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In India, indirect taxes is a vast ocean as there are number of taxes to be paid on manufacture, import, sale and even purchase in certain cases. Further the law is governed less by the Acts and more by day to day notifications, circulars and orders by the Governing bodies. So an explicit understanding is very much essential.
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Basic concepts
Tax can be imposes on the occurrence of a taxable event. For the purpose of income tax, the taxable
event is the earning of income. Similarly, for the purpose of Service tax, it could be the provision of
service.
The 'Charging section' of the statute specifies the link between the taxable event and the tax that can
be charged.
Charging section is interpreted strictly.
I. R. v. Countess of Longford, 13 T.C. 573 (HL): If a person is not in the ambit of all the provisions
of the charging section, he cannot be taxed.
Machinery provisions of the statute specify the procedure for assessment, collection, adjudication,
and appeals
United Provinces v CIT., 204 ITR 794: Machinery provisions are to be interpreted so as to make
the machinery workable.
The Doctrine of Immunity of Instrumentalities shields Federal and State Governments from taxing
each other.
No tax shall be levied or collected without the authority of law. Hence, there should be some law
which allows / authorizes a Government to collect a specific tax. Hence, it is normal for Governments
to apply taxes on broad subjects instead of clearly distinguishable specific subjects. In general, the
nature of the Government is to tax broadly and exempt narrowly.
Article 265 of Constitution of India says 'Taxes not to be imposed save by authority of law'.
Ghulam Hussain v State of Rajasthan, AIR 1963 SC 379: Here, 'law' means a law enacted by a
legislature.
An Executive Order or a Rule that goes beyond the power of the statute or custom cannot be
treated as Law.
Article 246 of Constitution of India deals with 'Subject-matter of laws made by Parliament and by the
Legislatures of States'. The article provides the necessary Constitutional provisions related to
distribution of legislative powers including the tax laws between the Centre and State.
Union List: Taxes on income other than agriculture income, inter-stateTRADE and commerce,
Wealth Tax, Estate Duty, Customs, Central Excise etc.
State List: Sales Tax etc.
Concurrent List: Union List: Taxes related to sale or purchase of goods other than newspapers
Concurrent List: State List: Taxes on lands and buildings
New India Industries vs Union of India (AIR 1990 Bom 239): Doctrine of Unjust Enrichment says that
tax illegally levied should be refunded.
A Sales Tax is a tax imposed on Sales of goods / services.
Read more: http://www.lawnotes.in/Tax_Law#ixzz3v810UKnR
UK Tax Laws
UK Taxes Management Act 1970 Indian Tax LawsActs
Finance Act, 1994
Finance Act, 2011
Taxation Laws (Amendment) Act, 1984
Income Tax Act
Wealth Tax Act
Gift Tax Act
Expenditure Tax Act
Interest Tax Act
Service Tax Act
Sales Tax & Value Added Tax Acts
Central Sales Tax Act
Andhra Pradesh General Sales Tax Act
Delhi Value Added Tax (Amendment) Act, 2011
Delhi Value Added Tax (Amendment) Act, 2010
Maharashtra Value Added Tax Act, 2002
Maharashtra Value Added Tax (Amendment) Act, 2010
Rajasthan Value Added Tax (Amendment) Act, 2010
Tamil Nadu General Sales Tax Act, 1959
Tamil Nadu Value Added Tax (Special Provision) Act, 2010
Tamil Nadu Sales Tax (Settlement of Arrears) Amendment Act, 2010
Tamil Nadu Value Added Tax (Second Amendment) Act, 2010
Tamil Nadu Sales Tax (Settlement of Arrears) Act, 2010
Uttar Pradesh Value Added Tax (Amendment) Act, 2010
Uttarakhand (The Uttaranchal Value Added Tax) (Third Amendment) Act, 2009
Uttarakhand Value Added Tax (Amendment) Act, 2010
Central Excise Act, 1944 Indian Tax Rules & Bills
Customs, Excise and Service Tax Appellate Tribunal (Procedure) Rules, 1982 (Also popular as
CESAT Rules, 1982)
Income Tax Rules
Wealth Tax Rules
Gift Tax Rules
Expenditure Tax Rules
Interest Tax Rules
Advance Ruling
ITAT Rules
Settlement Commission Rules
Maharashtra Value Added Tax (Third Amendment) Rules, 2011
Export of Service Rules, 2005
Assam Value Added Tax (Amendment) Rules, 2010
Central Excise (Amendment) Rules, 2011
Central Excise (Second Amendment) Rules, 2011
Central Excise (Third Amendment) Rules, 2010
Central Sales Tax (Registration and Turnover) Amendment Rules, 2010
CENVAT Credit (Amendment) Rules, 2010 (6/2010 of 2010)
CENVAT Credit (Amendment) Rules, 2011
CENVAT Credit (Second Amendment) Rules, 2011
CENVAT Credit (Third Amendment) Rules, 2011
Courier Imports and Exports (Electronic Declaration and Processing) Amendment Regulations, 2011
Customs Tariff (Identification, Assessment and Collection of Anti-dumping Duty on Dumped Articles
and for Determination of Injury) Amendment Rules, 2011
Customs, Central Excise Duties and Service Tax Drawback (Amendment) Rules, 2011
Customs, Central Excise Duties and Service Tax Drawback (Second Amendment) Rules, 2011
Delhi Value Added Tax (Amendment) Bill, 2009
Delhi Value Added Tax (Amendment) Rules, 2010
