Japan
UnitedStates
China
Hong Kong
Mongolia
Russia
Thailand
Vietnam
Laos
Cambodia
Myanmar
Indonesia
Philippines
Singapore
Malaysia
India
Bangladesh
Pakistan
Sri Lanka
Mexico
Brazil
Peru
Colombia
Chile
Argentina
DubaiAbuDhabi
Turkey
South Africa
Nigeria
Egypt
Morocco
KenyaIndia
7 Chapter Tax System
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1 Chapter Introduction
1.1 Draft budget for Economy, Tax System in 2014 and 2015
2 Chapter Basic Knowledge
3 Chapter Economic Environment
4 Chapter Incorporation
5 Chapter M&A
6 Chapter Accounting
7 Chapter Tax System
8 Chapter International Tax
9 Chapter Transfer Pricing Taxation
10 Chapter Labor
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Individual Issues in Indian Tax
1. Direct Tax in India
■ Corporate Income Tax
■ Tax Scheme
In India, both Personal Income Tax and Corporate Income Tax have been defined as "Income Tax" under The Income Tax Act of 1961. The rules ordained and declared is specified in the "The Income Tax Rules 1962"
In addition to it, The Central Board of Direct Tax has the authority regarding the use of business tax as mentioned.
Central Tax
State Tax
Direct Taxes
Personal Income Tax (Income Tax)
Corporate Income tax （Income Tax）
Minimum Alternate Tax
Dividend Distribution Tax
Indirect Taxes
Personal Income Tax （Excise Duty）
Customs Duty
State Value-Added Tax
Service Tax
Stamp Duty
Central Sales Tax
Entry Tax – Octroi Items
Tax rate under the "Finance Act" of the National Budget is usually announced at the end of February every year but for the year 2014, it was announced in the month of July.
On the submission of Finance Bill in case of indirect taxes, while the tax law had been proposed, it is a direct tax appointed from the date of application till the target date, which means that it can be applied provisionally even before the public finance bill is approved.
In addition to it, the government can collect tax on the basis of what has been proposed in the bill within 75 days from the date of submission or until the bill is passed.
Intermediate scheduled payment of voluntary assessment tax before submitting tax return has to be approved by Indian Corporate Income Tax. In addition, personal income other than salary income, when estimated tax obligations relating to the year is INR 10,000 or more, it is necessary to supply a scheduled amount of payment which is determined, making it a self assessment system.
■ Tax Payer
As an overseas affiliated firm, the establishment is on the basis of 1956 Companies Act; also a capital of foreign companies, such as Japan, shall be handled as “Domestic Corporation.”
A branch was established on the basis of a representative and project office, under “Enforcement Regulations” of the “Foreign Exchange Management Act 1999” and the company shall be treated as a ‘Foreign Corporation’.
For a domestic corporation, Corporate Income Tax shall be imposed on worldwide income. Therefore, in case of India Corporate Income Tax, dual taxation is levied if it is outside India. On the other hand, tax may also be adjusted by Foreign Tax Credit.
With respect to Foreign Corporations, they are subject to Corporate Income Tax only if the earned income was in India.
As a representative office of the Foreign Corporation, one is obliged to submit Income Tax returns from period to period. This is to obtain interest revenue generated once the deposited fund has been recognized in the bank activities.
■ Taxable Year
Assessment Year is set as April 1 to the following year’s March 31. Therefore, even when setting the fiscal year of the overseas subsidiary company as accounting in December, one needs to tighten the ledger on March 31 apart from December 31 and declare a Corporate Income Tax.
■ Calculation of Taxation Income
(Division of Taxation Income)
Division of income is divided into following:
① Business Income
② Income from Housing Property
③ Income from transfer of assets
④ Other Income
Business Income
Business income shall be subjected to Accounting Standards. It shall be computed in accordance with either cash or mercantile system of accounting regularly. If the method of accounting is neither cash nor mercantile, or the standards of accounting have not been met, it shall be addressed as Best Judgment Assessment.
In case the taxpayer includes costs and has recovered or refunded the deductible loss in the past year, the amount shall be taxable as business income.
Calculation procedure for Business Income shall be as per Form No.1 "Return of Income" Part II Statement of Income B. Profits and Gains of Business or Profession
Detailed Calculation Procedure
a. Net Profit/Loss on income statement
b. Adjustment
- Addition
- Subtraction
c. Taxable Income
d. Net Profit/Loss in Speculative Business
e. Previous year loss carried forward (speculative business)
f. Total Income (c + e)
g. Business loss carried forward – Previous year
h. Net Income (f + g)
i. Depreciation carried forward - Credit
j. Taxable Income in Business Income
k. Net Loss (Unadjusted)
- Loss in Speculative Business
- Loss in Business Income
i． Individual Regulation for Financial Loss Calculation
Items listed under Income Tax Law Article 40 A are non-deductible items enumerating as a loss of money. It must be something which is not a personal expenditure of the individuals under Income Tax Law Article 37. It must not hit capital expenditure in the tax law so that expense is recognized as loss of money in Corporate Income Tax Law on calculating Business Income.
Moreover, it’s not expenditure under illegal act (Income Tax Law Article 37), pertaining to the expense vouchers and accounting records that (Income Tax Act No. 44 Article AA) is recognized as a deductible expense.
Lawyer Office pertaining to litigation specifically, such as creating a tax accounting office, cost and operational rewards is recognized as a deductible expense. On the other hand, a fine isn't admitted as financial loss because it isn't "the cost outlaid for the purpose of execution of business” (Income Tax Law Article 40 A).
In addition, salaries, royalties, technical services costs, unless done to retain the required withholding cost at the time of payment for such commission, will not be recognized as deductible (Income Tax Law, Article 192, Article 194). However, deductible expenses are recognized by the tax withheld amount paid to the tax authorities.
In other words, without proper withholding it can’t be recognized as deductible under Corporation Tax Law. The source amount of tax isn't often indicated on an Invoice. Therefore, in order to have it, calculated attention is needed as to how long a source tax is imposed on the expenses which should be paid personally.
Deductible Items and Non-Deductible Items
Deductible
Non-Deductible
Accountant’s office expenses (Petition preparer, tax appeals, etc.)
Fine (not related to business purpose)
Lawyer Office Expenses
Cost to Law Firms (Capital transactions)
Damages
―
Deposit (Related to business purpose)
―
Q. We are delivering technical assistance to an Indian company since 2008 and receive payments as royalty. An Indian company withheld tax of 10% till now while the remaining balance was received in the account, in 2010. 20% was deducted as tax from income at source and was paid. If we were to acquire the tax number of India, but also receive application of a source tariff of 10% from an Indian company of dealing, is it true that foreign company is supposed to acquire the tax number of India?
A. It is true. Previously, withholding tax rate even from an Indian Company from a Foreign Corporation remains to be 10%. However, after revision of Tax Reform in 2009-10, when a foreign company doesn’t acquire Permanent Account Number (PAN), a high tax rate of 20% is levied. In April 2012, the tax rate was raised to 25%, a Tax Residency Certificate and Form 10 was added.
ii. Loan Loss Reserve and Bad Debts
Amount of money for doubtful accounts in full shall be non-deductible items regardless of the magnitude. The write-off is observed, but only if the creditor has actually written it off as irrecoverable in the accounts.
Receivables which are deductible are the ones recorded in gross revenue as income in the previous fiscal year.
In accounts, the inverse loss admitted in the taxation business is calculated as loss of money, hence it is detectable.
iii. Research and Development Expenditure
Costs incurred by the research and development related to their business, shall be deductible.
iv. Evaluation of Inventory
Inventories written off with their costs determined, lower than cost or market value, as a condition shall be applied consistently in order to be deducted.
v． Depreciation Costs
The depreciation factor is set as ‘write-off’ according to the kind of proper. The amount of cost accounting shall be calculated including the monetary loss.
However, if the taxable income cannot be wholly deductible, depreciation cost becomes negative, subsequent periods as 'non-deduction of depreciation', one can carry forward indefinitely.
(1) Range and Units of Depreciable Assets
Under the Income Tax Law Act, assets belong to four different categories:
- Buildings (Including offices, factories, buildings such as hotels (roads, bridges and wells))
- Mechanical equipment (Including automobile and airplane)
- Equipment and furniture (Including electrical equipment)
- Ship
For example, if depreciation for equipment and furniture is applied as 10% and 15% respectively, the depreciation on assets shall be classified into two different categories.
Book value would subject to depreciation calculations in addition to the acquisition cost. One gets income at the beginning of book value. Furthermore, it is an amount of money subtracted in the sale price of assets belonging to the same category by the end of the current term.
{(Book Value of beginning period) + (acquisition charge of assets which acquired through the term) - (a sale price during term)} x tax rate
Depreciation method, are those that are set forth in India Income Tax Act, under Schedule XIV of India Companies Act. The rate of depreciation is in accordance with the straight-line method and the declining-balance method is established for each fixed asset.
For the acquired assets during the year, the number of days from the date shall be subjected to business until year end, which can be repaid for one year. But for assets acquired all over the period, the repayment value is limited to 50% of the depreciated year within a period of 180 days.
It is impossible to determine the carrying value of the individual depreciable assets. Also the sale or disposable assets whether gain or loss shall not be recognized.
（２）Depreciation Method and Rate
As for the repayment method, only (a declining balance method) is accepted unlike procedures in The Company Law. Therefore, the calculation of repayment costs is demanded (the beginning of a period of the same category in the account book is charged) by X rate (repayment rate).
In addition, the provision of the “residual value” is not the full amount. Purchase price becomes a possible depreciation.
The repayment rate is determined by Rule No. 5 of The Income Tax Rule, 1962.
Payment Rate as per Income Tax Law
Assets
Classification of Items
Repayment Rate
Building
Residential Buildings
5％
Non-residential Buildings
10％
Temporary Constructions
100％
Equipment (Electrical Appliances included)
―
10％
Machinery & Equipment
1. Cars (except leased)
15％
- Airplanes
40％
- Bus
30％
- Molds (used in the rubber and plastics plant)
30％
- Pollution/Waste control device
100％
- Semiconductor manufacturing equipment
30％
2. Movie Studios Lighting
100％
- Energy Saving Devices
80％
- Rollers (used in milling factories)
80％
- Gas Cylinder
60％
- Furnace of Glass Manufacturing Industry
60％
- Rolling Mills (used in Steel Industry)
80％
- Energy Reuse Equipment
80％
3. Above 1,2 and 3; Other Equipments
15％
Shipping
Foreign Ship
20％
Inside Ship
20％
Speed Boat
20％
Q：If company X has the following assets on 4/1/2011, and made the following trading in fiscal year 2011-2012, How would you calculate the depreciation value?
① Assets held at the end of March 2011
Assets
Depreciation Rate
Opening Balance
(INR)
Plant (A,B,C)
15％
850 000
Plant (D,E)
40％
360 000
Bill
10％
1 070 000
② X Inc. was purchased of the following assets in 2011-2012 fiscal year.
Assets
Purchase Date
Depreciation Rate
Purchase Cost
(INR）
Plant F
April 4, 2011
15%
220 000
Plant G
May 25, 2011
40%
109 000
Computer
October 31, 2011
60%
35 000
Copyright
September 10, 2011
25%
2 500 000
③ X Inc. sold the following assets in the 2011-2012
Assets
Date of Sale
Sale Price
Facility B
December 12, 2010
100 000
Facility D
October 10, 2010
50 000
A Above depreciation in 2011-12 is:
Depreciation Rate of 15%
①
Opening Balance of April 1, 2011
850 000
②
+ Purchase of Plant F
220 000
③
Subtotal （①+②）
1 070 000
④
- Sale Price of Plant B
100 000
⑤
Cost of assets（③−④）
970 000
⑥
Depreciation Value （５×１５％）
145 500
⑦
Opening Balance of April 1, 2012 （⑤−⑥）
824 500
Note: Depreciation of India is like Japan because "asset category of the same depreciation rate", cannot be used to determine the carrying value of the asset removal of individual assets. Hence, for removal of assets, deducting the amount received from the disposal from the book value of the estimated category shall be used to determine the depreciation.
Depreciation Rate of 40%
①
Opening balance of April 1, 2011 (Plant D, E)
360 000
②
+ Purchase of Plant G
109 000
③
Subtotal （①+②）
469 000
④
- Sale Price of Plant D
50 000
⑤
Cost of asset category（③−④）
419 000
⑥
Depreciation {２×２０％+（⑤−②）×４０％}
145 800
⑦
Opening Balance of April 1, 2012（⑤−⑥）
273 200
Note: Since Plant G was purchased in the following year (182 days from purchase) to be able to calculate the depreciation rate as 20% as per India Income Tax Act, 1961(Section 32).
Depreciation Rate of 10%
①
Opening balance of April 1, 2011 (Bill)
1 070 000
②
Depreciation（１×10％）
107 000
③
Opening balance of April 1, 2012（①−②）
963 000
Depreciation Rate of 60%
①
Opening balance of April 1, 2011
0
②
+ Purchase of Computer
35 000
③
Subtotal（①+②）
35 000
④
Depreciation （③×60％）
21 000
⑤
Opening balance of April 1, 2012 （③−④）
14 000
Depreciation Rate of 25%
①
Opening balance of April 1, 2011
0
②
+ Purchase of Copyright
2 500 000
③
Subtotal （①+②）
2 500 00
④
Depreciation （③×25％）
625 000
⑤
Opening balance of April 1, 2012 （③−④）
1 875 000
Total Depreciation for Fiscal Year 2011-12
①
Depreciation Rate of 15%
145 500
②
Depreciation Rate of 40％
145 800
③
Depreciation Rate of 10％
107 000
④
Depreciation Rate of 60％
21 000
⑤
Depreciation Rate of 25％
625 000
⑥
Total（①＋②＋③＋④＋⑤）
1 044 300
（３）Intangible Fixed Assets
Depreciation of intangible assets is applied to "declining-balance method", in the range of depreciable assets, patents, copyrights, know-how, license, trade mark, containing commercial rights, such as franchise. Under Income Tax Law Article 32, depreciation rate has been determined as 25%
Founding cost-opening, is a cost that is taken before starting a business. As a general rule, it is not to be included in the amount of deductible expenses.
However, legal costs and company registration costs related to the creation of basic articles of incorporation and bylaws, for market research costs, have been recognized to be depreciated over the company founded after five years as a "founding cost-opening expenses".
The upper limit of depreciation capital + long-term liabilities of (corporate bonds and long-term debt) the total amount or the amount of the project cost has been defined as 5% under Income Tax Law, Article 35 D.
Here, the cost of the project, one shall refer to land, building, lease assets, plant, machinery and equipment, the acquisition cost of fixed assets such as leasehold improvements.
Depreciation Table of Intangible Fixed Assets
Depreciation Ratio
Depreciation Method
Patent rights, copyright, know-how, etc.
25％
Declining-balance method
Founded cost-opening expenses
―
5 years of Depreciation
(Establishment registration)
ⅵ． Lease Transaction
The lease transaction is different in handling taxation business by buying an option of dated rental contract or a simple lease. Buying of dated rental contract is a lease contract to have a condition of buying the lease article on lease.
Taking selection rights with lease if the lessee and recorded depreciation is treated as a deductible expense. On the other hand, it shall be a simple lease if the lessee is processing of lease payments as expenses.
In addition, in cross-border lease transactions, there is also a risk of conflict with the provisions of the ECB. As a financial transaction, projects deal with leasing companies outside India. Therefore, in order to compose cross-border lease transactions, it not only risks tax, but are also considered desirable since it is taken into consideration as legal risks or handling ownership of the leased property.
ⅶ． Retained Loss
Loss resulting from a business is recognized to be offset against other income which occurs in the same year. If there is a remaining balance, it has been permitted to be offset against business income arising in subsequent period of 8 years as per Income Tax Law Article 72.
However, out of the business income, losses resulting from 'speculative business', only not observed offset of only the income arising from other 'speculative business' in the same year, when the balance occurs, next fiscal only does not allow cancellation of only the income arising from the later occurring in eight years, 'speculative business'
In order to carry forward deduction of, one needs to submit a declaration in the taxable year as per the deadline. If not submitted, loss cannot be carried forward to subsequent periods.
