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Introduction:
·
Central Government levies
taxes on income (except tax on agricultural income, which the State Govt. can
levy), customs duties, central excise and service tax.
·
Value Added Tax (VAT),
stamp duty, state excise, land revenue and profession tax are levied by the
State Governments.
·
Local bodies are empowered
to levy tax on properties, octroi and for utilities like water supply, drainage
etc.
Direct Taxes
·
In case of direct taxes (income
tax, wealth tax, etc.), the burden directly falls on the taxpayer.
·
Income tax
·
According to Income
Tax Act 1961, every person, who is an assessee and whose total income exceeds
the maximum exemption limit, shall be chargeable to the income tax at the rate
or rates prescribed in the Finance Act.
·
Such income tax shall be
paid on the total income of the previous year in the relevant assessment year.
·
Where a person includes:
Individual, Hindu Undivided Family, Association of persons, Body of
individuals, Company, Firm, A local authority AND Every artificial judicial
person not falling within any of the preceding categories.
·
Assessment year commences
from 1st April and ends on the next 31st March.
·
The total income of an
individual is determined on the basis of his residential status in India. For
tax purposes, an individual may be resident, nonresident or not ordinarily
resident.
·
An individual is treated
as resident in a year if present in India:
·
For 182 days during
the year or
·
For 60 days during the
year and 365 days during the preceding four years.
·
Individuals fulfilling neither of these conditions are nonresidents.
·
Non-residents are taxed
only on income that is received in India or arises or is deemed to arise in
India.
·
Non-resident Indians
(NRIs) are not required to file a tax return if their income consists of only
interest and dividends, provided taxes due on such income are deducted at
source.
·
Personal Income Tax
·
Personal income tax is
levied by Central Government and is administered by Central Board of Direct
taxes.
·
Income tax slabs for
individual taxpayers for the year 2012-13 to be as follows: (diff. 4 women and senior citizen)
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Slab of Income (Rs)
|
Rate of Tax (%)
|
|
Income
upto 2 lakh
|
Nil
|
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Income
2-5 lakh
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10
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Income
5-10 lakh
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20
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Income
above 10 lakh
|
30
|
·
Corporate tax
·
The taxability of a
company's income depends on its domicile.
·
Indian companies are
taxable in India on their worldwide income.
·
Foreign companies are
taxable on income that arises out of their Indian operations, or, in certain
cases, income that is deemed to arise in India.
·
Royalty, interest, gains
from sale of capital assets located in India (including gains from sale of
shares in an Indian company), dividends from Indian companies and fees for
technical services are all treated as income arising in India.
·
Minimum Alternative Tax (MAT)
·
Normally, a company is
liable to pay tax on the income computed in accordance with the provisions of
the income tax Act, but the profit and loss account of the company is prepared
as per provisions of the Companies Act. There were large number of companies
who had book profits as per their profit and loss account but were not paying
any tax because income computed as per provisions of the income tax act was
either nil or negative or insignificant.
·
In such case, although the
companies were showing book profits and declaring dividends to the
shareholders, they were not paying any income tax. These companies are
popularly known as Zero Tax companies.
·
In order to bring such
companies under the income tax act net, a new tax was introduced in 1999 known
as MAT.
·
In India, in the case of
companies, if the tax payable on their taxable income for any assessment year
is less than 18.54% of their ‘book profit’ (if book profit does not exceed Rs
10 m),or 19.9305% of book profit (if book profit exceeds Rs 10 m), an amount
equal to 18.54% of the book profit (if book profit does not exceed Rs 10 m) or
19.9305% of book profit (if book profit exceeds Rs 10 m) is regarded as their
tax liability and this liability is termed as MAT.
·
‘Book profit’ means net profit as per the profit and loss account as
adjusted (increased or reduced) by certain specified items which includes
income tax paid or payable and the provisions made for unascertained
liabilities, amounts carried to any reserves, provisions for meeting
unascertained liabilities, losses brought forward or unabsorbed depreciation,
deferred tax, interest on tax , surcharge, education cess, income exempt from
tax, non-taxable profits from export of goods, computer software etc.
·
However, the following are
included within book profits, despite being exempted from normal income tax:
·
profits of undertakings
located in free trade zones, software and hardware technology parks
·
profits from the export of
computer software
·
long-term capital gains
arising from the transfer of listed equity shares/units
·
MAT is applicable in
respect of Export Oriented Unit Schemes (EOU) but not Special Economic Zones
(SEZ).
