Management of Direct and Indirect Taxes

Management of contract and Indirect assessesNeha KathuriaThe assignment attempts to sour out various dimensions of the Indian revenue enhancement mental synthesis. Three members were reviewed along with the relevant case laws. All the three articles atomic number 18 dwelling housed on one theme, the fact that the Indian revenue enhancement social system sine qua nons reforms. The first article regarding the Direct impose Code proposes changes in the Income measure revenue Act,1961 to be in line with the modern day changes and other economies. The contiguous two articles bring to the nonice that there are change magnitude incidences of the revenueation Avoidance and Tax evasion. This is attributed to various factors discussed in the succinct of the articles. There have been growing in the appraise upshot over the middle and lower income slab people and as a result they feel consignmented. Also, there has been seen that the growth rate of evaluate rates for t hese two roots has went up speedily as compared to for the trinity group. For these reasons revenue administration require changes so that such incidences can be reduced. oblige 1 An Appraisal of New Direct Tax Code in India A New Challenge in Direct Taxationby Sarbapriya RayThis Article attempts to study about the modernistic direct value cipher which got introduced from the financial year 2012-2013, having replaced the five-decade old system. Further, the article move over to discuss the pros and cons of this upstart code. The article was written in the year 2011, so all the am barricadements are in comparison to the Income Tax Act,1961. It has been written by Sarbapriya Ray, Assistant professor at Calcutta University. Although, Direct value code was introduced to bring about positive changes it was criticized and was considered to be confusing, and So, there have been certain other amendments after that as well, which is given after the summary of the article.The aim of the new task income code was to make the system of direct billation more equi panel and straight-forward. The direct assess rates were henceforth non supposed to be part of the Budget. The modern tax system and purvey were required to come in line with the constantly changing economy. The objective was to end unnecessary exemptions, widen tax bases, development the ratio of Tax-GDP, minimize disputes and litigation to bring about a more effective and equi hold over tax system. The decrement in the tax exemptions and deductions which have been increasing were to be reduced or amended because they helped in Tax evasion or Tax avoidance.In the figure out of providing exemptions and deductions, the amount foregone is termed as the total expenditure and the amount has been increasing from one financial year to a nonher. For instance, the figure for the year 2008-09 has been Rs.27389 crores.General Concepts298 sections and 14 schedules were to be replaced by 319 sections and 22 schedules.A unified concept of financial twelvemonth replaced concept of Assessment year and Previous year, doing away with the confusions that arose.Changes in terms of the income tax return filing date wereFor corporates, due date proposed was August 31st ever FY.For individuals 30th June was proposed.Income to be divided into two partsIncome from special Sources Income to be taxed at special rates in case of winning from lotteries, income of non-residents, etc.Income from ordinary sources Income from salary, Income from superior gains, Income from house property, etc.Features of the new tax codeTax RatesThe following table shows the income tax slabs till FY 2010-11 and the amended tax slabs that would be applicable from the FY 2012-13 with the implementation of the new direct tax code. Income Tax Slabs for others and workforce WomenS.NOTax PercentageFY 10-11FY 12-131No Tax/ ExemptUpto 1,60,000Upto 2,00,000210%1,60,001 5,00,0002,00,001 5,00,000320%5,00,001 8,00,0005,00,001- 10, 00, 000430%Above 8,00,000Above 10,00,000The proposed changes were estimated to bring down the tax liability of an individual having income greater than 10 lakhs by Rs.41040 annually.The following table shows the changes in the corporate tax rates with the implementation of the new direct tax code (DTC).ParticularsIncome Tax Act, 1961Original DTCRevised DTCDomestic Company33.22%25%30%Foreign Company42.23%25%30% growth Profits Tax15%15%MAT19.93% on Book Profit0.25% / 2% of Gross Assets0.25% / 2% of Gross AssetsDividend Distribution Tax16.61%15%15%Wealth Tax1% on Net wealth exceeding Rs. 3mn0.25% on Net Wealth exceeding Rs. 5 mn1% on Net wealth exceeding Rs10 mnCorporate tax rate was reduced from 33 to 30%.Residential StatusCompanies incorporated in India are domestic companies and resident.Only those hostile companies are to be treated resident whose place of effective management is partially or wholly in India.Income from EmploymentAnother change in the new Direct tax code is in terms of replacing EEE (Exempt-Exempt-Exempt) to EET (Exempt- Exempt-Taxed). These changes mean that till accumulation of income, withdrawal provide be exempt otherwise it is taxed.The following table shows a comparison of the EEE and proposed EET systemEEE chthonian Income Tax Act, 1961EET on a lower floor DTCProviding incentive in the investiture yearIncentive in the form of deductions from gross taxable income in the investment yearNo tax on income from this investmentNo tax on income on the investmentNo Tax on the maturity of the investmentTax is levied on the amount withdrawnEET was proposed to deal with the shortage of resources with India. Also, In India since savings form a major part of the earnings, taxation would help in solving the problem of dealing with the debt accumulated with the presidential term.MATThe amendments led to dandy intensive industries to pay MAT even in case of book losses. The changes will lead to increased efficiency and utilization of the a ssets.Wealth Tax BenefitsThe new direct tax code also proposed changes related to wealth tax calculations.ParticularsIncome Tax Act,1961New Direct Tax CodeThreshold LimitRs. 