Field Exposure On One Year Post Graduate Diploma in Accountancy (With Computrized Accounts & Taxation) Sudesh Kumar

SPN NO.
:-
M0123213046
A
FIELD EXPOSURE ON
What is Activities Of Taxation and VAT its Activities
Submitted to
Board Of Technical Education, U.P Lucknow, For The Fulfillment Of the
Requirement Of One Year Post Graduate Diploma In Accountancy (With
Computerized Accounts and Taxation), Under Multi Point Entry & Credit System.
BATCH-2013-14
Prepared By:
SUDESH KUMAR
A Student of One Year Post Graduate
Under the Guidance of
Dr.N.U. Siddiqui
Head of Department Accountancy.
Diploma in Accountancy (with Computerzed Accounts & Taxation )
DEPARTMENT OF ACCOUNTANCY (WITH COMPUTERISED ACCOUNTS & TAXATION),
GOVERNMENT POLYTECHNIC, KANPUR

What is Activities of Taxation and VAT its Activities
ACKNOWLEDGEMENT
This Project Report file is submitted by the partial fulfillment of

the requirement of One Year Post Graduate Diploma in Accountancy
(with Computerized Accounts and Taxation ) of Govt. Polytechnic ,
Kanpur , under the Board Technical Education , Lucknow . Under multi
point entry & credit system.
At first I want to give full gratitude to be pleasing of God to give
me this challenging and prospective carrier and also made me bale to
complete this project report .
I am under obligation to Er. F.R. Khan , The Principle of Govt.
Polytechnic , Kanpur. He is kind enough . He always encouraged me to
come on this stage and he created the best atmosphere to study in the
college .
I am very grateful that I find Dr. N.U. Siddiqui , he is the Head of
Department Accountancy . He is very gentle , very polite and very
sincere to his duty . He always takes care of the students . I am very
impressive with him that I can say he is the second form of God . He
always motivated me and he helped a lot to prepare this project file. He
gives positive guide line from time to time to go a head in my life . He is
the best guide for me .
Again I am very thankful to my respected Honourable Teachers Mr.

Rajeev Kumar, Mr. Atul Agarwal .They have a lot of experience
about Accounting . They are also very kind . They provided me the
important matter which is related with my topic . and gives good tips.
Again I Would like to thank Chaudhary Pandiya & Co. Ajeet
Kumar pandiya , He is the Chartered Accountant there he trained me
one month and within this time he gave good guide line to prepare this
project file and good advices.
Once again I want to mentioned some persons they are also the
main parts of this project as my parents, They are no more in this world
but I feel their bless on the every moment of my life . My elder sister,
Mrs. Rakesh Devi and my brother-in-law, Mr. Ombeer Singh ,They
always support me and there is an important role of them to prepare this
project file. And I am also thankful to our friends Mr.Anirudha Kr.
Yadav, Mr. Ajeet Kumar Pandey and others they supported me.
Lastly, again I thankful to my respected Sir Dr. N.U Siddiqui.
( SUDESH KUMAR)
Place:
Kanpur U.P
Date :
/07 /2014
One year P. G. Diploma in Accountancy

(with Computerized Accounts & Taxation )
Government Polytechnic, Kanpur
SPN-M0123213046

KANPUR 208002 (U.P)
Principals Certificate
This is certify that Project Report On Field Exposure has
been submitted by Sudesh Kumar is a student of P.G. Diploma
in Accountancy (with computerized Accounts & Taxation) at
Govt. Polytechnic, Kanpur to One Year P.G. Diploma in
Accountancy. Department of this institute in partial fulfilment
for the P.G. Diploma in Accountancy, U.P. Technical Education
Board.
I wish him every success in days to come .
(Er. F.R. Khan)

Principal
Place : Kanpur (U.P.)
Government Polytechnic
Date : /07/2014
Kanpur-208002 (U.P.)

KANPUR 208002 (U.P)
Guides Certificate
This is certify that Project Report On Field Exposure

has been submitted by Sudesh Kumar S/o Tallu Ram in partial
fulfilment of the requirement One Year P.G. Diploma in
Accountancy (with computerized Accounts & Taxation), under
multi point entry & credit system of Board Of Technical
Education Lucknow, U.P. at Govt. Polytechnic, Kanpur . His
topic is What is Activities of Taxation and VAT its Activities
and he prepared under my guidance and advice.
(Dr. N.U. Siddiqui)

H.O.D. Accountancy
Place : Kanpur(U.P.)
Government Polytechnic
Date :
Kanpur-208002 (U.P.)
/07/2014
Activities Of Taxation
What is Taxation
Taxation refers to the act of a taxing authority actually levying tax.
Taxation as a term applies to all types of taxes, from income to gift to
estate taxes. It is usually referred to as an act; any revenue collected is
usually called "taxes."
Taxation can also refer to taxes as an abstract concept, an actual
dollar amount of tax that has been levied or the material funds that have
been received as taxes. Although all of these definitions are technically
correct, the one listed above is the most common. Taxation is one of the
primary powers of government over the people.
Definition
A fee charged ("levied") by a government on a product, income,
service or activity is called taxation.
If tax is levied directly on personal or corporate income, then it is a

direct tax.
If tax is levied on the price of a good or service, then it is called an
indirect tax.
TAXATION SYSTEM IN INDIA:

India has a well-developed tax structure with clearly demarcated
authority between Central and State Governments and local bodies.
Central Government levies taxes on income (except tax on agricultural
income, which the State Governments can levy), customs duties, central
excise and service tax.
Value Added Tax (VAT), stamp duty, state excise, land revenue
and profession tax are levied by the State Governments.
Local bodies are empowered to levy tax on properties, octroi and
for utilities like water supply, drainage etc.
Indian taxation system has undergone tremendous reforms during

the last decade. The tax rates have been rationalized and tax laws have
been simplified resulting in better compliance, ease of tax payment and
better enforcement. The process of rationalization of tax administration
is ongoing in India.
Direct Taxes
In case of direct taxes (income tax, wealth tax, etc.), the burden
directly falls on the taxpayer.
Income tax
According to Income Tax Act 1961, every person, who is an
assessee and whose total income exceeds the maximum exemption limit,
shall be chargeable to the income tax at the rate or rates prescribed in the
Finance Act. Such income tax shall be paid on the total income of the
previous year in the relevant assessment year.
Assessee means a person by whom (any tax) or any other sum of

money is payable under the Income Tax Act, and includes (a) Every person in respect of whom any proceeding under the
Income Tax Act has been taken for the assessment of his income (or
assessment of fringe benefits) or of the income of any other person in
respect of which he is assessable, or of the loss sustained by him or by
such other person, or of the amount of refund due to him or to such other
person;
(b) Every person who is deemed to be an assessee under any
provisions of the Income Tax Act;
(c) Every person who is deemed to be an assessee in default under
any provision of the Income Tax Act.
Where a person includes:
Individual
Hindu Undivided Family (HUF)
Association of persons (AOP)

Body of individuals (BOI)
Company
Firm
A local authority and,
Every artificial judicial person not falling within any of the

preceding categories.
Income tax is an annual tax imposed separately for each assessment

year (also called the tax year). Assessment year commences from 1st
April and ends on the next 31st March.
The total income of an individual is determined on the basis of his
residential status in India. For tax purposes, an individual may be
resident, nonresident or not ordinarily resident.
Resident
An individual is treated as resident in a year if present in India:
10
1. For 182 days during the year or

