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Economy

Direct Taxes

Direct Tax

A Direct tax is a kind of charge, which is imposed directly on the taxpayer and paid directly to the government by the persons (juristic or natural) on whom it is imposed.

A direct tax is one that cannot be shifted by the taxpayer to someone else.

Income Tax

Income Tax Act, 1961 imposes tax on the income of

  1. Individual
  2. Hindu Undivided Family (HUF)
  3. Association of persons (AOP)
  4. Body of individuals (BOI)
  5. Company
  6. Firm
  7. A local authority and,
  8. Every artificial judicial person not falling within any of the preceding categories.

Status

Indian Income

Foreign Income

Resident and ordinarily resident

Taxable

Taxable

Resident but not ordinary resident

Taxable

Not taxable

Non-Resident

Taxable

Not taxable

Corporation Tax

The companies and business organizations in India are taxed on the income from their worldwide transactions under the provision of Income Tax Act, 1961.

A corporation is deemed to be resident in India if it is incorporated in India or if it’s control and management is situated entirely in India.

In case of non-resident corporations, tax is levied on the income which is earned from their business transactions in India or any other Indian sources depending on bilateral agreement of that country.

Property Tax

Property tax or 'house tax' is a local tax on buildings, along with appurtenant land, and imposed on owners.

The tax power is vested in the states and it is delegated by law to the local bodies, specifying the valuation method, rate band, and collection procedures. The tax base is the annual ratable value (ARV) or area based rating.

Owner-occupied and other properties not producing rent are assessed on cost and then converted into ARV by applying a percentage of cost, usually six percent.

Vacant land is generally exempted from the assessment. The properties lying under control of Central are exempted from the taxation. Instead a 'service charge' is permissible under executive order.

Properties of foreign missions also enjoy tax exemption without an insistence for reciprocity.

Inheritance (Estate) Tax

 An inheritance tax (also known as an estate tax or death duty) is a tax which arises on the death of an individual.

It is a tax on the estate, or total value of the money and property, of a person who has died. India enforced estate duty from 1953 to 1985. Estate Duty Act, 1953 came into existence w.e.f. 15th October, 1953.

Estate Duty on agricultural land was discontinued under the Estate Duty (Amendment) Act, 1984.

The levy of Estate Duty in respect of property (other than agricultural land) passing on death occurring on or after 16th March, 1985, has also been abolished under the Estate Duty (Amendment) Act, 1985.

Gift Tax

Gift tax in India is regulated by the Gift Tax Act which was constituted on 1st April, 1958. It came into effect in all parts of the country except Jammu and Kashmir.

As per the Gift Act 1958, all gifts in excess of Rs. 25,000, in the form of cash, draft, check or others, received from one who doesn't have blood relations with the recipient, were taxable.

However, with effect from 1st October, 1998, gift tax got demolished and all the gifts made on or after the date were free from tax. But in 2004, the act was again revived partially. A new provision was introduced in the Income Tax Act 1961 under section 56 (2). According to it, the gifts received by any individual or Hindu Undivided Family (HUF) in excess of Rs. 50,000 in a year would be taxable.

Wealth Tax

Wealth tax, in India, is levied under Wealth-tax Act, 1957.

Wealth tax is a tax on the benefits derived from property ownership. The tax is to be paid year after year on the same property on its market value, whether or not such property yields any income.

Under the Act, the tax is charged in respect of the wealth held during the assessment year by the following persons: -

  1. Individual
  2. Hindu Undivided Family (HUF)
  3. Company

Wealth tax is not levied on productive assets, hence investments in shares, debentures, UTI, mutual funds, etc.. are exempt from it. The assets chargeable to wealth tax are Guest house, residential house, commercial building, Motor car, Jewellery, bullion, utensils of gold, silver, Yachts, boats and aircrafts, Urban land and Cash in hand (in excess of Rs 50,000 for Individual & HUF only).

The following will not be included in Assets: -

  1. Assets held as Stock in trade.
  2. A house held for business or profession.
  3. Any property in nature of commercial complex.
  4. A house let out for more than 300 days in a year.
  5. Gold deposit bond.
  6. A residential house allotted by a Company to an employee, or an Officer, or a Whole.

Time Director (Gross salary i.e. excluding perquisites and before Standard Deduction of such Employee, Officer, Director should be less than Rs 5,00,000).

 

The assets exempt from Wealth tax are "Property held under a trust", Interest of the assesse in the coparcenary property of a HUF of which he is a member, "Residential building of a former ruler", "Assets belonging to Indian repatriates", one house or a part of house or a plot of land not exceeding 500sq.mts(for individual & HUF assesse).

 

Wealth tax is chargeable in respect of Net wealth corresponding to Valuation date where Net wealth is all assets less loans taken to acquire those assets and valuation date is 31st March of immediately preceding the assessment year. In other words, the value of the taxable assets on the valuation date is clubbed together and is reduced by the amount of debt owed by the assessee. The net wealth so arrived at is charged to tax at the specified rates. Wealth tax is charged @ 1 per cent of the amount by which the net wealth exceeds Rs 15 Lakhs.

Capital Gains Tax

A capital gain is income derived from the sale of an investment. A capital investment can be a home, a farm, a ranch, a family business, work of art etc.

In most years slightly less than half of taxable capital gains are realized on the sale of corporate stock. The capital gain is the difference between the money received from selling the asset and the price paid for it.

Capital gain also includes gain that arises on "transfer" (includes sale, exchange) of a capital asset and is categorized into short-term gains and long-term gains.

 

The capital gains tax is different from almost all other forms of taxation in that it is a voluntary tax. Since the tax is paid only when an asset is sold, taxpayers can legally avoid payment by holding on to their assets--a phenomenon known as the "lock-in effect."

 

The scope of capital asset is being widened by including certain items held as personal effects such as archaeological collections, drawings, paintings, sculptures or any work of art. Presently no capital gain tax is payable in respect of transfer of personal effects as it does not fall in the definition of the capital asset. To restrict the misuse of this provision, the definition of capital asset is being widened to include those personal effects such as archaeological collections, drawings, paintings, sculptures or any work of art. Transfer of above items shall now attract capital gain tax the way jewellery attracts despite being personal effect as on date.

 

Short Term and Long Term capital Gains

Gains arising on transfer of a capital asset held for not more than 36 months (12 months in the case of a share held in a company or other security listed on recognised stock exchange in India or a unit of a mutual fund) prior to its transfer are "short-term". Capital gains arising on transfer of capital asset held for a period exceeding the aforesaid period are "long-term".

Section 112 of the Income-Tax Act, provides for the tax on long-term capital gains, at 20 per cent of the gain computed with the benefit of indexation and 10 per cent of the gain computed (in case of listed securities or units) without the benefit of indexation.