Also, in a private company, there must be a shareholder composition of at least 51%. At the end of the year the losses income is carried forward.
ⅷ． Entertainment Expenses
INR 10 000 as entertainment expenses can be included in amount which is entirely deductible. But for the portion exceeding one million INR, 50% of the spending shall be recognized as deductible.
ⅸ. Dividend Income
For dividend income, the full amount will be exempted. On the other hand, payment dividends and dividend distribution tax 16.2225% (effective tax rate based) are established.
Q：I established a bank account, and the transfer of the capital was completed too. I received a demand to pay INR 50,000 by a business supplier. I hope I won't have any problem with taxes.
A: It may not qualify for deduction for part of expenses paid in cash. Hence you must be careful. As per Income Tax Act Section 40 A (Expenses or Payments not deductible in certain circumstances) it shall not be included in deductible expenses if paid in cash beyond the INR 35 000 for INR 20 000. Therefore, it shall be better to make the payment of INR 50 000 to the business supplier in a check or through bank transfer.
■ Calculation of Taxable Gross Income Amount
Calculation of the total tax income belongs to one of four categories. Each category calculates the total income. Also, there are deductions from income such as the preferential taxation in the taxation system.
By multiplying the tax rate on this taxable income will flow to compute the 'Income Tax'.
Computation of taxable income and tax payable to extract key points from the tax return as per Form No.1 of Return of Income for Companies is shown below.
【Form No.1 Return of Income for companies】
■ Tax Rate
Applicable tax rate is different from Domestic Corporations and Foreign Corporation (branches, representative offices, project offices).
When the total taxable income amount is up to 100 million INR or in case of a Domestic Corporation, a basic tax rate of 30%, Surcharge of 5% and Education Cess of 3% is imposed. The effective tax rate will be 32.445%.
On the other hand, in case of a Foreign Corporation, basic tax rate of 40%, Surcharge of 2% and Education Cess of 3% is added. The effective tax rate will be 42.024%.
Tax Rate
Subsidiary・・・32.445％
Tax Rate 30％×（1＋Surcharge 5％）×（1＋Education Cess 3％）
Subsidiary・・・42.024％
Tax Rate 40％×（1＋Surcharge 2％）×（1＋Education Cess 3％）
However, if the total taxable income amount is less than or equal to INR 10 million, since additional tax is not imposed, the effective tax rate of Domestic Corporation and Foreign Corporation will be 30.9% and 41.2% respectively.
In addition, in the case of more than INR 100 million, the effective tax rate of Domestic Corporations and Foreign Corporation will be 33.99% and 43.26% respectively.
■Declaration Payment
(Tax year and Filing Deadline)
Fiscal year begins on April 1 every year ending in the following year on March 31; tax returns are filed up to September 30 of the tax year (previous year).
If no declaration is made within the deadline for the tax, 1% monthly interest tax is imposed.
If the declaration has not been submitted in due time, it is termed as "non-declaration". One won’t be able to receive a carryover deduction of losses which is 8 years.
Scheduled Payment
Interim payment must be the estimated annual tax during taxation year. If the Corporation deducts withholding tax from the total amount of estimated taxable income, it needs to be more than INR 10 000.
Interim payment delivery time is from April 1 until the 15th of every three months. In other words, scheduled payment must be on a quarterly basis.
The first interim payment is 15% of the annual estimate tax until June 15; the second is 45% of the newly calculated annual estimate tax until September 15. The third payment is 75% of the annual estimates tax until December 15 and the fourth is until March 15. Adding the shortage of annual estimate tax, it shall be 100%.
If planned total tax on March 15 is less than or equal to 90% of the fixed tax, in the period leading to pay a definitive tax with respect to the shortfall, a monthly interest rate of 1% of the interest tax is imposed as per Income Tax Law Article 234 B.
Furthermore, a tolerance level is decided for the balance with a certain amount of tax. Decision about the estimate tax debt of each intermediate payment time limit and interest tax of monthly interest 1% is imposed for the deficit concerned if tolerance levied is exceeded as per Income Tax Law Article 234 C.
This tolerance, the first and second payment deadline of June 15 and September 15 respectively, differs from the above scheduled tax payments. 12% is fixed interest tax for June 15 which shall not be taxed. As for September 15, interest tax of more than 36% shall not be taxed.
Filing and Payment Procedures
Year
Declaration
Payment
Deadline
Paid Tax
2012
Interim Payment
(Estimate)
June 15
15% of the estimated tax for current fiscal year
September 15
45% of the estimated tax for current fiscal year
December 15
75% of the estimated tax for current fiscal year
2013
March 15
100% of the estimated tax for current fiscal year
Confirmed Payment
September 30
Amount taxable until March 15
Payment Notice and Payment
The corporation pays the amount of a tax and withholding the subtracted amount of tax. Attached to the declaration is a 'Proof of Payment' required to submit a tax return.
Tax authorities examine mistakes made in the calculation of tax after submission of additional information, such as “Notice of Demand”.
The corporation must pay the difference between final tax and the tax already paid within 30 days after receiving the payment notice. If it’s not paid within 30 days, a monthly interest rate of 1% of the interest tax is imposed on payment tax on per month basis post the period of 30 days.
It should be noted that, if the total of existing payment amount exceeds the final payment tax, the difference shall be refunded.
■ Calculation of Payment Tax
June 15
①The estimated amount of corporation tax of one year was calculated to be INR 620 000
②Because one doesn’t have to pay more than 15% of the annual estimates in June, the lowest amount paid is INR 93 000 (620,000 × 15%)
③ Interim payment more than INR 95,000
September 15
① With the company of budget revised downward estimates of corporation tax for one year, and was re-estimated with INR 610 000
②In September, because there is a need to pay more than 45% of the annual estimates, after subtracting INR 95 000 that are already paid in June as INR 179 500 (610,000 × 45% - 95,000)
③Calculated lowest paid amount equal to INR 179 500
December 15
①With the annual budget of the upward revision, it was thought that the annual corporate tax estimates INR 650 000
②In December, since it is necessary to pay more than 75% of the annual estimates, the minimum payment amount calculated is INR 213 000 (650,000 × 75% - (95,000 + 179,500))
③ Lowest paid amount equals to INR 213 000
March 15
①Annual corporate tax estimates to INR 750 000
②In March, since it is necessary to pay 100% of the annual estimates, the minimum payment amount is 262,500
(750,000 × 100% - (95,000 + 179,500 + 213,000))
③Actual minimum payment amount and the same amount of INR 262 500
June 15
① Final annual Income Tax calculated and became INR 870 000
②INR 25 000 has been subtracted that had been withheld and the total amount of INR 750 000 was an intermediate payment (95,000 + 179,500 + 213,000 + 262,500), was paid as INR 95 000
The calculation Income Tax Act of interest tax on shortfall of each Interim Payment Article 234C
June 15
①In June, resulting in payment obligations one has not actually paid 12% or more when interest tax of fixed payment corporation tax is subtracted with the withholding tax INR 845 000 (870,000-25,000). Minimum payment tax of June is INR 101 400 (845,000 × 12%), the actual payment is INR 95 000
②Amount actually paid from the original amount INR 126 750 (845,000 × 15%) 95,000
A is subtracted, and calculate with the interest tax of 3 months of monthly interest rate of 1% (up to June 15 - September 15)
Were (126,750-95,000) × 1% × 3 months = 952
September 15
①36% of the fixed payment as corporation tax after withholding tax deduction than (845,000 × 36% = 304,200), the sum of the interim payment amount (95,000 + 179,500 = 274,500) needs to be paid as a small interest tax
②Subtract the interim payment amount from the amount to be paid originally INR 380,250 (845,000 × 45%), were calculated with interest tax of 3 months of monthly interest rate of 1% (up to September 15 - December 15) (380,250
-274,500) × 1% × 3 months = 3,172
March 15
Calculation period of interest tax, from March 15 - March 31, is calculated as one month
■ MAT: Minimum Alternate Tax
Based on Companies Act which calculates taxable income according to Indian Income Tax Law, 18.5% of current net income must be paid as lest substitute tax.
The Minimum Alternate Tax rate of 20.0075% is imposed on Domestic Corporations over a basic tax rate of 18.5%, an additional tax 5% and 3% Education Cess. On the other hand, in the case of Foreign Corporations, 19.4361% is imposed to base tax rate of 18.5% with an additional tax 2% and further 3% of Education Cess.
However, if the total Taxable Income amount is less than 1,000 million INR, since additional tax is not imposed, the effective tax rate will be 19.055% in both Domestic Corporations and Foreign Corporation.
Tax Rate
Local Corporation
20.00775%:
Basic tax rate 18.5% × (1+ added tax 5%) × (1+ education cess of 3%)
Foreign corporation (Branch,
Project Office)
19.4361%:
Basic tax rate 18.5% × (1+ added tax 2%) × (1+ education cess of 3%)
· However, if taxable income is less than 10 million INR, tax rate of 19.055% is imposed for both Domestic Corporations and Foreign Corporation.
Based on the Company Law standard, taxable income is determined by adding and subtracting following items:
Items to be added: Income tax, Deferred Tax Expense, Subsidiary provisions for losses, Dividends, etc.
Items to be subtracted: Allowance reversal amount, Carried forward losses
If the amount of Minimum Alternate Tax exceeds the Corporate Income Tax payment of that period, it is possible for it to be deducted from future income tax by carrying it forward for 10 years.
Tax Base
■ DDT: Dividend Distribution Tax
When a Domestic Corporation pays an allotment by an Allotment Resolution based on Company Law, 19.993% shall be imposed instead of 16.995% as effective tax rate as per Company Law. There is no change in allotment distribution tax rate of 15%. Also Surcharge and Education Cess is not included.
On the other hand, the side (a stockholder) to receive allotment becomes tax-free and income tax isn't withheld either. It is said that the allotment payment to in any country can withhold the Indian country at a tax rate as per the specific country. However, a foreign parent company can receive allotment without being withheld at the receiver side becoming tax-free as per the Indian tax law.
■ DTC：Direct Tax Code
The Direct Tax Code was submitted in August 2010. It was supposed to be introduced in April 2012, however it has been postponed. The future of Direct Tax Code is still uncertain.
Major items stated in Direct Tax Code are as follows:
Corporate Income Tax (Domestic Corporation)
Category
Fiscal Year 2011
Direct Tax Code
Corporate Income Tax
30％
30％
Alternate Income Tax
18.5％
20％
Dividend Distribution Tax
15％
15％
Corporate Income Tax (Foreign Corporation: Branches, Representative Offices, and Project Offices)
Category
Fiscal Year 2011
Direct Tax Code
Corporate Income Tax Rate
40％
30％
· An additional 15% to be imposed.
In addition, it is planned to remove Education Cess and the additional tax imposed.
■ Personal Income Tax
■ Taxable Person
Declaration documents relating to the personal income tax
All taxpayers in India must get a Taxpayer Identification Number (PAN: Permanent account number). Therefore, a resident stationed in India must be an applicant of PAN. In addition, a person is required to present PAN number in order to establish a bank account in India.
Employers will be issued a Form16 certificate pertaining to salaries and its sources at the end of the year. Also, Form12BA gives fringe benefits such as housing and company cars.
Classification and the determination of the tax payer
Unlike personal Income Tax imposed on ‘residents’ and ‘non residents’ under India Income Tax Law, ‘residents’ are further divided as non-regular depending on taxation target range.
■ Range of taxable income
Ordinarily Resident
Normal residents are taxed on their worldwide income, including the ones that were domestic as well as the ones that occurred outside the country.
For example, real estate rental income received in Japan and interest income deposited in bank or equity trading revenue will be taxed in India.
A difference with being a non-ordinarily resident is that the income which isn't controlled in India becomes taxable.
Not Ordinarily Resident
For a non-ordinarily resident, income generated from activities controlled by India in addition to generated income shall be taxable.
For example, if the parent company of Japan dispatched expatriates in India as subsidiary, salaries of its expatriate bear the subsidiary. Of course, everything of that allowance becomes the taxation object in income occurring from the activity which relates in India.
Non Resident
All income received or occurred within India will be taxable in case of non residents.
Taxable range of Income Tax by livability
Conditions
Resident
Non Resident
Ordinarily Resident
Non Ordinarily
Resident
Income received in India.
(Epicenter does not matter)
Taxation (Note)
Income that occurred in India.
(Place of receipt does not matter)
Income occurred in India and has been received abroad, but business has been controlled by India.
Taxation
Tax Exemption
Income occurred in India and has been received abroad; business is controlled outside India also.
Taxation
Tax Exemption
Q：Mr. Y in 2011 - 2012, was (a)-(e) of income. To Mr. Y (1)-(3) or if there is a difference of the income of each and how much tax is calculated?
Item
A
Capital gains due to the sale of the residence in India
40,000
B
And Income from services in India
50,000
C
Government bond interest (India Foreign Income)
15,000
D
Consulting fees from India Corporation (India receipt of overseas projects for advice fee)
80,000
E
Outside India business income (outside India Management)
25,000
（Unit：INR）
A：Resident income as calculated by non-residents will be as follows:
（Unit: INR）
①
If Mr.Y Indian residents
Gross income = a+b+c+d+e
210,000
②
If Mr. Y is an Indian resident, who is not a resident (non-normal resident)
Gross income = a+b+c+d
185,000
③
If Mr. Y is not an Indian resident (non-resident)
Gross income = a+b+c
105,000
Double Taxation and Foreign Tax Credit
As a general idea of taxation range, worldwide income becomes taxable in the country of residence, if the income in the non-residence occurs, the income obtained in the country will be taxed for income withholding tax.
For non-residents' compared to residents of narrow normal income range, it usually will be about the person other than a worldwide income taxed as residents of countries other than India, so in countries other than India after withholding it shall be taxed again in their home country.
For example, in Japan resident, when it comes to non-resident in India, one will be taxed twice in Japan and India. This is so-called double taxation, specific to a relevant person who is a foreign employee working in India for a limited period of time.
■ Calculation of taxable income
Classification of taxable income
For income subject to personal income tax, it has been divided into the following types.
· Employment Income
· Income from Business Activities
· Income from Housing Property
· Income from Transfer of Assets
· Other Income
1. Employment income
For more information about the salary income, refer to taxation related to first section in Japanese expatriates.
2. Business income
Calculation of personal business income is similar to provisions of the business income provided in corporation. Therefore, when calculating the individual's business income, one will be referred to "business income in the corporation" as described above.
In addition, if the business has incurred loss, it will be "loss resulting from speculative business" and for handling it, a different "loss from non-speculative operations" is provided.
First, "loss resulting from speculative business" is only offset against income arising from other business ventures in the same fiscal year as observed. If there is the remaining balance, resulting in subsequent period of eight years "speculative business obtained from income".
In case of non speculative business losses, the offset observed with income of any division that occurred in the same fiscal year. If the unadjusted loss is carried forward for the subsequent period of eight years and henceforth would get cancelled.
3. Building rental income
Income arising from the rental of the building will fall under "business income", depending on their nature. For example, "building rental income" will be classified as "other income".
It is the income which occurs when a taxpayer performs the lease of the building for work that it is classified in business income.
In addition, it is the income which occurs when a building is on rent with machinery or furniture. Hence it is classified under other income.
Therefore, rent of a building shall be considered as building rental income. The rent received will be an income.
In addition, in the case of payment, it withholds the amount of payment, and the rent per one must pay 15% when it is paid 20% to an individual when a rental is paid to the company as for the hirer (except the personal case) in a case more than 120,000 rupees a year.
In the case where the "building lease loss" occurs, offset against income of other categories that occurred in the same year is observed. In addition, if the amount of money that cannot be offset occurs, it can be carried over to eight subsequent years.
Q: A resident of Delhi Mr. X's base salary and housing allowance as follows have been paid. How much amount will be calculated as rent of Mr. X if minimum amount is exempted? (Unit:INR）
a
Base salary (Annual)
3,000,000
b
Housing Allowance (Annual)
60,000
c
Rent in Delhi
75,000
Minimum exemption amount of housing allowance is as follows:
(i)
Such as housing allowance
60,000
(ii)
(Rent) - (10% of salary)＝
（Rs.75,000-Rs.30,000）
45,000
(iii)
50% of salary (for home in Delhi)
150,000
A: As per 1961 Indian Income Tax Act Section 10 (INCOMES NOT INCLUDED IN TOTAL INCOME), housing allowance INR 45,000 exempted. Taxation calculated for housing allowance is (INR 60,000-INR.45 000 =) INR 15,000.
