TAXATION IN INDIA

A PROJECT REPORT ON

Taxation in India
Submitted By

SUSHIL N MOHOD

In Partial Fulfilment of

MMS II SEMESTER
2010-2011

Submitted To

Dr. G.D. POL FOUNDATION

YMT COLLEGE OF MANAGEMENT

Sec-4, Kharghar, Navi Mumbai-410210

Ymt College of Management

TAXATION IN INDIA

CERTIFICATE
This is to certify that the project entitled TAXATION IN INDIA submitted by SUSHIL N MOHOD in partial fulfillment for the award of Master in Management Studies of University of Mumbai is his/her original work and does not form any part of the projects undertaken previously.

Also it is certified that the project represents the original work on the part of the candidate.

Place: Navi Mumbai

Date:

Signature of the Director Guide

Signature

of

C. Babu

Prof. Nanili

Ymt College of Management

TAXATION IN INDIA

DECLARATION

I hereby declare that the project entitled TAXATION IN INDIA Submitted to YMT College of Management in partial fulfillment for the Award of Master of Management Studies of University of Mumbai is my original work and does form any part of previously carried/conducted projects.

Signature of Student

Place:

Date:

Ymt College of Management

TAXATION IN INDIA

ACKNOWLEDGEMENT

I am sincerely thankful to my Faculty supervisor Prof. Nalini, YMT COLLEGE OF MANGEMENT KHARGHAR who spared his/her Valuable time and effort to guide me in the completion of project report. Last but not least I would like to thank all my friends who stood by my Side through times and helped me tide over many obstacles during the Completion of this project.

Ymt College of Management

TAXATION IN INDIA

CONTENTS
Sr. No. 1) 2) 3) 4) Particulars Need for the study Objective of the study Scope of the study Company Profile History of The Company Board of The Directors Company Structure My job profile Introduction To Taxation In India Direct and Indirect Tax Collection Direct Taxes Income Tax Form 16(A) TDS (Tax Deduction At Source) Wealth Tax Corporate Tax Professional Tax Indirect Taxes VAT VAT form 231 Excise Duty Custom Duty Service Tax Entertainment Conclusion & suggestions Bibliography Webliography Page No.

5) 6) 7) 8)

9)

10)

Ymt College of Management

TAXATION IN INDIA

NEED FOR THE STUDY: The purpose of the study is to get detailed knowledge about vat System in maharashtra. The purpose of the study is to help the vat Payer to briefly understand the need for charging Tax and the benefits out of that. Need to understand how government raise their fund to run government and provide services to the public.

OBJECTIVES OF THE STUDY The objectives of Equities and investment /portfolio management can be categorised as follows: To observe the rate which in charges on various products. To study various benefits of value added tax To find out distinguishing procedures to filling value added tax.

Ymt College of Management

TAXATION IN INDIA

Executive Summary For any research assignment, a proper planning is required and the same holds true in case of present study. This project is titled as value added tax. The reasons behind choosing this project is that I find there is very interesting topic because it is the biggest source of the finance for the government and also I have done my summer intership in the company which is related to the taxation that is Taxeworld.Com Pvt.Ltd. This company is basically had online Income Tax Return filing application where anyone can register login prepare and file their returns online by a simple exchange of necessary information. This project is divided into main parts that is value added tax in Maharashtra. Value Added Tax is a broad-based commodity tax that is levied at multiple stages of production. The document was drawn up after all states, barring UP, were prepared to implement VAT from April.

Ymt College of Management

TAXATION IN INDIA

My Job Profile I had joined TAXEWORLD.COM PVT. LTD. Company as a management trainee on 2nd of May, 2011 for two months. There my work was to prepare the final accounts and keep records of some particulars company which were assigned by the instructor. After some days they allotted as well showed me some of the actual work going on in the company, E.g. since the company is into the taxation business for rendering services to their customer, so they gave me the task to compute the tax liable for a particular company so that the same company can file their return on time. This company is a kind of seasonal based product company which mainly focuses on July and October month so when I joined they were into booming period, & they allotted me lots of work.

Ymt College of Management

TAXATION IN INDIA

TAXATION IN INDIA

DIRECT TAX 1) Personal Income Tax 2) Wealth Tax 3) Corporate Tax

4) Professional Tax

INDIRECT TAX 1) Vat Tax 2) Excise Duty 3) Custom Duty

4) Service Tax 5) Entertainment Tax

Ymt College of Management

TAXATION IN INDIA

INTRODUCTION
TAXATION SYSTEM IN INDIA
India 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 Taxes Tax on Corporate Income Capital Gains Tax Personal Income Tax Tax Incentives Double Taxation Avoidance Treaty Indirect Taxes Excise Duty Customs Duty Service Tax Securities Transaction Tax Taxes Levied by State Governments and Local Bodies Sales Tax/VAT Other Taxes

Ymt College of Management

TAXATION IN INDIA

Direct and Indirect Tax Collection

Ymt College of Management

TAXATION IN INDIA

Direct And Indirect Tax Graphically For Last Five Year

Direct Tax 2005-06 2006-07 2007-08 2008-09 2009-10 195412 267771 355607 393125 423683

Indirect Tax 381184 456252 521889 566723 602777

700000 600000 500000 400000 Direct Tax 300000 200000 100000 0 2005-06 2006-07 2007-08 2008-09 2009-10 Indirect Tax

Ymt College of Management

TAXATION IN INDIA

DIRECT TAXES
Companys 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 its 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. Corporate are subject to wealth tax at the rate of 1%, if the net wealth exceeds Rs.1.5 mn (apex. $ 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.

1) INCOME TAX
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 Departments 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. An income tax is a tax levied on the income of individuals or businesses (corporations or other legal entities). Various income tax systems exist, with varying degrees of tax incidence. Income taxation can be progressive, proportional, or regressive. When the tax is levied on the income of companies, it is often called corporate, corporate income tax, or profit tax. Individual income taxes often tax the total income of the individual (with some deductions permitted), while corporate income taxes often tax net income (the difference between gross receipts, expenses, and additional write-offs). Various systems define income differently, and often allow notional reductions of income (such as a reduction based on number of children supported). 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.

Ymt College of Management

TAXATION IN INDIA

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

Income Tax Rates Slabs

Some people have lots of confusion in mind about income tax rates/slabs like which income tax slab applicable to this assessment year, financial year etc. Majority of peoples are confused to applicable income tax rates/slabs on particular assessment year. So this is the static page of income tax slab/rates applicable in India for last 5 years. Income Tax Rates / Slabs in India as per Assessment Year (A.Y) Income Tax Rates/Slabs for A.Y. (2011-12) Slab (Rs.) Tax (Rs.) less than 1,60,000 1,60,000 to 5,00,000 5,00,000 to 8,00,000 Greater than 8,00,000 Nil (TI 1,60,000) * 10% 34,000 + (TI 5,00,000) * 20% 94,000 + (TI 8,00,000) * 30%

Women aged 65 years or less Slab (Rs.) Tax (Rs.) less than 1,90,000 Nil

Ymt College of Management

TAXATION IN INDIA

1,90,000 to 5,00,000 5,00,000 to 8,00,000 Greater than 8,00,000

(TI 1,90,000) * 10% 31,000 + (TI 5,00,000) * 20% 91,000 + (TI 8,00,000) * 30%

Senior Citizens (Individuals aged above 65 years) Slab (Rs.) less than 2,40,000 2,40,000 to 5,00,000 5,00,000 to 8,00,000 Greater than 8,00,000 Tax (Rs.) Nil (TI 2,40,000) * 10% 26,000 + (TI 5,00,000) * 20% 86,000 + (TI 8,00,000) * 30%

Income Tax Rates/Slabs for A.Y. (2010-11) Slab (Rs.) less than 1,60,000 1,60,000 to 3,00,000 3,00,000 to 5,00,000 Greater than 5,00,000 Women aged 65 years or less Slab (Rs.) less than 1,90,000 1,90,000 to 3,00,000 3,00,000 to 5,00,000 Greater than 5,00,000 Tax (Rs.) Nil (TI 1,90,000) * 10% 11,000 + (TI 3,00,000) * 20% 51,000 + (TI 5,00,000) * 30% Tax (Rs.) Nil (TI 1,60,000) * 10% 14,000 + (TI 3,00,000) * 20% 54,000 + (TI 5,00,000) * 30%

Senior Citizens (Individuals aged above 65 years) Slab (Rs.) less than 2,40,000 Tax (Rs.) Nil

Ymt College of Management

TAXATION IN INDIA

2,40,000 to 3,00,000 3,00,000 to 5,00,000 Greater than 5,00,000

(TI 2,40,000) * 10% 6,000 + (TI 3,00,000) * 20% 46,000 + (TI 5,00,000) * 30%

Income Tax Rates/Slabs for A.Y. (2009-10) Slab (Rs.) less than 1,50,000 1,50,000 to 3,00,000 3,00,000 to 5,00,000 Greater than 5,00,000 Women aged 65 years or less Slab (Rs.) less than 1,80,000 1,80,000 to 3,00,000 3,00,000 to 5,00,000 Greater than 5,00,000 Tax (Rs.) Nil (TI 1,80,000) * 10% 12,000 + (TI 3,00,000) * 20% 52,000 + (TI 5,00,000) * 30% Tax (Rs.) Nil (TI 1,50,000) * 10% 15,000 + (TI 3,00,000) * 20% 55,000 + (TI 5,00,000) * 30%

Senior Citizens (Individuals aged above 65 years) Slab (Rs.) less than 2,25,000 2,25,000 to 3,00,000 3,00,000 to 5,00,000 Greater than 5,00,000 Tax (Rs.) Nil (TI 2,25,000) * 10% 7,500 + (TI 3,00,000) * 20% 47,500 + (TI 5,00,000) * 30%

Income Tax Rates/Slabs for A.Y. (2008-09) Slab (Rs.) Tax (Rs.) Surcharge on Income Tax

Ymt College of Management

TAXATION IN INDIA

less than 1,10,000 1,10,000 to 1,50,000 1,50,000 to 2,50,000

Nil (TI 1,10,000) * 10% 4,000 + (TI 1,50,000) * 20%

(if TI > Rs. 10 Lakh) Nil 10% 10%

Greater than 2,50,000 24,000 + (TI 2,50,000) * 30% 10% Women aged 65 years or less Slab (Rs.) Tax (Rs.) Surcharge on Income Tax (if TI > Rs. 10 Lakh) (Rs.) Nil 10% 10%

less than 1,45,000 1,45,000 to 1,50,000 1,50,000 to 2,50,000

Nil (TI 1,45,000) * 10% 500 + (TI 1,50,000) * 20%

Greater than 2,50,000 20,500 + (TI 2,50,000) * 30% 10% Senior Citizens (Individuals aged above 65 years) Slab (Rs.) Tax (Rs.) Surcharge on Income Tax (if TI > Rs. 10 Lakh ) (Rs.) Nil 10%

less than 1,95,000 1,95,000 to 2,50,000

Nil (TI 1,95,000) * 20%

Greater than 2,50,000 11,000 + (TI 2,50,000) * 30% 10%

Education Cess has to be added on Income-tax and Surcharge @ 2% from AY 2004-05 and 3% from AY 2007-08 Income Tax Rates/Slabs for A.Y. (2006-07 & 2007-08) Slab (Rs.) Tax (Rs.) Surcharge on Income Tax (if TI > Rs. 10 Lakh) Nil 10% 10%

less than 1,00,000 1,00,000 to 1,50,000 1,50,000 to 2,50,000

Nil (TI 1,00,000) * 10% 5,000 + (TI 1,50,000) * 20%

Greater than 2,50,000 25,000 + (TI 2,50,000) * 30% 10%

Ymt College of Management

TAXATION IN INDIA

Women aged 65 years or less Slab (Rs.) Tax (Rs.) Surcharge on Income Tax (if TI > Rs. 10 Lakh) (Rs.) Nil 10%

less than 1,35,000 1,35,000 to 1,50,000 1,50,000 to 2,50,000

Nil (TI 1,35,000) * 10%

1,500 + (TI 1,50,000) * 20% 10%

Greater than 2,50,000 21,500 + (TI 2,50,000) * 30% 10% Senior Citizens (Individuals aged above 65 years) Slab (Rs.) Tax (Rs.) Surcharge on Income Tax (if TI > Rs. 10 Lakh) (Rs.) Nil 10%

less than 1,85,000 1,85,000 to 2,50,000

Nil (TI 1,85,000) * 20%

Greater than 2,50,000 13,000 + (TI 2,50,000) * 30% 10%

Residential Status
The three residential status, viz., (i) Resident Ordinarily Residents (ii) Resident but not Ordinarily Residents (iii) Non Residents.
There are several steps involved in determining the residential status of a person

