Corporate Taxation

Direct & Indirect

Meaning of Income and Tax

Income [sec. 2(24)] of IT Act 1961 1. Profit and Gains of Business or Profession 2. Dividend 3. Voluntary Contribution received by a charitable/religious trust or University/Edn Institution or Hospital/electoral trust 4. Salary or value of perquisite or pfofit in lieu of salary taxable u/s 17 and special allowance or benefit specifically granted either to meet personal expenses or for performance of duties 5. Export incentives like duty drawbacks

6.Interest , Salary, bonus, commission or remuneration earned by a partner of a firm 7. Capital Gains chargeable u/s 45. 8. P&G from banking business by Cop Socy 9. Winnings from lotteries, horse race etc. 10. Deemed income u/s41 or 59

11. Sums by assessee from his employees towards Welfare Fund contribution such as PF, Superannuation Fund 12. Amount received under Key man insurance policies 13. Benefit or perquisite received from a company by a director or a person holding substantial interest or a relative of the director or such person. 14. Gift as defined u/s 56

Meaning of the term Assessee Sec 2(7) Assessee means a person by whom any tax or any other sum of money (i.e. penalty or interest) is payable under the Act. The term person includes a. An individual b. A Hindu Undivided Family (HUF) c. A company d. A firm e. An AOI or BOI f. A local authority g. Every artificial judicial person, not falling in above category

Category I An individual, a HUF, a company, a firm, an AOP, BOI( whether incorporated or not), a local authority and every artificial judicial person, by whom any tax or any other sum of money is payable under the Act. (irrespective of the fact that any proceeding under the Act has been taken against him or not).

Category II A person in respect of whom any proceeding under the act has been taken (whether or not he is liable to pay tax , penalty or interest). Proceedings may be taken a. Either for the assessment of the amount of his income or of the loss sustained by him b. Of the income (or loss) of any other person in respect of whom he is assessable; or c. Of the amt of refund due to him or such other person.

Category III Every person who is deemed to be an assessee. For instance, a representative assessee is deemed to be an assessee by virtue pf sectopm 16(2) Category IV Person who is deemed to be an assessee in default under any provision of the act.

Previous Year & Assessment Year

Assessment Year [Sec. 2(9)] Assessment year means the period of twelve months starting from April 1 of every yer and ending on March 31 of the next year. For instance, the assessment year 2010-11 which will commence on April 1, 2010, will end on March 31, 2011. The period of assessment year is fixed by statute

 Previous year [Sec.3] Income earned in a year is taxable in the next year. The year in which income is earned is known as previous and the next year in which income is taxable is known as assessment year. The income earned during the previous year 2009-2010 is taxable in the immediately following assessment year 2010-2011.

Gross total income (GTI) Sec 14

As per sec 14, income of a person is computed under the following five heads 1. Salaries 2. income from house property 3. Profits and gains of business or profession 4. Capital gains 5. Income from other sources

The aggregate income under the five heads mentioned in earlier slide is termed as Gross Total Income. In other words, gross total income means total income computed in accordance with the provisions of the Act before making any deduction under sections 80C to 80U. The several heads into which income is divided under the Act do not make different kinds of taxes. Tax is always one but it may arise under different heads to which the different rules of computation have to be applied.

Computation of Income & its tax liability

1. Income from salaries a. Income from salary b. Income by way of allowance c. Taxable value of perquisite Gross Salary Less Deduction u/s16 Entertainment allowance Professional Tax Taxable Income under the head Salary

2. Income from house property Adjusted net annual Value Less: Deductions under sec 24 Taxable inc under the head House Property 3. Profits & Gains from business or profession Net profit as per P&L A/C (+) Amt debited to P&L A/C but not allowable as deductions under the Act (-) Expenditure not debited to P&L A/C but allowable as deductions under the Act. (-) Incomes credited to P&L A/c but exempt u/s 10 to 13A (+) Incomes not credited to P&L A/c Taxable income under head P&G of B&P

4. Capital gains Amount of capital gains Less : Amount exempt u/s 54,54B, 54D, 54EC, 54ED, 54F, 54G, and 54GA Total income under the head Capital gains 5. Income from other sources Gross income Less: Deductions u/s 57 Taxable income under the head income from other sources

Total income 1+2+3+4+5 (-) Adjustment on account of set-off and carry forward of losses Gross Total Income (-) Deductions u/s 80C to 80U Total income or net income liable to tax Computation of tax liability Tax on net income Add surcharge Tax and surcharge

Add Edn cess SH,EC Less Rebate u/s 86,89,90, 90A and 91 Less: Prepaid taxes Tax paid on self-assessment Tax deducted or collected at source Tax paid in advance Tax liability.

Tax Rate for Individuals/HUF/AOP/BOI/AJP

Taxable income Upto 160,000 160,001 to 5,00,000 5 to 8 lakhs Tax rate IT and EC+ SHEC Nil IT TP = IT +3% of IT

Nil

Nil

10% and 3% IT=(TITP= IT+3% 160,000)*10% of IT 20% and 3% 34,000+ (TITP= IT + 500,000)*20% 3% of IT 30% and 3% IT= 94,000 + (TI8,00,000)*30 % TP= IT + 3% of IT

Above 8 lakhs

Residential Status
Different taxable entities: Sec 6 a. b. c. d. e. An individual A Hindu Undivided Family [HUF] A Firm or AOP/BOI A company Every other person

Different Kinds of residential status An assessee a) either resident in India b) non resident in India In case of individual & HUF i) Resident but not ordinarily resident ii) Resident and ordinarily resident All other assessee can simply be either resident or non- resident.