·
Fringe Benefit Tax (FBT)
·
The Finance Act, 2005
introduced a new levy, namely Fringe Benefit Tax (FBT)
·
Fringe Benefit Tax (FBT)
is an additional income tax payable by the employers on value of fringe
benefits provided or deemed to have been provided to the employees.
·
Fringe Benefits are
defined as any privilege, service, facility or amenity directly or indirectly
provided by an employer to his employees (including former employees) by reason
of their employment and includes expenses or payments on certain specified
heads.
·
The scope of Fringe
Benefit Tax is being widened by including the employees stock option as fringe
benefit liable for tax. The fair market value of the share on the date of the
vesting of the option by the employee as reduced by the amount actually paid by
him or recovered from him shall be considered to be the fringe benefit.
·
Here, Employer can be a
company; a firm; an association of persons excluding trusts/a body of
individuals; a local authority; a sole trader, or an artificial juridical
person.
·
This tax is payable even
where employer does not otherwise have taxable income.
·
Dividend Distribution Tax (DDT)
·
DDT is the tax levied by the Indian
Government on companies according to the dividend paid to a company's investors.
·
Only a domestic company
(not a foreign company) is liable for the tax.
·
Rate of dividend
distribution tax to be raised from 12.5 per cent to 15 per cent on dividends
distributed by companies; and to 25 per cent on dividends paid by money market
mutual funds and liquid mutual funds to all investors.
·
Banking Cash Transaction Tax (BCTT)
·
The Finance Act 2005
introduced the Banking Cash Transaction Tax (BCTT)
·
BCTT is levied at the rate
of 0.1% of the value of following "taxable banking transactions"
entered with any scheduled bank on any single day:
·
Withdrawal of cash from any bank account other than a saving bank
account
·
Receipt of cash on
encashment of term deposit
·
BCTT continued to be an
extremely useful tool to track unaccounted monies and trace their source and
destination. It had led the Income Tax Department to many money laundering and
hawala transactions.
·
However, Banking Cash
Transaction Tax (BCTT) was withdrawn in 2009
·
Securities Transaction Tax (STT)
·
Securities Transaction Tax
or turnover tax is a tax that is leviable on taxable securities transaction.
·
The surcharge is not
leviable on the STT.
·
Wealth Tax
·
Wealth tax is a tax on the
benefits derived from property ownership.
·
The tax is to be paid year
after year on the same property on its market value, whether or not such
property yields any income.
·
It is charged in respect
of the wealth held during the assessment year by the following persons:
Individual, Hindu Undivided Family and Company.
·
The assets chargeable to
wealth tax are Guest house, residential house, commercial building, Motor car,
Jewellery, bullion, utensils of gold, silver, Yachts, boats and aircrafts,
Urban land and Cash in hand (in excess of Rs 50,000
for Individual & HUF only).
·
The following will not be
included in Assets:
·
Assets held as Stock in
trade
·
A house held for business
or profession
·
Any property in nature of
commercial complex
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A house let out for more
than 300 days in a year
·
Gold deposit bond
·
A residential house
allotted by a Company to an employee, or an Officer, or a Whole
·
Wealth tax is not levied
on productive assets, hence investments in shares, debentures, mutual funds,
etc are exempt from it.
·
The value of the taxable
assets on the valuation date is clubbed together and is reduced by the amount
of debt owed by the assessee.
·
Wealth tax is charged @ 1
per cent of the amount by which the net wealth exceeds Rs 15 Lakhs.
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Capital Gains Tax
·
A capital gain is income
derived from the sale of an investment.
·
A capital investment can
be a home, a farm, a ranch, a family business, work of art etc. The scope of
capital asset is being widened by including certain items held as personal
effects such as archaeological collections, drawings, paintings, sculptures or
any work of art.
·
The capital gain is the
difference between the money received from selling the asset and the price paid
for it.
·
Capital gain also includes
gain that arises on "transfer" (includes sale, exchange) of a capital
asset and is categorized into short-term gains and long-term gains.
·
The capital gains tax is
different from almost all other forms of taxation in that it is a voluntary
tax. Since the tax is paid only when an asset is sold, taxpayers can legally
avoid payment by holding on to their assets--a phenomenon known as the
"lock-in effect."
·
Gray Area of CGT: A large number of foreign
institutional investors who trade on the Indian stock markets operate from Mauritius and
the second being Singapore. According to the tax treaty between
India and Mauritius, capital gains arising from the sale of shares are taxable
in the country of residence of the shareholder and not in the country of
residence of the company whose shares have been sold. Therefore, a company
resident in Mauritius selling shares of an Indian company will not pay tax in
India. Since there is no capital gains tax in
Mauritius, the gain will escape tax altogether.
