Abhi2.docx

Direct and Indirect taxes Direct tax INTRODUCTION A tax may be defined as a "pecuniary burden laid upon individuals or property owners to support the government, a payment exacted by legislative authority. A tax "is not a voluntary payment or donation, but an enforced contribution, exacted pursuant to legislative authority". Taxes consist of direct tax or indirect tax, and may be paid in money or as its labour equivalent (often but not always unpaid labour). India has a well developed taxation structure. The tax system in India is mainly a three tier system which is based between the Central, State Governments and the local government organizations. In most cases, these local bodies include the local councils and the municipalities. According to the Constitution of India, the government has the right to levy taxes on individuals and organizations. However, the constitution states that no one has the right to levy or charge taxes except the authority of law. Whatever tax is being charged has to be backed by the law passed by the legislature or the parliament. Article 246 (SEVENTH SCHEDULE) of the Indian Constitution, distributes legislative powers including taxation, between the Parliament and the State Legislature. Schedule VII enumerates these subject matters with the use of three lists; 

List - I entailing the areas on which only the parliament is competent to makes laws,

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List - II entailing the areas on which only the state legislature can make laws, and

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List - III listing the areas on which both the Parliament and the State Legislature can make laws upon concurrently.

Separate heads of taxation are provided under lists I and II of Seventh Schedule of Indian Constitution. There is no head of taxation in the Concurrent List (Union and the States have no concurrent power of taxation). Any tax levied by the government which is not backed by law or is beyond the powers of the legislating authority may be struck down as unconstitutional. The thirteen heads List-I of Seventh Schedule of Constitution of India covered under Union taxation, on which Parliament enacts the taxation law, are as under: 

Taxes on income other than agricultural income;

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Duties of customs including export duties;

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Duties of excise on tobacco and other goods manufactured or produced in India except (i) alcoholic liquor for human consumption, and (ii) opium, Indian hemp and other narcotic drugs and narcotics, but including medicinal and toilet preparations containing alcohol or any 1

substance included in (ii); 

Corporation Tax;

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Taxes on capital value of assets, exclusive of agricultural land, of individuals and companies, taxes on capital of companies;

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Estate duty in respect of property other than agricultural land;

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Duties in respect of succession to property other than agricultural land;

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Terminal taxes on goods or passengers, carried by railway, sea or air; taxes on railway fares and freight;

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Taxes other than stamp duties on transactions in stock exchanges and futuresmarkets;

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Taxes on the sale or purchase of newspapers and on advertisements published therein;

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Taxes on sale or purchase of goods other than newspapers, where such sale or purchase takes place in the course of inter-State trade or commerce;

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Taxes on the consignment of goods in the course of inter-State trade or commerce.

All residuary types of taxes not listed in any of the three lists of Seventh Schedule of Indian Constitution. Taxes are broadly divided into two parts i.e. direct taxes and indirect taxes. The tax that is levied directly on the income or wealth of a person is called direct tax. Income tax is one of the forms of direct taxes. The levy of income tax in India is governed by the Income Tax Act, 1961 and Income Tax Rules, 1962. It is charged on the Total Income and to derive the total income one must know certain concepts of the Income Tax Act, such as residential status, assessment year, previous year, assessee etc. Income tax is leviable on the taxable income and to determine taxable income, ascertainment of the residential status of the person and scope of total income are required at an initial level. There are two types of taxpayers from residential point of view Resident in India and Non-resident in India. Sourced based income in India is taxable in India whether the person earning income is resident or non-resident. Conversely, foreign sourced income of a person is taxable in India only if such person is resident in India. Therefore, the determination of the residential status of a person is very significant in order to find out his / her tax liability. The coverage of the lesson would include: l Overview of Finance Bill l Some basic concepts like assessment year, previous year, income, person, assessee, l Distinguish between capital and revenue receipts etc. l Basic steps in the calculation of tax liability. 

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For example, deduction for payment of donations under section 80G. This lesson deals with incomes which do not form part of total income. Lesson 4 [Computation of Income under Various Heads] The taxability of income of a person depends on the chargeability of such income under the Income tax Act 1961. The total income of an assessee (subject to statutory exemptions) is chargeable under Section 4(1). The scope of the total income, which varies with the residential status, is defined in Section 5. Section 14 enumerates the heads of income under which the income of an assessee will fall. The rules for computing income and the permissible deductions under different heads of income, are dealt in different sections of the Act. The coverage of the lesson includes the heads of income (as mentioned below), along with their corresponding set of sections for the purpose of computation of income.

Computation of Income under various Heads Salaries Income from house property Profits and gains of business or profession Capital gains Income from other sources Lesson 5 [Clubbing provisions and Set Off and / or Carry Forward of Losses] In addition to the general provisions which are applicable for computation of total income, there are special provisions in Sections 60 to 65 of the Income-tax Act which provide for inclusion of income of other persons in xii

Taxation in India The India Constitution is quasi-federal in nature, and the country has three tier government structure. To avoid any disputes between the centre and state the Constitution envisage following provisions regarding taxation: Division of powers to levy taxes between centre and state is clearly defined. There are certain taxes which are levied by the centre, but their proceeds are distributed between both centre and the state. ExampleUnion Excise Duty. There are certain taxes which are levied by the centre, but their proceeds are transferred to the states. Example-Estate duty on property other than agriculture income. There are certain taxes which are levied by the central government, but the responsibility to collect them is vested with the states. ExampleStamp Duty other than included in the Union List. There are certain taxes which are levied by the states, and their proceeds are also kept by states. Example: Erstwhile VAT 3

Classification of Taxes What is a Tax? Taxes are generally an involuntary fee levied on individuals and corporations by the government in order to finance government activities. Taxes are essentially of quid pro quo in nature. It means a favour or advantage granted in return for something. DIRECT TAX and INDIRECT TAX classification

Basi s

Meanin g

Direct Tax

Indirect Tax

The tax that is levied by the government directly on the individuals or corporations are called Direct Taxes.

The tax that is levied by the government on one entity (Manufacturer of goods), but is passed on to the final consumer by the manufacturer.

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Inciden ce

Exampl es Nature

The incidence and impact of the direct tax fall on the same person.

The incidence and impact of the tax fall on different persons.

Income Tax, Corporation Tax and Wealth Tax.

VAT, Service tax, GST, Excise duty, entertainment tax and Customs Duty.

They are progressive in nature.

They are regressive in nature.

Both Social and Economical. Social objective of direct tax is the distribution Objecti ve

Impact

of income. A person earning more should contribute more in the provision of public service by paying more tax. This provision is also known as progressive taxation. Not at all Inflationary.

Only Economical. When an indirect tax is levied on a product, both rich and poor must pay at the same rate. A person earning 10 lakh a month pays the same tax on the Wheat purchase as the person earning 3000 Re a month. This principle is called regressive taxation.

Is inflationary.

Understanding Regressive Nature of Indirect Taxes. Government Levies a tax of 5 percent on a pack of 5KG Rice worth Re1000. Tax Burden on the Pack: 5/100*1000= 50 Re Rich Individual Case (Monthly Earning 1 Lakh) He buys the rice pack and pays a tax of 50 Re. The proportion of his income that went on paying tax on Rice is 0.05 Percent (50/100000) of his total earning. 5

Poor Individual Case (Monthly income 1000 Re) He buys Rice pack and pays a tax of Re 50. The proportion of his income that went on paying tax on rice is 5 percent (50/1000) of his total earning. As you can clearly see, a poor individual is paying a higher proportion of his income as indirect tax as compared to the richer individual. Ad valorem versus Specific Tax ADVALOREN TAX

SPECIFIC TAX

Ad valorem tax is based on the assessed value of the product. In Fact, ‘Ad Valorem’ is a Latin word meaning ‘According to Value’.

Specific tax is a fixed amount tax based on the quantity of unit sold.

Most Ad valorem taxes are levied based on the value of the item purchased.

Specific tax is levied based on the volume of the item purchased.

The tax is usually expressed in percentage. Example GST in India has 5 tax rate slabs- 0, 5. 12, 18 and 28 percent.

The tax is usually expressed in specific sums. Example: Excise Duty on Petrol.

Example: GST, Property tax, sales tax.

Example: Excise duty on petrol and liquor products. They are regressive in nature.

They are progressive in nature.

Taxes in India In India, Taxes are levied on income and wealth. The most important direct tax from the point of view of revenue is personal income tax and corporation tax.

Income Tax: Income tax is levied on the income of individuals, Hindu undivided families, unregistered firms and other association of people. In India, the nature of income tax is progressive. 6

For taxation purpose income from all sources is added and taxed as per the income tax slabs of the individual. The budget of 2017-18 proposed the following slab structure:

Income Slab

Tax Rate

(less than 60 years)

Up to 2,50,000

No Tax

Up to 2,50,000 to 5,00,000

5%

Up to 5,00,000 to 10,00,000

20% 30%

Excess of 10,00,000

Surcharge of 10% of income tax where the total income exceeds Rs 50 lakh up to Rs 1 Crore. Surcharge of 15% of income tax, where the total income exceeds Rs 1 Crore.

Corporation Tax Corporation tax levied on the income of corporate firms and corporations. For taxation purpose, a company is treated as a separate entity and thus must pay a separate tax different from personal income tax of its owner. Companies both public and private which are registered in India under the companies act 1956 are liable to pay corporate tax. The Budget 2017-18 proposed following tax structure for domestic corporate firms: For the Assessment Year 2017-18 and 2018-19, a domestic company is taxable at 30%. For Assessment Year 2017-18, the tax rate would be 29% where turnover or gross receipt of the company does not exceed Rs. 5 crores in the previous year 2014-15. However, for Assessment year 2018-19, the tax rate would be 25% where turnover or gross receipt of the company does not exceed Rs. 50 crores in the previous year 2015-16. Tax on Wealth and Capital

Estate Duty: First introduced in 1953. It was levied on the total property passing on the death of a person. The whole property of the deceased person constituted his wealth and is liable for the tax. The tax now stands abolish w.e.f 1985. 7

Wealth Tax: First introduced in 1957. It was levied on the excess of net wealth (over 30,00,00,0 @ 1 percent) of individuals, joint Hindu families and companies. Wealth tax has been a minor source of revenue. The tax now stands abolish wef 2015.

Gift Tax: First introduced in 1958. The gift tax was levied on all donations except the one given by the charitable institution’s government companies and private companies. The tax now stands abolished wef 1998.

