13 Basic Tax Structure ‘After studying this chapter, you should be able to understand: > Define tax structure of India, > Explain different types of tax prevailing in India - Explain tax authorities of India, "Understand the income tax slabs rate, > Compare the old and new tax regime. offers a well-structured tax system for its population. Taxes are the largest source of income for vi “This money is deployed for various purposes and projects for the development of the BuCP bos x2 fia overnment collects money from the general public in the form of taxes which it uses for opt schemes and functioning of the economy. ‘The general public may comprise le industrialists and many other service providers. All these people pay ment would function eficientl. In our lifetime, you definitely tt arket, is inclusive of taxes that have "We bear taxes when we spend money and also when we earn money. Not many sir hard earned money for taxes. YOu must have often heard your elders s2y, 2” Payment of taxes is not only the duty of every citizen but an tence of our country as a prosperous, secure, stable and a just nation-state. paritanad to at qOS “©roviding many public services, like, jy, money ("Je and hospitals to the poor and underpe for funding developmental programmes and gi ial ne itis vital forall its clizens to pay taxes, Hoge fo be wise and smart so that al taxes that we lega oe paid ~ and not a rupee more. 13.2 Tox Structure of India ee India evel structure. The tax system in India is mainly a three-tier sy, ia has 2 el er amen State Governments and the local government’ organizations we Fee ccc uad municipalities The government cannot impose any tax unless itis passed at nou ea is dearly demarcated with specific roles for the central and state governmen, ‘The Central Government of India | levies taxes such as customs duty, income tax, service tax, and central excise duty. os 5 “The taxation system in India empowers the state governments to levy income tax on agricultural : : p land revenue and stamp du income, professional tax, value added tax (VAT), state excise duty, e stamp duty. The local bodies are allowed to collect octroi, property tax, and other taxes on various services like drainage and water supply. 13.3. Types of Taxes As said earlier we pay different types of taxes to the government, which can be classified as direct and indirect. Direct taxes are those that are imposed and paid by the tax payer directly to the government (like, taxes on income and wealth) Indirect taxes are those taxes that we pay indirectly to the government (like, taxes on commodities). An understanding of these taxes is necessary for us to be aware of the payments that wehavetomake ‘Taxes are classified under two categories namely direct and indirect taxes. ‘The largest diference between these taxes is their implementation. (i) Direct Taxesa Basic Tax Structure \\ 13.5 re the government recei ieeed en = return on the goods and services, the taxed parties are still required to ES also vary in rate, ‘wealth of individuals or corporations may be subject to taxes, which may ro Salaried workers m: ae a the marty of the nations Raa of tases cing hs havea substantial impact on the unt of taxes collected. The salaried class iy occa ae viggalteratives through income tax deduct is cantly lower their tax obligation using these i Beacon rau lei ie ha the “previous tax regime” Not all of them provide benefits to taxpayers. Most of these make the direct ee sre mace P t ct tax system aa complicated. The Ministry of Finance has elimingted over 70 a exemptions after careful consideration. The new tax system does not permit maximum deduction: ii) Indirect Taxes Indirect taxes are not directly pai Bee tal al by te asec othe government autores, Tes a lve on goods er a , dippaglahe rmec ies (those who sell goods or offer services). Here are the Ap) Natee-hdd eileen Thsgpleediby the ste came ad wag nc tmpoe yl states when lemented. Presently, all states levy such tax. Itis i yods sold in the state and the rate is decided by the state eeanea a | Mi i t and } (ii) Customs Duty: Imported goods brought into the country are charged with customs duty which ment | islevied by the Central Government. iment Gi) Octroi: ‘Goods that move from one state to another are liable to octroi ‘duty. This taxis levied by of the © the respective state governments. | Gi) Excise duty: All goods produced domestically ate charged with excise duty. Also known as rence Central Value Added Tax (CENVAT), this is paid by the manufacturers. (@) Service Tax: All services provided domestically are charged with service tax. The tax ispald by | all service providers unless specifically exempted. (vi) Goods and Service Tax (GS' a significant step towards the reform of indirect taxation in India, the Central Government has introduced the Goods and Service Tax (GST). GST is a comprehensive indirect tax on manufacture, sale