Professional Documents
Culture Documents
Hussain Direct Tax Project
Hussain Direct Tax Project
ON
DIRECT TAXATION
SUBMITTED:
By Anjali Mishra
in partial fulfillment for the award of the degree
of
MASTER OF COMMERCE PART II
Under The Guidance Of
Prof. Mahesh vaishya
BUNTS SANGHAS
S.M.SHETTY COLLEGE OF SCIENCE, COMMERCE AND
MANAGEMENT STUDIES
UNIVERSITY OF MUMBAI
OCTOBER 2015
Telephone:(91-22)61327321
Telefax:(91-22) 61327304
EVALUATION CERTIFICATE
This is to certify that the undersigned have assessed and evaluated the project on
DIRECT TAXATION, submitted by Anjali Mishra student of M Com part II.
This project is original to the best of our Knowledge and has been accepted for
internal assessment.
Internal Examiner
Prof. Mahesh vaishya
External Examiner
Principal
Dr. sridhara shetty
Telephone:(91-22)61327321
Telefax:(91-22) 61327304
Signature
(Anjali Mishra)
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ACKNOWLEDGMENT
Through this acknowledgment express my sincere gratitude to all those people who
have been associated with this assignment and have helped me to make it a
worthwhile experience.
Firstly I extend my thanks to the principal of the college Dr. sridhara shetty , and
vice principle Dr. Liji Santosh, who have given me the chance to prove myself,
shared their opinion through which I received the required crucial informations for
my report.
Also I express my sincere thanks to my prof. Mahesh vaishya, who give these
opportunity to learn the subject in practical approach and provided me the valuable
guidance in preparing the project report.
Anjali Mishra
TABLE OF CONTENT
SR NO
TOP I C
PAG E N O
1
2
3
RESEARCH METHOD
HI S TORY O F TAX ATI O N
P H A SE S
06
07
07-16
1 9 6 1 TO 1 9 7 5
1 9 7 6 TO 1 9 9 0
1 9 9 1 TO 2 0 0 5
4
2 0 0 6 TO 2 0 1 5
HEADS OF INCOME
17-26
H e a d s o f I n c o me : S a l a r y
Heads of Income: House Property
H e a d s o f I n c o me : P r o f i t i n B u s i n e s s /
Pr o f e s s i o n
Heads of Income: Capital Gains
5
H e a d s o f I n c o me : O t h e r S o ur c e s
I N C O M E TAX D E D U C T I O N
26-27
T Y P E S O F DI R E C T TAX E S
28-30
C O N C L U SI O N
31
BIBLIOGRAPHY
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HISTORY OF TAXATION
It is a matter of general belief that taxes on income and wealth are of recent origin but there is
enough evidence to show that taxes on income in some form or the other were levied even in
primitive and ancient communities. The origin of the word "Tax" is from "Taxation" which
means an estimate. These were levied either on the sale and purchase of merchandise or livestock
and were collected in a haphazard manner from time to time. Nearly 2000 years ago, there went
out a decree from Ceaser Augustus that the entire world should be taxed. In Greece, Germany
and Roman Empires, taxes were also levied sometime on the basis of turnover and sometimes on
occupations. For many centuries, revenue from taxes went to the Monarch. In Northern England,
taxes were levied on land and on moveable property such as the Saladin title in 1188. Later on,
these were supplemented by introduction of poll taxes, and indirect taxes known as "Ancient
Customs" which were duties on wool, leather and hides. These levies and taxes in various forms
and on various COMMODITIES and professions were imposed to meet the needs of the
Governments to meet their military and civil expenditure and not only to ensure safety to the
subjects but also to meet the common needs of the citizens like maintenance of roads,
administration of justice and such other functions of the State.
I.
Act, 1963.
For the first time an officer from the department became Chairman of the CBDT w.e.f. 1-
1-1964.
The Companies (Profits) Sur -tax Act, 1964 was introduced.
Annuity Deposit Scheme, 1964 introduced.
Voluntary Disclosure Scheme came into operation.
Functional Scheme introduced
7
(Investigation).
Valuation Cell came into existence in the Income tax Department.
Valuation Cell came into existence in the Income tax Department.
Administrative Reforms Commission set up.
Direct Recruitment to Class II Income-tax Officers made.
