final taxation

8/4/2019 Final Taxation

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TAXATION

Presented By

Harish Tangirala

Subhas kar

Sriman Reddy

Varun Kumar Vanama

Subrata Bhowmick

SVBK Varma

Silla Sundar Krishna


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Heres what were going to present

Overview of taxation in India

Different types of taxes

General Principles of taxation

Status of resident and non resident

Taxation for resident and non resident

Calculation of tax for corporate and citizen

Double taxation agreement of India with different countries

( Calculations and examples)

Tax avoidance


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On a rainy day in kolkata..


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Introduction

Taxation is the inherent power of the sovereign, exercised through the

legislature, to impose burdens upon subjects and objects within its

jurisdiction for the purpose of raising revenues to carry out the legitimate

objects of government.

It is also defined as the act of levying a tax, i.e. the process or means by

which the sovereign, through its law-making body, raises income to defray

the necessary expenses of government. It is a method of apportioning the

cost of government among those who, in some measure, are privileged to

enjoy its benefits and must therefore bear its burdens.


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Essential elements of a tax

It is an enforced contribution.

It is generally payable in money.

It is proportionate in character.

It is levied on persons, property, or the exercise of a right or privilege.

It is levied by the State which has jurisdiction over the subject or object of taxation. It is levied by the law-making body of the State.

It is levied for public purpose or purposes.


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Introduction

Three tier federal tax structure Central Govt, State Govt, Local Bodies

Revenue Dept oversees the taxation in India

Inception of CBEC and CBDT

Major taxation laws Central Excise Act (1944)

Central Sales Tax Act (1956)

Wealth Tax Act (1957)

Income Tax Act (1961)

Customs Act (1962)

Service Tax Act(1994)

VAT Act (2005)

Plan to introduce Goods and Service Tax by the year 2011*

Plan to introduce Direct Taxes Code Act 2010 by the year 2012*


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Introduction

Direct TaxesTax on Corporate Income

Capital Gains Tax

Personal Income Tax

Tax Incentives

Double Taxation Avoidance Treaty

Indirect TaxesExcise Duty

Customs DutySales Tax

Service Tax/VAT

Property Tax

CentralGovt

State Govt


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Moving ahead









Tax avoidance ( Sections) Also Article


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How are taxes levied

Tax on Corporate Income (Domestic) 35% + 2.5% Surcharge + 2% Edu Cess(Foreign) 40% + 2.5% Surcharge + 2% Edu Cess

Wealth Tax 1% (Income > 1500000 INR

Dividend Distribution Tax 12.5%

MAT 7.5%

Capital Gains Tax 10% ( For assets held below 3 yrs)20% ( For assets held beyond 3 yrs)

Personal Income Tax Categorized into 4 Slabs based on Income.0,10,20,30 % tax levied + 10% surcharge if income > 850000

Tax Incentives Upto 100% incentive available subject to terms

Double Taxation Treaty Agreement with 79 countries

Excise Duty/Customs Duty Ranging between 0-30%Central Sales Tax 4% + LST upto 15%

VAT Upto 12.5%

Property Tax, Octroi and Stamp Duty cary from state to state


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Lets move ahead.









Tax avoidance ( Sections) Also Article


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Theory and Basis of taxation

Existence of government is necessary

Benefit received principle

Life blood and necessary theory Benefit received principle


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Basic principles of sound tax

systemFiscal adequacy

The sources of revenue should be sufficient to meet the demands ofpublic expenditure

Equality or theoretical justice

The tax burden should be proportionate to the taxpayers ability to pay

Administrative feasibility

Tax laws should be capable of convenient , just, and effectiveadministration


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Whats Next









Tax avoidance


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Main categories of NRIs

The following are the main three categories of NRIs:-

Indian citizens who stay abroad for employment or for carrying on a

business or Vocation or any other purpose in circumstances indicating an

indefinite period of stay abroad.

Indian citizens working abroad on assignment with foreign governmentagencies like United Nations Organisation (UNO), including its affiliates,

International Monetary Fund (IMF), World Bank etc.

Officials of Central and State Government and Public Sector undertaking

deputed abroad on temporary assignments or posted to their offices,

including Indian diplomat missions, abroad.


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Residence Rules

An individual is treated as resident in a

year if present in India for 182 days

during the year

or

For 60 days during the year and 365 days

during the preceding four years. Individuals

fulfilling neither of these conditions are

nonresidents. (The rules are slightly more

liberal for Indian citizens residing abroad orleaving India for employment abroad.)


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Not Ordinarily Resident

You should have been resident in

India in nine out of the ten previous

years preceding the previous year in

which you are resident within the

meaning of section 6(1)

You should have been in India for a period

or periods amounting in all to 730 days or

more during the seven years preceding

that previous year.

If you does not fulfill any ofthe above conditions, you

will be treated as "not

ordinarily resident".