2. For 60 days during the year and 365 days during the preceding four
years. Individuals fulfilling neither of these conditions are nonresidents.
(The rules are slightly more liberal for Indian citizens residing abroad or
leaving India for employment abroad.)
Resident but not Ordinarily Resident
A resident who was not present in India for 730 days during the
preceding seven years or who was nonresident in nine out of ten
preceding years is treated as not ordinarily resident.
Non-Residents
Non-residents are taxed only on income that is received in India or
arises or is deemed to arise in India. A person not ordinarily resident is
taxed like a non-resident but is also liable to tax on income accruing
abroad if it is from a business controlled in or a profession set up in
India.
11
Non-resident Indians (NRIs) are not required to file a tax return if

their income consists of only interest and dividends, provided taxes due
on such income are deducted at source. It is possible for non-resident
Indians to avail of these special provisions even after becoming residents
by following certain procedures laid down by the Income Tax act
Status
Indian Income
Foreign Income
Resident and ordinarily resident
Taxable
Taxable
Resident but not ordinary resident
Taxable
Not taxable
Non-Resident
Taxable
Not taxable
12
India Income tax slabs for Women 2014-2015:

Income tax slab (in Rs.)
Tax
0 to 2,00,000
No tax
2,00,001 to 5,00,000
10%
5,00,001 to 10,00,000
20%
Above 10,00,000
30%
India Income tax slabs for Senior citizens 2014-2015 :
Tax
0 to 2,50,000
No tax
2,50,001 to 5,00,000
10%
5,00,001 to 10,00,000
20%
Above 10,00,000
30%
13
Income tax slabs 2014-2015 for very senior citizens

(Aged 80 and above):
Tax
0 to 5,00,000
No tax
5,00,001 to 10,00,000
20%
Above 10,00,000
30%
-In addition an rebate of Rs 2000 will be available for income less than
Rs 5 lakhs.
- Income above 1 crore to attract 10% tax surcharge.
Personal Income Tax:

Personal income tax is levied by Central Government and is
administered by Central Board of Direct taxes under Ministry of Finance
in accordance with the provisions of the Income Tax Act.
14
Rates of Withholding Tax:

To view tax rates applicable in India under Avoidance of Double
Taxation (ADT) agreement Tax upon Capital Gains
Corporate tax:
Definition of a company
A company has been defined as a juristic person having an
independent and separate legal entity from its shareholders. Income of
the company is computed and assessed separately in the hands of the
company. However the income of the company, which is distributed to
its shareholders as dividend, is assessed in their individual hands. Such
distribution of income is not treated as expenditure in the hands of
company; the income so distributed is an appropriation of the profits of
the company.
15
Corporate sector tax:

The taxability of a company's income depends on its domicile.
Indian companies are taxable in India on their worldwide income.
Foreign companies are taxable on income that arises out of their Indian
operations, or, in certain cases, income that is deemed to arise in India.
Royalty, interest, gains from sale of capital assets located in India
(including gains from sale of shares in an Indian company), dividends
from Indian companies and fees for technical services are all treated as
income arising in India. Current rates of corporate tax. Different kinds of
taxes relating to a company
Minimum Alternative Tax (MAT):

Normally, a company is liable to pay tax on the income computed
in accordance with the provisions of the income tax Act, but the profit
and loss account of the company is prepared as per provisions of the
Companies Act. There were large number of companies who had book
profits as per their profit and loss account but were not paying any tax
16
because income computed as per provisions of the income tax act was
either nil or negative or insignificant. In such case, although the
companies were showing book profits and declaring dividends to the
shareholders, they were not paying any income tax. These companies are
popularly known as Zero Tax companies. In order to bring such
companies under the income tax act net, section 115JA was introduced
w.e.f assessment year 1997-98.
Fringe Benefit Tax (FBT):

The Finance Act, 2005 introduced a new levy, namely Fringe
Benefit Tax (FBT) contained in Chapter XIIH (Sections 115W to
115WL) of the Income Tax Act, 1961.
Fringe Benefit Tax (FBT) is an additional income tax payable by
the employers on value of fringe benefits provided or deemed to have
been provided to the employees. The FBT is payable by an employer
who is a company; a firm; an association of persons excluding trusts/a
body of individuals; a local authority; a sole trader, or an artificial
17
juridical person. This tax is payable even where employer does not
otherwise have taxable income. Fringe Benefits are defined as any
privilege, service, facility or amenity directly or indirectly provided by
an employer to his employees (including former employees) by reason
of their employment and includes expenses or payments on certain
specified heads.
The benefit does not have to be provided directly in order to attract
FBT. It may still be applied if the benefit is provided by a third party or
an associate of employer or by under an agreement with the employer.
Dividend Distribution Tax (DDT):

Under Section 115-O of the Income Tax Act, any amount declared,
distributed or paid by a domestic company by way of dividend shall be
chargeable to dividend tax. Only a domestic company (not a foreign
company) is liable for the tax. Tax on distributed profit is in addition to
income tax chargeable in respect of total income. It is applicable
whether the dividend is interim or otherwise. Also, it is applicable
18
whether such dividend is paid out of current profits or accumulated

profits.
The tax shall be deposited within 14 days from the date of
declaration, distribution or payment of dividend, whichever is earliest.
Failing to this deposition will require payment of stipulated interest for
every month of delay under Section115-P of the Act.
Rate of dividend distribution tax to be raised from 12.5 per cent to
15 per cent on dividends distributed by companies; and to 25 per cent on
dividends paid by money market mutual funds and liquid mutual funds
to all investors.
Banking Cash Transaction Tax (BCTT):

The Finance Act 2005 introduced the Banking Cash Transaction
Tax (BCTT) w.e.f. June 1, 2005 and applies to the whole of India except
in the state of Jammu and Kashmir.BCTT continues to be an extremely
useful tool to track unaccounted monies and trace their source and
19
destination. It has led the Income Tax Department to many money

laundering and hawala transactions.
Wealth Tax:
Wealth tax, in India, is levied under Wealth-tax Act, 1957. Wealth tax
is a tax 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 yields any income.
Under the Act, the tax is charged in respect of the wealth held during
the assessment year by the following persons:
Individual
Hindu Undivided Family (HUF)
Company
Chargeability to tax also depends upon the residential status of the

assessee same as the residential status for the purpose of the Income Tax
Act.
20
Tax Rebates for Corporate Tax:

The classical system of corporate taxation is followed in India
Domestic companies are permitted to deduct dividends received

from other domestic companies in certain cases.
Inter Company transactions are honored if negotiated at arm's

length.
Special provisions apply to venture funds and venture capital

companies.
Long-term capital gains have lower tax incidence.
There is no concept of thin capitalization.
Liberal deductions are allowed for exports and the setting up on

new industrial undertakings under certain circumstances.
There are liberal deductions for setting up enterprises engaged in

developing, maintaining and operating new infrastructure facilities
and power-generating units.
21
Capital Gains Tax:

A capital gain is income derived from the sale of an investment. A
capital investment can be a home, a farm, a ranch, a family business,
work of art etc. In most years slightly less than half of taxable capital
gains are realized on the sale of corporate stock. The capital gain is the
difference between the money received from selling the asset and the
price paid for it.
Capital gain also includes gain that arises on "transfer" (includes
sale, exchange) of a capital asset and is categorized into short-term gains
and long-term gains.
The capital gains tax is different from almost all other forms of
taxation in that it is a voluntary tax. Since the tax is paid only when an
asset is sold, taxpayers can legally avoid payment by holding on to their
assets--a phenomenon known as the "lock-in effect."
22
The scope of capital asset is being widened by including certain

items held as personal effects such as archaeological collections,
drawings, paintings, sculptures or any work of art. Presently no capital
gain tax is payable in respect of transfer of personal effects as it does not
fall in the definition of the capital asset. To restrict the misuse of this
provision, the definition of capital asset is being widened to include
those personal effects such as archaeological collections, drawings,
paintings, sculptures or any work of art. Transfer of above items shall
now attract capital gain tax the way jewellery attracts despite being
personal effect as on date.
Double Taxation Avoidance Agreement (DTAA):

