Chapter 1.

Introduction

1.1 Introduction to GIFT City

Gujarat International Finance Tec-City (GIFT City) is a business district promoted by the
Government of Gujarat through a joint venture company. GIFT City is India's first operational smart
city in the Ahmedabad and international financial services centre.

GIFT is an operational smart city developed in the Ahmedabad metropolitan region as a Greenfield
development. The project includes features like a district cooling system, underground utility
tunnel, and automated vacuum waste collection. The city is designed for walkability and includes
commercial and residential complexes.

The project is located on the bank of the Sabarmati River and is around 12 km (7.5 mi) from
Gandhinagar international airport. GIFT is easily accessible from all directions through 4-6 lane
State and National Highways. A double corridor metro system is planned to connect GIFT City to the
Airport and various parts of Ahmedabad and Gandhinagar.

The idea for GIFT was developed during the Vibrant Gujarat Global Investor Summit 2007 and is
being planned by East China Architectural Design & Research Institute (ECADI), which is
responsible for planning much of modern-day Shanghai, and Fairwood Consultants India. GIFT
City’s Master Plan is for the 359 hectares (886 acres) of land area to have approximately ~110
buildings with ~5,800,000 m2 (62,000,000 sq ft) of built-up area, of which around 67% is
commercial, 22% is for residential and 11% is social facilities. Currently
~190,000 m2 (2,000,000 sq ft) of commercial space is operational, and another
280,000 m2(3,000,000 sq ft) is under development. As of now an investment of Rs 10,500 crore has
already been committed for GIFT City. The city has an integrated development model which has
been spread out in three phases. Each phase is designed as integrated sustainable development, for
example the first phase itself includes development of office space, residential, school, hotel, club
etc.

Currently approximately 200 units/companies are operational with more than 7500 employed in the
GIFT City.
1.2 Utilities

Electricity

The 1000MW electricity supply is planned to be 99.999% reliable (about 5.3 minutes of outage per
year). GIFT's power grid will be designed by ABB Group of Switzerland. All the electricity cables
will be underground.

Piped gas

Natural gas will be distributed to every house and building via pipes, which is cheaper and safer than
cylinders. Gas supply to the city will be made from the existing gas network of GSPL, the state-
owned company for gas transmission pipelines. Piped natural gas is already in distribution in the
nearby cities of Ahmedabad and Gandhinagar.

Air conditioning

India's first city-level district cooling system is operational at GIFT City. It reduces the operational
cost by 30-40% and avoids the capital cost of implementing coolers in each building.

Solid waste management

All waste will be automatically sucked through underground pipes at a high speed of 90 km/h
(56 mph), and will be treated through plasma gasification.

Transportation

GIFT aims at providing a transportation network that ensures accessibility, easy and fast mobility
and few accidental road deaths. This would be achieved by:

1. Using a multimodal mix of transport systems (MRTS/LRTS/BRTS, etc.) for both intercity
transport (to Ahmedabad, Airport, and Gandhinagar) and intra-city transport.

2. Using a walk-to-work concept as part of urban planning with a nodal split of 10:90 between
private and public transport.

3. Use of electric personal rapid transit systems within the city.

GIFT City will also have its own metro stations

Landmarks

 GIFT Diamond Tower

 GIFT Gateway Towers - will be located in the main avenue of the city. It would have
elaborate terrace gardens and a rooftop restaurant. The towers draw inspiration from Buland
Darwaza. It will have a total 680,000 square metres (7,300,000 sq ft) built up space.

 GIFT Crystal Towers - With a total 790,000 square metres (8,500,000 sq ft) built up area,
four Crystal Towers will overlook the Sabarmati River.

 GIFT Convention Centre - Inspired by the structure of Salt crystals and Mahatma
Gandhi's Dandi March, the convention centre would have an opera and have a seating capacity
of 10,000. The centre would have total built up area of 600,000 square metres (6,500,000 sq ft).

 World Trade Centre, GIFT City.

1.3 Concept and Introduction of Tax:

Taxation is the inherent power of the state to impose and demand contribution upon persons,
properties, or right for the purpose of generating revenues for public purposes.

Taxes are enforced proportional contributions from persons to property levied by the law making
body of the state by virtue of its sovereignty for the support of the government and all public needs.

1.4 Brief History of Taxation:

Tax is today an important source of revenue for the government in all the countries. More than 3000
years ago, the inhabitants of ancient Egypt and Greece used to pay tax, consumption taxes and
custom duties. Income tax was first introduced in India in 1860 by James Wilson who become
Indians First Finance Member.

