Analysis of

Tax System In India

Presented By :-

Bijon & Akash

What is TAX

Taxes represent the amount of money we pay to the Government

at predefined rates and periodicity. Taxes are the basic source of

revenue to the Government using which it provides various kinds

of services to the tax payers

Direct Taxes

1-Income tax

2-Wealth tax

3-Capital Gain tax

4-Gift Tax/

Inheritance or Estate Tax

5-Corporate Tax

Indirect Tax

1-Service Tax

2-Custom Duty

3-Excise Duty

4-Sales Tax and VAT

5-Security Transaction Tax

Direct IndirectDirect

Central Board of Direct Taxes (CBDT)

Indirect

Central Board of Excise and Customs (CBEC).

Types of TAXES

1 Income tax

Tax Deducted at Source (TDS) whosoever is earning above a

minimum amount (tax exemption limit) has to pay income tax

Direct Tax

2012-13 - Rs 206095 crores

2013-14 - Rs 247639 crores

Direct Tax

2Wealth

tax

This is in addition to the income tax and is levied if your net wealth

exceeds Rs 30 Lakh at the rate of 1% on the amount exceeding Rs 30 Lakh

Assests subjected to WEALTH TAX

• Commercial buildings and the nearby land

• Jewellery, furniture, utensils, and other articles

• Residential buildings and the nearby land

• Cash in hand assets - (a) For individuals and HUFs any amount over INR 50 thousand, and (b)

for others any cash amount that has not been recorded in accounts. Motor cars – cars operated

on hire or on a stock-in-trade basis will be exempted from taxes

2012-13 – Rs 866 crores

2013-14 – Rs 950 crores

Direct Tax

3 Capital Gain tax

This is levied on the capital gains arrived by selling property and stocks. Tax rates

are different for long term and short term capital gains.

Direct Tax

4 Gift TaxAmount exceeding Rs. 50000 received

without consideration by an individual/HUF from any person is subjected to gift tax as

income under “other sources”.

• There are exemptions like money received from relatives is not taxable

• Any amount received as Wedding Gift is not taxable

• No tax on the amount received through WILL or Inheritance

Direct Tax

5 Corporate Tax

Companies operating in India are taxed as per the corporate tax rate on their income. This tax is one of the major sources of revenue for government

Indirect Tax

1 Service Tax

Service providers in India are subject to service tax, which is charged on the aggregate amount received by the service provider. Services like

leasing, internet/voice, transport, etc are subject to service tax

Indirect Tax

2 Custom Duty

Custom duties are indirect taxes which are levied on goods

imported to/exported from India

Indirect Tax

3 Excise Duty

Excise duties are indirect taxes which are levied on goods

manufactured in India for domestic consumption

Indirect Tax

4Sales Tax

& VAT

Sales tax is levied by the government on sale and purchase of products in Indian market. As

customers, whatever you buy from the market, you pay sales tax on it. . Now, sales tax is

supplemented with new Value Added Tax so as to make it uniform across country.

Indirect Tax

5Security

Transaction Tax (STT)

STT is levied on transactions (sale/purchase) done through the stock exchanges. STT is applicable on purchase or sale of various financial products like stocks, derivatives,

mutual funds etc

Defects in tax system

Limited coverage of direct taxation

More reliance on Indirect Taxes

Inequitable and hence regressive

Non-Productive, irrational, inconsistent nature of tax system

Defects in tax system

Uncertainty in tax rates

Inelastic nature i.e. tax revenue does not change with change in income

Multiplicity of Taxes, hence Uneconomical

Complex nature of taxes hence difficult to understand for a common person

Tax laws open for different interpretation

Effects of complex tax system

• People are naturally inclined to evade tax

• As percentage of tax overheads is higher, business and industry sector gives

more focus on tax management rather than carrying out R & D activities and

maintaining quality standards.

• Negative impact on creativity and innovativeness of the work force

• Ever-thinning employment creation potential of the Industry, (with frightening

increase in unemployment levels)

• Total dependence on imported know-how and technology

Effects of complex tax system

• Invasion of the Indian market by foreign industries

• Increasing import-export trade gap

• Inability of the government to respond effectively to natural and man-made

calamities like flood, draught, war etc., due to poor revenue base

• Indirect promotion of anti-social businesses and industries like liquor, cigarette,

tobacco, lottery etc. Very high excise duties levied on these products make them

guaranteed revenue sources, hence can not be banned

• Creation of a huge amount of black money (money generated due to tax evasion)

resulting in the formation of a parallel economy in the country

“Goods and Service Tax (GST) is a comprehensive tax levy on manufacture, sale

and consumption of goods and service at a national level

Model of GST

The dual GST model proposed by the Empowered Committee and accepted by the Centre will have

dual system for imposing the tax. GST shall have two components i.e.

(i) Central GST

(ii) State GST

Central excise duty, additional excise duty, services tax and additional duty of customs (equivalent to

excise), state VAT entertainment tax, taxes on lotteries, betting and gambling and entry tax (not levied

by local bodies)would be subsumed within GST

Taxable Person

It will cover all types of person carrying on business activities, i.e. manufacturer, job-worker, trader, importer, exporter, all types of service providers, etc.

If a company is having four branches in four different states, all the four branches will be considered as TP under each jurisdiction of SGs.

All the dealers/ business entities will have to pay both the types of taxes on all the transactions.

Subsuming of Existing Taxes

Taxes that may or may not be subsumed

There are few other indirect taxes that may or may not be subsumed under

the GST regime as there is no consensus among States and Centre & States

–

Purchase tax

Stamp Duty

Vehicle Tax

Electricity Duty

Other Entry taxes and Octroi

Benefits of GST

1. Speeds up economic union of India;

2. Better compliance and revenue buoyancy;

3. Replacing the cascading effect [tax on tax] created by existing indirect taxes;

4. Tax incidence for consumers may fall;

5. Lower transaction cost for final consumers;

6. By merging all levies on goods and services into one, GST acquires a very simple and transparent

character;

7. Uniformity in tax regime with only one or two tax rates across the supply chain as against multiple tax

structure as of present;

8. Efficiency in tax administration;

9. May widen tax base;

10. Increased tax collections due to wide coverage of goods and services; and

11. Improvement in cost competitiveness of goods and services in the international market.

THANK YOU GUYS !!!!