List of countries with which India has signed Double Taxation
Avoidance Agreement :
DTAA Comprehensive Agreements - (With respect to taxes on

income)
23
Indirect Taxation:
Sales tax:
Central Sales Tax (CST):
Central Sales tax is generally payable on the sale of all goods by a
dealer in the course of inter-state trade or commerce or, outside a state
or, in the course of import into or, export from India.
The ceiling rate on central sales tax (CST), a tax on inter-state sale
of goods, has been reduced from 4 per cent to 3 per cent in the current
year.
Value Added Tax (VAT):

VAT is a multi-stage tax on goods that is levied across various
stages of production and supply with credit given for tax paid at each
stage of Value addition. Introduction of state level VAT is the most
24
significant tax reform measure at state level. The state level VAT has
replaced the existing State Sales Tax. The decision to implement State
level VAT was taken in the meeting of the Empowered Committee (EC)
of State Finance Ministers held on June 18, 2004, where a broad
consensus was arrived at to introduce VAT from April 1, 2005.
Accordingly, all states/UTs have implemented VAT.
The Empowered Committee, through its deliberations over the years,
finalized a design of VAT to be adopted by the States, which seeks to
retain the essential features of VAT, while at the same time, providing a
measure of flexibility to the States, to enable them to meet their local
requirements. Some salient features of the VAT design finalized by the
Empowered Committee are as follows:
The rates of VAT on various commodities shall be uniform for all

the States/UTs. There are 2 basic rates of 4 per cent and 12.5 per
cent, besides an exempt category and a special rate of 1 per cent
for a few selected items. The items of basic necessities have been
put in the zero rate bracket or the exempted schedule. Gold, silver
25
and precious stones have been put in the 1 per cent schedule. There
is also a category with 20 per cent floor rate of tax, but the
commodities listed in this schedule are not eligible for input tax
rebate/set off. This category covers items like motor spirit (petrol),
diesel, aviation turbine fuel, and liquor.
There is provision for eliminating the multiplicity of taxes. In fact,

all the State taxes on purchase or sale of goods (excluding Entry
Tax in lieu of Octroi) are required to be subsumed in VAT or made
VATable.
Provision has been made for allowing "Input Tax Credit (ITC)",
which is the basic feature of VAT. However, since the VAT being
implemented is intra-State VAT only and does not cover interState sale transactions, ITC will not be available on inter-State
purchases.
Exports will be zero-rated, with credit given for all taxes on inputs/
purchases related to such exports.
There are provisions to make the system more business-friendly.

For instance, there is provision for self-assessment by the dealers.
26
Similarly, there is provision of a threshold limit for registration of

dealers in terms of annual turnover of Rs 5 lakh. Dealers with
turnover lower than this threshold limit are not required to obtain
registration under VAT and are exempt from payment of VAT.
There is also provision for composition of tax liability up to annual
turnover limit of Rs. 50 lakh.
Regarding the industrial incentives, the States have been allowed

to continue with the existing incentives, without breaking the VAT
chain. However, no fresh sales tax/VAT based incentives are
permitted.
Road
map
to
wards
GST
The Empowered Committee of State Finance Ministers has been

entrusted with the task of preparing a roadmap for the introduction
of national level goods and services tax with effect from 01 April
2007.The move is towards the reduction of CST to 2 per cent in
2008, 1 per cent in 2009 and 0 per cent in 2010 to pave way for the
introduction of GST (Goods and Services Tax).
27
Excise Duty:
Central Excise duty is an indirect tax levied on goods
manufactured in India. Excisable goods have been defined as those,
which have been specified in the Central Excise Tariff Act as being
subjected to the duty of excise.
There are three types of Central Excise duties collected in India
namely
Relief to readymade garment industry. In case of cotton, zero

excise duty at fibre stage also. In case of spun yarn made of man
made fibre, duty of 12 percent at the fibre stage.
Handmade carpets and textile floor coverings of coir and jute

totally exempted from excise duty.
To provide relief to ship building industry, ships and vessels

exempted from excise duty. No CVD on imported ships and
vessels.
28
Specific excise duty on cigarettes increased by about 18 percent.

Similar increase on cigars, cheroots and cigarillos.
Excise duty on SUVs increased from 27 to 30 percent. Not

applicable for SUVs registered as taxies.
Excise duty on marble increased from USD 0.55 per square meter
to USD 1.10 per square meter.
Proposals to levy 4 percent excise duty on silver manufactured

from smelting zinc or lead.
Duty on mobile phones priced at more than USD 36.78 raised to 6

percent.
MRP based assessment in respect of branded medicaments of

Ayurveda, Unani,Siddha, Homeopathy and bio-chemic systems of
medicine to reduce valuation disputes.
29
Basic Excise Duty:

This is the duty charged under section 3 of the Central Excises and
Salt Act,1944 on all excisable goods other than salt which are produced
or manufactured in India at the rates set forth in the schedule to the
Central Excise tariff Act,1985.
Additional Duty of Excise:

Section 3 of the Additional duties of Excise (goods of special
importance) Act, 1957 authorizes the levy and collection in respect of
the goods described in the Schedule to this Act. This is levied in lieu of
sales Tax and shared between Central and State Governments. These are
levied under different enactments like medicinal and toilet preparations,
sugar etc. and other industries development etc.
30
Special Excise Duty:

As per the Section 37 of the Finance Act,1978 Special excise Duty
was attracted on all excisable goods on which there is a levy of Basic
excise Duty under the Central Excises and Salt Act,1944.Since then each
year the relevant provisions of the Finance Act specifies that the Special
Excise Duty shall be or shall not be levied and collected during the
relevant financial year.
Customs Duty:
Custom or import duties are levied by the Central Government of
India on the goods imported into India. The rate at which customs duty
is leviable on the goods depends on the classification of the goods
determined under the Customs Tariff. The Customs Tariff is generally
aligned with the Harmonised System of Nomenclature (HSL).
In line with aligning the customs duty and bringing it at par with
the ASEAN level, government has reduced the peak customs duty from
31
12.5 per cent to 10 per cent for all goods other than agriculture products.
However, the Central Government has the power to generally exempt
goods of any specified description from the whole or any part of duties
of customs leviable thereon. In addition, preferential/concessional rates
of duty are also available under the various Trade Agreements.
Period of concession available for specified part of electric and

hybrid vehicles extended upto 31 March 2015.
Duty on specified machinery for manufacture of leather and leather

goods including footwear reduced from 7.5 to 5 percent.
Duty on pre-forms precious and semi-precious stones reduced from

10 to 2 perent.
Export duty on de-oiled rice bran oil cake withdrawn.
Duty of 10 percent on export of unprocessed ilmenite and 5

percent on export on ungraded ilmenite.
Concessions to air craft maintenaince, repair and overhaul (MRO)

industry.
32
Duty on Set Top Boxes increased from 5 to10 percent.
Duty on raw silk increased from 5 to 15 percent.
Duties on Steam Coal and Bituminous Coal equalised and 2

percent custom duty and 2 percent CVD levied on both kinds coal.
Duty on imported luxury goods such as high end motor vehicles,

motor cycles, yachts and similar vessels increased.
Duty free gold limit increased to USD 918.86 in case of male

passenger and USD 1,837.47 in case of a female passenger subject
to conditions.
Service Tax:
Service tax was introduced in India way back in 1994 and started
with mere 3 basic services viz. general insurance, stock broking and
telephone. Today the counter services subject to tax have reached over
100. There has been a steady increase in the rate of service tax. From a
mere 5 per cent, service tax is now levied on specified taxable services
33
at the rate of 12 per cent of the gross value of taxable services. However,
on account of the imposition of education cess of 3 per cent, the
effective rate of service tax is at 12.36 per cent.
Maintain stability in tax regime.
Vocational courses offered by institutes affiliated to the State