In order to meet the losses sustained by the government on account of military mutiny of 1857. In
1918 A New Income Tax bill was passed and which was further again replace in 1922. Finally, The
Ministry of Law and Finance The Income Tax was passed in 1961 and brought came in force on 1st
April 1962 and this is also known as the Financial Year in Current Era. I e. (01.04.18 – 31.03.2019)

1.5 Taxation System:

Tax system of raising money to finance Government. All governments require payment of money
taxes from people.

Government use revenues to pay soldiers and police to build dams and roads, to operate schools and
hospitals, to provide food to the poor and medical care facilities etc. and also hundreds of other
purposes without taxes to fund its activities, govt could not exist. So, taxation is the most important
source of revenues for modern government typically according for 90% or more of their income.

1.6 Essentials Characteristics of Tax:

1. It is an enforced Contribution.
2. It is generally payable by Money.
3. It proportionate in character, usually based on ability to pay.
4. It is levied on person and property with the jurisdiction of the state.
5. It is levied for public purpose.
6. It is commonly required to be paid a regular intervals.

1.7 Why are Taxes Levied?

The reason for levy of taxes is that they constitute the basic source of revenue to the government.
Revenue so raised is utilized for meeting the expenses of government like defence, provision of
education, health care, Infrastructure facilities like roads, dams etc.

1.8 What are the Reasons of Taxation?

1. Provide the basic facilities for every citizen of country.

1.9 Meaning of Tax:

The word Tax came from Latin word “Taxo, Tax are '' which means to asses or estimate.
Tax can be defined in the following ways:

“The compulsory payments made to governments associated with certain activities are called Taxes''

“A general purpose, compulsory contribution by the people to public treasury to meet the
expenditure of government is called Tax ''

“A specific amount of money demanded by government from its public levied on their income,
sales, wealth etc. ''

“Taxes are the price we pay for a civilized society ''

Tax in general, is the imposition of financial charge upon an individual or a company by the govt of
India or their respective state or similar other functional equivalents in a state. The computation and
imposition of the varied taxes prevalent in the country are carried on by the Ministry of Finance
Department of Revenue.

1.10 Different Types of Taxes:

Prevalence of various kinds of taxes is found in India. Taxes in India can be either direct or indirect.
However, the types of taxes even depend on whether a particular tax is being levied by the central
or the state government or any other municipalities. Following are some of the major Indian
government are:

1. Direct Taxes:

It is names so because it is directly paid to the union government of India. As per a survey, the
Republic of India has witnessed a consistent rise in the collection of such taxes over a period of
past years. The visible growth in these tax collections as well as the rates of taxes reflects a healthy
tax along with better administration of taxation. To name a few of the direct taxes, which are
imposed by the Indian government are:

1. Banking cash Transaction Tax.

5. Fringe Benefit Tax.

2. Indirect Taxes:

As opposed to the direct taxes, such a tax in the nation is generally levied on some specified
services or some particular goods. An indirect tax is not levied on any particular organization or an
individual. Almost all the activities, which fall within the periphery of the indirect taxation, are
included in the range starting from manufacturing goods and delivery of services to those that are
meant for consumption.

Usually, the indirect taxation in the Indian Republic is a complex procedure that involves laws and
regulations, which are interconnected to each other. These taxation regulations even include some
laws that are specific to some of the states of the country. The organizations offer services in all or
most of the related fields, some of which are as follows:

1. Anti-Dumping Duty
 2. Custom Duty
3. Excise Duty
4. Sales Tax
5. Value Added Tax or VAT

(3) Local Taxes in India:

The most known tax, which is levied by the local municipal jurisdictions on the entry of goods, is
known as the Entry Tax or the Doctor Tax.

(4) Income Tax

Income tax in India includes all income except the agricultural income that is levied and collected
by the central government. This particular income is also shared with the states. The income tax
was incorporated in India from the year 1860.

However, after many alteration, finally with the Indian Income-tax Act, 1922, there was a
revolutionary change brought by the All India Income Tax Committee. The significant as after this
the administration of the Income Tax came under the direct control of the central Government. This
act got amended again in the year 1961, and the present Income Tax regime in India is still
following the provisions of the act of 1961.