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Non-Residents

Non-Residents and Non-Resident Indians

Nonresidents are taxed only on income that is

received in India or arises or is deemed to arise

in India.

A person not ordinarily resident is taxed like a

nonresident but is also liable to tax on income

accruing abroad if it is from a business

controlled in or a profession set up in India.

Non-resident Indians are not required to file atax return if their income consists of only interest

and dividends, provided taxes due on such

income are deducted at source.


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Taxability of individuals is

summarized in the table below

Status Indian Income Foreign Income

Resident and

ordinarily resident

Taxable Taxable

Resident but not

ordinarily resident

Taxable Not Taxable

Non-Resident Taxable Not Taxable


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Next









Tax avoidance


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Tax calculation

Gross income= Monthly income*12

Taxable income= Gross income- (savings +

donations/charity)

Include Surcharge (If yearly income > 10L)

You need to add 3% of your taxable earnings (aseducation cess)
http://3.bp.blogspot.com/__Xx81UqlgCs/S1HhQcjqapI/AAAAAAAAAWU/Z3rewN4Sku8/s1600-h/Taxing.jpg


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Taxable NRI incomes

INCOME from:

property if such property is situated in India

salaries if the services are rendered in India

salaries payable by the Government to a citizen of India even though the

services are rendered outside India dividend paid by an Indian company even if the same is paid outside India


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Exemptions

Non-resident running a news agency or publishing

newspapers, magazines etc

Income arising from operations which are confined to the

shooting of any cinematography film


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Indian NRI Tax Percentage

Entering into a Bond with Indian company

(Foreign Currency Convertible Bonds )

10%

Borrowing Foreign currency 20%

Income from securities that are enlisted in anywell-reputed stock exchange in India.

20%

NRI Tax


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Next









Tax avoidance


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Income tax slab for FY 11-12New Income Tax Slabs for FY 11-12 for Resident Senior Citizens(FY 2011-12)

S. No. Income Range Tax percentage

1 Up to Rs 2,40,000 No tax / exempt

2 2,40,001 to 5,00,000 10%

3 5,00,001 to 8,00,000 20%

4 Above 8,00,000 30%

Income Tax Slabs for ay 11-12 for Resident Women (below 65 years) (FY 2011-12)


2 1,90,001 to 5,00,000 10%

3 5,00,001 to 8,00,00 20%

4 Above 8,00,000 30%

New Income Tax Slabs for FY 11-12 Others & Men (FY 2011-12)


2 1,80,001 to 5,00,000 10%

3 5,00,001 to 8,00,000 20%

4 Above 8,00,000 30%

New Income Tax Slabs for FY 11-12 Very Senior Citizen (FY 2011-12)


2 5,00,001 to 8,00,000 20%3 Above 8,00,000 30%

Tax Slabs
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Definition of Person under

Income Tax Act,1961

Individual

HUF

Partnership firm

Company AOP/BOI

Local authority

Other Artificial judicial persons (idol or deity)


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Heads of income

Income from Salaries (Sec 15-17)

Income from House Property (Sec 22-27)

Profits and Gains from Business or Profession (Sec 28-

44DB)

Capital Gains (Sec 45-55A)

Income from other sources (Sec 56-59)

( )


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Tax Calculation(example)Mr. X submits the following details of his income for the assessment

year 2011-12

Particulars Rs.

Income from salary 3,00,000

Loss from let out house property 40,000

Income from sugar business 50,000

Loss from iron ore business 40,000

Short term capital loss 40,000

Long term capital gain 30,000

Income received from lottery winning 50,000

Winnings in card games 6,000

Bank interest 5,000

C t ti f t t l i f M X f th


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Computation of gross total income of Mr. X for the

A.Y. 2011-12Particulars Rs. Rs.

Salaries

Income from salary 3,00,000

(-) Loss from let out house property (40,000) 2,60,000

Profits and gains of business or profession

Income from sugar business 50,000(-) Loss from iron ore business (40,000) 10,000

Capital Gains

Long term capital gains 40,000

Short term capital gains (30,000) 10,000

Income from other sources

Winnings from lottery 50,000

Winnings from card games 6,000

Bank interest 5,000 61,000

Gross Total Income 3,41,000


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Income tax applicable for a company

Company Rate of income tax

Domestic Company 30%

Foreign Company 50%

Other Incomes 40%


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Coming Up









Tax avoidance


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Double taxation defined

Double taxation means taxing the sameincome twice, once in the home country and

again in host country. It is of relevance tomention here No rules of international law

prohibit international double taxation. So it is

for the countries in the international arena tosolve double taxation problems.


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Double Taxation Convention on Income and Capital, 1977, defines

the phenomenon of international juridical double taxation.

Double tax treaties comprise of agreements between two countries, which, by

eliminating international double taxation, promote exchange of goods, persons,services and investment of capital.

Double taxation avoidance agreements, depending on their scope, can be

classified as

Comprehensive(81) and Limited(8).

