Business and Tax Law

1. What is need/purpose of taxation in India?

2. What is Tax? Mention characteristics of tax.

Ans-
Taxes are generally an involuntary fee levied on individuals and corporations by the
government in order to finance government activities. Taxes are essentially of quid pro quo
in nature. It means a favour or advantage granted in return for something.
The main characteristic features of a tax are as follows:
(1) A tax is a compulsory payment to be paid by the citizens who are liable to pay it. Hence, refusal to
pay a tax is a punishable offence.
(2) There is no direct quid-pro-quo between the tax payers and the public authority.
(3) A tax is levied to meet public expenditure incurred by the government in the general interest of the
nation.
(4) A tax is payable regularly and periodically as determined by the taxing authority.
(5) A tax is a legal correction.

3. What is meaning of following terms? Assesse, Person Sec

2(31), Financial year (Previous), Assessment year.
 4. What is direct tax explain its features?

As per the Indian tax system, direct taxes in India are the ones that are directly levied on an
individual or taxpayer’s income. The Central Board of Direct Taxes (CBDT) overlook the direct taxes
in India, and they cannot get transferred to any other individual or legal entity.

5. What is indirect tax, explain its features?

Taxes that get imposed on products and services when they are bought and sold are called
indirect taxes in India. The sellers of the service or products collect these taxes under the
Indian tax system. The tax gets levied as an addition to the original price of the product or
service, which increases their cost.
6. Differentiate between direct tax and indirect tax?

7. Advantages of GST over earlier tax system in India?

 GST or the Goods and Services Tax is an indirect tax which has replaced many indirect taxes in India
such as the excise duty, VAT, services tax, etc. The Goods and Service Tax Act was passed in the
Parliament on 29th March 2017 and came into effect on 1st July 2017.
Goods and Services Tax Law in India is a comprehensive, multi-stage, destination-based tax that is
levied on every stage of value addition. GST is a single domestic
indirect tax law for the entire country.
Advantages of GST:
 Removing the cascading effect of tax
 Price reduction for the end user
 Higher threshold for GST registration
 Composition scheme for small businesses
 Compliance requirements made easier
 Online facilities for GST compliance
 Defined treatment for e-commerce activities
 Increased efficiency in logistics
 Regulating the unorganized sector

8. Why is GST called a destination-based tax? Explain with an example?

Destination Based tax is the name suggests is the taxation based on destination or
consumption of the goods or services. GST or goods or service tax is a destination-based tax
because tax are levied where goods and services get consumed. In GST, exports are
permitted with zero taxes whereas imports are taxed on par with the domestic production

Destination-based: Consider goods manufactured in Maharashtra and sold to the final

consumer in Karnataka. Since the Goods and Service Tax is levied at the point of
consumption, the entire tax revenue will go to Karnataka and not Maharashtra.

9. Which kind of taxes are not subsumed under GST?

Ans-
Tax not to be subsumed
• Basic custom duty
• Export duty
• Toll tax
 • Road and passenger tax
• Electricity duty
• Stamp duty
• Property tax

10.Discuss various slabs under GST framework.

Exempted GST Rate Slab (No Tax) (Essential)

7% goods and services fall under this category. Some of these that are of regular consumption include fresh fruits and
vegetables, milk, butter milk, curd, natural honey, flour, besan, bread, all kinds of salt, jaggery, hulled cereal grains, fresh
meat, fish, chicken, eggs, along with bindi, sindoor, kajal, bangles, drawing and coloring books, stamps, judicial papers,
printed books, newspapers, jute and handloom, hotels and lodges with tariff below INR 1000 and so on.

5% GST Rate Slab

14% goods and services fall under this category. Some of these include apparel below INR 1000 and footwear below INR
500, packaged food items, cream, skimmed milk powder, branded paneer, frozen vegetables, coffee, tea, spices, pizza
bread, rusk, sabudana, cashew nut, cashew nut in shell, raisin, ice, fish fillet, kerosene, coal, medicine, agarbatti (incense
sticks), postage or revenue stamps, fertilizers, rail and economy class air tickets, small restaurants, and so on.

12% GST Rate Slab

Edibles like frozen meat products, butter, cheese, ghee, dry fruits in packaged form, animal fat, sausages, fruit juices,
namkeen, ketchup & sauces, ayurvedic medicines, all diagnostic kits and reagents, cellphones, spoons, forks, tooth powder,
umbrella, sewing machine, spectacles, indoor games like playing cards, chess board, carom board, ludo, apparels above INR
1000, non-AC restaurants, business class air ticket, state-run lottery, work contracts and so on attract a 12% GST. 17% of
goods and services fall under this category.

