Tax Laws

Business and Tax laws Puttu. Guru Prasad INC GUNTUR

• In the system of taxation in India the taxes are classified as follows:

Classification System of Tax

Indirect Tax

Direct Tax

Income Tax

Wealth Tax

Excise Duties

Customs Duty

Sales Tax

The Important Terminologies under the IT Act, 1961 (ITA) • • • • • • • • • •

Assessee Person Assessment year Financial Year Income, Total income , Gross Total Income Previous Year Accrual of Income Belated Returns Revised Return Self Assessment

Who is a Person under the ITA, 1961? • • • • •

An Individual A HUF A Company A Firm An Association of Persons ( whether incorporated or not) • A Local Authority • Every Artificial Juristic Person, who does not fall under the category of the above stated persons.

Heads of Income as per the ITA, 1961 Income of a individual can be under any one of the five heads • Income from salary • Income from House property • Profits and Gains of business or profession • Capital Gains • Other incomes

Income from Other Sources • Dividends • Lotteries, Cross word puzzles • Contributions received by employees under staff welfare scheme • Interest on securities , if it is not charged under “profits and gains of business” • Income from machinery, plant furniture along with the building… • Any other sums received like bonus, if not taxed under salary or business income.

Income that are exempted from calculation of Total Income • • • • • • • •

Agricultural Income Receipts of HUF income by an individual Share of profit of a partner in a firm. Income by way of interests, premium etc notified under the law Scholarship grants to meet the cost of education Long term capital gain Income and allowances of the MLA’s and MP’s that is received in their position Income of former rulers etc.

Deductions The total income of an assessee is computed by deducting from the gross total income. • All deductions permissible under Sections 80C - 80U. • The deductions can be in respect of e) Life Insurance premium. f) Deferred Annuity g) Contribution to Provident Fund h) National Saving Scheme i) Pension Funds j) Loans ( As specified under the Tax laws) k) Medical Insurance l) Donations etc….. The tax which is deducted at source will be refunded by the Income Tax Department, When the Assessee produces the receipts of any of the above stated savings.

Wealth

Tax

• The other species of direct tax legislation is Wealth Tax. • Wealth tax is levied for the benefits derived from property ownership. The tax is to be paid year after year on the same property on its market value, whether or not such property yields any income. Tax charged at the rate of 1% of amount where the net wealth exceeds 15Lakhs

What are chargeable assets? The assets include  Any guest house, residential house, commercial property, urban farm house etc..  Motor car for personal use.  Jewellery, bullion, furniture, utensils or any other article made wholly or partly of gold, silver, platinum….  Yachts, boats, and air-crafts used for non-business purposes etc

Wealth Tax Not Charged No wealth tax is chargeable in respect of the wealth of the following:  Company registered under Section 25 of the Companies Act.  Any Co-operative Society.  Any Social Club.  Any political party.  A mutual fund specified by the Income Tax.

Deemed Assets • Assets transferred by one spouse to another- That are transferred in his or her spouse’s name other than for consideration. • Assets held by minor child- All the assets are held by a minor child are included in the net wealth of the individual. The net wealth of the minor will be included in the net wealth of the parent as per the Act….

Central Excise (The Central Excise Act, 1944 - CEA) • It has been enacted to consolidate and amend the law relating to central duties of excise on goods manufacture or produced in certain parts of India. • It is collected by both Central and State Governments. • Excise duty on alcohol, alcoholic preparations and narcotic substances are collected by State Government as State Excise Duty. Difference between Excise Tax and Sales Tax • Excise Tax is a tax on act of manufacture or production of goods. • Sales Tax is on the act of sale. • Excise duties are levied by the Central Government. It is levied uniformly through out the country and the duty rate / structure are governed through the tariff/ budget notification.

