Statutory Compliance for: Choose the country name as India from the
given list of countries.

State: Choose the state from the given list of states.

Pin Code: Update the Pin Code of company, where it is located.

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 Contact Details

Telephone No: Update Company landline/ Telephone number

E-Mail: Update the company e-mail id

Mobile No: Mobile number for contacting

Fax no: Update the Fax number

Website: Update the official website address of company

Books & Financial Year Details

- Financial year begins from: [Link] 9 pre-fills this field based on

the date settings your computer and the Country selected in the
Company creation.
For Example, if your computer date is set to 06-06-2019 and the region
is set to India, the financial year is pre-filled as 01-04-2019.
- Books beginning from: By default, [Link] 9 fills this field with the
Financial Year begins from date. You can update this, as needed.
For Example, you started to maintain your Books of Accounts in
[Link] 9 from 1-June-2019. You can update the Books beginning
from date to 1-June-2019, while the financial year will be 1-Apr-2019.

Security Control
This is optional. You can enable security features such as Tallyvault and
user control for your company later.

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 a. Tallyvault: If you don’t want to display your company name in
[Link] 9 while selecting the company, you can specify a
Tallyvault password for your company. You can access this company
only if you know this password.
b. User Access: You can allow authorized user access to your company
by setting up a username and password for the company. Which
means, next time you select the company, you will need to provide this
username and password to open the company data. For different
users, you can set up different user credentials for controlled access
of your company.

Base Currency Information

Base Currency Symbol: This refers to the currency symbol [Link] 9

will use for monetary values. By default, [Link] 9 displays `.

Formal Name: Complete name for the currency symbol. By default, this
is set to Indian Rupees.

Suffix Symbol to Amount: By default, this is set to No. For example, in

India, we place the Rs. symbol in front of amounts.

Add spaces between the amount and symbol: By default, this is set to
Yes.

Show amount in Millions: [Link] 9 caters to currencies where the

different parts of large amounts are called by special names. By default,
this is set to No.

Number of decimal Places: By default, this is set to 2.

Word representing amount after decimal: Enter the decimal portion for
the currency mentioned. Enter Paisa.

No of decimal places for amount in words: You can specify the number
of decimal places to print the amount in words. This number should be
equal to or lesser than the number specified in Number of Decimal places
field.

BY CA/CS ASHISH DEOLASI 72

 Finally, confirm company creation by pressing the ENTER KEY/”Y” KEY
to accept all declaration for the company. (Now you will be able to work
with the current company)

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 B. SELECT COMPANY
Once you have created the company you can open/load the company in
following ways -
i. Go to the Gateway of Tally > Company Info. > Select Company
OR Gateway of Tally > Alt + F3 > Company Info. > Select Company
OR Press F1

[Link] 9 displays the List of Companies screen. All the companies

created are displayed in an alphabetical order. Select the company
name from the list given.

ii. In case two or more companies are loaded (like Shyam Traders and
Rohit Enterprises), click on the company which you need to work on so
that the selected company will be highlighted and will appear on top of
the list.
iii. How to Open Tally Data from Pendrive or Any Other Location
a. Click on Select Company
b. Tally Path shown at top (Suppose Tally path is
C:\Users\Public\Tally.ERP9\Data)
c. Go to the Folder/Pendrive where you save the tally data. Copy the
path from URL as shown in below given image -

BY CA/CS ASHISH DEOLASI 74

 d. Paste this path into Select Company to open the tally data.

e. Company name will be now shown; we just have to select it.

BY CA/CS ASHISH DEOLASI 75

 C. SHUT A COMPANY
Go to the Gateway of Tally > Alt + F3 > Company Info. > Shut
Company. Select the Company which you need to shut from the List of
Companies. You can also use Alt + F1 to shut a Company from the
Gateway of Tally screen.

D. ALTER COMPANY DETAILS

Go to the Gateway of Tally > Alt + F3 > Company Info. > Alter. Select
the company which you need to alter from the List of Companies and press
Enter to view the Company Alteration screen. Alter the company details as
required and accept the screen.

E. DELETE COMPANY
If you delate company in Tally, it removes the complete information of
company from Hard drive, all the files and directories that are associated
with company will be deleted permanently and it cannot be reversed.
To delete company in Tally ERP 9: Gateway of Tally > Alt+F3 > Alter >
Select Company (which you want to delete) > Press Alt+D.

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 F. CHANGE TALLYVAULT
1. Go to Getway of Tally > Alt+F3 > Company Info > Change TallyVault
2. Select the Company
3. Enter the Password as NTC (all in capitals) in the New password field
and repeat the same in the Repeat New Password field.

BY CA/CS ASHISH DEOLASI 77

 G. SPLIT COMPANY DATA
If you choose to separate your previous financial year into a different
company, split company data will be helpful. Ideally, it is performed when
the closure activities such as analysis, audits, all adjustments etc. in
books of the previous financial year are completed.
To ensure the splitting activity is smooth, you need to perform the data
verification process before splitting. This automatically detects possible
errors in the data.
Go to Gateway of Tally > F3: Comp Info. > Split Company Data > Verify
Company Data
Select the company you want to split
If there are any errors, the list will be shown for you to correct it.

To split the company data, Go to Gateway of Tally > F3: Comp Info. >
Split Company Data > Select Company. Once you’ve selected the
company, enter the date in the Split from field and press Enter.

When you split the data, the original data is retained, and two new
companies with unique names and date are created. You can rename the
split company as required and save the original data in another location.

BY CA/CS ASHISH DEOLASI 78

 Splitting company data helps you:
 Secure old data and start work in a different company
 Maintain separate company for each financial year
 Carry forward all ledger balances automatically
 Accurately split your transactions of the previous financial year from
the current financial year

H. BACKUP
Go to Gateway of Tally > Alt+F3 (Company Info) > Backup
The Screen appears as shown above, specify the destination path/drive
(Where backup will be stored), then select the name of the company and
save the screen. Image given below shows how the backup is taken on a
drive.

BY CA/CS ASHISH DEOLASI 79

 I. RESTORE
Go to Gateway of Tally > Alt+F3 (Company Info) > Restore

The Screen appears as shown above, specify the destination path/drive,

then select the name of the company and save the screen.
[Link] 9 allows restoring of data from any medium into any other
storage medium.

J. QUIT
You can exit the program from any [Link] 9 screen, but [Link] 9
requires all screens to be closed before it shuts down.

BY CA/CS ASHISH DEOLASI 80

 To quit working on [Link] 9,

 Press Esc until you see the message Quit? Yes or No? Press Enter or
Y, or click Yes to quit [Link] 9.
 Alternatively, to exit without confirmation, press Ctrl+Q from Gateway
of Tally.
 You can also press Enter while the option Quit is selected from
Gateway of Tally.

BY CA/CS ASHISH DEOLASI 81

 CHAPTER

5
GROUPS, LEDGERS & VOUCHER
TYPES
GROUPS & LEDGERS
In a business, expenditures like telephone expenses, electricity charges,
conveyance etc., are commonly incurred. Ledgers based on these expenditures
are created to be used while accounting vouchers are entered. To know the total
of such expenses for any period (a week or a month), similar natured expense
ledgers are grouped. All voucher entries have to be passed using ledgers.

Let’s understand the few ledgers covered by which groups.

Sr. No. Groups Ledgers
1. Bank Account Current Account, Saving Account
2. Bank O/D (Overdraft) Bank Loan Account
or Bank OCC (Overdraft
Cash Credit)

3. Secured Loans Bajaj Finance, Gold Loan, Term Loan

4. Unsecured Loans Loan taken from Friends and Relatives
5. Loan & Advance (Assets) Advance Salary, Loan to Rahul
6. Capital Account Capital, Drawing, LIC, Income Tax
7. Deposits (Assets) FD, RD, NSC, PPF etc.
8. Investment Shares, Lottery
9. Direct Expenses Wages, Power Bill, Factory Rent, Factory
Insurance, Carriage, Inwards etc.

BY CA/CS ASHISH DEOLASI 82

 10. Indirect Expenses Discount Paid, Rent Paid, Commission
Paid, Interest Paid, Bad Debts,
Advertisement, Salary Paid etc.

11. Indirect Income Discount Received, Rent Received,

Commission Received etc.

12. Duties & Taxes TDS, CGST, SGST, IGST, Surcharge etc.
13. Fixed Assets Plant & Machinery, Land & Building,
Furniture, Computer, Car etc.

14. Provision Provision for Bad Debts, Provision for

Income Tax, Provision for Sundry Debtors,
Provision for Sundry Creditors, Provision
for Salary, Provision for Electricity etc.
15. Purchase Purchases, Purchase Return
16. Sales Sales, Sales Return
17. Stock in Hand Opening Stock, Closing Stock
18. Sundry Creditors Shyam Enterprises etc.
19. Sundry Debtors Ram Traders etc.

Notice that we have mentioned ledger names under groups i.e., under Capital
Account, under Sundry Debtor, etc. which are referred to as GROUP names.

BY CA/CS ASHISH DEOLASI 83

Ledgers are created in the following manner:
Go to the Gateway of Tally > Accounts Info. > Ledgers > Create

BY CA/CS ASHISH DEOLASI 84

BY CA/CS ASHISH DEOLASI 85
We have used the default groups provided in [Link] 9, but [Link] 9 does
allow us to create our own groups. To know how to do so, let us explore the
options available under the creation of Groups using [Link] 9's pre-defined
groups.
Groups can be created in the following manner:
Go to the Gateway of Tally > Accounts Info. > Groups

Note: You can create one group at a time by pressing Enter on Create under
Single Group menu. In case, you want to create multiple groups simultaneously,
you can create them by pressing Enter on Create under Multiple Groups.

BY CA/CS ASHISH DEOLASI 86

BY CA/CS ASHISH DEOLASI 87
Let us now create the ledgers for Shahrukh Khan & Salman Khan under Khan
Groups.
Go to the Gateway of Tally > Accounts Info. >Ledgers > Create (Multiple
Ledgers).

BY CA/CS ASHISH DEOLASI 88

Lets take another example
Suppose we have business of Construction, now there are 50 Labourers working
in our company. All the Labours are our Creditors (i.e. Group). But we cannot
show the name of 50 Labourers (Sub-Group) in the Balance Sheet, so what we
do??
We prepare a group of Labourers and then create a ledger of individual Labourers
under the same group.
By doing this, on the face of Balance Sheet we will show only Group & Sub-group
but when you enter into tally you will be able to know how many Labourers are
there in the Company.

Altering Groups & Ledgers

Once created, groups and ledgers can be altered by selecting the Alter option for
single or multiple groups and ledgers.

Deleting Groups
You can delete a group via the Group Alteration (Single Mode) screen by pressing
Alt+D.
However, you cannot delete [Link] 9’s pre-defined groups, or groups with
sub-groups or groups containing ledgers. The lowest level must be deleted
first.

Deleting Ledgers
You can delete a ledger, by pressing Alt+D in the Ledger Alteration screen.
You will not be able to delete a ledger, once the financial transactions (vouchers)
have been entered (excluding the Opening Balance). If there is a need to delete a
ledger with any financial transactions the lowest level must be deleted first by
pressing Alt+D.

BY CA/CS ASHISH DEOLASI 89

VOUCHER TYPES
How to create Voucher Type??
To create a voucher types, go to the following menu.
Gateway of Tally >> Accounting Info >> Voucher Types >> Create
Let’s Create a New Voucher Type Sales 18%, This is to enter sale transactions.
Name: Sales 18%
Select The Type of Voucher: It must be “Sale” as we are creating sales voucher
type.
Method of Numbering: There are 5 Methods of voucher numbering in Tally.
1. Automatic: The voucher number generated automatically.
2. Automatic (Manual Override): The default numbering is Automatic, but you
can override by manually typing the number in the voucher number field. For
example, If the current voucher number is 10, and you need this voucher
number as 12, type the number 12 manually. The next voucher number will
have displayed 13 automatically by system. If you select this method of
voucher numbering, and additional option displayed, prevent duplicates, by
activating this, you can prevent typing already existing voucher numbers.
3. Manual: This will be manual voucher numbers, You can input your own
voucher numbers. Here also duplicates are prevented by enabling the option
prevent duplicates.
4. Multi-user Auto: This is an advanced voucher numbering for a multi user
environment, If more than one users are trying to access the same vouchers.
If you use Automatic voucher in a multi environment When a specific voucher
number is used by one of the user, the other user will have to re-accept the
voucher so that the next available voucher number is allotted to his voucher.
To overcome this situation and to ensure that the vouchers are numbered
sequentially and to ensure that the bill-wise details do not have to be re-
entered manually as it will get updated with the new voucher number on
acceptance of the voucher entry Multi-user auto voucher number is used.
5. None: This will disable voucher numbering

BY CA/CS ASHISH DEOLASI 90

Use Advance configuration: Advance configuration will give you the options to
set
Starting voucher Number: You can decide the starting voucher number, If
you want to start voucher number from 1001, Type it there.
Width of Numerical Part: You can decide the width, For example 3,4, 5, 6
etc.
Pre-fill with Zero: If you want to start the number 1001 and numerical part
set is 6 then prefill 00 as 001001.
Restart Numbering: You can restart voucher numbering, Daily, Monthly,
Weekly, Yearly or never. At the same time, you can set the applicable date,
Starting number also.
Prefix details: You can prefix something before the voucher number for
example: INV/1001, To get a format like this enter INV/
Suffix details: You can fix anything at the end of the invoice like
INV/10001/19-20.,To get suffix like this enter /19-20.

Use Effective dates for Vouchers: If you set this Yes, you will get a new field of
entry where effective date can be entered.
Make This voucher type as “Optional” by default: Enabling this will make the
voucher as “optional voucher “. This means when an entry is made, will not affect
the books of accounts until mark it as regular voucher.
Allow Narration in voucher: Enable or disable narration
Provide narration for each ledger in voucher: Set Yes/No, if enabled you can
get a narration field under each ledger in the voucher.
Enabling Default Accounting allocation: Here you can set the Default Ledger
for allocating transactions, we will give you a detailed post regarding this.
Set/alter default accounting entries: If you enable this, the ledgers selected
in the screen will be automatically selected during voucher entry.
Print After Saving Voucher: Enabling will print the invoice immediately after
saving.

BY CA/CS ASHISH DEOLASI 91

Use for POS invoicing: This is specifically for sales voucher type; you can use
in POS invoicing.
Default Title to print: When printing the title can be set here for example “tax
invoice”.
Default Bank: Select the bank in Default bank option to print the default bank
ledger when the option Print Bank Details is enabled in a Sales voucher.
Default Jurisdiction: Enter the Default jurisdiction to be printed on the invoice,
if required.
Set/alter declaration: If activated, the declaration to be printed in the invoice
is set here.

How to Edit the Voucher Type?

To edit the newly created or existing voucher type go to
Gateway of Tally >> Accounting info >> Voucher Types >> Alter
Select the one you need modification and make necessary changes and save.

How to Delete the Voucher Type?

You can delete a voucher until you have not made any entry or transaction with
it. Otherwise for deleting you have to move all entry from that voucher type or
delete all entries made with that voucher type.
To delete the voucher type, go to
Gateway of Tally >> Accounting Info >> Voucher Type >> Alter
Select the Voucher type you want to delete
Click On the “Delete Button” On the bottom left of the Screen Or Use ALT+D
Shortcut Keys.

BY CA/CS ASHISH DEOLASI 92

CHAPTER

6
INCOME UNDER THE HEAD
BUSINESS & PROFESSION
Rates of depreciation – All assets have been divided into four
main categories:

PART A TANGIBLE ASSETS

I Buildings

Block 1. Buildings which are used mainly for residential purposes 5%

except hotels and boarding houses

Block 2. Buildings which are not used mainly for residential 10%
purposes and not covered by Block (1) above and (3) below

Block 3. Buildings acquired on or after 1st September, 2002 for 40%

installing machinery and plant forming part of water

supply project or water treatment system and which is
put to use for the purpose of business of providing
infrastructure facilities

Block 4. Purely temporary erections such as wooden structures 40%

II Furniture and Fittings

Block 1. Furniture and fittings including electrical fittings 10%

[“Electrical fittings” include electrical wiring, switches,
sockets, other fittings and fans, etc.]

