1. Business and Tax Laws

2. Contents
 Classification of Taxes
 Income Tax
 Wealth tax
 Central Excise
 Sales Tax
 Customs Duty
 Service Tax

3. Taxation
The word Tax refers to the required payments of
money made to governments that provide public
goods and services for the benefit of the
community as a whole.

4. Classification of Taxes
 Direct Tax
 Indirect Tax

5. Classification of Taxes
 Direct Taxes : The government directly collects these
taxes from the pockets of the earners out of their
income. Example : Income tax, Wealth tax,
Professional tax.
 Indirect taxes: These taxes are collected through the
manufacture and sale of products and services i.e.,
the amount of tax is inclusive in the price of the
product or service

6. Direct and indirect taxes
 Direct tax is a tax that cannot be shifted to others
such as the income tax and wealth tax
 Indirect tax is the tax that can be shifted to others
such as sales tax, excise tax, customs duty
 The only difference is that every person who
becomes a consumer for a product or service needs
to pay indirect tax irrespective of his earnings.

7. Income Tax
 Income tax is a direct tax and is governed by
Income Tax Act, 1961.
 The act is administered by Central Board of Direct
Taxes (CBDT) which is empowered to frame rules
to ensure proper governance of the Act
 CBDT issues timely circulars to clarify any doubts
regarding the scope and meaning of the act and to
act as a guide for officers and assessees

8. Important Terminology (ITA 1961)
 Assessee : Sec2(7): An assessee is a person by
whom any tax is payable under the Act
 Assessment year : It means the period of 12
months starting from 1st April of every year and
ending on 31st March of next year
 Previous year: Income earned in a year is taxable
in the next year. The year in which income is
earned is known as previous year and the next year
in which income is taxable is known as assessment
year

9. Important Terminology (ITA 1961)
 Receipt v/s accrual of Income :
Income is said to have been received by a person
when payment has been actually received whereas
income is said to have accrued if there arises in the
person a fixed and unconditional right to receive it
 Revised return:
If a person having filed his return within the due
date discovers any omission or wrong statement
therein, he may file a revised return before the
expiry of one year from the end of the assessment
year

10. Applicability
 Acc to sec 2(31) of ITA, 1961, Income tax is
applicable to all persons of India. A person means
and includes
 An individual
 HUF
 A company
 A firm
 AOP

11. Heads of Income
 Income from salaries
 Income from House Property
 Profits and Gains of Business or Profession
 Capital Gains
 Other Income

12. Income from salaries
Under sec 17(1), salary includes:
 Wages
 Any annuity or pension,
 Any gratuity,
 Any fees, commission, perquisite or profits in lieu
of or in addition to any salary or wages,
 Any advance of salary
 Any payment received in respect of any period of
leave not availed by the employee

13. Income from House Property
 Acc to sec 22 of ITA, 1961, tax is charged only if
 The property consists of any building or land
 The assessee is the owner of house property; and
 The property should not be used by the owner for
the purpose of his business or profession, the
profits of which are chargeable to tax

14. Income from profits or gains from
Business or profession
Profits arising from Business or profession are
taxable under Income tax Act, 1961

15. Capital Gains
 Sec 2 (14) defines a Capital Asset as property of any
kind- whether fixed or circulating, movable or
immovable, tangible or intangible. The term capital
Asset does not include the following:
 Any stock-in-trade, consumable stores or raw
materials held for the purpose of Business or
profession

16. Capital Gains
 Personal effects of the assessee, that is movable
property including wearing apparel, furniture and
jewellery held for personal use or for the use of any
member of his family dependent upon him
 Agricultural land in India provided it is not
situated in any area within the jurisdiction of a
municipality, having a population of 10,000 or
more or in any such notified area;

17. Income from other sources
Incomes like:
 Dividends
Any winnings from lotteries, crossword puzzles,
races including horse races, card games and
other games of any sort or from gambling or
betting of any form or nature
 Interest on securities, if not charged to tax under
the head profits and gains of business
 Income from machinery, plant or furniture along
with the building and letting of building is
inseparable from the letting of plant, machinery
or furniture

18. Income from other sources
 Any sum received under an insurance policy,
including bonus, if not taxable as salary or business
income

19. Incomes that are exempted
 Agricultural income
 Receipts by an individual HUF member
 Share of profit of a partner in a firm
 Any sum received under a life insurance policy
 Income and allowances of MLAs and MPs
 Incomes of charitable and religious trusts