Capital Gain Tax: Ay profit or gain that arises from the sale of the capital asset is a capital gain. The profit from the sale of capital is taxed. Capital Asset includes land, building, house, jewellery, patents, copyrights etc. Short-term capital asset – An asset which is held for not more than 36 months or less is a short-term capital asset. Long-term capital asset – An asset that is held for more than 36 months is a long-term capital asset. From FY 2017-18 onwards – The criteria of 36 months has been reduced to 24 months in the case of immovable property being land, building, and house property. For instance, if you sell house property after holding it for a period of 24 months, any income arising will be treated as long-term capital gain provided that property is sold after 31st March 2017. But this change is not applicable to movable property such as jewellery, debt oriented mutual funds etc. They will be classified as a long-term capital asset if held for more than 36 months as earlier. Tax on long-term capital gain: the Long-term capital gain is taxable at 20% + surcharge and education cess. Tax on the short-term capital gain when securities transaction tax is not applicable: If securities transaction tax is not applicable, the short-term capital gain is added to your income tax return, and the taxpayer is taxed according to his income tax slab. Tax on the shortterm capital gain if securities transaction tax is applicable: If securities transaction tax is applicable, the short-term capital gain is taxable at the rate of 15% +surcharge and education nineteen heads List-II of Seventh Schedule of the Indian Constitution covered under State taxation, on which State Legislative enacts the taxation law, are as under: 

Land revenue, including the assessment and collection of revenue, the maintenance of land records, survey for revenue purposes and records of rights, and alienation of revenues;

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Taxes on agricultural income; 8

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Duties in respect of succession to agricultural income;

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Estate Duty in respect of agricultural income;

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Taxes on lands and buildings;

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Taxes on mineral rights;

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Duties of excise for following goods manufactured or produced within the State (i) alcoholic liquors for human consumption, and (ii) opium, Indian hemp and other narcotic drugs and narcotics;

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Taxes on entry of goods into a local area for consumption, use or sale therein;

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Taxes on the consumption or sale of electricity;

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Taxes on the sale or purchase of goods other than newspapers;

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Taxes on advertisements other than advertisements published in newspapers and advertisements broadcast by radio or television;

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Taxes on goods and passengers carried by roads or on inland waterways;

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Taxes on vehicles suitable for use on roads;

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Taxes on animals and boats;

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Tolls;

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Taxes on profession, trades, callings and employments;

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Capitation taxes;

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Taxes on luxuries, including taxes on entertainments, amusements, betting and gambling;

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Stamp duty.

Provisions have been made by 73rd Constitutional Amendment, enforced from 24th April, 1993, to levy taxes by the Panchayat. A State may by law authorise a Panchayat to levy, collect and appropriate taxes, duties, tolls etc. Similarly, the provisions have been made by 74th Constitutional Amendment, enforced from 1st June, 1993, to levy the taxes by the Municipalities. A State Legislature may by law authorise a Municipality to levy, collect and appropriate taxes, duties, tolls etc. 9

Direct Taxes: A Direct tax is a kind of charge, which is imposed directly on the taxpayer and paid directly to the government by the persons (juristic or natural) on whom it is imposed. A direct tax is one that cannot be shifted by the taxpayer to someone else. The some important direct taxes imposed in India are as under:

Income Tax:

Income Tax Act, 1961 imposes tax on the income of the individuals or Hindu undivided families or firms or co-operative societies (other tan companies) and trusts (identified as bodies of individuals associations of persons) or every artificial juridical person. The inclusion of a particular income in the total incomes of a person for income-tax in India is based on his residential status. There are three residential status, viz., (i) Resident & Ordinarily Residents (Residents) (ii) Resident but not Ordinarily RUnder the Constitution of India central government is empowered to levy tax on the income. Accordingly, the central government has enacted the Income Tax Act, 1961. The Act provides for the scope and machinery for levy of Income Tax in India. The Act is supported by Income Tax Rules, 1961 and several other subordinate and regulations. Besides, circulars and notifications are issued by the Central Board of Direct Taxes (CBDT) and sometimes by the Ministry of Finance, Government of India dealing with various aspects of the levy of Income tax. Unless otherwise stated, references to the sections will be the reference to the sections of the Income Tax Act, 1961. Income tax is a tax on the total income of a person called the assessee of the previous year relevant to the assessment year at the rates prescribed in the relevant Finance Act 4 This phrase sets the tone and agenda of any study on Income Tax Law This comprises of the understanding of the following: Concept of assessment year and previous year Meaning of person and assessee How to charge tax on income What is regarded as income under the Income-tax Act What is gross total income What is total income or taxable income Income-tax rates This chapter seeks to study in details all these aspects which lay down the basic framework for levy of income tax in India and also explain the basic concepts and terms used in the income tax lawesidents and (iii) Non

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Residents. There are several steps involved in determining the residential status of a person. All residents are taxable for all their income, including income outside India. Non residents are taxable only for the income received in India or Income accrued in India. Not ordinarily residents are taxable in relation to income received in India or income accrued in India and income from business or profession controlled from India.

Corporation Tax: The companies and business organizations in India are taxed on the income from their worldwide transactions under the provision of Income Tax Act, 1961. A corporation is deemed to be resident in India if it is incorporated in India or if it’s control and management is situated entirely in India. In case of non resident corporations, tax is levied on the income which is earned from their business transactions in India or any other Indian sources depending on bilateral agreement of that country.

Property Tax: Property tax or 'house tax' is a local tax on buildings, along with appurtenant land, and imposed on owners. The tax power is vested in the states and it is delegated by law to the local bodies, specifying the valuation method, rate band, and collection procedures. The tax base is the annual ratable value (ARV) or area- based rating. Owner-occupied and other properties not producing rent are assessed on cost and then converted into ARV by applying a percentage of cost, usually six percent. Vacant land is generally exempted from the assessment. The properties lying under control of Central are exempted from the taxation. Instead a 'service charge' is permissible under executive order. Properties of foreign missions also enjoy tax exemption without an insistence for reciprocity. Inheritance (Estate) Tax: An inheritance tax (also known as an estate tax or death duty) is a tax which arises on the death of an individual. It is a tax on the estate, or total value of the money and property, of a person who has died. India enforced estate duty from 1953 to 1985. Estate Duty Act, 1953 came into existence w.e.f. 15th October, 1953. Estate Duty on agricultural land was discontinued under the Estate Duty (Amendment) Act, 1984. The levy of Estate Duty in respect of property (other than agricultural land) passing on death occurring on or after 16th March, 1985, has also been abolished under the Estate Duty (Amendment) Act, 1985.

Gift Tax: Gift tax in India is regulated by the Gift Tax Act which was constituted on 1st April, 1958. It came into effect in all parts of the country except Jammu and Kashmir. As per the Gift Act 1958, all gifts in excess of Rs. 25,000, in the form of cash, draft, check or others, received from one who doesn't have blood relations with the recipient, were taxable. However, with effect from 1st October, 1998, gift tax got demolished and all the gifts made on or after the date were free from tax. But in 2004, the act was again revived partially. A new provision was introduced in the Income Tax Act 1961 under section 56 (2). According to it, the gifts received by any individual or Hindu Undivided Family (HUF) in excess of Rs. 50,000 in a year would be taxable. An indirect tax 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 customer). An indirect tax is one that can be shifted by the taxpayer to someone else. An indirect tax 11

may increase the price of a good so that consumers are actually paying the tax by paying more for the products. The some important indirect taxes imposed in India are as under:

Customs Duty:

The Customs Act was formulated in 1962 to prevent illegal imports and exports of goods. Besides, all imports are sought to be subject to a duty with a view to affording protection to indigenous industries as well as to keep the imports to the minimum in the interests of securing the exchange rate of Indian currency. Duties of customs are levied on goods imported or exported from India at the rate specified under the customs Tariff Act, 1975 as amended from time to time or any other law for the time being in force. Under the custom laws, the various types of duties are leviable. ( 1) Basic Duty: This duty is levied on imported goods under the Customs Act, 1962 2) 3) (2) Additional Duty (Countervailing Duty) (CVD): This is levied under section 3 (1) of the Custom Tariff Act and is equal to excise duty levied on a like product manufactured or produced in India. If a like product is not manufactured or produced in India, the excise duty that would be leviable on that product had it been manufactured or produced in India is the duty payable. If the product is leviable at different rates, the highest rate among those rates is the rate applicable. Such duty is leviable on the value of goods plus basic custom duty payable. (3) Additional Duty to compensate duty on inputs used by Indian manufacturers: This is levied under section 3(3) of the Customs Act. (4) Anti-dumping Duty: Sometimes, foreign sellers abroad may export into India goods at prices below the amounts charged by them in their domestic markets in order to capture Indian markets to the detriment of Indian industry. This is known as dumping. In order to prevent dumping, the Central Government may levy additional duty equal to the margin of dumping on such articles. There are however certain restrictions on imposing dumping duties in case of countries which are signatories to the GATT or on countries given "Most Favoured Nation Status" under agreement (7) Export Duty: Such duty is levied on export of goods. At present very few articles such as skins and leather are subject to export duty. The main purpose of this duty is to restrict exports of certain goods. (8) Cess on Export: Under sub-section (1) of section 3 of the Agricultural & Processed Food Products Export Cess Act, 1985 (3 of 1986), 0.5% ad valorem as the rate of duty of customs be levied and collected as cess on export of all scheduled products.

(9) National Calamity Contingent Duty: This duty was imposed under Section 134 of the Finance Act, 2003 on imported petroleum crude oil. This tax was also leviable on motor cars, imported multi-utility vehicles, two wheelers and mobile phones.

(10) Education Cess: Education Cess is leviable @ 2% on the aggregate of duties of Customs (except safeguard duty under Section 8B and 8C, CVD under Section 9 and antidumping duty under Section 9A of the Customs Tariff Act, 1985). Items attracting Customs Duty at bound rates under international commitments are exempted from this Cess. (11) Secondary and Higher Education Cess: Leviable @1% on the aggregate of duties 12

of Customs. (12) Road Cess: Additional Duty of Customs on Motor Spirit is leviable and Additional Duty of Customs on High Speed Diesel Oil is leviable by the Finance Act (No.2), 1998. and the Finance Act, 1999 respectively. (13) Surcharge on Motor Spirit: Special Additional Duty of Customs (Surcharge) on Motor Spirit is leviable by the Finance Act, 2002.

Central Excise Duty: The Central Government levies excise duty under the Central Excise Act, 1944 and the Central Excise Tariff Act, 1985. Central excise duty is tax which is charged on such excisable goods that are manufactured in India and are meant for domestic consumption. 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. It is mandatory to pay Central Excise duty payable on the goods manufactured, unless exempted eg; duty is not payable on the goods exported out of India. Further various other exemptions are also notified by the Government from the payment of duty by the manufacturers.