BY CA/CS ASHISH DEOLASI 93

 III Plant & Machinery

Block 1. (i) Motor cars other than those used in a business of 30%
running them on hire, acquired during the period from
23.8.2019 to 31.03.2020 and put to use on or before
31.03.2020
(ii) Motor cars other than those used in a business of 15%
running them on hire, acquired or put to use on or after
1-4-1990 [Other than motor cars mentioned in (i)
above]
Block 2. (i) Motors buses, motor lorries, motor taxis used in a 45%
business of running them on hire, acquired during the
period from 23.8.2019 to 31.03.2020 and put to use
on or before 31.03.2020
(ii) Motors buses, motor lorries, motor taxis used in the 30%
business of running them on hire [Other than
mentioned in (i) above]
Block 3. Moulds used in rubber and plastic goods factories 30%
Block 4. Aeroplanes, Aeroengines 40%
Block 5. Specified air pollution control equipments, water 40%
pollution control equipments, solid waste control
equipment and solidwaste recycling and resource
recovery systems
Block 6. Plant & Machinery used in semi-conductor industry 30%
covering all Integrated Circuits (Ics)
Block 7. Life saving medical equipment 40%
Block 8. Machinery and plant, acquired and installed on or after 40%
the 1st day of September, 2002 in a water supply project
or a water treatment system and which is put to use for
the purpose of business of providing infrastructure
facility
Block 9. Oil wells 15%

BY CA/CS ASHISH DEOLASI 94

Block 10. Renewable Energy Saving Devices (as specified) 40%

(i) Windmills and any specially designed devices which 40%

run on windmills installed on or after 1.4.2014

(ii) Any special devices including electric generators and 40%

pumps running on wind energy installed on or after
1.4.2014 would be eligible for depreciation

(iii) Windmills and any specially designed devices running 15%

on windmills installed on or before 31.3.2014 and any
special devices including electric generators and pumps
running on wind energy installed on or before 31.3.2014

Block 11. Computers including computer software 40%

Block 12. Books (annual publications or other than annual 40%

publications) owned by assessees carrying on a
profession

Block 13. Books owned by assessees carrying on business in 40%

running lending libraries

Block 14. Plant & machinery (General rate) 15%

IV Ships

Block 1. Ocean-going ships 20%

Block 2. Vessels ordinarily operating on inland waters not covered 20%

by Block (3) below

Block 3. Speed boats operating on inland water 20%

PART B INTANGIBLE ASSETS

Know-how, patents, copyrights, trademarks, licences, franchises or 25%

any other business or commercial rights of similar nature

BY CA/CS ASHISH DEOLASI 95

Sec. 40(ba) – Amounts not deductible in the case of an AOP and BOI

Any interest, salary, bonus, commission or remuneration paid by the AOP/BOI

to a member shall not be allowed as deduction.

SEC 40A(2): Amounts not deductible in respect of payment to relatives

Any expenditure in respect of which payment has been made to any related
persons is disallowed to the extent such expenditure is considered by the AO
to be excessive or unreasonable, having regard to-

(i) The FMV of goods, services or facilities for which the payment is made, or

(ii) The legitimate needs of the business or profession of the assessee, or

(iii) The benefit derived by or accruing to him there from.

However, no disallowance, on account of excessive expenditure, shall be made

in respect of a specified domestic transaction referred to in section 92BA, if such
transaction is at arm’s length price as defined u/s 92F(ii).

Definition of Related Persons :

(i) Where the assessee is an Any relative of the assessee;

individual

(ii) Where the assessee is a Any director of the company, partner

company, firm, association of of the firm, or member of the
persons or HUF association or family, or any relative
of such director, partner or member;

(iii) Any individual who has a substantial interest in the business or

profession of the assessee, or any relative of such individual;

(iv) A company, firm, association of persons or HUF having a substantial

interest in the business or profession of the assessee or any director,
partner or member of such company, firm, association or family or any
relative of such director, partner or member;

BY CA/CS ASHISH DEOLASI 96

 (v) A company, firm, association of persons or HUF of which a director,
partner or member, as the case may be, has a substantial interest in the
business or profession of the assessee; or any director, partner or
member of such company, firm, association or family or any relative of
such director, partner or member;

(vi) Any person who carries on a business or profession,-

(A) Where the assessee being an individual, or any relative of such
assessee, has a substantial interest in the business or profession of
that person; or
(B) Where the assessee being a company, firm, association of persons or
HUF, or any director of such company, partner of such firm or
member of the association or family, or any relative of such director,
partner or member, has a substantial interest in the business or
profession of that person.

Explanation- For the purposes of this sub-section, a person shall be deemed to

have a substantial interest in a business or profession, if, -

a) In a case where the business or profession is carried on by a company, such

person is, at any time during the previous year, the beneficial owner of shares
(not being shares entitled to a fixed rate of dividend whether with or without
a right to participate in profits) carrying not less than 20% of the voting power;
and
b) In any other case, such person is, at any time during the previous year,
beneficially entitled to not less than 20% of the profits of such business or
profession.

BY CA/CS ASHISH DEOLASI 97

SEC 40A(3) : AMOUNTS NOT DEDUCTIBLE IN RESPECT OF EXPENDITURE
EXCEEDING RS.10,000

Where the assessee incurs any expenditure in respect of which payment or

aggregate of payments made to a person in a day, otherwise than by an
account payee cheque drawn on a bank or account payee bank draft through
such other electronic mode as may be prescribed (Amended from A Y 2020-
2021) then such expenditure shall disallowed. exceeds Rs. 10,000/-(Rs.
35,000/- in case of payment made for plying, hiring or leasing goods carriages),
no deduction shall be allowed in respect of such expenditure.

Where deduction has been allowed in any preceding PY and payment in respect
thereof, is made otherwise than by an account payee cheque or account payee
bank draft in the relevant PY, the payment so made shall be deemed to be the
profits and gains of business or profession of the relevant PY, if the payment or
aggregate of payments made to a person in a day, exceeds Rs. 10,000/-
(Rs.35,000/- in case of payment made for plying, hiring or leasing goods
carriages).

Important Points

 If aggregate of payment made to a person in a day in cash exceeds Rs. 10,000

or Rs. 35,000, then whole amount will be disallowed u/s 40A(3)
 The expenditure should be revenue expenditure allowable as deduction
under any section under this head. Capital expenditure is not covered u/s
40A (3) as it is not allowable as deduction.

Exceptions: [Rule 6DD] No disallowance under Section 40A(3) shall be made

and no payment shall be deemed to be the profits and gains of business or
profession where any payment in a sum exceeding Rs.10,000/- is made
otherwise than by an account payee cheque drawn on a bank or account payee
bank draft in the cases and circumstances specified hereunder, namely:-

BY CA/CS ASHISH DEOLASI 98

a. Where the payment is made to-
1. The RBI or any banking company;
2. The State Bank of India or any subsidiary bank;
3. Any co-operative bank or land mortgage bank;
4. Any primary agricultural credit society or any primary credit society;
5. The Life Insurance Corporation of India;
b. Where the payment is made to the Government and, under the rules framed
by it, such payment is required to be made in legal tender;
c. Where the payment is made by-
1. Any letter of credit arrangements through a bank;
2. A mail or telegraphic transfer through a bank:
3. A book adjustment from any account in a bank to any other account in
that or any other bank;
4. A bill of exchange made payable only to a bank;
5. The use of electronic clearing system through a bank account;
6. A credit card;
7. A debit card.
d. Where the payment is made by way of adjustment against the amount of any
liability incurred by the payee for any goods supplied or services rendered by
the assessee to such payee;
e. Where the payment is made for the purchase of-
i. Agricultural or forest produce; or
ii. The produce of animal husbandry (including livestock, meat, hides and
skins) ordairy or poultry farming; or
iii. Fish or fish products; or
iv. The products of horticulture or apiculture, to the cultivator, grower or
producer of such articles, produce or products;
f. Payment made for the purchase of the products manufactured or processed
without the aid of power in a cottage industry, to the producer of such
products;

BY CA/CS ASHISH DEOLASI 99

g. Payment made in a village or town, which on the date of such payment is not
served by any bank, to any person who ordinarily resides, or is carrying on
any business, profession or vocation, in any such village or town;
h. Where any payment is made to an employee of the assessee or the heir of any
such employee, on or in connection with the retirement, retrenchment,
resignation, discharge or death of such employee, on account of gratuity,
retrenchment compensation or similar terminal benefit and the aggregate of
such sums payable to the employee or his heir does not exceed 50,000
rupees;
i. Where the payment is made by an assessee by way of salary to his employee
after deducting the income-tax from salary in accordance with the provisions
of Section 192 of the Act, and when such employee-
o Is temporarily posted for a continuous period of fifteen days or more in a
place other than his normal place of duty or on a ship: and
o Does not maintain any account in any bank at such place or ship:
j. Where the payment was required to be made on a day on which the banks
were closed either on account of holiday or strike:
k. Where the payment is made by any person to his agent who is required to
make payment in cash for goods or services on behalf of such person;
l. Where the payment is made by an authorized dealer or a money changer
against purchase of foreign currency or traveler cheque in the normal course
of his business.

Explanation: For the purposes of this clause, the expressions "authorized

dealer" or "money changer" means a person authorized as an authorized dealer
or a money changer to deal in foreign currency or foreign exchange under any
law for the time being in force.'

Illustration 1: In respect of an expenditure of Rs. 20,000 incurred by X Ltd. four

cash payments of Rs. 5,000 are made on a particular day to Mr. A —one in the
morning at 10 am, one at 12 noon, one at 3 pm and one at 6 pm. In this case
the entire expenditure of Rs. 20,000 would be disallowed u/s 40A(3) since the
aggregate of cash payments made during a day to Mr. A exceeds Rs. 10,000.

BY CA/CS ASHISH DEOLASI 100

Illustration 2: A bill was raised on assessee for Rs. 50,000 and cash payment
has been made as following:

1/12/2019 Rs. 7,500

2/12/2019 Rs. 7,500

3/12/2019 Rs. 25,000 Now 100% of Rs. 25,000 shall be disallowed.

Illustration 3: 3 bills are raised on assessee which are as follows and the
payments are also made as per bills-

Bill 1 Rs. 5,000

Bill 2 Rs. 7,000

Bill 3 Rs. 8,000

Assessee has made a payment of Rs. 20,000 in cash. In this case nothing shall
be disallowed, as expenditure and its payment have not exceeded Rs. 10,000.

SEC 44AA: MAINTENANCE OF BOOKS OF ACCOUNT

a. “Specified profession”: Specified profession include persons carrying on

Legal, medical, engineering or architectural profession or the profession of
accountancy or technical consultancy or interior decoration or any other
profession as is notified by the Board in the Official Gazette. Authorized
representatives, film artists and company secretaries have been notified for
this purpose.
b. “Non-specified profession”: - A non-specified profession is a profession other
than a “specified business” mentioned above.

BY CA/CS ASHISH DEOLASI 101

Who shall maintain compulsory books of account? In order to determine who
shall maintain compulsory books of account, different taxpayers are grouped
into different categories:-

Specified Profession Business or Non Specified Profession

A B C D

GR =< 1,50,000 GR > 1,50,000 Income =< Income > 2,50,000 or

in any of the 3 in all of the 3 2,50,000 AND Sales, T/O or GR >

years years Sales, T/O or 25,00,000 in any of

immediately immediately GR=< 25,00,000 the 3 years

preceding the preceding the PY in all 3 years immediately preceding

PY immediately PY
preceding PY

Such “books of Maintain such No books Such “books of

account and books of specified account and other

documents” as account as are documents” as may be

may enable the prescribed by enable the AO to

AO to compute Rule 6F compute their taxable

their taxable income.

income

Further, following persons have to keep and maintain such books of accounts
and other documents as may enable the Assessing Officer to compute his total
income in accordance with the provisions of this Act.

a. where the profits and gains from the business are deemed u/s 44AE or
section 44BB or section 44BBB, and the assessee has claimed his income to
be lower than such deemed profits or gains, during such previous year; or
b. where the provisions of section 44AD(4) are applicable in his case and his
income > Basic Ex Limit

BY CA/CS ASHISH DEOLASI 102

RULE 6F: The books of account and other documents shall be the following
namely: —

1. A cash book;
2. A journal, if mercantile system of accounting:
3. A ledger;
4. Carbon copies of bills & receipts, whether machine numbered or otherwise
serially numbered, wherever such bills or receipts are issued by the person,
for sums exceeding Rs.25/-;
5. Original bills and receipts wherever issued to the person in respect of
expenditure incurred or, where such bills and receipts are not issued and
the expenditure incurred is = < Rs 50/-, payment vouchers prepared and
signed by the person unless the cashbook contains adequate particulars in
respect of such expenditure
6. A person carrying on medical profession shall, in addition to the books of
account and other documents specified above, keep and maintain the
following, namely:
a. a daily case register in Form No. 3C;
b. An inventory under broad heads, as on the first and the last day of the
PY, of the stock of drugs, medicines and other consumable accessories.

The books of account and other documents specified above shall be kept and
maintained for a period of 6 years from the end of the relevant AY.

BY CA/CS ASHISH DEOLASI 103

Illustration : Khushali is a person carrying on profession as film artist. Her
gross receipt from profession are as under:

Financial year 2017-2018 1,15,000

Financial year 2018-2019 1,80,000

Financial year 2019-2020 2,10,000

What is the obligation regarding maintenance of books of accounts for each

assessment year u/s 44AA of Income Tax Act, 1961.

Solution:

Every person carrying on the profession of film artist shall keep and maintain
specified books of account and other documents, if his/her gross receipts
exceeds Rs. 1,50,000/- in all of the three immediately preceding previous years,
since Miss Khushali is a film artist she is required to maintain books of accounts
only if her gross receipts exceeds Rs. 1,50,000/- in all of the three immediately
preceding previous years. Accordingly-

Financial year 2017-2018- she is not required to maintain books of accounts

Financial year 2018-2019- she is not required to maintain books of accounts

Financial year 2019-2020- she is not required to maintain books of accounts

BY CA/CS ASHISH DEOLASI 104

SEC 44AB: AUDIT OF BOOKS OF ACCOUNTS

Requirement of Tax Audit: It is obligatory for the persons mentioned in column

(2) of the table below, carrying on business or profession, to get his accounts
audited before the “specified date” by a Chartered Accountant, if the conditions
mentioned in the corresponding row of column (3) are satisfied

Persons When tax audit is required?

(1) (2) (3)

I In case of a person carrying

on business

(a) In case of a person If his total sales, turnover or gross

carrying on business. receipts in business > Rs. 1 crore in
If in case of such person carrying the relevant PY.
on business -
And his, - Aggregate cash If his total sales, turnover or
receipts in the relevant PY < 5% gross receipts in business > Rs. 5
of total receipts (incl. receipts for crore in the relevant PY
sales, turnover, gross receipts);
and
Aggregate cash payments in the
relevant PY < 5% of total
payments (incl. amount incurred
for expenditure)

Note – The requirement of audit u/s 44AB does not apply to a person
who declares profits and gains on presumptive basis u/s 44AD and his
total sales, turnover, or gross receipts does not exceed Rs. 2 crore.

BY CA/CS ASHISH DEOLASI 105

(b) In case of an assessee covered u/s If such assessee claims that the
44AE i.e., an assessee engaged in profits and gains from business in
the business of plying, hiring or the relevant P.Y. are lower than the
leasing goods carriages who owns profits and gains computed on a
not more than 10 goods carriages at presumptive basis u/s 44AE [i.e.,
Rs. 1000 per ton of gross vehicle
any time during the P.Y.
weight or unladen weight in case of
each heavy goods vehicle and Rs.
7,500 for each vehicle, other than
heavy goods vehicle, for every
month or part of the month for
which the vehicle is owned by the
assessee].

(c) In case of an eligible assessee If he declares profit for any of the

carrying on business, whose total five successive PYs (say, P.Y. 2021-
turnover, sales, gross receipts ≤ Rs. 22) not in accordance with section
2 Crore, and who has opted for 44AD (i.e., he declares profits lower
section 44AD in any earlier PY (say, than 8% or 6% of total turnover,
sales or gross receipts, as the case
P.Y.2020- 21)
may be, in that year), then he
cannot opt for section 44AD for five
successive PYs after the year of
such default (i.e., from P.Y.2022-23
to P.Y.2026-27). For the year of
default (i.e., P.Y.2021-22) and five
successive previous years (i.e.,
P.Y.2022-2 to P.Y.2026-27), he has
to maintain books of account u/s
44AA and get them audited u/s
44AB, if his income exceeds the
basic exemption limit.

