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8/6/2019 Tax Structur in India- An Over View
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TAX STRUCTUR IN INDIA- AN
OVER VIEW
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WHY ARE TAXES LEVIED
Basic source of revenue for the government
for meeting the various infrastructure
requirements like roads and dams, provision
of health care, education, defense
requirements
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TYPES OF TAXES
DIRECT TAXES INCOME WEALTH
INDIRECT TAXES EXCISE DUTY, CUSTOMS
DUTY ,SERCIVE TAX, SALES TAX VALUE ADDEDTAX
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CONSTITUTIONAL VALIDITY
As per Article 246(1) of the constitution of India,parliament has the right to make laws wrtmatters enumerated in List 1 in the VIIthSchedule to the constitution. (union list)
Article 246(3) state has the power to make lawswrt matters enumerated in List II in the VIIthSchedule to the constitution.
Concurrent list contains entries where both unionand state govt can make laws and exercisepowers
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Union list:-
Taxes on income
Customs duties
Excise duties except alcoholic liquor for humanconsumption
Corporation tax
Taxes on interstate trade or commerce other thannews paper
Taxes on interstate consignment sales
Other residual powers ( matters not included in List IIand III)
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State list:-
Agricultural income tax
Excise duty on alcoholic liquor
Octroi ( entry tax)Intra state trade
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CENTRAL EXICE DUTY
1.NATURE
Duty levied and collected on excisable goods
manufactured or produced in India Goods manufactured in SEZs are excluded
Taxable event of excise duty is manufacture
It is collected from the manufacturer of goods
ED is payable even of the goods are not sold(
used in own consumption, given as samples)
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LAWS RELATING TO CENTRAL EXCISE
Central Excise Act, 1944 Basic act providing for charging of duty, valuation, powers
of officers, penal provisions etc
Central Excise Rules,
Rules are framed by the govt for administration of the act
Central Excise Rule, Cenvat Credit Rules, Central Excise
Valuation( Determination of Price of Excisable Goods)
Rules,2000.
Notifications issued by central govt granting full/ partialexemptions from excise duty as well as other procedural
matters
Central Excise Tariff Act, 1985
CESTAT (Procedure) Rules, 1982
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TYPES
Basic excise duty also called CENVAT is levied
at rates specified in Ist Schedule to Central
Excise Tariff Act
Special duty of Excise some commodities are
leviable with special duty. This is specified in
the IInd Schedule
Education Cess and Secondary and Higher
Education Cess
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Excisable Goods
Must be movable immovable property is not goods
Capable of being marketed or sold. This is known asvendability test
Actual sale is not necessary Illustration of goods:-
Gas and stem are marketable and hence goods
Electrical energy
Sub- standard goods Intermediate goods if marketable
By- product
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Manufacture and production
Taxable event is manufacture
Manufacture Not defined completely in the act
New identifiable product having distinctive name ,character and use must emerge
Production Has a wider connotation than manufacture
Bringing into existence new goods by a process which may
or may not amount to manufacture Thus waste, scrap, and by- products arising during
manufacture are dutiable
Covers items like tea, coffee, diary products etc
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Manufacturer
Duty liability on the manufacturer
Person who gets goods manufactured throughhired labour
Person who engage in manufacture on his
own account
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Classification of goods
Levy of excise duty involves two steps
Proper classification of goods
Finding its assessable value
The rate of duty is found by classifying the
product in its appropriate heading under the
Central Excise tariff
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Central Excise Tariff Act classifies all the goods
under 96 chapters and specific code is
assigned to each of them. There are over 1000
tariff headings and 2000 sub-headings.
