Taxation System in India

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), stamp duty, state excise, land revenue and profession tax are levied by
the State Governments.
Local bodies are empowered to levy tax on properties, octroi and for utilities like water supply,
drainage etc.
Indian taxation system has undergone tremendous reforms during the last decade. 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.

Direct Taxes
In case of direct taxes (income tax, wealth tax, etc.), the burden directly falls on the taxpayer.

Income tax
According to Income Tax Act 1961, every person, who is an assessee and whose total income
exceeds the maximum exemption limit, shall be chargeable to the income tax at the rate or rates
prescribed in the Finance Act. Such income tax shall be paid on the total income of the previous
year in the relevant assessment year.
Assessee means a person by whom (any tax) or any other sum of money is payable under the
Income Tax Act, and includes (a) Every person in respect of whom any proceeding under the Income Tax Act has been taken
for the assessment of his income (or assessment of fringe benefits) or of the income of any
other person in respect of which he is assessable, or of the loss sustained by him or by such
other person, or of the amount of refund due to him or to such other person;
(b) Every person who is deemed to be an assessee under any provisions of the Income Tax Act;
(c) Every person who is deemed to be an assessee in default under any provision of the Income
Tax Act.

Where a person includes:

Individual
Hindu Undivided Family (HUF)
Association of persons (AOP)
Body of individuals (BOI)
Company
Firm
A local authority and,
Every artificial judicial person not falling within any of the preceding categories.
Income tax is an annual tax imposed separately for each assessment year (also called the tax
year). Assessment year commences from 1st April and ends on the next 31st March.

The total income of an individual is determined on the basis of his residential status in India. For
tax purposes, an individual may be resident, nonresident or not ordinarily resident.

Resident
An individual is treated as resident in a year if present in India:
1. For 182 days during the year or
2. For 60 days during the year and 365 days during the preceding four years. Individuals
fulfilling neither of these conditions are nonresidents. (The rules are slightly more liberal for
Indian citizens residing abroad or leaving India for employment abroad.)

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.

Non-Residents
Non-residents are taxed only on income that is received in India or arises or is deemed to arise
in India. 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.
Non-resident Indians (NRIs) are not required to file a tax return if their income consists of only
interest and dividends, provided taxes due on such income are deducted at source. It is
possible for non-resident Indians to avail of these special provisions even after becoming
residents by following certain procedures laid down by the Income Tax act.

Personal Income Tax

Personal income tax is levied by Central Government and is administered by Central Board of
Direct taxes under Ministry of Finance in accordance with the provisions of the Income Tax Act.

Rates of Withholding Tax

To view tax rates applicable in India under Avoidance of Double Taxation (ADT) agreement
Tax upon Capital Gains
Corporate tax

Definition of a company
A company has been defined as a juristic person having an independent and separate legal
entity from its shareholders. Income of the company is computed and assessed separately in

the hands of the company. However the income of the company, which is distributed to its
shareholders as dividend, is assessed in their individual hands. Such distribution of income is
not treated as expenditure in the hands of company; the income so distributed is an
appropriation of the profits of the company.

Residence of a company

o
o

A company is said to be a resident in India during the relevant previous year if:
It is an Indian company
If it is not an Indian company but, the control and the management of its affairs is
situated wholly in India
A company is said to be non-resident in India if it is not an Indian company and some
part of the control and management of its affairs is situated outside India.
Corporate sector tax
The taxability of a company's income depends on its domicile. Indian companies are taxable in
India on their worldwide income. Foreign companies are taxable on income that arises out of
their Indian operations, or, in certain cases, income that is deemed to arise in India. Royalty,
interest, gains from sale of capital assets located in India (including gains from sale of shares in
an Indian company), dividends from Indian companies and fees for technical services are all
treated as income arising in India. Current rates of corporate tax.
Different kinds of taxes relating to a company
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 the profit and loss account of the company is prepared as
per provisions of the Companies Act. There were large number of companies who had book
profits as per their profit and loss account but were not paying any tax because income
computed as per provisions of the income tax act was either nil or negative or insignificant. In
such case, although the companies were showing book profits and declaring dividends to the
shareholders, they were not paying any income tax. These companies are popularly known as
Zero Tax companies. In order to bring such companies under the income tax act net, section
115JA was introduced w.e.f assessment year 1997-98.
A new tax credit scheme is introduced by which MAT paid can be carried forward for set-off
against regular tax payable during the subsequent five year period subject to certain conditions,
as under:When a company pays tax under MAT, the tax credit earned by it shall be an amount,
which is the difference between the amount payable under MAT and the regular tax. Regular tax
in this case means the tax payable on the basis of normal computation of total income of the
company.
MAT credit will be allowed carry forward facility for a period of five assessment years
immediately succeeding the assessment year in which MAT is paid. Unabsorbed MAT credit will
be allowed to be accumulated subject to the five-year carry forward limit.
In the assessment year when regular tax becomes payable, the difference between the
regular tax and the tax computed under MAT for that year will be set off against the MAT credit
available.

