DIRECT & INDIRECT TAX STRUCTURE IN INDIA

PRESENTED BY: AMIT NAIK 11201 VISHAL DEORE 11213 NILESH HIREMATH 11218 SAGAR ZAPARDE 11255

Agenda
Introduction

Indian Taxation System

Types of Taxes Merits and Demerits of Taxes

Information about few taxes in detail

Features of the Tax Structure in India

Taxes
Important Source of Revenue of the

Government. Compulsory Contribution from a Person to the Expenses incurred by the State in common Interest of all without reference to Specific benefits conferred on any Individual.

Types of Taxes
Direct Taxes are the Taxes which are not

shifted i.e., the Incidence of which falls on Persons who pay them to the Government. For Example, Income Tax and Wealth Tax. Indirect Taxes are the Taxes in which the burden of paying Tax is shifted through a Change in Price. For Example, Custom Duty, Excise Duty, etc.

Merits of Direct Taxes

Imposed according to the Ability of the Person

to Pay. (Termed as Progressive Taxation) Revenue is Income Elastic as Progressive Character Revenue increases faster than the increase in Income. Create better Civic Consciousness. Serves the purpose of Transference of Income from the Rich to the Poor.

Demerits of Direct Taxes

The Ability to Pay is difficult to determine; only a

rough idea can be formed. Because of Undeclared Sources of Income or Evasion, the actual payment may not be strictly according to Pay. Necessitate Proper Maintenance of Accounts which some of the Tax Payers may not be able to do. Cumbersome Assessment Procedure requiring Expert Assistance.

Merits of Indirect Taxes

Convenience in Assessment & relative

Difficulty in Evasion. Inclusion of Tax in the Price. Difficult to Evade. Taxes on drinks, narcotics, & tobacco, serve a Social purpose by discouraging their consumption.

Demerits of Indirect Taxes

Regressive Character
Do not create Social Consciousness as Payment of

Tax is not felt by the Payer. Government is not certain about the Proceeds of these Taxes. Burden of Indirect Taxes can be shifted Forward or Backward as such Consumers have to bear the ultimate burden of Tax. Can be Evaded by methods as Smuggling, Falsification of Accounts, etc.

Personal Income Tax

Incomes from all the Sources are added.
Certain Rebates, Deductions, Expenditure

etc., on account of Life Insurance, Medical Insurance, Savings in PPF, etc. are allowed. Whole Income is divided into Different Slabs and Taxed on the basis of Slab into which it Falls. Progressive Income Taxation i.e., as Income Increases, the Rate of Tax also Increases.

Personal Income Tax

Income Tax Rates/Slabs Rate (%) (as per budget 2012) Up to 2,00,000 = 0%, 2,00,001 5,00,000 = 10%, 5,00,001 10,00,000 = 20%, 10,00,001 upwards = 30%, Up to 2,50,000 (for resident individual of 60 years or above)= 0, Up to 5,00,000 (for very senior citizen of 80 years or above)= 0.

Corporate Income Tax

Rationale for the Corporation Tax is that a Joint Stock

Company has a Separate Entity & thus should be Taxed separately. Until 1960-61, Corporations were Taxed in a Partial sense. A Corporation was required to Pay Income Tax on behalf of Shareholders on Dividends paid to them, & each Shareholder got a Credit to this effect. Corporations are Taxed at a Flat Rate, but certain Rebates & Exemptions are also provided. Tax Rates are different for Indian Companies & Foreign Companies.

Taxes on Wealth - Estate Duty

Taxes which are levied on Wealth & Capital are mainly

Estate Duty, Annual Tax on Wealth & Gift Tax.

Estate Duty is levied on the Total Property passing to the

heirs on the Death of a Person.

Wealth Tax was abolished in 1993 on all assets except

certain specified assets such as Resident Houses, Farm Houses, Urban Land, Jewellery, Motor Car, etc.

Gift Tax was leviable on all Donations to Recognized

Charitable Institutions, Gifts to Women Dependents & Gifts to Wife.

