Practice: Module I
Chapter Eighteen
Syllabus topic 1, 2, 3, 4, 5, "Meaning and concept of “Person” under Income Tax Law, GST Law, Udyam"; "Application and Registration procedure of Digital Signature."; "PAN & TAN application for business Under The Income Tax Act, 1961."; "Business Registration under UDYAM / UDYOG AADHAR."; "Business Registration under Goods and Service Tax Laws."
Pages 41 to 45 of 80
How this set is built
MU sets the external paper at 30 marks in one hour: attempt any 2 out of 3 questions of 15 marks each, practical or theory, with equal weightage to all modules, subdivisible 8+7, 10+5 or 5+5+5, and with more importance to be given to the practical problems wherever possible.
Work each question before reading the answer.
Question 1 (15 marks: 8 + 7)
(a) [8] Distinguish between the concept of "person" under the income-tax law and under the GST law, and state what Udyam has in place of a definition of person.
(b) [7] Shirke Traders, a proprietorship in Pune dealing exclusively in goods, has a turnover of Rs. 34 lakh, all within Maharashtra. In March it accepts an order from a buyer in Surat worth Rs. 40,000. Advise on GST registration, with the sections.
Answer to 1(a)
Under the income-tax law, section 2(77) of the Income-tax Act 2025 includes seven categories: an individual, a Hindu undivided family, a company, a firm, an association of persons or a body of individuals whether incorporated or not, a local authority, and every artificial juridical person not falling within the preceding sub-clauses. The definition closes by providing that it applies whether or not the body was formed with the object of deriving income, profits or gains, so a profit motive is not required.
Under the GST law, section 2(84) of the CGST Act 2017 has fourteen categories, and the four differences are these.
| Income-tax Act 2025 | CGST Act 2017 | |
|---|---|---|
| Limited liability partnership | Assessed as a firm | Its own limb, clause (e) |
| Society and trust | Through the residual limb | Named, clauses (l) and (m) |
| Government | Not in the list | Named, clause (k) |
| Reach outside India | Not as such | Clause (f) says "in India or outside India"; clause (h) covers a foreign body corporate |
The reason for the wider list is that the two taxes catch different things: income tax taxes income, so a body with none is of no interest, while GST taxes supply, which a society, a trust, a government department or a foreign company can all make.
Udyam has no definition of person at all. What it has instead are two things: section 7(1) of the MSMED Act 2006 lists the forms an enterprise may take, being proprietorship, Hindu undivided family, association of persons, co-operative society, partnership firm, company or undertaking by whatever name called; and paragraph 6(4) and 6(5) of S.O. 2119(E) say whose Aadhaar identifies the enterprise, being the proprietor, the managing partner, the karta, or the authorised signatory. A candidate who invents a third definition of person is inventing law.
Answer to 1(b)
Before the Surat order. Shirke Traders deals exclusively in goods, so its threshold under the third proviso to section 22(1) of the CGST Act is Rs. 40 lakh. Turnover of Rs. 34 lakh is below it, so the firm is not liable to be registered, though it may register voluntarily under section 25(3).
Practice: Module I
On accepting the Surat order. The supply is from Maharashtra to a buyer in Gujarat, so it is an inter-State taxable supply. Section 24(i) requires every person making an inter-State taxable supply to be registered, and section 24 opens with "Notwithstanding anything contained in sub-section (1) of section 22", so the Rs. 40 lakh threshold is displaced entirely.
So the firm must register, and the size of the order is irrelevant. Rs. 40,000 has the same effect as Rs. 40 lakh.
When. Within thirty days from the date it becomes liable, under section 25(1).
Where. In Maharashtra only. The supply is made from Maharashtra; it does not create a place of business in Gujarat.
One further point worth making. The firm should consider whether to accept the order at all, because registration brings monthly returns and a compliance cost for the rest of its life, and it cannot be surrendered while the firm continues to make inter-State supplies. That is the advice a client actually wants, and it is what the syllabus means by a vocational skill.
Question 2 (15 marks, practical)
Deshpande and Sons is a partnership firm formed on 1 May 2027 in Pune, manufacturing plastic components. Investment in plant and machinery is Rs. 2.10 crore. Expected turnover in the first year is Rs. 84 lakh, entirely within Maharashtra. It hires two workers in June 2027 and a supervisor on Rs. 38,000 a month from 1 July 2027. Neither partner and nor the firm holds any registration.
Set out, in order, the registrations the firm needs from the statutes in Module I, the provision requiring each, the time within which it must be applied for, and the classification the firm will receive under Udyam.
Answer to 2
Step 1. PAN of the firm.
Required by section 262(1)(b) of the Income-tax Act 2025: a person carrying on a business whose sales, turnover or gross receipts are or are likely to exceed Rs. 5,00,000 in a tax year must apply. Rs. 84 lakh is likely.
Form 49A, with the partnership deed as proof of identity and address of the firm, signed by a partner. No photograph is required for a firm. The PAN will have F as its fourth character.
It must come first, because section 25(6) of the CGST Act makes a PAN a condition of eligibility for GST registration and Form 49B for TAN asks for it.
Practice: Module I
Step 2. Udyam registration.
| Figure | Micro ceiling from 1-4-2025 | Within? | |
|---|---|---|---|
| Investment | Rs. 2.10 crore | Rs. 2.50 crore | Yes |
| Turnover | Rs. 0.84 crore | Rs. 10.00 crore | Yes |
Both criteria are within the micro limits, so the firm is a micro enterprise, under paragraph 1 of S.O. 2119(E) as amended by S.O. 1364(E) with effect from 1 April 2025.