Resident in India & Abroad A person may be resident in more than one country at the same time for tax purpose, though he cannot have two domiciles simultaneously. Hence, it is not necessary that a person who is resident in India, will be non resident for all other countries for the same assessment year. However it is the duty of the assessing officer to prove whether the assessee is resident or non resident.

Residential Status of an individual i) Resident and ordinarily resident ii) Resident but not ordinarily resident iii) Non-resident Resident and ordinarily resident Basic condition a) in India in previous yr for 182 days or more b) in India in previous yr for 60 days or more and 365 days or more during 4 yrs immediately preceding previous year.

Additional condition: 1. Resident in India at least 2 out of 10 previous yr immediately preceding the relevant previous year. 2. He has been in India for a period of 730 days or more during 7 yrs immediately preceding the relevant previous yr. Conclusion An individual becomes resident and ordinarily resident if he satisfies at least one of the basic condition & two additional condition.

Resident but not ordinarily resident. An individual who satisfy at least one of the basic condition but not satisfy two additional condition is treated as a resident but not ordinarily resident in India. Non-resident An individual is a non-resident in India if he satisfies none of the basic conditions. Here the additional conditions are irrelevant.

Residential status of Hindu Undivided Family i) Resident : Control and management of its affairs wholly or partly situated in India ii) Non Resident: Control and management of its affairs is wholly situated outside India.
Place of control Residential status of family 1. Wholly in India Resident 2. Wholly outside India Non-resident 3. Partly in India & Resident partly outside India

HUF is ordinarily resident in India A resident HUF is ordinarily resident in India if the karta or manager of the family ( including successive karta) satisfies the following two additional conditions as per Sec. 6(6)(b) 1. Karta resident in Indiaat least 2/10 previous years immediately preceding relevant previous year. 2. Karta in India for 730 days or more during 7 years immediately preceding relevant previous year.

Residential status of Partnership Firm/AOP

Place of control Control &mgt of affairs 1. Wholly in India 2. Wholly outside India 3. Partly in India & Partly outside India Residential Status

Resident Non-resident Resident

Residential status of a company sec. 6(3) An Indian company is always resident in India. A foreign company is resident in India only if, control and management of its affairs is situated wholly in India. In other words, a foreign company is treated as non-resident if, during the previous year, control and management of its affairs is either wholly or partly situated out of India.

Place of Control Residential Status of an Indian Company 1. Wholly in Resident India 2. Wholly Resident outside India 3. Partly India Resident & Partly outside India

Residential Status of Foreign Company Resident Non-resident Non-resident

Residential Status & Tax incidence Incidence of tax on a taxpayer depends on his residential status and also on the place and time of accrual or receipt of income. Indian Income: Any of the following three 1. Income received or deemed to be received during p.y. & at the same time accrues or arises or is deemed to accrue or arise in India during previous year.

2. If income is received (or deemed to be received) in India during the previous year but it accrues (or arises) outside India during the previous year. 3. If income is received outside India during the previous year but it accrues ( or arises or is deemed to accrue or arise ) in India during the previous year.

Foreign Income: If the following conditions are satisfied a. Income is not received ( or not deemed to be received ) in India. b. Income does not accrue or arise (or does not deem to accrue or arise) in India.

Incidence of tax for Individual & HUF

Type of income Resident & ordinarily resident Taxable in India Taxable in India Resident but not ordinarily resident Taxable in India 2 types of foreign income is taxable others not Nonresident

1. Indian income 2. Foreign income

Taxable in India Not taxable

The following foreign two types of incomes which are taxable in the hands of a resident but not ordinarily resident in India-

1. Business income & business is controlled wholly or partly from India 2. Income from a profession which is set-up in India. No other foreign income ( like salary, rent, interest etc) is taxable in India in the hands of resident but not ordinarily resident in India

Tax incidence for company, firm, co-op soc, AOP/BOI etc.

Type of Income Resident in India 1. Indian income 2. Foreign income

Non-resident in India

Taxable in India Taxable in India Taxable in India Not taxable in India

Relevant terms: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Receipt vs Remittance Cash vs Kind Receipt vs Accrual Actual receipt vs Deemed receipt Receipt by an agent Receipt of income in case of advance money Receipt in case of sale by commission agent Receipt by cheque When cheque is sent by postr When sale proceeds are received in cash

Agricultural Income
Definition [Sec. 2(1A)] As per [Sec. 2(1A)], agricultural income means: a. i) any rent or revenue derived from land ii) which is situated in India iii) and is used for agricultural purpose. b. i) any income derived from such land by agricultural operations including processing of the agricultural produce, raised or received as rent-inkind so as to render it fit for the market, or sale of such produce and

c. Income attributable to a farm house subject to the conditions i) that the building is situated on or in the immediate vicinity of the land and is used as a dwelling house, store house or other out-building and the land is assessed to land revenue or a local rate or ii) alternatively , the building is situated on or in the immediate vicinity of land which ( though not assessed to land revenue or local rate) is situated outside the urban areas, i.e. any area which comprised within the jurisdiction of a municipality or cantonment board having a population of ten thousand or more in any area within such notified distance from the local limit of mun or CB.