Council of Vocational Training and testing activities in relation to
agricultural produce also included in the negative list for service
tax.
Exemption of Service Tax on copyright on cinematography limited

to films exhibited in cinema halls.
Proposals to levy Service Tax on all air conditioned restaurant.
For homes and flats with a carpet area of 2,000 sq.ft. or more or of
a value of USD 0.18 million or more, which are high-end
constructions, where the component of services is greater, rate of
abatement reduced from from 75 to 70 percent.
34
Out of nearly 1.7 million registered assesses under Service Tax

only 0.7 million file returns regularly. Need to motivate them to
file returns and pay tax dues. A onetime scheme called Voluntary
Compliance Encouragement Scheme proposed to be introduced.
Defaulter may avail of the scheme on condition that he files
truthful declaration of Service Tax dues since 1st October 2007.
Tax proposals on Direct Taxes side estimated to yield to USD
2,444.32 million and on the Indirect Tax side USD 863.68 million.
Good and Services Tax:
A sum of USD 1,653.78 million towards the first instalment of the

balance of CST compensation provided in the budget.
Work on draft GST Constitutional amendment bill and GST law

expected to be taken forward.
35
SERVICE TAX RATE CHART FROM

01.07.1994 TO FINANCIAL YEAR 2013-14:
BASIC
Period
S.T.
HEC
Eff rate
RATE %
01/07/1994 to 13/05/2003
5%
14/05/2003 to 09/09/2004
8%
10/09/2004 to 17/04/2006
10
12%
18/04/2006 to 10/05/2007
12
12.24%
11/05/2007 to 23/02/2009
12
12.36%
24/02/2009 to 31/03/2012
10
10.30%
01/04/2012 to DATE
12
12.36%
36
Service Tax return due Date for all person :

SERVICE TAX RETURN DUE DATE CHART (GENERAL)
APRIL TO SEPTEMBER
25-Oct
OCTOBER TO MARCH
25-Apr
SERVICE TAX RETURN DUE DATE CHART FY 2012-13

01.04.2012 TO 30.06.2012
25.11.2012
01.07.2012 TO 30.09.2012
15.04.2013
01.10.2012 TO 31.03.2013
25.04.2013
For Life Insurance under Rule 6(7A)(ii) of Service Tax

Rules, 1994
Gross
Amount
of New Rate
Old Rate
Premium Charged
1st year
3%
1.50%
Subsequent Years
1.50%
1.50%
37
Penalty on late filing of service Tax return:

Provided also that where the gross amount of service tax payable is nil,
the Central Excise officer may, on being satisfied that there is sufficient
reason for not filing the return, reduce or waive the penalty.
Interest on late payment of service Tax :
The new rate of interest of 18% will be applicable from 1st April,
2011.However interest rate is reduced by 3 % for turnover up to 60 Lacs
Provided that in the case of a service provider, whose value of taxable

services provided in a financial year does not exceed sixty lakh rupees
during any of the financial years covered by the notice issued under subsection (3) of section 73A or during the last preceding financial year, as
the case may be, such rate of interest shall be reduced by three percent
per annum.
38
So the reduced interest rate of 15% (18%-3%) will be applicable in case

where the value of taxable services provided in a financial year is not
more that Rs. 60 lakh. But this provision will have a limited application
as only to the small service providers but no relief to the large tax payers
has been provided
From old list notified vide notification 36/2004 31/12/2004 three

service has been deleted
1. Telecommunication
2. General Insurance auxiliary
3. Mutual Fund distributor services.
Support services By Govt or Local authority:
Section 65B(49) of Finance Act, 1994 provides the definition of

support services. Support services in respect of which service tax is
39
payable by business entity receiving such services from government or

local authority are as under:
(i) Infrastructural Support Services;
(ii) Operational support Services;
(iii) Administrative Support Services;
(iv) Logistic Services;
(v) Marketing Services;
(vi) Advertisement Services;
(vii) Promotion Services;
(viii) Construction or Works Contract Services;
(ix) Security;
(x) Testing and Analysis
(xi) Any other support of any kind comprising functions that
entities carry out in ordinary course of operations themselves but
40
may obtain
as
services
by
outsourcing
from others for any
reason whatsoever.
Tax Proposals:
Direct Taxes:
According to the Finance Minister there is a little room to give

away tax revenues or raise tax rates in a constrained economy.
No case to revise either the slabs or the rates of Personal Income

Tax. Even a moderate increase in the threshold exemption will put
hundreds of thousands of Tax Payers outside Tax Net.
However, relief for Tax Payers in the first bracket of USD 0.004
million to USD 0.009 million. A tax credit of USD 36.78 to every
person with total income upto USD 0.009 million.
Surcharge of 10 percent on persons (other than companies) whose

taxable income exceed USD 0.18 million to augment revenues.
41
Increase surcharge from 5 to 10 percent on domestic companies

whose taxable income exceed USD 1.84 million.
In case of foreign companies who pay a higher rate of corporate

tax, surcharge to increase from 2 to 5 percent, if the taxabale
income exceeds USD 1.84 million.
In all other cases such as dividend distribution tax or tax on

distributed income, current surcharge increased from 5 to 10
percent.
Additional surcharges to be in force for only one year.
Education cess to continue at 3 percent.
Permissible premium rate increased from 10 percent to 15 percent

of the sum assured by relaxing eligibility conditions of life
insurance policies for persons suffering from disability and certain
ailments.
42
Contributions made to schemes of Central and State Governments

similar to Central Government Health Scheme, eligible for section
80D of the Income tax Act.
Donations made to National Children Fund eligible for 100 percent

deduction.
Investment allowance at the rate of 15 percent to manufacturing

companies that invest more than USD 1.84 million in plant and
machinery during the period 1st April 2013 to 31st March 2015.
Eligible date for projects in the power sector to avail benefit

under Section 80- IA extended from 31st March 2013 to 31st
March 2014.
Concessional rate of tax of 15 percent on dividend received by an

Indian company from its foreign subsidiary proposed to continue
for one more year.
Securitisation Trust to be exempted from Income Tax. Tax to be

levied at specified rates only at the time of distribution of income
43
for companies, individual or HUF etc. No further tax on income

received by investors from the Trust.
Investor Protection Fund of depositories exempt from Income-tax

in some cases.
Parity in taxation between IDF-Mutual Fund and IDF-NBFC.
A Category I AIF set up as Venture capital fund allowed pass

through status under Income-tax Act.
TDS at the rate of 1 percent on the value of the transfer of

immovable properties where consideration exceeds USD 0.092
million. Agricultural land to be exempted.
A final withholding tax at the rate of 20 percent on profits

distributed by unlisted companies to shareholders through buyback
of shares.
Proposal to increase the rate of tax on payments by way of royalty

and fees for technical services to non-residents from 10 percent to
25 percent.
44
Reductions made in rates of Securities Transaction Tax in respect

of certain transaction.
Proposal to introduce Commodity Transaction Tax (CTT) in a

limited way.Agricultural commodities will be exempted.
Modified provisions of GAAR will come into effect from 1st April
2016.
Rules on Safe Harbour will be issued after examing the reports of

the Rangachary Committee appointed to look into tax matters
relating to Development Centres & IT Sector and Safe Harbour
rules for a number of sectors.
Fifth large tax payer unit to open at Kolkata shortly.
A number of administrative measures such as extension of refund

