Indian Tax System

Classification of Taxes
Direct Taxes : Income Tax, Corporate Tax, Gift Tax, Wealth Tax Indirect Taxes: Excise, Customs, Sales Tax, Octroi, Entry Tax, Service Tax Central Government: Direct Taxes (except on Agriculture Income), Central Excise (except on liquor), Customs and Service Tax, Central Sales Tax State Government: States Sales Tax, Excise on liquor, Tax on Agriculture Income, Stamp Duty, Entry Tax Local Government: Octroi, Property Tax etc.

Indirect Taxes

Excise Duty Customs Duty Sales Tax

Central Sales Tax State Sales Tax

Central Excise Duty

Types of Excise Duties: Basic Excise Duty Special Excise Duty (on soft drink, AC, Cars, Tobacco,
Polyester filament yarn, tyres, pan masala etc.)

Additional Duty (on sugar, cigarette, cotton fabrics, silk and

woolen fabrics etc.)

Cess (on automobiles, jute, sugar, beedis, tobacco, textiles and

textiles machinery, rubber etc.)

National Calamity Contingent Duty

Central Excise
The Conditions for levy of Excise Duty: The Duty is on Goods The Goods must be Excisable The Goods must be Manufactured or Produced The Manufacturing or Production must be In India

What is the definition of Goods? Goods must be Movable and Marketable Immovables are not excisable, eg. Constructing a building or dam or road or power generation plant or production plant etc. Marketability Test is very crucial for excisability, however,
Actual sale is not necessary Marketability does not depend on no. of purchasers or on the territorial limits of the country The product concerned must have a regular market The product must be marketable as it is without further processing

Marketability Test: Some examples DCM vs. CCE: Vanaspati Case Paper products vs. CCE: Molten wax at 170 degrees Indalco vs. UoI: Dross and skimmings in aluminium prodn. Gujarat State Fertiliser vs. CCE: Stray sales of wastes

There must be a regular market for the product

What are Goods? Some Examples: Gas, Steam etc. Electricity Drawing, Designs etc. Sub-standard goods are equivalent to goods and not scrap Intermediate Goods By-products Parts manufactured for assembly at site Wastes and scraps

What are not Goods? Products with a very short shelf life Immovables Plant and machinery assembled at site

The onus of proving that a product is a Good from excisability point of view and is marketable lies with the Department of Excise

What is manufacturing? Processing of some inputs that would result in a New and identifiable product Commercially different article or commodity

Excisability: Item must appear in the CETA Intermediate products captive consumption

Excise liability: Manufacturer Job worker if the contract is on principal principal basis Raw material supplier if this liability is undertaken Raw material supplier if labour is supplied on contract Procedure: Maintain Daily Stock Account (DSA) Goods (except for cigarette) must be cleared under Invoice of assessee duly authenticated by the owner or his authorised agent Duty is payable on fortnightly basis, return to be filed by 10th of following month Submit a list in duplicate of records of transactions

Customs Duty
Duty on exports and Imports It consists of : Basic Customs Duty Additional Customs Duty Special Additional Duty Additional Duty Countervailing Duty Anti-dumping Duty

Assessable Value for imposing Customs Duty: Price at which such or like goods are ordinarily sold in the course of international trade Price for delivery at the time and place of importation or exportation Pricing should be for the sole consideration of selling Rate of exchange as on date of presentation of Bill of Entry Includes:
Commission and brokerage Packing cost Value of goods supplied by buyer for further value addition and re-imported Royalties and license fees if paid by buyer separately (eg. For technology)

Mere CIF value cannot be accepted as Value of such goods for calculating duty liability

Central Sales Tax

Imposed in the case of inter-State trade Tax collected in the State where movement of goods commences Inter-State Sale: Transactions that occasion movement of goods Location of buyer and seller is immaterial The agreement of sale should indicate movement of goods from one State to another

Direct Taxes Income: Earnings from regular sources, few irregular sources as well Salaries Income from house property, Profits and gains of business or profession, Capital gains, and Income from other sources -- Considered for calculating tax liabilities

Capital Receipt: Earnings from selling assets -- Not considered for calculating tax liabilities

Capital Gains
Capital assets: Property of any kind except the following
Stock-in-trade, Consumables/raw materials kept for bus. Purposes Agricultural land except in municipal areas and within 8 kms of their territories Personal effects like apparels, vehicles etc.

Transfer of assets:
Sale, exchange or relinquishment of a capital asset Distribution of money or other assets by a Company on liquidation except in Employees stock option Transfer of capital assets by a company to its subsidiaries if not converted to tradable stock for 8 years and parent co. holds whole of shares in the subsidiary

Types of Capital Gains

Short Term Capital Gain (STCG) when the asset is held by transferor for less than 36 months
(in case of shares of Mutual Funds or of listed companies - less than 12 months)

Evaluation method:
Capital Gain = Full value of consideration cost of (acquisition + improvement + transfer)

Long Term Capital Gain (LTCG) Otherwise Evaluation method:

Capital Gain = Full value of consideration Indexed cost of (acquisition + improvement) cost of transfer