4. Transfer Income (Capital Gains)
General rules of Capital Gains
Benefits from the transfer of "capital assets" will be taxable as capital gains. The term "capital assets", is defined as "property of any kind", which means all the assets except for the following are taxpayer-owned.
· Inventories
· Personal assets (Except jewelry)
· Specific land for agriculture in the region
· Specific securities government issued
Capital Gain can be obtained by the equation below.
Formula
Consideration of the transfer of assets - (amount spent directly on the acquisition cost + transfer of assets)
Long-term and Short-term Capital Gains
Capital gains holding period occurs from the transfer of 3 years or less of assets treated as "Short-term Capital Gains". On the other hand, the holding period occurs from the transfer of more than three years of an asset are treated as "Long-term Capital Gains".
In addition, in "Long-term Capital Gains" while calculating the profits, the acquisition cost is increased and adjusted by the price index.
Capital Gains of depreciable assets
As for the Indian depreciation calculation, individual property is not the object, because it is done with regards to property category which does repayment ratio by eliminating or selling property.
However, India Income Tax Act imposes additional exception provisions about depreciation of assets and depreciated capital gain.
In the case of the partial sale of depreciable assets
The amount of revenue obtained by the sale of depreciable assets is, if the amount carried forward exceeds, the excess amount will be treated as a "short-term capital gains".
In the case of all the sale of depreciable assets -
If you sell the whole subject of depreciable assets, if the business is continued for more than three years, it is "Long-term Capital Gains". In case of less than three years it will be treated as a "Short-term Capital Gains".
Handling of Capital Losses
The offsetting capital gains as other income and short-term capital loss are authorized to offset any Capital Gain (short term and long term) and are not authorized.
Amount of money that could not be offset of the 'short-term capital loss', against all of the capital gain is carried forward subsequently for a period of eight years.
Long-term capital loss is recognized only long term capital gain and offset, distribute amounts that could not be offset even subsequent periods 8 years, offset long-term capital gains only are permitted.
Q: Mr. A had the following revenue-loss in 2011-2012 fiscal. How much will be the taxable income amount of A?
Project
INR
1.
Long-term capital loss
▲20,000
2.
Interests of industry
50,000
3.
Rent loss of housing
▲10,000
4.
Carry-over of business losses from 2006-07
▲10,000
A：A's taxable income is calculated as follows:
Calculation of taxable income
Project
INR
5.
Business Income and Loss
Operating income (2)
50,000
6.
Capital Gains
In order to offset the long-term capital gains, loss of INR 20,000 (1) is carried forward to the next fiscal year (1)
7.
Home equity
Rent loss of housing (3)
(10,000)
8.
Total（5−6）
40,000
9.
2006-07 business loss from the fiscal carried forward（4）
▲10,000
10.
Taxable income（8-9）
30,000
※Deduction of one long-term asset loss is only possible for long-term capital gains. INR 20 000, 8 years of loss is carried forward.
5. Other Income
Of the income, "salary income", "business income", will be classified as "building rental income" and "capital gains" except "other income".
It is decided that other income is calculated by the accounts policy that a taxpayer adopts like business income, cost is subtracted.
In case of 'other losses', it has offset against income of other segments which is observed in the same fiscal year, it is also carried forward and recognized for subsequent periods as the amount cannot be termed as an offset.
The following is the example of what is classified as 'other income'.
ⅰ Income Distribution
Dividend income is taxable income which initiated by the dividend resolution shareholders ' during a meeting. Recipient of the dividend is tax-free and is not subject to withholding tax.
Therefore, a corporation pays 16.2225% as dividend distribution tax.
ⅱ Interest Income
Non interest financial institutions are classified under "other income". Interest income is received if the Corporation 20% resident in if an individual in the 10% tax rate subject to withholding tax.
In addition, calculated bank charges paid upon receipt of interest on the deduction of interest income.
ⅲ Royalties and Technical Services Fee
Royalty is a compensation received as a consideration for technical services, consulting services and technical service fee, all management services.
Incomes accrue or deemed to accrue or arise or deemed to arise and received outside in India, shall not be taxable. Incomes accrue or deemed to accrue or arise or deemed to arise and received within India, shall be taxable. The tax rate levied would be 10% against the gross taxable amount.
■ Calculation of taxable gross income amount
Calculation of gross income amount
Calculation of "gross income amount" is summing the taxable income of each income segments, offset and the business losses of previous of fiscal year; and loss of the current period is calculated by taking capital loss into account.
Calculation of taxable gross income amount
"Taxable gross income amount" is calculated by subtracting the "income deduction" from gross income amount.
List of Income Deductions
・Rent deduction
・Donation deduction
・Health insurance premium deduction
・Medical allowance deduction
・Deduction for interest paid
・Deductions for residents who are individuals with disabilities
・Deduction in the case meets certain criteria in the contributions by individuals, etc.
Calculation of payment tax
Income tax is calculated by multiplying the tax rate in India, according to resident and non-resident or resident women and elderly residents provided for border tax. The tax rate would be levied according to the taxable income amount for each category.
Personal Income Tax Rate
Resulting Amount
Basic Rate
（％）
Effective tax rate
（％）
Up to INR 25,000
Tax Exemption
―
INR 25,000 – INR 50,000
１０
１０．３
INR 50,000 – INR 100,000
２０
２０．６
INR 100,000 or more
３０
３０．９
(Change in the progressive income tax from July 14, 2014)
Q: A Company’s accountant team was asked to calculate A, B, and C's taxable income. They were asked to determine as to how they should process the fraction. Are there any specific rules as per India Income Tax Act, 1961?
Mr. A: INR 370 524.95, Mr. B: INR 450 815.00 , Mr. C: INR 590 639.85
A：As per India Income Tax Act, 1961 Section 288. (ROUNDING OFF OF INCOME), the amount in fraction is rounded up. Therefore the amount subject to taxation of the A, B, and c are respectively as follows.
Staff
Taxable Income (INR)
Taxable Amount (INR)
Mr. A
370,524.95
370,520.00
Mr. B
450,815.00
450,820.00
Mr. C
590,639.85
590,640.00
■ Declaration Payment
(Income only in the case of earned income)
Only in the case of earned income, the income of the tax payer will perform withholding taxes and the final income tax return of the every month.
At first, for the amount of salary payment of every month, the employer withholds it. Withheld amount of money needs to be paid by 7th of the next month of the salary provision. In addition, it is necessary for the person paying amount of withholding taxes to show a person TAN (Tax deducted at source Account Number).
In addition, the employer makes a report about the withholding taxes that is performed quarterly for the period concerned, and it is necessary to submit it to the tax authority.
In the case of income except the earned income
There are incomes other than salary income to the taxpayer. If the estimated payment tax is greater than or equal to INR 10,000 in addition to the tax return and monthly withholding, one must pay the taxable amount.
The interim payment is paid three times a year (September 15, December 15 and March 15). Since the planned tax is based on the estimated tax liability, for the difference between the actual fixed taxes; it is adjusted towards the year end.
Also, if the planned tax payment is less than 90% of the fixed tax, 1% of interest tax monthly interest rate is imposed.
Insert the [Payment (2008 India book) of personal income tax in the case where there is income other than salary income] 6
Q：As for Mr. X, the salary becomes INR 20 000 by entering a company on November 1, 2012. As for closing date of the salary, the provision is 7th of next month.
How is the taxable income of 2012-2013 years of Mr. X calculated?
Period
Payroll Deadline
Payment Day
November 2012
December 1, 2012
December 7, 2012
December 2012
January 1, 2013
January 7, 2013
January 2013
February 1, 2013
February 7, 2013
February 2013
March 1, 2013
March 7, 2013
March 2013
April 1, 2013
April 7, 2013
A：If the salary deadline is before the payment date, taxable salary is calculated on the basis of the "payment deadline". Therefore, taxable salary of 2012-2013 fiscal November 2012 to February 2013 becomes the calculated taxable income INR 20,000× 4 months = INR 80,000.
On the other hand, as for provision of April 1, 2012 is a final day in March, 2013; of 2013-2014 years become taxable.
Q：X's monthly salary is the same as above mentioned details. If you have a payment date of March 2013, how is taxable income calculated?
Period
Payroll Deadline
Payment Date
November 2012
December 1, 2012
December 7, 2012
December 2012
January 1, 2013
January 7, 2013
January 2013
February 1, 2013
February 7, 2013
February 2013
March 1, 2013
March 7, 2013
March 2013
April 1, 2013
March 31, 2013
A：Payment of November to February is similar to the above question. March payment amount has been paid before the deadline. In this case, it will be determined whether or not taxable on the basis of the "payment date", payment date is taxable salary of March 31 as it is for 2012-2013 from November 2012-2013. INR 20 000 × 5 months = INR 100 000 will be the taxable income.
Payment of Personal Income Tax
Estimated tax payments from tax deduction and payment tax certificate is attached to the Declaration form and submitted.
After submission of declaration, tax authorities is to calculate the final payment tax, it will send the payment notice within 30 days of payment notice. The final tax must already pay the difference between the amounts of money that was paid. If the amount has been paid for more than 30 days, monthly interest rate of 1% shall be imposed.
On the other hand, if the tax is already paid as mentioned above, the difference amount is refunded.
■ Declaration and compliance of Personal Income Tax
The tax audit on the Personal Income Tax
It is said that as compared with the staff of India, expatriates from Japan generally receive higher salaries and most likely would be under scrutiny from tax authorities. Therefore tax payers would need to properly calculate the amount of taxable income.
In addition, when the tax authority the tax payment not to be performed intentionally, it retroacts to the past seven years and can investigate it, interest rate (monthly interest 1%) and a penalty (100% - 300% of an underreported sum) will be imposed with the amount of money when it is rehabilitated. Also it is necessary to report it carefully and adequately.
Representative Proceedings – Representative of Japan
When a Japan national returns to his country after a stay in India or an Indian national returns after a stay in Japan, he/she is required to acquire a tax payment certificate also known as Tax Clearance Certificate.
Compliance and Penalty
In India, various procedures are required surrounding income tax. Penalties in these procedures are defined in detail. Major items are listed below.
Penalty List
Failure and Illegal activity
Penal Provisions
1. Non-payment of taxes. (* 1)
2. If you do not comply with the notice relating to fringe benefits tax or relating to income tax need to submit a tax return or other information u /s Article 115 WD (2) or Article 142 (1).
If you do not comply with the notification of the need to submit information to help tax return relating to or fringe benefits tax or income tax placed on a particular day u/s Article 115 WE (2), Article 143 (2).
If you do not comply relating with availability of audited book u/s Article 142 (2A).
3. If you submit incorrect statements pertaining to the concealment of details or to income tax or fringe benefit tax.
4. If the person or the profession who run a business does not maintain their accounting books and documents as per the provisions.
5. Seized investigation (January 6, 2007 after the u/s Article 132).
6. If before tax return filing date does not submit the audited not available book or audit report.
7. (i) If you do not want to deduct withholding tax.
(ii) If you do not pay the fringe benefits tax on dividends (u / s Article 115-O).
(iii) Anything received in kind or a lottery prize - if you do not pay the tax for the amount of money received anything by kind or in cash (u/s Article 194B).
The amount does not exceed the amount of the delinquent tax.
[Sec.221(1)]
INR 10,000
[Sec.271(1)(b)]
The amount does not exceed the taxable amount evaded at least three times. [Sec.271(1)(c)]
INR. 25,000
[Sec.271A]
10% of unpublished income.
[Sec.271AAA]
Total sales 50%, gross profit, INR 150,000 or less.
[Sec.271B]
Tax equal to the amount that was not performed credits and payment. [Sec.271C]
(※ 1) penalties in accordance with the u/s 221 is not imposed on non-performance. CBDT Letter F. No. 16/87/67-IT (B), dt. 10.7.1967.
Default / misconduct
Penalty
8. If you do not want to collect withholding tax.
9. If you have INR 20 000 or more of the loan or deposit to the recipient account of checks / bills.
10. If you have a refund of INR 20 000 or more of the loan or deposit to the recipient account of checks / bills.
11. Real estate on the relevant tax year earlier, car, if the person who owns the mobile phone and the like cannot submit the income tax return relating to the u/s Article 139 (1).
12. If you do not want to submit an annual tax return
(u/s Article 285BA).
13. If you do not answer questions about violation law obligation, if you do not sign their own and created financial statements, if you do not comply with the court order form.
14. If you do not want to submit information about the certificate relating to the u/s 94 Article (6), if you do not want the notification of business or profession related to u/s Article 176, if you do not submit the information relating to the u / s Article 133, If you do not want to submit a tax return relating to TDS or TDC, if you refuse the survey, if you do not take a copy of the registration, charitable institution, if the religious organization does not submit a tax return relating to the u/s Article 139 (4A) , scientific research organizations, news agencies, universities, if the hospital, etc., but it does not submit a tax return relating to the u/s Article 139 (4C), if you do not submit a copy of the withholding tax return relating to the u/s Article 197A, if you do not want to submit the TDS or TDC of the certificate, if you do not want to submit a statement on remuneration alternative to salary, a copy of the withholding tax to the u/s Article 206C conditions, u/s Article 200C (3) of this Article 61, Section 206 TDS or TCS tax statements related to, if you do not want to submit a tax return relating to the u/s Article 206A conditions on the payment of no benefit of TDS.
15. If you do not want to submit information about the building of the section133B conditions.
16.(a) If you do not want to apply for a tax number (PAN)
(b) When incorporated intentionally incorrect tax number (PAN) for any documents (u / s 139 Article A (5) (c)). If you profess the wrong tax number (PAN) (u / s 139 Article A (5A), (5C)).
17. If you do not want to apply for a source number (TAN).
18. If the quote deliberately withholding number (TAN) in chalan, certificates, statements and other documents.
Tax equal to the amount you did not collect. [Sec.271CA]
Received loans or deposit equal amount. [Sec.271D]
Refund loan or deposit equal amount.
[Sec.271E]
INR 5,000
[Sec.271F]
INR 100/ day addition from missing days.
[Sec.271FA]
INR10,000
[Sec.272A]
INR 100 / day from the non-filing date.
[Sec.272A (2)]
However, if you do not submit the TDS certificate relating to copy or Article 203 of withholding tax return relating to 197A conditions, tax return or TDS, if you do not want to submit TCS quarterly tax statements, the amount of fine TDS or TCS it is assumed that you do not exceed.
Amount of money that was made the upper limit INR 1,000. [Sec.272AA]
INR 10,000
[Sec.272B]
INR 10,000
[Sec.272B]
INR 10,000
[Sec.272BB]
INR 10,000
[Sec.272BB(1A)]
■ TDS：Tax Deducted at Source
If you do business in India, one might often hear the word "TDS". TDS is familiar in Japan that is, a withholding tax. In the Indian Income Tax Act, for certain transactions, certain amount is withheld while paying the price, payment's side will have mandated that tax the withholding tax. This mechanism itself of withholding similar in Japan, but the tax rate differs. Underlying transactions, in addition to the salary, commission, royalties, brokerage commissions, such as professional services to such law firm, has been listed in the Income Tax Act. In certain cases, there may no description of the withholding tax in Invoice, they must determine the source.
For example, from the accounting firm, you may have received an invoice of INR 10 000. In this case, with respect to the accounting firm, 10% of INR 10 000 (= INR 1 000) were deducted. Hence, a payment of INR 9 000 is made. INR 1 000 shall be paid to the tax office until 7th of the following month. In case of leak in payment as well as a delay in penalty payment, understanding the subject transactions in detail is necessary.
Concept of Withholding Tax (TDS
■ Underlying Transactions of Withholding Tax
According to the Income Tax Act Article 194, the following transactions will be subject to withholding tax. If the service provider is a corporation or individual, different tax rates shall be imposed. The collected representative business examples of the source tax are as follows.
Examples of Withholding Tax Rates
In case of
Corporation
In case of
Individual
Rent
10％
10％
Lease (Factory & Equipment)
2％
2％
Brokerage Fees
10％
10％
Professional Fees
10％
10％
Payments to the Contractor
(Contract of drivers etc.)
