India Tax System

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http://220.227.161.86/16791tsibf.pdf http://en.wikipedia.org/wiki/Income_tax_in_India http://www.indianembassy.org/taxation-system-in-india.php http://www.tax4india.com/ http://www.tax4india.com/income-tax-india/income-tax-india.html General Tax Incentives for Industries: 100% deduction of profits and gains for ten years is available in respect of the following: o Any enterprise carrying on the business of developing, maintaining and operating infrastructure facilities viz., roads, highways, bridges, airports, ports, rail systems, industrial towns, inland waterways, water supply projects, water treatment systems, irrigation projects, sanitation and sewage projects, solid waste management systems. o Undertakings engaged in generation or generation and distribution, transmission or distribution of power, which commence these activities before 31.3.2006. o Any company engaged in scientific and industrial research and development activities, approved by the prescribed authority, before 31.3.2003. o Any undertaking which develops, operates, maintains an Industrial Park or Special Economic Zone before 31.3.2006. o Notified Industrial Undertakings set up in the North Eastern region including seven north-eastern states and the state of Sikkim. o Undertakings developing and building housing projects approved by the local authority before 31.3.2001and which are completed before 31.3.2003. o 100% deduction for seven years for undertakings producing or refining mineral oil.

Transcript of India Tax System

Page 1: India Tax System

http://220.227.161.86/16791tsibf.pdf

http://en.wikipedia.org/wiki/Income_tax_in_India

http://www.indianembassy.org/taxation-system-in-india.php

http://www.tax4india.com/

http://www.tax4india.com/income-tax-india/income-tax-india.html

General Tax Incentives for Industries:

100% deduction of profits and gains for ten years is available in respect of the following:

o Any enterprise carrying on the business of developing, maintaining and operating infrastructure facilities viz., roads, highways, bridges, airports, ports, rail systems, industrial towns, inland waterways, water supply projects, water treatment systems, irrigation projects, sanitation and sewage projects, solid waste management systems.

o Undertakings engaged in generation or generation and distribution, transmission or distribution of power, which commence these activities before 31.3.2006.

o Any company engaged in scientific and industrial research and development activities, approved by the prescribed authority, before 31.3.2003.

o Any undertaking which develops, operates, maintains an Industrial Park or Special Economic Zone before 31.3.2006.

o Notified Industrial Undertakings set up in the North Eastern region including seven north-eastern states and the state of Sikkim.

o Undertakings developing and building housing projects approved by the local authority before 31.3.2001and which are completed before 31.3.2003.

o 100% deduction for seven years for undertakings producing or refining mineral oil.

100% deduction from income for first five years and 30% (for persons other than companies: 25%) in subsequent five years is available in respect of the following:

o Company which starts providing telecommunication services whether basic or cellular including radio paging, domestic satellite service, network or trunking, broad band network and internet services before 31.3.2003.

o Industrial undertakings located in certain specified industrially backward states and districts.

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o Undertakings which begin to operate cold chain facilities for agricultural produce before 31.3.2003.

o Undertakings engaged in the business of handling, storage, transportation of food grains.

50% deduction for a period of five years is available to undertakings engaged in the business of building, owning and operating multiplex theatres or convention centres constructed before 31.3.2005.

Tax exemption of 100% on export profits for ten years upto F.Y. 2009-10, for new industries located in EHTPs and STPs and 100% Export Oriented Units. For units set up in Special Economic Zones (SEZs), 100% deduction of export income for first five years followed by 50% for next two years, even beyond 2009-10.

Tax exemption of 100% of Export profits for ten years for new industries located in Integrated Infrastructure Development Centres or Industrial Growth Centres of the North Eastern Region.

Deduction of 50% of export profits from the gross total income. The deduction would be restricted to 30% for financial year 2003-04 and no deduction is allowable subsequently.

Deduction from the gross total income of 50% of foreign exchange earnings by hotels and tour operators. The deduction would be restricted to 30% for financial year 2003-04 and no deduction is allowable subsequently.

50% deduction of export income due to export of computer software or film software, television software, music software, from the gross total income. The deduction would be restricted to 30% for financial year 2003-04 and no deduction is allowable subsequently.

Deduction in respect of certain inter-corporate dividends to the extent of dividend declared.

Exemption of any income by way of dividend, interest or long term capital gains of an infrastructure capital fund or an infrastructure capital company from investment made by way of shares or long term finance in any enterprises carrying on the business of developing, maintaining and operating infrastructure facility.

Sales Tax

Central Sales Tax (CST)

CST is 4% on manufactured goods.

Local Sales Tax (LST)

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Where a sale takes place within a state, LST would be levied. Such a tax would be governed by the relevant state tax legislation. This is normally up to 15%.

Excise Duty

Excise duty on most commodities ranges between 0 to 16%. Only on seven items duty is imposed at 32%, viz., motor cars, tyres, aerated soft drinks, air conditioners, polyesters filament yarn, pan masala and chewing tobacco. Duty is charged at 30% on petrol with additional excise duty at Rs. 7 per litre. The said rates are subject to exemptions and deductions thereon as may be notified from time to time. Central VAT (CENVAT) is applicable to practically all manufactured goods, so as to avoid cascading effect on duty.

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Taxation system in India Taxation System in IndiaIndia has a well-developed tax structure with clearly demarcated authority between Central and State Governments and local bodies. Central Government levies taxes on income (except tax on agricultural income, which the State Governments can levy), customs duties, central excise and service tax. 

Value Added Tax (VAT), (Sales tax in States where VAT is not yet in force), stamp duty, State Excise, land revenue and tax on professions are levied by the State Governments. Local bodies are empowered to levy tax on properties, octroi and for utilities like water supply, drainage etc.

In last 10-15 years, Indian taxation system has undergone tremendous reforms. The tax rates have been rationalized and tax laws have been simplified resulting in better compliance, ease of tax payment and better enforcement. The process of rationalization of tax administration is ongoing in India.

Since April 01, 2005, most of the State Governments in India have replaced sales tax with VAT.Taxes Levied by Central Government

Direct TaxesTax on Corporate IncomeCapital Gains TaxPersonal Income TaxTax IncentivesDouble Taxation Avoidance Treaty

Indirect TaxesExcise DutyCustoms DutyService TaxSecurities Transaction Tax

Taxes Levied by State Governments and Local BodiesSales Tax/VATOther TaxesDirect Taxes

Taxes on Corporate Income

Companies residents in India are taxed on their worldwide income arising from all sources in accordance with the provisions of the Income Tax Act. Non-resident corporations are essentially taxed on the income earned from a business connection in India or from other Indian sources. A corporation is deemed to be resident in India if it is incorporated in India or if it’s control and management is situated entirely in India.

Domestic corporations are subject to tax at a basic rate of 35% and a 2.5% surcharge. Foreign corporations have a basic tax rate of 40% and a 2.5% surcharge. In addition, an education cess at the rate of 2% on the tax payable is also charged. Corporates are subject to wealth tax at the rate of 1%, if the net wealth exceeds Rs.1.5 mn ( appox. $ 33333). 

Domestic corporations have to pay dividend distribution tax at the rate of 12.5%, however, such dividends received are exempt in the hands of recipients.

Corporations also have to pay for Minimum Alternative Tax at 7.5% (plus surcharge and education cess) of book profit as tax, if the tax payable as per regular tax provisions is less than 7.5% of its book profits.

Following measures were taken in the union budget 2007-08

Surcharge on income tax on all firms and companies with a taxable incomeof Rs.1 crore or less to be removed.

A five year income tax holiday for two, three or four star hotels and for convention centres with a seating capacity of not less than 3,000; they should be completed and begin operations in National Capital Territory of Delhi or in the adjacent districts of Faridabad, Gurgaon, Ghaziabad or Gautam Budh Nagar during April 1, 2007 to March 31, 2010.

Concession under section 35(2AB) to be extended for five more years until March 31, 2012.

Tax holiday to undertakings in Jammu & Kashmir to be extended for another five years up to March 31, 2012.

Minimum Alternate Tax (MAT) to be extended to income in respect of which deduction is claimed under sections 10A and 10B; deduction under section 36(1) (viii) to be restricted to 20% of profits each year.

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

Expenditure on free samples and on displays to be excluded from the scope of Fringe Benefit Tax (FBT); ESOPs to be brought under FBT.

An additional cess of 1% on all taxes to be levied to fund secondary education and higher education and the expansion of capacity by 54% for reservation for socially and educationally backward classes. http://indiabudget.nic.in/ub2007-08/high.htm

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Small Scale Sector is exempted from payment of excise duty from annual production upto Rs.10 million.

Customs Duty

The rates of basic duties vary from 0 to 30%.

Salient features are:

o Peak customs duty reduced from 220% (in 1991) to 30% (in 2002).o The general project import duty (for new projects and substantial expansion

of existing projects) reduced from 85% to 25%.o Import duty under EPCG Scheme is 5%.o R&D imports - 5% customs duty.o Export made with imported inputs get concessions in form of duty drawback,

duty entitlement pass book scheme and advance licence.o Many type of industries such as 100% EOU and units in free trade zone get

facility of zero import duty.o An Authority for Advance Ruling for foreign investor

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Income tax in IndiaFrom Wikipedia, the free encyclopedia

The government of India imposes an income tax on taxable income of individuals, Hindu Undivided

Families (HUFs), companies, firms, co-operative societies and trusts (identified as body of individuals and

association of persons) and any other artificial person. Levy of tax is separate on each of the persons. The levy

is governed by the Indian Income Tax Act, 1961. The Indian Income Tax Department is governed by

the Central Board for Direct Taxes (CBDT) and is part of the Department of Revenue under the Ministry of

Finance, Govt. of India. There were 33 million income taxpayers in 2008.