Double Taxation


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Objectives

To help in avoiding and alleviating the adverse

burden of international double taxation

To help a taxpayer of one country to know with

greater certainty the potential limits of his taxliabilities in the other country.


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The Income Tax Act, 1961 (ITA) governs taxation of income in India. section 5.

Section 6.

Section 90: provides for tax relief in accordance with treaties executed by India

Section 91: provides relief where no treaty exists

A double tax avoidance agreement deals by and large with business income,income from moveable property and from immovable property.

Income from the business is taxed-

only in the resident country, if the business entity has no activity in the sourcestate;

only on the source state, if there is a fixed place of business,

Income form immovable property arising to a non-resident is taxed primarily in the

state of its location.


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Overall Structure of DTAA

Article 1& 2 Scope of the convention

Article 3, 4,5 General Definitions, Resident, Permanentestablishment

Article 6 to 21 Taxation of various incomes- Business profits,Royalties, Fees for Technical services, Interest,Dividends, Others

Article 22 Taxation of capital

Article 23A and 23B Methods of elimination of double taxation

Article 24 and 29 Special provisions-Non discrimination, MAP,etc.

Article 30,31 Entry into force, Termination


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Exemption Method Credit Method

Full

Exemption

Exemptionwith

Progression

Full

Credit

Ordinary

Credit

The Income earned

in the state of

source is fullyexempt in the State

of residence

Income earned in the

state of source is

considered in thestate of residence

only for rate purpose

Total tax paid in the

state of source is

allowed as a credit

against any tax

payable in the state

of residence

State of residence allows

credit of tax paid in the

state of source

Restricted to that partof the income-tax which

is attributable to the

income, taxable in the

state of residence

Methods of granting tax credit


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Finally the Final Topic









Tax avoidance


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Confusing Terms

Tax avoidance: legal utilization of the tax regime to

one's own advantage, to reduce the amount of tax

that is payable by legal means.

Tax evasion: general term for efforts not to pay taxes

by illegal means.

Tax Resistance: declared refusal to pay a tax for

conscientious reasons.

Reliance Industries LimitedDepreciation - Tax Avoidance

Reliance Logistics LtdSales as internal consumption Tax Evasion


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Tax Avoidance

Taxpayer reduces tax liability by taking advantage of the loop-holes and

ambiguities in the legal provisions

Perfectly legal and is, at times, referred to as tax planning

1998 - 2005, 55% of US companies paid no federal income taxes during at

least one year.


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Ways to Avoid Tax

Country of residence Changing one's tax residence to a tax haven

Becoming a perpetual traveller (like in case of Merchant Navy, etc.)

Double taxation

Bilateral double taxation treaties with other countries to avoid taxing twice

However, few double-taxation treaties with tax havens countries.

Not enough to simply move one's assets to a tax haven, one must also personally move to a tax haven

Legal entities

Creation of a separate legal entity to which one's property is donated

Legal vagueness

Tax results depend on definitions of legal terms which are usually vague.

Eg. "business expenses" and "personal expenses

Cherry-Picking Tax Avoidance

Superannuation Fund in Australia


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Issues in Anti-Avoidance

Revenue view

Tax avoidance is a problem for any tax system

Erodes revenues that the system is designed to generate

Undermines the fairness of the system, lesser burden on

taxpayers with greater resources

Frequently involves contrived, artificial transactions that serve

little or no purpose other than to reduce tax liability.

Enables some taxpayers to gain an unfair advantage,

undermining confidence in the tax system.


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Existing anti-avoidance rules in Indian tax law

Transfer of income without corresponding transfer, or with revocable transfer, of

beneficial ownership of assets

sections 60, 61

Clubbing of income of spouse, minor children, other persons, in certain situations

section 64

Bond-washing transactions

section 94

Restrictions on expense deductions

sections 14A expenses for earning exempt income

section 40A(3) expenses in cash


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Existing anti-avoidance rules in Indian tax law

Dividends - section 2(22)

Salary/perquisites - section 17

Business - section 28

Capital gains - section 45

Gifts - section 56

Tax benefit to eligible business units - transactions with other units of

same person, or of associated person, to be at arms length

Sections 80 IA/IB/IC

Other specific provisions

Section 10(10D) single premium insurance policies

Section 93 income payable to non-residents by virtue of certain

transfers of assets


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Tax Avoidance in UK

...being open for business does not mean being open to tax

avoidance...we expect everyone to pay their fair share. And wherewe see tax avoidance, we will crack down on it.

- David Gauke

(Exchequer

Secretary to the Treasury)

Government launched its new strategic approach to tackling

avoidance in June 2010. The key elements are:

make the most of opportunities to make the tax system more watertight;

review areas of the tax system that have been under repeated avoidance

attack for sustainable solutions; and

create new defences against avoidance,

HMRCs new anti-avoidance strategy3 core elements:

preventing avoidance at the outset where possible;

detecting it early where it persists; and

countering it effectively through challenge by HMRC


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THANK YOU

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