The post of IAC (Audit) created in the Income-tax Department.
The posts of Addl. Commissioner of Income-tax created and abolished after one year.
Recovery functions which were hitherto performed by Income- tax Officers, given to Tax
Recovery Officers. Prior to that State Government officials exercised the functions of a
Act, 1957.
Compulsory Deposit Scheme (Income-tax Payers) Act, 1974 introduced.
Action Plan for the Income-tax Officers introduced for the first time.
Concept of M.B.O introduced.
Voluntary Disclosure Scheme for Income and Wealth implemented.
Special Cell for dealing with Smugglers' cases created.
II.
Hotel Receipt Tax Act, 1980 came into force w.e.f. 1.4.1981.
Economic Administrative Reforms Commission set up.
Three new Directorates viz. Directorate of Inspection (Intelligence), Directorate
of Inspection (Survey) and Directorate of Inspection (Systems) created.
Within the Directorate of Inspection (Income Tax and Audit), a separate Director
of Inspection (Audit) appointed.
Regional Training Institute at Nagpur started functioning under the control of the
National Academy of Direct Taxes.
The vigilance set up reorganised and the strength of Dy. Director (Vigilance) and
Asstt. Director (Vigilance) augmented.
Computerised systems for processing challans and PAN designed and developed.
10
Post of Director General (Investigation) created for more effective checking of tax
evasion.
Compulsory Deposit Scheme (Income Tax Payers) Act 1974 discontinued w.e.f.
1.4.1985.
The I.T. Act and W.T. Act amended by Taxation Laws (Amendment and
Miscellaneous Provisions) Act :-
L.K. Jha Committee set up for simplification and rationalisation of tax laws.
11
The Direct Tax Law(Amendment) Act 1987 introduced uniform previous year and
redesignated the following authorities
Director of Inspection
Expenditure Tax Act 1987 brought into force.
Benami Transactions Prohibition Act 1988 introduced.
The Government announced a "Time Window Scheme" which allowed tax payers 50%
rebate of interest u/s 220(2) if they pay the tax and balance interest. The scheme was in
(Investigation).
Government decided that cadre control for Group 'C' and 'D' posts would be with Chief
III.
cities.
Presumptive tax scheme discontinued.
Voluntary Disclosure Scheme 1997 introduced.
Minimum Alternate Tax introduced.
National Computer Centre (NCC) was set up in Delhi.
Sec. 260A introduced enabling direct appeals to High Court.
1/6 Scheme & penalty for non-filing of return introduced to widen tax base.
Gift-tax abolished for gifts made after 1.10.1998.
Kar Vivad Samadhan Scheme 1998 introduced.
Silver Jubilee of Regional Training Institutes celebrated.
Designation of Asstt. Commissioner (Senior Time Scale) changed to Dy. Commissioner
intimations.
Samman Scheme introduced in 1999 to honour deserving tax payers.
The process of implementation of restructuring of the Department commenced to
Awards.
As a measure of widening of tax base, the concept of AIR (Annual Information Return)
was introduced.
Fringe Benefit Tax (FBT) was introduced as a major step towards widening of tax base
IV.
A project for enabling electronic filing (e-filing) of Income Tax Returns was launched.
Tax Return Preparer Scheme (TRPS) was launched to assist individuals and HUF
in 2007-08, with its share increasing from 34.76%in 1997-98 to 52.75%in 2007-08.
All India Tax Network (TAXNET) was setup connecting more than 700 offices in more
than 500 cities. Consolidation of 36 (RCC) independent regional databases into a single
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Centralized Processing Centre was setup in Bengaluru for bulk processing of e-filed and
paper returns. The Centre operates without any interface with taxpayers in a jurisdiction
free manner.
Integrated Tax Payer Data Management System (ITDMS) was conferred the Prime
engineering' under the National e-Governance Awards for the year 2010-2011.
To simplify the 50 years old Income-tax Act, 1961,'The Direct Taxes Code Bill, 2010'
to TDS operations.
TRACES (TDS Reconciliation, Accounting and Correction Enabling System) launched to
serve an integrated one-stop platform for the stakeholders to facilitate the services related
to TDS operations.