The credit allowed will not bear any interest

Fringe Benefit Tax (FBT)

The Finance Act, 2005 introduced a new levy, namely Fringe Benefit Tax (FBT) contained in
Chapter XIIH (Sections 115W to 115WL) of the Income Tax Act, 1961.
Fringe Benefit Tax (FBT) is an additional income tax payable by the employers on value of
fringe benefits provided or deemed to have been provided to the employees. The FBT is
payable by an employer who is a company; a firm; an association of persons excluding trusts/a
body of individuals; a local authority; a sole trader, or an artificial juridical person. This tax is
payable even where employer does not otherwise have taxable income. Fringe Benefits are
defined as any privilege, service, facility or amenity directly or indirectly provided by an
employer to his employees (including former employees) by reason of their employment and
includes expenses or payments on certain specified heads.
The benefit does not have to be provided directly in order to attract FBT. It may still be applied if
the benefit is provided by a third party or an associate of employer or by under an agreement
with the employer.
The value of fringe benefits is computed as per provisions under Section 115WC. FBT is
payable at prescribed percentage on the taxable value of fringe benefits. Besides, surcharge in
case of both domestic and foreign companies shall be leviable on the amount of FBT. On these
amounts, education cess shall also be payable.
Every company shall file return of fringe benefits to the Assessing Officer in the prescribed form
by 31st October of the assessment year as per provisions of Section 115WD. If the employer
fails to file return within specified time limit specified under the said section, he will have to bear
penalty as per Section 271FB.
The scope of Fringe Benefit Tax is being widened by including the employees stock option as
fringe benefit liable for tax. The fair market value of the share on the date of the vesting of the
option by the employee as reduced by the amount actually paid by him or recovered from him
shall be considered to be the fringe benefit. The fair market value shall be determined in
accordance with the method to be prescribed by the CBDT.

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. Only a domestic
company (not a foreign company) is liable for the tax. Tax on distributed profit is in addition to
income tax chargeable in respect of total income. It is applicable whether the dividend is interim
or otherwise. Also, it is applicable whether such dividend is paid out of current profits or
accumulated profits.
The tax shall be deposited within 14 days from the date of declaration, distribution or payment of
dividend, whichever is earliest. Failing to this deposition will require payment of stipulated
interest for every month of delay under Section115-P of the Act.

Rate of dividend distribution tax to be raised from 12.5 per cent to 15 per cent on dividends
distributed by companies; and to 25 per cent on dividends paid by money market mutual funds
and liquid mutual funds to all investors.

Banking Cash Transaction Tax (BCTT)

The Finance Act 2005 introduced the Banking Cash Transaction Tax (BCTT) w.e.f. June 1, 2005
and applies to the whole of India except in the state of Jammu and Kashmir.BCTT continues to
be an extremely useful tool to track unaccounted monies and trace their source and destination.
It has led the Income Tax Department to many money laundering and hawala transactions.
BCTT is levied at the rate of 0.1 per cent of the value of following "taxable banking transactions"
entered with any scheduled bank on any single day:
Withdrawal of cash from any bank account other than a saving bank account; and
Receipt of cash on encashment of term deposit(s).
However,Banking Cash Transaction Tax (BCTT) has been withdrawn with effect from April 1,
2009.

Securities Transaction Tax (STT)

Securities Transaction Tax or turnover tax, as is generally known, is a tax that is leviable on
taxable securities transaction. STT is leviable on the taxable securities transactions with effect
from 1st October, 2004 as per the notification issued by the Central Government. The surcharge
is not leviable on the STT.

Wealth Tax

Wealth tax, in India, is levied under Wealth-tax Act, 1957. Wealth tax is a tax on the benefits
derived from property ownership. The tax is to be paid year after year on the same property on
its market value, whether or not such property yields any income.
Under the Act, the tax is charged in respect of the wealth held during the assessment year by
the following persons: Individual
Hindu Undivided Family (HUF)
Company
Chargeability to tax also depends upon the residential status of the assessee same as the
residential status for the purpose of the Income Tax Act.
Wealth tax is not levied on productive assets, hence investments in shares, debentures, UTI,
mutual funds, etc are exempt from it. The assets chargeable to wealth tax are Guest house,
residential house, commercial building, Motor car, Jewellery, bullion, utensils of gold, silver,
Yachts, boats and aircrafts, Urban land and Cash in hand (in excess of Rs 50,000 for Individual
& HUF only).
The following will not be included in Assets: Assets held as Stock in trade.
A house held for business or profession.

Any property in nature of commercial complex.

A house let out for more than 300 days in a year.
Gold deposit bond.
A residential house allotted by a Company to an employee, or an Officer, or a Whole
Time Director (Gross salary i.e. excluding perquisites and before Standard Deduction of such
Employee, Officer, Director should be less than Rs 5,00,000).
The assets exempt from Wealth tax are "Property held under a trust", Interest of the assessee in
the coparcenary property of a HUF of which he is a member, "Residential building of a former
ruler", "Assets belonging to Indian repatriates"
Wealth tax is chargeable in respect of Net wealth corresponding to Valuation date where Net
wealth is all assets less loans taken to acquire those assets and valuation date is 31st March of
immediately preceding the assessment year. In other words, the value of the taxable assets on
the valuation date is clubbed together and is reduced by the amount of debt owed by the
assessee. The net wealth so arrived at is charged to tax at the specified rates. Wealth tax is
charged @ 1 per cent of the amount by which the net wealth exceeds Rs 15 Lakhs.