BY CA/CS ASHISH DEOLASI 106

 II In case of persons
carrying on profession

(a) In case of a person If his gross receipts in profession >

carrying on profession Rs.50 lakh in the relevant PY

(b) In case of an assessee carrying on a If such resident assessee claims

notified profession under section that the profits and gains from such
44AA(1) i.e., legal medical, profession in the relevant PY are
engineering, accountancy, lower than the profits and gains
architecture, interior computed on a presumptive basis
decoration, technical consultancy, u/s 44ADA (50% of gross receipts)
whose gross receipts ≤ Rs. 50 lakhs and his income exceeds the basic
exemption limit in that PY.

Due Date for submission of audit report- Due Date of ROI u/s 139(1)

Note: If assessee is carrying on more than one business, the aggregate turnover
from all the businesses shall be considered under this section. However if one of
these is a business covered by sec 44AD or 44AE and the assessee shows income
in accordance with these sections, the turnover from that business shall not be
included in the turnover of other businesses.

Rule 6G : Report of audit of accounts to be furnished under section 44AB.

1. The report of audit of the accounts of a person required to be furnished under

section 44AB shall, -
a. in the case of a person who carries on business or profession and who is
required by or under any other law to get his accounts audited, be in
Form No. 3CA;
b. in the case of a person who carries on business or profession, but not
being a person referred to in clause (a), be in Form No. 3CB.
2. The particulars which are required to be furnished under section 44AB shall
be in Form No. 3CD.

BY CA/CS ASHISH DEOLASI 107

3. Accounts audited under other statutes are considered: In cases where the
accounts of a person are required to be audited by or under any other law
before the specified date, it will be sufficient if the person gets his accounts
audited under such other law before the specified date and also furnish by
the said date the report of audit in the prescribed form in addition to the
report of audit required under such other law.

Thus, for example, the provision regarding compulsory audit does not imply
a second or separate audit of accounts of companies whose accounts are
already required to be audited under the Companies Act, 2013. The provision
only requires that companies should get their accounts audited under the
Companies Act, 2013 before the specified date and in addition to the report
required to be given by the auditor under the Companies Act, 2013 furnish
a report for tax purposes in the form to be prescribed in this behalf by the
CBDT.

BY CA/CS ASHISH DEOLASI 108

 SPECIAL PROVISIONS FOR COMPUTING INCOME ON ESTIMATED BASIS
44AD 44ADA 44AE
AMENDED BY FA 16 INSERTED
BY FA 16
NATURE OF Any business except the Specified Plying, Leasing
BUSINESS business referred to in Sec Professions or Hiring goods
44AE. U/s 44AA carriages.
(Goods carriages
may be owned by
the assessee or
taken on hire
purchase or
installment
scheme).
ASSESSEE Resident Individual, HUF Resident Any assessee
or a partnership firm, but Assessee
not a LLP firm;
NOT 1. Person claiming - -
APPLICABLE deduction u/s 10A, 10AA
TO- or u/s 80IA to 80RRB in
the PY
2. Person carrying on
specified profession;
3. A person earning
commission or brokerage
income; or
4. A person carrying on any
agency business

BY CA/CS ASHISH DEOLASI 109

EXTERN Where an eligible - -
CLAUSE assessee declares
profit for any PY in
accordance with this
section and he
declares profit for any
of the next 5 AY’s not in
accordance with this
section, he shall not be
eligible to claim the
benefit of this section
for next 5 AY’s
[44AD940]
RESTRICTION Gross receipts =< Rs. Gross receipts Own not more
ON 200 Lakhs =< Rs. 50 than 10 goods
APPLICABILITY Lakhs carriages,
anytime during
the PY

ESTIMATED 50% of Gross 1. Rs. 7,500

8% of Gross Receipts
INCOME receivable Receipts pm or part
received or
during the PY, or higher received or during which the

sum claimed to have receivable carriage is

during the PY, owned, or
been earned by the
or higher sum 2. Actual
assessee.
6% of total turnover or claimed to have income earned
gross receipts which is been earned by w-e-more
received by an account the assessee. [Vehicle owned

payee cheque or an includes

vehicles

BY CA/CS ASHISH DEOLASI 110

 account payee bank purchased on
draft or use of electronic Hire Purchase
clearing system or or Installment]
through such other
electronic mode as may
be prescribed (Amended
from AY 2020-2021)
before the due date u/s
139(1).
DEDUCTIONS All deductions u/s 30 to 38 including depreciation are
U/S30 TO 38 deemed to have been allowed.
DEPRECIATION Is deemed to have been claimed and allowed. WDV shall be
calculated accordingly.
SET OFF The income from these businesses will be aggregated with
OTHER other incomes of the assessee, and loss from any other activity
LOSSES can be set off against the estimated income in accordance
with Sec 70, 71 or 72.
SET OFF The income from these businesses will be aggregated with
OTHER other incomes of the assessee, and loss from any other activity
LOSSES can be set off against the estimated income in accordance
with Sec 70, 71 or 72.
CHAPTER VI A Deductions under chapter VI A will be available to the
DEDUCTIONS assessee, from the estimated incomes under these sections.
ADVANCE TAX 100% payable by 15th 100% payable by Required to
March of the PY 15th March of the be paid on
PY relevant
dates

BY CA/CS ASHISH DEOLASI 111

BOOKS OF The assessee, who files the return, estimating income at
ACCOUNTS prescribed rate or a higher income, will not be required to
AND AUDIT maintain books of account u/s 44AA, nor required to get them
THEREOF audited u/s 44AB, in respect of such businesses.
CAN LESSER If 44AD(4) applied Assessee may declare an income
INCOME BE then he shall have to lower than specified amount. In such
SHOWN? maintain books of case he shall have to maintain books
accounts u/s 44AA of accounts and get them audited by
and get them audited a CA u/s 44AB, irrespective of the
by a CA U/s 44AB for turnover-
that PY+ next 5 PY’s
If his TI > basic if his TI > basic Even if TI < =
exemption limit exemption limit basic
exemption limit

Note - Section 44AB makes it obligatory for every person carrying on business to
get his accounts of any previous year audited if his total sales, turnover or gross
receipts exceed 1crore. However, if an eligible person opts for presumptive taxation
scheme as per section 44AD(1), he shall not be required to get his accounts audited
if the total turnover or gross receipts of the relevant previous year does not exceed
2 crore. The CBDT, has vide its Press Release dated 20th June, 2016, clarified
that the higher threshold for non-audit of accounts has been given only to assesses
opting for presumptive taxation scheme u/s 44AD.

BY CA/CS ASHISH DEOLASI 112

CHAPTER

7
input tax credit

DEFINITIONS

Section Term Meaning

2(19) Capital "Capital Goods" means goods,—

Goods
 the value of which is capitalised in the books of
account of the person claiming the input tax
credit, and
 which are used or intended to be used in the
course or furtherance of business.

2(59) Input "Input" means any goods —

 other than capital goods

 used or intended to be used by a supplier in the
course or furtherance of business.

2(60) Input service "Input service" means any service used or intended
to be used by a supplier in the course or
furtherance of business.

2(62) Input tax "Input tax" in relation to a registered person, means

the central tax, State tax, integrated tax or Union
territory tax charged on any supply of goods or
services or both made to him and includes —

a) the integrated goods and services tax charged

on import of goods;

BY CA/CS ASHISH DEOLASI 113

 b) the tax payable under the provisions of Section
9(3) and Section 9(4);
c) the tax payable under the provisions of Section
5(3) and Section 5(4) of the Integrated Goods
and Services Tax Act;
d) the tax payable under the provisions of Section
9(3) and Section 9(4) of the respective State
Goods and Services Tax Act; or
e) the tax payable under the provisions of Section
7(3) and Section 7(4) of the Union Territory
Goods and Services Tax Act, but does not
include the tax paid under the composition
levy.

2(63) Input tax "Input tax credit" means the credit of input tax.
credit

2(82) Output tax "Output tax" in relation to a taxable person, means

—

the tax chargeable under this Act on taxable supply

of goods or services or both made by him or by his
agent but excludes tax payable by him on reverse
charge basis.

2(108) Taxable "Taxable supply" means a supply of goods or

supply services or both which is leviable to tax under this
Act.

2(47) Exempt "Exempt supply" means —

supply
 supply of any goods or services or both which
attracts nil rate of tax or which may be wholly
exempt from tax under section 11, or under

BY CA/CS ASHISH DEOLASI 114

 section 6 of the Integrated Goods and Services
Tax Act, and
 Includes non-taxable supply.

2(78) Non-taxable "Non-taxable supply" means a supply of goods or

supply services or both which is not leviable to tax under
this Act or under the Integrated Goods and Services
Tax Act.

2(67) Inward "Inward supply" in relation to a person, shall

Supply meaner receipt of goods or services or both

 Whether by purchase, acquisition or any other

means with or without consideration.

2(83) Outward "Outward supply" in relation to a taxable person,

Supply means —

 supply of goods or services or both,

 whether by sale, transfer, barter, exchange,
licence, rental, lease or disposal or any other
mode,
 Made or agreed to be made by such person in
the course or furtherance of business.

2(61) Input Service "Input Service Distributor" means an office of the

Distributor supplier of goods or services or both winched
receives tax invoices issued under section 31
towards the receipt of input services, and
 issues a prescribed document for the purposes
of distributing the credit of central tax, State tax,
integrated tax or Union territory tax paid on the
said services to a supplier of taxable goods or
services or both having the same Permanent
Account Number as that of the said office.

BY CA/CS ASHISH DEOLASI 115

 2(6) Aggregate "Aggregate turnover" means the aggregate value
of—
Turnover
 all taxable supplies (excluding the value of
inward supplies on which tax is payable by a
person on reverse charge basis),
 exempt supplies,
 exports of goods or services or both, and
 inter-State supplies

of persons having the same Permanent Account

Number, to be computed on all India basis, —

but excludes —
 Central tax,
 State tax,
 Union territory tax,
 Integrated tax, and
 Cess.

2(46) Electronic "Electronic credit ledger" means the electronic

Credit credit ledger referred to in Section 49(2).
Ledger

2(107) Taxable "Taxable person" means a person who is registered

person or liable to be registered u/s 22 or 24.

BY CA/CS ASHISH DEOLASI 116

ELIGIBILITY AND CONDITIONS FOR TAKING ITC
Que. Explain the eligibility and conditions for taking input tax credit.

Ans: Eligibility and conditions for taking input tax credit [Section 16]:

1) Only registered person eligible to take ITC [Section 16(1)]: Every

registered person shall,-
 subject to such conditions and restrictions as may be prescribed, and
 in the manner specified in section 49, be entitled to take credit of input
tax —
 charged on any supply of goods or services or both to him
 which are used or intended to be used in the course or furtherance of his
business, and the said amount shall be credited to the electronic credit
ledger of such person.
2) Conditions to be satisfied for taking ITC [Section 16(2)] : Notwithstanding
anything contained in this section, no registered person shall be entitled to
the credit of any input tax in respect of any supply of goods or services or
both to him unless, -
a. Possession of tax paying document: He is in possession of a tax invoice
or debit note issued by a supplier registered under this Act, or such other
tax paying documents as may be prescribed;
b. Receipt of goods/ Services: He has received the goods or services or both.

Delivery of goods at registered persons direction is valid receipt of goods

[Explanation] : It shall be deemed that the registered person has received
the goods where the goods are delivered by the supplier to a recipient or any
other person on the direction of such registered person, whether acting as
an agent or otherwise, before or during movement of goods, either by way of
transfer of documents of title to goods or otherwise;

c. Tax charged is actually paid to Government: Subject to the provisions of

section 41, the tax charged in respect of such supply has been actually
paid to the Government, either in cash or through utilisation of input tax
credit admissible in respect of the said supply; and

BY CA/CS ASHISH DEOLASI 117

 d. Furnishing of return: He has furnished the return under section 39.

Goods received in lots or instalments- ITC can be taken upon receipt

of the last lot or instalment: Where the goods against an invoice are
received in lots or instalments, the registered person shall be entitled to
take credit upon receipt of the last lot or instalment.

Payment is not made within 180 days from date of invoice - ITC
availed is to be paid along with interest: Where a recipient fails to pay
—

 to the supplier of goods or services or both, other than the supplies on

which tax is payable on reverse charge basis,
 the amount towards the value of supply along with tax payable thereon,
 within a period of 180 days from the date of issue of invoice by the
supplier, an amount equal to the input tax credit availed by the recipient
shall be added to his output tax liability, along with interest thereon, in
such manner as may be prescribed.

Re-credit when payment is made subsequently: However, the recipient

shall be entitled to avail of the credit of input tax on payment made by him
of the amount towards the value of supply of goods or services or both
along with tax payable thereon.

e. Exceptions: This condition of payment of value of supply plus tax within

180 days does not apply in the following situations:
i. Supplies on which tax is payable under reverse charge
ii. Deemed supplies without consideration i.e. value of supplies made
without consideration as specified in Schedule I of the said Act.
iii. The value of supplies on account of any amount added in accordance
with the provisions Section 15(2) (b) shall be deemed to have been paid
for the purposes of the second proviso to Section 16(2),

BY CA/CS ASHISH DEOLASI 118

 i.e. additions made to the value of supplies on account of supplier's
liability, in relation to such supplies, being incurred by the recipient of the
supply. [Inserted by the CGST (5th Amendment) Rules, 2018, w.e.f. 13-
6-2018]

Note: Under situations given in points (b) & (c), the value of supply is
deemed to have been paid.

3) ITC not admissible if deprecation claimed on tax component [Section

16(3)]: Where the registered person has claimed depreciation on the tax
component of the cost of capital goods and plant and machinery under the
provisions of the Income-tax Act, 1961, the input tax credit on the said tax
component shall not be allowed.
4) Time Limit for availing ITC [Section 16(4)]: A registered person shall not
be entitled to take input tax credit in respect of any invoice or debit note for
supply of goods or services or both after-
 the due date of furnishing of the return under section 39 for the month of
September following the end of financial year to which such invoice or
invoice relating to such debit note pertains, or
 furnishing of the relevant annual return, whichever is earlier.
5) Burden of proof - Person taking the credit [Section 155]: Where any
person claims that he is eligible for input tax credit under this Act, the
burden of proving such claim shall lie on such person.

BY CA/CS ASHISH DEOLASI 119

PROVISIONS INTRODUCED FOR AVAILING ITC IN CASE OF BILL TO SHIP
TO SITUATIONS IN CASE OF SERVICES [EXPLANATION TO SECTION
16(2)(B) OF THE CGST ACT]

The CGST (Amendment) Act, 2018 has amended the said explanation to
introduce such deeming fiction in case of services as well. As per the amended
explanation, it shall be deemed that the registered person has received the goods
or, as the case may be, services-

1. where the goods are delivered by the supplier to a recipient or any other
person on the direction of such registered person, whether acting as an agent
or otherwise, before or during movement of goods, either by way of transfer
of documents of title to goods or otherwise;
2. Where the services are provided by the supplier to any person on the direction
of and on account of such registered person.

DOCUMENTARY REQUIREMENTS AND CONDITIONS FOR CLAIMING INPUT

TAX CREDIT [RULE 36 OF CGST RULES, 2017]

Documents The input tax credit shall be availed by a registered

required for person, including the Input Service Distributor, on the
claiming input tax basis of any of the following documents, namely:-
credit a) an invoice issued by the supplier of goods or services

[Rule 36(1)] or both in accordance with the provisions of section

31;
b) an invoice issued (under reverse charge) in
accordance with the provisions of clause (f) of sub-
section (3) of section 31, subject to the payment of
tax;
c) a debit note issued by a supplier in accordance
with the provisions of section 34;

BY CA/CS ASHISH DEOLASI 120

 d) a bill of entry or any similar document prescribed
under the Customs Act, 1962 or rules made
thereunder for the assessment of integrated tax on
imports;
e) an ISD invoice or ISD credit note or any document
issued by an Input Service Distributor in
accordance with the provisions of sub-rule (1) of rule
54.

Requirement of Input tax credit shall be availed by a registered person

Prescribed details only if all the applicable particulars as specified in
on documents the provision of Chapter-VI are contained in the said

[Rule 36(2)] document, and the relevant information, as contained

in the said document, is furnished in FORM GSTR-2
(Details of inward supplies) by such person.