Contents

 [hide]

1     Income Tax Department   

2     Overview   

2.1      Charge to Income-tax   

2.2      Residential Status   

2.3      Heads of Income   

2.4      Individual Heads of Income   

2.4.1      Income from Salary   

2.4.2      Income from House property   

2.4.3      Income from Business or Profession   

2.4.4      Income from Capital Gains   

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2.4.5      Income from Other Sources   

3     Deduction   

3.1      Section 80C Deductions   

3.2      Section 80CCF: Investment in Infrastructure Bonds   

3.3      Section 80D: Medical Insurance Premiums   

3.4      Interest on Housing Loans Section   

4     Use of Deductions   

5     Tax Rates   

5.1      Surcharge   

5.2      Tax Rate for non-Individuals   

5.3      Refund Status for Salaried tax payers   

6     Corporate Income tax   

6.1      Tax Penalties   

7     See also   

8     References   

9     External links   

[edit]Income Tax Department

The CBDT is a part of Department of Revenue in the Ministry of Finance. On one hand, CBDT provides

essential inputs for policy and planning of direct taxes in India,at the same time it is also responsible for

administration of direct tax laws through the Income Tax Department. The Central Board of Direct Taxes is a

statutory authority functioning under the Central Board of Revenue Act, 1963. The officials of the Board in their

ex-officio capacity also function as a Division of the Ministry dealing with matters relating to levy and collection

of direct taxes. The Central Board of Revenue as the Department apex body charged with the administration of

taxes came into existence as a result of the Central Board of Revenue Act, 1924. Initially the Board was in

charge of both direct and indirect taxes. However, when the administration of taxes became too unwieldy for

one Board to handle, the Board was split up into two, namely the Central Board of Direct Taxes and Central

Board of Excise and Customs with effect from 1.1.1964. This bifurcation was brought about by constitution of

the two Boards u/s 3 of the Central Boards of Revenue Act, 1963.

Organisational Structure of the Central Board of Direct Taxes : The CBDT is headed by Chairman and

also comprises of six members, all of whom are ex-officio Special Secretary to Government of India.

Member (Income Tax) Member (Legislation and Computerisation) Member (Revenue) Member (Personnel &

Vigilance) Member (Investigation) Member (Audit & Judicial)

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The Chairman and Members of CBDT are selected from Indian Revenue Service (IRS), a premier civil service

of India, whose members constitute the top management of Income Tax Department.

Responsibilities of Chairman and Members, Central Board of Direct Taxes

Various functions and responsibilities of CBDT are distributed amongst Chairman and six Members, with only

fundamental issues reserved for collective decision by CBDT. In addition, the Chairman and every Member of

CBDT are responsible for exercising supervisory control over definite areas of field offices of Income Tax

Department, known as Zones.

[edit]Overview

[edit]Charge to Income-tax

Every Person whose total income exceeds the maximum amount which is not chargeable to the income tax is

an assesse, and shall be chargeable to the income tax at the rate or rates prescribed under the finance act for

the relevant assessment year, shall be determined on basis of his residential status.

Income tax is a tax payable, at the rate enacted by the Union Budget (Finance Act) for every Assessment Year,

on the Total Income earned in the Previous Year by every Person.

The changeability is based on nature of income, i.e., whether it is revenue or capital. The principles of taxation

of income are-:

Income Tax Rates/Slabs Rate (%)

for men:

→ Up to 1,80,000 = NIL ,

→ 1,80,001 – 5,00,000 = 10%,

→ 5,00,001 – 8,00,000 = 20%,

→ 8,00,001 upwards = 30%,

Up to 1,90,000 (for resident women)= NIL

Up to 2,50,000 (for resident individual of 60 years or above)= 0,

Up to 5,00,000 (for very senior citizen of 80 years or above)= 0.

Education cess is applicable @ 3 per cent on income tax, surcharge = NA

[edit]Residential Status

The three residential status, viz.,

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Resident Ordinarily Residents

Under this category ,person must be living in India at least 182 days during previous year Or must have been in

India 365 days during 4 years preceding previous year and 60 days in previous year. Ordinary residents are

always taxable.

Resident but not Ordinarily Residents

Must have been a non-resident in India 9 out of 10 years preceding previous year or have been in India in total

729 or less days out of last 7 years preceding the previous year.

Not Ordinarily residents are taxable in relation to income received in India or income accrued or deemed to be

accrue or arise in India and income from business or profession controlled from India.

Non Residents

Non Residents are exempt from tax if accrue or arise or deemed to be accrue or arise outside India. Taxable if

income is earned from business or profession setting in India or having their head office in India. [1] [2]

[edit]Heads of Income

The total income of a person is divided into five heads, viz., taxable[3]:

[edit]Individual Heads of Income

[edit]Income from Salary

All income received as salary under Employer-Employee relationship is taxed under this head. Employers must

withhold tax compulsorily, if income exceeds minimum exemption limit, as Tax Deducted at Source (TDS), and

provide their employees with a Form 16[4] which shows the tax deductions and net paid income. In addition, the

Form 16 will contain any other deductions provided from salary such as:

1. Medical reimbursement: Up to Rs. 15,000 per year is tax free if supported by bills.

2. Conveyance allowance: Up to Rs. 800 per month (Rs. 9,600 per year) is tax free if provided as conveyance

allowance. No bills are required for this amount.

3. Professional taxes: Most states tax employment on a per-professional basis, usually a slabbed amount based

on gross income. Such taxes paid are deductible from income tax.

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4. House rent allowance: the least of the following is available as deduction

1. Actual HRA received

2. 50%/40%(metro/non-metro) of basic 'salary'

3. Rent paid minus 10% of 'salary'. basic Salary for this purpose is basic+DA forming part+commission on sale on

fixed rate.

Income from salary is the least of all the above deductions.

[edit]Income from House property

Income from House property is computed by taking into account what is called Annual Value of the property.

The annual value (in the case of a let out property) is the maximum of the following:

Rent received

Municipal Valuation

Fair Rent (as determined by the I-T department)

If a house is not let out and not self-occupied, annual value is assumed to have accrued to the owner. Annual

value in case of a self occupied house is to be taken as NIL. (However if there is more than one self occupied

house then the annual value of the other house/s is taxable.) From this, deduct Municipal Tax paid and you get

the Net Annual Value. From this Net Annual Value, deduct :

30% of Net value as repair cost (This is a mandatory deduction)

Interest paid or payable on a housing loan against this house

In the case of a self occupied house interest paid or payable is subject to a maximum limit of Rs,1,50,000 (if

loan is taken on or after 1 April 1999 and construction is completed within 3 years) and Rs.30,000 (if the loan is

taken before 1 April 1999). For all non self-occupied homes, all interest is deductible, with no upper limits.

The balance is added to taxable income.

[edit]Income from Business or Profession

carry forward of losses

An example .. An architect works out of home and co-ordinates work for his clients. All the following expenses

would be deductible from his professional fees.

he uses a computer,

he travels to sites in his car,

he has a peon to help him collect payments

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He has a maid who comes in daily

part of the society maintenance bills

entertainment expenses incurred..

books and magazines for his professional practice.

The income referred to in section 28, i.e, the incomes chargeable as "Income from Business or Profession"

shall be computed in accordance with the provisions contained in sections 30 to 43D. However, there are few

more sections under this Chapter, viz., Sections 44 to 44DA (except sections 44AA, 44AB & 44C), which

contain the computation completely within itself. Section 44C is a disallowance provision in the case non-

residents. Section 44AA deals with maintenance of books and section 44AB deals with audit of accounts.

In summary, the sections relating to computation of business income can be grouped as under: -

1. Deductible Expenses - Sections 30 to 38 [except 37(2)].

2. Inadmissible Expenses - Sections 37(2), 40, 40A, 43B & 44-C.

3. Deemed Incomes - Sections 33AB, 33ABA, 33AC, 35A, 35ABB & 41.

4. Special Provisions - Sections 42 & 43D

5. Self-Coded Computations - Sections 44, 44A, 44AD, 44AE, 44AF, 44B, 44BB, 44BBA, 44BBB, 44-D & 44-DA.

The computation of income under the head "Profits and Gains of Business or Profession" depends on the

particulars and information available.[5]

If regular books of accounts are not maintained, then the computation would be as under: -

Income (including Deemed Incomes) chargeable as income under this head xxx Less: Expenses deductible

(net of disallowances) under this head xxx Profits and Gains of Business or Profession xxx

However, if regular books of accounts have been maintained and Profit and Loss Account has been prepared,

then the computation would be as under: -

Net Profit as per Profit and Loss Account xxxAdd : Inadmissible Expenses debited to Profit and Loss Account xxx Deemed Incomes not credited to Profit and Loss Account xxx xxx Less: Deductible Expenses not debited to Profit and Loss Account xxx Incomes chargeable under other heads credited to Profit & Loss A/c xxx xxx

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Profits and Gains of Business or Profession xxx

[edit]Income from Capital Gains

Transfer of capital assets results in capital gains. A Capital asset is defined under section 2(14) of the I.T. Act,

1961 as property of any kind held by an assessee such as real estate, equity shares, bonds, jewellery,

paintings, art etc. but does not include some items like any stock-in-trade for businesses and personal effects.

Transfer has been defined under section 2(47) to include sale, exchange, relinquishment of

asset, extinguishment of rights in an asset, etc. Certain transactions are not regarded as 'Transfer' under

section 47.

For tax purposes, there are two types of capital assets: Long term and short term. Long term asset are held by

a person for three years except in case of shares or mutual funds which becomes long term just after one year

of holding. Sale of such long term assets gives rise to long term capital gains. There are different scheme of

taxation of long term capital gains. These are:

1. As per Section 10(38) of Income Tax Act, 1961 long term capital gains on shares or securities or mutual funds

on which Securities Transaction Tax (STT) has been deducted and paid, no tax is payable. STT has been

applied on all stock market transactions since October 2004 but does not apply to off-market transactions and

company buybacks; therefore, the higher capital gains taxes will apply to such transactions where STT is not

paid.

2. In case of other shares and securities, person has an option to either index costs to inflation and pay 20% of

indexed gains, or pay 10% of non indexed gains. The indexation rates are released by the I-T department each

year.

3. In case of all other long term capital gains, indexation benefit is available and tax rate is 20%.

All capital gains that are not long term are short term capital gains, which are taxed as such:

Under section 111A, for shares or mutual funds where STT is paid, tax rate is 10% From Asst Yr 2005-06 as

per Finance Act 2004. For Asst Yr 2009-10 the tax rate is 15%.

In all other cases, it is part of gross total income and normal tax rate is applicable.

For companies abroad, the tax liability is 20% of such gains suitably indexed (since STT is not paid).

[edit]Income from Other Sources

This is a residual head, under this head income which does not meet criteria to go to other heads is taxed.

There are also some specific incomes which are to be taxed under this head.

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1. Income by way of Dividends

2. Income from horse races

3. Income from winning bull races

4. Any amount received from key man insurance policy as donation.

5. Income from shares (dividend otherthan indian company)

[edit]Deduction

While exemptions is on income some deduction in calculation of taxable income is allowed for certain

payments.

[edit]Section 80C Deductions

Section 80C of the Income Tax Act [1] allows certain investments and expenditure to be deducted from total

income upto the maximum of 1 lac. The total limit under this section is Rs. 100,000 (Rupees One lac) which

can be any combination of the below:

Contribution to Provident Fund or Public Provident Fund. PPF provides 8% return compounded annually.

