Amendments in taxation system of india

AMENDMENTS IN TAXATION SYSTEM OF

INDIA

Made by – Kapil Agarwal (10114022)

Ashutosh Gupta (10114009)

WHAT IS TAX?

A compulsory contribution to state revenue, levied by the government on workers income and business profits or added to the cost of some goods, services, and transactions.

"No tax shall be levied or collected except by the authority of law."

TAX SYSYEM IN INDIA The system of taxation is divided between

the central and state government in India. Central govt. - income tax,property tax, etc. State govt. - custom duties , excise duty,

service tax, VAT (Value Added Tax), land revenue ,etc.

Direct tax -  tax paid directly to the government by the persons on whom it is imposed.

Indirect tax – taxes paid to the government through intermediary.

CONSTITUTIONAL PROVISIONS ON CENTRE-STATE FISCAL

BALANCE DIRECT TAX

INDIRECT TAX

Income tax – Tax levied on personal income from any source except agriculture.

Sales Tax/VAT - Tax on sales or on the receipts from sales.

Excise Duty - Tax levied on goods produced and consumed within the country.

Custom Duty - Tax levied on goods imported to or exported from the country.

Service Tax – Tax levied on specified services that comes under its ambit . It is levied on services provided in India except the state of J&K

DIRECT TAXES CODE

DIRECT TAX CODE

The DTC is about to replace the existing Indian Income Tax Act, 1961.

The Code aims at reducing tax rates, but expanding the tax base by minimizing exemptions.

It is proposed to provide the EEE (Exempt-Exempt-Exempt) method of taxation for Government Provident Fund (GPF) and Public Provident Fund (PPF).

DTC 2009 unveiled in August 2009 The Government received over 1,600

representations on DTC 2009 DTC 2010 tabled in the Lok Sabha on 30 August

2010 The DTC 2010 will be effective from FY

commencing 1 April 2013

“319 Sections and 22 Schedules in DTC as compared to 298 Sections and 14 Schedules in the ITA”

WHAT IS THE NEED FOR DTC?

To establish an economically efficient, effective and equitable direct tax system

To eliminate distortions in the tax structure. To reduce the scope for disputes and

minimize litigation related to variable tax rates.

At present, the rates of taxes are stipulated in the Finance Act of the relevant year thus a certain degree of uncertainty and instability in the prevailing rates of taxes.

SALIENT FEATURES OF DTC

Single code for direct taxes Use of simple language. Flexibility to changing economy. Surcharge and education cess are abolished. Under the Code, all rates of taxes are

proposed to be prescribed in the First to the Fourth Schedule to the Code itself thereby obviating the need for an annual Finance Bill. The changes in the rates, if any, will be done through amendments in the bill

Only half of Short-term capital gains will be taxed.

Tax exemption on LTA (leave travel allowance) is abolished.

Removal of most of the tax saving scheme:

DTC removes most of the categories of exempted income. Unit linked Insurance Plans, Equity Mutual Funds , Long term infrastructures bonds, house loan principal repayment, stamp duty and registration fees on purchase of house property will loose tax benefits.

PROVISIONS OF DTC

The income tax rates and slabs have been modified. The proposed rates and slabs are as follows:

Annual Income Tax Slab

Up-to INR  200,000 (for senior citizens 250,000)

Nil

Between INR 200,000 to 500,000

10%

Between INR 500,000 to 1,000,000

20%

Above INR 1,000,000 30% Men and women are treated same now. Home loan interest: Exemption will remain same as 1.5

lakhs per year for interest on housing loan for self-occupied property.

News for NRIs : As per the current laws, a NRI is liable to pay tax on global income if he is in India for a period more than 182 days in a financial year. But in new bill, this duration has been changed to just 60 days.

SLAB RATES UNDER DTC

DIRECT TAX CODE

INCOME TAX ACT

Common threshold income tax exemption limit for men and women proposed at Rs. 2 lakh per annum

Common threshold income tax exemption limit for men and women proposed at Rs. 1.8 lakh per annum.

Tax exemption for senior citizens to Rs. 2.5 lakh.

