Taxation

Question 1

Taxes

Answer 1

Taxes are involuntary fees levied on individuals or corporations and enforced by a government entity.

Question 2

Changes in taxation since 1991

Answer 2

1. Broadening of the tax base to include services, fringe benefits, security market transactions, etc.
2. Reduction in custom and excise duty
3. lowering of corporate tax rates
4. Rationalization of personal tax slabs
5. VAT
6. Simplification of income tax filings

Question 3

what does an increase in the share of direct tax show?

Answer 3

1. The tax system is becoming more progressive
2. growth with equity
3. Income redistribution

Question 4

Principles of a good tax system

Answer 4

Characteristics:

1. Equity
2. Certainty
3. Economy
4. Automatic stabilizer
5. Convenience
6. Redistribution
7. Flexible
8. Not discourage work or investment

Question 5

Taxation systems

Answer 5

1. Progressive
2. Regressive
3. Proportional

Question 6

Progressive taxes

Answer 6

Progressive taxes is based on the ability of a taxpayer to pay. As income increases, taxes increases. Ex. Income tax

Question 7

Regressive taxes

Answer 7

Regressive taxes is assessed as a percentage of the item being purchased. Ex. Sales tax

Question 8

Proportional taxes

Answer 8

Proportional taxes are a flat tax system in which taxpayers pay a set percentage, regardless of their income. Ex. Income tax @ 10%

Question 9

Direct taxes

Answer 9

Income tax, corporate tax, wealth tax, capital gains tax etc

Question 10

Types of corporate tax

Answer 10

FBT, DDT, CTT

Question 11

Fringe Benefit Tax FBT

Answer 11

Fringe Benefit Tax (FBT) is fundamentally a tax that an employer has to pay in lieu of the benefits that are given to his/her employees.

Introduced in Budget . and got scrapped in 2009

Question 12

Dividend Distribution Tax DDT

Answer 12

The Dividend Distribution Tax is a tax levied on dividends that a company pays to its shareholders out of its profits.

DDT, is taxable at source, and is deducted at the time of the company distributing dividends.

However, an additional tax is imposed on the shareholder, who receives over Rs. 10 lakh in dividend income in a financial year

In Budget 2018, tax on equity-oriented mutual funds was introduced at the rate of 10 per cent.

Question 13

Minimum Alternate Tax (MAT)

Answer 13

A company is liable to pay income tax on the profit earned by it (as calculated under the provisions of Companies Act, 2013) after making certain adjustments to the book profit as permissible under the IT Act.

However, many companies, despite showing high profits in their books of accounts and paying substantial dividends, were observed to be paying marginal or no tax.

• MAT was thus envisaged as a mechanism for levying a minimum tax on such companies, by deeming a certain percentage of their book profits, computed under the Companies Act, as taxable income.

MAT is levied at the rate of 18.5% of the book profits.

Question 14

Securities Transaction Tax

Answer 14

Securities transaction tax (STT) is a tax levied at the time of purchase and sale of securities listed on stock exchanges in India.

Purpose: To curb short term speculative investments

Question 15

Commodities transaction tax

Answer 15

Same as STT

Imposed on non-agricultural commodities, that are traded at commodities exchange

Question 16

Wealth tax

Answer 16

Wealth tax is a tax levied on the value of assets someone holds.

Abolished in the budget of 2015 (effective FY 2015-16) as the cost incurred for recovering
taxes was more than the benefit is derived

To compensate, surcharge was increased on income > 50 lakhs

Question 17

Capital gains tax

Answer 17

Any profit or gain that arises from the sale of a capital asset’ is a capital gain.

Capital Asset = Securities, Property, Land, Jewelry, patents, trademarks etc

Types: Long Term Capital Gains, Short Term Capital Gains.

LTCG are taxed at lower rates than short term gains, to discourage speculations

Question 18

Google Tax

Answer 18

Also Known as equalisation levy, diverted profits tax/ GAFA Tax

Anti-avoidance tax provisions that have been introduced in several jurisdictions to deal with the practice of profits or royalties being diverted to other jurisdictions that have lower or zero tax rates.

In India, it was introduced as a separate levy imposed by Finance Bill 2016. Not a part of income tax. No tax credit can be claimed under DTAA

Question 19

Presumptive taxes

Answer 19

If you are taking assumptions to calculate tax. It involves the use of indirect methods to calculate tax liability, which differ from the usual rules based on the taxpayer’s accounts.

Hence, the business entity is required to declare a given percentage of his business turnover as his income and has to pay at fixed percentage of it as tax.

Question 20

TDS

Answer 20

The TDS is a tax deducted or paid at the site of the generation of income.

TDS is especially applicable in the case of direct taxation.

TDS is more efficient way of tax collection and reduces leakage

Question 21

Withholding tax

Answer 21

Same as TDS, except

• Withholding tax is the amount deducted in advance i.e. before paying the amount to the payee withholding tax is deducted for paying the tax to the government.

TDS is entitled to the people of India while withholding tax is applicable for payments to non-residents i.e. foreign transactions

Question 22

TCS

Answer 22

Tax collected at source (TCS) is the tax payable by a seller which he collects from the buyer at the time of sale.