30 lakhsRs. 50 CroreTax Rate0.25%1%Wealth Tax includes calculation of financial assets fixed deposits, corporate bonds, shares, which are done at cost or at market price, whichever is lower. Companies are not supposed to pay wealth tax anymore.Capital GainsThe following are the changes according to the new direct tax codeThe structure of long-term capital gain and short-term capital gain tax is replaced with the uniform system as capital gains were now to be taxed at the marginal tax rate as per that applicable to the assesse.The period of holding has no bearing on the Tax liability of the assesse.Securities deed tax concept is to be removed.Business loss and loss from capital gains can be carried forward for an indefinite time period as per this new DTC. want under capital gain can also be adjusted against i ncome from capital gains.ConclusionNew DTC introduced a stable and effective system for the FIIs. However, there were two opposite view points about it. DTC was criticised on accounts of the fact that the new amendments may not be beneficial to the investors and FIIs, for whom primarily they were proposed. On the other hand, the concessions or relaxations would lead to loss of revenue.India still needs the Direct Tax CodeNov 01 2015This article is from MINT and was published on Nove,01,2015. In 2015 budget, DTC was removed giving the interpretation that a lot of victual have already been considered or merged in the Income Tax Act, 1961.The finance minister, gave up the provision of reducing the corporate tax to 25% in the old age to come. But still cuts on tax rate would require the Direct Tax Code.The requirement of direct tax code if felt today because a simpler version of tax structure is required in India as it leads to the growth of the economy. A tax consultant feels that a n efficient tax system reduces tax avoidance and evasion.An article from the economic times mention that when Direct Tax code was proposed in 2011 to be implemented from the FY 2012-2013. Some of the provisions of the DTC as mentioned in the summary of article were not accepted by the government, which were as followsWidening of Tax slabs.Increase in basic exemption limit.Securities effect Tax not to be abolished.Direct Taxes Code Revised bill makes avoiding tax tougher for foreign companiesWed, Apr 02 2014This is another article from the newspaper MINT. This is a case of Vodafone group versus the supreme court and happened because of the original provisions of the proposed DTC and hence after this certain provisions were revised. The revised provision could help in reducing the incidences in which the foreign companies avoid taxes. This case happened when Vodafone group decided to acquire Hutchison to become Vodafone India.Original DTCRevised DTC50% of total assets in India, then income from such a transaction would be taxed20% of total assets in India, then income from such a transaction would be taxedIn a case, previously of Vodafone, the supreme court gave the notion that if the shares are transferred by a foreign company having a subsidiary in India, from one non-resident person to another, is not considered a transfer of a capital asset and hence and so any income from such transaction would not attract tax.However, when Vodafone International Holdings (British Company) acquired Hutchinsons (again a foreign company) Indian subsidiary. The government intervened on the thought of the supreme court that the transactions which derives its value substantially from the assets located in India1 are to be taxed.At present, section 9 of the income tax Act does not provide any limen as to what is the meaning of substantially deriving value from assets located in India. Though this now brings in clarity, lowering the threshold from 50% to 20% will lead to many more indirect transfer cases coming under the tax ambit.2Due to the need of a transition of changes to be required in the original DTC, revised DTC was proposed in 2013 KEY CHANGES IN THE REVISED DIRECT TAXES CODE 2013An indirect share transaction will be liable to be taxed in India if 20% of the assets are based in India.New tax slab introduced individuals earning more than Rs10 crore a year to be taxed at 35%.No changes in other tax slabs for individuals age for senior citizens relaxed to 60 years from 65 years. Levy an additional 10% tax on the recipient of dividend payments if the dividend income exceeds Rs1 crore.Financial assets included under the ambit of wealth tax as compared to only physical assets at present.Rationalization of provisions related to non-profit organizations.Ring-fencing of losses from business availing investment linked incentives.Provision of settlement commission removed.3One of the provisions of the new