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A PROJECT REPORT
ON
“Indian Tax Structure and Reforms”
Submitted By
DEBKUMAR GANGULY
2015-2016
Submitted To
INDIAN SCHOOL OF BUSINESS MANAGEMENT &
ADMINISTRATION
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NEED FOR THE STUDY:
 Reform Taxation system by implementing GST (Goods and
service Tax)
 Need to understand how government raise their fund to run
government and provide services to the public.
 The purpose of the study is to get detailed knowledge about
VAT of Jharkhand and GST System in India.
 The purpose of the study is to help the Tax Payer to briefly
understand the need for charging Tax and the benefits out of
GST.
OBJECTIVES OF THE STUDY
 To discuss reforms in Indian economy by new Tax structure.
 To study various benefits of Direct and Indirect Tax.
 To find out nature of Tax activity & application of Law.
 To find out the background of VAT, it’s Implementation and
summary of Jharkhand VAT.
 Preliminary discussion on Goods and service Tax.
 To find out the background and planning of effective GST.
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Executive Summary
For any research assignment,a proper planningis required and the
same holds true in case of present study.This project is titled as “INDIAN
TAX STRUCTURE AND REFORMS”. The reasons behind choosing this
project is that,I find this subject is very interesting and challenging, It is
the biggest source of Government fund and as a part of a Taxation team
since last 7 years in ‘Lafarge India Pvt. Ltd’ company (one of the world’s biggest
Manufacturer of Cement), I would love to prepare this project.
The historyof this company is ‘Starting out in 1833 as a limestone
mining company, Lafarge transformed itself and now has a presence in
61 countries. 1864 –First Major project, the Suez Canal, 1887- first
research laboratory of cement in the world, 1921- first patent for white
cement etc. This company specialised in Cement over the period of 182
years.
This project is divided in two main parts that is Direct and Indirect
Tax in India. VAT is the indirect tax on the consumption of the goods,
paid by its original producers upon the change in goods or upon the
transfer of the goods to its ultimate consumers. It is based on the value
of the goods, added by the transferor. VAT implemented in India from
1st April 2005.
INTRODUCTION
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Reform Taxation system by implementing GST (Goods and service Tax)
In free market economies, governments play an important role by
intervening to correct market failures. These are situations where the markets
fail to allocate resources in an optimum manner for provision of various goods
and services. The most notable example is that of so-called 'public goods' that
are meant for public consumption, such as defence, law and order, health and
education. Taxes are the only means for financing the public goods because they
cannot be priced appropriately in the market. They can only be provided by
governments, funded by Taxes.
It is important the tax regime is designed in such a way that it does not
become a source of distortion in the market or result in market failures.
The tax laws should be such that they raise a given amount of revenue in
an efficient, effective and equitable manner. However, under most tax systems
this remains a distant goal and the governments use the tax system for multiple
social, economic, and political objectives, which create complexities in tax
administration, undermine the objective of fairness, and lead to misallocation of
resources in the economy. Reforms are needed from time to time to flush out
the undesirable elements of the tax system and restore efficiency, fairness and
equity. The Indian tax system is no exception and leaves a lot to be desired.
The modern tax systems comprise of very broad-based taxes on income
and consumption, levied at uniform and moderate rates. In India, taxes on both
income and consumption fall far short of this ideal. The base is narrow and the
rates very high. In the case of consumption taxes, the constitutional division of
powers between the Centre and the states is such that neither can levy a tax on
the comprehensive base of consumption of all goods and services.
While income tax can be levied by the Centre on a reasonably
comprehensive base, it is not being done so because of special provisions
catering to multiple, social, political and economic objectives and the vested
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interests of different segments of population. In the process, the tax system has
become highly inefficient, comes in the way of optimum allocation of resources
for production and consumption, and undermines investments and economic
growth.
Compounding the ills of the bad design of these taxes, are the weaknesses
of tax administration. In a recent review of the state of tax administration in
India, the Tax Administration Reform Commission (TARC) has observed that "?
the Indian tax administration is at its rock bottom. A fundamental and deep
reform is urgently called for. There is no time to lose if investment is to be
revived and its full potential reached, and an eventual tax revolt through capital
flight or other direct protests is to be averted".
The state of Indian tax administration is also reflected in the World Bank
Report on Doing Business in India, 2015 which ranks India at a dismal 156 out of
189 countries in terms of ease of paying taxes.
Rightfully, the governments have embarked on the reform of the tax
system and there have been extensive debates surrounding the reforms. Two
landmark reforms are the Goods and Services Tax (GST) and the Direct Taxes
Code (DTC). GST would indeed be the most important initiative in the fiscal
history of India. The ultimate objective of the GST reform is to replace multiple
indirect taxes at the Centre and state levels by a single tax (GST), levied on a
comprehensive base of all goods and services at a moderate tax rate. A vision of
this reform is provided in the report of the 13th Finance Commission which
outlines the design of a flawless GST levied at a moderate tax rate of 12 per cent
(combined Centre and states tax rates).
Unfortunately, the states have been reluctant to endorse this flawless GST
for various social and political reasons. The model that is being talked about will
have some important exclusions from the tax base (e.g. real property, alcohol
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and petroleum). The states have also proposed tax to be levied at multiple rates -
a lower rate for basic necessities and higher rate for other goods and services.
International evidence suggests that such deviations in the design of GST
are neither economically desirable nor effective in achieving the objectives that
they are designed to serve. For example, a recent OECD report points out that
the exemptions and lower tax rates under VAT (value-added tax)/ GST, while
designed to help those in the lower-income brackets, benefit disproportionately
those in the higher-income brackets.
The governments are considering the revenue neutral rates to be as high as 27
per cent. No country in the world has been able to successfully implement a tax
at such a high rate. More importantly, application of such a high tax rate to the
service sector would be highly detrimental to the sector, which has been the
engine of growth for India. Rather than contributing to higher investments and
economic growth, a tax at these rates would lock us back at a Hindu growth rate
of 4 per cent.
Pending the GST implementation, the states are pursuing tax policies that
are immensely detrimental to the economy. For instance, Punjab has converted
its VAT on most consumer goods from a multi-point tax on the full supply chain
to a tax at the first point of sale. Uttar Pradesh has announced that for many
transactions the VAT, rather than being collected and remitted by the vendor,
will be deducted from the price by the customer and remitted directly to the
government. Many states, most notably Tamil Nadu, Karnataka and Gujarat, are
denying the credit for the tax paid on investments and other production inputs.
Another landmark reform is the DTC, proposed by the government in
2010. The design of this income tax reform has been contentious from the very
inception. While its objectives were to broaden the base and lower the rates,
there was no consensus on how the base should be broadened.
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Most of the reform proposals in the DTC have been modified to such an extent
that what is left is only a little different from the status quo and amounts to little
more than re-wording of the same provisions. Rather than proceeding with this
package, there is a need to go back to the drawing board and redesign the direct
tax system so that it has a broad base and moderate tax rate of around 25 per
cent. Also, in the global economy of today, the Indian tax system should be fully
aligned with that of our trading partners.
On the tax administration front, TARC has provided an excellent diagnosis
of the ills of the current tax administration and made many thoughtful
recommendations. It emphasises that in modern tax jurisdictions, the goal of tax
administration is not to maximise revenue but to maximise voluntary compliance
and minimise compliance gaps. The current practice of blind pursuit of revenue
targets has an adverse impact on tax officer equilibrium and leads to harassment
of taxpayers. The TARC Report calls for all processes to be modernised to the
point of making them 'digital by default'. Other feature that needs attention is
the minimisation of tax disputes. The growing volume of tax disputes in India has
earned the tax administration the label of "tax terrorism" and has given India a
bad name in jurisdictions across the world. This has been the single most
important factor contributing to the downturn in investments and economic
growth.
The new government has appropriately provided a new direction to tax
reforms in India and revived the hopes of Indian economy resuming its journey
on the high growth trajectory. The reform of both direct and indirect taxes and
the tax administration is fundamental to achieving these objectives of the
government.
_______________________________________________________________
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DIRECT TAX INDIRECT TAX
Personal Income Tax Vat Tax
Wealth Tax Excise Duty
Corporate Tax Custom Duty
ProfessionalTax ServiceTax
Entertainment Tax
1
2
3
4
5
1
2
3
4
TAXATION IN INDIA
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Evolutionary Tax System in India
The basic framework for the tax system in independent India was provided in the
constitutional assignment of tax powers. The important feature of the tax assignment is the
adoption of principle of separation in tax powers between the central and state
governments. It assigned the major broad based and mobile tax bases to the centre and
these included taxes on non-agricultural incomes and wealth, corporation income tax,
customs duties, and excise duties on manufactured 12 products. Over the years, the last
item has evolved into a manufacturers’ VAT on goods. The major tax powers assigned to
the states include taxes on agricultural incomes and wealth, sales taxes, excises on
alcoholic products, taxes on motor vehicles, passengers and goods, stamp duties and
registration fees on transfer of property, and taxes and duties on electricity. They also have
powers to levy taxes on entertainment, taxes on professions, trade, callings and
employment and these have been exercised by the states themselves in some states and in
others they have been assigned to local bodies. Although the state list also includes tax on
property and tax on the entry of goods into a local area for consumption, use or sale, these
have been assigned to local bodies. The central government levied tax on selected services
on the basis of the residuary entry in the Union list from 1994, but in 2003, power to tax
services was specifically assigned to it.
Central Government levies taxes on the following:
 Income Tax: Tax on income of a person
 Customs duties: Duties on import and export of goods
 Central excise: Taxes on Manufacturing of dutiable goods
 Service tax: Taxes on provision of services
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State Governments can levy the following taxes:
 Value Added Tax (VAT): This is tax on sale of goods. While intra-state sale of goods
are covered by the VAT Law of that state, inter-state sale of goods is covered by the
Central Sales Tax Act. Even the revenue collected under Central Sales Tax Act is
done so by the State Governments themselves and actually the Central Government
has no role to play so.
 Stamp duties and Land Revenue: Since land is a matter on which only State
Governments can govern, thus the Stamp duties on transfer of immovable
properties are levied by State Governments.
 State Excise on Liquor and certain agricultural goods.
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Detail discussion on ‘TAX STRUCTURE’
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Direct And Indirect Tax Graphically For Last Five Year
INDIRECT TAX ACTUAL
COLLECTIONS
(In Crores)
FIN. YEAR CUSTOMS UNION EXCISE SERVICE TAX TOTAL
1995-96 35757 40187 862 76806
1996-97 42851 45008 1059 88918
1997-98 40193 47962 1586 89741
1998-99 40668 53246 1957 95871
1999-00 48420 61902 2128 112450
2000-01 40268 72555 3302 116125
2001-02 44852 82310 4122 131284
2003-04 48629 90774 7891 147294
2004-05 57566 99401 14134 171101
2005-06 65049.64 110664.75 23052.95 198767.34
2006-07 86304 117088* 37484 240876
2007-08 102852 122711* 51133 276696**
2008-09 99708 104141 60716 264565
Direct Taxes
DIRECT TAX ACTUAL COLLECTIONS (In Crores)
FIN. YEAR Corporate Tax Personal Income
Tax*
Other Direct
Taxes
TOTAL
1995-96 16487 15592 1485 33564
1996-97 18567 18234 2094 38895
1997-98 20016 17101 11163 48280
1998-99 24529 20240 1831 46600
1999-00 30692 25655 1612 57959
2000-01 35696 31764 845 68305
2001-02 36609 32004 585 69198
2002-03 46172 36866 50 83088
2003-04 63562 41386 140 105088
2004-05 82680 49268 823 132771
2005-06 101277 63689 250 165216
2006-07 144318 85623 240 230181
2007-08 192911 118962 340 312213
2008-09 213395 120034 389 333818
2009-10 244725 132833 505 378063
2010-11 298688 147560 687 446935
2011-12# 323224 170788 787 494799
*2012-13 (up to
Jan 20130
248131 141494 685 390310
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Under the Income Tax Act, 1961 The Central Government levies direct taxes on the income
of individuals and business entities as well as Non business entities also. The taxation level
depends on the residential status of individuals. The thumb rule of residential status is that
an individual becomes resident in India if he has remained in India for more than 182 days
in a particular residential year. If he becomes resident in India, then his global income i.e.
income earned even outside India is taxable in India. This has to be noted very carefully by
Expatriates on deputation to India. They need to plan their stay in such a manner as to
avoid becoming a resident in India. The following para explains this in a slightly more
detailed manner:
Tax Resident
An individual is treated as resident in a year if present in India:
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1. For 182 daysduringthe yearor
2. For 60 days duringthe yearand 365 days duringthe precedingfouryears.
So an expatriate has to time his stay in India by taking into account the above.
So what is taxable fora Resident but “Not Ordinarily Resident”?
A resident who was not present in India for 730 days during the preceding seven years or
who was non-resident in nine out of ten preceding years is treated as not ordinarily
resident. A person not ordinarily resident is taxed like a non-resident but is also liable to tax
on income accruing abroad if it is from a business controlled in or a profession set up in
India.
What is taxable fora Non-Resident?
Non-residents are taxed only on income that is received in India or arises or is deemed to
arise in India. He is entitled to get benefit of any double taxation avoidance agreement that
his country of residence has signed with India. Then he shall be liable for taxes at rates
mentioned in the Indian domestic tax laws or the rates mentioned in the Double Taxation
Avoidance Agreement whichever is lower.
What is taxable fora Resident?
His global income is taxable irrespective of whether earned or related or received in India.
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Thus any expatriate needs to plan his stay so that he does not, unwittingly, become a
Resident for tax purposes.
Taxationslabs for Individualsfor the FY2015-16:
1. Individual resident aged below 60 year.
Income Slabs Tax Rates
Where the taxable income does
not exceed Rs. 2,50,000/-.
NIL
Where the taxable income
exceeds Rs. 2,50,000/- but does
not exceed Rs.5,00,000/-
10% of amount by which the taxable income exceeds Rs.
2,50,000/-.Less ( in case of Resident Individuals only ) : Tax
Credit u/s 87A – 10% of taxable income upto a maximum of Rs.
2000/-
Where the taxable income
exceeds Rs. 5,00,000/- but does
not exceed Rs.10,00,000/-.
Rs. 25,000/- + 20% of the amount by which the taxable income
exceeds Rs. 5,00,000/-.
Where the taxable income
exceeds Rs. 10,00,000/-.
Rs. 125,000/- + 30% of the amountbywhichthe taxable income
exceeds Rs. 10,00,000/-
2. Individual resident who is of the age of 60 years or more but below the age of
80 years at any time during the previous year
Income Slabs Tax Rates
1. Where the taxable income
does not exceed
Rs. 3,00,000/-
NIL
2. Where the taxable income
exceeds Rs. 3,00,000/- but
does not exceed
Rs. 5,00,000/-
10% of the amount by which the taxable income exceeds Rs.
300,000/-.Less : Tax Credit u/s 87A – 10% of taxable income
upto a maximum of Rs. 2000/-.
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3. Where the taxable income
exceeds Rs. 5,00,000/- but
does not exceed Rs.
10,00,000/-
Rs. 20,000/- + 20% of the amountby whichthe taxable income
exceeds Rs. 5,00,000/-
4. Where the taxable income
exceeds Rs. 10,00,000/-
Rs. 120,000/- + 30% of the amount by which the taxable
income exceeds Rs. 10,00,000/-.
3. Individual resident who is of the age of 80 years or more at any time during the
previous year
Income Slabs Tax Rates
1. Where the taxable income
does not exceed Rs. 5,00,000/-
NIL
2. Where the taxable income
exceeds Rs. 5,00,000/- but
does not exceed Rs.
10,00,000/-
20% of the amount by which the taxable income exceeds Rs.
5,00,000/-.
3. Where the taxable income
exceeds Rs. 10,00,000/-
Rs. 100,000/- + 30% of the amount by which the taxable
income exceeds Rs. 10,00,000/-
Amounts invested in certain investments like Employee Provident Fund, Public Provident
Fund, Tax saving Fixed Deposits, are also eligible for deduction under section 80C upto
Rs.1,50,000 per year.
Year Wise view of Income Tax Slab since 2009
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Corporate Taxation:
The rate at which Corporate are taxed in India is 30% plus a 3% cess. Thus the total comes
to 30.9%. Further if the taxable income is more than Rs. 10 million, then there is an
additional surcharge of 12% on the base tax rate.
DividendDistributionTax (DDT)
Under Section 115-O of the Income Tax Act, any amount declared, distributed or paid by a
domestic company by way of dividend shall be chargeable to dividend tax. So if a company
declares divided, it has to pay an effective rate of 16.995% on the dividends declared. This
is apart from the 30.9 % taxes mentioned above. The rationale for this tax is that after
paying this tax, the dividend so declared becomes tax free in the hands of the recipient of
dividend.
Minimum AlternativeTax (MAT)
Normally, a company is liable to pay tax on the income computed in accordance with the
provisions of the income tax Act, but many a times due to exemptions under the income
tax Act, there is huge actual profit as shown in the profit and loss account of the company
but no taxable income. To overcome this issue, and in order to bring such companies under
the income tax act net, the concept of Minimum Alternate Tax (MAT) has been introduced.
The present rate of MAT is 19.05%.
Personal Income Tax: Heads of Income
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The total income of a person is divided into five heads, viz., taxable
Individual Heads of Income
1. Income from Salary
All income received as salary under Employer-Employee relationship is taxed under this
head. Employers must withhold tax compulsorily, if income exceeds minimum exemption
limit, as Tax Deducted at Source (TDS), and provide their employees with a Form 16 which
shows the tax deductions and net paid income. In addition, the Form 16 will contain any
other deductions provided from salary such as:
1. Medical reimbursement: Up to Rs. 15,000 per year is tax free if supported by bills.
2. Conveyance allowance: Up to Rs. 800 per month (Rs. 9,600 per year) is tax free if
provided as conveyance allowance. No bills are required for this amount. ** Revised
amount of Conveyance allowance is Rs-1600 Per month w.e.f AY 2015-16.
3. Professional taxes: Most states tax employment on a per-professional basis, usually
a slabbed amount based on gross income. Such taxes paid are deductible from
income tax.
4. House rent allowance: the least of the following is available as deduction
1. Actual HRA received
2. 50%/40%(metro/non-metro) of basic 'salary'
3. Rent paid minus 10% of 'salary'. Basic Salary for this purpose is basic+DA
forming part+commission on sale on fixed rate.
Income from salary is net of all the above deductions.
2. Income from House property
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Income from House property is computed by taking what is called Annual Value. The
annual value (in the case of a let out property) is the maximum of the following:
 Rent received
 Municipal Valuation
 Fair Rent (as determined by the I-T department)
If a house is not let out and not self-occupied, annual value is assumed to have accrued to
the owner. Annual value in case of a self occupied house is to be taken as NIL. (However if
there is more than one self occupied house then the annual value of the other house/s is
taxable.) From this, deduct Municipal Tax paid and you get the Net Annual Value. From this
Net Annual Value, deduct:
 30% of Net value as repair cost (This is a mandatory deduction)
 Interest paid or payable on a housing loan against this house
In the case of a self occupied house interest paid or payable is subject to a maximum limit
of Rs, 1, 50,000 (if loan is taken on or after 1 April 1999 and construction is completed
within 3 years) and Rs.30, 000 (if the loan is taken before 1 April 1999). For all non self-
occupied homes, all interest is deductible, with no upper limits. The balance is added to
taxable income.
3. Income from Business or Profession
An example... An architect works out of home and co-ordinates work for his clients. All the
following expenses would be deductible from his professional fees.
 he uses a computer,
 he travels to sites in his car,
 he has a peon to help him collect payments
 He has a maid who comes in daily
 part of the society maintenance bills
 Entertainment expenses incurred...
 Books and magazines for his professional practice.
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The computation of income under the head "Profits and Gains of Business or Profession"
depends on the particulars and information available.
If regular books of accounts are not maintained, then the computation would be as under: -
Income (including Deemed Incomes) chargeable as income under this head xxx
Less: Expenses deductible (net of disallowances) under this head xxx
Profits and Gains of Business or Profession xxx
However, if regular books of accounts have been maintained and Profit and Loss Account
has been prepared, then the computation would be as under: -
Net Profitas per Profitand Loss Account xxx
Add: InadmissibleExpenses debited to Profit and Loss Account xxx
Deemed Incomes not credited to Profitand Loss Account xxx
Xxx
Less: Deductible Expenses not debited to Profitand Loss Account xxx
Incomes chargeableunder other heads credited to Profit & Loss A/c xxx
xxx
Profits and Gains of Business or Profession xxx
Calculation of Income from Business Rs Rs
N/Pas per P& L A/c. 57,000.00
Add:
Donations 8,000.00
DepreciationCharged 5,000.00
Income Tax 2,000.00
Patent14000 X 13/14 13,000.00 28,000.00
Less:
Income From Lottery 25,000.00
Depreciationtobe allowed 10,000.00
Expenditure notshowninP&L A/c 1,500.00 36,500.00
Income from Business 48,500.00
4. Income from Capital Gains
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Transfer of capital assets results in capital gains. A Capital asset is defined under section
2(14) of the I.T. Act, 1961 as property of any kind held by an assesse such as real estate,
equity shares, bonds, jewellery, paintings, art etc. but does not include some items like any
stock-in-trade for businesses and personal effects. Transfer has been defined under section
2(47) to include sale, exchange, relinquishment of asset, extinguishment of rights in an
asset, etc. Certain transactions are not regarded as 'Transfer' under section 47.
