Tax Structur in India- An Over View

8/6/2019 Tax Structur in India- An Over View

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TAX STRUCTUR IN INDIA- AN

OVER VIEW


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WHY ARE TAXES LEVIED

Basic source of revenue for the government

for meeting the various infrastructure

requirements like roads and dams, provision

of health care, education, defense

requirements


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TYPES OF TAXES

DIRECT TAXES INCOME WEALTH

INDIRECT TAXES EXCISE DUTY, CUSTOMS

DUTY ,SERCIVE TAX, SALES TAX VALUE ADDEDTAX


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CONSTITUTIONAL VALIDITY

As per Article 246(1) of the constitution of India,parliament has the right to make laws wrtmatters enumerated in List 1 in the VIIthSchedule to the constitution. (union list)

Article 246(3) state has the power to make lawswrt matters enumerated in List II in the VIIthSchedule to the constitution.

Concurrent list contains entries where both unionand state govt can make laws and exercisepowers


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Union list:-

Taxes on income

Customs duties

Excise duties except alcoholic liquor for humanconsumption

Corporation tax

Taxes on interstate trade or commerce other thannews paper

Taxes on interstate consignment sales

Other residual powers ( matters not included in List IIand III)


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State list:-

Agricultural income tax

Excise duty on alcoholic liquor

Octroi ( entry tax)Intra state trade


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CENTRAL EXICE DUTY

1.NATURE

Duty levied and collected on excisable goods

manufactured or produced in India Goods manufactured in SEZs are excluded

Taxable event of excise duty is manufacture

It is collected from the manufacturer of goods

ED is payable even of the goods are not sold(

used in own consumption, given as samples)


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LAWS RELATING TO CENTRAL EXCISE

Central Excise Act, 1944 Basic act providing for charging of duty, valuation, powers

of officers, penal provisions etc

Central Excise Rules,

Rules are framed by the govt for administration of the act

Central Excise Rule, Cenvat Credit Rules, Central Excise

Valuation( Determination of Price of Excisable Goods)

Rules,2000.

Notifications issued by central govt granting full/ partialexemptions from excise duty as well as other procedural

matters

Central Excise Tariff Act, 1985

CESTAT (Procedure) Rules, 1982


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TYPES

Basic excise duty also called CENVAT is levied

at rates specified in Ist Schedule to Central

Excise Tariff Act

Special duty of Excise some commodities are

leviable with special duty. This is specified in

the IInd Schedule

Education Cess and Secondary and Higher

Education Cess


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Excisable Goods

Must be movable immovable property is not goods

Capable of being marketed or sold. This is known asvendability test

Actual sale is not necessary Illustration of goods:-

Gas and stem are marketable and hence goods

Electrical energy

Sub- standard goods Intermediate goods if marketable

By- product


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Manufacture and production

Taxable event is manufacture

Manufacture Not defined completely in the act

New identifiable product having distinctive name ,character and use must emerge

Production Has a wider connotation than manufacture

Bringing into existence new goods by a process which may

or may not amount to manufacture Thus waste, scrap, and by- products arising during

manufacture are dutiable

Covers items like tea, coffee, diary products etc


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Manufacturer

Duty liability on the manufacturer

Person who gets goods manufactured throughhired labour

Person who engage in manufacture on his

own account


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Classification of goods

Levy of excise duty involves two steps

Proper classification of goods

Finding its assessable value

The rate of duty is found by classifying the

product in its appropriate heading under the

Central Excise tariff


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Central Excise Tariff Act classifies all the goods

under 96 chapters and specific code is

assigned to each of them. There are over 1000

tariff headings and 2000 sub-headings.

