DIRECT AND INDIRECT TAX

Submitted by:
Harshvardhan Choudhary
Gajanan Govekar
Kaustubh Datta
Saloni Saraswat
Sandip Barman
Shrey Chitlangia

Direct tax
Tax which is paid directly by an individual
or an organization to the government.
It is paid by the person or organization on
which it is legally imposed.
The burden of which cannot be
transferred to any other person.
Taxpayer and the tax bearer is the same.

1.
.
.
.

Types of Direct Tax

Income tax
Introduced in 1860,abolished in 1873
and reintroduced in 1886.
It is governed by the Indian income tax
act,1961
Income tax is levied on individuals,
HUFS,companies, firms, associations or
any other artificial judicial person.
the revenue collected in 2012-13 from
income tax was 1,41,494 crores.

Income tax rates/slabs

Individuals,N
RIS, HUF

Senior citizen

Super senior
citizen

Tax rate

Upto 250000

Upto 300000

Upto 500000

Nil

250001-500000 300001-500000

10%
-

5000011000000

500001-100000 5000011000000

20%

Above 1000000 Above 1000000 Above 1000000 30%

Co-operative society

upto 10000

10001- 20000 :

Nil
10%

Above 20000 : 3000 + 30% of

amount exceeding 20000

Firm

30 % of taxable income

Local authority

30% of taxable income

Domestic Company

30% of taxable income

Heads of Income
The total income of a person is
segregated into five heads:Income from salaries
Income from house property
Profits and gains of business or profession
Capital gains and
Income from other sources

Deductions
Some of the deductions under chapter VI A:
80C

LIC premium, PPF, tuition fees

80CCC

Premium paid for annuity plan of LIC or other insurer

80CCG

Rajiv Gandhi equity savings scheme

80D

Medial insurance

80E

Interest on loan for higher studies

80G

Donations

80GG

House rent paid

80U

Person suffering from physical disability

80TTA

Interest on savings account

ADVANCE TAX
Advance taxis theincome tax payable if your tax
liability exceeds Rs 10,000 in a financial year.
Advance tax should be paid in the year in which the
income is received.
Advance tax is applicable when an individual has
sources of income other than his/her salary.
For instance, earning through capital gains, interest
on investments, lottery,house propertyor business,
advance tax is applicable.

On or before 15th June

of previous year

On or before 15th
September of previous
year
On or before 15th
December of previous
year
On or before 15th
march of previous
year

Corporate
assessee
15%

45%

otherwise

upto 30 %

75%

Upto 60 %

100%

Upto 100%

TDS :
The general rule is that the total income of an
assessee for the previous year is taxable in the relevant
assessment year. However, income-tax is recovered
from the assessee in the previous year itself by way of
TDS.

TAX RETURNS:
There are five categories of Income Tax returns.
Normal return u/s 139(1)
Belated return
Revised return
Defective return
Returns in response to notices

2. WEALTH TAX
Wealth tax is levied on the total value of
personal assets which includes owner occupied
housing, cash and bank deposits insurance,
pension plans, investments etc.
It taxes the accumulated stock of purchasing
power
In India, Wealth tax is 1% on net wealth
exceeding 30 Lakhs (Rs 3,000,000). However,
non-residents returning to India are exempt for
seven years

3. PROPERTY TAX
A property tax is anad valorem taxlevy on the value of
property that the owner of the property is required to
pay to a government in which the property is situated.
A common type of property tax is an annual charge on
the ownership ofreal estate, where the tax base is the
estimated value of the property
The tax power is vested in the states and it is delegated
by law to the local bodies, specifying the valuation
method, rate band, and collection procedures.
For example, a property with an assessed value of
$50,000 located in a municipality with a mill rate of 20
mills would have a property tax bill of $1,000 per year.

4. GIFT TAX u.s. 52(2)

Generally, gifts are not regarded as Income chargeable to
tax. However by virtue of Section 56(2) any sum of money
exceeding Rs. 50,000 received without consideration by an
individual or an HUF from any person is chargeable to tax
as income under other sources subject to exclusions as
below:
Receipts on occasion of marriage of the individual
Receipts under a will or inheritance
Receipts received from a relative.
Since 1/10/2009, Section 56(2) has been amended and the
scope of gifts and will include even immovable properties
or any other property besides sums of money under its
ambit.

