A B C OF INDIAN TAXATION SYSTEM For INDIVIDUALS

A B C OF A B C OF INDIAN TAXATION INDIAN TAXATION

SYSTEMSYSTEMFor INDIVIDUALSFor INDIVIDUALS

Ajay Garg & Associates, House No. 970 Sector- Ajay Garg & Associates, House No. 970 Sector- 21D, Faridabad, Haryana21D, Faridabad, Haryana

"It was only for the good "It was only for the good of his subjects that he of his subjects that he collected taxes from collected taxes from them, just as the Sun them, just as the Sun draws moisture from the draws moisture from the Earth to give it back a Earth to give it back a thousand fold"thousand fold"

-Kalidas-Kalidas

in Raghuvansh eulogizing in Raghuvansh eulogizing KING DALIPKING DALIP..

Ajay Garg & Associates, House No. 970 Ajay Garg & Associates, House No. 970 Sector- 21D, Faridabad, HaryanaSector- 21D, Faridabad, Haryana

Ancient India-Taxation Ancient India-Taxation SystemSystem

In India, the system of direct taxation as it In India, the system of direct taxation as it is known today has been in force in one is known today has been in force in one form or another even from ancient times.form or another even from ancient times.

However, it is Kautilya’s Arthashastra, However, it is Kautilya’s Arthashastra, which deals with the system of taxation in which deals with the system of taxation in elaborate and planned manner.elaborate and planned manner.

Collection of Income-tax was well Collection of Income-tax was well organised and it constituted a major part organised and it constituted a major part of the revenue of the State.of the revenue of the State.


According to KautilyaAccording to Kautilya

"From the treasury, "From the treasury, comes the power of the comes the power of the Government. And the Government. And the Additional Earth is Additional Earth is acquired by means of acquired by means of the Treasury and Army"the Treasury and Army"


INDIAN CONSTITUTION AND INDIAN CONSTITUTION AND TAXATION (Art. 265)TAXATION (Art. 265)

TAXATION SYSTEM

UNION LIST STATE LISTCONCURRENT

LIST

CENTRAL GOVT.

STATE GOVT.

BOTH GOVERNMENTS CAN MAKE LAWS FOR MATTERS IN THIS LIST


RESIDUARY LIST

Central Government -Taxation Central Government -Taxation SystemSystem

The present day mechanism of The present day mechanism of Taxation in the CG is governed Taxation in the CG is governed primarily through primarily through Ministry of Ministry of Finance Finance

A complete hierarchy has been built A complete hierarchy has been built up under this Ministry for the up under this Ministry for the smooth functioning of the System smooth functioning of the System keeping in view the size of keeping in view the size of Population of the Country.Population of the Country.


Central Government and Central Government and Taxation SystemTaxation System

TAXATION SYSTEMTAXATION SYSTEM

DIRECT TAXESDIRECT TAXES INDIRECT TAXES


Hierarchy under MoFHierarchy under MoF

MINISTRY OF FINANCE

CBDT CBEC

DEPARTMENT OF REVENUE

CUSTOMS CENTRAL EXCISE

SERVICE TAX

INCOME TAX

WEALTH TAX


TAXES UNDER UNION LISTTAXES UNDER UNION LIST

Taxes on Income other than Agri. Income.Taxes on Income other than Agri. Income.

Corporation TaxCorporation Tax

Wealth TaxWealth Tax

Gift TaxGift Tax


Customs duties on import & exportCustoms duties on import & exportExcise except on alcoholic liquorExcise except on alcoholic liquorStamp duty in respect of Share TransferStamp duty in respect of Share TransferTerminal Taxes on goods or passengersTerminal Taxes on goods or passengersCentral Sales Tax.Central Sales Tax.Service TaxService Tax

TAXES UNDER UNION LISTTAXES UNDER UNION LIST


DIRECT TAXESDIRECT TAXES

For a layman, Direct Taxes are For a layman, Direct Taxes are synonymous with Income Tax.synonymous with Income Tax.

But along with Income-Tax, the purview But along with Income-Tax, the purview of Direct Taxes also includes Wealth-Tax of Direct Taxes also includes Wealth-Tax (earlier Gift tax was also levied).(earlier Gift tax was also levied).