Delhi Value Added Tax (Amendment) Rules, 2011
Delhi Value Added Tax (Third Amendment) Rules, 2010
Export of Services (Amendment) Rules, 2011
Export of Services (Second Amendment) Rules, 2011
Export of Services (Third Amendment) Rules, 2011
Finance Bill, 2011
Gujarat Value Added Tax (Second Amendment) Rules, 2010
Haryana Value Added Tax (Amendment) Rules, 2009
Kerala Value Added Tax (Amendment) Rules, 2010
Kerala Value Added Tax (Second Amendment) Rules, 2009
Point of Taxation (Amendment) Rules, 2011
Point of Taxation Rules, 2011
Service Tax (Amendment) Rules, 2011
Service Tax (Determination of Value) Amendment Rules, 2011
Service Tax (Determination of Value) Second Amendment Rules, 2011
Service Tax (Second Amendment) Rules, 2011
Service Tax (Third Amendment) Rules, 2011
Taxation of Services (Provided from Outside India and Received in India) (Third Amendment) Rules,
2011
Taxation of Services (Provided from Outside India and Received in India) Amendment Rules, 2011
Taxation of Services (Provided from Outside India and Received in India) Second Amendment Rules,
2011
Uttarakhand (The Uttaranchal Value Added Tax) (Second Amendment) Rules, 2009
Works Contract (Composition Scheme for Payment of Service Tax) Amendment Rules, 2011Related Indian Taxation News
July 10, 2014: Legislative and Administrative Changes Proposed to Reduce Litigation in Direct TaxesMalaysian Tax Laws
Malaysia Income Tax 1967 Recent Cases / Related Cases / Case Law
Commissioner,TRADE Tax, Uttar Pradesh, Lucknow vs Shakti Tubes [ALLAHABAD HIGH COURT,
16 May 2011]
Bansal Wire Industries Limited and another vs State of Uttar Pradesh and others [SUPREME COURT
OF INDIA, 26 Apr 2011]
State of Tamil Nadu and another vs India Cements Limited and another [SUPREME COURT OF
INDIA, 21 Apr 2011]
State of Uttar Pradesh and others vs Mahindra and Mahindra Limited [SUPREME COURT OF INDIA,
20 Apr 2011]
Abhishek Industries Limited vs State of Punjab and another [PUNJAB AND HARYANA HIGH
COURT, 20 Apr 2011]
(1) M. L. Rice Mills Dabwali Road; (2) Bhalley Ram Rice and General Mills; (3) Jai Bharat Rice Mills
vs State of Haryana and others [PUNJAB AND HARYANA HIGH COURT, 19 Apr 2011]
Gas Authority of India Limited vs State of Uttar Pradesh and others [ALLAHABAD HIGH COURT, 18
Apr 2011]
Chirag Agency, Muzaffarpur, Through its Proprietor Sunil Kumar Hisaria S/o Late Satya Narayan
Prasad Hisaria vs (1) State of Bihar, Through the Commissioner-cum-Principal Secretary of
Commercial Taxes Department, Government of Bihar; (2) Joint Commissioner of Commercial Taxes
(Appeals), Tirhut Division, Muzaffarpur; (3) Commercial Taxes Officer, Muzaffarpur Circle,
Muzaffarpur [PATNA HIGH COURT, 13 Apr 2011]
Commissioner ofTRADE Tax, Uttar Pradesh vs Varun Beverages Limited [SUPREME COURT OF
INDIA, 11 Apr 2011]
Mafatlal Industries Limited, Ghaziabad vs Commissioner of Trade Tax, Uttar Pradesh, Lucknow
[ALLAHABAD HIGH COURT, 08 Apr 2011]
RajawatTRADERS , Cement Vyapari, Mauranipur, District Jhansi vs Commissioner, Commercial
Taxes, Uttar Pradesh Lucknow [ALLAHABAD HIGH COURT, 08 Apr 2011]
Commissioner of Trade Tax, Uttar Pradesh vs Kartos International Etc. [SUPREME COURT OF
INDIA, 06 Apr 2011]
Sterlite Industries (I) Limited, Represented by its Company Secretary and Associate Vice President,
S. Varadharajan vs Deputy Commercial Tax Officer III [MADRAS HIGH COURT, 05 Apr 2011]
Pepsico India Holdings Limited vs Commissioner of Trade Tax, Lucknow, Uttar Pradesh [SUPREME
COURT OF INDIA, 05 Apr 2011]
Sandan Vikas (India) Limited, Faridabad vs State of Haryana and others [PUNJAB AND HARYANA
HIGH COURT, 04 Apr 2011]
ACTO vs Eicher Limited, Alwar [RAJASTHAN HIGH COURT, 31 Mar 2011]
Rotomac Pens Private Limited vs State Level Committee, Lucknow, Through Convener, Director of
Industries, Uttar Pradesh, Kanpur and another [ALLAHABAD HIGH COURT, 31 Mar 2011]
Indian Oil Corporation Limited, Agra vs Commissioner ofTRADE Tax, Uttar Pradesh, Lucknow
[ALLAHABAD HIGH COURT, 31 Mar 2011]
Sharad Carriers Private Limited vs Commissioner ofTRADE Tax, Uttar Pradesh, Lucknow
[ALLAHABAD HIGH COURT, 31 Mar 2011]
ACTO vs Amit Stone Crusher and others [RAJASTHAN HIGH COURT, 31 Mar 2011]
J. K. Industries Limited and another vs State of Assam and others [GAUHATI HIGH COURT, 31 Mar
2011]
Sanjeev Bhaskar vs Assistant Collector, Recovery and another [DELHI HIGH COURT, 31 Mar 2011]
Commercial Taxes Officer, A.E.O Rajasthan-I vs Godrej G.E. Appliances, Jaipur [RAJASTHAN HIGH
COURT, 30 Mar 2011]
Prince Stone Company vs CTO, Anti Evasion I Commercial Taxes, Kota [RAJASTHAN HIGH
COURT, 30 Mar 2011]
Durga Industries vs Sales Tax Officer [DELHI HIGH COURT, 30 Mar 2011]Tax Law of other countries
Kenya: Kenyan Income Tax Act
South African Income Tax Act, 1962
Singapore Income Tax Act
Philippines: National Internal Revenue Code of 1997
Read more: http://www.lawnotes.in/Tax_Law#ixzz3v81ThJVm
Basic principles of income tax1. 1. Basic Principles of Income-tax Presented by AMEET N. PATEL November 2013 12. 2. Income-tax and Death are the only two inevitable things in life In India, taxes
