India Taxation Law overview

Taxation Law

Taxes in India are imposed by the Central Government and the state governments. Some lesser taxes are also imposed by the local authorities such as the Municipality. The authority to charge a tax is determined from the Constitution of India which designates the power to charge different taxes between the Central and the State. A major limitation on this power is Article 265 of the Constitution which states that "No tax shall be charge or obtained except by the authority of law".

Types of Tax in India:-

Tax of Central government of India-

• Income tax: Taxes on income except agricultural income
• Custom Duty: Duties of customs including export taxes
• Excise Duty: Duties of excise on the next goods produced or produced in India specifically:

(a)Petroleum crude

(b) High-speed diesel

(c) Petrol

(d) Natural gas

(e) Flight turbine fuel and

(f)Tobacco and tobacco products

Corporation Tax

• Taxes on the capital value of assets, exclusive of farming land, of individuals and companies, taxes on assets of companies
• Estate duty in honour of property other than agricultural land
• Services in respect of succession to property other than farming land
• Terminal taxes on goods or tourists, carried by railway, sea or air; taxes on railway charges and shipping.
• Taxes other than stamp duties on activities in stock exchanges and expectations markets
• Taxes on sale or purchase of goods other than journals, where such sale or purchase takes area in the way of inter-State trade or commerce
• Taxes on the consignment of goods in the field of inter-State trade or commerce
• All residuary types of taxes not recorded in any of the 3 files of Seventh Schedule of Indian Constitution

Tax of State Government of India-

• Land revenue, including the assessment and collection of revenue, the maintenance of land records, survey for revenue targets and records of rights, and separation of revenues, etc.
• Taxes on agricultural income
• Duties regarding succession to agricultural land.
• Estate Duty in admiration of agricultural land
• Taxes on lands and buildings.
• Taxes on mineral rights.
• Duties of excise for pursuing goods manufactured or produced inside the State (i) alcoholic drinks for human consumption, and (ii) opium(drugs), Indian hemp
• Electricity Duty: Taxes on the destruction or sale of electricity
• Taxes on the sale of petroleum crude, high-speed diesel, motor spirit (commonly known as petrol), Natural gas aviation turbine fuel and alcohol liquor for human tuberculosis but not including the sale in the course of interstate or commerce or sell in the source of global trade or commerce such assets.
• Taxes on goods and travellers carried by roads or on inland waterways.
• Tolls.
• Stamp duty

Tax litigation process in India:-

Typically, the tax debate first arises before the tax court, which acts in a quasi-judicial way. Tax dispute decision has been a key centre field for the overall tax function. This arises due to a combination of circumstances, which involve courageous taxpayers, an aggressive implementation climate as well as delays and long pendency in the dispute resolution bureaucracy. The usual litigation process in India (hierarchy wise) is described below:

• Tax officer(Tribunals)
• Commissioner (Appeals) 
• Income Tax Appellate Tribunal 
• High Court
• Supreme Court.

As an option to the Commissioner (Appeals), certain taxpayers (foreign companies or taxpayers in whose case transfer pricing adjustments are made) have the possibility of addressing the ‘Dispute Resolution Panel’, which is a collegium of 3 Commissioners of Income-tax. The Dispute Resolution Panel layout offers some key advantages, which include:  

The taxpayer’s questions to the plan assessment proposed by the Assessing Officer will be selected in a time-bound manner (nine months from the end of the month from the date of Assessing Officer’s order). 

The tax experts do not have the right to prefer an appeal to the Income Tax Appellate Tribunal upon an assessment concluded based on the Dispute Resolution Panel’s order i.e. on points that are confirmed in side of the taxpayer. 

The tax demand does not fructify till the period the matter is determined by the Dispute Resolution Panel. Despite these advantages, the decision on whether to request the Commissioner (Appeals) or the Dispute Resolution Panel requires careful attention of various factors and trends on a case by case basis.