Various Central Excise are: (1) Basis Excise Duty: 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. (2) Special Excise Duty: 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. (2) Additional Duty of Excise: 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. (4) Road Cess: (a) Additional Duty of Excise on Motor Spirit: This is leviable by the Finance Act (No.2), 1998. (b) Additional Duty of Excise on High Speed Diesel Oil: This is leviable by the Finance Act, 1999. (5) Surcharge: (a) Special Additional Duty of Excise on Motor Spirit: This is leviable by the Finance Act, 2002. (b) Surcharge on Pan Masala and Tobacco Products: This Additional Duty of Excise has been imposed on cigarettes, pan masala and certain specified tobacco products, at specified rates in the Budget 2005-06. Biris are not subjected to this levy. (6) National Calamity Contingent Duty (NCCD): NCCD was levied on pan masala and certain specified tobacco products vide the Finance Act, 2001. The Finance Act, 2003 extended this levy to polyester filament yarn, motor car, two wheeler and multi-utility vehicle and crude petroleum oil. (7) Education Cess: Education Cess is leviable @2% on the aggregate of duties of Excise and Secondary and Higher Education Cess is Leviable @1% on the aggregate of duties of Excise. (8) Cess - A cess has been imposed on certain products.

Service Tax: The service providers in India except those in the state of Jammu and Kashmir are required to pay a Service Tax under the provisions of the Finance Act of 1994. The provisions related to Service Tax came into effect on 1st July, 1994. Under Section 67 of this Act, the Service Tax is levied on the gross or aggregate amount charged by the service 13

Direct taxes are the important sources of raising public finance. ‘Income tax’ is one of the major sources of revenue of the Indian Govemment. There is no country, which does not make use of taxation for its economic growth. Maximization of economic growth is the ultimate objective of the economic, fiscal and monetary policy of the Govemment. While stimulating the growth in the desired directions, it is equally necessary to seethat development percolates into all sections of the society.

2. The Government needs money to maintain law and order in

the country, to safeguard the security of the country from foreign powers and promote the welfare of the people. Since our Govemment is wedded to socialistic pattern of society, it is the foremost duty of the Government to bring out such welfare and development programmes, which will bridge the gap between the rich and poor. Thus it is an important tool in bringing about a balanced socio-economic growth. During the last 55 years we could have achieved much more than what we have achieved. The Central Government has run into a large fiscal deficit and most of the State Governments are almost bankrupt. 3. Our Social and physical infrastructure is poor. Especially

during last 30 years, we were lagging far behind other nations like Japan, Singapore, Taiwan and China. There are many causes for this situation. The collection of revenue system is one of the major causes. Many professionals, businessmen industrialists and politicians are not paying tax on real income, ‘salaried person’ are paying the tax regularly as it is deducted at source. The Government plays a major role in taking decisions on economic matters. 4. The Finance Minster has a difficult task of presenting a

balanced budget, keeping in mind the manner in which he can collect revenue and utilise the said resources for developmental work. He has to keep in mind the various sections in our society while presenting the budget.

TAX DEDUCTION AT SOURCE Any person responsible for making payment of certain category of incomes is liable to deduct tax at source at an appropriate occasion. The law prescribes time when the TDS is to be made, rate at which it should be made and, when TDS should be paid to the Government and associated administrative responsibilities of payer (tax deductor) and 14

payee (tax deductee) have been prescribed. The following chart states at a glance incomes from which TDS should be made : Section Nature of Income/ Payment Threshold Limit Person Responsible to Make TDS Nature of payee Rate at which to be deducted 192 Salary Maximum amount not liable to tax for employee Any person being an Employer Employee having taxable salary average rate of incometax computed on the basis of rates inforce for the financial year in which the payment is made, on the estimated salary income of the employee for that financial year 193 Interest on securities 10,000, if income from 8% Saving Bonds, 2003 5,000, if interest on debenture Any person issuing the security Any person Discussed later 194 Dividend Nil Company Any person @10% if PAN is provided @20% if PAN is not provided 194A Any interest other than interest on securities Exceeding ` 5,000 in a year or 10,000 in case payer is banking individual or HUF Any resident in India @10% if PAN is provided @20% if PAN is not provided

Deduction and Collection of Tax at Source DIRECT TAXATION Section Nature of Income/ Payment Threshold Limit Person Responsible to Make TDS Nature of payee Rate at which to be deducted 194B Winnings from lottery or crossword Puzzle or card game and other game of any sort including television game ` 10,000 Any person Any person 30% [Sec. 115BBB] 194BB Winnings from horse race ` 5,000 Winning from horse race Any person 30% [Sec. 115BBB] 194C Any Payment in pursuance of any contract for consideration If a contract exceeds contract ` 30,000 or total in a year contracts with the same contractor or subcontractor exceed ` 75,000. Central or State Government, Local Authority, Central/State or Provincial Corpn., Company Co- operative Society Housing Board, Trustor University, Firm Any resident contractor or sub-contractor for carrying out any work including supply of labour If the receipient is an individual/HUF = 1% If the recipient is any other person = 2% 20%, if PAN is not provided (in the both the cases). If the receipt is a transport operator and eligible to compute in come u/s 44AE and he furnishes his PAN to payer, TDS rate = Nil 194D Insurance commission ` 20,000 Any person Any resident person 10% if PAN furnished 20%, if PAN not furnished 194DA Any person made payment to a resident person under Life Insurance Policy, including bonus on such policy, except income u/s 10(10D) ` 1,00,000 Any person Any Resident 2% 194E Income for (i) participation in any game or sport in India; (ii) by way of remuneration for articles on sorts, etc Nil Any person Any nonresident sportsman (including athlete or an entertainer) who is not a citizen of India 20% Guaranteed sum in relation to any game or sport played in India. Nil Any person Any non- resident 15

association or institution. 20% 194EE Any sum out of National Savings Scheme u/s 80CCCA ` 2,500 Any person Any person 20% 194F Amount on account of repurchase relevant of units covered u/s. 80CCB Nil Any person Any person 20% DIRECT TAXATION I 22.3 Section Nature of Income/ Payment Threshold Limit Person Responsible to Make TDS Nature of payee Rate at which to be deducted 194G Commission, remuneration or prize – relating to lottery tickets Exceeding ` 1,000 Any person Any person stocking, purchasing or selling lottery tickets. 10% 194H Commission or Brokerage Exceeding ` 5,000 p.a Other than individual and HUF Any person 10%, if PAN furnished 20%, if PAN not furnished

Advantages and Disadvantages of Direct Taxes –Advantages of Direct Taxes: Direct and indirect taxes have advantages of their Own. Direct taxes have some merits and so have the indirect taxes.

Direct taxes have the following advantages in their favour : (i) Equitable: The burden of direct taxes cannot be shifted. Hence equality of sacrifice can be attained through progression. Of course, the very low incomes can be exempted. This cannot be achieved- by taxes on commodities which fall with equal force on the rich and the poor. The tax raises the price of the commodity, and the price of a commodity is the same for every person, rich or poor. (ii) Economical: The cost of collection of direct taxes is low. They are mostly collected “at the source”. For instance,-the income tax is deducted from an officer’s pay every month. This saves expense. The employer acts as an honorary tax collector. This means great economy. ADVERTISEMENTS: 16

(iii) Certain: In the case of a direct tax, the payers know how much is due from them and when. The authorities also know the amount of revenue they can expect. There is certainty on both sides. This minimises corruption on the part of collecting officials. (iv) Elastic: If the State suddenly stands in need of more funds in an emergency, direct taxes can well serve the purpose. The yield from income tax or death duties can be easily increased by raising their rate. People cannot stop dying for fear of paying death duties. (v) Productive: Another virtue of direct taxes is that they are very productive. As a community grows in numbers and prosperity, the return from direct taxes expands automatically. The direct taxes yield a large revenue to the State. (vi) A means of developing civic sense. In the case of a direct tax, a person knows that he is paying a tax, he feels conscious of his rights. He claims the right to know how the Government uses his money and approves or criticizes it. Civic sense is thus developed. He behaves as a responsible citizen. Disadvantages of Direct Taxes ADVERTISEMENTS: The great disadvantage of a direct tax is that it pinches the payer. He ‘squeaks’ when a lump sum is taken out of his pocket. The direct- taxes are thus very inconvenient to pay. Nobody can help feeling the pinch.

(ii) Evadable: The assessee can submit a false return of income and thus evade the tax. That is why a direct-tax is “a tax on honesty.” There is a lot of evasion. Many of those who should be paying taxes go scot-free by concealing their incomes. (iii) Arbitrary: If taxes are progressive, the late of progression has to be fixed arbitrarily; and if proportional, they fall more heavily on the poor. Thus, both are bad. The rate of taxes depends upon the whim of the Finance Minister. This is arbitrary. (iv) Disincentive: If the taxes are too heavy, they discourage saving-sand investment. In that case the country will suffer economically. A high level of taxation discourages investment and enterprise in the country. It inflicts a lot of damage, on business and industry. 17

w VALUE ADDED TAX (VAT): The practice of VAT executed by State Governments is applied on each stage of sale, with a particular apparatus of credit for the input VAT paid. VAT in India classified under the tax slabs are 0% for essential commodities, 1% on gold ingots and expensive stones, 4% on industrial inputs, capital merchandise and commodities of mass consumption, and 12.5% on other items. Variable rates (State-dependent) are applicable for petroleum products, tobacco, liquor, etc. VAT levy will be administered by the Value Added Tax Act and the rules made there- under and similar to a sales tax. It is a tax on the estimated market value added to a product or material at each stage of its manufacture or distribution, ultimately passed on to the consumer. Under the current single-point system of tax levy, the manufacturer or importer of goods into a State is liable to sales tax. There is no sales tax on the further distribution channel. VAT, in simple terms, is a multi-point levy on each of the entities in the supply chain. The value addition in the hands of each of the entities is subject to tax. VAT can be computed by using any of the three methods: (a) Subtraction method: The tax rate is applied to the difference between the value of output and the cost of input. (b) The Addition method: The value added is computed by adding all the payments that is payable to the factors of production (viz., wages, salaries, interest payments etc). (c) Tax credit method: This entails set-off of the tax paid on inputs from tax collected on sales.

Securities Transaction Tax (STT): STT is a tax being levied on all transactions done on the stock exchanges. STT is applicable on purchase or sale of equity shares, derivatives, equity oriented funds and equity oriented Mutual Funds. Current STT on purchase or sell of an equity share is 0.075%. A person becomes investor after payment of STT at the time of selling securities (shares). Selling the shares after 12 months comes under long term capital gains and one need not have to pay any tax on that gain. In the case of selling the shares before 12 months, one has to pay short term capital gains @10% flat on the gain. However, for a trader, all his gains will be treated as trading (Business) and he has to pay tax as per tax sables. In this case the transaction tax paid by him can be claimed back/adjusted in tax to be paid. The overall control for administration of Direct Taxes lies with the Union Finance Ministry which functions through Income Tax Department with the Central Board of Direct Taxes (CBDT) at its apex. The CBDT is a statutory authority functioning under the Central Board of Revenue Act, 1963. It also functions as a division of the Ministry dealing with matters relating to levy and collection of Direct Taxes. The Central Excise Department spread over the entire country administers and collects the central excise duty. The apex body that is responsible for the policy and formulation of rules is the Central Board of Excise and Customs which functions under the control of the Union Finance Ministry. The Central Excise officers are also entrusted with the administration and collection of Service tax and the Customs duty. The information contained in this chapter is related to direct and indirect taxes imposed and collected by the Union Government. The tables giving data from 2000-01 onwards in respect direct taxes (corporation tax, income tax and other direct taxes) collected by Central Board of Direct Tax (CBDT) and indirect taxes (customs duties, union excise duties and service tax) collected by Central Board of Excise and Customs. Customs Collection Rate used in this chapter is defined as the ratio of revenue collection (basic customs duty + countervailing duty) to value of imports (in per cent) unadjusted for exemptions, expressed in percentage. 18

Highlights of the Direct Taxes: 

The total revenue realization from Direct and Indirect Taxes increased from ` 1881.19 billion in 2000-01 to ` 6076.45 billion in 2008-09. The percentage share of revenue realization from direct taxes to the total revenue realization increased from 36.3% in 2000-01to 55.7% in 2008-09, whereas, the percentage share of revenue realization from indirect taxes declined from 63.7% in 2000-01 to 44.3% in 2008-09.