In India these taxes are handled by In India these taxes are handled by CBDTCBDT with its numerous with its numerous Field OfficesField Offices and and Directorate Generals.Directorate Generals.


Incidence of taxIncidence of tax

Depend upon residential statusDepend upon residential status

Residential status can beResidential status can be

Resident IndividualResident Individual Non-ResidentNon-Resident Ordinary ResidentOrdinary Resident


INCOME TAXINCOME TAX

Individuals can be categorized as follows:Individuals can be categorized as follows: Salaried IndividualsSalaried Individuals Non- salaried IndividualsNon- salaried Individuals

For Salaried Individuals, Income usually include:For Salaried Individuals, Income usually include: Salary and other emoluments and payments in relation thereof Salary and other emoluments and payments in relation thereof

including Pensions,including Pensions, Rent recd. From letting out house Property, Rent recd. From letting out house Property, Capital Gains from sale of assets, sharesCapital Gains from sale of assets, shares Dividend received from shares purchased, etc.Dividend received from shares purchased, etc.

For Non salaried Individuals, As an Individual, we are usually For Non salaried Individuals, As an Individual, we are usually concerned with:concerned with: Professional IncomeProfessional Income Income of Petty Shopkeepers.Income of Petty Shopkeepers.


Securities Transaction TaxSecurities Transaction Tax

On transactions in equity shares, On transactions in equity shares, derivatives and units of equity-oriented derivatives and units of equity-oriented funds funds

Rate of tax are:Rate of tax are:Delivery base transactions – 0.075%Delivery base transactions – 0.075%Non-delivery base transactions – 0.015%Non-delivery base transactions – 0.015%Sale of units to seller mutual fund – Sale of units to seller mutual fund –

0.15%0.15%Derivatives (futures and options ) – Derivatives (futures and options ) –

0.01%0.01%


CAPITAL GAINSCAPITAL GAINS

Capital Gain is a Profit/ Gain on Capital Gain is a Profit/ Gain on transfer of capital assets. transfer of capital assets.

Both STCG and LTCG can be Both STCG and LTCG can be exempted (Applicable sections- 54 exempted (Applicable sections- 54 to 54 GA) to 54 GA)

Indexation of Costs is something Indexation of Costs is something we tend to ignore while calculating we tend to ignore while calculating profits.profits.


CAPITAL GAINSCAPITAL GAINSA short term capital loss and a long A short term capital loss and a long

term capital loss can be set off only term capital loss can be set off only against STCG & LTCG and LTCG against STCG & LTCG and LTCG respectively. respectively.

Both losses can be carried forward Both losses can be carried forward upto 8 assessment years only when upto 8 assessment years only when return of loss is filed.return of loss is filed.

These losses should be accounted These losses should be accounted judiciously so as to save the amount of judiciously so as to save the amount of tax which may be levied at a later date.tax which may be levied at a later date.


Some finer points for Some finer points for salaried individualssalaried individuals

It should be ensured that, under the terms of It should be ensured that, under the terms of employment, DA and DP form part of Basic employment, DA and DP form part of Basic Salary.-Tax Incidence on HRA, gratuity etc. will be Salary.-Tax Incidence on HRA, gratuity etc. will be minimum.minimum.

Commutation of pension is another option.Commutation of pension is another option.

Incidence of Tax on retirement benefits is lower if Incidence of Tax on retirement benefits is lower if paid in the beginning of the year.paid in the beginning of the year.


Some finer points for salaried Some finer points for salaried individualsindividuals

LTC should be availed to the max. possible LTC should be availed to the max. possible extent.extent.

It is advantageous if an employee goes in It is advantageous if an employee goes in for perquisites rather than taxable for perquisites rather than taxable allowances. E.g. Rent Free allowances. E.g. Rent Free Accommodation.Accommodation.

If someone is neither getting HRA nor If someone is neither getting HRA nor rent-free furnished or unfurnished rent-free furnished or unfurnished accommodation then one claim deduction accommodation then one claim deduction under section 80GG for rent paid. under section 80GG for rent paid.