For tax purposes, there are two types of capital assets: Long term and short term. Long
term asset are held by a person for three years except in case of shares or mutual funds
which becomes long term just after one year of holding. Sale of such long term assets gives
rise to long term capital gains. There are different scheme of taxation of long term capital
gains. These are:
1. As per Section 10(38) of Income Tax Act, 1961 long term capital gains on shares or
securities or mutual funds on which Securities Transaction Tax (STT) has been
deducted and paid, no tax is payable. STT has been applied on all stock market
transactions since October 2004 but does not apply to off-market transactions and
company buybacks; therefore, the higher capital gains taxes will apply to such
transactions where STT is not paid.
2. In case of other shares and securities, person has an option to either index costs to
inflation and pay 20% of indexed gains, or pay 10% of non indexed gains. The
indexation rates are released by the I-T department each year.
3. In case of all other long term capital gains, indexation benefit is available and tax
rate is 20%.
All capital gains that are not long term are short term capital gains, which are taxed as
such:
 Under section 111A, for shares or mutual funds where STT is paid, tax rate is 10% From
Asst Yr 2005-06 as per Finance Act 2004. For Asst Yr 2009-10 the tax rate is 15%.
 In all other cases, it is part of gross total income and normal tax rate is applicable.
For companies abroad, the tax liability is 20% of such gains suitably indexed (since STT is
not paid).
Sale Considerationof the asset 100,000.00
Less:
1. Expenditure inconnectionwithtransfer 5,000.00
2. Cost of acquitionof the asset 7,000.00
3. Cost of improvementof the Asset 20,000.00 32,000.00
STCG 68,000.00
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Sale Considerationof the asset 200,000.00
Less:
1. Expenditure inconnection withtransfer 5,000.00
2. IndexedCostof acquitionof the asset 14,889.34
3. IndexedCostof improvementof the Asset 42,540.98 62,430.33
LTCG 137,569.67
** IndexedCost
Cost X Index # of the Year of Sale
Index # of the Year of Acquisition
7000
X 519 (FY 2006-07)
244 (FY 1993-94)
# ReferCost Inflation Index Table
5. Income from Other Sources
This is a residual head; under this head income which does not meet criteria to go to other
heads is taxed. There are also some specific incomes which are to be taxed under this head.
1. Income by way of Dividends
2. Casual Income
3. Any amount received from key man insurance policy as donation.
4. Income from shares (dividend other than Indian company)
5. Royalty
6. Examinership remuneration
7. Any other incomer which cannot be include in salary, house property, business
income, capital gain
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Deduction
While exemptions are on income some deduction in calculation of taxable income is
allowed for certain payments.
Section 80CCC
Payment of premium for annuity plan of LIC or any other insurer Deduction is available
upto a maximum of Rs. 1,00,000/-.
The premium must be deposited to keep in force a contract for an annuity plan of the LIC
or any other insurer for receiving pension from the fund. The Finance Act 2015 has
enhanced the ceiling of deduction under Section 80CCC from Rs.100,000 to Rs. 1,50,000
with effect from A.Y. 2016-17.
Section 80CCD
Deposit made by an employee in his pension account to the extent of 10% of his salary.
Where the Central Government makes any contribution to the pension account, deduction
of such contribution to the extent of 10% of salary shall be allowed. Further, in any year
where any amount is received from the pension account such amount shall be charged to
tax as income of that previous year. The Finance Act, 2009 has extended benefit to any
individual assesse, not being a Central Government employee.
Section 80CCG
Investment under Rajiv Gandhi Equity Savings Scheme, The deduction was 50 % of amount
invested in such equity shares or Rs 25,000, whichever is lower. The maximum Investment
permissible for claiming deduction under RGESS is Rs. 50,000. The benefit is in addition to
deduction available u/s Sec 80C.
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Section 80D
Payment of medical insurance premium deduction is available upto Rs.15,000/ for self/
family and also upto Rs. 15,000/- for insurance in respect of parent/ parents of the
assessee. In case of senior citizens, a deduction up to Rs.20,000/- shall be available under
this Section. Insurance premiume of senior citizen parent/ parents of the assessee also
eligible for enhanced deduction of Rs. 20000/-.
Section 80DD
Deduction of Rs.40,000/- In respect of (a) expenditure incurred on medical treatment,
(including nursing), training and rehabilitation of handicapped dependent relative. (b)
Payment or deposit to specified scheme for maintenance of dependent handicapped
relative. W.e.f. 01 .04.2004 the deduction under this section has been enhanced to
Rs.50,000/- Further, if the dependent is a person with severe disability a deduction of
Rs.1,00,000/– shall be available under this sectionBudget 2015 has Further Proposed to
hike the limit from A.Y. 2016-17 to Rs. 75000 from existing Rs. 50,000/- and for person
with severe disability to Rs. 1.25 lakh from existing Rs. 1 Lakh.
Section 80DDB
Deduction of Rs.40,000/- in respect of medical expenditure incurred. W.e.f. 01.04.2004,
deduction under this section shall be available to the extent of Rs.40,000/- or the
amount actually paid, whichever is less.In case of senior citizens, a deduction upto
Rs.60,000/- shall be available under this Section. Budget 2015 has proposed deduction of
Rs. 80000/- for seniot citizen aged 80 year or More from A.Y. 2016-17-Read More-Section
80DDB- Limit raised & waived condition of certificate.
Section 80E
Deduction in respect of payment in the previous year of interest on loan taken from a
financial institution or approved charitable institution for higher studies
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Section 80EE
Vide Finance Act 2013, an individual is allowed a deduction upto a limit of Rs 1,00,000
being paid as interest on a loan taken from a Financial Institution, sanctioned during the
period 01-04- 2013 to 31-03-2014 (loan not to exceed Rs 25 lakhs) for acquisition of a
residential house whose value does not exceed Rs 40 lakhs. However the deduction is
available if the assessee does not own any residential house property on the date of
sanction of the loan.
Section 80G
The various donations specified in Sec. 80G are eligible for
deduction upto either 100% or 50% with or without restriction as provided in Sec. 80G.
Section 80GG
Deduction available is the least of(i) Rent paid less 10% of total income. Rs.2000 per month,
25% of total income.
Section 80TTA
Section 80TTA is introduced wef A.Y. 2013-14 to provide deduction to an individual or a
Hindu undivided family in respect of interest received on deposits (not being time deposits)
in a savings account held with banks, cooperative banks and post office. The deduction is
restricted to Rs 10,000 or actual interest whichever is lower.
Section 80U
Deduction of Rs.50,000/- to an individual who suffers from a physical disability (including
blindness) or mental retardation. Further, if the individual is a person with severe disability,
deduction of Rs.75,000/- shall be available u/s 80U.W.e.f. 01.04.2010 this limit has been
raised to Rs. 1 lakh.Budget 2015 proposed to amend section 80U to raise limit of
deduction in respect of a person with disability from Rs. 50,000/- to Rs. 75,000 and for
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person with severe disability from one lakh rupees to one hundred and twenty five
thousand rupees.
Section 87A
Finance Act 2013 has provided relief in the form of rebate to individual taxpayers, resident
in India, who are in lower income bracket, i. e. having total income not exceeding Rs
5,00,000/-. The amount of rebate is Rs 2000/- or the amount of tax payable, whichever is
lower. WEF A.Y. 2014-15.
Section 80RRB
Deduction in respect of any income by way of royalty in respect of a patent registered on
or after 01.04.2003 under the Patents Act 1970 shall be available as :-Rs. 3 lacs or the
income received, whichever is less.
Section 80QQB
Deduction in respect of royalty or copyright income received in consideration for authoring
any book of literary, artistic or scientific nature other than text book shall be available to
the extent of Rs. 3 lacs or income received, whichever is less.
Section 80C
This section has been introduced by the Finance Act, 2005. Broadly speaking, this section
provides deduction from total income in respect of various investments/
expenditures/payments in respect of which tax rebate u/s 88 was earlier available. The
total deduction under this section is limited to Rs. 1.50 lakh only.
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WEALTH TAX_
Wealth Tax in India was introduced in India in the year 1957 and is levied on individuals,
HUF’s and Companies if the Net Wealth of such person exceeds Rs 30 Lakhs on the
Valuation Date i.e. last date of the previous year. For the purpose of computation of
taxable net wealth, only few specified assets are taken into account.
Arun Jaitley while accounting Budget 2015 announced that the levy of Wealth Tax has now
been completely removed from Financial Year 2915-16 onwards. The loss of revenue due
to the abolishment of Wealth Tax would be compensated by the levy of additional
surcharge on high income earning assesses.
The levy of surcharge is easy to collect & monitor and also does not result into any
compliance burden on the taxpayer as well as the administration department.
The information pertaining to assets which is currently required to be furnished in the
wealth tax return would now be required to be mentioned in the income Tax return.
PROFESSIONAL TAX________________________________________________
Professional Tax is the tax charged by the state governments in India. Any one earning an
income from salary or any one practising a profession such as chartered accountant,
lawyer, doctor etc. are required to pay this professional tax. Different states have different
rate and method of collection. In India, the professional tax is imposed at the state level.
However, not all the states impose this tax, the following states impose this levy in India –
Karnataka, West Bengal, Andhra Pradesh, Telangana, Maharashtra, Tamil Nadu, Gujarat,
Assam, Chhattisgarh, Kerala, Meghalaya, Orissa, Tripura and Madhya Pradesh. Business
owners, working individuals, merchants and people carrying out various occupations comes
under the purview of this tax.
Professional tax is levied by particular Municipal Corporations and majority of the Indian
states impose this duty. It is a source of revenue for the government. The maximum
amount payable per year is Rs.2,500/- and in line with your salary, there are predetermined
slabs. It is paid by every member of staff employed in private companies. It is subtracted by
the employer each month and sent to the Municipal Corporation. It is compulsory just like
income tax. You will be eligible for income tax deduction for this payment
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The professional tax is usually a slab-amount based on the gross income of the
professional. It is deducted from his income every month.
The slab for professional tax varies across different states in India
Indirect Taxes
In India, indirect taxes is a vast ocean as there are number of taxes to be paid on
manufacture, import, sale and even purchase in certain cases. Further the law is governed
less by the Acts and more by day to day notifications, circulars and orders by the Governing
bodies. So an explicit understanding is very much essential. A simplistic way to understand
Indirect taxes is as follows:
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No. Nature of
Activity
Applicable Law Governed By
1 Service Tax Service Tax Generally uniform rate of 12.36%
(Changed 14% from 01-06-2015) is charged by
Service tax Provider from recipient except in
certain cases where liability is split between the
provider of servicer and the recipient of service
also in some cases, where there is mixed
componentof provisionof service andprovisionof
materials, there is some abatment given and
service tax charged on the remaining part.
E.g. For restaurants,the service tax ischargedonly
on 40% of the bill asit isassumed by Govt that the
total bill consists of 60% materials and 40%
service.There is an exemption on payment of
Service tax if the total turnover did not cross Rs. 1
million in the previous Financial Year.
As Governed by the
Finance Act, 1994
and other
subsequentFinance
Acts together read
with notifications,
circulars Service tax
is payable to the
Central
Government.
2 Central Excise
Duty
Manufacture of
Excisable Goods
Central Excise duties are leviable on the
manufacture of goods. However, the incidence of
duty is postponed to the clearance of goods from
factoryor approvedwarehouse.Itmeans the duty
ispayable once the manufacturedgoodsleave the
Warehouse/ Factory.Below are some of Excise
duties leviableBasic – Basic Excise Duty is the
most common Excise duty on manufacture of
Goods. It is imposed under section 3 of the
‘Central Excise Act’ of 1944 on all excisable goods
otherthan saltproducedor manufacturedinIndia,
at the ratessetforthin the schedule tothe Central
Excise tariff Act, 1985, falls under the category of
basic excise duty in India.
it is mandatory to pay duty on all goods
manufactured, unless exempted. For example,
duty is not payable on the goods exported out of
India or if the turnover does not reach Rs. 15
Central Excise Act,
1944 read with
Central Excise Tariff
Act, 1985 alongwith
Rules prescribed
and Circulars/
Notifications issued
by the Central
Board of Excise and
Customs.It is
payable to the
Central
Government.
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million in a year or based on certain process of
production.
Excise duty rates are different for each product
and basedonharmonizedsystemof classification.
The rates can be found in the following link
http://www.cbec.gov.in/excise/cxt2013-14/cxt-
1314-idx.htm
Apart from the basic excise duty, the other types
of Excise duties are as follows but they are not of
much relevance to the vast majority of goods as
they are very specifically levied.
 Special Excise Duty : This is the duty leviable
under Second Schedule to the Central Excise
Tariff Act, 1985 at the rates mentioned in the
said Schedule. At present this is leviable on
very few items.
 Additional Duties of Excise (Textiles and
textile Articles) : his duty is leviable under
section 3 of theAdditional Duties of Excise
(TextilesandTextile Articles ) Act, 1978. Thisis
leviable at the rate of fifteen percent of Basic
Excise Dutypayable onspecifiedtextilearticles.
 Additional Duties of Excise (Goods of Special
Importance) : duty is leviable under
the Additional Duties of Excise (Goods of
Special Importance) Act, 1957. onthe specified
goods mentioned in its First Schedule.
 National Calamity Contingent Duty (NCCD):
This duty is levied as per section 136 of the
Finance Act, 2001, as a surcharge on specified
goods like like pan masala, branded chewing
tobaco, cigarettes, domestic crude oil and
mobile phone.
It should be noted that the excise duty is not on
sale but on removal or clearance of goods which
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may or may coincide with sale.
3. Customs Duty
Import of Goods
Customs duty is required to be paid whenever
goodsare imported from other countries in India.
Normally on Exports, there is no Customs Duty
exceptforexportof a few items. Thus the taxable
event is the import/ export of goods.There are
mainly two ways in which Customs is calculated
and collected:
1. SpecificDuties:– Specificcustomdutyisa duty
imposed on each and every unit of a
commodity imported or exported. For
example, Rs.5oneachmeterof cloth imported
or Rs.500 on each T.V. set imported. In this
case, the value of commodity is not taken into
consideration.
2. Advalorem Duties: Advalorem custom
duty is a duty imposed on the total value
of a commodityimportedorexported. For
example, 5% of F.O.B. value of cloth
importedor10% of C.LF. value of T.V. sets
imported. In case of Advalorem custom
duty, the physical units of commodity are
not taken into consideration. Ad valorem
duty is the predominant mode of levy of
customs. Thus the value of goods has to
be determined as per customs law before
the Goods are released from Customs
control.
The rates of taxation in Customs can be found
here:
Apart from the basic Custom duties, there are
some other custom duties levied in certain
circumstances like:
Countervailing Duty of Customs (CVD)
To give Indianmanufacturinga level playing field,
CVD is imposed. It is equal to the excise duty on
CustomsAct,1962
readwithCustoms
Tariff Act,
1975.Collectedby
Central Government
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like articles produced in India. The base of this
additional duty is c.i.f. value of imports plus the
dutyleviedearlier.If the rate of this duty is on ad-
valorem basis, the value for this purpose will be
the total of the value of the imported article and
the customs duty on it (both basic and auxiliary).
Anti Dumping duties
These custom duties are basically intended to
provide domesticmanufacture againstdumpingof
goods by foreign countries in India at dirt cheap ;
even below cost prices. Mainly targeted against
cheap Chinese imports. These are allowed after
following WTO norms in this regard.
4
5
Value Added
Taxes (VAT)
Sale of Goods
Entertainment
Tax
Value AddedTaxes (VAT) for intra-state Sales and
Central Sales Tax (CST) for inter-state sales.VAT is
actually state specific since the states and not
Central Government is empowered to collect
Taxes on Sale of Goods. Thus each state has its
ownVAT specific Act and Rules. In Jharkhand, it is
the Jharkhand Value Added Tax Act (JVAT) which
governs the sale of goods. The usual rate of taxes
are 1%, 5% and 14%. Goods which are specified
are covered under 1% & 5% and others are
coveredin 14%. There isalso some specifiedgoods
whichisexemptedfromtax andspecial rate of are
20%, 22% & 50%.
## (JharkhandVATTo be discussedin details later
on.)
In India, movie tickets, large commercial shows
and large private festivalcelebrationsmayincuran
entertainment tax.[1]
Entertainment falls in List 2 of the Seventh
Schedule of the Constitution of India and is
Each state has a
specific Act. Central
Sales Tax Act deals
withinter-state sale
of goods. However
even CST is actually
collected only by
states.
imposed by the
Government
on feature
films getting a wide
release in India and
are reduced from
gross collections.
The amount after
deducting
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exclusively reserved as a revenue source for the
state governments. Historically, before India
acquired independence, British government
imposed heavy taxes on the events of
amusements and entertainment, where a large
gathering of Indians could have caused rebellion
or mutiny.Thus,variousentertainment tax acts of
the state governments permit the rate of tax
beyond 100%. After independence, old
enactments continued and there has been no
revision or repeal of these acts.
Thissource of revenue has grown with the advent
of pay television services in India. Since,
entertainment is being provided through the
services such as broadcasting services, DTH
Services, Pay TV Services, cable services, etc. The
component of entertainment is intrinsically
intertwined in the transaction of service, that it
cannot be separated from the whole transaction.
Given the nature of transaction of service, it is
being subjected to tax by the Union and the State
governments both.
The fiscal principle underlying article 246 of the
constitution of India separates the sources of
taxation for the Union and the States and also
maintainsthe exclusivity.Thisarticle alsoprovides
that in case of conflict between the powers of
Unionand the States,the Unionpower to tax shall
supersede the power of the State to levy tax on
the taxable event or in relation to the subject or
object of taxation. Entertainment tax structure in
India varies across states and is the highest in
Uttar Pradesh at 60 per cent. In Maharashtra,
entertainmenttax wasreduced by five per cent in
2005 and now stands at 45 per cent. There is no
entertainmenttax is
known as NETT.
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tax for Marathi films in Maharashtra, and in Tamil
Nadu,Tamil films are tax free if they have a Tamil
title and a U certificate from the Censor Board.
Failing any of these, films are imposed a 15% tax.
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Sl
No
Name of State
Starting
of TIN
State Capital
Sl
No
Name of State
Starting
of TIN
State Capital
1
JAMMU AND
KASHMIR 01
SRINAGAR /
JAMMU 19 WEST BENGAL 19 KOLKATA
2
HIMACHAL
PRADESH 02 SHIMLA 20 JHARKHAND 20 RANCHI
3 PUNJAB 03 CHANDIGARH 21 ORISSA 21 BHUBANESWAR
4 CHANDIGARH 04 CHANDIGARH 22 CHHATTISGARH 22 RAIPUR
5 UTTARAKHAND 05 DEHRADUN 23 MADHYA PRADESH 23 BHOPAL
6 HARYANA 06 CHANDIGARH 24 GUJARAT 24 GANDHINAGAR
7 DELHI 07 DELHI 25 DAMAN AND DIU 25 DAMAN
8 RAJASTHAN 08 JAIPUR 26
DADRA AND NAGAR
HAVELI 26 SILVASSA
9 UTTAR PRADESH 09 LUCKNOW 27 MAHARASHTRA 27 MUMBAI
10 BIHAR 10 PATNA 28 ANDHRA PRADESH 28 HYDERABAD
11 SIKKIM 11 GANGTOK 29 KARNATAKA 29 BANGALORE
12
ARUNACHAL
PRADESH 12 ITANAGAR 30 GOA 30 PANAJI
13 NAGALAND 13 KOHIMA 31 LAKSHADWEEP 31 KAVARATTI
14 MANIPUR 14 IMPHAL 32 KERALA 32 THRIVANDAM
15 MIZORAM 15 AIZAWL 33 TAMIL NADU 33 CHENNAI
16 TRIPURA 16 AGARTALA 34 PUDUCHERRY 34 PUDUCHERRY
17 MEGHALAYA 17 SHILLONG 35
ANDAMAN AND
NICOBAR 35 PORT BLAIR
18 ASSAM 18 DISPUR 36
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-:VAT:-
(Background of VAT)
WHAT IS VALUE ADDED TAX?
Value Added Tax is a broad-based commodity tax that is levied at multiple stages of
production. The concept is akin to excise duty paid by the manufacturer who, in turn,
claims a credit on input taxes paid. Excise duty is on manufacture, while VAT is on sale and
both work in the same manner, according to the white paper on VAT released by finance
minister Chidambaram. The document was drawn up after all states, barring UP, were
prepared to implement VAT from April. It is usually intended to be a tax on consumption,
hence the provision of a mechanism enabling producers to offset the tax they have paid on
their inputs against that charged on their sales of goods and services. Under VAT revenue
is collected throughout the production process without distorting any production decisions.
WHY VAT IS PREFERRED OVER SALES TAX?
While theoretically the amount of revenue collected through VAT is equivalent to sales tax
collections at a similar rate, in practice VAT is likely to generate more revenue for
government than sales tax since it is administered on various stages on the production –
distribution chain. With sales tax, if final sales are not covered by the tax system e.g. due to
difficulty of covering all the retailers, particular commodities may not yield any tax.