Maximum limit to contribute in it is 70,000 for each year. It is a long term investment with complete withdrawal

not possible till 15 years though partial withdrawal is possible after 5 years. Besides, there is employee

providend fund which is deducted from the salary of the person. This is about 10% to 12% of the BASIC salary

component. Recent changes are being discussed regarding reducing the instances of withdrawal from EPF

especially when one changes the job. EPF has the option of full settlement on leaving the job, taking VRS,

retirement after 58. It also has options of withdrawal for certain expenses related to home, marriage or medical.

EPF contribution includes 12% of basic salary from employee and employer. It is distributed in ratio of

8.33:3.67 in Pension fund and Providend fund

Payment of life insurance premium

Investment in pension Plans. National Pension Scheme is meant to save money for the post retirement which

invests money in different combination of equity and debt. depending upon age up to 50% can go in equity.

Annuity payable after retirement is dependent upon age. NPS has six fund managers. Individual can make

minimum contribution of Rs6000/- . It has 22 point of purchase (banks).

Investment in Equity Linked Savings schemes (ELSS) of mutual funds. Among other investment opportunities,

ELSS has the least lock-in period of 3 years. However, one should note that after the Direct Tax Code is in

place, ELSS will no longer be an investment for 80C deduction.

Investment in National Savings Certificates (interest of past NSCs is reinvested every year and can be added

to the Section 80 limit)

Tax saving Fixed Deposits provided by banks for a tenure of 5 years. Interest is also taxable.

Payments towards principal repayment of housing loans. Also any registration fee or stamp duty paid.

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Payments towards tuition fees for children to any school or college or university or similar institution. (Only for 2

children)or towards coaching fee of various competitive exams.

Post office investments

The investment can be from any source and not necessarily from income chargeable to tax.

[edit]Section 80CCF: Investment in Infrastructure Bonds

From April, 1 2010, a maximum of Rs. 20,000is deductible under section 80CCF provided that amount is

invested in infrastructure bonds. This is in addition to the 100,000 deduction allowed under Section 80(C).

[edit]Section 80D: Medical Insurance Premiums

Health insurance, popularly known as Mediclaim Policies, provides a deduction of up to Rs. 35,000.00 (Rs.

15,000.00 for premium payments towards policies on self, spouse and children and (read as in addition to) Rs.

15,000.00 for premium payment towards non-senior citizen dependent parents or Rs. 20,000.00 for premium

payment towards senior citizen dependent). This deduction is in addition to Rs. 1,00,000 savings under IT

deductions clause 80C. For consideration under a senior citizen category, the incumbent's age should be 65

years during any part of the current fiscal, eg. for the fiscal year 2010-11, the incumbent should already be 65

as on March 31, 2011), This deduction is also applicable to the cheques paid by proprietor firm..

[edit]Interest on Housing Loans Section

For self occupied properties, interest paid on a housing loan up to Rs 150,000 per year is exempt from tax.

(Excluding Rs.1,00,000/p.a. u/s 80c Saving) However, this is only applicable for a residence constructed within

three financial years after the loan is taken and also the loan if taken after April 1, 1999.

If the house is not occupied due to employment, the house will be considered self occupied.

For let out properties, the entire interest paid is deductible under section 24 of the Income Tax act. However,

the rent is to be shown as income from such properties. 30% of rent received and municipal taxes paid are

available for deduction of tax.

The losses from all properties shall be allowed to be adjusted against salary income at the source itself.

Therefore, refund claims of T.D.S. deducted in excess, on this count, will no more be necessary.[6]

[edit]Use of Deductions

While the use of the above sections helps one to pay less or no money as tax if one falls in the tax bracket, one

should look at this more as an investment-return opportunity. One should still file income tax return, even if one

is not paying any tax. Except ELSS (Equity Linked Savings Scheme) and the NPS (National Pension Scheme),

other schemes under 80C typically offer a relatively risk-free investment and guaranteed returns.

[edit]Tax Rates

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In India, Individual income tax is a progressive tax with three slabs. About 10 per cent of the population meets

the minimum threshold of taxable income[7][8]

From April 1, 2011 new tax slabs apply, which are as follows:

No income tax is applicable on all income up to Rs. 1,80,000 per year. (Rs. 1,90,000 for women, Rs. 2,50,000

for senior citizens of 60 till 80 yrs (excluding 80) and Rs. 5,00,000 for very senior citizens of 80 yrs and above

and must be resident of india)

From 1,80,001 to 5,00,000 : 10% of amount greater than Rs. 1,80,000 (Lower limit changes appropriately for

women and senior citizens)

From 5,00,001 to 8,00,000 : 20% of amount greater than Rs. 5,00,000 + 32,000 ( Rs. 31,000 for women and

Rs. 25,000 for senior citizens)

Above 8,00,000 : 30% of amount greater than Rs. 8,00,000 + 92,000 ( Rs. 91,000 for women and Rs. 85,000

for senior citizens)

[edit]Surcharge

Surcharge has been abolished for personal income tax in the financial year 2009-10.

A 7.5% surcharge (tax on tax) is applicable if the taxable income (taking into consideration all the deductions) is

above Rs. 10 lakh (Rs. 1 million). The limit of 10 lacs was increased to Rs. 10 crore (Rs. 100 million) with effect

from 1 June 2009

All taxes in India are subject to an education cess, which is 3% of the total tax payable. With effect from

assessment year 2009-10, Secondary and Higher Secondary Education Cess of 1% is applicable on the

subtotal of income tax. The education cess is mainly applicable on excise duty and service tax

From income tax year 2010-11, education cess would be 3% and no surcharge would be levied.

[edit]Tax Rate for non-Individuals

There are special rates prescribed for Firms, Corporates, Local Authorities & Co-operative Societies.[9]

[edit]Refund Status for Salaried tax payers

The Income Tax Department has put on its website the list of income tax refunds of all salary tax payers which

could not be sent to the concerned persons for want of correct address. (link to check refund)

Salary taxpayers who have not received refunds for assessment years 2003-04 to 2006-07 can click on the link

below and query using the PAN number and assessment year whether any refund due to them has been

returned undelivered. .[10]

[edit]Corporate Income tax

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For companies, income is taxed at a flat rate of 30% for Indian companies, with a 5% surcharge applied on the

tax paid by companies with gross turnover over Rs. 1 crore (10 million). Foreign companies pay 40%.[11] An

education cess of 3% (on both the tax and the surcharge) are payable, yielding effective tax rates of 32.5% for

domestic companies and 41.2% for foreign companies. [12] From 2005-06, electronic filing of company returns is

mandatory.[13]

[edit]Tax Penalties

The major number of penalties initiated every year as a ritual by I T Authorities is under section 271(1)(c) which

is for either concealment of income or for furnishing inaccurate particulars of income. What is inaccurate

particulars of income is not defined under Income Tax Act 1961 , however recently Supreme Court in case

of CIT vs Reliance Petroproducts states as under "If we accept the contention of the Revenue then in case of

every Return where the claim made is not accepted by Assessing Officer for any reason, the assessee will

invite penalty under Section 271(1)(c). That is clearly not the intendment of the Legislature."

Read more: http://taxworry.com/landmark-judgment-by-supreme-court-on-penalty-us-2711c-in-favour-of-

taxpayers/#ixzz1F5mJSvsn "If the Assessing Officer or the Commissioner (Appeals) or the Commissioner in

the course of any proceedings under this Act, is satisfied that any person-

(b) has failed to comply with a notice under sub-section (1) of section 142 or sub-section (2) of section 143 or

fails to comply with a direction issued under sub-section (2A) of section 142, or

(c) has concealed the particulars of his income or furnished inaccurate particulars of such income,

he may direct that such person shall pay by way of penalty,-

(ii) in the cases referred to in clause (b), in addition to any tax payable by him, a sum of ten thousand rupees

for each such failure;

(iii) in the cases referred to in clause (c), in addition to any tax payable by him, a sum which shall not be less

than, but which shall not exceed three times, the amount of tax sought to be evaded by reason of the

concealment of particulars of his income or the furnishing of inaccurate particulars of such income.

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Tax Planning for Year 2010

Following are some of the best tax saving investment options for the current assessment year [AY 2010-2011]

It is generally observed that during the last few months of a financial year people make last moment impulsive decisions to invest in tax saving instruments. In the process they may end up buying products that are actually not right for them. Tax planning is something that needs to be done a few months in advance so that one has ample time to understand & evaluate different options available to suit his/her financial situation. You can begin your tax planning now for the Assessment Year 2010-11.

Following are a few simple tips for planning your taxes for this financial year:

I. Utilize the Income Tax exemptions

Section 80C Under this section one can claim up to Rs. 1 lakh in deductions. The options in this section include

Employee Provident Fund (EPF), Public Provident Fund (PPF) - up to Rs.70, 000 per annum, National Savings Certificate (NSC), 5-year bank fixed deposits, Life insurance policies, Equity-Linked Savings Schemes (ELSS), Unit Linked Insurance Plans (ULIPs), School fees, and Home loan principal repayment.

In order to make investments in this section one needs to decide on the ideal debt vs. equity mix which is right based on factors like age, risk-return profile & goals.

Section 80D One can claim deductions up to Rs 15,000 incase you have taken a medical insurance plan for yourself or your spouse or dependant parents or children (and an additional Rs.15, 000 for your parents' medical insurance) under Section 80D for premiums paid. This limit has now been enhanced to Rs 20,000 for senior citizens on the condition that the premiums are paid via cheque.

Section 80DD Under Section 80DD, expenses related to the medical treatment of a dependent having disability qualifies

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for tax benefits. This section allows deductions up to Rs. 50,000 or 75, 000 to be claimed depending on the severity.

II. Interest on home loan Interest component of a home loan is allowed as a deduction under the head �income from house property' U/s 24(b) up to a limit of Rs 1.5 lakhs a year for a self-occupied house. The claim can also be made on loans taken for repair, renewal or reconstruction of an existing property.

III. Shuffle and switch strategy Shuffling is a popular strategy that is used by ELSS [Equity Linked Savings Scheme] investors. They have a mandatory lock-in period of 3 years. Incase you have been investing an amount Rs 50,000 for last few years but don't have cash to invest this year, then you can easily redeem the investments made 3 years ago and re-invest that amount this year so as to claim the benefits. You need not pay any long term capital gains as you will be redeeming after more than one year. Hence you will be enjoying tax benefits without making any fresh investments. The only risk here is the NAV that can go up or down in the shuffle process which may lead to a small profit or loss.