2％
1％
※ If the company does not have a PAN, 20% shall be imposed.
Professional fees for professional services such as accounting firms and lawyers, and the payments to the Contractor, e.g. vehicle-related expenses will be charged from the car leasing company. In addition, other companies that make payments of salary also have withholding obligations.
■ Payment and Declaration Schedule of Withholding Tax
As a general rule, withholding tax must be paid until the 7th of following month. On the contrary, for the month of March, it shall be paid on April 30.
Payment Date of Withholding Tax
Source Generation Month
Payment Deadline
January - February
7th of the following month
March
April 30th
(Withheld tax to be paid on April 30th and not April 7th)Declaration schedule is shown in the following table, but at the end of each quarter, the next 15 days shall be the deadline. It is only in the fourth quarter that May 15 is the deadline.
Filing Period and Deadline
Target Time
Filing deadline
April – June
July 15
July – September
October 15
October – December
January 15
January – March
May 15
Calculate the interest for late payment
Interest Calculation – Rent
Without the payment of the withholding tax on payment of rent of INR 100 000 March 2014.
In April 2015 closing processing, payment leakage of the above withholding tax is discovered, in addition to the payment of the withholding tax, it was decided to pay the interest of delay period.
Target amount of delay interest
Amount of money to be paid 10 000 - actual amount paid 0 = 10 000
Calculation of delay interest amount
× target amount 10 000 × 1.5% of delay interest 13 months ※ = 1 950
Payment amount for April 2015
Payment leakage 10 000 + delay interest 1 950 = 11 950
Payment from the month of April 2014, payment in April 2015 was carried out (rounded up less than 1 month)
If you pay the rent, 10% of side billings (100 000 × 10% = 10 000 INR) to withhold, it must be paid until 7th of the following month. In this case, because it failed to pay in April 2014, payment obligations as monthly interest rate of 1.5% of the interest tax shall be imposed. Number of months from the statutory due date is calculated in the number of months until the month that was actually paid.
Indian Indirect Tax
■Overview of Indirect Taxes
Post economic liberalization in 1991, growth rate of GDP has been strong. There has been a noticeable increase in expenditure by rural measures. In such a situation, both central and state governments fall short of revenue constantly.
Looking at the tax revenue ratio of direct and indirect taxes, 70% of it is occupied by indirect tax. The percentage of direct tax is low. 60% of India’s low income working population is engaged in agriculture.
Policies and taken measures such as direct tax revenue to increase taxpayer awareness of the National Government of India are shown and voluntary self-reporting tax system as temporary legislation is established. The framework of direct tax shows the policy is intended to make aggressive reform of the collection method.
About the Indian indirect tax, complexity is one major problem for the advance company. Particularly in the case of manufacturers, industries, where the provision of the base, the difference is caused by such a burden of this indirect tax distribution channels, as a result, will also affect the cost burden is increased price competitiveness.
Main indirect tax in India is shown below. It can be divided into Central Government Tax and State Government Tax.
Main Indirect Tax (National & Local Tax)
Central Government Taxation
State Government Taxation
Tariff
Taxation of goods imported. Basic customs duty, additional customs duty, and a special additional duty.
Value Added Tax (VAT)
It is taxed for the sale of goods in the same province.
Excise Tax
It is levied on production manufacturing of goods in India.
Environment Tax
It is taxed for the input boundary involving the use, consumption and sale of goods to other states.
Central Sales Tax
In the case of the sale of goods to other states, it is taxed on its sale.
Octroi
For goods entering border to the Mumbai city, is taxable.
Service Tax
It is levied on the consideration of certain services.
Other
Stamp duty etc.
Research and Development Tax
It is levied on import of technology.
－
－
Central tax, Custom Duty, Excise Duty, CST: Central Sales Tax consists of Service Tax. On the other hand local taxes, VAT: Value Added Tax, Entry Tax consists of Octroi.
National tax is the jurisdiction of India Ministry of Finance Department of Revenue Excise and CBEC: Department of Revenue, Central Board of Excise and Customs. Among indirect taxes, and, as for the local rates, a law is established and the jurisdiction is different in every state and city. The general commercial distribution / taxation systems are as follows:
One needs to verify these indirect taxes relevant how the business to doing business in India for many taxes, unlike indirect taxes like this, depending on the nature of trading related to advance.
In addition, revised tax rates of indirect taxes were to be announced at the time of announcement of annual budget (around late February). It is advised that information must be checked regularly.
It should be noted that the 2014 fiscal year, an announcement of July 10 as per Indian Government Budget, there was a change in tax rates, such as service tax.
■ Tariff
■ Overview of Tariff
A system and the tax rate of the duty in India are prescribed in Custom Act 1962 and Customs Tariff Act 1975. It is taxed at the time of export of not only the imported article from foreign countries but also the specific article.
In India every year, tariffs have been falling gradually, but in terms of domestic industry protection, crops, etc. there are high tariff rates set.
In addition, tariff system in India is very complicated. Three types of tariffs are taxed in stages.
■ Custom Valuation
Tariffs were imposed against the assessed value of products imported to India from overseas; the assessed value is the CIF price.
CIF Cost, Insurance and Freight stands, consists of general cost insurance and FOB: Free On Board. CIF price is multiplied by the 1 percent of Landing Charge and valuation of the product.
Freight will be credited in the cost, but the amount cannot exceed 20% of the FOB price. If one does not know exactly what the fare is; 20% of the FOB price is calculated as the fare. About insurance premiums ‘deemed insurance’ of provision is calculated as 1.125% of the FOB price.
■ Calculation of tariff amount
Tariff in India is made up by the following items:
1. Basic Tariff
2. Added Tariff
3. Special Additional Duty
And, Tariff total amount will be calculated by multiplying Education Cess of 3%. Each item is discussed as following:
1. BCD： Basic Custom Duty
Tariff, upon clearance by the importer is a tax imposed based on the assessed value (CIF price + CIF price × 1%), and are classified by the HS Code (Harmonized Commodity Description and Coding System). Tariff depending on the item each rate has been decided upon.
Tariff rate is set at the rate of 0%-10% as a general rule, the 10% tariff rate applied to many items. However, for some of the items, but some tax rate that exceeds this tax rate is imposed.
The Indian government carried out reduction of the tariff rate almost every year, but the basic tariff rate was left unredeemed to 10% by the Indian Government Budget of the announcement on March 16, 2012.
It is to be noted that the imports to India or other WTO member countries, the same tariff rate will be applied for Mauritius and Kingdom of Tonga. The preferential special measures for specific items from countries of Thailand and Singapore, efforts are made to eliminate tariffs by connecting the ASIAN countries through bilateral agreements.
2. AD：Additional Duty／ CVD： Countervailing Duty
The additional customs duty, it is tax stipulated in order to achieve the fairness of taxation of imported goods and domestic manufactured goods. If you manufacture a product in India subject to excise tax, excise tax is not imposed on imported goods because there is a difference in taxation between domestic manufacturers and importers distributors. Tax rate of 12% and excise tax relating to manufacturing in India even for imported goods in order to achieve tax shall be imposed.
As for the additional duty, it is levied on a base by the valuation basics duty of import goods, and, on the other hand, as for the effective tax rate, it is with 12.36% along with Education Cess 3% as additional duty tax.
In addition, imported goods like raw materials integrated in the manufacturing process, from receiving the goods tax on the final product, has become a mechanism that can be deducted an additional tariff paid.
3. MRP： Maximum Retail Price
That retail sales in the product package affixed with a maximum retail price (MRP). It is referred to a package about the finished product imported for the purpose of Indian domestic sale from the Indian foreign territory equally.
If one wants to import the product, tariffs will be imposed based on the imported goods (valuation + basic tariff) as a general rule, with respect to products MPR is attached, based on the (MRP-MRP × constant reduction rate) it means that additional customs duty is calculated.
Items and the reduced rate is computed tariff on the basis of MRP, it can be checked in India Ministry of Finance of the excise tariff central official website
Case Study
A company is in importing and selling consumer electronics products from a package company outside India. It should be noted that INR 15 000 as MRP is mentioned.
Appliances package of import valuation INR 10 000, basic customs duty of 10%, 12% additional tariff, 4% special additional duty and 3% education cess, what will be the total tariff?
It should be noted that the reduction rate of from MRP of the product is 30%.
Illustration
Formula
Item
Tax rate (%)
Amount
(INR)
Remarks
1
Valuation (CIF price + landing fee)
―
10 000
2
Basic Tariff (BCD) = ① × tax rate
10.00
1 000
3
Sum (1 + 2)
―
11 000
4
Maximum retail price of imported products (MRP)
―
15 000
5
Certain reduction = 4 × reduction rate
30.00
4 500
6
Target amount of additional duty (CVD) (4-5)
―
10 500
7
Additional duty (CVD) = 6 × (1+ education cess)
12.36
1 298
Credit
8
Sum (3＋7)
―
12 298
Education Cess = (2 + 7) × tax rate
3.00
69
10
Sum (8+9)
―
12 367
11
Special additional duty (ADC) = 10 × tax rate
4.00
495
Credit
12
Sum (10＋11)
―
12 862
13
Tariff total (2 + 7 + 9 + 11)
―
2 862
Explanation
Unlike import transactions of auto parts described above, if one imports a package product with MRP subject to additional duties (valuation + basic Tariff). Tariff without it will be (MRP-MRP × reduction rate).
③ ADC：Additional Duty of Customs
Special additional duty of 4 % was introduced in March 1, 2006 with a role such as sales tax or value-added tax is levied on domestic manufacturing goods to protect the Indian domestic products, in order to keep the distribution level of balanced trade balance.
Special additional customs duty is designed to all imported goods. Basic tariff of 4% is imposed. Also it can be deducted as special additional customs duty amount paid from the excise tax.
Case Study
Company A imports raw materials from the Indian foreign territory and it is a producer of motor parts which are to be sold in the Indian domestic market.
Auto parts imports evaluated at INR 10 000 inclusive of basic customs duty of 10%, 12% additional tariff, 4% special additional duty, if you have a 3% education cess, what will be the total tariff?
Illustration
Formula
Item
Tax Rate
(％)
Amount
(INR)
Remarks
1.
Valuation (CIF price + landed cost)
―
10 000
2.
Basic Tariff (BCD) = 1 × tax rate
10.00
1 000
3.
Sum（1＋2）
―
11 000
4.
Additional duty (CVD) = ③ × (1 + education cess)
12.36
1 360
Credit
5.
Sum（3＋4）
―
12 360
6.
The purpose of education tax = (2 + 4) × tax rate
3.00
71
7.
Sum（5＋6）
―
12 431
8.
Special additional Tariff = 7 × tax rate
4.00
497
Credit
9. aaa
Sum（7＋8）
―
12 928
10.
Tariff total (2 + 4 + 6 + 8)
―
2 928
11.
Offsetting the target amount (4 + 8)
―
▲1 857
12.
Real Tariff amount (10-11)
―
1 071
Explanation
Basic tariff, additional customs duty and special additional customs duty, additional duties paid at time of importation of automotive parts can be deducted. During tax office to pay income tax deposited by the customer, many types of taxes are imposed. Duties total INR 2 928 Company A imposed on imported goods a substantial tariff costs INR 1 071 （INR 2 928- INR 1 857）.
■ Deduction and refund of special additional duty of additional tariff and special additional duty
System of India of tariffs, the basic customs duty, additional customs duty, consists of special additional duty and education cess, when you total them of tax, will become a substantial percentage of the import value.
However, in India the tax system, the tax amount you paid already, there are many cases that can be deducted from the tax generated. Therefore, rather than a look at individual transactions, one needs to know a series of mechanisms to offset or deduction of tax that occur as a transaction and refund system.
For additional duty and special additional duty, in the next three cases, it will be possible to deduct from the excise tax should pay the customs value.
1. Manufacturing companies, such as parts and raw materials to manufacture products using such imported inputs.
You can deduct education cess: excise tax received from the customer when they shipped the product manufacturer to pay tax on imported parts and raw materials with additional duties (CVD), additional customs duty and special additional customs duties (ADC).
Case Study
Company A imports raw materials from outside of India, to sell India domestic market manufacturing automotive parts manufacturers.
Imported auto parts evaluated INR 10 000 inclusive of basic customs duty of 10%, 12% additional tariff, 4% special additional duty, and 3% education cess. What us the amount of tax Company A should pay with a product costing INR 20 000 inclusive of an effective tax rate of 12.36% of raw materials?
Formula
Item
Tax Rate (%)
Amount
(INR)
Remarks
1.
Valuation (CIF price + landed cost)
―
10 000
2.
Basic Tariff = 1 × tax rate
10.00
1 000
3.
Sum（1＋2）
―
11 000
4.
Additional duty (CVD) = 3 × (1+ education cess)
12.36
1 360
Credit
5.
Sum（3＋4）
―
12 360
6.
The purpose of education tax × (2 + 4)
3.00
71
7.
Sum（5＋6）
―
12 431
8.
Special additional duty (ADC) = 7 × tax rate
4.00
497
Credit
9.
Sum（7＋8）
―
12 928
10.
Tariff total (2 + 4 + 6 + 8)
―
2 928
11.
Sale price
20 000
12.
By taking goods tax = 11 × (1+ educational purposes tax)
12.36
2 472
13.
Offsetting the target amount (4 + 8)
▲1 857
14.
Excise tax payments (12-13)
―
615
15.
Real Tariff cost (10-13)
―
1 071
Explanation
Company A will pay the amount of duty of INR 2 928 in the total sum with the import of raw materials, but, as for the amount of tax payment of the commodity tax, it is with (INR 2 472 – INR 1 857 615) in what one can subtract from commodity tax INR 2 472 to receive from a customer when additional duty and INR 1 857 of the additional duty incorporated soon and shipped a product.
Therefore, substantial tariff cost will be from payment total INR 2 928 of tariff to INR 1 071 obtained by subtracting the INR 1 857 deductible upon excise tax.
2. Manufacturing companies, such as machinery and equipment and imported goods
For customs relating to the import of raw materials, you can see the correspondence between excise taxes applied to the built-in products that are used the raw materials. On the other hand customs relating to the import of capital goods does not have a direct correspondence between excise taxes.
However, additional customs duty and special additional customs duty can be deducted from income excise take the product if the CENVAT credit rules (2004) based on the financial and Central goods law allows manufacturers to import capital goods such as machinery and equipment manufactured by capital goods.
However, the amount that can be deducted because there is no direct correspondence to the customs and excise there is an upper limit, the first year that was imported capital goods. The total amount of additional customs duty and special additional customs duty imposed on imports of the capital goods 50% as a tax deductible 'credit', if even after the second year and continued to hold the capital goods.
If there is a balance of available 'credit' in the end of the year, by submitting CENVAT credit report the (CENVAT Credit Returns), one can carry forward to subsequent years.
It should be noted that in CENVAT credit rules, among a variety of tax by the manufacturer or service provider to 'credit' pay, it has been defined as a deductible tax.
※ Definition of capital goods
The definition of capital goods as provided for in the CENVAT credit rule means less goods.
(1) The article which is included in a kind, a clause, which were appointed for Central Excise Tariff Act.
ž All articles (a base metal-related tool, a tool, a knife, a spoon fork and these components) which are included in the 82nd attached lists (based on an HS cord) of the upper scale
ž All articles (a machine, machinery and these articles) which are included in Chapter 84
ž All articles (electricity / an electronic machine and an apparatus) which are included in Chapter 85
ž All articles (an apparatus for photographs, measuring equipment, inspection equipment, a precision instrument) which are included in Chapter 90
(2) Pollution control devices that are included in any section
(3) Parts of specified machinery spare parts, accessories
(4) Be included in any of the sections, mold, jig, fixture
(5) Refractory and refractory material
(6) Tube and pipe are included in any section
(7) Storage tank
The 'capital goods' for manufacturers, it refers to the article when using the above-mentioned 1 ~ 7 at the factory, machinery, etc. to be used in the office do not apply to the definition of 'capital goods'.
In the case of service providers, it is said to be of the article if you want to provide services above 1 ~ taxable 7.
In addition, 'automobile' as provided in the following services that are registered with the service provider names are also considered 'capital goods'.
