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Business And Tax Laws
- 1. Business and Tax Laws
- 2. Contents Classification of Taxes Income Tax Wealth tax Central Excise Sales Tax Customs Duty Service Tax
- 3. Taxation The word Tax refers to the required payments of money made to governments that provide public goods and services for the benefit of the community as a whole.
- 4. Classification of Taxes Direct Tax Indirect Tax
- 5. Classification of Taxes Direct Taxes : The government directly collects these taxes from the pockets of the earners out of their income. Example : Income tax, Wealth tax, Professional tax. Indirect taxes: These taxes are collected through the manufacture and sale of products and services i.e., the amount of tax is inclusive in the price of the product or service
- 6. Direct and indirect taxes Direct tax is a tax that cannot be shifted to others such as the income tax and wealth tax Indirect tax is the tax that can be shifted to others such as sales tax, excise tax, customs duty The only difference is that every person who becomes a consumer for a product or service needs to pay indirect tax irrespective of his earnings.
- 7. Income Tax Income tax is a direct tax and is governed by Income Tax Act, 1961. The act is administered by Central Board of Direct Taxes (CBDT) which is empowered to frame rules to ensure proper governance of the Act CBDT issues timely circulars to clarify any doubts regarding the scope and meaning of the act and to act as a guide for officers and assessees
- 8. Important Terminology (ITA 1961) Assessee : Sec2(7): An assessee is a person by whom any tax is payable under the Act Assessment year : It means the period of 12 months starting from 1st April of every year and ending on 31st March of next year Previous year: Income earned in a year is taxable in the next year. The year in which income is earned is known as previous year and the next year in which income is taxable is known as assessment year
- 9. Important Terminology (ITA 1961) Receipt v/s accrual of Income : Income is said to have been received by a person when payment has been actually received whereas income is said to have accrued if there arises in the person a fixed and unconditional right to receive it Revised return: If a person having filed his return within the due date discovers any omission or wrong statement therein, he may file a revised return before the expiry of one year from the end of the assessment year
- 10. Applicability Acc to sec 2(31) of ITA, 1961, Income tax is applicable to all persons of India. A person means and includes An individual HUF A company A firm AOP
- 11. Heads of Income Income from salaries Income from House Property Profits and Gains of Business or Profession Capital Gains Other Income
- 12. Income from salaries Under sec 17(1), salary includes: Wages Any annuity or pension, Any gratuity, Any fees, commission, perquisite or profits in lieu of or in addition to any salary or wages, Any advance of salary Any payment received in respect of any period of leave not availed by the employee
- 13. Income from House Property Acc to sec 22 of ITA, 1961, tax is charged only if The property consists of any building or land The assessee is the owner of house property; and The property should not be used by the owner for the purpose of his business or profession, the profits of which are chargeable to tax
- 14. Income from profits or gains from Business or profession Profits arising from Business or profession are taxable under Income tax Act, 1961
- 15. Capital Gains Sec 2 (14) defines a Capital Asset as property of any kind- whether fixed or circulating, movable or immovable, tangible or intangible. The term capital Asset does not include the following: Any stock-in-trade, consumable stores or raw materials held for the purpose of Business or profession
- 16. Capital Gains Personal effects of the assessee, that is movable property including wearing apparel, furniture and jewellery held for personal use or for the use of any member of his family dependent upon him Agricultural land in India provided it is not situated in any area within the jurisdiction of a municipality, having a population of 10,000 or more or in any such notified area;
- 17. Income from other sources Incomes like: Dividends Any winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or from gambling or betting of any form or nature Interest on securities, if not charged to tax under the head profits and gains of business Income from machinery, plant or furniture along with the building and letting of building is inseparable from the letting of plant, machinery or furniture
- 18. Income from other sources Any sum received under an insurance policy, including bonus, if not taxable as salary or business income