CATEGORIES FALLING UNDER GIFT TAX u.s. 52(2)

Gifts Under Gift Tax in
India

Gifts Exempted from

Gift Tax

1. Cash Gifts exceeding Rs.

50,000

1. Gifts to relatives are

exempted

2. Gift in the form of movable

property.

2. Gifts upto 50,000 are

exempted in a Financial year.

3. Immovable Gift property.

3. Gifts given on a wedding

are not taxable
4. No tax on gift received
either through will or
inheritance.

DEFINITION OF RELATIVES UNDER GIFT TAX

Gifts that are not taxable at all are those that
are received from relatives. Relatives are
defined by the following relationships of the
individual:
1.Parents
2.Parents siblings and their spouse
3.Siblings
4.Spouse of siblings
5.Daughter and son
6.Spouse of daughter and son
7.Spouse
8.Spouses parents
9.Spouses siblings and their respective spouse.

5. CORPORATE TAX
Corporate taxes are usually levied by all levels of
government (i.e., State and Country). Corporate tax
rates and laws vary greatly around the world, as
different governments and countries view corporate
taxation in different ways. For example, those in favour
of lower corporate tax rates point to the possibility for
greater economic production if companies are taxed
less. While others see higher corporate tax rates as a
way to subsidize government spending and programs
for the nation's citizens.
The current rate of Corporate Tax in India for the
current year is 33.69% (3rd highest after Japan &
USA).
The tax generally is imposed on Net Taxable Income.

CORPORATION TAX (Cont)

Corporations are also subject to property tax,
payroll tax, withholding tax, excise tax,
customs duties, value added tax, and other
common taxes, generally in the same manner as
other taxpayers. These, however, are rarely
referred to as Corporate Tax.
Most income tax systems provide that certain
types of corporate events are not taxable
transactions. These generally include events
related to formation or reorganization of the
corporation. In addition, most systems provide
specific rules for taxation of the entity and/or its
members upon winding up or dissolution of the
entity.

IN D IRE C T TA XE S

The incidence of indirect tax is borne by the consumer who

ultimately consumes the product or the service.
No change in the normal rates of 12 % for excise duty and service
tax.
No change in the peak rate of basic customs duty of 10 % for nonagricultural products.
Indirect taxes are levied on transactions irrespective of the
circumstances of buyer or seller.
With an indirect tax, the supplier may be able to pass on some or all
of this tax onto the consumer through a higher price.
This is known as shifting the burden of the tax and the ability of
businesses to do this depends on the price elasticity of demand and
supply

1. VALUE ADDED TAX (VAT)

The practice of VAT executed by State
Governments is applied on each stage of sale,
with a particular apparatus of credit for the
input VAT paid.
VAT in India classified under the tax slabs are
0% for essential commodities, 1% on gold
ingots and expensive stones, 4% on industrial
inputs, capital merchandise and commodities of
mass consumption, and 12.5% on other items.
Variable rates are applicable for petroleum
products, tobacco, liquor, etc.
VAT levy will be administered by the Value
Added Tax Act and the rules made there-under
and similar to a sales tax.

VAT (Contd..)
It is a tax on the estimated market value added to a
product or material at each stage of its manufacture
or distribution, ultimately passed on to the consumer.
Under the current single-point system of tax levy, the
manufacturer or importer of goods into a State is
liable to sales tax.
VAT, in simple terms, is a multi-point levy on each of
the entities in the supply chain.
The value addition in the hands of each of the entities
is subject to tax.
VAT can be computed by using any of the three
methods: (a) Subtraction method
(b) The Addition method
(c) Tax credit method

MAJOR ISSUES REGARDING VAT

Works Contract: The taxation issues regarding
Works Contract require special consideration.
Taxes should be properly planned for cost
efficient execution of works Contract. Few other
issues like supply of goods for execution of
interstate works contract, Turnkey projects,
Service and Supply Contract require proper
planning from tax angle.
Exemptions/Concessions: Few exemptions
and concessions are available under specific
State VAT laws subjected to fulfilment of
prescribed conditions.

