A B C OF INDIAN TAXATION SYSTEM For INDIVIDUALSagbcorplegal.com/wp-content/uploads/2013/09/ABC-of-ITS.pdf · Collection of Income-tax was well organised and it ... (earlier Gift tax

A B C OF

INDIAN TAXATION

SYSTEM

For INDIVIDUALS

Ajay Garg & Associates, House No. 970 Sector-

21D, Faridabad, Haryana

"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.

Ajay Garg & Associates, House No. 970 Sector- 21D, Faridabad, Haryana

Ancient India-Taxation System

In India, the system of direct taxation as it is known today

has been in force in one form or another even from ancient

times.

However, it is Kautilya’s Arthashastra, which deals with the

system of taxation in elaborate and planned manner.

Collection of Income-tax was well organised and it

constituted a major part of the revenue of the State.


According to

Kautilya

"From the treasury, comes the power of the Government. And the Additional Earth is acquired by means of the Treasury and Army"


INDIAN CONSTITUTION AND

TAXATION (Art. 265)

TAXATION SYSTEM

UNION LIST STATE LIST CONCURRENT

LIST

CENTRAL GOVT.

STATE GOVT.

BOTH GOVERNMENTS

CAN MAKE LAWS FOR

MATTERS IN THIS LIST


RESIDUARY

LIST

Central Government -Taxation

System

The present day mechanism of Taxation in the

CG is governed primarily through Ministry of

Finance

A complete hierarchy has been built up under

this Ministry for the smooth functioning of the

System keeping in view the size of Population

of the Country. Ajay Garg & Associates, House No. 970

Sector- 21D, Faridabad, Haryana

Central Government and

Taxation System

TAXATION SYSTEM

DIRECT TAXES INDIRECT TAXES


Hierarchy under MoF

MINISTRY OF FINANCE

CBDT CBEC

DEPARTMENT OF REVENUE

CUSTOMS CENTRAL EXCISE

SERVICE TAX

INCOME

TAX WEALTH

TAX


TAXES UNDER UNION LIST

Taxes on Income other than Agri. Income.

Corporation Tax

Wealth Tax

Gift Tax


Customs duties on import & export

Excise except on alcoholic liquor

Stamp duty in respect of Share Transfer

Terminal Taxes on goods or passengers

Central Sales Tax.

Service Tax

TAXES UNDER UNION LIST


DIRECT TAXES

For a layman, Direct Taxes are synonymous with Income Tax.

But along with Income-Tax, the purview of Direct Taxes also includes Wealth-Tax (earlier Gift tax was also levied).

In India these taxes are handled by CBDT with its numerous Field Offices and Directorate Generals.


Incidence of tax

Depend upon residential status

Residential status can be

Resident Individual Non-Resident Ordinary Resident


INCOME TAX

Individuals can be categorized as follows:

Salaried Individuals

Non- salaried Individuals

For Salaried Individuals, Income usually include:

Salary and other emoluments and payments in relation thereof including Pensions,

Rent recd. From letting out house Property,

Capital Gains from sale of assets, shares

Dividend received from shares purchased, etc.

For Non salaried Individuals, As an Individual, we are usually concerned with:

Professional Income

Income of Petty Shopkeepers.


Securities Transaction Tax

On transactions in equity shares, derivatives and

units of equity-oriented funds

Rate of tax are:

Delivery base transactions – 0.075%

Non-delivery base transactions – 0.015%

Sale of units to seller mutual fund – 0.15%

Derivatives (futures and options ) – 0.01%


CAPITAL GAINS

Capital Gain is a Profit/ Gain on transfer of capital

assets.

Both STCG and LTCG can be exempted (Applicable

sections- 54 to 54 GA)

Indexation of Costs is something we tend to ignore

while calculating profits.


CAPITAL GAINS

A short term capital loss and a long term capital loss

can be set off only against STCG & LTCG and LTCG

respectively.

Both losses can be carried forward upto 8 assessment

years only when return of loss is filed.

These losses should be accounted judiciously so as to

save the amount of tax which may be levied at a later

date.


Some finer points for

salaried individuals

It should be ensured that, under the terms of employment, DA and DP form part of Basic Salary.-Tax Incidence on HRA, gratuity etc. will be minimum.

Commutation of pension is another option.

Incidence of Tax on retirement benefits is lower if paid in the beginning of the year.

Ajay Garg & Associates, House No. 970


Some finer points for salaried

individuals

LTC should be availed to the max. possible extent.