What does agriculture include? Agriculture would include: i) Horticulture, Floriculture, Arboriculture and Sylviculture ii) Raising of grooves, plantations, raising of grass or pastures. iii) Cultivation of all commodities of food value like sugarcane, coffee, mangoes etc., artistic and decorative value like flowers and creepers, housing value like bamboo, timber, fuel value, medicinal and health value

 Sec. 10(1) exempts agricultural income from tax. Reason: The constitution gives exclusive power to make laws with respect to taxes on agricultural income to the State Legislature. However in some cases agricultural income is taken into consideration to determine tax on nonagricultural income. With effect from 2009-2010 any income derived from sapling or seedlings grown in a nursery shall be deemed to be agricultural income.

As per Sec 2(1A), if the three conditions are satisfied income derived from land can be termed as agricultural income.

a. Rent or revenue should be derived from land b. The land is one which is situated in India c. The land is used for agricultural purposes

Judicial Interpretation of the term agriculture

1. 2. 3. 4.

Following principles to serve as a guide in the determination of the scope of the terms agriculture and agricultural purposes. Basic operation Subsequent operations Agriculture not merely include food and grains Mere connection with land is not sufficient

Income derived from agricultural land by agricultural operations [ Sec. 2(1A)(b)] i) ii) Income derived by agricultural from land situated in India and used for agricultural purpose. any income derived by a cultivator or receiver of rent in kind of any process ordinarily employed to render the produce raised or received by him is fit to be taken to market

iii) any income derived from such land by the sale by a cultivator or receiver receiver of rent-in kind of the produce raised or received by him in respect of which no process has been performed other than a process of the nature described in (b).

Income derived from marketing process; a. The process must be one which is ordinarily employed by a cultivator or receiver of rentin-kind and

b. The process must be applied to render the produce fit to be taken to market.

Income from farm building [Sec 2(1A)(c)] Income from house property which satisfies the following cumulative conditions would be treated as agricultural income and consequently, it would be exempt from tax by virtue of sec 10(1) a. The building is occupied by the cultivator or receiver of rent-in-kind

b. It is on or in the immediate vicinity of the land situated in India and used for agricultural purposes c. The cultivator or receiver of rent in-kind, by reason of his connection with the agricultural land, requires the building as a dwelling house or as a store house of other out-building and d. The land is assessed to land revenue or local rate or alternatively the land is situated outside urban areas.

Instances of Agricultural Income 1.Sale of replanted trees 2. Fees for grazing 3. Compensation 4. Flowers growing 5. Share of profit from firm

6. Interest on capital from a firm 7. Income from nursery operation 8. Seeds 9. Special quality of grass: ( required for golf course )

Instances of non-agricultural income 1. Annuity 2. Interest on arrears 3. Natural growth 4. Salt

5. Purchase of Standing crop 6. Remuneration from a company 7. Interest received by money lender ( in the form of agricultural produce) 8. Dividend paid by company out of agricultural income

9. Income from fisheries

10. Royalties income of mines

11. Butter & cheese making

12. Income from poultry farming

13. Supply of Water in its agricultural land 14. Sale of tender forms by assessee, engaged in cultivation of sugarcane 15. Toddy tapping 16. Damages for delayed payment

17. Income from hire charges 18. Growing Seeds (hybrid/germ plasm) 19. Shooting in a farm house Onus of proving that an income is agricultural income is on the assessee.

Income partly agricultural & partly business ( Rule 7, 7A, 7B and 8) Rule 8: Growing & manufacturing tea 40% of the income so arrived at is treated as business income & balance 60% is treated as agricultural income. Salary & interest received by a partner from a firm growing leaves and manufacturing tea is taxable only to the extent of 40%.

Rule 7A: Manufacture of rubber Income from sale of centrifuged latex, or cenex or latex based crepes ( such as pale latex crepe) or brown crepes or technically specified block rubbers manufactured or processed from field latex or coagulum obtained from rubber plants grow : 35% will be treated as business income which is liable to tax and 65% is treated as agricultural income.

Rule 7B: Growing of coffee in India 25% of such income shall be deemed as income liable to tax & 75% is deemed as agricultural income. Income from sale of coffee grown, cured, roasted and grounded by the seller in India with or without mixing chicory or other flavouring ingredients: 40% income liable to tax and 60% is treated as agricultural income

Capital & Revenue Receipts

Receipt two types 1. Capital 2. Revenue The distinction is vital because: a. capital receipts are exempt from tax unless they are expressly taxable ( for ex capital gains are taxable u/s 45, even if they are capital receipt. b. Revenue receipt taxable unless expressly mentioned . For ex. income exempt u/s 10

Broad propositions 1. Circulating & Fixed capital (circulating capital is revenue & fixed is capitalreceipt) 2. Receipt in the hands of recipient is material 3. Payers motive irrelevant 4. Receipt in lieu of source of income (CR) 5. Lump Sum Payment

6. Nature of receipt under company law or common law irrelevant 7. Compensation measured by estimated profit 8. Income of wasting assets 9. Disallowance to person making payment 10. Insurance receipt

11. Changes in rate of exchange of currency 12. Annuties 13.Compensation 14. Compensation of termination of agreement 15. Compensation from refraining from competition

