INDIAN TAXATION
1. BASICS OF DIRECT AND INDIRECT TAXES
I. DIRECT TAX
1. Income Tax
2. Corporation Tax
3. Property Tax
4. I...
1.Customs Duty: The Customs Act was formulated to achieve following critical purposes as mentioned hereunder:
1/ To preven...
c. Additional Excise Duty.
d. Road Cess: Additional duty of excise on motor spirit, high speed diesel.
e. Surcharge: Surch...
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1. Indian Taxation. Basics. Direct and Indirect Taxes.

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Direct and Indirect Taxes. (Indian Context)
Information for Purchase Managers.

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1. Indian Taxation. Basics. Direct and Indirect Taxes.

  1. 1. INDIAN TAXATION 1. BASICS OF DIRECT AND INDIRECT TAXES I. DIRECT TAX 1. Income Tax 2. Corporation Tax 3. Property Tax 4. Inheritance (Estate) Tax 5. Gift Tax II. INDIRECT TAX 1.Customs Duty 2. Central Excise Duty 3. Service Tax 4. Sales Tax 5. Value Added Tax 6. Securities Transaction Tax I. DIRECT TAX 1. Income Tax: Income Tax Act imposes tax on the income of the individual or Hindu Undivided Families (HUF) or firms or societies (other than companies) and trusts (identified as bodies of individual associates or persons) or every artificial juridical person (Artificial juridical person: Entity other than a natural person (human being) created/recognized/accredited by law and also recognized as a legal entity having distinct identity, legal personality, and duties and rights. Few examples: 1. Society: Since a society is an artificial person and has an identity recognized by the court of law it is called an artificial juridical person. 2. Idol/Deity (Eg: Tirupathy Balaji): For the purposes of Indian Income Tax Act, this has been deemed to be artificial juridical person, though by definition it does not fall under it.) The inclusion of particular income in the total incomes of a person for Income Tax in India is based on his residential status. There are three residential statuses viz. 1/ Resident and Ordinarily Residents 2/ Resident but not Ordinarily Residents (RNOR) 3/ Non Residents (NRI) There are several steps involved in determining the residential status of a person. All residents are taxable for all their incomes, including income outside India. Non Residents are taxable only for the income received in India or income accrued in India. Non 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. 2.Corporation Tax: The companies and business organizations in India are taxed on their income from their worldwide transactions under the provision of Income Tax Act. 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 nonresident corporations, tax is levied on the income which is earned from their business transaction in India or any other Indian sources depending on bilateral agreement of that country. 3.Property Tax: Property Tax or ‘House Tax’ is a local tax on buildings, along with appurtenant land (An accessory or adjunct that is attached and incidental to something that has greater importance or value. As applied to real property, an object attached to or a right to be used with land as an incidental benefit but which is necessary to the complete use and enjoyment of the property. When a landowner has been given an easement for the passage of light and air over an adjoining lot, the easement is an appurtenance to the land. Other common appurtenances to land include barns, outhouses, fences, drainage and irrigation ditches, and rights of way.) The Property Tax power is vested in the states and it is delegated by the law to the local bodies, specifying the valuation method, rate band, and collection procedures. The tax is Annual Ratable Value (ARV) or area based rating. Vacant land is usually exempted from the assessment. The properties lying under the control of Central Government are exempted from taxation. Instead a ‘Service Charge’ is permissible under executive order. Properties of foreign missions also enjoy tax exemption without an insistence of reciprocity. 4.Inheritance (Estate) Tax: An Inheritance Tax ( also known as 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. Estate Duty on agricultural land was discontinued under the Estate Duty (Amendment) Act. 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. 5.Gift Tax: Gift Tax in India is regulated by the Gift Tax Act. It came into effect in all parts of India except Jammu and Kashmir. According to the provision of Income Tax Act, the gifts received by any individual or Hindu Undivided Family (HUF) in excess of Rs. 50,000/- in a year would be taxable. II. INDIRECT TAX Tax collected by an intermediary (such as retail store) from the person who bears the ultimate burden of the tax (such as the customer). An Indirect Tax is one that can be shifted by the taxpayer to someone else. The Indirect Taxes imposed in India are the following: Prepared by Divyanshu Dayal. Information for Purchase Manager. dayal1005@gmail.com