(i) Resident Ordinarily Residents (Residents) Under this category, person must be living in India at least 182 days during previous year. Also, must have been in India 365 during 4 years preceding previous year and 60 days in previous year. (ii) Resident but not Ordinarily Residents and Must have been in India 2 out of 10 years preceding previous year or Have been in India 730 days out of last 7 years (iii) Non Residents. Ordinary residents are always taxable. Not Ordinarily residents are taxable in relation to income received in India or income accrued or deemed to be accruing or arise in India and income from business or profession controlled from India. Non Residents are exempt from tax......if accrue or arise or deemed to be accruing or arise outside India. Taxable if income is earned from business or profession setting in India...or having their head office in India.

Ymt College of Management

TAXATION IN INDIA

Heads of Income
The total income of a person is divided into five heads, viz., taxable Individual Heads of Income

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 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. 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 net of all the above deductions.

Income from House property

Income from House property is computed by taking what is called Annual Value. 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. Ymt College of Management

TAXATION IN INDIA

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 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 computation of income under the head "Profits and Gains of Business or Profession" depends on the particulars and information available. 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 xxx Add: 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 Profits and Gains of Business or Profession xxx

Ymt College of Management

TAXATION IN INDIA

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 assesse 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). 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. 1. 2. 3. 4. 5. Income by way of Dividends Income from horse races Income from winning bull races Any amount received from key man insurance policy as donation. Income from shares (dividend other than Indian company)

Ymt College of Management

TAXATION IN INDIA

Deduction
While exemptions are on income some deduction in calculation of taxable income is allowed for certain payments.

Section 80C Deductions

Section 80C of the Income Tax Act allows certain investments and expenditure to be taxexempt. The total limit under this section is Rs. 100,000 (Rupees One lakh) 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 provident 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 Provident 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 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 tenure of 5 years. Interest is also taxable. Payments towards principal repayment of housing loans. Also any registration fee or stamp duty paid. 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.

Ymt College of Management

TAXATION IN INDIA

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).

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, e.g. 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..

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. Use of Deductions While the use of the above sections helps one to avoid paying 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, 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. Tax Rates 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 From April 1, 2011 new tax slabs apply, which are as follows:

Ymt College of Management

TAXATION IN INDIA

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. 26,000 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. 86,000 for senior citizens)

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 lakhs 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 taxable income. Mainly education cess is applicable on excise duty and service tax From Income Tax Year 2010-11, education cess would be 3% and no surcharge would be levied.

Tax Rate for non-Individuals

There are special rates prescribed for Firms, Corporate, and Local Authorities & Cooperative Societies.

Corporate Income tax

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%. An education cess of 3% (on both the tax and the surcharge) is payable, yielding effective tax rates of 32.5% for domestic companies and 41.2% for foreign companies. From 2005-06, electronic filing of company returns is mandatory.

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 Petro products 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

Ymt College of Management

TAXATION IN INDIA

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

TDS (Tax Deduction at Source)

Tax Deducted at Source or best known TDS is one of the modes of collecting Income-tax from the assessee in India. This is governed under Indian Income Tax Act, 1961, by the Central Board for Direct Taxes (CBDT) and is part of the Department of Revenue managed by Indian Revenue Service (IRS), Ministry of Finance, and Govt. of India. In simple terms, TDS is the tax getting deducted from the person the amount (Employee/Deductee) by the person paying such amount (Employer/Deductor). This is applicable for certain types of payments, as applicable under the Act. In the process of TDS, deduction of tax is effected at the source when income arises or accrues. Hence where any specified type of income arises or accrues to any one, the Incometax Act enjoins on the payer of such income to deduct a stipulated percentage of such income by way of Income-tax and pay only the balance amount to the recipient of such income. The tax so deducted at source by the payer has to be deposited in the Government treasury to the credit of Central Govt, within the specified time. The tax so deducted from the income of the recipient is deemed to be payment of Income-tax by the recipient at the time of his assessment. Income from several sources is subjected to tax deduction at source. Presently this concept of TDS is also used as an instrument in enlarging the tax base. Some of such incomes subjected to TDS are salary, interest, dividend, interest on securities, winnings from lottery, horse races, commission and brokerage, rent, fees for professional and technical services, payments to non-residents etc. It is always considered as an Advance tax which is paid to the government.

Ymt College of Management

TAXATION IN INDIA

Tax Deduction Account Number

Tax Deduction Account Number or TAN is a unique identification number for person deducting the tax. The person who is liable to deduct the Tax should obtain a TAN before deducting such Tax. TAN should apply through Form No 49B (prescribed under Income Tax Law). Such form can be submitted online at NSDL website. OR can also be submitted at Tax Information Network Facilitation Center (TIN-FC). These centres are established by NSDL (which is an appointed intermediary by the Government) across India. TAN Application should accompany a 'proof of identity' and a 'proof of address' (photocopies) of the Deductor. In case, the application is made online, these documents need to be sent over mail (post/courier) to NSDL - TAN Application division. Once NSDL receives the TAN application along with said documents (either through TIN FC / Online), the details are verified and then sent to Income Tax Department. Once approved, Income Tax Department will allocate a unique number, and indicate the applicant through NSDL. TAN will be a 10-character alphanumeric string composed of four alphabetic, five numeric, and then one alphabetic character. E.g.: "BLRR02933A". The first three characters are an Income Tax Region Code (BLR => Bangalore) and the fourth digit is the first character of the Deductor name (R => is denote to the deductee. That which is individual or Company if individuality denote =P and Company Denote =C Remaining characters form a unique combination to get identified at Income Tax Department. TDS Rates Chart A.Y. 2012-13/F.Y. 2011-12 [updated: June 2011] With effect from 1-4-2010, the deductee shall furnish his PAN (Permanent Account Number) to Deductor, failing which tax at the below rates of TDS or at the rate of 20% whichever is higher shall be deducted at source. Where PAN provided to the Deductor is invalid or does not belong to the deductee, it shall be deemed that deductee has not furnish his PAN to the Deductor and higher rate of TDS as mentioned below shall be applicable. No surcharge, education cess and secondary and higher education cess is leviable for the financial year 2010-11 onwards for TDS purposes in case of payment to resident. But in respect of TDS on salary, cess will be leviable. TDS Rates Chart assessment year 2012-13 or financial year 2011-12 (ay 12-13 / fy 1112) Relevant Nature of Payment (to resident) Threshold Individual HUF Company Section Limit Firm/Co-op Sec. (Resident in India) Local Authority (Domestic Company) 192 Payment of salary resident/non-resident to a Normal Income Tax Rates: See Income

Ymt College of Management

TAXATION IN INDIA

Tax Slab 193 194 194A Interest on securities Deemed dividends u/s 2(22)(e) Interest other than Interest on 5000 securities Lottery or crossword puzzle or 10000 card game or other game of any sort. Horse races Contracts/sub-contracts Insurance Commission 5000 30000 20000 10 10 10 10 10 10

194B

30

30

194BB 194C 194D 194EE

30 1 10 20

30 2 10 -

Payment in respect of deposits 2500 under NSS Payment on account of 1000 repurchase of units of MF or UTI Commission on sale of lottery 1000 tickets Commission or brokerage Rent of Plant and Machinery 5000 180000

194F

20

10

194G

10

10

194H 194-I

10 2 10

10 2 10

Rent of Land or Building or 180000 Furniture and Fitting 194J Fees for professional technical services or 30000

10

10

194LA

Payment of compensation to a 100000 resident on acquisition of certain immovable property

10

10

Notes: we.f. 1.10.2009, no TDS is to be deducted on payment to a contractor/sub-contractor, during the course of business of plying, hiring or leasing goods carriages, if the payee furnishes his PAN to the Deductor [sec. 194C(6)] Circumstances in which tax is not to be deducted at source or is to be deducted at a lower rate:

Ymt College of Management

TAXATION IN INDIA

Sino Type of Income

Form No in which application to be made

Certificate to be issued by the Assessing Officer Form No 15AA (see rule 28AA). The certificate is issued to the Deductor under advice to the applicant

Period of validity Valid for the period specified in the certificate (see Rule 28AA) Fresh application required after expiry of validity period. -do-

1.

Salary (sec192)

Form No 13 (see rule 28)

2.

Interest on securities (Section -do193) Interest other than interest on -doSecurities (Section 194A) Insurance Commission (Section 194D) Rental Income (Section 194I) -do-

-do-

3.

-do-

-do-

4.

-do-

-do-

5.

-do-

-do-

-do-

6.

Income in respect of Units (Section -do194K) Payment to nonresidents (Section -do195)

-do-

-do-

7.

-do-

-do-

8.

Payment to Contractors or Sub-Contractors (Section (194)

No prescribed form. The certificate can Form No.13C For the relevant be issued by the (See Rule 28) FY. Assessing Officer on a plain paper

9.

Form No 13D Commission on (applies to sale of lottery lottery agents -dotickets (sec 194G) and not prize winners)

-do-

Ymt College of Management

TAXATION IN INDIA

Payment of fees for professional or 10. Form No 13E -dotechnical services (sec 194J) Payment to nonresident banking 11. company (sec 195(3)) Form No 15C Form No 15E (see rule 29B)

-do-

For the FY specified in the certificate

Payment to nonresident company carrying on business or Form No 15D 12. profession in India -do(see rule 29B) through a branch (not being interest or dividend)-sec 195(3)

For the relevant FY

Types of income/payment where the above benefit is not available under the Act: 1. 2. 3. 4. 5. 6. Winning from Lottery or Crossword puzzles Section 194B Winning from horse race Section 194BB Payments to non-resident Sportsmen or Association Section 194E Payments in respect of NSS deposits Section 194EE Payments on account of repurchase of units issued by Mutual funds Section 194F Income in respect of units of non-residents, Off-shore Funds; foreign currency bonds; (FIIs) Section 196A,196B, 196C & 196D

2) WEALTH TAX
A wealth tax is generally conceived of as a levy based on the aggregate value of all household holdings actually accumulated as purchasing power stock (rather than flow), including owner-occupied housing; cash, bank deposits, money funds, and savings in insurance and pension plans; investment in real estate and unincorporated businesses; and corporate stock, financial securities, and personal trusts. Wealth tax is imposed @ 1 percent on the value of specified assets held by the taxpayer on the valuation date (31 March) in excess of the basic exemption of INR 3,000,000. However, non-residents returning to India are given exemption for seven years.