It is advantageous if an employee goes in for perquisites rather than taxable allowances. E.g. Rent Free Accommodation.

If someone is neither getting HRA nor rent-free furnished or unfurnished accommodation then one claim deduction under section 80GG for rent paid.



Some other finer points for

salaried individuals

Employees should avoid advance salary

If an individual is employed and his spouse owns a

house, he can avail HRA and pay rental to spouse

Instead of getting a consolidated salary, it must be

split.


TAX PLANNING TIPS

Make maximum of your family members, assessee, preferably women and senior citizens.

Invest in Shares of Cos. & Mutual Funds - Income thereon is fully exempt.

Invest in long-term saving schemes specified u/s 80C and 80CCC.

Investment in notified Govt. Schemes such as PPF, Tax Free Bonds of Public sector companies like NTPC, NPC, IRFC, etc.


NON SALARIED INDIVIDUALS

Preparation of books of accounts when total gross

receipt exceeds Rs. 150000 (specified professions) or

Rs. 10 lacs (other professions and business) or Income

of Rs. 120000/-

Audit of Accounts is not required for persons if their

gross receipts do not exceed Rs. 40 lacs (in case of

business) or Rs. 10 lacs (in case of professionals).


WEALTH TAX

Individuals having Net wealth exceeding Rs. 15 Lakh as on valuation date, is liable to the provisions of Wealth Tax.

Net wealth is aggregate of the value of all the assets “belonging to” the assessee on the Valuation date, as reduced by the aggregate value of the debts/ liabilities owed on the valuation date, or

Net wealth=Assets-Liabilities.

Due date of Filing return 31st July.

The Rate of tax levied under this Act is 1% of the Net Wealth exceeding Rs. 15 lacs.


STATEMENT OF ASSETS

Assets

Guest House.

Residential House.

Motor Cars.

Jewellery, bullion & furniture, utensils.

Yachts, boats.

Urban land.

Cash in hand> Rs. 50000.

Assets do not include:

House for residential purposes.

Jewellery, bullion used as stock-in-trade.

Urban land on which construction is not permissible.

Urban land held as stock-in-trade.

Yachts, boats & aircrafts used in commercial

purposes.


Some tax planning

measures

Invest in taxable assets out of borrowed funds

The exemptions u/s 5 should be availed of

Should not maintain cash in excess of Rs.

50,000


SERVICE TAX

Service Tax derives its powers from Chapter V of Finance Act, 1994 but doesn’t extend to J&K

Service Tax is levied on specified taxable services

We are the real bearers of the burden of this tax

Service Tax is charged - @ 12% with Edu. Cess @ 3%.

Around 110 services are at present covered under the purview of Service Tax Act.


OVERVIEW OF SERVICES

COVERED Stock Broker Insurance Agent Advertisement Agency Courier agency CHA, CFA Air Travel Agent Mandap Keeper Tour Operator Rent-a-cab Service Architect, Interior Decorator Real estate Agent Aircraft Operator Goods Transport Agency Intellectual Property Service Health Clubs Event Management

Management Consultant Practising Chartered

Accountant Practising Company

Secretary Practising Cost Accountant Credit Rating Agency Underwriting Agency Mkt. Research Agency Photography Studio Broadcasting Agency Beauty Parlour Cargo Handling Agency Commercial Training/

Coaching Transporters


SCOPE OF SERVICE TAX

Service Tax has proved to be a great source of revenue to the Government of the country.

This Tax is covered under the purview of CBEC (Central Board of Excise & Customs).

Each person who is a service provider is to get registered for which various Forms have been designed and in certain cases service receiver.

Thus, it can be concluded that though being indirect tax, yet the payment is to be made by individuals.


TDS- TAX DEDUCTED AT

SOURCE

Provisions are contained in sections 192 to 196D of the Income Tax Act, 1961

Payee-assessee is entitled to get credit for tax deducted at source.

He can claim credit in the Assessment Year for which such income is assessable on production of TDS certificate issued to him by the payer.

Assessee is entitled for refund of the excess if the net tax payable is less than TDS and/ or Advance Tax.


CENTRAL EXCISE & CUSTOMS

Both are indirect taxes which fall under the purview of the Central Government.

Where Central Excise is levied on items produced in India, Customs Duty is one which is levied on the goods imported or exported from India.

Now, in context of individuals, knowingly or unknowingly we pay Excise along with the price of goods bought.

