ECONOMY - "Tax System in India"

The taxation system in India is quite well structured:

The Department of Revenue of the 'Finance Ministry' of the "Government of India" is responsible for the computation; levy as well as collection of most the taxes in the country. However, some of the taxes are even levied solely by the Local State Bodies or the respective governments of the different states in the nation.

Over a period of 10 years to 15 years, the tax system in the nation has undergone some significant changes. The entire system has been tremendously reformed. The slabs for the imposition of taxes have been modified. Besides that, the rates at which any particular tax is being levied have been restructured as well as the various laws that govern the levying of taxes were being simplified. All of these reformations have resulted in the following:

• Better compliance
• Better enforcement
• Easy payment of the levied taxes

The date of 1st April of the year 2005 is marked as the date of the implementation of the V. A. T. or the Value Added Tax by almost all the State Governments as a replacement of the earlier Sales Tax. Some of the states in the Indian Republic, where V. A. T. has not been implemented yet, still levy Sales Tax though. Apart from these, the process of rationalization of the tax laws is still in progress. 

CLASSIFICATION OF TAX LEVYING,COLLECTION AND DISTRIBUTION AMONG CENTRE AND STATE : 

1.Taxes Levied by the Central Government of India

The Central Indian Government that is officially named as the "Union Government" is responsible for the imposition of both direct taxes as well indirect taxes. Listed below are some of the taxes that are levied by the India Government:

 

Direct Taxes                              

DIRECT TAXES

• Banking Cash Transaction Tax
• Capital Gains Tax
• Corporate Income Tax               
• Fringe Benefit Tax
• Personal Income Tax
• Securities Transaction Tax

 

 

 

 

 Indirect Taxes                        

INDIERCT TAXES

• Customs Duty
• Excise Duty
• Service Tax

 

 

 

2.Taxes Imposed by the State Governments

Though the majority of the taxes are levied by the Central Government of the country, there are some taxes, which can not be levied by them. These kinds of taxes are the one of the sole responsibilities of the governments of the individual states. To name a few of such taxes in India are:

• Dividend Tax
• Endowment Tax
• Estate Tax
• Gift Tax
• Flat Rate Tax or Flat Tax
• Fuel Tax
• Inheritance Tax
• Transfer Tax
• Payroll Tax
• Poll Tax
• S. E. T. or Self Employment Tax
• Social Security Tax
• Usage Tax
• Value Added Tax or Sales Tax
• Wealth Tax

3.Taxes Levied by the Local Bodies

The Octori Tax or Entry Tax is the most famous tax, which is being imposed by the local bodies or the municipal jurisdictions on the goods' entry.

Tax Incentives in India

The India Government offers tax incentives that are subject to some specified conditions. Such incentives are provided for the following:

• Allowance for accelerated depreciation
• Corporate profit
• Certain expense deduction on the basis of some particular conditions

A tax incentive is available for any fresh investment in any of the below mentioned sectors:

• Companies involved in Research and Development
• Development of housing projects
• Development by undertakings
• Food processing industry
• Infrastructure
• Mineral oil production and refining
• Operating industrial places
• Organisations handling food grains
• Power distribution
• Hospitals located in the rural areas
• Specialised economic zones
• Telecom services (For some specified services) 
• Undertakings based in some specified hill states  

 WHAT IS DIRECT TAXES :

In case of direct taxes (income tax, wealth tax, etc.), the burden directly falls on the taxpayer.

  

=>>Income tax??

According to Income Tax Act 1961, every person, who is an assessee and whose total income exceeds the maximum exemption limit, shall be chargeable to the income tax at the rate or rates prescribed in the Finance Act. Such income tax shall be paid on the total income of the previous year in the relevant assessment year.

Assessee means a person by whom (any tax) or any other sum of money is payable under the Income Tax Act, and includes -

(a) Every person in respect of whom any proceeding under the Income Tax Act has been taken for the assessment of his income (or assessment of fringe benefits) or of the income of any other person in respect of which he is assessable, or of the loss sustained by him or by such other person, or of the amount of refund due to him or to such other person;

(b) Every person who is deemed to be an assessee under any provisions of the Income Tax Act;

(c) Every person who is deemed to be an assessee in default under any provision of the Income Tax Act.

Where a person includes:

• Individual
  
• Hindu Undivided Family (HUF)
  
• Association of persons (AOP)
  
• Body of individuals (BOI)
  
• Company
  
• Firm
  
• A local authority and,
• Every artificial judicial person not falling within any of the preceding categories.

Income tax is an annual tax imposed separately for each assessment year (also called the tax year). Assessment year commences from 1st April and ends on the next 31st March.

The total income of an individual is determined on the basis of his residential status in India. For tax purposes, an individual may be resident, nonresident or not ordinarily resident.

  

 

Definition of Resident:: 

An individual is treated as resident in a year if present in India:

1. For 182 days during the year or

2. For 60 days during the year and 365 days during the preceding four years. Individuals fulfilling neither of these conditions are nonresidents. (The rules are slightly more liberal for Indian citizens residing abroad or leaving India for employment abroad.) 

Resident but not Ordinarily Resident:

A resident who was not present in India for 730 days during the preceding seven years or who was nonresident in nine out of ten preceding years is treated as not ordinarily resident. 

Non-Residents:

Non-residents are taxed only on income that is received in India or arises or is deemed to arise in India. A person not ordinarily resident is taxed like a non-resident but is also liable to tax on income accruing abroad if it is from a business controlled in or a profession set up in India.

Non-resident Indians (NRIs) are not required to file a tax return if their income consists of only interest and dividends, provided taxes due on such income are deducted at source. It is possible for non-resident Indians to avail of these special provisions even after becoming residents by following certain procedures laid down by the Income Tax act.