tax policy in india

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1. Tax policy in IndiaAfter independence Indias tax structure was very rigid and complicated. Tax payers faced a number

of problems in paying their tax and filing their direct tax returns. The government realized this drawbackand appointed committees to study the rigid tax structures. Experts like Prof. Caldor was one of theexperts who studied the various complications of the countrys tax system. He recommended the

introduction of Wealth tax, Expenditure tax etc to simplify and categorize the taxation policy. These weredone to encourage India to pay tax and contribute in increasing government earnings. Thus, governmentrevenues increased and more developmental and welfare measures were undertaken for theimprovement of theeconomy of India.

All these are the result oftax reforms introduced in India. With the increased liberalization of theeconomy tax systems have been further reformed and made more flexible and simple. This was done tomake the tax system more acceptable to tax payers. By lowering the rate of tax more and more Indian

employees are now paying tax. The number ofProud Indianspaying tax has increased and Indiangovernment revenue earning has increased too. This has also reduced the number of tax evaders anddeveloped a sense of belonging among various categories of people in the country. Now most of themhave realized that they are contributing to nation building as well.

It has been a common belief prevailing in India now that to pay tax is an important duty of the citizens.Tax is essential for the welfare of the people. Roads, hospitals and educational institutions have all comeup with the tax paid by the country men.
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Individual income tax

Taxation of individuals is determined by their residential status.

An individual is 'resident' if he stays in India in the fiscal yer (April 1 to March 31) either:

for 182 days or more, or for 60 days or more (182 days or more for NRIs) and has been in India in aggregate for 365 days

or more in the previous four years.

An individual who does not satisfy either of these requirements is a 'non-resident'.

A resident individual is considered to be 'ordinarily resident' in any fiscal year if he has been

resident in India for nine out of the previous ten years and, in addition, has been in India for atotal of 730 days or more in the previous seven years. Residents who do not satisfy these

conditions are called individuals 'not ordinarily resident'. Taxability of individuals is summarised

in the table below.

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Status Indian Foreign

income income

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Resident and ordinarily

resident Taxable Taxable

Resident but not ordinarily Taxable Not taxable

resident

Non-Resident Taxable Not taxable

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Remuneration for work done in India is taxable irrespective of the place of receipt.Remuneration includes salaries and wages, pension, fees, commissions, profits in lieu of or in

addition to salary, advance salary and perquisites. Allowances, deferred compensation and tax

equalisation are also taxable. Perquisistes are taxes beneficially.

Besides remuneration for work, individuals may be taxed on the following income:

Income from house property Income from business or professions

Income from capital gains Income from other sources.

Individual tax rates

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Taxable income Rate

slab (Rs.) (%)

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Income of companies is taxed at the following rates

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Type of company Old Rate (%) New Rate (%)

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Domestic company

Widely held company 45 40Closely held company 50 40

Foreign company 65 55

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A surcharge of 15% of the amount of tax payable is levied on domestic companies, if taxable

income exceeds Rs.75,000.

Taxable income

The main source of income of a company is generally from "business". A company would alsoearn income from under the following heads:

income from house property income from capital gains income from other sources

Taxable income is calculated according to the rules for each class of income and then aggregated

to determine total taxable income.

Deductability of expense

While calculating income from business or profession, expense incurred wholly and exclusively

for business purposes are generally deductible. These includedepreciation on fixed assets,interest paid on borrowings in the financial year etc.

Certain expenses are specifically disallowed or the amount of deduction is restricted. These

expenses include:

Entertainment expenses Interest or other amounts paid to a non-resident without deducting without tax Corporate taxes paid Indirect general and administrative costs of a foreign head office.

Set-Off and carry forward of Losses

Business losses incurred in a tax year can be set off against any other income earned during that

year, except capital gains. Unabsorbed business losses can be carried forward and set off against

business profits of subsequent years for a period of eight years; the unabsorbed depreciationelement in the loss can however, be carried forward idefinitely. However, this carry forward

benefit is not available to closely-held (private) companies in which there has been no continuity
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of business or shareholding pattern. Also, any change in beneficial interest in the shares of the

company exceeding 51 per cent disqualifies the private company from the carry forward benefit.

tax policy in india

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