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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. The Tax Structure in India is quite strong and follows the financial year. The taxation under the tax structure in India is applicable for any kind of income pertaining to a person working as an employee under the public sector units, private sector units, foreign companies in India, Departments of the State Governments of India, and Departments of the Central Government of India or self-employed individuals engaged in commercial activities which is legal in nature. The several corporations engaged in commercial activities also come under the taxation. The public bodies, state governments and central government have clear demarcation of their functioning. The central government imposes tax on all kinds of income such as central excise, customs duties, and service tax apart from income pertaining to agriculture. The State Governments of India is responsible for imposing tax pertaining to Value Added Tax (VAT), sales tax, income from agriculture, state excise duty, stamp duty, professional tax, land revenue, etc. Taxes imposed by the local bodies are pertaining to octroi tax, water supply utilities, drainage and sewage utilities, property tax, 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. Since April 01, 2005, most of the State Governments in India have replaced sales tax with VAT.
Different taxes levied under tax structure in India:
Direct Taxes y y y y y Personal Income Tax Tax on Corporate Income Tax Incentives Capital Gains Tax Wealth Tax
Indirect Taxes y y y y Securities Transaction Tax Service Tax Excise Duty Customs Duty
India y The system of taxation is completely based on the personal assessment of income y Penalties and interest are charged on the non-payment of taxes and failure to file returns y The filing date is not extended and any late filing is charged with interest y The returns pertaining to the losses have to be filed within the due date y All the large sized and medium sized taxpayers are subjugated to investigative assessment y Designated due dates are ascertained for the purpose of filing of returns y The tax is deducted at source by the employers on behalf of the employees and from all kinds of defrayments to non-residents . etc. insurance policies.Taxes Levied by State Governments and Local Bodies y y Other Taxes Sales Tax or Value Added Tax The different heads of income for tax structure in India: y y y y y Salary House property Profit in business or profession Capital gains Other sources The different exemption schemes under the tax structure in India: Exemption on income spent on higher educational purpose Exemption on income spent for the treatment of a diseased person who is dependent Exemption on income spent as contribution to provident fund. Exemption on the income spent on buying national savings certificates and investments in other government based savings schemes y Exemption on the income of a disabled person y Exemption on the income spent on the payment of interest on loan y y y y The important facts under the tax structure in India: y The laws on central government income tax collection and recovery is governed by the Department of Tax and Revenue under Ministry of Finance.
Firms (partnerships). 3. Long-term capital gains are concessionally taxed at lower rates. o Salaries earned in India.I) DIRECT TAXES: The income tax system in India is unitary. However. or through the transfer of a capital asset situated in India. are utilized in a business outside India or for earning income from a source outside India. and other considerations. the patent. India follows the "classical system. Residents are taxed on their worldwide income. Companies. royalties or technical service fees payable by persons other than the government unless the funds borrowed. etc. dividends received by one domestic company from another domestic company are not taxed in the hands of the recipient company to the extent it distributes the dividends to its shareholders within the time allowed for filing its tax return. Associations of persons or bodies of individuals. 1. Classes of taxpayer The income tax law classifies taxpayers as follows. Subject to treaty exemptions. y Income Tax ." under which corporate income is taxed both to the corporation and upon distribution to the shareholders as dividends.. the technical information. 2. In addition. o Interest. where the sale is affected. nonresidents are taxed only on income that is received in India or that arises in India or is deemed to arise in India. This depends on where the income-producing asset is located. where the services giving rise to the income are performed. o Interest. Income less permissible expenses from all sources (other than long-term capital gains) of each tax payer s aggregated and subject to tax at a flat rate in the case of companies and partnership firms and at progressives rates in the case of other taxpayers. o Dividends paid by Indian companies outside India. even if paid outside India. the Income Tax At specifically mentions that the following income is deemed to arise in India: o Income arising directly or indirectly through or from any business connection in India. through or from any property. asset or source of income in India. royalties or technical service fees payable by the government. Geographical source of income Generally. income arises in India if it becomes due in India.