- 19. Incomes that are exempted Agricultural income Receipts by an individual HUF member Share of profit of a partner in a firm Any sum received under a life insurance policy Income and allowances of MLAs and MPs Incomes of charitable and religious trusts
- 20. Wealth Tax The Wealth Tax Act is an important direct tax legislation, which came into existence on 1 st April 1957. Wealth tax is levied on 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 yield any income. Wealth tax is also a direct tax It is governed by Wealth Tax Act, 1957 The wealth tax is chargeable in respect of net wealth of every individual, HUF and a company in respect of every assessment year at the rate of 1 percent of the amount where the net wealth exceeds Rs 15 lakhs
- 21. Wealth Tax Acc to sec 45 of the Act, no wealth tax is chargeable in respect of the wealth of: Any cooperative society Any social club Any political party
- 22. Assets chargeable to wealth tax Wealth tax is not levied investments in shares, debentures, UTI, mutual funds, etc are exempt from it. The assets chargeable to wealth tax are :- Guest house, residential house, commercial building Motor car Jewellery, utensils of gold, silver etc Boats and aircrafts Cash in hand (in excess of 50,000), only for Individual & HUF
- 23. Chargeability of wealth tax Wealth tax is chargeable in respect of Net wealth. Net wealth means all assets less loans taken to acquire those assets. In other words, the value of the taxable assets is clubbed together and is reduced by the amount of debt owed by the assessee. The net wealth so arrived at is charged to tax at the specified rates. Wealth tax is charged @ 1% of the amount by which the net wealth exceeds Rs.15 Lakhs.
- 24. Assets that are exempted Property held under a trust. Agricultural land and growing crops Animals Residential building of a former ruler. Assets belonging to Indian repatriates. One house or a part of house or a plot of land not exceeding 500sq.mts,for individual & HUF assessee
- 25. Deemed assets Assets transferred by one spouse to another Assets held by minor child
- 26. Central Excise Central excise is governed by Central Excise Act, 1944 Central excise is the duty that is collected on a product, that is manufactured or produced in India It comes under indirect taxes It is levied on every product that is manufactured or produced, irrespective of its sales/ realization of value
- 27. Applicability of duties The power to levy Central excise duties lies with the Central government Central Govt has no power to impose duty on Alcoholic liquors for human consumption Opium and other narcotic drugs
- 28. Conditions to levy excise duty Depending upon the case laws and judicial interpretations, “goods” for the purposes of levy of excise duty must satisfy two preconditions- Movability : The goods must be movable. Excise duty is not levied on immovable property. All goods which are manufactured and produced in India are taxable under Central Excise Act ,1944 Marketability : The item should be such that it is capable of being bought or sold. Unless this test of marketability is satisfied, duty cannot be levied as these will not be goods
- 29. Sales tax 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. The tax can be included in the price (tax-inclusive) or added at the point of sale (tax-exclusive).
- 30. Applicability of Central Sales Tax (CST) The applicability of Central Sales Tax is as follows: Tax is levied on interstate sales Sales tax thus collected is retained by the collecting state Sales tax under this scheme is payable in the state from where movement of goods begin
- 31. Rates of Sales Tax Sale to Government Sale to registered dealers of goods included in their registration certificates Sale of declared goods to unregistered dealers Sale of goods other than declared goods to un- registered dealers
- 32. Rates to various categories Sale to Government- The sales tax on Sale to Government is charged at 4% or general sales tax rate for sale within the state, whichever is lower. Sale to Registered dealers- The sale to registered dealers is taxed at 4% or sales tax rate for sale within the state whichever is lower, provided that the goods are specified. Sale to Un-Registered dealers- The rate of sales tax on: Declared Goods: twice the rate applicable to sale or purchase of such goods within the state Other than Declared goods : as applicable for sale inside the state
- 33. Calculation of Sales Turnover SALES TAX IS PAYABLE ON SALES TURNOVER OF THE PERIOD. TURNOVER: THE SALES TURNOVER IS THE AGGREGATE OF THE SALE PRICE RECEIVED AND RECEIVABLE BY THE DEALER IN RESPECT OF SALES OF ANY GOODS IN THE COURSE OF INTERSTATE TRADE AND COMMERCE MADE DURING ANY PRESCRIBED PERIOD. IT IS DETERMINED ACCORDING TO THE CST RULES.
