GoldenTwine Informatics: Indian Sites > Investment Guide for Indians > Taxation - Direct and Indirect Taxes
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Taxation
- Taxes in India are of two types, Direct Tax and Indirect Tax.
- Direct Tax, like income tax, wealth tax, etc. is those whose burden falls directly on the taxpayer.
- The burden of indirect taxes, like service tax, VAT, etc. can be passed on to a third party.
Direct Tax - Income Tax
Income Tax is all income other than agricultural income levied and collected by the central government and shared with the states.
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.
The total income of an individual is determined on the basis of his residential status in India.
Residence Rules
An individual is treated as resident in a year if present in India
- for 182 days during the year or
- for 60 days during the year and 365 days during the preceding four years. Individuals fulfilling neither of these conditions are non-residents. (The rules are slightly more liberal for Indian citizens residing abroad or leaving India for employment abroad.)
A resident who was not present in India for 730 days during the preceding seven years or who was non-resident in nine out of ten preceding yeas I treated as not ordinarily resident. In effect, a newcomer to India remains not ordinarily resident.
For tax purposes, an individual may be resident, non-resident or not ordinarily resident.
Non-Residents and Non-Resident Indians
Residents are on worldwide income. 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.
Capital gains on transfer of assets acquired in foreign exchange is not taxable in certain cases.
Non-resident Indians 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.
IT Department is cross verifying your investments and expenses:
- Purchase or Sale of immovable property valued at Rs.30 lakh or more.
- Credit card expenditure exceeding Rs.2 lakh per annum.
- Mutual Fund investments in excess of Rs.2 lakh.
- Purchase of Bonds or Debentures of a company or an Institution for Rs.5 lakh or more.
- Cash deposits of Rs.10 lakh or more per year in your Savings Bank Account.
- Payment of Rs.1 lakh or more for acquiring shares of a Company through its Public or Rights Issue.
- Purchase of Bonds issued by the Reserve Bank of India aggregating to 5 lakh or more in a year.
3rd instalment for companies, 2nd instalment for others.
Assesses with projected net payable tax of Rs.5000 or more as reduced by TDS, need to pay their advance tax instalment on or before 15/12/2007 or they would be liable to pay interest as per the law.
- You deserve credit for taxes paid
- Quote correct PAN
- Fill all challan columns correctly
- Ensure correct data entry by your bank
Avail e-payment facility for your advance tax.
or contact Aayakar Sampark Kendra 0124-2438000
Indirect Tax - Service Tax
What is it
It is tax on the transaction of providing a service for a consideration. Presently, it is collected on 100 services.
Services Presently Taxable
Who pays it
Normally it is to be paid by the service provider. However, in certain cases the responsibility is on the service receiver, eg., service provided by a goods transport agency for transport of goods by road; sponsorship receiver providing service to sponsor; or where the service provider is located outside India.
Small service providers are exempt. This category covers any service provider whose turnover was less than Rs.8 lakh in previous year. Tax is payable by such person at normal rate on turnover beyond Rs.8 lakh in this year. To arrive at this amount, turnover of taxable services alone is to be taken.
Tax rate and value of service for computing tax liability
Service tax rate is 12%. In addition, 'education cess' @ 2% and 'secondary and higher education cess' @ 1% is collected on service tax amount. Therefore, total tax rate comes to 12.36% (ie. 12%+3% of 12%).
The value for computing tax is the gross amount charged for a service.
Registration of a taxpayer
Every taxpayer is required to take registration with the Department. Small service providers would take registration on crossing a turnover of Rs.7 lakh.
Application for registration, in 'Form ST-1' is to be filed with the local Central Excise and Service Tax office.
Registration is granted within seven days of filing application.
Records and invoices
records, including computerised records, maintained by taxpayer, in compliance of any other law are acceptable.
Service provider would issue invoice / challan / bill within 14 days from providing the service. However, if payment towards service is received in advance the invoice will be issued within 14 days from receipt of such advance.
The invoice should be serially numbered and it should contain details of service provider, receiver of service and the service provided.
Manner of payment
Individuals, proprietorship or partnership concerns are required to pay this tax on quarterly basis. All other taxpayers are required to pay it on monthly basis.
Tax is to be paid on the value of service received during the month / quarter.
Tax for a month / quarter has to be deposited by the 5th (6th in case of electronic payment) of the next month / month immediately after the quarter. However, for the month of March / quarter ending March, it is required to be deposited by the 31st March.
It is to be paid on self assessment basis by the taxpayer.
It could be deposited in any of the designated banks through a simple challan. The list of designated banks is available at //pccacbec.nic.in/.
Input stage CENVAT Credit
A service provider requires certain goods and services as inputs for providing service to his customer. These inputs may have suffered central excise duty or service tax, the credit of which can be taken by the service provider.
This credit is referred to as CENVAT Credit and it can be utilised by taxpayer for payment of tax on
fulfilment of certain conditions.
CENVAT credit is not admissible on goods and services used for providing tax free services.
Availability of Forms
All forms and challan for payment of tax could be downloaded from the website of department, www.cbec.gov.in. these forms could also be obtained from the Commissioner of Service Tax / central Excise.
Can Service tax be paid electronically
Yes, it can be paid electronically through the designated banks providing this facility. The list of such banks along with detailed information on e-payment is available on www.cbec.gov.in and //pccacbec.nic.in/.
Mandatory e-payment of service tax for certain taxpayers
Any taxpayer who has paid service tax of rupees fifty lakh or above in the preceding year or has already paid service tax of rupees fifty lakh in the current year is required to pay service tax mandatorily through internet banking.
Return
Return is to be filed twice in a year by every taxpayer. For the period from April to September, return has to be filed by the 25th
October and for the period from October to March, it has to be filed by the 25th of April. It is to be filed in 'Form ST-3'.
Do not delay in depositing tax and filing return, because
Delay in depositing tax attracts interest @ 13% per annum. in addition, it also attracts a penalty @ Rs.200 per day of delay or 2% per month of the tax liability, which ever is higher. This penalty could be up to the amount of service tax payable.
Delay in filing of return attracts late fee, which could extend up to Rs.2000.
| Taxability of individuals is summarised in the table below | Status | Indian Income | Foreign Income |
| Resident and ordinarily resident Resident but not ordinary resident Non-Resident |
Taxable Taxable Taxable |
Taxable Not Taxable Not Taxable |
| PERSONAL TAX RATES - For the Assessment Year 2008-09 | |
| For individuals, HUF, Association of Persons (AOP) and Body of individuals (BOI) | |
| Taxable Income Slab (Rs.) | Rate (%) |
| Up to 1,50,000 Up to 1,85,000 (for women) Up to 2,25,000 (for resident individual of 65 years or above) 1,50,000 – 3,00,000 3,00,001 – 5,00,000 5,00,001 – 1,000,000 1,000,001 upwards |
NIL 10 20 30 30* |
| *A surcharge of 10 per cent of the total tax liability is applicable where the total income exceeds Rs.1,000,000. | |
Note:
Education cess is applicable @ 3 per cent on income tax, inclusive of surcharge if there is any.
A marginal relief may be provided to ensure that the additional IT payable, including surcharge, on excess of income over Rs.1,000,000 is limited to an amount by which the income is more than this mentioned amount.
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