  2. 2. 1.Customs Duty: The Customs Act was formulated to achieve following critical purposes as mentioned hereunder: 1/ To prevent illegal imports and exports of goods 2/ Afford protection to indigenous industry 3/ Securing 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 as amended from time to time or any other law from time being on force. Under the Customs Laws, the various types of duties are levied as mentioned hereunder: 1/ Basic Duty 2/ Additional Duty (Countervailing Duty) (CVD) 3/ Additional Duty to compensate duty on inputs used by Indian manufacturers 4/ Anti-Dumping Duty 5/ Protective Duty 6/ Duty on Bounty Fed Articles 7/ Export Duty 8/ Cess on Export 9/ National Calamity Contingent Duty 10/ Education Cess 11/ Secondary and Higher Education Cess 12/ Road Cess 13/ Surcharge on Motor Spirit a. Basic Duty: Duty levied on imported goods. b. Countervailing Duty (CVD): This duty is equal to the 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. CVD is leviable on the value of goods plus Basic Custom Duty payable. c. Additional Duty to Compensate Duty on Inputs used by Indian Manufacturers d. 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. The Central Government may levy an additional duty equal to the margin of Dumping on such articles. There are however certain restriction on imposing Anti Dumping Duties in case of countries which are signatories to the GATT (General Agreement on Tariffs and Trade) or on countries given ‘Most Favoured Nation Status’ under agreement. e. Protective Duty: In order to protect the interests of Indian industry, the Central Government may levy protective Anti Dumping duties at the rate recommended on specified goods. f. Duty on Bounty Fed Articles: Incase a foreign country subsidies its exporters for exporting goods to India, the Central Government may impose Additional Import Duty equal to the amount of such subsidy or bounty. If the amount of subsidy or bounty cannot be clearly determined immediately, additional duty may be collected on a provisional basis and after final determination, difference may be collected or refunded, as the case may be. g. Export Duty: Such duty is levied on export of goods. The main purpose of such duty is to restrict export of certain goods. h. Cess on Export: Under the Agriculture and Processed Food Products Export Cess Act, 0.5% ad valorem (Charge levied as a percentage of value of the item it is imposed on, and not on the item's quantity, size, weight, or other such factor. Value added tax (VAT) and, generally, import duties are ad valorem taxes.) as the rate of duty of customs be levied and collected as Cess on export of all scheduled products. i. National Calamity Contingent Duty: Levied on petroleum crude oil, motor cars, imported multi-utility vehicles, two wheelers and mobile phone. j. Education Cess: 2% on the aggregate of duties of customs. k. Secondary and Higher Education Cess: 1% on the aggregate of duties of customs. l. Road Cess: Additional Duty of Customs on Motor Spirit and High Speed Diesel is levied. m. Surcharge on Motor Spirit. 2. Central Excise Duty: Central Excise Duty is tax which is charged on such excisable goods that are manufactured in India and are meant for domestic consumption. This duty is not payable on goods which are exported outside India. The term ‘excisable goods’ means the goods which are specified in the First Schedule and the Second Schedule to the Central Excise Tariff Act. Further various exemptions are notified by government from the payment of duty by the manufacturers from time to time. Various Central Excise Duties are mentioned hereunder: a. Basic Excise Duty: Duty Levied at the rates set forth in the schedule to the Central Excise Tariff Act. b. Special Excise Duty: In line with the Basic Excise Duty as notified from time to time by the Central Government. Prepared by Divyanshu Dayal. Information for Purchase Manager. dayal1005@gmail.com
  3. 3. c. Additional Excise Duty. d. Road Cess: Additional duty of excise on motor spirit, high speed diesel. e. Surcharge: Surcharge on motor spirit, pan masala and tobacco products. f. National Calamity Contingent Duty (NCCD): Levied on pan masala, certain specified tobacco, polyester filament yarn, motor car, two wheeler, multi-utility vehicle and crude petroleum oil. g. Education Cess: 2% on aggregate of duties of excise. h. Secondary and Higher Education: Cess: 1% on aggregate of duties of excise. i. Cess: Additional cess levied on certain products. 3. Service Tax: The Service Tax is levied on the gross or aggregate amount charged by the service provider on the receiver. Under the Finance Act the service providers in India expect for Jammu and Kashmir are required to pay Service Tax. In India the Government depends heavily on the voluntary compliance of the service providers for collecting Service Tax in India. 4.Sales Tax: Levied for purchase or sale of a particular commodity within the country. Sales Tax is imposed under both, Central Government (Central Sales Tax (CST)) and State Government (Sales Tax) Legislation. Generally each state follows its own Sales Tax Act and levies tax at various rates. The Sales Tax charged by the state government is now substituted by Value Added Tax (VAT). 5.Value Added Tax (VAT): Levied by State Government is applied on each stage of sale, with a particular apparatus of credit for input VAT paid. VAT levied will be administered by the Value Added tax Act and the rules made there under and similar to 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 customer. The value addition in the hands of each of the entities is subject to VAT. 6.Security Transaction Tax (STT): Tax 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 sale of equity share is 0.075%. Selling the shares after 12 months comes under long term capital gain and one need not have to pay any tax on that gain. Selling the shares before 12 months come under short term capital gain tax charged @ 10% flat on the gain. However, for a trader, all his gain will be treated as trading (business) and he has to pay tax as per tax slabs. In this case the STT paid by him can be claimed back/ adjusted in tax to be paid. Prepared by Divyanshu Dayal. Information for Purchase Manager. dayal1005@gmail.com

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