3) CORPORATE TAX

Ymt College of Management

TAXATION IN INDIA

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%.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. From 2005-06, electronic filing of company returns is mandatory. Many countries impose corporate tax or company tax on the income or capital of some types of legal entities. A similar tax may be imposed at state or lower levels. The taxes may also be referred to as income tax or capital tax. Entities treated as partnerships are generally not taxed at the entity level. Most countries tax all corporations doing business in the country on income from that country. Many countries tax all income of corporations organized in the country. Company income subject to tax is often determined much like taxable income for individuals. Generally, the tax is imposed on net profits. In some jurisdictions, rules for taxing companies may differ significantly from rules for taxing individuals. Certain corporate acts, like reorganizations, may not be taxed. Some types of entities may be exempt from tax. Many countries tax corporate entities on income and also tax the owners when the corporation pays a dividend. Where the owners are taxed, a withholding tax may be imposed. Generally, these taxes on owners are not referred to as corporate tax.

4) PROFESSIONAL TAX
In India, this tax is imposed by various states. It is imposed on business owners, working individuals, merchants and people carrying out various occupations. The following states impose this levy in India - Karnataka, West Bengal, Andhra Pradesh, Maharashtra, Tamilnadu, Gujarat, and Madhya Pradesh. Professional tax is levied by particular Municipal Corporations and majority of the Indian states impose this duty. It is a source of revenue for the government. The maximum amount payable per year is ` 2,400/- and in line with your salary, there are predetermined slabs. It is paid by every member of staff employed in private companies. It is subtracted by the employer each month and sent to the Municipal Corporation. It is compulsory as income tax. You will be eligible for income tax deduction for this payment. Criteria in various states of India In Maharashtra, this duty is applicable both on individuals and companies as laid down by the guidelines of the Maharashtra Professional Tax Act of 1975. Every individual living in Maharashtra, involved in any business, profession, occupation or employment is legally responsible to pay it and has to get a Certificate of Enrolment from the Professional Authority.

Ymt College of Management

TAXATION IN INDIA

As soon as you receive this certificate, you can fulfill your personal tax liability for 5 years by making a one-time payment, which is equivalent to the sum of Professional Tax for 4 years beforehand, getting relief for payment of one year. In Tamil Nadu, it is imposed by the Municipal Council on businessmen, professionals, and employed individuals. Every company which conducts business and every individual, who is involved directly in any business, occupation, or employment in the town panchayat on the first day of the halfyear for which return has been submitted, needs to pay biannual tax at the rates stipulated.

Professional Tax Slabs in Various States in West Bengal Income Upto 1,500 From ` 1501 To ` 2001 From ` 2001 To ` 3001 From ` 3001 To ` 5001 ` 5001 From ` 6001 -7001 From ` 7001 to ` 8000 From ` 8001 to ` 9000 From ` 9001 to ` 15,000 From ` 15001 to ` 25,000 From ` 25,001 to ` 40,000 Beyond ` 40,001 Tax to be imposed Nil ` 18 ` 25 ` 30 ` 40 ` 45 ` 50 ` 90 ` 110 ` 130 ` 150 ` 200

In Maharashtra Income Upto ` 2500 From ` 2500 to ` 3500 From ` 3500 to ` 5000 Tax to be imposed Nil ` 60 ` 120

Ymt College of Management

TAXATION IN INDIA

From ` 5000 to ` 10000 More than ` 10000

` 175 ` 200

In Tamil Nadu Income Upto ` 21000 From ` 21001 to ` 30000 From ` 30001 to ` 45000 From ` 45001 to ` 60000 From ` 60001 to ` 75000 More than ` 75001 Tax to be imposed Nil ` 75 ` 188 ` 390 ` 585 ` 810

In New Delhi Income Upto ` 1,10,000 From ` 1,10,000 To ` 1,45,000 From ` 1,45,000 To ` 1,50,000 From ` 1,50,000 To ` 1,95,000 From ` 1,95,000 To ` 2,50,000 More than ` 2,50,000 Tax to be imposed Nil Nil 10 % 20 % 20 % 30 %

Collection Of Revenues From Direct Tax

Income tax collections for the 1 quarter of 2011, that is april-june is increased by 23.91 % to 104136 crore rupees. These figure are of gross collection of the income tax department. Gross direct tax collections during the first quarter of the current fiscal (April - June2011) were up by 23.91 percent at Rs.104,136 crore as against Rs.84,041 crore. While gross collection of corporate taxes was up 23.49 percent (Rs.68,223 crore against Rs.55,244 crore last year), gross collection of personal income tax was up by 24.63 percent (Rs.35,859 crore against Rs.28,772 crore last year).Net collections, however, stood at Rs.57,268 crore, down from Rs.68,675 crore in the same period last fiscal on account of an increase of 205.01 percent in tax refunds, which stood at Rs.46,868 crore as against Rs.15,366 crore last fiscal. Tags-income tax collection, income tax collection for quarter 1 2011,income tax receipts of 2011.

Ymt College of Management

TAXATION IN INDIA

INDIRECT TAXES
In the colloquial sense, an indirect tax (such as sales tax, a specific tax [a tax per unit], value added tax (VAT), or goods and services tax (GST)) is a tax collected by an intermediary (such as a retail store) from the person who bears the ultimate economic burden of the tax (such as the consumer). The intermediary later files a tax return and forwards the tax proceeds to government with the return. In this sense, the term indirect tax is contrasted with a direct tax which is collected directly by government from the persons (legal or natural) on which it is imposed. Some commentators have argued that "a direct tax is one that cannot be shifted by the taxpayer to someone else, whereas an indirect tax can be." An indirect tax may increase the price of a good so that consumers are actually paying the tax by paying more for the products. Examples would be fuel, liquor, and cigarette taxes. An excise duty on motor cars is paid in the first instance by the manufacturer of the cars; ultimately the manufacturer transfers the burden of this duty to the buyer of the car in form of a higher price. Thus, an indirect tax is such which can be shifted or passed on. The degree to which the burden of a tax is shifted determines whether a tax is primarily direct or primarily indirect. This is a function of the relative elasticity of the supply and demand of the goods or services being taxed. Under this definition, even income taxes may be indirect.

1) VAT WHAT IS VALUE ADDED TAX?

Value Added Tax is a broad-based commodity tax that is levied at multiple stages of production. The concept is akin to excise duty paid by the manufacturer who, in turn, claims a credit on input taxes paid. Excise duty is on manufacture, while VAT is on sale and both work in the same manner, according to the white paper on VAT released by finance minister Chidambaram. The document was drawn up after all states, barring UP, were prepared to implement VAT from April. It is usually intended to be a tax on consumption, hence the provision of a mechanism enabling producers to offset the tax they have paid on their inputs against that charged on their sales of goods and services. Under VAT revenue is collected throughout the production process without distorting any production decisions. WHY VAT IS PREFERRED OVER SALES TAX? While theoretically the amount of revenue collected through VAT is equivalent to sales tax collections at a similar rate, in practice VAT is likely to generate more revenue for government than sales tax since it is administered on various stages on the production distribution chain. With sales tax, if final sales are not covered by the tax system e.g. due to difficulty of covering all the retailers, particular commodities may not yield any tax. However, with VAT some revenue would have been collected through taxation of earlier transactions, even if final retailers evade the tax net. There is also in-built pressure for compliance and auditing under VAT since it will be in the interest of all who pay taxes to ensure that their eligibility for tax credits can be demonstrated. VAT is also a fairer tax than sales tax as it minimizes or eliminates the problem of tax cascading, which often occurs with sales tax. These are facilitated by the fact that VAT operates through a credit system so that Ymt College of Management

TAXATION IN INDIA

tax is only applied on value added at each stage in the production distribution chain. At each intermediate stage credit will be given for taxes paid on purchases to set against taxes due on sales. Only at consumption stage where there are no further transactions will there be no tax credits. Lack of input credit facility in sales tax often results in tax on inputs becoming a cost to businesses which are often passed on to consumers. Sales tax is often applied again to the sales tax element of the cost, thus there is a problem of tax on tax. This is not the case with VAT, which makes it a neutral tax as it provides the least disturbance to patterns of production and the generation and use of income. In addition, the audit trail that exists under the VAT system makes it a more effective tax in administration terms than sales tax as it helps with the verification of VAT amounts declared as due. This is made possible by the fact that one persons output is anothers input. As with sales tax imports are treated the same way as local goods while exports are zero- rated to avoid anti-export bias. Not withstanding the advantages mentioned above, it is worth noting that VAT is a considerably complex tax to administer compared with sales tax. It may be difficult to apply to small companies due to difficulties of record keeping and its coverage in agriculture and the services sector may be limited. To cover the high administration costs, VAT rates of 1020 per cent are generally recommended. The equity impact of the relatively high rates have been a cause for concern as it is possible that the poor spend relatively high proportions of their incomes on goods subject to VAT. Thus the concept of zero VAT rate on some items has been introduced. DIFFERENCE BETWEEN VAT AND CST Under the CST Act, the tax is collected at one stage of purchase or sale of goods. Therefore, the burden of the full tax bond is borne by only one dealer, either the first or the last dealer. However, under the VAT system, the tax burden would be shared by all the dealers from first to last. Then, such tax would be passed upon the final consumers. Under the CST Act, the tax is levied at a single point. Under the VAT system, the retailers are not subject to tax except for the retail tax. Under the CST Act, general and specific exemptions are granted on certain goods while VAT does not permit such exemptions. Under the CST law, concessional rates are provided on certain taxes. The VAT regime will do away with such concessions as it would provide the full credit on the tax that has been paid earlier. Under VAT law, first, the dealer pays tax on the sale or purchase of goods. The subsequent dealer pays tax on the portion of the value added upon such goods. Thus, the tax burden is shared equally by the last dealer. To illustrate the whole procedure of VAT, an example is as follows: At the first point of sale, the value of goods is Rs.100. The tax on this is 12.5%. Therefore, the net VAT would be 12.5%. At the second change of sale, the sale value is Rs.120 and the tax thereon is 15%. The tax that is to be paid at every point is 15%. The input tax is 15%. The dealer will get a credit for first change in sale of 2.5%-- i.e. 15% -12.5%. Therefore, 2.5% will be the net rate. At the third change of sale, the sale value is Rs.150 and the tax on this is 18.75%. At the last stage, the tax paid is 18.75%. The Input Tax is 18.75%. Dealers get a credit for second change in sale? I.e. 18.75% -15% = 3.75%. Therefore, 3.75% would be the net VAT. This means that VAT is paid in the last point tax under the sale tax regime. Ymt College of Management