Some fund houses also allow switch option for tax benefits. Suppose an investor with previous ELSS investments doesn't have the money to make further investment in current financial year. In such a case, he can consider switching it to a liquid fund and then back into the ELSS fund within a short period of time like 10-15 days to avail the tax benefits.

IV. Tax smart charitable donations You can get a tax relief if you donate to institutions that are approved U/s 80G of the Income Tax Act. The rate of deduction is either 50 or 100 %, depending upon the type of the charity fund. There is no upper limit on the amount given to a charity. However, donations should be made only to the specified trusts and only donations of up to 10 per cent of the total income qualify for such deduction. Please note that tax exemption is only an added advantage of charity and this should not be the primary reason for doing so.

V. Divide your income Generally, if you invest either in your wife's or child's name, then the income generated from these investments will be clubbed with your income & taxed accordingly. But, if you transfer money by way of a deed to a child who is a major i.e. over 18 years of age and invest in his name, then the income generated from this investment will not be clubbed with your income. Instead, it will be clubbed with the income of your child/wife and will be taxed accordingly. Cash gifts that are received from specified relatives are tax exempt and there is no upper limit. Also, cash gifts of any amount from anyone received during child birth, marriage or any other specified event are totally tax-exempt. But, any cash that is received from a non-relative where the value of gift is in excess of Rs 50,000 in a particular year will be considered as income and taxed accordingly.

In a nutshell remember the following:

Combine Tax Planning with your Financial Plan for the year so that the products which you invest in will match your risk profile as well as your future goals

There's no need to consider a home loan as a bad debt. Consider getting a loan for buying a home. Charity is good for both the receiver as well as the giver. Do check on the validity and the receipts before

claiming deduction u/s 80G Take advantage of the tax benefits under sections 80C, 80D and 80DD Insurance policies provide tax benefits on the premiums paid as well as on the returns received. By way of medical insurance, you not only take care of your family against medical expenses, but also

receive a tax deduction u/s 80D Remember to file taxes on time

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Income Tax In India

A tax that is applicable on income that has been generated from any source is termed as Income tax. The central board of direct tax (CBDT) is the governing body that takes care of the Indian Income tax. Income tax is imposed by the government on an individual, company, business, Hindu undivided families (HUFs), co-operative organization and trusts. The tax structure is different on different commodities and products. Indian income tax is regularized under income tax act 1961.

History of Income tax

In India Income tax comes into existence in the year 1860. Initially at the time when it was imposed it had taken almost five years to regularize and implement the income tax however income tax act lapsed in the year 1865. Again after a gap of so many years it again comes into force. Act of 1886 was again came into force it defines the full fledged law of income tax it includes the exemption in various agricultural professions, income tax rules on industries and corporation. In the year Act VII of 1918 was launched that reforms the income tax law in a new way. This new act scrutinized the new industries that come under income tax bracket. This new act tries to expand the horizon to generate large revenue for the country.

In the year 1922 another income tax act came into existence as a result of recommendation by the all India income tax committee. With this act a new clause was introduced under which unlike earlier where the collection of income tax in the current assessment year depends on the estimated collection of income tax of previous year. After the income tax act of 1922 there will be no important provision came however the income tax later on comes under the provision of finance act. Every assessment year the new tax structure is decided by the finance department of the country that is released with the union budget. The income tax act of 1922 existed till 1961 however government had handed over the income tax clause to the law commission to review and recast it in a logical way so that the tax amended in an easies way without changing the basic tax structure.

The income tax laws hold many industries and it has diversified clauses for different industries. There are various industries where government offers wavers in subsidies time to time. The present income tax act is same as of 1961 income tax act of India. As per the constitution of India every individual is bound to pay income tax for the progress of the nation. Any individual or an organization if earning any income in the country has to pay income tax. Although in the present day tax structure there is a different slab for man and women. As per Indian income tax law senior citizens are exempted from the regular income tax slab, similarly income generated through the agriculture is not subjected to the income tax. Any state that is affected by the natural calamity is also subjected to the income tax waver.

Tax Rates:

In this budget, the senior citizens are divided into two categories as senior citizen from 60 - 80 years of age and very senior citizens years of the age 80 and above. The new tax slabs applicable from April 1, 2011 are as follows:

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On all incomes up to Rs. 1,80,000 per year. (For women - Rs. 1,90,000, for senior citizens - Rs. 2,50,000 and for very senior citizens - Rs. 5,00,000 ), no Income Tax is applicable.

From Rs. 1,80,001 - Rs. 5,00,000 : 10% of amount ( For women - Rs. 1,90,001 to Rs. 5,00,000 and for senior citizens - Rs. 2,50,001 to Rs. 5,00,000)

From Rs. 5,00,001 to Rs. 8,00,000 : 20% of amount ( Same for women, senior citizens and very senior citizens)

Above Rs. 8,00,000 : 30% of amount ( Same for women, senior citizens and very senior citizens)

To know in detail about Tax Rates in India click here: Income Tax Rates

Income from Salary

Under this head, income received as salary under Employer-Employee relationship is taxed. If income exceeds minimum exemption limit, then Employers must withhold tax compulsorily as Tax Deducted at Source (TDS). The employees should also be provided with a Form 16 which shows the tax deductions and net paid income. Form 16 also contains any other deductions provided from salary as follows:

Medical reimbursement up to Rs. 15,000 per year is tax exempt provided bills are given Conveyance allowance up to 9600 per year is tax free Professional taxes which are usually a slabbed amount based on gross income are deductible from

income tax. House rent allowance: the minimum of the following is available as deductiono The actual HRA receivedo 50%/40 % (metro/non-metro) of 'salary'o Rent paid minus 10% of 'salary'

Income from House Property

Income from House property is calculated by considering the Annual Value. The annual value (for a let out property) will be maximum of the following:

HRA Rent received Municipal Valuation Fair Rent (as determined by the I-T department)

However if a house is not let out and not self-occupied, then annual value is assumed to have accrued to the owner. In case of a self occupied house, annual value is to be taken as NIL. But if there is more than one self occupied house then the annual value of the other house/s is taxable. From this, Municipal Tax paid is deducted to arrive at the Net Annual Value. From this Net Annual Value, the following are deducted:

30% of Net value as repair cost - mandatory deduction Interest paid or payable on a housing loan for the house

Income from Business or Profession:

Income arising from profits and gains of any Business or Profession; income derived by a Trade/ Professional/ similar Association by performing specific services for its members; any benefit from business whether convertible into money or not, incentives for exporters; any salary, interest, bonus, commission or remuneration received by Partner of a firm; any amount received under a Key man Insurance Policy which also covers Bonus; income from managing agency and speculative transactions; is taxable.

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Income from Capital Gains

Under section 2(14) of the I.T. Act, 1961, Capital asset is defined as property of any kind held by an assessee such as real estate, equity shares, bonds, jewellery, paintings, art etc. but does not consist of items like stock-in-trade for businesses or for personal effects. Capital gains arise by transfer of such capital assets.

Long term and short term capital assets are considered for tax purposes. Long term assets are those assets which are held by a person for three years except in case of shares or mutual funds which becomes long term just after one year of holding. Sale of long term assets give rise to long term capital gains which are taxable as below:

As per Section 10(38) of Income Tax Act, 1961 long term capital gains on shares/securities/ mutual funds on which Securities Transaction Tax (STT) has been deducted and paid, no tax is payable. Higher capital gains taxes will apply only on those transactions where STT is not paid.

For other shares & securities, person has an option to either index costs to inflation and pay 20% of indexed gains, or pay 10% of non indexed gains.

For all other long term capital gains, indexation benefit is available and tax rate is 20%

Income from Other Sources

There are some specific incomes which are to be taxed under this category such as income by way of dividends, horse races, winning of bull races, winning of lotteries, amount received from key man insurance policy.

So as we can see the Indian Income Tax law is a subject which is filled with legal jargons and complexities that keep on changing every new financial year and the importance of this law in our routine life simply cannot be ignored. Whether it is filing of Income Returns on due dates or whether it's a financial investment decision to be taken, every where the Income Tax provisions play a major role in driving of the cost factor.

Taxation of individuals is determined by their residential status.

An individual is 'resident' if he stays in India in the fiscal yer (April 1 to March 31) either:

for 182 days or more, or for 60 days or more (182 days or more for NRIs) and has been in India in aggregate

for 365 days or more in the previous four years.

An individual who does not satisfy either of these requirements is a 'non-resident'.

A resident individual is considered to be 'ordinarily resident' in any fiscal year if he has been resident in India for nine out of the previous ten years and, in addition, has been in India for a total of 730 days or more in the previous seven years. Residents who do not satisfy these conditions are called individuals 'not ordinarily resident'. Taxability of individuals is summarised in the table below.

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----------------------------------------------------------------------Status Indian Foreign income income----------------------------------------------------------------------Resident and ordinarilyresident Taxable Taxable

Resident but not ordinarily Taxable Not taxableresident

Non-Resident Taxable Not taxable----------------------------------------------------------------------

Remuneration for work done in India is taxable irrespective of the place of receipt. Remuneration includes salaries and wages, pension, fees, commissions, profits in lieu of or in addition to salary, advance salary and perquisites. Allowances, deferred compensation and tax equalisation are also taxable. Perquisistes are taxes beneficially.

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Service Tax In IndiaDr. Manmohan Singh, the then Union Finance Minister, in his Budget speech for the year 1994-95 introduced the new concept of Service Tax and stated that '' There is no sound reason for exempting services from taxation, therefore, I propose to make a modest effort in this direction by imposing a tax on services of telephones, non-life insurance and stock brokers.''

Service Tax has been introduced in order to explore new avenues for taxation and to bring more people into the tax net. Service Tax generated revenue of Rs 2612 crores in 2000-2001. In 2001-2002 it is estimated at 3600 crores.

Bringing services under taxation is not simple as the services are intangible and are provided by large groups of organized as well as unorganized service providers including retailers who are scattered across the country. Further, there are several services, which are of intermediate nature. The low level of education of service providers also poses difficulties to both-tax administration and assessees.

The Service Tax assessee is the person/firm who provides the service. Hence, the Service Tax must be paid by the person/firm providing the service.

As stated earlier, service tax was introduced in India for the first time in 1994. Chapter V of the Finance Act, 1994 (32 of 1994) (Sections 64 to 96) deals with imposition of Service Tax interalia on-

a. Service rendered by the telegraph authorities to the subscribers in relation to telephone connections.b. Service provided by the insurer to the policy-holder in relation to general insurance business.c. Service provided by a stockbroker.