Direct Tax code is the abolishment of the securit ies Transaction Tax (STT). This will help companys in reduction of tax as STT was a tax nonrecreational while purchasing shares. Since this was a part of the amount pay to the broker that cost would also be lessened. Further, the reduction in the corporation tax rates from 30% to 25% would reduce the tax burden on the companies.The changes in the provision of MAT may have negative effect on the companies that are asset based companies. The investments by corporates would be reduced.The change of provisions in terms of Income from employment that is a change from EEE to EET is expected to increase costs. EET has an increase in the limit and the following are the two points related to itsavings on the amount of Rs. 2lakhs invested.Income on this invested is exempted from tax.Further, DTC proposes the reduction in the tax rates for LTCG and STT. This would lead to an increase in the trades in securities market.Article 2 Personal Income Tax Structure in India An Evaluationby Dr. Rad ha GuptaThe article is from January 2013. An attempt is made wherein the personal tax structure in India is reviewed and the issues and amendments required to lessen the tax burden on the lower income groups are highlighted. Research is carried out for the same by using descriptive and exploratory techniques of research.Tax slabs and the rates were higher during the period under study in this paper and the need for its rationalization was felt. The characteristics of a good tax system include a change in the national income match to a high response in tax revenue. Further tax revenue has in total three components on which it depends tax rate, tax base and national income.There were three main objectives behind undertaking this study by Dr. Gupta and they are as followsTo see the trend of Indian personal tax structureTo see the present situation and estimate the future trendsBased on the study, finally suggesting ways to improve or rationalize the structure if need be.The study was undertaken with respect to the general tax payers. The time span under study is 12 financial years from 2000-01 to 2011-12. The study has five broad elements composing and comparative analysis of Income exempted from tax.Composition of Total Tax liability of general tax payer for period under review.Composition of growth rate of tax burden.Composition of tax liability on different income Slabs.Conclusion and Suggestions.41) Composition and Comparative abbreviation of Income Exempted from TaxTax free Income for Male, Female and Senior CitizenFinancial YearMaleFemaleSenior Citizen2000 01Rs. 50,000Rs. 50,000Rs. 50,0002001 02Rs. 50,000Rs. 50,000Rs. 50,0002002 03Rs. 50,000Rs. 50,000Rs. 50,0002003 04Rs. 50,000Rs. 50,000Rs. 50,0002004 05Rs. 50,000Rs. 50,000Rs. 50,0002005 06Rs. 50,000Rs. 50,000Rs. 50,0002006 07Rs. 100,000Rs. 135,000Rs. 185,0002007 08Rs. 110,000Rs. 145,000Rs. 195,0002008 09Rs. 150,000Rs. 180,000Rs. 225,0002009 10Rs. 160,000Rs. 190,000Rs. 240,0002010 11Rs. 160,00 0Rs. 190,000Rs. 240,0002011 12Rs. 180,000Rs. 190,000Rs. 250,000The table consists of the data from the highlights of budget in the newspaper. The table shows that despite increase in the cost of living, the tax exemption limit remained constant for fist six years. From the seventh year, there has been an increase in trend but that was found not to be in line with the increase in prices. Also, from the financial year 2011-12, a new head was introduced Very senior citizen citizens of more than 80 years of age. Tax exemption limit for this category is Rs. 500,000. One notable finding under the first head was that, the amount of tax exemption limit was forthwith proportional to the number of individuals falling under each category or age limit.2) Composition of Tax Liability for General Tax Payers for Period under Review As can be seen from the table showing trend of tax rates and tax liability, the trend for first and second slab category is increasing. Thus, it was indicated that those falling in these two slabs were paying higher taxes as compared to those in the third slab. And so, a need was felt to bring about changes in the prevailing structure. Furthermore, because of the inflationary trend in the country, people falling under these two tax slabs feel that their sustainability is being affected and on the other, affect their willingness to pay tax.The following table shows the trend of tax liability for 12 financial years under review4) Composition of growth rate of Tax burdenThe following table shows the growth in the tax liability of the different income groups. So, when it comes to the lower and middle income group to pay taxes, looking at the growth they feel burdened and so a reason requiring changes in the tax administration. 