Theme: Income Tax

Form 16/16A for TDS Certificate is the certificate of deduction of tax at source.(( Section 203, Income Tax Act, 1961.)) This means that tax is collected from the very source of income of the person receiving it. It is issued by the employer on behalf of the employee to state that tax has been deducted. These certificates provide details of TDS/TCS for various transactions between deductor and deductee. These details include the particulars of income paid to the employee and the tax deducted from it. It will also mention whether the same has been paid to the government.

Form 26AS(( Rule 31 AB, Income Tax Rules, 1962.)) is a consolidated tax deduction statement, which keeps an annual record of any tax paid by you or on your behalf by a deductor, like a bank or an employer. It also details the following information about your tax profile:

• Names of your tax deductors and the Tax Deduction Account Number (TAN) associated with them
• Tax refunds, if any, received in the particular financial year
• If you have sold immovable property in the financial year, details of the TDS deducted by the purchaser
• TDS deducted by the tenant on the payment of rent exceeding INR 50,000 (if applicable)
• Details of all high-value transactions (reported by the banking and financial institutions that they are conducted through)

Direct Tax

Direct tax is a tax you pay on your income directly to the government. Direct Taxes are broadly classified as:

Income Tax: Income tax is a tax levied by the Government of India on the income of every person.

Corporate Tax: Tax paid by companies on the profits made from the business is known as corporate tax.

Indirect Taxes (Goods and Services Tax)

Indirect tax is a tax levied on goods and services that is paid to the government. For instance, restaurants recover taxes from you on the food you purchase or a service you avail and pay this to the government. Most indirect taxes have been replaced in India by the Goods and services tax (GST), which has recently been introduced as a unified tax that has replaced all the indirect taxes that business owners have to deal with.

Some indirect taxes apart from GST which are still collected include taxes on petroleum products, alcoholic drinks and electricity are separately collected by each state government.

You are considered to be a resident in India, under the law in the following conditions:

• Residence in India for a period amounting to 182 days or more in total.
• You have been in India for 365 days or more in any of the four years preceding the year of assessment, plus is living in India for 60 or more days in the current financial year.
• Similarly, every person is a resident of India with regard to the previous year, unless the management of his affairs is situated completely out of India.
• A person will be deemed ‘not ordinarily resident’ in India if he has not been residing in India for 9 out of 10 years preceding the year of assessment.

A HUF (Hindu Undivided Family), firm or association is said to be resident in India, unless its management is situated completely out of India for the year of assessment. In case of a Hindu Undivided Family, you are a resident if:

• the manager of the HUF has not been residing in India for 9 out of 10 years before the year of assessment, or
• In the preceding 7 years, the manager has been living in India for 729 days or less.

The Permanent Account  Number or PAN Card is issued by the Income Tax Department, to all those who are eligible to pay taxes in India.  It is used by the department to keep a tab on the financial transactions conducted by taxpayers in order to verify information regarding your tax profile.

If you have to file taxes in India, having a PAN Card is mandatory. A PAN card may also necessary for entering into certain specific financial transactions. These include:

• Payment in cash to a hotel or restaurant against a bill/bills at any one time exceeding fifty thousand rupees.
• Payment in cash in connection with travel to any foreign country or payment for the purchase of any foreign currency at any one time exceeding fifty thousand rupees.
• Sale or purchase of any immovable property exceeding ten lakh rupees.
• Sale or purchase of goods or services of any nature exceeding two lakh rupees per transaction.

Read here for more information on PAN Card while filing taxes.

You have a duty to pay tax under the Constitution in India.(( Article 265, Constitution of India, 1950.)) Payment of tax is compulsory and penalty will be levied on any taxpayer who deliberately violates the provisions of a tax law.(( Central Excise, Puducherry v. M/s Pondicherry Paper Limited (1984) ))

The Constitution declares that ‘ no tax shall be levied or collected except by authority of law’. Taxes that are legally imposed by the Central and State Governments in India have been enumerated in Schedule VII of the Constitution. The Parliament of India has also been empowered(( Article 248(2), Constitution of India, 1950.)) to enact laws imposing taxes which have not been listed. For instance, taxes which may be required in the future.

There are two types of taxes collected in India:

• Direct taxes: tax on income, wealth, corporates, capital gains.
• Indirect taxes: taxes that are levied on goods and services

Out of these, State Governments are empowered to collect some of the indirect taxes. They include:

• Tax on agricultural income(( Schedule VII, entry 46 under State List, Constitution))
• Tax on lands and buildings(( Schedule VII, entry 47 under State List, Constitution))
• Professional tax(( Schedule VII, entry 60 under State List, Constitution))
• State excise duty
• Tax on electricity(( Schedule VII, entry 53 under State List, Constitution))
• Excise duty on alcohol(( Schedule VII, entry 51 under State List, Constitution))
• Toll tax(( Schedule VII, entry 69 under State List, Constitution))

In 2017, the Goods and Services Tax (GST) was introduced which subsumed several indirect taxes under it, including:

• VAT or value added tax
• Sales Tax
• Entertainment Tax
• Octroi
• Purchase Tax
• Service Tax

Since these taxes accrued to the State Government, the new structure introduced the SGST (State GST) category to compensate for their share. The SGST is levied by the State Government on intrastate supply of goods and services.

A firm(( Section 2(23)(i), Income Tax Act, 1961.)) refers to persons who have entered into partnership with one another. The persons are called individually “partners” and collectively “a firm”, and the name under which their business is carried on is called the “firm name”.

Keyman Insurance Policy(( http://www.licindiaagent.com/keyman-insurance-from-lic.php)) is a type of life insurance policy for a ‘keyman’ or a valuable employee. The objective of this policy is to safeguard the company in case of untimely death of an important employee. Since employees are assets for a company, Keyman Insurance Policy helps the business recover after the loss of a valued asset.  Its salient features are:

• During the lifetime of such an employee, the premium on a Keyman Insurance Policy is paid by the employer.
• In case the employee dies untimely, the employer becomes the claimant of the insurance benefits.
• To qualify as a ‘keyman’, the employee should hold less than 51% shares in the company

The premium that the employer pays in this life insurance is treated as ‘business expenditure’ for taxation purposes; the proceeds of the policy are therefore taxable as business income.

No Indian law gives a concrete definition of the term ‘Hindu Undivided Family’. For the purpose of Hindu Law, HUF is an entity identified by the following features:

• Members of the HUF must be ‘Hindu’ as defined under Hindu Law, which includes Sikhs, Jains, and Buddhists along with Hindus.
• Members should form a family, i.e. they should be related to each other through blood or marriage. Therefore, an HUF cannot be contractually created.
• The family should be ‘undivided’, i.e. it should be a joint Hindu family where partition has not been affected.  

For the purpose of taxation, a HUF is considered a ‘person’ under the Income Tax Act.(( Section 2(31), Income Tax Act, 1961.)) This means that an HUF’s tax liabilities are computed separately from those of its individual members. An HUF’s taxable property consists of:

• Ancestral property
• Property acquired with the aid of ancestral property
• Property transferred by members of HUF