The Finance Acts of 1996, 1997, 1998, 2001, 2002 and 2003 added more services to tax net by way of amendments to Finance Act, 1994. At present total number of services on which Service Tax is levied has gone upto 58 despite withdrawal of certain Services from the tax net or grant of exemptions (Goods Transport Operators, Outdoor Caterers, Pandal and Shamiana Contractors, and Mechanized Slaughter Houses).

Service tax Includes

Service tax is a form of indirect tax that is applicable to the services that are taxable in nature. This tax came into existence as government wants an easy option that is transparent in nature that can generate revenue for the nation in an easy way. In past few years service tax is applied on various new services. Unlike value added tax that is applicable on goods and commodities, this tax is imposed on various services that is provided by the financial institutions such as banks, stock exchange, colleges, transaction providers, telecom providers. Banks are the first that charges service tax to its customer since inception often they termed service charges as processing fees. The responsibility of collecting the tax lies with the Central Board of Excise and Customs (CBEC) it�s a body under the Ministry of Finance. This body formulates the tax structure in the country.

Service tax was imposed first in India in July 1994. The service tax is applicable all over India however due to the national interest and for the betterment of the people of Jammu and Kashmir it is waved off. In 2006- 2007 service tax was increased from 10% to 12% however it was again reduced from 12% to 10%

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in the Union budget of 2009. It is often noticed that there is a lack of service tax information among the people. Government has gradually increased the list of taxable services to increase the revenue. Let�s have a look at the major services that comes under the scanner of service tax: 

- Telecommunication- Traveling agencies (air, road and railway services)- Architects- Management consultants- Universities, colleges and schools- Credit rating agencies- Market research analyst- Broadcasting services (television and radio)- Banking and other financial services- Authorized service stations- Export import unit

- Cargo and shipping- Telegraph services- Hospitals and health care services- Storage and warehousing services- Maintenance and repair services- Franchise owner- Retail stores- Transportation of goods- Packaging services- Airport services- Cable operators

- Event managements- Beauty parlors- Dry cleaning services- Real state agents- Consultants of different services- Insurance underwriting agencies- Stock broker- Passport services- Immigration services- Legal advising units- Chartered accountant firms

- Customer service units- Technical support advising firms- Tourist�s services- Automobile service stations- Electronic and electrical service stations- Human resource services- Membership of clubs and association- Share and stock transfer agent- Survey and exploration of minerals- Cost accountant- Internet telephony services

- Security agencies- Transport of goods by air- Health clubs- Pager services- Real state agent- Ship management services- Port services- Custom house agent- General insurance services- Containers by rail- Postal services

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Wealth Tax In India

Wealth tax came into existence on 1st April 1957. Wealth tax is derived from the property owned by the proprietor. The proprietor needs to pay tax every year on property owned by them. The residential property that does not yield any income to its owner is also subjected to wealth tax.Wealth tax is termed as most significant direct tax.

As per the wealth tax act, wealth tax is applicable to the following:

An individual person A group of people who own a property A company or organization A Hindu undivided family (HUF) Person belongs to 1-by -6 categories A representative or heir of a dead person Non corporative tax payer

The chargeability of a wealth tax in India for its residence or foreign citizens are different. Any person who is resident of India has to pay wealth tax under his/her name. If owner of property is deceased, heir of the property is bound to pay the wealth tax of the property. If a person owns a citizenship of a foreign country and he/she acquires a property in India as well as in foreign country. Under those circumstances the property owned by the owner in India is taxable where as property located outside India is exempted from the list. All assets and debts outside India are out of the scope of Wealth Tax Act.

The following assets are subjected to wealth tax:

1. Guesthouse, farm-house, commercial complex, shopping mall and residential complex are subjected to the wealth tax.

2. Valuable items like jewelry and any items made up of precious metals like gold, silver, platinum or any other precious metals.

3. Aircrafts, yachts, boats that is used for non-commercial purpose4. Cash in hand that is more than 50,000, for individual and Hindu undivided families.5. Any cash that is not recorded on the account log book is subjected to the wealth tax.6. Motor car that is owned by an individual.7. Any urban land situated in the jurisdiction where there is a total population of ten thousand as per last

census is subjected to the wealth tax.

Assets that are exempted from the list of wealth tax are:

Air craft or boat used for business purpose provided by the company. Furniture, apparels and electronic items that is for personal use. Accommodation provided by the company or organization to its employee. The annual salary of the

employee is less than Rs 500,000. Any land donated for the religious purpose or to charitable trust is not subjected to wealth tax.

There are few assets that are termed as deemed assets:

1. Assets transferred from one spouse to another

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2. Assets held by a minor child. As per the income tax act such wealth is taxed individually and will not be termed as the net asset of the main owner/parents/guardian.

3. Assets transferred to the son�s wife.4. Assets transfer to the grandchildren.5. Assets transferred to a person or Association of Persons for the benefit of son's wife.

There are few exceptional assets that are exempted by the government:

1. The belongings such as residential building and palace belongs to rulers are considered as national heritage and wealth tax is exempted for it.

2. Former Ruler's jewellery is also excluded from the wealth tax. As per the government is termed as national asset.

3. Assets belonging to the Indian repatriate for 7 years on fulfillment of the conditions prescribed.

The valuation of net asset is considered as total asset other than the cash that is valued on valuation date determined in the manner laid down in Section 7(2) and in Schedule III to the Wealth Tax Act.

How to file return of wealth tax?

To file a wealth tax is same as like filing an income tax. A person is required to file a return of wealth in form A. If the net value of the asset comes under the bracket of wealth tax than person is bound to file the wealth tax. This should be noted that before filing a wealth tax all the essential documents should be attached with the form A.

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Sales Tax In India

Sales tax is levied on the sale of a commodity which is produced or imported and sold for the first time. If the product is sold subsequently without being processed further, it is exempt from sales tax.

Sales tax can be levied either by the Central or State Government, Central Sales tax department. Also, 4 per cent tax is generally levied on all inter-State sales. 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 rate vary from State to State. However, exports and services are exempt from sales tax. Sales tax is levied on the seller who recovers it from the customer at the time of sale.

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. It is imposed under Central Government (Central Sales Tax) and the State Government (Sales Tax) Legislation. Normally, each state has its own sales tax act and levies the tax at various rates. Apart from sales tax, certain states also impose extra charges such as works contracts tax, turnover tax & purchaser tax. Thus,sales tax plays a major role in acting as a major generator of revenue for the various State Governments.

Under the sales tax which is an indirect form of tax, it is the responsibility of seller of the commodity to collect or recover the tax from the purchaser. Generally, 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. Moreover, luxury items (such as cosmetics) are levied higher sales tax rates. The Central Sales Tax (CST) Act that comes under the direction of Central Government takes into consideration all the interstate sales of commodities.

Hence, we see that sales tax is to be paid by every dealer when he sells any commodity, during inter-state trade or commerce, 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. Sales tax is to be paid to the sales tax authority of the state from which the movement of the commodities starts or commences.

VAT replaces sales tax

However, most of the states in India, from April 01, 2005, have supplemented the sales tax with the new Value Added Tax (VAT). VAT in India is classified under the following tax slabs:

0% for the essential commodities 1% on gold ingots as well as expensive stones 4% on capital merchandise, industrial inputs, and commodities of mass consumption 12.5% on all other items Variable rates (depending on state) are applicable for tobacco, liquor, petroleum products, etc.

A Central Sales Tax which is at the rate of 4% is also levied on inter-State sales but would be eliminated gradually.

Municipal/Local Taxes

Octroi/entry tax: Certain municipal jurisdictions levy an Octroi/entry tax on the entry of goods

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Other State Taxes

Stamp duty on the transfer of assets Property/building tax that is levied by local bodies Agriculture income tax levied by the State Governments on the income from plantations Luxury tax that is levied by certain State Government on specified goods

Budget 2009-2010

According to the budget 2009-2010, Central Sales tax is to be reduced to 2% from April

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Salary And Perquisites In Indian Tax SystemSalary is a different story. Tax is required to be paid on salary due from an employer whether paid or not, received in advance though not due and also on arrears of salary paid.

Salary includes wages, fees, commissions, perquisites, profites in lieu of, or, in respect of encashment of leave etc. It also includes the annual accrection to the employee's account recognized provident fund in excess of 12% of the salary of the employee, along with interest applicable, shall be included in theincome of the employee.

Profits in lieu of salary includes amount received in lump sum or otherwise, prior to employment (temptation to switch jobs) or after cessation of employment (do not join a competitor or divulge sensitive information). It will not include interests on contributions or any sum received, including bonus, under keyman insurance.

Salary can be any of the following forms:

Wages; Any annuity or pension; Any gratuity; Any fees/commissions, profits/perquisites in lieu of any salary or wages; Any salary advance; Any payment that employee receives for a period of leave not taken by him; Any annual accreditation to provident fund balance at the credit of an employee The total of all sums that are comprised in the transferred balance

Tax on Pension

U/s 9(1)(iii), the pension is taxable in India only if it is earned in India. For pensioners residing in India but receiving pension for past services done abroad will be considered as income accruing to the pensioners abroad, and hence will not be liable to tax in India on basis of accrual. Pension would become taxable in India on receipt basis only when pension is directly received by the pensioner in India as per an agreement with employer/former employer.

Tax upon bonus, fees & commissions

The bonus received in the gross salary in a year is taxable on receipt basis.Any fees/commission received/receivable by an employee is fully taxable & it's included in the gross salary.

Tax on Gratuity

Employee receives gratuity at the time of retirement or his legal heir receives gratuity incase the employee dies. The gratuity that employee receives on retirement and legal heir receives on death of employee; both are taxable under the heads "Salary" and "Income from other sources" respectively.

Tax on Annuity

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The annual grant that an employee receives from the employer is called annuity and comes under salary. It may be paid by the employer either voluntarily or on contractual agreement. Deferred annuity is not taxed unless right to receive it arises. Annuities given in a will or given by life insurance companies and annuities arising due to a contract come under "Income from other sources" and are taxable.

Tax upon profits in lieu of or in addition to salary

This includes any compensation received by an assessee from his employer/former employer on termination of employment or changes in terms & conditions relating thereto. It also includes any amount received by an assessee from any person before joining employment with this person or after termination of employment with this person.

Tax upon advance salary and perquisites

This includes value of rent free accommodation given to assessee by employer, value of any amenity granted free of cost/at concessional rate to an employee being the director or an employee having substantial interest in Company and value of any other fringe benefits.