- 34. Customs Duty CUSTOM DUTY IS ANOTHER PART OF INDIRECT TAXES. THIS DUTY IS ALLOCATED BY THE CENTRAL GOVERNMENT ON EVERY PRODUCT THAT IS EXPORTED OR IMPORTED FROM INDIA. CUSTOM DUTY IS APPLICABLE EQUALLY TO ALL OVER INDIA AT THE TIME OF IMPORTING OR EXPORTING THE GOODS IN INDIA. IT IS ALSO APPLICABLE ON TRANSPORTING THE GOODS BY LAND, AIR AND WATER INCLUDING INDIAN TERRITORIAL WATERS.
- 35. Objective of levying customs duty: To restrict imports to preserve foreign exchange. To prohibit imports and exports of goods for achieving the policy objectives of the Government. To regulate exports To co-ordinate the legal provisions with other laws dealing with foreign exchange.
- 36. Types of Custom Duties Anti-Dumping Duty Protective Duty Export Duty Import Duty
- 37. Value Added Tax Value Added Tax (VAT) is a form of sales tax collected by the Government of destination state on consumer expenditure. It is collected through business transactions involving sale of goods within the state VAT is a tax on value added in the price of a commodity at each stage of production or manufacture of goods It is the tax which is collected at each stage of sale when there is a value addition to the goods
- 38. Value Added Tax It is a tax on retail sales collected in stages on multi-point sales basis in different stages of products and trade levied in such a manner that it is added in each stage and is taxed only once VAT in its common form is thus a sales tax levied according to the value added which can be called the value added sales tax as well VAT is the difference between the price at which commodity sold and the cost of inputs and in case of trading the difference between the value of sales and purchases.
- 39. Definition of Sale under VAT includes: The conventional sale i.e transfer of property in goods. Supply of goods by a society, clubs, firms and company to its members. Transfer of property in goods involved in execution of work contract. Delivery of any goods on hire purchase or any other system of payment by installments. Transfer of right to use any goods for any purpose, whether or not for a specified period.
- 40. Cenvat The term ‘CENVAT’ stands for Central Value Added Tax. The Cenvat scheme is based on the system of granting credit of duty paid on inputs. Under Cenvat, a manufacturer has to pay duty as per normal procedure on the basis of ‘Assessable value’ However, he gets credit of duty paid on inputs.
- 41. Credit will be available for duty paid on Raw materials Material used in relation to manufacture Packaging material Paints Duty paid on diesel and petrol is not available as CENVAT credit, even if they are used as raw materials CENVAT credit is available only on inputs used in or in relation to the manufacture of a final product The input may be used directly or indirectly in or in relation to manufacture. Credit is to be availed only on the basis of specified documents as proof of payment of duty on inputs.
- 42. Service Tax SERVICE TAX IS ANOTHER TYPE OF INDIRECT TAX THAT IS TO BE PAID BY A CUSTOMER FOR CERTAIN KINDS OF SERVICES HE AVAILS.
- 43. Applicability of Service Tax It is applicable to several service providers right from the transport operators to the hospitality sector. These service providers collect tax from customers and pay to the government. The service tax shall be paid by all the service providers. The services rendered by individuals and other non-commercial organization also will be liable on service tax.
- 44. Objectives of collecting the Service Tax To bring unorganized sectors under tax purview. To make part in the government’s revenue by imposing tax, as the service sector is the major contributor to the GDP.
- 45. List of Services for Computation Advertising agency Banking and other financial services Courier agency Dry cleaners Goods transport agency Cleaning activity Packaging activity
- 46. Fringe Benefit Tax Perquisites provided by the employer to his employees both in terms of monetary and non- monetary in addition to the cash salary or wages. These perquisites are called Fringe benefits. The tax on these perquisites is called Fringe Benefit Tax. These perquisites are taxed in the hands of employees, but this tax is collected from the hands of employer.
- 47. Taxable Fringe Benefits Entertainment Festival Celebrations Gifts Use of Club Facilities Conference Employee welfare Sales promotion Conveyance, tours and travels expenses Use of telephone Scholarship to the children of the employees. Consumption of fuel other than industrial fuel Hotel boarding and lodging Use of health club, sports and similar facilities.
- 48. Thank you !