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Taxes by Union Government

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Taxes by Union Government

The taxes levied by union government are categorized under direct and indirect taxes. These taxes are levied as per the rules of the Indian constitution. They are-

Direct taxes:

  • Corporate Income Tax- Taxes levied on the worldwide income of both domestic and non-resident Companies residents from all sources are in accordance with the provisions of the Income Tax Act.

    Domestic corporations are taxed at a basic rate of 35% with a surcharge of 2.5%. Foreign corporations have a basic tax rate of 40% and a surcharge of 2.5%. An education cess on is also charged on the payable tax at the rate of 2%. If the net wealth exceeds Rs.1.5 mn corporates have to pay wealth tax at the rate of 1%. In addition Domestic corporations also pay dividend distribution tax at the rate of 12.5%.

    Corporations also have to pay for Minimum Alternative Tax at 7.5% (plus surcharge and education cess) of book profit as tax, if the tax payable as per regular tax provisions is less than 7.5% of its book profits.

  • Personal Income Tax- Personal income tax is administered by Central Board of Direct taxes under Ministry of Finance in accordance with the provisions of the Income Tax Act. The rates for personal income tax are as follows:-

  • Income tax rates for ordinary individuals are:

 Annual Income Income Tax rates for FY 2008-09
 
Up to 150000
  Nil
 150000 – 300000
 10%
 300000 – 500000  20%
500000 and above 30%

  • Income tax rates for female citizens are:

 Annual Income Income Tax rates for FY 2008-09
 
Up to 180000
  Nil
 180000 – 300000
 10%
 300000 – 500000  20%
500000 and above 30%

  • Income tax rates for Senior Citizens are:
   
 Annual Income Income Tax rates for FY 2008-09
 
Up to 2250000
  Nil
 2250000 – 300000
 10%
 300000 – 500000  20%
500000 and above 30%

Note:
A surcharge of 10% of the total tax liability is applicable where the total income exceeds Rs. 1,000,000.

  • Capital Gains Tax- Capital Gains Tax is payable on monetary gains on sale of assets. Long-term Capital Gains Tax is charged at a basic rate of 20% if capital assets are held for more than three years and if the shares, securities listed on a recognized stock exchange in India, units of specified mutual funds are held for one year.

    Short-term capital gains on the transfer of equity shares or units of mutual funds are taxed at a rate of 10%. Long-term and short-term capital losses can be carried forward for eight consecutive years. Long-term capital losses may countervail against taxable long-term capital gains and short-term capital losses may counterbalance both long term and short-term taxable capital gains.

Indirect taxes

  • Central Excise duty- Excise Duty is attracted on every manufactured goods in India under the Central Excise act 1944 and the Central Excise Tariff Act 1985. Manufacturing is bringing a new article into existence having a distinct name, character, use and marketability including packing, labeling etc.

    Basic excise duty is taxed at the rate of 16% whereas some products attract special excise duty or an additional duty of excise at the rate of 8% above the 16% excise duty. 2% education cess is also implied on the aggregate of the duties of excise. Excise duty is levied on the maximum retail price a product.

  • Service Tax- Service tax is charged at the rate of 10% (plus 2% education cess) on the services provided in India by specified service providers. Taxable services rendered in India are exempted from Service Tax if the payment for such services is received in convertible foreign exchange in India and the same is not deported outside India.

  • Customs duties- The levy and the rate of customs duty in India are governed by the Customs Act 1962 and the Customs Tariff Act 1975. Imported goods in India attract three types of taxes- basic customs duty, additional customs duty and education cess. The rate of basic customs duty has been reduced to 15% for industrial goods. Additional customs duty is equivalent to the excise duty and is paid on goods manufactured in India. Education cess at 2% is leviable on the aggregate of customs duty on imported goods. Customs duty is calculated on the transaction value of the goods.

    Customs duties in India are administrated by Central Board of Excise and Customs under Ministry of Finance.

  • Securities Transaction Tax- Securities Transaction Tax is levied on the transactions in equity shares, derivatives and units of equity-oriented funds entered in a recognized stock exchange at the following rate:-
    - Delivery base transactions in equity shares or buyer and seller
    - Each units of an equity-oriented fund - 0.075%
    - Sale of units of an equity-oriented fund to the seller mutual fund - 0.15%
    - Non delivery base transactions in the above - 0.015%
    - Derivatives (futures and options) seller - 0.01%
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