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Taxation in India

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Taxation in India Page 1 AARAMBH - Start to Quality Answer Writing Features 4 Questions Per Day for 5 Days a Week for next 8 Weeks. ( Self Evaluation ) 4 Full Length Tests with Evaluation. Complete Coverage Syllabus through Question. Lecture on Answer Writing. Focus on Structuring of answers and Brainstorming Personal Mentoring by Dr.Sudarshan Sir. Documents on Quotes, Diagrams, Examples. Limited Number of Students. Course start from 24th May 2021 Offer Price: 4999/- ( Only 100 admissions ) Schedule: https://bit.ly/33JQmsu Enrol here : https://targetupsc.in/courses/detail/79 Page 2 Table of Contents Taxation In India .................................................................................................................. 4 What is a Tax ? ................................................................................................................. 4 Adam Smith’s 4 Canons of taxation .................................................................................. 4 Methods Of Taxation ......................................................................................................... 4 Progressive taxation ...................................................................................................... 4 Regressive Tax .............................................................................................................. 4 Proportional Tax............................................................................................................. 5 Retrospective Taxation: ................................................................................................. 5 Types of Taxes: ................................................................................................................. 5 Direct Taxes: ................................................................................................................. 5 Indirect taxes : ............................................................................................................... 6 Differences between Direct and Indirect Tax .................................................................. 6 Central Board of Direct Taxes (CBDT)............................................................................... 7 Central Board of Indirect Taxes and Customs ................................................................... 8 Constitutional Provisions Regarding Taxation in India ....................................................... 9 Income Tax:..................................................................................................................... 11 Corporation Tax ............................................................................................................... 11 Capital Gain Tax .............................................................................................................. 12 Minimum Alternate Tax ( MAT ) ....................................................................................... 12 Dividend Distribution Tax: ................................................................................................ 12 Professional Tax .............................................................................................................. 12 Securities Transaction Tax ( STT ) .................................................................................. 13 Sales tax ......................................................................................................................... 13 Service tax ...................................................................................................................... 13 Value Added Tax ............................................................................................................. 13 Customs Duty and Octroi:................................................................................................ 14 Excise Duty: .................................................................................................................... 14 Page 3 Taxation In India What is a Tax ? • Taxes are generally an involuntary fee levied on individuals and corporations by the government in order to finance government activities. • Taxes are essentially of quid pro quo in nature. It means a favour or advantage granted in return for something. • In order to run the government and manage the affairs of a state, money is required. So the government imposes taxes in many forms on the incomes of individuals and companies. Adam Smith’s 4 Canons of taxation • Canon of Equality: Tax should be equal /proportionate to income. Rich people should pay more taxes than poors. • Canon of Certainty : dates, slabs, % should be definite & told in advance. Randomly govt should not demand “x%” tax to build statue, temple or mosque. • Canon of Convenience : tax payer shouldn’t be made wait for a mile long queue & fill up 50 pages worth tax forms. • Canon of Economy: to collect ₹ 100 crore tax, govt shouldn’t be spending ₹ 99 crores in salaries of tax officials. Methods Of Taxation Progressive taxation • In progressive taxation, the tax liability increases with individual or entity income. • This is based on principle of “ability to pay”. • The correct interpretation is that the tax liability for a taxpayer increases with his income in terms of proportion of income and in absolute amount. • Under this system, lowest income people are generally exempted while highest income people pay highest taxes. • Progressiveness in personal income tax can be increased by having more tax slabs • Example: Income Tax • Progressive taxation results in redistribution of income from rich to poor. • Redistribution of income can help in stimulating the economy by increasing consumption Regressive Tax Page 4 • A regressive tax is the one in which tax rate decreases as the amount subject to taxation increases; and the tax rate progresses from high to low. • The lowest amount is subject to higher taxation and this leads to individuals with low income bear the highest burden of regressive taxes. • Such tax does not take into account the ability to pay. • Example: Indirect taxes, such as sales / service tax, VAT, GST are an example of regressive tax as the poor and rich pay the same tax in purchasing everyday products and services. Proportional Tax • A proportional or flat tax system assesses the same tax rate on everyone regardless of income or wealth. • This means that lower class, or middle class, or upper-class people pay at the same rate of tax. • Since the tax is charged at a flat rate for everyone, whether earning higher income or lower income, it is also called a flat tax. • One example of corporation tax in India where by government charges a flat rate of 30% on the income earned by the companies in India. Retrospective Taxation: • It allows a country to pass a rule on taxing certain products, items or services and deals and charge companies from a time behind the date on which the law is passed. • Countries use this route to correct any anomalies in their taxation policies that have, in the past, allowed companies to take advantage of such loopholes. • Retrospective Taxation hurts companies that had knowingly or unknowingly interpreted the tax rules differently. • Apart from India, many countries including the USA, the UK, the Netherlands, Canada, Belgium, Australia and Italy have retrospectively taxed companies. Types of Taxes: Direct Taxes: • Subject on whom the tax is levied is identifiable • A tax that is paid directly by an individual or organization to the imposing entity (generally government) and it cannot be shifted to another individual or entity. • It is termed as a progressive tax because the proportion of tax liability rises as an individual or entity's income increases. • The Central Board of Direct Taxes (CBDT) is the authority that looks after the administration of laws related to direct taxes through the Department of Income Tax. ➢ Income Tax ➢ Capital Gains Tax ➢ Securities Transaction Tax ➢ Fringe benefit tax , wealth tax ➢ Perquisite Tax Page 5 ➢ Corporate Tax i. Minimum alternate Tax ii. Dividend Distribution tax Indirect taxes : • An indirect tax is levied on manufacturing, importing or sale of goods or services. • It is called indirect because the real burden of such a tax is not borne by the individual or firm paying it but is passed on to the consumer. • An indirect tax is paid by the consumer to the seller and the seller in turn pays it to the government. o Sales Tax o Service Tax o Value Added Tax ( VAT ) o Excise Duty o Custom Duty & Octroi o Goods and services tax (GST) Taxes in increasing order of their respective collection (actuals) as per Budget 2020- 21 • Securities Transaction Tax • Union Excise Duties • Central Goods and Services Tax (CGST) • Corporation Tax Differences between Direct and Indirect Tax Page 6 Central Board of Direct Taxes (CBDT) • It is a statutory body established as per the Central Board of Revenue Act, 1963. Page 7 • It is India’s official financial action task force unit. • It is administered by the Department of Revenue under the Ministry of Finance. Functions of CBDT • It deals with matters related to levying and collecting Direct Taxes. • Formulation of various policies. • Supervision of the entire Income Tax Department • Suggests legislative changes in Direct Tax Enactments • Suggests changes in tax rates • Proposes changes in the taxation structure in line with the Government policies. Central Board of Indirect Taxes and Customs • The nodal national agency responsible for administering Customs, GST, Central Excise,
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