Corporate Taxation

Prof. S B Gabhawalla
 Course Outline
Session Topic
1. Introduction to Taxation & Broad Schemes
2-3. Individual Taxation
4. Corporate Taxation
5. Allied Direct Tax Concepts
6. International Taxation
7. Value Added Tax & Central Sales Tax
8. Central Excise Duty
9. Service Tax
10. Customs Duty
Taxation
 Income Tax: Scheme of
the Act Incom
• Receipt vs. Income e
– Capital vs. Revenue
Exem
– Scope of Income ption
•Exemptions

•Heads of Income H1 H2 H3 H4 H5

Aggregatio
•Aggregation Rules n

•Deductions Deductions

•Tax Liability Pers

Income
on

TAX
 Scope of Income
--Residential Nexus--
Person Resident Non Resident
--Territorial Nexus--

Income

In India Taxable Taxable

Outside India Taxable Non Taxable

(To be refined later)

 Heads of Income

Salaries Employer – Employee

Relationship
Income from House Buildings not used for
Property business
Business Income Frequency & Intention

Capital Gains Transfer of a Capital Asset

Income from Other Residuary Head of Income

Sources
 Illustrative Format..
NAME OF THE ASSESSEE:
ASSESSMENT YEAR: PREVIOUS YEAR ENDED ON:
RESIDENTIAL STATUS: PERMANENT ACCOUNT NUMBER:

COMPUTATION OF INCOME

INCOME FROM SALARIES xx

INCOME FROM HOUSE PROPERTY xx
BUSINESS INCOME xx
CAPITAL GAINS xx
INCOME FROM OTHER SOURCES xx
GROSS TOTAL INCOME xx
LESS DEDUCTIONS xx
NET TOTAL INCOME xx

COMPUTATION OF TAX LIABILITY

TAX PAYABLE ON INCOME xx

ADD SURCHARGE xx
ADD EDUCATION CESS xx
ADD SECONDARY & HIGHER EDUCATION CESS xx
GROSS TAX PAYABLE xx
LESS TAX DEDUCTED AT SOURCE & ADVANCE TAXES xx
NET TAX PAYABLE / REFUNDABLE xx
 Tax Rates: Individual :
Normal
Income Tax EC SHEC Total

0-160000 0 0 0 0

160001-500000 10 2 1 10.30

500001-800000 20 2 1 20.60

800001 and above 30 2 1 30.90

 Tax Rates: Individual :
Ladies
Income Tax EC SHEC Total

0-190000 0 0 0 0

190001-500000 10 2 1 10.30

500001-800000 20 2 1 20.60

800001 and above 30 2 1 30.90

Tax Rates: Individual : Senior
Citizens
Income Tax EC SHEC Total

0-240000 0 0 0 0

240001-500000 10 2 1 10.30

500001-800000 20 2 1 20.60

800001 onwards 30 2 1 30.90

 Tax Rates: Others

Assessee / Income Tax SC EC SHEC Total

Domestic Companies

0-10000000 30 0 2 1 30.90

10000001 onwards 30 7.51 2 1 33.2175

Foreign Companies

0-10000000 40 0 2 1 41.20

10000001 onwards 40 2.5 1 2 1 42.23

Partnership Firms 30 0 2 1 30.90

1 Applicable from the first rupee of tax (Marginal Relief Available)

 Salaries: The Starters..
• Test: Employer – Employee Relation
•
• Basis of Charge: Accrual or Receipt
whichever is earlier
•
• Scheme (Taxation): Primarily Gross
Basis
 Scheme of Taxation
• Basic Salary
• Add Allowances (to the extent not exempt)
• Add Perquisites (as valued)
• Add Retirement Benefits (to the extent
not exempt)