were levied even in ancient times – refer to Manu Smriti & Arthashastra Why to Pay Tax ? “It was only for the good of his subjects that he collected taxes from them, just as the Sun draws moisture from the Earth to give it back a thousand fold“. --Kalidas in Raghuvansh eulogizing KING DALIP. Income-tax Act, 1922 Income-tax Act, 1961 Income-tax Rules, 1962 2
3. 3. In the past we had very high tax rates. Now, the rates are quite moderate and comparable with several other countries. We also had very high wealth-tax rates, estate duty, gift tax. Now there is a sea-change. 3
4. 4. Countries India Brazil China Denmark Japan Netherland Russia UK USA Tax Rates (%) 10 – 30 7.5 - 27.5 3 – 45 38 – 65 5- 50 5.85 – 52 13 0 – 45 0 – 39.6 Source: http://www.worldwide-tax.com 4
5. 5. Came into force w.e.f. 1st April, 1962 Extends to whole of India Consists of more than 300 sections, 23 Chapters and 14 schedules. The number of sub-sections, provisos and Explanations runs into several hundreds 5
6. 6. The Act determines which persons are liable to pay tax and in respect of which income. The sections lay down the law of income tax and the schedules lay down certain procedures
and give certain lists, which are referred to in the sections. However, the Act does not prescribe the rates of Income Tax 6
7. 7. The rates of Income-tax are prescribed every year by the Finance Act (popularly known as “The Budget”) At present, the tax rates are same for all corporate assessees and partnership firms (30%) and there are different slabs for Individual tax payers We also have surcharge for corporate assessees and education cess for all assessees 7
8. 8. The Act empowers the CBDT to formulate rules for implementing the provisions of the Act. Rules can be amended more easily than the Act - by merely publishing a notification in the Official Gazette of the GOI. To amend the Act, an amendment Bill has to be passed in the Parliament. In case of a conflict between the Act and the Rules, the provisions of the Act shall prevail. 8
9. 9. CBDT issues circulars on certain matters for the guidance of the Tax Officers and the general public Circulars are binding only on the Income Tax Officers Circulars cannot change the provisions of law; they can merely clarify the law or relax certain provisions in favour of the taxpayers In event of a dispute, the Courts are not bound by the circulars 9
10. 10. Case Laws are the decisions of the various Income-tax Appellate Tribunals (ITAT) and the High Courts (HC) and the Supreme Court (SC) Decisions of the SC are binding on all lower Courts and tax authorities in India HC decisions are binding only in the states which are within the jurisdiction of that particular High Court Decisions of one HC has persuasive powers over other HCs when deciding similar issues ITAT can be a single member bench (SMC) or a two member bench or a Special Bench or a Third Member Bench 10
11. 11. Section 2 gives definitions of various terms referred to in the Act Definitions can be inclusive definitions or exclusive definitions Definition of one term may lead to the definition of another term 11
12. 12. Some of the important definitions contained in the Act are of: • Person • Assessee • Assessment Year • Previous Year • Assessment • Income • Dividend 12
13. 13. Assessee Assessment Year (A.Y. 2014-15) Previous Year (F.Y. 2013-14) Residential Status Gross Total Income Deductions Total Income 13
14. 14. Means a person by whom any tax or any other sum ofMONEY is payable under this Act, and includes – ▪ Person in respect of whom any proceedings under this Act has been taken for assessment of his income ▪ Deemed assessee under provisions of this Act ▪ Any person deemed to be an assessee in default under any provisions of this Act 14
15. 15. Assessment year means the period starting from April 1 and ending on March 31 of the next year. E.g. - Assessment year 2014-15 which commenced on April 1, 2014 and will end on March 31, 2015. 15
16. 16. TheFINANCIAL year immediately preceding the assessment year E.g.: For the assessment year 2014–15, the previous year is F.Y. 2013-14 In case of a business or source of income, the previous year commences from the date of set up of business or the date on which the source of income comes into existence 16
17. 17. Residential status of an assessee is important in determining the scope of income on which income tax has to be paid in India. The different types of Residential Status are: Resident (R) ▪ An individual or HUF assessee who is resident in India may be further classified into ▪ resident and ordinarily resident (ROR) and ▪ resident but not ordinarily resident (NOR). Non Resident (NR) To be determined in each previous year (1 April to 31 March next) 17
18. 18. Importance of Residential Status: Resident – World income is taxable in India Non Resident – Only income arising or accruing in India is taxable in India Resident but Not Ordinarily Resident – Income accruing or arising outside India may also be taxable in India 18
19. 19. An individual is said to be resident in India in any previous year, if he satisfies any of the 2 basic conditions – a. Physical presence in India for 182 days or more in a previous year OR a. Physical presence in India for 60* days or more in the previous year and 365 days or more during the 4 years preceding the previous year * See next slide 19