Goods are classified as per chapter heads and

sub heads prescribe the duty to be charged


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Administration

The department of revenue , MOF, exercises

control in matters of DT and IDT through twoboards, CBDT & CBEC

Responsibility for collection and

administration of service tax is vested with

CBEC


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Hierarchy

CBEC

Central Excise Zones headed by ChiefCommissioner of Central Excise

Zones are further divided into

Commissionerates headed byCommissioner of Central Excise

Director General (Service Tax)


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CENVAT

Cenvat ( Central Value Added Tax) has it

origin in the system of VAT which is common

in European Countries

MODVAT was introduced in India in 1986 and

was renamed as CENVAT wef 1-4-2000


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CENVAT

BASIC CONCEPT

Generally any tax is related to the selling price.

Raw material passes through various stagesand processes till it reaches the finished

product


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Thus output of 1st manufacturer becomes the

input of the next manufacturer and this

process continues till the final product is

manufactured

If tax is based on selling price then the tax

burden keeps on increasing as raw material

and finished goods passes on from one stageof production to other.


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This is cascading effect

VAT avoids cascading effect since tax is paid

only on value addition and not on the sellingprice


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Thus under VAT it makes not difference as to

the number of intermediate sales that has

been effected before the goods are sold to the

final consumer

Vat provided for credit of duty paid on input

goods including tax paid on capital goods and

input services


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No cenvat credit if there is no manufacture

There should be a separate and distinct product as

a result of the production process

Else there will be no input credit


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INCOME TAX AN OVER VIEW

COMPONENTS OFINCOME TAX

Income tax act

Annual finance acts

Income tax rules

Circulars and notifications

Legal decisions of courts


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LEVY

on total income of the previous year of every

person

total income has to computed as per the

provisions of the Income Tax Act,1961


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INCOME

Definition of income as per the income tax actbegins with the words income includes.Therefore it is an inclusive definition and not an

exhaustive one. Income generally means which accrues or is

expected to accrue from a regular source. UnderIncome Tax Act even incomes which arise

occasionally is taxed winning from lottery, crossword puzzles

Both revenue and capital receipts are taxed


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Income means net income only

Income is taxed on due basis or receipt basis

All incomes are not taxable and the IncomeTax Act provides for exemption of certain

specific incomes from the ambit of taxation

Agricultural income

Remuneration received by foreign diplomats

Share of profit of a firm


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Scholarships given to meet cost of education

Retrenchment compensation

Dividend from domestic companies on or after 1-4-

2003 Income earned in the pervious year is taxed in

the assessment year.

Previous year the financial year ending on 31st

March in which income is earned Assessment year the financial year ending on 31st

March following the previous year.


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PERSON

A person by whom any tax or other sum of money ispayable under this Act is called - assessee

Person is defined in Sec 2(31) in an inclusive manner Individual

Hindu Undivided Family Company

Indian company

Foreign company

Firm

Association of persons/ body of individuals A local authority municipal committee, local body entrusted

by govt with control and management of local fund

Every artificial juridical person


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TOTAL INCOME AND TAXES PAYABLE

1. RESIDENTIAL STATUS AND SCOPE OF TOTALINCOME

Incidence of tax on an assessee depends on the

residential status under the act wrt previous year Tax payers can be broadly classified into two

categories based on their residential status

Resident in India

Resident and ordinary resident

Resident but not ordinary resident

Non resident in India


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Indian income is taxable in all cases

Foreign income is taxable in India in case of

resident and ordinary resident In case of Resident but not ordinary resident

the following foreign incomes are taxable

Business income from a business which is

controlled wholly or partly from India

Income from profession set up in India


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CLASSIFICATION OF INCOME UNDER DIFFERENT

HEADS

Income of a person is charged to tax under the

following heads of income


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Salaries

Wages (Sec 15,16,17)

gratuity

fee, commission, perquisite in lieu or in addition

to salary advance salary

employee employer relationship

includes allowances and perquisites HRA, city compensatory allowance, travel, conveyance

allowances etc

rent free accommodation, interest free loan, free food andbeverages


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Income from house property ( Sec 22, 23-27)

Rental income received by a person on lettingout building and land appurtenant thereto willbe charged under this section

Where a person has one house property andis used by him for own residential purposesthe value will be treated as nil

In computing the income from house propertythe following expenses will be deducted

