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Taxation

Tax

A tax is a mandatory financial charge or some other type of levy imposed upon a taxpayer by a governmental organization in order to fund various public expenditures. A failure to pay, along with evasion of or resistance to taxation, is punishable by law. Taxes consist of direct or indirect taxes and may be paid in money or as its labour equivalent.

Direct Tax

  •  Income Tax
  •  Corporate Tax
  •  Wealth Tax
  •  Capital Gains Tax

Indirect Tax/GST

GST stands for Goods and Services Tax. It is a kind of tax imposed on sale, manufacturing and usage of goods and services. Goods and Services Tax is applied on supply of services and goods at a national level with a purpose of achieving overall economic growth.

What are the advantages and benefits of INCOME TAX

  •  Income tax is the most common and most important tax that an Indian must pay.
  •  It is charged directly on the income of a person.
  •  The rate at which it is charged varies, depending on the level of income.
  •  It’s charged to individuals, co-operative societies, firms, companies, Hindu Undivided Families (HUFs), trusts and any artificial judicial person.
  •  Income tax is charged on an income known as “taxable income”, which is: Taxable income = (total income) – (applicable deductions and exemptions).

What are the advantage of Corporate Tax

  •  Levied on companies who exist as separate entities from their shareholders.
  •  Foreign companies are taxed on income that arises, or is deemed to arise, in India.r
  •  It is charged on royalties, interest, gains from sale of capital assets located in India, fees for technical services and dividends.
  •  Includes Minimum Alternative Tax (MAT) which was introduced to bring Zero Tax companies under the income tax net, whose accounts were made in accordance with the Companies Act.
  •  Includes Fringe Benefit Tax (FBT) which is a tax that companies pay on the fringe benefits provided (or deemed to have been provided) to employees.
  •  Includes Dividend Distribution Tax (DDT) which is a tax levied on any amount declared, distributed or paid as dividend by any domestic company. International companies are exempt from this tax.

What are the benefits of Wealth Tax

  •   Wealth tax is charged on the benefits derived from property ownership.
  •   The same property will be taxed every year on its current market value.
  •   Wealth tax is charged whether the property in earning an income or not
  •   The tax is levied on the individuals, HUFs, and companies alike.
  •   Chargeability depends on residential status.

What are the Capital Gains Tax

  •  Short term capital gains are taxed as per the normal income tax slab rates..
  •  Method of indexation using the cost inflation index will be done to the cost of acquisition and the cost of improvement, and the resultant figures will be used for computation
  •  Long term capital gains are taxed at 20% if computed with the benefit of indexation
  •  Long term capital gains are taxed at 10% if computed without the benefit of indexation.
  •  Capital gains = (money received from sale) – (cost of capital investment).s
  •  Categorized as short-term gains (gains on assets sold within 36 months of acquisition) and long-term gains (gains on assets sold after 36 months of acquisition and holding).
  •  Voluntary tax that is paid by the taxpayer when the asset it sold.)
  •  Taxed on the income derived from the sale of assets or investments.

What are Benefits of Direct Taxation:

  •  Equitable: The burden of direct taxes can’t be shifted, and an equitable sacrifice of income and wealth can be achieved from all sections of society through progressive taxation.
  •  Economical: Income tax and most other forms of direct taxation are done at source with the help of TDS (Tax Deduction at Source), and are hence not a problem for the government to collect..
  •  Certainty: There is a sense of certainty from the taxpayer and the government, as each know how much to pay and how much to expect to collect respectively.
  •  Productivity: Direct taxes are very productive in the sense that as the working population andcommunity grows, so do the returns from direct taxation.
  •  Consciousness of duty: When people consciously pay their taxes, they can claim the right to know how their money is being spent by the government.
  •  Creates equal distribution of wealth: The government charges more taxes from those that can afford them, and uses this money to uplift the lower and poorer sections of society.

Define the List of taxes that the GST will likely replace:

  •   Service Tax.
  •  Ceases and surcharges related to supply of goods or services
  •  Central Excise Duty
  •  Excise Duties on medicinal and toilet preparations
  •  Additional Excise Duties on textiles and textile products
  •  Additional Excise Duties on goods of special importance
  •  Additional Customs Duties (CVD)
  •  Special Additional Duty of Customs (SAD)

How GST Works:

GST proposes to abolish the varying levels of taxation between States, and consider the country as a single whole organism when it comes to taxes on goods and services instead of as a segmented creature. All the sundry taxes will be clubbed into just 2 levels – Central GST and State GST. What a trader will essentially be able to do is claim a refund on the taxes already paid at different stages of value addition. The consumer who buys the product will have to pay only the GST charged by the last dealer in the supply chain, as everyone else would have the opportunity to set-off the taxes paid at the previous stages. If we take the example above under the GST system, the Cenvat on manufacturing the dress and the taxes paid on dyes and buttons can be offset at each level, thereby considerably reducing the total taxes paid.

what are the Advantages of GST?

  •  This is a federal law, which means that the states will no longer have the right to make new laws on taxation towards goods and services.
  •   It simplifies the tax system and makes it easier to understand as well as cheaper to implement at various levels.
  •   Tax evasion at various stages will be eliminated as tax offsets can be collected only if taxes have been paid originally.
  •   You will also be able to buy raw materials or constituent materials for production only from those who have paid taxes, in order to claim benefits. .
  •   It will be cheaper to buy input goods and services for production from other states.
  •   The current supply and distribution chain may undergo a change with a change in taxation system that does away with excise and customs duties.

What are the Disadvantages of GST?

  •   GST is not good news for all sectors, though. In the current system, many products are exempted from taxation. The GST proposes to have minimal exemption list. Currently, higher taxes are levied on fewer items, but with GST, lower taxes will be levied on almost all items. .
  •   GST is not applicable on liquor for human consumption. So alcohol rates will not get any advantage of GST.
  •   Stamp duty will not fall under the GST regime and will continue to be imposed by states.

  •   The consumer will get the end-product at cheaper rates because of elimination of multiple taxes and the tax cascade.
  •   As of now, petroleum and petroleum products have been kept out of the GST regime until further notice.
  •  Sale of newspapers and advertisements are also likely to fall under the GST regime, allowing the government to increase its revenue considerably