16. Premium received by lessor 17. Subsidy Few instances of Capital receipt a. Excess collection by electricity co. b. Capital sum payable in installments c. Sale of loom hours d. License to prospect the land e. Profits after sale of business f. Interest on LC for purchasing machine g. Damages from supplier of machine

Capital & Revenue Expenditure

Instances of capital expenditure 1. Incoming partner 2. Elimination of competition 3. Completing imperfect title 4. Maintenance of reputation 5. Procurement of licence 6. Payment for obtaining rights 7. Compensation for breach of contracts

8. Shifting of plants 9. Fees to obtain a license 10. Sum paid by installment to get a right to evacuate lime shells 11. Lease 12. Construction of pucca roads 13. Construction of dams 14. Expenditure of raising new shares

15. Expenditure on starting of any abandoned project 16. Betterment charges to Municipal corporation 17. Acquisition of goodwill 18. Expenditure on issue of fully convertible debentures 19. Commission for acquiring office 20. pre-commencement expenditure 21. Acquisition of leasehold right in property.

Instances of Revenue Receipt 1.Compensation of loss of trading asset 2.Subsidy from Government 3.Surplus due to reduction in export duty 4.Termination of sole selling agency 5. Exchange of capital asset for a perpetual annuity 6. Interest on refund of estate duty 7. Acquisition of land from dealers 8.Forfeiture of security deposits

Instances of Revenue Expenditure 1. Compensation on account of negligence 2. Construction of school building 3. Quota rights 4. Control & management of entire business 5. Repair or road

6. Loss of office 7. Payment to competitor 8. Winding up petition 9. Premium to insurance company 10. Statutory obligation

11.Royalty payment for obtaining stock in trade 15. Bidi manufacturers 16. Brokerage for obtaining premises on lease 17. Technical fees 18. Renovation of office.

Capital Gains
Chargeability [Sec.45(1)] Any profit or gain arising from transfer of capital asset during a previous year is chargeable to tax under head Capital Gains, in the immediately following assessment year.

In nutshell capital gains tax liability arises only when:

1. 2. 3. 4.

There should be a capital asset Transfer of capital asset by the assessee Transfer takes place during previous year. Any profit or gain arises as a result of transfer & 5. Such profit or gains should not be exempt from tax u/s 54,54B, 54D, 54EC, 54F, 54G, 54GA.

Meaning of Capital Assets[ Sec2(14)] Property of any kind held by an assesee, whether or not connected with his business or profession. Eclusion 1. Any stock in trade 2. Personal effects of the asessee eg. Movable property including apparel and furniture

3. Agricultural land in India provided it is not situated a. In any area within territorial jurisdiction of a municipality ro a cantonment board, having a population of 10,000 or more b. any notified area 4. 61/2% Gold Bonds, 1977 or 7% Gold Bonds, 1980 or National Defence Gold Bonds, 1980 issued by the Central Government

5. Special Bearer Bonds, 1991

6. Gold Deposit Bonds issued under Gold deposit Scheme, 1999.

Types of Capital assets 1. Short-term: Assets held by an assessee for not more than 36 months immediately prior to the date of its transfer is short term capital assets. ( A< 36 months Short -term) 2. Long Term: Assets held by an assessee fro more than 36 months immediately prior to date of transfer, then it is known as long-term capital asset.( A>36 months Long-Term capital assets)

In following cases holding of assets for more than 12 months is long-term capital assets 1. Equity or Preference shares in a company 2. Securities ( like debentures, government securities) 3. Units of UTI 4. Units of Mutual fund specified u/s 10(13D) 5. Zero coupon bonds.

Computation of capital gain (sec 48) Computation of short-term capital gain Find out the full value of consideration Deduct the following
(-) Expenditure incurred wholly and exclusively in connection with such transfer. (-) Cost of acquisitions (-) Cost of improvement

From the resulting sum deduct the exemption provided by sec 54B, 54D, 54G and 54GA The balance amount is short- term capital gain

Computation of long-term capital gain Find out full value of consideration Deduct the following:
(-) expenditure incurred wholly and exclusively in connection with such transfer (-) index cost of acquisition (-) index cost of improvement

From the resulting sum deduct the exemption provided by sec 54, 54B, 54D, 54EC, 54F, 54G, 54F, 54G and 54GA The balance amount is long-term capital gain.

Sec 54D (Transfer of Land & Building for industrial undertaking)

Entitled : Any Assesee User of holding period: Used for 2 years Amount to be invested: Capital gains New Asset: L& B for Industrial undertaking Exemption: CG or amount invested whichever is less Period of investment: within 3 years after transfer Treatment of unutilized amount: Deposit in CGAS before due date of furnishing return u/s 193(1) if it is not utilized within the time limit u/s 139.

 Sale of new assets: If sold within 3 years from date of purchase/construction, for computing STCA on new asset, cost of new asset shall be reduced by amount of CG exempt.

Computation u/s 50 ( Cost of acquisition in case of depreciable assets Step 1: Find out the value of sales consideration Step2: Deduct a. Cost of acquisition + WDV b. Expenditure incidental to transfer --------------------------------------------------------Short-term Capital Gain

Computation of capital gain when insurance claim is received Sec 45 1(A)

Condition 1. Damage or destruction of any capital asset 2. The damage or destruction is result of 4 categories: a) flood, typhoon, hurricane, cyclone, earthquake or other convulsion of nature

b. Riot or civil disturbance c. Accidental fire explosion d. Action by an enemy or action taken in combating with an enemy ( whether with or without a declaration of war).