Interest on funds borrowed for construction


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Income from house property ( Sec 22, 23-27)

Standard deduction @ 30% for repairs and

maintenance

Municipal taxes paid


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Profits and gains of business or

profession

Defines the scope of income which can be taxedunder this head

Types of income to be included

Profits of any business activity

Any compensation due or received by any personin connection with business

Export incentives available to exporters

Interest, commission, salary, bonus received by a partner ofa firm

Sum received under key man insurance policy


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Profits and gains of business or

profession Receipts in nature of non compete fees and exclusivity

rights

Business should be carried on by the assesseein the previous year

The act allows certain deduction andallowances while computing the income frombusiness or profession

Rent rates taxes

Depreciation

Repairs and maintenance

Expenditure on acquiring k now how


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Amortization of preliminary expenditure

All statutory payments

Interest on borrowed capital

Bad debts


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Capital gains

Basis of charge is the gains arising out of

transfer of a capital asset

Capital asset include property of any kind,fixed or circulating, movable or immovable,

tangible or intangible but excludes

- Stock in trade of a business

- Personal effects


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Capital gains

- Agricultural land in India subject to certainconditions

- Specified gold bonds, special bearer bonds,

gold deposit bonds

Transfer refers to sale, exchange orrelinquishment of an asset or right therein or

compulsory acquisition of an asset Capital gains are further classified into long

term and short term


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Income from other sources

Residual charging section

Income not chargeable under the

other heads of income is taxed underthis head

Specifies incomes are always taxable

under this head

Dividend income


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Winning from lotteries

Interest on securities

Gift Receipts under key man insurance policy


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DEDUCTION FROM GTI

Deduction are available in respect of

various investments and payments like:-

Life insurance premium

Contributions to PF

NSC

Principal component of housing loanrepayment

Medical insurance premium


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Repayment of loan taken for higher

education

Donation to specified charitable institutions

and funds

Deductions are also available in respect of Enterprises engaged in development of SEZ

Industrial research

Development and building of housingprojects

Operating and maintaining hospitals in rural

area


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RATES OF TAX

For 2010-11 (2009-10)

Indl /HUF / AOP/ BOI

160000 - nil

160000 300000 - (10+2+1)

300000-500000 -(20+2+1)

< 500000 - (30+2+1)

For resident senior citizens (65 yrs or more) -Basic

exemption is 240000

For resident women basic exemption is 190000


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KVAT and SALES TAX

Sales Tax is a levy on purchase and sale of goods in Indiaand is levied under the authority of both Central Legislation(Central Sales Tax) and State Governments Legislations(Sales Tax). The government levies Sales Tax principally onintra-state sale of goods. States also levy tax ontransactions which are "deemed sales" like works contractsand leases.

Sales tax is paid by every dealer on the sale of any goodsmade by him in the course of inter-state trade orcommerce, despite the fact that no liability to tax is raised

on the sale of goods under the tax laws of the appropriatestate.


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KERALA VALUE ADDED TAX ACT 2003

Vat is a state subject and each state has framed its ownacts and rules with respect to vat

In Kerala, the concept of VAT was enacted through theKVAT Act 2003 and Kerala Value Added tax Rules, 2005

This is an act to consolidate and amend the law relatingto levy of tax on sale or purchase of goods based onthe concept of VAT in the State ofKerala.

These Acts and Rule lays down the provisions andprocedural aspects wrt taxation of sale of goods withinthe state ofKerala


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KERALA VALUE ADDED TAX ACT 2003

The Act has 98 Sections and lays down the law wrt

Incidence of tax and levy of tax Registrations and permits

Assessment, recovery and penalties

Inspection of business places and establishment

of check posts Offences and penalties

Miscellaneous provisions

Prior to the introduction of Vat , the taxation on

goods was governed by Kerala General Sales Tax Act,1963 and with the introduction of VAT, this haslimited application ( HSD, petrol, Aviation fuel,foreign liquor)

Documents

Tax Structur in India- An Over View