Top 25 interview questions of Tax And Planning
Top 25 interview questions of Tax And Planning
Q1.What is tax and why is tax levied and collected?
Tax specialist describes the tax as a financial charge/levy imposed by the government. The word is derived from the Latin word ‘tax is’ meaning to estimate. It’s levied by the government to carry out public expenditures to solely realize the goal of social welfare.Its is not voluntary payment by a taxpayer, but it’s a mandatory obligatory and mandatory contributions to be made by an individual or any organization.Concerning India, our Constitution through laws enforces the government to levy and collect taxes to meet its developmental goals. It can be in the form of taxes, charges, fees, or cess.Since India has a federal setup of governance, both central and state governments are authorized to levy by schedule 7. It outlines the central and state list to carry out its fulfilment.
Q2.Define Assessment Year.
Assessment year is the period that starts from 1 April and ends on 31 march. It is the year immediately succeeding the financial year wherein the income of the previous financial year is assessed. Government use assessment year for calculating tax on the previous year.
Q3.How many heads are there under total income?
There are five heads under total income:
Income from salary - Income from salary and pension are covered under here
Income from house property - This is rental income mostly
Profits and gains of business or profession - This is when you are self-employed, work as a freelancer or contractor, or you run a business.
Income from Capital gains - Income from sale of a capital asset such as mutual funds, shares, house property
Income from other sources - Income from savings bank account interest, fixed deposits, winning lottery.
Q4.Who is an assessee?
An "Assessee" is a person who is liable to pay tax or any other sum of money under the Act.
It includes
1. Every person in respect of whom any proceeding under this Act has been taken for the assessment of his income or of the income of any other person in respect of whom he is assessable, or of the loss sustained by him or by such other person, or of the amount of refund due to him or to such other person;
2. Every person who is deemed to be an assessee under any provision of this Act;
3. Every person who is deemed to be an assessee in default under any provision of this Act.
Q5.What do you understand by dissolution of firm?
Dissolution of firm means assets of firm are realized and liabilities are paid off and the surplus, if any is distributed among the partners according to their right. It is to be noted that ‘dissolution of Firm’ involves dissolution of partnership but dissolution of partnership may not lead to dissolution of firm.
Q6.What is direct and indirect tax?
Tax system is classified into broad categories such as:
- Direct
- Indirect
Direct is directly levied over the person or the property and companies and corporations over their profits. A responsible legal entity will pay directly to the government. Some of direct taxes are as follows:
- tax-includes salary and other sources of income.
- Corporate tax-over business entities.
- Wealth tax-over the property holdings.
- Estate duty-paid in case of inheritance.
- Gift tax
- Fringe Benefit Tax-paid by an employer for its employees over the fringe benefits provided.
Indirect is to be collected from the third person. of the cases the consumers have to pay for goods and services, manufacturers transfer over the retailers and the dealers.
Recent tax reforms have overhauled the taxation system in India, bringing the ‘ONE NATION, ONE TAX’ regime i.e.; Goods and Services Act (GST) since 2017. It came into effect on July 1st, 2017. Since then taxation is studied and understood concerning GST.
Q7.What is GST?
The Goods and Services Act (GST) is a single indirect system over the nation. It is a comprehensive system that encapsulates the various indirect taxes being charged by the government.IT aims to have one Uniform tax rate at different slabs across the territory. It is levied on both goods and services. It revolutionizes our tax structure, realizing the goal of the act i.e. One Nation, One tax system.
It is levied by both central and state governments in this federal governance with different slabs applicable to goods and services with exemptions.
Q8.What are the taxes that GST replaces?
The GST replaces indirect taxes such as:
Central Excise Duty
Service Tax
Countervailing Duty
Special Countervailing Duty
Value Added Tax (VAT)
Central Sales Tax (CST)
Octroi
Entertainment Tax
Entry Tax
Purchase Tax
Luxury Tax
Advertisement Taxes
Q9.What do you understand by total income?
