Taxation (Direct and Indirect)
What this domain tests
Taxation covers direct tax and GST fundamentals tested in a finance role: taxable income computation, TDS and advance tax, GST supply, place of supply, input tax credit and returns. Questions often test whether you can distinguish tax liability from cost and apply the correct tax chain.
Core rules
- Income tax computes total income under five heads: salaries, house property, business or profession, capital gains and other sources. Residential status determines the scope of taxable income.
- Deductions under Chapter VI-A reduce gross total income subject to eligibility and limits. TDS is a collection mechanism, not a final tax; advance tax is paid during the year.
- GST is a destination-based consumption tax with a dual model. Intra-state supplies attract CGST plus SGST; inter-state supplies attract IGST.
- Input tax credit is available on eligible business inputs used for taxable supplies, subject to conditions. Blocked credits and exempt supplies break the credit chain.
- Place of supply determines whether a transaction is intra-state or inter-state. Reverse charge shifts tax payment to the recipient in specified cases.
Worked example
A dealer makes an intra-state taxable supply of INR 1,00,000. Assume CGST 9% and SGST 9%. Output tax = 9,000 + 9,000 = INR 18,000. If eligible ITC is INR 12,000, net GST payable in cash = 18,000 - 12,000 = INR 6,000. The GST is not revenue for the dealer; it is collected and remitted, with ITC preventing cascading.
Traps that cost marks
Do not treat TDS as the final income tax liability. Do not claim ITC on blocked or personal-use items. Do not ignore place-of-supply rules. Composition dealers cannot claim ITC and have restricted compliance. Exempt supplies can reduce eligible credit.