MAJOR ISSUES REGARDING VAT

(Contd.)
Assessments: Now the VAT scheme is based on
self-assessment basis. However, the revenue
department is doing assessments on test basis. The
assessment procedure requires special
consideration from maintenance of proper record.
Classification of Product: The VAT rates are
dependent on the classification of product. There
are schedules of each State law which prescribe the
VAT rate. The products which are not mentioned
specifically in any schedule, the revenue neutral
rate i.e. 12.5% shall be applicable. The classification
of product is a pre-requisite for pricing policy.

2. SECURITIES TRANSACTION TAX (STT)

STT is a tax being levied on all transactions done on the
stock exchanges.
STT is applicable on purchase or sale of equity shares,
derivatives, equity oriented funds and equity oriented
Mutual Funds.
Current STT on purchase or sell of an equity share is
0.075%.
A person becomes investor after payment of STT at the
time of selling securities (shares).
Selling the shares after 12 months comes under long term
capital gains and one need not have to pay any tax on that
gain.
In the case of selling the shares before 12 months, one has
to pay short term capital gains @10% flat on the gain. In
this case the transaction tax paid by him can be claimed
back/adjusted in tax to be paid.

SECURITIES TRANSACTION TAX (STT) (Contd)

The overall control for administration of Direct Taxes lies with
the Union Finance Ministry which functions through Income Tax
Department with the Central Board of Direct Taxes (CBDT) at its
apex.
The CBDT is a statutory authority functioning under the Central
Board of Revenue Act, 1963. It also functions as a division of
the Ministry dealing with matters relating to levy and collection
of Direct Taxes.
The Central Excise Department spread over the entire country
administers and collects the central excise duty.
The apex body that is responsible for the policy and formulation
of rules is the Central Board of Excise and Customs which
functions under the control of the Union Finance Ministry. T
he Central Excise officers are also entrusted with the
administration and collection of Service tax and the Customs
duty.

3. SALES TAX
Sales Tax in India is a form of tax that is imposed by the
Government on the sale or purchase of a particular
commodity within the country.
Sales Tax is imposed under both, Central Government
(Central Sales Tax) and State Government (Sales Tax)
Legislation.
Each State follows its own Sales Tax Act and levies tax at
various rates.
Apart from sales tax, certain States also imposes
additional charges like works contracts tax, turnover tax
and purchaser tax.
Sales Tax Acts as a major revenue-generator for the
various State Governments.
From 10th April, 2005, most of the States in India have
supplemented sales tax with a new Value Added Tax (VAT)

4. SERVICE TAX
The service providers in India except those in the
state of Jammu and Kashmir are required to pay a
Service Tax under the provisions of the Finance Act of
1994.
The provisions related to Service Tax came into effect
on 1st July, 1994.
Under Section 67 of this Act, the Service Tax is levied
on the gross or aggregate amount charged by the
service provider on the receiver.
However, in terms of Rule 6 of Service Tax Rules,
1994, the tax is permitted to be paid on the value
received.
Service Tax in India is that the Government depends
heavily on the voluntary compliance of the service
providers for collecting Service Tax in India.

5. CUSTOMS DUTY
A tax or duty which is levied by central
government on
Import of goods into, or
Export of goods from India
At such rates as specified under the Custom Tariff
Act 1975
Custom Duty is payable on all the goods
It was formulated in 1962 to prevent the illegal
imports and exports of goods

6. EXCISE DUTY
Excise duty is a tax upon manufacturer of goods
and not upon sale of goods.
Manufacture includes any process
Incidental to the completion of any manufactured
product, which is specified in Central Excise
Tariff .
Act 1985, as amounting to manufacture.
Central Excise Duty is levied vide Entry 84 of the
union list.
Entry 84 includes: Tobacco, other goods
manufactured ort produced in India, medical and
toilet preparations.
Entry 84 Excludes: Alcoholic liquor for human

FEMA
(FOREIGN
EXCHANGE
MANAGEMENT ACT)

BACKGROUND
FERA (1973)
The main objective of FERA was
conservation and proper utilisation of the
foreign exchange resources of the country.
It also sought to control certain aspects of
the conduct of business outside the
country by Indian companies and in India
by foreign companies.
It was a criminal legislation which
deterred foreign investments.