4) Composition of Tax Liability on Different Slabs Tax liability with respect to different slabs was calculated. It was found that the maximum amount of people, based on income, fall in the first two categories and they fo rm the middle-income group. Also, the tax payers whose income fall in all slabs belong to the higher income group.Tax weight on General Tax Payer of Different SlabsFYTax burden on First SlabTax burden on Second SlabTax burden on Third Slab2000 2005Rs. 1,000Rs. 18,000Rs.2250002005 2007Rs. 5000Rs. 20000Rs. 1950002007- 2008Rs. 4000Rs. 20000Rs. 1950002008 2009Rs. 15000Rs. 40000Rs. 1500002009 2010Rs. 14000Rs. 40000Rs. 1500002010 2011Rs. 34000Rs. 60000Rs. 600002011 2012Rs. 32000Rs. 60000Rs. 60000There has been a growth in the tax rates and tax liability for those falling in the first slab and so they are increasingly being burdened. This comes to the point out lower income group is paying more tax liability as compared to other tax payers. Thus, a reform is required in the personal income tax structure.When it comes to the middle-income group tax payers, they are also bearing the tax liability burden as compared to the third slab group. The difference between the first slab group an d second slab group is that the rate with which their tax liability is increasing is less as compared to the first slab bracket. Because of this difference, there is the encroachment of Equity Principle of taxation given by Adam Smith. So, another reason backing the requirement of the change in the tax structure and making it more equitable. This would also ensure that the practices of tax avoidance and tax evasion are lessened.5) CONCLUSION AND SUGGESTIONSDr. Gupta comes to the concluding points based on the research she did that despite of the fact that tax payers are aware that the tax collected by the government is used for the welfare of the people only, yet because of the findings and reasons found above, there have been increasing incidences of Tax avoidance and Tax evasion. This also affects the economic situation of the country. So, policies are to be changed and tax rates to be administered properly. A way to reduce the burden on the first two slabs is that the tax slabs can be fewer and should fair and equitable.Cairn India vs GovernmentThere is a gap between what government has to say and the work the tax department does. One notable difference was highlighted in case of Cairn India, where despite of having said that there would be no retrospective amendments in tax laws, the government demanded company with the same. Retrospective demands are said to be there only in case of the need to increase revenues, as there could be an urgent requirement for some social cause or infrastructural development. Thus, revenue forecasts are to be realistic and desirable. The targets are to be completed and looked after by the transfer pricing officers and they have to ensure that there is no incidence of tax evasion.Article 3 Indian Tax Structure- An Analytical Perspectiveby Nishant Ravindra Ghuge and Dr Vivek Vasantrao KatdareIndia has a well-defined taxation structure and it is divided into three tiers. This paper attempts to bring out the changes that the Ind ian Tax structure has gone through in a move to becoming an ideal tax structure. Further, it highlights the issues and problems that prevail in the structure and still needs to undergo further changes to get rid of the problems. The problems prevailing are the tax avoidance, black money and reliance on indirect taxation system. The study is done based on the data collected from the sites of the government. It goes over to explain the various types of direct taxes and indirect taxes and the pros and cons of each. This paper is from September, 2015.The following are the three tiersThe main taxes that the union government levy Income Tax, Customs duty, sales tax, excise duty and service tax.The main taxes that the state government levy Intra- state tax on goods, stamp duty, land revenue, bucolic tax, Tax on professions and Duty on Entertainment.Local bodies levy taxes Octroi, Tax on properties and markets, tax on utilities.Due to the liberalization since 1991, the following are the changes famous that the tax structure in India had undergoneRationalization of tax structure.Progressive reduction in peak rates of customs duty.Reduction in corporate tax rate.Customs duty aligned with ASEAN levels.Introduction of VATWidening of tax base5There are two types of taxes direct and indirect taxes.Direct TaxesTaxes which are paid directly to the authority who imposes it by the tax payer and are levied on profits and income. The list includes the following Taxes on income, corporation tax, interest tax, gift tax, ground duty, wealth tax, agricultural tax, expenditure tax, land revenue, Hotel receipts tax.Indirect TaxesTaxes which are not paid directly to the authority who imposes it by the tax payer and are levied on goods and services. The list includes the following state excise duty, customs duty, Entertainment tax, service tax, taxes on purchase of sugarcane, General sales tax, Union excise duty, tax on electricity, Stamp and registration fees.In this study, cer tain research papers were reviewed and the results are presented thereof. Three papers were as followsTaxation laws of India Overview and fiscal analysis written by Kumat in 2014.Tax structure in India and its effect on Corporate Individual written by Jha in 2013.Tax system reforms in India achievement and challenges ahead written by Rao in 2005.6All the three papers mentioned above suggests the followingCoordinated tax consumption system.Focus on the decreasing the reliance on indirect taxes and levy direct taxes more on the upper income group tax payers.Transfer pricing to be abolished.Analysis of the Indian Tax StructureThe following table shows the amount of direct taxes and indirect taxes collected by the government for period under reviewYear2010-112011 122012 132013 14Revenue Receipt Direct Tax45822.09501394.92574680.54679297.56Revenue Receipt Indirect Tax820843.26966495.511151867.991353191.51