1. Courier service
2. Travel Agency Services
3. Car Rental Service
4. Cargo handling services
5. Freight service
6. Outdoor (cuisine) Catering Service
7. Outdoor Tent Operation (s) Service
3. If brokers import trading company (registered as a first stage dealer)
Additional duties are imposed on imported products and special additional customs duty, excise tax on part of the domestic product and becomes cost tariff portion for the offset for the manufacture of goods without importers and traders.
However, by performing a first stage dealer and second stage dealer registration, one will be able to transfer the tariff part it took at the time of importation to manufacturer’s delivery destination.
In other words, additional duty + special additional customs duty is described as 'credit' of the delivery destination, to be offset excise tax relating to the manufacture of the destination of delivery of the manufacturer and the 'credit'.
However, when the importer is transferred to the delivery destination 'credit' is the tariff part, and the tariff amount that you pay at the time of merchandise imports, it is required to specify that this amount is not included in the price of goods. Therefore, when the delivery destination knows the tariffs of a product, it becomes possible to know import costs.
Trading company who does business in India or to bear the cost of their own custom, they need to perform a first stage dealer registration and must be open for a margin to delivery destination. Therefore, trading company says that it is difficult to business in India.
Case Study
Traders Company A, as a first stage dealer the house is registered in the country Excise Department. In such a case, one can pass the right to deduct the CVD and ADC applied to the imported goods to the manufacturer B Corporation.
Imported goods totaling INR 13 240 (valuation INR 10 000 + Tariff amount INR 3 240), manufacturers B of the purchase price INR 15 000 of such products, value-added INR 5 000 rupees in Company B and INR 10 000 Company B margin of INR 30 000 is to be sold.
In addition, it is assumed that the effective tax rate of excise duty of the product is 12.36% (including Education Cess of 3%). What will be the amount of Company B’s excise tax in this case?
Tariff of Trader Company A
Item
Tax Rate
(％)
Amount
(INR)
Remarks
1.
Valuation (CIF price + landed cost)
―
10 000
2.
Basic Tariff = 1 × tax rate
10.00
1 000
3.
Sum（1＋2）
―
11 000
4.
Additional duty = 3 × (1+ education cess)
12.36
1 360
Credit
5.
Sum（3＋4）
―
12 360
6.
The purpose of education tax = (2 + 4) × tax rate
3.00
371
7.
Sum（5＋6）
―
12 731
8.
Special additional Tariff = 7 × tax rate
4.00
509
Credit
9.
Sum（7＋8）
―
13 240
Calculation of Tax of Manufacturer B's goods
Item
Tax Rate
(％)
Amount
(INR)
Remarks
10.
Purchase price from Company A
―
15 000
11.
Added value in Company B factory
―
5 000
12.
Margin of Company B
―
10 000
13.
Sum (10＋11＋12)
―
30 000
14.
Take goods tax = 13 × tax rate
12.36
3 708
Manufacturer B's Excise Tax
15.
Tax items (14-4-8)
―
1 839
Explanation
Trade contractor Company A due to the imports of products of the assessment amount of INR 10 000, tariffs to be paid in total would be INR 3 240. However, because Company A has a first stage dealer registration, INR 1 869 of additional customs duty and special additional customs duty, moved as a 'credit' will be recorded. It would be better if tax of INR 1 839 is paid when Company B pays a total excise tax of INR 3 708 after deduction. INR 1 869 shall be credited.
Above (1) to (3) of excise duty in case takes sales of the final product in any case, additional customs duty and special additional customs duty deduction for the part must and cost substantially.
On the other hand, because the wholesale trade to import and sell the finished product does not perform the manufacturing act, without additional customs duty and special additional duty that should be deducted if the original is offset against the excise tax.
Furthermore, the turnover tax (VAT and CST) in India is taxed. As a result, double taxation is a possibility.
On the basis of such situation, the Indian government announced the guideline to recognize return after additional duty on September 14, 2007 and decided to be applicable for all import goods passed customs.
But because a procedure and a matter of the return were uncertain, additional guideline was introduced on April 28, 2008, and returns were received after the special addition duty that paid a constant condition and procedure about the finished product which was passed imported.
Furthermore, simplification about the return procedure was announced on October 13, 2008. The documents in return procedure are still complicated and applications ahead are limited to the port that imported the products concerned. Challenges remain for the person in charge on the basis of understanding of the customs officials.
Application Destination
Special additional tariff customs refund counter. However, limited to the port.
Application Deadline
Within one year from paying import duties of the product.
Application Number
For customs cargo, once a month is an upper limit
Refund Time
Principle and application documents accepted after it within three months.
Attachment
① Payment certificate of special additional duty
② VAT on sales of imported products as well as sales tax certificate(s)
③ Invoice of VAT applied to domestic sales (soft copy available)
④ The certificate (even as for the certificate of the advisory accounting firm, possible) of a particularly additional duty not being imputed to the selling price
⑤ Certificate of special additional customs duty not passed on to the selling price (one issued by import agents themselves)
■ Individual Provisions related to customs or other
The payment of Customs and Duty
Products that are imported by ship or aircraft to India are customs paid tariff in India domestic consumption. Without paying the tariff it shall be taken under any of the procedures or stored in a bonded warehouse. There is a way to submit a customs declaration form without using the EDI (Electronic Data Interchange) method and EDI customs clearance of cargo is carried out by the system.
It is necessary to acquire Importer Exporter Code. IE code is required for importing business in order to perform the imports and exports in the Indian country. For foreign International Trade Administration Bureau, one needs to submit documents called Aayaat Niryaat, Form 2A.
1）Customs procedures of using the customs declaration
When one pays a duty for Indian domestic customs, it is necessary to usually prepare four copies of which one needs to be original and the other three to be its copies. It must be an original bill of entry. Two of the copies are meant for Reserve Bank.
If one wants to submit a customs declaration form, they would need to attach the following documents.
· Signed Invoice
· Packing List
· B/L：Bill of Lading , Airway Bill
· GAAT (General Agreement on Tariffs and Trade) report
· Letter of Credit
· Certificate of Insurance
· Import License and Industry License (if necessary)
· And machinery, repair parts, the case of chemicals, each of catalogs and technical specifications, literature, etc.
· If you want the application of preferential tax rates - Certificate of Origin
· In the case of chemicals - Inspection Report
That conflict with law are underreported and filing inaccurate when you submit the customs declaration, and to pay proper attention to the signatures can be declared in the customs declaration form by collateral information accuracy.
2）Customs Procedures
If the customs clearance is to be done by the EDI system, enter the required information in an electronic format, not the customs declaration form and send to the service center. Then, it will be notified to the importer about issued customs declaration number along with the check list. However, in some cases deemed unreliable filing, in the writing of the Declaration, from the Service Center operator is signed by importers with additional demand.
At the stage of the procedure mentioned above, the submission of documents with the paper base isn't demanded, but presentation will be demanded as of an examination for import of freight.
3）If you want to store in the bonded warehouse
You can postpone the payment of customs duties until the importer is to keep bonded warehouse imported goods actually consumed in the country.
Goods can be exported to the Indian foreign territory again without using import freight in the Indian country. One can export it to a bonded warehouse again for a certain period of time after having kept it without paying a duty charge.
On the other hand, one can receive the authorization of the shipment from the customs when freight is kept in a bonded warehouse in the Indian country after submission of an Entry Bill of the consumption use of India, and having paid the charges for custody in duty and the warehouse.
In addition, when it is kept by a bonded warehouse, Entry Bill form is used and it is necessary to prepare attached documents.
4）Payment of Duty
It will be paid through the appointed bank which the duty is authorized by the customs of each place. Therefore it is necessary to confirm whether the customs authorize the bank and the branch before payment of duty.
■ Tax Exempt - Tax reduction scheme of tariff
The Indian government announces the Foreign Trade Policy based on Foreign Trade Development and Regulation Act every five years in 1992. From August 27, 2009 to March 31, 2014 it has been announced, but the review of scheme about the trade policy is introduced every year now.
Duty Free Import Authorization Scheme is a scheme of Duty Entitlement Passbook listed in Chapter 4 of the current Foreign Trade policy.
1）Advance Authorization scheme
The pre-authorization scheme, applied to the manufacture of certain products to be exported from India, is a scheme to exempt the tariff at the time of import parts and intermediate inputs. Fuel and oil is used indirectly for the manufacture of export products, energy, will also be subject to the exemption catalyst.
As for parts and intermediate injection fortune becoming a tax-free object, the name and weight are listed in the site of SION (Standard Input Output Norms) of Indian business and industry ministry / foreign country International Trade Administration Bureau (DGFT).
It is necessary to fill Aayaat Niryaat Form of the foreign International Trade Administration Bureau appointment of the business and industry ministry to apply for a prior permission scheme and submit it to the DGFT office having jurisdiction over each area.
2）DFIA：Duty Free Import Authorization Scheme
DFIA scheme, as well as pre-authorization is a scheme to exempt the customs associated with the importation of such parts and intermediate goods in the manufacture of certain products to be exported from India like fuel, oil and energy.
However, the applicant recognized in the 'pre-authorization scheme' is limited to be skilled in art of manufacturing their own particular product. DFIA scheme is extended to the trading company for manufacturers to import agencies such as intermediate goods.
Application form and application destination of DFIA scheme is similar to the prior permission scheme.
3）DEPB：Duty Entitlement Passbook
DEPB is a scheme in which the customs associated with the importation of such parts and intermediate goods in the manufacture of certain products to be exported from India, as a credit in accordance with a predetermined rate are refunded. Refunded credits will be able to offset the tariff to be paid at the time of import of input goods, such as raw materials and parts that are consumed in India other than the above. However, the tariff applied to when importing capital goods cannot be offset.
Rate to be refunded are defined as a percentage of the FOB price for each of the parts and intermediate goods to DGFT.
It is necessary to perform the application of the DEPB scheme from payment of for less than 12 months or the export price from the import of specific products within six months. It is that the application documents are similar to a DGFT office and the scheme how the application point that is a form of the foreign International Trade Administration Bureau appointment of Aayaat Niryaat Form that has jurisdiction over each area mentioned above. It is to be noted that the 'export certificate' of a particular product needs to be attached while applying to each bank.
■Special Valuation Branch（SVB）
The Special Valuation Branch is the agency for monitoring the Fair Trade in between India Domestic Corporations and Foreign Companies trading that is compliant with Customs Act.
When the company name of 1) export entering a company resembles it, 2) business firms are the investors of the import and export, and the cases that were judged when a transaction to deviate from Indian market price greatly is performed submit documents to the trade Administration Bureau under the control of the National Tax Administration Agency and must report that there is a transaction between parent and child interval, brothers mainly.
Submission
1. Letter of Authority
2. Brief submission in writing as to why the import prices should be accepted by the department
3. Memorandum & Articles of Association of the firm
4. Copies of all agreements between the Importer and Supplier / Joint Venture / Collaborators / affiliates / associates.
5. Reply to Questionnaire
6. Reserve Bank of India Approval, if any.）
7. Secretariat of Industrial Approval, if any.
8. Annual Reports for last 3 years.
9. Statement of import of capital goods, raw materials, spares & components from the first import.
10. Statement of payment of lump sum, technical know-how fees and royalty on import and export payment.
11. Third party import invoice from supplier.
12. Xerox samples of a few Entry Bills and Invoices
13. Any other relevant documents.
14. PAN (Permanent Account Number) of the Importer / Company
15. IEC No. of the Importer / Company
Above item （point no. 4） In May than the SVB letter reaches its India subsidiary, and related. Import companies must submit written response. You may ruin your import business and failure to do so.
The correspondence of the letter of question is Custom House Agent (C.H.A). There seem to be many companies talking with an Indian subsidiary and a distribution supplier with the business on the as correspondence. Still Indian C.H.A has a strong network every area. A notice is necessary for cannot but cope with the supplier choice carefully.
Changes by fiscal 2014 budget
・Change BCD applied to 19 inches below the LCD / LED TV to the duty-free items from the 10%.
・Increase in BCD on iron flat/rolled products from 5% to 7.5%.
・5% preferential basic tariff, is also applied to the project of machinery and equipment required to set up solar energy production.
・Forged steel rings, BCD is decreased from 10% to 5%
・Wind operated generators - Exemption of SAD 4% on parts, etc.。
・Bio-CNG - 5% of the preferential basic customs duty on machinery and equipment for the establishment
■ Excise Duty
■ Overview of Excise Duty
Excise duty is levied on goods that have been manufactured or produced in India, as an indirect tax that is imposed on some of movable personal property that is marketable.
Additional import tariffs (AD: Additional Duty) and basic excise duty (BED: Basic Excise Duty) has been defined as 12%. For additional due on basic tax 12%, 3% as Education Cess and effective tax rate levied is 12.36%. Further for bread, tobacco, automobile manufacturing and production, national contingent disaster （NCCD：National Calamity Contingent Duty）further an additional of 1% is imposed.
The excise duty, CENVAT (Central Value Added Tax) system has been adopted in order to avoid the cumulative reduction and double taxation of excise duty.
CENVAT system and (1) excise duty on pay during the purchase of raw materials or parts, or (2) is something that can be paid by deducting credits from excise duty paid upon the import of raw materials 'additional customs duty and special additional customs duty to receive final product shipped to a tax prepayment (credit).
In addition, (3) can be paid by deducting credits from the excise duty payment service tax was introduced in order to manufacture the final product takes the final product.
Case Study
Indian auto maker Company A is to buy a built-in engine from Company Y to sell and delivery to Company Z.
Purchase price of the engine INR 1,000 and automobile sales price to INR 3,000 and calculation of excise duty in Company A with CENVAT credit system would be as follows. However, other than excise sales tax to and does not take into account.
Method Of Calculating Company A’s Excise
Item
Tax Rate
（％）
Amount
（INR）
Remarks
Purchase of engine price
―
1,000.0
Partial payment of tax support materials (CENVAT) = (1) × tax rate
12.36
123.6
Credit
Sale Price of Automobile
―
3,000.0
Goods Tax = (3) × Tax Rate
12.36
370.8
Tax payments of Excise duty [(4)-(2)]
―
247.2
Explanation
Excise duty is to be paid when buying a built-in engine (INR 123.6) is listed as a credit, one will pay a tax of INR 247.2 after deducting the credit from the excise duty (INR 370.8) when you sell the delivery destination.
■ Taxable Excise duty
Excise duty requirements and regulations determined ' Central Excise Duty Act, 1944 and the classification of products subject to excise duty is mentioned in Central Excise Tariff Act, 1985
According to the Central Excise duty Act 1944, as a condition, taxable excise duty have cited the following four requirements.
1) Possible marketable movement
A removable thing is that the commodity tax becomes taxable, and the structures attached to real estate and the building shouldn't be taxable. In addition, because it is something which has marketability, it is necessary to be recognized as the sale possible commodity and the product. However, items which have a sales value become taxable as a commodity.
2）Law Specific
Central Excise Law 1944 correspond Central Customs Act 1985 which determines whether or not taxable goods manufactured are listed in order. Goods which are produced at the respective company, it is possible to judge by referring to Central Customs Law 1985.
3）Produced Manufacture
In the Central Excise Act, 1944, production acts produce products that can be identified and defined as "deemed manufacturing process".
It refers to the act of the products with different characteristics by a certain process and activities specifically.
In addition, the "deemed manufacturing process", without creating a specific possible taxation product by going through a certain process, is called the excise duty. Specifically, labeling that process to the product does not have to produce a specific product, which is subject to tax under the excise duty. It has also been defined as "deemed manufacturing process" such as recording process and the plating process to an audio tape in addition to stick label.
It should be noted that, "deemed manufacturing process" has been exemplified listed in the notes to the Appendix 3 and Central Excise duty Act 1985 of 1944 Central Excise duty Act.
On the other hand, "production" is not defined in the 1944 Central Excise duty Act, and it is to be understood as wide activities. In other words, production, such as by-products generated in the course of a manufacturing process are included (Article 2 Section F (iii))
（Ref：http://www.vakilno1.com/bareacts/centralexcise/centralexcise.htm）
4）Manufactured production in India
In Central Excise Act, 1944 excise duty shall be taxable. It has been stated and must be a manufactured production in India. Therefore, imports of such products manufactured production in India abroad must be subject to excise duty and must pay additional duties of excise duties.
