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Taxation Policy in India
Transcript of Taxation Policy in India
Purpose of Tax
Tax Structure in India
There are mainly two types of Taxes, direct tax and indirect tax which are governed by two different boards, Central Board of Direct Taxes (CBDT) and Central Board of Excise and Customs (CBEC).
India's Interim Budget 2014-15
No major change in tax rates.
Direct taxes left untouched.
Factory gate tax to be reduced to
on some capital goods, consumer durables.
Cut excise duty on small cars, two wheelers, commercial vehicles to
Large and mid-segment cars from
Restructure of factory gate tax rates for manufacturing of mobile handsets.
The services provided by cord blood banks is exempted from Service Tax.
What is Tax?
Taxes represent the amount of money we pay to the government at predefined rates and periodicity. Taxes are the basic source of revenue to the government using which it provides various kinds of services to the tax payers.
According to Hugh Dalton, "a tax is a compulsory contribution imposed by a public authority, irrespective of the exact amount of service rendered to the taxpayer in return, and not imposed as penalty for any legal offense."
Financing government spending:
Reduce consumption of demerit Goods:
Reduce gap between rich and poor:
Balance of payments
Taxes are justified as they fund government expenditure and activities that are necessary and beneficial to society.
Progressive taxation can be used to reduce inequality in a society. According to this view, taxation in modern nation-states benefits the majority of the population and social development. Progressive tax system where higher income groups have to pay more tax is an effective way of reducing inequality of income.
Taxes can be used as an effective tool to reduce the consumption of demerit goods like alcohol and tobacco. Higher taxes on these goods reduce the consumption. Examples include cigarette tax and excise duty.
One of the causes of inflation is ‘too much money chasing too few goods’. Government can take away the extra disposable income of the people through higher taxes and thus reduce the aggregate demand in the economy and resulting in low inflation rate.
Government uses taxes as a mean to protect local/infant industries. Increasing tariffs on imports and charging lower taxes to local/infant industries may boost the demand for goods and services produced by domestic industry.
Direct taxes are the personal liability of tax payer. These are collected directly from the tax payers and they have to be paid by the persons on whom it is imposed.Important direct taxes are listed below:
Central Board of Direct Taxes
This is most important type of direct tax and almost everyone is familiar with it. TDS(Tax Deduction at Source) is its famous synonym and whosoever is earning above a minimum amount (tax exemption limit) has to pay income tax.
Capital Gains Tax
This is levied on the capital gains arrived by selling
materials (eg. gold)
. Tax rates are different for long term and short term capital gains.
If we purchase shares at say Rs.1000 (per share) and after two months this price is increased to Rs.1200 per share, we decide to sell this share and earn profit of Rs.200. In that case, we have to pay Short term CGT @ 10% + education cess on profit as it is short term capital gain.If we hold same share for one year or above, it is considered as lon term Capital Gain and we need not pay CGT .
For property it is considered long term capital gain , if we hold property for three years or above.
A wealth tax is generally conceived of as a levy based on the aggregate value of all
including owner-occupied housing
savings in insurance
investment in real estate
corporate stock, financial securities, and personal trusts
A wealth tax is a tax on the accumulated stock of purchasing power, in contrast
to income tax, which is a tax on the flow of assets (a change in stock).
In Budget 2013-2014 Finance Minister Mr P. Chidambaram introduced a
surcharge of 10 percent on taxpayers with an annual taxable income of more than 1
crore (10 million) rupees.
Corporate taxes are annual taxes payable on the income of a corporate opening(both domestic and foreign) in India. Corporate Tax Rate in India is reported by the
Ministry of Finance, Government of India
The Corporate Tax Rate in India stands at
. India averaged 33.61 percent from 2006 until 2014, reaching an all time high of 34 percent in 2014 and a record low of 32.44 percent in 2011.
Its amount is based on the net income companies obtain while exercising their business activity, normally during one business year.
Revenues from the Corporate Tax Rate are an important source of income for the government of India.
An indirect tax (such as sales tax, a specific tax, value added tax (VAT), or goods and services tax (GST)) is a tax collected by an intermediary (such as a retail store) from the person who bears the ultimate economic burden of the tax (such as the consumer). The intermediary later files a tax return and forwards the tax proceeds to government with the return.
In this sense, the term indirect tax is contrasted with a direct tax which is collected directly by government from the persons (legal or natural) on which it is imposed. Some commentators have argued that "a direct tax is one that cannot be shifted by the taxpayer to someone else, whereas an indirect tax can be."
A sales tax is a tax paid to a governing body for the sales of certain goods .Sale tax on
is charged by Union Government, while sales tax on
(now termed as
) is charged by State Government.
The Sales Tax Rate in India stands at
percent. Sales Tax Rate in India is reported by the Ministry of Finance, Government of India. Sales Tax Rate in India averaged 12.45 % from 2006 until 2014, reaching an all time high of 12.50 % in 2007 and a record low of 12.36 % in 2012.
