Taxation

You always have a thought “Why should I pay Income Tax?”, whenever you see your salary slip you think that taxes eat up considerable portion of your salary, and you believe that taxes are nothing but a burden. But is it truly the case? Let us have a look at the importance of Income Tax in India. Income tax, GST, Customs Duty, Excise Duty, Road Tax, Property Tax, etc. are some of the most common taxes paid in India. There are numerous advantages to paying taxes. They aid in the creation and maintenance of infrastructure, such as roads, and they can even assist in the establishment or maintenance of institutions necessary for the rule of law and the operation of the democratic process. Tax money are used as follows, Taxes fund education. For example, in India, where illiteracy is a major problem, the government needs a lot of money to provide quality education; not only in urban areas but up to the grass root levels, including spending on school infrastructure, teacher’s salaries, research, development and innovation. Taxes fund public infrastructure and services. For example, in India, the country spends the highest proportion of its GDP on public infrastructure and services, as compared to other emerging economies. Taxes secure the country\’s borders. This includes expenditures on equipment and personnel, defense research and development, defense imports, international military cooperation, and international peace-keeping operations. Taxes fund the government\’s public transport system, including rail and road transport. This includes the purchase of a wide variety of vehicles, including airplanes, ships, buses, trains, coaches, tractors, tractors and other vehicles for road and highway construction, and other infrastructure projects. Taxes are also used for social development and welfare programs. For example, the government of India allocates a substantial amount of revenue, about 6% of GDP, for various social development and welfare programs, including public health and nutrition, education, and rural development programs. Taxes fund salaries and pensions of government employees. This includes wages and pensions of public sector employees such as central government employees, state government employees, and local government employees. Taxes pay the principal and interest on government debt. The government of India has a large external debt, and a sizable portion of its outstanding debt is denominated in foreign currency. And during these Corona times, the nation realized the need for great improvement in the Health & Medicare sector in our country. Subsequently Taxes fund the government\’s law-enforcement agencies, including the police, the paramilitary forces, the air and sea, border patrol, customs and excise, and intelligence agencies. This includes expenditures on personnel, equipment, training, and infrastructure to provide for security and public safety. Healthcare & Medical Infrastructure is also funded through taxes. This includes expenditures on health and medical research and development, hospital infrastructure, health insurance, and other health services. Taxes fund basic economic stability and social security schemes that are meant to help people who are unemployed or have a low income, such as the National Rural Employment Guarantee Act (NREGA) and the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS). Taxes are mandatory contributions levied on individuals or corporations by a government entity, whether local, regional, or national.

Goods & Service Tax is an indirect tax imposed on the supply of goods and services. It is a multi-stage, destination-oriented tax imposed on every value addition, which managed to replace multiple indirect taxes, including VAT, excise duty, service taxes, etc. Types of GST The State Goods and Services Tax (SGST) SGST is defined as one of the two taxes imposed on transactions of goods and services of every state. Levied by State Government of every state, SGST replaces every kind of existing state tax that include Sales Tax, Entertainment Tax, VAT, Entry Tax, etc. The Central Goods and Services Tax (CGST) CGST is referred as the Central Tax levied on transactions of goods and services which take place within a state. Imposed by the Central Government, CGST ensures to replace all other Central taxes inclusive of State Tax, CST, SAD, etc. The Integrated Goods and Services Tax (IGST) IGST is applied on the interstate transactions of goods and services. IGST is also applicable on the goods being that are imported to distribute among the respective states. The IGST is levied when the movement of products and services occur from one state to another. The Union Territory Goods and Services Tax (UTGST) Applicable on the Intra Union Territory supply of goods and services, the aim to impose UTGST is to apply a collection of tax to provide benefits as same as SGST. The UTGST is applicable to five Union Territories namely Lakshadweep, Damn and Diu, Dadra and Nagar Haveli, Andaman and Nicobar Islands, and Chandigarh. FEATURES Charged on goods and services only Regressive in Nature Burden of paying tax shifted to the third person Major source of revenue for government No feeling of paying tax in certain cases Benefits of GST Eradicates the cascading tax effect Allows higher threshold to businesses for registration Composition scheme for small business operations Easy and Convenient online processes Lesser Tax Compliance Enhanced Efficiency of logistics Exceptions Petroleum products and alcohol liquor for human consumption are outside the preview of GST. Basic Custom duty still continues to be applicable on pert imports. Stamp duty still continues to be charged on purchase( transfer) of immovable property.  

