NAME : SUBRAT MOHANTY

PROJECT NAME : TAXATION IN INDIA

BATCH : THANE_49
SUBMISSION DATE : 17/07/2024
Index
1. Introduction
2. What is taxation
3. Purpose of taxation
4. Direct tax
a. Income tax
b. Corporate tax
5. Indirect tax
 INTRODUCTION

Taxation, imposition of compulsory levies on

individuals or entities by governments Taxes are
levied in almost every country of the world,
primarily to raise revenue for government
expenditures, although they serve other purposes
as well
In modern economies taxes are the most important
source of governmental revenue Taxes differ from
other sources of revenue in that they are
compulsory levies and are unrequited—i e , they
are generally not paid in exchange for some
specific thing, such as a particular public service,
the sale of public property, or the issuance of
public debt While taxes are presumably collected
for the welfare of taxpayers as a whole, the
individual taxpayer’s liability is independent of any
specific benefit received There are, however,
important exceptions: payroll taxes, for example,
are commonly levied on labour income in order to
finance retirement benefits, medical payments, and
other social security programs—all of which are
likely to benefit the taxpayer Because of the likely
link between taxes paid and benefits received,
payroll taxes are sometimes called “contributions”
(as in the United States) Nevertheless, the
payments are commonly compulsory, and the link
to benefits is sometimes quite weak Another
example of a tax that is linked to benefits
received, if only loosely, is the use of taxes on
motor fuels to finance the construction and
maintenance of roads and highways, whose
services can be enjoyed only by consuming taxed
motor fuels

Taxation is the means by which a government or

the taxing authority imposes or levies a tax on its
citizens and business entities From income tax to
goods and services tax (GST), taxation applies to
all levels

WHAT IS TAXATION ?

The Central and State government plays a

significant role in determining the taxes in India
To streamline the process of taxation and ensure
transparency in the country, the state and central
governments have undertaken various policy
reforms over the last few years One such change
was the Goods and Services Tax (GST) which
eased the tax regime on the sale and deliverance
of goods and services in the country

Taxation is a term for when a taxing authority,

usually a government, levies or imposes a financial
obligation on its citizens or residents Paying taxes
to governments or officials has been a mainstay of
civilization since ancient times
The term "taxation" applies to all types of
mandatory levies, from income to capital gains to
estate taxes Though taxation can be a noun or
verb, it is usually referred to as an act; the
resulting revenue is usually called "taxes "
The term ‘tax’ has been derived from the French
word ‘taxe’ and etymologically, the Latin
word‘taxare’ is related to the term ‘tax’, which
means ‘to charge’ Tax is a contribution exacted by
the state It is a non-penal but compulsory and
unrequited transfer of resources from private to the
public sector, levied on the basis of predetermined
criteria
THERE ARE TWO TYPES OF TAXES :
1 DIRECT TAX
2 INDIRECT TAX

PURPOSES OF TAXATION

1. ECONOMIC DEVELOPMENT

One of the important objectives of taxation is

economic development Economic development
of any country is largely conditioned by the
growth of capital formation It is said that
capital formation is the kingpin of economic
development But LDCs usually suffer from the
shortage of capital

To overcome the scarcity of capital,

governments of these countries mobilize
resources so that a rapid capital accumulation
 takes place To step up both public and
private investment, government taps tax
revenues Through proper tax planning, the
ratio of savings to national income can be
raised

By raising the existing rate of taxes or by

imposing new taxes, the process of capital
formation can be made smooth One of the
important elements of economic development is
the raising of savings- income ratio which can
be effectively raised through taxation policy

However, proper care has to be taken,

regarding investment If financial resources or
investments are channelized in the un-
productive sectors of the economy the
economic development may be jeopardized,
even if savings and investment rates are
increased Thus, the tax policy has to be
employed in such a way that investment
occurs in the productive sectors of the
economy, including the infrastructural sectors

2. FULL EMPLOYMENT

Second objective is the full employment

Since the level of employment depends on
effective demand, a country desirous of
achieving the goal of full employment must
cut down the rate of taxes Consequently,
disposable income will rise and, hence,
demand for goods and services will rise
 Increased demand will stimulate investment
leading to a rise in income and employment
through the multiplier mechanism