■ Classification and evaluation of excise duty
In addition, the valuation of the product that is the subject of excise duty rates,
1) Ad valorem of the shipment value based
2) Specific duty that is not based on shipping amount
3) The valuation in the case where there is a description of the maximum retail price
1）Ad Valorem duty based on the shipping amount
However, if you sell the capital relationship a subsidiary, identical product could be even lower than the market price to shipping price. In that case, you have valuation buyers of price in the case where the transaction with a third party and not the value of shipments is a seller as 'transaction price'.
Trading price of identical products or products in, unless considered generally in different customer and each transaction, even without special relationship between buyer and seller, within the range of normal trading in trading value of the factory is appraised.
Case
On January 6, 2015 Manufacturer A of India was sold plastic products to a subsidiary in Mumbai from a factory in Delhi. Company A sold a unit at a price of INR 1 000 to Company B.
In this case, when Company A sold products to a Company C with stakeholders, Company A's products cost INR 1,200.
Here, the valuation of the excise duty is a problem, not from the seller side. The "transaction price (INR 1,000)" of the buyer side is valuated in the Excise Act, and an article in it is not the official buyer (Company C), it is defined as the trading price of when to sell (INR 1,200) valuation.
Item
Tax Rate
(％)
Amount
(INR)
Remarks
1
Valuation
―
1 200.00
2
Items Taxes = (1) × Tax Rate
12.00
144.00
3
Education Cess = (2) x Tax Rate
3.00
4.32
4
Sum [(1)+(2)+(3)]
―
1 348.32
2）Specific Duty not based on shipping amount
Product that is the subject of specific duty is, sugar and tobacco, are matched such public notice, for example, sugar is not a sale price, will result in the article tax rate is levied according to the weight (pounds).
3）If there is a description of the maximum retail price
Some of the products that are retail sales, maximum retail price as described on the package may be shipped. In this case, the valuation of the taxable excise duty, rather than the actual shipment value, is calculated on the excise duty is multiplied by the price obtained by subtracting the maximum retail price fixed reduction rate from (MRP) (30%).
■ Tax payment procedure of excise duty
One must register the company as a manufacturer using the Form A （Application for Central Excise Registration）. Excise duty applies to manufacturing and production offices for Excise authorities and conducts manufacturing and production services （ Daily Stock Account）：FormRG_1 records out of stock or product sales volume and sales prices.
Offices received excise duty based on these records for the current month using the 'excise duty payment notice on （Form GAR-7）5th of the following month. However, March 31 is the time limit for payment of the excise duty. Manufacturing and production excise duty applies in addition to the employer stating the credit amount to the purchase of product manufacturing, production, and inputs, further excise duty deduction using "excise duty monthly （Form ER-1）”.
■ Refund, Deduction and Exemption of excise duty
1）Refund and Deduction of excise duty
In the Excise Act refund and deduction of tax is not allowed in the following cases.
A. If you have paid an excessive amount as excise duty
B. If you pay the excise duty for the export product
A. If you have paid an excessive amount as excise duty
If there is an error in the valuation of products subject to excise duty, refund can be claimed confirming the fact that the amount paid was excess by making an application to the regular excise authorities.
The price charged on invoice is the price of product plus excise duty on it. The excess amount collected from the customer has to be refunded to them otherwise it would result in unjust enrichment to the manufacturer. Also, if there are many customers to the manufacturer, can be difficult to identify the customer should be refunded.
Therefore, except for goods tax should be refunded in case of a special reason. It means that it is deposited in the Consumer Welfare Fund.
B. If you pay the excise duty for the export product
The Excise Act, against the manufacturer of the product to be exported from India, is recognized to have measures of refund or exemption of excise duty. For manufacturers to export product, one cannot allow the selection application of the following procedures.
(a) Exporting the product without paying the excise duty
(b) Commodity tax and refund taken of the commodity tax paid after export
(c) Without paying excise duty, raw materials and parts are purchased
(d) Excise duty payment, to be deducted from debt of products for other domestic consumption
(a) Exporting the product without paying the excise duty
The manufacturer, one needs to register that it is the exporter of pre-manufactured goods. Moreover, when good are actually exported, Form ARE-1 in order to receive the tax exemption of excise duty (Application for removal of excisable goods for export by the air/land/post/sea) needs to be created.
(b) Commodity tax and refund taken of the commodity tax paid after export
After the manufacturer one pays the excise duty applied to the product to be exported. After the product is actually exported, he will be able to claim a refund of payment excise duty of the corresponding product. In this case, the manufacturer will need to create a Form ARE-2 prior to exporting the product.
(c) Without paying excise duty, raw materials and parts are purchased
The manufacturer of the finished goods after taking the credit of the input of the raw materials and components purchased has to pay the duty at the specified rate to the excise authorities.
(d) Payable excise duty to be deducted from other domestic consumption products
When India exports the products which a manufacturer produced abroad and sells it in the Indian country, commodity tax can be subtracted from the product which is exported. It is not necessary in this case, special rebates and exemption procedures.
2）Exemption of excise duty
Companies and regions that meet certain conditions, has defined the exemption of excise duty which is Central Excise duty rate method (CETA)
1. Tax exemption for small business sales
For SSI：Small Scale Industry, Indian Government has taken preferential measures such as tax cuts and various tax exemptions. As per Government Circular No. 8 of March 1, 2003, the previous year's sales for the following small business 40 million rupees, has applied a reduced tax rate of excise duty.
2. Exemption of intermediate goods which is self-consumption
If the goods produced at the plant manufacturer are used as intermediate goods, they are exempted from excise duty.
3. Tax exemption for a particular region
Government of India as an economic promotion measure is taking exempting tax for 10 years under certain conditions. Uttarakhand, Himachal Pradesh, Sikkim and other parts of northeastern India fall under this provision.
■ Excise duty in case of Contract Manufacturing
The manufacturer offering parts and raw materials, there are times when production process is outsourced. When the goods which have commodity tax payment obligation make use of the raw material possessed by main enterprise, the tax payment obligation becomes that of the contractor’s.
As per the CENVAT Credit Rules (2004), Job Worker is the manufacturer who doesn't bear the payment duty of the commodity tax.
“Job Works” means processing or working upon of raw material or semi-finished goods supplied to the job worker, so as to complete a part or whole of the process resulting in the manufacture or finishing of an article or any operation which is essential for aforesaid process and the expression “job worker shall be construed accordingly.”
(Notification No.214/86 CE and Rule 2 (n))
For the manufacturer outsourced the processing steps, if one wants to manage supervision until the quality surface and day-to-day operations, it is exempted from excise duty.
In order for tax to be exempted for raw materials and parts provided to Job Walker, an affidavit must be filed and submitted as a declaration.
Case Study
Manufacturing Company A purchases parts from parts manufacturer Company B, to outsource parts of the production process in manufacturing subcontractors Company C (Job Worker).
Company A purchases parts from Company B at INR 5,000 and further sells it to Company C, and provide parts free of charge. The outsourcing processing fees is INR 10,000. Then Company A sells goods to Company D at INR 20,000.
VAT of 12.5%, Excise Duty of 12% and Service tax of 12% shall be imposed on all transactions done in the same province from where manufacture parts are outsourced or sold.
However, education cess of 3% shall not be taken into account.
Item
Tax Rate
(％)
Amount
(INR)
Remarks
1
The specifications loss from parts manufacturers
―
5,000
2
Payment State VAT = (1) × tax rate
12.5
625
Credit
3
Payment excise duty = (1) × tax rate
12.0
600
Credit
4
The purchase total [(1) + (2) + (3)]
―
6,225
5
Outsourcing processing fees to contractors
―
10,000
6
Payment service tax = (5) × tax rate on subcontracting
12.0
1,200
Credit
7
Total payments to contractors [(5) + (6))
―
11,200
8
Selling price to the customer (valuation)
―
20,000
9
Receives State VAT = (8) × tax rate
12.5
2,500
10
Receive excise tax = (8) × tax rate
12.0
2,400
11
State VAT tax payments [(9)-(2)]
―
1,875
12
Excise tax payments [(10)-(3)-(6)]
―
600
Explanation
Since Job Worker is the point of production, it will be exempted from the Excise Duty depending in case the principle manufacturer agrees to pay the duty. However, Job Worker is supposed to pay tax as per Business Auxiliary Service.
In addition, excise tax and state VAT by the manufacturer paid to parts manufacturers and service tax paid to contractors are respectively recorded as a credit. Also deducting excise duty and state VAT does not become a cost once goods are sold to the customers.
Therefore, in this case additional cost by the indirect tax won’t be included. INR 5,000 (INR 20,000-INR 10,000- INR 5,000) deducted outside order processing fees will be recognized for profit by the sale price to a customer.
Meanwhile, in the manufacturer outsourced processing step, the daily operations are managed and operated by the contractor. It cannot be viewed as integral contractors and manufacturers. Tax is never exempted when deliveries are made by the contractor. "Contract Manufacturer" is different from that of a Job Walker.
Case
Manufacturing company, Company A purchases parts from parts manufacturers Company B, to outsource a part of the production process to manufacturing subcontractors Company C (Contract Manufacturer).
Company A purchases goods worth INR 5,000 from parts Company B, and commissioned the production by providing the parts at no charge to Company C, in order to purchase the processed parts at INR 10,000. Then Company A sold goods to Company D at INR 20,000.
VAT of 12.5%, Excise Duty of 12% and Service tax of 12% shall be imposed on all transactions done in the same province from where manufacture parts are outsourced or sold.
However, education cess of 3% shall not be taken into account.
Item
Tax Rate
(％)
Amount
(INR)
Remarks
1
The specifications losses from parts manufacturers
―
5,000
2
Payment State VAT = ①× tax rate
12.5
625
Credit
3
Payment excise tax = ①× tax rate
12.0
600
Credit
4
Enters into total specifications of parts (①+ ② + ③)
―
6,225
5
Purchase of machined parts from subcontractors
―
10,000
6
Payment State VAT = ⑤× tax rate
12.5
1,250
Credit
7
Payment excise tax = ⑤× tax rate
12.0
1,200
Credit
8
Total payments to contractors (⑤ + ⑥ +⑦)
―
12,450
9
Selling price to the customer (valuation)
―
20,000
10
Receives State VAT = ⑨× tax rate
12.5
2,500
Credit
11
Receive excise tax = ⑨ × tax rate
12.0
2,400
Credit
12
State VAT tax payments (⑩-②-⑥)
625
13
Excise tax payments (⑪-③-⑦)
600
Explanation
Semi-finished products after processing which are outsourced to Contract Manufacturer are applicable to make purchases for the manufacturer. Therefore, Contract Manufacturer, for semi-finished products, will be to pay the state VAT and excise tax.
On the other hand, excise tax and state VAT paid to manufacturers and contractors are recorded as a credit. It can be deducted from the excise tax and state VAT to receive when sold to customers it is not considered to be a cost.
The manufacturer from selling price to the customer stock amount from the part manufacturer and INR 5,000 is deducted outside order process and rent to the consignee (20,000-10,000-5,000) means to be recognized as the profit.
■ Service Tax
■ Service tax Overview
Service tax is an indirect tax, which is defined in the Finance Act 1994, Chapter 5. Service tax rules, increasing the taxable scope of service tax, such as advertising, consulting, financial and insurance industries, industries, accounting, legal services, for more than 120 different services currently taxed service tax. Service tax basic rate is about 12%, 3% education cess, multiplied by 12.36% as tax rate.
Amount of service tax is announced in the budget at the end of February and shall be levied from April. One needs to be careful of including new taxable items which were not mentioned earlier.
※As per 2012 budget since April 1, 2012 service tax has been revised to 12%.
■Classification and evaluation of service tax
As for the taxable service of the service tax, more than 120 kinds of services are prescribed based on Finance Act. For one service transaction, and if it corresponds to more than one taxable service at the same time, it should be appropriately classified based on Finance Act 1994, Section 65.
Service tax is required to multiply the service tax for valuation as per Finance Act, Section 67. Assessed amount as a general rule becomes remuneration amount of service, but there are times when fixed item is designated as remuneration amount excluding a certain amount.
1）Remuneration for services
"Valuation" of services, will be the amount of reward as received from service beneficiaries. For example, to provide a certain accounting firm accounting services, INR 10,000 becomes a valuation. If you want to receive INR 10,000 as its consideration, a service tax 12.36% is levied on this amount.
This means that in Office Accounting Invoice listed the INR 11,236 (10, 000 10,000 x 12.36%).
In addition, there are times when service provider makes an advance expense such as telephone rate and traveling expenses. In this case, the valuation would be subject to service tax expense and too is included in ‘assessed amount’.
However, the service provider acts as an agent of service beneficiaries. If one purchases goods and the cost paid in its activities, we from "valuation" of taxable services permitted to deduct the cost.
2）Item to be added to the valuation
When fixed service was offered, adding “the additional expense of specification” to the remuneration amount for that service is required. This is designed to include certain cost which is considered as separate cost.
Such provisions are stipulated in order to prevent the amount intentionally removed from the "evaluation value", "tax avoidance" services tax to a separate cost "certain additional costs."
Specifically in case of performing services for airlines, fees and commissions received from insurance company will be applicable.
3）Items deducted from valuation
As per service tax provision in 2006, a specific item should be deductible from the assessed value of the taxable services.
True compensation is applicable for paid subscribers if the material received from customers when providing services such as travel agency, train and air fares and telephone services etc.
■ Tax obligation of Service Tax
1）Occurrence of tax liability of service tax
If the appraised value of the service tax has been determined, or tax liability of service tax is to occur at any time, it would be a problem. In some cases the provision of services is to issue complete invoice. One may want to ship the bill to service beneficiaries in advance.
Here, according to service tax rule, tax obligation of service tax, is decided that at it occurs at the point when the contributor of service receives the remuneration of taxation object service. In other words, it would be a tax liability of service tax at the time of the receipt of the cash for service provider.
Case 1
Accounting-consulting company, Company A on August 20, 201* provided consulting services (taxable) to Company B. As a reward, Company on September 30, 201* received INR 300,000 from company B.
Comments
In this case, Company A’s tax obligation of rewards received on September 30, 201* and the appraised value would be subject to service tax on INR 300,000. Hence, the service tax will be INR 300,000 x 12.36% = INR 37,080.
Case 2
Company C, was asked to provide consulting services related to indirect taxes in India to Company D. Company C asked for advance payment of remuneration October 15, 201*. Company D also paid a reward of INR 100,000 in response to this. The provision of consulting services is to be complete by November 1, 201*.
Explanation
In this case, Company C’s tax liability was unearned on 15th October, 201* and will be subject to service tax on assessed value INR 100,000. Service tax is calculated as INR 12,360 (INR 100,000 rupees x 12.36% service tax rate).
2）If the service beneficiaries bear the tax liability
Rather than service providers to provide specific services according to the service tax rules, tax obligations by the receipt of services are provided.
Considering that tax payment is difficult for this, service provider side repeatedly provides many services. Service providers outside of India, has exceptions to certain services.
Service beneficiaries have the following four types as services:
A）Overland transport service of the freight by the vehicle
B）Approval to business
C）Sale of investment trusts
D）Import of taxable service
Case 3
Company E performs the research and development of the automobile in Japan. Company F is a manufacturer which manufactures automotive parts in Delhi suburbs.
A research and development Company E in Japan, divides expenditure proportionally to the subsidiary companies worldwide.
Company E publishes a bill of INR 500,000 every month for Company F, but is Company F obliged to pay a service tax?
Item
Tax Rate
(％)
Amount
(INR)
Remarks
1
Claim amount from Company E
―
500,000
2
Service tax = (1)×Tax Rate
12.36
61,800
3
Withholding amount = [(1) – (2)] × Tax Rate
10.00
43,820
To India
4
Total payment to the Company E [(1)―(2)―(3)]
―
394,380
Vs. Japan (Company E)
5
Tax payments of service tax = (2)
―
61,800
To India
Explanation
Research and development Company E corresponds to taxation object service with respect to the Indian domestic service tax law, as a “scientific/technical consulting service”. In addition, because it is offered the corporate body which from the corporate body which India overseas places base makes base the Indian country, taxation rule of service is regarded as “import of taxation object service”.
