Taxation (Direct and Indirect)
Taxation (Direct and Indirect) tests the architecture of the tax system rather than the current rate card: which GST applies to a supply, what input tax credit is, when TDS is deducted, and what previous year and assessment year mean.
Indirect tax (GST)
- Intra-state supply: CGST + SGST (or UTGST); inter-state supply: IGST. The total burden is the same; only the destination of revenue changes.
- Registration threshold is ₹40 lakh for goods and ₹20 lakh for services, lower in special category states.
- Input tax credit is available on inputs and input services used for business, subject to blocked credits (personal use, certain motor vehicles) and the credit appearing in GSTR-2B.
- Composition scheme: flat rate, no ITC, turnover limit ₹1.5 crore for goods.
Direct tax and TDS
- Previous year = the year of earning; assessment year = the following year in which it is assessed.
- Common TDS: 194C contracts 1% (individual/HUF) or 2%; 194J professional fees 10%; 194I rent 10% on land/building and 2% on plant; 194Q 0.1% on purchases above ₹50 lakh.
- Advance tax is paid in instalments during the year, so a large TDS shortfall still attracts interest.
Worked example
A firm in Maharashtra sells goods worth ₹50,000 to a buyer in Maharashtra at 18% GST. Being intra-state, the invoice shows CGST ₹4,500 + SGST ₹4,500. Had the buyer been in Gujarat, the invoice would show IGST ₹9,000, and the revenue would accrue to the destination state.
Traps that cost marks
- Charging CGST and SGST on an inter-state invoice.
- Claiming ITC without a valid tax invoice or where the credit is blocked.
- Using an outdated threshold or TDS rate; always check the current Finance Act position.