Taxesation – Questions

Q1. What do you understand from taxes and what is the importance of
taxesation in an economy?

1st Ans. Taxeses are involuntary fees charged on individuals or corporations and
imposed by a government entity—whether local, regional or national—in order to
finance government activities. In economics, taxeses descent on whomever pays
the burden of the taxes, whether this is the entity being taxesed, such as a business,
or the end consumers of the business's goods.

Importance of Taxeses:

• Better capitals formation.

• Inducement of savings and investment.

• Surety of Government’s revenue growths.

• Increase in planned expendituresof government.

• Decreases in inflation rate due to less availability of disposables income to

people.

• Timely availability of revenues to the Government.

• Better utilizations of the resources.

• Increase in the efficiency of producers.

• Growth of healthy competitions in market.

• More freedom of choice to the consumers.

• Increase in the demands of luxury goods and services.

• Increase in standards of living of people

Q2. Distinguish between direct and indirect taxeses. Explain with the help of
relevant examples.
Ans 2nd : DIRECT TAXES: It is a type of taxeses in which the incidence and
impact of taxes is on a single entity. It is maximum charged by the central
government. Example:

• Income taxes: taxes charged on the incomes of individuals that has been
earned through different sources.

• Professional taxes: taxes charged by government on the salary incomes and

is usually a very small amount.

• Corporate taxes: taxes charged on the profits of companies ( public and

private limited).

• Wealth taxes: taxes charged on the wealth of individuals.

• Housing taxes/ property taxes: taxes annually to the government based on

the location and the size of the house.

• Capital gain taxes: taxes on the capital appreciation received on disposal of

assets.

• Security taxesation taxes: taxes charged on the trading value of the security.

• Birth taxes: taxes charged when the birth of an individual is registered.

• Death taxes: taxes charged when the death of an individual is registered.

• Marriage registration taxes: taxes charged when the marriage is registered.

INDIRECT TAXES : These is a type of taxes in which the incidence and impact of
taxesation is on the separate entities. It is charged almost equally by the central and
state government. Example:

• Sales taxes: taxes charged on the sales of physical goods.

• Service taxes: taxes charged on the service provided.

• Goods and service taxes: composite taxes that is charged on both goods and
services.
• Excise taxes: it is a special type of taxes on certain commodities.

• Custom duty taxes: taxes paid on inter-state or inter-country trade of goods

and services.

• Value added taxes: taxes charged on the basis of the value added.

• Entertainment taxes: taxes charged on the entertainment services including

hotel, cinemas, theme parks, entertainment parks.

• Toll taxes: taxes paid on the use of certain types of roads.

Q3. Describe the taxes cycle that is followed in India.

Ans 3rd: Taxes cycle is a cycle used to highlight and describe the process the
previous and Suppose the income is earned in the period of April 01, 2009 to
March 31, 2010, so here the previous year is April 01, 2009 to March 31, 2010 and
assessment year is April 01, 2010 to March 31, 2011.

1. When you start earning, you have to give investment declaration of the
employer i.e. April to May of 2009.

2. TDS will be deducted from April 01,2009 to March 31,2010.

3. Actual investment proofs on January of 2010

4. Receive form-16 from the employer on June of 2010

5. ITR filing on July 31, 2010

6. At last, Get the refund on December 31 2010

Q4. Describe the various types of taxeses that are paid by listed companies in
India.

Ans 4. Types of taxeses paid by the listed companies in India are:

1. Direct Taxes: Direct Taxeses comprise taxeses that you pay directly to the
government. These taxeses are charged directly on an individual and
therefore can’t be transferred to another entity or person. 
Types:
 A. Income Taxes -  This taxes will apply to any income you generate for
profits, owning a property, salary, investments or business.
B. Gift taxes – If any Gift received other than by your family and it exceeds
the limit of Rs, 50000, then you have to pay the taxes of 30%
C. Wealth Taxes - Companies whose turnover exceeds 10 crores will also
have to pay wealth taxes.
D. Capital Gains Taxes - This is a type of Income Taxes charged on the
gains you make after the sale of an investment or property.
E. Securities Transaction Taxes - Share trading on the stock market is
subject to this taxes. For every share purchase or sale, you pay the
Securities Transaction Taxes.
F. Corporate Taxes - the Corporate Taxes is charged on the earning of
businesses whose turnover exceeds Rs 1 crore
2. Indirect Taxes: these taxeses are not charged on individuals but on goods
and services. This taxes is not charged on profit, income or the revenue of an
individual or an entity. Also, this taxes can be transferred from one person to
another.
Types:
A. Sales Taxes - Any product being sold is subject to Sales Taxes. The
product can either be produced domestically or imported.
B. Service Taxes - Service Taxes is applicable on services provided by
companies. This taxes is charged with on a monthly or quarterly basis.
C. Goods and Service Taxes - This taxes is applied at the consumption
stage. GST is functional at every stage of the supply chain wherever
consumption takes place.
D. Value Added Taxes - VAT is charged on products other than
commodities such as food and essential drugs.
E. Customs Duty – If  you buy a product from a different country and
import it to India, then you have pay taxes on it. This taxes is called
Customs Duty.
F. Toll Taxes - toll Taxes is charged either by the state or central
governments on roads and bridges. The purpose of the taxes is to fund
road construction and maintenance activities.