PERQUISITES FOR SALARIED WILL BE TAXED FROM APRIL 2009

Perquisites given by employer like residential accommodation, conveyance facility as well as other benefits for employee's family could soon be added to the salary for income tax purposes and the Government may give a notification soon on valuation of such perks.

Initially, tax on such perks was paid by employer in the form of the Fringe Benefit Tax (FBT) which was done away with in the Budget 2009-10 by Pranab Mukherjee, the Finance Minister.

The perquisites that are included in taxable salary include residential accommodation given by the employer, motor car expenses for official/personal use, driver's salaries, salaries of gardener and sweeper if paid by employer and concessional education given to the employee's children.

Under the FBT regime, tax burden of perquisites that was on the employer, will now be on the employee.

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Tax Deduction At Source (TDS)

Nothing is as tangled and knotty as the TDS provisons. While some TDS rates are specified in the individual section which deal with the tax treatment of the particular stream of income, some rates are included as part of a separate schedule. To make matters worse, these rates get tampered and modified every year. This result in so much chaos and confusion, that sometimes those who have to apply TDS, do not have a clue about what rate to use. Imagine the plight of tax payer.

The genasis of the problem lies in the complicated nature of the tax laws. The authorities complain that less than 2% of our population actually pays taxes. However, simpliflying the provisions is not viewed as a possible solution. On the other hand, in an effort to bring more and more people into the tax net, the lawmakers simply endup complicating the law. And the rule is simple more the complexity more the room.

TDS is final tax payable- at the time of filling his returns, the assessee pays the balance if any or asks for refund, as the case maybe. Ergo, it behooves the Department to have a standard uniform rate -convenient both for itself as well as the taxpayers.

The most unfortunate part is that we could have easily done away with any TDS provided the deparrtment had good infrastructure to apprehend assessees avoiding tax only through TDS.

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Gift Tax In IndiaGift tax is history, or rather, was history.Financial act 1998 had deleted gift tax act w.e.f.1.10.98. consequently, all gifts made on or after 1.10.98 are free from gift tax. Neither the donor nor the donee would have to pay any tax. Financial act 2004 has revived it partially, but it is in the form of donee-based income tax instead gift.

The clubbing provisions in the Income Tax Act 1961 and Wealth Tax Act, 1957 are not deleted. Therefore, income and wealth from assets transferred directly or indirectly without adequate consideration to minor children, the spouse (otherwise than in connection with an agreement to live apart) or daughter-in-law will continue to be deemed income and wealth of the transferor. Same is the case when assets are held by a person or an Association Of Persons for benefit of assesses, the spouse, daughter-in-law and minor children.

Gift tax was not applicable to gifts of movable property situated in Jammu and Kashmir. Now, that the Gift Tax Act, 1958 is abolished, the clubbingprovisions would be applicable to gifts of movable properties in J&K also.

The Gift tax in India is regulated by Gift Tax Act that was constituted on April 1, 1958. It came into effect in nearly all parts of the country except Jammu and Kashmir. As per this Act 1958, all gifts exceeding Rs. 25,000, in the form of cash, draft, check or others, received from one who does not have blood relations with the recipient, were taxable.

However from October1, 2009, individuals receiving shares or jewellery, valuable artifacts, valuable drawings, paintings or sculptures or even property valued over Rs 50,000 as gifts from non-relatives, shall have to start paying tax.

Gifts are Taxable Only in the Case of Individuals and HUFs

U/s 56(2) (vi) certain gifts are taxable according to income tax as "income from other sources". However, this provision applies only for individuals & Hindu Undivided Families (HUFs). Thus, if gift is received by any Trust or A.O.P., then it shall not be liable to income tax as "income from other sources".

MinorsThe entire income that arises or accrues to a minor is to be included in the income of that parent whose total income (excluding the income includible) is higher. When the marriage of the parent does not subsist, the income of the minor will be included in the income of that parent who maintains the minor child. Income arising in the succeeding year shall not be included in the other spouse unless the assessing officer is satisfied that it is necessary to do so.Where the income of the individual includes the income of his minor children, an exemption up to Rs. 1,500 in respect of each minor child can be claimed by the individual u/s 10(32).Where a minor is admitted to the benefits of the partnership firm, the value of the interest of such minor in the firm shall be included in the net income of the parent of the minor. All the income of physically or mentally handicapped minor child will be directly assessed in the hands of the child. Similarly, a minor earning income by way of manual work or an activity involving application of his skill, talent or specialized knowledge and experience, is directly assessed in the hands of the child. Unfortunately, the income arising from his investments will suffer clubbing.

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Capital Gain In Indian Tax system

Section 45 to 55A of the Income-tax act, 1961 deal with the capital gains. Section 45 of the Act, provides that any profits or gains arising from the transferof a capital asset effected in the previous year shall, save otherwise provided in section 54, 54B, 54D, 54EA, 54EB, 54F 54G and 54H [with effect from 1-4-1991] be chargeable to income-tax under the head ''Capital Gains'' and shall be deemed to be the income of the previous year in which the transfer took place.

Doubts may arise as to whether 'Capital Gains' being capital receipt cab be brought to tax as income. It may be noted that the ordinary accounting canons of distinctions between a capital receipt and a revenue receipt are not always followed under the Income-tax Act. Section 2(24) of the Income-tax Act specifically provides that ''income'' includes 'any capital gains chargeable under section 45'.

The requisites of a charge to income tax, of capital gains under section 45 are :-

1. There must be a capital asset.2. The capital asset must have been transferred.3. The transfer must have been effected in the previous year.4. There must be a gain arising on such transfer of a capital asset.

Short-term and long-term capital gains:Gains on sale of capital assets held for more than three years (one year for listed securities or mutual fund units) are treated as long-term capital gains and are taxed at concessional rates compared short-term capital gains.

While calculating taxable long-term capital gains, the cost of acquisition and the cost of improvement are linked to a cost inflation index. As a result, the indexed cost of acquisition is deducted from the sale consideration received, to arrive at the capital gain.

Long-term capital gains are taxed at a flat rate of 20 per cent for individuals and foreign companies, and 30 per cent for domestic companies. Long-termcapital gains on the transfer of shares/bonds issued in a foreign currency under a scheme notified by the Indian Government are taxed at 10 per cent.

Capital Gain

An income that is derived from the sale of an investment is known as Capital gain. Capital investment can be in the form of a home, a farm, a ranch, a family business, or a work of art. When any kind of property is purchased at a lower price & then sold at a higher price, the seller makes a gain. Then this sale of a capital asset is known as capital gain.

This type of gain is a one-time gain and not a regular income such as salary or house rent. Hence we can say that capital gain is is not recurring.

Capital Gain Tax/ Tax Liability of Capital Gain

Tax liability of capital gains arises when all of the following conditions are satisfied:

There is a capital asset

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The assessee must have transferred the capital asset during the previous year There is a profit or gain arising as a result of transfer known as capital gain Such capital gain should not be exempt u/s 54, 54B, 54D, 54EC, 54 ED, 54F, 54G or 54GA.

What is a Capital Asset?

Any kind of property (movable, immovable, tangible, intangible) held by an assessee, whether or not connected with his business or profession, is nothing but a "Capital Asset".

The following assets are excluded from the definition of capital Asset:-

Stock-in-trade, consumable stores, raw materials held for the purpose of business/profession Items of personal effects, that is, personal use excluding jewellery, costly stones, silver, and gold Agricultural land in India Specified Gold Bonds and special Bearer Bonds Gold Deposit Bonds

Types of Capital Assets:

Two types of Capital Assets are present as follows:

Short Term Capital Assets [STCA]: An asset which is held by an assessee for less than 36 months, immediately before its transfer, is called Short Term Capital Asset. In other words, an asset, which is transferred within 36 months of its acquisition by assessee, is called Short Term Capital Asset. However, if the investment is in the form of mutual funds/company shares, the allowed time duration is one year

Long Term Capital Assets [LTCA]: An asset, which is held by an assessee for 36 months or more, immediately before its transfer, is called Long Term Capital Asset. In other words, an asset which is transferred on or after 36 months of its acquisition by assessee, is Long Term Capital Asset. Selling mutual funds and company shares after one year also constitutes a long-term capital gain.

Transfer of capital assets

Transfer of capital assets includes the following:- Sale of asset Exchange of asset Relinquishment of asset (that is surrender of asset) Extinguishments of any right on asset Compulsory acquisition of asset

Capital gain tax rates

In case of short-term capital gains, you will be taxed depending on the tax slab relevant to you after you have added the capital gain to your annual income. However if the transaction was levied with Securities Transaction Tax (STT), your gain will be taxed 10%.

In case of long term capital gains, you will be taxed 20%. When the transaction is levied with STT, you don't need to pay any tax on your gain. In this case, you can either calculate your capital gain using an indexed acquisition cost, or choose not to opt for indexing.

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Calculation/Computation of Capital Gains

Capital gain can be calculated as follows:

Full Value of Consideration

Less:

Cost of Acquisition Cost of Improvement Expenditure of Transfer

Capital gains

Less:

Exemption u/s 54

Taxable Capital Gains

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Retirement Benefits In Indian Tax system

Every employee must know the quantum of the various retirement benefits he would be getting, as well as its tax implications. The employee may get more benefits if he chooses a good employer but he has no choice in respect of taxes.

Retirement benefits received by an employee are taxable under the head Salary. Thus, the employer must take these benefits into account while computing the Tax Deducted at Source (TDS) at the time of retirement of an employee. Some retirement benefits are fully or partially exempt from tax.

Some of the retirement benefits are:

Pension

Pension is the income received by an employee after his retirement. It is a periodical allowance, on account of past service, given by a former employer after the retirement of an employee. Periodical pension is called un-commuted pension. When a lump-sum payment is made in lieu of a periodical pension, it is termed as commuted pension. Pension of an employee is taxable under the head salary. Taxability of pension depends on whether it is periodic or lump-sum.

Periodic payment (un-commuted pension) is fully taxable in case of both government and non-government employees. Lump-sum Payment (commuted pension) is tax-free in case of government employees. In case of other employees, if that employee is also receiving gratuity, then 1/3rd of the commuted pension would be exempt from tax. If gratuity is not received by an employee, half of the commuted pension will be exempt from tax.

Gratuity

Gratuity is a lump-sum payment made by an employer as a mark of gratitude for the services rendered by his employee. It is an important form of social security benefit. Gratuity is payable at the end of the employment (by way of retirement, death, termination or resignation). Every employer who has more than 10 salaried workers is allowed to grant gratuity to workers. The law which governs gratuity in India is the Payment of Gratuity Act, 1972.