Custom Duties
Custom Duties are levied on Exports & Imports.
Import Duties are levied on the basis of ad

valorem. In Pre-Tax Reform Period, India had become a country with one of the highest levels of Custom Tariffs in the World. Since 1991, the Custom Duty Structure was pruned. Maximum Rate of Custom Duty is 10% now.

Excise Duties
An Excise Duty is levied on Production & has

absolutely on Connection with its Actual Sales. These are levied by the Central Government in a number of forms. To remove these, Government introduced Modified Value Added Tax (MODVAT) in 1986-87. MODVAT differs from VAT. To Overcome the Limitations of MODVAT, the Budget 2000-01 introduced the Central ValueAdded Tax [CENVAT].

Sales Tax
Sales Tax is a Tax on Business Transactions. In India, many Commodities are not covered by

Sales Tax. Sales Tax is more in case of Luxury Items & Less or almost nil in case of Necessities. Registered Trading Concerns are required to pay the Sales Tax to the Government who shift the Burden to the Customers. Problems: Cascading Effect, Lack of Transparency, Narrow Base, different Procedures followed by different States, etc.

Value Added Tax (VAT)

VAT is a multistage Sales Tax with credit for

Taxes paid on Business purchases. VAT is non-cascading. Tax is levied on Value Addition at each stage of Transaction in the Production/Distribution Chain. Overall Tax Burden will be Rationalized. Price will in general Fall.

VAT Flow-Chart
1st point
Selling Price
Rate of VAT Tax Total Tax Credit Net VAT

2nd point

3rd point

Rs. 100
4% Rs. 4
4.0

Rs. 120
4% Rs. 4.80
Total

130
0.80

4% 5.20

Rs. 104
Rs. 4

124.80
Rs. 4.00 Rs. 0.80

135.20
4.80 0.40

Total tax paid to Government = 4 + 0.80 + 0.40 = 5.20

Service Tax
Service Tax is a form of Indirect Tax imposed

on Specified Services called Taxable Services. It was introduced in the year 1994-95. Service Tax Network has expanded to cover many Services over the Years.

Features of Tax Structure in India

Among the Third World Countries, India is one of the

Highest Taxed Countries.

Tax Revenue collected by the Central & State Governments

has increased from Rs.460 crore in 1951-51 to Rs.6,89,000 crore in 2006-07. The Ratio of Direct to Indirect Taxes has declined from 40:60 in 1950-51 to 20:80 in 1990-91.

Agriculture Income is wholly exempt from the Income-Tax

despite the fact that a new class of Rich Farmers has emerged in the Country which can easily pay Taxes.

Features of Tax Structure in India

The system of Taxation does not conform to Canon of

Equity

Inflexible Taxation System as it largely depends on

Urban Incomes & leaves out Agricultural Income.

Service Sector which accounts for more than 50% of

GDP contributes just 7.8% towards Tax Revenues & 0.8% towards GDP. crores in 1990-91 to more than Rs.3,663 crores

The Cost of Tax Collection has increased from Rs.543

Evasion & Tax Avoidance are reported to be very High.

Highlights of budget 2012-13

Gross Tax Receipts estimated at Rs 10,77,612 crore, 15.6 per cent

higher than original budget estimates and 19.5 per cent over the revised estimates for 2011-12. Net tax to the Centre in 2012-13 estimated at Rs 7,71,071 crore; Non-Tax Revenue Receipts estimated at Rs 1,64,614 crore Direct Tax Code (DTC) Bill to be enacted at the earliest. Income tax exemption limit raised from Rs 1,80,000 to Rs 2,00,000; 10 per cent tax for 2-5 lakh income; 20 per cent for 5-10 lakh and 30 per cent beyond Rs 10 lakh. Tax free bonds of Rs 60,000 crore to be allowed for financing infrastructure projects in 2012-13. Import duty on equipment for iron ore mining reduced from 7.5 to 2.5 percent.

THANK YOU