DBA 5107 LEGAL ASPECTS OF BUSINESS

UNIT – 4

INCOME TAX & SALES TAX ACT

INCOME TAX ACT, 1961

INTRODUCTION:

Income Tax Act, 1961 extends to the whole of India. It came into
force on the 1st Day of April,1962. This Act consists of 298 sections,
various sub-sections and 14 schedules, which is the basis of the
present tax structure. The Act has been amended several times and
latest amendment was made in the year 2006. The accountants and
economists call it as the ‘most complicated Act of the World’

WHAT IS CORPORATE TAX PLANNING?

The tax collected from the companies is called as corporate tax

planning. The proceedings of corporate tax is retained by the Central
Govt and not shared with the State Govt.

The corporate tax planning is exempted for those companies

who invest in Government securities. Therefore, the savings in tax
helps the Central Government to mobilize (generate) funds by way of
investment.
CENTRAL SALES TAX

WHAT IS SALES TAX?

A tax levied at the point of sale and it is based on the retail price
of the product or goods or service. For Example: MRP of a Pen is
Rs.10/- Here Sales tax will be charged on Rs.10.

Sales tax in India is covered under 2 types:

 Central Sales Tax (CST)

 State Sales Tax (TNGST)

1. CENTRAL SALES TAX ACT, 1956(CST)

FEATURES OF CENTRAL SALES TAX ACT, 1956

 Applicability

 Registration

 Levy of Tax

 Basis

 Assessment

WHO IS A DEALER?

Any person carrying out the business of buying, selling or

distributing goods directly or indirectly for cash, commission or any
other remuneration.

TYPES OF DEALERS:

Dealers can be divided into 2 types:

  Registered Dealer

 Unregistered Dealer

PROCEDURE FOR REGISTRATION OF DEALERS:

The following procedure is to be followed by a dealer for

registering his business under CST Act:

 Application for Registration (Form D)

 Documents to be enclosed with Form D

 Security money

 Issue of Registration Certificate

CENTRAL SALES TAX RATES

Types of Sale to Sale to Registered Sale to an Un-Registered

Goods Government Dealer Dealer

Declared 4% or State Sales 4% or State Sales Twice the general sales

Goods tax rate whichever tax rate whichever tax rate (10%)
is lower is lower
Undeclared Same as Above Same as Above 10% or Sale tax
Goods whichever is less

2. STATE SALES TAX (TNGST)

WHAT IS STATE SALES TAX (TNGST)?

It is a tax that is levied by the concerned State Government. In

the State of Tamil Nadu, the State Sales Tax is called as Tamil Nadu
General Sale Tax (TNGST).

TAX RATES OF TNGST:

The tax rate is 5% throughout the State.

VALUE ADDED TAX

GENERAL INTRODUCTION

 The Value Added Tax (VAT) was introduced throughout the India
on 1st April 2003.

 VAT was introduced in India as per the decisions taken by the

Empowered Committee of State Finance Ministers

 It was first introduced in France in 1954.

 At present, more than 160 Countries have a VAT system.

WHAT IS VALUE ADDED TAX (VAT)?

VAT is a tax, which is charged on the “Increase in Value” of

goods and service at each stage of production and circulation. It is also
chargeable on the value of all imported goods. It is charged by
registered VAT business persons.

VAT IS levied (charged) on the difference between the sale price

of the goods produced and the cost of goods.

Example:
Sale price of Sony Television : 45,000

Cost of Production : 35,000

------------

10,000

------------

So VAT is charged for Rs. 10,000

REGISTRATION OF VAT:

WHO SHOULD REGISTER AS A VAT TAX PAYER?

o Every person who provide goods or services, having an annual

turnover exceeding the minimum limit should register as a VAT
tax payer. The present minimum limit is 10,00,000.

o All importers should register irrespective of their annual

turnover.

o It is the person who is registered for VAT and not the enterprise.

WHEN A DEALER SHOULD REGISTER FOR VAT?

 The dealer should register for VAT when the taxable supplies
(total sales) of the business exceed the minimum limit. The limit
changes every year depending on inflation and government
decisions.

 At present every dealer should register his business for VAT in 2

cases:
 (i) If the total sales in the previous year exceeds the minimum
limit.

(ii) If the total sales in the next 30 days is expected to exceed the
minimum limit.

PROCEDURE FOR REGISTRATION FOR VAT:

The following procedure is to be followed by every dealer for

registration of business for VAT:

 Fill the registration application form provided by VAT office.

 Post it to local VAT office.

 Local VAT office will scrutinize the application and then it will
send a “ Certificate of VAT Registration”

DUTIES OF REGISTERED VAT TAX PAYER

1. Display the certificate of registration.

2. Charge VAT on all taxable transaction from the date of

registration.

3. Issue tax invoices.

4. Maintain accurate and updated records which will be inspected

by the VAT auditors.

5. Submit a declaration to the local VAT office each month.

6. Pay the tax due each month.

DIFFERENT RATES OF VAT:

There are two different rates of VAT:

1. Standard Rate (12.5%)

2. Zero Rate (0%)

Standard Rate:

The Standard Rate is the rate in which, the tax collected at a

standard rate for all goods and services.

Zero Rate:

It is a rate in which, VAT is charged at 0% for certain products.

List of Products Coming Under Zero Rate Category:

 Some food items (Doesn’t include meals in restaurants and

cafes)

 Books & Newspapers

 Exported Goods

 Prescriptions Dispensed to a Patient by a Registered Pharmacist.

THE END