Revenue collection from direct taxes increased from ` 683.05 billion in 2000-01 to ` 3382.12 billion in 200809. The percentage share of revenue realization from corporation tax to the total revenue realization from direct taxes increased from 52.3% in 2000-01to 63.2% in 2008-09, whereas, the percentage share of revenue realization from income tax decreased from 46.5% in 2000-01 to 36.7% in 2008-09.



Revenue collection from indirect taxes increased from ` 1198.14 billion in 2000-01 to ` 2446.67 billion in 2009-10. The percentage share of revenue realization from customs duties to the total revenue realization from indirect taxes decreased from 39.7% in 2000-01 to 34.5% in 2009-10, whereas, the percentage share of revenue realization from excise duties declined from 57.2% in 2000-01 to 42.1% in 2009-10. , However, the percentage share of revenue realization from service tax to the total revenue realization from indirect taxes increased substantially from 2.2% in 2000-01 to 23.5% in 2009-10.

19

Income from House Property Illustration 3. Mr. Shyam owns two houses, which are occupied by him for his own residence. The detailed particulars of houses and his other incomes for the Previous Year 201516 are given below: House A `

Particul ars Fair Rent Municipal Value Standard Rent Municipal taxes paid Interest on loan for the FY 2015-16 Date of loan Date of completion Certificate of interest attached with return of income Mr. Shyam earns income from other sources amounting to ` 2,00,000

House B `

5,00, 000 4,20, 000 4,50, 000 50,0 00 1,60, 000

5,00,0 00 4,50,0 00 6,20,0 00 60,0 00 2,20,0 00

1.12.2 004

1.04.2 005

31.03.2 006

31.03.2 008

No

Yes

Compute his Total Income and advise him which house should be opted for selfoccupation.

20

Solution : Computation of Income from House Property under different options Particul ars (a) Assuming both properties are self-occupied (SO) Annual Value Less : Interest on loan Loss from House Property (b) Assuming both properties as deemed let out (DLO) Gross Annual Value Less : Municipal taxes paid Net Annual Value

House A `

House B `

Nil

Nil

(-) (-) 30,000 2,00,000 (-) 30,000

(-) 2,00,000

4,50,000 5,00,000 (-) 50,000

(-) 60,000

4,00,000 4,40,000

Less : Permissible deduction : (i) Statutory deduction : 30% of Net Annual Value

(-) (-) 1,20,000 1,32,000

(ii) Interest on loan

((-) )1,60,000 2,20,000

Income from House Property

1,20,000

88,000

Option I

(DLO)

Option II 1,20,000 (DLO) ()2,00,000 (SO)

2,00,00 0

2,00,0 00

(c) Criteria for selection of house for selfoccupied : Lowest taxable income Income from house A Income from house B

(-)30,000 (SO) 88,000

Income from Other Sources

Total Income

2,58,000 1,20,000

Conclusion : House B should be treated as self-occupied.

Illustration 5. Mr. Ranjit Sinha is employed with HUD Co. Ltd. @ ` 25,000 p.m. He is the owner of a house property construction of which was completed on 1st April 2006. Since then, it has been in his self-occupancy for residential purposes. The particulars in respect of the house for financial year 2015-2016 are given below: `

Municipal Valuation Municipal tax paid Ground rent outstanding Insurance premium paid

2,00,000 20,000 5,000 3,000

Interest on loan, taken on 1-6-2014 for renovation of the house, is ` 75,000 for the year 2015-2016. However, he could pay only, ` 45,000 during the year. He is transferred in February 2016 to the Nagpur Branch of the Company. He intends to allow his sister to occupy the house free of rent in his absence. He seeks your advice in this connection. Compute his total income for AY 2016-2017. Solution : Computation of Total Income Assessee : Mr. Ranjit Sinha 17

Particul ars

A. Y : 2016-

Case I House kept vacant `

Case II House is occupied by his sister in his absence `

Income from House Property : Gross Annual Value

Nil

2,00,000

Less : Municipal taxes paid

Nil

(-) 20,000

Net Annual Value Less : Permissible deduction (Sec. 24) (i) Statutory deduction – 30% of Net annual value

Nil

1,80,000

Nil

(-) 54, 000

(-) 30,000

(-) 75,000

(-) 30,000

51,000

Income from Salary

3,00,000

3,00,000

Income from House Property

(-) 30,000

51,000

Total Income

2,70,000

3,51,000

(ii) Interest on loan for renovation Income from House Property Statement of Total Income :

Advise : From tax angle it is not advisable to allow his sister to occupy the house in his absence. Income from House Property Illustration 11. Mr. Suman owned a house property at Chennai which was occupied by him for his residence. He was transferred to Mumbai in June 2015 and therefore he let out the property with effect from 1.7.2015 on

a monthly rent of ` 5,000. The corporation tax payable in respect of the property was ` 10,000 of which 50% was paid by him before 31.3.2016. Interest on money borrowed for the construction amounted to `20,000. Compute the income from house property for the A.Y. 2016-17. Solution : Assessee : Mr. Suman

Previous Year : 2015-2016

Assessment

Year : 2016-17 Computation of Income from House Property Particul ars Annual Value u/s 23(1)(a)/(b) – Rent receivable for the whole year Less : Municipal Taxes paid ` 10,000 × 50% Net Annual Value Less : Deduction u/s 24 (a) 30% of Net Annual Value ` 55,000 × 30% (b) Interest on borrowed Capital Income from House Property

INDIRECT TAXES OBJECTIVES After studying this lesson, you will be able to: ●

acquaint yourself with the sources of revenues of the government;

●

define direct taxes and indirect taxes;

●

distinguish between direct taxes and indirecttaxes;

●

state merits and demerits of direct taxes and indirect taxes;

●

enumerate sources of direct taxes and indirect taxes;

●

●

define various types of indirect taxes like, excise duty, customs duty(import and export),production linked tax, and Value Added Tax (VAT); and distinguish between sales tax and value added tax.

EXPECTED BACKGROUND KNOWLEDGE ●

Concept of percentage and its applications

`

16,5 00 20,0 00

` 60,0 00 (5,00 0) 55,0 00 (36,50 0) 18,5 00

40.1 SOURCES OF REVENUE As we know that government has to perform its various functions for the welfare of the society,

Indirect Tax . The income of government from all sources is called public income or public revenue . Public revenue include s income from taxes, income from goods and service s supplie d by public enterpr ises, revenue from the admini strative activiti es, such

as fees, fines, etc., gifts and grants, while public receipts include all the income of the government which it may have during a given period of time i.e. public receipts = public revenue + income from all other sources, such as, a public borrowing from individuals and banks and income from public enterprises. Local bodies like Municipal Corporation, Municipal Committees, Town Panchayat, Cantonment Board, etc can also levy certain taxes like property tax, professional tax, octroi, education cess, etc. Thus, taxes are contributions made by the citizens of the country towards its development and expenditure, which the government has to incur in its social and economic activities. Taxes are paid by the individuals, corporate houses of trade and industry etc. There are different types of taxes like income tax, wealth tax, gift tax, property tax, sales tax, excise and custom duty etc.

Tax A tax is legally compulsory payment levied by the government on the persons or companies to meet the expenditure incurred on conferring common benefits upon the people of a country. In other words a tax can also be describe as a compulsory levy where those who are taxed have to pay the sums irrespective of any correspondingreturn of services or goods by the government.

Fee Fee is also compulsory payment made by a person who receives in return a particular benefit or services from the government.

Fines These are compulsory payments without any quid pro que but are different from taxes because fines are imposed to curb certain offences and discipline people and not to get revenue for the State. In this sense, fines are not taxes.

Surcharges It is an additional charge or an extra fee for a special service. It is also called tax on tax e.g. a 10% surcharge is applicable on income tax for incomes above Rs. 10 lakh. In other words surcharges are often a charge in addition to a charge, or a tax added to the original tax. Two aspects of tax follow from the definition: 1.

A tax is a compulsory payment and no one can refuse to payit.

2.

Proceeds from taxes are used for common benefits or general purposes of the state. It means there is no direct quid pro que involvement in the payment of a tax.

T

DIRECT TAXES

Those taxes whose burden cannot be shifted to others and the person who pays these to the government has to bear it are called direct taxes. In other words direct tax is imposed on an individual or a group of individuals, which affects them directly i.e, which they have to pay to the government directly. The direct tax can be of different

Income Tax The tax imposed on an individual or a group of individuals on their annual incomes is known as income tax. Every individual whose annual income exceeds a certain specified limit is required, under the Income Tax Act, to pay a part of his income in the form of income tax. Its rates are announced in the beginning of each financial year by the centralgovernment.

Financial Year: The period from 1st April to 31st march is taken as a financial year i.e. every financial year begins on 1st April and ends on 31st march of the consecutive year.

Assessment Year: The year next to a particular financial year is called the assessment year for that financial year, e.g. for financial year 2005-06, the assessment year is 2006-07. Permanent Account Number: An individual is given a permanent account number (PAN) by the income tax department. He or she is obliged to file an income tax return of the financial year by a specified date of the subsequent financial year.

Wealth Tax The tax imposed on the wealth (property as well as money) of an individual is called wealth tax. The exemption limit for wealth tax is Rs 5, 00,000. In addition one residential house or a part thereof is exempted from the wealth tax.

Gift Tax If an individual transfers any of his movable or immovable property voluntarily to any other individual it is called a gift. If the value of a gift exceeds a specified limit then the person giving the gift has to pay gift tax to the government where as the person receiving the gift need not pay any tax. A controversial issue in public finance is concerned with whether in the tax structure of an economy, direct or indirect tax should be preferred. Indeed both direct taxes and indirect taxes have their merits and demerits and therefore a good tax system should contain a proper mix of these two types of taxes. Direct taxes, it may be recalled are those which are levied directly on the individuals and firms and their burden is borne by those on whom these are levied.

