Unit – V Taxes: Basics of Direct Taxes

Definition of Tax Direct tax Indirect tax The term tax is defined as the compulsory exaction of money by public authorities for public enforceable by law and is not payment for services. There are two types of taxes namely Direct tax Indirect tax Unit V– Income Tax Act, Legal Aspects of Business – Mr.K.Mohan Kumar, AP/MBA 9/13/2018

TYPES OF TAXES IN INDIA INDIRECT TAX DIRECT TAX SALES TAX INCOME TAX SERVICE TAX VALUE ADDED TAX WEALTH TAX CUSTOMS DUTY CORPOORATION TAX EXCISE DUTY Unit V– Income Tax Act, Legal Aspects of Business – Mr.K.Mohan Kumar, AP/MBA 9/13/2018

DIRECT TAX It is a tax that is directly paid by an individual to the government. The tax is paid to Central Board of Direct Tax(CBDT). Unit V– Income Tax Act, Legal Aspects of Business – Mr.K.Mohan Kumar, AP/MBA 9/13/2018

THE INCOME TAX ACT 1961 ASSESSMENT This is also known as the IT ACT of 1961. The income which this act taxes, can come from sources like business, owing a house or property, gains received from investments and salaries. It is also the tax that decides how much of the income then can be saved from investments. It is a procedure by which income of an assesse is determined by assessing officer. Assesse – a person whom any tax is payable Unit V– Income Tax Act, Legal Aspects of Business – Mr.K.Mohan Kumar, AP/MBA 9/13/2018

Under this act it includes: Person whom is taken for any procedures assessment. Of his income. Income of a person whom is assessable. Loss any sustained by him. Amount of refund due to his or other such person. Every person who is deemed to be an assesse under any provision act. Every person is deemed to be an assesse in default. Unit V– Income Tax Act, Legal Aspects of Business – Mr.K.Mohan Kumar, AP/MBA 9/13/2018

Classification of Assesses Person Income Assessment year Previous year Unit V– Income Tax Act, Legal Aspects of Business – Mr.K.Mohan Kumar, AP/MBA 9/13/2018

PERSON An individual A Hindu undivided family: A family consisting of all members of the family lineally descended from a common ancestor include their wives and unmarried daughters. Its affairs are managed by “De-facto in charge” called ‘Katha’. A company: Defined as an perpetual succession, a common seal; the common shares divided into limited liability. Unit V– Income Tax Act, Legal Aspects of Business – Mr.K.Mohan Kumar, AP/MBA 9/13/2018

An association of person(AOP): A firm: Firm is a partnership which defined as “relationship between two persons who have agreed to share profits of a business”. An association of person(AOP): if two or more persons associate themselves for managing a property for the purpose of producing income, or when there is a combination of persons formed for the promotion of a joint enterprise. Unit V– Income Tax Act, Legal Aspects of Business – Mr.K.Mohan Kumar, AP/MBA 9/13/2018

vi. Local authority: Municipality, municipal corporation, district board, panchayat, cantonment board, port trust etc. vii. Artificial judiciary person: any public corporation brought into existence by special act of legislature like LIC, a University, private religious trust. Unit V– Income Tax Act, Legal Aspects of Business – Mr.K.Mohan Kumar, AP/MBA 9/13/2018

Income The characteristics are: Definite source Legal or illegal income Income received from cash or in kind Income may be considered on receipt basis or accrual basis Dispute regarding title Mere relief or reimbursement of expenses Unit V– Income Tax Act, Legal Aspects of Business – Mr.K.Mohan Kumar, AP/MBA 9/13/2018

Assessment year It is of twelve months from 1st April and 31st March ending. The current assessment year 2017-2018 for example , commenced on 1st April and will end on 31st march 2018. Unit V– Income Tax Act, Legal Aspects of Business – Mr.K.Mohan Kumar, AP/MBA 9/13/2018

The charge is on every person including the assessable entities. Charge of income tax The income tax shall be charged at the rates prescribed for the year by annual finance act. The charge is on every person including the assessable entities. The income tax I that the previous year and not the year of assessment. The levy of tax shall be made on the total income of the assesse , computed as per the provision or income tax act and rules. Unit V– Income Tax Act, Legal Aspects of Business – Mr.K.Mohan Kumar, AP/MBA 9/13/2018

SCOPE OR AREAS OF TAX PLANNING IN INCOME TAX choice of form of business organisation: The income tax Act recognises seven form of business organisation Individuals. Hindu undivided families. Companies. Partnership firms. Association of persons and bodies of individuals whether incorporated or not. Local authorities. Artificial judicial person. Unit V– Income Tax Act, Legal Aspects of Business – Mr.K.Mohan Kumar, AP/MBA 9/13/2018

