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    Taxation System in India

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    Tanvi Sanghavi
    India has a well-developed tax system with taxes levied at the central, state, and local levels. The central government levies taxes on income, customs duties, excise, and services, while states levy VAT, sales tax, and profession taxes. Local bodies levy property, octroi, and utility taxes. In recent decades, India has reformed its tax system through rationalization of rates and simplification of laws, improving compliance and administration. Most states have replaced sales tax with VAT since 2005.

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    Taxation System in India

    Uploaded by

    Tanvi Sanghavi
    47 views5 pages
    India has a well-developed tax system with taxes levied at the central, state, and local levels. The central government levies taxes on income, customs duties, excise, and services, while states levy VAT, sales tax, and profession taxes. Local bodies levy property, octroi, and utility taxes. In recent decades, India has reformed its tax system through rationalization of rates and simplification of laws, improving compliance and administration. Most states have replaced sales tax with VAT since 2005.

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    India has a well-developed tax system with taxes levied at the central, state, and local levels. The central government levies taxes on income, customs duties, excise, and services, while states levy VAT, sales tax, and profession taxes. Local bodies levy property, octroi, and utility taxes. In recent decades, India has reformed its tax system through rationalization of rates and simplification of laws, improving compliance and administration. Most states have replaced sales tax with VAT since 2005.

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    Download as DOCX, PDF, TXT or read online from Scribd
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    47 views5 pages

    Taxation System in India

    Uploaded by

    Tanvi Sanghavi
    India has a well-developed tax system with taxes levied at the central, state, and local levels. The central government levies taxes on income, customs duties, excise, and services, while states levy VAT, sales tax, and profession taxes. Local bodies levy property, octroi, and utility taxes. In recent decades, India has reformed its tax system through rationalization of rates and simplification of laws, improving compliance and administration. Most states have replaced sales tax with VAT since 2005.

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    TAXATION SYSTEM IN INDIA

    India has a well-developed tax structure with clearly demarcated authority between Central and State Governments and local bodies. Central Government levies taxes on income (except tax on agricultural income, which the State Governments can levy), customs duties, central excise and service tax. Value Added Tax (VAT), (Sales tax in States where VAT is not yet in force), stamp duty, State Excise, land revenue and tax on professions are levied by the State Governments. Local bodies are empowered to levy tax on properties, octroi and for utilities like water supply, drainage etc. In last 10-15 years, Indian taxation system has undergone tremendous reforms. The tax rates have been rationalized and tax laws have been simplified resulting in better compliance, ease of tax payment and better enforcement. The process of rationalization of tax administration is ongoing in India. Since April 01, 2005, most of the State Governments in India have replaced sales tax with VAT. Taxes Levied by Central Government Direct Taxes Tax on Corporate Income Capital Gains Tax Personal Income Tax Tax Incentives Double Taxation Avoidance Treaty Indirect Taxes Excise Duty Customs Duty Service Tax Securities Transaction Tax Taxes Levied by State Governments and Local Bodies Sales Tax/VAT Other Taxes

    Direct Taxes

    1. Taxes on Corporate Income:

    Companies residents in India are taxed on their worldwide income arising from all sources in accordance with the provisions of the Income Tax Act. Non-resident corporations are essentially taxed on the income earned from a business connection in India or from other Indian sources. A corporation is deemed to be resident in India if it is incorporated in India or if its control and management is situated entirely in India. Current2011-2012 Domestic corporations-30% and surcharge 7.5%. Education:3% Corporates are subject to wealth tax at the rate of 1%, if the net wealth exceeds Rs.1.5 mn. Domestic corporations have to pay dividend distribution tax at the rate of 16.609% Corporations also have to pay for Minimum Alternative Tax at 18% (plus surcharge and education cess)

    2. Capital Gains Tax:

    Tax is payable on capital gains on sale of assets. Long-term Capital Gains Tax is charged if Capital assets are held for more than three years and In case of shares, securities listed on a recognized stock exchange in India, units of specified mutual funds, the period for holding is one year.

    Long-term capital gains are taxed at a basic rate of 20%. However, long-term capital gain from sale of equity shares or units of mutual funds is exempt from tax. Short-term capital gains are taxed at the normal corporate income tax rates. Short-term capital gains arising on the transfer of equity shares or units of mutual funds are taxed at a rate of 10%. Long-term and short-term capital losses are allowed to be carried forward for eight consecutive years. Long-term capital losses may be offset against taxable long-term capital gains and short-term capital losses may be offset against both long term and short-term taxable capital gains. Current 2011-12 Long term- nil Short term 15%
    3. Personal Income tax:

    Personal income tax is levied by Central Government and is administered by Central Board of Direct taxes under Ministry of Finance in accordance with the provisions of the Income Tax Act. The rates for personal income tax are as follows:Income range (Rupee) Tax Rate (%)

    Current 2011-12

    Total Income Up to INR 160,000 (a)(b) INR 160,001 to INR 500,000 INR 500,001 to INR 800,000 INR 800,001 and above(c)

    Tax Rates NIL 10% 20% 30%

    a) In

    the case of a resident woman below the age of 65 years, the basic exemption limit is INR

    190,000

    (b) In the case of a resident individual of the age of 65 years or above, the basic exemption limit is INR 240,000 (c) Surcharge is not applicable

    4. Tax Incentives:

    Government of India provides tax incentives for: Corporate profit Accelerated depreciation allowance Deductibility of certain expenses subject to certain conditions. These tax incentives are, subject to specified conditions, available for new investment in Infrastructure, Power distribution, Certain telecom services, Rural hospitals etc.
    5. Double Tax Avoidance Treaty:

    India has entered into DTAA with 65 countries including the US. In case of countries with which India has Double tax Avoidance Agreement, the tax rates are determined by such agreements. Domestic corporations are granted credit on foreign tax paid by them, while calculating tax liability in India. In the case of the US, dividends are taxed at 20%, interest income at 15% and royalties at 15%

    Personal income tax Year 1991

    Sr.no 1

    Total Income
    Up to INR. 50, 000

    Tax Rates
    0.00%

    2 3 4

    INR. 50, 000 to INR. 60, 000 INR. 60, 000 to INR. 1, 50, 000 Above INR. 1, 50, 000

    10.00% 20.00% 30.00%

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