Tax Rebates for Corporate Tax

The classical system of corporate taxation is followed in India

Domestic companies are permitted to deduct dividends received from other domestic
companies in certain cases.
Inter Company transactions are honored if negotiated at arm's length.
Special provisions apply to venture funds and venture capital companies.
Long-term capital gains have lower tax incidence.
There is no concept of thin capitalization.
Liberal deductions are allowed for exports and the setting up on new industrial
undertakings under certain circumstances.
There are liberal deductions for setting up enterprises engaged in developing,
maintaining and operating new infrastructure facilities and power-generating units.
Business losses can be carried forward for eight years, and unabsorbed depreciation
can be carried indefinitely. No carry back is allowed.
Dividends, interest and long-term capital gain income earned by an infrastructure fund or
company from investments in shares or long-term finance in enterprises carrying on the
business of developing, monitoring and operating specified infrastructure facilities or in units of
mutual funds involved with the infrastructure of power sector is proposed to be tax exempt.

Capital Gains Tax

A capital gain is income derived from the sale of an investment. A capital investment can be a
home, a farm, a ranch, a family business, work of art etc. In most years slightly less than half of
taxable capital gains are realized on the sale of corporate stock. The capital gain is the
difference between the money received from selling the asset and the price paid for it.
Capital gain also includes gain that arises on "transfer" (includes sale, exchange) of a capital
asset and is categorized into short-term gains and long-term gains.
The capital gains tax is different from almost all other forms of taxation in that it is a voluntary
tax. Since the tax is paid only when an asset is sold, taxpayers can legally avoid payment by
holding on to their assets--a phenomenon known as the "lock-in effect."

The scope of capital asset is being widened by including certain items held as personal effects
such as archaeological collections, drawings, paintings, sculptures or any work of art. Presently
no capital gain tax is payable in respect of transfer of personal effects as it does not fall in the
definition of the capital asset. To restrict the misuse of this provision, the definition of capital
asset is being widened to include those personal effects such as archaeological collections,
drawings, paintings, sculptures or any work of art. Transfer of above items shall now attract
capital gain tax the way jewellery attracts despite being personal effect as on date.
Short Term and Long Term capital Gains
Gains arising on transfer of a capital asset held for not more than 36 months (12 months in the
case of a share held in a company or other security listed on recognised stock exchange in
India or a unit of a mutual fund) prior to its transfer are "short-term". Capital gains arising on
transfer of capital asset held for a period exceeding the aforesaid period are "long-term".
Section 112 of the Income-Tax Act, provides for the tax on long-term capital gains, at 20 per
cent of the gain computed with the benefit of indexation and 10 per cent of the gain computed
(in case of listed securities or units) without the benefit of indexation.

Double Taxation Relief

Double Taxation means taxation of the same income of a person in more than one country. This
results due to countries following different rules for income taxation. There are two main rules of
income taxation i.e. (a) Source of income rule and (b) residence rule.
As per source of income rule, the income may be subject to tax in the country where the source
of such income exists (i.e. where the business establishment is situated or where the asset /
property is located) whether the income earner is a resident in that country or not.
On the other hand, the income earner may be taxed on the basis of the residential status in that
country. For example, if a person is resident of a country, he may have to pay tax on any income
earned outside that country as well.
Further,some countries may follow a mixture of the above two rules. Thus, problem of double
taxation arises if a person is taxed in respect of any income on the basis of source of income
rule in one country and on the basis of residence in another country or on the basis of mixture of
above two rules.
In India, the liability under the Income Tax Act arises on the basis of the residential status of the
assessee during the previous year. In case the assessee is resident in India, he also has to pay
tax on the income, which accrues or arises outside India, and also received outside India. The
position in many other countries being also broadly similar, it frequently happens that a person
may be found to be a resident in more than one country or that the same item of his income
may be treated as accruing, arising or received in more than one country with the result that the
same item becomes liable to tax in more than one country.
Relief against such hardship can be provided mainly in two ways: (a) Bilateral relief, (b)
Unilateral relief.
Bilateral Relief
The Governments of two countries can enter into Double Taxation Avoidance Agreement
(DTAA) to provide relief against such Double Taxation, worked out on the basis of mutual
agreement between the two concerned sovereign states. This may be called a scheme of
'bilateral relief' as both concerned powers agree as to the basis of the relief to be granted by
either of them.
Unilateral relief

The above procedure for granting relief will not be sufficient to meet all cases. No country will be
in a position to arrive at such agreement with all the countries of the world for all time. The
hardship of the taxpayer however is a crippling one in all such cases. Some relief can be
provided even in such cases by home country irrespective of whether the other country
concerned has any agreement with India or has otherwise provided for any relief at all in respect
of such double taxation. This relief is known as unilateral relief.
Double Taxation Avoidance Agreement (DTAA)
List of countries with which India has signed Double Taxation Avoidance Agreement :
DTAA Comprehensive Agreements - (With respect to taxes on income)
DTAA Limited Agreements With respect to income of airlines/ merchant shipping
Limited Multilateral Agreement
DTAA Other Agreements/Double Taxation Relief Rules
Specified Associations Agreement
Tax Information Exchange Agreement (TIEA)
Indirect Taxation
Sales tax
Central Sales Tax (CST)
Central Sales tax is generally payable on the sale of all goods by a dealer in the course of interstate trade or commerce or, outside a state or, in the course of import into or, export from India.
The ceiling rate on central sales tax (CST), a tax on inter-state sale of goods, has been reduced
from 4 per cent to 3 per cent in the current year.
Value Added Tax (VAT)