·
Short Term and Long Term
capital Gains
·
Gains arising on transfer
of a capital asset held for not more than 36 months (12 months in the case of a
share held in a company or other security listed on recognised stock exchange
in India or a unit of a mutual fund) prior to its transfer are
"short-term".
·
Capital gains arising on
transfer of capital asset held for a period exceeding the aforesaid period are
"long-term".
·
Income-Tax Act provides
for the tax on long-term capital gains.
·
Double Taxation Relief
·
Double Taxation means
taxation of the same income of a person in more than one country. This results
due to countries following different rules for income taxation.
·
There are two main rules
of income taxation:
·
Source of income rule: As
per source of income rule, the income may be subject to tax in the country
where the source of such income exists (i.e. where the business establishment
is situated or where the asset / property is located) whether the income earner
is a resident in that country or not.
·
Resident Rule: The income
earner may be taxed on the basis of the residential status in that country. For
example, if a person is resident of a country, he may have to pay tax on any
income earned outside that country as well.
·
Further,some countries may
follow a mixture of the above two rules.
·
Thus, problem of double
taxation arises if a person is taxed in respect of any income on the basis of
source of income rule in one country and on the basis of residence in another
country or on the basis of mixture of above two rules.
·
In India, the liability under the Income Tax Act
arises on the basis of the residential status of the assessee during the
previous year. In case the assessee is resident in India, he also has to pay
tax on the income, which accrues or arises outside India.
·
Relief against such
hardship can be provided mainly in two ways:
·
Bilateral Relief: The
Governments of two countries can enter into Double Taxation Avoidance Agreement
(DTAA) to provide relief against such Double Taxation, worked out on the basis
of mutual agreement between the two concerned sovereign states.
·
Unilateral relief: No
country will be in a position to arrive at the bilateral agreement with all the
countries of the world for all time. The hardship of the taxpayer however is a
crippling one in all such cases. Some relief can be provided even in such cases
by home country irrespective of whether the other country concerned has any
agreement with India or has otherwise provided for any relief at all in respect
of such double taxation. This relief is known as unilateral relief.
·
DNN 14th Dec, 2012: India
is looking to sign 12 more double taxation avoidance pacts, the Rajya Sabha was
informed. The countries/jurisdictions, with which the proposal to sign DTAAs is
under process, are Albania, Bhutan, Chile, Croatia, Fiji, Hong Kong, Iran,
Latvia, Senegal, Venezuela, Cuba and Macedonia. India has already entered into Double Taxation Avoidance
Agreements (DTAAs) with 84 countries. In addition, DTAAs have been signed with
three countries, viz. Colombia, Uruguay & Ethiopia and will enter into
force after the completion of necessary formalities in these countries.
Indirect Taxation
·
Central Sales Tax (CST)
·
Central Sales tax is
generally payable on the sale of all goods by a dealer in the course of
inter-state trade or commerce or, outside a state or, in the course of import
into or, export from India.
·
The Central Sales Tax which is levied on inter-State sales
would be eliminated gradually.
·
Value Added Tax (VAT)
·
State Sales Tax charged on the sales of movable goods has
been replaced with VAT in most of the Indian states since 2005. This was
introduced to counter the rampant double taxation issues and resultant
cascading tax burden that occurred due to the flaws inherent in the previous
sales tax system.
·
VAT, chargeable only on goods and does not include services,
is a multi-stage system of taxation, whereby tax is levied on value addition at
each stage of transaction in the supply chain. The term ‘value addition’
implies the increase in value of goods and services at each stage of production
or transfer of goods and services. VAT is a tax on the final consumption of
goods or services and is ultimately borne by the consumer.
·
VAT comes under the state list.
·
Different rates of VAT are charged depending on the category
to which the goods belong. Rates vary for essential commodities, bullion and
valuable stones, industrial inputs and capital goods of mass consumption, and
others. Petroleum tobacco, liquor and so on are subjected to higher rate and
differ from state to state.
·
Notably, there is no VAT on imports and export sales.
Therefore VAT charged on inputs purchased and used in the manufacture of export
goods or goods purchased for export, is available as a refund.
·
Roadmap towards GST
·
The Goods and Services Tax (GST) is
a value added tax to be implemented in India, the decision
on which is pending. It will
replace all indirect taxes levied on goods and services by
the Indian Central and State governments.
·
No
taxing system can completely eradicate the effect of cascading, but
implementation of GST, to a large extent, will minimize the effect. GST will
provide a simple structure to levy, collect and administer the taxes in the Country.