Merits of Direct Taxes The larger burden of the direct taxes falls on the rich people who have capacity to bear these and the poor people with would try to avoid or

even evade the taxes. The practice and possibility of tax evasion and avoidanc e

Demerits of Direct Taxes 1.

In the direct taxation, people are aware of their tax liability and therefore they

is more in direct taxes than in case of indirect taxes

2.

even in advance and become quite inconvenient.

3.

Another demerit of direct taxes is their supposed effect on the will to work and save. It is assessed that work (given Income) and leisure are two alternatives before any taxpayer. If therefore, a tax is imposed say on income, the taxpayer will find that the return from work has decreased as compared with return from leisure. He therefore tries to substitute leisure for work.

INDIRECT TAXES Indirect taxes are those whose burden can be shifted to others so that those who pay these taxes to the government do not bear the whole burden but pass it on wholly or partly to others. Indirect taxes are levied on production and sale of commodities and services and small or a large part of the burden of indirect taxes are passed on to the consumers. Excise duties on the product of commodities, sales tax, service tax, customs duty, tax on rail or bus fare are some examples of indirect taxes.

Excise Duty The tax imposed by the government on the manufacturer or producer on the production of some items is called excise duty. The liability to pay excise duty is always on the manufacturer or producer of goods. The duty being a duty on manufacture of goods, it is normally added to the cost of goods, and is collected by the manufacturer from the buyer of goods. Therefore it is called an indirect tax. This duty is now termed as "Cenvat". 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

For example, excise duty on the production of sugar is an indirect tax because the manufacturers of sugar include the excise duty in the price and pass it on to buyers. Ultimately it is the consumers on whom the incidence of excise duty on sugar falls, as they will pay higher price for sugar than before the imposition of thetax. In order to attract Excise duty liability, following four conditions must be fulfilled: a) b)

The duty is on "goods". The goods must be "excisable" The goods must be "manufactured" or produced

c)

Such manufacture or production must be "in India".

40.3.1 Additional Information on Excise Duty Goods : These are the entities, which can be weighted, measured and marketed. e.g. steel, cloth, computer software, gas, etc. Those commodities having very short life are not goods, if not marketable in that short period, even if

Sl. No .

Type of Goods

Excie Cess Duty

1. Unprocessed fabrics of cotton, man-made (synthetic) and woolen other than (2) given below.

10 %

2%

2. Unprocessed knitted or crocheted fabric of cotton not containing any other textile materials.

8%

2%

3. If readymade garments are made up of 100% cotton fabrics and also knitted or crocheted

8%

2%

4. Readymade garments other than (3) above

10 % 8%

2%

10 %

2%

5. All types of clothing accessories if made up of 100% cotton and also knitted or crocheted. 6. Clothing accessories other than (5) above.

2%

Valuation for Excise Duty Specific duty: It is the duty payable on the basis of certain unit e.g. duty on cigarettes is on length basis, sugar per quintal basis, matches per 100 boxes, marble slabs and tiles per square meter basis and colour TV by screen size in cm, if MRP is not written on the carton. Tariff Value: Government from time to time fixes tariff value. Government can fix different tariff values for different classes of goods manufactured by different classes or sold to different classes of buyers. MRP based valuation : The provisions are as follows: i) ii)

The goods should be covered under provisions of Standards of Weights and Measures Act. Central Government can permit reasonable abatement (deductions) from the retail sale price.

Central Governmenthas to issue a notification in Official gazette specifyingthe commodities for which the provision is applicable and the abatement permissible. For example, government had issued a notification to reduce the excise duty on cosmetics and toilet preparations on MRP basis printed on the carton after allowing abatement of 50%. In such cases, if MRP printed on carton is Rs 50 and if the duty on cosmetics & toilet preparations is iii)

Payment of excise duty : In case of Non-SSI (Small Scale Industries) i.e., normal assesses the excise duty is payable monthly, and for SSI (availing exemption based on turnover) it is payable quarterly. The duty on the goods removed from the factory or the warehouse during the month shall be paid by the 5th of the following month in case of Non-SSI and by 15th for SSI. In case of delayed payment, interest should also be deposited at the rate of 13% p.m or Rs 1,000 per day for the period of delay after 5th or 15th whichever is applicable, whichever is higher, along with the duty.

Payment by debit in Cenvat credit account: Under the Cenvat credit scheme, the assessee is allowed credit of duty paid on inputs or capital goods, which are used in or in relation to manufacture of the final products, and the credit can be utilized towards payment of duty on the final products. Credit is allowed on inputs and capital goods except LDO (light diesel oil), HSD (high speed diesel) and motor spirit. Also, instant credit is allowed immediately on the inputs being received into the factory. However credit is not allowed if final products are exempted from duty. Following example will illustrate the credit method of Cenvat. Let the price of the commodity be Rs 100, When the transaction takes place without cenvat, B purchases from A at Rs 110,(10% as excise duty). After addition a value of Rs 40, the subtotal is Rs 150.He pays 10% tax on it (i.e Rs15) then total is 165. As against this, in the second case, when transaction takes place with Cenvat, B purchases from A at Rs 100 because he got credit on that amount. After adding the same value of Rs 40, the sub total is Rs 140, He has to pay 10% of excise on Rs 140,i.e Rs 14, then total becomes Rs. 154. Here you can observe easily that transaction with Cenvat is clearly beneficial. The details are exhibited in the following tabular form:

Details Purchases

Transaction without Cenvat A B 110

Transaction with Cenvat A B 100

Value added Sub-total Add-tax 10%

100 100 10

100 100 10

40 150 15

40 140 14

Sales Tax Tax paid by the consumer on the purchase of some items is called the sales tax. Rates of sales tax depend upon the nature of the goods purchased by the consumer. Value Added Tax Under the Indian constitution, the States have the exclusive powers to levy tax on the sales of goods. The tax on the inter-state trade is levied by central government, and is called Central Sales Tax (CST). It is proposed to abolish CST in phased manner. Due to various defects in the Sales Tax System, the Govt, has introduced a new system called Value Added Tax (VAT) in place of State Sales Tax. VAT is a multi-point tax levied and collected on the value added to goods at different stages of sale. It is a method of taxing by stages. The method consists of levying a tax on the value added to a product at each stage of production or distribution. It is another form of sales tax where tax is collected in stages rather than collection of the tax at the first or last point. VAT, in simple terms, is a multi-point levy on each of the entities in the supply chain with the facility of set-off of input tax i.e. that is, the tax paid at the stage of purchase of goods by a trader and on purchase of raw materials by a manufacturer. Only the value addition in the hands of each of the entities is subject to tax. For instance, if a dealer purchases goods for Rs 100 from another dealer and a tax of Rs 10 has been charged in the bill, and he sells the goods for Rs 120 on which the dealer will charge a tax of Rs 12 at 10 per cent, the tax payable by the dealer will be only Rs 2, being the difference between

CHARACTERISTICS OF VAT 1.

It is simple, modern and transparent taxsystem.

2.

It is a multipoint tax with credit for the tax paid at precedingstage. Small traders (whose turnover is up to Rs10 lakhs) are outside VAT.

3. 4.

VAT replaces a number of taxes like turnover tax, luxury tax, surcharge etc.

5.

VAT being efficient is considered to be better than sales tax.

6.

VAT has four rates instead of the large number of rates under sales tax.

7.

Composition scheme for small dealer having turnover above taxablequantum of Rs 10 lakhs but below 50 lakhs.

8.

credit of taxes paid on inputs and only taxing value addition.

Calculation of Tax Liability under VAT Suppose a TV dealer sells TV worth Rs. 20,000 and VAT is 4%, he will collect Rs. 800 (20,000×0.04) as VAT. If the dealer had purchased the TV for Rs. 19,000 and at that time he had already paid Rs. 760 as VAT. So the VAT payable by the dealer will be 800 760 = 40. He will pay to the government only Rs. 40.00 the tax payable is tax rate multiplied by valuation addition. In this case it would be 0.04 × (20000 19000) = 40. VAT liability for any tax period, is calculated by decreasing total input tax from total output tax. The output tax is calculated by multiplying the turn over (Sales) by applicable VAT rates. Net tax = output tax input tax If difference is (+) pay this amount to government. If differenceis ( ) applyexcesscreditagainstyour VAT liability andclaimrefundforanyremaining balance OR the excess credit can be carried forward to the next period.

Advantages of VAT 1.

Self-assessment by dealers.

2.

Higher revenue growth from states.

3.

Set off for input tax paid on previous purchases.

4.

Other taxes to be eliminated.

5.

Fairness in the taxation system. Visits to tax department will reduce.

6.

Help to reduce tax evasion andcorruption.

7.

Uniform rates of VAT will boost fair trade.

8. 9.

VAT does not lead to price rise. VAT is easier to enforce.

Disadvantages of VAT 1.

Record keeping systems and procedure will need to restrengthen with Tax Authorities in order to claim input tax credit.

2.

VAT may lead to tax evasion if false input credits are submitted by dealers.

Tax Credit: A dealer who is registered shall be entitled to a tax credit in respect of the turnover of purchases occurring during the tax period where the purchase arises in the course of his activities as a dealer and the goods are to be used by him directly or indirectly for the purpose of making sale. No tax credit shall be allowed i)

in the case of the purchase of goods from a person who is not a registered dealer.

ii)

for the purchase of goods which are to be incorporated into the structure of a building owned or occupied by the person.

iii)

when a dealer has purchased goods and the goods are to be used partly for the purpose of making the sales, the amount of the tax credit shall be reduced proportionately.

Net Tax: The net tax payable by a dealer for a tax period shall be determined by the formula: Net tax = O I C ●

● ●

●

Government has to perform many functions in the discharge of its duties, to meet these requirements they require capital. So, government collects money from the public in the form of fees, fines, surcharge and taxes. Taxes are the most important sources of revenue. The income of government through all sources is called public income or public revenue. Different tiers of government levies different taxes like, Central government levies-income tax, education cess, wealth tax, central excise and customs duty, central sales tax, etc, State government- Sales taxes (Now VAT), state excise duty, entertainment tax, agriculture revenue tax etc. Local bodies- property tax, professional tax, octroi, education cess, etc.

