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
Direct Tax
Tax

Income Wealth Excise Customs Sales

Tax Tax Duties Duty 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….