VAT is a multi-stage tax on goods that is levied across various stages of production and supply
with credit given for tax paid at each stage of Value addition. Introduction of state level VAT is
the most significant tax reform measure at state level. The state level VAT has replaced the
existing State Sales Tax. The decision to implement State level VAT was taken in the meeting of
the Empowered Committee (EC) of State Finance Ministers held on June 18, 2004, where a
broad consensus was arrived at to introduce VAT from April 1, 2005. Accordingly, all states/UTs
have implemented VAT.
The Empowered Committee, through its deliberations over the years, finalized a design of VAT
to be adopted by the States, which seeks to retain the essential features of VAT, while at the
same time, providing a measure of flexibility to the States, to enable them to meet their local
requirements. Some salient features of the VAT design finalized by the Empowered Committee
are as follows:
The rates of VAT on various commodities shall be uniform for all the States/UTs. There
are 2 basic rates of 4 per cent and 12.5 per cent, besides an exempt category and a special rate
of 1 per cent for a few selected items. The items of basic necessities have been put in the zero
rate bracket or the exempted schedule. Gold, silver and precious stones have been put in the 1
per cent schedule. There is also a category with 20 per cent floor rate of tax, but the
commodities listed in this schedule are not eligible for input tax rebate/set off. This category
covers items like motor spirit (petrol), diesel, aviation turbine fuel, and liquor.

There is provision for eliminating the multiplicity of taxes. In fact, all the State taxes on
purchase or sale of goods (excluding Entry Tax in lieu of Octroi) are required to be subsumed in
VAT or made VATable.
Provision has been made for allowing "Input Tax Credit (ITC)", which is the basic feature
of VAT. However, since the VAT being implemented is intra-State VAT only and does not cover
inter-State sale transactions, ITC will not be available on inter-State purchases.
Exports will be zero-rated, with credit given for all taxes on inputs/ purchases related to
such exports.
There are provisions to make the system more business-friendly. For instance, there is
provision for self-assessment by the dealers. Similarly, there is provision of a threshold limit for
registration of dealers in terms of annual turnover of Rs 5 lakh. Dealers with turnover lower than
this threshold limit are not required to obtain registration under VAT and are exempt from
payment of VAT. There is also provision for composition of tax liability up to annual turnover limit
of Rs. 50 lakh.
Regarding the industrial incentives, the States have been allowed to continue with the
existing incentives, without breaking the VAT chain. However, no fresh sales tax/VAT based
incentives are permitted.
Roadmap towards GST
The Empowered Committee of State Finance Ministers has been entrusted with the task of
preparing a roadmap for the introduction of national level goods and services tax with effect
from 01 April 2007.The move is towards the reduction of CST to 2 per cent in 2008, 1 per cent in
2009 and 0 per cent in 2010 to pave way for the introduction of GST (Goods and Services Tax).
Excise Duty
Central Excise duty is an indirect tax levied on goods manufactured in India. Excisable goods
have been defined as those, which have been specified in the Central Excise Tariff Act as being
subjected to the duty of excise.
There are three types of Central Excise duties collected in India namely
Basic Excise Duty
This is the duty charged under section 3 of the Central Excises and Salt Act,1944 on all
excisable goods other than salt which are produced or manufactured in India at the rates set
forth in the schedule to the Central Excise tariff Act,1985.
Additional Duty of Excise
Section 3 of the Additional duties of Excise (goods of special importance) Act, 1957 authorizes
the levy and collection in respect of the goods described in the Schedule to this Act. This is
levied in lieu of sales Tax and shared between Central and State Governments. These are
levied under different enactments like medicinal and toilet preparations, sugar etc. and other
industries development etc.
Special Excise Duty
As per the Section 37 of the Finance Act,1978 Special excise Duty was attracted on all
excisable goods on which there is a levy of Basic excise Duty under the Central Excises and

Salt Act,1944.Since then each year the relevant provisions of the Finance Act specifies that the
Special Excise Duty shall be or shall not be levied and collected during the relevant financial
year.
Customs Duty
Custom or import duties are levied by the Central Government of India on the goods imported
into India. The rate at which customs duty is leviable on the goods depends on the classification
of the goods determined under the Customs Tariff. The Customs Tariff is generally aligned with
the Harmonised System of Nomenclature (HSL).
In line with aligning the customs duty and bringing it at par with the ASEAN level, government
has reduced the peak customs duty from 12.5 per cent to 10 per cent for all goods other than
agriculture products. However, the Central Government has the power to generally exempt
goods of any specified description from the whole or any part of duties of customs leviable
thereon. In addition, preferential/concessional rates of duty are also available under the various
Trade Agreements.
Service Tax
Service tax was introduced in India way back in 1994 and started with mere 3 basic services viz.
general insurance, stock broking and telephone. Today the counter services subject to tax have
reached over 100. There has been a steady increase in the rate of service tax. From a mere 5
per cent, service tax is now levied on specified taxable services at the rate of 12 per cent of the
gross value of taxable services. However, on account of the imposition of education cess of 3
per cent, the effective rate of service tax is at 12.36 per cent.
Union Budget 2013-14

