INCOME TAX & SALES TAXA. INCOME TAX ACT 1961

Indirect taxes Vs. Direct taxes.Definitions:-Assessment year means a year in which the income of the previous year is to be assessed.Previous year means the Financial year immediately preceding the assessment year.Assessee means a person by whom income tax or any other sum of money is payable under the Act.

Residential Status:-Resident in India a) resident and ordinarily resident b) resident but not ordinarily residentNon residentHeads of Income Income from salariesIncome from house propertyProfits and gains of business or professionCapital gains Income from other sources

Incidence of Tax:-In case of a resident and ordinarily residentIn case of a resident but not ordinarily residentIn case of a non-residentIncome deemed to accrue or arise in India:Income from business connection in India from any property asset or source of income in IndiaCapital gain on asset situated in IndiaSalary if service is rendered in IndiaDividend paid by the Indian companyInterest paid by Govt/resident/non-resident IndiaRoyalty paid by a person resident in India

TAX PLANNINGReduction of tax:-Tax evasion Tax avoidance Tax planningTypes of tax planning:-Short term tax planning to long term tax planning

Factors in Tax planning:-Residential status and citizenship of the assesseeHeads of IncomeLatest legal positionForm vs. substance

Tax planning with reference to setting up of a new business:-Location of businessNature and size of businessTax planning with reference to financial management decisions:-Capital structureMeans of financing a) equity share capital b) debentures/loans and borrowings/lease finance.Financial leverage and capital mix

Tax planning with reference to specific management decisions:-Lease or buy decisionsMake or buy decisionsRepair/renewal or replacement of an assetTax planning with reference to business re-organisation:-Amalgamation/merger of companies Conversion of proprietary concern/firm into a companyDemerger of a companySlump sale

CENTRAL SALES TAX ACT, 1956

DEFINITIONSAppropriate State:- The expression is used in relation to a dealer. The dealer may have one or more places of business in a State. That State wherein the dealer has place of business is called the appropriate State.Business:- Business includes Any trade, commerce, or manufactureAny incidental, ancillary or connected transaction.Whether with profit motive or not.

Goods include:-All materialsAll articlesAll commoditiesAll other kinds of movable propertyGoods exclude:-New papers Actionable claimsStocks, shares and securities

Dealer means any person engaged in the business of:-Buying, selling, supplying or distributing.Goods (movable things)Regularly or irregularlyDirectly or indirectlyFor cash, credit, commission, remuneration, etc.

Sale means the following:-There must be transfer of property in goods.From one person to another personFor cash, deferred payment or any other valuable consideration.Sale include the following:-Transfer of property otherwise than in pursuance of a contract (for cash).Works contractHire purchase, LeaseSupply of goods by any association to its members for cash.

Sale excludes mortgage, hypothecation, charge or pledge on goods.Sale price means: invoice priceAs consideration for sale of any goodsSale price excludes :Cash discount as per normal trade practiceFreight, delivery and installation cost, if charged separately.

Sale price includes:Sums charged for anything done by the dealer at the time of or before delivery of the goods to the buyer.Exercise duty, customs duty, sales tax etc.Turnover means the aggregate of sale prices, received or receivable by him for the sale made in the course of interstate trade or commerce.

Sale or purchase of goods in the course of inter-state trade or commerce:-Occasions the movement of goods from one State to another orIs effected by a transfer of documents of title to the goods during their movement from one State to another.

A sale or purchase of goods shall be deemed to take place inside the State if:the ascertained or specific goods are within the State at the time of contract of sale.The unascertained or future goods are within the State at the time of their appropriation to the contract.Any other sale is sale outside the State.

GENERAL FEATURES OF CSTThere is no taxable minimumIs levied on the first inter State sale and subsequent stages.Reduction in tax is provided on filing of form-C etc.Goods liable to tax on sale or purchase within a State are liable to tax on inter State sales.

Only goods generally exempted from tax under State law are exempt from tax on inter State sales.Concessional rate of CST on provision of C-form is 2%.An unregistered dealer to pay CST at the rate of 10% or local sales tax whichever is higher.Sec.14 of the CST Act define certain goods to be declared goods. The unregistered dealer has to pay double the rate of local Sales Tax for these goods.

FORMS FOR CLAIMING REDUCTIONForm-C the purchaser shall issue this form to the selling dealer who shall claim concession.Form-E-I the first seller shall issue this form to the first purchaser who shall claim concession.Form-E-IIeach subsequent seller shall issue this form to each subsequent purchaser for claiming concession.

Form-F issued for branch transfer outside the State or for consignment sales to agent outside State. Dealer receiving the goods shall issue this form and the dispatcher shall claim concession.Form-H exporter shall issue this form to the selling dealer and the penultimate selling dealer shall claim concession.

Form-I--unit in SEZ shall issue this form to selling dealer who shall claim concession.Form-J diplomatic mission shall issue this form to selling dealer who shall claim concession.

VALUE ADDED TAX [VAT]VAT is characterised by Absence of cascading effectNon distortion of domestic production and distributionNeutral regarding the production technique adoptedHas exceptional stability and flexibility as a source of government revenue.Simplicity, transaction based and has self policing effect on tax payments.

VAT is a multistage, destination-based, net-consumption tax, ultimate consumer being liable in the chain of transactions.Three types of VAT namely consumption type, income type and gross product type.VAT is computed in two forms i.e. the invoice or the tax credit method and the substraction method.

Special treatment for certain commodities:-Petroleum productsLiquorSugarcaneCalculation of VAT payable by the dealer.

ELIGIBLE PURCHASES FOR INPUT TAX CREDITFor sale/resale within the StateFor sale in the course of inter-state trade.To be used as:-Containers or packing materials Raw materials or consumable storesIn the manufacture of goods which are sold within the State of or in the course of inter-state trade.

For being used in the execution of a works contract.To be used as capital goods required for the manufacture of taxable goods.To be used as:-Raw materials or consumable storesCapital goodsPacking materials/containersIn the manufacture of goods sold in the course of export.

COVERAGE OF SET-OFF/INPUT TAX CREDITInstant credit of input tax both to manufacturers and traders.No input credit on Central Sales Tax paid on purchases from other States.Input tax credit on stock transfer to other State. Credit of input tax paid in excess of 2%.Certain purchases not eligible for input tax credit.Input tax credit on capital goods.Non-availability of input tax credit in some cases.

PRINCIPLES AND VARIANTS OF VATTwo principles relevant for VAT:-Origin principleDestination principleVariants of VAT:-Gross product variantIncome variantConsumption variant--------------