TAXATION IN INDIA

WHO GAINS? State and Central governments gain in terms of revenue. VAT has in-built incentives for tax compliance only by collecting taxes and remitting them to the government can a seller claim the offset that is due to him on his purchases. Everyone has an incentive to buy only from registered dealers purchases from others will not provide the benefit of credit for the taxes paid at the time of purchase. This transparency and in-built incentive for compliance would increase revenues. Industry and trade gain from transparency and reduced need to interact with the tax personnel. For those who have been complying with taxes, VAT would be a boon that reduces the cost of the product to the consumer and boosts competitiveness. VAT would be major blow for tax evaders, both manufacturers who evade excise duty payments and traders who evade sales-tax. WHO PAYS? All dealers registered under VAT and all dealers with an annual turnover of more than Rs 5 lakh will have to register. Dealers with turnovers less than Rs 5 lakh may register voluntarily. HOW TO PAY? VAT will be paid along with monthly returns. Credit will be given within the same month for entire VAT paid within the state on purchase of inputs and goods. Credit thus accumulated over any month will be utilized to deduct from the tax collected by the dealer during that month. If the tax credit exceeds the tax collected during a month on sale within the state, the excess credit will be carried forward to the next month. WHICH GOODS WILL BE TAXABLE UNDER VAT? All goods except those specifically exempt. In fact, over 550 items will be covered under the new tax regime, of which 46 natural and unprocessed local products would be exempt from VAT. About 270 items, including drugs and medicines, all agricultural and industrial inputs, capital goods and declared goods would attract 4% VAT. But, following opposition from some states, it was decided that states would have option to either levy 4% or totally exempt food grains from VAT but it would be reviewed after one year. Three items sugar, textile, tobacco under additional excise duties will not be under VAT regime for one year but existing arrangement would continue. VAT EFFECT ON INFLATION In considering the introduction of VAT, countries are often concerned that it would cause an inflationary spiral. However there is no evidence to suggest that this is true. A survey of OECD countries that introduced VAT indicated that VAT had little or no effect on prices. In cases where there was an effect it was a onetime effect that simply shifted the trend line of the consumer price index (CPI). To guard against any unforeseen price effects the authorities may consider a tighter monetary policy stance at the introduction of VAT. VAT EFFECT ON ECONOMIC GROWTH Economic growth can be facilitated through investment by both government and the private sector. Savings by both parties are required in order to finance investment in a noninflationary manner. Compared to other broadly based taxes such as income tax VAT is neutral with respect to choices on whether to consume now or save for future consumption. Although VAT reduces the absolute return on saving it does not reduce the net

Ymt College of Management

TAXATION IN INDIA

rate of return on saving. Income tax reduces the net rate of return as both the amount saved as well as the return on that saving are subject to tax. In this regard VAT may be said to be a superior tax in promoting economic growth than income tax. Since VAT does not influence investment decisions on firms, by increasing their costs, its effects on investment can be said to be neutral. FEATURES OF VAT 1. Rate of Tax VAT proposes to impose two types of rate of tax mainly: a. 4% on declared goods or the goods commonly used. b. 10-12% on goods called Revenue Neutral Rates (RNR). There would be no fall in such remaining goods. c. Two special rates will be imposed-- 1% on silver or gold and 20% on liquor. Tax on petrol, diesel or aviation turbine fuel are proposed to be kept out from the VAT system as they would be continued to be taxed, as presently applicable by the CST Act. 2. Uniform Rates in the VAT system, certain commodities are exempted from tax. The taxable commodities are listed in the respective schedule with the rates. VAT proposes to keep these rates uniform in all the states so the goods sold or purchased across the country would suffer the same tax rate. Discretion has been given to the states when it comes to finalizing the RNR along with the restrictions. This rate must not be less than 10%. This will ensure By doing this that there will be level playing fields to avoid the trade diversion in connection with the different states, particularly in neighbouring states 3. No concession to new industries Tax Concessions to new industries is done away with in the new VAT system. This was done as it creates discrepancy in investment decision. Under the new VAT system, the tax would be fair and equitable to all. 4. Adjustment of the tax paid on the goods purchased from the tax payable on the goods of sale All the tax, paid on the goods purchased within the state, would be adjusted against the tax, payable on the sale, whether within the state or in the course of interstate. In case of export, the tax, paid on purchase outside India, would be refunded. In case of the branch transfer or consignment of sale outside the state, no refund would be provided. 5. Collection of tax by seller/dealer at each stage. The seller/dealer would collect the tax on the full price of the goods sold and shows separately in the sell invoice issued by him 6. VAT is not cascading or additive though the tax on the goods sold is collected at each stage, it is not cascading or additive because the net effect would be as follows:

Ymt College of Management

TAXATION IN INDIA

- the tax, previously paid on the sale of goods, would be fully adjusted. It will be like levying tax on goods, sold in the last state or at retail stage.

WHATS THE BIGGEST ADVANTAGE? The biggest benefit of VAT is that it could unite India into a large common market. This will translate to better business policy. Companies can start optimizing purely on logistics of their operations, and not on based on tax-minimization. Lorries need not wait at check-points for days; they can zoom down the highways to their destinations. Reduced transit times and lower inventory levels will boost corporate earnings. Following are the some more advantage of VAT: 1. Simplification Under the CST Act, there are 8 types of tax rates- 1%, 2%, 4%, 8%, 10%, 12%, 20% and 25%. However, under the present VAT system, there would only be 2 types of taxes 4% on declared goods and 10-12% on RNR. This will eliminate any disputes that relate to rates of tax and classification of goods as this is the most usual cause of litigation. It also helps to determine the relevant stage of the tax. This is necessary as the CST Act stipulates that the tax levies at the first stage or the last stage differ. Consequently, the question of which stage of tax it falls under becomes another reason for litigation. Under the VAT system, tax would be levied at each stage of the goods of sale or purchase. 2. Adjustment of tax paid on purchased goods Under the present system, the tax paid on the manufactured goods would be adjusted against the tax payable on the manufactured goods. Such adjustment is conditional as such goods must either be manufactured or sold. VAT is free from such conditions. 3. Further such adjustment of the purchased goods would depend on the amount of tax that is payable. VAT would not have such restrictions. CST would not have the provisions on refund or carry over upon such goods except in case of export goods or goods, manufactured out of the country or sale to registered dealer. Similarly, on interstate sale on tax-paid goods, no refund would be admissible. Transparency The tax that is levied at the first stage on the goods or sale or purchase is not transparent. This is because the amount of tax, which the goods have suffered, is not known at the subsequent stage. In the VAT system, the amount of tax would be known at each and every stage of goods of sale or purchase. 4. Fair and Equitable VAT introduces the uniform tax rates across the state so that unfair advantages cannot be taken while levying the tax. 5. Procedure of simplification Procedures, relating to filing of returns, payment of tax, furnishing declaration and assessment are simplified under the VAT system so as to minimize any interface between the tax payer and the tax collector.

Ymt College of Management

TAXATION IN INDIA

6. Minimize the Discretion the VAT system proposes to minimize the discretion with the assessing officer so that every person is treated alike. For example, there would be no discretion involved in the imposition of penalty, late filing of returns, and nonfiling of returns, late payment of tax or non payment of tax or in case of tax evasion. Such system would be free from all these harassment 7. Computerization the VAT proposes computerization which would focus on the tax evaders by generating Exception Report. In a large number of cases, no processing or scrutiny of returns would be required as it would free the tax compliant dealers from all the harassment which is so much a part of assessment. The management information system, which would form a part of integral computerization, would make the tax department more efficient and responsive.

VALUE ADDED TAX IN MAHARASHTRA

Quick Flash Back Sales tax was first introduced in India in the then Bombay Province as early as March 1938 where a tax was imposed on sale of tobacco within certain urban and suburban areas. In the year 1946, a general sales tax was introduced levying sales tax at the last stage of sale of goods. The Bombay Sales Tax Act, 1959 introduced in 1959 underwent many changes thereafter and in July 1981, first point tax was introduced wherein goods were classified into three main schedules, broadly covering tax free goods, intermediate products and finished goods. The BST Act was repealed and Maharashtra Value Added Tax Act, 2002 came into force we.f. 1st April, 2005 to usher in the progressive value added tax system in place of the old sales tax system. VAT is a progressive and transparent system of taxation which eliminates the cascading impact of multiple taxation through a multipoint taxation and set-off principle. It promotes transparency, compliance and equity and therefore, is both dealer friendly and consumer friendly. VAT being a multi point tax, envisages an increase in the number of dealers and is based on the concept of self-assessment and self-compliance. It is therefore, inevitable that the Sales Tax Department transforms itself into a dealer friendly, focused and dynamic department to cater to the ever increasing expectations of both the Government and the Trade & Industry. Sales Tax Department has taken up the challenge to transform their selves and be available for assisting the dealers in complying with the provisions of the law. They are in the process of installing a state-wide networked IT system to computerise entire tax administration and hope to provide online service to the dealers in due course. They are also realigning their organisational structure to meet the challenges of the new system and stakeholders' expectations.

Ymt College of Management

TAXATION IN INDIA

Part1 - Introduction Background Maharashtra is one of the 21 States which have introduced the Value Added Tax (VAT) system of taxation from 1st April 2005. With the introduction of VAT, the Sales Tax Department has moved to a globally recognized sales taxation system that has been adopted by more than 130 countries. The design of Maharashtra State VAT is generally guided by the best international practices with regard to legal framework, as well as operating procedures. Another key factor in preparation of the design of State level VAT is the national consensus on certain issues. The consensus has been arrived at through the discussions in the Empowered Committee of State Finance Ministers on implementation of State level VAT. On 1st April 2005, VAT replaced the single point sales tax. Single point sales tax had a number of disadvantages, primarily that of double taxation. VAT is a modern and progressive taxation system that avoids double taxation. In addition to offering the possibility of a set-off of tax paid on purchases, VAT has other advantages for both business and government. It eliminates cascading impact of double taxation and promotes economic efficiency. It is primarily a self-policing, self-assessment system with more trust put on dealers. It provides the potential for a stronger manufacturing base and more competitive export pricing. It is invoice based, and as a result it offers a better financial system with less scope for error. It has an improved control, mechanism resulting in better compliance. It widens the, tax base and promotes equity.

VAT in Maharashtra is levied under a legislation known as the Maharashtra Value Added Tax Act (MVAT Act), supported by Maharashtra Value Added Tax Rules (MVAT Rules). VAT is levied on sale of goods including intangible goods. The meaning of goods for VAT purposes Goods means every kind of moveable property including goods of incorporeal and intangible nature but there are some exclusion, such as newspapers, actionable claims, money, shares and securities and lottery tickets.

Ymt College of Management

TAXATION IN INDIA

Businesses engaged in. the buying and selling of goods within the scope of the VAT law are referred to as dealers. The meaning of 'sale' for VAT purposes A transaction of sale can be a: normal sale of goods; sale of goods under hire-purchase system; deemed sale of goods used I supplied in the course of execution of works contract; Deemed sale of goods given on lease.

The rate of tax applicable to the goods sold under various classes of sales is uniform. However, in respect of normal sales of goods and deemed sales of goods under works contract and specified deemed sale of goods given on lease, the Act provides for an optional method for discharging tax liability by way of composition. Being so, the tax liability has to be determined with reference to the option exercised by the dealer for discharging tax liability. Businesses covered by VAT The VAT system embraces all businesses in the production and supply chain, from manufacture through to retail. VAT is collected at each stage in the chain when value is added to goods. 1t applies to al1 businesses, including importers, exporters, manufacturers, distributors, wholesalers, retailers, works contractors and lessors. Part 2 - Explaining VAT How VAT works When a dealer sell goods, the sale price is made up of two elements; the selling price of the goods and the tax on the sale. The tax is payable to the State Government. The tax payable on sales is to be calculated on the selling price. The tax paid on purchases supported by a, valid tax invoice is generally available as set-off (input, tax credit) while discharging the tax liability on sales.