Some other finer points for Some other finer points for salaried individualssalaried individuals

Employees should avoid advance Employees should avoid advance salarysalary

If an individual is employed and his If an individual is employed and his spouse owns a house, he can avail spouse owns a house, he can avail HRA and pay rental to spouseHRA and pay rental to spouse

Instead of getting a consolidated Instead of getting a consolidated salary, it must be split.salary, it must be split.


TAX PLANNING TIPSTAX PLANNING TIPS

Make maximum of your family members, Make maximum of your family members, assessee, preferably women and senior assessee, preferably women and senior citizens.citizens.

Invest in Shares of Cos. & Mutual Funds - Invest in Shares of Cos. & Mutual Funds - Income thereon is fully exempt.Income thereon is fully exempt.

Invest in long-term saving schemes Invest in long-term saving schemes specified u/s 80C and 80CCC.specified u/s 80C and 80CCC.

Investment in notified Govt. Schemes Investment in notified Govt. Schemes such as PPF, Tax Free Bonds of Public such as PPF, Tax Free Bonds of Public sector companies like NTPC, NPC, IRFC, sector companies like NTPC, NPC, IRFC, etc.etc.


NON SALARIED INDIVIDUALSNON SALARIED INDIVIDUALS

Preparation of books of accounts when Preparation of books of accounts when total gross receipt exceeds Rs. total gross receipt exceeds Rs. 150000150000 (specified professions) or Rs. (specified professions) or Rs. 10 lacs10 lacs (other professions and business) or (other professions and business) or Income of Rs. 120000/-Income of Rs. 120000/-

Audit of Accounts is not required for Audit of Accounts is not required for persons if their gross receipts persons if their gross receipts do not do not exceed Rs. 40 lacs (in case of business) exceed Rs. 40 lacs (in case of business) or Rs. 10 lacs (in case of professionals). or Rs. 10 lacs (in case of professionals).


WEALTH TAXWEALTH TAX Individuals having Net wealth exceeding Rs. 15 Individuals having Net wealth exceeding Rs. 15

Lakh as on valuation date, is liable to the Lakh as on valuation date, is liable to the provisions of Wealth Tax.provisions of Wealth Tax.

Net wealth is aggregate of the value of all the Net wealth is aggregate of the value of all the assets “belonging to” the assessee on the assets “belonging to” the assessee on the Valuation date, as reduced by the aggregate value Valuation date, as reduced by the aggregate value of the debts/ liabilities owed on the valuation date, of the debts/ liabilities owed on the valuation date, oror

Net wealth=Assets-Liabilities.Net wealth=Assets-Liabilities.

Due date of Filing return 31Due date of Filing return 31stst July. July.

The Rate of tax levied under this Act is 1% of the The Rate of tax levied under this Act is 1% of the Net Wealth exceeding Rs. 15 lacs.Net Wealth exceeding Rs. 15 lacs.Ajay Garg & Associates, House No. 970 Ajay Garg & Associates, House No. 970

Sector- 21D, Faridabad, HaryanaSector- 21D, Faridabad, Haryana

STATEMENT OF ASSETSSTATEMENT OF ASSETS AssetsAssets

Guest House.Guest House. Residential Residential

House.House. Motor Cars.Motor Cars. Jewellery, bullion Jewellery, bullion

& furniture, & furniture, utensils.utensils.

Yachts, boats.Yachts, boats. Urban land.Urban land. Cash in hand> Cash in hand>

Rs. 50000.Rs. 50000.

Assets do not includeAssets do not include:: House for residential House for residential

purposes.purposes. Jewellery, bullion used Jewellery, bullion used

as stock-in-trade.as stock-in-trade. Urban land on which Urban land on which

construction is not construction is not permissible.permissible.

Urban land held as Urban land held as stock-in-trade.stock-in-trade.

Yachts, boats & Yachts, boats & aircrafts used in aircrafts used in commercial purposescommercial purposes..