Tax exemption for senior citizens to Rs. 2.5 lakh

Max limit for medical reimbursements is Rs. 50,000 per year.

Max limit for medical reimbursements is Rs. 15,000 per year

For incomes arising of House Property: Deductions for Rent and Maintenance would be 20% of the Gross Rent

For incomes arising of House Property: Deductions for Rent and Maintenance would be 30% of the Gross Rent.

POSSIBLE BREAKTHROUGH

Parliamentary Standing Committee on Finance held on 24 Feb 2012 will recommend raising the annual income-tax exemption limit to Rs.3 lakh and hiking the limit on tax breaks for investments to Rs.2.50 lakh

The Committee will present its report to Parliament in the third week of March

HOW DTC WILL AFFECT VARIOUS SECTORS ?

Effect on Endowment/Moneyback insurance policies:

As per Direct tax code, any amount you receive at maturity from an insurance policy (including bonus) will be taxed while under ITA act no such provision is there. RESIDENCY:If the POEM(place of effective management) of a foreign company is located in India at any time during the financial year, it is regarded as a resident and its entire income is liable to tax which was not under ITA act.

Effect on Mutual Funds & Stocks DTC does not differentiate between short-term and long- term capital gain.

Will the DTC help the insurance industry?DTC is very unfair to the insurance sector as it proposes a separate window of Rs50,000 apart from Rs1 lakh, which will include payment made towards educational expenses and health insurance, which leaves nothing for the life insurance space.

CORPORATIONS AND WORKING CLASS:Increase in the income-tax threshold for exemption and no additional levy of surcharge and education cess.

GOODS AND SERVICE TAX

Finance Minister Pranab Mukherjee while presenting the Budget on July 6, 2009, said that GST would come into effect from April 2010.

Till now, the date of implementation has been pushed beyond from 01/04/2011 to may be 1st April 2013.

The implementation of GST will lead to the abolition of other 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, etc., thus avoiding multiple layers of taxation that currently exist in India.

GOODS AND SERVICE TAX

Goods and Service Tax is a tax on goods andservices, which is leviable at each point of saleor provision of service, in which at the time ofsale of goods or providing the services the selleror service provider can claim the input creditof tax which he has paid while purchasing thegoods or procuring the service.

WHAT IS GST ?

It is essentially a tax only on value addition at each stage, and a supplier at each stage is permitted to set-off, through a tax credit mechanism.

The final consumer will thus bear only the GST charged by the last dealer in the supply chain, with set-off benefits at all the previous stages.

Stage of supply chain

Purchase value of input

Value addition

Value at which supply of goods and services made to next stage

Rate of GST

GST on output

Input tax credit

Net GST=GST on output –Input tax credit

Manufacturer

100 30 130 10% 13 10 13-10=3

Whole seller

130 20 150 10% 15 13 15-13=2

Retailer 150 10 160 10% 16 15 16-15=1

The manufacturer, whole seller and retailer have to pay only Rs. 6 (= Rs. 3+Rs. 2+Re. 1) as GST on the value addition along the entire value chain from the producer to the retailer, after setting-off GST paid at the earlier stages. The overall burden of GST on the goods is thus much less.

ILLUSTRATION

In principle, there is no difference between present tax structure under VAT and GST as far as the tax on goods is concerned because GST is also a form of VAT on Goods and services. Here at present the sales tax, with an exception of CST, is a VAT system and in case of service tax the system also has the Cenvat credit system hence both sales tax and service tax are under VAT system in our country. At present the goods and services are taxed separately but in GST the difference will be vanished.

GST AND PRESENT SYSTEM OF VAT

The incidence of tax only falls on domestic consumption.

The efficiency and equity of the system is optimized.

There should be no export of taxes across taxing jurisdictions.

The Indian market should be integrated into a single common market.

It enhances the cause of co-operative federalism.

OBJECTIVE BEHIND GST

A Joint Working Group has been constituted (September 30, 2009) comprising of the officials of the Central and State Governments.

It has to prepare in a time-bound manner a draft legislation for Constitutional Amendment.

It has to prepare rules and procedures for CGST and SGST.

The Working Group will also address to the issues of dispute resolution and advance ruling.