Ymt College of Management

TAXATION IN INDIA

Sample of form 231

Ymt College of Management

TAXATION IN INDIA

Example The following example shows how the VAT works through the chain from manufacturer to retailer. Company A buys iron ore and other consumables and manufactures stainless steel utensils; Partnership firm B buys the utensils in bulk from Company A and polishes them; shopkeeper C buys some of the utensils and purchases packing, material from vendor D, packages them and sells the packed utensils for the public. (The sale and purchase figures shown in the example are excluding tax) Particulars Company A Cost of iron are and consumables Sales of unpolished stainless steel utensils Value added Company A is liable to pay VAT on Rs.1,50,000/- @ 4% Less Set Off Net VAT amount to pay with the Return (Note: Tax invoice issued by Company A will show sale price as Rs.1, 50,000/- tax as Rs.6, 000/-. Therefore, the total invoice value will be Rs.1,56,000/-) Amount (Rs.) 50,000 1,50,000 1,00,000 6000 (2000) 4000 VAT @ 4% (Rs.) 2000

Partnership B Purchases unpolished stainless steel utensils. Sales polished stainless steel utensils Value added 1,50,000 1,80,000 30,000

Partnership B is liable to pay V AT on Rs.1,80,000 at 4% But can claim set off of tax paid on purchases Net VAT amount to pay with the Return

7,200 (6,000) 1200

Shopkeeper C Purchases polished stainless steel utensils 1,80,000

Ymt College of Management

TAXATION IN INDIA

Packing material Total Purchases Sales Value added Shopkeeper C is liable to pay V AT on Rs.2,25,000 @ 4% Set off of tax paid on purchases (Rs.7,200 + Rs.200 of packing material) Net VAT amount to pay with the Return

5,000 1,85,000 2,25,000 40,000 9,000 7,400

1,600

Vendor D Tax paid costs Sales Value Added Nil 5,000 5,000

Vendor D is liable to pay VAT on Rs.5,000 @ 4%

200

The VAT due on the value added through the chain, i.e., 4% on Rs.2,25,000 is :

9,000

The State Government received the tax in stages. The payments of tax were as follows: Particulars Suppliers of Company A Company A Partnership B Shopkeeper C Vendor D Total Amount (Rs.) 2,000 4,000 1,200 1,600 200 9,000

Ymt College of Management

TAXATION IN INDIA

Thus, through a chain of tax on sale price and set off on purchase price, the cascading impact of tax is totally eliminated. Since set-off of tax on purchases is given only on purchases from registered dealers where tax is collected separately, dealers purchases from unregistered dealers, imports, inter-state purchases and purchases from registered dealers without separate tax collection are not entitled to set-off. In practice, the tax is finally borne by the ultimate consumer, who is not a registered dealer, in this case, people who buy utensils from the shopkeeper C. Rates of value added tax There are two main rates of VAT 4% and 12.5%. The goods are grouped into five schedules as under:

Schedule A B C

Rate of tax 0% 1% 4%

Illustrative Items Vegetables, milk, eggs, bread Precious metals and precious stones and their jewellery Raw materials, notified industrial inputs, notified information technology products and a few essential items Liquor, petrol, diesel etc

20% and above 12.5%

Other than items specified in schedules A, B, C & D.

Rates of VAT for Commodity

Proposal to Extend the Existing Tax Exemption / Concession till 31 March 2012 In Respect Of Following Goods

Sr.

Types of Goods

VAT Rate w. e. f. 1 April 2011

Rice, wheat, pulses, and flours thereof, chillies, turmeric, gur, tamarind, coconut, coriander, fenugreek, parsley (suva), papad, wet dates, Solapuri

0%

Ymt College of Management

TAXATION IN INDIA

Chadars and towels, Liquefied Petroleum Gas (LPG) for domestic consumption

2 3

Tea Aviation Turbine Fuel sold at small airports except Mumbai and Pune (Entry No.11 of Schedule D)

5% 4%

Proposal to Reduce Rate of Tax on Following Goods

Sr.

Type of Goods

Tax Rate Present Proposed 5%

Dry fruits (other than raisins, currants and cashews) Vada-Pav (sold in restaurants)

12.50%

12.50%

5%

2.3 Proposal to Increase Rate of Tax on Following Goods

Sr.

Type of Goods

Tax Rate Present Proposed 5% 20% 12.5% 5%

1 2 3 4

All Declared Goods Carbonated soft drinks Goggles Sales made under section 8(5) to electricity

4% 12.50% 5% 4%

Ymt College of Management

TAXATION IN INDIA

generating, transmission, distribution units, telecom industry, defence and railways. Proposal to Grant Exemption on Following Goods o Prefabricated Domestic Biogas Units o Cinematographic copyrights for exhibition in theatres o Ral (similar to Dhoop, Loban and Agarbatti)

Part 3 - Calculating tax liability In, order to calculate how much tax a dealer has to pay, he must, first determine his turnover of sales and turnover of purchases. The second stage is to ascertain the amount of tax due for payment. Calculating turnover of sales and purchases The turnover of sales is the total of the amounts received or receivable (excluding VAT charged separately) in respect, of the sale of goods, less the amount refunded to a purchaser in respect of goods returned, within six months of the date of the sale. Similarly, the turnover of purchases is the total of the amounts paid or payable (excluding VAT charged separately) in respect of the purchase of goods less (the amounts repaid to dealer in respect of goods they return, within six months of the date of purchase. Credit notes and debit notes. If the sale price, or the purchase price, of any goods is varied and either a credit note or a debit note is issued, then the credit note or the debit note, as the case may be, should Show separately, the tax and the price. Be accounted for in the period in which the appropriate entries are made in their books of accounts.

Special cases Auctioneers If dealer is an auctioneer, then they must include in their turnover, the price of the goods they auction for their principal Hotels There are special rules for hotels and other establishments that provide boarding and lodging for an inclusive amount. The rules provide a formula to enable them to calculate their turnover of sales for meals (food and beverages) which they provide. The supply of food in a restaurant also includes an element of service. But the full amount charged is the sale price for the purposes of calculating turnover and tax. Ymt College of Management

TAXATION IN INDIA

Works contracts VAT applies only to the sale of goods. Supply of services is not liable to VAT. Works contracts are deemed sales where both, goods and services are provided in a transaction and cannot be separated. A works contract may involve the creation of immoveable property, e.g. a house, a factory or a bridge. Some other examples of works contracts are photography, repairs & maintenance etc. To calculate the amount a dealer should include it in their turnover of sales, so that they may deduct it from the total contract price, the Costs of labour and service charges. Amount paid to sub-contractors. Charges for planning and designing, and any architect's fees. Hiring charges for machinery and tools. Cost of consumables, such as, water, gas and electricity. Dealers administrative costs relating to labour and services and any other similar expenses. Any profit element that relates to the supply of labour and services.

Alternatively, in lieu of the deductions as above, a dealer may choose to discharge the liability arising on works contracts by referring to the table prescribed in the rules. If the dealer finds that it is too complicated to calculate the deductions, then they may opt for a composition scheme for any works contract. Sales and purchases not liable to tax under VAT The VAT law specifically excludes from value added tax all imports, exports and inter-state transactions. These transactions are covered by the CST Act. Similarly, transactions that take place outside Maharashtra are not within the scope of MVAT Act. Point of levy in certain cases Hire purchase Where there is a hire purchase agreement or an agreement for sale by instalments, the date of the sale is deemed to be the date of the delivery of goods. This is despite the fact that legal ownership of the goods only passes to the buyer after payment of the final instalment. If the hire-purchase agreement specifies the interest component then in calculating the sales price, dealer should disregard the interest component included in the agreement. Calculating the amount of VAT due on sales Ymt College of Management

TAXATION IN INDIA

Dealer should also make some adjustments to the total turnover of sales to arrive at the amount on which tax is due. From the total sales one should deduct The total of exports and inter-State sales. the total of sales of goods that are tax free, and Branch / consignment transfers to locations in Maharashtra as well as other States. The tax collected. To calculate the tax due, dealer should start allocating their turnover of sales in the return period (net of the above deductions) to the rates of tax they have been charged. They should also ensure that the correct tax rates are applied. The information should be readily available from their records. This gives the total of sales tax due. Calculating the turnover of purchases Records will provide the total figure, but they may not have paid VAT on all their purchases. They must now deduct the total value of Imports from out of India. Inter-State purchases. Purchases of tax free goods. Direct purchases from exempted units under the Package Scheme of Incentives. consignment transfers, and Local purchased from unregistered dealers. Local purchases from registered dealers not supported by tax invoice. The resulting figure represents purchases against tax invoices from registered dealers. Calculating the amount of set off due (VAT paid on purchases) This is the next stage of tax calculation. At this stage VAT is charged on total purchases. Dealer must, however, make some adjustments to this amount for, in certain cases, the full set off of the VAT paid on purchases is not available. Adjustments to tax available for set off If dealers purchases include goods, used o as fuel, or o for the manufacture of any tax-free goods, or o As packaging for tax-free goods, these goods should be sold. Then a dealer must calculate the value of those items and deduct tax @ 4% of the corresponding purchase price from the amount otherwise available for set off. (Not applicable to PSI dealers other than the New Package Scheme of Incentives for Tourism Projects, 1999 and also to manufacturers of tax-free sugar or fabrics covered by Entry A 45 and where such goods are sold in the course of export falling under section 5 of the CST Act, 1956).

Ymt College of Management

TAXATION IN INDIA

Similarly, if the goods are stock transferred by way of branch / consignment transfer to a place outside the State, deduct tax @ 4% (1 % in respect of goods covered by Schedule B) of the corresponding purchase price from the amount otherwise available for set off.

Dealer must also make further adjustments as follows: If they have been used any goods (other than capital assets) as part of a works contract for which they have been opted for payment composition @ 8% on the total contract value, they must also deduct 36% of the amount from the set off otherwise available (4% of purchase price in respect of construction contracts for which they have been opted for payment of composition @ 5% on total contract value). Where a dealers sales are less than 50 % of their gross receipts, then they can claim set off only on those purchases of goods or packing materials effected in that year where the corresponding goods are sold within six months of the date of purchase or consigned within the said period to another State by way of stock transfers. In respect of office equipment, furniture or fixtures which have been treated as capital assets, a dealer should reduce set-off otherwise entitled by an amount equal to 4% of the purchase price. If a dealer is the retailer of liquor vendor and its actual sale prices are less than the Maximum Retail Price, there is a special formula for calculating the amount of the adjustment. Effectively this means that, if a dealer sells at 75% of the MRP then they can claim set off only to the extent of 75% of the tax paid. A dealer cannot claim any set off for the tax paid on any purchases that remain unsold on the date when business discontinues. All this information should be available from their records, including tax invoices and bills or cash memorandum they have issued, and the tax invoices they have received. Set off not available There are various items on which set-off is not available such as, goods of incorporeal or intangible character other than those specified, passenger motor vehicles, motor spirits, crude oil, building material used for construction etc. Conditions for claiming set off A dealer can claim set off only for VAT paid on purchase if they have a valid tax invoice for that transaction and they had maintain account of purchases showing the specified details. Tax payable The amount of set-off admissible can be adjusted against tax payable. The amount of net tax payable is the total of sales tax collected on sales less the set-off available. Part 4 - Filing a return and paying the tax VAT is a self-assessment system and dealers are expected to make self assessment for a given tax period and declare their VAT liability by filing returns. The returns have to be

Ymt College of Management

TAXATION IN INDIA

filed in the prescribed form and by the specified dates. Further, they are also required to pay the tax due as per the return filed. In Maharashtra, return form is return-cum-chalan. As such, filing of returns along-with payment of tax on or before the due date at the notified bank would be considered as sufficient compliance. However, where any amount of tax including interest or penalty is due as per a fresh or revised return, then they should first pay such amount in Government Treasury and file the return in the local office of Sales Tax Department along with a self attested copy of the chalan. If no payment is due for a refund is claimed as per the return, they are also required to file the return in the local office of the Sales Tax Department. Return forms The return forms prescribed are as follows. Form No. 221 To Be Used By All VAT dealers other than dealers executing works contract, dealers engaged in leasing business, composition dealers (including dealers opting for composition only for part of the activity of the business), and PSI dealers and notified Oil Companies. All composition dealers whose entire turnover is under composition (Excluding works contractors opting for composition and dealers opting for composition only for part of the activity of the business). 223 VAT dealers who are also in the business of executing works contracts, leasing and dealers opting for composition only for part of the activity of the business. PSI dealers holding Entitlement Certificate (Transactions by PSI dealers relating to the business of execution of works contracts, leasing, frading and composition only for part of the activity of the business to be included in a separate return in Form 223). Notified Oil Companies (Transactions by OIL Companies relating to the business of execution of works contracts, leasing and composition only for part of the activity of the business to be included in a separate return in Form 223).