20. 20. Section 6 - Resident * the above is subject to the following i. Citizen leaves for employment or as member of crew of an Indian ship – instead of 60 days, it is 182 days ii. Citizen or Person of Indian Origin already abroad comes on a visit - instead of 60 days, it is 182 days 20
21. 21. Individual - Resident but Not Ordinarily Resident Satisfies any one Basic condition and two Additional conditions – a. Such person has been a non resident in India in at least 9 out of 10 previous years preceding the relevant previous year; or b. The person has been in India for a period of 729 days or less during 7 years preceding the relevant previous year 21
22. 22. Assessee Basic Condition Resident and He must satisfy at least one of Ordinarily Resident the basic conditions. Additional Condition Must NOT satisfy both the additional conditions Not Ordinarily Resident Must satisfy at least one of the basic conditions. Must satisfy either of the additional conditions Non-Resident Should not satisfy any of the basic conditions. Not applicable 22
23. 23. Hindu Undivided Family Resident unless Control and Management of affairs wholly outside India R-NOR if Manager (Karta) is a non resident in India in 9 out of 10 preceding previous years or is in India for 729 days or less in 7 preceding previous years Company Resident in India ▪ If an Indian Company – Section 2(26) ▪ If Control and Management of its affairs is situated wholly in India 23
24. 24. Firm, Association of Persons and Any other person Resident unless control and management of its affairs is situated wholly outside India 24
25. 25. Basic principles of Income-tax • What is income? • Distinction between Taxable Income and Taxfree Income • Heads of Income • Sources of Income • Gross Total Income • Deductions • Total Income • Tax on Total Income 25
26. 26. The scope of Total Income depends on the Residential Status of the tax payer. The incidence of tax under different circumstances is given in the following table 26
27. 27. Scope of Total Income ROR RNOR NR Income received in India Yes Yes Yes Income deemed to be received in India Yes Yes Yes Income accruing or arising in India Yes Yes Yes Income deemed to accrue or arise in India Yes Yes Yes Income received/ accrued outside India from a business in India Yes Yes No No No Income received/ accrued outside India Yes from a business controlled outside India 27
28. 28. Definition of Income: • Income is defined to “include” several items • It is not an exhaustive definition • Any income which is not specifically exempt is taxable 28
29. 29. Agricultural income Receipts by a member from a HUF Gratuity received on retirement, termination or death Commuted Pension Exemption of amount received by way of encashment of unutilized earned leave on retirement. Dividend Income Any allowance to the extent not taxable Amount received from insurance policies on maturity of LIC policies (subject to conditions prescribed) Income from providentFUNDS 29
30. 30. Voluntary Retirement Receipts to the Maximum limit of Rs. 5,00,000 (subject to conditions) Payments from Superannuation Fund House Rent Allowance (subject to conditions) Educational Scholarships Exemption in respect of clubbed income of minor Long Term Capital Gains on Transfer of listed Equity Shares and Units of Equity Oriented MutualFUNDS 30
31. 31. Five main Heads of Income: Salaries Income from House Property Profits and Gains of Business or Profession Capital Gains Income from Other Sources 31 31
32. 32. Under each Head of Income, there could be multiple Sources of Income For example, a person could be employed with more than one employer. In such a case, each employment is a different Source of Income under the Head of Salaries 32 32
33. 33. Income is taxable under head “Salaries”, only if there exists Employer - Employee Relationship between the payer and the payee. The following incomes shall be chargeable to income-tax under the head “Salaries”:1.Salary Due 2.Advance Salary [u/s 17(1)(v)] 3.Arrears of Salary Note: (i)Salary is chargeable on due basis or receipt basis, whichever is earlier. (ii)Advance salary and Arrears of salary are chargeable to tax on receipt basis only. 33
34. 34. Properties can be broadly classified into: Let out property Self occupied property Deemed to be let out 34
35. 35. The annual value of property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner other than such portions of such property as he may occupy for the purposes of any business or profession carried on by him 35
36. 36. Determination of Annual Value This involves three steps: Step 1 – Determination of Gross Annual Value (GAV) Step 2 – GAV minus municipal tax paid by the owner during the previous year Step 3 – Balance = Net Annual Value (NAV) Step 4 – Reduce 30% of NAV as an ad-hoc Standard Deduction Step 5 – Reduce Interest, if any, paid on a loan taken to buy/construct the property 36