·
More
than 140 countries have introduced GST in some form. It has been a part of the
tax landscape in Europe for the past 50 years and is fast becoming the
preferred form of indirect tax in the Asia Pacific region. It is interesting to
note that there are over 40 models of GST currently in force, each with its own
peculiarities. "World over, GST rates are typically between 16 per cent
and 20 per cent. In India, it is likely to be the same," Central Board of
Excise and Customs (CBEC) Former Chairman Sumit D Majumdar said.
·
With
heterogeneous State laws on VAT, the debate on the necessity for a GST has been
reignited. The best GST systems across the world use a single GST while India
has opted for a dual-GST model. Critics claim that CGST, SGST and IGST are
nothing but new names for Central Excise/Service Tax, VAT and CST and hence GST
brings nothing new to the table.
·
DNN
8th Jan, 2012: The committee set up
by the Finance Minister on GST is looking at alternate models. The panel is of
the opinion that a single GST model may not work across the country. These
committees were expected to build consensus towards the implementation of GST
because several states especially the BJP ruled ones are still opposed to the
implementation of GST. The reports were expected to be submitted by December
31, but now this time line has been extended to the January 21. The important
thing to be highlighted here is that the finance ministry and states feel that
up till now the government was working towards a perfect GST model adopting the
best practices across the globe. However, they say now that such a model will
be difficult to implement and build consensus for and there is no one size that
fits all in one. Hence, India specific model needs to be determined keeping in
mind the diversity in the country and that there cannot be uniform rates across
the country. Mr. Sushil Kumar Modi,
Chairman of the Empowered Committee of State Finance Ministers, is also to submit its GST report
and now the finance ministry is working with him towards the 2014 deadline.
·
Excise Duty
·
Central Excise duty is an indirect tax levied on goods
manufactured in India and meant for domestic consumption. The Central Board of
Excise and Customs under the Ministry of Finance, administers the excise duty.
Central Excise Duty arises as soon as the goods are manufactured. It is paid by
a manufacturer, who passes on its incidence to the customers.
·
State Excise: Power to impose excise on alcoholic liquors, opium and
narcotics is granted to States under the Constitution and it is called ‘State
Excise’. The Act, Rules and rates for excise on liquor are different for each
State.
·
Note: Under the Cenvat (Central Value Added Tax) Scheme, introduced
under The Cenvat Credit Rules, 2004, a manufacturer of product or provider of
taxable service shall be allowed to take credit of duty of excise as well as of
service tax paid on any input received in the factory or any input service
received by manufacturer of final product. Such credits can be used to setoff
any excise duty tax payable.
·
In the recent budget, a number of tax exemptions have been
initiated. Exemptions are allowed to tax payers engaged in the manufacture of
certain goods such as, water treatment, bio-diesel, processed food etc. and
certain types of establishments such as small scale industries, cottage
industries that create jobs are also exempted.
·
Customs Duty
·
Customs duty is the tax levied on goods imported into India
as well as on goods exported from India. Taxable event is import into or export
from India.
·
Additionally educational cess is also charged.
·
The Central Board of Excise and Customs under the Ministry of
Finance manages the customs duty process in the country.
·
The customs duty is evaluated on the value of the transaction
of the goods. The rate at which customs duty is applicable on the goods depends
on the classification of the goods determined under the Customs Tariff. The
Customs Tariff is generally aligned with the Harmonized System of Nomenclature
(HSL).
·
It should be noted that preferential/concessional rates of
duty are also available under the various Trade Agreements. Also, in line with aligning the customs duty and bringing it
at par with the ASEAN level, government has reduced the peak customs duty from
12.5 per cent to 10 per cent for all goods other than agriculture products.
·
Service Tax
·
Service tax was introduced
in India way back in 1994 and started with mere 3 basic services viz. general
insurance, stock broking and telephone. Subsequent Budgets have expanded the scope of the service tax
as well as the rate of service tax. More than 100 services are subjected to tax
under this provision. From a mere 5 per cent,
service tax is now levied on specified taxable services at the rate of 12 per
cent of the gross value of taxable services. However, on account of the
imposition of education cess of 3 per cent, the effective rate of service tax
is at 12.36 per cent.
·
The Central Board of Excise and Customs under the Ministry of
Finance manages the administration of service tax. Every service provider of a
taxable service is required to register with the Central Excise Office in the
concerned jurisdiction.
·
Exemptions are available for services that are exported,
small service providers whose revenue fall below the prescribed level, services
provided to UN and International Agencies and supplies to SEZ (Special Economic
Zones).
·
Subject to conditions, service tax is not payable on value of
goods and material supplied while providing services.