222

224

225

A dealer can refer to the instructions given in the form before filling the return. Please ensure that the return for a tax period covers all the transactions of sales, purchases, branch transfers received, branch transfers made etc. Further, they must ensure that all the columns of the return are duly filled in and are clearly legible. If a particular column is not relevant, please do not leave it blank but mention" not applicable". The return filed by them must be correct, complete and self-consistent.

Ymt College of Management

TAXATION IN INDIA

Time schedule for filing returns Periodicity of filing returns is as follows: Retailers who have opted for composition should file six-monthly returns. Newly registered dealers should file quarterly returns until the end of the year in which they first register. All package scheme dealers should file quarterly returns. All other dealers should file returns as given below :o Dealers whose tax liability in the previous year was less than Rs.11, OO, OOO- (Rs.1lakh) or whose entitlement for refund was less than Rs.10, OO, OOO- (Rs.10lakh) should file six-monthly returns. o Dealers whose tax liability in the previous year was more. Than Rs.10, 00,000- (Rs.10lakh) or whose entitlement for refund was more than Rs.l, 00, 00,000- (Rs1crore) should file monthly returns. o All other dealers should file quarterly returns.

Filing and payment dates for return-cum-chalan are as follows: Return Frequency Monthly Quarterly Six Monthly Filing / Payment date 21 days from the end of the return period 21 days from the end of the return period 21 days from the end of the return period

The various types of returns and their description have been summarised as under: Type Of Return Original Description

The return filed by the dealer originally along with the payment in the bank. The return filed by the dealer after the department issues a defect notice. The return filed by them to correct any error or omission.

Fresh

Revised

Ymt College of Management

TAXATION IN INDIA

Filing of returns in special cases The first return for the newly registered dealer is for the period up to the end of the quarter containing the date of its registration. Example 1 The turnover exceeds the threshold on 1st November. Then they should apply for registration, which is granted on 30th November and the date of effect is 1st November. The first return is for the quarter ended 31st December covering the period 1st, April to 31st December; and the second return is for the quarter ending following 31st March. Example 2 If turnover exceeds the threshold on 1st November. But dealer apply late for registration i.e. on 10th December, and the registration is granted on l0th December, then the date of effect registration is 10th December i.e., Date of application. The first return is due for the quarter ending on 31st December (covering. the period 10th December to 31st December). . Filing of return in case of cancellation of registration Dealers registration may be cancelled if they discontinue, transfer or sell the business. They may also choose to cancel their registration if their turnover falls below the threshold limit. Example 3 If dealers file the returns quarterly and there, last return was for the quarter ending 30th September. If a dealer closes the business on 15th November, then their final return will be for, the period 1st October to 15th November. The return should be filed within one month, that is, before 15th December. Filing multiple returns Dealers are required to file a single return at its principal place of business for all its businesses or places of business. If they desire to file separate returns for separate places / divisions, then they must apply for Form 211 for permission to file multiple returns. Dealer should ensure that correct, complete and self-consistent returns are filed at all the locations in the State. Tax deduction at source by an employer in a works contract The works contractor is obliged to pay the tax on the works contracts executed by him. However, the employer i.e. the notified person who has engaged the works contractor is obliged to deduct tax at the specified rate from the amount payable to the works contractor, excluding the amount of tax, if any, separately charged or service tax levied by the contractor.. The tax amount so deducted and paid to the Government treasury IS considered as a payment made on behalf of the works contractor. The employer is required to deposit this tax and issue a certificate of tax deduction at source in the prescribed format based on which the works contractor is allowed to take the credit of the same while discharging his tax liability. Ymt College of Management

TAXATION IN INDIA

TINXSYS Tax Information Exchange System (TINXSYS) is a centralized exchange of all CST dealers spread across various States and Union territories of India. TINXSYS can be used by any dealer to verify authenticity of his counterpart dealer in any other State. The TINXSYS will also help the States in cross checking the interstate transactions on a real time basis. The pilot phase of TINXSYS has commenced and the Maharashtra Sales Tax Department is an active partner in the system. Determination of disputed questions If the dealer wants to find out the correct interpretation on certain issues related to the taxation matter, also dealer may apply to the commissioner for determination of the particular question. An illustrative list of such questions is given below: Whether a person is liable to be registered as dealer. What is the rate of tax on a particular commodity? Whether a particular transaction is a sale. The price on which tax is payable. Whether set off can be claimed in a particular transaction. Dealer will be given an opportunity to present their case before the Commissioner makes an order. If the dealer disagrees with the commissioner's ruling, then they may appeal to the Tribunal against the order. However, if the Sales Tax Department has commenced assessment proceedings or if the case is pending in appeal, dealer can not apply for determination of disputed, question. Tax clearance certificates If dealer wishes to apply for a tax clearance certificate, Sales Tax Office will provide the same within 15 days of their request. Sales Tax Office will issue the certificate based on the dealers record. It will show the Periods for which dealer have filed returns. Periods for which dealer has not filed a return. Periods for which Sales Tax Office have made al1 assessment. status of any pending proceedings, and Any amounts of tax outstanding and due for payment. Dealer should apply for a certificate using Form 414.

Ymt College of Management

TAXATION IN INDIA

Financial penalties or fines There are various financial penalties, each depending on the nature of the offence: Tax related Some offences attract a maximum penalty in proportion to the amount of tax due. If the dealer: conceals or misclassifies any transaction or provides inaccurate information or claims a set off in excess of the amount due or, issues or produces a documents, including tax invoice, bill or cash memorandum, that results in a person or dealer not paying the correct amount of tax The penalty is an amount equal to the tax due. If the dealer avoids paying the correct amount of tax as a result of issuing bogus, false tax invoices, the maximum penalty is an amount equal to half of the tax under assessed or Rs.100/-, whichever is higher. Non Tax Related Penalties If the dealer fails to file a return, within the time allowed, the penalty is Rs.2, 000/-. If dealer files the return late but before any penalty proceedings have started, the penalty will be reduced to Rs1, 000/-. If the dealers return is not correct, complete and self-consistent, the penalty is Rs1, 000/-, but this is without prejudice to any other penalties that may be imposed. If, after the issue of summons, the dealer fails to attend any proceedings or to produce books of account, registers or documents, the Tribunal or the Sales Tax authorities may impose a fine, not exceeding Rs.5,000/-. Most other offences attract a penalty of Rs.1, 000/- although there is also a provision for some offences to attract a penalty of Rs.2, 000/- plus a continuing daily penalty of Rs.100/Payment of Penalty or Fine As a result of proceedings, such as audit, investigation, assessment etc., Sales Tax Authority may issue a demand notice containing details of tax, interest and penalties, if any, that are imposed. The dealer should pay the amount due within 30 days of the date of the order. Dealer should make the payment using Form 210 through the bank where he normally files his return.

Ymt College of Management

TAXATION IN INDIA

List of Sales Tax Offices in the State of Maharashtra

There are total 40 Sales Tax Office located all over the Maharashtra. Out which some of them are in: Mumbai (Head Quarters), Bandra, Raigad (Division), Thane (Division), Kalyan, Nalasopara, Palghar, Pune (Division), Solapur, Kolhapur (Division), Satara, Sangli, Ratnagiri, Nasik (Division), Ahmednagar, Aurangabad (Division), Nagpur (Division), Wardha, Amravati (Division), Akola, and many more

2) Excise duty An excise or excise tax (sometimes called an excise duty) is a type of tax charged on goods produced within the country (as opposed to customs duties, charged on goods from outside the country). It is a tax on the production or sale of a good. This tax is now known as the Central Value Added Tax (CENVAT). Though the collection of tax is to augment as much revenue as possible to the government to provide public services, over the years it has been used as an instrument of fiscal policy to stimulate economic growth. Thus it is one of the socio-economic objectives.

Ymt College of Management

TAXATION IN INDIA

An excise or excise tax (sometimes called a duty of excise special tax) is commonly understood to refer to an inland tax on the sale, or production for sale, of specific goods; or, more narrowly, as a tax on a good produced for sale, or sold, within a country. An excise tax is one levied on specific goods or commodities produced or sold within a country, or on licenses granted for specific activities. Excises are distinguished from customs, which are taxes on importation. Excises are inland taxes, whereas customs duties are border taxes. An excise is considered an indirect tax, meaning that the producer or seller who pays the tax to the government is expected to try to recover the tax by raising the price paid by the buyer (that is, to shift or pass on the tax). Excises are typically imposed in addition to another indirect tax such as a sales tax or VAT. In common terminology (but not necessarily in law) an excise is distinguished from a sales tax or VAT in three ways: (i) an excise typically applies to a narrower range of products; (ii) an excise is typically heavier, accounting for higher fractions (sometimes half or more) of the retail prices of the targeted products; and (iii) an excise is typically specific (so much per unit of measure; e.g. so many cents per gallon), whereas a sales tax or VAT is ad valorem, i.e. proportional to value (a percentage of the price in the case of a sales tax, or of value added in the case of a VAT). STATE EXCISE DUTY Increase in the State Excise Duty In Case Of Liquor, etc. Sr. Type of product Proposed Excise Rate

1 2 3 4

Country Liquor Foreign Liquor Mild Beer Fermented Beer

Rs. 95 per proof liter Rs. 240 per proof litre Rs. 33 per bulk litre Rs. 42 per bulk litre

What are the types of excise duty? There are three different types of central excise duties which exist in India which are as follows: Basic - Excise Duty, imposed under section 3 of the 'Central Excises and Salt Act' of 1944 on all excisable goods other than salt produced or manufactured in India, at the rates set forth in the schedule to the Central Excise tariff Act, 1985, falls under the category of basic excise duty in India. Ymt College of Management

TAXATION IN INDIA

Additional - Section 3 of the 'Additional Duties of Excise Act' of 1957 permits the charge and collection of excise duty in respect of the goods as listed in the schedule of this act. This tax is shared between the central and state governments and charged instead of sales tax. Special - According to Section 37 of the Finance Act, 1978, Special Excise Duty is levied on all excisable goods that come under taxation, in line with the Basic Excise Duty under the Central Excises and Salt Act of 1944. Therefore, each year the Finance Act spells out that whether the Special Excise Duty shall or shall not be charged, and eventually collected during the relevant financial year. Which goods are excisable goods? The term 'excisable goods' means the goods which are specified in the first schedule and the second schedule to the Central Excise Tariff Act, 1985, as being subject to a duty of excise and includes salt. Who is liable to pay excise duty? The liability to pay tax excise duty is always on the manufacturer or producer of goods. There are three types of parties who can be considered as manufacturers:

Those who personally manufacture the goods in question Those who get the goods manufactured by employing hired labour Those who get the goods manufactured by other parties

Is it mandatory to pay duty on all goods manufactured? Yes, it is mandatory to pay duty on all goods manufactured, unless exempted. For example, duty is not payable on the goods exported out of India. Similarly exemption from payment of duty is available, based on conditions such as kind of raw materials used, value of turnover (clearances) in a financial year, type of process employed etc. What is the consequence of evading payment of excise duty? Under the different sections of the central excise act, the fines for evading tax can range from twenty-five to fifty per cent of the amount of duty evaded. When you look at the amount of excise you may have to pay, this is a rather large amount and along with the financial repercussions, you also have to encounter a tarnished image.

