Business & Tax Law

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Chapter VI

Business and Tax Laws


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Tax: the word tax is derived from the phrase

taxation which means an estimate and refers to

the required payments of money made togovernments that provide public goods and

services for the benefit of the community as a

whole.


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System of Tax:

Direct Tax : The Government directly collects these

taxes. Ex. Income Tax, Professional Tax, Wealth Tax andEstate Tax

Income Tax

Wealth Tax Indirect Tax: every person who becomes a consumer

for a product or service needs to pay this tax irrespective of

his earnings.

Excise duties

Custom duties

Sales Tax


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Taxes collected by Center: The Central Governmentcollects wholly indirect taxes like Customs duty, Excise duty,

Central Sales Tax (CST), and direct taxes like Income Tax,Wealth Tax, Estate Duty and Education Cess, etc.

Taxes collected by State: Indirect taxes like SalesTax/VAT, Excise duty on liquor etc., and direct taxes like

Property Tax, Professional Tax are collected by the

concerned State Government.

Income Tax is a species of direct tax and is governed by the

Income Tax Act, 1961.The Act is administered by Central Board of Direct Taxes

(CBDT), which is empowered to frame rules to achieve the

purpose of the enactment and ensure proper governance of

the Act. The CBDT issues circulars from time to time:


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to clarify any doubts regarding the scope and meaning ofthe Act;

to act as a guide for officers and assesses. Assessee (Section 2(7)): An assessee is a person by

whom any tax or any other sum of money is payable under

the Act.

Assessment Year (Section 2(9)): Assessment year

means the period of 12 months starting from 1st April of

every year and ending on 31st March of the next year.

Receipt vs. Accrual of income: Income is said to have

been received by a person when payment has been actually

received whereas income is said to have accrued if there

arises in the person a fixed and unconditional right to

receive it.


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Belated Return: Section 139(4) provides that a return,

which has not been furnished by the due date may still

be furnished as a belated return before the expiry of oneyear from the end of the assessment year or before the

completion of assessment, whichever is earlier.

Revised Return: If a person having filed his return

within the due date discovers any omission or wrongstatement therein, he may file a revised return before

the expiry of one year from the end of the assessment

year or completion of assessment whichever is earlier.


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Applicability of the Income Tax Act, 1961

an individual;

a Hindu Undivided Family (HUF);

a company;

a firm;

an Association of Persons (AOP) or a body ofindividuals, whether incorporated or not;

a local authority; and

every artificial juridical person, not falling within any ofthe above clauses

Tax Computation

Basis of Charge


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HEADS OF INCOME

According to the Income Tax Act, 1961 the income of

any person shall be considered under any one of thefollowing five heads of incomes:

Income from Salaries;

Income from House Property;

Profits and Gains of Business or Profession;

Capital Gains; and

Other Incomes.


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INCOMES THAT ARE EXEMPTED

Section 10 of the Act provides exemption for certainincomes from the calculation of Total Income. That

means those incomes need not to be considered as taxableincome. Some of those incomes are:

Agricultural Income.

Receipts by an individual HUF member out of the income

of the family. Share of profit of a partner in a firm.

Any sum received under a life insurance policy includingthe sum allocated by way of bonus on such policy.

Income by way of interest, premium on redemption orother payment securities, bonds or certificates etc.,notified for this purpose.

Scholarships granted to meet the cost of education.


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Any long-term capital gain arising out of transfer or a

listed security being equity in a listed company.

Incomes and allowances of MLAs and MPs arisen fromsuch position.

Incomes of Former Rulers.

Incomes of Local Authorities.

Incomes of Political Parties.

Incomes of Trade Unions.

Incomes of Charitable and Religious Trusts.

Incomes of New Undertakings in FTZ/EPZ/SEZs.

Incomes of new Undertaking which are 100% Export

Oriented Units.


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Wealth Tax:

Wealth Tax is another species of direct tax. It is governedby Wealth Tax Act, 1957 that came into force on the 1st

day of April, 1957 and is applicable to the whole India.

according to Section 45 of the Act, no wealth tax ischargeable in respect of the wealth of:

Any company registered under Section 25 of theCompanies Act, 1956.

Any co-operative society.

Any social club.

Any political party.A mutual fund specified under Section 10(23D) of the

Income Tax Act.


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DEEMED ASSETS [SECTION 4]

Assets transferred by one spouse to another Assets held by minor child

CENTRAL EXCISE Central Excise is the duty that is collected on a product, thatmanufactured or produced in India. It comes under indirect taxes asit is collected from the manufacturers or producers of the goods.

CLASSIFICATION OF GOODS

The Constitution defines goods in Article 366(12) asgoods includes all materials, commodities and articles.Under the Sale of Goods Act, goods have been defined asmeaning every kind of movable property (other thanactionable claims and money) including crops, grass andthings attached to or forming part of the land which areagreed to be severed before sale or under the contract ofsale.


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Basically, goods are classified in to excisable goodsand exempted goods for the purpose of considering for

levying excise duty.

Movability:

Marketability:

Cenvat

The term CENVAT stands for Central Value Added

Tax. Till March 2000, MODVAT was in practice, and

that was modified into CENVAT. These are the

provisions used in Central Excise to implement theconcept of VAT at the manufacturing stage by giving the

credit of duty paid on inputs.


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Sales Tax

The goods are present or in existence in the State at the

time of sale. The manufacture has taken place in the State.

The property in the goods is transferred in the state for a

price.

There has been a payment of price and title in the goods

has been passed.


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Customs Duty

The objective of levying customs duty is:

To restrict imports to preserve foreign exchange. To protect Indian Industry from undue competition.

To prohibit imports and exports of goods for achieving

the policy objectives of the Government.

To regulate exports.

To co-ordinate legal provisions with other laws dealing

with foreign exchange such as Foreign Trade

(Development & Regulation) Act, Foreign ExchangeManagement Act, Conservation of Foreign Exchange

Prevention of Smuggling Act, etc.


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TYPES OF CUSTOMS DUTIES

The following are the various types of duties that are

levied during importation and exportation of goods: Basic duty

Countervailing Duty (CVD)

Anti-dumping Duty

Protective Duty

Duty on Bounty Fed Articles

Export Duty

Import Duty


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VALUE ADDED TAX (VAT)

Value Added Tax (VAT) is a form of sales tax collectedby the Government of destination State (i.e., State in

which the final consumer is located) on consumerexpenditure.

SERVICE TAX

It is another type of indirect tax that is to be paid by acustomer for certain kinds of services he avails. Thecollected Service Tax is to be deposited into the CentralGovernments Account within a stipulated period.

FRINGE BENEFIT TAXFringe benefits mean any privilege, service, facility oramenity directly or indirectly provided by an employer tohis employees (including former employees) by reason of

their employment.


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Taxable Fringe Benefits

The following are the various purposes of payment offringe benefits that are taxable in the hands of employer if

he claims the expense: Entertainment;

Festival celebrations;

Gifts;

Use of club facilities; Provision of hospitality of every kind to any person

whether by way of food and beverage or in any othermanner, excluding food or beverages provided to the

employees in the office or factory; Maintenance of guest house;

Conference;

Employee welfare


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Use of health club, sports and similar facilities;

Sales promotion, including publicity;

Conveyance, tour and travel, including foreign travelexpenses;

Hotel boarding and lodging;

Repair, running and maintenance of motor cars; Repair, running and maintenance of aircraft;

Consumption of fuel other than industrial fuel;

Use of telephone; and

Scholarship to the children of the employees.

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Business & Tax Law