However, with VAT some revenue would have been collected through taxation of earlier
transactions, even if final retailers evade the tax net. There is also in-built pressure for
compliance and auditing under VAT since it will be in the interest of all who pay taxes to
ensure that their eligibility for tax credits can be demonstrated. VAT is also a fairer tax than
sales tax as it minimizes or eliminates the problem of tax cascading, which often occurs
with sales tax. These are facilitated by the fact that VAT operates through a credit system
so that tax is only applied on value added at each stage in the production – distribution
chain. At each intermediate stage credit will be given for taxes paid on purchases to set
against taxes due on sales. Only at consumption stage where there are no further
transactions will there be no tax credits. Lack of input credit facility in sales tax often
40 | P a g e
results in tax on inputs becoming a cost to businesses which are often passed on to
consumers. Sales tax is often applied again to the sales tax element of the cost, thus there
is a problem of tax on tax. This is not the case with VAT, which makes it a neutral tax as it
provides the least disturbance to patterns of production and the generation and use of
income.
In addition, the audit trail that exists under the VAT system makes it a more effective tax in
administration terms than sales tax as it helps with the verification of VAT amounts
declared as due. This is made possible by the fact that one person’s output is another’s
input. As with sales tax imports are treated the same way as local goods while exports are
zero- rated to avoid anti-export bias.
Notwithstanding the advantages mentioned above, it is worth noting that VAT is a
considerably complex tax to administer compared with sales tax. It may be difficult to
apply to small companies due to difficulties of record keeping and its coverage in
agriculture and the services sector may be limited. To cover the high administration costs,
VAT rates of 10-20 per cent are generally recommended. The equity impact of the
relatively high rates have been a cause for concern as it is possible that the poor spend
relatively high proportions of their incomes on goods subject to VAT. Thus the concept of
zero VAT rate on some items has been introduced.
DIFFERENCE BETWEEN VAT AND CST
Under the CST Act, the tax is collected at one stage of purchase or sale of goods. Therefore,
the burden of the full tax bond is borne by only one dealer, either the first or the last
dealer. However, under the VAT system, the tax burden would be shared by all the dealers
from first to last. Then, such tax would be passed upon the final consumers.
Under the CST Act, the tax is levied at a single point. Under the VAT system, the retailers
are not subject to tax except for the retail tax.
Under the CST Act, general and specific exemptions are granted on certain goods while VAT
does not permit such exemptions. Under the CST law, concessional rates are provided on
certain taxes. The VAT regime will do away with such concessions as it would provide the
41 | P a g e
full credit on the tax that has been paid earlier. Under VAT law, first, the dealer pays tax on
the sale or purchase of goods. The subsequent dealer pays tax on the portion of the value
added upon such goods. Thus, the tax burden is shared equally by the last dealer.
WHO GAINS?
State and Central governments gain in terms of revenue. VAT has in-built incentives for tax
compliance — only by collecting taxes and remitting them to the government can a seller
claim the offset that is due to him on his purchases. Everyone has an incentive to buy only
from registered dealers — purchases from others will not provide the benefit of credit for
the taxes paid at the time of purchase. This transparency and in-built incentive for
compliance would increase revenues. Industry and trade gain from transparency and
reduced need to interact with the tax personnel. For those who have been complying with
taxes, VAT would be a boon that reduces the cost of the product to the consumer and
boosts competitiveness. VAT would be major blow for tax evaders, both manufacturers
who evade excise duty payments and traders who evade sales-tax.
WHO PAYS?
All dealers registered under VAT and all dealers with an annual turnover of more than Rs 5
lakh will have to register. Dealers with turnovers less than Rs 5 lakh may register
voluntarily.
HOW TO PAY?
VAT will be paid along with monthly returns. Credit will be given within the same month for
entire VAT paid within the state on purchase of inputs and goods. Credit thus accumulated
over any month will be utilized to deduct from the tax collected by the dealer during that
month. If the tax credit exceeds the tax collected during a month on sale within the state,
the excess credit will be carried forward to the next month.
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WHICH GOODS WILL BE TAXABLE UNDER VAT?
All goods except those specifically exempt. In fact, over 550 items will be covered under
the new tax regime, of which 46 natural and unprocessed local products would be exempt
from VAT. About 270 items, including drugs and medicines, all agricultural and industrial
inputs, capital goods and declared goods would attract 4% VAT. But, following opposition
from some states, it was decided that states would have option to either levy 4% or totally
exempt food grains from VAT but it would be reviewed after one year. Three items —
sugar, textile, tobacco — under additional excise duties will not be under VAT regime for
one year but existing arrangement would continue.
VAT EFFECT ON INFLATION
In considering the introduction of VAT, countries are often concerned that it would cause
an inflationary spiral. However there is no evidence to suggest that this is true. A survey of
OECD countries that introduced VAT indicated that VAT had little or no effect on prices. In
cases where there was an effect it was a onetime effect that simply shifted the trend line of
the consumer price index (CPI). To guard against any unforeseen price effects the
authorities may consider a tighter monetary policy stance at the introduction of VAT.
VAT EFFECT ON ECONOMIC GROWTH
Economic growth can be facilitated through investment by both government and the
private sector. Savings by both parties are required in order to finance investment in a non-
inflationary manner. Compared to other broadly based taxes such as income tax VAT is
neutral with respect to choices on whether to consume now or save for future
consumption. Although VAT reduces the absolute return on saving it does not reduce the
net rate of return on saving. Income tax reduces the net rate of return as both the amount
saved as well as the return on that saving are subject to tax. In this regard VAT may be said
to be a superior tax in promoting economic growth than income tax. Since VAT does not
influence investment decisions on firms, by increasing their costs, its effects on investment
can be said to be neutral.
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FEATURES OF VAT
1. Rate of Tax VAT proposes to impose two types of rate of tax mainly:
a. 4% on declared goods or the goods commonly used.
b. 10-12% on goods called Revenue Neutral Rates (RNR). There would be no
fall in such remaining goods.
c. Two special rates will be imposed-- 1% on silver or gold and 20% on liquor.
Tax on petrol, diesel or aviation turbine fuel are proposed to be kept out
from the VAT system as they would be continued to be taxed, as presently
applicable by the CST Act.
2. Uniform Rates in the VAT system, certain commodities are exempted from tax. The
taxable commodities are listed in the respective schedule with the rates. VAT
proposes to keep these rates uniform in all the states so the goods sold or
purchased across the country would suffer the same tax rate. Discretion has been
given to the states when it comes to finalizing the RNR along with the restrictions.
This rate must not be less than 10%. This will ensure By doing this that there will be
level playing fields to avoid the trade diversion in connection with the different
states, particularly in neighbouring states
3. No concession to new industries Tax Concessions to new industries is done away
with in the new VAT system. This was done as it creates discrepancy in investment
decision. Under the new VAT system, the tax would be fair and equitable to all.
4. Adjustment of the tax paid on the goods purchased from the tax payable on the
goods of sale All the tax, paid on the goods purchased within the state, would be
adjusted against the tax, payable on the sale, whether within the state or in the
course of interstate. In case of export, the tax, paid on purchase outside India,
would be refunded. In case of the branch transfer or consignment of sale outside
the state, no refund would be provided.
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5. Collection of tax by seller/dealer at each stage. The seller/dealer would collect the
tax on the full price of the goods sold and shows separately in the sell invoice issued
by him
6. VAT is not cascading or additive though the tax on the goods sold is collected at
each stage, it is not cascading or additive because the net effect would be as
follows: - the tax, previously paid on the sale of goods, would be fully adjusted. It
will be like levying tax on goods, sold in the last state or at retail stage.
WHAT’S THE BIGGEST ADVANTAGE?
The biggest benefit of VAT is that it could unite India into a large common market. This
will translate to better business policy. Companies can start optimizing purely on
logistics of their operations, and not on based on tax-minimization. Lorries need not
wait at check-points for days; they can zoom down the highways to their destinations.
Reduced transit times and lower inventory levels will boost corporate earnings.
Following are the some more advantage of VAT: -
1. Simplification Under the CST Act, there are 8 types of tax rates- 1%, 2%, 4%, 8%,
10%, 12%, 20% and 25%. However, under the present VAT system, there would only
be 2 types of taxes 4% on declared goods and 10-12% on RNR. This will eliminate
any disputes that relate to rates of tax and classification of goods as this is the most
usual cause of litigation. It also helps to determine the relevant stage of the tax.
This is necessary as the CST Act stipulates that the tax levies at the first stage or the
last stage differ. Consequently, the question of which stage of tax it falls under
becomes another reason for litigation. Under the VAT system, tax would be levied
at each stage of the goods of sale or purchase.
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2. Adjustment of tax paid on purchased goods Under the present system, the tax paid
on the manufactured goods would be adjusted against the tax payable on the
manufactured goods. Such adjustment is conditional as such goods must either be
manufactured or sold. VAT is free from such conditions.
3. Further such adjustment of the purchased goods would depend on the amount of
tax that is payable. VAT would not have such restrictions. CST would not have the
provisions on refund or carry over upon such goods except in case of export goods
or goods, manufactured out of the country or sale to registered dealer. Similarly, on
interstate sale on tax-paid goods, no refund would be admissible. Transparency The
tax that is levied at the first stage on the goods or sale or purchase is not
transparent. This is because the amount of tax, which the goods have suffered, is
not known at the subsequent stage. In the VAT system, the amount of tax would be
known at each and every stage of goods of sale or purchase.
4. Fair and Equitable VAT introduces the uniform tax rates across the state so that
unfair advantages cannot be taken while levying the tax.
5. Procedure of simplification Procedures, relating to filing of returns, payment of tax,
furnishing declaration and assessment are simplified under the VAT system so as to
minimize any interface between the tax payer and the tax collector.
6. Minimize the Discretion the VAT system proposes to minimize the discretion with
the assessing officer so that every person is treated alike. For example, there would
be no discretion involved in the imposition of penalty, late filing of returns, and
non-filing of returns, late payment of tax or non payment of tax or in case of tax
evasion. Such system would be free from all these harassment
7. Computerization the VAT proposes computerization which would focus on the tax
evaders by generating Exception Report. In a large number of cases, no processing
46 | P a g e
or scrutiny of returns would be required as it would free the tax compliant dealers
from all the harassment which is so much a part of assessment. The management
information system, which would form a part of integral computerization, would
make the tax department more efficient and responsive.
“Though the broad design of the State-level VAT is uniform across the country but
every State has its own VAT legislation and procedures differ on many counts from one
State to another. Considering the importance of all State VAT Laws, In this regard, I have
come out with “Small Technical Guide on Jharkhand VAT”. The Guide explains the
concepts relating to Jharkhand VAT laws in a very exhaustive manner.”
Jharkhand Value Added Tax
VAT, considered as a path-breaking reform in the area of indirect taxation, was introduced
in majority of the States from April 1, 2005 with the objective of making accounting more
transparent, cutting trade barriers, boosting tax revenues and most important of all doing
away with the cascading effect of taxes. However, the State of Jharkhand introduced VAT
with effect from 1st April, 2006.
Incidence and Levy of Tax
‘This chapter deals with section 8 to 17, 19, 20, 22, 23 and 24 of Jharkhand Value Added Tax
Act, 2005 and Rule 25 of Jharkhand Value Added Tax Rules, 2006.’
Incidence of Tax (Section 8)
Dealers Liable to Pay Tax
The following class of Dealers are liable to pay tax:
1. Whose Gross Turnover first exceeds the specified quantum during any period of
12 consecutive months, or
2. Who has become liable to pay tax under the Central Sales Act, 1956, or
3. Who is registered as a dealer under The Central Sales Tax Act, 1956 or under this
act at any time after the commencement of this Act;
Specified Quantum means any dealer who:
Particulars Specified quantum
Imports for sale any goods into the state of Jharkhand on his
own behalf or on behalf of his principal Nil
Manufactures or produces any goods for sale 50,000/-
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Is engaged in any other business other than above 5,00,000/-
Involved in the execution of works contract and leasing 25,000/-
Engaged in any other sales or purchase or class of sales or
purchases other than above As specified from time to time
Section 8(6): For the purpose of calculating Gross Turnover under this section:
(a) Turnover of all sales or, as the case may be, the turnover of all purchases
whether taxable or not shall be taken.
(b) Turnover shall include all sales and purchases made by a dealer on his own
account or also on behalf of a principal whether disclosed or not.
Turnover falling below specified quantum
Section 8(3): Every dealer who has become liable to pay tax shall continue to be so
liable even if his turnover falls below the specified quantum. However, if the
turnover remains below the specified quantum for three consecutive years, his
liability to pay tax shall cease on the expiry of the period specified above.
Section 8(9): Every dealer who has ceased to be liable as above shall be again liable
to pay tax with effect from the date immediately following a period not exceeding
twelve consecutive months during which his gross turnover again exceeds the
specified quantum.
Liability to pay Tax in certain cases
Section 8(8): A registered dealer whose liability to pay tax has ceased under this Act
for any reason other than the entire transfer of his business to other person, shall
pay tax on the goods remaining unsold at the termination of his liability, after
furnishing such declaration as prescribed.
Section 8(10): Where a dealer who is or was, less than 6 months earlier liable to pay
tax, starts a new business, either singly or jointly with other persons, or joins other
business or partnership firm or concern or HUF; Tax shall be payable by such
business or partnership firm or such concern on and from the date the dealer starts
or joins it, unless its liability has arisen from an earlier date.
Power to collect Advance Tax
Section 8(13):The tax payable under this Act may be estimated and calculated in
advance during a year with the prior approval of Commissioner or any authority
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empowered in this regard. The prescribed authority may provisionally determine
the amount of tax payable under the act on the basis of estimated taxable turnover
submitted by the dealer and thereupon, the dealer shall pay the amount so
determined, by such date as may be fixed by the authority.
Levy of Tax on Sale and determination of Taxable Turnover (Section 9)
Stages at which Tax shall be payable
The basic concept of Value Added Tax system is that the Tax is payable at every stage of
Sale on Sale Price of Goods. The Tax paid by the reseller at the time of purchases shall be
available as Input Tax Credit which can be adjusted from the tax payable by him on the
sales made. There are two exceptions to this principle:
On Medicines and Drugs
Any registered dealer who imports or manufactures medicines and Drugs as specified in
the Sl. No. 85 of the Part B of Schedule II excluding Bulk Drugs, Siddha, Unani or
Homeopathic medicines, shall pay the tax at the full rate on the Maximum Retail Price of
such goods at the first stage only. In such cases, no Input Tax Credit shall be admissible to
the subsequent purchasing dealers.
On Petrol, HSD and liquors
The tax payable on Petrol, HSD, Liquors and such other goods as mentioned in Part-E of
Schedule II shall be levied at the first stage of sale, and the subsequent sales of same goods
in the state shall not be liable to tax. The Government may by notification specify any such
goods on which tax shall be levied at more than one stage or at all stages of sales. In that
case the amount of tax paid at the preceding stage shall be available as Input Tax Credit.
Taxable Turnover
Taxable turnover shall be calculated after deduction of following amounts from Gross
Turnover of the dealer:
(a) sales of goods declared as exempt from tax in schedule ‘I’.
(b) sales of goods which are shown to the satisfaction of the prescribed authority to
have taken place –
(i) in the course of inter-State trade or commerce, or
(ii) outside the State of Jharkhand, or
(iii) in the course of the import of the goods into or export of the goods out
of the territory of India.
(c) in case of turnover of sales in relation to works contract, the charges towards
labour, services and other like charges either on actual basis or percentage basis.
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(d) such other sales on such conditions and restrictions as may be prescribed.
Where a Registered Dealer allows any Trade Discount or incentive whether in terms of
quantity of goods or otherwise, the discount so allowed shall be deemed to be sale by the
dealer and it shall form part of the sale in relation to which such discount is allowed. It shall
also be deemed to be the Purchase by the Purchasing Dealer.
“Suppose a registered dealer makes a sale of ` 1,00,000/- to another dealer and allows a trade
discount or incentive of ` 10,000/- at the time of sale or at any time thereafter. In such a case the
selling dealer has to pay tax on ` 1,00,000/- and not on ` 90,000/-“
Levy of Tax on Purchases (Section 10)
Every dealer liable to pay tax and purchases on any goods in the course of business:
(i) from a registered dealer or a dealer or a person in the
circumstances where no tax has been paid under this act by that
registered dealer or a dealer or person on the sale price of such
goods.
(ii) from a person, where no tax has been paid under this Act, shall
be liable to-pay tax on the purchase price of such goods, if after
such purchase, the goods are not sold within the State of
Jharkhand or in the course of InterState trade and commerce or
in the course of export out of the territory of India, but are -
(a) sold or disposed off otherwise, or
(b) used or consumed in the manufacture of goods declared to be exempt from tax under
this Act, or
(c) after their use or consumption in the manufacture of goods, such manufactured goods
are disposed off otherwise than by way of sale in the State or in the course of inter-State
trade and commerce or export out of the territory of India; or
(d) used or consumed otherwise such tax shall be levied at the same rate at which tax
under Section 8 would have been levied on the sale of such goods within the state on the
date of such purchase.
(e) The goods other than those specified in part E of Schedule II and taxfree goods, after
consumption or use in the manufacture or processing or mining of any goods specified in
Schedule II, the manufactured or processed or mined goods are disposed off otherwise
than by way of sale within the State of Jharkhand or in the course of inter-state trade or
commerce or in the course of export out of the territory of India.
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And such tax shall be levied at the rate at which tax would have been levied on the sales of
such goods within the State of Jharkhand on the date of such purchase. Explanation -
Sections 3, 4 and 5 of the Central Sales Tax Act, 1956 shall apply for determining whether
or not a particular sale or purchase has taken place in the manner indicated in sub-clause
1(ii) and sub-clause 1(ii)(c) & (e).
Levy of surcharge
Section 10A: Every dealer liable to pay tax under this Act shall also pay a surcharge on sale
of goods specified in Part E of Schedule II at such rate not exceeding 20% of the total
amount of tax payable by him. The dealer shall not be entitled to collect this amount of
surcharge. [Surcharge has not been levied as on date]
** Charge of Tax on Entry of Goods (Section11)
Abolished after notification of separate Entry Tax Act in 2011. However, the Entry Tax Act,
2011 was also held as ultra vires and unconstitutional by Hon’ble High Court in a landmark
judgement in writ petition filed by Reliance Industries Limited and Others.
Levy of Tax on Containers and Packing Material (Section 12)
Where any goods packed in any container or packing materials are purchased, sold or
brought into the local Area along with the container or packing materials in which such
goods are packed, the tax under Section 8 or Section 10 or Section 11 on such container or
packing materials shall be levied at the same rate of tax as applicable to the goods
themselves treating the containers, packing materials as goods integrated with the goods.
Provided that no tax under Section 8 or Section 10 or Section 11 shall be levied where the
container or packing material is sold or purchased along with the goods declared as exempt
from tax under this Act.
Rate of Tax and Exemption (Section 13 and 14)
For the purpose of rate of Taxation, goods have been classified into 2 Schedules. Most of
the goods are taxable @5% or 14%. Rates of Tax for various schedules are as under:
Class of goods Rate of tax
Schedule I Exempt u/s 14
schedule II Part A 1%
schedule II Part B 5%
schedule II Part C 5%
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schedule II Part D 14%
schedule II Part E Varying from 14.50% to 50%
schedule II Part F
Residuary class for which different rate for
different goods may be prescribed.
The State Government may provide any rate not exceeding 75% in respect of goods listed in
Schedule II Part E. The State Government may enhance or reduce the rates of taxes for goods
specified in other parts of Schedule II.
Output Tax (Section15)
Output tax in relation to a registered dealer means the tax payable under this Act in
respect of any sale of goods by that dealer in the course of his business; Subject to the
provisions of Section 18, a dealer shall be liable to pay the output tax under this Act which
shall be levied on the taxable turnover at the rates and subject to such conditions and
restrictions as may be prescribed from time to time.
Input Tax (Section16)
Input tax in relation to a registered dealer means the tax charged under this Act by the
selling dealer from whom such dealer has purchased the goods for resale or for use in
manufacturing or processing of goods for sale or for directly use in mining or use as
containers or packing materials or for the execution of works contract.
Tax Payable and Input Tax Credit exceeding tax Liability (Section 17, 19 & Rule 25)
The tax payable by a registered dealer for any tax period can be determined with the
following formula:
Tax payable = (O+P)-I
Where 'O' = Output tax payable for any tax period as determined u/s 15.
‘P’ = Purchase tax paid for any tax period as determined u/s 10.
'I' = Input tax paid or payable for the said tax period. If the amount calculated is
negative, it
means the dealer is having Input Tax Credit exceeding tax liability as per Section 19
and-
(a) the same shall be adjusted against the tax liability, if any, under the Act as well
as under the Central Sales Tax Act, 1956.
(b) any amount of credit, remaining even after such adjustment shall be carried
forward to the next tax period(s)
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The tax payable by a dealer liable to pay tax but not registered under this Act for a tax
period shall be equal to the output tax payable for the said tax period as determined under
Section 15 and no deduction of Input Tax Credit shall be allowed.