CAPITAL GAIN TO KNOW CAPITAL GAINS LET US FIRST UNDERSTAND WHAT ARE CAPITAL ASSETS…? Capital Assets can be land, house property, building, trademark, leasehold rights, machinery, patents and jewellery. FOLLOWING THINGS ARE NOT INCLUDED IN CAPITAL ASSETS…, Agricultural land in a rural area in India. Stock on trade. Personal used items such as wearing apparels and furniture. Raw material and consumable stores held for the purpose of Profession or Business. Gold Deposit Bonds issued under Gold Deposit Scheme, 1999. Special Bearer Bonds, 1991, issued by the Central Government. 6.5% Gold Bond, 1977 or 7% Gold Bonds, 1980 or National Defence Gold Bonds, 1980 issued by the Central Government. Deposit Certificates issued under the Gold Monetisation Scheme, 2015. WHAT DOES TERM ‘LONG-TERM CAPITAL ASSET’ MEANS? Any capital asset held by a person for a period of more than 36 months immediately preceding the date of its transfer will be treated as long-term capital asset. In respect of certain assets like shares which are listed in a recognised stock exchange in India, units of equity oriented mutual funds, listed securities like debentures and Government securities, Zero Coupon Bonds, the period of holding to be considered is 12 months instead of 36 months. In case of unlisted shares, the period of holding to be considered is 24 months instead of 36 months. With effect from Assessment Year 2018-19, the period of holding of immovable property (being land or building or both), shall be considered to be 24 months instead of 36 months. Capital Gain refers to profit that is earned by individual from the sale of a Capital Asset. The profits arising from the sales of the Capital Asset is taxed under the head “Income from Capital Gain”. DO YOU KNOW…? Capital Gain Tax is not applicable to the Inherited Property, as there is an only transfer of ownership and no actual sales. Any asset which is received by way of Will or Inheritance is totally exempt from the Income Tax Act, 1961. Capital Gain Tax will be applicable if the individual who inherit the asset decides to sell it. WHAT IS LONG-TERM CAPITAL GAIN AND SHORT TERM CAPITAL GAIN..? ​​Gain arising on transfer of long-term capital asset is termed as long-term capital gain. Gain arising on transfer of short-term capital asset is termed as short-term capital gain. However, there are a few exceptions to this rule, like gain on depreciable asset is always taxed as short-term capital gain. CAPITAL GAIN TAX SLAB Asset Asset Duration Short Term Tax Rate Short Term Asset Duration Long Term Tax Rate Long Term Immovable Property like House Less than 2 Years As per IT Slab More than 2 Years 20% with Indexation Movable Property like  Gold/Jewellery Less than 3 Years As per IT Slab More than 3 Years 20% with Indexation Listed Shares Less than 1 Years 15% More than 1 Years 10% Over and above Rs.100000/- Unlisted Shares Less than 2 Years As per IT Slab More than 2 Years 20% with Indexation Equity Oriented Mutual Funds Less than 1 Years 15%   More than 1 Years 10% Over and above Rs.100000/- Debt Oriented Mutual Fund Less than 3 Years As per IT Slab More than 3 Years 20% HOW TO CALCULATE LONG TERM CAPITAL GAINS ON SALE OF HOUSE…? To consider long term capital gains we need to first calculate Indexed cost of acquisition and Indexed cost of improvement. Indexed cost of acquisition = Cost of acquisition × Cost inflation index of the year of transfer of capital asset Cost inflation index of the year of acquisition Indexed cost of improvement = Cost of improvement × Cost inflation index of the year of transfer of capital asset Cost inflation index of the year of improvement EXAMPLE OF LONG TERM CAPITAL GAIN.. On 01st April, 2010, Mr. A bought a house worth INR 50 lakhs. He spent INR 3.0 lakhs on improving the house and he sold it in September 2019 for INR 95 lakhs. His agent charged him INR 95,000. The cost of inflation index for purchase that was made in 2010 was 167 whereas, in the year of sale the cost inflation index was 289. Particulars Amount in INR Full value of Sales consideration of asset ₹ 95,00,000 Less: Expenditure incurred wholly and exclusively in connection with transfer of capital asset (E.g., brokerage, commission, etc.)   ₹      95,000 Net sale consideration ₹ 94,05,000 Less: Indexed cost of acquisition (5000000 * 289/167)   ₹ 86,52,694 Less: Indexed cost of improvement, if any (300000 * 289/167)    ₹   5,19,161 Long-Term Capital Gain ₹   2,33,145 Maximum up to ₹ 50 Lakhs can be invested in 54EC Capital Gain Bonds in a Financial Year to reduce further tax. i.e. in the above example if the entire long-term capital gain amount is invested in 54EC Capital Gain Bonds then there won’t be any tax payable. EXAMPLE OF SHORT TERM CAPITAL GAIN.. On 01st April, 2010, Mr. A bought a house worth INR 50 lakhs. He spent INR 3.0 lakhs on improving the house and he sold it in December 2011 for INR 60 lakhs. His agent charged him INR 60,000. The cost of inflation index for purchase that was made in 2010 was 167 whereas, in the year of sale the cost inflation index was 184. ​Particulars Amount in INR Full value of consideration (i.e., Sales value of the asset) ₹ 60,00,000 Less: Expenditure incurred wholly and exclusively in connection with transfer of capital asset (E.g., brokerage, commission, etc.) ₹      60,000 Net Sale Consideration ₹ 59,40,000 Less: Cost of acquisition (i.e., the purchase price of the capital asset) ₹ 50,00,000 Less: Cost of improvement (i.e., post purchase capital expenses incurred on addition / improvement to the capital asset) ₹   3,00,000