3) Custom duty
The custom duty in India is regulated by the Customs Act of 1962. Main purpose of the custom duty in India is the prevention of illegal export and import of goods. Rates of the custom duty levied on the imported and exported goods are assigned in the Custom Act, 1962. Customs Act of 1962 was devised mainly to prevent the interest of the indigenous industries and securing the Indian currency from exchange rate. If too much illegal goods and services would be imports and exports to and from the country then this would harm India industry and directly affect the exchange rate of the Indian currency.

Ymt College of Management

TAXATION IN INDIA

Custom Duties are levied on goods that are exported or imported from India at a rate that is specified under the Customs Act of 1975. The Central Government of India in order to maintain proper surveillance on the different import and export activities happening within the country reserves the power to notify the various ports and airports. The ports and airports have to provide information regarding all loading and unloading activities such as; loading of the exported goods, unloading of imported goods, the routes by which the imported and exported goods will pass and the different locations for clearance of goods etc. The Central Board of Excises Customs is the body that publishes books which provide information on the numerous tariffs rules. Custom duty in India

Custom duties in India fall under various categories. Below is a list of the different types of custom duties in India

Basic Duty: This is the general kind of duty levied under the Customs Act, 62 Additional Duty (Countervailing Duty): This duty is levied under the Custom Tariff Act, section 3 (1) Anti-dumping Duty: This duty prevents the dumping of foreign goods by the transnational companies Protective Duty: This duty protect the interests of the Indian industrial sector Export Duty: This duty is levied on the export of goods

Acts under custom duty in India

Foreign Trade (Exemption from application of Rules in certain cases) Order, 1993 Customs Act, 1962

Registrars of Companies in different states chiefly manage

Customs Tariff Act, 1975 Foreign Trade (Development and Regulation) Act, 1992 Taxation Laws (Amendment) Act, 2006 Provisional Collection of Taxes Act, 1931 Central Excise Tariff Act, 1985 Foreign Trade (Regulation) Rules, 1993 Central Excise Act, 1944

Ymt College of Management

TAXATION IN INDIA

As per FY 2009-10

Below is a list of the latest introductions made in 2009 and 2010 in the Custom duties Act.

Set Top Boxes for the purpose of television broadcasting will carry a Customs duty of 5 percent. The Customs duty charged to LCD Panel manufacturers will be reduced from 10 percent to 5 percent. Full custom duty exemption will be given to mobile phone parts and accessory manufacturers for the next one year. Custom duties will be exempted on the list of the specific raw materials exported for sports goods. Further five more items will be added to the existing list of items. Also additions will be made in the list of raw materials imported by the many manufacturers of textile products, leather goods and the footwear industry in India. Customs duty charged on un worked corals will be decreased from 5 percent to zero. Customs duty will be reduced from 10 percent to 5 percent on ten life saving vaccines and drugs Customs duty will be reduced for certain specific medical devices like PDA/ASD occlusion device and, artificial heart from 7.5 percent to 5 percent Customs duty will be reduced from 7.5 percent to 5 percent on permanent magnets imported for use in generators above 500 KW meant for the purpose of electricity generation. Customs duty charged on bio-diesel will be decreased from 7.5 percent to 2.5 percent Concessions will be offered on the rate of customs duty charged on specific machineries for coffee, tea and rubber plantations. Customs duty will also be reduced from 7.5 percent to 5 percent. Also the CVD will be reduced from 8 percent to zero on such plantations. The Customs duty charged on gold coins and gold bars which are serially numbered will be raised to ` 200 per 10 gram. Previously it was ` 100 per 10 gram. Customs duty for gold in all other forms will be ` 500 per 10 gram. Previously it was from ` 250 per 10 gram. The Customs duty charged on silver will also increase from ` 500 per Kg. to ` 1000 per Kg. This kind of duties will; be charged on the import of gold and silver as personal baggage. Cotton waste Customs duty will be decreased from 15 percent to 10 percent.

Ymt College of Management

TAXATION IN INDIA

Wool waste Customs duty will be decreased from 15 percent to 10 percent. Rock phosphate Customs duty Customs duty will be decreased from 5 percent to 2 percent. No more exemptions will be allowed CVD Aerial Passenger Ropeway Projects. Concrete batching plants which have capacity of 50 cum per hour or even more will be exempted from paying Customs duty. These types of plants will carry a customs duty of 7.5 percent from now onwards. Customs duty on water sports equipments like snow-skis, surf-boats, inflatable rafts, water skis and sail-boards will be fully exempted.

Rules and regulations under custom duty in India

Below is a list of the rules and regulations mentioned under the Custom Duty Act in India?

Foreign Privileged Persons (Regulation of Customs Privileges) Rules, 1957 Denaturing of Spirit Rules, 1972 Customs (Attachments of Property of Defaulters for Recovery of Government Dues) Rules, 1995 Accessories (Condition) Rules, 1963 Specified Goods (Prevention of Illegal Export) Rules, 1969 Re-Export of Imported Goods (Drawback of Customs Duties) Rules, 1995 Notice of Short-Export Rules,1963 Customs Tariff (Identification, Assessment and Collection of Countervailing Duty on Subsidized Articles and for Determination of Injury) Rules, 1995 Customs and Central Excise Duties Drawback Rules,1995 Customs Tariff (Identification, Assessment and Collection of Anti-Dumping Duty on Dumped Articles and for Determination of Injury) Rules, 1995 Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 Customs Tariff (Determination of Origin of Goods under the Agreement on SAARC Preferential Trading Arrangement) Rules,1995 Notified Goods (Prevention of Illegal Import) Rules, 1969 Customs Tariff (Determination of Origin of Goods under the Bangkok Agreement) Rules, 1976 Customs Tariff (Determination of Origin of the U.A.R. and Yugoslavia) Rules, 1976 Customs (Settlement of Cases) Rules, 1999 Customs( Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 1996 Customs (Publication of Names) Rules,1975 Rules of Determination of Origin of goods under the Agreement on South Asian Free Trade Area (SAFTA) Customs Tariff (Identification and Assessment of Safeguard Duty) Rules, 1997

Ymt College of Management

TAXATION IN INDIA

Baggage Rules, 1998 Customs Tariff (Determination of Origin of Other Preferential Areas) Rules,1977 Customs Tariff (Determination of Origin of Goods under the Free Trade Agreement Between the Democratic Socialistic Republic of Sri Lanka and the Republic of India) Rules, 2000

4) Service Tax
Service tax is a part of Central Excise in India.[7] It is a tax levied on services provided in India, except the State of Jammu and Kashmir. The responsibility of collecting the tax lies with the Central Board of Excise and Customs (CBEC). The Finance Minister of India, Pranab Mukherjee in his Budget speech has indicated the government's intent of merging all taxes like Service Tax, Excise and VAT into a common Goods and Service Tax by the year 2011. To achieve this objective, the rate of Central Excise and Service Tax will be progressively altered and brought to a common rate. In budget presented for 2008-2009 It was announced that all Small service providers whose turnover does not exceed Rs10 lakhs need not pay service tax. Circular No. 127/9/2010-ST, dated 16-8-2010 regarding Service tax on commercial training and coaching - Whether donation' is consideration'. A representation has been received seeking clarification whether donations and grants-in-aid received from different sources by a charitable Foundation imparting free livelihood training to the poor and marginalized youth, will be treated as consideration' received for such training and subjected to service tax under commercial training or coaching service'. 2. The matter has been examined. The important point here is regarding the presence or absence of a link between consideration' and taxable service. It is a settled legal position that unless the link or nexus between the amount and the taxable activity can be established, the amount cannot be subjected to service tax. Donation or grant-in-aid is not specifically meant for a person receiving such training or to the specific activity, but is in general meant for the charitable cause championed by the registered Foundation. Between the provider of donation/grant and the trainee there is no relationship other than universal humanitarian interest. In such a situation, service tax is not leviable, since the donation or grant-in-aid is not linked to specific trainee or training.

1. Levy of service tax

1.1 As on 1st May, 2011, 119 services are taxable services in India. These taxable services are specified in Section 65(105) of the Finance Act, 1994. Section 64 of the Finance Act, 1994, extends the levy of service tax to the whole of India, except the State of Jammu & Kashmir. Generally, the liability to pay service tax has been placed on the service provider. However, in respect of the taxable services notified under Sec.68 (2) of the Finance Act, 1994, the service tax shall

Ymt College of Management

TAXATION IN INDIA

be paid by such person and in such manner as may be prescribed at the rate specified in Sec.66 of the Act and all the provisions of Chapter-V shall apply to such person as if he is the person liable for paying the service tax. The following services have been notified under Sec.68 (2) of Finance Act, 1994: A. the services,(i) (ii) (iii) In relation to telecommunication service; In relation to general insurance business; In relation to insurance auxiliary service by an insurance agent; and In relation to transport of goods by road in a goods carriage, where the consignor or consignee of goods(a) Any factory registered under or governed by the Factories Act, 1948 (63 of 1948); (b) Any company established by or under the Companies Act, 1956 (1 of 1956); (c) Any corporation established by or under any law; (d) Any society registered under the Societies Registration Act, 1860 (21 of 1860) or under any law corresponding to that Act in force in any part of India; (e) Any co-operative society established by or under any law; (f) Any dealer of excisable goods, who is registered under the Central Excise Act, 1944 (1 of 1944) or the rules made there under; or (g) Anybody corporate established, or a partnership firm registered, by or under any (v) In relation to Business Auxiliary Service of distribution of mutual fund by a mutual fund distributer or an agent, as the case may be; (vi) In relation to sponsorship service provided to anybody corporate or firm located in India; Any taxable service provided or to be provided from a country other than India and received in India, under Sec.66a of the Finance Act, 1994.

(iv)

B.

