Taxation

DIRECT TAXES :

A Direct tax is a kind of charge, which is imposed directly on the taxpayer and paid directly to the government by the persons (juristic or natural) on whom it is imposed. A direct tax is one that cannot be shifted by the taxpayer to someone else. Some important direct taxes imposed in India are as under:

Income Tax:

Income Tax Act, 1961 imposes a tax on the income of the individuals or Hindu undivided families or firms or co-operative societies (other than companies) and trusts (identified as bodies of individuals associations of persons) or every artificial juridical person. The inclusion of a particular income in the total incomes of a person for income-tax in India is based on his residential status. There are three residential status, viz., (i) Resident & Ordinarily Residents (Residents) (ii) Resident but not Ordinarily Residents and (iii) Non-Residents. There are several steps involved in determining the residential status of a person. All residents are taxable for all their income, including income outside India. Non-residents are taxable only for the income. received in India or Income accrued in India. Not ordinarily residents are taxable in relation to income received in India or income accrued in India and income from business or profession controlled from India.

Corporation Tax:

The companies and business organizations in India are taxed on the income from their worldwide transactions under the provision of Income Tax Act, 1961. A corporation is deemed to be resident in India if it is incorporated in India or if it’s control and management is situated entirely in India. In the case of non-resident corporations, tax is levied on the income which is earned from their business transactions in India or any other Indian sources depending on bilateral agreement of that country.

Property Tax:

Property tax or ‘house tax’ is a local tax on buildings, along with appurtenant land, and imposed on owners. The tax power is vested in the states and it is delegated by law to the local bodies, specifying the valuation method, rate band, and collection procedures. The tax base is the annual rateable value (ARV) or area-based rating. Owner-occupied and other properties not producing rent are assessed on cost and then converted into ARV by applying a percentage of cost, usually six percent. Vacant land is generally exempted from the assessment. The properties lying under control of Central are exempted from the taxation. Instead, a ‘service charge’ is permissible under an executive order. Properties of foreign missions also enjoy tax exemption without an insistence for reciprocity.

Inheritance (Estate) Tax:

An inheritance tax (also known as an estate tax or death duty) is a tax which arises on the death of an individual. It is a tax on the estate, or the total value of the money and property, of a person who has died. India enforced estate duty from 1953 to 1985. Estate Duty Act, 1953 came into existence w.e.f. 15th October 1953. Estate Duty on agricultural land was discontinued under the Estate Duty (Amendment) Act, 1984. The levy of Estate Duty in respect of the property (other than agricultural land) passing on death occurring on or after 16th March 1985, has also been abolished under the Estate Duty (Amendment) Act, 1985.

Gift Tax:

Gift tax in India is regulated by the Gift Tax Act which was constituted on 1st April 1958. It came into effect in all parts of the country except Jammu and Kashmir. As per the Gift Act 1958, all gifts in excess of Rs. 25,000, in the form of cash, draft, check or others, received from one who doesn’t have blood relations with the recipient, were taxable. However, with effect from 1st October 1998, gift tax got demolished and all the gifts made on or after the date were free from tax. But in 2004, the act was again revived partially. A new provision was introduced in the Income Tax Act 1961 under section 56 (2). According to it, the gifts received by an individual or Hindu Undivided Family (HUF) in excess of Rs. 50,000 in a year would be taxable.

INDIRECT TAXES:

An indirect tax is a tax collected by an intermediary (such as a retail store) from the person who bears the ultimate economic burden of the tax (such as the customer). An indirect tax is one that can be shifted by the taxpayer to someone else. An indirect tax may increase the price of a good so that consumers are actually paying the tax by paying more for the products. Some important indirect taxes imposed in India are as under:

Customs Duty:

The Customs Act was formulated in 1962 to prevent illegal imports and exports of goods. Besides, all imports are sought to be subject to duty with a view to affording protection to indigenous industries as well as to keep the imports to the minimum in the interests of securing the exchange rate of Indian currency. Duties of customs are levied on goods imported or exported from India at the rate specified under the Customs Tariff Act, 1975 as amended from time to time or any other law for the time being in force. Under the custom laws, the various types of duties are livable.

Central Excise Duty:

The Central Government levies excise duty under the Central Excise Act, 1944 and the Central Excise Tariff Act, 1985. Central excise duty is a tax which is charged on such excisable goods that are manufactured in India and are meant for domestic consumption. The term “excisable goods” means the goods which are specified in the First Schedule and the Second Schedule to the Central Excise Tariff Act 1985. It is mandatory to pay Central Excise duty payable on the goods manufactured unless exempted eg; duty is not payable on the goods exported out of India. Further various other exemptions are also notified by the Government from the payment of duty by the manufacturers. Various Central Excise duties are:
(1) Basis Excise Duty:

Excise Duty, imposed under section 3 of the ‘Central Excises and Salt 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.
(2) Special Excise Duty:

According to Section 37 of the Finance Act, 1978, Special Excise Duty is levied on all excisable goods that come under taxation, in line with the Basic Excise Duty under the Central Excises and Salt Act of 1944. Therefore, each year the Finance Act spells out that whether the Special Excise Duty shall or shall not be charged, and eventually collected during the relevant financial year.
(3) Additional Duty of Excise:

Section 3 of the ‘Additional Duties of Excise Act’ of 1957 permits the charge and collection of excise duty in respect of the goods as listed in the Schedule of this Act.
(4) Road Cess:

(a) Additional Duty of Excise on Motor Spirit: This is leviable by the Finance Act (No.2), 1998. (b) Additional Duty of Excise on High-Speed Diesel Oil: This is leviable by the Finance Act, 1999.
(5) Surcharge:

(a) Special Additional Duty of Excise on Motor Spirit: This is leviable by the Finance Act, 2002. (b) Surcharge on Pan Masala and Tobacco Products: This Additional Duty of Excise has been imposed on cigarettes, pan masala, and certain specified tobacco products, at specified rates in the Budget 2005-06. Biris are not subjected to this levy.
(6) National Calamity Contingent Duty (NCCD):

NCCD was levied on pan masala and certain specified tobacco products vide the Finance Act, 2001. The Finance Act, 2003 extended this levy to polyester filament yarn, motor car, two-wheeler and multi-utility vehicle and crude petroleum oil.
(7) Education Cess:

Education Cess is leviable @2% on the aggregate of duties of Excise and Secondary and Higher Education Cess is Leviable @1% on the aggregate of duties of Excise. (8) Cess – A cess has been imposed on certain products.