and consumption of goods and services throughout India and will’ subsume many indirect taxes levied by the Central and State Governments. GST willbe implemented through Central GST (CGST), Integrated GST (iGsT) and State GST (SGST). Four laws (IGST, CGST, UTGST & GST (Compensation © the States), 5 ___Act)have received President assent, All the States & UT expected to pass State GST Act, by end [ ‘of May 2017. GST law is expected to take effect from July 1, 2017. gions 4 “Thas three Components: ~(@ CGST: Stands for Central Goods and Services Act. The central an intrastate supply of goods or services government collects this tax on6 || Financial Literacy ‘yax. The state government collects this axon state Goods and Service® (b)_ SGST: Stands for Stat i athe central government collet this, intrastate supply of goods or services sean (©) IGST: Stands for Int Goods and Services inter-state sale of goods oF Services: c Tax System In India Boru Pelt ace aad Sri een Cems eens pene Fig-1: Tax Structure In India 13.4 Revenue Authorities CBDT ‘The Cer i a aan ai peel urea ofthe Pate of Revenue under the Ministry of for administration of direct tax laws through the Heer Seeintods and is also responsible (BEC ‘The Central Board of Excise and Cust toms (CBEC) is also a part of the Department of Revenue under the Ministry of Finance. It is the nodal national detaad ere eat uite nodal national agency responsible for administering customs, central"ae ss Basic Tax Structure \\ 13.7 — Basle Tax Structure || 13.7 Gait tinder the GST regime, the CBEC has bee (cBIO) post legislative approval. The CBIC would supe voF 7 dg customs functions 6 in relation to GST, continuing central excise asic Definition Compulsory monetary contribution to the state’ revenue, the activities, enjoyment, expenditure, organisations. . rt : a nk ee Year” is “the period of twelve months starting from the first iy \p! Ty year. assessment year begins on Ist. April every year and ends on 31st March. of the following year. For example, the Assessment year 2018-19 means the period of one year beginning on 1* April 2017 and ending on 31* March 2018. In an assessment year, the income of assesses during the previous year is taxed at the rates prescribed by the relevant Finance Act. tis, therefore, also called the “Tax Year” + PREVIOUS YEAR- “Previous year” as “the financial year immediately preceding the assessment year’. Income earned in one financial year is taxed in the next financial year. The year in which income is earned is called the “previous year” and the year in which it is taxed is called the “assessment year” Common previous year forall sources of income: A person may earn income from more than one source but the previous year will always be typical for all the sources of income. This will be so even if a person maintains records or books of accounts separately for different sources of income. The total income of a person from all the sources of income will be taken together and considered in the previous year or the financial year immediately preceding the assessment year. + PERSON - These are seven categories of persons chargeable to tax under the Act. The aforesaid definition is inclusive and not exhaustive. Therefore, any person, not falling in the abovementioned seven categories, May still fall within the four corners ofthe term “person’ and accordingly may be liable to tax. + ASSESSEE: “Assessee” means a person by whom income tax or any other sum of money is payable under the Act, and it includes: Every person in respect of whom any proceeding under the Act has been taken for the assessment of his income ot loss or the amount of refund se ag A person who is assessable in respect of income of loss of another person or who is deemed to bean assessee or An Assessee in default under any provision of the Act. EET PRT assessed and imposed by a Government on Income, occupation, privilege, property, etc of individuals and Pre 13.5 Various Heads Under Income Tax Under Income Tax, 1961 the Tax is been Calculated into Five Categories under: Five Heads of Income Tax: t + Income from salaryBasie Tax Structure 13.9 Income from House Property ‘an ndividual’ income from his or her prop. property To putt simply, this head include eceive from your properties. erty or land is taxable under the he a ad of income from hi the policy for calculating the tax on rental income that you ‘Ifyou own more than one self-occupied house; then only one house is considered to be occupied, and the rest are considered to be rented out. The taxation occurs on income received from both commercial and residential property. fice from Profits and Gains from Business or Profession ‘The profits that you earn from any kind of business or profession are taxable under this head. You can subtract your expenses from the total income to determine the amount on which tax is chargeable. Here are the types of income that are chargeable under this head: + Profits generated from selling a certain license. + Gains earned by an individual during an assessment year, «The profits that an organisation makes on its income. « Cash received on the export of a government scheme. ~s ‘The benefits that a business receives. 