Tax


INCOME TAX

The levy of income tax is governed by the Income-Tax Act, 1961. This is an enormously complex legislation running into over 300 Sections with several subsections. The Act undergoes changes every year with additions and deletions brought out through a Finance Act passed by the Parliament1.

Broadly, income has been divided into five categories:
  • Income from salary
  • Income from house property
  • Profits and gains of business or profession
  • Capital gains
  • Income from other sources (including dividends, interest from securities, interest income and income from winning of lotteries).

The tax incidence on the income of assesses is determined by their residential status. Different rates of taxes are applicable to the income of individual and non-individuals. The general rules of taxation on income are:

  • Resident taxpayers are taxed on their worldwide income.
  • Nonresident taxpayers are taxed only on income received in India or on income arising (or deemed to arise) in India.
  • Corporate income is taxed both at corporate level and to shareholders upon distribution as dividends.
  • The accounting year for tax purposes is April 1 to March 31.
  • Double taxation relief is offered to residents through credits under the Income Tax Act and under the tax treaties.

INDIRECT TAXES

CENTRAL EXCISE

Excise duty is an indirect tax levied on a 'manufacturer' on the manufacture of dutiable goods. The liability arises upon 'manufacture' which may well include intermediary stages of production of final product. However, for ease of collection, duty is payable at the time of removal of goods from the factory.


CUSTOMS DUTY

The Customs Act, 1962 provides for duties to be levied on goods imported into or exported from India. Duties of customs are levied at the rate specified under the Customs Tariff Act, 1975. The said Act inter alia specifies the various categories of import items in accordance with the international scheme of classification of goods - 'Harmonised System of Commodity Classification'.

Customs duty is leviable on imports into India and is payable when the goods are cleared. There are four slabs of basic customs duty ranging from 5 percent to 35 percent. In addition to the basic customs duty; countervailing duty and special additional customs duty are also payable on imported goods. For the protection of domestic industries, the authorities are empowered to levy protective and anti-dumping duties. Export duties are practically non-existent at present. They are levied occasionally to mop up excess profitability in international price of goods in respect of which domestic prices may be low at given time.


SALES TAX

The Central Government levies a sales tax on the inter-state sale of goods (i.e. which results in a movement of goods from one State to another). A sales tax of 4 percent is charged when the transaction is between two registered dealers whilst sales tax of 10 percent is charged in all other cases. Besides the Central Government, various State Governments also impose a tax on sales within their respective States.


SERVICES TAX

Service Tax was introduced in 1994. Significant services covered by the legislation include services rendered by General Insurance Companies and telephone connection providers.


ACTS:

INCOME TAX ACT, 1961 (pdf)

G.D. Bansal & Associates

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