•
• Less Profession Tax
• Entertainment Allowance
•
 Allowances
• Exemption based on expenditure and
multiple limits
– House Rent Allowance
– Entertainment Allowance
– Leave Travel Concession/Allowance
• Exemption based on expenditure
• Exemption based on monetary limits
•
 Expenditure Allowances
• Allowance is based on expenditure
– Tour Allowance
– Transfer Allowance
– Daily Allowance while on tour
– Helper Allowance
– Research Allowance
– Uniform Allowance
– Conveyance Allowance (does not include
from residence to office and back)
 Monetary Allowances
• Hill Area Allowance • Underground
• Border Area Allowance
Allowance • High Altitude
• Tribal Area Allowance
Allowance • Active Field Allowance
• Allowance for • Island Duty Allowance
Transport • Children Education
Employees Allowance Rs. 100
• Compensatory Field • Hostel Allowance
Area Allowance Rs.300
• Compensatory • Conveyance
Modified Field Allowance (from
Area Allowance residence to office
& back)
• Counter Insurgency
Allowance
 For Handicapped
 House Rent Allowance
• Exemption is least of
– Excess of Rent Paid over 10% of Salary
– 50% of salary for metro cities, 40% for
others
– Actual Receipt
–
• Salary means Basic, DA(if it forms a part of
retirement benefits) & Commission (if it
is paid as a specific percentage of sales
achieved by the employee)
–
–
 Leave Travel Concession
• Fare
– Based on the mode of travel
• for self or family
– Spouse, children*, dependents
• For travel to any place in India
• For 2 journeys in a block of 4 calender
years
– From 1986
– Carry Forward to 5th year if unused
•
 Perquisites Taxable in all
cases
• Rent Free/ Concessional Accommodation
– 7.5%-10%-15% of salary or actual hire
charges if lower
– Additional 10% of the cost of furniture or
actual higher charges
– If accommodation in hotel, 24% of the
salary or charges paid to hotel whichever
is lower
– If employee is paying some rent, deduct
from the value
 Perquisites Taxable in all
cases
• Obligation of an employee paid by the
employer
• Premiums Paid for Life Assurance/Annuity
• Sweat Equity Shares / Specified Securities
transferred at a concessional rate or FOC
• Contribution to approved superannuation
fund in excess of Rs. 1 Lac
• Interest Free/ Concessional Loans
– Simple Interest on maximum outstanding
monthly balance except in following
cases:
• Medical Loan for specified diseases Nil
• Petty Loans upto Rs. 20000/- Nil
 Perquisites Taxable in all
cases
• Use of an Asset
– 10% of the actual cost or hire charges
paid
– Exempt in case of laptops and
computers, telephones and mobiles
• Transfer of an Asset
– Sale price less the depreciated value
– Depreciation Rates for this purpose
• Computers & Electronic Items 50%
WDV
• Motor Cars 20% WDV
• Others 10% SLM
– Depreciation for completed year
 Perquisites taxable for
specified employees
• Medical Facilities Exempt if
– In a hospital maintained by the employer
– In a Government hospital
– In an approved hospital for prescribed
diseases
– Mediclaim Premium, Group Mediclaim
– Other Medical Treatment upto Rs. 15000/-
– Overseas Medical Treatment
• Treatment Cost
• Cost of Travel & Stay for self & family
• Cost of Travel & Stay for one attendant
• Cost of Travel excluded only if gross income <
2 lakhs
–
 Perquisites: Motor Car

< 1600 CC > 1600 CC

Car 600 900
Car + Driver 1500 1800
Car + Fuel 1800 2400
Car + Fuel + Driver 2700 3300
Fuel Exp – 1800 Exp – 2400
Fuel + Driver Exp – 2700 Exp - 3300
 Other Perquisites - CTC
• Food & Beverages other than
– Food during office hours at office
premises
– Non Transferable meal vouchers up to
Rs. 50 per meal
• Credit Card Facility
• Club Expenditure
• Any other perquisite
 Retirement Benefits
• Provident Fund
• Superannuation Fund
• Pensions
• Gratuity
• Encashment of unutilised leave
• Retrenchment Compensation
• Voluntary Retirement Compensation
 Provident Fund
Statutory Prov. Recognised Unrecognised
Fund Prov. Fund Prov. Fund
Employers’ Exempt Exempt upto 12% of
salary
Exempt

Contribution
Employees’ Eligible for deduction Eligible for deduction Not eligible for deduction