6. It shall be deemed to have come into force on the 1st day of April. 1957. Wealth tax is tax on the benefits derived from property ownership. whether or not such property yields any income. units of specified mutual funds. Incidence of Wealth tax For an individual who is a citizen of India and resident in India. a resident-HUF and company resident in India. 6. long-term capital gains from sale of equity shares or units of mutual funds are exempted from tax. The Wealth Tax Act is an important direct tax legislation. securities listed on a recognized stock exchange in India. 5. 5. . 3. Artificial juridical persons. HUF. wealth tax is chargeable on net wealth that consists of: All assets in India and outside India All debts present in India as well as outside India are deductible while calculating the net wealth. Hindu Undivided Family and company at the rate of 1% of the amount by which net wealth exceeds Rs. Long-term Capital Gains Tax is charged if: Capital assets are held for more than three years and In case of shares. It extends to the whole of India. However. 7.4. For any individual who is an Indian citizen but not residing in India. It is charged for every assessment year for net wealth of corresponding valuation date on every individual. Local authorities (municipal bodies). Individuals. Wealth tax is an annual tax like income tax. Long-term capital gains are taxed at a basic rate of 20%. 2. All assets and debts outside India are out of the scope of Wealth Tax Act. 1957. Hindu undivided families. non-resident or not ordinarily resident in India and a company non-resident in India: All assets in India except loan and debts interest whereon is exempt from income-tax under section 10 of the Income-tax Act are chargeable to tax All debts in India are deductible in computing the net wealth. the period for holding is one year. The tax is to be paid year after year on the same property on its market value. there is another direct tax act called the Wealth-tax Act. y Wealth Tax Other than Income-tax. 4. y Capital Gains Tax Tax is payable on capital gains on sale of assets. 1. 15 lakhs.
Rates of customs duty for goods imported from countries with whom India has entered into free trade agreements such as Thailand. Customs duty is calculated on the transaction value of the goods. Most of the products attract excise duties at the rate of 16%. character. Some products also attract special excise duty/and an additional duty of excise at the rate of 8% above the 16% excise duty. labeling etc. Long-term and short-term capital losses are allowed to be carried forward for eight consecutive years. The rates of basic customs duty are specified under the Tariff Act. Additional customs duty is equivalent to the excise duty payable on similar goods manufactured in India. Excise duty is levied on ad valorem basis or based on the maximum retail price in some cases. use and marketability and includes packing. 2% education cess is also applicable on the aggregate of the duties of excise. Imported goods in India attract basic customs duty. Education cess at 2% is leviable on the aggregate of customs duty on imported goods. the term Manufacture means bringing into existence a new article having a distinct name. additional customs duty and education cess. The peak rate of basic customs duty has been reduced to 15% for industrial goods. II) INDIRECT TAXES y Excise duty: Manufacture of goods in India attracts Excise Duty under the Central Excise act 1944 and the Central Excise Tariff Act 1985. Herein. Customs duties in India are administrated by Central Board of Excise and Customs under Ministry of Finance.Short-term capital gains are taxed at the normal corporate income tax rates. Long-term capital losses may be offset against taxable long-term capital gains and shortterm capital losses may be offset against both long term and short-term taxable capital gains. y Service Tax: . y Customs Duty: The levy and the rate of customs duty in India are governed by the Customs Act 1962 and the Customs Tariff Act 1975. Sri Lanka. Short-term capital gains arising on the transfer of equity shares or units of mutual funds are taxed at a rate of 10%. south Asian countries and MERCOSUR countries are provided on the website of CBEC. BIMSTEC.
Central Sales tax department. vacant land used for agriculture and similar purposes. entertainment and parking purposes & immovable property for educational or religious purposes to be excluded). asset management services provided by individuals. Delivery base transactions in equity shares or buyer and seller each units of an equityoriented fund . Sales tax can be levied either by the Central or State Government. Exemption to: Services provided by Resident Welfare Associations to their members who contribute Rs.3000 or less per month for services rendered. development and supply of content for use in telecom and advertising purposes. If the product is sold subsequently without being processed further. design services. services involved in execution of a works contract with an optional composition scheme under which tax will be levied at only 2% of the total value of works contract. Non delivery base transactions in the above . Derivatives (futures and options) seller . Service tax on taxable services rendered in India are exempt.0. derivatives and units of equity-oriented funds entered in a recognized stock exchange attract Securities Transaction Tax at the following rate:a. Extension of service tax to: services outsourced for mining of mineral. their incubatees whose annual business turnover does not exceed Rs.50 lakhs to be exempt for first three years. Sale of units of an equity-oriented fund to the seller mutual fund . 4 per cent tax is generally levied on all inter-State sales. The CENVAT Credit Rules allow a service provider to avail and utilize the credit of additional duty of customs/excise duty for payment of service tax.0.075% b. Also.Service tax is levied at the rate of 10% (plus 2% education cess) on certain identified taxable services provided in India by specified service providers. State sales taxes that apply on sales made within a State have rates that range from 4 to 15 per cent. Sales tax is also charged on works contracts in most States and the value of contracts subject to tax and the tax . services provided by technology business incubators.15% c. it is exempt from sales tax.0. Credit is also provided on payment of service tax on input services for the discharge of output service tax liability. renting of immovable property for use in commerce or business (residential properties. y Securities Transaction Tax: Transactions in equity shares. clinical trial of new drugs to make India a preferred destination for drug testing. if payment for such services is received in convertible foreign exchange in India and the same is not repatriated outside India. oil or gas.015% d.0.01% y Sales Tax: Sales tax is levied on the sale of a commodity which is produced or imported and sold for the first time. and land for sports.