Rule 25 : Tax payable on a taxable turnover shall be calculated by multiplying the rate of
VAT specified in the Act with the Sale Price of the transaction. Where the Sale Price is
inclusive of Tax, VAT payable shall be calculated by the formula
Rate of Tax X Sale Price
100+Rate of Tax
Input Credit
“This chapter deals with section 18, 19, 21 and 24 of Jharkhand Value Added Tax Act, 2005
and Rule 15, 26, 30 of Jharkhand Value Added Tax Rules, 2006.”
Basic Concept and availability of Input Tax Credit
Input Tax Credit is the crux of every Value Added Tax System of Taxation. The Input Tax
Credit is allowed to a Registered Dealer in respect of tax paid by him against purchase of
goods. In Central Excise this Credit is known as CENVAT and in Value Added Tax it has been
termed as Input Tax Credit.
Input Tax credit shall be allowed:
(a) on purchase of goods made within the State of Jharkhand
(b) from a registered dealer
(c) holding a valid certificate of registration
(d) and which are intended for the specified purposes
Specified purposes are as follows :
(a) sale or resale by him in the State of Jharkhand or
(b) sale in course of interstate trade and commerce or
(c) use as raw material and for direct use in manufacturing or processing of
goods for sale, or for directly use in mining, or for use as capital goods.
(d) sale in the course of export out of the territory of India; or
(e) for use as containers for packing of goods for sale or resale or for export out
of the territory of India.
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(f) sale by a dealer having business under a SEZ; or a STP; or a EHTP; or by an
EOU.
(g) sale by dealers having business, located within SEZ to another unit located in
SEZ.
(h) sale by dealers: inter-alia between whose units are referred to as, Export
Oriented Units.
(i) sale by dealers, whose business is located within SEZ, to another unit as:
"Export Oriented Unit".
However, in respect of clause (c) and (e) if the purchased goods are intended for use in
manufacturing/packing of goods which are exempt from tax or goods which are specified in
Part E of Schedule II Credit shall not be available
Subject to such conditions and restrictions as may be prescribed, partial or proportionate
input tax credit may be allowed in such cases where the purchased materials are partly
used or consumed for specified purposes.
Input Tax Credit on Capital Goods
Input Tax credit on capital goods shall be limited to plant, machinery and equipment
directly connected with the manufacturing or processing of the finished products and
directly for use in mining. ITC on Capital Goods is not available in respect of items
mentioned in Appendix I of this Act. These items are mainly those which are used in Civil
Construction or Offices and not used in production activities. Input tax credit on Capital
Goods shall commence from the date of commencement of commercial production and
shall be adjusted against tax payable on output, up to the period of three years. In case of
closure of business before the period specified above no further input tax credit shall be
allowed and input tax credit carried forward, if any, shall be forfeited. Input tax credit for
"start up business" period shall be limited to the immediately last three preceding years,
from the date of commencement of its commercial production.
This means that Input Tax Credit on Capital Goods purchased 3 years before the date of
production shall not be available.
Rule 26(2) provides that where an existing Industrial undertaking undertakes expansion,
modernisation or diversification following an Industrial policy the ITC on Capital Goods shall
be allowed in 36 equal monthly instalments, and the ITC shall be claimed from the first
return from the date of commencement of commercial sales.
Rule 26(2) provides that if the ITC remains unadjusted after 36 months, no further
adjustments shall be allowed from the VAT payable by such dealers.
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Other Conditions for availing ITC
Section 18(6) Input Tax credit shall be claimed by the dealer in the tax period in which the
dealer receives the tax invoice in original containing the prescribed particulars of the sale
evidencing the amount of input tax paid. Provided that for good and sufficient reasons, to
be recorded in writing, where a registered dealer is prevented from producing the Tax
Invoice in original, the prescribed authority may allow, such input tax credit as prescribed.
Rule 26(3) provides that where Original Tax Invoice has been lost ITC may be allowed on
the basis of duplicate copy.
Section 18(7): A registered dealer who intends to claim input tax credit shall, for the
purpose of determining the amount of input tax credit, maintain accounts, and such other
records as may be prescribed in respect of the purchases, entry of scheduled goods into a
local area and sales made by him in the State of Jharkhand.
Section 18(10): The methods that are used by a registered dealer in a tax period to
determine the extent of availing the Input Tax Credit shall be fair and reasonable or as
prescribed. In the circumstances if any other methods are used, the prescribed authority
may, after giving sufficient reason in writing, reject the method adopted by the registered
dealer and calculate the amount of input tax credit after giving the registered dealer
concerned an opportunity of being heard.
Situations where ITC shall not be allowed
Section 18(8): No ITC shall be claimed or allowed to a registered dealer :
(i) In respect of any taxable goods under this Act purchased by him from
another registered dealer for resale but given away by way of free sample or
gift;
(ii) Who has been permitted by the Commissioner to make payment of
presumptive tax or under scheme of composition at a percentage of
turnover of sales or otherwise in lieu of tax as provided under Section 22 and
58;
(iii) In respect of capital goods, other than those directly used for manufacturing
or processing of goods for sale or in mining;
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(iv) In respect of goods brought from outside the State against the tax paid in
other States or otherwise;
(v) In respect of stock of goods remaining unsold at the time of closure of
business;
(vi) In respect of goods purchased on payment of tax, if such goods are not sold
because of any theft or otherwise;
(vii) Where the tax invoice is –
(a) Not available with the dealer, or
(b) There is an evidence that the same has not been issued by the selling
dealer from whom the goods are purported to have been purchased;
(viii) In respect of goods purchased from a dealer whose certificate of
registration has been suspended;
(ix) in respect of goods used for manufacture of goods for transfer of stock, or
other than by way of sale or for sale outside the State of Jharkhand;
Provided that in respect of transactions falling under this clause, input tax
credit may be allowed on the tax paid in excess of 4% on the materials used
in the manufacture of the finished products.
(x) in respect of sales exempted from tax as specified in Schedule I;
(xi) in respect of capital goods used for manufacturing or processing of goods for
sale or directly for use in mining, where the finished products are dispatched
other than by way of sales;
(xii) capital goods mentioned in negative list as in appendix I;
(xiii) goods mentioned in Part E of schedule II of the Act;
The State Government may, by notification in the official gazette, specify any goods or class
of dealers that shall not be entitled to full or partial input tax credit.
Reverse Tax Credit
Where ITC has already been availed by a registered dealer and a part of which is used in
manufacturing of exempted goods, the ITC so availed for that part of goods shall be
deducted from the ITC already availed for that tax period in which such event takes place.
(Applicable where separate account is kept for purchases used in taxable and exempted
goods).
Where separate accounts are not kept, the “Reverse Tax Credit” shall be calculated by
following formula:
ITC availed in that period X Sale Value of Exempt Goods in a tax period
Total Sale Value of Goods manufactured during that period
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Where a Registered dealer is selling taxable goods, and a part of which is damaged or
destroyed, Reverse Tax Credit shall be calculated as follows :
ITC availed in that period X Estimated Value of Goods damaged or destroyed
Total Sale Value of Goods (including estimated value of damaged/destroyed goods)
Where goods purchased are returned to the selling dealer and necessary adjustment is
made in their respective accounts the purchasing dealer shall “Reverse” the ITC already
availed in respect of that part of goods. Where as a result of deduction of “Reverse Tax
Credit” there is a negative balance in the ITC for that Tax period it shall be demanded as tax
dues in Form JVAT 308 and shall be recovered as arrear of tax dues.
Input tax credit exceeding tax liability (Section 19)
If the input tax credit of a registered dealer other than an exporter selling goods outside
the territory of India determined under Section 18 of this Act for a period, exceeds the tax
liability for that period, the excess credit shall be set off against any outstanding tax
payable, penalty or interest payable under this Act as well as CST Act 1956. The excess
input tax credit after such adjustment may be carried over as an input tax credit to the
subsequent period or periods. In case where input tax credit is carried forward, a quarterly
credit statement may be submitted by the dealer concerned and the claims shall be
scrutinised by the prescribed authority.
However, no Input Tax Credit shall be admissible when there is Nil turnover for consecutive
period of 3 months.
“Input Tax Credit can also be utilised for payment of Penalty and Interest which is in
contrast to the CENVAT system under Central Excise, where Input Credit can be utilised
for payment of duties only.”
Adjustment of Input Tax Credit (Section 21)
Where any purchaser receives a credit note or debit note in terms of Section 24 or if he
returns or rejects goods purchased, it may result in less or excess Input Tax Credit as
originally availed by him. The dealer shall compensate such less credit or excess credit by
adjusting the amount of tax credit allowed to him in respect of the tax period in which the
credit note or debit note has been issued or goods are returned subject to conditions as
may be prescribed.
Credit Notes and Debit Notes (Section 24, Rule 30)
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Where a tax invoice has been issued and the amount shown as tax charged in the tax
invoice
(a) exceeds the Tax payable under this Act
(b) is found to be less than the amount of tax payable under the Act
the registered dealer making the sale shall provide the purchaser with a credit note (in
respect of (a)) and debit note (in respect of (b)) containing the requisite particulars as may
be prescribed.
In case of goods returned or rejected by the purchaser, a credit note shall be issued by the
selling dealer to the purchaser and a debit note will be issued by the purchaser to the
selling dealer containing such particulars as may be prescribed.
Notwithstanding anything contained in this section, wherever after issuing tax invoice any
credit notes are to be issued for any discounts or sales incentives by any registered dealer
to another registered dealer, the selling dealer shall pass a credit note without disturbing
the tax component on the price in the original tax invoice.
Registration and Its Amendment, Cancellation, Suspension of Registration
“This chapter deals with section 25 to 28 of Jharkhand Value Added Tax Act, 2005 and Rule
3 , 3A, 3B , 4 to 12 of Jharkhand Value Added Tax Rules, 2006.”
Compulsory Registration of Dealers (Section 25 , Rule 11)
Registration of Dealers liable to pay tax
As per Section 25(1) of The Act, every dealer who is liable to pay tax, shall not carry on
business as dealer unless he has been registered under this act and possesses a certificate
of registration. A time of one month from the date from which he is first liable to pay tax
has been granted to obtain the Registration. Every Dealer required to be registered shall
make application in this behalf in the prescribed manner to the prescribed authority and
such application shall be accompanied by a declaration in the prescribed form dully filled in
and signed by the dealer specifying therein the class or classes of goods dealt in or
manufactured by him. If the said authority is satisfied that the application is in order, he
shall grant Registration to the Applicant and issue a certificate of registration in the
prescribed form which shall specify the class or classes of goods dealt in or manufactured
by him.
Registration of Manufacturers and Power companies
Notwithstanding that a person is not liable to pay tax u/s 8 of the Act, he may get himself
registered under the Act, if he is intending to establish a business in the state:
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(i) For manufacture of taxable goods for sale of value exceeding ` 50,000/-
in a year and who is registered in the Industries Department of State
Government.
(ii) for generation or distribution of electricity or any other form of power or
in the telecommunication network.
Dealers falling under clause (i) above shall be treated as Start-up business. Further, Rule 11
specifies that a dealer who meets all the following conditions shall be treated as Start-up
business :
 Intending to set up a factory to manufacture taxable goods.
 Anticipates making first taxable sales within the next three years.
 Anticipates applying for VAT Registration within next three years.
Such dealer shall be registered for a maximum period of 36 months.
Situation Consequences
If Taxable Sales are made before 36 months
Registration under start up business shall
cease and dealerwill get Registration u/s 25(1)
i.e. compulsory Registration
If no taxable sales are made at the end of 36
months
Registration shall be cancelled as per the
provisions of Rules
Voluntary registration of dealers (Section 26, Rule 10)
Section 26(1) of the Act prescribes that every dealer whose gross turnover of sales during a
financial year exceeds ` 25,000/- may apply for registration in the prescribed manner to the
prescribed authority.
Every dealer who is registered under this section shall be liable to pay tax till the
registration remains in force.
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Once registration is obtained it shall continue to be in force for a period not less than three
complete years and shall remain in force thereafter unless cancelled under this Act.
Rule 10: A dealer taking Voluntary Registration shall fulfill the following requirements:
(a) The dealer shall be making taxable sales. It means dealers dealing in exempted
goods only cannot take voluntary registration.
(b) The dealer shall have a prominent place of business owned or leased or rented
in his name.
(c) The dealer shall have a bank account
(d) The dealer shall not have any tax arrears outstanding under the Repealed Act or
CST Act, 1956.
(e) The dealer shall maintain the full accounts and records required for VAT.
(f) The dealer shall file accurate and timely VAT returns and pay any tax due.
(g) The dealer shall remain registered for 36 months from the date of registration.
Previous Sanction of Commissioner is required before giving Registration under this
section. [Inserted w.e.f. 02-07-2014]
Procedure for Registration (Rule 3, 3A, 3B, Rule 4)
Category of registration Applicable form
Compulsory Registration/Voluntary Registration JVAT 101
Presumptive/Composition Scheme JVAT 103
Start-up Business JVAT 102
 Application is required to be made online on the link
http://jharkhandcomtax.gov.in:8080/viconline/DoRegister?step=1
 At present Digital Signature is not required.
For compulsory/voluntary registration
http://jharkhandcomtax.gov.in/commercialtax/sites/default/files/service_
support_attachment/e-registration.pdf
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For presumptive/composition registration
http://jharkhandcomtax.gov.in/commercialtax/sites/default/files/service_
support_attachment/Comp_delr.pdf
 Following is an Illustrative List of documents required for obtaining Registration
a. Application Form in JVAT 101 along with Annexures.
b. Affidavit that all the information are correct
c. Security Bond as per Rule 5. ** discussed later
d. Copy of Partnership Deed/MOA-AOA/Trust Deed etc.
e. Copy of certificate of Incorporation
f. Copy of PAN Card
g. 2 photographs of Applicant (proprietor in case of proprietorship, all partners
in case of partnership, MD/Director/Authorised signatory in case of
Companies, Karta in case of HUF, authorised signatory in all other cases)
h. Address Proof of Applicant.
i. Bank Account details
j. E-mail ID & Mobile Number.
k. List of items of sale / Purchase
l. Nature of business
m. First purchase bill
n. First sale bill which makes the dealer liable
o. Resolution authorising the Principal officer to deal with sales tax authorities.
The above list is illustrative only and the prescribed authority may require such documents
for its satisfaction as may be deemed necessary.
On making online application, the applicant shall receive an acknowledgement number for
further reference. The said electronic application shall be verified and the applicant shall be
informed within 2 days to be present within 2 days before the prescribed authority with
the requisite documents.
On such specified date, the dealer shall file the duly signed hard copy of Form JVAT 101
along with all the annexures and an affidavit that the contents of the said Application are
true and correct. The applicant shall also furnish Security as per Rule 5 along with the
Application forms. The prescribed authority after being satisfied and subject to rule 5 shall
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issue Registration Certificate in JVAT 106 within 1 day after the hard copy of Form JVAT 101
along with all annexures and other documents have been filed.
Security (Rule 5)
The changes are being discussed below. W.e.f 13/08/2015 under section 74 of Jharkhand
Value Added Tax Act 2005 and Rule 3 (iv) 3A, 3B of Jharkhand Value Added Tax rule 2006.
Category of Registration Applicable Amount
Only VAT Registration Nil
Importer/ Manufacturer (JVAT 115) 50000/-
CST Registartion (Form X) 50000/-
Forfeiture of Security
The prescribed authority may forfeit whole or any part of the security furnished by the
dealer for :
(a) Realising or recovery of tax or any other sum due.
(b)Recovery of any financial loss caused to the State Government due to
negligence or default in not making proper use of or not keeping in
safe custody, blank or unused forms of way bill.
Where such security is forfeited in whole or in part, the dealer shall furnish fresh or further
security of the requisite amount within such period or such time as may be specified by the
prescribed authority.
Refund of security
The prescribed authority may, on an application made by the dealer, order refund of the
security or any part thereof if such security is not required for the purpose for which it was
furnished.
Certificate of Registration ( Rule 6)
The certificate granted in Form JVAT 106 after verification of application (single registration
to dealer having more than one place of business.)
Dealer deemed to be registered from:
(a) Date of receipt of application, or
(b) Date of becoming liable to pay tax.
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The Certificate of Registration shall be displayed in a conspicuous place at the place of
business. The certificate of Registration is not transferable. The Registering Authority may
issue a duplicate certificate on payment of prescribed fee in cases where the certificate of
registration is lost, destroyed, defaced or mutilated. The registering authorities shall, after
such verification as the case may be necessary and after obtaining as affidavit, in case of
loss or destruction, issue to the dealer a copy of the original certificate, after stamping and
making in “Red Colour” thereon the words, “Duplicate copy”.
The prescribed/Registering authority has not been defined under the Act. However, the in-
charge of every circle within whose jurisdiction the place of business falls is the Registering
Authority.
Cancellation of VAT Registration (Section 25(5), Rule 8)
On Application by the dealer
Where a Registered dealer ceases to carry on the business, an Application shall be made
before the prescribed authority within 30 days of closure of business for cancellation.
Where the taxable turnover of the dealer did not exceed the specified quantum as
specified in Section 8(5) during preceding period of 3 consecutive years the dealer shall
apply for cancellation of Registration.
Application is required to be made in JVAT 105.
The cancellation shall be intimated in Form JVAT 111 by department of commercial Tax.
If the Registering authority refuses to cancel the Registration he shall intimate the dealer
within 14 days of receipt of JVAT 105.
Suo Moto cancellation by the authority
The registering authority may cancel the registration of the dealer in any of the following
circumstances:
 If the dealer is not entitled for Registration u/s 25 or 26 of The Act.
 The dealer is not complying with the provisions of the Act and Rules.
 The dealer has not kept proper accounting records relating to any business activity
carried on by him.
 The dealer has not submitted correct and complete Tax returns.
The authority prescribed shall issue a notice in Form JVAT 112 to the dealer before
compulsory cancellation of Registration.
63 | P a g e
Suspension of Registration Certificate (Section 25(7) to 25(9), Rule 9)
The registering authority may suspend the registration certificate of registered dealer
where such dealer has:
 Failed to pay the tax or interest or penalty payable under this Act; or
 Failed to furnish the monthly return as prescribed in rule 14; or
 Knowingly furnished incomplete or incorrect returns; or
 Failed to account for Tax/Retail invoice; or
 Discontinued the business without information with an intention or attempt
to evade tax; or
 Prevented or obstructed any survey, inspection, entry, search or seizure
Where the registration of any dealer is suspended, such dealer shall be immediately
intimated in Form JVAT 306 with a direction to produce records, documents and evidence
on such date, time and place as may be specified. Every dealer whose registration is
suspended shall surrender all the unutilised forms which have been authenticated by the
prescribed authority. Where the suspension is restored or subsequently cancelled, the
restoration or cancellation shall take effect from the date mentioned in the order restoring
or cancelling the certificate of registration.
Returns
Periodical Returns and Payment of Tax etc. (Section 29, Rule 14)
Filing of Returns by Registered Dealers
Section 29(1): Every registered dealer shall furnish true, complete and correct return in
such form for such period, by such dates and to such authority, as may be prescribed.
Provided that the prescribed authority may, subject to such conditions and restrictions as
may be prescribed, exempt any such dealer or class of dealers from furnishing such returns
or permit any such dealer;
(a) to furnish them for such different periods; or
(b) to furnish a consolidated return relating to all or any of the places of business
of the dealer in the State of Jharkhand for the said period or for such different
periods and to such authority, as he may direct.
64 | P a g e
Following Returns are required to be filed
Payment of Tax
Section 29(4): Every dealer required to file return shall pay the full amount of tax payable
according to the return or the differential tax payable according to the revised return
furnished, if any, into the Government Treasury or in such other manner as may be
prescribed, and shall furnish along with the return or revised return, as the case may be, a
receipt showing full payment of such amount.
If the due date of payment falls to be a Holiday, the next working day shall be treated as
due date for payment.
Signing of Return
Section 29(5): Every return under this Section shall be signed and verified-
65 | P a g e
Return Defaults (Section 30)
Payment of Interest u/s 30(1)
If a dealer (both registered and unregistered) who is required to file return
a) fails without sufficient cause to pay the amount of tax due as per the return
for any tax period; or
b) furnishes a revised return showing a higher amount of tax to be due than
was shown by him in the original return; or
c) fails to furnish return;
It shall be treated as default for the purpose of this section.
Quantum of interest for default:
Such dealer shall be liable to pay interest and penalty in respect of;
a. the tax payable by him according to the return; or
b. the difference of the amount of tax according to the revised return; or
c. the tax payable for the period for which he has failed to furnish return;
d. for the period he fails to furnish return including monthly abstract
at the rate of 3% per month for the first 3 months and 5% for subsequent month(s)
substituted by the word 1% per month w.e.f. 02-07-2014] from the date the tax payable has
become due to the date of its payment or to the date of order of assessment, whichever is
earlier.