Contribution
Interest Exempt Exempt upto a notified
rate
Exempt

Withdrawals Exempt Exempt if completed 5

years
Taxable
 Approved Superannuation
Fund
• Employers’ Contribution exempt upto Rs.
100000/-
• Employees’ Contribution eligible for deduction
• Interest is exempt
• Pension on retirement is taxable
• Commutation on retirement partly exempt
• Payment on death totally exempt
• In all other cases, taxable
 Pensions
• Uncommuted Pensions
– Received by the retired employee Salaries
– Received by the legal heir I.O.S
• Commuted Pensions on retirement
– If receiving gratuity also, 1/3rd of non
commuted value is exempt
– If not receiving gratuity, ½ is exempt
– For Government employees, totally exempt
 Gratuity
• Government Employees – Exempt
• Covered by the Payment of Gratuity
Act
– 15 days salary for each year of service
or part thereof
– Rs. 10,00,000/-
– Actual Receipt
• Not Covered by the Payment of
Gratuity Act
– ½ months’ average salary for each
completed year of service
– Rs. 10,00,000/-
Encashment of Leave Salary
• Government Employees – Exempt –at time
of retirment
• Others
•
• Cash Equivalent of earned unused leave
– Earned 30 days for each completed year of
service
– Salary is average of last 10 months
• 10 months average salary
• Rs. 300000/-
• Actual Receipt
Income from House Property
• Tax on “Notional Income”
• Property can be:
– Used for own Business To exclude
– Used for own Residence (only 1) NIL
– Let Out Rent/Mkt Rent
– Vacant Mkt Rent
–
• Interest on Borrowed Capital available as a
deduction
– In case of 1 SO Prop. upto Rs. 150,000/-
– In all other cases, without limit
 Capital Gains
The Starters..
• Capital Receipts not taxable unless
specifically included
• Essentials
– Profits/Losses on
– Transfer of a
– Capital Asset
 Profit/Loss..
• Sale Price
• Deductions
– Cost of Acquisition
– Cost of Improvement
– Expenses on Transfer
–
 Capital Asset
• Wide definition
• Cannot however cover
– Stock in trade
– Personal assets & privileges
– Agricultural Rural Land (Population <
10000)
• Classification as short term & long term
– Equity/Preference Shares, Other listed
securities & units – 12 months
– Other Assets – 36 months
•
 Privileges of Long Term
• Indexation Benefits
• Substitution of Fair Market Value
• Lower Rate of Tax @ 20%
• Special Scheme for listed securities
• Eligible for Re-investment Benefits
 Listed Securities…
• Position if STT is paid
– Long Term - exempt
– Short Term – concessional tax rate of 15%
–
• The concessional regime does not apply to
– Off Market Transactions
– Shares held as “stock in trade”
–
 Privileges of Long Term
Reinvestment Benefits
• Residential House – • Any – Residential
Residential House House
– Reinvest Capital – Reinvest Sale
Gains Consideration
– Purchase 1 year – Purchase 1 year
before/2 years before/2 years
after OR after OR
– construct 3 years – construct 3 years
wAny – Specified
afterCapital Gains Bonds after
nReinvest Capital Gains up to Rs. 50 Lacs

nWithin six months

•
Lock in period of
3 years for the re-
invested asset
Some Important Exemptions
• Agricultural Incomes
• Specified Interest Incomes
• Income of Charitable Institutions
• Dividend Income
• Gifts Received upto Rs. 50,000/-
 Deductions
• Generally available only to residents
• Subject to the existence of income
• Broad Categories
– For certain payments
– For certain incomes
– In certain situations
 Specified Investments
• A maximum amount of Rs. 1,00,000/- is
deductible
• No inter-sectoral caps
• Eligible Investments
– Provident Fund / Public Provident Fund / Approved
Superannuation Fund
– Contribution to Pension Fund
– LIC Premiums
– National Savings Certificate
– Purchase of Residential House
– Repayment of Housing Loan – Principal Component
– Education Expenses of Children
– Contribution to ELSS / ULIP
– Investment in eligible issue of capital approved by
the Board
 Specified Investments
– Deposit in scheduled bank for not less than 5 years
– Subscription to NABARD Bonds
– Investment under Senior Citizen Savings Scheme
– Investment in Post Office Time Deposit
– Subscription to Long Term Infrastructure Bonds