To receive gratuity, the employee should at least have completed 5 years of service. The payment of gratuity is made to the employee based on the duration of his total service to that employer. The benefit is payable by taking the last drawn salary as the basis for calculation.

For the purpose of Income Tax, gratuity received by an employee of the central government, state government or any local authority is completely exempt from tax. For other employees, the least of the following is exempt from tax �

Rs. 10,00,000 (as per amendment from march 2010) Gratuity actually received, or Half month's average salary (average of last 10 months salary) for each completed year of service.

Leave Encashment

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Leave encashment is the encashment of unused leave of an employee. The employee surrenders the leave at the time of retirement and is paid for the same. Taxability of leave encashment received at the time of retirement is as follows �

In case of government employees, it is fully exempt from tax. In case of non-government employees, the least of the following is exempt �o Rs. 3,00,000/-o 10 months average salaryo Leave encashment actually receivedo Cash equivalent to the leaves surrendered

Voluntary Retirement Compensation

Many companies today provide its employee with the option of taking voluntary retirement under the Voluntary Retirement Scheme (VRS). This scheme is drawn to right-size the existing strength of employees within a company. The benefits derived by an employee by opting VRS can also be considered as retirement benefit. VRS is applicable to only those employees who have completed 10 years of service or are of the age of 40 years. Under VRS, the employees are offered a onetime lump-sum amount. For income tax purposes, this compensation amount received is exempt up to Rs. 5,00,000/- if all the conditions under the scheme are fulfilled.

Provident Fund

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Housing Property Tax In IndiaBasic Concepts: Section 22 to 27 of the Income Tax Act deal with taxability of income in respect of house property. The following basic conditions must be satisfied for income to be taxed under this head:-

The property consists of buildings or land adjacent thereto. The assessee must own property. The property must not be used for the purpose of business or profession of the assessee. It must be used

only for renting out so as to derive rental income.

Therefore any income from a property which is not owned by the assessee will not be treated as ''income from house property'' but as other income and other provisions of the Income Tax Act will apply in this connection.

Deemed Owner

In certain cases, the assessee, though not the owner of the property, is deemed to be the owner of the property i.e. he is treated as owner of the property and income from that property will be treated as income from house property. The following are such situations:-

1. The individual who transfer any property for inadequate consideration or who gifts that property of his spouse or to a minor child other than a married daughter will be treated as deemed owner of that property. ie though legally the owner of the property is spouse or minor child, the income from that property will be treated as income of this person who has transferred such property.

2. The holder of an impartable estate will be treated as the owner of that entire property for example where an HUF jointly holds property on behalf of all its members, then joint HUF will be treated as the owner though legally the property in the name of an individual member of family.

3. A member of co-op society, company or other association of persons to whom a building has been allotted under a house building scheme of society will also be treated as deemed owner of that property

4. A person who has satisfied the provisions of section 53A of the transfer of property act will be treated as deemed owner of that property. Section 53A of the Transfer of Property Act deals with situations where though the agreement for buying of property has not been registered with the appropriate authority, the person who has purchased the property will be treated as the owner of the property.

5. A person who has acquired right by way of long term lease of property will be treated as the owner of that property and income from that property will be taxable in his hands as under house property income. For this purpose long term lease means lease for period of more than 12 years.

Income from House Property

The property for which the annual value consists of buildings/lands appurtenant thereto of which the assessee is the owner shall be chargeable to income tax under the head "Income from House Property". A person may occupy the property for the purpose of business or profession, the profits of which are taxable.

Annual value of any property shall deemed to be:

The sum for which the property might reasonably be able to let/give from year to year Where any part of the property is let and the rent received by the owner is in excess of the sum

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Where any part of the property is let and was vacant during the whole or any part of the previous year and the actual rent received by the owner in respect thereof is less than the sum

To know in detail about Income from House Property click here: Income From House Property in India

Deductions Permitted

Deductions from income from house property are:

A sum equal to thirty percent of the annual value towards repairs and maintenance Incase the property is acquired/constructed/repaired/renewed or even reconstructed with borrowed

capital, then the amount of any interest payable on such capital.

Self Occupied House Property:

A property becomes a self occupied house property when it consists of a house or part of a house which:

Is in the owner's occupation as purpose of his own residence Cannot be occupied by the owner because of his employment, business or profession carried on at any

other place and has to reside at that other place in a building not belonging to him, the annual value of such house or part of the house shall be taken to be nil.

The amount of deduction towards interest payable on borrowed capital will not exceed Rs. 1,50,000/-

Ownership of House property:

An individual who transfers any house property to his or her spouse and the transfer not being in connection with an agreement to live apart, or to a minor child not being a married daughter, shall be deemed to be the owner of the house property so transferred.

An impartible estate holder is deemed to be the individual owner of all the properties comprised in the estate.

Rent received from House Property

Following are the special provisions for arrears of rent received from house property:

Where the assessee is the owner of any property consisting of any buildings or lands appurtenant thereto which has been let to a tenant; and

Where the assessee has received any amount, by way of arrears of rent from such property, not charged to income-tax for any previous year

To know in detail about Rent received from House Property click here: Taxable Rental Income of Property

Property owned by Co-owners:

If the property is owned by 2 or more co-owners, following are the important considerations �

Where property consisting of buildings and/or land appurtenant thereto is owned by two or more persons and their respective shares are definite and ascertainable, such persons shall not be assessed as an association of persons.

Share of each person in the income from property shall be included in his total income

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Partnership Firms In Indian Tax SystemA partnership is a common vehicle in India for carrying on business activities (particularly trading) on a small or medium scale. A profession is generally carried on through a partnership. There is no restriction on a company's participation in a partnership, but this is rate in practice.

Under the general law a partnership is not a separate entity distinct from the partners, but for tax purposes a partnership is an entity.

Partnership firm arises from a contract between two or more persons who contribute some tangible and some intangible assets together with an objective of earning profit therefrom which will be shared between them in predefined portion. Therefore-

1. The firm should be evidenced by an instrument [Section 184(1i)]2. The individual shares of the partners in the asset of the firm and the profits (or losses) should be specified

in the instrument [Section 184(1ii)]3. A certified copy of the instrument of partnership shall acompany the return of income of the previous year

in respect of which assesment of the firm is first soute [Section 184(2)]4. Whenever Changes takes place in the constitution of the firm due to death or resignation of the partner or

in the profit sharing ratio of the existing partners, a certified copy of the revised instrument of partner shall be submittd along with return of income of the related year. Where a minor is admitted to the benifit of the firm and the shares of the partners are unequal, it is necessary to specify how the shares of loss of the minor will be borne by the major partner.

The provisions related to the taxation of partnership firms are included in Chapter XVI of the Income Tax Act, 1961.U/s 184(1) of the Act, with effect from April 1, 1993 a firm shall be assessed as a partnership firm (PFAS), if the given conditions are satisfied as follows:

Partnership is evidenced by a partnership deed and a certified copy thereof, which is duly signed by all partners, and is filed along with the Return of Income (ROI).

Individual shares (profit/loss) of all the partners are also specified in the instrument i.e. in the partnership deed

Whenever there is some change in the constitution of the firm, then the firm requires to furnish along with the ROI, the certified copy of thepartnership deed that is duly signed by all the partners.

A change in constitution of the firm has been defined under section 187 of the Act which includes admission of new partner(s), retirement of existing partner(s) as well as any change in the profit/loss-sharing-ratio and excludes dissolution of the firm incase of death of any of its partners.

Income Tax Rates for Partnership Firms

Assessment Year 2010-11

Flat rate of tax at 30% on the total income of the firm.Surcharge: NilEducation Cess: 2% of the amount of Income TaxSecondary & Higher Education Cess: 1% on the amount of Income Tax

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Corporate Tax in India

Corporate tax rate in India is at par with the tax rates of other nations of the world. The corporate tax rate in India is based on the origin of the company.

If the company is domicile to India, then the tax rate is flat at 30%. But for a foreign company, then the tax rate depends on several other factors and considerations. For companies that are domicile to India, tax is charged on the global income whereas for the foreign companies present in India, tax is charged on their income within Indian Territory. Incomes that are taxable for foreign companies include income from the capital assets in India, interest gained, income from sale of equity shares of the company, royalties, dividends earned, etc.

Domestic Corporate Income Taxes Rates:

Incase of Domestic Corporations the effective tax rate as well the tax rate with surcharge as is 30%. It should be noted that if the taxable income is greater than Rs. 1 million then a surcharge of 10% of the tax on income is also levied.

It is important to note the fact that all the companies formed in India are considered as Indian domestic companies, even for ancillary units with mother companies in foreign countries

Foreign Companies income tax rates:

For dividends: - 20% for non-treaty foreign companies and 15% incase of companies under the treaty based in the United States

For interest gains: - 20% for non-treaty foreign companies and 15% for companies under the treaty based in the United States

For royalties: - 30% for non-treaty foreign companies and 20% for companies under the treaty based in the United States

For the technology based services in case of non-treaty foreign companies & 20% for companies under the treaty based in the United States

For all other kinds of income and gains: - 55% in case of non-treaty foreign companies and 55% for the companies under the treaty based in the United States

Attention should be given on levying inter corporate rates in case holding is minimum Attention should be given on the fact that sanctions of the tax authorities on tax withholding Attention should be given on several of the tax treaties that India signed with other countries and also on

the various encouraging tax rates

Some of the tax rebates under corporate tax rate in India:

Gains pertaining to long term capital are subject to low tax incidence Venture capital funds and venture capital companies have special tax provisions Specula tax provisions are applicable for non resident Indians involved in activities in India Under the Finance Bill 1996, the minimum alternative tax (MAT) is levied on the corporate sector

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Religious And Charitable Trusts In India

Social welfare is the basic resposibility of government. Charitable and Religious Trusts lessen this burden. Therefore, tax concessions are offered. Incomeapplied for predefined and declared charitable object is exempt from income tax. Wealth tax is also not charged on properties held. If eligible, donor are also given deduction from income tax u/s 80G or section 80GGA. Skillful and Intelligent tax planner tends to use trust for evasion of taxes. This result in a plethora of regulatory measures. Consequently, the legislation has become confused and complicated. More so because the term like 'income', 'capital', 'capitalgains', 'donations', etc., used innormal tax parlance or even in ordinary parlance have entirely different meanings and connotations in the case of trusts.

