Taxation in India

The tax on incomes, customs duties, central excise and service tax are levied by the Central Government. The state Government levies agricultural income tax (income from plantations only), Value Added Tax (VAT)/ Sales Tax, Stamp Duty, State Excise, Land Revenue, Luxury Tax and Tax On Professions. The local bodies have the authority to levy tax on properties, octroi/entry tax and tax for utilities like water supply, drainage etc.

What is Tax ?

Taxation is when the government takes a certain amount of its citizens' money in order to provide services, raise an army, or other such thing. Taxes consist of direct tax or indirect tax, and may be paid in money or as its labour equivalent.

Direct Taxes

The levy of Tax is governed by the Indian Income Tax Act, 1961. The Indian Income Tax Department is governed by the Central Board for Direct Taxes (CBDT) and is part of the Department of Revenue under the Ministry of Finance, Govt. of India. There are close to 35 million income tax payers in India.

The DTC consolidates the provisions for Direct Tax namely the income tax and wealth tax.

In the case of individual tax incomes from salary, house and property, business & profession, capital gains and other sources are subject to tax. Women and Senior citizens are extended some special privileges. Individuals' incomes are subjected to a progressive rate system. Tax treatment differs depending on the residence status.

Indirect Tax

The central government levies excise duty under the Central Excise act of 1944 and the Central Excise Tariff Act of 1985. Central Excise duty is an indirect tax levied on goods manufactured in India and meant for domestic consumption. The Central Board of Excise and Customs under the Ministry of Finance, administers the excise duty.

Central Excise Duty arises as soon as the goods are manufactured. It is paid by a manufacturer, who passes on its incidence to the customers. Excisable goods have been defined as those, which have been specified in the Central Excise Tariff Act as being subjected to the duty of excise.

There are three main types of excise duty -

Basic Excise Duty is charged on all excisable goods other than salt at the rates mentioned in the said schedule.
Additional Duties of Excise is charged on goods of special importance, in lieu of sales Tax and shared between Central and State Governments.
Special Excise Duty is charged on all excisable goods on which there is a levy of Basic excise Duty. Every year the annual Budget specifies if Special Excise Duty shall be or shall not be levied and collected during the relevant financial year.

Budget 2014-15 and 2015-16: Tax Proposals

Union Budget 2014-15: Tax proposal

The Union Budget 2014-2015 has an objective to cater all sections of the society with a slogan, "Sab kaSaath Sab kaVikas". Finance Minister ArunJaitley presented the Union budget 2014-15. In this budget following are major facts:

Income tax rate unchanged, exemption limit raised
The tax exemption limit for individuals below 60 years stands revised to Rs 250,000, while for senior citizens it is proposed at Rs 300,000.
Finance Minister ArunJaitley raised the exemption limits for all individual tax payers by Rs 50,000 while keeping the rates untouched in the national budget for this fiscal.
Apart from this, deductions allowed under various heads such as investments in insurance, pension and house rent are also proposed to be raised by Rs 50,000 to Rs 150,000.
Investment limit in PPF raised to Rs. 1.5 lakh from Rs. 1 lakh
Deduction limit on interest on loan for self-occupied house raised to Rs. 2 lakh from Rs. 1.5 lakh.
Committee to look into all fresh tax demands for indirect transfer of assets in wake of retrospective tax amendments of 2012.
No change in the rate of surcharge either for the corporates or the individuals, HUFs, firms etc.
The education cess to continue at 3 percent.
Conducive tax regime to Infrastructure Investment Trusts and Real Estate Investment Trusts to be set up in accordance with regulations of the Securities and Exchange Board of India.
Investment allowance at the rate of 15 percent to a manufacturing company that invests more than Rs.25 crore in any year in new plant and machinery. The benefit to be available for three years i.e. for investments up to 31.03.2017.
Investment linked deduction extended to two new sectors, namely, slurry pipelines for the transportation of iron ore, and semi-conductor wafer fabrication manufacturing units.
10 year tax holiday extended to the undertakings which begin generation, distribution and transmission of power by 31.03.2017.
Income arising to foreign portfolio investors from transaction in securities to be treated as capital gains.
Concessional rate of 15 percent on foreign dividends without any sunset date to be continued.
The eligible date of borrowing in foreign currency extended from 30.06.2015 to 30.06.2017 for a concessional tax rate of 5 percent on interest payments. Tax incentive extended to all types of bonds instead of only infrastructure bonds.