•
 Mediclaim Premium
• Payments covered
– Self & Spouse
– Dependent Parents
– Dependent Children
• Deduction available upto
– Rs. 15000 generally
– Rs. 20000 for senior citizens
 Donations
• Calculate Qualifying Amount
– Eligible without limit
– Eligible with limit of 10%
– Not Eligible
•
• Calculate Deductible Amount
– 100% Deduction
– 50% Deduction
 Taxability of Business
Income
• Tax on Net Income from Business
• Net Income = (+) Gross Receipts (-)
Expenses
• Role of Accounting for both (+) & (-)
• Net Income is therefore as
determined by the books of
accounts & method of accounting
followed
Differing Objectives lead to
disturbance of the base
• Net Profit as per Profit & Loss
Account
• Add:
– Items debited but not allowed
– Items not credited but taxable
• Less:
– Items credited but exempt/ taxable
elsewhere
– Items not debited but allowed
• Taxable Income
 What are these
adjustments?
• Expenses specifically allowed
• Expenses disallowed
• Residuary Category
• Not Capital
• Not Violation of Law
• For the Purposes of Business
• Depreciation
Expenses specifically allowed:
Expenditure on Scientific
Research
• Revenue Expenditure related to business
• Capital Expenditure related to business
(excluding cost of land)
• Donation to Scientific Research
Associations/National Laboratory/
University/IIT/Company (1.25 times
weighted deduction)
• Revenue & Capital Expenditure (not being
land & building) on approved in-house
projects (1.5 times weighted deduction)
 Residuary Category

• Not Capital in Nature

• For the purposes of business
– Personal Expenditure not allowed
• Incurred during the previous year
• Not for any Violation of Law (eg.
Penalties)
Amounts not deductible

• Income Tax/ Wealth Tax/Tax on

Perquisites / Fringe Benefit Tax
• Provisions made for non statutory
employee welfare funds
• Payments to partners by a
partnership firm
– Remuneration in excess of limits
– Interest on capital in excess of 12%
p.a.
–
•
 Amounts not deductible:
Payments to relatives
• Payments to relatives in excess of
fair value
• Relatives defined to include: spouse,
brother, sister, lineal ascendant
and descendant
• Receipts not covered
• No corresponding adjustment in the
assessment of the relative
 Amounts not deductible:
Payments without TDS
• Overseas / Domestic Payments are deductible
only if the applicable taxes are deducted at
source and paid
• If the payments are disallowed in the current
year because the taxes are not deducted or
paid, they shall be allowed in the same year
subject to TDS being paid before filing IT
Return
• If the payments are disallowed in the current
year because taxes are not paid till filing of
IT Return, then they shall be allowed in the
year of payment
•
 Amounts not deductible :
Cash Expenditure
• Expenditure above Rs. 30000/- for
transporters and for others Rs. 20000/-
to be made by account payee cheque
otherwise the expense will be
disallowed
• Exceptions carved out in genuine cases
like
– Payments to Government Agencies,
payments on a bank holiday, payments
in a village not serviced by a bank, etc.
• How to move out??
Amounts not deductible:
Unpaid Statutory Dues
• Covers the following dues
– Tax, duty or cess
– Bonus/Commission to employees
– Interest on Loan of financial institutions
– Int. on term loan of scheduled bank
– Leave Salary to employee
– Contribution to PF/SAF/SWS
• Deduction available only if paid before the
due date of filing return of income
• If not paid, can claim deduction in the year
of payment
 Depreciation: Concept
• Not on individual assets but on block of
assets
• Written Down Value Method at rates
specified
• In the year of purchase
– Full year’s depreciation unless the asset
put to use for less than 180 days (half
depreciation)
• In the year of sale
– No Depreciation
• Block of Assets – Same group & same rate
 Depreciation:
Block of Assets & Rate
• Buildings used for residential purposes
(5%)
• Other Buildings (10%)
• Furniture & Fixtures (10%)
• Plant & Machinery (15%)
• Motor Cars (15%)
• Computers & Software (60%)
• Intangible Assets (25%)
• Pollution Control Equipments (100%)
• Energy Saving Devices (80%)
•
 Depreciation: Written Down
Value
• Opening WDV (a) xx
• Add Actual Cost of Assets Purchased
– Used > 180 days (b) xx
– Used < 180 days (c) xx
• Less Sale Price of Assets Sold (d)
xx
• Closing WDV (e) = ( a + b + c - d)
xx
Depreciation : WDV (Contd.)
• If Closing WDV is negative
– Treat the amount as Short Term Capital
Gains
• Adjustable against business losses to the
extent of depreciation written off
– No Depreciation will be available even if
there are other assets in the block
• If Closing WDV is positive but there are no
assets in the block
– Treat the amount as Short Term Capital
Loss
– No Depreciation will be available even
though the WDV is positive
Depreciation : WDV (Contd.)
• If Closing WDV is positive and there
are assets in the block
– Do not calculate profit or loss but
provide depreciation on (e)
– If e > c
• Depreciation = full * (a+b-d) + half *
c
– If e < c
• Depreciation = half * e
 Tax Deducted at Source
• Deduction at the stage of payment /
credit whichever is earlier
• Attempts to plug
– Non reporting of income
– Lower reporting of income
• Improves cash flow for the
Government
• Additional Burden for the Assessee
 TDS on Salaries
• At the “average rate of tax”
• Both Residents and Non Resident covered
• Allowances to be considered with proof
– No proof be insisted for HRA up to Rs. 3000
• Deductions & Rebates to be allowed
• Multiple Employers?
• Multiple Sources of Income
– Only Loss from HP can be considered
 TDS on certain payments
Nature of Payment Rate for Non Corporate Rate for Corporate
Interest 10% 10%
Commission 10% 10%
Rent for Immoveable 10% 10%
Properties
Rent for Machineries, etc. 2% 2%
Contractors 1% 2%
Professional Fees 10% 10%