Procedures to resolve disputes before commencing proceedings in a civil court/tribunal-

1. Filing objections with the Dispute Resolution Panel (DRP)-

The taxpayer must file objections to the draft order submitted by the Assessing Officer (AO) within 30 days of the letter of the draft order (see Question 4, Tax assessments). Taxpayers are not bound to guarantee the payment of the tax assessed until the final order is passed by the AO in accordance with DRP management. The DRP has 9 months to consider the AO's and the taxpayer's facts and arguments and issue commands to the AO. Directions published by the DRP are required on the AO and the AO must issue the final rule in accordance with these regulations within 30 days of receipt. The DRP can affirm, decrease or improve the additions suggested by AO. However, it cannot remand the thing back to the AO. If the taxpayer is unsatisfied with the resolution, he can file an appeal with the Income Tax Appellate Tribunal.

2. Filing an appeal with the CIT(A)-

The taxpayer can file an appeal (even for transfer pricing matters as well as cases of foreign companies and non-residents) with the CIT(A) within 30 days of receipt of the last order. Taxpayers are not bound to guarantee the payment of the tax assessed. However, they must pay extra taxes, except the demand is visited by administrative jurisdictions. The CIT(A) can confirm, reduce, improve or annul the assessment. In addition, a taxpayer can ask the Principal Commissioner of Income Tax (PCIT) / Commissioners of Income Tax (CIT) to grant protection from prosecution if he has made an application for adjustment under the Income Tax Act 1961 (Income Tax Act) and the procedures for settlement have abated (section 278AB, Income-tax Act).

3. Resolving a dispute under the jurisdiction of the Income Tax Settlement Commission (ITSC)
4. Resolving a dispute under the jurisdiction of the Authority for Advance Rulings (AAR).
5. Resolving a dispute by advance pricing agreements (APA)

The main procedures used for the early resolution of criminal law offenses before trial-

Where actions are commenced, the accused can support the case by:

• Filing a compounding petition (in some situations, prior to or after initiating prosecution proceedings, the accused and the prosecutor can reach a peaceable settlement for the purposes of avoiding prosecution proceedings).
• Pleading not wrong and facing trial.
• Removing the burden of proof by saying that there is a lack of mens rea for the crime alleged.
• Showing that no case can be made out on the facts given.
• Filing a petition to quash the procedures under section 482 of the Code of Criminal Procedure 1973.

Section 279(2) of the Income Tax Act 1961 provides that any offense under chapter XXII can, either before or after the initiation of proceedings, be combined by the Chief Commissioner of Income Tax or the Director-General of Income-tax, in light of certain factors (such as the control of the person and the kind and quantity of the offense).

• First appeal:

Appeal to the Commissioner of Income Tax(CIT(A)

The appeal to the CIT(A) must be made within 30 days of section 249(2), Income Tax Act 1961 Income Tax Act.

• Second appeal:

A trial before the Income Tax Appellate Tribunal (ITAT)

An appeal must be made within 60 days of the date on which the order sought to be appealed upon is related to the taxpayer or to the PCCIT/CIT section 253(3) of Income Tax Act. The fees for getting an appeal to the ITAT are specified under section 253(6) of the Income Tax Act.

• Third appeal:

Before the High Court towards the order of the ITAT

An appeal must be made within 120 days of the date on which the order solicited to be appealed against is related to the taxpayer or to the PCCIT/CCIT/PCIT/CIT (section 260A(2), Income Tax Act). Fees payable for registering an appeal with the High Court are defined in the High Court Rules. Under sections 260A(3) and 260A(4) of the Income Tax Act, the appeal is listed for selection. After hearing the appellant, the High Court must issue a report to the opposing party, notifying them of the appeal and providing them an excuse to show why the appeal should not be admitted.

• Fourth appeal:

Before the Supreme Court towards the judgment of the High Court

There are 2 ways to address the Supreme Court for direct tax cases. The first way is to file the appeal that can be only filed before the Supreme Court if the High Court has confirmed the case as fit for appeal before the Supreme Court (Income Tax Act, section 261). The second route is under Article 136 of the Constitution (there is no lawful right to an appeal before the Supreme Court). However, either party can file a Special Leave Petition (SLP) within 90 days of the date on which the order sought to be appealed against is related to the taxpayer or to the CIT(A). Fees payable for filing an SLP are defined in the Supreme Court Rules.

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