banker system to refund more than USD 918.86, technology based
processing, extension of e-payment through more banks and
expansion in the scope of annual information returns by Incometax Department.
45
Corporation Tax:
The companies and business organizations in India are taxed on the
income from their worldwide transactions under the provision of Income
Tax Act, 1961. A corporation is deemed to be resident in India if it is
incorporated in India or if its control and management is situated
entirely in India. In case of non resident corporations, tax is levied on the
income which is earned from their business transactions in India or any
other Indian sources depending on bilateral agreement of that country.
Property Tax:
Property tax or 'house tax' is a local tax on buildings, along with

appurtenant land, and imposed on owners. The tax power is vested in the
states and it is delegated by law to the local bodies, specifying the
valuation method, rate band, and collection procedures. The tax base is
the annual ratable value (ARV) or area-based rating. Owner-occupied
46
and other properties not producing rent are assessed on cost and then
converted into ARV by applying a percentage of cost, usually six
percent. Vacant land is generally exempted from the assessment. The
properties lying under control of Central are exempted from the taxation.
Instead a 'service charge' is permissible under executive order. Properties
of foreign missions also enjoy tax exemption without an insistence for
reciprocity.
Inheritance (Estate) Tax:
An inheritance tax (also known as an estate tax or death duty) is a

tax which arises on the death of an individual. It is a tax on the estate, or
total value of the money and property, of a person who has died.
Gift Tax:
Gift tax in India is regulated by the Gift Tax Act which was
st
constituted on 1 April, 1958. It came into effect in all parts of the

country except Jammu and Kashmir. As per the Gift Act 1958, all gifts
47
in excess of Rs. 25,000, in the form of cash, draft, check or others,

received from one who doesn't have blood relations with the recipient,
st
were taxable. However, with effect from 1 October, 1998, gift tax got
demolished and all the gifts made on or after the date were free from tax.
But in 2004, the act was again revived partially. A new provision was
introduced in the Income Tax Act 1961 under section 56 (2). According
to it, the gifts received by any individual or Hindu Undivided Family
(HUF) in excess of Rs. 50,000 in a year would be taxable.
Leavy of taxes:
Taxes in India are levied by the Central Government and the state
governments. Some minor taxes are also levied by the local authorities
such as the Municipality.
The authority to levy a tax is derived from the Constitution of India
which allocates the power to levy various taxes between the Centre and
the State. An important restriction on this power is Article 265 of the
Constitution which states that "No tax shall be levied or collected except
48
by the authority of law." Therefore each tax levied or collected has to be

backed by an accompanying law, passed either by the Parliament or the
State Legislature. In 2010-11, the gross tax collection of the Centre
amounted to 7.92 trillion, with direct tax and indirect tax contributing
56% and 44% respectively.
Purposes and effects

Money provided by taxation has been used by states and their
functional equivalents throughout history to carry out many functions.
Some of these include expenditures on war, the enforcement of law and
public order, protection of property, economic infrastructure (roads,
legal tender, enforcement of contracts, etc.), public works, social
engineering, subsidies, and the operation of government itself. A portion
of taxes also go to pay off the state's debt and the interest this debt
accumulates. Governments also use taxes to fund welfare and public
services. These services can include education systems, health care
systems, pensions for the elderly, unemployment benefits, and public
49
transportation. Energy, water and waste management systems are also

common public utilities. Colonial and modernizing states have also used
cash taxes to draw or force reluctant subsistence producers into cash
economies.
VAT (Value Added Tax) its Activities

INTRODUCTION :
Value Added Tax :The Value Added Tax (VAT) is a type of indirect tax and is one of
major source of revenue to the state. The VAT system was introduced in
India by replacing the General Sales Tax laws of each state. Presently in
India, out of 35 States and Union Territories, 33 are following this new
system of Sales Taxation. The States/Union territories which are yet to
implement the VAT system are Andaman and Nicobar Islands,
Nagaland and Lakshadweep.
The VAT system of taxation was adopted by Indian States and
Union Territories in the Year 2005 by replacing the General Sales Tax
50
Laws with New Value Added Tax Acts and the supporting Value Added
Tax Rules for proper administration and collection of Tax. Each state or
union territory is having its own methods to assess the tax liability and
collection methods from the dealers who fall under the purview of VAT.
The Administration of VAT system was undertaken by the Commercial
Taxes Department of each state along with the Excise and other indirect
taxes. For easy and quick assessment of taxation and prevention of tax
evasion, the department has introduced the
Registration System.
This Registration system of VAT helps in identifying the assesses
who come under the purview of VAT and are liable to collect and pay
VAT. For encouraging the Registration process some benefits or
concessions are given to the dealers.
The Registered dealers are allowed to collect VAT payable by
them from the immediate buyer. They can claim the VAT paid on
purchases made only from a registered dealer. The unregistered dealer
cannot charge VAT on the invoices, so the buying dealer cannot claim
51
the VAT amount2 paid as ITC. Also, the unregistered dealers are not
eligible for availing concessions, for e.g., exemptions, which are given
by the government.
The commercial tax department introduced a new method of
levying tax called as the
Composition Scheme
especially after considering the small dealers whose turnover was
low and were unable to maintain the records as per the requirements of
VAT Act. These dealers have to pay a lump sum as VAT on the sale
value of goods. The VAT paid will not be shown in the invoices. They
can account for the total turnover and pay VAT on the same at the end of
their return period.
For Assessing the VAT liability of dealers, each state has
introduced the system of Filing Returns for different tax periods. The tax
periods could be Monthly, Quarterly, Half-yearly and Annual. Each
dealer has to file the Return by specifying the total turnover which is
exempted as well as liable for VAT along with the purchases made and
52
tax paid on it with the amount of VAT payable or Input tax credit carried
forward within the stipulated period.
What is VAT ?
VAT is a multi-stage tax levied at each stage of the value addition
chain, with a provision to allow input tax credit (ITC) on tax paid at an
earlier stage, which can be appropriated against the VAT liability on
subsequent sale.
VAT is intended to tax every stage of sale where some value is
added to raw materials, but taxpayers will receive credit for tax already
paid on procurement stages. Thus, VAT will be without the problem of
double taxation as prevalent in the earlier Sales tax laws.
Presently VAT is followed in over 160 countries. The proposed Indian
model of VAT will be different from VAT, as it exists in most parts of
the world. In India, VAT has replaced the earier State sales tax system.
One of the many reasons underlying the shift to VAT is to do away with
the distortions in our earier tax structure that carve up the country into a
53
large number of small markets rather than one big common market. In
the earlier sales tax structure tax is not levied on all the stages of value
addition or sales and distribution channel which means the margins of
distributors/ dealers/ retailers at large not subject to sales tax earlier.
Thus, the sales tax pricing structure needs to factor only the single-point
levy component of sales tax and the margins of manufacturers and
dealers/ retailers etc, are worked out accordingly.
internal trade and impeded development of a common market.
prices by an amount higher than what accrues to the exchequer by way
of revenues from it.
Also, there was the problem of multiplicity of rates. All the states,
provided for plethora of rates. These range from one to 25 per cent. This
multiplicity of rates increases the cost of compliance while not really
benefiting revenue.
Heterogeneity prevailed in the structure of tax as well. Apart from
general sales tax, most states used to levy an additional sales tax or a
54
surcharge. In addition, the states levied luxury tax as also an entry tax on
the sale of imported goods.
All these practices of heterogeneity in structure as well as rates
cause diversion of trade as well as shifting of manufacturing activity
from one State to another. Further, widespread taxation of inputs relates
to vertical integration of firms, i.e., the earlier system of taxes militated
against ancillary industries and encourages them to produce more and
more of the inputs needed rather than purchase them from ancillary
industries.
The earlier system of commodity taxes is non-neutral. It interferes
with the producers' choice of inputs as well as with the consumers'
choice of consumption, thereby leading to severe economic distortions.
A value-added tax (VAT)