Note : TDS will be @ 20% for all if the deductee does not furnish PANNo TDS o
 TDS on non residents

• All incomes covered

• All Payers covered
• At Applicable Rates
• Application by payer for determination
of income
• Application by receiver for non
deduction of tax
• Application by receiver for lower
deduction
• TDS @ 20% or applicable higher rate
 Procedures: Traditional
• Obtain Tax Deduction Number
• Deduct Tax
• Pay to the Government
• Issue TDS Certificate
• File TDS Returns

 Procedures: DEMAT
• Quarterly e-TDS Return to be filed in
soft format
• NSDL to consolidate all TDS based on
PAN
• Issue Quarterly TDS Certificate to
each assessee
• Many procedural issues likely to arise
 Non Compliance -
Consequences
• Recovery of the TDS Amount
• Interest on delayed payment / non
payment
• Penalty for non compliance
• Disallowance of Expenditure
•
 Minimum Alternate Tax
• To compensate for discrepancies between
accounting and taxation principles
• Accept the net profit as per Companies Act
and make specific adjustments to
convert it into book profits
• Pay minimum tax @ 18 % of the book
profits if the actual tax liability is lower
•
• Does it really serve the purpose ?
 Dividend Distribution Tax
• Dividends – Tax Free in hands of
shareholders, liable for DDT @ 15%
for the company
• Brings to light the problems relating
to
– Earnings Stripping
– Capital Gearing
– Cascading Effect on Capital
Structuring
 Scope of Income
--Residential Nexus--
Person Resident Non Resident
--Territorial Nexus--

Income

In India Taxable Taxable

Outside India Taxable Non Taxable

(Simplified Version)
 The Genesis of the
Problem..
• Source Based Taxation
– Not Acceptable to Developed Nations
• Residence Based Taxation
– Not Acceptable to Developing Nations
– Prone to Misuse
• Combination of Source & Residence Based
Taxation is a universal phenomenon
• This leads to problems of double taxation
 Understanding DT Conflicts
• Source Resident Conflicts
– German company offers technical
support to Indian company and
charges FTS
• Resident Resident Conflicts
– A US Citizen stays in India for more
than 182 days