Total Income is the amount on which the Income Tax is paid. Total income include all income that accrue, arise, earned or received in India (except those income which accrues or arises outside India). Total Income is the total amount earned by an individual or organization, including income from employment or providing services, revenue from sales, payments from pension plans, income from dividends, or other sources. Total income is generally calculated for the assessment of taxes, evaluating the net worth of a company, or determining an individual or organization's ability to make payments on a debt.
Q10.Explain the benefits of Goods and Services Tax, GST.
The biggest benefit of GST is an elimination of multiple indirect taxes. GST is a comprehensive indirect tax that is designed to bring the indirect taxation under one umbrella. It eliminates the cascading effect of tax. Cascading tax effect can be best described as ‘Tax on Tax’.
Example
A consultant offering services for say, Rs 100,000 and charged a service tax of 15% (Rs 100,000 * 15% = Rs 15,000).
Then say, he would buy office supplies for Rs. 40,000 paying 5% as VAT (Rs 40,000 *5% = Rs 2,000).
He had to pay Rs 15,000 output service tax without getting any deduction of Rs 2,000 VAT already paid on stationery.
His total outflow is Rs 17,000.
Under GST
GST on service of Rs 100,000 @18% 18,000
Less: GST on office supplies (Rs 40,000*5%) 2,000
Net GST to pay 16,000Q11.What are the salient features of the GST?
Some of the features are as follows:
- It is a value-added tax, applied on the value addition at every stage, starting from
- Manufacturer to the dealer to distributor to the final consumer, giving way to the cascading effect.
- It is destination and supply based.
- It is levied by both central and state governments by laws such as
- Central good and services Act (within the state)
- State Goods and Services Act(within the state)
- Integrated Goods and Services Act(interstate
- It aims to avoid the multiplicity of the tax rates and widening the base through the country.
Q12.How many heads are there under total income? Name them.
There are five heads under total income. They are
- Income from Salaries
- Income from house property
- Profits and gains of business or profession
- Capital gains
- Income from other sources
Q13.What is Gratuity?
Gratuity is a sum of money paid by an employer to an employee for services rendered in the company. However, gratuity is paid only to employees who complete 5 or more years with the company.
Q14.What is Tax Invoice?
The ‘tax invoice’ or ‘invoice’ is referred under section 31 of the CGST Act,2016. It is an important and legal entity that mandates the registered person to issue a tax invoice for the supply of the goods and the services made. If supply is done by an unregistered person, then the recipient has to issue a Bill of supply instead of a tax invoice.
It is important means to avail Input Tax Credit made by the supplier. Also it is important evidence for the supply made. The Gst is charged at the time of supply of goods and services, so the tax invoice is the indicator for the supply made.
It compromises the name of the supplier and the recipient. the amount due for the payment, description of the goods made, quantity, and the value and other details are outlined.
In case of person dealing with exempted goods and maybe availing the Composition Scheme is eligible to issue Bill of Supply instead of invoice
Q15.Does the tax liability of an individual get affected due to his residential status? If yes, explain.
Yes, tax liability of an individual does gets affected due to his residential status as per Section % of the Income Tax Act 1961 and is also dependent on place and time of accrual or receipt of income. You must understand the difference between Indian income and Foreign income as Indian income is always taxable in India in accordance with the residential status of the taxpayer.
Q16.What is the e-way bill?
It is an electron waybill to be generated on the ewaybillgst.gov.in bill portal. It is an important document to be carried by the transporter supplying the goods. It is to be generated for transporting goods whose value exceeds more than Rs.50,000.It can be generated by the supplier or the recipient in case of an unregistered person who does the supply or the transporter can also generate if not generated.
It simplified the process of transportation of the goods, especially in the case of interstate supply. It has the details of the consignee and consigner, the address of the delivery place, the value of the goods, and of course the destined delivery date.
Q17.What Is Marginal Relief And How It Is Computed?