If the company is Dealing in Stock exchange then other taxeses are:

  SEBI Turnover Fees
 Stamp Duty
 Service Taxes of 18% (GST)
 Securities Transaction Taxes
 Dividend Distribution Taxes

Q5. What is the concept of Minimum Alternate Taxes (MAT)?

5th Ans. MAT or Minimum Alternate Taxes is a provision in Direct taxes laws to
limit taxes exemptions availed by companies, so that they mandatorily pay
a minimum amount of taxes to the government.

All companies whether private or public irrespective of whether Indian or foreign

are liable to pay MAT, if the income taxes payable (including cess and surcharge)
as per the provisions of Income Taxes Act is less than 15% of the book profit plus
cess and surcharge. MAT is calculated as 15% of the book profit of the taxes
assessed.

Q6. What is TDS? Why TDS is deducted from various sources of Income.

6th Ans. TDS or Taxes Deducted at Source is income taxes reduced from the
money paid at the time of making specified payments such as rent, commission,
professional fees, salary, interest etc. by the persons making such payments.

The reason that why TDS is deducted from various source of incomes is because
usually, the person receiving income is liable to pay income taxes. But the
government with the help of Taxes Deducted at Source provisions makes sure that
income taxes is deducted in advance from the payments being made by you.

Q7. Explain the benefits and limitations of the new taxes bracket that was
proposed for the FY 2020-21.

INCOME TAXES SLAB TAXES RATE AS PER TAXES RATE AS PER

NEW REGIEM OLD REGIEM
₹0 - ₹2,50,000 Nil Nil
₹2,50,001 - ₹ 5,00,000 5% 5%
₹5,00,001 - ₹ 7,50,000 ₹12500 + 10% of total ₹12500 + 20% of total
 income exceeding income exceeding
₹5,00,000 ₹5,00,000
₹7,50,001 - ₹ ₹37500 + 15% of total ₹62500 + 20% of total
10,00,000 income exceeding income exceeding
₹7,50,000 ₹7,50,000
₹10,00,001 - ₹12,50,000 ₹75000 + 20% of total ₹112500 + 30% of total
income exceeding income exceeding
₹10,00,000 ₹10,00,000
₹12,50,001 - ₹15,00,000 ₹125000 + 25% of total ₹187500 + 30% of total
income exceeding income exceeding
₹12,50,000 ₹12,50,000
Above ₹ 15,00,000 ₹187500 + 30% of total ₹262500 + 30% of total
income exceeding income exceeding
₹15,00,000 ₹15,00,000

LIMITATIONS:

 "If senior citizens or super senior citizens are applying for new taxes regime
than the benefit of higher exemption limit will not be accessable i.e. limit of
higher exemption of Rs 3 lakh in case of senior citizens and Rs 5 lakh in
case of super senior citizens will not be obtainable under the new optional
regime. Therefore, under the new taxes regime, basic exemption limit will
remain Rs 2.5 lakh for all taxespayers.

 Along with House Rent Allowance (HRA) benefits and Standard

Deductions, other common and popular deductions removed under the
new taxes regime are:
 Exemption under section80C – Up to Rs 1.5 lakh
 Exemption under section 80D – Up to Rs 25,000 (For senior citizens Rs
50,000)
 Taxes rebate under section 87A – Up to Rs 12,500 on taxable income up
to Rs 5 lakh
 Deduction on Home Loan interest – Upto Rs 2 lakh
 the two deductions introduced in 2019 are also to be scrapped under
new taxes regime
 Additional deduction on Home Loan interest on affordable houses
under section 80EEA – Upto Rs 1.5 lakh
  Deduction on Auto Loan interest for purchase of electric vehicle under
section80EEB – Upto Rs 1.5 lakh

BENEFITS:

 An individual whose income is less than Rs 5 lakh does not have to pay any
taxes. Under section 87, the taxes exemption has been increased to Rs.
12,500, making income free up to Rs. 5 lakhs.
 The standard deduction has been increases to Rs 50,000 from Rs 40,000.
 Till last year, an individual who had a second house property and was vacant
still had to pay the taxeses for the notional rent from their property. But in
this fiscal year, the government has removed this rule and now no taxes will
be charged on such notional income.
 The Taxes Deducted at Source (TDS) will only be applied if interest from
Fixed Deposits (FDs) and Recurring Deposits (RDs) is more than Rs 40,000
a year.
 Entertainment allowance and employment/ professional taxes will not be
available

Q8. What is Gift taxes?