which can have a snowballing effect . we see that sales tax is to be paid by every dealer when he sells any commodity. sold to the consumer and at every end of the tax period reduces the tax collected on sale and tax charged to him by the dealers from whom he purchased the goods and deposits such amount of tax in government treasury. levied only on value that is added at each stage in the cycle of production of goods and services with the provision of a set-off for the tax paid at earlier stages in the cycle/chain. VAT is a multi-stage tax. Thus. turnover tax & purchaser tax. luxury items (such as cosmetics) are levied higher sales tax rates. Apart from sales tax. The aim is to avoid 'cascading'. More than130 countries worldwide have introduced VAT over the past 3 decades. the sale of imported items as well as sale by way of export is not included in the range of commodities that require payment of sales tax. the dealer charges the tax on the full price of the goods. It is imposed under Central Government (Central Sales Tax) and the State Government (Sales Tax) Legislation. Sales tax is to be paid to the sales tax authority of the state from which the movement of the commodities starts or commences. Sales tax is levied on the seller who recovers it from the customer at the time of sale. VAT is payable on the goods and services as they form a part of national GDP. In practice. It is based on the value of the goods. sales tax plays a major role in acting as a major generator of revenue for the various State Governments. irrespective of the fact that there may be no liability to pay tax on such a sale of goods under the tax laws of the appropriate state. It is the indirect tax on the consumption of the goods. it is the responsibility of seller of the commodity to collect or recover the tax from the purchaser. certain states also impose extra charges such as works contracts tax. Generally. during inter-state trade or commerce. However. y Value Added Tax (VAT): Value Added Tax (VAT) is nothing but a general consumption tax that is assessed on the value added to goods & services. each state has its own sales tax act and levies the tax at various rates. exports and services are exempt from sales tax. Moreover. Hence. Sales Tax in India is that form of tax which is imposed by the government on sale/purchase of a particular commodity within the country.rate vary from State to State. It is the form of collecting sales tax under which tax is collected in each stage on the value added of the goods. The Central Sales Tax (CST) Act that comes under the direction of Central Government takes into consideration all the interstate sales of commodities. All over the world. It is the tax in relation to the difference of the value added by the transferor and not just a profit. Normally. It means every seller of goods and service providers charges the tax after availing the input tax credit. India being amongst the last few to introduce it. added by the transferor. Under the sales tax which is an indirect form of tax. paid by its original producers upon the change in goods or upon the transfer of the goods to its ultimate consumers.
. Power distribution. Handling of food grains. particularly being a trading community. hence resulting in higher revenues to the government. it will not only close options for traders and businessmen to evade paying their taxes. These tax incentives are. Food processing. but also make sure that they'll be compelled to keep proper records of sales and purchases. III) 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 goods IV) Tax Incentives Government of India provides tax incentives for:a) Corporate profit b) Accelerated depreciation allowance c) Deductibility of certain expenses subject to certain conditions. Companies carrying on R&D. Undertakings in certain hill states. certain telecom services. has always believed in accepting and adopting loopholes in any system administered by State or Centre. Production or refining of mineral oil. Developing housing projects. Importance of VAT in India India. It is assumed that because of cross-checking in a multi-staged tax. subject to specified conditions. tax evasion would be checked. If a well-administered system comes in.on the prices. available for new investment in: a) b) c) d) e) f) g) h) i) j) Infrastructure. Undertakings developing or operating industrial parks or special economic zones.
k) Rural hospitals etc. ______________________________________________________________ .
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