Fines are compulsory payments, which are imposed to curb certain offences, and discipline people and fee is also compulsory payment, which are made when a person receives in return a particular benefit or services from the government. Whereas tax is legally compulsory payment levied by the government on the persons or companies to meet the expenditure incurred on conferring common benefits upon the people of a country. Direct taxes are those taxes whose burden cannot be shifted to others and the person who pays it to the government has to bear it. Indirect taxes are those whose burden can be shifted to others so that those who pay these taxes to the government do not bear the whole burden but pass it on wholly or partly to others ●

●

●

●

●

●

●

●

Excise duty can only be levied on those items which are manufactured in India (excluding goods produced or manufactured in special economiczones). Generally 16% of excise duty and 2% cess are imposed on most of the all goods, except few exceptions like In case of delayed payment, interest should also be deposited at the rate of 13% p.m or Rs 1,000 per day for the period of delay after 5th or 15th as the case may be, whichever is higher, along with the duty. Exemptions: Central excise rules grant exemption from duty if goods are exported under bond, except exports to Nepal and Bhutan. Similarly, goods manufactured in special economic zones (SEZ) are not excisable goods and hence no excise duty can be levied on goods manufactured. Tax imposed by the government on the import and export of items (goods) is called customs duty. Tax paid by the consumer on the purchase of some items is called salestax. VAT will replace the present sales tax in India. Under the current single-point system of tax levy, the manufacturer or importer of goods into a State is liable to sales tax. There is no sales tax on the further distribution channel. VAT, in simple terms, is a multi-point levy on each of the entities in the supply chain with the facility of set-off of input tax i.e. the tax paid at the stage of purchase of goods by a trader and on purchase of raw materials by a manufacturer.

RATES OF VAT: There are four slabs of VAT imposed on the different goods, i.e. 1%, 4%, 12.5%, and 20%.

●

TAX CREDIT: A dealer who is registered shall be entitled to a tax credit in respect of the turnover of purchases occurring during the tax period where the purchase arises in the course of his activities as a dealer and the goods are to be used by him directly or indirectly for the purpose of making sale.

●

NET TAX: The net tax payable by a dealer for a tax period shall be determined by the formula: Net tax = O I C whereO = the amount of tax payable by the person at rates stipulated in respect of the taxable turnover arising in th I = the amount of the tax credit arising in the tax period to which the person is entitled for adjustment to the tax credit required by this Act. C = the amount if any brought forward from the previous tax period. ●

If same rate of sales tax and VAT are imposed on the

ales tax, government collects more than in the case of VAT. However the coverage from VAT is more because in VAT there is very little chances of tax evasion. F 15%

E 25%

A G 5% 10%

B 20% C 15%

D 10%

ASSESSMENT STRATEGY There will be written examination paper of three hours. OBJECTIVES To provide an in depth study of the various provisions of indirect taxation laws and their impact on business decision-making Learning Aims

1. Canons of Taxation – Indirect Taxes 2. Central Excise 3. Customs Laws 4. EXIM POLICY 5. Service Tax 6. Central Sales Tax Act & VAT Act 7. Basic Concepts of International Taxation & Transfer Pricing in the context of Indirect Taxation

1.

5% 20 % 15 % 10 % 25 % 15 % 10 %

Canons of Taxation – Indirect Taxes (a) Features of Indirect Tax, Constitutional Validity (b) Indirect Tax Laws, administration and relevant procedures

2.

Central Excise (a) The Central Excise Law – Goods, Excisable Goods, Manufacture and manufacturer, Classification, Valuation, Related Person, Captive Consumption, CAS 4 CENVAT, Basic Procedure, Export, SSI, Job Work (b) Assessments, Demands, Refund, Exemptions, Power of Officers (c)

Adjudication, Appeals, Settlement Commission, Penalties.

(d) Central Excise Audit and Special Audit under 14A and 14AA of Central Excise Act (e) Impact of tax on GATT 94, WTO, Anti Dumping processing (f) 3.

Tariff Commission and other Tariff authorities

Customs Laws (a) Basic concepts of Customs Law (b) Types of customs duties, Anti-Dumping Duty, Safeguard Duty (c)

Valuation, Customs Procedures, Import and Export Procedures, Baggage, Exemptions, Warehousing, Demurrage, Project Import and Re-imports

(d) Penalties and Offences 4.

EXIM POLICY (a) EXIM Policy (b) Export Promotion Schemes, EOU (c)

Duty Drawback

(d) Special Economic Zone 5.

Service Tax (a) Introduction, Nature of Service Tax, Service Provider and Service

Receiver (b) Registration procedure, Records to be maintained (c)

Negative List of Services, Exemptions and Abatements

(d) Valuation of Taxable Services (e) Payment of service Tax, Returns of Service Tax (f)

CENVAT Credit Rules, 2004

(g) Place of Provision of Service Rules, 2012 (h) Other aspects of Service Tax

(g) Special Audit u/s 72A of the Finance Act, 1994 for Valuation of Taxable Services 6.

Central Sales Tax Act & VAT Act (a) Central Sales Tax (i)

Introduction, Definitions, salient features of CST Act

(ii)

Stock Transfer, Branch transfer, Inter State Sale

(iii) Various forms for filing of returns under CST (iv) Procedures under Central Sales Tax (CST) (b)

Value Added Tax (VAT) (i)

Introduction, definitions, salient features of Sate VAT Act

(ii)

Treatment of stock & branch transfer under State VAT Act

(iii) Filing of return under State VAT Act (iv) Accounting & Auditing VAT 7.

Basic Concepts of International Taxation & Transfer Pricing in the context of Indirect Taxation (a) International Taxation & Transfer Pricing issues in the context of Indirect Taxation

(b) Indirect Taxation issues in crossborder services General Anti-Avoidance Rule (GAAR)

Amendments relating to Central Excise 1.

Amendment to section 3A In the Central Excise Act, 1944 (1 of 1944) (hereinafter referred to as the Central Excise Act), in section 3A, after Explanation 2, the following Explanation shall be inserted, namely :‘Explanation 3.–– For the purposes of sub-sections (2) and (3), the word “factor” includes “factors”.’.

2.

Amendment of section 11A In the Central Excise Act, in section 11A,-

(i)

sub-sections (5), (6) and (7) shall be omitted;

(ii)

in sub-sections (7A), (8) and clause (b) of sub-section (11), the words, brackets and figure “or sub- section (5)”, wherever they occur, shall be omitted; .”;

3.

Substitution of new section for section 11AC In the Central Excise Act, for section 11AC, the following section shall be substituted, namely : “11AC. Penaltyfor short-levyor non-levyof dutyin certain cases.— (1) The amount of penalty for non-levy or short-levy or non-payment or shortpayment or erroneous refund shall be as follows :(a) where any duty of excise has not been levied or paid or has been short -levied or short-paid or erroneously refunded, for any reason other than the reason of fraud or collusion or any wilful misstatement or suppression of facts or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty, the person who is liable to pay

(c)

– concept and application

Amendments brought in by the Finance Act, 2015 duty as determined under sub-section (10) of section 11A shall also be liable to pay a penalty not exceeding ten per cent. of the duty so determined or rupees five thousand, whichever is higher : Provided that where such duty and interest payable under section 11AA is paid either before the issue of show cause notice or within thirty days of issue of show cause notice, no penalty shall be payable by the person liable to pay duty or the person who has paid the duty and all proceedings in respect of said duty and interest shall be deemed to be concluded; (b) where any duty as determined under sub-section (10) of section 11A and the interest payable thereon under section 11AA in respect of transactions referred to in clause (a) is paid within thirty days of the date of communication of the order of the Central Excise Officer who has determined such duty, the amount of penalty liable to be paid by such person shall be twenty- five per cent. of the penalty imposed, subject to the condition that such reduced penalty is also paid within the period so specified; .”. 4.

Amendment of section 37 In the Central Excise Act, in section 37, in sub-sections (4) and (5), for the words “two thousand rupees”, the words “five thousand rupees” shall be substituted.

5.

Amendment of notification issued under section 5A of the Central Excise Act (1)

The notification of the Government of India in the Ministry of

Finance (Department of Revenue) number G.S.R. 163 (E), dated the 17th March, 2012, issued under sub-section (1) of section 5A of the Central Excise Act, 1944 (1 of 1944) (hereinafter referred to as the Central Excise Act), shall stand amended and shall be deemed to have been amended, retrospectively, in the manner specified in column (2) of the Third Schedule, on and from and up to the date specified in column (3) of that Schedule. (2)

6.

For the purposes have and shall notification with had the power to of section 5A of material times.

of sub-section (1), the Central Government shall be deemed to have the power to amend the retrospective effect as if the Central Government amend the said notification under sub-section (1) the Central Excise Act, retrospectively, at all

Amendment of Third Schedule In the Central Excise Act, the Third Schedule shall be amended in the manner specified in the Fourth Schedule. Amendments relating to Central Excise Tariff

7.

Amendment of First Schedule In the Central Excise Tariff Act, 1985 (hereinafter referred to as Central Excise Tariff Act), the First (a) ted.

[Notification No. 6/2015-C.E.(N.T.) dated 01.03.2015] Amendments w.e.f. 1.3.2015 1.

Education Cess and Secondary & Higher Education Cess leviable on all excisable goods are fully exempted. Simultaneously the standard advalorem rate of duty of Excise, i.e. CENVAT is being increased from 12 to 12.5% w.e.f. 1.3.2015.

2.

As per earlier provisions of sub-rule (1) of Rule 4, if inputs were directly delivered from supplier to job worker, the credit can be availed by the manufacturer only on receipt of the processed goods from the job worker. The said rule has now been amended to provide that even if the inputs are directly sent to the job worker on the directions of the manufacturer, credit can be availed immediately and the manufacturer need not wait for the processed goods to be received from the job worker. Similarly, if the capital goods are sent directly to a job worker on the directions of a manufacturer or the service provider, the credit can be taken immediately to the extent of the 50% of the total duty paid on such capital goods in the same financial year.

3.

As per the earlier provisions, CENVAT Credit was allowed to be availed

on inputs and input services within six months from the date of invoice. This restriction have been extended to one year from the

Amendmend relating to CENVAT Credit Rules 4.

The earlier provisions of Rule 4(5)(a), were applicable to both inputs and capital goods. As per the new provisions, separate provisions are made applicable for inputs and capital goods as under:

5.

Provisions applicable for inputs - 4(5)(a)(i) The credit shall be allowed on inputs if the inputs are sent to a job worker or even from one job worker to another job worker and likewise and the time limit for receiving the processed goods back by the manufacturer is within 180 days from the date of sending the inputs from the factory. Similarly, inputs can also be directly sent to a job worker without being first brought to the premises of a manufacturer subject to the condition that the processed goods should come back within 180 days from the date of receipt of the inputs by the job worker.

6.

Provisions applicable for capital goods - 4(5)(a)(ii) The credit on capital goods shall be allowed even if they are sent as such to a job worker for further processing subject to the condition that the same is received back within two years from the date of sending the capital goods from the factory. Similarly, capital goods can also be directly sent to a job worker without being first brought to the premises of a manufacturer subject to the condition that the capital goods should come back within two years from the date of receipt of the capital goods by the job worker.

7.

For claiming refund of CENVAT credit under Rule 5 of CENVAT Credit Rules, 2004, the term “Export Goods” has been defined as any goods which are to be taken out of India to a place of out of India. not include the activity specified in Explanation 2 to clause (44) of section 65B;’; (1)

clause (j) shall be omitted.