Latest Union Budget for the year 2013-14 has been announced by the Financed Minister Mr
P.Chidambaram on 28th of February 2013.
Here are the highlights of the key features of Direct and Indiarect Tax Proposals:
Tax Proposals
Direct Taxes

According to the Finance Minister,there is a little room to give away tax revenues or raise
tax rates in a constrained economy.
No case to revise either the slabs or the rates of Personal Income Tax. Even a moderate
increase in the threshold exemption will put hundreds of thousands of Tax Payers outside Tax
Net.
However, relief for Tax Payers in the first bracket of USD 0.004 million to USD 0.009
million. A tax credit of USD 36.78 to every person with total income upto USD 0.009 million.
Surcharge of 10 percent on persons (other than companies) whose taxable income
exceed USD 0.18 million to augment revenues.
Increase surcharge from 5 to 10 percent on domestic companies whose taxable income
exceed USD 1.84 million.
In case of foreign companies who pay a higher rate of corporate tax, surcharge to
increase from 2 to 5 percent, if the taxabale income exceeds USD 1.84 million.
In all other cases such as dividend distribution tax or tax on distributed income, current
surcharge increased from 5 to 10 percent.
Additional surcharges to be in force for only one year.

Education cess to continue at 3 percent.

Permissible premium rate increased from 10 percent to 15 percent of the sum assured
by relaxing eligibility conditions of life insurance policies for persons suffering from disability and
certain ailments.
Contributions made to schemes of Central and State Governments similar to Central
Government Health Scheme, eligible for section 80D of the Income tax Act.
Donations made to National Children Fund eligible for 100 percent deduction.
Investment allowance at the rate of 15 percent to manufacturing companies that invest
more than USD 1.84 million in plant and machinery during the period 1st April 2013 to 31st
March 2015.
Eligible date for projects in the power sector to avail benefit under Section 80- IA
extended from 31st March 2013 to 31st March 2014.
Concessional rate of tax of 15 percent on dividend received by an Indian company from
its foreign subsidiary proposed to continue for one more year.
Securitisation Trust to be exempted from Income Tax. Tax to be levied at specified rates
only at the time of distribution of income for companies, individual or HUF etc. No further tax on
income received by investors from the Trust.
Investor Protection Fund of depositories exempt from Income-tax in some cases.
Parity in taxation between IDF-Mutual Fund and IDF-NBFC.
A Category I AIF set up as Venture capital fund allowed pass through status under
Income-tax Act.
TDS at the rate of 1 percent on the value of the transfer of immovable properties where
consideration exceeds USD 0.092 million. Agricultural land to be exempted.
A final withholding tax at the rate of 20 percent on profits distributed by unlisted
companies to shareholders through buyback of shares.
Proposal to increase the rate of tax on payments by way of royalty and fees for technical
services to non-residents from 10 percent to 25 percent.
Reductions made in rates of Securities Transaction Tax in respect of certain transaction.
Proposal to introduce Commodity Transaction Tax (CTT) in a limited way.Agricultural
commodities will be exempted.
Modified provisions of GAAR will come into effect from 1st April 2016.
Rules on Safe Harbour will be issued after examing the reports of the Rangachary
Committee appointed to look into tax matters relating to Development Centres & IT Sector and
Safe Harbour rules for a number of sectors.
Fifth large tax payer unit to open at Kolkata shortly.
A number of administrative measures such as extension of refund banker system to
refund more than USD 918.86, technology based processing, extension of e-payment through
more banks and expansion in the scope of annual information returns by Income-tax
Department.
Indirect Taxes

No change in the normal rates of 12 percent for excise duty and service tax.
No change in the peak rate of basic customs duty of 10 perent for non-agricultural
products.
Customs

Period of concession available for specified part of electric and hybrid vehicles extended
upto 31 March 2015.

Duty on specified machinery for manufacture of leather and leather goods including
footwear reduced from 7.5 to 5 percent.
Duty on pre-forms precious and semi-precious stones reduced from 10 to 2 perent.
Export duty on de-oiled rice bran oil cake withdrawn.
Duty of 10 percent on export of unprocessed ilmenite and 5 percent on export on
ungraded ilmenite.
Concessions to air craft maintenaince, repair and overhaul (MRO) industry.
Duty on Set Top Boxes increased from 5 to10 percent.
Duty on raw silk increased from 5 to 15 percent.
Duties on Steam Coal and Bituminous Coal equalised and 2 percent custom duty and 2
percent CVD levied on both kinds coal.
Duty on imported luxury goods such as high end motor vehicles, motor cycles, yachts
and similar vessels increased.
Duty free gold limit increased to USD 918.86 in case of male passenger and USD
1,837.47 in case of a female passenger subject to conditions.

Excise duty

Relief to readymade garment industry. In case of cotton, zero excise duty at fibre stage
also. In case of spun yarn made of man made fibre, duty of 12 percent at the fibre stage.
Handmade carpets and textile floor coverings of coir and jute totally exempted from
excise duty.
To provide relief to ship building industry, ships and vessels exempted from excise duty.
No CVD on imported ships and vessels.
Specific excise duty on cigarettes increased by about 18 percent. Similar increase on
cigars, cheroots and cigarillos.
Excise duty on SUVs increased from 27 to 30 percent. Not applicable for SUVs
registered as taxies.
Excise duty on marble increased from USD 0.55 per square meter to USD 1.10 per
square meter.
Proposals to levy 4 percent excise duty on silver manufactured from smelting zinc or
lead.
Duty on mobile phones priced at more than USD 36.78 raised to 6 percent.
MRP based assessment in respect of branded medicaments of Ayurveda, Unani,Siddha,
Homeopathy and bio-chemic systems of medicine to reduce valuation disputes.