The concept of marginal relief is designed to provide relaxation from levy of surcharge to a taxpayer where the total income exceeds marginally above Rs. 1 crore or Rs. 10 crore, as the case may be. Thus, while computing surcharge, in case of taxpayers (i.e. Individuals/HUF/AOP/BOI/artificial juridical person) having total income of more than Rs. 1 crore, marginal relief shall be available in such a manner that the net amount payable as income-tax and surcharge shall not exceed the total amount Source
Q18.What are the basic and additional conditions for Resident and ordinarily resident (ROR)?
The basic conditions for being resident and ordinarily resident is the same condition that satisfies the residential status of an individual and additional conditions for Resident and ordinarily resident in India in a given previous year are mentioned below:
1. If you are resident in India in at least 9 out of 10 previous years as per the basic conditions that satisfies the residential status of an individual preceding the relevant previous year.
2. If you are in India for a period of at least 730 days during 7 years preceding the relevant previous year.
3. An individual or HUF becomes ROR in India if the individual fulfills at least one of the basic conditions that satisfies the residential status of an individual both the additional conditions.
Q19.Which income is considered as accrued income?
Income which has been earned but not yet received is known as accrued income. Income is recorded in the same accounting period in which it is earned rather than in the subsequent period in which it will be received.
Q20.What is Composition Scheme?
It is to be availed by the small traders having a turnover less than Rs.1.5cr and want to escape themselves from the tedious formalities of paying Gst at a fixed rate of turnover.
The turnover of all the businesses registered under the same PAN number is to be considered.
Exemptions:
- Manufacturer of icecreams, pan masala and tobacco
- Interstate supplier
- Casual Taxable person/NRTP
- e-Commerce operators
Conditions to be considered under CS:
- He cannot claim the ITC claimed.
- He cannot supply the exempted goods
- He has to mention as composition Taxable Person over his signboard in his shops.
- Several businesses undertaken by him to be collectively considered under a single PAN or opt-out of the scheme
For to register under composition scheme, so to get login into the GST portal through filling the form CMP 02.
Q21.What is TDS?
TDS stands for tax deducted at source. It is tax which is deducted on source of income. As per the Income Tax Act, any company or person making a payment is required to deduct tax at source if the payment exceeds certain threshold limits.
TDS is deducted on the following types of payments:
Salaries
Interest payments by banks
Commission payments
Rent payments
Consultation fees
Professional fees
Q22.Define Amortization & Impairment?
When the assets of the company are written off over a number of years for the purpose of their replacement or renewal and not depending on the life of asset is termed as amortization. It is different from depreciation, which is periodic writing off of the asset based on its normal life expectancy.
Impairment can be termed as the fall in the value of the asset due to any physical damage to the asset, obsolescence, or due to technological innovation. Impairments can be written off. Simply you can say that impairment is the difference between the fair value and the carrying value of an asset.
Q23.If a NRI buys property in India, does he has to pay property tax?
Any income or capital gain that the NRI generates from the sale/ rent or lease of a valued property or an asset based in India will be taxed as per the Income Tax rules. f the property is more than 3 years old, long term capital gains tax will be incurred on the sale of the property. On long term capital gains, tax is payable at 20%
Q24.What documents are to be enclosed along the return of income?
There is no need to enclose any documents with the return of income. However, one should retain the documents to produce before any competent authority as and when required in future.
Q25.What is Excise & Service Tax? What is the difference?
Answer: Excise tax is an indirect tax that is imposed on the manufacture, sale or use on certain types of goods and products. Excise taxes are generally imposed on goods such as cigarettes or alcohol, also in the price of an activity such as gambling. Excise taxes may be imposed by both Federal and state authorities.
Service tax is an indirect tax imposed by the government on service providers on certain service transactions, but is actually paid by the customers. Services provided by air-conditioned restaurants and short term accommodation provided by hotels, inns, etc are included in the taxable services.
The major difference between excise tax and service tax is that excise tax is charged on manufactured goods and sales tax is imposed on certain services provided.
