Beruflich Dokumente
Kultur Dokumente
CORPORATE TAXATION
AND VALUATION
(UNIT 1)
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Q1. What are the different types of taxes? Differentiate between them providing valid reasons
for the same.
Ans. Taxes are generally an involuntary fee levied on individuals and corporations by the
government in order to finance government activities. Taxes are essentially of quid pro quo
in nature. It means a favour or advantage granted in return for something.
1. Income tax :
a. Income tax is the most common and most important tax that an Indian must pay.
b. It is charged directly on the income of a person.
c. The rate at which it is charged varies, depending on the level of income.
d. Income tax is charged on an income known as “taxable income”, which is:
Taxable income = (total income) – (applicable deductions and exemptions).
The different heads of income under which income tax is chargeable are:
e. Income from house and property.
f. Income from business or profession.
g. Income from salaries.
h. Income in the form of capital gains.
i. Income from other sources.
It is levied differently for different people depending on their residency status.
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2. Corporate tax :
3. Wealth tax :
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(B) INDIRECT TAXES :-
1. Sales tax :
a. As the name suggests, sales tax is a tax that is levied on the sale of a product.
b. This product can be something that was produced in India or imported and can even
cover services rendered.
c. This tax is levied on the seller of the product who then transfers it onto the person
who buys said product with the sales tax added to the price of the product.
The limitation of this tax is that it can be levied only ones for a particular product, which
means that if the product is sold a second time, sales tax cannot be applied to it.
2. Service tax :
Like sales tax is added to the price of goods sold in India, so is service tax added to services
provided in India
As per Service Tax Law it is mandatory for the following categories of persons to obtain
registration:-
a. The Goods and Services Tax (GST) is the largest reform in India’s indirect tax
structure since the market started opening up about 25 years ago.
b. The GST is a consumption-based tax, as it is applicable where consumption takes
place.
c. The GST is levied on value-added goods and services at each stage of consumption in
the supply chain.
d. The GST payable on the procurement of goods and services can be set off against the
GST payable on the supply of goods and services, the merchant will pay the
applicable GST rate but can claim it back through the tax credit mechanism.
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3. Value Added Tax (VAT) :
a) VAT, also known as commercial tax is not applicable on commodities that are zero
rated (eg. food and essential drugs) or those that fall under exports.
b) This tax is levied at all the stages of the supply chain, right from the manufacturers,
dealers and distributors to the end user.
c) The value added tax is a tax that is levied at the discretion of the state government
and not all states implemented it when it was first announced.
d) There are 3 schedules and each schedule has its own VAT percentage. For Schedule 3
the VAT is 1%, for schedule 2 the VAT is 5% and so on. Goods that have not been
classified into any category have a VAT of 15%.
a. When you purchase anything that needs to be imported from another country, a
charge is applied on it and that is the customs duty.
b. It applies to all the products that come in via land, sea or air. Even if you bring in
products bought in another country to India, a customs duty can be levied on it.
c. The purpose of the customs duty is to ensure that all the goods entering the country
are taxed and paid for.
5. Excise duty :
a. This is a tax that is levied on all the goods manufactured or produced in India.
b. It is different from customs duty because it is applicable only on things produced in
India and is also known as the Central Value Added Tax or CENVAT.
c. This tax is collected by the government from the manufacturer of the goods.
d. It can also be collected from those entities that receive manufactured goods and
employ people to transport the goods from the manufacturer to themselves.
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DIFFERENCE BETWEEN DIRECT TAXES & INDIRECT TAXES:-
The incidence and impact of the The incidence and impact of the tax
direct tax fall on the same person fall on different persons.
Incidence
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Q2. What has been the history of taxation? Also explain the changes which have occurred since
the implementation of Income Tax Act, 1961.
• Consequent upon the financial difficulties created by the events of 1857,Income Tax was
introduced in India for the first time by the British in the year 1860.
• The Act of 1860 was passed only for five years and therefore lapsed in 1865.
• It was replaced in 1867 by a licence tax on professions and trades and the latter was
converted into a certificate tax in the following year.
• It was later abolished in 1873. Licence tax traders remained in operation till 1886 when it
was merged in the income tax Act of that year.
• The Act defined agricultural income and exempted it from tax liability in view of the
already existing land revenue a kind of direct taxes.
• The Act of 1886 exempted life insurance premiums paid by an assessed on policies on his
own life.
• Another important provision of this Act was that Hindu undivided family was treated as a
distinct taxable entity.
• Although income tax in India has been a charge on net income since inception, it was in
the Act of 1918 that specific provisions were inserted for the first time pertaining to
business deductions for the purpose of computing net income.
• The Act of 1918 remained in force for a short period and was replaced by new Act in
view of the reforms introduced by the Govt. of India Act, 1919.
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Income Tax Act, 1922
• The organizational history of the income tax department dates back to the year 1922.
• One of the important aspects of the 1922 Act was that, it laid down the basis, the
mechanism of administering the tax and the rates at which the tax was to be levied would
be laid down in annual finance acts. This procedure brought in the much needed
flexibility in adjusting the tax rates in accordance with the annual budgetary requirements
and in securing a degree of elasticity for the tax system
• Before 1922 the tax rate were determined by the Income tax act itself and to revise the
rates the act itself had to be amended. The Income tax Act,1922 gave for first time a
specific nomenclature to various income tax authorities and laid the foundation of a
proper system of administration as per provisions of income tax act 1922.
• The act which came into force on April 1, 1962, replaced the Indian income tax Act,
1922, which had remained in operation for 40 years. Furthermore, A set of rules known
as Income Tax Rules, 1962 have been framed for implementing the various provisions of
the Act.
Changes, which have occurred since the implementation of Income, tax act,
1961
Income Tax is levied on the income of different categories of persons as per the provisions of the
Income Tax Act, 1961, after computing the income the rates of Income Tax applicable of that
assessment year is applied to find out the tax liability. The collection of Income Tax is mainly through
personal Income Tax and corporate Income Tax, the share of corporate tax being the largest one. In
other words, Income Tax is one of the major source of revenue for the Government. The responsibility
for collection of Income Tax vests with central Government.
The act of 1922 remained in force till 1961, meanwhile in 1956 the government had referred the Act to
the law commission in order to recast it on logical lines and to make it simple without changing the basic
tax structure. Based on the law commissions report, the income tax bill giving effect to its
recommendations was submitted in the Lok Sabha in April 1961. The bill received the assent of the
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president on 13 Sep. 1961. The present income tax Act is the Act 1961. According to section 1 of the
income tax Act 1961, extends to the whole of India including the state of Jammu Kashmir, it came into
force on 1 April 1962. The liability of tax is determined by total income in the previous year, limits of
taxation, rates, status of assesses (e.g. individuals, HUF, firm, company etc.) residential status and
various heads of income (salary, house property, business, capital gains and other sources). The income
tax scheme also provides for detection of offences and penalization also justice to aggrieved assesses.
Q3. What are the various issues related to taxation? What changes would you suggest to combat
these issues? Validate your answer.
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6. Widening the Indirect of Tax Net:
There is tax such as State sales tax on an item on which union excise duties has already
been paid. There is, for instance, not only excise duty or sales tax on finished cars but
also on tyres, tubes and other components. Due to the multiplicity of levies the cascading
effect cannot be avoided. Thus, indirect taxes have caused cost-push inflation in India.
7. Regressive Nature:
Moreover, indirect taxes have become more and more regressive over the years. Such
taxes are usually imposed on consumption goods. In general, poor people have a high
propensity to consume than the rich people. In fact, the marginal propensity to consume
gradually decreases with an increase in income.
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