Major Indirect Tax Proposals in Union Budget 2014-15

Taxleviable currently on sale of space or time for advertisements in broadcast media, such as radio or television, has been extended to cover such sales on other segments like online and mobile advertising.
Sale of space for advertisements in print media, however, would remain excluded from service tax. Print media is being defined in service tax law for the purpose.
Service tax to be levied on the services provided by radio taxis or radio cabs, whether or not air-conditioned. The abatement presently available to rent-a-cab service would also be made available to radio taxi service, to bring them at par.

Union Budget 2015-16: Tax proposal:

In tax proposal of 2015-16, Finance Minister ArunJaitley kept the income tax slabs unchanged and he offered more incentives which can help save more on taxes.

Highlights of Direct Tax Proposals of Union Budget 2015-16:

There is no change in the basic exemption limit and the tax rates of individuals.
Corporate tax rates proposed to be reduced from 30% to 25% over the next four years, starting from next financial year.
The existing rate of tax on Income by way of Royalty and Fees for technical services in case of non-residents @25% proposed to be reduced to 10%.
Additional surcharge @ 2% being levied on income exceeding Rs. 1 crore. This surcharge would be levied in place of Wealth-tax which is proposed to be abolished.
Exempt-Exempt-Exempt (EEE) tax benefit proposed for assessee having a girl child and investing under the SukanyaSamriddhi Account Scheme. The investments made in the Scheme will be eligible for deduction under section 80C of the Act, the interest accruing on deposits in such account will be exempted from income tax and the withdrawal from the said scheme in accordance with the rules of the said scheme will have exempt from tax.
Wealth tax is proposed to be deleted for the assessment year 2016-17.
Finance minister introduced an additional deduction of Rs. 50,000 for contribution to the New Pension Scheme under Section 80CCD. "This will enable India to become a pensioned society instead of a pensionless society. This change will increase the total deduction allowed under Section 80C and 80CCD of Income Tax Act to Rs. 2 lakh.

Important facts and checklist for filing Income tax return:

Filing Income tax return is tedious and complicated for many officers and businesspersons. They must know the basic guidelines to avoid common mistakes, work out how to file returns if they invest in stocks and other concerns.

The last date for filing income tax returns for Assessment Year 2015-16 is August 31, 2015. While the government has simplified tax returns forms after facing criticism, there are still many factors that needs to understand while filling income tax return.

When filling income tax return, individuals must prepare list before the crucial date. It is important to note some points before Filing Income Tax Returns.

Select the correct income tax return form.
File the income tax return form timely:
The government mandates that individuals who earn a specified amount of annual income must file a tax return within a pre-determined due date. So timely filing of returns is important and will help avoid interest and penalty.
Accurate entry of details:
Make sure that tax payers enter details such as name, address, date of birth, father's name, details of bank account, the PAN/GIR details, credit card and other relevant details as accurately as possible.
Disclose exempt income:
Individuals are required to disclose all exempt income while filing returns even though no tax is required to be paid on the same for instance, fixed deposit interest, dividends, among other details.
Claim deductions:
It is informed to all tax payers that they must claim all permissible deductions and fill all relevant information at the time of filing return. If they miss out on any important information it can result in a higher tax liability, a needless charge that can be avoided by carefully browsing through all details before submission.
Claim loss return:
In case of a loss return, the same must be claimed and the return filed within the due date as prescribed by the Income Tax Act. A delay in filing means the loss under the specified head cannot be carried forward.
Online filing:
Assessees should choose online filing of income tax return over manual filing to avail all related benefits of online filing provided by the Income Tax Department.
ITR acknowledgement:
Assessees may file income tax returns (ITR)with their digital signatures. If they don’t have one, they can opt to receive an acknowledgement form ITR-Verification which must be signed physically and forwarded to the Income Tax Department.
Update PAN data:
The assesse must furnish details of latest PAN or changes or correction in PAN before filing return.
Maintenance of documents as proof:
The assesse must preserve proof of having filed a return. This is usually in the shape of an ITR acknowledgement that is generated at the time of filing return and is even emailed to the registered email id.