37. 37. Business : “Business” simply means any economic activity carried on for earning profits. Sec. 2(3) has defined the term as “ anyTRADE , commerce, manufacturing activity or any adventure or concern in the nature of trade, commerce and manufacture”. Profession : “Profession” may be defined as a vocation, or a job requiring some thought, skill and special knowledge like that of C.A., Lawyer, Doctor, Engineer, Architect etc. So profession refers to those activities where the livelihood is earned by the persons through their intellectual or manual skill. 37
38. 38. Capital Gain’s tax liability arises only when the following conditions are satisfied: There should be a capital asset. The capital asset is transferred by the assessee Such transfer takes place during the previous year. Any profit or gains arises as a result of transfer. Such profit or gains is not exempt from tax under section 54, 54B, 54D, 54EC, 54F, 54G, 54GA and 54GB 38
39. 39. Income of every kind, which is not to be excluded from the total income and not chargeable to tax under any other head, shall be chargeable under the head “Income from Other Sources”. List of items chargeable under this head:Dividends from Co-op. Banks/Foreign companies Winning from lotteries, crossword puzzles, races, gambling, betting of any form Interest on securities Income from plant, machinery or furniture on hire 39
40. 40. Any sum received under a Keyman insurance policy Any gift exceeding Rs. 50,000 received from non relatives Interest on foreign government securities Agriculture income received outside India Director’s Sitting Fees 40
41. 41. Any Individual whose total income exceeds the threshold limit is chargeable to tax in India and has to file return of income All corporate tax payers and all partnership firms have to file the return irrespective of the level of income Different forms and due dates prescribed for the returns 41 41
42. 42. The total income of an assessee is to be computed after making deductions permissible u/s 80C to 80U. However, the aggregate amount of deductions cannot exceed the Gross Total Income. Deductions are allowed under chapter VI-A of Income Tax Act. 42
43. 43. Section 80C of the Income Tax Act allows certainINVESTMENTS and expenditure to be deducted from total income up to the maximum of 1lac. The total limit under this section is Rs. 100,000 (Rupees One lac) which can be any combination of the below: Contribution to Provident Fund or Public Provident fund Payment of Life Insurance Premium INVESTMENT in Pension Plans INVESTMENT in Equity Linked Savings Scheme of Mutual Funds. Investment in NSC 43
44. 44. Tax Saving Deposits provided by Banks Payment towards principal repayment of housing loans Payment of Tuition fees of Children Post Office Term Deposit This investment can be from any source and not necessarily from income chargeable to tax. 44
45. 45. Deduction is available in respect of the amount paid to effect or to keep in force health insurance under a scheme – made by General Insurance Corporation of India (GIC) and approved by Central Government; or made by any other insurer and approved by IRDA Deduction shall be to the extent of lower of – Actual Health insurance premium paid by any mode other than cash, or Rs. 15,000 (Rs. 20,000 if the insured is a senior citizen). Deduction on account of expenditure on preventive health check-up (for self, spouse,
dependent children and parents) shall not exceed in the aggregate Rs.5,000. This payment can be made in cash. The deduction for preventive health-checkup is included in the overall limit of Rs. 15,000 / Rs. 20,000 as the case may be 45
46. 46. This section has been inserted into the Income-tax Act with effect from Assessment Year 2013-14 i.e. F.Y. 201213. This section provides deduction to an individual or a Hindu undivided family in respect of interest received on deposits (not being time deposits) in a savings account held with banks, cooperative banks and post office. The deduction is restricted to Rs.10,000 or actual interest whichever is lower. 46
47. 47. Basic difference between Exemptions and Deductions Exemptions Incomes which are exempt u/s 10 will not be included while computing total income Deductions Incomes from which deductions are allowable under Chapter VI-A will first be included in the gross total income and then the deductions will be allowed 47
48. 48. Scrutiny assessments Appeals to CIT(A) Appeals to ITAT Appeals to HC Appeals to SC Departmental appeals 48 48
49. 49. In simple terms, TDS is the tax getting deducted from the person (Employee/ Deductee) by the person paying such amount (Employer/Deductor) Different sections and rates of tax for different type of payments. A tax deductor is require to pay to the Central Government the amount so deducted and issue TDS certificate to the deductee within specified time and in a specific format. 49 49
50. 50. 192 – Salaries 194A – Interest 194C – Contracts 194H – Commission 194I – Rent 194IA – Purchase of Certain Immovable Property 194J – Professional Fees 195 – Payment to Non-Residents (other than salaries) 50 50
51. 51. Total Income Tax Payable 0 – 2,00,000 NIL 2,00,001 – 5,00,000 10% of income in excess of Rs. 2.00 lakh Less : Tax credit of upto Rs. 2,000/-. 5,00,001 – 10,00,000 30,000 + 20% of income in excess of Rs. 5,00,000 Above 10,00,000 130,000 + 30% of income in excess of Rs. 10,00,000 51