Some tax planning Some tax planning measuresmeasures

Invest in taxable assets out of borrowed Invest in taxable assets out of borrowed fundsfunds

The exemptions u/s 5 should be availed ofThe exemptions u/s 5 should be availed of

Should not maintain cash in excess of Rs. Should not maintain cash in excess of Rs. 50,00050,000


SERVICE TAXSERVICE TAX Service Tax derives its powers from Chapter V of Service Tax derives its powers from Chapter V of

Finance Act, 1994 but doesn’t extend to J&KFinance Act, 1994 but doesn’t extend to J&K

Service Tax is levied on specified taxable Service Tax is levied on specified taxable services services

We are the real bearers of the burden of this taxWe are the real bearers of the burden of this tax

Service Tax is charged - @ 12% with Edu. Cess @ Service Tax is charged - @ 12% with Edu. Cess @ 3%.3%.

Around 110 services are at present covered Around 110 services are at present covered under the purview of Service Tax Act.under the purview of Service Tax Act.


OVERVIEW OF SERVICES OVERVIEW OF SERVICES COVEREDCOVERED

Stock BrokerStock Broker Insurance AgentInsurance Agent Advertisement AgencyAdvertisement Agency Courier agencyCourier agency CHA, CFACHA, CFA Air Travel AgentAir Travel Agent Mandap KeeperMandap Keeper Tour OperatorTour Operator Rent-a-cab ServiceRent-a-cab Service Architect, Interior Architect, Interior

DecoratorDecorator Real estate AgentReal estate Agent Aircraft OperatorAircraft Operator Goods Transport AgencyGoods Transport Agency Intellectual Property Intellectual Property

ServiceService Health ClubsHealth Clubs Event ManagementEvent Management

Management ConsultantManagement Consultant Practising Chartered Practising Chartered

AccountantAccountant Practising Company Practising Company

SecretarySecretary Practising Cost Practising Cost

AccountantAccountant Credit Rating AgencyCredit Rating Agency Underwriting AgencyUnderwriting Agency Mkt. Research AgencyMkt. Research Agency Photography StudioPhotography Studio Broadcasting AgencyBroadcasting Agency Beauty ParlourBeauty Parlour Cargo Handling AgencyCargo Handling Agency Commercial Training/ Commercial Training/

CoachingCoaching TransportersTransporters


SCOPE OF SERVICE TAXSCOPE OF SERVICE TAX Service Tax has proved to be a great source of Service Tax has proved to be a great source of

revenue to the Government of the country.revenue to the Government of the country.

This Tax is covered under the purview of CBEC This Tax is covered under the purview of CBEC (Central Board of Excise & Customs).(Central Board of Excise & Customs).

Each person who is a service provider is to get Each person who is a service provider is to get registered for which various Forms have been registered for which various Forms have been designed and in certain cases service receiver.designed and in certain cases service receiver.

Thus, it can be concluded that though being Thus, it can be concluded that though being indirect tax, yet the payment is to be made by indirect tax, yet the payment is to be made by individuals.individuals.


TDS- TAX DEDUCTED AT TDS- TAX DEDUCTED AT SOURCESOURCE

Provisions are contained in sections 192 to Provisions are contained in sections 192 to 196D of the Income Tax Act, 1961196D of the Income Tax Act, 1961

Payee-assessee is entitled to get credit for tax Payee-assessee is entitled to get credit for tax deducted at source.deducted at source.

He can claim credit in the Assessment Year for He can claim credit in the Assessment Year for which such income is assessable on production which such income is assessable on production of TDS certificate issued to him by the payer.of TDS certificate issued to him by the payer.

Assessee is entitled for refund of the excess if Assessee is entitled for refund of the excess if the net tax payable is less than TDS and/ or the net tax payable is less than TDS and/ or Advance Tax.Advance Tax.


CENTRAL EXCISE & CUSTOMSCENTRAL EXCISE & CUSTOMS

Both are indirect taxes which fall under the purview of Both are indirect taxes which fall under the purview of the Central Government.the Central Government.

Where Central Excise is levied on items produced in Where Central Excise is levied on items produced in India, Customs Duty is one which is levied on the India, Customs Duty is one which is levied on the goods imported or exported from India.goods imported or exported from India.

