Goods and Services Tax (GST) is part of the proposed tax reforms that centre round evolving an efficient consumption tax system in the country. Presently, there are parallel systems of indirect taxation at the central and state levels. In the Union Budget for the year 2006-2007, Finance Minister proposed that India should move towards national level Goods and Services Tax that should be shared between the Centre and the States. He proposed to set April 1, 2010 as the date for introducing the goods and service tax (GST). Goods and Services Tax is proposed to be an indirect tax levied on manufacture, sale and consumption of goods and services at a national level concurrently by Central and State Governments. This Integration of goods and services taxation would end the distortions of differential taxation treatments of manufacturing and service sector. The Central and State governments both charge a multitude of indirect Continue reading
Tax Management
Income Tax Assessment Procedure
Ascertaining total income is one major task of the procedure involved in levying tax on an assessee. The task of assessing the income returned and determination of tax liability is called ‘assessment’. The term ’assessment’ has been used in the Income-tax Act meaning differently contexts. In certain situations, it refers to computation of income, sometimes to the determination of tax payable and in some cases to the whole procedure laid down in the Act of imposing tax liability on assessee. Assessment of income relating to one Financial Year (FY) starts in the succeeding financial year, which is called Assesment Year (AY). Income tax assessment procedure begins when an assessee files his return of income to the income tax department. Filing of return [Sec 139 (1)] A person has to file return of income in the prescribed form within the specified time limit if his total income exceeds Continue reading
Basic Principles of International Taxation
Rapid economic development happens to be one of the primary objectives of all developing economies and India is not an exception. This is possible mainly through the accumulation and proper use of capital. The developing economies lack adequate basic infrastructural facilities. In order to develop these, the government takes upon itself the responsibility for building up capital formation, through sound taxation policies. There are two basic principles followed by different countries in International taxation 1) Residence Based Taxation The principle of residence-based taxation asserts that natural persons or individuals are taxable in the country or tax jurisdiction in which they establish their residence or domicile, regardless of the source of income. In the case of non-natural persons such as companies or firms, the place of incorporation or the place where control or management is exercised is deemed to be the place of residence. In the context of income tax, the Continue reading
Principles of a Sound Tax System
According to Mrs. Hicks, a sound tax system should have the following characteristics: It should facilitate financing of public services. Tax, should be levied according to the ability of the people, the index of ability being income and family circumstances and Similarly placed persons should pay similar taxes to avoid any discrimination. From the discussion above, we may lay down the following four broad characteristics as the principles of a sound tax system. Equality in Tax Burdens: This principle suggests that when the taxes are levied they ensure equality in tax burdens. In other words, through taxes the government can ensure that the tax burden is spread in such a way that persons who are placed in similar positions are made to bear the same burden of taxes. This implies that people who are better-off should bear more tax burden than those who are worse-off. Though this principle is universal, Continue reading
Direct and Indirect Taxes
Taxes are classified as direct tax and indirect tax. But the meaning of these two types of taxes is not clear. For a long time economists interpreted these two types in different ways. For instance, one group of economists considered taxes on production as direct taxes and those on consumption as indirect taxes. J.S. Mill distinguished these two types of taxes in terms of the ability to shift the tax. Any person on whom the tax is imposed, if he himself pays the tax, it is called direct tax and if he is able to shift the tax to somebody who ultimately pays it then it is called indirect tax. For example, income tax is paid by a person as it is levied on the income earned by him, so it is a direct tax. On the other hand the sales tax imposed on the seller is shifted to the Continue reading
Dual Income Taxation
The Dual Income Tax (DIT) is a combination of both comprehensive income tax system and flat tax system. It is not a plain comprehensive system with a single progressive tax development or a flat tax with only a proportional tax, but a combination of both. It attempts to tax the personal capital income at a uniform (low) proportional tax while maintaining a (higher) progressive rate on the labour income. This taxation system was first introduced in Denmark 1987, other northern countries as Finland, Norway or Sweden followed. Until today the Norwegian system is seen as the most experienced one and is seen as very respected for the consistency with which it was implemented. Until today the system as such had to be subject to changes. Germany introduced the dual income tax system in 2009. Income was taxed according to the global tax system with the progressive taxation method whereas capital Continue reading