FEMA ACT 1999

The Act was enacted in 1999 and came into force on 1st of June,
2000.
The object of the Act is to consolidate and amend the law
relating to foreign exchange with objective of facilitating
external trade and payments and for promoting the orderly
development and maintenance of foreign exchange market in
India.
FEMApermits only authorised person to deal in foreign exchange
or foreign security.
Such an authorised person, under the Act, means authorised
dealer, money changer, off-shore banking unit or any other
person for the time being authorised by Reserve Bank.

APPLICABILITY
The Act is applicable throughout India.
The act applies to all branches, offices
and agencies outside India owned or
controlled by a resident of India.
It extends to any disputes committed in
offices, agencies and branches outside
India that are owned by individuals
covered by this act.

PROHIBITIONS
SECTION 3. This section states that no person can, without general or special
permission of the RBI(a) Deal in or transfer any foreign exchange or foreign securities to any
person not being an authorized person.
(b) Make any payment to or for the credit of any person resident outside
India in any manner.
(c) Receive otherwise through an authorized person, any payment by order or
on behalf of any person resident outside India in any manner.
(d) Enter into any financial transaction in India as consideration for or in
association with acquisition or creation or transfer of a right to acquire any
asset outside India by any person.

It is investor friendly and a civil legislation.

Two year sunset clause for offences committed under FERA.

CONTROLING AUTHORITY

The Act has assigned an important role

to theReserve Bank Of India(RBI)in
the administration of FEMA.
The Act requires the Central
Government to appoint as many
officers of the Central Government as
Adjudicating Authorities for holding
inquiries pertaining to contravention of
the Act.

Capital Account
Transactions
Capital Account Transactions includes those transactions
which are undertaken by a resident of India such that
his/her assets or liabilities outside India are altered
( either increased or decreased).
For example:- (i) a resident of India acquires an
immovable property outside India or acquires shares of
a foreign company.
Alters the assets or liabilities in India of persons resident
outside the India.
For example, (i) a non-resident acquires immovable
property in India or acquires shares of an Indian
company or invest in a Wholly Owned Subsidiary or a
Joint Venture with a resident of India

PROHIBITIONS
General Prohibition:-A person shall not undertake or sell
or draw foreign exchange to or from an authorized person for
any capital account transaction.
For Ex -Reserve Bank has issued a circular wherein a
resident individual can draw from an authorized person
foreign exchange up to US$ 25,000 per calendar year for a
capital account transaction
Special Prohibition:- A non resident person shall not make
investment in India in any form, in any company or
partnership firm or proprietary concern or any entity,
whether incorporated or not, which is engaged or proposes
to engage:- (i) in the business of chit fund, or (ii) as Nidhi
Company, (iii) in agricultural or plantation activities (iv) in
real estate business, or construction of farm houses

CURRENT ACCOUNT TRANSACTIONS

The Act defines the term 'current account transaction' as a transaction other than a
capital account transaction and without prejudice to the generality of the foregoing.
It includesRemittances for living expenses of parents, spouse and children residing abroad.
Net income from investments.
Expenses in connection withForeign travel, Medical care of parents, spouse and
children, Education.
Payments due in connection with
Foreign trade,
Other current business Services, and Short-term banking and credit facilities in the
ordinary course of business.

PROHIBITIONS
Central Government may, in public
interest and in consultation with the
Reserve Bank, impose such
reasonable restrictions for current
account transactions as may be
prescribed.

PENALTIES
Any person contravenes any provision, rules or
regulation, penalty is 3 times the amount involved.
If amount of Contravention is not ascertainable
than maximum penalty up to 2,00,000
If contravention is continuing one than 5,000 per
day after first day till contravention continues.
The Adjudicating Officer can confiscate any
currency, security or property in addition to
imposed penalty.
If Penalty not paid person can be liable to civil
imprisonment.

List of References

Current account
http://business.gov.in/doing_business/current_account_transact
ion.php
Capital Account
http://business.gov.in/doing_business/cap_account_transaction.
php
Intro
http://business.gov.in/doing_business/fema.php
http://dor.gov.in/fem
Nidhi comp
http://aishmghrana.me/2014/09/04/nidhi-companies /
Direct Tax
http://www.onemint.com/2012/11/21/income-tax-on-gifts-from-n
ris-and-relatives-in-india/comment-page-2
/
http://en.wikipedia.org/wiki/Gift_Tax_Act,_ 1958
http://articles.economictimes.indiatimes.com/keyword/gift-tax
http://

THANK YOU!!!