However, if the said document does not contain all the

specified particular but contains the details of –
1. The amount of tax charged
2. Description of goods and services
3. Total value of supply of goods and services
4. GSTN of supplier and recipient
5. Place of supply in case of interstate supply

The ITC may be availed by such a registered person.

[Amended w.e.f. 04-09-2018]

No ITC on tax paid No input tax credit shall be availed by a registered

on account of person in respect of any tax that has been paid in
demand due to pursuance of any order where any demand has been
Fraud etc. confirmed on account of any fraud, willful

[Rule 36(3)] misstatement or suppression of facts.

BY CA/CS ASHISH DEOLASI 121

 Unmatched credit Input tax credit to be availed by a registered person in
cannot exceed 10% respect of invoices or debit notes, the details of which
of ITC available in have not been uploaded by the suppliers u/s 37(1) i.e.
GSTR-2A in GSTR-1 and not reflected in GSTR-2A of the

[Rule 36(4)] recipient, shall not exceed 10% of the eligible credit
available in respect of invoices or debit notes the details
of which have been uploaded by the suppliers under
Section 37(1) i.e. in GSTR-1 and reflected in GSTR-2A
of the recipient.

[20% substituted by 10% vide NN 75/2019 – CT

w.e.f. 01.01.2020].

Additional Information -

Rule 36(4) : Input tax credit to be availed by a registered person in respect of

invoices or debit notes, the details of which have not been uploaded by the
suppliers u/s 37(1), shall not exceed 10% of the eligible credit available in respect
of invoices or debit notes the details of which have been uploaded by the
suppliers u/s 37(1).

[Rule 36 (4) Inserted by NN 49/2019 –CT w.e.f. 09.10.2019].

BY CA/CS ASHISH DEOLASI 122

Circular No. 123/42/2019- Restriction in availment of input tax credit
GST dated 11-11-2019 in terms of rule 36(4) of CGST Rules, 2017.

(1) Rule 36(4) of the CGST Rules, 2017 has been inserted vide notification No.
49/2019-CT, dated 09- 10-2019. The said sub-rule provides restriction in
availment of input tax credit (ITC) in respect of invoices or debit notes, the
details of which have not been uploaded by the suppliers u/s 37(1) of the CGST
Act, 2017.

(2) The conditions and eligibility for the ITC that may be availed by the recipient
shall continue to be governed as per the provisions of Chapter V of the CGST
Act and the rules made thereunder. This being a new provision, the restriction
is not imposed through the common portal and it is the responsibility of the
taxpayer that credit is availed in terms of the said rule and therefore, the
availment of restricted credit in terms of rule 36(4) of CGST Rules shall be done
on self- assessment basis by the tax payers. Various issues relating to
implementation of the said sub-rule have been examined and the clarification
on each of these points is as under:

Issue Clarification

1. What are the The restriction of availment of ITC is imposed only

invoices/ debit in respect of those invoices / debit notes, details of
notes on which the which are required to be uploaded by the suppliers
restriction under u/s 37(1) and which have not been uploaded.
rule 36(4) of the Therefore, taxpayers may avail full ITC in respect
CGST Rules shall of IGST paid on import, documents issued under
apply? RCM, credit received from ISD etc. which are
outside the ambit of section 37(1), provided that
eligibility conditions for availment of ITC are met
in respect of the same. The restriction of rule 36(4)
will be applicable only on the invoices/debit notes
on which credit is availed after 09-10-2019.

BY CA/CS ASHISH DEOLASI 123

2. Whether the said The restriction imposed is not supplier wise.
restriction is to be The credit available under rule 36(4) is linked to
calculated supplier total eligible credit from all suppliers against all
wise or on supplies whose details have been uploaded by the
consolidated basis? suppliers. Further, the calculation would be based
on only those invoices which are otherwise eligible
for ITC. Accordingly, those invoices on which ITC
is not available under any of the provision (say u/s
17(5)) would not be considered for calculating
10% of the eligible credit available.

3. FORM GSTR-2A The amount of input tax credit in respect of the

being a dynamic invoices / debit notes whose details have not been
document, what uploaded by the suppliers shall not exceed 10% of
would be the the eligible input tax credit available to the
amount of input tax recipient in respect of invoices or debit notes the
credit that is details of which have been uploaded by the
admissible to the suppliers u/s 37(1) as on the due date of filing
taxpayers for a of the returns in FORM GSTR-1 of the suppliers
particular tax for the said tax period. The taxpayer may have to
period in respect of ascertain the same from his auto populated FORM
invoices/debit GSTR 2A as available on the due date of filing
notes whose details of FORM GSTR-1 u/s 37(1).
have not been
uploaded by the
suppliers?

BY CA/CS ASHISH DEOLASI 124

4. How much ITC a Rule 36(4) prescribes that the ITC to be availed by
registered tax payer a registered person in respect of invoices or debit
can avail in his notes, the details of which have not been uploaded
FORM GSTR-3B in by the suppliers u/s 37(1), shall not exceed 10%
a month in case the of the eligible credit available in respect of invoices
details of some of or debit notes the details of which have been
the invoices have uploaded by the suppliers u/s 37(1). The eligible
not been uploaded ITC that can be availed is explained by way of
by the suppliers illustrations, in a tabulated form, below.
u/s 37(1). In the illustrations, say a taxpayer "R" receives
100 invoices (for inward supply of goods or
services) involving ITC of Rs. 10 lakhs, from
various suppliers during the month of January,
2020 and has to claim ITC in his FORM GSTR-3B
of January, to be filed by 20th Feb, 2020.

Ca Details of 10% of Eligible ITC to

se suppliers' invoices eligible credit be taken in
for which recipient where invoices GSTR-3B to
is eligible to take are uploaded be filed by
ITC 20th Feb.

(1) Suppliers have * 60,000/- Rs. 6,00,000

furnished in (6 Lacs*10%) (i.e. amount of
FORM GSTR-1. eligible ITC

80 invoices available, as

involving ITC of per details

Rs. 6 lakhs as on uploaded by

the due date of the suppliers)

furnishing of the + Rs. 60,000

BY CA/CS ASHISH DEOLASI 125

 details of outward (i.e. 10% of
supplies by the amount of
suppliers. eligible ITC
available, as
per details
uploaded by
the suppliers)
= Rs.
6,60,000/-

(2) Suppliers have Rs. 70,000/- Rs. 7,00,000

furnished in (7 Lacs*10%) + Rs. 70,000 =
FORM GSTR-1 80 Rs.
invoices involving 7,70,000/-
ITC of Rs. 7 lakhs
as on the due date
of furnishing of the
details of outward
supplies by the
suppliers.

(3) Suppliers have Rs. 95,000/- Rs. 9,50,000

furnished in (9.5 Lacs + Rs. 50,000*
FORM GSTR-1 85 *10%) =
invoices having Rs. 10,00,000
ITC of Rs. 9.5 lacs
as on the due date
of furnishing of the
details of outward
supplies by the
suppliers.

BY CA/CS ASHISH DEOLASI 126

5. When can The balance ITC may be claimed by the taxpayer in any
balance ITC of the succeeding months provided details of requisite
be claimed invoices are uploaded by the suppliers. He can claim
in case proportionate ITC as and when details of some invoices
availment of are uploaded by the suppliers provided that credit on
ITC is invoices, the details of which are not uploaded (u/s 37(1)
restricted as remains under 10% of the eligible input tax credit, the
per the details of which are uploaded by the suppliers.
provisions of
rule 36(4)?

Full ITC of balance amount may be availed, in present

illustration by "R", in case total ITC pertaining to invoices
the details of which have been uploaded reaches Rs. 9.09
lakhs (Rs. 10 lakhs/1.10). In other words, taxpayer may
avail full ITC in respect of a tax period, as and when the
invoices are uploaded by the suppliers to the extent
Eligible ITC/1.10.

BY CA/CS ASHISH DEOLASI 127

APPORTIONMENT OF CREDIT AND BLOCKED CREDITS

Que. Explain the provisions relating to apportionment of credit and blocked

credits.

Ans: Apportionment of credit and blocked credits [Section 17]:

(1) Goods/ services partly used for business and partly for other use - Pro-
rata Credit admissible [Section 17(1)]: Where the goods or services or both are
used by the registered person—

 partly for the purpose of any business; and

 partly for other purposes,

the amount of credit shall be restricted to so much of the input tax as is

attributable to the purposes of his business.

(2) ITC restricted to goods/ services used for taxable supplies if the same
are used for effecting taxable as well as exempt supplies [Section 17(2)]:
Where the goods or services or both are used by the registered person—

 partly for effecting taxable supplies including zero-rated supplies under this
Act or under the Integrated Goods and Services Tax Act, and
 partly for effecting exempt supplies under the said Acts,

the amount of credit shall be restricted to so much of the input tax as is

attributable to the said taxable supplies including zero-rated supplies.

(3) Inclusions in Exempt supplies and valuation [Section 17(3)] : The value
of exempt supply u/s 17(2) shall be such as may be prescribed, and shall include
—

 supplies on which the recipient is liable to pay tax on reverse charge basis,
 transactions in securities,
 sale of land, and
 subject to clause (b) of paragraph 5 of Schedule II, sale of building.

BY CA/CS ASHISH DEOLASI 128

Exempt supply to include supplies on RCM applies : The value of exempt
supplies shall include supply on which tax is paid under Reverse Charge basis.
Supplies in respect of which the outward supplier is not liable to pay tax but the
recipient is made liable to pay the tax, then due to Section 17(3), for the limited
purpose of restricting input tax credit to the supplier (who is not made
responsible to pay tax due to RCM provisions) the value of these supplies will be
regarded as 'exempt supplies' while arriving at the net available input tax credit.
It must be noted that such supplies should not be included as exempt supplies
of the recipient who pays the tax (on RCM basis) because the recipient has not
made such supply.

Example The following details are given hereunder for Ram Chand & Co.

Details for the tax period of Oct 20XX GST

Total input tax credit-(T) 1,50,000
Input tax used exclusively for non-business purposes-(T1) 15.000
Input tax used exclusively for effecting exempt supplies-(T2) 6,000
Input tax ineligible under Section 17(5) -(T3) 6,000
ITC credited to Electronic Credit Ledger- (C1 )= (T-(T 1 + T2 +T3)) 1,23,000
Input tax credit used exclusively for taxable supplies (including zero-rated 98,000
supplies)- (T4)
Common Credit -(C2)= (C1-T4) 25,000
Assume Aggregate value of exempt supplies for Oct 20XX. 15,00,000
Assume Total Turnover for Oct 20XX. 60,00,000
Credit allocated to exempt supplies - (Dl) = (E/F)'C2 6,250
Credit allocated to non-business purposes @ 5% - (D2) = C2 *5% 1,250
Net eligible common credit - (C3) = C2 - (Dl + D2) 17,500
Added to be in output tax liability = D1+D2 7,500
Finally total credit available in Electronic credit ledger Rs.1,23,000 and Rs.
7,500 shall be added to the output tax liability for the month of Oct 20XX.

BY CA/CS ASHISH DEOLASI 129

Note:- the above calculation shall be computed separately for input tax credit of
central tax, State tax, Union territory tax and integrated tax;

(4) Special provisions for ITC in case of banking company and financial
institution including NBFC - 50% of ITC can be availed [Section 17(4)] : A
banking company or a financial institution including a non-banking financial
company, engaged in supplying services by way of accepting deposits, extending
loans or advances shall have the option to -

 either comply with the provisions of Section 17(2); or

 avail of, every month, an amount equal to 50% of the eligible input tax credit
on inputs, capital goods and input services in that month and the rest shall
lapse.

Option once exercised cannot be withdrawn during Financial Year : The

option once exercised shall not be withdrawn during the remaining part of the
financial year.

50% restriction not applicable in case of supplies made to its own

establishment: The restriction of 50% shall not apply to the tax paid on supplies
made by one registered person to another registered person having the same
Permanent Account Number.

(5) Blocked Credit: Section 17(5): also called as negative list for ITC : The
CGST (Amendment) Act, 2018 has substituted clauses (a) and (b) of section 17(5)
with a view to expand the scope of ITC availability. Provisions relating to credit
availability have undergone a change in respect of goods and services like motor
vehicles, vessels and aircrafts, general insurance, servicing, repair and
maintenance, food & beverages, outdoor catering, membership of club, travel
benefits etc. Under the amended position, the restriction and availability of ITC
in respect of such goods and services is as under:

BY CA/CS ASHISH DEOLASI 130

 S. Goods and/or Exceptions to goods Remarks

No. services on and/or services

which credit is mentioned in column
blocked (2) on which credit is
allowed

(1) (2) (3) (4)

(i) Motor vehicles* Such motor vehicles o ITC on motor vehicles

for when used for- for transportation of
transportation o making further persons with seating
of persons with taxable supply of capacity ≤ 13 persons
seating capacity such motor (including the driver)
≤ 13 persons vehicles; used for any purpose
(including the o making taxable other than one
driver) supply of mentioned in Sl. No. (i)
transportation of of column (3) is not
passengers; allowed.
o making taxable o ITC on motor vehicles
supply of imparting for transportation of
training on driving persons with seating
such motor vehicles. capacity > 13 persons
(including the driver)
used for any purpose is
allowed.
 ITC on any other motor
vehicle (e.g. motor
vehicle used for
transportation of goods,
dumpers, tippers etc.)
used for any purpose is
allowed.

BY CA/CS ASHISH DEOLASI 131

Examples:
1. ITC on cars purchased by a manufacturing company for official use of its
employees is blocked.
2. ITC on cars purchased by a car dealer for sale to customers is allowed.
3. ITC on cars purchased by a company engaged in renting out cars for
transportation of passengers, is allowed.
4. ITC on cars purchased by a car driving school is allowed.
5. ITC on buses purchased by a company for transportation of its employees
from their residence to office and back, is allowed.
6. ITC on trucks purchased by a company for transportation of its finished
goods is allowed.

(ii) Vessels and Vessels and aircraft ITC on vessels and

aircrafts when used for- aircrafts used for any
o making further purpose other than the
taxable supply of ones mentioned in Sl. No.
such vessels or (ii) of column (3) is not
aircraft; allowed.
o making taxable
supply of
transportation of
passengers;
o making taxable
supply of imparting
training on
navigating such
vessels;
o making taxable
supply of imparting
training on flying
such aircrafts;
o transportation of
goods.

BY CA/CS ASHISH DEOLASI 132

Examples:
1. ITC on aircraft purchased by a manufacturing company for official use of
its CEO is blocked.
2. ITC on aircraft purchased by an Aviation School providing training on flying
aircrafts, is allowed.

(iii) General o Such services o ITC is not allowed on

insurance, relating to motor services of general
servicing, repair vehicles for insurance, servicing,
and transportation of repair and maintenance
maintenance persons with seating relating to motor
relating to: capacity ≤ 13 persons vehicles, vessels or
o Motor vehicles (including the driver) aircraft, ITC on which
for when used for is not allowed.
Transportation purposes mentioned o ITC is allowed on
of persons in Sl Nos. (i) of services of general
with seating column (3) above insurance, servicing,
capacity ≤ 13 o Such services repair and maintenance
persons relating to vessels or relating to motor
(including the aircraft when used vehicles, vessels or
driver), for purposes aircraft, ITC on which
o Vessels mentioned in Sl. No. is allowed.
o Aircraft (ii) of column (3)
above
o Such services when
received by a taxable
person engaged –
 in the manufacture of
such motor vehicles
(as mentioned in Sl.
No. (iii) of column 2),
vessels or aircraft; or

BY CA/CS ASHISH DEOLASI 133

  in the supply of
general insurance
services in respect of
such motor vehicles
(as mentioned in Sl.
No. (iii) of column 2),
vessels or aircraft
insured by him
Examples:
1. ITC on general insurance taken on a car used by employees of a
manufacturing company for official purposes, is blocked.
2. ITC on maintenance & repair services availed by a company for a truck used
for transporting its finished goods, is allowed.