It is necessary to avoid common mistakes when filing I-T returns.

When filing tax returns, individuals do not declare certain income or assets because they do not realise these items are taxable. This may raise issues in coming years. Some essential things that they should not forget to include when filing returns.

If candidate is a salaried person who trades in stocks, filing income tax returns can be a complicatedtask. Depending on the instrument, frequency of trade and volume, they can either fill the ITR-2 form meant for the salaried with no business income or ITR-4 is for income from business and profession.

Tax filing for professionals: For professionals and freelancers with a small turnover and limited clients, the lengthy ITR-4 form can be confusing. Some guidelines on filing returns are as follows:

There are many individuals, who after filing their income tax returns realise there was a mistake in the form or the data submitted was not correct. They need not to worry because there is a provision to revise the form.

Those who missed the deadline for filing tax returns can do it by the following March 31. Belated returns can be filed on or before two years from the end of the relevant tax year. However, it comes with its limitations.

Sometimes I-T department declares returns as "defective". Returns can be termed as 'defective', if details provided are incomplete, without audit information or supporting documents. But the person receiving such notice needs to act quickly as individuals are normally given 15 days' time only.

Important factor is that it is not only the live persons who have to pay their taxes. If one of family members has died during the financial year and she/he was liable to pay tax, then there might need to file a return on his or her behalf. In most cases, the individual's spouse or eldest son/daughter assumes the status of legal heir or representative.

It is a common question that when candidate's earnings are without taxable income, he/she needs to file income tax return. An income tax return is required to be filed if the gross total income earned by you from April 1, 2014 to March 31, 2015 exceeds Rs 2.5 lakh. Gross total income is the total income before allowing any deductions under Section 80C-80U of the Income Tax Act. If you are more than 60 years but less than 80 years old in age, this limit is Rs 3 lakh. For those who are more than 80 years old, it is Rs 5 lakh.

Changes in Income Tax Return Forms & Filings For 2015:

1. Introducing The New Form ITR 2A: The ITR-2 form is a complicated form as it has a lot of information related to Capital Gains, Set-off losses, or Foreign Assets. The Government analysed that 80% of ITR-2 filers do not have income in such sources. Consequently, this year, the IT Department rolled out ITR-2A to ease the ITR filing for majority of tax Payers. This will be a great relaxation for Payers who do not require filling the fields which are not applicable to them. ITR 2A is basically for Individuals or HUF whose sources of income is from the following:

Income from Salary
Income from House Property (any number of Properties)
Income from Other Sources including Lottery winnings or Horse racing
Clubbed income of a Minor child or Spouse

But, ITR 2A form cannot be used if the individual has the following:

Income from Capital Gains.
Income from Business or Profession.
Any claim of relief/deduction under the Sections 90, 90A or 91.
Any Resident having an Asset (including financial interest in any entity) located outside India or signing authority in any account located outside India.
Any Resident having income from any Source outside India.

2. File ITR-1 even if the exempt income is more than Rs.5000.

3. Mentioning of Multiple Bank Account Numbers. New Income Tax Return forms require Tax Payers to report the number of Bank Accounts they are operating along with related details such as name of Bank, Account number, & IFSC code.

4. Mandatory e-Filing for Income Tax Refunds. In order to fasten and prompt issue of Tax Refunds, e-filing of Income Tax Return has been made mandatory for those who desire any Income Tax Refund.