18% GST Rate Slab

43% of goods and services fall under this category. Pasta, biscuits, cornflakes, pastries and cakes, preserved vegetables,
jams, soups, ice cream, mayonnaise, mixed condiments and seasonings, mineral water, footwear costing more than INR
500, camera, speakers, monitors, printers, electrical transformer, optical fiber, tissues, sanitary napkins, notebooks, steel
products, headgear and its parts, aluminum foil, bamboo furniture, AC restaurants that serve liquor, restaurants in five-star
and luxury hotels, telecom services, IT services, branded garments and financial services and so on attract an 18% GST.

28% GST Rate Slab (Luxury)

19% of goods and services fall under this category. The rest of edibles like chewing gum, bidi, molasses, chocolate not
containing cocoa, waffles and wafers coated with chocolate, pan masala, aerated water, personal care items like
deodorants, shaving creams, after shave, hair shampoo, dye, sunscreen, paint, water heater, dishwasher, weighing
machine, washing machine, vacuum cleaner, automobiles, motorcycles, 5-star hotel stays, race club betting, private lottery
and movie tickets above INR 100 etc. have been clubbed together under the 28% GST slab.

Some other items that will get costlier also include:

Courier services, mobile phone tariffs, Mobile bills, tuition fees, salon visits, insurance premiums, banking charges,
broadband services will get costlier by 3%. These were earlier charged a 15% service tax, and will now fall under 18% tax
slab.

Taxes on aerated drinks, tobacco and luxury goods will now come under the 28 percent tax bracket under GST, so it will get
costlier.

Real Estate will also get expensive as it will now attract a GST of 12% as opposed to 6%.
Partnership Act, LLP,

1. What is partnership? Who can be partners?

Indian Partnership Act, 1932 defines partnership as “the relation between persons who have
agreed to share the profits of the business carried on by all or any of them acting for all”

Every person who is of the age of majority according to the law to which he is subject
and who is of sound mind and is not disqualified from contracting by any law to which
he is subject can enter into a partnership. Individual: An individual, who is
competent to contract, can become a partner in the partnership firm.

2. Discuss kinds of partners.

 Active /Actual/ostensible partner- An active partner is an invested person who is

involved in the daily operations of the partnership. An active partner helps run the
business to enhance his or her returns and is therefore considered a material
participant. This person typically shares more risk and return versus a limited or
silent partner

 Dormant or sleeping partner - In a partnership, a partner who owns a share in the

company's equity, but does not take part in management. A partner provides capital
in order to fund the company's operations and is liable for loss up to the amount of
an investment. ... Less commonly, a silent partner is called a sleeping partner.

 Nominal partner -

 Partner by estoppel or by holding out - A partner by holding out, is “A person who

by conduct or words represents, or allows him/herself to be represented, as a partner
in a firm is liable for the credit or loans obtained by firm on the basis of such
representation.
 3. Can partners bind the firm?

4. What are essential elements of partnership?

 Two or more person - Maximum number of partners 50
 Agreement - Created by contract called deed
 Sharing of profit
 Existence of business
 Mutual agency

5. Can a firm be liable for wrongful acts of partner?

Yes. Since the Firm is not a separate legal entity.(NO- If company) Liability of the firm for
wrongful acts of a partner Where, by the wrongful act or omission of a partner acting in the
ordinary course of the business of a firm, or with the authority of his partners, loss or injury is
caused to any third party, or any penalty is incurred, the firm is liable there for to the same
extent as the partner.
6. What do you understand by partnership at will?
Partnership at will means a partnership in which the partners have not agreed to
remain partners until the expiration of a definite term or the completion of a particular
undertaking. In other words, it is a partnership that can be dissolved by any partner at
any time without any liability.

(Other types - Partnership for a fixed period (can be converted into partnership
at will), Particular Partnership (can be converted into partnership at will)
,Partnership at will)

7. Is it essential to register the partnership firm? What are

implications of registration of partnership firm?
NO, it essential to register the partnership firm.
 Ability to file case against Third Parties:

The partners of the registered Partnership Firm can bring third parties to the court for
resolution of disputes arouse during the course of Business or any other matter relating to the
Partnership Firm. An unregistered Partnership firm loses the right file the case against third
party for resolution of their disputes until and unless the procedure of Deed Registration has
been completed. However, the third party always own the right to file the suit against a
Partnership Firm irrespective of its registration status.

 Power to file suit against co-partners:

As none knows when the dispute between the Partners arises, whether for the sharing of

profits or any other matter regarding operations of the Partnership Firm. The resolution

of any dispute is best resolved by the Court of Law. The Partners of an unregistered
Partnership Firm cannot enforce any clauses of Partnership Deed. To enforce the said clauses,
the registration for Partnership Firm shall be required by following the procedure prescribed
for the same.

