Advance Ruling

Advance Ruling means written opinion or authoritative decision by an Authority empowered to

render it with regard to the tax consequences of a transaction or proposed transaction or an
assessment in regard thereto. It has been defined in section 245N(a) of the Income-tax Act, 1961
as amended from time-to-time.
What is Reverse Charge Mechanism (RCM)?
It is a mechanism where the recipient of the goods or services is liable to pay GST instead of the
supplier.
Typically, the supplier of goods or services pays the tax on supply. Under the RCM, the recipient of
goods or services becomes liable to pay the tax, i.e., the liability of tax payment gets reversed.
Objectives:
to widen the scope of levy of tax on various unorganized sectors;
to exempt specific classes of suppliers of goods/services;
to tax the import of services (since the supplier is based outside India);
Under the RCM, the recipient of goods cannot claim an Input tax credit (ITC)as the supplier has
not paid any tax for their sales.
What is an Input tax credit (ITC) under GST?
ITC means GST paid by a taxable person on any purchase of goods and/or services that are used
or will be used for business.
ITC value can be reduced from the GST payable on the sales by the taxable person after fulfilling
some conditions.
Revenue Neutral Rate
RNR is the rate at which tax revenue remains the same despite giving credit of duty paid on
inputs and other factors.
It is the rate of tax that allows the Government to receive the same amount of money
despite changes in the tax laws.
In the GST regime the revenue of the government would not be same in comparison with
the present tax structure due to tax credit mechanism, removal of cascading effect , or
otherwise.
Therefore an adjusted in tax rate is required to avoid reduction in revenue of the
government. This adjusted Rate is termed as Revenue Neutral Rate (RNR).
RNR is the good indicator of future requirement in calculating the adequate compensation
to both state as well as central government.

Inverted Duty Structure

An inverted duty structure arises when the taxes on output or final product is lower than the
taxes on inputs, creating an inverse accumulation of input tax credit which in most cases has
to be refunded.
Inverted duty structure has implied a stream of revenue outflow for the government
prompting the government to relook the duty structure.
What are the problems with the current inverted duty structure under GST?
The inverted duty structure is causing several administrative problems in our GST system.
Taxpayers will have accumulated credits in the form of refund claims with the tax
Department.
The inverted duty structure is a revenue loss for the government as it has to refund the tax
already paid (in inputs).
Under GST, the inverted duty structure is identified for goods and not for services. Or in
other words, there is recognition for ‘input good’ and not for ‘input services.’
A good tax system
FAIRNESS– both in terms of Horizontal equity and Vertical equity. Individuals in identical
or similar situations paying identical or similar taxes is known as horizontal equity. When
people in higher tax brackets people pay more taxes, it is known as vertical equity.
EFFICIENCY- should be able to raise resources via taxes with least amount of difficulty to
the taxpayers.
SIMPLICITY– in terms of understanding the tax structure, computing, filing and paying
of taxes. This will increase Tax compliance among the masses and in turn increase the
revenue resource of the government.
FLEXIBLE-should be able to change according to the needs of the time.
TRANSPARENT– The individual assessment of taxes, the total collection, the amount spent
on public goods using those resources etc should be in a transparent manner.
Non Tax Revenues
Interest receipts: This includes interest earned on loans given by the government to states,
railways, and other entities.
Dividends and profits: This includes dividends and profits received from public sector
companies.
Fees and charges: This includes fees collected for services provided by the government, such
as passport fees, visa fees, and court fees.
Fines and penalties: This includes fines and penalties imposed by the government for
violating laws and regulations.
Sale of assets: This includes the sale of government property, such as land, buildings, and
vehicles.
Grants and contributions: This includes grants and contributions received from foreign
governments and international organizations.
These are just some of the many non-tax receipts that governments collect. The specific types of
non-tax receipts that a government collects will vary depending on the country and its economic
situation.
Here are some additional examples of non-tax receipts:
Royalties: This includes royalties received from the exploitation of natural resources, such as
oil and gas.
User charges: This includes charges collected for the use of government-provided goods
and services, such as water, electricity, and transportation.
Selling of lottery tickets: This is a common source of non-tax revenue in many countries.
Selling of stamps: This is a traditional source of non-tax revenue in many countries.
Non-tax receipts are an important source of revenue for governments. They can help to
supplement tax revenue and provide governments with a more stable source of income.
Capital Receipts:
1. Debt Creating Capital Receipts:
Debt creating capital receipts are those receipts that involve the government incurring a liability in
the future. This means that the government will have to repay the amount borrowed, plus interest,
at some point in the future.
Some examples of debt creating capital receipts include:
Borrowing from the public: This includes the issuance of bonds, loans, or other debt
instruments.
Receiving loans from foreign governments or international organizations: This includes loans
from the World Bank, the International Monetary Fund, or other development agencies.
2. Non debt Creating Capital Receipts:
Non-debt creating capital receipts are those receipts that do not lead to an increase in the
government's liabilities. This means that the government does not have to repay these receipts in
the future.
Some examples of non-debt creating capital receipts include:
Sale of assets: This includes the sale of land, buildings, equipment, and other government
property.
Disinvestment: This includes the sale of shares in government-owned companies.
Recovery of loans: This includes the recovery of loans that the government has made to
other entities.
Capital grants: This includes grants and contributions received from foreign governments or
international organizations.
Non-debt creating capital receipts can be used to finance a variety of government projects, such
as infrastructure development, social programs, or military spending. However, it is important to
note that these receipts do not reduce the government's debt burden.

Public Expenditure
It refers to the government expenditure.
It's incurred by the central and state government
In other words, the expenditure incurred by the public authorities like central and state
government to satisfy the collective social wants of the people is known as Public
expenditure.
It can be classified into two types:
Revenue Expenditure : These are current and consumption expenditure incurred on civil
administration, defence forces, public health and education etc
Recurring Type which is incurred year after year.
It does not impact the liability status of the government.
Does not increase the long term efficiency of the firm, nor does it result in
the acquisition of something permanent
High revenue expenditure indicates poverty and backwardness of the
economy.
Capital Expenditure:
Capital expenditure (CAPEX) is defined by the Union government as money spent
on the acquisition of assets such as land, buildings, machinery, and equipment, as
well lo stock investments.
The government's expenditure is categorized into two: the one which results in
asset development or acquisition known as CAPEX, and that which is utilized to
cover operating costs and obligations but does not result in asset creation known as
Revenue expenditure.

Capital Expenditure: Examples

The portion of government payments that goes toward the construction of
assets such as schools, colleges, hospitals, roads, bridges, dams, railway lines,
airports, and seaports is known as capital expenditure.
The acquisition of new weaponry and weapon systems, such as missiles,
tanks, fighter planes, and submarines, necessitates a significant financial outlay.
The defense sector receives over a third of the central government's capital
spending, primarily for armament acquisitions.
Despite the fact that defense spending is classified as a capital expenditure, it
does not result in the development of infrastructure to support economic
growth.
Also includes investments that will produce earnings or dividends in the
future.