(iv)  Food and o Such goods and/or o ITC on such goods

beverages services when used and/or services when
 Outdoor by a registered used for any purpose
catering person for making an other than the ones
 Beauty outward taxable mentioned in Sl. No. (iv)
treatment supply of the same of column (3), is
 Health services category of goods not allowed.
 Cosmetic and and/or services (sub-
plastic surgery contracting) or as an o When such goods
 Leasing, element of a taxable and/or services are
renting or composite or mixed provided by the
hiring of motor supply employer to its
vehicles, o When such goods employees without any

 vessels or and/or services are statutory obligation,

aircraft on provided by an ITC thereon is blocked.

which ITC is employer to its

not allowed employees under a

statutory obligation
 Life insurance
and health
insurance

BY CA/CS ASHISH DEOLASI 134

Examples:
1. AB & Co., a caterer of Amritsar, has been awarded a contract for catering
in a marriage to be held at Ludhiana. The firm has given the contract for
supply of snacks, to be served in the marriage, to CD & Sons, a local caterer
of Ludhiana. ITC on such outdoor catering services availed by AB & Co., is
allowed.
2. ITC on outdoor catering services availed by a company, for a team
development event organised for its employees, is blocked.
3. ITC on outdoor catering service availed by a company to run a canteen in
its factory. The Factories Act, 1948 requires the company to set up a
canteen in its factory. ITC on such outdoor catering is allowed.

(v) Membership of a When such services are When such goods and/or
club, health and provided by an services are provided by
fitness centre employer to its the employer to its
employees under a employees without any
statutory obligation statutory obligation, ITC
thereon is blocked.

(vi) Travel benefits When such services are When such goods and/or
extended to provided by an services are provided by
employees on employer to its the employer to its
vacation such as employees under a employees without any
leave or home statutory obligation statutory obligation, ITC
travel thereon is blocked.
concession

BY CA/CS ASHISH DEOLASI 135

*Definition of Motor Vehicle – As per section 2(76) of the CGST Act, 2017,
“motor vehicle” shall have the same meaning as assigned to it in clause (28) of
section 2 of the Motor Vehicles Act, 1988.
As per section 2(28) of the Motor Vehicles Act, 1988, “motor vehicle” or “vehicle”
means any mechanically propelled vehicle adapted for use upon roads whether
the power of propulsion is transmitted thereto from an external or internal
source and includes a chassis to which a body has not been attached and a
trailer; but does not include a vehicle running upon fixed rails or a vehicle of a
special type adapted for use only in a factory or in any other enclosed premises
or a vehicle having less than four wheels fitted with engine capacity of not
exceeding twenty-five cubic centimeters.

(vii) Works contract However, credit is (1) ITC on works contract

services allowed — services for construction of an
(i) Where it is an input immovable property is
service for further supply blocked. However, ITC on
of works contract works contract services can be
service. availed only by that taxpayer
(ii) Where it is supplied who is in the same line of
for construction of plant business, i.e. only a works
and machinery. contractor can avail ITC on
Explanation: works contract services
(1) "Plant and received by him (sub-
machinery" means contracting).
apparatus, equipment, (2) Plant and machinery
and machinery fixed to affixed permanently to the
earth by foundation or earth constitutes an
structural support that immovable property.
are used for making However, ITC on works
outward supply of goods contract services used for
or services or both and construction of such plant
includes such and machinery is allowed as
foundation and an exception. Thus, ITC on
structural supports but works contract services
excludes — availed for construction of

BY CA/CS ASHISH DEOLASI 136

 (i) land, building or any eligible plant and machinery is
other civil structures; allowed to the recipient
(ii) telecommunication irrespective of the line of
towers; and business of such recipient.
(iii) Pipelines laid outside For instance, ITC on works
the factory premises. contract services for
(2) "Construction" construction of machinery
includes re-construction, fixed to earth by a
renovation, additions or foundation, would be
alterations or repairs, to allowed. However, ITC on
the extent of works contract services for
capitalization, to the said construction of
immovable property. telecommunication towers,
would be blocked.
(3) As per the definition of
term Construction, if re-
construction, renovation,
additions or alterations or
repairs are not capitalized, it
would not tantamount to
construction under GST law.
Consequently, ITC on works
contract services availed for
such construction (which is
not capitalized) whether for
any immovable property or for
any plant and machinery,
would be allowed to all the
recipients irrespective of their
line of business.

BY CA/CS ASHISH DEOLASI 137

Examples:
1. ITC on works contracts services availed by a software company for construction
of its office, is blocked.
2. XY & Co., a works contractor of Jaipur, has been awarded a contract for
construction of a commercial complex in Alwar. The firm avails services of PQ &
Co., a local works contractor of Alwar, for the construction of complex. ITC on
such works contract services availed by XY & Co., is allowed.
3. ITC on works contract services availed by an automobile company for
construction of a foundation on which a machinery (to be used in the production
process) is to be mounted permanently, is allowed.
4. A consulting firm has availed services of a works contractor for repair of its office
building. The company has booked such expenditure in its profit and loss
account. ITC on such services is allowed.
5. A telecommunication company has availed services of a works contractor for
repair of its office building. The company has capitalized such expenditure. ITC
on such services is blocked.

(viii) Inputs and Input However, credit is ITC on goods and/or services
services for allowed if they are is used in the construction of an
construction of supplied for immovable property is blocked
immovable construction of plant only in those cases where the
property and machinery. taxable person constructs the
immovable property for his own
use even if the immovable
property being constructed is
used in the course or
furtherance of his business.

BY CA/CS ASHISH DEOLASI 138

Examples:
1. A company buys cement, tiles etc. and avails the services of an architect for
construction of its office building. ITC on such goods and services is blocked.
2. A company buys cement, tiles etc. and avails the services of an architect for
renovation of its office building. The company has booked such expenditure in its
profit and loss account. ITC on such goods and services is allowed.
3. ITC on goods and/or services used by an automobile company for construction of
a foundation on which a machinery (to be used in the production process) is to
be mounted permanently, is allowed.
(ix) Inputs under - Goods or services or both on
Composition scheme which tax has been paid under
section 10.
Since a composition supplier
cannot collect any tax on its
supplies, from the recipient of
its supplies, it is obvious that
no ITC can be availed in
respect of such supplies by the
recipients. Nevertheless,
section 17(5)(e) specifically
blocks the ITC on inward
supplies received by a taxable
person from a composition
supplier.
(x) Inputs by NR Goods or services or both
received by a non-resident
taxable person except on
goods imported by him.
Analysis - A non-resident
taxable person has no fixed
place of business in India but
he sporadically supplies goods
or services in India.
Tax paid on goods and/or
services received by such non-
resident taxable person, is not
available as ITC. Whereas ITC
on goods imported by a
nonresident taxable person is
allowed, ITC on services
imported by him is blocked.

BY CA/CS ASHISH DEOLASI 139

(xi) Personal Goods or services or both used
consumption for personal consumption.
The term 'personal
consumption' has not been
defined in the GST law. Thus,
it may be understood in the
general sense which would
mean non-business use.
(xii) Lost, stolen goods Goods lost, stolen, destroyed,
etc written off or disposed of by
way of gift or free samples;
Analysis - ITC shall not be
available to the supplier on the
inputs, input services and
capital goods to the extent they
are used in relation to the gifts
or free samples distributed
without any consideration.
However, where the activity
of distribution of gifts or free
samples falls within the
scope of "supply" on account
of the provisions contained
in Schedule I of the said Act,
the supplier would be eligible
to avail the ITC.
(xiii) Evasion, Any tax paid in accordance
confiscation etc. with the provisions of
sections 74, 129 and 130.
(These sections prescribe
the provisions relating to tax
paid as a result of evasion of
taxes, or upon detention of
goods or conveyances in
transit, or towards
redemption of confiscated
goods/ conveyances.)
(6) Attributable Credit to be determined in accordance with rules [Section
17(6)] : The Government may prescribe the manner in which the credit referred
to in Section 17(1) and Section 17(2) may be attributed.

BY CA/CS ASHISH DEOLASI 140

 QUESTION & ANSWERS

Illustration 1 - Input tax credit - Capital goods : X Ltd. a registered

manufacturer engaged in taxable supply of goods procured the following goods
during the month of October, 20XX. The same has been capitalized in the books
of accounts of X Ltd. Determine the amount of Input Tax credit available by
giving necessary explanations for treatment of various items.

Items Input tax

(Rs.)
Electrical transformers used in the factory 2,16,000
Moulds and dies used in the factory 26,000
Pollution control equipment used in the factory 2,34,000
Capital Goods purchased on which depreciation has been taken 1,35,000
on full value including input tax thereon
Capital goods used as parts purchased from supplier who paid
tax of Rs. 10,000 under composition scheme and the composite
tax has not been collected from X Ltd.
Solution: Computation of Input Tax credit available to X Ltd.:

Particulars Rs.
Electrical transformers used in the factory [WN-1] 2,16,000
Moulds and dies used in the factory [WN-1] 26,000
Pollution control equipment used in the factory [WN-1] 2,34,000
Capital Goods purchased on which depreciation has [WN-2] Nil
been taken on full value including input tax thereon
Capital goods used as parts purchased from supplier who paid tax Nil
under composition scheme and the composite tax has not been
collected from X Ltd.
[WN-4]

Total Input tax credit available 4,76,000

BY CA/CS ASHISH DEOLASI 141

Working Notes:

1. As per Section 2(19) "Capital goods" means goods, the value of which is
capitalized in the books of account of the person claiming the input tax credit
and which are used or intended to be used in the course or furtherance of
business. Hence, —
a) Electrical transformers
b) Moulds and dies,
c) Pollution control equipment, which are used or intended to be used in
the course or furtherance of business are eligible for ITC as capital goods.
2. As per Section 16(3), no input tax credit shall be admissible where registered
person has claimed depreciation on the tax component of the cost of capital
goods and plant and machinery under the provisions of the Income-tax Act,
1961.
3. As per Section 17(5)(e), input tax credit shall not be available in respect of
goods or services or both on which tax has been paid under section 10. Thus,
no ITC shall be allowed of tax paid under composition scheme by the
supplier.

Illustration 2 - Input tax credit - Determine the amount of Input tax credit
available to Kalyan Ltd. in respect of the following goods and services procured
by them in the month of April 20XX :

S. No. Inward supplies GST (Rs.)

(i) Motor vehicles for transportation of persons having 70,000
approved seating capacity of 7 persons (including driver)
(ii) Motor bus for transportation of persons having approved 1,40,000
seating capacity of 14 persons (including driver)
(iii) Motor lorries for transportation of goods 2,80,000
(iv) Food and Beverages procured from Sweet Caterers for 48,000
being used in dealer's meet

BY CA/CS ASHISH DEOLASI 142

(v) Services of repair and maintenance of motor lorries used 36,000
for transportation of goods
(Vi) Services of general insurance of motor vehicles for 18,000
transportation of persons having approved seating
capacity of 7 persons (including driver)
(vii) Services of servicing of motor vehicles for transportation 54,000
of persons having approved seating capacity of 14
persons (including driver)

Solution: Computation of ITC available with Posco Ltd. (amount in Rs.):

Motor vehicles for transportation of persons having approved Nil

seating capacity of 7 persons (including driver) [WN-1]
Motor bus for transportation of persons having approved seating 1,40,000
capacity of 14 persons (including driver) [WN-2]
Motor lorries for transportation of goods [WN-3] 2,80,000
Food and Beverages procured from Sweet Caterers [WN-4] Nil
for being used in dealer 's meet
Services of repair and maintenance of motor lorries [WN-5] 36,000
used for transportation of goods
Services of general insurance of motor vehicles for Nil
transportation of persons having approved seating
[WN-6]
capacity of 7 persons (including driver)
Services of servicing of motor vehicles for transportation of 54,000
persons having approved seating capacity of 14 persons
(including driver) [WN-7]
Total Input tax credit available 5,10,000

BY CA/CS ASHISH DEOLASI 143

Working Notes:

(1) As per Section 17(5) (a), no Input tax credit is available in respect of motor
vehicles for transportation of persons having approved seating capacity of not
more than 13 persons (including the driver), unless they are used for making the
following taxable supplies, namely:— (A) further supply of such motor vehicles;
or (B) transportation of passengers; or (C) imparting training on driving such
motor vehicles. Hence, no input tax credit is available on the said motor vehicles.

(2) As per Section 17(5) (a), no Input tax credit is available in respect of motor
vehicles for transportation of persons having approved seating capacity of not
more than 13 persons (including the driver). Thus, input tax credit shall be
admissible on motor bus.

(3) In respect of motor vehicle used for the purpose of transportation of goods,
the same is not be covered under the ambit of blocked credit, hence input tax
credit shall be admissible in respect of such motor vehicles.

(4) As per Section 17(5) (b), no Input tax credit is available in respect of food and
beverages except where an inward supply of goods or services or both of a
particular category is used by a registered person for making an outward taxable
supply of the same category of goods or services or both or as an element of a
taxable composite or mixed supply or if provision of such goods or services is
obligatory for an employer to provide to its employees under any law for the time
being in force. Hence, no input tax credit is available on food and beverages
procured from Sweet Caterers for being used in dealer's meet.

(5) Since motor lorries meant for transportation of goods is not covered under
the ambit of blocked credit, hence services of repair and maintenance of motor
lorries is also eligible for credit.

(6) Services of general insurance of motor vehicles for transportation of persons

having approved seating capacity of 7 persons (including driver) shall not be
eligible for input tax credit since the same is covered under the ambit of blocked
credit under Section 17(5)(ab) of the CGST Act, 2017.

(7) Since Input tax credit is eligible for motor vehicles for transportation of
persons having approved seating capacity of 14 persons, hence services of
servicing of such motor vehicles shall be eligible for input tax credit.

BY CA/CS ASHISH DEOLASI 144

Illustration 3 - Input tax credit - Inputs: Determine the amount of Input tax
credit available to Posco Ltd. in respect of the following items procured by them
in the month of January, 20XX.

S. No. Item Input tax

paid [Rs.]

(i) Input used for the manufacture of the final product 72,000

(ii) Food and Beverages procured from Sweet Caterers for 48,000
being used in dealer's meet

(iii) Goods used for providing services during warranty period 12,000

(iv) Goods used for setting up Telecommunication Towers 90,000

being immovable property

(v) Inputs stolen from the factory Store 13,200

Solution: Computation of Input Tax credit available with Posco Ltd.:

Particulars Rs.

Input used for the manufacture of the final product 72,000

Food and Beverages procured from Sweet Caterers for [WN-1] 48000
being used in dealer's meet

Goods used for providing services during warranty period (Since 12,000
used in course of business hence, input tax credit shall be
available)

Goods used for setting up Telecommunication Towers [WN-2] Nil

being immovable property

Inputs stolen from the factory Store [WN-3] Nil

Total Input tax credit available 1,32,000

BY CA/CS ASHISH DEOLASI 145

Working Notes:

1. As per Section 17(5)(b), no Input tax credit is available in respect of food and
beverages except where an inward supply of goods or services or both of a
particular category is used by a registered person for making an outward
taxable supply of the same category of goods or services or both or as an
element of a taxable composite or mixed supply or if provision of such goods
or services is obligatory for an employer to provide to its employees under
any law for the time being in force. Since in this case food and beverages are
provided to employees under statutory obligation, Hence, input tax credit is
available.
2. As per Section 17(5)(d), Goods received by taxable person for construction of
an immovable property (other than Plant and Machinery) on his own account
including when such goods used in course or furtherance of business shall
be considered as ineligible input and no credit shall be allowed of tax paid on
such goods. Since Telecommunication tower is an immovable property, hence
no input tax credit shall be allowed in respect of goods used for setting it up.
3. As per Section 17(5) (h), Goods lost, stolen, destroyed, written off or disposed
of by way of gift or free samples are considered as ineligible input and credit
of GST paid on such goods cannot be taken.

Illustration 4 - Input tax credit - Inputs : Determine the amount of Input tax
credit admissible to PQR Ltd. in respect of the following goods procured by it in
the month of January, 20XX :

S. No. Item Input tax

paid [Rs.]
1. Goods used in constructing an additional floor of office 28,800
building
2. Packing Materials used in a factory 6,000
3. Goods destroyed due to natural calamities 12,500
4. Goods used for repairing the office building and cost of 12,000
such repairs is debited to profit and loss account

BY CA/CS ASHISH DEOLASI 146

5. Paper for photocopying machine used in Administrative 950
Office
6. Goods given as gifts 25,000
7. Inputs used for tests or quality control check 15,600
Solution: Computation of Input tax credit available with PQR Ltd.:

Particulars Rs.
Goods used in construction of an additional floor of [WN-1] Nil
office building
Packing Materials used in a factory (Since used in course of 6,000
business hence, input tax credit shall be available)
Goods destroyed due to natural calamities [WN-2] Nil
Goods used for repairing the office building and cost of [WN-3] 12,000
such repairs is debited to profit and loss account
Paper for photocopying machine used in Administrative Office 950
(Since used in course of business hence, input tax credit shall be
available)
Goods given as Gifts [WN-2] Nil
Inputs used for tests or quality control check (Since used in course 15,600
of business hence, input tax credit shall be available)
Total Input Tax credit available 34,550
Working Notes:

1. As per Section 17(5) (d), input tax credit shall not be available in respect of
goods or services or both received by a taxable person for construction of an
immovable property (other than plant or machinery) on his own account
including when such goods or services or both are used in the course or
furtherance of business. Hence, input tax credit shall not be available in
respect of goods used in construction of an additional floor of office building.
2. Section 17(5)(h), input tax credit shall not be available in respect of goods
lost, stolen, destroyed, written off or disposed of by way of gift or free samples.
Hence, no ITC shall be available in respect of goods destroyed due to natural
calamities.