Service Tax

Maintain stability in tax regime.

Vocational courses offered by institutes affiliated to the State Council of Vocational
Training and testing activities in relation to agricultural produce also included in the negative list
for service tax.
Exemption of Service Tax on copyright on cinematography limited to films exhibited in
cinema halls.
Proposals to levy Service Tax on all air conditioned restaurant.

For homes and flats with a carpet area of 2,000 sq.ft. or more or of a value of USD 0.18
million or more, which are high-end constructions, where the component of services is greater,
rate of abatement reduced from from 75 to 70 percent.
Out of nearly 1.7 million registered assesses under Service Tax only 0.7 million file
returns regularly. Need to motivate them to file returns and pay tax dues. A onetime scheme
called Voluntary Compliance Encouragement Scheme proposed to be introduced. Defaulter
may avail of the scheme on condition that he files truthful declaration of Service Tax dues since
1st October 2007.
Tax proposals on Direct Taxes side estimated to yield to USD 2,444.32 million and on
the Indirect Tax side USD 863.68 million.

Good and Services Tax

A sum of USD 1,653.78 million towards the first instalment of the balance of CST
compensation provided in the budget.
Work on draft GST Constitutional amendment bill and GST law expected to be taken
forward.

LIFE INSUARANCE PREMIUM

Life insurance policies can be used as tax planning tool as premium paid on Insurance Policies
is eligible for tax benefits under Section 80C of the Income Tax Act 1961 (Act) and Maturity
Proceeds are also eligible for exemption under section Section 10(10D) and Section 10(10A)
(iii). Life Insurance helps Assessee in only tax saving , achieving their long term goals and it
also provides Comprehensive financial protection against unforeseen events for your family.
Deduction U/s. 80C in respect of life insurance premium
Eligible Assessee Individual and Hindu undivided family.

Maximum Limit Maximum Deduction allowed under this Section is Rs. 1.50 Lakh and the
sum includes payment on other allowable investment option available Under Section 80C of the
Income Tax Act,1961. It is to be further noted that combined Maximum limit of deduction under
Sec 80C & 80CCC & 80CCD (1) is Rs 1,50,000.
Deduction limit: Deduction will be allowed only for premiums upto a maximum of 10% of the sum
assured for policy issued on or after April 1, 2012. In case of policy issued before March 31, 2012,
deduction will be allowed only for premiums upto a maximum of 20% of the sum assured.
Allowable on Payment- Only life insurance premia paid or deposited during the year are allowable
as deduction under Section 80C.

Disallowance: The deductions claimed earlier will be taxable as income if the policy is
terminated either by notice or by failure to pay any premium in case of

Single premium policy: within 2 years after the commencement date

Regular premium policy: before premiums have been paid for 2 years.

On Whose Life insurance premia Can be Paid-

In the case of an individual (Resident or Non Resident)

On his own life

On Wife/husband(dependent or not)

Child

-Major or minor (dependent or not)

Married or unmarried Daughter / Son (dependent or not)
in the case of a Hindu undivided family, any member thereof;

Premium Paid on life of parents, Brother, Sisters or In-laws not EligiblePlease note that life insurance premium paid by you for your parents (father / mother / both)
Brother, Sisters or your in-laws is not eligible for deduction under section 80C.
More than one insurance policyIf you are paying premium for more than one insurance policy, all the premiums can be
included.
Premium Paid to LIC and Other Insurance CompaniesIt is not necessary to have the insurance policy from Life Insurance Corporation (LIC) even
insurance bought from private players can be considered here.
Premiums on pure endowment assurance policy
A pure endowment assurance policy is an assurance on the life of the assessee and hence the
premium paid on such policy would be eligible to rebate under section 80C.
Taxability of Maturity Proceeds
Section 10(10D)
The proceeds under a life insurance policy are exempt under Section 10(10D) of the Act,
subject to the provisions of the said section.
Section 10(10A)(iii)

Commuted Pension received from Pension fund (Pension Plans approved by IRDA) would be
tax-free.

Service Tax on Life Insurance Premium

All premiums and charges are subject to applicable taxes including service tax, education cess
and secondary and higher education cess as applicable under the prevailing tax laws.

MUTUAL FUNDS
The Indian capital market has been growing tremendously with
the reforms in industry policy, reforms in public and financial
sector and new economic policies of liberalization, deregulation
and restructuring. The Indian economy has opened up and many
developments have been taking place in the Indian capital market
and money market with the help of the financial system and
financial institution or intermediaries which faster saving and
channel them to their most efficient use.
The measurement of fund performance has been a topic of
increased

interest

in

both

the

academic

and

practitioner

communities for the last four decades. It is more so because of

growing scale of mutual theory. The investment environment is
becoming increasingly complex.
The study is aimed to understand the organisation of mutual
fund industry and to examine the performance of tax saving
schemes undertaken for study. It evaluates the performance of
selected schemes in comparison with benchmark index S&P CNX
Nifty, and also helps to the employ risk return measures.