Many a times do we use Imported goods, the value of goods already includes the customs duty paid for it earlier by the importer.


STAMP DUTY

Parliament can make law in respect of Stamp Duty. It can prescribe rates of stamp duty.

The stamp duty rates prescribed by Parliament in respect of bill of exchange, cheques, transfer of shares etc. will prevail all over India.

However, other stamp duty rates prescribed by Parliament in Indian Stamp Act, 1899 (e.g. stamp duty on agreements, affidavit, articles of association of a company, partnership deed, lease deed, mortgage, power of attorney, security bond etc.) are valid only for Union territories.

In case of States, the rates prescribed by individual States will prevail in those States.


SALES TAX

A sales tax is a consumption tax charged at the point of purchase for certain goods and services.

The tax is usually set as a percentage by the government charging the tax. There is usually a list of exemptions.

The tax can be included in the price (tax-inclusive) or added at the point of sale (tax-exclusive).

Most sales taxes are collected by the seller, who pays the tax over to the government which charges the tax.


BURDEN OF SALES TAX

The economic burden of the tax usually falls on the purchaser,

but in some circumstances may fall on the seller.

Sales taxes are commonly charged on sales of goods, but many

sales taxes are also charged on sales of services.

Ideally, a sales tax - is fair, has a high compliance rate, is

difficult to avoid.


TAXES UNDER THE STATE

LIST

Taxes on Agricultural Income – Not imposed till date

Taxes on Land and Buildings

Toll Tax – State and NHAI

Tax on Profession and Employment-Nobody pays

Tax on Luxuries – Entertainment-Everybody pays.


Other Taxes under the

purview of State

Government

State Sales Tax

Excise duty on

alcoholic liquor for

human consumption


STAMP DUTY

State Government has powers to fix stamp duties on all documents except bill of exchange, cheques etc.

Rates prescribed by State Government will prevail in that State. State Government can make law for other aspects of stamp duty also (i.e. matters other than quantum of duty).

However, if there is conflict between State law and Union law, the Union law prevails .


STAMP DUTY

In case of sale, mortgage or settlement, if there are several instruments for one transaction, stamp duty is payable only on one instrument.

However, it may happen that one instrument covering only one matter can come under more than one description given in Schedule to Stamp Act. In such case, highest rate specified among the different heads will prevail.


VAT- MODERN SALES TAX

VAT is a system, in which tax is charged on all sales,

thus avoiding the need for a system of resale

certificates.

Tax cascading is avoided by permitting the seller to

remit to the government only the difference between

the tax charged to the purchaser and the tax paid by

the seller to its suppliers (the "value added").



VAT- MODERN SALES TAX

Apart from all these benefits, the main advantage of VAT is that the overall burden of Tax is low.

VAT affects the Individuals indirectly. The product which we purchase, and the price which we pay for it already includes the tax paid by the seller, in it.



HOUSE TAX

House tax is a tax that an owner of property (usually real estate) is liable to pay.

The amount of tax is estimated on the value of the property being taxed (advalorem tax).

House Tax - is levied on residents by local municipal authorities to upkeep the basic civic services in the city.


INDIAN HOUSE TAX

In India, the actual owners of property are liable to pay municipal taxes which is in contrast to that in the United Kingdom, where the tenant is liable to do so.

Generally, the property tax is levied on the basis of reasonable rent at which the tax payer can claim his ownership rights over the property.

Property tax in India is paid on a year to year basis.



ROAD TAX

Road tax, as the name suggests, is a tax paid by the persons using the Roads by way of their vehicles.

So, practically, each one of us is liable to pay this tax.

But do we really pay it every month, every quarter or every year

Well, your answer would definitely be ‘NO’.



The Government is charging Road Tax At the time of Registration of Vehicle “one time tax”.

Road Tax is also charged in “Petrol Value”

Road tax is also charged on highways in the shape of “Toll tax”.

ROAD TAX


Impact of indirect taxes

Directly affects the consumers

Higher the taxes higher the burden

No distinction between rich and poor


A J A Y G A R G & A S S O C I A T E S

Company Secretaries

9 7 0, S E CT O R 2 1D, F A R I D A B A D

CONTACT NO. 9811386723

E-mail address: [email protected]

[email protected]

Documents

A B C OF INDIAN TAXATION SYSTEM For INDIVIDUALSagbcorplegal.com/wp-content/uploads/2013/09/ABC-of-ITS.pdf · Collection of Income-tax was well organised and it ... (earlier Gift tax