Filed on the Udyam Registration portal, free, with nothing uploaded, on the Aadhaar of the managing partner under paragraph 6(4), with the firm's PAN. A permanent Udyam Registration Number and an electronic certificate follow.
Step 3. GST registration.
The firm deals exclusively in goods, so the threshold under the third proviso to section 22(1) is Rs. 40 lakh. Expected turnover of Rs. 84 lakh exceeds it, so the firm is liable.
It makes no inter-State supply, so section 24 does not apply, but the outcome is the same.
Application in Form GST REG-01 within thirty days of becoming liable, under section 25(1), in Maharashtra. A fifteen-character GSTIN beginning 27 follows, carrying the firm's PAN at positions 3 to 12.
Step 4. TAN.
The supervisor is paid Rs. 38,000 a month, Rs. 4,56,000 a year from 1 July 2027, which is above the amount not chargeable to tax, so the firm must deduct tax at source from his salary. Section 397(1)(a) of the Income-tax Act 2025 then requires it to apply for a TAN, in Form 49B, which needs no documents.
Not before July, because a firm that deducts nothing needs no TAN. And the firm must obtain the supervisor's PAN before the first payment, because section 397(2) makes the deduction fall at a higher rate without it.
Step 5. Digital Signature Certificate.
Not compulsory for a partnership firm, which may sign the GST application by electronic verification code, but needed for tendering and convenient for filing. Applied for under section 35(1) of the Information Technology Act 2000 to a licensed Certifying Authority, Class 3, in the name of a named partner with an authorisation letter from the other. It is issued to the partner, never to the firm.
Question 3 (15 marks: 5 + 5 + 5)
(a) [5] Explain what a digital signature is and how it differs from a scanned image of a handwritten signature, with the sections of the Information Technology Act 2000.
(b) [5] "Udyam and Udyog Aadhar are alternatives." Comment.
(c) [5] Distinguish between PAN and TAN.
Answer to 3(a)
Section 3(1) of the Information Technology Act 2000 allows a subscriber to authenticate an electronic record by affixing his digital signature. Section 3(2) says the authentication is effected by an asymmetric crypto system and hash function which envelop and transform the record into another record. Section 3(3) says any person, by the use of the subscriber's public key, can verify the record, and section 3(4) says the private key and the public key are unique to the subscriber and constitute a functioning key pair.
Practice: Module I
Section 5 gives it legal recognition: where a law requires authentication by signature, that requirement is satisfied by an electronic signature affixed in the prescribed manner.
It differs from a scanned signature in three ways, and they are the three things a digital signature gives.
| Scanned signature | Digital signature | |
|---|---|---|
| Authentication | Can be copied off any document and pasted onto another | Only the holder of the private key can affix it |
| Integrity | Says nothing about whether the document changed | Change one character and the hash result changes and verification fails |
| Non-repudiation | Easily denied | Cannot be denied, because nobody else holds the private key |
Answer to 3(b)
The statement is wrong, and the error is a common one.
Udyog Aadhar was introduced in 2015 and was a free online self-declaration against the entrepreneur's Aadhaar number, classifying an enterprise on investment alone, with no linkage to the income-tax return or to GST and no bar on duplicates.
Udyam Registration was created by S.O. 2119(E) dated 26 June 2020 with effect from 1 July 2020. It classifies on a composite criterion of investment and turnover, links the figures to the PAN, the income-tax return and the GSTIN, and forbids more than one registration per enterprise under paragraph 6(7).
They are not alternatives, because paragraph 7 of the notification closed the older scheme:
(1) All existing enterprises registered under EM-Part-II or UAM shall register again on the Udyam Registration portal on or after the 1st day of July, 2020.
(2) All enterprises registered till 30th June, 2020, shall be re-classified in accordance with this notification.
"Shall register again." An enterprise still holding only a Udyog Aadhar Memorandum is not registered at all today. The correct statement is that Udyam replaced Udyog Aadhar, and every holder was required to register afresh.
Answer to 3(c)
| PAN | TAN | |
|---|---|---|
| Full form | Permanent Account Number | Tax Deduction and Collection Account Number |
| Provision | Section 262, Income-tax Act 2025 | Section 397(1), Income-tax Act 2025 |
| Structure | Ten characters: five letters, four digits, one letter | Ten characters: four letters, five digits, one letter |
| Who must have it | Every person meeting any of the six conditions in section 262(1) | Only a person who deducts or collects tax at source |
| Purpose | Identifies the taxpayer | Identifies the deductor |
| Form | 49A, or 49AA for a non-resident | 49B |
| Documents needed | Identity, address and, for an individual, date of birth | None |
| Quoted in | Returns, correspondence with any income-tax authority, all challans, section 262(3) | TDS challans, statements and certificates, section 397(1)(b) |
| How many | One only, section 262(8) | One per deductor, and a branch may hold its own |
Practice: Module I
One line that settles the difference: a proprietor with a shop and no employees needs a PAN and does not need a TAN; the day he hires somebody on a taxable salary he needs both.
The rest of this subject
These notes are cut from the University's printed syllabus. Open the syllabus itself, or the past papers, for the same subject.