A PROJECT REPORT ON TAX REFORMS
A PROJECT REPORT ON TAX REFORMS
A PROJECT REPORT ON TAX REFORMS
A PROJECT REPORT ON TAX REFORMS
A PROJECT REPORT ON TAX REFORMS
A PROJECT REPORT ON TAX REFORMS
A PROJECT REPORT ON TAX REFORMS
A PROJECT REPORT ON TAX REFORMS
A PROJECT REPORT ON TAX REFORMS
A PROJECT REPORT ON TAX REFORMS
A PROJECT REPORT ON TAX REFORMS
A PROJECT REPORT ON TAX REFORMS
A PROJECT REPORT ON TAX REFORMS
A PROJECT REPORT ON TAX REFORMS
A PROJECT REPORT ON TAX REFORMS
A PROJECT REPORT ON TAX REFORMS
A PROJECT REPORT ON TAX REFORMS
A PROJECT REPORT ON TAX REFORMS
A PROJECT REPORT ON TAX REFORMS
A PROJECT REPORT ON TAX REFORMS
A PROJECT REPORT ON TAX REFORMS
A PROJECT REPORT ON TAX REFORMS
A PROJECT REPORT ON TAX REFORMS
A PROJECT REPORT ON TAX REFORMS
A PROJECT REPORT ON TAX REFORMS
A PROJECT REPORT ON TAX REFORMS
A PROJECT REPORT ON TAX REFORMS
A PROJECT REPORT ON TAX REFORMS
A PROJECT REPORT ON TAX REFORMS
A PROJECT REPORT ON TAX REFORMS
A PROJECT REPORT ON TAX REFORMS
A PROJECT REPORT ON TAX REFORMS
A PROJECT REPORT ON TAX REFORMS
A PROJECT REPORT ON TAX REFORMS
A PROJECT REPORT ON TAX REFORMS
A PROJECT REPORT ON TAX REFORMS
A PROJECT REPORT ON TAX REFORMS
A PROJECT REPORT ON TAX REFORMS
A PROJECT REPORT ON TAX REFORMS
A PROJECT REPORT ON TAX REFORMS
A PROJECT REPORT ON TAX REFORMS
A PROJECT REPORT ON TAX REFORMS
A PROJECT REPORT ON TAX REFORMS
A PROJECT REPORT ON TAX REFORMS
A PROJECT REPORT ON TAX REFORMS
A PROJECT REPORT ON TAX REFORMS
A PROJECT REPORT ON TAX REFORMS
A PROJECT REPORT ON TAX REFORMS
A PROJECT REPORT ON TAX REFORMS
A PROJECT REPORT ON TAX REFORMS

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A PROJECT REPORT ON TAX REFORMS

  • 1. 1 | P a g e
  • 2. 2 | P a g e
  • 3. 3 | P a g e A PROJECT REPORT ON “Indian Tax Structure and Reforms” Submitted By DEBKUMAR GANGULY 2015-2016 Submitted To INDIAN SCHOOL OF BUSINESS MANAGEMENT & ADMINISTRATION
  • 4. 4 | P a g e NEED FOR THE STUDY:  Reform Taxation system by implementing GST (Goods and service Tax)  Need to understand how government raise their fund to run government and provide services to the public.  The purpose of the study is to get detailed knowledge about VAT of Jharkhand and GST System in India.  The purpose of the study is to help the Tax Payer to briefly understand the need for charging Tax and the benefits out of GST. OBJECTIVES OF THE STUDY  To discuss reforms in Indian economy by new Tax structure.  To study various benefits of Direct and Indirect Tax.  To find out nature of Tax activity & application of Law.  To find out the background of VAT, it’s Implementation and summary of Jharkhand VAT.  Preliminary discussion on Goods and service Tax.  To find out the background and planning of effective GST.
  • 5. 5 | P a g e Executive Summary For any research assignment,a proper planningis required and the same holds true in case of present study.This project is titled as “INDIAN TAX STRUCTURE AND REFORMS”. The reasons behind choosing this project is that,I find this subject is very interesting and challenging, It is the biggest source of Government fund and as a part of a Taxation team since last 7 years in ‘Lafarge India Pvt. Ltd’ company (one of the world’s biggest Manufacturer of Cement), I would love to prepare this project. The historyof this company is ‘Starting out in 1833 as a limestone mining company, Lafarge transformed itself and now has a presence in 61 countries. 1864 –First Major project, the Suez Canal, 1887- first research laboratory of cement in the world, 1921- first patent for white cement etc. This company specialised in Cement over the period of 182 years. This project is divided in two main parts that is Direct and Indirect Tax in India. VAT is the indirect tax on the consumption of the goods, paid by its original producers upon the change in goods or upon the transfer of the goods to its ultimate consumers. It is based on the value of the goods, added by the transferor. VAT implemented in India from 1st April 2005. INTRODUCTION
  • 6. 6 | P a g e Reform Taxation system by implementing GST (Goods and service Tax) In free market economies, governments play an important role by intervening to correct market failures. These are situations where the markets fail to allocate resources in an optimum manner for provision of various goods and services. The most notable example is that of so-called 'public goods' that are meant for public consumption, such as defence, law and order, health and education. Taxes are the only means for financing the public goods because they cannot be priced appropriately in the market. They can only be provided by governments, funded by Taxes. It is important the tax regime is designed in such a way that it does not become a source of distortion in the market or result in market failures. The tax laws should be such that they raise a given amount of revenue in an efficient, effective and equitable manner. However, under most tax systems this remains a distant goal and the governments use the tax system for multiple social, economic, and political objectives, which create complexities in tax administration, undermine the objective of fairness, and lead to misallocation of resources in the economy. Reforms are needed from time to time to flush out the undesirable elements of the tax system and restore efficiency, fairness and equity. The Indian tax system is no exception and leaves a lot to be desired. The modern tax systems comprise of very broad-based taxes on income and consumption, levied at uniform and moderate rates. In India, taxes on both income and consumption fall far short of this ideal. The base is narrow and the rates very high. In the case of consumption taxes, the constitutional division of powers between the Centre and the states is such that neither can levy a tax on the comprehensive base of consumption of all goods and services. While income tax can be levied by the Centre on a reasonably comprehensive base, it is not being done so because of special provisions catering to multiple, social, political and economic objectives and the vested
  • 7. 7 | P a g e interests of different segments of population. In the process, the tax system has become highly inefficient, comes in the way of optimum allocation of resources for production and consumption, and undermines investments and economic growth. Compounding the ills of the bad design of these taxes, are the weaknesses of tax administration. In a recent review of the state of tax administration in India, the Tax Administration Reform Commission (TARC) has observed that "? the Indian tax administration is at its rock bottom. A fundamental and deep reform is urgently called for. There is no time to lose if investment is to be revived and its full potential reached, and an eventual tax revolt through capital flight or other direct protests is to be averted". The state of Indian tax administration is also reflected in the World Bank Report on Doing Business in India, 2015 which ranks India at a dismal 156 out of 189 countries in terms of ease of paying taxes. Rightfully, the governments have embarked on the reform of the tax system and there have been extensive debates surrounding the reforms. Two landmark reforms are the Goods and Services Tax (GST) and the Direct Taxes Code (DTC). GST would indeed be the most important initiative in the fiscal history of India. The ultimate objective of the GST reform is to replace multiple indirect taxes at the Centre and state levels by a single tax (GST), levied on a comprehensive base of all goods and services at a moderate tax rate. A vision of this reform is provided in the report of the 13th Finance Commission which outlines the design of a flawless GST levied at a moderate tax rate of 12 per cent (combined Centre and states tax rates). Unfortunately, the states have been reluctant to endorse this flawless GST for various social and political reasons. The model that is being talked about will have some important exclusions from the tax base (e.g. real property, alcohol
  • 8. 8 | P a g e and petroleum). The states have also proposed tax to be levied at multiple rates - a lower rate for basic necessities and higher rate for other goods and services. International evidence suggests that such deviations in the design of GST are neither economically desirable nor effective in achieving the objectives that they are designed to serve. For example, a recent OECD report points out that the exemptions and lower tax rates under VAT (value-added tax)/ GST, while designed to help those in the lower-income brackets, benefit disproportionately those in the higher-income brackets. The governments are considering the revenue neutral rates to be as high as 27 per cent. No country in the world has been able to successfully implement a tax at such a high rate. More importantly, application of such a high tax rate to the service sector would be highly detrimental to the sector, which has been the engine of growth for India. Rather than contributing to higher investments and economic growth, a tax at these rates would lock us back at a Hindu growth rate of 4 per cent. Pending the GST implementation, the states are pursuing tax policies that are immensely detrimental to the economy. For instance, Punjab has converted its VAT on most consumer goods from a multi-point tax on the full supply chain to a tax at the first point of sale. Uttar Pradesh has announced that for many transactions the VAT, rather than being collected and remitted by the vendor, will be deducted from the price by the customer and remitted directly to the government. Many states, most notably Tamil Nadu, Karnataka and Gujarat, are denying the credit for the tax paid on investments and other production inputs. Another landmark reform is the DTC, proposed by the government in 2010. The design of this income tax reform has been contentious from the very inception. While its objectives were to broaden the base and lower the rates, there was no consensus on how the base should be broadened.
  • 9. 9 | P a g e Most of the reform proposals in the DTC have been modified to such an extent that what is left is only a little different from the status quo and amounts to little more than re-wording of the same provisions. Rather than proceeding with this package, there is a need to go back to the drawing board and redesign the direct tax system so that it has a broad base and moderate tax rate of around 25 per cent. Also, in the global economy of today, the Indian tax system should be fully aligned with that of our trading partners. On the tax administration front, TARC has provided an excellent diagnosis of the ills of the current tax administration and made many thoughtful recommendations. It emphasises that in modern tax jurisdictions, the goal of tax administration is not to maximise revenue but to maximise voluntary compliance and minimise compliance gaps. The current practice of blind pursuit of revenue targets has an adverse impact on tax officer equilibrium and leads to harassment of taxpayers. The TARC Report calls for all processes to be modernised to the point of making them 'digital by default'. Other feature that needs attention is the minimisation of tax disputes. The growing volume of tax disputes in India has earned the tax administration the label of "tax terrorism" and has given India a bad name in jurisdictions across the world. This has been the single most important factor contributing to the downturn in investments and economic growth. The new government has appropriately provided a new direction to tax reforms in India and revived the hopes of Indian economy resuming its journey on the high growth trajectory. The reform of both direct and indirect taxes and the tax administration is fundamental to achieving these objectives of the government. _______________________________________________________________
  • 10. 10 | P a g e DIRECT TAX INDIRECT TAX Personal Income Tax Vat Tax Wealth Tax Excise Duty Corporate Tax Custom Duty ProfessionalTax ServiceTax Entertainment Tax 1 2 3 4 5 1 2 3 4 TAXATION IN INDIA
  • 11. 11 | P a g e Evolutionary Tax System in India The basic framework for the tax system in independent India was provided in the constitutional assignment of tax powers. The important feature of the tax assignment is the adoption of principle of separation in tax powers between the central and state governments. It assigned the major broad based and mobile tax bases to the centre and these included taxes on non-agricultural incomes and wealth, corporation income tax, customs duties, and excise duties on manufactured 12 products. Over the years, the last item has evolved into a manufacturers’ VAT on goods. The major tax powers assigned to the states include taxes on agricultural incomes and wealth, sales taxes, excises on alcoholic products, taxes on motor vehicles, passengers and goods, stamp duties and registration fees on transfer of property, and taxes and duties on electricity. They also have powers to levy taxes on entertainment, taxes on professions, trade, callings and employment and these have been exercised by the states themselves in some states and in others they have been assigned to local bodies. Although the state list also includes tax on property and tax on the entry of goods into a local area for consumption, use or sale, these have been assigned to local bodies. The central government levied tax on selected services on the basis of the residuary entry in the Union list from 1994, but in 2003, power to tax services was specifically assigned to it. Central Government levies taxes on the following:  Income Tax: Tax on income of a person  Customs duties: Duties on import and export of goods  Central excise: Taxes on Manufacturing of dutiable goods  Service tax: Taxes on provision of services
  • 12. 12 | P a g e State Governments can levy the following taxes:  Value Added Tax (VAT): This is tax on sale of goods. While intra-state sale of goods are covered by the VAT Law of that state, inter-state sale of goods is covered by the Central Sales Tax Act. Even the revenue collected under Central Sales Tax Act is done so by the State Governments themselves and actually the Central Government has no role to play so.  Stamp duties and Land Revenue: Since land is a matter on which only State Governments can govern, thus the Stamp duties on transfer of immovable properties are levied by State Governments.  State Excise on Liquor and certain agricultural goods.
  • 13. 13 | P a g e Detail discussion on ‘TAX STRUCTURE’
  • 14. 14 | P a g e Direct And Indirect Tax Graphically For Last Five Year INDIRECT TAX ACTUAL COLLECTIONS (In Crores) FIN. YEAR CUSTOMS UNION EXCISE SERVICE TAX TOTAL 1995-96 35757 40187 862 76806 1996-97 42851 45008 1059 88918 1997-98 40193 47962 1586 89741 1998-99 40668 53246 1957 95871 1999-00 48420 61902 2128 112450 2000-01 40268 72555 3302 116125 2001-02 44852 82310 4122 131284 2003-04 48629 90774 7891 147294 2004-05 57566 99401 14134 171101 2005-06 65049.64 110664.75 23052.95 198767.34 2006-07 86304 117088* 37484 240876 2007-08 102852 122711* 51133 276696** 2008-09 99708 104141 60716 264565 Direct Taxes DIRECT TAX ACTUAL COLLECTIONS (In Crores) FIN. YEAR Corporate Tax Personal Income Tax* Other Direct Taxes TOTAL 1995-96 16487 15592 1485 33564 1996-97 18567 18234 2094 38895 1997-98 20016 17101 11163 48280 1998-99 24529 20240 1831 46600 1999-00 30692 25655 1612 57959 2000-01 35696 31764 845 68305 2001-02 36609 32004 585 69198 2002-03 46172 36866 50 83088 2003-04 63562 41386 140 105088 2004-05 82680 49268 823 132771 2005-06 101277 63689 250 165216 2006-07 144318 85623 240 230181 2007-08 192911 118962 340 312213 2008-09 213395 120034 389 333818 2009-10 244725 132833 505 378063 2010-11 298688 147560 687 446935 2011-12# 323224 170788 787 494799 *2012-13 (up to Jan 20130 248131 141494 685 390310
  • 15. 15 | P a g e Under the Income Tax Act, 1961 The Central Government levies direct taxes on the income of individuals and business entities as well as Non business entities also. The taxation level depends on the residential status of individuals. The thumb rule of residential status is that an individual becomes resident in India if he has remained in India for more than 182 days in a particular residential year. If he becomes resident in India, then his global income i.e. income earned even outside India is taxable in India. This has to be noted very carefully by Expatriates on deputation to India. They need to plan their stay in such a manner as to avoid becoming a resident in India. The following para explains this in a slightly more detailed manner: Tax Resident An individual is treated as resident in a year if present in India:
  • 16. 16 | P a g e 1. For 182 daysduringthe yearor 2. For 60 days duringthe yearand 365 days duringthe precedingfouryears. So an expatriate has to time his stay in India by taking into account the above. So what is taxable fora Resident but “Not Ordinarily Resident”? A resident who was not present in India for 730 days during the preceding seven years or who was non-resident in nine out of ten preceding years is treated as not ordinarily resident. A person not ordinarily resident is taxed like a non-resident but is also liable to tax on income accruing abroad if it is from a business controlled in or a profession set up in India. What is taxable fora Non-Resident? Non-residents are taxed only on income that is received in India or arises or is deemed to arise in India. He is entitled to get benefit of any double taxation avoidance agreement that his country of residence has signed with India. Then he shall be liable for taxes at rates mentioned in the Indian domestic tax laws or the rates mentioned in the Double Taxation Avoidance Agreement whichever is lower. What is taxable fora Resident? His global income is taxable irrespective of whether earned or related or received in India.
  • 17. 17 | P a g e Thus any expatriate needs to plan his stay so that he does not, unwittingly, become a Resident for tax purposes. Taxationslabs for Individualsfor the FY2015-16: 1. Individual resident aged below 60 year. Income Slabs Tax Rates Where the taxable income does not exceed Rs. 2,50,000/-. NIL Where the taxable income exceeds Rs. 2,50,000/- but does not exceed Rs.5,00,000/- 10% of amount by which the taxable income exceeds Rs. 2,50,000/-.Less ( in case of Resident Individuals only ) : Tax Credit u/s 87A – 10% of taxable income upto a maximum of Rs. 2000/- Where the taxable income exceeds Rs. 5,00,000/- but does not exceed Rs.10,00,000/-. Rs. 25,000/- + 20% of the amount by which the taxable income exceeds Rs. 5,00,000/-. Where the taxable income exceeds Rs. 10,00,000/-. Rs. 125,000/- + 30% of the amountbywhichthe taxable income exceeds Rs. 10,00,000/- 2. Individual resident who is of the age of 60 years or more but below the age of 80 years at any time during the previous year Income Slabs Tax Rates 1. Where the taxable income does not exceed Rs. 3,00,000/- NIL 2. Where the taxable income exceeds Rs. 3,00,000/- but does not exceed Rs. 5,00,000/- 10% of the amount by which the taxable income exceeds Rs. 300,000/-.Less : Tax Credit u/s 87A – 10% of taxable income upto a maximum of Rs. 2000/-.
  • 18. 18 | P a g e 3. Where the taxable income exceeds Rs. 5,00,000/- but does not exceed Rs. 10,00,000/- Rs. 20,000/- + 20% of the amountby whichthe taxable income exceeds Rs. 5,00,000/- 4. Where the taxable income exceeds Rs. 10,00,000/- Rs. 120,000/- + 30% of the amount by which the taxable income exceeds Rs. 10,00,000/-. 3. Individual resident who is of the age of 80 years or more at any time during the previous year Income Slabs Tax Rates 1. Where the taxable income does not exceed Rs. 5,00,000/- NIL 2. Where the taxable income exceeds Rs. 5,00,000/- but does not exceed Rs. 10,00,000/- 20% of the amount by which the taxable income exceeds Rs. 5,00,000/-. 3. Where the taxable income exceeds Rs. 10,00,000/- Rs. 100,000/- + 30% of the amount by which the taxable income exceeds Rs. 10,00,000/- Amounts invested in certain investments like Employee Provident Fund, Public Provident Fund, Tax saving Fixed Deposits, are also eligible for deduction under section 80C upto Rs.1,50,000 per year. Year Wise view of Income Tax Slab since 2009
  • 19. 19 | P a g e
  • 20. 20 | P a g e Corporate Taxation: The rate at which Corporate are taxed in India is 30% plus a 3% cess. Thus the total comes to 30.9%. Further if the taxable income is more than Rs. 10 million, then there is an additional surcharge of 12% on the base tax rate. DividendDistributionTax (DDT) Under Section 115-O of the Income Tax Act, any amount declared, distributed or paid by a domestic company by way of dividend shall be chargeable to dividend tax. So if a company declares divided, it has to pay an effective rate of 16.995% on the dividends declared. This is apart from the 30.9 % taxes mentioned above. The rationale for this tax is that after paying this tax, the dividend so declared becomes tax free in the hands of the recipient of dividend. Minimum AlternativeTax (MAT) Normally, a company is liable to pay tax on the income computed in accordance with the provisions of the income tax Act, but many a times due to exemptions under the income tax Act, there is huge actual profit as shown in the profit and loss account of the company but no taxable income. To overcome this issue, and in order to bring such companies under the income tax act net, the concept of Minimum Alternate Tax (MAT) has been introduced. The present rate of MAT is 19.05%. Personal Income Tax: Heads of Income
  • 21. 21 | P a g e The total income of a person is divided into five heads, viz., taxable Individual Heads of Income 1. Income from Salary All income received as salary under Employer-Employee relationship is taxed under this head. Employers must withhold tax compulsorily, if income exceeds minimum exemption limit, as Tax Deducted at Source (TDS), and provide their employees with a Form 16 which shows the tax deductions and net paid income. In addition, the Form 16 will contain any other deductions provided from salary such as: 1. Medical reimbursement: Up to Rs. 15,000 per year is tax free if supported by bills. 2. Conveyance allowance: Up to Rs. 800 per month (Rs. 9,600 per year) is tax free if provided as conveyance allowance. No bills are required for this amount. ** Revised amount of Conveyance allowance is Rs-1600 Per month w.e.f AY 2015-16. 3. Professional taxes: Most states tax employment on a per-professional basis, usually a slabbed amount based on gross income. Such taxes paid are deductible from income tax. 4. House rent allowance: the least of the following is available as deduction 1. Actual HRA received 2. 50%/40%(metro/non-metro) of basic 'salary' 3. Rent paid minus 10% of 'salary'. Basic Salary for this purpose is basic+DA forming part+commission on sale on fixed rate. Income from salary is net of all the above deductions. 2. Income from House property
  • 22. 22 | P a g e Income from House property is computed by taking what is called Annual Value. The annual value (in the case of a let out property) is the maximum of the following:  Rent received  Municipal Valuation  Fair Rent (as determined by the I-T department) If a house is not let out and not self-occupied, annual value is assumed to have accrued to the owner. Annual value in case of a self occupied house is to be taken as NIL. (However if there is more than one self occupied house then the annual value of the other house/s is taxable.) From this, deduct Municipal Tax paid and you get the Net Annual Value. From this Net Annual Value, deduct:  30% of Net value as repair cost (This is a mandatory deduction)  Interest paid or payable on a housing loan against this house In the case of a self occupied house interest paid or payable is subject to a maximum limit of Rs, 1, 50,000 (if loan is taken on or after 1 April 1999 and construction is completed within 3 years) and Rs.30, 000 (if the loan is taken before 1 April 1999). For all non self- occupied homes, all interest is deductible, with no upper limits. The balance is added to taxable income. 3. Income from Business or Profession An example... An architect works out of home and co-ordinates work for his clients. All the following expenses would be deductible from his professional fees.  he uses a computer,  he travels to sites in his car,  he has a peon to help him collect payments  He has a maid who comes in daily  part of the society maintenance bills  Entertainment expenses incurred...  Books and magazines for his professional practice.