15
f. Bifurcation of the posts of the CITs in the HAG and SAG scales, on
functional basis;
HEADS OF INCOME:
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Under chapter 4 of Income Tax Act, 1961 (Section 14), income of a person is calculated under
various defined heads of income. The total income is first assessed under heads of income and
then it is charged for Income Tax as under rules of Income Tax Act. According to Section 14 of
Income Tax Act, 1961 there are following heads of income under which total income of a person
is calculated:
When due from the former employer or present employer in the previous year, whether
paid or not
When arrears of salary is paid in the previous year by or on behalf of a former employer
or present employer, if not charged to tax in the period to which it relates.
Under section 17 of the Income Tax Act, 1961 there are following incomes which comes under
head of salary:
Wages
Fees
Commissions
Pensions
Annuity
Perquisite
Gratuity
Annual Bonus
Leave Encashment
Allowance
Awards
What is Leave Encashment?
Leave encashment is the salary received by an individual for leave period. It is a chargeable
income whether he is a government employee or not. Under section 10(10AA)(i) there is also a
provision of exemption in case of leave encashment depending upon whether he is a government
employee or other employees.
What is Annuity?
It is an annual income received by the employee from his employer. It may be paid by the
employer as voluntarily or on account of contractual agreement. It is not taxable until the right to
receive the same arises. Under section 56, Income Tax Act, 1961 other annuities come under a
will or granted by a life insurance company or accruing as a result of contract which comes as
income under from other sources.
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What is Gratuity?
It is salary received by an individual paid by the employee at the time of his retirement or by his
legal heir in the case of death of the employee.
What is Allowance?
It is the amount received by an individual paid by his/her employer in addition to salary. Under
section 15 of the Income Tax Act, 1961 these allowance are taxable excluding few conditions
where they are entitled of deduction/ exemptions.
50% of the salary if house is placed at Delhi, Mumbai, Kolkata, Chennai or 40% of the
salary in it is placed in any other city
Entertainment Allowance:
It is the amount paid by employer for availing entertainment services. Under section 16(ii) of
Income Tax Act, 1961 it is entitled to deduction in tax from is salary. But in this case deduction is
given to his gross salary which also includes entertainment allowance. Deduction in tax against
this allowance can be divided into two parts :
In case of Government employee entitled to minimum deduction of
Rs. 7500
What is Perquisite?
Under section 17(2) of Income Tax Act, 1961 perquisite is defined as:
Amount paid for the rent-free accommodation provided to the assessee by his
employer
Any concession in the matter of rent respecting any accommodation provided to the
assessee by his employer
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Any benefit or amenity granted or provided free of cost or at concessional rate in any of
the following cases:
1. . By a company to an employee, who is a director thereof
2. By a company to an employee being a person who has a substantial interest in the
company
3. By any employer to an employee whose income under the head 'Salaries' exceeds
Rs.24000 excluding the value of non-monetary benefits or amenities
4. Any sum paid by the employer in respect of any obligation which, but for such
payment, would have been payable by the assessee
5. Any sum payable by the employer whether directly or through a fund, other than a
recognised provident fund or EPF, to effect an assurance on the life of the assessee or to
effect a contract for an annuity
There are following perquisites which are tax free:
Medical facility
Medical reimbursement
Refreshments
Telephone Bills
Transportation
Training
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Annual value of a house is zero if property is in the occupation of the owner for his
residence for the whole year & if no other benefit is availed by owner from his property. There
will be no deductions as given under section 24 except deduction interest on borrowed capital
If the owner lets out the house or a part thereof for any period of time during the previous
year the annual value of the property or part has to be calculated for the whole year and the
proportionate annual value of the period for which the house or any part thereof was in the
occupation of the owner for his own residence shall be deducted from the gross annual value.