5. ITR-V Form Not required for Aadhar Card Holders. A new system of verification has been rolled out which is named as Electronic verification. In this system, the Tax Payer will receive a verification code (similar to One Time Password (OTP)) on Payer's Mobile number which is associated with Payer's Aadhar card. The Aadhar Card number is also required to be mentioned in the ITR. Once the Payer enters the verification code, the e-filing will be verified. Therefore posting ITR-V to CPC, Bangalore is not required if the Tax Payer opted to file his tax return either through Electronic Verification System or with Digital Signature.

6. Passport &Aadhar Card Number. The new Tax Return also needs optional information about Aadhar Card number and Passport. Aadhar Card number is mandatory for electronic verification process. Using the Passport number, the Government will monitor on foreign travelling expenses and source of income for funding the travelling expenditures.

7. Automated Validations during E-Filings.

Documents needed for filing Income Tax Returns in India:

Individuals must collect following documents to e-file their income tax returns in India. It may vary from case to case:

1. PAN number

2. For Salaried Employees
Form-16 issued by candidate's employer

3. Documents related to interest income:

Bank statement/passbook for interest on savings account.
Interest income statement for fixed deposits.
TDS certificate issued by banks and others.

4. Form 26AS:
Form 26AS is a summary of taxes deducted on your behalf and taxes paid by tax payers. This is provided by the Income Tax Department.

It shows details of tax deducted on your behalf by deducters, details on tax deposited by taxpayers and tax refund received in the financial year. This form can be accessed from the I-T Department's website.

5. Section 80 Investments:
Section 80C investment documents. Investment made under PPF, NSC, ULIPS, ELSS, RGESS qualify for deductions under Section 80C.

6. Keep these documents at hand to claim the following expenses as deductions

Person's contribution to Provident Fund
Person's children's school fees
Life insurance premium payment
Stamp-duty and registration charges
Principal repayment on home loan

The maximum amount that can be claimed under Section 80C has been changed to Rs.1, 50,000 in FY 2014-15 from Rs.1, 00,000 in FY 2013-14.

Union Budget 2013-14: Tax Proposals

The Union Finance Minister announced tax proposals while tabling the Union Budget 2013-14 in the Lok Sabha on 28 February 2013. The tax proposals as announced by the Union Finance Minister are as follows:

Relief for taxpayers in the bracket of 2 lakh Rupees to 5 lakh Rupees tax credit of 2000 Rupees to every person with total income up to 5 lakh Rupees

The Union Budget 2013-14 proposed a relief of 2000 Rupees to every person with a total income up to 5 lakh Rupees in the financial year. He announced that the income slabs which were introduced in 2012-13 financial year were same and that there was no provision of revising the slabs or the rates, apart from some relief to the taxpayers in the first bracket of 2 lakh Rupees to 5 lakh Rupees.

Surcharge of 10 percent on persons with taxable income exceeding 1 crore rupees

Additional deduction of interest up to 1 lakh rupees on home loan for first home buyer

Securities Transaction Tax (STT) reduced

Commodities Transaction Tax (CTT) introduced in a limited way; agricultural commodities will be exempted

Tax administration reforms commission to be set up

Clarity in tax laws, stable tax regime, non-adversarial tax administration, dispute resolution and independent judiciary - the theme of tax proposals

Securitisation trust to be exempted from income tax

Income	WORKING MEN		WORKING WOMEN		SENIOR CITIZENS
Income	Old Tax	New Tax	Old Tax	New Tax	Old Tax	New Tax
2 Lakh	0	0	0	0	0	0
5 Lakh	30900	28840	30900	28840	25750	23690
8 Lakh	92700	92700	92700	92700	87550	87550
10 Lakh	133900	133900	133900	133900	128750	128750
25 Lakh	597400	597400	597400	597400	592250	592250
50 Lakh	1369900	1369900	1369900	1369900	1364750	1364750
100 Lakh	2914900	2914900	2914900	2914900	2909750	2909750
110 Lakh	3223900	3546290	3223900	3546290	3218750	3540625