The bill which Company F receives from Company E is cost of research and development irrespective of margin that has been added, it is regarded “import of service”. Company F must pay the service tax INR 61,800 (INR 500,000×12.36%) to the service tax authorities.
In addition, for payment INR 500,000 of value from Company F to Company E, source tax of 10% is imposed based on Japan and India tax convention in India. Therefore, service tax of INR 61,800 as mentioned above, INR 394,380 rupees that with holdings 50,000 rupees in India was deducted will be paid to Company E.
■ Service Tax Taxation method and CENVAT credit
As for taxation object service, education cess of 3% is being levied on basic tariff of 12% of service tax and as for effective tariff it is 12.36%.
The provider of taxable service, one needs to pay the service tax until 5th of the following month after receiving the service. However, it must be noted that in March, it shall be paid until March 31.
1）Tax Payer registration
It is necessary for the person offering taxable service to register in less than 30 days from the day when offer of service was started. Registration must be done for each base to provide a service, but are also permitted to register in lump sum.
For registration of service tax, Form ST-1 needs to be filled and attach a copy of documents (such as real estate contract) the copy of articles of association showing livability and register it with the center execution station (Superintendent of Central Excise). Once the contents of the document are verified, the central executive office will issue a registration certificate within seven days.
2）CENVAT Credit
In 2004, CENVAT credit rules acknowledge that the deduction of service tax (credit) from the total amount of service tax receipt for taxing service providers is paid for a variety of launch services.
Similarly, from the total amount of service tax was received, it can also be paid by deducting excise tax applied to consumer goods and capital goods used in the service provided.
■ Exemption and Refund of Service Tax
Service tax is exempted or refunded if taxed service provider meets certain conditions;
1）Exemption of small businesses
Sum of "valuation" of services provided of a company, if less than the annual INR 1 million, the entity has been exempted of service tax as it is a "small business".
Tax is exempted for small business and duty free measures are being taken for such procedures
However, services and consumer goods and inputs to pay service tax were introduced for the services provided by these small businesses and tax payments cannot be exempted.
2）Exemption and refund relating to export of services
“The recipient of service” owes tax obligation concerning the service which is offered from overseas India. There have been cases with respect to the traditional requirement that services provided outside of India are exempted of service tax. Service tax is exempted depending upon the contract’s statement method. However, the definition regarding “the offer area” of service was done with draft budget of 2014. The place where services become “offer area” of service and modification, it got substantially impossible to apply the export of service.
■ VAT： Value Added Tax
■ State VAT Overview
Indirect tax of the two types of Central Sales Tax imposed on the sale of movables (CST： Central Sales Tax and State VAT： Value Added Tax） in India for sale of personal property imposed on the sale of the personal property within the State.
State VAT is defined based on the state VAT law that states stipulated. Collection shall be tax revenue in each state.
On the other hand, CST provisions are based on the Central Sales Tax Act, 1956. Tax revenue of state who collect Central Sales Tax, some will be those of the central government.
State value-added tax, 12.5% of the tax rate has been determined for a large portion of the article. For daily necessities etc. 4% tax rate is levied. In some exceptional cases, State VAT is exempted for goods. Also there is an article according to which tax rate of over 12.5% is imposed.
■ Evaluation of State Value-Added Tax
State value-added tax on the sale price of the product multiplied by the State VAT, will be paid by the seller side and collected from the buyer.
When price of a product is reduced, an amount of money after the discount becomes a valuation and multiplied by a constant tax rate therefore calculating the taxation amount.
In addition, when a product is sold, it is only with a product price when this amount of money is requested in Invoice for service tax.
When a product worth INR 1 000 is sold, as well as INR 100 is carried out as cash discount, if INR 50 is claimed separately as fare; INR 900 + INR 900 × tax rate + INR 50 is noted in the Invoice.
■ VAT Liability
It is taxed for the sale of all movable articles as a general rule, and it shall be the seller’s obligation to pay for the tax. Finally the consumer is the one to bear the state value added tax over the actual selling price.
Sale of goods is sometimes done by leasing. State tax assessment shall be eligible when installment sales contract forms are made and services provided at the same time. Also, attention is required if trading intangible assets such as patents and copyrights.
■ Taxation and Supplier’s tax credit of State Value-Added tax
Basic tax rate of state VAT consists of a principle rate of 12.5% and 14.5%. Depending on goods, different tax rates apply. For example, capital goods like daily necessities, agricultural, industrial or drugs, tax rates are 4-5%. In case of precious metals such as gold and silver, 1% is imposed. For export sales of goods like alcohol beverages and petroleum products, 20% is tax deductible.
As described above, the main state tax VAT in each state, the details of the rate must be confirmed by referring to the VAT method of each state.
State value added tax is to be imposed for the added value whenever sold. The system is such that VAT (output VAT) which is received from a customer at the time of sale of an article subtracts VAT (input VAT). Input VAT becoming an object of this subtraction is recorded as "credit", and it will be subtracted at the time of the tax payment (output VAT).
In addition, input VAT is paid when you purchase capital goods which would be credits as it is input VAT on purchases of raw materials and parts. However, the credit is over specific time periods, such as a three-year note which is recognized as a "credit". One needs to check the State VAT laws because each State depends on the period as well as the VAT rate.
Case Study
Company I laid in stock of a product worth INR 1 000 from a certain wholesaler Company J in the state of Haryana. Company I added the profit of the respective company in the product stocked and sold it to the customer for INR 1 500.
In this case, how much VAT should Company I pay? 12.5% VAT is imposed in the State of Haryana.
Tax Rate
（％）
Amount
(INR)
Remarks
1.
Purchase Amount of Company J
―
1 000.0
2.
A state VAT= 1× Tax rate
12.5
125.0
Credit
3.
Stocking Total Sum (1 + 2）
―
1 125.0
4.
The selling price to a customer
―
1 500.0
5.
A state VAT= 4× Tax rate
12.5
187.5
6.
Receipt Total Sum (4 + 5）
―
1 687.5
Invoice Amount of money
7.
Payment Amount (5- 2 of state VAT）
―
62.5
Explanation
As for Company I, deducting the input VAT (INR 125) which from the output VAT (INR 187.5) is received as the product was sold. Deduction of input VAT is to be paid to Company J when products are purchased (INR 125)
State value added tax will be taxed to added value of products at the retail stage. You can calculate the amount paid INR 62.5 from that in such cases, the added value and profit of Company I shall be INR 500, multiplied by 12.5% to it.
■ State VAT Tax Procedures
State value added tax the enterprise which means to pay tax has the necessity to register the self as “the tax payment trader” of state value added tax e.g., the product is sold. In addition, it is necessary to have an accounting book which records the stocking and sale of a taxable product, and also the situation of stock adequately.
Since these registers and stipulation are decided in state VAT method of each state, it is necessary to verify the state VAT method which provides sale base.
1） “Tax trader” in Registration Process
It is necessary for a supplier selling a product becoming a tax payment object to register "a tax payment supplier" before starting the business concerned. The following documents are necessary for a registration procedure.
・Application form for the tax professional registrations
・Taxpayer identification number （PAN Permanent Account Number）
・VAT - The Board of Directors voted to conduct registration proceedings
・Articles of Association and a copy of an Establishment Certificate
・Information of Bank Account
2）Procedures for Filing and Tax Payment
The person who is registered as the tax payment trader of state value added tax needs to declare and pay tax periodically. Period for submission of tax returns is determined monthly, quarterly, semi-annual, and annual and followed by the State VAT regulations.
Tax payments of INR 100 million or more, requires a tax declaration until 21st of each month.
Tax payments less than INR 100 000 or more than one million, requires a tax declaration on a quarterly basis.
Tax payments less than INR 10 million requires a declaration semi-annually.
The declaration of the state value-added tax, the following documents will be generally necessary.
· Declaration of taxation object – Sale, Sum of period, Total Stock and Stock Tax Credit
· Purchase Total and Suppliers Tax deductible amounts in the declaration period (credit)
- Specification of orders related to movable goods
■ State Value Added Tax and Export Business
When a product is sold to an Indian foreign territory, state VAT method is applied and won't have to pay state value added tax as per the Sales Tax Act. Therefore input VAT (credit) which is paid on purchase of parts and materials used for production of a product.
■ CST： Central Sales Tax
■ Overview of Central Sales Tax
CST：Central Sales Tax is imposed on the sale of movable property for state value-added tax imposed on the sale of the personal property within the State VAT：Value Added Tax.
Central Sales Tax is defined based on the Central Sales Tax Act 1956, most of which is sold, and Central Sales Tax collected in tax revenue will be, those of the Central Government.
Central Sales Tax is the same rate and state VAT basically, is in many products will be taxed on the sale price is 12.5%. But a resale is performed among states other than sale, and a reduction tax rate is applied for the product which is at a constant condition, and either of reduction tax rate which is 2% or the State VAT tax rate of the sales agency can be applied as CST tax rate.
■ Assessment and Tax Liability of the Central Sales Tax
The distributor must register the addition center sale tax within 30 days after payment duty of the Central Sale Tax.
Central sale tax, the tariff multiplied by central sale tariff would be same as state value added tax in selling price of the product, and it is necessary to pay tax “the state which ships the goods”.
In addition, when the price for a product is reduced, an amount of money after discount becomes [a valuation], and it is similar to State Value Added Tax which is multiplied by a constant tax rate thereby calculating a taxation amount.
■ Taxation and Suppliers Tax Credit of Central Sales Tax
As for tariff of Central Sale Tax, it becomes same as the tariff of State VAT to the same product inside the state which basically sells the product.
However, when the product being sold over the states, are used for the final product in the state of the case and sales destination is resold sales destination states, if certain conditions are met, the reduced rate of 2% will be applied. In this case, by comparing the state VAT rate of reduced tax rate of 2% and the vendor, one will be able to apply a low tax rate as 'CST tax rate'.
To receive the application of the reduced tax rate, the buyer side will need to submit a "Form C" which describes the purpose of such products purchased to tax authorities. In addition, verification of the tax authorities was received even on seller side, procuring “Form C”, it is necessary to submit to the tax authorities. A reduction tax rate is applied when "Form C" is not presented. Either "high" tax rate of 10% and a state VAT tax rate of a sales agency will be applied.
1）In the case of output CST and input VAT
CST (output CST) which is received from a customer at the time of the sale of the article to the other state subtracts it from VAT (input VAT) which is paid at the time of stocking parts and raw materials.
Case Study
Company L stocked the automobile part for INR 1 000, from the Company K which is in Haryana state. It then sold to Company M of Uttar Pradesh (another state) including the profit of INR 1 500.
In Haryana, State Value-Added Tax rate is 12.5%, and Central Sales Tax is 2% inclusive of an excise tax of 12%. Education cess of 3% shall not be considered.
In this case, what shall be the State VAT paid by Company L?
Item
Tax Rate
(％)
Amount
(INR)
Remarks
1.
Purchase amount from Company K
―
1 000
2.
State VAT = 1 × tax rate
12.5
125
Credit
3.
Items taxes = 1 × tax rate
12.0
120
Credit
4.
Payment total (1+2+3)
―
1 245
5.
Sales amount to Company M
―
1 500
6.
Central Sales Tax = 5×Tax Rate
2.0
30
7.
Items taxes = 5× Tax rate
12.0
180
8.
Receiving total (5+6+7)
―
1 710
9.
State VAT tax amount (6-2)
―
0
95(125-30) is described as credit
10.
Excise tax payments (7-3)
―
60
Explanation
Company L pays stocks and from the CST INR 30 (output CST) which is received from the customer deducts the state VAT INR 125 (input VAT) which, is paid first. In this case, CST received is larger. Payment tax assessment of state VAT becomes zero. INR 95 which cannot be deducted is to be stated as credit. In addition, as for the commodity tax INR 120 which is paid to the Company K, it is possible to deduct from the commodity tax which is INR 180 received by selling to Company M as a credit.
On the other hand consider the Company M. If the Company M makes a re-sale in the state of Uttar Pradesh, one will not be able to deduct the CST paid from state VAT; it shall receive from customers to Company L. Therefore, for Company M will be forced to bear extra tax burden.
2）In the case of output VAT and input CST
As for the input CST depends on the automobile parts stocked from Company L. Company M, cannot be deducted from output VAT to sell to customers of Uttar Pradesh as it is in the same state. Therefore, CST will become substantially be a tax cost for Company M.
For these tax issues, the parts manufacturer concentrates inside the same state as without the principal automaker and the motorcycle manufacturer, attracting the surrounding States companies is difficult.
In order to avoid this kind of circumstance, Central Sales Tax Law, 1956 gives the authority of tariff correction by the State government. When the fixed condition is satisfactory and recognized, Central Sale Tax is lowered.
Many companies prefer industrial areas. Property prices rise in the state where a car manufacturer and a motorcycle maker are located in. On the other hand, in such a state if central sale tax is reduced even if it is a neighboring state, a maker can reduce a price to deliver a share of Central Sales Tax.
3）Eliminating Double Taxation in case of direct delivery
When movable property is bought and sold across a state, up to last sale it will be taxed as per Central Sales Tax. In such a case, one may end up with rigid economic activities and tax overlaps. Therefore, as for distribution, sales agency deliveries are designed in such a way that it can prevent the repetition of taxation.
In the description above, Company A directly delivers at Company C. As for Central Sale Tax the occasion where the Company A appropriates sale at the Company B, as for Central Sale Tax it does not impose a tax to the sale which from the Company B depends on the sale to Company C.
4）If Transferred to Warehouse
Although the Central Sales Tax is levied on the sale of goods beyond the state, the same company has its own warehouse in multiple states, if you move the inventory between warehouses; stock transfer does not become taxable transaction of Central Sales Tax.
Therefore, companies try to avoid customer center sales tax throughout India by preparing a warehouse in each state. One can sell directly from the stock to retailers, supported by or by setting up assembly plants in each state.
For example however, inside State A the stock which does moves between the warehouses in State B, is sold inside State B again. Since the movement of goods is between the warehouses, it becomes a target for Central Sale Tax. Exceeding the state tax substantially, the product sold becomes a similar transaction.
Therefore, when you make purchases in the State A, VAT (input VAT) doesn’t deduct all from the State VAT (output VAT). 2% of Central Sales Tax becomes non-deductible in the province. Therefore, the deductible State VAT must be recognized as a cost.
Case Study
Company L which is in the state of Haryana stocked the automobile parts for INR 1 000 from Company K. They moved the parts to the respective company’s warehouse which is in the state of Uttar Pradesh. Furthermore, it was sold to Company M which is inside the same state including the profit of INR 1 500.
As for the state value added tariff in the state of Haryana of the particular product shall be 12.5%. As for central sale tax, it shall be 2%. In case of movement between the warehouses, assume that in the state of Haryana, 4% of state value added tax is shall be imposed.
In this case, how much amount for State VAT shall be paid by Company L?
Item
Tax Rate
(％)
Amount
(INR)
Remarks
1.
Purchase amount from Company K
―
1 000.0
2.
State VAT = 1 × tax rate
12.5
125.0
Credit part only
3.
Payment total (1+2)
―
1 125.0
4.
Sales amount to Company M
―
1 500.0
5.
State VAT = 4× tax rate
12.5
187.5
6.
Receiving total (4+5)
1 687.5
7.
Tax amount of state VAT
= 5-1 × (12.5% -4.0%)
―
102.5
8.
Company L’s real tax cost = 1× 4.0%
―
40.0
Explanation
As for the Company L, because the warehouse of the respective company is registered in the state of Uttar Pradesh, sale of the automobile parts to Company M is possible to do from the warehouse of the respective company in Uttar Pradesh. Therefore center sales tax shall not be imposed to Company M by Company L in the state of Haryana.
However, of the state VAT INR 125 paid to Company K, 4% portion (125 × 4% = 40) cannot be deducted from the state VAT INR 187.5 received from Company M. Therefore, Company L’s tax payment, 187.5 - (125 - 40) = 102.5 to become INR 40 which cannot be deducted is recognized as a tax cost for the Company L.
■ Tax payment procedures of Central Sales Tax
When you register as a supplier to pay the State tax, Central Sales Tax registration and supplier registration is done at the same time. Also to pay taxes, State VAT procedures of the Central Sales Tax return and tax payment are done at the same time.
