PROJECT ON Taxation System ON India Submitted to:
Submitted by:
Ranjani matta
Mohinder Singh PG20095688
ACKNOWLEDGEMENT
The satisfaction that accompanies the accomplishment of any task would be short-lived without the mention of the people who are instrumental in it being a success, through constant encouragement and guidance which has been a source of inspiration throughout the course of this project. I take this opportunity to express my gratitude to all those who have helped me in the completion of this project. I express my sincere prenames to ³All mighty God´ who has bestowed his blessing on us. I am thankful to Ms. R ANJANI MATTA, for helping us on each and every step of the project work and guiding us towards the right path, so that, we were able to understand the topic and thereby complete the project more efficiently. We are also very thankful to all the respondents who contributed their precious time to fill the questionnaire and complete our survey.
Brief Overview
India has a well-developed tax structure with clearly demarcated authority between Central and State Governments and local bodies. Central Government levies taxes on income (except tax on agricultural income, which the State Governments can levy), customs duties, central excise and service tax. Value Added Tax (VAT), (Sales tax in States where VAT is not yet in force), stamp duty, State Excise, land revenue and tax on professions are levied by the State Governments. Local bodies are empowered to levy tax on properties, octroi and for utilities like water supply, drainage etc. In last 10-15 years, Indian taxation system has undergone tremendous reforms. The tax rates have been rationalized and tax laws have been simplified resulting in better compliance, ease of tax payment and better enforcement. The process of rationalization of tax administration is ongoing in India. The Central Board of Direct Taxes (CBDT) is a part of the Department of Revenue in the Ministry of Finance, Government of India. The CBDT provides essential inputs for policy and
planning of direct taxes in India and is also responsible for administration of the direct tax laws through Income Tax Department. The CBDT is a statutory authority functioning under the Central Board of Revenue Act, 1963.
WHAT IS TAX? y
y y
To tax (from the Latin taxo; "I estimate") is to impose a financial charge or other levy upon a tax payer (an individual or legal entity) by a state or the functional equivalent of a state such that failure to pay is punishable by law. Important Source of Revenue of the government. Compulsory contribution from a person to the expenses incurred by the state in common interest of all without reference to specific benefits conferred on any individual.
TYPES OF TAXES
Taxes are of two types: y y
Direct Taxes Indirect Taxes
Direct Taxes :
Direct Taxes are the taxes which are not shifted i.e., the incidence of which falls on persons who pay them to the government. For example income tax and wealth tax. Companies residents in India are taxed on their worldwide income arising from all sources in accordance with the provisions of the Income Tax Act. Non-resident corporations are essentially taxed on the income earned from a business connection in India or from other Indian sources. 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. R ATES & SURCHARGE: y
y
y
y
Domestic corporations are subject to tax at a basic rate of 35% and a 2.5% surcharge. Foreign corporation have a basic tax rate of 40% and a 2.5% surcharge. An education cess at the rate of 2% on the tax payable is also charged. Corporates are subject to wealth tax at the rate of 1%, if the net wealth exceeds Rs.1.5 million.
Indirect Taxes:
Indirect taxes are the taxes in which the burden of paying Tax is shifted through a change in price. For example, Custom duty, Excise Duty, etc. Indirect Taxes are not levied on individuals, but on goods and services. Customers indirectly pay this tax in the form of higher prices. For example, it can be said that while purchasing goods from a retail shop, the retail sales tax is actually paid by the customers. The retailer eventually passes this tax to the respective authority.
Merits And Demerits Of Direct Taxes: MERITS: Imposed according to the ability of the person to pay. Revenue is Income Elastic as progressive character Revenue increases faster than the increase in Income. Create better civic consciousness. Serves the purpose of transference of the income from the rich to the poor.
DEMERITS: The
ability to pay is difficult to determine; only a rough idea is formed. Because of Undeclared Sources of Income or Evasion, the actual payment may not be strictly according to the pay. Necessitate Proper maintenance of accounts which some of the tax payers may not able to do.
Merits And Demerits Of Indirect Taxes: MERITS: Convenience in assessment and relative difficulty in Evasion. Inclusion of tax in the price. Difficult in Evade. Taxes on drinks, narcotics, and tobacco , serve a social purpose by discouraging their consumption. DEMERITS: Regressive
Character. Do not create social Consciousness as payment of tax is not felt by the payer. Government is not certain about the proceeds of these taxes.
Burden
of Indirect taxes can be shifted forward or backward as such consumers have to bear the ultimate burden of taxes.