Now, in context of individuals, knowingly or Now, in context of individuals, knowingly or unknowingly we pay Excise along with the price of unknowingly we pay Excise along with the price of goods bought.goods bought.

Many a times do we use Imported goods, the value of Many a times do we use Imported goods, the value of goods already includes the customs duty paid for it goods already includes the customs duty paid for it earlier by the importer. earlier by the importer.


STAMP DUTYSTAMP DUTY Parliament can make law in respect of Stamp Duty. It Parliament can make law in respect of Stamp Duty. It

can prescribe rates of stamp duty. can prescribe rates of stamp duty.

The stamp duty rates prescribed by Parliament in The stamp duty rates prescribed by Parliament in respect of bill of exchange, cheques, transfer of shares respect of bill of exchange, cheques, transfer of shares etc. will prevail all over India. etc. will prevail all over India.

However, other stamp duty rates prescribed by However, other stamp duty rates prescribed by Parliament in Indian Stamp Act, 1899 (e.g. stamp duty Parliament in Indian Stamp Act, 1899 (e.g. stamp duty on agreements, affidavit, articles of association of a on agreements, affidavit, articles of association of a company, partnership deed, lease deed, mortgage, company, partnership deed, lease deed, mortgage, power of attorney, security bond etc.) are valid only for power of attorney, security bond etc.) are valid only for Union territories. Union territories.

In case of States, the rates prescribed by individual In case of States, the rates prescribed by individual States will prevail in those States.States will prevail in those States.


SALES TAXSALES TAX A A sales taxsales tax is a consumption tax charged at the is a consumption tax charged at the

point of purchase for certain goods and services.point of purchase for certain goods and services.

The tax is usually set as a percentage by the The tax is usually set as a percentage by the government charging the tax. There is usually a government charging the tax. There is usually a list of exemptions. list of exemptions.

The tax can be included in the price (tax-inclusive) The tax can be included in the price (tax-inclusive) or added at the point of sale (tax-exclusive).or added at the point of sale (tax-exclusive).

Most sales taxes are collected by the seller, who Most sales taxes are collected by the seller, who pays the tax over to the government which pays the tax over to the government which charges the tax. charges the tax.


BURDEN OF SALES TAXBURDEN OF SALES TAX

The economic burden of the tax usually The economic burden of the tax usually falls on the purchaser, but in some falls on the purchaser, but in some circumstances may fall on the seller. circumstances may fall on the seller.

Sales taxes are commonly charged on Sales taxes are commonly charged on sales of goods, but many sales taxes sales of goods, but many sales taxes are also charged on sales of services.are also charged on sales of services.

Ideally, a sales tax - is fair, has a high Ideally, a sales tax - is fair, has a high compliance rate, is difficult to avoid.compliance rate, is difficult to avoid.


TAXES UNDER THE STATE TAXES UNDER THE STATE LISTLIST

Taxes on Agricultural Income – Not imposed till Taxes on Agricultural Income – Not imposed till date date

Taxes on Land and Buildings Taxes on Land and Buildings

Toll Tax – State and NHAIToll Tax – State and NHAI

Tax on Profession and Employment-Nobody paysTax on Profession and Employment-Nobody pays

Tax on Luxuries – Entertainment-Everybody pays.Tax on Luxuries – Entertainment-Everybody pays.


Other Taxes under the Other Taxes under the purview of State purview of State

GovernmentGovernment

State Sales TaxState Sales Tax Excise duty on Excise duty on alcoholic liquor for alcoholic liquor for human consumption human consumption


STAMP DUTYSTAMP DUTY

State Government has powers to fix stamp duties on State Government has powers to fix stamp duties on all documents except bill of exchange, cheques etc.all documents except bill of exchange, cheques etc.

Rates prescribed by State Government will prevail in Rates prescribed by State Government will prevail in

that State. State Government can make law for other that State. State Government can make law for other aspects of stamp duty also (i.e. matters other than aspects of stamp duty also (i.e. matters other than quantum of duty).quantum of duty).

However, if there is conflict between State law and However, if there is conflict between State law and Union law, the Union law prevails .Union law, the Union law prevails .