Goods are classified as per chapter heads and
sub heads prescribe the duty to be charged
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Administration
The department of revenue , MOF, exercises
control in matters of DT and IDT through twoboards, CBDT & CBEC
Responsibility for collection and
administration of service tax is vested with
CBEC
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Hierarchy
CBEC
Central Excise Zones headed by ChiefCommissioner of Central Excise
Zones are further divided into
Commissionerates headed byCommissioner of Central Excise
Director General (Service Tax)
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CENVAT
Cenvat ( Central Value Added Tax) has it
origin in the system of VAT which is common
in European Countries
MODVAT was introduced in India in 1986 and
was renamed as CENVAT wef 1-4-2000
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CENVAT
BASIC CONCEPT
Generally any tax is related to the selling price.
Raw material passes through various stagesand processes till it reaches the finished
product
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Thus output of 1st manufacturer becomes the
input of the next manufacturer and this
process continues till the final product is
manufactured
If tax is based on selling price then the tax
burden keeps on increasing as raw material
and finished goods passes on from one stageof production to other.
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This is cascading effect
VAT avoids cascading effect since tax is paid
only on value addition and not on the sellingprice
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Thus under VAT it makes not difference as to
the number of intermediate sales that has
been effected before the goods are sold to the
final consumer
Vat provided for credit of duty paid on input
goods including tax paid on capital goods and
input services
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No cenvat credit if there is no manufacture
There should be a separate and distinct product as
a result of the production process
Else there will be no input credit
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INCOME TAX AN OVER VIEW
COMPONENTS OFINCOME TAX
Income tax act
Annual finance acts
Income tax rules
Circulars and notifications
Legal decisions of courts
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LEVY
on total income of the previous year of every
person
total income has to computed as per the
provisions of the Income Tax Act,1961
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INCOME
Definition of income as per the income tax actbegins with the words income includes.Therefore it is an inclusive definition and not an
exhaustive one. Income generally means which accrues or is
expected to accrue from a regular source. UnderIncome Tax Act even incomes which arise
occasionally is taxed winning from lottery, crossword puzzles
Both revenue and capital receipts are taxed
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Income means net income only
Income is taxed on due basis or receipt basis
All incomes are not taxable and the IncomeTax Act provides for exemption of certain
specific incomes from the ambit of taxation
Agricultural income
Remuneration received by foreign diplomats
Share of profit of a firm
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Scholarships given to meet cost of education
Retrenchment compensation
Dividend from domestic companies on or after 1-4-
2003 Income earned in the pervious year is taxed in
the assessment year.
Previous year the financial year ending on 31st
March in which income is earned Assessment year the financial year ending on 31st
March following the previous year.
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PERSON
A person by whom any tax or other sum of money ispayable under this Act is called - assessee
Person is defined in Sec 2(31) in an inclusive manner Individual
Hindu Undivided Family Company
Indian company
Foreign company
Firm
Association of persons/ body of individuals A local authority municipal committee, local body entrusted
by govt with control and management of local fund
Every artificial juridical person
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TOTAL INCOME AND TAXES PAYABLE
1. RESIDENTIAL STATUS AND SCOPE OF TOTALINCOME
Incidence of tax on an assessee depends on the
residential status under the act wrt previous year Tax payers can be broadly classified into two
categories based on their residential status
Resident in India
Resident and ordinary resident
Resident but not ordinary resident
Non resident in India
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Indian income is taxable in all cases
Foreign income is taxable in India in case of
resident and ordinary resident In case of Resident but not ordinary resident
the following foreign incomes are taxable
Business income from a business which is
controlled wholly or partly from India
Income from profession set up in India
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CLASSIFICATION OF INCOME UNDER DIFFERENT
HEADS
Income of a person is charged to tax under the
following heads of income
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Salaries
Wages (Sec 15,16,17)
gratuity
fee, commission, perquisite in lieu or in addition
to salary advance salary
employee employer relationship
includes allowances and perquisites HRA, city compensatory allowance, travel, conveyance
allowances etc
