MBA management

Law Relating To Taxation Topics:

DIRECT TAXES


A. Taxes on Corporate Income


Domestic Company

Income Tax : 30% of total income.

Surcharge : The amount of income tax as computed in accordance with above rates, and after being reduced by the amount of tax rebate shall be increased by a surcharge o At the rate of 5% of such income tax, provided that the total income exceeds Rs. 1 crore. (Marginal Relief in Surcharge, if applicable)

o At the rate of 10% of such income tax, provided that the total income exceeds Rs. 10 crores.

Education Cess : 3% of the total of Income Tax and Surcharge.

Company other than a Domestic Company

Income Tax : @ 50% of on so much of the total income as consist of (a) royalties received from Government or an Indian concern in pursuance of an agreement made by it with the Government or the Indian concern after the 31st day of March, 1961 but before the 1st day of April, 1976; or (b) fees for rendering technical services received from Government or an Indian concern in pursuance of an agreement made by it with the Government or the Indian concern after the 29th day of February, 1964 but before the 1st day of April, 1976, and where such agreement has, in either case, been approved by the Central Government.

o @ 40% of the balance

Surcharge :

The amount of income tax as computed in accordance with above rates, and after being reduced by the amount of tax rebate shall be increased by a surcharge as under

o At the rate of 2% of such income tax, provided that the total income exceeds Rs. 1 crore. (Marginal Relief in Surcharge, if applicable)

o At the rate of 5% of such income tax, provided that the total income exceeds Rs. 10 crores.

Education Cess : 3% of the total of Income Tax and Surcharge.

Marginal Relief : When an assessee's taxable income exceeds Rs. 1 crore, he is liable to pay Surcharge at prescribed rates mentioned above on Income Tax payable by him. However, the amount of Income Tax and Surcharge shall not increase the amount of income tax payable on a taxable income of Rs. 1 crore by more than the amount of increase in taxable income.

B. CAPITAL GAINS TAX


Tax is payable on capital gains on sale of assets. Long –term Capital Gains Tax is charged if

*Capital assets are held for more than three years and

*In case of shares, securities listed on a recognized stock exchange in India ,units of specified mutual funds ,the period for holding is one year.

Long-term capital gains are taxed at a basic rate of 20%. However, long- term capital gains from sale of equity shares or units of mutual funds are exempt from tax. Short-term capital gains are taxed at the normal corporate income tax rates. Short-term capital gains arising on the transfer of equity shares or units of mutual funds are taxed at a rate of 10%.

Long –term and short-term capital losses are allowed to be carried forward for eight consecutive years, Long-term capital losses may be offset against taxable long-term capital losses may be offset against taxable long-term capital gains and short-term capital losses may be offset against both long term and short-term taxable capital gains.

C. PERSONAL INCOME TAX


Personal income tax is levied by Central Government and is administered by Central Board of Direct taxes under Ministry of Finance in accordance with the provisions of the Income tax Act. The rates for personal income tax are as follows:-

Income Tax slabs for General Tax payers


Yearly Income   Tax Rate
Rs. 0 to 2,50,000   No Tax (0 %)
Rs. 2,50,001 to 5,00,000   10%
Rs. 5,00,001 to 10,00,000   20%
Above Rs. 10,00,000   30%


Income Tax slabs for Women


Yearly Income   Tax Rate
Rs. 0 to 2,50,000   No Tax (0 %)
Rs. 2,50,001 to 5,00,000   10%
Rs. 5,00,001 to 10,00,000   20%
Above Rs. 10,00,000   30%


Income Tax slabs for Senior citizen (60+ years)


Yearly Income   Tax Rate
Rs. 0 to 3,00,000   No Tax (0 %)
Rs. 3,00,001 to 5,00,000   10%
Rs. 5,00,001 to 10,00,000   20%
Above Rs. 10,00,000   30%


Income Tax slabs for Senior citizen (80+ years)


Yearly Income   Tax Rate
Rs. 0 to 5,00,000   No Tax (0 %)
Rs. 5,00,001 to 10,00,000   20%
Above Rs. 10,00,000   30%


INDIRECT TAXES


A. Excise Duty


Manufacture of goods in India attracts Excise Duty under the Central Excise act 1944 and the central Excise Tariff Act 1985.Herein, the term Manufacture means bringing into existence a new article having a distinct name, character, use and marketability and includes packing, labeling etc.