3. PRICE STABILITY

Thirdly, taxation can be used to ensure price

stability—a short run objective of taxation
Taxes are regarded as an effective means of
controlling inflation By raising the rate of
direct taxes, private spending can be controlled
Naturally, the pressure on the commodity
market is reduced

But indirect taxes imposed on commodities fuel

inflationary tendencies High commodity prices,
on the one hand, discourage consumption and,
on the other hand, encourage saving Opposite
effect will occur when taxes are lowered down
during deflation

4. CONTROL OF CYCLICAL FLUCTUATIONS

Fourthly, control of cyclical fluctuations—periods

of boom and depression—is considered to be
another objective of taxation During
depression, taxes are lowered down while
during boom taxes are increased so that
cyclical fluctuations are tamed

5. REDUCTION OF BOP DIFFICULTIES

 Taxes like custom duties are also used to
control imports of certain goods with the
objective of reducing the intensity of balance
of payments difficulties and encouraging
domestic production of import substitutes

6. NON-REVENUE OBJECTIVES

Finally, another extra-revenue or non-revenue

objective of taxation is the reduction of
inequalities in income and wealth This can be
done by taxing the rich at higher rate than
the poor or by introducing a system of
progressive taxation

DIRECT TAX

Direct taxes are primarily taxes on natural persons

(e g , individuals), and they are typically based on
the taxpayer’s ability to pay as measured by
income, consumption, or net wealth What follows
is a description of the main types of direct taxes
Individual income taxes are commonly levied on
total personal net income of the taxpayer (which
may be an individual, a couple, or a family) in
excess of some stipulated minimum They are also
commonly adjusted to take into account the
circumstances influencing the ability to pay, such
as family status, number and age of children, and
financial burdens resulting from illness The taxes
are often levied at graduated rates, meaning that
the rates rise as income rises Personal exemptions
for the taxpayer and family can create a range of
income that is subject to a tax rate of zero

Taxes on net worth are levied on the total net

worth of a person—that is, the value of his assets
minus his liabilities As with the income tax, the
personal circumstances of the taxpayer can be
taken into consideration

Personal or direct taxes on consumption (also

known as expenditure taxes or spending taxes) are
essentially levied on all income that is not
channeled into savings In contrast to indirect
taxes on spending, such as the sales tax, a direct
consumption tax can be adjusted to an individual’s
ability to pay by allowing for marital status,age,
number of dependents, and so on Although long
attractive to theorists, this form of tax has been
used in only two countries, India and Sri Lanka;
both instances were brief and unsuccessful Near
the end of the 20th century, the “flat tax”—which
achieves economic effects similar to those of the
direct consumption tax by exempting most income
from capital—came to be viewed favourably by tax
experts No country has adopted a tax with the
base of the flat tax, although many have income
taxes with only one rate

Taxes at death take two forms: the inheritance tax,

where the taxable object is the bequest received
by the person inheriting, and the estate tax, where
the object is the total estate left by the deceased
Inheritance taxes sometimes take into account the
personal circumstances of the taxpayer, such as
the worth before receiving the bequest Estate
taxes, however, are generally graduated according
to the size of the estate, and in some countries
they provide tax-exempt transfers to the spouse
and make an allowance for the number of heirs
involved In order to prevent the death duties from
being circumvented through an exchange of
property prior to death, tax systems may include a
tax on gifts above a certain threshold made
between living persons (see gift tax) Taxes on
transfers do not ordinarily yield much revenue, if
only because large tax payments can be easily
avoided through estate planning
List of direct taxes in india :
1. Income tax
2. Corporate tax
INCOME TAX
Income tax, levy imposed on individuals (or
family units) and corporations. Individual
income tax is computed on the basis of
income received. It is usually classified as a
direct tax because the burden is presumably
on the individuals who pay it. Corporate
income tax is imposed on net profits,
computed as the excess of receipts over
allowable costs.