STAMP DUTYSTAMP DUTY In case of sale, mortgage or settlement, if In case of sale, mortgage or settlement, if

there are several instruments for one there are several instruments for one transaction, stamp duty is payable only on transaction, stamp duty is payable only on one instrument. one instrument.

However, it may happen that one However, it may happen that one instrument covering only one matter can instrument covering only one matter can come under more than one description come under more than one description given in Schedule to Stamp Act. In such given in Schedule to Stamp Act. In such case, highest rate specified among the case, highest rate specified among the different heads will prevail.different heads will prevail.


VAT- MODERN SALES TAXVAT- MODERN SALES TAX

VAT is a system, in which tax is charged on all VAT is a system, in which tax is charged on all sales, thus avoiding the need for a system of sales, thus avoiding the need for a system of resale certificates.resale certificates.

Tax cascading is avoided by permitting the Tax cascading is avoided by permitting the

seller to remit to the government only the seller to remit to the government only the difference between the tax charged to the difference between the tax charged to the purchaser and the tax paid by the seller to its purchaser and the tax paid by the seller to its suppliers (the "value added").suppliers (the "value added").


VAT- MODERN SALES VAT- MODERN SALES TAXTAX

Apart from all these benefits, the Apart from all these benefits, the main advantage of VAT is that the main advantage of VAT is that the overall burden of Tax is low.overall burden of Tax is low.

VAT affects the Individuals VAT affects the Individuals indirectly. The product which we indirectly. The product which we purchase, and the price which we purchase, and the price which we pay for it already includes the tax pay for it already includes the tax paid by the seller, in it. paid by the seller, in it.


HOUSE TAXHOUSE TAXHouse tax is a tax that an owner of property House tax is a tax that an owner of property

(usually real estate) is liable to pay.(usually real estate) is liable to pay. The amount of tax is estimated on the value of the The amount of tax is estimated on the value of the

property being taxed (advalorem tax). property being taxed (advalorem tax).

House Tax - House Tax - is levied on residents by local municipal is levied on residents by local municipal authorities to upkeep the basic civic services in the city. authorities to upkeep the basic civic services in the city.


INDIAN HOUSE TAXINDIAN HOUSE TAXIn India, the actual owners of property In India, the actual owners of property

are liable to pay municipal taxes which is are liable to pay municipal taxes which is in contrast to that in the United in contrast to that in the United Kingdom, where the tenant is liable to do Kingdom, where the tenant is liable to do so.so.

Generally, the property tax is levied on Generally, the property tax is levied on the basis of reasonable rent at which the the basis of reasonable rent at which the tax payer can claim his ownership rights tax payer can claim his ownership rights over the property. over the property.

Property tax in India is paid on a year to Property tax in India is paid on a year to year basis. year basis.


ROAD TAXROAD TAXRoad tax, as the name suggests, is a tax Road tax, as the name suggests, is a tax

paid by the persons using the Roads by paid by the persons using the Roads by way of their vehicles. way of their vehicles.

So, practically, each one of us is liable to So, practically, each one of us is liable to pay this tax.pay this tax.

But do we really pay it every month, every But do we really pay it every month, every quarter or every yearquarter or every year

Well, your answer would definitely be ‘NO’.Well, your answer would definitely be ‘NO’.


The Government is charging Road The Government is charging Road Tax At the time of Registration of Tax At the time of Registration of Vehicle “one time tax”.Vehicle “one time tax”.

Road Tax is also charged in “Petrol Road Tax is also charged in “Petrol Value”Value”

Road tax is also charged on Road tax is also charged on highways in the shape of “Toll tax”.highways in the shape of “Toll tax”.

ROAD TAXROAD TAX


Impact of indirect taxesImpact of indirect taxes

Directly affects the consumersDirectly affects the consumers

Higher the taxes higher the Higher the taxes higher the burdenburden

No distinction between rich No distinction between rich and poorand poor


A J A Y G A R G & A S S O C I A T E SCompany Secretaries

9 7 0, S E CT O R 2 1D, F A R I D A B A

DCONTACT NO. 9811386723

E-mail address: [email protected]@yahoo.co.in

A B C OF INDIAN TAXATION SYSTEM For INDIVIDUALS

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