  • 23. 23 | P a g e The computation of income under the head "Profits and Gains of Business or Profession" depends on the particulars and information available. If regular books of accounts are not maintained, then the computation would be as under: - Income (including Deemed Incomes) chargeable as income under this head xxx Less: Expenses deductible (net of disallowances) under this head xxx Profits and Gains of Business or Profession xxx However, if regular books of accounts have been maintained and Profit and Loss Account has been prepared, then the computation would be as under: - Net Profitas per Profitand Loss Account xxx Add: InadmissibleExpenses debited to Profit and Loss Account xxx Deemed Incomes not credited to Profitand Loss Account xxx Xxx Less: Deductible Expenses not debited to Profitand Loss Account xxx Incomes chargeableunder other heads credited to Profit & Loss A/c xxx xxx Profits and Gains of Business or Profession xxx Calculation of Income from Business Rs Rs N/Pas per P& L A/c. 57,000.00 Add: Donations 8,000.00 DepreciationCharged 5,000.00 Income Tax 2,000.00 Patent14000 X 13/14 13,000.00 28,000.00 Less: Income From Lottery 25,000.00 Depreciationtobe allowed 10,000.00 Expenditure notshowninP&L A/c 1,500.00 36,500.00 Income from Business 48,500.00 4. Income from Capital Gains
  • 24. 24 | P a g e Transfer of capital assets results in capital gains. A Capital asset is defined under section 2(14) of the I.T. Act, 1961 as property of any kind held by an assesse such as real estate, equity shares, bonds, jewellery, paintings, art etc. but does not include some items like any stock-in-trade for businesses and personal effects. Transfer has been defined under section 2(47) to include sale, exchange, relinquishment of asset, extinguishment of rights in an asset, etc. Certain transactions are not regarded as 'Transfer' under section 47. For tax purposes, there are two types of capital assets: Long term and short term. Long term asset are held by a person for three years except in case of shares or mutual funds which becomes long term just after one year of holding. Sale of such long term assets gives rise to long term capital gains. There are different scheme of taxation of long term capital gains. These are: 1. As per Section 10(38) of Income Tax Act, 1961 long term capital gains on shares or securities or mutual funds on which Securities Transaction Tax (STT) has been deducted and paid, no tax is payable. STT has been applied on all stock market transactions since October 2004 but does not apply to off-market transactions and company buybacks; therefore, the higher capital gains taxes will apply to such transactions where STT is not paid. 2. In case of other shares and securities, person has an option to either index costs to inflation and pay 20% of indexed gains, or pay 10% of non indexed gains. The indexation rates are released by the I-T department each year. 3. In case of all other long term capital gains, indexation benefit is available and tax rate is 20%. All capital gains that are not long term are short term capital gains, which are taxed as such:  Under section 111A, for shares or mutual funds where STT is paid, tax rate is 10% From Asst Yr 2005-06 as per Finance Act 2004. For Asst Yr 2009-10 the tax rate is 15%.  In all other cases, it is part of gross total income and normal tax rate is applicable. For companies abroad, the tax liability is 20% of such gains suitably indexed (since STT is not paid). Sale Considerationof the asset 100,000.00 Less: 1. Expenditure inconnectionwithtransfer 5,000.00 2. Cost of acquitionof the asset 7,000.00 3. Cost of improvementof the Asset 20,000.00 32,000.00 STCG 68,000.00
  • 25. 25 | P a g e Sale Considerationof the asset 200,000.00 Less: 1. Expenditure inconnection withtransfer 5,000.00 2. IndexedCostof acquitionof the asset 14,889.34 3. IndexedCostof improvementof the Asset 42,540.98 62,430.33 LTCG 137,569.67 ** IndexedCost Cost X Index # of the Year of Sale Index # of the Year of Acquisition 7000 X 519 (FY 2006-07) 244 (FY 1993-94) # ReferCost Inflation Index Table 5. Income from Other Sources This is a residual head; under this head income which does not meet criteria to go to other heads is taxed. There are also some specific incomes which are to be taxed under this head. 1. Income by way of Dividends 2. Casual Income 3. Any amount received from key man insurance policy as donation. 4. Income from shares (dividend other than Indian company) 5. Royalty 6. Examinership remuneration 7. Any other incomer which cannot be include in salary, house property, business income, capital gain
  • 26. 26 | P a g e Deduction While exemptions are on income some deduction in calculation of taxable income is allowed for certain payments. Section 80CCC Payment of premium for annuity plan of LIC or any other insurer Deduction is available upto a maximum of Rs. 1,00,000/-. The premium must be deposited to keep in force a contract for an annuity plan of the LIC or any other insurer for receiving pension from the fund. The Finance Act 2015 has enhanced the ceiling of deduction under Section 80CCC from Rs.100,000 to Rs. 1,50,000 with effect from A.Y. 2016-17. Section 80CCD Deposit made by an employee in his pension account to the extent of 10% of his salary. Where the Central Government makes any contribution to the pension account, deduction of such contribution to the extent of 10% of salary shall be allowed. Further, in any year where any amount is received from the pension account such amount shall be charged to tax as income of that previous year. The Finance Act, 2009 has extended benefit to any individual assesse, not being a Central Government employee. Section 80CCG Investment under Rajiv Gandhi Equity Savings Scheme, The deduction was 50 % of amount invested in such equity shares or Rs 25,000, whichever is lower. The maximum Investment permissible for claiming deduction under RGESS is Rs. 50,000. The benefit is in addition to deduction available u/s Sec 80C.
  • 27. 27 | P a g e Section 80D Payment of medical insurance premium deduction is available upto Rs.15,000/ for self/ family and also upto Rs. 15,000/- for insurance in respect of parent/ parents of the assessee. In case of senior citizens, a deduction up to Rs.20,000/- shall be available under this Section. Insurance premiume of senior citizen parent/ parents of the assessee also eligible for enhanced deduction of Rs. 20000/-. Section 80DD Deduction of Rs.40,000/- In respect of (a) expenditure incurred on medical treatment, (including nursing), training and rehabilitation of handicapped dependent relative. (b) Payment or deposit to specified scheme for maintenance of dependent handicapped relative. W.e.f. 01 .04.2004 the deduction under this section has been enhanced to Rs.50,000/- Further, if the dependent is a person with severe disability a deduction of Rs.1,00,000/– shall be available under this sectionBudget 2015 has Further Proposed to hike the limit from A.Y. 2016-17 to Rs. 75000 from existing Rs. 50,000/- and for person with severe disability to Rs. 1.25 lakh from existing Rs. 1 Lakh. Section 80DDB Deduction of Rs.40,000/- in respect of medical expenditure incurred. W.e.f. 01.04.2004, deduction under this section shall be available to the extent of Rs.40,000/- or the amount actually paid, whichever is less.In case of senior citizens, a deduction upto Rs.60,000/- shall be available under this Section. Budget 2015 has proposed deduction of Rs. 80000/- for seniot citizen aged 80 year or More from A.Y. 2016-17-Read More-Section 80DDB- Limit raised & waived condition of certificate. Section 80E Deduction in respect of payment in the previous year of interest on loan taken from a financial institution or approved charitable institution for higher studies
  • 28. 28 | P a g e Section 80EE Vide Finance Act 2013, an individual is allowed a deduction upto a limit of Rs 1,00,000 being paid as interest on a loan taken from a Financial Institution, sanctioned during the period 01-04- 2013 to 31-03-2014 (loan not to exceed Rs 25 lakhs) for acquisition of a residential house whose value does not exceed Rs 40 lakhs. However the deduction is available if the assessee does not own any residential house property on the date of sanction of the loan. Section 80G The various donations specified in Sec. 80G are eligible for deduction upto either 100% or 50% with or without restriction as provided in Sec. 80G. Section 80GG Deduction available is the least of(i) Rent paid less 10% of total income. Rs.2000 per month, 25% of total income. Section 80TTA Section 80TTA is introduced wef A.Y. 2013-14 to provide deduction to an individual or a Hindu undivided family in respect of interest received on deposits (not being time deposits) in a savings account held with banks, cooperative banks and post office. The deduction is restricted to Rs 10,000 or actual interest whichever is lower. Section 80U Deduction of Rs.50,000/- to an individual who suffers from a physical disability (including blindness) or mental retardation. Further, if the individual is a person with severe disability, deduction of Rs.75,000/- shall be available u/s 80U.W.e.f. 01.04.2010 this limit has been raised to Rs. 1 lakh.Budget 2015 proposed to amend section 80U to raise limit of deduction in respect of a person with disability from Rs. 50,000/- to Rs. 75,000 and for
  • 29. 29 | P a g e person with severe disability from one lakh rupees to one hundred and twenty five thousand rupees. Section 87A Finance Act 2013 has provided relief in the form of rebate to individual taxpayers, resident in India, who are in lower income bracket, i. e. having total income not exceeding Rs 5,00,000/-. The amount of rebate is Rs 2000/- or the amount of tax payable, whichever is lower. WEF A.Y. 2014-15. Section 80RRB Deduction in respect of any income by way of royalty in respect of a patent registered on or after 01.04.2003 under the Patents Act 1970 shall be available as :-Rs. 3 lacs or the income received, whichever is less. Section 80QQB Deduction in respect of royalty or copyright income received in consideration for authoring any book of literary, artistic or scientific nature other than text book shall be available to the extent of Rs. 3 lacs or income received, whichever is less. Section 80C This section has been introduced by the Finance Act, 2005. Broadly speaking, this section provides deduction from total income in respect of various investments/ expenditures/payments in respect of which tax rebate u/s 88 was earlier available. The total deduction under this section is limited to Rs. 1.50 lakh only.
  • 30. 30 | P a g e WEALTH TAX_ Wealth Tax in India was introduced in India in the year 1957 and is levied on individuals, HUF’s and Companies if the Net Wealth of such person exceeds Rs 30 Lakhs on the Valuation Date i.e. last date of the previous year. For the purpose of computation of taxable net wealth, only few specified assets are taken into account. Arun Jaitley while accounting Budget 2015 announced that the levy of Wealth Tax has now been completely removed from Financial Year 2915-16 onwards. The loss of revenue due to the abolishment of Wealth Tax would be compensated by the levy of additional surcharge on high income earning assesses. The levy of surcharge is easy to collect & monitor and also does not result into any compliance burden on the taxpayer as well as the administration department. The information pertaining to assets which is currently required to be furnished in the wealth tax return would now be required to be mentioned in the income Tax return. PROFESSIONAL TAX________________________________________________ Professional Tax is the tax charged by the state governments in India. Any one earning an income from salary or any one practising a profession such as chartered accountant, lawyer, doctor etc. are required to pay this professional tax. Different states have different rate and method of collection. In India, the professional tax is imposed at the state level. However, not all the states impose this tax, the following states impose this levy in India – Karnataka, West Bengal, Andhra Pradesh, Telangana, Maharashtra, Tamil Nadu, Gujarat, Assam, Chhattisgarh, Kerala, Meghalaya, Orissa, Tripura and Madhya Pradesh. Business owners, working individuals, merchants and people carrying out various occupations comes under the purview of this tax. Professional tax is levied by particular Municipal Corporations and majority of the Indian states impose this duty. It is a source of revenue for the government. The maximum amount payable per year is Rs.2,500/- and in line with your salary, there are predetermined slabs. It is paid by every member of staff employed in private companies. It is subtracted by the employer each month and sent to the Municipal Corporation. It is compulsory just like income tax. You will be eligible for income tax deduction for this payment
  • 31. 31 | P a g e The professional tax is usually a slab-amount based on the gross income of the professional. It is deducted from his income every month. The slab for professional tax varies across different states in India Indirect Taxes In India, indirect taxes is a vast ocean as there are number of taxes to be paid on manufacture, import, sale and even purchase in certain cases. Further the law is governed less by the Acts and more by day to day notifications, circulars and orders by the Governing bodies. So an explicit understanding is very much essential. A simplistic way to understand Indirect taxes is as follows:
  • 32. 32 | P a g e No. Nature of Activity Applicable Law Governed By 1 Service Tax Service Tax Generally uniform rate of 12.36% (Changed 14% from 01-06-2015) is charged by Service tax Provider from recipient except in certain cases where liability is split between the provider of servicer and the recipient of service also in some cases, where there is mixed componentof provisionof service andprovisionof materials, there is some abatment given and service tax charged on the remaining part. E.g. For restaurants,the service tax ischargedonly on 40% of the bill asit isassumed by Govt that the total bill consists of 60% materials and 40% service.There is an exemption on payment of Service tax if the total turnover did not cross Rs. 1 million in the previous Financial Year. As Governed by the Finance Act, 1994 and other subsequentFinance Acts together read with notifications, circulars Service tax is payable to the Central Government. 2 Central Excise Duty Manufacture of Excisable Goods Central Excise duties are leviable on the manufacture of goods. However, the incidence of duty is postponed to the clearance of goods from factoryor approvedwarehouse.Itmeans the duty ispayable once the manufacturedgoodsleave the Warehouse/ Factory.Below are some of Excise duties leviableBasic – Basic Excise Duty is the most common Excise duty on manufacture of Goods. It is imposed under section 3 of the ‘Central Excise Act’ of 1944 on all excisable goods otherthan saltproducedor manufacturedinIndia, at the ratessetforthin the schedule tothe Central Excise tariff Act, 1985, falls under the category of basic excise duty in India. it is mandatory to pay duty on all goods manufactured, unless exempted. For example, duty is not payable on the goods exported out of India or if the turnover does not reach Rs. 15 Central Excise Act, 1944 read with Central Excise Tariff Act, 1985 alongwith Rules prescribed and Circulars/ Notifications issued by the Central Board of Excise and Customs.It is payable to the Central Government.
  • 33. 33 | P a g e million in a year or based on certain process of production. Excise duty rates are different for each product and basedonharmonizedsystemof classification. The rates can be found in the following link http://www.cbec.gov.in/excise/cxt2013-14/cxt- 1314-idx.htm Apart from the basic excise duty, the other types of Excise duties are as follows but they are not of much relevance to the vast majority of goods as they are very specifically levied.  Special Excise Duty : This is the duty leviable under Second Schedule to the Central Excise Tariff Act, 1985 at the rates mentioned in the said Schedule. At present this is leviable on very few items.  Additional Duties of Excise (Textiles and textile Articles) : his duty is leviable under section 3 of theAdditional Duties of Excise (TextilesandTextile Articles ) Act, 1978. Thisis leviable at the rate of fifteen percent of Basic Excise Dutypayable onspecifiedtextilearticles.  Additional Duties of Excise (Goods of Special Importance) : duty is leviable under the Additional Duties of Excise (Goods of Special Importance) Act, 1957. onthe specified goods mentioned in its First Schedule.  National Calamity Contingent Duty (NCCD): This duty is levied as per section 136 of the Finance Act, 2001, as a surcharge on specified goods like like pan masala, branded chewing tobaco, cigarettes, domestic crude oil and mobile phone. It should be noted that the excise duty is not on sale but on removal or clearance of goods which
  • 34. 34 | P a g e may or may coincide with sale. 3. Customs Duty Import of Goods Customs duty is required to be paid whenever goodsare imported from other countries in India. Normally on Exports, there is no Customs Duty exceptforexportof a few items. Thus the taxable event is the import/ export of goods.There are mainly two ways in which Customs is calculated and collected: 1. SpecificDuties:– Specificcustomdutyisa duty imposed on each and every unit of a commodity imported or exported. For example, Rs.5oneachmeterof cloth imported or Rs.500 on each T.V. set imported. In this case, the value of commodity is not taken into consideration. 2. Advalorem Duties: Advalorem custom duty is a duty imposed on the total value of a commodityimportedorexported. For example, 5% of F.O.B. value of cloth importedor10% of C.LF. value of T.V. sets imported. In case of Advalorem custom duty, the physical units of commodity are not taken into consideration. Ad valorem duty is the predominant mode of levy of customs. Thus the value of goods has to be determined as per customs law before the Goods are released from Customs control. The rates of taxation in Customs can be found here: Apart from the basic Custom duties, there are some other custom duties levied in certain circumstances like: Countervailing Duty of Customs (CVD) To give Indianmanufacturinga level playing field, CVD is imposed. It is equal to the excise duty on CustomsAct,1962 readwithCustoms Tariff Act, 1975.Collectedby Central Government
  • 35. 35 | P a g e like articles produced in India. The base of this additional duty is c.i.f. value of imports plus the dutyleviedearlier.If the rate of this duty is on ad- valorem basis, the value for this purpose will be the total of the value of the imported article and the customs duty on it (both basic and auxiliary). Anti Dumping duties These custom duties are basically intended to provide domesticmanufacture againstdumpingof goods by foreign countries in India at dirt cheap ; even below cost prices. Mainly targeted against cheap Chinese imports. These are allowed after following WTO norms in this regard. 4 5 Value Added Taxes (VAT) Sale of Goods Entertainment Tax Value AddedTaxes (VAT) for intra-state Sales and Central Sales Tax (CST) for inter-state sales.VAT is actually state specific since the states and not Central Government is empowered to collect Taxes on Sale of Goods. Thus each state has its ownVAT specific Act and Rules. In Jharkhand, it is the Jharkhand Value Added Tax Act (JVAT) which governs the sale of goods. The usual rate of taxes are 1%, 5% and 14%. Goods which are specified are covered under 1% & 5% and others are coveredin 14%. There isalso some specifiedgoods whichisexemptedfromtax andspecial rate of are 20%, 22% & 50%. ## (JharkhandVATTo be discussedin details later on.) In India, movie tickets, large commercial shows and large private festivalcelebrationsmayincuran entertainment tax.[1] Entertainment falls in List 2 of the Seventh Schedule of the Constitution of India and is Each state has a specific Act. Central Sales Tax Act deals withinter-state sale of goods. However even CST is actually collected only by states. imposed by the Government on feature films getting a wide release in India and are reduced from gross collections. The amount after deducting
  • 36. 36 | P a g e exclusively reserved as a revenue source for the state governments. Historically, before India acquired independence, British government imposed heavy taxes on the events of amusements and entertainment, where a large gathering of Indians could have caused rebellion or mutiny.Thus,variousentertainment tax acts of the state governments permit the rate of tax beyond 100%. After independence, old enactments continued and there has been no revision or repeal of these acts. Thissource of revenue has grown with the advent of pay television services in India. Since, entertainment is being provided through the services such as broadcasting services, DTH Services, Pay TV Services, cable services, etc. The component of entertainment is intrinsically intertwined in the transaction of service, that it cannot be separated from the whole transaction. Given the nature of transaction of service, it is being subjected to tax by the Union and the State governments both. The fiscal principle underlying article 246 of the constitution of India separates the sources of taxation for the Union and the States and also maintainsthe exclusivity.Thisarticle alsoprovides that in case of conflict between the powers of Unionand the States,the Unionpower to tax shall supersede the power of the State to levy tax on the taxable event or in relation to the subject or object of taxation. Entertainment tax structure in India varies across states and is the highest in Uttar Pradesh at 60 per cent. In Maharashtra, entertainmenttax wasreduced by five per cent in 2005 and now stands at 45 per cent. There is no entertainmenttax is known as NETT.
  • 37. 37 | P a g e tax for Marathi films in Maharashtra, and in Tamil Nadu,Tamil films are tax free if they have a Tamil title and a U certificate from the Censor Board. Failing any of these, films are imposed a 15% tax.