As an instrument of national policy, the

individual income tax has played different
roles in different countries at different times,
beginning in Great Britain at the close of the
18th century. By 1914 the “personal” income
tax had come to be regarded in a number of
countries not only as an important revenue
instrument but also as an instrument for
achieving social reform through income
redistribution. Finally, in most countries it
has been used to redirect economic decisions
through preferential treatment of various
activities. It can also act as a stabilizer
against economic fluctuations because its
effect on purchasing power varies inversely
with changes in income and employment. For
example, a person who experiences a
reduction of income due to a job loss will
typically owe less in taxes; the employed
person will pay more in taxes but will have
more income available for purchases. More
recently, however, opinion has shifted away
from the view that the income tax should be
used for these purposes because of the costs
involved, in terms of disincentives and other
distortions of economic behaviour.

Income tax is a type of tax governments

impose on the income that businesses and
individuals generate. By law, taxpayers must
file an income tax return annually to
determine their tax obligations.

Income taxes are a source of revenue for

governments. They are used to fund public
services and pay government obligations. In
addition to the federal government, many
states and local jurisdictions also levy
income taxes.

HEADS OF INCOME
1.INCOME FROM SALARIES
Income from salaries refers to the
compensation received by an employee
from their employer in exchange for their
work and services. It is a type of earned
income, distinct from unearned income
such as investments or inheritances.

Key Characteristics:

 Fixed Amount: Salaries are typically

paid on a regular basis, such as bi-
weekly or monthly, and are a fixed
amount.
 Employer-Employee Relationship:
Salaries are paid by an employer to an
 employee, establishing a clear
employment contract.
 Taxable Income: Salaries are subject to
income tax, with taxes withheld by the
employer and remitted to the
government.

Components of Salary Income:

 Basic Salary: The primary

compensation for an employee’s work,
including regular wages or hourly pay.
 Allowances: Additional amounts paid to
employees, such as housing,
transportation, or meal allowances.
 Bonuses: Extra payments made to
employees for exceptional
performance, milestones, or
achievements.
 Benefits: Non-monetary benefits, such
as health insurance, retirement plans,
or paid time off, which may have a
monetary value.

Taxation of Salary Income:

 Income Tax: Salaries are subject to

income tax, with taxes withheld by the
employer and remitted to the
government.
 Deductions: Employees may claim
deductions, such as contributions to
retirement plans or charitable
 donations, to reduce their taxable
income.
 Exemptions: Certain components of
salary income, like housing or
transportation allowances, may be
exempt from taxation.

2.INCOME FROM HOUSE PROPERTY

Income from House Property is a head of

income under the Indian Income Tax Act,
1961. It includes income from rental
properties, whether self-occupied or let
out. Here are the key concepts and
calculations:

 Gross Annual Value (GAV): The

expected rental income from a
property if it were let out. For self-
occupied properties, GAV is Nil.

 Net Annual Value (NAV): GAV minus

Municipal Taxes or Taxes paid to local
authorities.

 Standard Deduction: 30% of NAV,

allowed under Section 24(a) of the
Income Tax Act.

 Interest on Housing Loan: The interest

component of the housing loan
repayment, allowed as a deduction
under Section 24(b) of the Income Tax
Act.
  Less: Total Interest Restricted to: The
maximum deduction allowed for
interest on housing loan, which is
₹2,00,000 (₹2 lakhs).

Income from House Property: The final

taxable income, calculated by subtracting
the standard deduction and interest on
housing loan (up to the restricted amount)
from the NAV.

3.PROFITS AND GAINS FROM BUSINESS AND

PROFESSION

Income from business and profession is

chargeable to tax under the head ‘Profits
and Gains of Business or Profession‘ as per
the Income Tax Act. The Act allows
deductions for various business expenses
under Sections 30 to 37, covering items
like rent, salaries, repairs, insurance, and
depreciation. However, certain expenses
may be expressly disallowed, and the
deductibility of expenses is generally
based on the actual payment basis.
Additionally, there are specific provisions
applicable to non-resident/foreign
companies, and businesses may opt for
presumptive taxation if they meet certain
criteria. Proper maintenance of accounts
and audits are required as per the Act. In
this Article we have discussed briefly
 Different Provisions Applicable to Income
from Business and Profession at one place.

