There are three important types of tax collection methods: cadastral, at the source (before the receipt of the income) and through self-assessment (at the declaration of the income). The cadastre method implies the use of the cadastre. The cadastre is a register of all the typical objects (land, real estate) classified according to physical features and where the average profitability of the object is determined. Physical features include: for the land tax–the size of the land area, the distance from transportation ways and markets; for the house tax–the number of windows, pipes, doors, the type of the building; for industry tax–the number of employees and machines. The average profitability of the object, which is based on physical features, may differ significantly from actual profitability; this constitutes the main disadvantage of this method. Taxation at the source is calculated and deducted at the accounting unit of the company, which pays the Continue reading
Taxation Concepts
The Principle of Equity in Taxation
Taxation traces its origin to the ancient times as a major source of revenue needed for governance. Kingdoms, monarchies and even dynasties had an elaborate form of taxation imposed on their subjects to source funds that were used to run affairs of the government. These taxes were subjective and biased depending on those in power. Advancement in education led to important studies on the possible forms of taxation that reflected the aspirations and welfare of the people. Owing to this therefore, Adam Smith, accredited as the “Father of modern political Economy” carried out an extensive study in Public Finance seeking to give an in-depth analysis of taxation. Smith documented the findings in his book known as “Wealth of Nations” in 1776. It is in this book that Smith scripted the four maxims of taxation which were later globally adopted as the Canons of Taxation which are summarized as Equity, Certainty, Continue reading
Introduction to Income Tax
The word tax was derived from the Latin word ‘taxore’ meaning to estimate, appreciate or value. Tax is a price which each citizen pays to the state to cover his share of the cost of the general public services which he will consume. It indirectly provides employment opportunities. Taxes are compulsory contributions imposed by the government on its citizens to meet its general expenses incurred for the common good, without any corresponding benefit to the tax payer. In 1860, the British government firstly introduced tax in India. The present law of income tax is contained in the income tax Act,1961 as amended up to date; the income tax rules 1962 as amended up to date and finance Act passed by the parliament every year. Income Tax Act came into force with effect from 1-4-1962 and extends to the whole of India. Assessee [Sec 2(7)] Assessee means a person by whom Continue reading
Classical Principles of Taxation
A number of principles that characterize taxation in general and the taxation system more specifically were set forth by Adam Smith. These are: The principle of justice, which promotes the universality of taxation and the evenness of tax distribution among citizens in correspondence with their revenues (“the subjects of the state must participate in the maintenance of the government in correspondence with the income that they make use of under the protection and with the help of the state”). This principle means that taxes must be deducted in conformity with the capacity of the payer, who is obligated to take part in financing a corresponding share of the state’s expenditures. In the international practice, there are two methods of implementing the justice and equality principle. The first method entails insuring the benefit of the taxpayer. According to this approach, taxes paid must correspond to the benefits received by the taxpayer Continue reading
Double Taxation Relief
One of the major risk in the International Business is the payment of taxes in both the countries i.e. the country in which the business is actually effected and in the country where the MNC is having its head office. This type of double taxation will definitely impede the growth and development of the MNCs in multiple ways. So the provisions are made to avoid the double taxation (Double Taxation Relief) between the two countries through two types of relief namely Bilateral Relief and Unilateral Relief. Bilateral Relief Under this scheme, relief against the burden of double taxation is worked out on the basis of mutual agreement between two countries. There are two types of agreements. In one type, the two concerned countries agree that certain incomes which are likely to be taxed in both countries shall be taxed only in of them or that each of the two countries Continue reading
Overview of Tax Regime in India
DIRECT TAXES Individual Income Tax & Corporate Tax The provisions relating to income tax are contained in the Income Tax Act 1961 and the Income Tax Rules 1962. The Income Tax Department is governed by the Central Board for Direct Taxes (CBDT) which is part of the Department of Revenue under the Ministry of Finance. In terms of the Income Tax Act, 1961, a tax on income is levied on individuals, corporations and body of persons. Tax rates are prescribed by the government in the Finance Act, popularly known as Budget, every year. The Government of India has recently taken initiatives to reform and simplify the language and structure of the direct tax laws into a single legislation – the Direct Taxes Code (DTC). After public consultation the Direct Taxes Code 2010 was placed before the Indian Parliament on 30 August 2010, when passed DTC will replace the Income Tax Continue reading