A few examples of sales tax are
retail sales tax
manufacturer's sales tax
wholesale sales tax
For most of the paid services we use , we have to pay a tax known as service tax.Over the past few years, the service tax has been expanded to cover new services. Few of the major services which come under service tax are
The service provider collects the tax and pays the same to the government. It is charged on all services except the services in the negative list of services. The current rate is 12.36% on gross value of the service.
Service tax is only liable to be paid in case the total value of the service provided during the financial year is more than Rs. 10 Lakhs. If the value of services provided during a financial year is less than 10 Lakhs, it is optional for the service provider to pay service tax or not.
Article 246 of the Indian Constitution, distributes legislative powers including taxation, between the Parliament of India 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 make laws,
List - II entailing the areas on which only the state legislature can make laws, and
List - III listing the areas on which both the Parliament and the State Legislature can make laws upon concurrently.
The tax on incomes, customs duties, central excise and service tax are levied by the Central Government. The state Government levies agricultural income tax (income from plantations only), Value Added Tax (VAT)/ Sales Tax, Stamp Duty, State Excise, Land Revenue, Luxury Tax and Tax On Professions. The local bodies have the authority to levy tax on properties, octroi/entry tax and tax for utilities like water supply, drainage etc.
The Central Board of Direct Taxes (CBDT) is a part of the Department of Revenue in the Ministry of Finance, Government of India provides essential inputs for policy and planning of direct taxes in India and is also responsible for administration of the direct tax laws through Income Tax Department.
The CBDT is a statutory authority functioning under the Central Board of Revenue Act, 1963. The Central Board of Revenue as the Department apex body charged with the administration of taxes came into existence as a result of the Central Board of Revenue Act, 1924.
Initially the Board was in charge of both direct and indirect taxes. However, when the administration of taxes became too unwieldy for one Board to handle, the Board was split up into two, namely the Central Board of Direct Taxes and Central Board of Excise and Customs with effect from 1.1.1964.
It is an indirect tax levied and collected on the
goods manufactured in India
Generally, manufacturer of goods is responsible to pay duty to the Government.
It is mandatory to pay duty on all goods manufactured, unless exempted. For example, duty is not payable on the goods exported out of India. Similarly exemption from payment of duty is available, based on conditions such as kind of raw materials used, value of turnover (clearances) in a financial year, type of process employed etc.
The rates at which the excise duty is to be collected are stipulated in the
Central Excise Tariff Act, 1985
Examples of Excise Duty are taxes on
, and taxes on
(sometimes referred to as
Duties of customs are levied on goods imported or exported from India at the rate specified under the customs
Tariff Act, 197
5 as amended from time to time or any other law for the time being in force.
The main purpose of the custom duty in India is the prevention of the illegal export and import of goods.
, if you buy alcoholic beverages in a Customs duty-free shop in New York before entering Canada and then bring them back into the United States, they will be subject to Customs duty and
Internal Revenue Service tax(IRT).
VAT is a multi-stage tax levied at each stage of the value addition chain, with a provision to allow
) on tax paid at an earlier stage, which can be appropriated against the VAT liability on subsequent sale.
is intended to tax every stage of sale where some value is added to raw materials, but taxpayers will receive credit for tax already paid on procurement stages. Thus, VAT will be without the problem of double taxation as prevalent in the earlier
Sales tax laws
: Amount paid by a buyer as a percentage of cost price for goods/services used to make a final product
Say the Cost Price of a goods/services is = INR 100
Assuming the VAT rate to be 12.5%,
Input VAT (VAT paid during buying) = INR 12.50
: Amount received by a seller as a percentage of the selling price of the final product
Say the Selling Price of the Product is = INR 200
Output Tax (VAT collected during resale) = INR 25
= Output VAT – Input VAT = INR ( 25 – 12.50) = INR 12.50
a mound-shaped indicator, was designed to find the "ideal" tax rate that would help the government, as well as the people it serves, prosper.
The Laffer Curve is the representation of the relationship between possible
rates of taxation
and the resulting
rates of Government revenue
The Laffer curve is typically represented as a graph which starts at
0% tax with zero revenue
, rises to a maximum rate of revenue at an intermediate rate of taxation, and then falls again to zero revenue at a
100% tax rate.
The actual existence and shape of the curve is uncertain and disputed!
Income Tax Slab for 2014-15
India Corporate Tax Rate
Sales Tax / VAT Rate
Income Tax Act of 1961
The major tax enactment in India is the Income Tax Act of 1961 passed by the Parliament, which imposes a tax on income of individuals and corporations. This Act imposes a tax on income under the following five heads:
Income from house and property,
Income from business and profession,
Income from salaries,
Income in the form of Capital gains, and
Income from other sources
Recently the Government of India has brought out a draft statute called the "Direct Taxes Code" intended to replace the Income Tax Act,1961 and the Wealth Tax Act, 1956.