BY CA/CS ASHISH DEOLASI 147

3. As per the explanation, the expression "Construction" includes re-
construction, renovation, additions or alterations or repairs, to the extent of
capitalisation, to the immovable property. Goods used for Revenue repairs
are considered as an eligible input and credit shall be allowed on the same.

Illustration 5 - Input tax credit - Inputs : Determine the amount of Input tax
credit admissible to P Ltd. in respect of the following items procured by them in
the month of November, 20XX:

S. No. Item Input tax

paid [Rs.]
1. Goods supplied for captive consumption in a factory 9,800
2. Goods purchased for being used in repairing the 18,000
factory shed and same has been capitalized in books
3. Cement used for making foundation and structural 14,000
support to Plant and Machinery
4. Inputs used in trial runs 14,560
5. Food and beverages purchased for the employees 8,400
during office hours
Solution: Computation of Input tax credit available with P Ltd.:

Particulars Rs.
Goods used for captive consumption (Since, used in course of 9,800
Business hence, input tax credit on same shall be admissible)
Goods purchased for being used in repairing the factory shed and Nil
same has been capitalized to the cost of factory Shed
[WN-1]
Cement used for making foundation and structural [WN-2] 14,000
support to Plant and Machinery
Inputs used in trial runs (Since used in course of 14,560
business hence, input tax credit shall be available)
Food and beverages purchased for the employees [WN-3] Nil
during office hours
Total Input tax credit available 38,360

BY CA/CS ASHISH DEOLASI 148

Working Notes:
1) As per Section 17(5)(d), input tax credit shall not be available in respect of
goods or services or both received by a taxable person for construction of an
immovable property (other than plant or machinery) on his own account
including when such goods or services or both are used in the course or
furtherance of business. Construction includes re-construction, renovation,
additions or alterations or repairs, to the extent of capitalization, to the said
immovable property. Since the cost of repairs is capitalized in books, no credit
of input tax paid on goods used shall be allowed.
2) As per Explanation to Section 17, "plant and machinery" means apparatus,
equipment, and machinery fixed to earth by foundation or structural support
that are used for making outward supply of goods or services or both and
includes such foundation and structural supports. Input tax credit is
admissible in respect of goods or services or both received by a taxable person
for construction of plant or machinery. Hence tax paid on cement shall be
available for input tax credit.
3) As per Section 17(5)(b), No input tax credit is available in respect of food and
beverages, outdoor catering, beauty treatment, health services, cosmetic and
plastic surgery except where an inward supply of goods or services or both of
a particular category is used by a registered person for making an outward
taxable supply of the same category of goods or services or both or as an
element of a taxable composite or mixed supply. Hence, no input tax credit is
available on food and beverages for use of employees during office hours.

Illustration 6 - Input Eligibility - Aircraft: An Elite Training institute provides

service of training pilot in flying commercial aircraft so that candidates become
eligible for obtaining Aviation license. Determine whether the institute is eligible
to take credit on aircraft purchased for imparting training.

Ans: As per Section 17(5)(aa), no credit of input tax shall be allowed on vessels
and aircraft except when they are used —

(i) for making the following taxable supplies, namely: —

(a) further supply of such vessels or aircraft; or

BY CA/CS ASHISH DEOLASI 149

(b) transportation of passengers; or

(c) imparting training on navigating such vessels; or

(d) imparting training on flying such aircraft;

(ii) for transportation of goods.

Since, Aircraft is used to impart training on flying, therefore credit of input tax
paid on purchase of aircraft shall be available to Elite Institute.

Illustration 7 - Input eligibility : Krishna Motors is a car dealer selling cars of

an international car company having seating capacity of 7 persons (excluding
driver). It also provides maintenance and repair services of the cars sold by it as
also of other cars. It seeks your advice on availability of ITC in respect of the
following expenses incurred by it during the course of its business operations:

(i) Cars purchased from the manufacturer for making further supply of such
cars. Two of such cars are destroyed in accidents while being used for test drive
by potential customers.

(ii) Works contract services availed for constructing a car washing shed in its
premises.

Ans: As per Section 16(1) of the CGST Act, 2017, every registered person can
take credit of input tax charged on any supply of goods or services or both to
him which are used or intended to be used in the course or furtherance of his
business. However, Section 17(5) of CGST Act, 2017 specifies certain goods and
services on which the input tax credit is not available.

In the light of the foregoing provisions, the availability of input tax credit (ITC) in
respect of the various expenses incurred by Krishna Motors is discussed below:

(i) Section 17(5)(a) specifically blocks ITC on motor vehicles for transportation of
persons having approved seating capacity of not more than thirteen persons
(including the driver),

BY CA/CS ASHISH DEOLASI 150

However, the same is allowed when the motor vehicles are used, inter alia,
for further supply of such motor vehicles. Thus, ITC on cars purchased from
the manufacturer for making further supply of such cars will be allowed.

However, ITC on the cars destroyed in accident will not be allowed as the
ITC on goods destroyed for whichever reason is specifically blocked under
Section 17(5)(h) of CGST Act.

(ii) Section 17(5) (c) specifically blocks ITC on works contract services when
supplied for construction of an immovable property (other than plant and
machinery) except where it is an input service for further supply of works
contract service. Since, in this case the car washing shed is not a plant and
machinery and the works contract service is not used for further supply of works
contract service, ITC thereon will not be allowed.

Illustration 8 - Input tax credit - Input: ABC Co. Ltd. is engaged in the
manufacture of heavy machinery. It procured the following items during the
month of July.
Inward supplies GST ( Rs.)
(i) Electrical transformers to be used in the manufacturing 3,60,000
process
(ii) Truck used for transportation of inputs in the factory 2,24,000
(iii) Raw material 2,00,000
(iv) Confectionery items for consumption of employees 25,000
working in the factory

Determine the amount of ITC available with ABC Co. Ltd., for the month of
July by giving necessary explanations for treatment of various items.

Note : (1) All the conditions necessary for availing the ITC have been fulfilled. (2)
ABC Co. Ltd. is not eligible for any threshold exemption.

BY CA/CS ASHISH DEOLASI 151

Solution: Computation of ITC available with ABC Co. Ltd. for the month of July

S. Particular Rs.
No

(i) Electrical transformers [WN-1] 3,60,000

(ii) Trucks used for the transport of inputs in the factory 2,24,000

[WN-2] 2,00,000

(iii) Raw material [WN-3] 25,000

Confectionery items for consumption of employees working

(iv) in the factory [WN-4]

Total Input tax credit available 8,09,000

Working Notes:
1) As per Section 16(1), ITC is admissible in respect of any goods used in the
course or furtherance of business. Hence, ITC is admissible in case of
electrical transformers and raw materials used in course or furtherance of
business.
2) As per Section 17(5)(a)(ii), Input tax credit is available of input tax paid on
Motor vehicles and other conveyances when they are used for transportation
of goods. Since, here, the truck is used for transportation of goods hence,
input tax credit shall be allowed on same.
3) Being goods used in the course or furtherance of business, ITC thereon is
available in terms of Section 16(1).
4) As per Section 17(5) (b), ITC on food or beverages is specifically disallowed
unless the same is used for making outward taxable supply of the same
category or as an element of the taxable composite or mixed supply or or
where it is obligatory for an employer to provide the same to its employees
under any law for the time being in force. Hence, input tax credit is
available on Confectionery items for consumption of employees working
in the factory, since the same is provided under statutory obligation.

BY CA/CS ASHISH DEOLASI 152

Illustration 9 - Input tax credit - Input and Input services : XYZ Ltd., is
engaged in manufacture of taxable goods. Compute the ITC available with XYZ
Ltd. for the month of October, 2020 from the following particulars:

S. Inward GST( Remarks

No. supplies Rs.)
(i) Inputs 1,20,000 One invoice on which GST payable was Rs.
'X' 10,000, is missing
(ii) Inputs 'Y 1,00,000 Inputs are to be received in two
instalments. First instalment has been
received in October, 2020.
(iii) Capital 1,80,000 XYZ Ltd. has capitalised the capital goods
goods at full invoice value inclusive of GST as it
will avail depreciation on the full invoice
value.
(iv) Input 2,50,000 One invoice dated 20-01-2020 on which
services GST payable was Rs. 50,000 has been
received in October, 2020.
Note:

(i) All the conditions necessary for availing the ITC have been fulfilled.

(ii) XYZ Co. Ltd. is not eligible for any threshold exemption.

(iii) The annual return for the financial year 2019-20 was filed on 15th
September, 2020.

Solution: Computation of ITC available with XYZ Ltd. for the month of
October, 2020 :

S. No. Inward supplies GST ( Rs.)

(i) Inputs 'X' [WN-1] 1,10,000
(ii) Inputs 'Y' Nil
(iii) Capital goods Nil
(iv) Input services 2,00,000
Total 3,10,000

BY CA/CS ASHISH DEOLASI 153

Working Notes:
1) ITC cannot be taken on missing invoice. The registered person should have
the invoice in its possession to claim ITC - Section 16(2)(a).
2) When inputs are received in instalments, ITC can be availed only on receipt
of last instalment-First proviso to Section 16(2).
3) Input tax paid on capital goods cannot be availed as ITC, if depreciation has
been claimed on such tax component - Section 16(3).
4) As per section 16(4), ITC on an invoice cannot be availed after the due date of
furnishing of the return for the month of September following the end of
financial year to which such invoice pertains or the date of filing annual
return, whichever is earlier.
Since the annual return for the FY 2019-20 has been filed on 15th September,
2020 (prior to due date of filing the return for September, 2020 i.e., 20th
October, 2020), ITC on the invoice pertaining to FY 2019-20 cannot be availed
after 15th September, 2020.

Illustration 10 - Input tax credit - Input services : Compute the Input tax
credit available with Ujjwal Motors Ltd., manufacturer of cars, in respect of the
following services availed by it in the month of October, 20XX:

S. Services billed Input tax

No. paid (Rs.)

(i) Accounting and Auditing Services 7,200

(ii) Health insurance services for employees (Services are not 16,200
provided under Government obligation)
(iii) Routine maintenance of the cars manufactured by Ujjwal 18,000
Motors Ltd.
(iv) Repair services for office building (cost of repairs is charged 14,400
to Profit and loss Account
(v) Hotel accommodation and Conveyance facility to employees 3,360
on vacation
(vi) Testing services availed for car engines 9,000

BY CA/CS ASHISH DEOLASI 154

Solution: Computation of Input tax credit available with Ujjwal Motors Ltd.:

Particulars Rs.

Accounting and Auditing Services (Input tax credit is eligible since 7,200
such services are used in course of business)

Health insurance services provided to employees (Services [WN-1] Nil

are not provided under Government obligation)

Routine maintenance of the cars manufactured by Ujjwal Motors 18,000

Ltd. (Input tax credit eligible since such services are used in course
of business)

Repair services for office building, cost of which is charged to profit 14,400
and loss Account (Repairs are revenue in nature, hence, credit of
tax paid shall be available)

Hotel accommodation and conveyance facility for [WN-2] 3360

employee on vacation

Testing services availed for car engines (Input tax credit is eligible 9,000
since such services are used in course of business)

Total Input tax credit available 51,960

Working Notes:
1) As per Section 17(5) (b) (iii), No input tax credit shall be available in respect
of health insurance services availed for employees since the Government has
not notified the said services as obligatory services to be provided to
employees.
2) As per Section 17(5)(b)(iii), Input tax credit shall be allowed on travel benefits
extended to employees on vacation since it is obligatory for an employer to
provide the same to its employees under any law for the time being in force.

BY CA/CS ASHISH DEOLASI 155

Illustration 11 - Input tax credit - Input services : XYZ Ltd. engaged in
supplying taxable goods has availed following services in month of September,
20XX. Compute the input tax credit admissible on such input services.

S. No. Services billed Input tax

paid (Rs.)

1. Sales promotion services 16,200

2. Health care services availed from Physic Club for 10,800

upkeep of health of their employees

3. XYZ Ltd. hired cab on rent for employees. 4,500

(Government has issued a notification for such service
to be mandatorily provided to employees.)

4. Market research services 10,080

5. Quality control services 18,000

6. Work contract services for construction of office 45,000

building

Solution: Computation of Input tax credit available with XYZ Ltd.:

Particulars Rs.

Sales promotion services [WN-1] 16,200

Health care services availed from Physique Club for [WN-2] Nil
upkeep of health of their employees

XYZ Ltd. hired cab on rent for employees as an obligation [WN-3] 4,500
by government notification

Market research services [WN-1] 10,080

Quality control services [WN-1] 18,000

Work contract services for construction of office building Nil

(Not considered as eligible input service)

Total Input tax credit available 48,780

BY CA/CS ASHISH DEOLASI 156

Working Notes:
1) As per the Section 2(60), "Input service" means any service used or intended
to be used by a supplier in the course or furtherance of business. So, services
like—
a) Sales promotion services;
b) Market research services;
c) Quality control services,

are used by supplier in course or furtherance of business. Hence, the credit of

the tax paid on the aforesaid supply of services is available.
1) As per Section 17(5)(b), No input tax credit is available in respect of food
and beverages, outdoor catering, beauty treatment, health services,
cosmetic and plastic surgery except where an inward supply of goods or
services or both of a particular category is used by a registered person for
making an outward taxable supply of the same category of goods or
services or both or as an element of a taxable composite or mixed supply.
Thus, no input tax credit shall be admissible on health care services
provided to employees.
2) As per section 17(5)(b), since the government has notified cab services as
obligatory services to be provided to employees, hence credit of tax paid on
such service shall be allowed.

Illustration 12 - ITC implication when inputs are written off: XYZ Ltd., a
manufacturer, which is engaged in supply of taxable goods has purchased
10,000 kg of inputs for Rs. 10,00,000 (exclusive of CGST @ 6% and SGST @ 6%)
on which input tax credit has been taken. Due to technical changes in
manufacturing process, the said inputs became obsolete and their value has
been written off in the books of accounts. Explain Input tax credit treatment in
above case.

Solution: As per Section 17(5)(h) of the CGST Act, 2017, if the value of any goods
is written off in the books of account, then no input tax credit shall be allowed
in respect of the said input. Where input tax credit has been taken in respect of
the said goods, the same has to be paid by recipient of input goods. Since in the
given case, XYZ Ltd. has availed input tax credit, thus it has to pay Rs. 60,000
(Rs. 10,00,000 @ 6%) towards CGST and Rs. 60,000 towards SGST liability.

BY CA/CS ASHISH DEOLASI 157

Illustration 13 - Eligibility of ITC : XYZ Ltd. is engaged in supply of works
contract services. It gives a part of the construction work to a sub-contractor.
The sub-contractor charges GST in his invoice to XYZ Ltd. You are required to
advice XYZ Ltd. if it can avail Input tax credit of the GST charged to it by the
sub-contractor.

Solution: As per Section 17(5)(c), input tax credit shall not be available in respect
of works contract services when supplied for construction of an immovable
property. However, credit is allowed where it is an input service for further supply
of works contract service. In the given case, the services supplied by the sub-
contractor have been used by the XYZ Ltd. for supply of works contract service.
Hence, XYZ Ltd. can avail the Input tax credit of the GST charged on the input
service provided by the sub-contractor.

Illustration 14 - Eligibility of ITC : XYZ Ltd. is engaged in supply of passenger

transportation services. In the month of September, 20XX, it has purchased two
motor vehicles for Rs. 36,00,000 plus GST @ 28%. You are required to advice
XYZ Ltd. if it can avail Input tax credit of the GST paid by it on motor vehicles.