52. 52. Total Income Tax Payable 0 – 2,50,000 NIL 2,50,001 – 5,00,000 10% of income in excess of Rs. 2,50,000 Less : Tax credit of upto Rs. 2,000/-. 5,00,001 – 10,00,000 25,000 + 20% of income in excess of Rs. 5,00,000 Above 10,00,000 125,000 + 30% of income in excess of Rs. 10,00,000 52
53. 53. Total Income Tax Payable 0 – 5,00,000 NIL 5,00,001 – 10,00,000 20% of income in excess of Rs. 5,00,000 Above 10,00,000 100,000 + 30% of income in excess of Rs. 10,00,000 53
54. 54. If you need any clarifications, write to: [email protected] 54
Central Government levies taxes on the following: Income Tax: Tax on income of a person Customs duties: Duties on import and export of goods Central excise: Taxes on Manufacturing of dutiable goods Service tax: Taxes on provision of services
State Governments can levy the following taxes: Value Added Tax (VAT): This is tax on sale of goods. While intra-state sale of
goods are covered by the VAT Law of that state, inter-state sale of goods is covered by the Central Sales Tax Act. Even the revenue collected under Central Sales Tax Act is done so by the State Governments themselves and actually the Central Government has no role to play so.
Stamp duties and Land Revenue: Since land is a matter on which only State Governments can govern, thus the Stamp duties on transfer of immovable properties are levied by State Governments.
State Excise on Liquor and certain agricultural goods.
Apart from the above, certain powers of taxation have been devolved in the hands of local bodies. These local governing bodies can levy taxes on water, property, shop and establishment charges etc.
Direct Taxes
They are called so as the burden of taxation falls directly on the tax payer.Under the Income Tax Act, 1961 The Central Government levies direct taxes on the income of individuals and business entities as well as Non business entities also. The taxation level depends on the residential status of individuals. The thumb rule of residential status is that an individual becomes resident in India if he has remained in India for more than 182 days in a particular residential year. If he becomes resident in India, then his global income i.e. income earned even outside India is taxable in India. This has to be noted very carefully by Expatriates on deputation to India. They need to plan their stay in such a manner as to avoid becoming a resident in India. The following para explains this in a slightly more detailed manner:
Tax Resident
An individual is treated as resident in a year if present in India:1. For 182 days during the year or2. For 60 days during the year and 365 days during the preceding four years.
So an expatriate has to time his stay in India by taking into account the above.
So what is taxable for a Resident but “Not Ordinarily Resident”?
A resident who was not present in India for 730 days during the preceding seven years or who was nonresident in nine out of ten preceding years is treated as not ordinarily resident. A person not ordinarily resident is taxed like a non-resident but is also liable to tax on income accruing abroad if it is from a business controlled in or a profession set up in India.
What is taxable for a Non-Resident?
Non-residents are taxed only on income that is received in India or arises or is deemed to arise in India. He is entitled to get benefit of any double taxation avoidance agreement that his country of residence has signed with India. Then he shall be liable for taxes at rates mentioned in the Indian domestic tax laws or the rates mentioned in the Double Taxation Avoidance Agreement whichever is lower.
What is taxable for a Resident?
His global income is taxable irrespective of whether earned or related or received in India.Thus any expatriate needs to plan his stay so that he does not, unwittingly, become a Resident for tax purposes.
Taxation slabs for Individuals for the FY2015-16:
1. Individual resident aged below 60 year.
Income Slabs Tax Rates
Where the taxable income does not exceed Rs. 2,50,000/-.
NIL
Where the taxable income exceeds Rs.2,50,000/- but does not exceed Rs.5,00,000/-
10% of amount by which the taxable income exceeds Rs. 2,50,000/-.Less ( in case of Resident Individuals only ) : Tax Credit u/s 87A – 10% of taxable income upto a maximum of Rs. 2000/-
Where the taxable income exceeds Rs.5,00,000/- but does not exceed Rs.10,00,000/-.
Rs. 25,000/- + 20% of the amount by which the taxable income exceeds Rs. 5,00,000/-.
Where the taxable income exceeds Rs.10,00,000/-.
Rs. 125,000/- + 30% of the amount by which the taxable income exceeds Rs. 10,00,000/-
2. Individual resident who is of the age of 60 years or more but below the age of 80 years at any time during the previous year
Income Slabs Tax Rates
1. Where the taxable income does not exceed Rs. 3,00,000/-
NIL
2. Where the taxable income exceeds Rs. 3,00,000/- but does not exceed Rs. 5,00,000/-
10% of the amount by which the taxable income exceeds Rs. 300,000/-.Less : Tax Credit u/s 87A – 10% of taxable income upto a maximum of Rs. 2000/-.