■ Export transactions with the Central Sales Tax
When the product is sold overseas, the export trader stocks the particular product from outside the state. Central Sale Tax becomes exempted from taxation.
■ Complexity of the Central Sales Tax and tax system
In India dispersed population exceeds 1,000,000 people. Therefore, as the strategy of Japanese companies that aggregate production base, a soft surface “unification tax” has been achieved as well as enjoys the economies of scale, business beyond the State.
On the one hand obstructing the Indian domestic physical distribution, what makes the Indian tax system complicated is called “Central Sale Tax”. Each state is independent and central sale tax is imposed in India when one sells an article across the state.
These tariffs substantially in Central Sales Tax cannot basically be deducted from other indirect taxes such as customs and excise or service tax because different State governments collect a Central Sales Tax. In addition, deduction isn’t possible because the collected Central Sales Tax differs which is collected by the government.
The state value added tax (input VAT) which from the central sale tax (output CST) is received when one a product is sold to the other state, signifies the same turnover tax, levied within the State and tax shall be deductible only this case.
In this way the Central Sales Tax substantially becomes a factor of cost, it won’t create an impact on the logistics strategy.
Payment Side
(Input)
Recipient
(Output)
Propriety of Deduction
1.
Tariff
Central Sales Tax
×
2.
Tax Items
Central Sales Tax
×
3.
Service Tax
Central Sales Tax
×
4.
Central Sales Tax
Central Sales Tax
×
5.
Central Sales Tax
State Value Added Tax
×
6.
State Value Added Tax
Central Sales Tax
○
■ Entry Tax
■ Overview of Environmental Tax
It is the indirect tax that is levied and collection for the goods carried from within the state to outskirts of the state. It is decided in most states of India, many have stipulated an entrance boundary tax individually in every state.
The tax obligation is borne by the enterprise which gets the goods transferred.
■ Features of Entrance Boundary Tax:
Entrance boundary tax is state tax collected by the state tax authorities. The tariff differs as per the variation in goods at time of the application depending upon the respective state. But, there may be common features such as:
- When it exceeds the state attendant upon stock movement and when goods are sufficient as per state laws, entrance boundary tax is not imposed.
- If the moving stock only needs to pass a state en route destination sate, Entrance Boundary Tax is not imposed.
- In some states you have set a tax rate of Entrance Boundary Tax is the same as the VAT of goods in the province.
Case Study
Company O purchased products worth INR 1 000 for the purpose of selling in the Maharashtra state from Company N located in Tamil Nadu.
The product was sold for INR 1 500 to Company P and profit was added.
Boundary Tax Rate to be imposed as 12.5%. The State Added Value Tax rate in Maharashtra shall be assumed as 12.5%.
Item
Tax Rate
(％)
Amount
(INR)
Remarks
1.
Purchase amount from Company N
―
1 000.0
2.
Support partial payment CST = 1 × Tax Rate
2.0
20.0
Additional Cost
3.
Total payment to the Company N (1 + 2)
―
1 020.0
4.
Payment 3× Tax Rate of Boundary Tax
12.5
127.5
Credit
5.
Sales amount to the Company P
―
1 500.0
6.
State VAT = 5 × Tax Rate
12.5
187.5
7.
Receipt Total from Company P (5 + 6)
―
1 687.5
8.
Company O's Tax Amount (6-4)
―
60.0
Explanation
One can pay State VAT of INR 187.5 from Tamil Nadu and an Entrance Boundary Tax of INR 127.5 as goods were sold in the State of Maharashtra to receive credit. Therefore, Entrance Boundary Tax will not be a cost for Company O.
However, INR 20 is to be paid as CST since purchases from Tamil Nadu cannot be deducted from State VAT when sold in Maharashtra and hence it becomes a cost for Company O.
Therefore, tax payment amount of the Company O in above mentioned transaction results in (INR 187.5 – INR 127.5) INR 60. The payment of CST as INR 20 cannot be deducted. Hence the profit amount calculated is INR 480 (INR 1 500- INR 1000 – INR 20).
■ Goods Market Tax (Octroi)
■ Summary
Octroi is a tax levied on various goods brought into a district for consumption or sale in a specific area of a self governing body in Maharashtra. On March 2012, it was imposed only in the state of Maharashtra. As of now, Octroi has become an important source of income for the state.
It’s a three layer system that in India - Central government, State government and a self-governing community. In Central government the source of revenue source is wide including taxes such as State Value Added Tax in addition to the revenue changed/transferred. However, financial resources of local governments are vulnerable but had there been no Octroi, there would be almost be no financial resources.
■Features of Octroi
Octroi generally has the following features:
・Octroi is not charged in case the movable goods only pass through the municipality
・Octroi unlike Entrance Boundary Tax cannot be deducted from the States VAT (output VAT). It is necessary to recognize it as an additional cost in the company.
・Valuation of Octroi includes product price, weight, volume, length; which is different from standards of local governments.
■Payment of Octroi
As for the tax obligation person of octroi, the enterprise which carries the goods means that the last buyer of the particular goods substantially bears the cost. Payment method, offers the necessary document of the invoice and form. The driver who carries the goods in an area where Octroi is levied, he pays tax through cash. Furthermore, there is also a method of demand draft or of registering the account for octroi adjustment in advance in addition to the cash collection.
As a point of caution, as for octroi, every time when goods move outside the range of octroi area, 90% of octroi is returned. Also there is a professional handler to carry out such a procedure.
Case Study
Company R purchased products worth INR 1 000 for the purpose of selling in Mumbai (Bombay), Maharashtra City from Company Q located in Tamil Nadu.
The products were sold for INR 1 500 against Company S located in the same city Mumbai inclusive of a profit on this product.
The product is subject to Entrance Boundary Tax of 12.5%, Octroi of 3% in Mumbai City, a State Value-Added tax rate in Maharashtra shall be assumed to be 12.5%.
Item
Tax Rate
(％)
Amount
(INR)
Remarks
1.
Purchase amount Company Q
―
1 000.0
2.
CST = 1 × Tax rate
2.0
20.0
Additional Cost
3.
Total payment to the Company Q (1+2)
―
1 020.0
4.
Entrance Border Tax payments (3 × Tax Rate)
12.5
127.5
Credit
5.
Payment of octroi (3 × tax rate)
3.0
30.6
Additional Cost
6.
Sales amount Company S
―
1 500.0
7.
State VAT = 5 × tax rate
12.5
187.5
8.
Total Receipt from S Corporation（5+6）
―
1 687.5
9.
Company R’s Tax Amount（7-4）
―
60.0
Commentary
CST of INR 20 is paid when products are purchased from Tamil Nadu. It cannot be deducted from the State VAT when sold in Maharashtra. It will be a cost for Company R.
State of Tamil Nadu would receive a State VAT of INR 127.5 when product was sold in Maharashtra. INR 187.5 is paid as tax. Therefore in such a case, an Entrance Boundary Tax doesn't become with the cost for Company R.
Also, because such products are transported for the purpose of selling in the city of Mumbai, Octroi of INR 30.6 shall be taxed. However, Octroi is unable to offset the State VAT, and so Company R must recognize it as an additional cost.
Therefore, tax payments of Company R in the above transaction are received as State VAT will be INR 187.5 (INR 60 - Entrance Boundary Tax of INR 127.5). Payment CST and Octroi becomes an obligation for Company R. Profit in the transaction shall be INR 449.4 (1 500-1 000 - 20 - 30.6).
■Local Body Tax
Also, the state of Maharashtra being a major port, Octroi has been abolished and Local Body Tax (LBT) is being considered,
Octroi which was applied in a limited area of Mumbai was likely to be abolished by end of December 2013. Local Body Tax was introduced to a wide area in the state of Maharashtra including Kolhapur, Nasik, Aurangabad and Vasai etc. Local Body Tax came into effect on an experimental basis from April 1, 2013. Bringing the new tax system into effect in other places of Maharashtra was also considered a possibility from October 1 onwards.
Octroi is charged when a bill and necessary documents are submitted to the concerned officer for goods being carried. Since a lot of time according to the procedure, traffic congestion was noticed. Prithviraj Chavan, Maharashtra Governor introduced LBT claims to improve flow of transport. However, real intention of collection of Octroi has not been thorough and, because there was a statement to eliminate Octroi by government before introduction of VAT a few years ago. This will eventually lead to a sharp decrease of tax revenue to eliminate Octroi. In fact, in Pune in tax year 2012-13, tax revenue earned included about 70% of all revenue generated from Octroi registration. Therefore, in each city, including the state government there is speculation to ensure the tax revenue to be set as LBT instead of the elimination of Octroi. Distributors and carriers affected held the protest.
On the other hand, after the LBT introduction, tax such as Octroi is abolished. A list is created of LBT registered distributors who are supposed to make payments within 40 days in case the sales of a company is more than INR 5 000 a year. In case a distributor fails to get itself registered until April 30 (deadline) in Pune, it might have to pay five times of the taxable amount.
■ Tax Column
■Goods ＆ Service Tax
Indirect Tax Simplification
It is an indirect tax, and the Indian government integrates state VAT to become and the source of revenue of the central government and indirect taxes except the duty such as commodity tax / service tax / center sale tax (CST), case boundary tax, Octroi that it is with the source of revenue of the state by after April, 2012 and aims at Goods Service Tax.
Dual GST was introduced by the central government and the provincial government with an intention to increase tax revenue by taxable expansion. Originally, in addition to centralize the binary structure of state government and the central government in indirect taxes to the central government, tax revenue was allocated to the province, with the international competitiveness to correct the current distorted tax system, and a lower effective tax rate.
GST – Introduction
Chidambaram, Finance Minister on August 1, 2007 while addressing in a lecture at the University of Hyderabad mentioned that in order to realize the substantial revenue by expanding the reduction of indirect taxes and subject to a wide range and opposing sides, GST transition is essential. He also stressed that the unification tax is needed for efficient tax revenue allocation of the Central Government and State Governments amidst international competitiveness.
Including GST, growth rate in fiscal year 2005 was 9.5%, in 2006 it was 9.7% and in 2007 it was 9.0%. The growth has been steady in India and it continues to grow. In 2008, even under global recession the growth was recorded as 6.7%. The government keeps the taxation system neutral and sound for sustainable economic growth.
In addition, in the current tax system that separates the goods and services, because it has become a labor and cost burden on the general enterprise, it involves a complicated sorting work with distinction between goods and services.
Correction of current distorted tax system
Elimination of current tax system
Central Sales Tax on sales outside the state introduced by central government initially as 1%, and has been implemented as 4% at the request of the state government in order to increase tax revenue.
In addition, 2007 onwards 1% as reduced taxes have been abolished. The expected reduced rate was 2% at the time of Budget announcement in 2009. As per 2012 Budget, the reduced taxes are 2%.
Public consumers out of a state would bear CST as it was reflected as last selling price. A problem was pointed out as a phenomenon that the source of revenue of the state where production activity was prosperous was affected due to tax burden of the purchasing power of the State.
In addition, it is also pointed out that there was tax revenue gap between the industry-developed advanced states and subsequent states.
It is believed that GST is required as a new source of revenue associated with these viewpoints towards the abolition of Central Sales Tax.
VAT and to eliminate the complex burden of excise tax
In India VAT12.5% and the central government which depend on the sale inside the state assign at point in time of shipment and when commodity tax 12.36% and the like is adjusted, effective tariff 24.86%, have become than 20% of international level the tax liability which such as Germany and France is higher. This is when high tax liability raises international competitiveness. Indian PHD Chamber of Commerce and Industry charge GST as 15.17% and considers it desirable.
In addition, for existing VAT which is the arbitrary power matter of the state government, it is an advantage that one can access an end retail trade by GST.
Tax Revenue expansion of the services sector by integrating
New budget for 2012, the service tax rate was raised to 12%. This hike is considered a motion for GST implementation.
Commission experts should seek tax revenues of 12.36% as equilibrium of the excise duty with invoice. In addition, there is also demand of the state government which is expected to enlarge revenue source as state government. It is said that these important matters are satisfied by the new tariff setting with GST.
Tax rate of GST is between 15-20%.
Uncertainty in the GST tax revenue allocation of central government and provincial government
On the other hand, there is the problem that you should get over in GST introduction.
First, it is a question tax revenue allocation ratio between the central government and the provincial government. There is a tax revenue differential due to the state, from this viewpoint, state level (SGST) there is also a voice which desires the dual conversion of GST with central level (CGST) combined use, but then it becomes something which opposes to GST introduction.
By the corresponding states side, which aims to current tax revenues, if the SGST has been introduced at the same time, as well as the current VAT, there is a possibility that an error occurs in the states of regulations. Thus, with respect to transactions involving the interstate between sales and state move the calculation of tax along the new regulations shall be done again.
Second, is the reorganization of administrative organization corresponding to the introduction of the GST. Sales tax authorities and state government and central government is said to have the initiative of restructuring from human resources and expertise point of view.
To prevent the confusion of the administrative organization by the introduction of GST, the introduction of new IT technology is examined as well as the appointment of the expert is attached.
GST Introduction
Introduction time of GST, it had been described above that in April 2012 or later, according to state officials, substantial introduction period is considered to be 2013.
The reason is the resolution and settlement problems to matters described above, because it is expected to take a considerable time. Centralized GST is virtually impossible considering 28 states, 6 jurisdictions and a variety of administrative structures in Delhi.
In any case, as per guidelines of April 2012, introduction is to be done in stages. In other words, there is a possibility of frequent announcements of revision in tax system. Hence efforts are made to collect new information and flexible restructuring of the internal management system.
However GST was introduced at the time of Finance Minister Arun Jaitley. It was announced in Budget of 2014-2015. Open the study sessions and exchange opinions with state governments through 2014 and 2015, tax collection rights and guarantees, is planned to be discussed in the legislation.
■High Sea Sales
Recognized trade practices on High Sea Sales and transactions in trading are widely used around the world, although a few practical problems are pointed out. As High Sea Sales it is utilized as the method dealership such as trading company transacting with the customer and the sea.
Flow of transactions is as follows:
- Domestic sales company A (below A) ordered the country shipment main B (below B)
- B Ships articles to A
- After the shipping it concludes A and domestic last customer C (below C) with High Sea Sales Agreement
- Person when entering port with C, completes the transaction regarding the particular commodity
Problem is the selling price for goods shipped. Criterion for setting the price fits in the above case and other 2 cases as follows.
1. Selling price for A
2. Selling price for C
BOE delivered to the importer, if the selling price set above is source C: （Bill of Entry） purchase value for the A would disclose the margin against the C.
In addition, when description above 2 is selected, like 1 it does not become to disclose margin, but with the case where overseas remittance at below, or above the price of BOE is not recognized depending upon the country, there are times when the remittance for B is difficult.
In this way, as a commercial distribution scheme sales company can be profitable, High Sea Sales might not substantially function in such a case.
However, there is also tax benefits, have also been widely used.
As a merit with respect to tax business, HSS is transaction with the public sea. One can list the fact that it becomes a transaction (contract) outside the range of the Indian taxation rights. In other words, if entered into a High Sea Sales Agreement, whether or not service tax is imposed, the payment becomes an obligation for importer.
Ownership of the products will be moved to final customers prior to HSS trade contractors and also cargo of Countervailing Duty (CVD) and special Additional Customs Duties (ADC) credits are transferred to the final customer.
Overview of Commission Sales Activities
Flow of trading of sales activities by commission is as follows:
- Domestic dealership A (below A), sales promotion activity is done in the country national going out shipper B (below B) as represented
- Domestic final customer C (below C) performs negotiations with A, and place an order of products to B
- Product is transported from the C to B. C carries out the payment for B based on the invoice
- A completes the transaction and then claims the commission in accordance with the transaction value for the B
Commission sales activities recorded by the selling company without disclosing margin of sales company as High Sea Sales to the end customer
Thus, in many sales companies that are located overseas, sales activities are based on commission.
“Similarities and Differences: A Comparison of IFRS, US GAAP and Indian GAAP “(2009), PricewaterhouseCoopers,
http://www.pwc.com/in/en/publications/Similarities-and-Differences-GAAP-2009.jhtml
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