Taxation India (Part 0ne)

Taxes in India are levied by the Central Government and the State Governments. Some minor taxes are also levied by the local authorities such the Municipality or the Local Council. The authority to levy a tax is derived from the Constitution of India which allocates the power to levy various taxes between the Centre and the State.  An important restriction on this power is Article 265 of the Constitution which states that "No tax shall be levied or collected except by the authority of law."Therefore each tax levied or collected has to be backed by an accompanying law, passed either by the Parliament or the State Legislature.   Goods and Services Tax Goods and Services Tax (GST) is a part of the proposed tax reforms that center round evolving an efficient and harmonized consumption tax system in the country. Presently, there are parallel systems of indirect taxation at the central and state levels. Each of the systems needs to be reformed to eventually harmonize them. In the Union Budget for the year 2006-2007, Finance Minister proposed that India should move towards national level Goods and Services Tax that should be shared between the Centre and the States. He proposed to set April 1, 2010 as the date for introducing GST. World over, goods and services attract the same rate of tax. That is the foundation of a GST. The first step towards introducing GST is to progressively converge the service tax rate and the CENVAT rate. The goods and service tax (GST) is proposed to be a comprehensive indirect tax levy on manufacture, sale and consumption of goods as well as services at a national level. Integration of goods and services taxation would give India a world class tax system and improve tax collections. It would end the long standing distortions of differential treatments of manufacturing and service sector.  The introduction of goods and services tax will lead to the abolition of taxes such as octroi, Central sales tax, State level sales tax, entry tax, stamp duty, telecom licence fees, turnover tax, tax on consumption or sale of electricity, taxes on transportation of goods and services, and eliminate the cascading effects of multiple layers of taxation. GST will facilitate seamless credit across the entire supply chain and across all states under a common tax base. Roadmap to GST As we have parallel systems of indirect taxation at the central and state levels, each of the systems needs to be reformed to eventually harmonise them. The central excise duty should be converted into a full fledged manufacturing stage VAT on goods and services and the states sales tax systems should be transformed into a retail stage destination based VAT, before the two are integrated. At the central level, beginning has been made by converging widely varying tax rates and extending input tax credit to convert excise duties into a CENVAT Fringe Benefits Tax (FBT) Fringe Benefits Tax (FBT) is the tax applied to most, although not all, fringe benefits. A new tax was imposed on employers by India's Finance Act 2005 introduced for the financial year commencing April 1, 2005. In the budget announced on July 6, 2009, the government announced that it was to be abolished. The following items are covered: Employer's expenses on entertainment, travel, employee welfare and accommodation. The definition of fringe benefits that have become taxable has been significantly extended. The law provides an exact list of taxable items. Employer's provision of employee transportation to work or a cash allowances for this purpose. Employer's contributions to an approved retirement plan (called a superannuation fund). Employee stock option plans (ESOPs) have also been brought under Fringe Benefits Tax from the fiscal year 2007-08. The Fringe Benefit Tax is abolished in the Finance Bill of 2009 by Finance Minister Pranab Mukherjee. Value added tax (VAT) Value added tax (VAT) is similar to a sales tax. It is a tax on the estimated market value added to a product or material at each stage of its manufacture or distribution, ultimately passed on to the consumer. Maurice Lauré, Joint Director of the French Tax Authority, the Direction générale des impôts, was first to introduce VAT on April 10, 1954, although German industrialist Dr. Wilhelm von Siemens proposed the concept in 1918. Initially directed at large businesses, it was extended over time to include all business sectors. In France, it is the most important source of state finance, accounting for nearly 50% of state revenues. Central Board of Direct Taxes The Central Board of Direct Taxes (CBDT) is a part of the Department of Revenue in the Ministry of Finance, Government of India. The CBDT 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. 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 However, this Act is about to be repealed and be replaced with a new Act which consolidates the law relating to Income Tax and Wealth Tax, the new proposed legislation is purported to be called the Direct Taxes Code (to become the Direct Taxes Code, Act 2010). The new Act is purported to come into effect from 1 April 2011 Other Major Taxation Laws Other major taxation laws enacted by the Parliament are; Wealth Tax Act, which has a regular history of being passed and repealed; Service Tax, imposed under Finance Act, 1994, which taxes the provision of services provided by service providers within India or services imported by Indian from outside India; Central Excise Act, 1944, which imposes a duty of excise on goods manufactured or produced in India; Customs Act, 1962, which imposes duties of customs, counterveiling duties and anti-dumping duties on goods imported in India; Central Sales Tax, 1956, which imposes sales tax on goods sold in inter-state trade or commerce in India; Transaction Tax, which taxes transactions of sale of securities and other specified transactions; The major taxation enactments passed by the State Legislatures are in the nature of the following; Excise duties on tobacco, alcohol and narcotics; Sales tax, on sale of goods within the State; Stamp duties, on sale of property situated within the State; Entertainment taxes For the Assessment Year 2010-11 Taxable income slab (Rs.) Up to 1,60,000 - NIL Up to 1,90,000 (for women) - NIL Up to 2,40,000 (for resident individual of 65 years or above) - NIL 1,60,001 – 5,00,000 - 10% 5,00,001 – 8,00,000 - 20% 8,00,000 Above - 30% A surcharge of 2.50% of the total tax liability is applicable in case the Payee is a Non-Resident or a Foreign Company; where the total income exceeds Rs 10,000,000. The Central Board of Excise and Customs is the national agency responsible for administering customs and excise in India.