20. Wealth Tax
 The Wealth Tax Act is an important direct tax
legislation, which came into existence on 1 st April
1957. Wealth tax is levied on the benefits derived
from property ownership. The tax is to be paid year
after year on the same property on its market value,
whether or not such property yield any income.
 Wealth tax is also a direct tax
 It is governed by Wealth Tax Act, 1957
 The wealth tax is chargeable in respect of net wealth
of every individual, HUF and a company in respect
of every assessment year at the rate of 1 percent of
the amount where the net wealth exceeds Rs 15
lakhs

21. Wealth Tax
 Acc to sec 45 of the Act, no wealth tax is chargeable
in respect of the wealth of:
 Any cooperative society
 Any social club
 Any political party

22. Assets chargeable to wealth tax
 Wealth tax is not levied investments in shares, debentures,
UTI, mutual funds, etc are exempt from it. The assets
chargeable to wealth tax are :-
 Guest house, residential house, commercial building
 Motor car
 Jewellery, utensils of gold, silver etc
 Boats and aircrafts
 Cash in hand (in excess of 50,000), only for Individual &
HUF

23. Chargeability of wealth tax
 Wealth tax is chargeable in respect of Net wealth.
 Net wealth means all assets less loans taken to
acquire those assets.
 In other words, the value of the taxable assets is
clubbed together and is reduced by the amount of
debt owed by the assessee.
 The net wealth so arrived at is charged to tax at the
specified rates. Wealth tax is charged @ 1% of the
amount by which the net wealth exceeds Rs.15 Lakhs.

24. Assets that are exempted
 Property held under a trust.
 Agricultural land and growing crops
 Animals
 Residential building of a former ruler.
 Assets belonging to Indian repatriates.
 One house or a part of house or a plot of land not
exceeding 500sq.mts,for individual & HUF
assessee

25. Deemed assets
 Assets transferred by one spouse to another
 Assets held by minor child

26. Central Excise
 Central excise is governed by Central Excise Act,
1944
 Central excise is the duty that is collected on a
product, that is manufactured or produced in India
 It comes under indirect taxes
 It is levied on every product that is manufactured
or produced, irrespective of its sales/ realization of
value

27. Applicability of duties
 The power to levy Central excise duties lies with the
Central government
 Central Govt has no power to impose duty on
Alcoholic liquors for human
consumption
Opium and other narcotic drugs

28. Conditions to levy excise duty
 Depending upon the case laws and judicial
interpretations, “goods” for the purposes of levy
of excise duty must satisfy two preconditions-
 Movability : The goods must be movable. Excise
duty is not levied on immovable property. All
goods which are manufactured and produced in
India are taxable under Central Excise Act ,1944
 Marketability : The item should be such that it is
capable of being bought or sold. Unless this test
of marketability is satisfied, duty cannot be levied
as these will not be goods

29. Sales tax
 Sales tax is a consumption tax charged at the
point of purchase for certain goods and services.
 The tax is usually set as a percentage by the
government charging the tax.
 The tax can be included in the price (tax-inclusive)
or added at the point of sale (tax-exclusive).

30. Applicability of Central Sales Tax (CST)
The applicability of Central Sales Tax is as follows:
 Tax is levied on interstate sales
 Sales tax thus collected is retained by the collecting
state
 Sales tax under this scheme is payable in the state
from where movement of goods begin

31. Rates of Sales Tax
 Sale to Government
 Sale to registered dealers of goods included in their
registration certificates
 Sale of declared goods to unregistered dealers
 Sale of goods other than declared goods to un-
registered dealers

32. Rates to various categories
 Sale to Government- The sales tax on Sale to
Government is charged at 4% or general sales tax
rate for sale within the state, whichever is lower.
 Sale to Registered dealers- The sale to registered
dealers is taxed at 4% or sales tax rate for sale
within the state whichever is lower, provided that
the goods are specified.
 Sale to Un-Registered dealers- The rate of sales tax
on:
 Declared Goods: twice the rate applicable to sale or
purchase of such goods within the state
 Other than Declared goods : as applicable for sale
inside the state

33. Calculation of Sales Turnover
SALES TAX IS PAYABLE ON SALES TURNOVER OF THE PERIOD.
TURNOVER:
THE SALES TURNOVER IS THE AGGREGATE OF THE SALE PRICE RECEIVED
AND RECEIVABLE BY THE DEALER IN RESPECT OF SALES OF ANY GOODS IN
THE COURSE OF INTERSTATE TRADE AND COMMERCE MADE DURING ANY
PRESCRIBED PERIOD. IT IS DETERMINED ACCORDING TO THE CST RULES.