  • 38. 38 | P a g e Sl No Name of State Starting of TIN State Capital Sl No Name of State Starting of TIN State Capital 1 JAMMU AND KASHMIR 01 SRINAGAR / JAMMU 19 WEST BENGAL 19 KOLKATA 2 HIMACHAL PRADESH 02 SHIMLA 20 JHARKHAND 20 RANCHI 3 PUNJAB 03 CHANDIGARH 21 ORISSA 21 BHUBANESWAR 4 CHANDIGARH 04 CHANDIGARH 22 CHHATTISGARH 22 RAIPUR 5 UTTARAKHAND 05 DEHRADUN 23 MADHYA PRADESH 23 BHOPAL 6 HARYANA 06 CHANDIGARH 24 GUJARAT 24 GANDHINAGAR 7 DELHI 07 DELHI 25 DAMAN AND DIU 25 DAMAN 8 RAJASTHAN 08 JAIPUR 26 DADRA AND NAGAR HAVELI 26 SILVASSA 9 UTTAR PRADESH 09 LUCKNOW 27 MAHARASHTRA 27 MUMBAI 10 BIHAR 10 PATNA 28 ANDHRA PRADESH 28 HYDERABAD 11 SIKKIM 11 GANGTOK 29 KARNATAKA 29 BANGALORE 12 ARUNACHAL PRADESH 12 ITANAGAR 30 GOA 30 PANAJI 13 NAGALAND 13 KOHIMA 31 LAKSHADWEEP 31 KAVARATTI 14 MANIPUR 14 IMPHAL 32 KERALA 32 THRIVANDAM 15 MIZORAM 15 AIZAWL 33 TAMIL NADU 33 CHENNAI 16 TRIPURA 16 AGARTALA 34 PUDUCHERRY 34 PUDUCHERRY 17 MEGHALAYA 17 SHILLONG 35 ANDAMAN AND NICOBAR 35 PORT BLAIR 18 ASSAM 18 DISPUR 36
  • 39. 39 | P a g e -:VAT:- (Background of VAT) WHAT IS VALUE ADDED TAX? Value Added Tax is a broad-based commodity tax that is levied at multiple stages of production. The concept is akin to excise duty paid by the manufacturer who, in turn, claims a credit on input taxes paid. Excise duty is on manufacture, while VAT is on sale and both work in the same manner, according to the white paper on VAT released by finance minister Chidambaram. The document was drawn up after all states, barring UP, were prepared to implement VAT from April. It is usually intended to be a tax on consumption, hence the provision of a mechanism enabling producers to offset the tax they have paid on their inputs against that charged on their sales of goods and services. Under VAT revenue is collected throughout the production process without distorting any production decisions. WHY VAT IS PREFERRED OVER SALES TAX? While theoretically the amount of revenue collected through VAT is equivalent to sales tax collections at a similar rate, in practice VAT is likely to generate more revenue for government than sales tax since it is administered on various stages on the production – distribution chain. With sales tax, if final sales are not covered by the tax system e.g. due to difficulty of covering all the retailers, particular commodities may not yield any tax. However, with VAT some revenue would have been collected through taxation of earlier transactions, even if final retailers evade the tax net. There is also in-built pressure for compliance and auditing under VAT since it will be in the interest of all who pay taxes to ensure that their eligibility for tax credits can be demonstrated. VAT is also a fairer tax than sales tax as it minimizes or eliminates the problem of tax cascading, which often occurs with sales tax. These are facilitated by the fact that VAT operates through a credit system so that tax is only applied on value added at each stage in the production – distribution chain. At each intermediate stage credit will be given for taxes paid on purchases to set against taxes due on sales. Only at consumption stage where there are no further transactions will there be no tax credits. Lack of input credit facility in sales tax often
  • 40. 40 | P a g e results in tax on inputs becoming a cost to businesses which are often passed on to consumers. Sales tax is often applied again to the sales tax element of the cost, thus there is a problem of tax on tax. This is not the case with VAT, which makes it a neutral tax as it provides the least disturbance to patterns of production and the generation and use of income. In addition, the audit trail that exists under the VAT system makes it a more effective tax in administration terms than sales tax as it helps with the verification of VAT amounts declared as due. This is made possible by the fact that one person’s output is another’s input. As with sales tax imports are treated the same way as local goods while exports are zero- rated to avoid anti-export bias. Notwithstanding the advantages mentioned above, it is worth noting that VAT is a considerably complex tax to administer compared with sales tax. It may be difficult to apply to small companies due to difficulties of record keeping and its coverage in agriculture and the services sector may be limited. To cover the high administration costs, VAT rates of 10-20 per cent are generally recommended. The equity impact of the relatively high rates have been a cause for concern as it is possible that the poor spend relatively high proportions of their incomes on goods subject to VAT. Thus the concept of zero VAT rate on some items has been introduced. DIFFERENCE BETWEEN VAT AND CST Under the CST Act, the tax is collected at one stage of purchase or sale of goods. Therefore, the burden of the full tax bond is borne by only one dealer, either the first or the last dealer. However, under the VAT system, the tax burden would be shared by all the dealers from first to last. Then, such tax would be passed upon the final consumers. Under the CST Act, the tax is levied at a single point. Under the VAT system, the retailers are not subject to tax except for the retail tax. Under the CST Act, general and specific exemptions are granted on certain goods while VAT does not permit such exemptions. Under the CST law, concessional rates are provided on certain taxes. The VAT regime will do away with such concessions as it would provide the
  • 41. 41 | P a g e full credit on the tax that has been paid earlier. Under VAT law, first, the dealer pays tax on the sale or purchase of goods. The subsequent dealer pays tax on the portion of the value added upon such goods. Thus, the tax burden is shared equally by the last dealer. WHO GAINS? State and Central governments gain in terms of revenue. VAT has in-built incentives for tax compliance — only by collecting taxes and remitting them to the government can a seller claim the offset that is due to him on his purchases. Everyone has an incentive to buy only from registered dealers — purchases from others will not provide the benefit of credit for the taxes paid at the time of purchase. This transparency and in-built incentive for compliance would increase revenues. Industry and trade gain from transparency and reduced need to interact with the tax personnel. For those who have been complying with taxes, VAT would be a boon that reduces the cost of the product to the consumer and boosts competitiveness. VAT would be major blow for tax evaders, both manufacturers who evade excise duty payments and traders who evade sales-tax. WHO PAYS? All dealers registered under VAT and all dealers with an annual turnover of more than Rs 5 lakh will have to register. Dealers with turnovers less than Rs 5 lakh may register voluntarily. HOW TO PAY? VAT will be paid along with monthly returns. Credit will be given within the same month for entire VAT paid within the state on purchase of inputs and goods. Credit thus accumulated over any month will be utilized to deduct from the tax collected by the dealer during that month. If the tax credit exceeds the tax collected during a month on sale within the state, the excess credit will be carried forward to the next month.
  • 42. 42 | P a g e WHICH GOODS WILL BE TAXABLE UNDER VAT? All goods except those specifically exempt. In fact, over 550 items will be covered under the new tax regime, of which 46 natural and unprocessed local products would be exempt from VAT. About 270 items, including drugs and medicines, all agricultural and industrial inputs, capital goods and declared goods would attract 4% VAT. But, following opposition from some states, it was decided that states would have option to either levy 4% or totally exempt food grains from VAT but it would be reviewed after one year. Three items — sugar, textile, tobacco — under additional excise duties will not be under VAT regime for one year but existing arrangement would continue. VAT EFFECT ON INFLATION In considering the introduction of VAT, countries are often concerned that it would cause an inflationary spiral. However there is no evidence to suggest that this is true. A survey of OECD countries that introduced VAT indicated that VAT had little or no effect on prices. In cases where there was an effect it was a onetime effect that simply shifted the trend line of the consumer price index (CPI). To guard against any unforeseen price effects the authorities may consider a tighter monetary policy stance at the introduction of VAT. VAT EFFECT ON ECONOMIC GROWTH Economic growth can be facilitated through investment by both government and the private sector. Savings by both parties are required in order to finance investment in a non- inflationary manner. Compared to other broadly based taxes such as income tax VAT is neutral with respect to choices on whether to consume now or save for future consumption. Although VAT reduces the absolute return on saving it does not reduce the net rate of return on saving. Income tax reduces the net rate of return as both the amount saved as well as the return on that saving are subject to tax. In this regard VAT may be said to be a superior tax in promoting economic growth than income tax. Since VAT does not influence investment decisions on firms, by increasing their costs, its effects on investment can be said to be neutral.
  • 43. 43 | P a g e FEATURES OF VAT 1. Rate of Tax VAT proposes to impose two types of rate of tax mainly: a. 4% on declared goods or the goods commonly used. b. 10-12% on goods called Revenue Neutral Rates (RNR). There would be no fall in such remaining goods. c. Two special rates will be imposed-- 1% on silver or gold and 20% on liquor. Tax on petrol, diesel or aviation turbine fuel are proposed to be kept out from the VAT system as they would be continued to be taxed, as presently applicable by the CST Act. 2. Uniform Rates in the VAT system, certain commodities are exempted from tax. The taxable commodities are listed in the respective schedule with the rates. VAT proposes to keep these rates uniform in all the states so the goods sold or purchased across the country would suffer the same tax rate. Discretion has been given to the states when it comes to finalizing the RNR along with the restrictions. This rate must not be less than 10%. This will ensure By doing this that there will be level playing fields to avoid the trade diversion in connection with the different states, particularly in neighbouring states 3. No concession to new industries Tax Concessions to new industries is done away with in the new VAT system. This was done as it creates discrepancy in investment decision. Under the new VAT system, the tax would be fair and equitable to all. 4. Adjustment of the tax paid on the goods purchased from the tax payable on the goods of sale All the tax, paid on the goods purchased within the state, would be adjusted against the tax, payable on the sale, whether within the state or in the course of interstate. In case of export, the tax, paid on purchase outside India, would be refunded. In case of the branch transfer or consignment of sale outside the state, no refund would be provided.
  • 44. 44 | P a g e 5. Collection of tax by seller/dealer at each stage. The seller/dealer would collect the tax on the full price of the goods sold and shows separately in the sell invoice issued by him 6. VAT is not cascading or additive though the tax on the goods sold is collected at each stage, it is not cascading or additive because the net effect would be as follows: - the tax, previously paid on the sale of goods, would be fully adjusted. It will be like levying tax on goods, sold in the last state or at retail stage. WHAT’S THE BIGGEST ADVANTAGE? The biggest benefit of VAT is that it could unite India into a large common market. This will translate to better business policy. Companies can start optimizing purely on logistics of their operations, and not on based on tax-minimization. Lorries need not wait at check-points for days; they can zoom down the highways to their destinations. Reduced transit times and lower inventory levels will boost corporate earnings. Following are the some more advantage of VAT: - 1. Simplification Under the CST Act, there are 8 types of tax rates- 1%, 2%, 4%, 8%, 10%, 12%, 20% and 25%. However, under the present VAT system, there would only be 2 types of taxes 4% on declared goods and 10-12% on RNR. This will eliminate any disputes that relate to rates of tax and classification of goods as this is the most usual cause of litigation. It also helps to determine the relevant stage of the tax. This is necessary as the CST Act stipulates that the tax levies at the first stage or the last stage differ. Consequently, the question of which stage of tax it falls under becomes another reason for litigation. Under the VAT system, tax would be levied at each stage of the goods of sale or purchase.
  • 45. 45 | P a g e 2. Adjustment of tax paid on purchased goods Under the present system, the tax paid on the manufactured goods would be adjusted against the tax payable on the manufactured goods. Such adjustment is conditional as such goods must either be manufactured or sold. VAT is free from such conditions. 3. Further such adjustment of the purchased goods would depend on the amount of tax that is payable. VAT would not have such restrictions. CST would not have the provisions on refund or carry over upon such goods except in case of export goods or goods, manufactured out of the country or sale to registered dealer. Similarly, on interstate sale on tax-paid goods, no refund would be admissible. Transparency The tax that is levied at the first stage on the goods or sale or purchase is not transparent. This is because the amount of tax, which the goods have suffered, is not known at the subsequent stage. In the VAT system, the amount of tax would be known at each and every stage of goods of sale or purchase. 4. Fair and Equitable VAT introduces the uniform tax rates across the state so that unfair advantages cannot be taken while levying the tax. 5. Procedure of simplification Procedures, relating to filing of returns, payment of tax, furnishing declaration and assessment are simplified under the VAT system so as to minimize any interface between the tax payer and the tax collector. 6. Minimize the Discretion the VAT system proposes to minimize the discretion with the assessing officer so that every person is treated alike. For example, there would be no discretion involved in the imposition of penalty, late filing of returns, and non-filing of returns, late payment of tax or non payment of tax or in case of tax evasion. Such system would be free from all these harassment 7. Computerization the VAT proposes computerization which would focus on the tax evaders by generating Exception Report. In a large number of cases, no processing
  • 46. 46 | P a g e or scrutiny of returns would be required as it would free the tax compliant dealers from all the harassment which is so much a part of assessment. The management information system, which would form a part of integral computerization, would make the tax department more efficient and responsive. “Though the broad design of the State-level VAT is uniform across the country but every State has its own VAT legislation and procedures differ on many counts from one State to another. Considering the importance of all State VAT Laws, In this regard, I have come out with “Small Technical Guide on Jharkhand VAT”. The Guide explains the concepts relating to Jharkhand VAT laws in a very exhaustive manner.” Jharkhand Value Added Tax VAT, considered as a path-breaking reform in the area of indirect taxation, was introduced in majority of the States from April 1, 2005 with the objective of making accounting more transparent, cutting trade barriers, boosting tax revenues and most important of all doing away with the cascading effect of taxes. However, the State of Jharkhand introduced VAT with effect from 1st April, 2006. Incidence and Levy of Tax ‘This chapter deals with section 8 to 17, 19, 20, 22, 23 and 24 of Jharkhand Value Added Tax Act, 2005 and Rule 25 of Jharkhand Value Added Tax Rules, 2006.’ Incidence of Tax (Section 8) Dealers Liable to Pay Tax The following class of Dealers are liable to pay tax: 1. Whose Gross Turnover first exceeds the specified quantum during any period of 12 consecutive months, or 2. Who has become liable to pay tax under the Central Sales Act, 1956, or 3. Who is registered as a dealer under The Central Sales Tax Act, 1956 or under this act at any time after the commencement of this Act; Specified Quantum means any dealer who: Particulars Specified quantum Imports for sale any goods into the state of Jharkhand on his own behalf or on behalf of his principal Nil Manufactures or produces any goods for sale 50,000/-
  • 47. 47 | P a g e Is engaged in any other business other than above 5,00,000/- Involved in the execution of works contract and leasing 25,000/- Engaged in any other sales or purchase or class of sales or purchases other than above As specified from time to time Section 8(6): For the purpose of calculating Gross Turnover under this section: (a) Turnover of all sales or, as the case may be, the turnover of all purchases whether taxable or not shall be taken. (b) Turnover shall include all sales and purchases made by a dealer on his own account or also on behalf of a principal whether disclosed or not. Turnover falling below specified quantum Section 8(3): Every dealer who has become liable to pay tax shall continue to be so liable even if his turnover falls below the specified quantum. However, if the turnover remains below the specified quantum for three consecutive years, his liability to pay tax shall cease on the expiry of the period specified above. Section 8(9): Every dealer who has ceased to be liable as above shall be again liable to pay tax with effect from the date immediately following a period not exceeding twelve consecutive months during which his gross turnover again exceeds the specified quantum. Liability to pay Tax in certain cases Section 8(8): A registered dealer whose liability to pay tax has ceased under this Act for any reason other than the entire transfer of his business to other person, shall pay tax on the goods remaining unsold at the termination of his liability, after furnishing such declaration as prescribed. Section 8(10): Where a dealer who is or was, less than 6 months earlier liable to pay tax, starts a new business, either singly or jointly with other persons, or joins other business or partnership firm or concern or HUF; Tax shall be payable by such business or partnership firm or such concern on and from the date the dealer starts or joins it, unless its liability has arisen from an earlier date. Power to collect Advance Tax Section 8(13):The tax payable under this Act may be estimated and calculated in advance during a year with the prior approval of Commissioner or any authority
  • 48. 48 | P a g e empowered in this regard. The prescribed authority may provisionally determine the amount of tax payable under the act on the basis of estimated taxable turnover submitted by the dealer and thereupon, the dealer shall pay the amount so determined, by such date as may be fixed by the authority. Levy of Tax on Sale and determination of Taxable Turnover (Section 9) Stages at which Tax shall be payable The basic concept of Value Added Tax system is that the Tax is payable at every stage of Sale on Sale Price of Goods. The Tax paid by the reseller at the time of purchases shall be available as Input Tax Credit which can be adjusted from the tax payable by him on the sales made. There are two exceptions to this principle: On Medicines and Drugs Any registered dealer who imports or manufactures medicines and Drugs as specified in the Sl. No. 85 of the Part B of Schedule II excluding Bulk Drugs, Siddha, Unani or Homeopathic medicines, shall pay the tax at the full rate on the Maximum Retail Price of such goods at the first stage only. In such cases, no Input Tax Credit shall be admissible to the subsequent purchasing dealers. On Petrol, HSD and liquors The tax payable on Petrol, HSD, Liquors and such other goods as mentioned in Part-E of Schedule II shall be levied at the first stage of sale, and the subsequent sales of same goods in the state shall not be liable to tax. The Government may by notification specify any such goods on which tax shall be levied at more than one stage or at all stages of sales. In that case the amount of tax paid at the preceding stage shall be available as Input Tax Credit. Taxable Turnover Taxable turnover shall be calculated after deduction of following amounts from Gross Turnover of the dealer: (a) sales of goods declared as exempt from tax in schedule ‘I’. (b) sales of goods which are shown to the satisfaction of the prescribed authority to have taken place – (i) in the course of inter-State trade or commerce, or (ii) outside the State of Jharkhand, or (iii) in the course of the import of the goods into or export of the goods out of the territory of India. (c) in case of turnover of sales in relation to works contract, the charges towards labour, services and other like charges either on actual basis or percentage basis.
  • 49. 49 | P a g e (d) such other sales on such conditions and restrictions as may be prescribed. Where a Registered Dealer allows any Trade Discount or incentive whether in terms of quantity of goods or otherwise, the discount so allowed shall be deemed to be sale by the dealer and it shall form part of the sale in relation to which such discount is allowed. It shall also be deemed to be the Purchase by the Purchasing Dealer. “Suppose a registered dealer makes a sale of ` 1,00,000/- to another dealer and allows a trade discount or incentive of ` 10,000/- at the time of sale or at any time thereafter. In such a case the selling dealer has to pay tax on ` 1,00,000/- and not on ` 90,000/-“ Levy of Tax on Purchases (Section 10) Every dealer liable to pay tax and purchases on any goods in the course of business: (i) from a registered dealer or a dealer or a person in the circumstances where no tax has been paid under this act by that registered dealer or a dealer or person on the sale price of such goods. (ii) from a person, where no tax has been paid under this Act, shall be liable to-pay tax on the purchase price of such goods, if after such purchase, the goods are not sold within the State of Jharkhand or in the course of InterState trade and commerce or in the course of export out of the territory of India, but are - (a) sold or disposed off otherwise, or (b) used or consumed in the manufacture of goods declared to be exempt from tax under this Act, or (c) after their use or consumption in the manufacture of goods, such manufactured goods are disposed off otherwise than by way of sale in the State or in the course of inter-State trade and commerce or export out of the territory of India; or (d) used or consumed otherwise such tax shall be levied at the same rate at which tax under Section 8 would have been levied on the sale of such goods within the state on the date of such purchase. (e) The goods other than those specified in part E of Schedule II and taxfree goods, after consumption or use in the manufacture or processing or mining of any goods specified in Schedule II, the manufactured or processed or mined goods are disposed off otherwise than by way of sale within the State of Jharkhand or in the course of inter-state trade or commerce or in the course of export out of the territory of India.
  • 50. 50 | P a g e And such tax shall be levied at the rate at which tax would have been levied on the sales of such goods within the State of Jharkhand on the date of such purchase. Explanation - Sections 3, 4 and 5 of the Central Sales Tax Act, 1956 shall apply for determining whether or not a particular sale or purchase has taken place in the manner indicated in sub-clause 1(ii) and sub-clause 1(ii)(c) & (e). Levy of surcharge Section 10A: Every dealer liable to pay tax under this Act shall also pay a surcharge on sale of goods specified in Part E of Schedule II at such rate not exceeding 20% of the total amount of tax payable by him. The dealer shall not be entitled to collect this amount of surcharge. [Surcharge has not been levied as on date] ** Charge of Tax on Entry of Goods (Section11) Abolished after notification of separate Entry Tax Act in 2011. However, the Entry Tax Act, 2011 was also held as ultra vires and unconstitutional by Hon’ble High Court in a landmark judgement in writ petition filed by Reliance Industries Limited and Others. Levy of Tax on Containers and Packing Material (Section 12) Where any goods packed in any container or packing materials are purchased, sold or brought into the local Area along with the container or packing materials in which such goods are packed, the tax under Section 8 or Section 10 or Section 11 on such container or packing materials shall be levied at the same rate of tax as applicable to the goods themselves treating the containers, packing materials as goods integrated with the goods. Provided that no tax under Section 8 or Section 10 or Section 11 shall be levied where the container or packing material is sold or purchased along with the goods declared as exempt from tax under this Act. Rate of Tax and Exemption (Section 13 and 14) For the purpose of rate of Taxation, goods have been classified into 2 Schedules. Most of the goods are taxable @5% or 14%. Rates of Tax for various schedules are as under: Class of goods Rate of tax Schedule I Exempt u/s 14 schedule II Part A 1% schedule II Part B 5% schedule II Part C 5%
  • 51. 51 | P a g e schedule II Part D 14% schedule II Part E Varying from 14.50% to 50% schedule II Part F Residuary class for which different rate for different goods may be prescribed. The State Government may provide any rate not exceeding 75% in respect of goods listed in Schedule II Part E. The State Government may enhance or reduce the rates of taxes for goods specified in other parts of Schedule II. Output Tax (Section15) Output tax in relation to a registered dealer means the tax payable under this Act in respect of any sale of goods by that dealer in the course of his business; Subject to the provisions of Section 18, a dealer shall be liable to pay the output tax under this Act which shall be levied on the taxable turnover at the rates and subject to such conditions and restrictions as may be prescribed from time to time. Input Tax (Section16) Input tax in relation to a registered dealer means the tax charged under this Act by the selling dealer from whom such dealer has purchased the goods for resale or for use in manufacturing or processing of goods for sale or for directly use in mining or use as containers or packing materials or for the execution of works contract. Tax Payable and Input Tax Credit exceeding tax Liability (Section 17, 19 & Rule 25) The tax payable by a registered dealer for any tax period can be determined with the following formula: Tax payable = (O+P)-I Where 'O' = Output tax payable for any tax period as determined u/s 15. ‘P’ = Purchase tax paid for any tax period as determined u/s 10. 'I' = Input tax paid or payable for the said tax period. If the amount calculated is negative, it means the dealer is having Input Tax Credit exceeding tax liability as per Section 19 and- (a) the same shall be adjusted against the tax liability, if any, under the Act as well as under the Central Sales Tax Act, 1956. (b) any amount of credit, remaining even after such adjustment shall be carried forward to the next tax period(s)
  • 52. 52 | P a g e The tax payable by a dealer liable to pay tax but not registered under this Act for a tax period shall be equal to the output tax payable for the said tax period as determined under Section 15 and no deduction of Input Tax Credit shall be allowed. Rule 25 : Tax payable on a taxable turnover shall be calculated by multiplying the rate of VAT specified in the Act with the Sale Price of the transaction. Where the Sale Price is inclusive of Tax, VAT payable shall be calculated by the formula Rate of Tax X Sale Price 100+Rate of Tax Input Credit “This chapter deals with section 18, 19, 21 and 24 of Jharkhand Value Added Tax Act, 2005 and Rule 15, 26, 30 of Jharkhand Value Added Tax Rules, 2006.” Basic Concept and availability of Input Tax Credit Input Tax Credit is the crux of every Value Added Tax System of Taxation. The Input Tax Credit is allowed to a Registered Dealer in respect of tax paid by him against purchase of goods. In Central Excise this Credit is known as CENVAT and in Value Added Tax it has been termed as Input Tax Credit. Input Tax credit shall be allowed: (a) on purchase of goods made within the State of Jharkhand (b) from a registered dealer (c) holding a valid certificate of registration (d) and which are intended for the specified purposes Specified purposes are as follows : (a) sale or resale by him in the State of Jharkhand or (b) sale in course of interstate trade and commerce or (c) use as raw material and for direct use in manufacturing or processing of goods for sale, or for directly use in mining, or for use as capital goods. (d) sale in the course of export out of the territory of India; or (e) for use as containers for packing of goods for sale or resale or for export out of the territory of India.