Sec 45(1A) is applicable Assessee receives compensation during p.y. 1.Taxability of income: Any profits or gains shall be chargeable to tax under head Capital Gains 2. Year: The year in which such money or other asset is received. 3. Full value of consideration: Fair market value of the other assets

VAT & Service Tax.

VAT: Meaning & concept 1. TAX on Sale of Goods 2. Imposed on intra-state sale 3. Imposed only on the amount of value addition 4. Measured by deducting purchase price from sale price. 5. It is being done by providing set-off of tax paid on purchases against tax payable on sales.

 Need of VAT Prevents cascading effect of taxation: by providing set off/input-credit of tax at earlier stage In nut shell cascading effect means imposition of tax on tax.

 How VAT prevents cascading effect of taxation: Mr. A acquires goods from Mr. B for Rs. 100 on which tax is 10%. The tax on such goods amounts to Rs. 10 and therefore, Mr. A pays Rs. 110 inclusive of sales tax. Suppose Mr. A adds Rs. 40 towards his profit margin and the tax on sales made by him to the consumer is 20%. In this case, the ultimate cost of consumer with and without vat shall be in this manner

Without VAT Sale price of B Add : Tax @10% Amount paid by A Cost to A Add: Profit of A

Amount 100 10 110 110 40

Under VAT Sale price of B Add : Tax @10% Amount paid by A Cost to A (110-100) Add: Profit of A

Amount 100 10 110

100 40 140 28

Sale Price of A Add: Tax @ 20%

150 30

Sale Price of A Add : TAX @ 20%

Cost to Consumer

180

Cost to Consumer

168

Tax Payable by A

30

Tax Payable by A ( 28-Rs. 10 input credit)

18

1St Sale

2nd Rs 100 Sale Rs. 150

3rd Sale Rs. 200

Consumer

Tax @ 4% i.e. Rs. 4

Tax @ 12.5% i.e Rs. 18.75

Tax @ 12.5% i.e Rs. 25

Set off Nil

Set off Rs. 4

Set off Rs. 18.75

VAT Rs. 4

VAT Rs. 14.75

VAT Rs. 6.25

 Evolution of VAT in India (CENVAT) a. Relates back to introduction of MODVAT b. In 2002 CENVAT made applicable to services C. In 2004 cross sectional credit was introduced by way of CENVAT Credit Rules, ( manufacturer can avail set-off).

 VAT at State Level as Sales Tax 1. Constitutional Provision 2. Committee of State Finance ministers 3. Empowered committee of State Finance Minister 4. White paper on State-level VAT in India

 Principles for implementation of VAT VAT is implemented on the basis of either of the following two principles, 1) Principle of Origin/Source 2) Principle of Destination/Consumption

 Mode of Operation of VAT System 1. The manufacturer, purchases raw material and capital goods from dealer. Purchase price would include VAT on raw material and capital goods. 2. Manufacturer take credit of VAT paid on raw materials and capital goods by debiting the same to Input tax credit A/c.

 3. No credit on CST, Custom Duty, Excise Duty, Service Tax, Octroy, Entry tax. 4. Manufacturer top pay on intra-state sale of goods. VAT to be paid Input tax credit A/C. 5. Manufacturer to file quarterly and annual returns along with requisite documents. 6. In case of trader VAT system remain the same with requisite modification.

Merits/Advantages of VAT 1. Prevents cascading effect of taxation 2. Reduction in Prices 3. Simplicity, Certainty and Less Litigation 4. Transparency 5. Self-assessment & less formalities 6. Provides neutrality 7. Better accounting 8. Better & Stable Revenue collection 9. Tax evasion is difficult

Disadvantages 1. Detailed records even by small traders 2. Problems due to to different VAT rates, exemptions, concessions & composition schemes. 3. Matching requirements v/s different rates of VAT.

Procedures: 1. Registration a. Obligatory registration b. Requirements for Registration: Dealers having turnover upto Rs. 5 lakhs (inc 10 lks) c. Application for registration d. Compulsory Registration e. Voluntary Registration f. Cancellation of Registration

 2. Tax Payers Identification No (TIN) The 11 digit numerical code allotted to every dealer for obtaining registration shall be made as follows: A . First 2 digits: State Code used by Union Ministry of Home Affairs B. Next 9 digits: Code allotted by each state to the registratnt.

 3.VAT Invoice: A. White paper policy B. Importance of VAT Invoice C. Contents of VAT invoice

 Contents of VAT invoice: A) The word tax invoice B) Name, address and TIN of the selling dealer C) Name & Address of the purchasing dealer D) Reg no of purchasing dealer E) Pre-printed or self-generated serial number F) Date of Issue G) Description, quantity and value of goods sold H) Rate & amount of tax & signature of dealer.

 4. Records 5. Returns

6. Assessment

Service Tax
Service tax is a tax on service provided in exercise of the profession/trade. It is levied only if there is provision of service. Service means value addition that can be felt only i.e. useful result/ product of labour which is intangible.