The Indian financial system based on four basic components like

Financial Market, Financial Institutions, Financial Service, Financial
Instruments. All are play important role for smooth activities for
the transfer of the funds and allocation of the funds. The main
aim of the Indian financial system is that providing the efficiently
services to the capital market. The Indian capital market has been
increasing tremendously during the second generation reforms.
The first generation reforms started in 1991 the concept of LPG.
(Liberalization, privatization, Globalization).
Then after 1997 second generation reforms was started, still the its going on, its
include reforms of industrial investment, reforms of fiscal policy, reforms of eximp policy, reforms of public sector, reforms of financial sector, reforms of foreign
investment through the institutional investors, reforms banking sectors. The
economic development model adopted by India in the post independence era has
been characterized by mixed economy with the public sector playing a dominating
role and the activities in private industrial sector control measures emaciated form
time to time. The last two decades have been a phenomenal expansion in the
geographical coverage and the financial spread of our financial system.
The spared of the banking system has been a major factor in
promoting financial intermediation in the economy and in the
growth of financial savings with progressive liberalization of
economic policies, there has been a rapid growth of capital
market, money market and financial services industry including
merchant banking, leasing and venture capital, leasing, hire
purchasing. Consistent with the growth of financial sector and

second generation reforms its need to fruition of the financial

sector.
Concept of Mutual Fund:
Mutual fund is the pool of the money, based on the trust who
invests the savings of a number of investors who shares a
common financial goal, like the capital appreciation and dividend
earning. The money thus collect is then invested in capital market
instruments such as shares, debenture, and foreign market.
Investors invest money and get the units as per the unit value
which we called as NAV (net assets value). Mutual fund is the
most suitable investment for the common man as it offers an
opportunity to invest in diversified portfolio management, good
research team, professionally managed Indian stock as well as the
foreign market, the main aim of the fund manager is to taking the
scrip that have under value and future will rising, then fund
manager sell out the stock. Fund manager concentration on risk
return trade off, where minimize the risk and maximize the return
through diversification of the portfolio. The most common
features of the mutual fund unit are low cost.
Concept of mutual fund

MUTUALFUND

MARKET

SCHEMES

FLUCTUATION

I
INVEST THEIR MONEY INVEST IN VARIETY OF STOCKS/BONDS
N
V
E
S
T
O
R
S
PROFIT/LOSS
FROM PORTFOLIOPROFIT/LOSS
INVESTMENT FROM INDIVIDUAL INVESTMENT

Growth of Mutual Fund Industry

The history of mutual funds dates support to 19th century when it
was introduced in Europe, in particular, Great Britain. Robert
Fleming set up in 1868 the first investment trust called Foreign
and colonial investment trust which promised to manage the
finances of the moneyed classes of Scotland by scattering the
investment over a number of different stocks. This investment
trust and other investment trusts which were afterward set up in
Britain and the U.S., resembled todays close ended mutual
funds. The first mutual fund in the U.S., Massachusetts investors
trust, was set up in March 1924. This was the open ended
mutual fund.

ORGANISATION OF A MUTUAL FUND

There are many entities involved and the diagram below
illustrates the organisational set up of a mutual fund
Organisation structure of mutual fund

Mutual

funds have

a unique

structure

not

shared with

other entities such as companies of firms. It is important for

employees & agents to be aware of the special nature of this
structure, because it determines the rights & responsibilities of
the funds constituents viz., sponsors, trustees, custodians,
transfer agents & of course, the fund & the Asset Management
Company(AMC)

the

legal

structure

also

drives

the

inter-

relationships between these constituents.

The structure of the mutual fund India is governed by the SEBI
(Mutual Funds) regulations, 1996. These regulations make it
mandatory for mutual funds to have a structure of sponsor,
trustee, AMC, custodian. The sponsor is the promoter of the
mutual fund,& appoints the trustees. The trustees are responsible
to the investors in the mutual fund, & appoint the AMC for

managing the investment portfolio. The AMC is the business face

of the mutual fund, as it manages all affairs of the mutual fund.
The mutual fund & the AMC have to be registered with SEBI.
Custodian, who is also registered with SEBI, holds the securities of
various schemes of the fund in its custody.

TYPES OF MUTUAL FUND SCHEMES

1) By Structure
Open-ended Funds: An open-end fund is one that is
available for subscription all through the year. These do not
have a fixed maturity. Investors can conveniently buy and
sell units at Net Asset Value ("NAV") related prices. The key
feature of open-end schemes is liquidity.
Closed ended Funds: A closed-end fund has a stipulated
maturity period which generally ranging from 3 to 15 years.
The fund is open for subscription only during a specified
period. Investors can invest in the scheme at the time of the
initial public issue and thereafter they can buy or sell the
units of the scheme on the stock exchanges where they are
listed. In order to provide an exit route to the investors,
some close-ended funds give an option of selling back the
units to the Mutual Fund through periodic repurchase at NAV
related prices. SEBI Regulations stipulate that at least one of
the two exit routes is provided to the investor.