CANON 0F TAXATION – INDIRECT TAX

BASIS FOR TAXATION

India is a socialist, democratic and republic country. Constitution of India is supreme law of land. All other laws, including the Income Tax Act, are subordinate to the Constitution of India. The Constitution provides that ‘no tax shall be levied or collected except by Authority of Law’. The Constitution includes three lists in the Seventh Schedule providing authority to the Central Government and the State Governments to levy and collect taxes on subjects stated in the lists.

DIRECT TAXES AND INDIRECT TAXES A)

Direct Taxes: They are imposed on a person’s income, wealth, expenditure, etc. Direct Taxes charge is on person concern and burden is borne by person on whom it is imposed. Example- Income Tax.

B)

Indirect Taxes: They are imposed on goods/ services. The Immediate liability to pay is of the manufacturer/ service provider/ seller but its burden is transferred to the ultimate consumers of such goods/ services. The burden is transferred not in form of taxes, but, as a part of the price of goods/ services.

Example- Excise Duty, Customs Duty, Service Tax, Value-Added Tax (VAT), Central Sales Tax (CST). Government need funds for various purposes like maintenance of law and order, defence, social/ health services, etc. Government obtains funds from various sources, out of which one main source is taxation. Justice Holmes of US Supreme Court, has, long ago, rightly said that tax is the price which we pay for a civilized Society.

Central Excise Act, 1944 To solve the prac tical problems regarding the calculation of excise duty, the general rate of 12.50% is considered here irrespective of the name and nature of the product. However, the product specific rates of excise duty are mentioned in CETA. LAWS RELATING TO CENTRAL EXCISE

Central Excise Act,1944(CEA) : The basic act which provides the constitutional power for charging of duty, valuation , powers of officers, provisions of arrests, penalty, etc. Central Excise Tariff Act, 1985 (CETA): This classifies the goods under 96 chapters with specific codes assigned.

Central Excise Rules, 2002: The procedural aspects are laid herein. The rules are implemented after issue of notification. Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000: The provisions regarding the valuation of excisable goods are laid down in this rule.

Cenvat Credit Rules, 2004: The provisions relating to Cenvat Credit available and its utilization are mentioned. Central Excise law extended to ‘’designated areas’’ in continental shelf and exclusive Economic Zone of India i.e., upto 200 nautical miles from the base line of India and represents the limit till which India can be engaged in economic exploitation. 2.3 CENTRAL EXCISE ACT, 1944

The duty of Central Excise is levied if the following conditions are satisfied: (1) The duty is on goods. (2) The goods must be excisable. (3) The goods must be manufactured or produced. (4) Such manufacture or production must be in India.

In other words, unless all of these conditions are satisfied, Central Excise Duty cannot be levied. Ownership of rawmaterial is not relevant for duty liability - Hindustan General Example 44: A manufacturer having a factory at Mumbai has uniform price of ` 2,000 per unit (exclusive of taxes and duties) for sale anywhere in India. During the financial year 2015-16, he made the following sales: Particulars Goods sold at factory in Mumbai Goods sold from New Delhi Goods sold from Chennai Goods sold from Kolkata

Quantity sold in units 1,000 500 600 900

Cost of transportation (`) Nil 12,000 48,000 30,000

Find assessable value per unit and total excise duty payable by the manufacturer. Excise duty @12.5%. Answer: (Rule 5 of valuation rule) Selling price per unit Less: cost of equalized freight Assessable value per unit Total excise duty payable

= =

` `

2,000 30

= =

` 1,970 ` 7,38,750 (3,000 units x ` 1 ,970 per unit × 12.5%)

Working note:(1) Particulars Goods sold at factory in

Quantity sold in units 1,000

Costoftransportation (`) Nil

Mumbai Goods sold from New Delhi Goods sold from Chennai Goods sold from Kolkata Total

500 600 900 3,000

12,000 48,000 30,000 90,000

(2) Cost of equalized freight = ` 30 (` 90,000/3,000 units) (3) The aforesaid equalized freight has to be certified by the Cost

Accountant/Chartered Accountant/ Company Secretary in practice. Example 8 : M/s X Ltd (a unit of 100% EOU) sold goods to M/s A Ltd. for ` 20 lac. BCD @10%, CVD 12.5% and Spl. CVD @4% (VAT exempted) are applicable. Find the total duty of excise. How much Cenvat Credit allowed to M/s A Ltd. Answer: Particulars Assessable value Add: Basic Customs Duty 10% Balance Add: CVD @12.5% Balance Add: 2% CESS on (` 1,00,000 + ` 2,62,500) Add: 1% SAH CESS on (` 1,00,000 + ` 2,62,500) Balance Add: SPL. CVD 4% Value of import

Value in ` Workings 20,00,000 1,00,000 20,00,000 10% 50% 21,00,000 2,62,500 21,00,000 12.5% 23,62,500 7,250 3,62,500 2% 3,625 3,62,500 1% 23,73,375 94,935 23,73,375 4% 24,68,310

Cenvat Credit allowed is ` 3,57,435 (i.e. CVD + Spl. CVD)

REFUND AMOU NT =

EXPORT TURNOVER OFGO ODS & SERVICE × Net CENVATCREDI T TOTAL TURNOVER

EXPORT TURNOVER DUTIABLE F.G. EXPORTED DURING THE RELEVANT PERIOD INTERMEDIATE PRODUCTS CLEARED FOR EXPORT DURING RELEVANT PERIOD TOTAL

VALUE (`) XXXX XXXX XXXX

EXEMPTED GOODS EXPORTED REMAINS CALLED AS EXEMPTED GOODS ONLY

Export Turnover of Service Payments received during the relevant period for export service

Value (`) XXXX

Export services whose provision has been completed for which payment had been received in advance Less: Advance received for export of services for which services not completed during the relevant period

XXXX XXXX

Total Total Turnover Dutiable goods cleared during relevant period for export as well as for D.T.A Exempted goods cleared during relevant period for export as well as for D.T.A Export of services and services provided in D.T.A

XXXX Amount (`) XXXX XXXX XXXX

(i) Example 7: Mr. X an importer imported certain goods CIF value was US $20,000 and quantity 1,000 Kgs. Exchange rate was 1 US $ = ` 50 on date of presentation of Bill of Entry. Customs Duty rates are— (i) Basic Customs Duty 10%, (ii) Education Cess 2%, (iii) SAH Education Cess – 1%. There is no excise duty payable on these goods if manufactured in India. As per Notification issued by the Government of India, anti- dumping duty has been imposed on these goods. The anti -dumping duty will be equal to difference between amount calculated @ US $30 per kg and ‘landed value’ of goods. Compute Customs Duty liability and anti-dumping liability. (ii) Answer: (iii)

Part I Total CIF Price US $ 20,000 x ` 50 Add: Landing charges @ 1% x `10,00,000 Assessable Value Basic duty @ 10% Sub total Add: Education cess 2% on ` 1, 01,000 Add: Secondary and Higher Education Cess [@1% on ` 1,01,000] BCD, CVD & Spl. CVD and CENVAT CREDIT:

Amount in ` 10,00,000 10,000 10,10,000 1,01,000 11,11,000 2,020 1,010

Service Taxliability onreceiptbasis for Individuals and Partnership Firms includingLLP’s (w.e.f. 1-4-2012) It is pertinent to note point of taxation in case of individuals and partnership firms whose aggregate value of taxable services provided from one or more premises is ` 50 lakhs or less in the previous financial year, the service provider shall have the option to pay tax on taxable services provided or to be provided by him up to a total of ` 50 lakhs in the current financial year, by the dates specified in the Rule 6 of Service Tax Rules, 1994, with respect to the relevant quarter, in which payment is received. (a)

(b)

Rule 2(b): section means the section of the Act;

(c)

Rule 2(c): value shall be the meaning assigned to it in section 67; Rule (d): words and expressions used in these rules and not defined but defined in the Act shall have

(d)

(e)

the meaning respectively assigned to them in the Act.

(f)

Rule 2A: Determination of value of service portion in the execution of a works contract.

(g)

In case of works contract service provider has two options for payment of service tax. Once any one

Goods and Services Tax (India) .

Goods and Services Tax (GST) is an indirect tax (or consumption tax) levied in India on the supply of goods and services. GST is levied at every step in the production process, but is meant to be refunded to all parties in the various stages of production other than the final consumer. Goods and services are divided into five tax slabs for collection of tax - 0%, 3%, 5%, 12%,18% and 28%. However, Petroleum products, alcoholic drinks, electricity, are not taxed under GST and instead are taxed separately by the individual state governments, as per the previous tax regime.[citation needed] There is a special rate of 0.25% on rough precious and semi-precious stones and 3% on gold.[1] In addition a cess of 22% or other rates on top of 28% GST applies on few items like aerated drinks, luxury cars and tobacco products.[2] Pre-GST, the statutory tax rate for most goods was about 26.5%, Post-GST, most goods are expected to be in the 18% tax range. The tax came into effect from July 1, 2017 through the implementation of One Hundred and First Amendment of the Constitution of India by the Indian government. The tax replaced existing multiple cascading taxes levied by the central and state governments. The tax rates, rules and regulations are governed by the GST Council which consists of the finance ministers of centre and all the states. GST is meant to replace a slew of indirect taxes with a unified tax and is therefore expected to reshape the country's 2.4 trillion dollar economy, but not without criticism.[3] Trucks' travel time in interstate movement dropped by 20%, because of no interstate check posts.[4]

Contents 1History o 1.1Formation o 1.2Launch 2Tax o o o o

2.1Taxes subsumed 2.2HSN code in GST no 2.3Rates 2.4E-Way Bill 

o o

2.4.1Intra-State e-Way Bill

2.5Reverse Charge Mechanism 2.6Goods kept outside the GST

3GST Council 4Goods and Services Tax Network (GSTN) 5Statistics o 5.1Collections o 5.2Returns 6Criticism 7See also 8References 9External links