rent free accommodation, interest free loan, free food andbeverages
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Income from house property ( Sec 22, 23-27)
Rental income received by a person on lettingout building and land appurtenant thereto willbe charged under this section
Where a person has one house property andis used by him for own residential purposesthe value will be treated as nil
In computing the income from house propertythe following expenses will be deducted
Interest on funds borrowed for construction
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Income from house property ( Sec 22, 23-27)
Standard deduction @ 30% for repairs and
maintenance
Municipal taxes paid
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Profits and gains of business or
profession
Defines the scope of income which can be taxedunder this head
Types of income to be included
Profits of any business activity
Any compensation due or received by any personin connection with business
Export incentives available to exporters
Interest, commission, salary, bonus received by a partner ofa firm
Sum received under key man insurance policy
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Profits and gains of business or
profession Receipts in nature of non compete fees and exclusivity
rights
Business should be carried on by the assesseein the previous year
The act allows certain deduction andallowances while computing the income frombusiness or profession
Rent rates taxes
Depreciation
Repairs and maintenance
Expenditure on acquiring k now how
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Amortization of preliminary expenditure
All statutory payments
Interest on borrowed capital
Bad debts
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Capital gains
Basis of charge is the gains arising out of
transfer of a capital asset
Capital asset include property of any kind,fixed or circulating, movable or immovable,
tangible or intangible but excludes
- Stock in trade of a business
- Personal effects
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Capital gains
- Agricultural land in India subject to certainconditions
- Specified gold bonds, special bearer bonds,
gold deposit bonds
Transfer refers to sale, exchange orrelinquishment of an asset or right therein or
compulsory acquisition of an asset Capital gains are further classified into long
term and short term
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Income from other sources
Residual charging section
Income not chargeable under the
other heads of income is taxed underthis head
Specifies incomes are always taxable
under this head
Dividend income
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Winning from lotteries
Interest on securities
Gift Receipts under key man insurance policy
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DEDUCTION FROM GTI
Deduction are available in respect of
various investments and payments like:-
Life insurance premium
Contributions to PF
NSC
Principal component of housing loanrepayment
Medical insurance premium
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Repayment of loan taken for higher
education
Donation to specified charitable institutions
and funds
Deductions are also available in respect of Enterprises engaged in development of SEZ
Industrial research
Development and building of housingprojects
Operating and maintaining hospitals in rural
area
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RATES OF TAX
For 2010-11 (2009-10)
Indl /HUF / AOP/ BOI
160000 - nil
160000 300000 - (10+2+1)
300000-500000 -(20+2+1)
< 500000 - (30+2+1)
For resident senior citizens (65 yrs or more) -Basic
exemption is 240000
For resident women basic exemption is 190000
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KVAT and SALES TAX
Sales Tax is a levy on purchase and sale of goods in Indiaand is levied under the authority of both Central Legislation(Central Sales Tax) and State Governments Legislations(Sales Tax). The government levies Sales Tax principally onintra-state sale of goods. States also levy tax ontransactions which are "deemed sales" like works contractsand leases.
Sales tax is paid by every dealer on the sale of any goodsmade by him in the course of inter-state trade orcommerce, despite the fact that no liability to tax is raised
on the sale of goods under the tax laws of the appropriatestate.
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KERALA VALUE ADDED TAX ACT 2003
Vat is a state subject and each state has framed its ownacts and rules with respect to vat
In Kerala, the concept of VAT was enacted through theKVAT Act 2003 and Kerala Value Added tax Rules, 2005
This is an act to consolidate and amend the law relatingto levy of tax on sale or purchase of goods based onthe concept of VAT in the State ofKerala.
These Acts and Rule lays down the provisions andprocedural aspects wrt taxation of sale of goods withinthe state ofKerala
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KERALA VALUE ADDED TAX ACT 2003
The Act has 98 Sections and lays down the law wrt
Incidence of tax and levy of tax Registrations and permits
Assessment, recovery and penalties
Inspection of business places and establishment
of check posts Offences and penalties
Miscellaneous provisions
Prior to the introduction of Vat , the taxation on
goods was governed by Kerala General Sales Tax Act,1963 and with the introduction of VAT, this haslimited application ( HSD, petrol, Aviation fuel,foreign liquor)