 Need of service tax: 1. Need for higher public revenue 2. Growth of service sector 3. Bringing about equity in taxation 4. Checking avoidance of tax 5. VAT regime

 Genesis of service tax in India In 1990 Dr. Raja Chelliah committee on Tax Reforms recommended imposition of tax on selected services. In 1994 then Union Finance Minister Dr. Manmohan Singh introduced service tax on three services viz: telephone, non-life insurance and stock brokers.

 Body of Service Tax laws 1. Finance Act 1994: Contains provisions on levy/ collection, registration, appeals revisions, penalties etc. 2. Various rules & forms: Sec 94 & 96-I of Finance Act, 1994 empower the Central Govt to make rules for carrying out the provisions of service tax. Some of them are:

a) Service tax rules 1994 b) Registration of sepcial category of person Rules 2005 c) Determination of value Rules, 2006 d) Advance Ruling, Rules, 2003 e) Publication of Names Rules, 2008

 3) Notification: Issued by either Central Government/ CBEC a. declaring the date of enforceability b. making/amending/rescinding rules relating to service tax c. granting of withdrawing exemptions from service tax u/s 93. d. dealing with any other matter so as to facilitate governance of service tax matters.

 4. Circulars instructions, office letters

5. Orders

6. Trade Notices

Salient features of levy of service tax 1. Scope 2. Two separate persons 3. Rate: 10% + 2% EC + 1% SHEC. 4. Taxable Service 5. Value: Sec 67 Rule 2006 6. Payment of service tax 7. Procedures 8. CENVAT Credit: Rule 2004. 9. Import /Export of Services

Procedure: 1. Application for Registration 2. Registration of special category of persons 3. Time period for making an application 4. Assessee provides more than 1 taxable service 5. Services provides from more than one premises/offices 6. Certificate 7. Change in information 8. In case of transfer & cancellation.

Central Excise
Excise duty is a duty on excisable goods produced or manufactured in India. Entry 84 of the Union List of the VII Schedule to the Constitution of India empowers the Central Government to levy excise duty on all goods except on alcoholic liquors for human consumption, opium, Indian hemp and other narcotic drugs and narcotics.

Body of Central Excise Laws: Central Excise Act, 1944 Central Excise :Rules 2002 Central Excise Valuation: Rules 2010 Determination of Retail Sale Price of Excisable goods: Rules 2008 Central Excise ( Appeals) Rules, 2001 Removal of goods at concessional rate of duty for manufacture of excisable goods Rule 2001 Central Excise Tariff Act, 1985 CENVAT Credit Rules, 2004.

 Basic conditions for levy of duty u/s 3 Levy of excise duty is governed by Sec 3 of Central Excise ACT, 1944. It provides for the levy of excise duty at the rates provided by the First & Second Schedules to the Central Excise Tariff Act, 1985. The duty leviable under I Schedule to the Tariff Act is also known as Basic Excise Duty.

 Basic conditions for levy of Excise Duty (Sec 3 Central Excise Act 1944) 1. There must be goods 2. The goods must have been produced or manufactured 3. Such production or manufacture must be in India 4. The goods must be excisable

 No levy on goods manufactured in SEZ Central Excise Law extends to designated areas in Continental Shelf and Exclusive Economic Zone of India. Rate of levy of excise duty: General rate of CENVAT (BED) as per Schedule-I of Tariff Act is 16%, however by exemption notifications, the same is 10% w.e.f. 27-22010. In addition EC 2% & SHEC 1% . Hence the effective rate is 10.3%

 Rules 4 & 5
Rate of duty prevalent at the time of manufacture Non-EXcisable Rate of duty prevalent at the time of removal of goods 10% Whether duty payable (Y/N)

No, as the goods were non-excisable goods at the time of manufacture. Yes, the goods were excisable at the time of manufacture Yes, the goods were excisable at the time of manufacture No, as there was no levy of special duty on goods at the time of manufacture.

Exempted

Exemption Withdrawn

Nil rate of duty

10%

Goods were not liable to special levy

Goods were made liable to special levy by the Finance Act.

 Computation: The goods manufactured by A & Co, liable to duty at 10%, were exempt from excise duty on account of an exemption notification. On 1-3-2011, the exemption notification pertaining to the said goods was withdrawn. Certain goods manufactured prior to 1-32011 are removed from the factory of A & Co on 2-3-2011. The Value of gthe goods so remove is Rs. 2,00,000. Discuss whether any duty is chargeable on the goods so removed and if yes, compute the amount of such duty.

 The goods were manufactured prior to 1-3-2011, when exemption notification was in force. However, the goods were excisable at the time of manufacture. Hence, since at the time of removal duty is chargeable at 10% (plus 3% education cess). Amount of excise duty = 10.3% of 200,000 = 20,600. In case of Nil rate of duty prior to 1-3-2011?

 Manufacture [ Sec. 2(f) ] Includes any process i) incidental or ancillary to the completion of a manufactured product ii) which is specified in relation to any goods in, the section or chapter notes of the First Schedule to the Central Excise Tarrif Act, 1985 as amounting to manufacture( Deemed Manufacture)

iii) Which in relation to the goods specified in the third Schedule, involves packing or repacking of such goods in a unit container or labeling or re-labeling of containers including the declaration or alteration of retail sale price on it or adoption of any other treatment on the goods to render the product marketable to the consumer ( Deemed Manufacture)

 Classification: Classification of goods consists of determining the headings or sub-headings of the Central Excise Tariff under which the said goods are covered. It is done at the time of removal of goods. Need of Classification: Actual amount of excise duty payable depends upon the value of goods and the rate of duty, which in turn depends upon the classification of goods. It is necessary for providing exemptions.

