Taxation Interview Questions & Answers

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The Excise and Taxation Department controls the manufacturing and sale of following excisable articles:
☛ Intoxicating liquor.
☛ Rectified Spirit.
☛ Denatured Spirit.
☛ Methanol.

Income of the person is categorized and calculated under the following five heads:
☛ Salaries
☛ Income from house property.
☛ Profits and gains of business or profession.
☛ Capital gains.
☛ Income from other sources.

Entertainment duty is levied on entertainment places like Cinemas, Amusements, Parks, Variety Programmes Sports etc on following rates.
☛Presently no duty is being collected from Cinemas.
☛Dramas, plays, variety Programmes 10% of the payment for admission.
☛Games and Sports 5% of the payment for admission.
☛Items of amusement other than above 25% of the payment for admission.

Securities are defined under Section 2(h) of the Securities Contracts (Regulation) Act, 1956 (SCRA) to include:
☛ Shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate.
☛ Derivatives.
☛ Units or any other instrument issued by any collective investment scheme to the investors in such schemes.
☛ Security receipt as defined in Section 2(zg) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.
☛ Such other instruments as declared by the central government.
☛ Rights or interest in securities.
Equity-oriented mutual funds (not debt-oriented mutual funds).

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.

Dis allowable expenditure:
☛private expenditure
☛clothes bought for ordinary everyday wear
☛acquisition and depreciation of business assets
☛your own wages or salary
☛your business partner's wages or salary
☛payments to charities
☛travel expenses between your home and place of business
☛a general (non-specific) provision against doubtful debts
☛legal costs of acquiring land and buildings
☛fines for breaking the law
☛your own life, accident or sickness assurance
☛costs of alterations, additions or improvements to business premises

Allowable expenditure:
☛the cost of goods bought for the business
☛the prime costs of running a business asse
☛wages and salaries of employees
☛heat, light and cleaning of business premises
☛repairs to and maintenance of business premises
☛postage and stationery
☛business telephone and rental
☛bank charges and interest on business loans and overdrafts
☛travel and entertaining if the sole purpose is to retain or acquire business
☛legal costs of defending business rights and renewing leases of less than 50 years duration
☛bad debts and specific doubtful debts
☛protective clothes necessary for the business

Minimum of following three amounts is available as HRA exemption:
☛ Actual House Rent Allowance provided by employer to employee.
☛ House Rent paid in excess of 10% of Salary.
☛ 50% of Salary in case House is located in major cities.
For all three conditions mentioned above relevant period is very important. Means if there is any change in Salary, HRA paid to employee, location of rented house and actual rent paid by employee HRA need to calculate from that relevant change Hence one should avoid calculating HRA on annual basis if there is any change in above factors.
Meaning of Salary for calculating HRA (Basic Salary + Dearness allowance if terms of employment so provide + fixed percentage of turnover achieved by employee).

Public Provident Fund (PPF) involves minimum contribution of Rs.500 per annum and the maximum contribution is Rs. 100,000 per annum. The contribution made along with interest earned is repayable after 15 years, unless extended.

Statutory Provident Fund is mainly meant for Government, University, Educational Institutes (affiliated to university) employees.

Unrecognized Provident Fund are not approved by The Commissioner of Income Tax and is started by employer and employees in an establishment.

Recognized Provident Fund schemes must be approved by The Commissioner of Income Tax and applicable to an organization which employs 20 or more employees.

The 4 types of provident funds:
☛ Recognized Provident Fund (RPF)
☛ Unrecognized Provident Fund (URPF)
☛ Statutory Provident Fund (SPF)
☛ Public Provident Fund (PPF)

Transfer of Income means when someone retains the ownership of an asset but makes an agreement to transfer its income but still the income is considered as your income and it will be added to the total income.

Form D:
Sale to government is taxable 4% or applicable sales tax rate for sale within the State whichever is lower. This concession on CST is applicable if Form D is issued by the government department which purchases the goods.

Form C:
The sales tax on inter-state sale is 4% or the applicable sales tax rate for sale within the State whichever is lower if the sale is to a dealer registered under CST and the goods are covered in the registration certificate of the purchasing dealer. The purchasing dealer is eligible to get these goods at concessional rate if a declaration in C form is submitted to the selling dealer.

Deductions that are made under salary head are Entertainment allowance and Professional tax:
☛ Entertainment Allowance:
Entertainment allowance received is already included in the income of the employee and then a deduction is made only for government employees.
☛ Professional Tax:
Professional Tax is imposed by the government on employment by whatever name called.

Commercial Tax is a tax imposed on the scheduled Commercial goods as indirectly collected by the seller or purchaser against his business transaction which now comprises of Sales Tax, Entertainment, Luxury Tax, Entry Tax and Profession Tax.

A tax imposed on goods and services that are non-essential or not included in the necessities. Luxury tax is included in the indirect tax and is incurred by those who purchase or use the product.

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.

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.

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.

Fair rent is calculated in place of mortgage interest, other financing costs and depreciation related to certain property, including land, buildings and non movable equipment. It is calculated only once, at the time the facility begins operation.