5) Consumption Tax:

Consumption Tax is applicable on the consumption of any type of goods or service. This particular
tax is based on consumption and not on income. The consumption Tax can be regarded as a sales
tax, as this tax is also regressive in nature like the other pure sales taxes. However, there are some
remedies by which the consumption tax can be made progressive in nature.
1.12 GST (India)

Meaning of Goods and Service Tax (GST)

Clauses 366 (12A) of the constitution Bill defines GST as “goods and service tax” means any tax on
supply of goods, or services or both except taxes on the supply of the liquor for human consumption.
Further the clause 366 (26A) of the Bill defines Services means anything other than Goods.

Thus it can be said that GST is a comprehensive tax levy on manufacture, sale and consumption of
goods and services at a national level. The proposed tax will be levied on all transactions involving
supply of goods and services, except those which are kept out of its preview.

Purpose of GST:

The Two Important Purposes of GST are followings:

Single Umbrella Tax Rate: GST shall replace a number of indirect taxes being levied by union and
state government.

Removing Cascading Effect: GST is intended to remove Tax on Tax Effect and provides to
common national market for Goods and Services.

Types of Categories under GST rate

The GST tax is levied based on Revenue Neutral Rate. For the purpose of imposing GST tax in
India, the goods and services are categorized in to four. These are four categories of goods and
services are follows:

Exempted Categories under GST in India: The GST and council and other GST authorities
notifies list of exempted goods. Such goods are not fallen under payment of GST tax. The authorities
may modify or amend the list time to time by adding deleting any item if required by notification to
public.

Essential Goods and Services for GST in India: Essential Category of goods and services are
charged very lower GST rate. Essential goods and services are the goods and services for necessary
items under basic importance.

Standard Goods and services for GST in India: A major share of GST tax payers falls under this
category of Standard Goods and Service. A Standard rate is charged against the goods and services
under this category.
 Special Goods and Services for GST tax Levy: Under special category of goods and services,
GST rates would be high. Precious metals including luxury items of goods and services fall under
special goods and services for GST rate implementations.

GST rates in India at a glance:

Exempted categories: 0

Commonly used Goods and Services: 5%

Standard Goods and Services fall under 1st Slab: 12%

Standard Goods and Services fall under 2nd Slab: 18%

Special category of Goods and Services including Luxury Goods: 28%

What are the taxes that got replaced by GST?

Unlike earlier when there were multiple taxes such as Central Excise, Service Tax and State VAT
etc., under GST, there is just one tax. GST is categorized into CGST, SGST or IGST depending on
whether the transaction is Intra-State or Inter-State.

What is Central Goods and Services Tax (CGST)?

Under GST, CGST is a tax levied on Intra State supplies of both goods and services by the Central
Government and will be governed by the CGST Act. SGST will also be levied on the same Intra
State supply but will be governed by the State Government.
This implies that both the Central and the State governments will agree on combining their levies
with an appropriate proportion for revenue sharing between them. However, it is clearly mentioned
in Section 8 of the GST Act that the taxes be levied on all Intra-State supplies of goods and/or
services but the rate of tax shall not be exceeding 14%, each.

Central Taxes which will be subsumed in CGST:

Central Excise Duty.

Additional Excise Duty.

Service Tax.

The Excise duty levied under the medical and toilet preparation Act.

Additional Customs Duty.

Education Less.

Surcharges

What is State Goods and Services Tax (SGST)?

Under GST, SGST is a tax levied on Intra State supplies of both goods and services by the State
Government and will be governed by the SGST Act. As explained above, CGST will also be levied
on the same Intra State supply but will be governed by the Central Government.

State taxes which will be subsumed in SGST:

VAT/ Sales Tax.

Luxury Tax.

Entertainment Tax (unless it is levied by local bodies)

Taxes on Lottery, betting, and gambling.

An example for CGST and SGST:

Let’s suppose Rajesh is a dealer in Maharashtra who sold goods to Anand in Maharashtra worth Rs.
10,000. The GST rate is 18% comprising of CGST rate of 9% and SGST rate of 9%. In such case,
the dealer collects Rs. 1800 of which Rs. 900 will go to the Central Government and Rs. 900 will go
to the Maharashtra Government.
What is Integrated Goods and Services Tax (IGST)?

Under GST, IGST is a tax levied on all Inter-State supplies of goods and/or services and will be
governed by the IGST Act. IGST will be applicable on any supply of goods and/or services in both
cases of import into India and export from India.

 Exports would be zero-rated.

 Tax will be shared between the Central and State Government.