 Resolving R-R Conflicts
• Successive Tests (for individuals)
– Permanent Home
– Centre of Vital Interests
– Nationality
– Mutual Agreement Procedure
• Successive Tests (for others)
– Place of Effective Management
–
• The US Citizen will pay tax in US & not in
India
•
 Resolving S-R Conflicts
• Sharing of the Tax Revenue
• Concept of Active & Passive Incomes
• Allocate these incomes to respective
states
• Remember, Resident State is always
supreme!
•
 Resolving S-R Conflicts
• OECD Model Convention
– Source State to tax only active
incomes
– Resident State to tax the passive
incomes
– Resident State may still tax active
incomes but should eliminate
double taxation
• Suitable for developed nations but
not acceptable to developing
countries
 Resolving S-R Conflicts
• UN Model Convention
– Source State to tax active incomes
– Source State may tax passive
incomes but at concessional rate
– Resident State may tax all incomes
but should eliminate double taxation
• Most Indian treaties based on the UN
Model
 Income Distributive Rules
– Rights of the Source
State
Nature of Income OECD Model UN Model
From Immoveable Properties Full Tax Full Tax
Business Profits In case of PE In case of PE
Dividends No Tax Lower Tax
Interest No Tax Lower Tax
Royalties No Tax Lower Tax
Fees for Technical Services No Tax Lower Tax
Capital Gains from properties Full Tax Full Tax
Capital Gains from Shares No Tax Full Tax
Independent Personal Services In case of FB In case of FB
Dependent Personal Services Full Tax Full Tax
 Resident State Taxation
• Right of the resident state to tax incomes
is unfettered
• Tax to be paid in Resident State = Tax
Payable – Tax Paid Overseas
• Therefore tax saved in source state may
get nullified in the resident state
• Proper choice of a resident state is
therefore the pivot to international tax
planning
The Solution to one
problem germinates
another problem..
 Tax Havens…

• No Tax Jurisdictions
– Bermuda, Cayman Islands
• No Tax on foreign source Incomes
– Hongkong, Panama
• No Tax on foreign source Incomes of
Companies owned by non residents
– Barbados, Isle of Man
• Special Laws make them ideal
– British Virgin Islands, Switzerland
• Treaty Networks can be used
– Netherlands, Mauritius
–
 International Transfer
Pricing
• Multitude of business entities and
jurisdictions over the value chain
•
Sales
R&D Mfg. Testing Mktg. Brand Fin. &
Distn.

A Ltd B Ltd B Ltd C Ltd D Ltd E Ltd B Ltd

Luxembour
India India India Austria Mauritius China
g
Transfer Pricing - Framework

• Any income,
expense or cost
sharing
• In an
“International
Transaction”
• Shall be determined
at “arms’ length
price”
 Arms’ Length Price

• Comparable Uncontrolled Price (CUP)

• Resale Price Method (RPM)
• Cost Plus Method (CPM)
• Transactional Net Margin Method
(TNMM)
• Profit Split Method (PSM)
 FAR Analysis
Indian Party Foreign Party
FUNCTIONS

ASSETS

RISKS

Check for a simpler party if it could be

categorised as manufacturer or distributor
Taxation
Indirect Tax: Key
Features
Deadweight Loss…
Indirect Taxes:
Complications
 Some Questions…
• Is balloon an aircraft?
• Can coconuts be considered as
fruits?
• Is marriage a social function?
• Can software be considered as
goods?
• What is a “sealed container” ?
•
 Shortcomings in the system
 “The system (of domestic trade taxes) that is
operating at present is archaic, irrational and
complex – according to the knowledgeable experts
– the most complex in the world. It interferes with
free play of forces and competition, causes
economic distortions and entails high cost of
compliance and administration”

NIPFP Report - 1994





 Introduction of VAT/GST in
India
• Implementation of Central VAT
– Tax on goods – Excise Duty
– Tax on services – Service tax
• Implementation of State level VAT
– Replacement of sales tax with VAT
– Tax on services – service tax
• Integration of Central VAT and State VAT – Goods
and services tax (GST)



State Level VAT – In Search of
‘Correct Principles’
VAT vis-à-vis CST
Sale: State Level Allocation
 VAT: Concept

Raw
Manu-
Material Distributor Retailer
facturer
Importer

Sale Price 100.00 200.00 300.00 400.00

Gross VAT 12.50 25.00 37.50 50.00
Set-off 0.00 12.50 25.00 37.50
Net VAT 12.50 12.50 12.50 12.50
VAT Cycle – Entry & Exit
Importer

Regd. Dealer
12.
5 12.5

Mfr.