Recent Budget Initiatives (2014-2015) are as follows:

• Colour picture tubes exempted from basic customs duty to make cathode ray TVs cheaper and more affordable to weaker sections.

• To encourage production of LCD and LED TVs below 19 inches in India, basic customs duty on LCD and LED TV panels of below 19 inches reduced from 10 percent to Nil.

• To give an impetus to the stainless steel industry, increase in basic customs duty on imported flat-rolled products of stainless steel from 5 percent to 7.5 percent.

• Concessional basic customs duty of 5 percent extended to machinery and equipment required for setting up of a project for solar energy production.

• Specified inputs for use in the manufacture of EVA sheets and back sheets and flat copper wire for the manufacture of PV ribbons exempted from basic customs duty.

• Reduction in basic customs duty from 10 percent to 5 percent on forged steel rings used in the manufacture of bearings of wind operated electricity generators. Exemption from SAD of 4 percent on parts and raw materials required for the manufacture of wind operated generators.

• Concessional basic customs duty of 5 percent on machinery and equipment required for setting up of compressed biogas plants (Bio-CNG).

• Anthracite coal, bituminous coal, coking coal, steam coal and other coal to attract 2.5 per cent basic customs duty and 2 per cent CVD to eliminate all assessment disputes and transaction costs associated with testing of various parameters of coal.

• Basic customs duty on metallurgical coke increased from Nil to 2.5 percent in line with the duty on coking coal.

• Duty on ship breaking scrap and melting scrap of iron or steel rationalized by reducing the basic customs duty on ships imported for breaking up from 5 percent to 2.5 percent.

• To prevent mis-use and avoid assessment disputes, basic customs duty on semi processed, half cut or broken diamonds, cut and polished diamonds and coloured gemstones rationalized at 2.5 percent.

• To encourage exports, pre-forms of precious and semi-precious stones exempted from basic customs duty.

• Duty free entitlement for import of trimmings, embellishments and other specified items increased from 3 percent to 5 percent of the value of their export, for readymade garments.

• Export duty on bauxite increased from 10 percent to 20 percent.

• For passenger facilitation, free baggage allowance increased from `.35,000 to `.45,000.

• To incentivize expansion of processing capacity, reduction in excise duty on specified food processing and packaging machinery from 10 percent to 6 percent.

• Reduction in the excise duty from 12 percent to 6 percent on footwear of retail price exceeding ` 500 per pair but not exceeding ` 1,000 per pair.

• Withdraw concessional excise duty (2 percent without Cenvat benefit and 6 percent with Cenvat benefit) on smart cards and a uniform excise duty at 12 percent.

• To develop renewable energy, various items exempted from excise duty.

• Exemption to PSF and PFY manufactured from plastic waste and scrap including PET bottles from excise duty with effect from 29th June, 2010 to 7th May, 2012.

• Prospective levy of a nominal duty of 2 percent without Cenvat benefit and 6 percent with Cenvat benefit on such PSF and PFY.

• Concessional excise duty of 2 percent without Cenvat benefit and 6 percent with Cenvat benefit on sports gloves.

• Specific rates of excise duty increased on cigarettes in the range of 11 per cent to 72 per cent.

• Excise duty increased from 12 percent to 16 percent on pan masala, from 50 percent to 55 percent on unmanufactured tobacco and from 60 percent to 70 percent on gutkha and chewing tobacco.

• Levy of an additional duty of excise at 5 percent on aerated waters containing added sugar.

• To finance Clean Environment initiatives, Clean Energy Cess increased from `.50 per tons to `.100 per tons.

B. Customs Duty


CHANGES IN CUSTOMS:

• Extension of full exemption from customs duty on pulses: Full exemption from Customs duty on pulses valid till 31.03.2014 has been extended by another 6 months i.e. up to 30.09.2014

[Amended vide notification No.5/2014-Customs dated 17.02.2014].