 Interval Funds: Interval funds combine the features of

open-ended and close-ended schemes. They are open for
sale or redemption during pre-determined intervals at NAV
related prices
2) By Investment Objective
Growth Funds: The aim of growth funds is to provide
capital appreciation over the medium to long term. Such
schemes normally invest a majority of their corpus in
equities. It has been proved that returns from stocks, have
outperformed most other kind of investments held over the
long term. Growth schemes are ideal for investors having a
long term outlook seeking growth over a period of time.
Income Funds: The aim of income funds is to provide
regular and steady income to investors. Such schemes
generally invest in fixed income securities such as bonds,
corporate debentures and Government securities. Income
Funds are ideal for capital stability and regular income.
Balanced Fund: The aim of balanced funds is to provide
both growth and regular income as such schemes invest
both in equities and fixed income securities in the proportion
indicated in their offer documents. These are appropriate for
investors looking for moderate growth. They generally invest
40-60% in equity and debt instruments. These funds are also
affected because of fluctuations in share prices in the stock

markets. However, NAVs of such funds are likely to be less

volatile compared to pure equity funds.
MoneyMarketFunds: The aim of money market funds is to
provide easy liquidity, preservation of capital and moderate
income. These schemes generally invest in safer short-term
instruments such as treasury bills, certificates of deposit,
commercial paper and inter-bank call money. Returns on
these schemes may fluctuate depending upon the interest
rates prevailing in the market. These are ideal for Corporate
and individual investors as a means to park their surplus
funds for short periods.
3) Other Schemes
Tax Saving Schemes: These schemes offer tax rebates to
the investors under specific provisions of the Indian Income
Tax laws as the Government offers tax incentives for
investment in specified avenues. Investments made in
Equity Linked Savings Schemes (ELSS) and Pension Schemes
are allowed as deduction u/s 80C of the Income Tax Act,
1961. The Act also provides opportunities to investors to
save capital gains u/s 54EA and 54EB by investing in Mutual
Funds.
Gilt Fund: These funds invest exclusively in government
securities. Government securities have no default risk. NAVs
of these schemes also fluctuate due to change in interest

rates and other economic factors as is the case with income

or debt oriented schemes.
Special Schemes
Industry

Specific

Schemes:

Industry

Specific

Schemes invest only in the industries specified in the

offer document. The investment of these funds is
limited to specific industries like InfoTech, FMCG, and
Pharmaceuticals etc.
Sectoral Schemes: Sectoral Funds are those which
invest exclusively in a specified sector. This could be an
industry or a group of industries or various segments
such as 'A' Group shares or initial public offerings.
Index Schemes Index Funds attempt to replicate
the performance of a particular index such as the
BSE Sensex or the NSE 50.

SWOT ANALYSIS
SWOT Analysis presents the information about external and
internal environment of mutual fund in structured from where by
key

external

opportunity

and

threats

can

be

compared

systematically with internal capabilities and weakness. The basic

objectives of SWOT analysis is provide a framework to reflect on
the industry capabilities to avail opportunities or to overcome
thrats presented by environment.
Strength
Full

Weakness
benefit

of

Lesser return compared to

diversification
Tax benefit
Transparancy & flexibility
Expert
investment

equity
Poor technology & service
level
Lack of proper marketing

management
Opportunity

Threats

Government policies & Tax

Arrival of more private &

concession
Setting up a specific fund
Technology development

foreign players
Introduction of more debt
instrument in market.

ADVANTAGES OF INVESTING IN MUTUAL FUNDS

There are several that can be attributed to the growing
popularities and suitability of mutual funds as an investment
vehicle especially for retail investors.
a) Professional management: Mutual funds provide the
services of experienced and skilled professionals, backed by
a dedicated investment research team that analysis the
performance and prospects of companies and selects
suitable investments to achieve the objectives of the
scheme.
b) Diversification: Mutual funds invest in a number of
companies across a broad cross- section of industries and
sectors. This diversification reduces the risk because seldom
do all stocks decline at the sane time and in the same
proportion. You achieve this diversification through a mutual
fund with far less money than you can do on your own.
c) Convenient administration: Investing in a mutual fund
reduces paperwork and helps you avoid many problems such
as bad deliveries, delayed payment and follow up with
brokers and companies. Mutual funds save your time and
make investing easy and convenient.
d) Return potential: Over a medium to long term, mutual
funds have the potential to provide a higher return as they
invest in a diversified basket of selected securities.

e) Low costs: Mutual funds are a relatively less expensive way

to invest compared to directly investing in the capital
markets because the benefits of scale in brokerage, custodial
and other fees translate into lower costs for investors.
f) Liquidity: In open ended schemes, the investors get the
money back promptly at net asset value related prices from
the mutual fund. In closed end schemes, the units can be
sold on a stock exchange at the prevailing market price or
the investor can avail of the facility of direct repurchase at
NAV related prices by mutual fund.
g) Transparency: You get regular information on the value of
your investment in addition to disclosure on the specific
investments made by your scheme, the proportion invested
in each class of assets and the fund managers investment
strategy and outlook.
h) Flexibility: Through features such as regular investment
plans, regular withdrawal plans and dividend reinvestment
plans, you can systematically invest or withdraw funds
according to your needs and convenience.
i) Affordability: Investors individually may lack sufficient
funds to invest in high-grade stocks. A mutual fund because
of its large corpus allows even a small investor to take the
benefit of its investment strategy.

j) Choice of schemes: Mutual funds offer a family of schemes

to suit your varying needs over a lifetime.
k) Safety: Mutual Fund industry is part of a well-regulated
investment environment where the interests of the investors
are protected by the
regulator. All funds are registered with SEBI and complete
transparency is forced.