34. Customs Duty
 CUSTOM DUTY IS ANOTHER PART OF INDIRECT
TAXES.
 THIS DUTY IS ALLOCATED BY THE CENTRAL GOVERNMENT ON EVERY
PRODUCT THAT IS EXPORTED OR IMPORTED FROM INDIA.
 CUSTOM DUTY IS APPLICABLE EQUALLY TO ALL OVER INDIA AT THE
TIME OF IMPORTING OR EXPORTING THE GOODS IN INDIA. IT IS ALSO
APPLICABLE ON TRANSPORTING THE GOODS BY LAND, AIR AND WATER
INCLUDING INDIAN TERRITORIAL WATERS.

35. Objective of levying customs duty:
 To restrict imports to preserve foreign exchange.
 To prohibit imports and exports of goods for
achieving the policy objectives of the Government.
 To regulate exports
 To co-ordinate the legal provisions with other laws
dealing with foreign exchange.

36. Types of Custom Duties
 Anti-Dumping Duty
 Protective Duty
 Export Duty
 Import Duty

37. Value Added Tax
 Value Added Tax (VAT) is a form of sales tax
collected by the Government of destination state
on consumer expenditure.
 It is collected through business transactions
involving sale of goods within the state
 VAT is a tax on value added in the price of a
commodity at each stage of production or
manufacture of goods
 It is the tax which is collected at each stage of sale
when there is a value addition to the goods

38. Value Added Tax
 It is a tax on retail sales collected in stages on
multi-point sales basis in different stages of
products and trade levied in such a manner that
it is added in each stage and is taxed only once
 VAT in its common form is thus a sales tax levied
according to the value added which can be called
the value added sales tax as well
 VAT is the difference between the price at which
commodity sold and the cost of inputs and in
case of trading the difference between the value
of sales and purchases.

39. Definition of Sale under VAT includes:
 The conventional sale i.e transfer of property in
goods.
 Supply of goods by a society, clubs, firms and
company to its members.
 Transfer of property in goods involved in
execution of work contract.
 Delivery of any goods on hire purchase or any
other system of payment by installments.
 Transfer of right to use any goods for any
purpose, whether or not for a specified period.

40. Cenvat
 The term ‘CENVAT’ stands for Central Value
Added Tax.
 The Cenvat scheme is based on the system of
granting credit of duty paid on inputs. Under
Cenvat, a manufacturer has to pay duty as per
normal procedure on the basis of ‘Assessable value’
However, he gets credit of duty paid on inputs.

41. Credit will be available for duty paid on
 Raw materials
 Material used in relation to manufacture
 Packaging material
 Paints
 Duty paid on diesel and petrol is not available as
CENVAT credit, even if they are used as raw
materials
 CENVAT credit is available only on inputs used in or
in relation to the manufacture of a final product
 The input may be used directly or indirectly in or in
relation to manufacture.
 Credit is to be availed only on the basis of specified
documents as proof of payment of duty on inputs.

42. Service Tax
SERVICE TAX IS ANOTHER TYPE OF INDIRECT TAX THAT IS TO BE PAID
BY A CUSTOMER FOR CERTAIN KINDS OF SERVICES HE AVAILS.

43. Applicability of Service Tax
 It is applicable to several service providers right
from the transport operators to the hospitality
sector.
 These service providers collect tax from customers
and pay to the government.
 The service tax shall be paid by all the service
providers.
 The services rendered by individuals and other
non-commercial organization also will be liable on
service tax.

44. Objectives of collecting the Service Tax
 To bring unorganized sectors under tax purview.
 To make part in the government’s revenue by
imposing tax, as the service sector is the major
contributor to the GDP.

45. List of Services for Computation
 Advertising agency
 Banking and other financial services
 Courier agency
 Dry cleaners
 Goods transport agency
 Cleaning activity
 Packaging activity

46. Fringe Benefit Tax
 Perquisites provided by the employer to his
employees both in terms of monetary and non-
monetary in addition to the cash salary or wages.
These perquisites are called Fringe benefits.
 The tax on these perquisites is called Fringe Benefit
Tax.
 These perquisites are taxed in the hands of
employees, but this tax is collected from the hands
of employer.

47. Taxable Fringe Benefits
 Entertainment
 Festival Celebrations
 Gifts
 Use of Club Facilities
 Conference
 Employee welfare
 Sales promotion
 Conveyance, tours and travels expenses
 Use of telephone
 Scholarship to the children of the employees.
 Consumption of fuel other than industrial fuel
 Hotel boarding and lodging
 Use of health club, sports and similar facilities.

48. Thank you !