Following are few instances:-

a. Normally, gifts are capital receipt and not charged to tax either in the hands of the donor or the donee. However, donations to trusts are their income.

b. The income of trusts is real income. Normal statutory deduction and rebates are not available to trusts.c. Profit & Loss is meaningless. A charitable trust is not expected to earn any profit. Tax is based on Income

& Expenditure.

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Value Added Taxes (VAT) in India

Value Added Tax (VAT) is nothing but a general consumption tax that is assessed on the value added to goods & services. It is the indirect tax on the consumption of the goods, paid by its original producers upon the change in goods or upon the transfer of the goods to its ultimate consumers. It is based on the value of the goods, added by the transferor. It is the tax in relation to the difference of the value added by the transferor and not just a profit.

All over the world, VAT is payable on the goods and services as they form a part of national GDP. More than130 countries worldwide have introduced VAT over the past 3 decades; India being amongst the last few to introduce it.

It means every seller of goods and service providers charges the tax after availing the input tax credit. It is the form of collecting sales tax under which tax is collected in each stage on the value added of the goods. In practice, the dealer charges the tax on the full price of the goods, 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.

VAT is a multi-stage tax, 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. The aim is to avoid 'cascading', which can have a snowballing effect on the prices. It is assumed that because of cross-checking in a multi-staged tax; tax evasion would be checked, hence resulting in higher revenues to the government.

Importance of VAT in India

India, particularly being a trading community, has always believed in accepting and adopting loopholes in any system administered by State or Centre. If a well-administered system comes in, it will not only close options for traders and businessmen to evade paying their taxes, but also make sure that they'll be compelled to keep proper records of sales and purchases.

Under the VAT system, no exemptions are given and a tax will be levied at every stage of manufacture of a product. At every stage of value-addition, the tax that is levied on the inputs can be claimed back from tax authorities.

At a macro level, two issues make the introduction of VAT critical for India

Industry watchers believe that the VAT system, if enforced properly, will form part of the fiscal consolidation strategy for the country. It could, in fact, help address issues like fiscal deficit problem. Also the revenues estimated to be collected can actually mean lowering of fiscal deficit burden for the government.

International Monetary Fund (IMF), in the semi-annual World Economic Outlook expressed its concern for India's large fiscal deficit - at 10 per cent of GDP.

Moreover any globally accepted tax administrative system would only help India integrate better in the World Trade Organization regime.

Advantages of VAT

1. Coverage � If the tax is considered on a retail level, it offers all the economic advantages of a tax of the entire retail price within its scope. The direct payment of tax spreads out over a large number of firms instead of being concentrated only on particular groups, such as wholesalers & retailers.

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2. Revenue Security - Under VAT only buyers at the final stage have an interest in undervaluing their purchases, as the deduction system ensures that buyers at earlier stages are refunded the taxes on their purchases. Therefore, tax losses due to undervaluation will be limited to the value added at the last stage.

Secondly, under VAT, if the payment of tax is avoided at one stage nothing will be lost if it is picked up at later stage. Even if it is not picked up later, the government will at least have collected the VAT paid at previous stages. Where as if evasion takes place at the final/last stage the state will lose only tax on the value added at that particular point.

3. Selectivity - VAT is selectively applied to specific goods & business entities. In addition, VAT does not burden capital goods because of the consumption-type. VAT gives full credit for tax included on purchases of capital goods.

4. Co-ordination of VAT with direct taxation - Most taxpayers cheat on sales not to evade VAT but to evade their personal and corporate income taxes. Operation of VAT resembles that of the income tax and an effective VAT greatly helps in income tax administration and revenue collection.

To know more about advantages of VAT click here: Advantages of VAT

Disadvantages of VAT

1. VAT is regressive2. VAT is difficult to operate from position of both administration and business3. VAT is inflationary4. VAT favors capital intensive firms

Items covered under VAT

All business transactions that are carried on within a State by individuals/partnerships/ companies etc. will be covered under VAT.

More than 550 items are covered under the new Indian VAT regime out of which 46 natural & unprocessed local products will be exempt from VAT

Nearly 270 items including drugs and medicines, all industrial and agricultural inputs, capital goods as well as declared goods would attract 4 % VAT in India.

The remaining items would attract 12.5 % VAT. Precious metals such as gold and bullion will be taxed at 1%.

Petrol and diesel are kept out of the VAT regime in India.

Tax implication under Value Added Tax Act

Seller BuyerSelling Price (Excluding

Tax)

Tax Rate

Invoice value

(InclTax)

Tax Payable

Tax Credit

Net TaxOutflow

A B 1004% CST

104 4 0 4.00

B C 114 12.5% 128.25 14.25 0* 14.25

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VAT

C D 12412.5% VAT

139.50 15.50 14.25 1.25

D Consumer 13412.5% VAT

150.75 16.75 15.50 1.25

Total to Govt.VAT CST

16.75 4.00

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ndia Budget 2009-2010

The Acting Finance Minister, Pranab Mukherjee presented the budget revealing spending plans for year 2009-10 from April to July, taking care of essential spending during and in immediate after month of the general elections.

Highlights of Budget 2009-2010:

Budget spells out the target for the UPA: To bring back the 9% growth Commodities Transaction Tax (CTT) to be scrapped 10% surcharge on personal Income tax scrapped Fringe Benefit Tax (FBT) to be scrapped IT exemption limit for Women hiked to Rs 190,000 IT exemption limit for Senior Citizens hiked to Rs 240,000 Rs 12000 crore earmarked for expenditure on rural roads in FY 2010 Drugs related to heart diseases to be cheaper Service Tax to be now applicable on law firms Bio-diesel custom duty lowered Customs Duty on import of Gold and Silver increased Branded women's jewellery to be cheaper Rs 16300 Crore to be set aside for the upcoming Commonwealth Games IITs and NITs to get Rs 2113 crore Corporate Tax unchanged One rank-one pension provision/scheme to be in place for Ex-Servicemen National Ganga Project allocation to go up to Rs 562 Crore Unique Identification (UID) project under Nandan M. Nilekani to be out in 12-18 months NRHM allocation to be raised by Rs 257 crore A national level action plan in place for climate change National Employment Exchanges to be modernized Interest subsidy for home loans up to 1 lakhs Indira Awaas Yojna bolstered up by 63% to Rs 8883 crore Saral 2 forms to simply tax filing process Emphasis on fertilizer subsidy reaching out directly to farmers Petroleum price expert panel to set petroleum prices which would be in sync with the global levels Rashtriya Krishi Vikas Yojna allocation increased by 30% IIFCL, being a new company shall look into the infrastructure needs Extension of farm loan waiver scheme by 6 months The allocation for National Highway Authority of India (NHAI) increased by 23% Fiscal stimulus at 3.5% pf the GDP Small scale businesses to be exempted from advance tax 50% reduction in the Custom Duty on LCD panels Set top boxes to be costlier Goods and Services Tax (GST) to be in effect from April, 2010 Textile units to enjoy continued tax holidays Pranab praises the 3 stimulus packages which were rolled out by the UPA to fight the global economic

meltdown Signals of revival in the domestic market: Pranab Mukherjee

Proposed Changes in Budget 2010-2011

Budget Effects on Commodities

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Cheaper Costlier

Gaming softwares Jewelry

Toys Gold and Platinum

CDs Refrigerators

CFLs Televisions

Mobile Phones Cement

- Air Conditioners

- Cigarettes

- SUVs

- Fuel

Fuel prices likely to go up

The fuel prices are likely to rise very soon. Finance minister Pranab Mukherjee announced in the parliament that excise duty on petrol and diesel will be increased to Rs 1/litre.

An announcement was also made to restore 5% duty on crude petroleum and 7.5% duty on petrol and diesel.

With this announcement there was uproar in the parliament and the opposition walkout in Lok Sabha

Income Tax Slabs Relaxations and Slab Restructured

Mr. Pranab Mukherjee announced the restructuring of Income tax slabs while presenting the budget for 2010-11. The new slabs include 30% tax on income over Rs 8 lacs, 20% tax on income between Rs 5 to 8 lacs and 10% tax on income between Rs1.6 to 5 lacs.

The relaxation limit under section 80C has been increased to Rs. 2 lakhs. He also announced that exemption limit in Income Tax will be enhanced to Rs. 1.6 lakhs. Also, the surcharge has been withdrawn. Current surcharge on companies has been reduced to 7.5%.

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The presumptive tax limit has been raised to Rs 60 lacs.

An announcement was also made for a deduction of Rs 20000 on investment in infra bonds.

Direct Tax Code from April 1, 2011

Finance minister Pranab Mukherjee made an important announcement while presenting the budget 2010-11 that the Direct Tax Code will be implemented from April 1, 2011.

Budget 2010-11 strives for infra sector

Finance minister of India, Mr. Pranab Mukherjee made many announcements that stressed to develop the infra sector of India. Funding of various schemes plus sectors seems to lay the imprint of an unmatched development.

Mukherjee announced a sum of Rs. 10,000 crores towards Indira Awaas Yojna and Rs. 48000 crores towards the Bharat Nirman Yojna. 25% of planned allocation will be directed towards rural infrastructure.

An interest subvention for housing loans up to Rs. 1 lac has also been announced. Also, the fund allocation towards NREGA scheme has been enhanced to Rs. 41000 crores.

Another significant announcement stated the allocation of Rs. 5130 crores for the power sector.

Rs 3000 Crores for agricultural impetus

Union Finance minister Mr. Pranab Mukherjee announced that Rs 3000 Crs will be spent for impetus of agriculture sector in India. In addition to this, the farm loan payments have been extended for 6 months. Pranab Mukherjee also said that the subsidy on fertilizers is to be reduced. There is also an announcement of 2% subsidy on loans to farmers.

Dis-investment target of Rs. 25,000 crores

Pranab Mukherjee declared a target of Rs 25,000 crores through the disinvestment process. He said that the government aims at producing a total sum of Rs 25,000 by disinvesting the stake of government in some pre decided firms and organizations.

Handicrafts get their dues

Pranab Mukherjee in the parliament announced an interest subvention of 2% to be extended for handicrafts and SMEs. He also said that Rs 200 Crs will be spent for Tamil Nadu textile sector. Also, skill development programmes for textile sector have been announced.

Rs. 2400 crores allotted for MSMEs

Finance minister announced a fund of Rs. 2400 crores towards Micro Small and Medium Enterprises (MSMEs) in India. He stated that special attention was needed for MSMEs and this is a sincere effort on part of the government. The allocation of fund is made with the one and only view of boosting the MSME sector.