4.CAPITAL GAINS
Capital Gains Tax in India is imposed on the
profit earned from the sale of certain
assets, such as stocks, bonds, real estate,
or other investments. This tax applies to
both individuals and businesses.

Types of Capital Gains

There are two types of Capital Gains:

a.Short-Term Capital Gains (STCG): Gains

from the sale of assets held for 36
months or less are considered STCG and
are taxed as per the individual’s income
tax slab rate.
b.Long-Term Capital Gains (LTCG): Gains
from the sale of assets held for more
than 36 months are considered LTCG and
are taxed at a flat rate of 10% (exceeding
₹1 lakh) or 20% (if the gain exceeds ₹1
crore).

Capital assets include:

Land, building, house property, vehicles,

patents, trademarks, leasehold rights,
machinery, and jewelry
Rights in or relating to an Indian company
Units of equity-oriented mutual funds
Listed equity shares
 Exemptions

Individuals can lower their burden of

capital gains tax by availing of the
following exemptions:

Exemption on gains incurred through the

sale of an existing residential property and
reinvesting the proceeds to purchase
another residential property (up to ₹2
crore)
Exemption on gains from the sale of any
asset (except a residential property) when
reinvested in another asset
Tax Rates

The tax rates for Capital Gains in India are

as follows:

Short-term capital gains: Taxed as per

individual’s income tax slab rate
Long-term capital gains:
Up to ₹1 lakh: Nil
₹1 lakh to ₹6 lakh: 5%
₹6 lakh to ₹9 lakh: 10%
₹9 lakh to ₹12 lakh: 15%
Above ₹12 lakh: 20%

5.INCOME FROM OTHER SOURCES

Income from Other Sources refers to any
income that is not derived from
employment, business, or profession. It is a
residual category of income that includes
various types of income, such as:
  Interest on savings accounts and fixed
deposits
 Dividends from investments
 Rental income
 Gifts received
 Any amount received as rent from
plant, machinery, furniture let on hire
This income does not count under any of
the other heads of income, such as Salary,
House Property, Business/Profession, or
Capital Gains. It is taxed as per the
provisions of the Income Tax Act, 1961.

The following examples illustrate the types

of income that are considered under
Income from Other Sources:

 Interest received from taxable bonds:

₹20,000/-
 Interest received on Income Tax refund:
₹4,000/-
 Taxable income from other sources:
₹224,000/-

Note that this category of income is not

exhaustive, and any income that does not
fit into the other heads of income may be
classified as Income from Other Sources.

After adding income from all the above heads of

income the sum at which we will arrive is the
“GROSS TOTAL INCOME”.
CH. VI-A: DEDUCTIONS

Chapter VI-A of the Income Tax Act provides

various deductions to taxpayers, allowing them
to reduce their gross total income and
subsequently their tax liability. The following are
some key deductions under this chapter:

 Section 80E: Deduction for Interest on

Education Loan
Eligible taxpayers: Individuals repaying
education loans for themselves or their relatives
Conditions: The loan must have been taken for
higher education, and the repayment must be
made to notified financial institutions or
charitable organizations
Period of deduction: Up to 8 years or until the
loan is fully repaid, whichever is earlier
Amount of deduction: Actual interest amount
paid during the financial year
 Section 80C: Deduction for Investments and
Payments

Eligible taxpayers: Individuals making specified

investments and payments
Investments and payments: Life insurance
premiums, contributions to Public Provident Fund
(PPF), Employee Provident Fund (EPF), National
Pension Scheme (NPS), National Savings
Certificate (NSC), Equity Linked Saving Scheme
(ELSS), Unit Linked Insurance Plan (ULIP), Tax
Saving Fixed Deposit (5-year fixed deposit),
Approved Superannuation Fund, Senior Citizen
Saving Scheme, Sukanya Samriddhi Yojana, and
repayment of housing loan principal amount
Lock-in period and other requirements apply for
each investment and payment

NET TOTAL INCOME

After deducting deductions from the gross total
income we arrive at NET TOTAL INCOME.