ABOUT
INDIAN TAXATION SYSTEM:
According to the Constitution of India, the government has the right to levy taxes on individuals and organizations. However, the constitution states that no one has the right to levy or charge taxes except the authority of law. Whatever tax is being charged
has to be backed by the law passed by the legislature or the parliament. Indian Tax system is characterized by: A high dependence on Indirect taxes. Low average effective tax rates and tax productivity. High marginal effective tax rates and large tax- induced distortions on investments and financing decision.
INDIAN TAXATION SYSTEM
TAX Direct tax
Indirect tax
Income tax Wealth tax Gift tax
Custom duties Excise duties Sales tax Service tax
Direct tax
Companies residents in india are on their worldwide income arising from all sources in accordance with the provision of the income tax act. Non resident corporations are essentially taxed on the income earned from a incorporated in india.
Domestic corporations are subject to tax at a basic rate of 35% and 2.5% surcharge. Foreign corporations have a basic tax rate of 40% & 2.5 surcharge . an education cess at the rate of 12.5% . Corporations also have to pay for minimum alternative tax at 7.5% (plus surcharge and education cess at the rate of 2% on the tax payable is also charged.Corporations also have to pay dividend distributions tax at the rate of 12.5%.Tax is payable on the capital gains of sale assets. Long term capital gains tax is charged . Capital assets are held for more than three years. In case of shares, securities listed on a recognized stock exchange In india , units of specified mutual funds, the period for one year holding. Long term capital gains taxed at a basic rate of 20% Personal income tax Personal income tax is levied by central government and is administrated central board of direct tax. The rates of personal income tax are as.. 0 to 100000 nil 100000 to 150000 10% 150000 to 250000 20% 250000 to above 30% Surcharges of 10% on total tax is levied if income exceeds Rs. 8,50,000 Rates of Withholding Tax Current rates for withholding tax for payment to non-residents are:(i) Interest 20% (ii) Dividends Dividends paid by domestic companies: Nil
(iii) Royalties 10% (iv) Technical Services 10% (v) Any other services Individuals: 30% of the income Companies: 40% of the net income The above rates are general and are applicable in respect of countries with which India does not have a Double Taxation Avoidance Agreement (DTAA). Tax Incentives Government of India provides tax incentives for:Corporate profit Accelerated depreciation allowance Deductibility of certain expenses subject to certain conditions. These tax incentives are, subject to specified conditions, available for new investment in Infrastructure, Power distribution, Certain telecom services, Undertakings developing or operating industrial parks or special economic zones, Production or refining of mineral oil, Companies carrying on R&D, Developing housing projects, Undertakings in certain hill states, Handling of food grains, Food processing, Rural hospitals etc.
Corporate income tax The companies and business organization in india are based on the income from their worldwide transaction. In case of the resident or domestic
organization, a tax of 35% and 2.5% surcharge is levied. In case of foreign corporate organizations, a basic tax rate of 40% and 2.5% surcharge is levied. Rationle
for the corporation tax is that a joint stock company has a separate entity & thus should be taxed separately. Until 1960-61 corporations were taxed in a partial since. A corporation was required to pay income tax on behalf of shareholders on dividends paid to them and each shareholder got a credit to this effect.
Personel income tax It is administered and supervised by the Central Board of Direct taxes as per the provisions of the Income Tax Act. The
personel income becomes more than INR 850000 a surcharge of 10% of the total tax of amount.
Incomes
from all sources are added.
Certain
rebates, deductions, expenditure etc. on account of life insurance, medical insurance, savings in PPF, etc are allowed.
Whole
income into different slabs and taxed on the basic of slab into which it falls.
Progressive
income taxation i.e.as income increases, the rate of tax also increases.
0 100000 150000 250000
100000 150000 250000 Above
No 10% 20% 30%
Tax
salbs are different for men, women & senior citizen . For women there is no tax for income below Rs. 1.80 lakh. Senoir citizens need not pay tax for income below Rs. 2.50
Capital gains tax The central government also charges tax on the capital gains that is delivered from the sale of assets. The
capital assets are kept for more than three years If the securities and shares are listed under any recognized Indian stock exchange.
Income Tax
Income tax is tax on the income of an individual or an entity. Introduced in india in the year 1860. Discounted in the year 1873.
Reintroduced in the year 1886.
Wealth Tax Taxes
which are levied on wealth and capital are mainly estate duty, annual tax on wealth and duty tax. Estate duty was first introduced in the year 1953. Estate duty is levied on the total property passing to the heirs on the death of a person. Estate duty was abolished in the year 1985.
