Tax Laws: Direct and Indirect Essentials
Core concepts
Tax Laws questions span direct tax (residence, scope of total income, heads of income, deductions, capital gains, set-off, advance tax, TDS, assessment) and indirect tax (GST supply, place of supply, time of supply, value of supply, input tax credit, registration thresholds, returns). You must understand the basic charge, the computation sequence, and the distinction between exempt, nil-rated and non-taxable supplies.
For direct tax, know the difference between revenue and capital receipts, the treatment of capital gains (short versus long term, indexation concepts), and the mechanics of deductions. For GST, understand the concept of a taxable supply for consideration in the course or furtherance of business, the exclusion of actionable claims, and the conditions for claiming input tax credit.
Traps
- Applying the wrong residential status test; the basic and additional conditions interact.
- Treating all receipts as income without testing capital character.
- Confusing place of supply with location of supplier.
- Claiming input tax credit on blocked or ineligible items.
- Mixing the composition scheme limits with regular registration thresholds.
Worked rule of thumb
For GST, ask three questions in order: is it a supply, is it for consideration in the course of business, and is it taxable? If any answer is no, tax may not apply. Then determine place of supply to decide whether it is intra-state or inter-state, because that decides CGST plus SGST versus IGST.
In computation questions, show the working in the statutory order; method marks are often available even when the final figure is wrong.