After getting to the net total income we will be

calculating basic tax at the rate applicable(as pe
the income slab and age of the assesse)
The further is explained below:
 Add: Health
basic tax and education
cess@4%

less: advance
Tax payable
tax/tds/tcs
T
 CORPORATE TAX

Indian taxes are divided into two types: One is Direct

Taxes and other is Indirect Taxes. Talking about direct
taxes, it is levied on the income that different types of
business entities earn in a financial year. There are
different types of taxpayers registered with the Income
tax department and they pay taxes at different rates.
For eg, An individual and a company being a taxpayer
are not taxed at the same rate.
Therefore, Direct Taxes are again subdivided as:
 Personal Income Tax: The income-tax paid by
the individual taxpayers is the personal income
tax. Individuals get taxed on the basis of tax
slabs at different rates.
 Corporate Tax: The income-tax paid by domestic
companies, and foreign companies on their income
in India is corporate income-tax (CIT). The CIT is at
a specific rate as prescribed by the income tax act
subject to the changes in the rates in the union
budget every year.
Corporate Tax in India
A corporate is an entity that has a separate and
independent legal entity from its shareholders.
Domestic as well as foreign companies are liable to pay
corporate tax under the Income-tax Act. While a
domestic company is taxed on its universal income, a
foreign company is only taxed on the income earned
within India i.e. is being accrued or received in India.
For the purpose of calculation of taxes under Income
tax act, the types of companies can be defined as
under:
 Domestic Company: Domestic company is one
which is registered under the Companies Act of
India and also includes the company registered in
the foreign countries having control and
management wholly situated in India. A domestic
company includes private as well as public
companies.
 Foreign Company: Foreign company is one which
is not registered under the companies act of India
and has control & management located outside
India.
What is meant as Income of a company?
Before understanding the rate of taxes and how the tax
will be calculated on income of the companies, we
should learn about the types of income which a
company earns. Here it is :
1. Profits earned from the business
2. Capital Gains
3. Income from renting property
4. Income from other sources like dividend, interest
etc.

Tax rates applicable

Taxes on Income
The following rates are applicable to the domestic
companies for AY 2020-21 based on their turnover:
*Plus surcharge in case a company gets taxed under
section 115BA. The rate of surcharge is 7% in case the
total income is above one crore rupees and up to Rs 10
crore. The surcharge is 12% in case total income is
above Rs 10 crore. However, if a company opts for
taxation under section 115BAA or section 115BAB, the
surcharge is 10% irrespective of the total income.
The following rates are applicable to foreign companies
for AY 2020-21 based on their turnover :

In addition to above rates:

Surcharge rate :
Health & education Cess: Further 4% of income tax
calculated and applicable surcharge will be added to
the amount of total tax liability before this cess.
Minimum Alternate Tax (MAT): Alternatively, all the
companies (including foreign companies) are required
to pay minimum alternate tax at the rate of 15% on
book profits if the tax calculated as per above rates are
less than 15% of book profits. This will be applicable if
the company does not opt for Section 115BAA or
Section 115BAB.

DUE DATES FOR FILLING OF INCOME TAX RETURN:

(i) 31st October of the assessment year, where the
assessee, other than an assessee referred to in (ii)
below, is -
(a) a company,
(b) a person (other than a company) whose accounts
are required to be audited under the Income-tax Act,
1961 or any other law for the time being in force; or
(c) a partner of a firm whose accounts are required to
be audited under the Income-tax Act, 1961 or any other
law for the time being in force.
(ii) 30th November of the assessment year, in the case
of an assessee including the partners of the firm² being
such assessee who is required to furnish a report
referred to in section 92E.