Gift tax Gift
tax was introduced in 1958 Gift tax was livable on all donations to recognized charitable in situations , gifts to women dependents & gifts to wife. Gift tax was aaolshed in the year 1998.
Indirect tax
Manufacture of goods in India attracts Excise Duty under the Central Excise act 1944 and the Central Excise Tariff Act 1985. Herein, the term Manufacture means bringing into existence a new article having a distinct name, character, use and marketability and includes packing, labeling etc. Most of the products attract excise duties at the rate of 16%. Some products also attract special excise duty/and an additional duty of excise at the rate of 8% above the 16% excise duty. 2% education cess is also applicable on the aggregate of the duties of excise. Excise duty is levied on ad valorem basis or based on the maximum retail price in some cases.
Transactions in equity shares, derivatives and units of equityoriented funds entered in a recognized stock exchange attract Securities Transaction Tax at the following rate:Delivery base transactions in equity shares or buyer and seller each units of an equity-oriented fund ± 0.075% Sale of units of an equity-oriented fund to the seller mutual fund ± 0.15% Non delivery base transactions in the above ± 0.015% Derivatives (futures and options) seller ± 0.01% Sales Tax Acts of various State Governments and Central Sales Act governed the application of Sales Tax/VAT. Sales Tax/VAT
Sales tax is levied on the sale of movable goods. Most of the Indian States have replaced Sales tax with a new Value Added Tax (VAT) from April 01, 2005. VAT is imposed on goods only and not services and it has replaced sales tax. Other indirect taxes such as excise duty, service tax etc., are not replaced by VAT. VAT is implemented at the State level by State Governments. VAT is applied on each stage of sale with a mechanism of credit for the input VAT paid. There are four slabs of VAT:0% for essential commodities 1% on bullion and precious stones 4% on industrial inputs and capital goods and items of mass consumption All other items 12.5% Petroleum products, tobacco, liquor etc., attract higher VAT rates that vary from State to State A Central Sales Tax at the rate of 2% is also levied on interState sales and would be eliminated gradually. Municipal/Local Taxes Octori/entry tax: ± Some municipal jurisdictions levy octori/entry tax on entry of goods Other State Taxes Stamp duty on transfer of assets Property/building tax levied by local bodies Agriculture income tax levied by State Governments on
income from plantations Luxury tax levied by certain State Government on specified good
Excise duty The Central Excise act of 1944 and the Central Excise Tariff Act of 1985. around 16% excise duty is charged and in some cases, an additional excise duty of around 8 % is also charged. Due to the recent budget amendments, an educational cess of around 2 % is also charged. An
excise duty is levied on production and has absolutely on connection with its actual sales. These are levied by the central government in a number of forms. Taxation on inputs such as raw materials components has a number of limitations. Since it amounts to excise duty only on additions in value by manu facturer at each satge, it is called value added tax MODAVT differs from vat. Basic excise duty is 16%and some special excise duties which are levied in addition to cenvat.
The
basic excise paid on excisable goods can be deducted from the excise collected on the output so that only tax on value added is paid. Cenvant reduces cascading effect of input taxation. System has certain shortcomings such as cumbersome procedures , inadequate coverage of cenvant, scope of tax evasion.
Customs Duty The Customs Act 1962 and Customs Tariff Act of 1975. Usually, the goods that are imported to the country are charged customs duty along with educational cess. For industrial goods, the rate has been slashed to 15%. The customs duty is evaluated on the value of the transaction of the goods.
The Central Board of Excise and Customs under the Ministry of Finance manages the customs duty process in the country.
Service Tax 10 % service tax is levied on various services that are provided in the country. In the recent budget, the tax exemption limit in case of the small service providers has been raised to Rs.800, 000 from Rs.400, 000. Tax relief has also been provided to the services of the Resident Welfare Associations whose members contribute monthly Rs 3000 for the services.
Sales Tax/VAT Sales taxes are charged on the sale of movable goods. In most of the states, from April 1, 2005, the sales taxes have been replaced with Value Added Tax (VAT). In case of VAT, taxes are only levied on the goods and not the services. VAT comprises 4 slabs: y
y
y
y
0% for essential commodities 1% levied on bullion and valuable stones 4% on industrial inputs and capital goods of mass consumption All other items 12.5%
The VAT rates of petroleum tobacco, liquor and so on are higher and differ from state to state. In addition, there are some other state and local taxes that are applicable. They are: y
y
y
y
Octroi/entry tax Stamp duty on asset transfer Property/building tax Agriculture income tax