 Ability to claim Set-off:

The registration of Partnership Firm enables the partners with power to claim set-off.

When any third party files a suit against the Partnership Firm, the Partnership Firm can

claim the set-off, if any against the claim of third Party. The said power to claim set-off is

not available when the Partnership Firm is not yet registered under the Indian Partnership

Act, 1932.

 Higher Credibility:

Compared to an unregistered Partnership Firm, a Partnership Firm which has completed

the procedure of Online Registration of Partnership Firm enjoys higher credibility.

Although both registered and unregistered Partnership Firms are legal and valid under the

given Act, the Registered Firm is highly preferred by authorities over unregistered one.

 Conversion of Entity:

A Partnership Firm as registered with the Registrar of Firm has ease compared to an
unregistered firm for conversion. The conversion of the Partnership Firm into any other entity
such as Private Company or LLP i.e. in corporate structure can be easily completed. An
unregistered firm can be registered at any time after its formation and
establishment to claim above explained advantages.

8. Can minor be admitted as a partner, explain.

As we have seen in the Indian Contract Act, 1872, minors cannot be a party to an
agreement. An agreement involving a minor is void-ab-initio. However, the Indian
Partnership Act has its own sets of legal rules regarding minors.
“Section 30 of the Indian Partnership Act, clearly lays down that a minor cannot
become a partner, though, with the consent of the adult partners, he may be admitted
to the benefits of partnership. Also, there cannot be a contract between two minors. In
short, there should be a partnership between two major partners before a minor can be
admitted to its benefits.

9. What are rights and liabilities of minor partner?

According to Section 3 of the Indian Majority Act, a person who has not attained the
age of majority i.e. 18 years, is known as minor.

 To share profit
 To inspect the books of A/c- It follows that he has no right of access to those other
books of the firm which do not contain matters of account.[Section 30(2)]
 To file suit for A/c's of profit against other partner.
 Minor is not personally liable to the third parties for the debts of the firm, but his
liability is limited only up to his shares in the partnership assets and profits.
 To elect to become a partner - on attaining majority.
 To elect not to become partner - on attaining majority.

10. Discuss modes of dissolution of partnership firm

Dissolution of Partnership
 By expiry of fixed term
 By completion of adventure
 By death or insolvency of partner
 By retirement of partner
 Remaining partners may continue.
Dissolution of Firm
 By mutual Agreement
 By insolvency of all partners but one
 By business becoming illegal
 By notice of dissolution
 Dissolution decree by court

11. What is an LLP? Explain the characteristics of an LLP.

It is a corporate business vehicle that combines the flexibility of a partnership with the
advantages of being a separate legal entity. It is called as the HYBRID of a company
and partnership firm. Being a legal entity, it is liable for the full extent of its assets.

The liability of the partners is however limited.

 Separate legal entity
 Limited liability
 No limit on maximum number of partners
 Agent-Principal relationship
 Perpetual succession
 Capacity to sue and to be sued
 Business view point only
 Body corporate
 Taxation

12. Differentiate between an LLP and a Partnership firm.

BASIS FOR LIMITED LIABILITY

PARTNERSHIP
COMPARISON PARTNERSHIP (LLP)

Meaning Partnership refers to an Limited Liability

BASIS FOR LIMITED LIABILITY
PARTNERSHIP
COMPARISON PARTNERSHIP (LLP)

arrangement wherein Partnership is a form of

two or more person business operation
agree to carry on a which combines the
business and share features of a
profits & losses partnership and a body
mutually. corporate.

Governed By Indian Partnership Act, Limited Liability

1932 Partnership Act, 2008

Registration Optional Mandatory

Charter Partnership deed LLP Agreement

document

Liability Unlimited Limited to capital

contribution, except in
case of fraud.

Contractual It cannot enter into It can sue and be sued

capacity contract in its name. in its name.

Legal Status Partners are collectively It has a separate legal

known as firm, so there status.
is no separate legal
entity.

Name of firm Any name Name containing LLP

as suffix

Maximum 50 partners No limit

partners
BASIS FOR LIMITED LIABILITY
PARTNERSHIP
COMPARISON PARTNERSHIP (LLP)

Property Cannot be held in the Can be held in the

name of firm. name of the LLP.

Perpetual No Yes
Succession

Audit of Not mandatory Mandatory, only if

accounts turnover and capital
contribution
overreaches 40 lakhs
and 25 lakhs
respectively.

Relationship Partners are agents of Partners are agents of

firm and other partners LLP only.
as well.
13. Differentiate between an LLP and a Company.

Managed by Broad of Directors Partners

Charter MOA AOA LLP Agreement

14. What is a designated partner?