Solution: As per Section 17(5) (a), input tax credit shall not be available in
respect of Motor vehicles and other conveyances. However, credit will be available
when they are used for making the taxable supplies of transportation of
passengers. In this case XYZ Ltd. is engaged in transportation of passengers it
will be entitled to take credit of GST amounting Rs. 10,08,000 i.e. [Rs.
36,00,000 × 28%]

Illustration 15 - Eligibility of ITC: XYZ Ltd. conducted its 50th Annual General
meeting at its head office in New Delhi and availed services of Delicious caterers
on that occasion. Delicious caterers charged Rs. 15,00,000 plus GST @ 18% for
the supply of outdoor catering services. You are required to advice XYZ Ltd. if it
can avail Input tax credit of the GST paid on outdoor catering service.

BY CA/CS ASHISH DEOLASI 158

Solution: As per Section 17(5)(b), input tax credit shall not be available in
respect of supply of outdoor catering service unless inward supply of such
services is used by a registered person for making an outward taxable supply of
the same category of goods or services or both or as an element of a taxable
composite or mixed supply or where it is obligatory for an employer to provide
the same to its employees under any law for the time being in force. Hence, XYZ
Ltd. is not entitled to avail ITC of GST paid on outdoor catering services availed
from Delicious caterers.

Illustration 16 - ITC in case of Banking Company and Financial Institution

including NBFC: Punjab National Bank provides the following information for
the month of November, 20XX :

Particulars CGST paid SGST paid

(Rs.) (Rs.)

Eligible Input tax Credit (CGST and SGST) 16,020 16,020

available on Inputs received
Eligible Input tax Credit (CGST and SGST) 11,340 11,340
available on Input
Services availed Value of taxable supply of
11,00,000 -
services
Value of exempted supply of services
10,00,000 -
Determine the amount of Input tax credit available to Punjab National Bank for
the month of November, 20XX and also determine net SGST and CGST liability.

Solution: As per Section 17(4), every banking company or a financial institution,

including a non-banking financial company, engaged in supply of services by
way of accepting deposits or extending loans or advances has the option either
to avail of, every month, an amount equal to 50% of the eligible input tax credit
on inputs, capital goods and input services in that month or to comply with the
provisions of Section 17(2) of taking credit of inputs and input services used for
making taxable supplies.

BY CA/CS ASHISH DEOLASI 159

 Option I: In case the Bank opts for option to avail 50% Eligible ITC under
Section 17(4)
(amt in Rs.)

Particulars CGST SGST

paid paid
Total Eligible Input tax credit available 27,360 27,360
Less: Amount of input tax credit credited to electronic 13,680 13,680
ledger (50% of eligible input tax credit on inputs, input
services and capital goods) i.e., Rs. 27,360 x 50%
Remaining input tax credit Lapsed 13,680 13,680

Determination of Net Tax liability of Bank for the month of November, 20XX
(Amt in Rs.):

Particulars CGST SGST Total

@9% @9% GST

liability

Tax liability of bank before availing eligible 99,0 99,0 1,98,00

Input Tax Credit on taxable supply of services 00 00 0
of Rs. 11,00,000

Less: Net/Eligible CGST Credit available on 13,6 - 13,680

Inputs/Input services 80

Less: Net/Eligible SGST Credit available on - 13,6 13,680

Inputs/Input services 80

Net output Tax liability of bank after 85,3 85,3 1,70,6

availing eligible Input tax Credit 20 20 40

BY CA/CS ASHISH DEOLASI 160

 Option II: In case Punjab National Bank opted to comply with the
provisions of Section 17(2) (amt in Rs.):

Particulars CGST SGST

paid paid
Amount of input tax credit credited to electronic 27,360 27,360
ledger
As per Rule 42 of CGST Rules, 2017, Credit of CGST 13,029 -
paid on input/input services attributable towards
Exempted supplies to be added to output tax
liability = Rs. 27,360 x Rs. 10,00,000/ Rs.
21,00,000
Similarly, the Credit of SGST paid on input/input - 13,029
services attributable towards Exempted supplies to
be added to output tax liability = Rs. 27,360 x Rs.
10,00,000/ Rs. 21,00,000

Determination of Net Tax liability of Bank for the month of November, 20XX
(Amt in Rs.):

Particulars CGST SGST Total GST

@9% @9% liability @
18%
Tax liability of bank before availing 99,000 99,000 1,98,000
eligible Input tax Credit on taxable
supply of services of Rs. 11,00,000
Add: CGST /SGST Credit to be added to 13,029 13,029 26,058
output tax liability
Less: CGST/ SGST Credit available on 27,360 27,360 54,720
Inputs/Input services
Net output Tax liability of bank after 84,669 84,669 1,69,338
availing eligible ITC

BY CA/CS ASHISH DEOLASI 161

Illustration 17 - Eligibility of ITC : Yes Bank, having a branch in Jaipur
engaged in supply of services by way of accepting deposits and extending loans
opted for the option to avail credit of 50% of input tax of the month to which
input tax relates under Section 17(4). Its head office is in Mumbai and branch
in Ahmedabad. Input tax Credit (CGST & SGST) available for the month August,
20XX is Rs. 90,000 which includes :

Total Input Tax Credit includes credit relating to —

Particulars Input tax (Rs.)

[CGST & SGST]

(1)Services availed from its distinct establishment i.e., from 18,000

Mumbai Head office

(2) Outdoor catering services received for its employees 14,400

(3) Goods that has obsolete and whose value has been 2,500
written off in books

(4) Auditing Services 22,500

(5) Goods which are used for personal use of employees 6,500

Determine the amount of input tax credit of August, 20XX that can be
availed by Yes bank.

Solution: As per Section 17(4), every banking company or a financial institution,

including a non-banking financial company, engaged in supply of services by way
of accepting deposits or extending loans or advances which is not opting for
provisions of Section 17(2), has the option to avail of, every month, an amount
equal to 50% of the eligible input tax credit on inputs, capital goods and input
services in that month and the rest shall lapse.

BY CA/CS ASHISH DEOLASI 162

Since, Yes bank has availed an option to avail every month, an amount equal to
50% of the eligible input tax credit on inputs, capital goods and input services in
that month and rest shall lapse. Therefore, in given case —

Computation of Eligible Input tax Credit for August, 20XX:

Particulars Eligible
Input tax
Credit (Rs.)

Input tax credit available [excluding input tax credit availed from 72,000
its Mumbai Head office] [Rs. 90,000 - Rs. 18,000]

Less: Credit relating to —

- Outdoor catering services received for its employees (credit 14,400

is not available u/s 17(5)).

- Goods that has obsolete and whose value has been written 2,500
off in books [Credit is not available u/s 17(5)]

- Auditing Services NIL

- Goods received which are used for personal use 6,500

Total Eligible Input tax Credit Available 48,600

50% of Eligible Input tax credit shall be availed by Yes bank [A] 24,300

Input tax on Supply of services availed from its distinct 18,000

establishment i.e., from Mumbai Branch [50% restriction not
applicable hence full input tax credit can be availed]
[B]

Total Eligible Input tax Credit Available in respect of CGST 42,300

& SGST [A] + [B]

Amount of Input tax credit lapsed 24,300

BY CA/CS ASHISH DEOLASI 163

 CHAPTER

8
composition levy

EXPLAIN THE PROVISIONS RELATING TO COMPOSITION SCHEME UNDER

CGST ACT, 2017.

Ans: The provisions relating to Composition scheme under CGST Act, 2017 are
discussed as under-

(1) Optional Scheme

Tax payment under this scheme is an option available to the taxable person. This
scheme would be available only to certain eligible taxable persons.

(2) Eligibility - If aggregate turnover is upto Rs. 1.5 crore/ Rs. 75 lakh in
preceding financial year [Section 10(1)] :

A registered person, whose aggregate turnover in the preceding financial year did
not exceed Rs. 1.5 crore, will be eligible to opt for payment of tax under the
composition scheme.

However, the aggregate turnover in the preceding financial year shall be Rs. 75
lakh in the case of an eligible registered person, registered under Section 25 of
the said Act, in any of the following States, namely:-

Special Category States

Arunachal Pradesh Nagaland
Manipur Sikkim
Meghalaya Tripura
Mizoram Uttarakhand

Note: In case of Assam, Himachal Pradesh and Jammu and Kashmir, the
turnover limit will be Rs. 1.5 crore.

BY CA/CS ASHISH DEOLASI 164

 Meaning of Aggregate turnover [Section 2(6)]
"Aggregate turnover" means the aggregate value of -

 all taxable supplies (excluding the value of inward supplies on which tax is
payable by a person on reverse charge basis),
 exempt supplies,
 exports of goods or services or both, and
 inter-State supplies
of persons having the same Permanent Account Number, to be computed
on all India basis,
but excludes –

 Central tax,
 State tax,
 Union territory tax,
 Integrated tax, and
 Cess
Explanation: - For the purpose of “COMPUTING AGGREGATE TURNOVER of a
person for determining his eligibility to pay tax under this action, the expression
“aggregative turnover” shall include –
i. the value of supplies made by such person from the 1st day of April of a
financial year up to the date when he becomes liable for registration under
this act,
ii. but shall not include the amount of interest or discount earned on loans,
advances or deposits extended. [Explanation inserted by Finance (No. 2)
Act, 2019, w.e.f. 01.01.2020]
Explanation: - For the purpose of “COMPUTING THE TAX PAYABLE” by a
person under this section, the expression “turnover in state or turnover in
Union territory” shall not include the value of following supplies, namely:-
i. Supplies from the first day of April of a financial year up to the date when
such person become liable for registration under this Act; and
ii. Amount of interest or discount earned on loans, advances or deposits
extended.
[Explanation inserted by Finance (No. 2) Act, 2019, w.e.f.01.01.2020]

BY CA/CS ASHISH DEOLASI 165

Example – Mr. Akash Start the business in Nagpur, Maharashtra, on 10th April
20XX, The Turnover from 10th April 20XX to 30th June 20XX, is 20 Lakhs (Till
this date he is not liable to register under GST) And Turnover from 1st July
to 31st March 20XX is 1.32 Crore, Whether he is eligible to opt composition
scheme in next financial year? –

Ans – No, Because his Total turnover for previous FY is 1.51 Crore.

Example - Mrs. Dharti Start the business in Nagpur, Maharashtra, on 10th April
20XX, The Turnover from 10th April 20XX to 31st March 20XX is 1.52 Crore, It
includes 5 Lakhs by way of interest or discount earned on loans, advances
Whether she is eligible to opt composition scheme in next financial year?
–

Ans – Yes, because her Total turnover for previous FY is 1.47 Crore.

(3) Scheme will be applicable for all goods: Composition scheme may be opted
for by taxable persons, in respect of supply of any goods (without any reference
to classification or type of goods). It must be noted that a taxable person cannot
opt for payment of taxes under composition scheme say for supply of class of
goods and opt for regular scheme of payment of taxes for supply of other classes
of goods.

(4) Rates of composite tax [Section 10(1)]: The rates of tax under composition
scheme are –

S. Eligible Rate of Tax cannot exceed Total rate of tax

No. Person (% of turnover) cannot exceed (% of
Turnover in State or
CGST SGST turnover in UT)
1 Manufacturer 0.5% 0.5% 1%
2 Restaurant 2.5% 2.5% 5%
service
3 Other 0.5% 0.5% 1%
Suppliers

BY CA/CS ASHISH DEOLASI 166

Services can be supplied by the composition suppliers [Second Proviso to
Section 10(1)]:

A person who opts to pay tax under (1) or clause (2) or clause (3) may supply
services other than restaurant services, of value -

a. not exceeding 10% of turnover in a State or Union territory in the preceding

financial year; or
b. Rs. 5,00,000, whichever is higher.

Example : Hariram is engaged in supply of goods. His aggregate turnover in

preceding FY is Rs. 110 lakh. Since his aggregate turnover in the preceding FY
does not exceed Rs. 1.5 crore, he is eligible for composition scheme in current
FY. Further, in current FY, he can supply services [other than restaurant
services] upto a value of not exceeding:

(a) 10% of Rs. 110 lakh, i.e. Rs. 11 lakh OR

(b) Rs. 5 lakh,

whichever is higher. Thus, he can supply services upto a value of Rs. 11 lakh
in current FY. If the value of services supplied exceeds Rs. 11 lakh, he becomes
ineligible for the composition scheme and has to opt out of the composition
scheme.

Turnover in State or Turnover in Union territory [Section 2(112)] : "Turnover

in State" or "turnover in Union territory" means the aggregate value of all taxable
supplies (excluding the value of inward supplies on which tax is payable by a
person on reverse charge basis) and exempt supplies made within a State or
Union territory by a taxable person, exports of goods or services or both and
inter-State supplies of goods or services or both made from the State or Union
territory by the said taxable person but excludes central tax, State tax, Union
territory tax, integrated tax and cess.

BY CA/CS ASHISH DEOLASI 167

For the purpose of computing limit of “10% of turnover in a state or Union
territory in the preceding financial year”, the interest or discount earned on
loans, advances or deposits shall not be taken into account for determining the
value of turnover in a state or Union territory.

Example : Sairam is engaged in supply of goods. His aggregate turnover in

preceding FY is Rs. 84 lakh. This include income by way of interest on loans and
advances to the tune of Rs. 4 Lakhs. State the value he can supply for service
services [other than restaurant services].

Ans - Since his aggregate turnover in the preceding FY does not exceed Rs. 1.5
crore, he is eligible for composition scheme in current FY. Further, in current
FY, he can supply services [other than restaurant services] upto a value of not
exceeding:

(a) 10% of Rs. 80 lakh, i.e. Rs. 8 lakh OR

(b) Rs. 5 lakh,

whichever is higher. Thus, he can supply services upto a value of Rs. 8 lakh
in current FY. If the value of services supplied exceeds Rs. 8 lakh, he becomes
ineligible for the composition scheme and has to opt out of the composition
scheme.

(5) Persons not eligible to opt for composition scheme [Section 10(2)]

Broadly, SIX categories of registered person are NOT ELIGIBLE to opt for the
composition scheme. These are:-

a. supplier of services other than those mentioned in point No. 4

b. supplier of goods which are not taxable under the CGST Act/SGST
Act/UTGST Act;
c. an inter-State supplier of goods;
d. person supplying goods through an electronic commerce operator who is
required to collect tax at source under section 52;

BY CA/CS ASHISH DEOLASI 168

e. Manufacturer of certain notified goods. And;
f. He is a casual taxable person or a non- resident taxable person. Note- Earlier
point (f) was also there, But it was given in RULES, Now this is included in
Act.

Ineligible Manufacturers : The manufacturer of following goods will not be

eligible to opt for composition scheme :

S. Tariff item, Description

No. subheading, heading or
Chapter
1. 2105 00 00 Ice cream and other edible ice, whether or
not containing cocoa
2. 2106 90 20 Pan masala
2A 22021010 Aerated Water
3. 24 All goods, i.e. Tobacco and manufactured
tobacco substitutes

There is no restriction on Composition Supplier to procure goods from

inter-State suppliers.

(6) Applicable for all transactions of registered person with same PAN
[Section 10(2)] :

All registered persons having the same Permanent Account Number (PAN) have
to opt for composition scheme. If one registered person opts for normal scheme,
others become ineligible for composition scheme.

For example: If a taxable person has the following businesses separately

registered—

 Sale of footwear (Registered in Karnataka)

 Sale of mobiles (Registered in Karnataka)
 Sale of ready-made garments (Registered in Rajasthan)

BY CA/CS ASHISH DEOLASI 169

In the above scenario, the composition scheme would be applicable for all the 3
units. Taxable person will not be eligible to opt for composition scheme say for
sale of footwear and sale of mobiles and opt to pay taxes under the regular
scheme for Ready-made garments.

(7) Option lapses if aggregate turnover exceeds Rs. 1.5 crore/ Rs. 75 lakh
[Section 10(3)] : The benefit of composition scheme can be availed up to the
aggregate turnover of Rs. 1.5 crore/ Rs. 75 lakh in current financial year. The
option availed of by a registered person under Section 10(1) shall lapse with effect
from the day on which his aggregate turnover during a financial year exceeds the
limit of Rs. 1.5 cror Rs. 75 lakh.

(8) Composition tax not to be collected from recipients [Section 10(4)] : A

taxable person to whom the provisions of composition scheme applies shall not
collect any tax from the recipient on supplies made by him. It means that a
composition scheme supplier cannot issue a tax invoice.