3. Where the taxable income exceedsRs. 5,00,000/- but does not exceedRs. 10,00,000/-
Rs. 20,000/- + 20% of the amount by which the taxable income exceeds Rs. 5,00,000/-
4. Where the taxable income exceedsRs. 10,00,000/-
Rs. 120,000/- + 30% of the amount by which the taxable income exceeds Rs. 10,00,000/-.
3. Individual resident who is of the age of 80 years or more at any time during the previous year
Income Slabs Tax Rates
1. Where the taxable income does not exceed Rs. 5,00,000/-
NIL
2. Where the taxable income exceedsRs. 5,00,000/- but does not exceedRs. 10,00,000/-
20% of the amount by which the taxable income exceeds Rs. 5,00,000/-.
3. Where the taxable income exceedsRs. 10,00,000/-
Rs. 100,000/- + 30% of the amount by which the taxable income exceeds Rs. 10,00,000/-
AmountsINVESTED in certain investments like Employee Provident Fund, Public Provident Fund, Tax saving Fixed Deposits, are also eligible for deduction under section 80C upto Rs.1,50,000 per year.
Corporate Taxation:
The rate at which Corporates are taxed in India is 30% plus a 3% cess. Thus the total comes to 30.9%. Further if the taxable income is more than Rs. 10 million, then there is an additional surcharge of 12% on the base tax rate.
Dividend Distribution Tax (DDT)
Under Section 115-O of the Income Tax Act, any amount declared, distributed or paid by a domestic company by way of dividend shall be chargeable to dividend tax. So if a company declares divided, it has to pay an effective rate of 16.995% on the dividends declared. This is apart from the 30.9 % taxes mentioned above. The rationale for this tax is that after paying this tax, the dividend so declared becomes tax free in the hands of the recipient of dividend.
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 many a times due to exemptions under the income tax Act, there is huge actual profit as shown in the profit and loss account of the company but no taxable income. To overcome this issue, and in order to bring such companies under the income
tax act net, the concept of Minimum Alternate Tax (MAT) has been introduced. The present rate of MAT is 19.05%.Another aspect which must be looked into is the concept of
Witholding Taxes; also called as Tax Deduction at Source (TDS).
Tax Deduction at Source (TDS)
This point is being specifically mentioned because the penalties of non-compliance are very stringent. As per the provisions of the Indian tax laws, certain payments are covered under tax withholding norms. Under this, the person responsible for making any payment is required to withhold a certain specified percentage of the payment amount as taxes and deposit it with the Government treasury. In addition, the person is required to prepare a certificate of tax deduction and provide it to the person on whose behalf the deductions are made. Every quarter i.e. 3 months, returns have to be filed by the deductor and credit must be given to the deducted in the returns.The following are the areas where tax withholding is most common
in the Indian scenario:Salaries
The salaried employees of the drawing beyond the minimum taxable salary would be covered under the tax withholding requirements and annual tax withholding returns are to be submitted with the Revenue authorities.Contractors
Payments made to a contractor for carrying out any work would require withholding of tax at source from such payments, ifcertain threshold limits are crossed. Typical examples of such payments will include: Advertising payments Broadcasting and telecasting payments Office renovation payments
Vehicle hire payments Catering payments. Job Work CourierProfessional Services
Payments made for professional and technical fees to Doctors, Chartered Accountants, Lawyers, Management Consultants, Engineers, Architects and other professionals would fall under this section and tax would be required to be withheld from their payments. Such withheld tax shall be deposited with the Government.Rentals
Payments for rentals would attract tax deduction at source.
Indirect Taxes
In India, indirect taxes is a vast ocean as there are number of taxes to be paid on manufacture, import, sale and even purchase in certain cases. Further the law is governed less by the Acts and more by day to day notifications, circulars and orders by the Governing bodies. So an explicit understanding is very much essential. A simplistic way to understand Indirect taxes is as follows:
No. Nature of Activity
Applicable Law Governed By
1 Provision of services
Service Tax.Generally uniform rate of 12.36% (proposed to be 14% from 01-04-2015) is charged by Service tax Provider from recipient except in certain cases where liability is split between the provider of servicer and the recipient of service.Also in some cases, where there is mixed component of provision of service and provision of materials, there is some abatment given and service tax charged on the remaining part.
E.g. For restaurants, the service tax is charged only on
As Governed by the Finance Act, 1994 and other subsequent Finance Acts together read with notifications, circulars.Service tax is payable to the Central Government.
40% of the bill as it is assumed by Govt that the total bill
consists of 60% materials and 40% service.
There is an exemption on payment of Service tax if the
total turnover did not cross Rs. 1 million in the
previousFINANCIAL Year.
2 Manufacture of Excisable Goods
Central Excise duties are leviable on the manufacture of goods. However, the incidence of duty is postponed to the clearance of goods from factory or approved warehouse. It means the duty is payable once the manufactured goods leave the Warehouse/ Factory.Below are some of Excise duties leviableBasic – Basic Excise Duty is the most common Excise duty on manufacture of Goods. It is imposed under section 3 of the ‘Central Excise Act’ of 1944 on all excisable goods other than salt produced or manufactured in India, at the rates set forth in the schedule to the Central Excise tariff Act, 1985, falls under the category of basic excise duty in India.
it is mandatory to pay duty on all goods manufactured,
unless exempted. For example, duty is not payable on the
goods exported out of India or if the turnover does not
reach Rs. 15 million in a year or based on certain process
of production.