STEPS TAKEN FOR GST

India is planning to implement a dual GST system. Under dual GST, a Central Goods and Services Tax (CGST)

and a State Goods and Services Tax (SGST) will be levied on the taxable value of a transaction.

All goods and services, barring a few exceptions, will be brought into the GST base.

There will be no distinction between goods and services. CGST will include central excise duty (Cenvat), service tax,

and additional duties of customs at the central level SGST will include value-added tax, central sales tax,

entertainment tax, luxury tax, octroi, lottery taxes, electricity duty, state surcharges related to supply of goods and services and purchase tax.

PROPOSAL

Central and State GST should be treated separately.

The CGST and SGST should be credited to the accounts of the centre and the states separately.

Taxes paid against the CGST should be allowed to be taken as input tax credit (ITC) for the CGST and could be utilized only against the payment of CGST. The same principle will be applicable to the SGST.

Cross utilization of ITC between CGST and the SGST should not be allowed.

CENTRAL GST AND STATE GST

A two-rate structure – a lower rate for necessary items and items of basic importance and a standard rate for goods in general.

There will also be a special rate for precious metals and a list of exempted items.

For taxation of services, there may be a single rate for both CGST and SGST. The rate is expected around 14-16 per cent. 

The EC has recommended for uniform threshold of annual gross turnover of Rs.10 lakh for all goods and services for SGST applicable for all states and Union Territories . Below this threshold limit, State GST is not applicable. The threshold limit for central GST may be kept at Rs.1.5 crore for goods and central GST may be kept at higher levels for services.

PROPOSED RATE STRUCTURE

Centre would levy IGST which would be CGST plus SGST on all inter-State transactions of taxable goods and services with appropriate provision for consignment or stock transfer of goods and services.

The Task Force on GST is of the view that all inter-State transactions in goods and services should be effectively zero rated by adopting the Modified Bank Model.

INTER-STATE TRANSACTIONS OF GOODS AND SERVICES

(IGST MODEL)

Charging tax Getting Credit of GST Ultimate Burden of Tax on Last Customer Registration Tax Period Refunds Exempted Goods and Services Zero Rated Goods and Services Tax Invoice

HOW GST WILL WORK ?

The taxation burden will be divided equitably between manufacturing and services, through a lower tax rate by increasing the tax base and minimizing exemptions.

It is expected to help build a transparent and corruption-free tax administration.

It is estimated that India will gain $15 billion a year by implementing the Goods and Services Tax as it would promote exports, raise employment and boost growth.

This will benefit individuals as prices are likely to come down. Lower prices will lead to more consumption, thereby helping companies.

It will result in cost competitiveness of goods and services in Global market.

BENEFITS OF GST

Integration of a large number of Central & State Taxes – multiplicity of taxes and tax rates.

Power to levy and collect taxes – necessary constitutional amendments.

Operating a seamless input credit system – no cascading. Efficacy and integration of broad based computerization

across the Nation. Dispute settlement procedure and machinery. Training of tax administrators and assesses. Protecting and balancing the present and future revenues of

the Centre and the States. Safeguarding the interests of less developed States with

lower revenue potential. Treatment of exemption allowed in excise, VAT, etc.

CHALLENGES IN IMPLEMENTATION OF GST

 Implementing of GST will require a major revamp in the IT systems and administrative infrastructure. Many states are not yet ready with such a support system.

At present different tax rates prevail in the Indian states. The states fear that the uniform SGST which is decided might be lower than their existing rates thereby leading to losses.

Currently states do not charge separate service tax. They enjoy a share in the Central Sales Tax kitty, but once GST comes into being, this anomaly will stop to exist.

Since there will be no distinction between goods and services under the GST regime, the states might benefit out of increased revenue on account of services.

Almost all states, except for Maharashtra, are opposing GST.

OPPOSITION BY STATES

http://finmin.nic.in http://business.gov.in http://www.financierworldwide.com http://

articles.economictimes.indiatimes.com http://goodsandservicetax.com/ http://icai.org/ http://tinxsys.com http://www.gstindia.com/ http://gstindiarefund.com

BIBLIOGRAPHY

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