(9) Input tax credit cannot be availed [Section 10(4)] : A taxable person to
whom the provisions of composition scheme applies shall not be entitled to any
credit of input tax.

(10) Penal consequences [Section 10(5)]: If the proper officer has reasons to
believe that a taxable person has paid tax under composition scheme despite not
being eligible, such person shall, in addition to any tax that may be payable by
him under any other provisions of this Act, be liable to a penalty and the
provisions of Section 73 or Section 74 shall be applicable for determination of
tax and penalty.

(11) Composition scheme not applicable for tax payable under Reverse
Charge Mechanism (RCM): It is important to note that for any tax payable under
reverse charge mechanism, the option of payment under this scheme will not be
available. Rate of tax payable on supplies taxable under RCM will be regular
rates and not the composition rate.

BY CA/CS ASHISH DEOLASI 170

(12) Customer not entitled to take credit of composition tax: Customer who
buys goods from registered person who is under composition scheme is not
eligible for composition input tax credit because a composition scheme supplier
cannot issue a tax invoice.

2. STATE THE CLARIFICATIONS MADE VIDE CGST (REMOVAL OF

DIFFICULTIES ORDER), 2019 ORDER NO. 01/2019-CT DATED 01-02-2019,
IN RESPECT OF COMPOSITION SCHEME?

Ans: W.e.f. 1-2-2019, a taxable person opting for composition scheme is allowed
to supply services upto 10% of his turnover of previous financial year or Rs.
5,00,000 whichever is higher. CGST (Removal of Difficulties Order), 2019 Order
No. 1/2019-CT dated 01-02-2019 has been issued to provide that the value of
supply of exempt services by way of extending deposits, loans or advances in so
far as the consideration is represented by way of interest or discount, shall not
be taken into account—

i. for determining the eligibility for composition scheme under second proviso
to Section 10(1) [which allows provision of services upto 10% of turnover in
a State or Union territory in the preceding financial year; or Rs. 5,00,000,
whichever is higher];
ii. in computing aggregate turnover in order to determine eligibility for
composition scheme.

Illustration 1 - Eligibility under composition levy: Bhagyalaxmi traders is

engaged in trading of goods within the state of Maharashtra. In the preceding
financial year, it has a turnover of Rs. 140 lakh from the trading of goods.
Further, it has also earned a bank interest of Rs. 20 lakh from the fixed deposits.
Bhagyalaxmi traders wishes to opt for composition scheme in the current year.
You are required to advise Bhagyalaxmi traders on the same. Would your answer
be different if Bhagyalaxmi traders is also engaged in supply of farm labour and
the turnover from the said activity is Rs. 14 lakh?

BY CA/CS ASHISH DEOLASI 171

Ans: The eligibility of Bhagyalaxmi traders under composition scheme is
discussed as under –

 Eligiblity under Composition scheme: As per Section 10(1) of the CGST Act,
2017, a registered person, engaged in trading of goods and supplier of
services whose aggregate turnover in the preceding financial year did not
exceed Rs. 1.5 crore, may opt to pay, in lieu of the tax payable by him, an
amount calculated at the specified rates.

CGST (Removal of Difficulties Order), 2019 Order No. 1/2019-CT dated 01-
02-2019 has been issued to provide that the value of supply of exempt
services by way of extending deposits, loans or advances in so far as the
consideration is represented by way of interest or discount, shall not be taken
into account -

a. for determining the eligibility for composition scheme under second

proviso to Section 10(1) [which allows provision of services upto 10% of
turnover in a State or Union territory in the preceding financial year; or
Rs. 5,00,000, whichever is higher];
b. in computing aggregate turnover in order to determine eligibility for
composition scheme.

Thus, in computing his aggregate turnover in order to determine his eligibility

for composition scheme, value of supply of any exempt services by way of
extending deposits, loans or advances in so far as the consideration is
represented by way of interest or discount, shall not be taken into account.

 Bhagyalaxmi traders is eligible for composition scheme: In the given case,

the services provided by Bhagyalaxmi traders apart from trading of goods,
viz. services by way of extending deposits where the consideration is
represented by way of interest shall not be taken into account for
computation of aggregate turnover for determination of eligibility of
composition scheme. Since the aggregate turnover of Bhagyalaxmi traders do
not exceed Rs. 1.5 crores in preceding financial year, it shall be eligible to opt
for composition scheme.

BY CA/CS ASHISH DEOLASI 172

 Bhagyalaxmi traders is not eligible for composition scheme : However, if
Bhagyalaxmi traders is also engaged in supply of farm labour, it will not be
eligible for composition levy since as per Order No. 01/2019-CT only value of
supply of exempt services by way of extending deposits, loans or advances in
so far as the consideration is represented by way of interest or discount, shall
not be taken into account. Other exempt services shall be taken into account.
Since its aggregate turnover is Rs. 1.54 crores in preceding financial year it
will not be eligible to opt for composition scheme.

Composition levy for supplier of services (Optional Scheme)

Option to pay concessional tax @ 3% [Section 10(2A)]

With effect from 01.04.2019, a registered person whose aggregate turnover in

the preceding financial year is upto Rs.50 lakh and who is not eligible to pay tax
under composition scheme, to pay tax @ 3% on first supplies of goods and/or
services upto an aggregate turnover of Rs. 50 lakh.

Conditions:

1. Supplies are made by a registered person who is:

 not engaged in making any supply which is not leviable to tax under the
said Act.
 not engaged in making any inter-State outward supply – neither of goods
nor of services.
 neither a casual taxable person nor a non-resident taxable person.
 not engaged in making any supply through an electronic commerce
operator who is required to collect tax at source under section 52.
 not engaged in making supplies of notified goods, namely, ice cream and
other edible ice, whether or not containing cocoa [2105 00 00], Pan masala
[2106 90 20] and all goods of Chapter 24, i.e. Tobacco and manufactured
tobacco substitutes.

BY CA/CS ASHISH DEOLASI 173

2. The registered person shall not collect any tax from the recipient on supplies
made by him nor shall he be entitled to any credit of input tax.
3. The registered person shall issue a bill of supply** instead of tax invoice.
Such bill of supply will have the following words at its top - ‘taxable person
paying tax in terms of Notification No. 2/2019 CT (R) dated 07.03.2019, not
eligible to collect tax on supplies’.

**Order No. 3/2019 CT dated 08.03.2019 has clarified that provisions of

section 31(3)(c) of the CGST Act, 2017 [containing provisions relating to
Bill of Supply] shall also apply to a person paying tax under this
notification.

Other significant points:

1. Where more than one registered persons are having the same PAN, CGST on
supplies by all such registered persons is paid @ 3% under this notification.
2. The registered person opting to pay CGST@ 3% under this notification shall
be liable to pay:
 CGST @ 3% on all outward supplies - first supplies of goods or services
or both upto an aggregate turnover of Rs.50 lakh made on or after the 1st
April in any FY – regardless of any exemption from tax available to such
supplies or any notification issued under section 9(1).
 CGST on inward supplies on which he is liable to pay tax under section
9(3)/9(4) (reverse charge) at the applicable rates.
3. In computing aggregate turnover in order to determine eligibility of a
registered person to pay central tax @ 3% under this notification, value of
supply of exempt services by way of extending deposits, loans or advances in
so far as the consideration is represented by way of interest or discount, shall
not be taken into account.

BY CA/CS ASHISH DEOLASI 174

4. Where any registered person who has availed of ITC opts to pay tax under
this notification, he shall pay an amount, by way of debit in the electronic
credit ledger or electronic cash ledger, equivalent to the ITC in respect of
inputs held in stock and inputs contained in semi-finished or finished goods
held in stock and on capital goods as if the supply made under this
notification attracts the provisions of section 18(4) of the CGST Act and the
rules made thereunder and after payment of such amount, the balance of
input tax credit, if any, lying in his electronic credit ledger shall lapse.
5. The CGST Rules, 2017, as applicable to a person paying tax under
composition scheme shall, mutatis mutandis, apply to a person paying tax
under this notification. In view of this provision, Circular No. 97/16/2019
GST dated 05.04.2019 has clarified that provisions contained in Chapter II
[Composition Levy] of the CGST Rules shall mutatis mutandis apply to
persons paying tax by availing the benefit of this notification, except to the
extent specified below:
a. the option of payment of tax by availing the benefit of this notification in
respect of any place of business in any State/UT shall be deemed to be
applicable in respect of all other places of business registered on the same
PAN.
b. the option to pay tax by availing the benefit of this notification would be
effective from the beginning of the FY or from the date of registration in
cases where new registration has been obtained during the FY.

First supplies of goods or supplies or both shall, for the purposes of determining
eligibility of a person to pay tax under this notification, include the supplies from
1st April of a FY to the date form which he becomes liable for registration under
said Act but for the purpose of determination of tax payable under this
notification shall not include the supplies from the first day of April of a financial
year to the date form which he becomes liable for registration under the Act.

BY CA/CS ASHISH DEOLASI 175

Any assesses can opt for composition levy scheme under section
10(2A), If –

 His aggregate turnover in the preceding financial year was fifty lakh rupees
or below
 He is not eligible to pay tax under sub-section (1) of section 10 of the said
Act;
 He is not engaged in making any supply of goods or services which are not
leviable to tax under this Act;
 He is not engaged in making any inter-State outward supplies of goods or
services;
 He is not engaged in making any supply of goods or services through an
electronic commerce operator who is required to collect tax at source under
section 52;
 He is neither a casual taxable person nor a non-resident taxable person; and

He is not manufacturer of such goods or supplier of such services as may be

notified by the Government on the recommendations of the Council.

BY CA/CS ASHISH DEOLASI 176

 CHAPTER

9
VOUCHER ENTRIES

ACCOUNTING VOUCHERS
[Link] 9 is pre-programmed with a variety of accounting vouchers, each
designed to perform a different job. The standard Accounting Vouchers are:

 Contra Voucher (F4)

 Payment Voucher (F5)
 Receipt Voucher (F6)
 Journal Voucher (F7)
 Sales Voucher /Invoice (F8)
 Credit Note Voucher (CTRL+ F8)
 Purchase Voucher (F9)
 Debit Note Voucher (CTRL+ F9)

You can alter these vouchers to suit your company, and also create new ones.
Read ahead to understand the function of each voucher type.

You can alter these vouchers to suit your company, and also create new ones.
Note: We will understand this vouchers with practical entries.

BY CA/CS ASHISH DEOLASI 177

Let’s start preparing a company in Tally in detail by taking a
practical example.
There is a Company named CAP & Co.

It has 2 Partners –

a. Ashish Deolasi

b. Pritee Deolasi

Both of them brings a capital of Rs. 75,000 each to start the Business.

Let’s take entries

1. Cash A/c______________Dr. 75000

To Ashish Deolasi (Capital) 75000

2. Cash A/c______________Dr. 75000

To Pritee Deolasi (Capital) 75000

BY CA/CS ASHISH DEOLASI 178

How to Enable Accounts Only Feature in Tally??
 From Gateway of Tally, go to Features by pressing F11 and you will see a
menu as in the picture below.

 Now, go to Accounting Features and you will see a screen which is called
Company Operations Alteration.
 You will see an option Maintain Accounts Only?
Press Y to choose Maintain Accounts Only or Press N, if you want to choose
Integrate Accounts and Inventory.

BY CA/CS ASHISH DEOLASI 179

 Then Press F3 for Statutory and Taxation.

 You will see two options:

a. Enable Goods and Services Tax (GST)
b. Set/alter GST details
First, we will enable GST in Tally and then we will Set the GST Details.
 Press Y in the option Enable Goods and Services Tax (GST) and press
Enter.
 Press Y against the Set/alter GST details option and press Enter.
You will see the Company GST Details screen as shown in the picture below.
You will have to fill all the details.

BY CA/CS ASHISH DEOLASI 180

SALES/RECEIPTS ENTRIES (F8)
Every business involves sales of goods or services. The sales
transactions in your business may be a simple cash sale, or even
sales on credit. For each sales transaction, you will need to keep a
record of the items that you sold, the payment that you received,
goods returned, and so on.
The invoice also serves as a proof of the purchase made by the buyer.
Using [Link] 9, you can do all of these and more. Moreover, you
can view reports any time you need to understand the sales
performance of your business.

Single Entry Mode & Double Entry Mode

To change the voucher mode in Sales & Purchases use the Shortcut Key CTRL+V
for As Invoice Mode or As Voucher Mode.

1. AS INVOICE

BY CA/CS ASHISH DEOLASI 181

2. AS VOUCHER

To use debit/credit instead of to/by during entry press F12 set this
option to Yes.

BY CA/CS ASHISH DEOLASI 182

Here we will explain you the various types of Sales Entries with
Invoices.
1. Registered Dealer (RD) Unregistered Dealer (URD)

BY CA/CS ASHISH DEOLASI 183

2. Registered Dealer (RD) Registered Dealer (Intra-state)

BY CA/CS ASHISH DEOLASI 184

3. Registered Dealer (RD) Registered Dealer (Inter-state)

BY CA/CS ASHISH DEOLASI 185

4. Registered Dealer (RD) Registered Dealer (Exempt)

BY CA/CS ASHISH DEOLASI 186

5. Registered Dealer (RD) Unregistered Dealer (Exempt)

BY CA/CS ASHISH DEOLASI 187

PURCHASE ENTRIES

1. Registered Dealer (RD) Unregistered Dealer (URD)

BY CA/CS ASHISH DEOLASI 188

2. Registered Dealer (RD) Registered Dealer (Intra-state)

BY CA/CS ASHISH DEOLASI 189

3. Registered Dealer (RD) Registered Dealer (Inter-state)

BY CA/CS ASHISH DEOLASI 190

4. Unregistered Dealer Registered Dealer

BY CA/CS ASHISH DEOLASI 191

BY CA/CS ASHISH DEOLASI 192
5. Registered Dealer (RD) Registered Dealer (Composition)

BY CA/CS ASHISH DEOLASI 193

6. Registered Dealer (RD) Registered Dealer (Exempt)

BY CA/CS ASHISH DEOLASI 194

DEBIT NOTE/CREDIT NOTE
For using debit and credit notes in Tally, you would have enable
them. To enable the option for debit and credit notes in Tally, follow
the steps below.
 From Gateway of Tally, press F11 – Shortcut for Company
Features
 Now select, Accounting Features.
 Under Invoicing, set the option Use debit/credit notes to YES.
 Also set YES for:
 Use invoice mode for credit notes
 Use invoice mode for debit notes
SALES RETURN/CREDIT NOTE (Ctrl + F8)

BY CA/CS ASHISH DEOLASI 195

BY CA/CS ASHISH DEOLASI 196
PURCHASE RETURN/DEBIT NOTE (Ctrl + F9)
Original Invoice

BY CA/CS ASHISH DEOLASI 197

DEBIT NOTE

BY CA/CS ASHISH DEOLASI 198

BY CA/CS ASHISH DEOLASI 199
OTHER EXPENSES/PURCHASE BILLS

BY CA/CS ASHISH DEOLASI 200

BY CA/CS ASHISH DEOLASI 201
BY CA/CS ASHISH DEOLASI 202
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ENTRIES RELATED TO CAR PURCHASE

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EXPENSES
Electricity Expenses

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Business Promotion Expense

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Repair & Maintenance

BY CA/CS ASHISH DEOLASI 216

Refreshment Expenses

BY CA/CS ASHISH DEOLASI 217

Software Renewal Expenses

BY CA/CS ASHISH DEOLASI 218

Internet Expenses

BY CA/CS ASHISH DEOLASI 219

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Printing & Stationary

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NMC TAX EXPENSES

BY CA/CS ASHISH DEOLASI 224

Telephone Expenses

BY CA/CS ASHISH DEOLASI 225

BY CA/CS ASHISH DEOLASI 226
DEBIT VOUCHER & CREDIT VOUCHER
Printing Expense

BY CA/CS ASHISH DEOLASI 227

Salary

BY CA/CS ASHISH DEOLASI 228

Petrol/Conveyance

BY CA/CS ASHISH DEOLASI 229

Cleaning Expenses

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Bonus Expense

BY CA/CS ASHISH DEOLASI 231

Newspaper & Periodicals

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BANK STATEMENT
1. Current Account (Union Bank of India)

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SUSPENSE A/C

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2. Saving Bank Account (Indusind Bank)

BY CA/CS ASHISH DEOLASI 235

3. Credit Card (Indusind Bank)

BY CA/CS ASHISH DEOLASI 236

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4. OD Account (Punjab National Bank)

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