The assessee in such cases cannot claim deduction under section 24 in excess of the annual value
so determined
22
The assessee occupies more than one house for his residence, the above exemption is
applicable only to one such house at the option of the assessee. The annual value of the other
house or houses shall be computed as if the house or houses are let
In case where the assessee has only one residential house but it cannot be occupied by the
owner by reason of that owing to his employment, business or profession carried out on at any
other place, he has to reside at that other place in a building not belonging to him, the annual
value of such house shall be taken to be nil if the house is not actually let and no other benefit is
derived by the owner from such house. The assessee cannot claim any deduction in such case as
allowable under section 24 of the Act except for interest on borrowed capital subject to a
maximum of Rs. 15,000/Heads of Income: Profit in Business/ Profession
According to Income Tax Act, 1961 income under this head is defined as the income earned by
assessee as a profit or gain in his business or profession. Income under this head must follow
these conditions:
Business/ profession have been carried out by assessee in assessment year for which income
tax is filling
Profits and gains of assessee from any business or profession during assessment year
Any payment or compensation due or received by a person for his services to
Profits on sale of a license granted under the Imports (Control) Order, 1955, (EXIM
control Act, 1947)
Cash received or due by any person against exports under government schemes
24
Salary
25
House Property
Capital Gains
So under Section 56(2) of Income Tax Act,1962 all such income comes in this heads of income.
There are following incomes which are taxed under this heads
Income coming from winning in lottery, crossword puzzles, races, card games, gambling
or other such sports
Income coming as an amount received by assessee from his employer as aFUND for
welfare of employee
Income coming by letting on hire machinery, plant, furniture, building or other goods
Income coming from insurance policy
There are other deductions such as for donations, for repayment of loans taken for
educational purposes etc.
Up to Rs. 15,000/-
Rs.60,000 /-
27
28
Capital Gains Tax:Capital Gain tax as name suggests it is tax on gain in capital. If you sale property, shares, bonds
& precious material etc. and earn profit on it within predefined time frame you are supposed to
pay capital gain tax. The capital gain is the difference between the money received from selling
the asset and the price paid for it.
Capital gain tax is categorized into short-term gains and long-term gains. The Long-term Capital
Gains Tax is charged if the capital assets are kept for more than certain period 1 year in case of
share and 3 years in case of property. Short-term Capital Gains Tax is applicable if these assets
are held for less than the above-mentioned period.
Rate at which this tax is applied varies based on INVESTMENT class.
Example:29
If you purchase share at say 1000 Rs/- (per share) and after two months this price increased to
1200 Rs/-(per share) you decide to sale this STOCK and earn profit of 200 Rs/- per share. If you
do so you have to pay Short term CGT (capital gain tax) @ 10% +Education cess on profit as it
is short term capital gain. If you hold same share for 1 year or above it is considered as long term
capital gain and you need not to pay capital gain tax.it is considered as tax free.
Similarly if you purchase property after two year if you find that property price in which you
INVESTED has increased and you decide to sale it you need to pay short term capital gain tax.
For property it is considered as long term capital gain if you hold property for 3 years or above.
Securities Transaction Tax:A lot of people do not declare their profit and avoid paying capital gain tax, as government can
only tax those profits, which have been declared by people. To fight with this situation
Government has introduced STT (Securities Transaction Tax) which is applicable on every
transaction done at STOCK exchange. That means if you buy or sell equity shares, derivative
instruments, equity oriented Mutual Funds this tax is applicable.
This tax is added to the price of security during the transaction itself, hence you cannot avoid
(save) it. As this tax amount is very low people do not notice it much.
Current STT Rates are:-
Perquisite Tax:30
Earlier to Perquisite Tax we had tax called FBT (Fringe Benefit Tax) which was abolished in
2009, this tax is on benefit given by employer to employee. E.g If your company provides you
non-monetary benefits like car with driver, club membership, ESOP etc. All this benefit is
taxable under perquisite Tax.
In case of ESOP The employee will have to pay tax on the difference between the Fair
MARKET Value (FMV) of the shares on the date of exercise and the price paid by him/her.
Corporate Tax:Corporate Taxes are annual taxes payable on the income of a corporate operating in India. For
the purpose of taxation companies in India are broadly classified into domestic companies and
foreign companies.
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This case study helps to illustrate the differences between the two main areas of taxation, direct
taxes and indirect taxes. It illustrates how governments use both fiscal policy and monetary
policy in order to meet their objectives. Finally, the case looks at the processes for collecting
income taxes, both for the employed and the self-employed and how it communicates the tax
message.
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BIBLIOGRAPHY :
(1) http://businesscasestudies.co.uk/hmrc/how-hmrc-collects-tax-revenue-to-supportgovernment-policy/conclusion.html#axzz3phSjfBkG
(2) http://icmai.in/upload/Students/Syllabus-2008/StudyMaterial/AppDirTax6.pdf
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