is a form of consumption tax. From the perspective of the buyer, it
is a tax on the purchase price. From that of the seller, it is a tax only on
the value added to a product, material, or service, from an accounting
55
point of view, by this stage of its manufacture or distribution. The

manufacturer remits to the government the difference between these two
amounts, and retains the rest for themselves to offset the taxes they had
previously paid on the inputs.
The purpose of VAT is to generate tax revenues to the government
similar to the corporate income tax or the personal income tax.
The value added to a product by or with a business is the sale price
charged to its customer, minus the cost of materials and other taxable
inputs. A VAT is like a sales tax in that ultimately only the end
consumer is taxed. It differs from the sales tax in that, with the latter, the
tax is collected and remitted to the government only once, at the point of
purchase by the end consumer. With the VAT, collections, remittances
to the government, and credits for taxes already paid occur each time a
business in the supply chain purchases products.
How can VAT address these issues:
56
Under the VAT regime, due to multi-point levy on the price

including value additions at each and every resale, the margins of either
the re-seller or the manufacturer would be reduced unless the ultimate
price is increased.
VAT would not cause cascading, nor would it cause vertical
integration of firms. Also, it provides total transparency of the incidence
of tax. This is because, VAT is a multi-stage sales tax levied as a
proportion of the value added. Another feature of VAT regime is
discontinuation of the sales tax based incentives to new industrial units.
Until now, all the states were granting such incentives to new industries
in the form of exemption from tax on the purchase of inputs as well as
on the sale of finished goods, sales tax loans and/or tax deferral.
However for the new industrial units to whom the incentive by way of
exemption/ or tax deferrals are already sanctioned under the Sales Tax
Act are continued in the form of refund.
Comparison with sales tax:

57
Value-added tax avoids the cascade effect of sales tax by taxing

only the value added at each stage of production. For this reason,
throughout the world, VAT has been gaining favor over traditional sales
taxes. In principle, VAT applies to all provisions of goods and services.
VAT is assessed and collected on the value of goods or services that
have been provided every time there is a transaction (sale/purchase). The
seller charges VAT to the buyer, and the seller pays this VAT to the
government. If, however, the purchaser is not an end user, but the goods
or services purchased are costs to its business, the tax it has paid for such
purchases can be deducted from the tax it charges to its customers. The
government only receives the difference; in other words, it is paid tax on
the gross margin of each transaction, by each participant in the sales
chain.
In many developing countries such as India, sales tax/VAT are key
revenue sources as high unemployment and low per capita income
render other income sources inadequate. However, there is strong
opposition to this by many sub-national governments as it leads to an
58
overall reduction in the revenue they collect as well as of some

autonomy.
In theory sales tax is normally charged on end users (consumers).
The VAT mechanism means that the end-user tax is the same as it would
be with a sales tax. The main difference is the extra accounting required
by those in the middle of the supply chain; this disadvantage of VAT is
balanced by application of the same tax to each member of the
production chain regardless of its position in it and the position of its
customers, reducing the effort required to check and certify their status.
When the VAT system has few, if any, exemptions such as with GST in
New Zealand, payment of VAT is even simpler.
A general economic idea is that if sales taxes are high enough,
people start engaging in widespread tax evading activity (like buying
over the Internet, pretending to be a business, buying at wholesale,
buying products through an employer etc.). On the other hand, total
VAT rates can rise above 10% without widespread evasion because of
the novel collection mechanism
However, because of its particular
59
mechanism of collection, VAT becomes quite easily the target of

specific frauds like carousel fraud, which can be very expensive in terms
of loss of tax incomes for states
Implementation:
The standard way to implement a value-added tax involves
assuming a business owes some fraction on the price of the product
minus all taxes previously paid on the good.
By the method of collection, VAT can be accounts-based or
invoice-based. Under the invoice method of collection, each seller
charges VAT rate on his output and passes the buyer a special invoice
that indicates the amount of tax charged. Buyers who are subject to VAT
on their own sales (output tax), consider the tax on the purchase invoices
as input tax and can deduct the sum from their own VAT liability. The
difference between output tax and input tax is paid to the government (or
a refund is claimed, in the case of negative liability). Under the accounts
based method, no such specific invoices are used. Instead, the tax is
60
calculated on the value added, measured as a difference between

revenues and allowable purchases. Most countries today use the invoice
method, the only exception being Japan, which uses the accounts
method.
By the timing of collection, VAT (as well as accounting in general)
can be either accrual or cash based. Cash basis accounting is a very
simple form of accounting. When a payment is received for the sale of
goods or services, a deposit is made, and the revenue is recorded as of
the date of the receipt of fundsno matter when the sale had been made.
Cheques are written when funds are available to pay bills, and the
expense is recorded as of the cheque dateregardless of when the
expense had been incurred. The primary focus is on the amount of cash
in the bank, and the secondary focus is on making sure all bills are paid.
Little effort is made to match revenues to the time period in which they
are earned, or to match expenses to the time period in which they are
incurred.
61
Accrual basis accounting matches revenues to the time period in

which they are earned and matches expenses to the time period in which
they are incurred. While it is more complex than cash basis accounting,
it provides much more information about your business. The accrual
basis allows you to track receivables (amounts due from customers on
credit sales) and payables (amounts due to vendors on credit purchases).
The accrual basis allows you to match revenues to the expenses incurred
in earning them, giving you more meaningful financial reports.
Further information: Comparison of cash method and accrual method of
accounting
Registered:
VAT registered means registered for VAT purposes, that is entered
into an official VAT payers register of a country. Both natural persons
and legal entities can be VAT registered. Countries that use VAT have
established different thresholds for remuneration derived by natural
persons/legal entities during a calendar year (or a different period), by
62
exceeding which the VAT registration is compulsory. Natural

persons/legal entities that are VAT registered are obliged to calculate
VAT on certain goods/services that they supply and pay VAT into a
particular state budget. VAT registered persons/entities are entitled to a
VAT deduction under legislative regulations of a particular country. The
introduction of a VAT can reduce the cash economy because businesses
that wish to buy and sell with other VAT registered businesses must
themselves be VAT registered.
Examples:
Consider the manufacture and sale of any item, which in this case
we will call a widget. In what follows, the term "gross margin" is used
rather than "profit". Profit is the remainder of what is left after paying
other costs, such as rent and personnel costs.
With VAT, the consumer has paid, and the government received,
the same dollar amount as with a sales tax. The businesses have not
incurred any tax themselves. Their obligation is limited to assuming the
63
necessary paperwork in order to pass on to the government the

difference between what they collect in VAT (output tax, an 11th of
their sales) and what they spend in VAT (input VAT, an 11th of their
expenditure on goods and services subject to VAT). However they are
freed from any obligation to request certifications from purchasers who
are not end users, and of providing such certifications to their suppliers.
On the other hand, they incur increased accounting costs for
collecting the tax, which are not reimbursed by the taxing authority. For
example, wholesale companies now have to hire staff and accountants to
handle the VAT paperwork, which would not be required if they were
collecting sales tax instead. If you calculate the added overhead required
to collect VAT, businesses collecting VAT have less profits overall than
businesses collecting sales tax.
The advantage of the VAT system over the sales tax system is that
under sales tax, the seller has no incentive to disbelieve a purchaser who
says it is not a final user. That is to say the payer of the tax has no
incentive to collect the tax. Under VAT, all sellers collect tax and pay it
64
to the government. A purchaser has an incentive to deduct input VAT,

but must prove it has the right to do so, which is usually achieved by
holding an invoice quoting the VAT paid on the purchase, and indicating
the VAT registration number of the supplier.
Limitations to the examples:

In the above examples, we assumed that the same number of
widgets were made and sold both before and after the introduction of the
tax. This is not true in real life.
The supply and demand economic model suggests that any tax
raises the cost of transaction for someone, whether it is the seller or
purchaser. In raising the cost, either the demand curve shifts leftward, or
the supply curveshifts upward. The two are functionally equivalent.
Consequently, the quantity of a good purchased decreases, and/or the
price for which it is sold increases.
65
This shift in supply and demand is not incorporated into the above
example, for simplicity and because these effects are different for every
type of good. The above example assumes the tax is non-distortionary.
Limitations of VAT:
66
A VAT, like most taxes, distorts what would have happened

without it. Because the price for someone rises, the quantity of goods
traded
decreases.
Correspondingly,
some
people
are worse off
by more than the government is made better off by tax income. That is,
more is lost due to supply and demand shifts than is gained in tax. This
is known as a deadweight loss. If the income lost by the economy is
greater than the government's income; the tax is inefficient. It must be
noted that a VAT and a Non-VAT has the same implications on the
microeconomic model.
The entire amount of the government's income (the tax revenue)
may not be a deadweight drag, if the tax revenue is used for productive
spending or has positive externalities in other words, governments may
do more than simply consume the tax income. While distortions occur,
consumption taxes like VAT are often considered superior because they
distort incentives to invest, save and work less than most other types of
taxation in other words, a VAT discourages consumption rather than
production.
67
In the diagram on the right:
Deadweight loss: the area of the triangle formed by the tax income
box, the original supply curve, and the demand curve
Governments tax income: the grey rectangle that says "tax

revenue"
Total consumer surplus after the shift: the green area
Total producer surplus after the shift: the yellow area
Imports and exports:

Being a consumption tax, VAT is usually used as a replacement for
sales tax. Ultimately, it taxes the same people and businesses the same
amounts of money, despite its internal mechanism being different. There
is a significant difference between VAT and Sales Tax for goods that are
imported and exported:
1. VAT is charged for a commodity that is exported while sales tax is
not
68
2. Sales Tax is paid for the full price of the imported commodity,
while VAT is expected to be charged only for value added to this
commodity by the importer and the reseller
This means that, without special measures, goods will be taxed twice
if they are exported from one country that does have VAT to another
country that has sales tax instead. Vice versa, goods that are imported
from a VAT-free country into another country with VAT will result in
no sales tax and only a fraction of the usual VAT. There are also
significant differences in taxation for goods that are being imported /
exported between countries with different systems or rates of VAT.
Sales tax does not have those problems it is charged in the same way
for both imported and domestic goods, and it is never charged twice.
To fix this problem, nearly all countries that use VAT use special
rules for imported and exported goods:
1. All imported goods are charged VAT tax for their full price when
they are sold for the first time
69
2. All exported goods are exempted from any VAT payments

For these reasons VAT on imports and VAT rebates on exports form a
common practice approved by the World Trade Organization.
Rebating, returns & billing under VAT

IN CASE OF MANUFACTURER :
(a) Input tax rebate is available only on the purchases made in the
State of Karnataka and on the basis of 'Tax invoice' issued by the dealers
selling goods to the manufacturers. Taxes or duties paid on ot
her types of purchases namely: interstate purchases, interstate
consignment receipt and International imports are not eligible for input
tax rebate.
(b) Output tax is to be charged and collected on the sales made in
the State of Karnataka. However, on the interstate sales taxes under CST
Act could be collected separately or it could be included in the sale price
also. In both these cases of sales, input tax rebate is available only on the
70
purchases made in the State of Karnataka. On consignment transfer both

in the State of Karnataka and interstate there is no levy of VAT or CST
as there is no transaction of sale in either of them. (For interstate
consignment of manufactured goods and the goods purchased from
Karnataka and despatched to outside the State the dealer would be
entitled for input rebate paid in excess of 2% on the local purchase). In
case of export of the goods (both direct and indirect) the output tax is
zero and input tax rebate is available only on the purchases made in the
State of Karnataka.
(c) In the monthly return prescribed under VAT Rules namely
Form VAT 100, the above types of purchases and sales are itemized.
The dealer has to extract the details from the books of account and fill
the return form.
(d) The input tax rebate is taken while filing the VAT monthly
return by reducing the output tax. For example: For a given month the
input tax paid by a dealer is say Rs.10,000/- and the output tax payable
is say Rs.20,000/-, then net-tax payable would be Rs.10,000/- (20,000 What is Activities of Taxation and VAT its Activities
71
10,000). Please note that in the tax invoice, VAT is charged and
collected on the entire output value. And in the bill of sale issued under
interstate sales, CST could be collected separately or it could be
included in the sale price also. In case of direct and indirect exports no
taxes are collected but the VAT paid on the locally purchased inputs is
fully rebatable.
IN CASE OF DISTRIBUTOR :
In case of distributors / wholesaler the conditions noted in para
1(a), (b), (c) &(d) above applies with the following modifications: Under
para 1(b) the ''For interstate consignment of goods distributors /
wholesaler would be entitled for input rebate paid in excess of 2% on the
local purchase.''
IN CASE OF RETAILERS :
In case of retailers the conditions noted in para 1(a), (b), (c) &(d)
above applies with the following modifications: Further the retailers
within the turnover limit between 2-15 lakhs could opt for composition
72
tax of 1% on their sales. The condition prescribed to remain under

composition scheme is apart from turnover limit, such dealer must not
effect any interstate purchases (except a dealer executing works contract
with certain conditions), must not claim any input tax rebate .
73
Composition scheme under VAT Act :

Registration and payment of taxes under VAT Act can be of two
types. First type is the registration and payment of taxes under full VAT
and second type is the registration and payment of taxes under
composition.
The option should be exercised by a dealer, while applying for
registration in the prescribed VAT Form 1. A dealer who is already
registered under full VAT could also opt for composition subjected to
certain condition mentioned hereunder:
Conditions prescribed for registration under composition:A dealer applying for registration under composition should fulfill the
following conditions:
1) Dealer should either be a registered dealer under the Act or shall be
making an application for registration under the Act.
2) The stock of the dealer shall not comprise of goods purchased from
outside the state.
74
3) Dealer shall not be purchasing goods from outside the state.

4) Dealer should not have claimed input tax rebate on the transition
stock.
5) Dealer shall not be selling liquor.
6) Dealer shall not make interstate sales (except a dealer executing
works contract with certain conditions)
7) Dealer shall not effect export sales.
8) Dealer shall not be a casual trader.
9) Dealer shall not be a dealer who has taken voluntary registration
under section 23 of the VAT Act.
In order to avoid frequent changes from full VAT to composition there
is a restriction of a minimum retention of 12 months as a registered
dealer under full VAT; before exercising the option to go in for
registration under composition scheme.
Category of dealers eligible for composition scheme:
75
1) Dealer who is either a hotelier or restaurateur or a caterer and or a

dealer running a sweatmeat stall or an ice cream parlour or a bakery
2) Dealer producing granite metal and other than granite metal by using
stone crushing machinery.
The applicable rate of tax for the dealers under composition scheme and
the ceiling of the turnover prescribed along with periodicity for filing the
returns are indicated in the table below.
Features to be noted by composition dealer:
1) The Composition dealer will be provided with a certificate of
composition called Form VAT 8. The dealer applying for Composition
Scheme shall be collecting regular rate of tax under section 4 till he gets
the certificate.
2) After service of 'Certificate of Registration' under composition such a
dealer is barred from collecting the tax. This is clearly mentioned in the
said certificate.
76
3) No 'tax invoice' meant for full VAT dealers can be raised by dealer
under composition. They should raise sales invoice as prescribed under
the VAT Rules.
4) The Composition dealer is barred from taking input tax credit. The
input tax credit even on transition stock is also not allowed.
5) Dealer exceeding the turnover limit of Rs. 15 lakhs in a year [except
dealers executing in Works Contract], Hotelier, restaurateur or caterers
or a dealer running a sweatmeat stall or an ice cream parlour or a bakery
and dealer producing granite metal by using stone crushing machinery],
shall automatically enter into full VAT from the first day of the month
succeeding the month in which he exceeds the threshold.
In such cases, the dealer shall file the final return under Composition
Scheme upto the end of that month and shall start charging regular rate
from the first of next month.
6) The dealer coming under the Composition Scheme becomes ineligible
for the Scheme if he purchases goods from outside the state or if he
imports the goods from outside the territory of India( except for a dealer
77
executing works contract with certain conditions) and he shall start