• Withdrawal of CVD exemption on specified road construction machinery: CVD exemption hitherto available on specified road construction machinery has been withdrawn. These specified machinery will henceforth attract CVD and SAD. Exemption from the basic customs duty will however continue.

[Amended vide notification No.5/2014-Customs dated 17.02.2014]

• Rationalisation of basic customs duty structure on certain items: The basic customs duty structure on non-edible grade industrial oils and its fractions, palm stearin, fatty acids and fatty alcohols has been rationalised at 7.5%.

[Amended vide notification No.5/2014-Customs dated 17.02.2014].

• Exemption from BCD and CVD on LNG consumed in ONGC SEZ and cleared into DTA: LNG consumed in the authorized operations in the ONGC SEZ unit at Dahej and the remnant LNG cleared into the domestic tariff area (DTA) has been exempted from basic customs duty and CVD.

[Amended vide notification No.5/2014-Customs, dated 17.02.2014].

• Concessional basic customs duty on capital goods imported by or on behalf of Bank Note Paper Mill India Private Limited: A concessional basic customs duty of 5% [CVD (Nil) + SAD (Nil)] has been provided to capital goods imported by or on behalf of Bank Note Paper Mill India Private Limited. The exemption is valid up to 31.12.2014.

[Amended vide notification No.5/2014-Customs, dated 17.02.2014 and notification No.6/2014-Customs dated 17.02.2014].

• Human embryo has been fully exempted from customs duty.

C. Service Tax.


CHANGES IN SERVICE TAX:

• Exemption on handling, storage or warehousing of rice: The definition of ‘agricultural produce’ in section 65B(5) of the Finance Act, 1994, leads to a differential treatment between paddy and rice. Paddy is covered by the definition of agricultural produce which loses its essential characteristic after milling into rice. Notification 25/2012 dated June 20, 2012 (“the Mega Exemption Notification”) has been amended to insert an entry at Sl. No. 40 which reads as “services by way of loading, unloading, packing, storage or warehousing of rice” to exempt levy of service tax on handling, storage and warehousing of rice.

[Amended vide Notification No.4/2014-ST dated 17th February 2014].

• Exemption on transportation of rice: A clarification has been issued vide Circular No. 177/3/2014 dated 17th February 2014 (“the Circular”) that “food stuff” includes rice and hence service tax on transportation of rice by rail or a vessel or by a Goods Transport Agency by way of transport in a goods carriage, is exempt vide Sl. Nos. 20(i) and 21(d) of the Mega Exemption Notification.

• Exemption on milling of rice: Para 1.2 of the Circular clarifies that milling of paddy into rice carried out as job work is covered by the exemption at Sl. No.30 of the Mega Exemption Notification since such milling of paddy into rice is an intermediate production process.

• Services provided by cord blood banks: Entry no. 2A has been inserted in the Mega Exemption Notification, which reads as “Services provided by cord blood banks by way of preservation of stem cells or any other service in relation to such preservation”. Therefore, services provided by cord blood banks, such as collection of umbilical cord blood, processing the same for segregation of stem cells, testing and cryo-preservation of stem cells will be exempt from levy of service tax.

D. Securities Transaction Tax


STT Computation

As per the Finance Act 2004, and modified by Finance Act 2008 (18 of 2008) STT on the transactions executed on the Exchange shall be as under:

Sr. No.   Taxable securities transaction   New rate from
01.06.2013
  Payable by  
A   Sale of an option in securities   0.017 per cent   Seller  
B   Sale of an option in securities, where option is exercised   0.125 per cent   Purchaser  
C   Sale of a futures in securities   0.01 per cent   Seller  


• Value of taxable securities transaction relating to an "option in securities" shall be the option premium, in case of sale of an option in securities.

• Value of taxable securities transaction relating to an "option in securities" shall be the settlement price, in case of sale of an option in securities, where option is exercised.

The following procedure is adopted by the Exchange in respect of the calculation and collection of STT:

STT is applicable on all sell transactions for both futures and option contracts.

• For the purpose of STT, each futures trade is valued at the actual traded price and option trade is valued at premium. On this value, the STT rate as prescribed is applied to determine the STT liability. In case of final exercise of an option contract STT is levied on settlement price on the day of exercise if the option contract is in the money.