CENVAT (Meaning) • It stands for Central Value Added Tax. • It was earlier brought into practice as a scheme known as MODVAT- which enabled the manufacturers of excisable goods to get credit for excise duty component in the cost of raw materials, finished or semi finished components, consumables and packing material • These are the provisions that are used in the Central Excise to implement the concept of VAT at the manufacturing level by giving the credit of duty on inputs.

SALES TAX •    

The Government of India Act, 1935 has permitted levying of tax on sale of goods and on advertisement. The States could levy taxes if one of the following ingredients have been present: The goods are present or in existence in the state at the time of sale The manufacture has taken place in the State. The property in goods is transferred in the State for a price. There has been a payment of price and title in the goods has been passed.

Applicability of Central Sales Tax The applicability of the CST is as follows:  Tax is levied on interstate sales.  Sales tax collected by the States is retained by the collecting State.  Sales tax to be paid in the state from where the movement of goods begin. The CST has formulated the principles to determine as to where and how the sale of goods has taken place.

Value Added Tax (VAT)  VAT is a kind of sales tax is that collected by government of destination State on the consumer expenditure i.e. the State in which the final consumer is located.  It is imposed and collected through the business transactions, involving sale of goods within the State.  It is a tax on value added in the price of a commodity. It is taxed at the final or retail point of sale, which is collected at each stage of sale when there is a value addition to the goods.

Customs Duty (Customs Act 1962) • One of the other forms of indirect tax that is levied by Central Government is Customs Duty. • It is collected by the Central Government on every product that is exported or imported from India. • The duty is levied as a percentage on the assessed value of the product that is exported or imported from India. It is equal through out India at the time of importing and exporting. • The goods may be transported by land, air or by water including the Indian territorial waters.(12 nautical miles from the sea coast of India)

The objectives of levying customs duty are • To restrict imports, so as to preserve foreign exchange. • To protect domestic industries from undue competition. • To achieve the policy objectives of the government. • To regulate exports. • To co-ordinate the legal provisions that deal with foreign exchange like, FEMA, FT (D&R)A, COFEPOSA etc.

Liability and Exemptions Tax is collected, when the goods are on the vehicle for transport out of India. Exemptions- for payment of customs duty are:  Goods derelict, wreck etc.  Remission of duty on goods that are lost, destroyed or abandoned etc.  Denaturing or mutilation of Goods  Many amendments are made to facilitate origin of goods and matters relating to it.

VAT is multi point levy of tax, which is different from the sales tax, which is generally a single point tax levy.  The term goods has been specifically defined for the purpose of imposing tax under VAT. Goods under VAT includes :  The Conventional Sales,  Goods transferred in execution of works contract,  Delivery of goods on hire purchase or any other system of payment,  Supply by way of or part of any services or any other manner etc.

Service Tax • It is another kind of tax paid by the customer for certain kinds of services that he or she avails. • The tax collected under the service tax have to be deposited with the Central Government Accounts within a stipulated period. • It includes transport, telecom, hospital services etc…. It includes services rendered by individuals and other non-commercial organizations who are brought under the purview of the service tax laws. • The consumers pay to the service providers and in turn the service providers will be submitting it to the concerned authority.

The main objectives of Service Tax • Determining the turnover of the unorganized service sectors. • To bring the organized sector under the Tax purview. • Revenue generation to the government, as service sector is the major contribution to the contribution to the GDP. • The best examples of the services are, advertising agencies, banking , logistics, online information etc…

Fringe Benefit Tax • Any monetary or non monetary benefit given by the employer to the employee as a perquisite in addition to the cash salary or wages are called fringe benefits. • It can be any privilege, service, facility or amenity which can be given directly or indirectly to the employee. • Usually it is taxed in the hands of the employees but to be collected by the employer. • It is the duty of the employer to bear the taxes for the perquisites paid by the employer.

Fringe benefits that are taxable under the Finance Act,2005 • • • • • • •

Entertainment Gifts Festival celebrations Employee welfare Telephone Maintenance of motor car Scholarship for the children of the employees etc….