(iii) 31st July of the assessment year, in the case of any

other assessee.
 INDIRECT TAX

An indirect tax (such as a sales tax, per unit tax, value-

added tax [VAT], excise tax, consumption tax, or tariff)
is a tax that is levied upon goods and services before
they reach the customer who ultimately pays the
indirect tax as a part of market price of the good or
service purchased. Alternatively, if the entity who pays
taxes to the tax collecting authority does not suffer a
corresponding reduction in income, i.e., the effect and
tax incidence are not on the same entity meaning that
tax can be shifted or passed on, then the tax is indirect.
An indirect tax is collected by an intermediary (such as
a retail store) from the person (such as the consumer)
who pays the tax included in the price of a purchased
good. The intermediary later files a tax return and
forwards the tax proceeds to government with the
return. In this sense, the term indirect tax is contrasted
with a direct tax, which is collected directly by
government from the persons (legal or natural) on
whom it is imposed. Some commentators have argued
that "a direct tax is one that cannot be charged by the
taxpayer to someone else, whereas an indirect tax can
be."
Apart from the role in raising government revenue,
indirect taxes, in the form of tariffs and import duties,
are also used to regulate quantity of imports and
exports flowing in and out of the country. In case of
imports, by tariff imposition the government protects
domestic producers from foreign producers that may
have lower production costs, and thus are able to sell
their goods and services at lower prices, driving
domestic producers out of the market. After tariff
imposition, imported goods become more expensive for
domestic consumers, hence domestic producers are
better-off than before tariff imposition.
 LIST OF INDIRECT TAXES

1. CUSTOMS DUTY
2.EXCISE DUTY
3.SERVICE TAX
4.SALES TAX
5.VALUE ADDED TAX(VAT)
6.SECURITIES TRANSACTION
TAX(STT)
7.OCTROI DUTY
8.ENTERTAINMENT TAX
9.GOODS AND SERVICE TAX
1. Custom Duty
- Customs Duty is a tariff or tax imposed on goods
when they are transported across international borders.
Its primary purpose is to protect each country's
economy, residents, jobs, environment, etc., by
controlling the flow of goods, especially restrictive and
prohibited goods, into and out of the country.
- It is typically imposed on imports, and occasionally
on exports.
- The rate can vary based on the type of goods, their
origin, and international trade agreements.

2.Excise Duty:
- Excise Duty is a tax levied on the manufacture, sale,
or consumption of certain goods within a country.
- This tax is typically applied to goods like alcohol,
tobacco, and gasoline.
- It is considered an indirect tax because it is paid by
the manufacturer but often passed on to the consumer
in the product's price.

3.Service Tax:
- Service Tax was a tax levied on the services
provided in India.
- It was an indirect tax where the service provider
collects the tax from the service receiver and pays it to
the government.
 - Service Tax was replaced by the Goods and Services
Tax (GST) in 2017.

4. Sales Tax
- Sales Tax is a consumption tax imposed by the
government on the sale of goods and services.
- The seller collects the tax from the buyer at the
point of sale and then remits it to the government.
- Sales Tax can be a retail sales tax, levied only on the
final consumer, or a general sales tax that can be
imposed at each point in the supply chain.

5. Value Added Tax (VAT):

- VAT is a type of consumption tax placed on a
product whenever value is added at each stage of the
supply chain, from production to the point of sale.
- The amount of VAT the user pays is the cost of the
product minus any costs of materials used in the
product that have already been taxed.
- It is used in many countries worldwide as a major
source of government revenue.

6. Securities Transaction Tax (STT):

- STT is a tax payable in India on the value of
securities (excluding commodities and currency)
transacted through a recognized stock exchange.
- It is applicable on the purchase and sale of shares,
derivatives, and equity-oriented mutual funds.
 - The aim is to curb speculation and generate revenue
for the government.

7. Octroi Duty:
- Octroi Duty was a local tax collected on various
articles brought into a district for consumption.
- It was typically collected by municipal authorities on
goods that enter their jurisdiction.
- This tax has been abolished in most regions and
replaced by other forms of tax like the Goods and
Services Tax (GST).

8. Entertainment Tax:
- Entertainment Tax is a tax levied by the government
on financial transactions related to entertainment.
- This includes activities like movie tickets,
exhibitions, amusement parks, and other commercial
entertainment activities.
- With the introduction of GST, many of the
entertainment tax components have been subsumed
under GST.

9. Goods and Services Tax:

The goods and services tax (GST) is an indirect
federal sales tax that is applied to the cost of certain
goods and services. The business adds the GST to the
price of the product, and a customer who buys the
product pays the sales price inclusive of the GST. The
GST portion is collected by the business or seller and
forwarded to the government.

Each of these taxes and duties serves to generate

revenue for the government, regulate consumption,
and control the flow of goods and services within and
across borders.