Six general rules, which are an aid to appropriately classify the goods 1. Classification to be as per terms of heading and section/chapter notes 1. Reference in a heading to an article, to include certain references: a. Reference to that article incomplete/ unfinisned or unassembled/disassambled b. Reference to mixture or combinations of that material substance.

 3. Classification when goods are under two or more headings A. Specific heading to prevail over general B . Classification as if goods consisted material/component, which gives them essential character C. Latter the better maxim: When cannot be classified under A or B above.

 4. Akin Rule 5. Additional Provision a) specific cases to be classified with articles with which they are normally sold b) Packing materials/containers presented to be classified with the goods, if they are normally used for packing such goods.

 6. Classification in sub-headings to be done on the understanding that subheadings at the same level are comparable. Four column headings 1. Tariff Item 2. Description of Goods 3. Standard Unit of Quantity 4. Rate of Duty

 Harmonized System of Nomenclature (HSN): is an internationally accepted product coding system formulated under the auspices of the General Agreement on Tariffs and Trade (GATT). It forms the basis of the system of classification in the Central Excise Tariff Act, 1985. It has been developed by the Customs Co-operation Council, Brussels.

 Trade Parlance Theory: Here the goods are to be classified as they are known in the trade and commerce. If a product is neither defined in Schedule to Central Excise Tariff Act, 1985 nor in Central Excise Act, 1944, then it should be classified according to its popular meaning or meaning attached to it by those dealing with it i.e. in commercial sense. But where the Tariff heading itself uses highly scientific or technical terms, they are to be classified in scientific or technical sense.

 Valuation As per Central Excise Tariff Act 1985, excise duty is payable on the following basis: 1. Specific Duty 2. Duty based on Value ( ad valorem duty) 3. Duty based on production capacity ( Sec 3A of the Central Excise Act, 1944 4. Compounded Levy Scheme ( Rule 15 of the Central Excise Rules, 2002) 5. Specific duty-cum Ad valorem duty.

Duty based on value ( ad valorem duty) i.e. fixed percentage ofa) Tariff value fixed under Sec 3(2) of the Central Excise Act, 1944 b) Transaction value determined under Sec 4A of the Central Excise Act, 1944 c) Retail Sale Price determined under Sec 4A of the Central Excise Act, 1944

 Specific Duty Duty payable on the basis of certain units like length, weight, volume, thickness etc. A simple method to collect duty but the revenue remains static irrespective of the changes in prices of the commodity. Specific duty: Tariff Act Rate for Cement Clinker = Rs. 450 per tonne.

 Tariff Value Tariff value method of valuation, the value of the excisable goods is fixed under the Central Excise Tariff. The values so fixed are taken as value for the purpose of charging duty of excise. Central Govt can fix different tariff values for A. different classes or description of the same excisable goods

 B. for excisable goods of same class or description-

 Produced or manufactured by different classes of producers or manufacturers or  Sold to different classes of buyers
At present tariff value has been fixed for Readymade Garments & Pan Masala.

 Duty based on Production Capacity [Sec 3A] 1. Applies to notified goods only: nature of process of manufacture of excisable goods; extent of evasion of duty in regard to such goods or such other factors as may be relevant 2. Determination of annual production capacity

 3. Levy & collection 4. Additional customs duty on notified goods to be computed as per normal provisions 5. Pan Masala, Gutkha, Branded unmanufactured tobacco & chewing tobacco: Pan masala containing more than 15% betel nut, pan masala containing tobacco, unmanufactured tobacco, etc.

 Transaction Value Sec 4(3)(d) A. Price actually paid or payable for the goods when sold B. Any amount the buyer is liable to pay in connection with sale of goods C. Payment may be made at the time of sale or at any other time D. Any amount charged for advertising or publicity, marketing exp, storage, outward handling, servicing, warranty, commission or for any other matter

List of inclusion in transaction value 1. 2. 3. 4. 5. 6. 7. 8. 9. Bought out items/Acessories Installation, Erection & commissioning charges Compulsory after sales service Design & Eng charges Consultancy charges Testing charges Inspection charges Commission to agents not allowed as deduc Warranty, Royalty charges, Dharmada( charity)

 Valuation based on Retail Sale Price-Sec 4A 1. Conditions A. Excisable goods B. Should be such as are sold in package C. Should be requirement in the Standard of Weight and Measures Act D. Central govt must have specified such goods by notification in official gazette.

 2. Valuation of such goods 3. Retail Sale Price 4. alteration of RSP at the time of clearance 5. Valuation when more than one RSP declared 6. Valuation when different RSP declared

Customs Laws
Meaning: Customs duty is on import into India & export out of India. This duty is collected on imports ( and occasionally on exports too). The word customary is derived from customs which indicates that it is a very old tax. Taxes on various goods were levied right from the Vedic period.

 Nature of Customs Duty Entry 83 to List I (Union List) of Seventh Schedule to Constitution reads Duties of customs including export duties. Thus import & export is Union subject and power to levy is derived from constitution. Sec 12 of customs Act, often called charging section provides that duties of customs shall be levied at such rates as may be specified under the Customs Tariff Act, 1975.