Example: shipping industry , hotel industry , etc..,. 2.Choice of business: The choice of business should be made carefully. Example: shipping industry , hotel industry , etc..,. Unit V– Income Tax Act, Legal Aspects of Business – Mr.K.Mohan Kumar, AP/MBA 9/13/2018

3. Choice of area location. 4. Choice of proper capital structure 5 3. Choice of area location. 4.Choice of proper capital structure 5.Capital budgeting 6.Expansion and new business. 7.Choice of accounting year. 8.Depreciation and the investment allowance. 9.Capital gains: short term gains are taxed as any other income where long term gains are treated concessionally. It is for 36months or less then its short term gain exceeds 36months then its long term gains. Unit V– Income Tax Act, Legal Aspects of Business – Mr.K.Mohan Kumar, AP/MBA 9/13/2018

10.Merger of business units: foreign collaboration agreements should be made carefully drafted keeping various tax implications in mind. Unit V– Income Tax Act, Legal Aspects of Business – Mr.K.Mohan Kumar, AP/MBA 9/13/2018

Income tax for general tax payers: INCOME TAX SLAB RATES (Rs) TAX (%) 0-2,50,00 no tax 2,50,001 – 5,00,000 10% 0f tax 5,00,001 – 10,00,000 20% of tax 10,00,000 above 30% of tax Unit V– Income Tax Act, Legal Aspects of Business – Mr.K.Mohan Kumar, AP/MBA 9/13/2018

For senior citizens of age(60-80) INCOME TAX SLAB RATE TAX(%) 0-3,00,000 NO TAX 2,50,000 – 5,00,000 10% 5,00,001 – 10,00.000 20% Above 10,00,000 30% Unit V– Income Tax Act, Legal Aspects of Business – Mr.K.Mohan Kumar, AP/MBA 9/13/2018

WEALTH TAX According to wealth tax act 1951 It is the tax that is related to the net wealth of an individual, a company. The simplest calculation of wealth tax was that if the net wealth exceeded Rs.30 lakhs, then 1% of the amount that exceeded Rs.30 lakhs was payable as tax. It was abolished in the budget announced in 2015. Unit V– Income Tax Act, Legal Aspects of Business – Mr.K.Mohan Kumar, AP/MBA 9/13/2018

It has since been replaced with 12% for individuals that earn more than Rs.1 corer per annum. The new guidelines drastically increased the amount the government would collect in taxes as opposed the amount they would collect through wealth tax. Unit V– Income Tax Act, Legal Aspects of Business – Mr.K.Mohan Kumar, AP/MBA 9/13/2018

CORPORATE TAX Corporate tax is the income tax that is paid by the companies from the revenue they earn. For example, a domestic company, which has revenue less than Rs.1 corer per annum will have to pay the this tax. It is also different for international companies where the corporate tax may be 41.2% if the company has a revenue less than Rs.10 million Unit V– Income Tax Act, Legal Aspects of Business – Mr.K.Mohan Kumar, AP/MBA 9/13/2018

FOUR TYPES OF CORPORATE TAX Minimum alternative tax. Fringe benefit tax . Dividend distribution tax. Banking cash transaction tax. Unit V– Income Tax Act, Legal Aspects of Business – Mr.K.Mohan Kumar, AP/MBA 9/13/2018

Minimum alternative tax Minimum alternative tax, or MAT is basically a way for the companies to pay a minimum tax , which currently stands at 18.5% . Companies involved in infrastructure and power sectors are exempt for paying MAT. Unit V– Income Tax Act, Legal Aspects of Business – Mr.K.Mohan Kumar, AP/MBA 9/13/2018

Fringe Benefit Tax FBT was started under the Indian government from April 1,2005 This tax includes : Employers expense on travel (LAT), employee welfare, accommodation, and entertainment. Employees contribution to a certified retirement fund. Employees stock options plan (ESOPs). Unit V– Income Tax Act, Legal Aspects of Business – Mr.K.Mohan Kumar, AP/MBA 9/13/2018

Dividend Distribution Tax It was introduced after the end of 2007s union budget. This tax is applicable on the gross or net income an investor receives from their investment. The current DDT rate is 15%. Unit V– Income Tax Act, Legal Aspects of Business – Mr.K.Mohan Kumar, AP/MBA 9/13/2018

Banking Cash Transaction Tax It is the tax that is abundant by the Indian government. Unit V– Income Tax Act, Legal Aspects of Business – Mr.K.Mohan Kumar, AP/MBA 9/13/2018

THANK YOU Unit V– Income Tax Act, Legal Aspects of Business – Mr.K.Mohan Kumar, AP/MBA 9/13/2018