  • 53. 53 | P a g e (f) sale by a dealer having business under a SEZ; or a STP; or a EHTP; or by an EOU. (g) sale by dealers having business, located within SEZ to another unit located in SEZ. (h) sale by dealers: inter-alia between whose units are referred to as, Export Oriented Units. (i) sale by dealers, whose business is located within SEZ, to another unit as: "Export Oriented Unit". However, in respect of clause (c) and (e) if the purchased goods are intended for use in manufacturing/packing of goods which are exempt from tax or goods which are specified in Part E of Schedule II Credit shall not be available Subject to such conditions and restrictions as may be prescribed, partial or proportionate input tax credit may be allowed in such cases where the purchased materials are partly used or consumed for specified purposes. Input Tax Credit on Capital Goods Input Tax credit on capital goods shall be limited to plant, machinery and equipment directly connected with the manufacturing or processing of the finished products and directly for use in mining. ITC on Capital Goods is not available in respect of items mentioned in Appendix I of this Act. These items are mainly those which are used in Civil Construction or Offices and not used in production activities. Input tax credit on Capital Goods shall commence from the date of commencement of commercial production and shall be adjusted against tax payable on output, up to the period of three years. In case of closure of business before the period specified above no further input tax credit shall be allowed and input tax credit carried forward, if any, shall be forfeited. Input tax credit for "start up business" period shall be limited to the immediately last three preceding years, from the date of commencement of its commercial production. This means that Input Tax Credit on Capital Goods purchased 3 years before the date of production shall not be available. Rule 26(2) provides that where an existing Industrial undertaking undertakes expansion, modernisation or diversification following an Industrial policy the ITC on Capital Goods shall be allowed in 36 equal monthly instalments, and the ITC shall be claimed from the first return from the date of commencement of commercial sales. Rule 26(2) provides that if the ITC remains unadjusted after 36 months, no further adjustments shall be allowed from the VAT payable by such dealers.
  • 54. 54 | P a g e Other Conditions for availing ITC Section 18(6) Input Tax credit shall be claimed by the dealer in the tax period in which the dealer receives the tax invoice in original containing the prescribed particulars of the sale evidencing the amount of input tax paid. Provided that for good and sufficient reasons, to be recorded in writing, where a registered dealer is prevented from producing the Tax Invoice in original, the prescribed authority may allow, such input tax credit as prescribed. Rule 26(3) provides that where Original Tax Invoice has been lost ITC may be allowed on the basis of duplicate copy. Section 18(7): A registered dealer who intends to claim input tax credit shall, for the purpose of determining the amount of input tax credit, maintain accounts, and such other records as may be prescribed in respect of the purchases, entry of scheduled goods into a local area and sales made by him in the State of Jharkhand. Section 18(10): The methods that are used by a registered dealer in a tax period to determine the extent of availing the Input Tax Credit shall be fair and reasonable or as prescribed. In the circumstances if any other methods are used, the prescribed authority may, after giving sufficient reason in writing, reject the method adopted by the registered dealer and calculate the amount of input tax credit after giving the registered dealer concerned an opportunity of being heard. Situations where ITC shall not be allowed Section 18(8): No ITC shall be claimed or allowed to a registered dealer : (i) In respect of any taxable goods under this Act purchased by him from another registered dealer for resale but given away by way of free sample or gift; (ii) Who has been permitted by the Commissioner to make payment of presumptive tax or under scheme of composition at a percentage of turnover of sales or otherwise in lieu of tax as provided under Section 22 and 58; (iii) In respect of capital goods, other than those directly used for manufacturing or processing of goods for sale or in mining;
  • 55. 55 | P a g e (iv) In respect of goods brought from outside the State against the tax paid in other States or otherwise; (v) In respect of stock of goods remaining unsold at the time of closure of business; (vi) In respect of goods purchased on payment of tax, if such goods are not sold because of any theft or otherwise; (vii) Where the tax invoice is – (a) Not available with the dealer, or (b) There is an evidence that the same has not been issued by the selling dealer from whom the goods are purported to have been purchased; (viii) In respect of goods purchased from a dealer whose certificate of registration has been suspended; (ix) in respect of goods used for manufacture of goods for transfer of stock, or other than by way of sale or for sale outside the State of Jharkhand; Provided that in respect of transactions falling under this clause, input tax credit may be allowed on the tax paid in excess of 4% on the materials used in the manufacture of the finished products. (x) in respect of sales exempted from tax as specified in Schedule I; (xi) in respect of capital goods used for manufacturing or processing of goods for sale or directly for use in mining, where the finished products are dispatched other than by way of sales; (xii) capital goods mentioned in negative list as in appendix I; (xiii) goods mentioned in Part E of schedule II of the Act; The State Government may, by notification in the official gazette, specify any goods or class of dealers that shall not be entitled to full or partial input tax credit. Reverse Tax Credit Where ITC has already been availed by a registered dealer and a part of which is used in manufacturing of exempted goods, the ITC so availed for that part of goods shall be deducted from the ITC already availed for that tax period in which such event takes place. (Applicable where separate account is kept for purchases used in taxable and exempted goods). Where separate accounts are not kept, the “Reverse Tax Credit” shall be calculated by following formula: ITC availed in that period X Sale Value of Exempt Goods in a tax period Total Sale Value of Goods manufactured during that period
  • 56. 56 | P a g e Where a Registered dealer is selling taxable goods, and a part of which is damaged or destroyed, Reverse Tax Credit shall be calculated as follows : ITC availed in that period X Estimated Value of Goods damaged or destroyed Total Sale Value of Goods (including estimated value of damaged/destroyed goods) Where goods purchased are returned to the selling dealer and necessary adjustment is made in their respective accounts the purchasing dealer shall “Reverse” the ITC already availed in respect of that part of goods. Where as a result of deduction of “Reverse Tax Credit” there is a negative balance in the ITC for that Tax period it shall be demanded as tax dues in Form JVAT 308 and shall be recovered as arrear of tax dues. Input tax credit exceeding tax liability (Section 19) If the input tax credit of a registered dealer other than an exporter selling goods outside the territory of India determined under Section 18 of this Act for a period, exceeds the tax liability for that period, the excess credit shall be set off against any outstanding tax payable, penalty or interest payable under this Act as well as CST Act 1956. The excess input tax credit after such adjustment may be carried over as an input tax credit to the subsequent period or periods. In case where input tax credit is carried forward, a quarterly credit statement may be submitted by the dealer concerned and the claims shall be scrutinised by the prescribed authority. However, no Input Tax Credit shall be admissible when there is Nil turnover for consecutive period of 3 months. “Input Tax Credit can also be utilised for payment of Penalty and Interest which is in contrast to the CENVAT system under Central Excise, where Input Credit can be utilised for payment of duties only.” Adjustment of Input Tax Credit (Section 21) Where any purchaser receives a credit note or debit note in terms of Section 24 or if he returns or rejects goods purchased, it may result in less or excess Input Tax Credit as originally availed by him. The dealer shall compensate such less credit or excess credit by adjusting the amount of tax credit allowed to him in respect of the tax period in which the credit note or debit note has been issued or goods are returned subject to conditions as may be prescribed. Credit Notes and Debit Notes (Section 24, Rule 30)
  • 57. 57 | P a g e Where a tax invoice has been issued and the amount shown as tax charged in the tax invoice (a) exceeds the Tax payable under this Act (b) is found to be less than the amount of tax payable under the Act the registered dealer making the sale shall provide the purchaser with a credit note (in respect of (a)) and debit note (in respect of (b)) containing the requisite particulars as may be prescribed. In case of goods returned or rejected by the purchaser, a credit note shall be issued by the selling dealer to the purchaser and a debit note will be issued by the purchaser to the selling dealer containing such particulars as may be prescribed. Notwithstanding anything contained in this section, wherever after issuing tax invoice any credit notes are to be issued for any discounts or sales incentives by any registered dealer to another registered dealer, the selling dealer shall pass a credit note without disturbing the tax component on the price in the original tax invoice. Registration and Its Amendment, Cancellation, Suspension of Registration “This chapter deals with section 25 to 28 of Jharkhand Value Added Tax Act, 2005 and Rule 3 , 3A, 3B , 4 to 12 of Jharkhand Value Added Tax Rules, 2006.” Compulsory Registration of Dealers (Section 25 , Rule 11) Registration of Dealers liable to pay tax As per Section 25(1) of The Act, every dealer who is liable to pay tax, shall not carry on business as dealer unless he has been registered under this act and possesses a certificate of registration. A time of one month from the date from which he is first liable to pay tax has been granted to obtain the Registration. Every Dealer required to be registered shall make application in this behalf in the prescribed manner to the prescribed authority and such application shall be accompanied by a declaration in the prescribed form dully filled in and signed by the dealer specifying therein the class or classes of goods dealt in or manufactured by him. If the said authority is satisfied that the application is in order, he shall grant Registration to the Applicant and issue a certificate of registration in the prescribed form which shall specify the class or classes of goods dealt in or manufactured by him. Registration of Manufacturers and Power companies Notwithstanding that a person is not liable to pay tax u/s 8 of the Act, he may get himself registered under the Act, if he is intending to establish a business in the state:
  • 58. 58 | P a g e (i) For manufacture of taxable goods for sale of value exceeding ` 50,000/- in a year and who is registered in the Industries Department of State Government. (ii) for generation or distribution of electricity or any other form of power or in the telecommunication network. Dealers falling under clause (i) above shall be treated as Start-up business. Further, Rule 11 specifies that a dealer who meets all the following conditions shall be treated as Start-up business :  Intending to set up a factory to manufacture taxable goods.  Anticipates making first taxable sales within the next three years.  Anticipates applying for VAT Registration within next three years. Such dealer shall be registered for a maximum period of 36 months. Situation Consequences If Taxable Sales are made before 36 months Registration under start up business shall cease and dealerwill get Registration u/s 25(1) i.e. compulsory Registration If no taxable sales are made at the end of 36 months Registration shall be cancelled as per the provisions of Rules Voluntary registration of dealers (Section 26, Rule 10) Section 26(1) of the Act prescribes that every dealer whose gross turnover of sales during a financial year exceeds ` 25,000/- may apply for registration in the prescribed manner to the prescribed authority. Every dealer who is registered under this section shall be liable to pay tax till the registration remains in force.
  • 59. 59 | P a g e Once registration is obtained it shall continue to be in force for a period not less than three complete years and shall remain in force thereafter unless cancelled under this Act. Rule 10: A dealer taking Voluntary Registration shall fulfill the following requirements: (a) The dealer shall be making taxable sales. It means dealers dealing in exempted goods only cannot take voluntary registration. (b) The dealer shall have a prominent place of business owned or leased or rented in his name. (c) The dealer shall have a bank account (d) The dealer shall not have any tax arrears outstanding under the Repealed Act or CST Act, 1956. (e) The dealer shall maintain the full accounts and records required for VAT. (f) The dealer shall file accurate and timely VAT returns and pay any tax due. (g) The dealer shall remain registered for 36 months from the date of registration. Previous Sanction of Commissioner is required before giving Registration under this section. [Inserted w.e.f. 02-07-2014] Procedure for Registration (Rule 3, 3A, 3B, Rule 4) Category of registration Applicable form Compulsory Registration/Voluntary Registration JVAT 101 Presumptive/Composition Scheme JVAT 103 Start-up Business JVAT 102  Application is required to be made online on the link http://jharkhandcomtax.gov.in:8080/viconline/DoRegister?step=1  At present Digital Signature is not required. For compulsory/voluntary registration http://jharkhandcomtax.gov.in/commercialtax/sites/default/files/service_ support_attachment/e-registration.pdf
  • 60. 60 | P a g e For presumptive/composition registration http://jharkhandcomtax.gov.in/commercialtax/sites/default/files/service_ support_attachment/Comp_delr.pdf  Following is an Illustrative List of documents required for obtaining Registration a. Application Form in JVAT 101 along with Annexures. b. Affidavit that all the information are correct c. Security Bond as per Rule 5. ** discussed later d. Copy of Partnership Deed/MOA-AOA/Trust Deed etc. e. Copy of certificate of Incorporation f. Copy of PAN Card g. 2 photographs of Applicant (proprietor in case of proprietorship, all partners in case of partnership, MD/Director/Authorised signatory in case of Companies, Karta in case of HUF, authorised signatory in all other cases) h. Address Proof of Applicant. i. Bank Account details j. E-mail ID & Mobile Number. k. List of items of sale / Purchase l. Nature of business m. First purchase bill n. First sale bill which makes the dealer liable o. Resolution authorising the Principal officer to deal with sales tax authorities. The above list is illustrative only and the prescribed authority may require such documents for its satisfaction as may be deemed necessary. On making online application, the applicant shall receive an acknowledgement number for further reference. The said electronic application shall be verified and the applicant shall be informed within 2 days to be present within 2 days before the prescribed authority with the requisite documents. On such specified date, the dealer shall file the duly signed hard copy of Form JVAT 101 along with all the annexures and an affidavit that the contents of the said Application are true and correct. The applicant shall also furnish Security as per Rule 5 along with the Application forms. The prescribed authority after being satisfied and subject to rule 5 shall
  • 61. 61 | P a g e issue Registration Certificate in JVAT 106 within 1 day after the hard copy of Form JVAT 101 along with all annexures and other documents have been filed. Security (Rule 5) The changes are being discussed below. W.e.f 13/08/2015 under section 74 of Jharkhand Value Added Tax Act 2005 and Rule 3 (iv) 3A, 3B of Jharkhand Value Added Tax rule 2006. Category of Registration Applicable Amount Only VAT Registration Nil Importer/ Manufacturer (JVAT 115) 50000/- CST Registartion (Form X) 50000/- Forfeiture of Security The prescribed authority may forfeit whole or any part of the security furnished by the dealer for : (a) Realising or recovery of tax or any other sum due. (b)Recovery of any financial loss caused to the State Government due to negligence or default in not making proper use of or not keeping in safe custody, blank or unused forms of way bill. Where such security is forfeited in whole or in part, the dealer shall furnish fresh or further security of the requisite amount within such period or such time as may be specified by the prescribed authority. Refund of security The prescribed authority may, on an application made by the dealer, order refund of the security or any part thereof if such security is not required for the purpose for which it was furnished. Certificate of Registration ( Rule 6) The certificate granted in Form JVAT 106 after verification of application (single registration to dealer having more than one place of business.) Dealer deemed to be registered from: (a) Date of receipt of application, or (b) Date of becoming liable to pay tax.
  • 62. 62 | P a g e The Certificate of Registration shall be displayed in a conspicuous place at the place of business. The certificate of Registration is not transferable. The Registering Authority may issue a duplicate certificate on payment of prescribed fee in cases where the certificate of registration is lost, destroyed, defaced or mutilated. The registering authorities shall, after such verification as the case may be necessary and after obtaining as affidavit, in case of loss or destruction, issue to the dealer a copy of the original certificate, after stamping and making in “Red Colour” thereon the words, “Duplicate copy”. The prescribed/Registering authority has not been defined under the Act. However, the in- charge of every circle within whose jurisdiction the place of business falls is the Registering Authority. Cancellation of VAT Registration (Section 25(5), Rule 8) On Application by the dealer Where a Registered dealer ceases to carry on the business, an Application shall be made before the prescribed authority within 30 days of closure of business for cancellation. Where the taxable turnover of the dealer did not exceed the specified quantum as specified in Section 8(5) during preceding period of 3 consecutive years the dealer shall apply for cancellation of Registration. Application is required to be made in JVAT 105. The cancellation shall be intimated in Form JVAT 111 by department of commercial Tax. If the Registering authority refuses to cancel the Registration he shall intimate the dealer within 14 days of receipt of JVAT 105. Suo Moto cancellation by the authority The registering authority may cancel the registration of the dealer in any of the following circumstances:  If the dealer is not entitled for Registration u/s 25 or 26 of The Act.  The dealer is not complying with the provisions of the Act and Rules.  The dealer has not kept proper accounting records relating to any business activity carried on by him.  The dealer has not submitted correct and complete Tax returns. The authority prescribed shall issue a notice in Form JVAT 112 to the dealer before compulsory cancellation of Registration.
  • 63. 63 | P a g e Suspension of Registration Certificate (Section 25(7) to 25(9), Rule 9) The registering authority may suspend the registration certificate of registered dealer where such dealer has:  Failed to pay the tax or interest or penalty payable under this Act; or  Failed to furnish the monthly return as prescribed in rule 14; or  Knowingly furnished incomplete or incorrect returns; or  Failed to account for Tax/Retail invoice; or  Discontinued the business without information with an intention or attempt to evade tax; or  Prevented or obstructed any survey, inspection, entry, search or seizure Where the registration of any dealer is suspended, such dealer shall be immediately intimated in Form JVAT 306 with a direction to produce records, documents and evidence on such date, time and place as may be specified. Every dealer whose registration is suspended shall surrender all the unutilised forms which have been authenticated by the prescribed authority. Where the suspension is restored or subsequently cancelled, the restoration or cancellation shall take effect from the date mentioned in the order restoring or cancelling the certificate of registration. Returns Periodical Returns and Payment of Tax etc. (Section 29, Rule 14) Filing of Returns by Registered Dealers Section 29(1): Every registered dealer shall furnish true, complete and correct return in such form for such period, by such dates and to such authority, as may be prescribed. Provided that the prescribed authority may, subject to such conditions and restrictions as may be prescribed, exempt any such dealer or class of dealers from furnishing such returns or permit any such dealer; (a) to furnish them for such different periods; or (b) to furnish a consolidated return relating to all or any of the places of business of the dealer in the State of Jharkhand for the said period or for such different periods and to such authority, as he may direct.
  • 64. 64 | P a g e Following Returns are required to be filed Payment of Tax Section 29(4): Every dealer required to file return shall pay the full amount of tax payable according to the return or the differential tax payable according to the revised return furnished, if any, into the Government Treasury or in such other manner as may be prescribed, and shall furnish along with the return or revised return, as the case may be, a receipt showing full payment of such amount. If the due date of payment falls to be a Holiday, the next working day shall be treated as due date for payment. Signing of Return Section 29(5): Every return under this Section shall be signed and verified-
  • 65. 65 | P a g e Return Defaults (Section 30) Payment of Interest u/s 30(1) If a dealer (both registered and unregistered) who is required to file return a) fails without sufficient cause to pay the amount of tax due as per the return for any tax period; or b) furnishes a revised return showing a higher amount of tax to be due than was shown by him in the original return; or c) fails to furnish return; It shall be treated as default for the purpose of this section. Quantum of interest for default: Such dealer shall be liable to pay interest and penalty in respect of; a. the tax payable by him according to the return; or b. the difference of the amount of tax according to the revised return; or c. the tax payable for the period for which he has failed to furnish return; d. for the period he fails to furnish return including monthly abstract at the rate of 3% per month for the first 3 months and 5% for subsequent month(s) substituted by the word 1% per month w.e.f. 02-07-2014] from the date the tax payable has become due to the date of its payment or to the date of order of assessment, whichever is earlier.