An example for IGST:

Consider that a businessman Rajesh from Maharashtra had sold goods to Anand from Gujarat worth
Rs. 1,00,000. The GST rate is 18% comprised of 18% IGST. In such case, the dealer has to charge
Rs. 18,000 as IGST. This IGST will go to the Centre.
Taxes under GST

1.13 Loans and Advances

The term ‘loan’ refers to the amount borrowed by one person from another. The amount is in the
nature of loan and refers to the sum paid to the borrower. Thus, from the view point of borrower, it is
‘borrowing’ and from the view point of bank, it is ‘lending’. Loan may be regarded as ‘credit’
granted where the money is disbursed and its recovery is made on a later date. It is a debit for a
borrower. While granting loans, credit is given for a definite purpose and for a predetermined period.
Interest is charged on the loan at agreed rate and intervals of payment. ‘Advance’ on the other hand,
is a ‘credit facility’ granted by bank. Banks grant advances largely for short-term purpose, such as
purchase of goods traded in and meeting other short-term trading liabilities. There is a sense of debt
in loan, where as an advance is a facility being availed of by the borrower. However, like loans,
advances are also too repaid. Thus a credit facility repayable in instalments over a period is termed
as loan while a credit facility repayable within one year may be known as advances.

Loans and advances granted by commercial banks are highly beneficial to individuals, firms,
companies and industrial concerns. The growth and diversification of business activities are effected
to a large extent through bank financing. Loans and advances granted by banks help in meeting
short-term and long term financial needs of business enterprises.

We can discuss the role played by banks in the business world by way of loans and advances as
follows:-

(a) Loans and advances can be arranged from banks in keeping with the flexibility in business
operations. Traders may borrow money for day to day financial needs availing of the facility of cash
credit, bank overdraft and discounting of bills. The amount raised as loan may be repaid within a
short period to suit the convenience of the borrower. Thus business may be run efficiently with
borrowed funds from banks for financing its working capital requirements.

(b) Loans and advances are utilized for making payment of current liabilities, wage and salaries of
employees, and also the tax liability of business.

(c) Loans and advances from banks are found to be ‘economical’ for traders and businessmen,
because bank charge a reasonable rate of interest on such loans/advances. For loans from money
lenders, the rate of interest charged is very high. The interest charged by commercial banks is
regulated by the Reserve Bank of India.

(d) Banks generally do not interfere with the use, management and control of the borrowed money.
But it takes care to ensure that the money lent is used only for business purpose.

(e) Bank loans and advances are found to be convenient as far as its repayment is concerned. This
facilities planning for future and timely repayment of loans. Otherwise business activities would
have come to halt.

(f) Loans and advances by banks generally carry element of secrecy with it. Banks are duty-bound to
maintain secrecy of their transactions with the customers. This enhances people’s faith in the
banking system.

Lending of Money
The commercial bank lends money in four different ways:

(a) Direct Loans.

(b) Cash Credit.

(c) Overdraft.

(d) Discounting of bills.

Loans

Loan is the amount borrowed from bank. The nature of borrowing is that the money is disbursed and
recovery is made in instalments. While lending money by way of loan, credit is given for a definite
purpose and for a pre-determined period. Depending upon the purpose and period of loan, each bank
has its own procedure for granting loan. However the bank is a liberty to grant the loan requested or
refuse it depending upon its own cash position and lending policy.

There are two types of available from banks:

(1) Demand loan, and

(2) Term loan.

(1) A Demand Loan: - it is a loan which is repayable on demand by the bank. In other words, it is
repayable at short-notice. The entire amount of demand loan is disbursed at one time and the
borrower has to pay interest on it. The borrower can repay the loan either in lump sum (one time) or
as agreed with the bank. Demanded loans are raised normally for working capital purpose, like
purchase of raw materials, making payment of short-term liabilities.

(2) Term loans: -medium and long term loans are called term loans. Term loans are granted for more
than a year and repayment6 of such loans is spread over a longer period. The repayment is generally
made in suitable instalment of a fixed amount. Term loan is required for a purpose of starting a new
business activity, renovation, and modernization, expansion/extension of existing units, purchase of
plant and machinery, purchase a land for setting up a factory, construction of a factory building or
purchase of immovable assets. These loans are generally secured against the mortgage of land, plant
and machinery, building and etc….