History[edit] Formation[edit] The reform of India's indirect tax regime was started in 1985 by Vishwanath Pratap Singh, Finance Minister in Rajiv Gandhi’s government, with the introduction of the Modified Value Added Tax (MODVAT). Subsequently, Prime Minister P V Narasimha Rao and his Finance Minister Manmohan Singh, initiated early discussions on a Value Added Tax (VAT) at the state level.[5] A single common "Goods and Services Tax (GST)" was proposed and given a go-ahead in 1999 during a meeting between the Prime Minister Atal Bihari Vajpayee and his economic advisory panel, which included three former RBI governors IG Patel, Bimal Jalan and C Rangarajan. Vajpayee set up a committee headed by the Finance Minister of West Bengal, Asim Dasgupta to design a GST model.[6] The Ravi Dasgupta committee which was also tasked with putting in place the back-end technology and logistics (later came to be known as the GST Network, or GSTN, in 2017). it later came out for rolling out a uniform taxation regime in the country. In 2002, the Vajpayee government formed a task force under Vijay Kelkar to recommend tax reforms. In 2005, the Kelkar committee recommended rolling out GST as suggested by the 12th Finance Commission.[6] After the defeat of the BJP-led NDA government in the 2004 Lok Sabha election and the election of a Congress-led UPA government, the new Finance Minister P Chidambaram in February 2006 continued work on the same and proposed a GST rollout by 1 April 2010. However, in 2011, with the Trinamool Congress routing CPI(M) out of power in West Bengal, Asim Dasgupta resigned as the head of the GST committee. Dasgupta admitted in an interview that 80% of the task had been done.[6] In the 2014 Lok Sabha election, the Bharatiya Janata Party-led NDA government was elected into power. With the consequential dissolution of the 15th Lok Sabha, the GST Bill – approved by the standing committee for reintroduction – lapsed. Seven months after the formation of the Modi government, the new Finance Minister Arun Jaitley introduced the GST Bill in the Lok Sabha, where the BJP had a majority. In February 2015, Jaitley set another deadline of 1 April 2017 to implement GST. In May 2016, the Lok Sabha passed the Constitution Amendment Bill, paving way for GST. However, the Opposition, led by the Congress, demanded that the GST Bill be again sent back for review to the Select Committee of the Rajya Sabha due to disagreements on several statements in the Bill relating to taxation. Finally in August 2016, the Amendment Bill was passed. Over the next 15 to 20 days, 18 states ratified the Constitution amendment Bill and the President Pranab Mukherjee gave his assent to it.[7][8] A 21-member selected committee was formed to look into the proposed GST laws.[9] After GST Council approved the Central Goods and Services Tax Bill 2017 (The CGST Bill), the Integrated Goods and Services Tax Bill 2017 (The IGST Bill), the Union Territory Goods and Services Tax Bill 2017 (The UTGST Bill), the Goods and Services Tax (Compensation to the States) Bill 2017 (The Compensation Bill), these Bills were passed by the Lok Sabha on 29 March 2017. The Rajya Sabha passed these Bills on 6 April 2017 and were then enacted as Acts on 12 April 2017. Thereafter, State Legislatures of different States have passed respective State Goods and Services Tax Bills. After the enactment of various GST laws, Goods and Services Tax was launched all over India with effect from 1 July 2017.[10] The Jammu and Kashmir state legislature passed its GST act on 7 July 2017, thereby ensuring that the entire nation is brought under an unified indirect taxation system. There was to be no GST on the sale and purchase of securities. That continues to be governed by Securities Transaction Tax (STT).[11]

Launch[edit] The GST was launched at midnight on 1 July 2017 by the President of India, Pranab Mukherjee, and the Government of India. The launch was marked by a historic midnight (30 June – 1 July) session of both the houses of parliament convened at the Central Hall of the Parliament. Though the session was attended by high-profile guests from the business and the entertainment industry including Ratan Tata, it was boycotted by the opposition due to the predicted problems that it was bound to lead for the middle and lower class Indians.[12][13] It is one of the few midnight sessions that have been held by the parliament - the others being the declaration of India's independence on 15 August 1947, and the silver and golden jubilees of that occasion.[13] After its launch, the GST rates have been modified multiple times, the latest being on 18 January 2018, where a panel of federal and state finance ministers decided to revise GST rates on 29 goods and 53 services.[14]

Members of the Congress boycotted the GST launch altogether.[15] They were joined by members of the Trinamool Congress, Communist Parties of India and the DMK. The parties reported that they found virtually no difference between the GST and the existing taxation system, claiming that the government was trying to merely rebrand the current taxation system.[citation needed] They also argued that the GST would increase existing rates on common daily goods while reducing rates on luxury items, and affect many Indians adversely, especially the middle, lower middle and poorer income groups.[16]

Tax Taxes subsumed The single GST subsumed several taxes and levies which included: central excise duty, services tax, additional customs duty, surcharges, state-level value added tax and Octroi.[17][18] Other levies which were applicable on inter-state transportation of goods have also been done away with in GST regime.[19][20] GST is levied on all transactions such as sale, transfer, purchase, barter, lease, or import of goods and/or services. India adopted a dual GST model, meaning that taxation is administered by both the Union and State Governments. Transactions made within a single state are levied with Central GST (CGST) by the Central Government and State GST (SGST) by the State governments. For inter-state transactions and imported goods or services, an Integrated GST (IGST) is levied by the Central Government. GST is a consumption-based tax/destination-based tax, therefore, taxes are paid to the state where the goods or services are consumed not the state in which they were produced. IGST complicates tax collection for State Governments by disabling them from collecting the tax owed to them directly from the Central Government. Under the previous system, a state would only have to deal with a single government in order to collect tax revenue.[21]

HSN code in GST no HSN (Harmonized System of Nomenclature) is an 8-digit code for identifying the applicable rate of GST on different products as per CGST rules. If a company has turnover up to ₹1.5 Crore in the preceding financial year then they need not mention the HSN code while supplying goods on invoices. If a company has turnover more than ₹1.5 Crore but up to ₹5 Cr then they need to mention the first 2 digits of HSN code while supplying goods on invoices. If turnover crosses ₹5 Cr then they shall mention the first 4 digits of HSN code on invoices.[22]

Rates The GST is imposed at variable rates on variable items. The rate of GST is 18% for soaps and 28% on washing detergents. GST on movie tickets is based on slabs, with 18% GST for tickets that cost less than Rs. 100 and 28% GST on tickets costing more than Rs.100 and 5% on readymade clothes.[23] The rate on under-construction property booking is 12%.[24] Some industries and products were exempted by the government and remain untaxed under GST, such as dairy products, products of milling industries, fresh vegetables & fruits, meat products, and other groceries and necessities.[25] Checkposts across the country were abolished ensuring free and fast movement of goods.[26] The Central Government had proposed to insulate the revenues of the States from the impact of GST, with the expectation that in due course, GST will be levied on petroleum and petroleum products. The central government had assured states of compensation for any revenue loss incurred by them from the date of GST for a period of five years. However, no concrete laws have yet been made to support such action.[27] GST council adopted concept paper discouraging tinkering with rates.[28]

E-Way Bill[ An e-Way Bill is an electronic permit for shipping goods similar to a waybill. It was made mandatory for inter-state transport of goods from 1 June 2018. It is required to be generated for every inter-state movement of goods beyond 10 kilometres (6.2 mi) and the threshold limit of ₹50,000 (US$700).[29] It is a paperless, technology solution and critical anti-evasion tool to check tax leakages and clamping down on trade that currently happens on a cash basis. The pilot started on 1 February 2018 but was withdrawn after glitches in the GST Network. The states are divided into four zones for rolling out in phases by end of April 2018. A unique e-Way Bill Number (EBN) is generated either by the supplier, recipient or the transporter. The EBN can be a printout, SMS or written on invoice is valid. The GST/Tax Officers tally the e-Way Bill listed goods with goods carried with it. The mechanism is aimed at plugging loopholes like overloading, understating etc. Each e-way bill has to be matched with a GST invoice. The official Android mobile app can be used for generating an e-way bill, with powerful features for easy generation and for maintaining records. The e-way bill can also be generated or cancelled through an SMS. Transporter ID and PIN Code now compulsory from 01-Oct-2018. It is a critical compliance related GSTN project under the GST, with a capacity to process 75 lakh e-way bills per day.

Intra-State e-Way Bill The five states piloting this project are Andhra Pradesh, Gujarat, Kerala, Telangana and Uttar Pradesh, which account for 61% of the inter-state e-way bills, started mandatory intrastate e-way bill from 15 April 2018 to further reduce tax evasion.[30] It was successfully introduced in Karnataka from 1 April 2018.[31] The intrastate e-way bill will pave the way for a seamless, nationwide single e-way bill system. Six more states Jharkhand, Bihar, Tripura, Madhya Pradesh, Uttarakhand and Haryana will roll it out from 20 April 18. All states are mandated to introduce it by May 30, 2018.

Reverse Charge Mechanism Reverse Charge Mechanism (RCM) is a system in GST where the receiver pays the tax on behalf of unregistered, smaller material and service suppliers. The receiver of the goods is eligible for Input Tax Credit, while the unregistered dealer is not. The Payment of Tax Under RCM (Reverse Charge Mechanism) on Purchase from unregistered dealer is suspended due to pressure from the industry until 30 September 2019.

Goods kept outside the GST  

Alcohol for human consumption. Petrol and petroleum products (GST will apply at a later date) viz. Petroleum crude, High speed diesel, Motor Spirit (petrol), Natural gas, Aviation turbine fuel.[30]

GST Council GST Council is the governing body of GST having 33 members.[32] It is chaired by the Union Finance Minister.

Goods and Services Tax Network (GSTN) The GSTN software is developed by Infosys Technologies and the Information Technology network that provides the computing resources is maintained by the NIC. "Goods and Services Tax" Network (GSTN) is a nonprofit organisation formed for creating a sophisticated network, accessible to stakeholders, government and taxpayers to access information from a single source (portal). The portal is accessible to the Tax authorities for tracking down every transaction, while taxpayers have the ability of connect for their tax returns. The GSTN's authorised capital is ₹10 crore (US$1.4 million) in which initially the Central Government held 24.5 percent of shares while the state government held 24.5 percent. The remaining 51 percent were held by non-Government financial institutions, HDFC and HDFC Bank hold 20%, ICICI Bank holds 10%, NSE Strategic Investment holds 10% and LIC Housing Finance holds 11% .[33][34] However, later it was made a wholly owned government company having equal shares of state and central government.[1]

Statistics[edit] Collections[edit] Month

2018-19

Collections

2017-18

Change

Collections

April

₹103,459 crore (US$14 billion)

NA

May

₹94,016 crore (US$13 billion)[35]

NA

June

₹95,610 crore (US$13 billion)[35]

NA

Change

July

₹96,483 crore (US$13 billion)[35]

NA

August

₹93,960 crore (US$13 billion) [35]

₹93,590 crore (US$13 billion)

September ₹94,442 crore (US$13 billion)[35]

₹93,029 crore (US$13 billion)

October

₹95,132 crore (US$13 billion)

₹100,710 crore (US$14 billion)[35]

November

₹85,931 crore (US$12 billion)

December

₹83,716 crore (US$12 billion)

January

₹88,929 crore (US$12 billion)

February

₹88,407 crore (US$12 billion)

March

₹89,264 crore (US$12 billion)

Returns Around 38 lakh new taxpayers have registered under GST regime and the total count has crossed one crore if we include the 64 lakh earlier ones.[36] Total number of taxpayers were above 1.14 crore in October 2018.[37] 2018-19

Month

No. of returns

2017-18

Change

No.

March

February

January

December

67 lakh[36]

Change

2018-19

Month

No. of returns

November

2017-18

Change

No.

64 lakh[36]

October

67.45 lakh[35]

65 lakh[36]

September

69 lakh[36]

August

67 lakh[36]

July

63 lakh[36]

June

May

(ii)

Change