 Taxable event for import duty Goods liable to import or export duty when there is import into or export from India. As per sec 2(18) export with its grammatical variations and cognate expressions, means taking out of India to a place outside India. As per sec 2(23) import with its grammatical variations and cognate expression, means bringing into India from a place outside India

 Taxable Event in case of Warehoused goods: In case of warehouse goods, the goods continue to be in customs bond. Hence import takes place only when goods are cleared from the warehouse. Date of filing bill of entry is relevant for deciding duty liability.

Taxable event in case of exports As per the Act it has been held that export is complete once the goods leave Indian waters and property passes to purchasers. If the goods return due to Engine trouble, duty drawback is payable Duty of exports collected in advance also i.e. before the taxable event.

 Types of Customs duty 1. Basic Customs Duty: a. Levied u/s 12 of Customs Act b. It is levied @ 5%, 7.5% & 10% c. Peak rate of basic customs duty for non-agricultural items is 10%. d. The general rate of duty on baggage I is 35%. No additional duty of customs is payable on baggage

 2. Additional Customs Duty ( CVD) Any article which is imported into India shall be liable to an additional duty equal to Excise Duty for the time being in force which would be leviable on a like article, if produced or manufactured in India. Special additional duty of customs (SAD) is equal to sales tax /VAT

 3. Protective Duties Levied by Central Government on the recommendation of the Tariff Commission of India to ensure protection to domestic industries established in India, from bulk imports. It is imposed by Central Govt by introducing bill & getting it passed in the parliament. Duration is determined by the Scheduled itself & govt has got power to alter.

 4. Safeguard Duty (SD) Can be imposed if the Central Government finds that the imports in increased quantity i) have caused serious injury to domestic industry or Ii)is threatening to cause serious injury to domestic industry No SD on articles originating from developing countries.( Agg 3% of total imports) Duration Min 4 & Max 10 years.

 5. Countervailing Duty on subsidized articles Central Government has the powers to levy this duty on any imported article; when any country gives any subsidy, directly or indirectly upon the manufacture or production, transportation or exportation of such article into India. Such duty cannot exceed the amount of such subsidy It is also known as anti-subsidy duty.

 6. Anti Dumping Duty Sec 9A of the Customs Tariff Act, 1975 provides for the levy of such duty. Central Govt has power to levy on dumped articles Margin of duty = Normal value of article Export price of the article

 Valuation of Customs goods The valuation of goods [Sec 14(1)] of the imported goods and export goods shall be the transaction value of such goods, that is to say the price actually paid or payable for the goods when sold A. for export to India for delivery at the time and place of importation B. for export from India fro delivery at the time & place of exportation

 Inclusion in transaction value in the case of imported goods: any amount paid or payable for A. Cost & services B. Commission & Brokerage C. Engineering D. Design work E. Royalties F. License fees G. Cost of transportation, insurance, loading, Unloading & handling charges etc.

 Scope of Valuation: A. Circumstances in which buyer & seller deemed to be related B. The manner of determination of value in respect of goods when there is no sale, or the buyer and the seller are related, or price is not the sole consideration for the sale or in any other case C. The manner of acceptance or rejection of value declared by the importer or exporter

Valuation of imported goods 1. Transaction Value: Price actually paid or payable for goods when sold for export to India for delivery at the time and place of importation. 2. Adjustment for cost and services, inclusion & exclusion: not included a. commission & brokerage, except buying commission (b) cost of containers imported along with the goods (c) cost fo packing whether for labour or material (d) royalties &

 3. Transaction value of identical & similar goods: Identical goods [Rule 2(1)(d): Same in all respects including physical characteristics, quantity and reputation, produced in country in which goods being valued were produced and produced by same person. Similar goods [Rule 2(1)(f): not alike in all respects

 4. Deductive & Computed value and Residual method of valuation: Deductive method of valuation is provided in Rule 7 of customs import valuation rules 2007. This method is called for when transaction value of identical and similar goods cannot be determined. Computed valuation under Rule 8 is suitable when the producer is willing to give necessary costing data along with subsequent clarifications, as and when required.

 Valuation of Export Goods 1. Transaction value 2. Determination by comparison or comparative value 3. Computed value

4. Residual Value

 Baggage, Postal Articles & Stores Baggage [Sec 2(3)]: includes unaccompanied baggage but does not include motor vehicles. Declaration[Sec 77]: The owner of any baggage shall, for the purpose of clearing it, make a declaration of its contents to the proper officer Relevant date for date for determination of rate of duty and tariff valuation

 Postal Articles: Label or declaration accompanying goods to be treated as entry [Sec 82] Rate of duty & tariff valuation [Sec 83] Regulations [Sec 84] a. the form and manner in which an entry may be made. b. examination, assessment to duty and clearance of goods c. transit or transshipment of goods.

 Stores [Sec 2(38)] : means goods for use in a vessel or aircraft and includes fuel and spare parts and other articles of equipment, whether or not for immediate fitting. Statutory provision [sec 85 to 90]. A. Allowed to be warehoused without assessment of duty [sec 85] B. Transit & Transshipment of stores [sec 86]

 3. Imported stores may be consumed on board a foreign-going vessel or aircraft [Sec 87] 4. Drawback on export of stores [sec 88] 5. Stores to be free of export duty[sec 89] 6. Concession in respect of imported stores for the Navy [sec 90]