Ymt College of Management

TAXATION IN INDIA

1.2 From 01.06.2007 to 23.02.2009, the Service tax was payable @ 12% of the gross amount plus 2% Education Cess on service tax plus 1% Secondary Higher Education Cess on service tax i.e. totalling to 12.36% ( in specific cases partial deductions are allowed, refer section 67 of the Finance Act) charged by the service provider for providing such taxable service. From 24.02.2009, vide Notification No.8/2009-ST dated 24.02.2009 the rate of service tax is 10% on gross value of the taxable service plus 2% Education Cess on the service tax amount and 1% Secondary Higher Education Cess on the service tax amount. Example: Suppose the value of taxable service is Rs.100. Service tax @10% will be Rs.10 and Education Cess @2% of the Service Tax will be Rs.0.20 and Secondary & Higher Education Cess @1% of the service tax will be 0.10. 1.3 The Table below shows the category of services which are taxable with the date of introduction of such service. The table also shows the accounting heads for each category service, for the purpose of payment of service tax: Sr.No Service Category Date of Introduction Accounting codes Tax Collection 00440013 00440032 00440258 00440072 00440346 Other Receipts 00440016 00440033 00440259 00440073 00440347

1 2 3 4 5

Advertising Air Travel Agent Airport Services Architect ATM Operations, Management or Maintenance Auctioneers' service, other than auction of property under directions or orders of a count of or auction by Central Govt. Authorized Service Station Auxiliary to General Insurance Auxiliary to Life Insurance

01.11.1996 01.07.1997 10.09.2004 16.10.1998 01.05.2006

01.05.2006

00440370

00440371

7 8 9

16.07.2001 16.07.2001 16.08.2002

00440181

00440182

Ymt College of Management

TAXATION IN INDIA

00440169 10 Banking & Other Financial Services Note: 1. Accounting Code for Education Cess is 00440298 for all services. 16.07.2001 00440173

00440170 00440174

2. Accounting Code for Secondary & Higher Education Cess is 00440426 for all services. 3. The sub-head Other receipts is meant for interest, penalty on delayed payment of service tax.

2. Registration

2.1 Every person liable for paying the service tax shall make an application to the concerned Superintendent of Central Excise in Form ST-1 for registration within a period of thirty days from the date on which the service tax under section 66 of the Finance Act, 1994(32 of 1994) is levied: Provided that where a person commences the business of providing a taxable service after such service has been levied, he shall make an application for registration within a period of thirty days from the date of such commencement. Also, the following two categories of persons have been identified as Special Category of Persons under The Service Tax (Registration of Special Category of Persons) Rules, 2005: i) Input Service Distributor;

ii) Any provider of taxable service whose aggregate value of taxable service (aggregate value has been defined in Rule 2(b) of The Service Tax (Registration of Special Category of Persons) Rules, 2005) in a financial year exceeds nine lakh rupees.

2.2 The service tax is administered by the Central Excise Department. The government website www.exciseandservicetax.nic.in gives the details of the jurisdictional offices of the Central Excise Department, State-wise, District-wise as well as Commissionerate-wise. 2.3 Total 67 Central Excise & Service Tax Commissionerates, 7 exclusive Service Tax Commissionerates and 5 Large Taxpayer Units administer Service tax collection in India.

Ymt College of Management

TAXATION IN INDIA

2.4

Following are the 7 Service tax Commissionerates: 1. 2. 3. 4. 5. 6. 7. Mumbai-I Mumbai-II Delhi Chennai Kolkata Bangalore Ahmedabad

2.5

There are 5 Large Taxpayer Units (LTUs) as listed below: 1. Bangalore, 2. Chennai, 3. Mumbai, 4. Delhi and 5. Kolkata

Payment of Service Tax Any person providing taxable service to any person shall pay service tax at the rate specified in Sec.66 in such a manner and within such period as may be prescribed. (Sec.68 of the Finance Act, 1994) The table below shows the rate of service tax applicable at the relevant period of time. Sr.No. Period Rate of Service Tax Rate of Secondary & Higher Education Cess Nil Nil Nil Nil 2% of the S.T. Nil 2% of the S.T. Nil 2% of S.T. 2% of S.T. 1% of S.T. 1% of S.T. Rate of Education Cess

1. 2. 3. 4. 5. 6.

Till 13.05.2003 14.05.2003 to 09.09.2004 10.09.2004 to 17.04.2006 18.04.2006 to 31.05.2007 01.06.2007 to 23.02.2009 From 24.02.2009

5% 8% 10% 12% 12% 10%

In case of Individuals or Proprietary Concerns and Partnership Firm, service tax is to be paid on a quarterly basis. The due date for payment of service tax is the 5th of the month immediately following the

Ymt College of Management

TAXATION IN INDIA

respective quarter (in case of e-payment, by 6th of the month immediately following the respective quarter). For this purpose, quarters are: April to June, July to September, October to December and January to March. However, payment for the last quarter i.e. January to March is required to be made by 31st of March itself. In case of any other category of service provider other than specified at 6.1 above, service tax is to be paid on a monthly basis, by the 5th of the following month ( in case of e-payment, by 6th of the month immediately following the respective month). However, payment for the month of March is required to be made by 31st of March itself. Service tax is to be paid to the Central Government in respect of service deemed to be provided as per the rules framed. The facility of e-payment of service tax has been introduced with effect from 11.05.2005. From 1st April, 2010 e-payment of service tax has been made mandatory for the assesses who have paid service tax of Rs.10 Lakh (cash+ cenvat) and above during the last financial year or who have paid service tax of Rs.10 Lakh (cash + cenvat) and above during the current financial year. The e-payment shall be made only in designated banks by 6th day of the following month. The assesse is required to deposit the amount of service tax in the designated banks through GAR-7 chalan. While depositing the service tax, the appropriate account head pertaining to the particular service category should be mentioned on the chalan. The correct accounting heads have been given in the table showing the List of Services in Para 1.3. If the assesse deposits the amount of tax liable to be paid, by cheque, then the date of presentation of the cheque to the designated bank would be treated as the date of payment of service tax. Where an assesse has issued an invoice, or received any payment, against a service to be provided which is not so provided by him either wholly or partially for any reason, or where the amount of invoice is renegotiated due to deficient provision of service, or any terms contained in a contract the assesse may take credit of such excess service tax paid by him, if the assesse:a) Has refunded the payment or part thereof, so received for the service provided to the person from whom it was received or b) Has issued a credit note for the value of the service not so provided to the person to whom such an invoice has been issued

Ymt College of Management

TAXATION IN INDIA

The assessee can opt for provisional payment of service tax in case he is not able to correctly estimate the tax liability. In such a situation he may request in writing to the jurisdictional Assistant / Deputy Commissioner for the same. Service tax (including interest, penalty, and refund) is to be rounded off to the nearest rupee. 50 paisa or more should be rounded off to the next rupee and less than 50 paisa should be ignored. Any person, who has collected any sum on account of service tax, is under obligation to pay the same to the Government. He cannot retain the sum so collected with him by contending that service tax is not payable.

Interest The due date for payment of service tax is 6th day of the month following the relevant month/quarter, if electronically paid and in other cases, 5th day of the month following the relevant month / quarter. It is provided under section 75 of the Finance Act, 1994 that in case of delayed payments (after due date) the assessee is required to pay simple interest at the rate prescribed. Notification No. 26/2004 dated 10.09.2004 has specified the rate of interest at 13% per annum. The table below shows the rate of interest applicable at relevant period of time. Sr.No. 1. 2. 3. 4. 5. Period Till 11.05.2001 11.05.2001 to 11.05.2002 11.05.2002 to 10.09.2004 From 10.09.2004 to 31.03.2011 From 01.04.2011 Rate of Interest 1.5% per month 24% per annum 15% per annum 13% per annum 18% per annum

5) Entertainment tax

In India, movie tickets, large commercial shows and large private festival celebrations may incur an entertainment tax. Entertainment falls in List 2 of the Seventh Schedule of the Constitution of India and is exclusively reserved as a revenue source for the state governments. Historically, before India acquired independence British government imposed heavy taxes on the events of amusements and entertainment, where a large gathering of Indians could have caused rebellion or mutiny. Thus, various entertainment tax acts of the state

Ymt College of Management

TAXATION IN INDIA

governments permit the rate of tax beyond 100%. After independence, old enactments continued and there has been no revision or repeal of these acts.

This source of revenue has grown with the advent of Pay Television Services in India. Since, entertainment is being provided through the services such as Broadcasting Services, DTH Services, Pay TV Services, Cable Services, etc. The component of entertainment is intrinsically intertwined in the transaction of service, that it cannot be separated from the whole transaction. Given the nature of transaction of service, it is being subjected to tax by the Union and the State governments both. The fiscal principle underlying article 246 of the constitution of India separates the sources of taxation for the Union and the States and also maintains the exclusivity. This article also provides that in case of conflict between the powers of Union and the States, the Union power to tax shall supersede the power of the State to levy tax on the taxable event or in relation to the subject or object of taxation. The entertainment Industry in India is facing the challenge of double taxation on such transactions.

The entertainment department is a major source of revenue for the Government of India. It also has a great contribution towards the publicity of Indian arts that portrays ancient culture and various sports. This is done by granting tax-free benefits to the same. The organizers of any entertainment shows will have to seek the permission of the Entertainment Tax Department before putting up any commercial shows. The entertainment tax in India is levied upon the organizers or proprietors depending on the kind of shows being organized. There are a range of tax schemes for various entertainment programs. These are as follows:

Tax schemes designed for amusement parks Tax-paid programs Programs based on tax exempted sectors Tax programs on cable television networks Tax for various invitee programs Tax on entertainment betting Tax on video parlors

To alleviate the tax generating program, a series of technologies has been introduced in the entertainment tax department. For example, the computerized ticket booking system has been incorporated for booking movie tickets along with the online data transmission in the entertainment industry. The more advanced the entertainment industry is becoming the tax rate is increasing at a proportional rate. Implementation of innovative technologies for an easier access for the customers demands for sufficient entertainment tax rate depending on the revenue. Customers mostly look for convenience and less hazardous tasks while going for any entertainment program and so faster access would definitely attract more customers.

Ymt College of Management

TAXATION IN INDIA

CONCLUSION Taxation is a very important branch to study & understand the overall gamut of the Taxation system of India. 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. After conducting a comprehensive evaluation for this project, I immensely pleased in stating that a significant and innovative step has indeed been taken by the Central Government in coordination with and the State Governments to improve the efficiency and productivity of the tax systems prevailing in India. This pioneering move will not only aid in rendering satisfaction and economical growth but will also yield in establishing a healthy image of taxes and their derived benefits in the minds of the citizens. The first part of this project shows great potential and by far has been successful in fulfilling all the aspired objectives in the field of direct taxes. However, in the second part it indirect taxes are explained. It is strongly emphasizes upon the highlighted recommendations and focused aspects that may for the future positively render in establishing thorough professionalism and more stability. Significantly, it is further suggested to proceed with the commencement of both the parts of this project as this radical step to add value to the present taxation system and boost the economy thus introducing an era of change and advancement. SUGGESTION To apply Progressive tax, Regressive tax, and Proportional tax into Tax progressivity. Circular 230 and Individual Taxpayer Identification Number into Internal Revenue Service. Economic development incentive programs.

Bibliography 1. Income Tax Act- By Pradeep S Shah, Rajesh S. Kadakia 2. Income Tax Act & Rules- By Taxman Publication 3. Direct Taxes Ready Reckoner- By Dr. Vinod K. Singhania

Webliography 1. 2. 3. 4. Value Added Tax By Sales Tax Department. www.google.com www.tax4india.com www.vat.maharashtra.gov.in

Ymt College of Management

TAXATION IN INDIA

5. www.incometaxindia.gov.in 6. http://www.wikipedia.org

Ymt College of Management