Cash Credit
Cash Credit is a flexible system of lending under which the borrower has the option to withdraw the
funds as and when required and to the extent of his needs. Under this arrangement the banker
specifies a limit of loan for the customer (known as cash credit limit) up to which the customer is
allowed to draw. The cash credit limit is based on the borrower’s need and as agreed with the bank.
Against the limit of cash credit, the borrower is permitted to withdraw as and when he needs money
subject to the limit sanctioned.

It is normally sanctioned for a period of one year and secured by the security of some tangible assets
or personal guarantee. If the account is running satisfactorily, the limit of cash credit may be renewed
by the bank at the end of the year. The interest is calculated and charged to the customer’s account.
Cash credit, is one of the types of bank lending against the security by way of pledge or
/hypothecation of goods. ‘Pledge’ means bailment of goods as security for the payment of debt.

Its primary proposes is to put the goods pledged in the procession of lender. It ensures recovery of
loans in case of failure of borrower to repay the borrowed account. In ‘hypothecation’, goods remain
in the possession of the borrower, who binds himself under the agreement to give possession of
goods to the banker whenever the banker requires him to do so. So hypothecation is a device to
create a charge over the asset under circumstances in which transfer of possession is either
inconvenient or impracticable.

Overdraft

Over draft facility is more or less similar to ‘cash credit’ facility is the result of an agreement with
the bank by which a current account holder is allowed to draw over and above the credit balance in
his/her account. It is a short-period facility. This facility is made available to current account holder
who operates their account through cheques. The customer is permitted to with the amount of
overdraft allowed as and when he/she needs it and to repay it through deposit in the account as and
when it is convenient to him/her. Overdraft is generally granted by a bank of the basis of a written
request by the customer. Sometimes the bank also insists on either a promissory note from the
borrower or personal security of borrower to ensure safety of amount withdrawn by the customer.
The interest rate on overdraft is higher than is charged on loan.

The following are some of the benefits of cash credit and over draft:-

(1) Cash credit and some overdraft allow flexibility of borrowing, which depends upon the needs of
the borrower.
(2) There is no necessity of providing security and documentation again and again for borrowing
funds. (3) This mode of borrowing is simple and elastic and meets the short term financial needs of
the business.

Discounting of Bills

Apart from sanctioning loans and advances, discounting of bills of exchange by bank is another way
of making funds available to the customers. Bills of exchange are negotiable instruments which
enables debtors to discharge their obligations to the creditors. Such bills of exchange arise out of
commercial transactions both in inland trade and foreign trade. When the seller of goods has to
release his dues from the buyer at a distant place immediately or after the lapse of agreed period of
time, the bill of exchange facilitates this task with the help of banking institution. Banks invest a
good percentage of their funds in discounting bills of exchange. These bills may be payable on
demand or after a stated period.

In discounting a bill, the bank pays the amount to the customer in advance, i.e. before the due date.
For this purpose, bank charges discount on the bill at a specified rate. The bill so discounted is
retained by the bank till its due date and is presented to drawee on the date of maturity. In case the
bill is dishonoured on due date the amount due on bill together with interest and other charges is
debited by the bank to the customer’s account.

Nature and security of loans

To ensure the safety of funds lent, the first and most important factor considered by a bank is the
capacity of borrowers to repay the amount of loan; the bank therefore, relies primarily on the
character, capacity and financial soundness of the borrower. But the bank can hardly afford to take
any risk in this regard and hence it also has the security of tangible asset owned by the borrower. In
case the borrower fails to repay the loan, the bank can recover the amount by attacking the assets. It
can sell the assets offered as a security and realize the amount.

Thus from the view point of security of loans, we can divide the loans into two categories: (a)
secured, and (b) unsecured.

Unsecured loans are those loans which are not covered by the security of tangible assets. Such loans
are granted to firms/institutions against the personal security of the owner, manager or director. On
the other hand, Secured loans are those which are granted against the security of tangible assets, like
stock in trade and immovable property. Thus, while granting loan against the security of some assets,
a charge is created over the assets of the borrower in favour of bank. This enables the bank to
recover the dues from the customer out of sale proceeds of the assets in case the borrower fails to
repay the loan. There are various types of securities which may be offered against loans granted, but
all of those are not acceptable to the banks.

The types of securities generally accepted by the bank are the following:

 Tangible assets such as plant and machinery, motor-van, etc.

 Documents of title to goods, like Railway Receipt (R/R), Bills of exchange, etc.

 Financial securities (Shares and Debentures)

 Life-Insurance Policy.

 Real Estates (Land, Building, etc.).

 Fixed Deposit Receipt (FDR).

 Gold Ornaments, jewellery etc.