Service Tax: The service providers in India except those in the state of Jammu and Kashmir are required to pay a Service Tax under the provisions of the Finance Act of 1994. The provisions related to Service Tax came into effect on 1st July 1994. Under Section 67 of this Act, the Service Tax is levied on the gross or aggregate amount charged by the service provider on the receiver. However, in terms of Rule 6 of Service Tax Rules, 1994, the tax is permitted to be paid on the value received. The interesting thing about Service Tax in India is that the Government depends heavily on the voluntary compliance of the service providers for collecting Service Tax in India.

Sales Tax:

Sales Tax in India is a form of tax that is imposed by the Government on the sale or purchase of a particular commodity within the country. Sales Tax is imposed under both, Central Government (Central Sales Tax) and State Government (Sales Tax) Legislation. Generally, each State follows its own Sales Tax Act and levies tax at various rates. Apart from sales tax, certain States also imposes additional charges like works contracts tax, turnover tax, and purchaser tax. Thus, Sales Tax Acts as a major revenue-generator for the various State Governments. From 10th April 2005, most of the States in India have supplemented sales tax with a new Value Added Tax (VAT).

Value Added Tax (VAT):

The practice of VAT executed by State Governments is applied on each stage of sale, with a particular apparatus of credit for the input VAT paid. The VAT in India classified under the tax slabs are 0% for essential commodities, 1% on gold ingots and expensive stones, 4% on industrial inputs, capital merchandise and commodities of mass consumption, and 12.5% on other items. Variable rates (State-dependent) are applicable to petroleum products, tobacco, liquor, etc. VAT levy will be administered by the Value Added Tax Act and the rules made there-under and similar to a sales tax. It is a tax on the estimated market value added to a product or material at each stage of its manufacture or distribution, ultimately passed on to the consumer. Under the current single-point system of tax levy, the manufacturer or importer of goods into a State is liable to sales tax. There is no sales tax on the further distribution channel. VAT, in simple terms, is a multi-point levy on each of the entities in the supply chain.

Securities Transaction Tax (STT):

STT is a tax being levied on all transactions done on the stock exchanges. STT is applicable on purchase or sale of equity shares, derivatives, equity-oriented funds, and equity oriented Mutual Funds. Current STT on purchase or sale of an equity share is 0.075%. A person becomes investor after payment of STT at the time of selling securities (shares). Selling the shares after 12 months comes under long term capital gains and one need not have to pay any tax on that gain. In the case of selling the shares before 12 months, one has to pay short term capital gains @10% flat on the gain. However, for a trader, all his gains will be treated as trading (Business) and he has to pay tax as per tax sables. In this case, the transaction tax paid by him can be claimed back/adjusted in tax to be paid.

The overall control for administration of Direct Taxes lies with the Union Finance Ministry which functions through the Income Tax Department with the Central Board of Direct Taxes ( CBDT ) at its apex. The CBDT is a statutory authority functioning under the Central Board of Revenue Act, 1963. It also functions as a division of the Ministry dealing with matters relating to levy and collection of Direct Taxes. The Central Excise Department spread over the entire country administers and collects the central excise duty. The apex body that is responsible for the policy and formulation of rules is the Central Board of Excise and Customs which functions under the control of the Union Finance Ministry. The Central Excise officers are also entrusted with the administration and collection of Service tax and the Customs duty.

The information contained in this chapter is related to direct and indirect taxes imposed and collected by the Union Government. The tables giving data from 2000-01 onwards in respect direct taxes (corporation tax, income tax, and other direct taxes) collected by Central Board of Direct Tax (CBDT) and indirect taxes (customs duties, union excise duties, and service tax) collected by Central Board of Excise and Customs. Customs Collection Rate used in this chapter is defined as the ratio of revenue collection (basic customs duty + countervailing duty) to the value of imports (in percent) unadjusted for exemptions, expressed in percentage.

SALES TAX-

Definition of Sales Tax :-

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.

Applicability: –

According to S3, a sale or purchase shall be deemed to take place in the course of interstate trade or commerce in the following cases:

(1) When the sale or purchase occasions the movement of goods from one State to another;
(2) When the sale is effected by a transfer of documents of title to the goods during their movement from one State to another.

(3) Where the goods are delivered to a carrier or other bailee for transmission, the movement of the goods for the purpose of clause (b) above, is deemed to start at the time of such delivery and terminate at the time when delivery is taken from such carrier or bailee.

(4) Also, when the movement of goods starts and terminates in the same State, it shall not be deemed to be a movement of goods from one State to another.

To make a sale as one in the course of interstate trade, there must be an obligation to transport the goods outside the state. The obligation may be of the seller or the buyer. It may arise by reason of statute or contract between the parties or from mutual understanding or agreement between them or, even from the nature of the transaction, which linked the sale to such transaction. There must be a contract between the seller and the buyer. According to the terms of the contract, the goods must be moved from one state to another. If there is no contract, then there is no inter-state sale.