The
Encyclopedic Guide to India’s Tax System (2024)
From
Zero to Tax Hero – Every Clause, Calculation, and Loophole Explained
1.
Constitutional Framework of Taxation
1.1
Legal Authority
- Article
265 (Constitution):
"No tax shall be levied or collected except by authority of
law."
- 7th
Schedule:
Divides powers between:
- Union
List (Parliament):
Income tax (Entry 82), Customs (Entry 83), Excise (Entry 84)
- State
List (Assemblies):
Alcohol tax (Entry 51), Stamp duty (Entry 63)
- Concurrent
List (Both):
GST (Article 246A)**
1.2
Key Case Laws
- Keshavananda
Bharati Case (1973):
Parliament can’t amend tax laws to violate Fundamental Rights.
- Vodafone
Case (2012):
Retrospective tax amendments struck down (Later reversed by govt).
2.
Direct Taxes: Income Tax Act, 1961
2.1
Residential Status Rules
|
Category |
Criteria |
Tax Liability |
|
Resident |
≥182
days in India OR ≥60 days + 365 days in last 4 years |
Global
income taxable |
|
NOR |
Resident
for ≤9 out of 10 preceding years |
Only
Indian income taxed |
|
Non-Resident |
<182
days |
Only
India-sourced income taxed |
Example: An NRI in Dubai visiting India for
150 days pays tax only on Indian rental income.
2.2
Heads of Income (Section 14)
(A)
Salary (Section 15-17)
- Taxable
Components:
- Basic
salary
- Allowances
(DA, HRA, Transport)
- Perquisites
(Company car, stock options)
- Exemptions:
- HRA: Least of:
(i) Actual HRA received
(ii) 50% salary (Metro) / 40% (Non-metro)
(iii) Rent paid – 10% of salary
- LTA: Exempt for 2 trips in 4
years (Domestic travel only).
(B)
House Property (Section 22-27)
- Gross
Annual Value (GAV):
Higher of:
- Municipal
value
- Fair
rent
- Actual
rent received
- Deductions:
- Standard
deduction: 30% of GAV
- Interest
on loan: ₹2L (Self-occupied), No limit (Let-out)
Calculation
Example:
Property
GAV: ₹5L
(-) Municipal tax: ₹20K
(-) 30% standard deduction: ₹1.5L
(-) Home loan interest: ₹2L
Taxable income: ₹1.3L
(C)
Capital Gains (Section 45-55A)
|
Asset Type |
Holding Period |
Tax Rate |
Indexation |
|
Equity
shares |
<12
months (STCG) |
15% |
No |
|
Equity
shares |
>12
months (LTCG) |
10%
(>₹1L profit) |
No |
|
Gold |
<36
months (STCG) |
Slab
rate |
No |
|
Gold |
>36
months (LTCG) |
20% |
Yes |
Indexation
Formula:
Adjusted
Purchase Price = Purchase Price × (CII Year of Sale / CII Year of Purchase)
Example: Bought gold in 2010 (CII=167) for ₹10L, sold in 2023 (CII=331)
Adjusted price = ₹10L × (331/167) = ₹19.82L
Taxable gain = Sale price – ₹19.82L
(D)
Business Income (Section 28-44)
- Presumptive
Taxation (Section 44AD):
- 6%
deemed profit (Digital transactions)
- 8%
deemed profit (Cash transactions)
- Deductions:
- Depreciation
(15%-60% on assets)
- Business
expenses (Rent, salaries, etc.)
(E)
Other Sources (Section 56-59)
- Interest
Income:
- Savings
account: Exempt up to ₹10K (Section 80TTA)
- FDs:
TDS @ 10% if interest > ₹40K/year
- Dividends: Taxable as per slab (After
DDT abolition)
3.
Corporate Taxation
3.1
Domestic Companies
|
Type |
Tax Rate |
Surcharge |
Effective Rate |
|
Normal
company |
22% |
10%
(>₹1Cr profit) |
25.17% |
|
Manufacturing
startup |
15% |
10% |
17.16% |
|
Small
company (<₹400Cr turnover) |
25% |
7% |
28.84% |
3.2
MAT (Minimum Alternate Tax)
- Rate: 15% of book profit (If normal
tax < MAT)
- Carryforward: MAT credit usable for 15
years
4.
Indirect Taxes
4.1
GST (Goods and Services Tax)
Tax
Calculation Formula
GST
= (Transaction Value × GST Rate) – Input Tax Credit
Example:
Manufacturer
sells goods for ₹1L (GST 18%) →
Charges ₹18K GST
Had purchased raw materials for ₹50K (GST paid ₹9K)
Net GST payable: ₹18K – ₹9K = ₹9K
GST
Returns
|
Form |
Purpose |
Due Date |
|
GSTR-1 |
Outward
supplies |
11th
of next month |
|
GSTR-3B |
Summary
return |
20th
of next month |
|
GSTR-9 |
Annual
return |
Dec
31 |
4.2
Customs Duty
- Calculation:
Customs
Duty = (Assessable Value + Basic Customs Duty) × (IGST + Compensation Cess)
- Valuation
Methods:
- Transaction
value
- Identical
goods value
- Deductive
value
5.
Tax Avoidance vs. Evasion
|
Tax Avoidance (Legal) |
Tax Evasion (Illegal) |
|
Using
HRA exemption |
Fake
HRA receipts |
|
Investing
in 80C instruments |
Not
disclosing foreign income |
|
Setting
up LLP for lower tax |
Fake
invoices for GST credit |
Penalty
for Evasion:
- 100%-300%
of tax evaded
- Jail
term up to 7 years (Section 276C)
6.
Advanced Strategies
6.1
Family Income Splitting
- Gift
money to parents (Tax-free up to ₹50L if from own funds)
- Invest
in spouse’s name (Clubbing rules apply if gifted funds used)
6.2
Tax-Free Perks
- Employer-provided
devices:
Laptop (No FBT if for work)
- Meal
vouchers:
₹26,400/year tax-free
7.
Future Trends (2024-30)
- Direct
Tax Code (DTC):
May replace Income Tax Act
- GST
2.0: Likely to
include petroleum, real estate
- Global
Minimum Tax:
15% for MNCs (Pillar Two implementation)
Final
Checklist for Taxpayers
- Verified
Form 26AS for TDS mismatch?
- Claimed
all eligible deductions (80C, 80D, HRA)?
- Maintained
proofs for business expenses?
- Filed
GST returns if turnover > ₹40L?
💬 Your Turn: Which tax rule surprised you the
most? Comment below!