STT payable by the clearing member is the sum total of STT payable by all trading members clearing under him. The trading member's liability is the aggregate STT liability of clients trading through him.

Information to members

A report is provided to the members at the end of each trading day. The report contains information on the total STT liability, trading member wise STT liability, client wise STT liability and also the detailed computations for determining the client wise STT liability.

Sales Tax Acts of Various State Govrnments and Central Sales Act Governed the Application of Sales Tax/VAT


A. SALES TAX/VAT


A sales tax is a consumption tax charged at the point of purchase for certain goods and services. The tax is usually set as a percentage by the government charging the tax. There is usually a list of exemptions. The tax can be included in the price or added at the point of sale.

Ideally, a sales tax is fair, has a high compliance rate, is difficult to avoid, is charged exactly once on any one item, and is simple to calculate and simple to collect. A conventional or retail sales tax attempts to achieve this by charging the tax only on the final end user, unlike a gross receipts tax levied on the intermediate business that purchases materials for production or ordinary operating expenses prior to delivering a service or product to the marketplace. This prevents so-called tax “cascading” or “pyramiding,” in which an item is taxed more than once as it makes its way from production to final retail sale.

Sales tax can be levied either by the Central or State Government or Central Sales tax department. Also, 4 per cent tax is generally levied on all inter-State sales. State sales taxes that apply on sales made within a State have rates that range from 4 to 15 per cent. Sales tax is also charged on works contracts in most States and the value of contracts subject to tax and the tax rate vary from State to State. However, exports and services are exempt from sales tax. Sales tax is levied on the seller who recovers it from the customer at the time of sale.

The Two Types of Sales Taxes:

Sales taxes come in two varieties.

The first is a consumption tax or retail sales tax which is a straight percentage tax placed on the sale of a good. These are the traditional type of sales tax.

The second type of sales tax is a value added tax. On a value added tax (VAT), the net tax amount is the difference between the input costs and the sales price.

Sales taxes are considered by some to be regressive; that is, low income people tend to spend a greater percentage of their income in taxable sales (using a cross section time-frame) than higher income people. However, this calculation is derived when the tax paid is divided not by the tax base (the amount spent) but by income, which is argued to create an arbitrary relationship. The tax rate itself is flat with higher income people paying more tax as they consume more. While the tax on spending as a percentage of gross income may be regressive, the effective tax rates can be progressive on consumption due to exemptions or rebates. If a sales tax is to be related to income, then the unspent income can be treated as deferred (spending savings at a later point in time), at which time it is taxed. Sales taxes often exclude items or provide rebates in an effort to create progressive effects. In many locations, “necessary” items such as non-prepared food, clothing, or prescription drugs are exempt from sales tax to alleviate the burden on the poor. Others consider sales tax preferable since it taxes only consumption, which creates an incentive for savings and investment.

B. Municipal / Local Taxes


*Octori/entry tax: Some municipal jurisdictions levy octori/entry tax on entry of goods.

C. Other State Taxes


*Stamp duty on transfer of assets.
*Property /building tax levied by local bodies.
*Agriculture income tax levied by local babies.
*Luxury tax levied by certain State Government on specified goods.

FRINGE BENEFITS TAX


The taxation of perquisites or fringe benefits provided by an employer to his employees, in addition to the cash salary or wages paid, is fringe benefit tax.

Any benefits or perks that employees (current or past) get as a result of their employment are to be taxed, but in this case in the hands of the employer .This includes employee compensation other than the wages, tips, health insurance, life insurance and pension plans.

Fringe benefits as outlined in section 115 WB of the Finance Bill mean any privilege, service, facility or amenity directly or indirectly provided by an employer to his employees (including former employees) by reason of their employment.

They also include reimbursements, made by the employer either directly or indirectly to the employees. For any purpose ,contributions by the employer to an approved superannuation fund as well as any free or concessional tickets provided by the employer for private journeys undertaken by the employees or their family member.

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Review Questions
  • 1. What is TAX?
  • 2. List the direct taxes.
  • 3. What are the different indirect taxes?
  • 4. What do you mean by fringe benefit tax.
  • 5. Write a note on SEZ.
  • 6. Write a note on direct and indirect taxes, and explain the categories.
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