25 37.
5 12.5 Consu
mer
Distributor
12.5 URD
Calculation of Tax Liability
 Input Tax Credit
• Credit available for
– Sales Tax paid under earlier law
– Value Added Tax paid under the current law
– Entry Tax paid under the current law
• On goods being capital assets or debited to
trading or profit & loss account
• Subject to certain retentions and restrictions
• Documentary Requirements
– Tax Invoice
– Tax Charged Separately
– Tax Actually Paid
–
 Excise Duty
• Levied by the Centre
• A duty on “manufacture” of goods
• Charged at the time of manufacture
but paid at the time of “removal”
• Central Rate of 10% but there will be
items at non standard rates
 Excise: Valuation
• Value at the time of removal
• Post Removal Value Addition may
escape taxation
• MRP Based Taxation in some cases
• Related Party Transactions
 Excise: CENVAT
• Duties of Excise paid on purchases to
be allowed as a set-off
• The same can be claimed on duty
paid documents
• There is no refund of excess excise
paid – only an adjustment
 Excise: Export Incentives
• Can export without payment of duty
• Can claim refund of duties paid on
corresponding raw materials
• Can purchase raw materials without
the payment of duty if the final
product is to be exported
 Excise: Basic Exemption
• SSI Limit of Rs. 1.5 crore – non claim
of CENVAT Credit - optional
• Even a job-worker is treated as a
manufacturer
• Declaration required to be filed if
turnover above Rs. 140 lakhs
 What is Service Tax ?
• Tax on Services Rendered by a
person
• Administered by the Central Excise
Department
• Governed by Finance Act, 1994
– Certain provisions of Central Excise
Act, 1944 are applicable
• Selective Approach
• Tremendous Revenue Potential
 Relevance
• As a Provider of Taxable Services
• As a Service Recipient – “Reverse
Charge Mechanism”
• As a Manufacturer
• In all other Cases
•
 Service –> Taxable Service
• Principles of Classification
• Service Provider
• Service Recipient
• Service
• Effective Date
• Value
•
At the prescribed rate..

Period
 Rate
Upto
 13.05.2003 5%
14.05.2003

to 09.09.2004 8%
10.09.2004

to 17.04.2006 10.20%
18.04.2006 to 10.05.2007 12.24%

11.05.2007 to 23.02.2009 12.36%

24.02.2009 onwards 10.30%
 Extent of Levy
• Situs:
– Taxable Services Provided within India
(excluding J & K)
• Provisions extended to the
Continental Shelf
• Destination Based Consumption Tax
• Export of Services – Exempt
• Import of Services – Taxable
 CENVAT Credit
• Manufacturer / Service Provider
• Service Tax/ Excise Duty /
Countervailing Duty & Education
Cess
• Only if output is taxable
• In case of composite output
– Maintain separate records
– Presumptive Provisions
• Procedural Requirements
 Basic Exemption Limit
• Value of taxable services provided
during the previous year < Rs. 10
lakhs
• Aggregate Value of taxable services
received upto Rs. 10 lakhs exempted
• Subject to Conditions
• Not Available for Representative
Payments
• Registration Required if turnover > 9
lakhs
 Other Exemptions
• Services rendered within SEZ to a
unit situated in a SEZ or to a
developer of an SEZ
• Sale Value of goods and materials
sold
 Customs Duty
• Levied by the Centre
• A tax on “importation” of goods
• Varying Product Specific Rates
• Levied on the import value of the
product
 Customs Duty: Types
• Basic Customs Duty
• Countervailing Duty (in lieu of Excise)
• Additional Customs Duty (in lieu of
VAT)
Customs: Export Incentives
• Can import against licenses without
the payment of duties
– DEPB / DFRC Schemes
–
• Exemption also provided to SEZ &
100% EOU Units
•
• Product Specific Duty Drawback
Schemes Available
•
Export Promotion Schemes
 EPCG Scheme
• Permits import of capital goods
required for the manufacture of
finished goods to be exported
• Concessional Rate of Duty to be
paid
• Corresponding Export Obligation
– 5 % - 5 times
– 10 % - 4 times
• Actual User Condition
•
 This was just an aerial
view of the sea, not an
exercise in swimming…
Thank You