8th Ans. A gift taxes is a federal taxes functional to an individual giving anything of
value to another person. For anything considered to be a gift, the receiving party
cannot pay the giver full value for the gift, though they may pay an amount less
than its full value.

Q9. What are the taxes implications for dividends in India?

9th Ans. NOTE: The Finance Act 2020 has shifted back to the classical system of
taxing dividend in the rights of shareholders/unit holders from 01 April 2020, and
abolished dividend distribution taxes (DDT), wherein the incidence was on the
company.

NOTE: taxes implications on Residentials are explained in this Answer

Taxability in the hands of resident shareholders

Individual – For an individual shareholder, dividend must be taxable as per the
applicable slab rates.
Moreover, the government has removed additional taxes of 10% on dividend
income in additional of Rs 10 lakh per year for resident non-corporate taxespayers
(section 115BBDA of the Act).
Companies – For corporate shareholders, dividend must be taxable as per the
effective taxes rates, which will range from 25.17% to 34.94% (including
surcharge and cess).

Taxes implications from April 1, 2020:

 a) As per the amended section 57 of the Income Taxes Act, 1961, interest
expense incurred for the purposes of earning the dividend income would be
allowed as a deduction up to a maximum of 20% of such income.
 b) Section 80M of the Act has been introduced in order to remove the
cascading effect of taxes on dividend income for corporate shareholders.
Domestic holding companies receiving dividends income from subsidiaries
will be allowed to set off such amounts from their total taxable income. This
sets off shall not exceed the amounts of dividend further distributed by it up
to one month prior to the due date of filing of return.

Q10. What are the various taxes exemptions available to salaried individuals?

10th Ans. Basically thre can be 17 various Taxes exemptions available to individual
salary:

1. Exemption on House Rent Allowence: Total HRA received from your

employer b. Rent paid less 10% of (Basic salary +DA) c. 40% of salary
(Basic+DA) for non-metros and 50% of salary (Basic+DA) for metros
2. Standard Deduction: SD of Rs 50000

 Leave Travel Allowence: LTA only covers domestic travel and not the cost
of international travel
 The mode of such travel must be either railway, air travel, or public
transport.

3. Mobile reimburishment: An employee can claim reimbursement of the

actual bill amount paid or amount provided in the salary package, whichever
is lower.
4. Books and Periodicals: Employees incur expenses on books, newspapers,
periodicals, journals and so on. The income taxes law allows an employee to
claim a taxes free reimbursement of the expenses incurred.
5. Food Coupons: meal coupons are taxes exempt up to Rs 50 per meal. A
calculation based on 22 working days and 2 meals a days results in a
monthly benefits of Rs 2,200 (22*100). Consequently, the yearly exemption
works up to Rs 26,400.
6. Section 80c, 80CCC and *80CCD(1): Deductions upto Rs 150000
7. Medical Insurance Deduction: Deduction upto Rs. 50000
8. Interest on Home Loan: Deduction up to Rs. 2 lakh
9. Deduction for Loan for Higher Studies: One may begin claiming this
deduction beginning from the years in which the loan starts getting repaids
and up to the next seven years (i.e. total of 8 assessment years) or before
repayment of the loan, whichever is earlier.
10.Deduction for Donations: This deductions varies based on the receiving
organisation, which implies that one may avail deduction of 50% or 100% of
the amount donated, with or without restriction
11.Deduction for Saving Account Interest: Section 80TTA of the Income
Taxes Act, 1961 offers a deduction of up to INR 10,000 on income earned
from savings account interest.
12. Income Taxes exemption on relocation allowance:  Car transportation
cost,  Car registration charges, Packaging charges, Accommodation,
Train/air tickets,  Brokerages paid on rented house, School admission fees..
all these types of expences are exempted.
13.Taxes treatment on Notice Pay and Joining Bonus
14.Cab Facility Transport Provider by employer
15.Health club facility Provider by employer
16.Gifts vouchers provided by employer