·
Securities Transaction Tax (STT)
·
Transactions in equity shares, derivatives and units of
equity-oriented funds entered in a recognized stock exchange attract Securities
Transaction Tax.
·
Service Tax, Surcharge and Education Cess are not applicable
on STT.
·
Taxation of profit or loss from securities transactions
depends on whether the activity of purchasing and selling of shares /
derivatives is classified as investment activity or business activity.
Treatment of STT also depends upon whether the income from these securities
transactions are included under the head “Income from Capital Gains” or under
the head ‘Profits and Gains of Business or Profession’.
·
NOTE: The Indian Government is keen on merging all taxes like
Service Tax, Excise and VAT into a common Goods and Service Tax (GST). [Already
Discussed J]
·
Stamp Duty
·
It is a tax that is levied
on the transaction performed by means of a document or instrument as per the
regulations of Indian Stamp Act, 1899.
·
It is collected by the government of the state where the
transaction is carried out. Stamp duty rates vary between the states.
·
Stamp duty is paid on instruments, which are essentially a
document to create, transfer, limit, extend, extinguish or record a right or
liability. Document acquires legality once it is stamped properly after
the payment of the requisite stamp duty charges.
·
Stamp duty is also payable for transfer of shares, share
certificate, partnership deed, bill of exchange, shares, share transfer, leave
and license agreement,
debentures, gift deed, bank guarantee, bonds, demat shares, development
agreement, demerger, power of attorney, home loans, houses & house
purchase, lease deed, loan agreement and lease agreement.
Some proposals for Taxes in Union Budget
2012-13
·
Agriculture and Related
Sectors: Full exemption from basic customs duty for import of equipment for
expansion or setting up of fertiliser projects upto March 31, 2015
·
Infrastructure
·
Proposal for full
exemption from basic customs duty and a concessional CVD of 1 per cent to steam
coal till 31st March, 2014.
·
Full exemption from basic
duty provided to certain fuels for power generation.
·
Mining
·
Full exemption from basic
customs duty to coal mining project imports.
·
Basic custom duty proposed
to be reduced for machinery and instruments needed for surveying and
prospecting for minerals.
·
Railways: Basic custom
duty proposed to be reduced for equipments required for installation of train
protection and warning system and upgradation of track structure for high speed
trains.
·
Roads: Full exemption from
import duty on certain categories of specified equipment needed for road
construction, tunnel boring machines and parts of their assembly.
·
Civil Aviation: Tax
concessions proposed for parts of aircraft and testing equipment for thirdparty
maintenance, repair and overhaul of civilian aircraft.
·
Manufacturing: Relief
proposed to be extended to sectors such as steel, textiles, branded readymade
garments, low-cost medical devices, labour-intensive sectors producing items of
mass consumption and matches produced by semi-mechanised units.
·
Health and Nutrition
·
Proposal to extend
concessional basic customs duty of 5 per cent with full exemption from excise
duty/CVD to 6 specified life-saving drugs/vaccines. [Read More]
·
Basic customs duty and
excise duty reduced on Soya products to address protein deficiency among women
and children.
·
Basic customs duty and
excise duty reduced on Iodine.
·
Basic customs duty reduced
on Probiotics.
·
Environment
·
Concessions and exemptions
proposed for encouraging the consumption of energy-saving devices, plant and
equipment needed for solar thermal projects.
·
Concession from basic
customs duty and special CVD being extended to certain items imported for
manufacture for hybrid or electric vehicle and battery packs for such vehicles.
·
Additional resource mobilization
·
Proposals to increase
excise duty on ‘demerit’ goods such as certain cigarettes, hand-rolled bidis,
pan masala, gutkha, chewing tobacco, unmanufactured tobacco and zarda scented
tobacco.
·
Proposal to increase basic
customs duty on imports of gold and other precious metals.
·
No change proposed in the
peak rate of customs duty of 10 per cent on non-agricultural goods.
·
Basic customs duty
proposed to be enhanced for certain categories of completely built units of
large cars/MUVs/SUVs.
·
Rationalization measures
·
Excise duty rationalised for packaged
cement, whether manufactured by mini-cement plants or others.
·
Levy of excise duty of 1 per cent on
branded precious metal jewellery to be extended to include unbranded jewellery.
Operations simplified and measures taken to minimise impact on small artisans
and goldsmiths.
·
Branded Silver jewellery exempted from
excise duty.
·
Chassis for building of commercial vehicle
bodies to be charged excise duty at an ad-valorem rate (in proportion
to the estimated
value
of goods)
instead of mixed rate.