Excise duty rates are different for each product and based
on harmonized system of classification.
The rates can be found in the following link
http://www.cbec.gov.in/excise/cxt2013-14/cxt-1314-
idx.htm
Apart from the basic excise duty, the other types of Excise
duties are as follows but they are not of much relevance
to the vast majority of goods as they are very specifically
Central Excise Act, 1944 read with Central Excise Tariff Act, 1985 along with Rules prescribed and Circulars/ Notifications issued by the Central Board of Excise and Customs.It is payable to the Central Government.
levied. Special Excise Duty : This is the duty leviable under
Second Schedule to the Central Excise Tariff Act, 1985 at the rates mentioned in the said Schedule. At present this is leviable on very few items.
Additional Duties of Excise (Textiles and textile Articles) : his duty is leviable under section 3 of theAdditional Duties of Excise (Textiles and Textile Articles ) Act, 1978. This is leviable at the rate of fifteen percent of Basic Excise Duty payable on specified textile articles.
Additional Duties of Excise (Goods of Special Importance) : duty is leviable under the Additional Duties of Excise (Goods of Special Importance) Act, 1957. on the specified goods mentioned in its First Schedule.
National Calamity Contingent Duty (NCCD): This
duty is levied as per section 136 of the Finance Act, 2001, as a surcharge on specified goods like like pan masala, branded chewing tobaco, cigarettes, domesticCRUDE OIL and mobile phone.
It should be noted that the excise duty is not on sale but
on removal or clearance of goods which may or may
coincide with sale.
3. Import of Goods Customs duty is required to be paid whenever goods are imported from other countries in India. Normally on Exports, there is no Customs Duty except for export of a few items. Thus the taxable event is the import/ export of goods.There are mainly two ways in which Customs is calculated and collected:
1. Specific Duties: – Specific custom duty is a duty imposed on each and every unit of aCOMMODITYimported or exported. For example, Rs.5 on each meter of cloth imported or Rs.500 on each T.V. set imported. In this case, the value of commodity is not taken into consideration.2. Advalorem Duties: Advalorem custom duty is a
duty imposed on the total value of a commodity imported or exported. For example, 5% of F.O.B. value of cloth imported or 10% of C.LF. value of
Customs Act, 1962 read with Customs Tariff Act, 1975.Collected by Central Government
T.V. sets imported. In case of Advalorem custom duty, the physical units of commodity are not taken into consideration. Ad valorem duty is the predominant mode of levy of customs. Thus the value of goods has to be determined as per customs law before the Goods are released from Customs control.
The rates of taxation in Customs can be found here:
Apart from the basic Custom duties, there are some other
custom duties levied in certain circumstances like:
Countervailing Duty of Customs (CVD)
To give Indian manufacturing a level playing field, CVD is
imposed. It is equal to the excise duty on like articles
produced in India. The base of this additional duty is c.i.f.
value of imports plus the duty levied earlier. If the rate of
this duty is on ad-valorem basis, the value for this purpose
will be the total of the value of the imported article and the
customs duty on it (both basic and auxiliary).
Anti Dumping duties
These custom duties are basically intended to provide
domestic manufacture against dumping of goods by
foreign countries in India at dirt cheap ; even below cost
prices. Mainly targeted against cheap Chinese imports.
These are allowed after following WTO norms in this
regard.
4 Sale of Goods Value Added Taxes (VAT) for intra-state Sales and Central Sales Tax (CST) for inter-state sales.VAT is actually state specific since the states and not Central Government is empowered to collect Taxes on Sale of Goods. Thus each state has its own VAT specific Act and Rules. In Maharashtra, it is the Maharashtra Value Added Tax Act (MVAT) which governs the sale of goods.The
Each state has a specific Act.Central Sales Tax Act deals with inter-state sale of goods. However even CST is actually collected only by
usual rate of taxes are 5% and 12.5%. Goods which are specified are covered under 5% and others are covered in 12.5%. Further there are some high value transactions likeTRADE in bullion which attracts 1% tax. Input credit is available on the goods purchased and can be set off against the MVAT payable.
Under MVAT Act, ifTRADER has a turnover of below
Rs. 1 million in previous financial year, then MVAT is not
applicable in present year upto Rs. 1 million. Please note
that it is optional and if the dealer. Trader does collect
MVAT from the purchaser then the same will have to be
deposited with the Government.
Also MVAT is not applicable if the Goods are exported
under H Form i.e. for exports.
states.
Please note that the above are not mutually exclusive. For example, if the goods are manufactured and sold by manufacturer , then both Central Excise and MVAT are applicable.Further there are some local indirect taxes levied like Local Body Taxes
(LBT) or Octroi. These are expected to be abolished some time in future after introduction of Goods and Service Taxes (GST).Going forward, to avoid the cascading effect of different types of duties and also to avoid the specific problem of non-availability of input credit for one type of tax against another, the Government intends to create one single tax everywhere which shall be called as the Goods and Service Taxes (GST). This is major tax reform intending to create one majorMARKET . It is expected to come by April 2016.