paying at regular rate of tax from the first day of the month in which he
has made such purchases.
7) The dealer under Composition Scheme, other than a hotelier,
restaurateur or caterer and a dealer producing granite metal by using
stone crushing machine, shall be filing his returns in the Form VAT 120
once in a quarter which will have to be filed by 15th of the month
following the relevant quarter. This filing of return every quarter is
compulsory even if the tax payable is nil.
8) While moving from Composition to full VAT Scheme, he shall
surrender his Form VAT 8 certificate file a final return in Form VAT
120 with full payment of tax.
9) For the dealers who have opted for full VAT or composition during
20013-14 and they have been allotted TIN during that period, have been
given the option to modify the option from 1st April. The relevant Rule
is extracted hereunder:
78
Basic Concept of VAT :

VAT works on the principle that when raw material passes
through various manufacturing stages and manufactured product
passes through various distribution stages, tax should be levied
on the Value Added at each stage and not on the gross sales
price. This ensures that same commodity does not get taxed
again and again and there is no cascading effect. In simple
terms, Value Added means difference between selling price
and purchase price. VAT avoids cascading effect of a tax.
Basically, VAT is multi-point tax, with provision for granting
set off (Credit) of the tax paid at the earlier stage. Thus, tax
burden is passed on when goods are sold. This process continues
till goods are finally consumed. Hence, VAT is termed as
consumption type tax. VAT works on the principle of tax
credit system.
79
System of VAT works on tax credit method. In Tax Credit

Method of VAT, the tax is levied on full sale price, but credit is
given of tax paid on purchases. Thus, effectively, tax is levied
only on Value Added. Most of the countries have adopted tax
credit method for implementation of VAT.
In Consumption Type VAT, Value Added is considered
by deducting all purchases, raw materials and capital items.
Consumption type VAT is popular and it is adopted by most of
the countries for following reasons : (a) Administration control
is easy due to credit method that can be adopted (b) It makes
no distinction between capital intensive and labour intensive
activities (c) Tax avoidance by classifying capital goods
purchases as revenue purchases is avoided. (d) It is in harmony
with
the
destination
principle
(e)
It
simplifies
tax
administration as there is no need to distinguish between

purchase of capital goods and consumption goods.
80
Advantage of VAT over conventional

system of taxation :
Advantage of VAT are as follows :
services
audit trail through

different stages of production and trade. Thus, it acts as a self
policing mechanism.
The disadvantages are that paper work required increases
considerably and it is not as simple as a single point sales tax.
The advantage of consumption type VAT is that tax burden is
only at the last i.e. consumption stage. This is useful for taxation
81
structure based on destination principle. At all the earlier

stages of production, there is no tax burden in view of the credit
obtained when the inputs are used for production of final
product. Thus, it becomes easier to give concessions to goods
used by common man or goods used for manufacture of capital
goods or exported goods and charge heavy duty on luxury
goods.
Advantage of State Level VAT :

The advantages are as follows, as enumerated in para 2.20
of White Paper on State-Level VAT.
down price level

-rate war among States
ects all States
Simplicity and transparency
82
Scheme of Exemption :a) Exemption under local and central sales tax :-
The scheme of sales tax exemption was launched on

01.01.1984 for 15 years from the 1st sales or first consignment/
branch transfer of the goods manufactured, processed or
assembled for the industrial development in the UT of Dadra
and Nagar Haveli.
The said exemption were once again allowed by the G.O.I. vide
Notifications dated 31/12/1999. The industries LSI/MSI/SSI
which have applied or obtained the provisional registration prior
to 30.04.2000 and commenced first manufacturing prior to
31/12/2002 were granted the sales tax exemption benefit vide
notification dated 31/12/1999.
83
The exemption scheme has also been continued for the balance
period of exemption to LSI/MSI/SSI units under VAT
Regulation,2005 vide order dated 21/04/2005. under the
exemption scheme the sales of goods manufactured by the
eligible units are zero taxable i.e. the input credit is allowed on
purchases of creditable goods but no tax is be levied on sales by
the exempted units.
84

Field Exposure On One Year Post Graduate Diploma in Accountancy (With Computrized Accounts & Taxation) Sudesh Kumar

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Field Exposure On One Year Post Graduate Diploma in Accountancy (With Computrized Accounts & Taxation) Sudesh Kumar

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SPN NO.

Under the Guidance of

Diploma in Accountancy (with Computerzed Accounts & Taxation )

DEPARTMENT OF ACCOUNTANCY (WITH COMPUTERISED ACCOUNTS & TAXATION),

GOVERNMENT POLYTECHNIC, KANPUR

This Project Report file is submitted by the partial fulfillment of

What is Activities of Taxation and VAT its Activities

Again I am very thankful to my respected Honourable Teachers Mr.

One year P. G. Diploma in Accountancy

What is Activities of Taxation and VAT its Activities

GOVERNMENT POLYTECHNIC, KANPUR

(Er. F.R. Khan)

What is Activities of Taxation and VAT its Activities

GOVERNMENT POLYTECHNIC, KANPUR

This is certify that Project Report On Field Exposure

(Dr. N.U. Siddiqui)

What is Activities of Taxation and VAT its Activities

What is Activities of Taxation and VAT its Activities

If tax is levied directly on personal or corporate income, then it is a

TAXATION SYSTEM IN INDIA:

What is Activities of Taxation and VAT its Activities

Indian taxation system has undergone tremendous reforms during

What is Activities of Taxation and VAT its Activities

Assessee means a person by whom (any tax) or any other sum of

Hindu Undivided Family (HUF)

Association of persons (AOP)

Body of individuals (BOI)

A local authority and,

Every artificial judicial person not falling within any of the

Income tax is an annual tax imposed separately for each assessment

What is Activities of Taxation and VAT its Activities

1. For 182 days during the year or

What is Activities of Taxation and VAT its Activities

Non-resident Indians (NRIs) are not required to file a tax return if

Resident and ordinarily resident

Resident but not ordinary resident

What is Activities of Taxation and VAT its Activities

India Income tax slabs for Women 2014-2015:

India Income tax slabs for Senior citizens 2014-2015 :

Income tax slab (in Rs.)

What is Activities of Taxation and VAT its Activities

Income tax slabs 2014-2015 for very senior citizens

Income tax slab (in Rs.)

Personal Income Tax:

What is Activities of Taxation and VAT its Activities

Rates of Withholding Tax:

What is Activities of Taxation and VAT its Activities

Corporate sector tax:

Minimum Alternative Tax (MAT):

Fringe Benefit Tax (FBT):

Dividend Distribution Tax (DDT):

whether such dividend is paid out of current profits or accumulated

Banking Cash Transaction Tax (BCTT):

destination. It has led the Income Tax Department to many money

Hindu Undivided Family (HUF)

Chargeability to tax also depends upon the residential status of the

Tax Rebates for Corporate Tax:

Domestic companies are permitted to deduct dividends received

Inter Company transactions are honored if negotiated at arm's

Special provisions apply to venture funds and venture capital

Long-term capital gains have lower tax incidence.

There is no concept of thin capitalization.

Liberal deductions are allowed for exports and the setting up on