2 . Gains, bonuses or salary tat an individual receives due toa parnerehip wih frm & S00, Income from Copitl Goins, a When you earn profits by transferring or selling an aset that 8 Capital Gain invest income is taxable the head of pee Den hh sons il capital assets. Now, you can gi d long-term13.10 || Financial Literacy of ths or more, they y When, 4 {ing them for a period of 36 mont! thea _henyousyor atl ta Anat YUL YHr pl a within e iad ons hea the tax deduction will be under short-term capital Lea the rate of 155, In ttn of securities, this is applicable if you sell your holdings within 12 months from the purchay, date. . Income from Other Sources One-time incomes such as winnings from lotteries, horse races, crossword puzzles, card games, gambling or betting of any form are categorised under Income from Other Sources. 13.6 Income Tax Slab s, HUE partnership firms, LLPs and Corporates Income taxis evied on the income earned by all individuals artnet as per the Income-tax Act of India. In the case of individuals, tax is levied as per the slab system if their income is above the minimum threshold limit (known as the basic exemption limit), from Other Source 1. What is Income Tax Slab? Indian Income-tax levies tax on individual taxpayers based on a slab system. A slab system means different tax rates are prescribed for different income ranges, It means the tax rates keep increasing with ‘an increase in the taxpayer's income. This type of taxation enables progressive and fair tax systems in the country. Such income tax slabs tend to undergo a change during every budget. These slab rates are different for different categories of taxpayers. Income tax has classified three categories of “individual “taxpayers such as: + Individuals (aged less than 60 years) including residents and non-residents + Resident Senior citizens (60 to 80 years of age) + Resident Super senior citizens (aged more than 80 years) 2. Income Tax Slab Rates for FY 2021-22 (AY 2022-23) Income tax slab rate for FY 2021-22 (AY 2022-23), New Tax regime ~ Why is it optional?. In this new regime, taxpayers has an OPTION to choose either: : + To pay income tax at lower rates as per New Tax regime on the condition that they forgo certain permissible exemptions and deductions available under income tax, Or j + To continue to pay taxes under the existing tax rates. The assessee can avail of rebates and ot by staying in the old regime and paying tax at the existing higher rate. ‘There are old tax slabs (2019-2020) and new tax sl -202 er eee ae (2022-2023). The tax payer has the option a Upto ®25 lac %25-Slac | 5%a Ae ; Ear New Tax Slabs 5-75 ac 1086 ed 75 1lac ioe a 159% €10- 125 ae 20% 825-15lae 259% 215ac&above | 30% sin eas of senior etzens, Income upto €3,00,00 is ax exempted. sncaie of senior citizens, Income slab applicable efor income benween 830,000 £50,000 Ap Tx hk for ldvidval Aged below 60 Yous & HUF Upto ®2.5 lakh 25 lakh ~ 85 lakh 5% *%5.00 lakh - M10 lakh 20% > £10.00 lakh 30% Note: “ "1, Income tax exemption limit is up to 2,50,000 for Individuals, HUF below 60 years aged and pel 2. An additional 4% Health & education cess will be applicable on the tax amount calculated as oe above, Surcharge is iti levied for persons earning Income above the Sea en rnc of income ax clued aspera ae 6 10% - Taxable Income above 250 lakh - up to 21 crore + 15% - Taxable Income above 21 crore - up to %2 crore 4 25% - Taxable Income above %2 crore - up,to 5 crore, + 37% - Taxable Income above %5 crore ‘Maximum rate of Surcharge on Income by way Sections 111A, 112A and 115AD is 15%. fi ‘The tax calculated on the basis of such rates will be subject 0 ny individual opting tobe taxed under the nv tx regis sre op anaisexenypions and deductions. : specified limits, itis of Dividend or Income under the provisions of health and education cess of 4% ym FY 2020-21 ‘onwards will have to13.7 Income Tax Calculator What is Income Tax Calculator? timate your taxes b; aon is an easy-to-use online tool that helps you estimate your taxes based on “aaa aaa a arlget presented. We have updated our tool in line with the income ay ‘changes proposed in the Union Budget 2022-23. How to use the Income tax calculator for FY 2022-23 (AY 2023-24)? Following are the steps to use the tax calculator: 1, Choose the financial year for which you want your taxes to be calculated. 2. Select your age accordingly. Tax liability in India differs based on the age groups, 3. Click on ‘Go to Next Step’ oe : Pe ee 4, Enter your taxable salary ic, salary after deducting various exemptions such as HRA, LTA, ee eee Hater th cla ty) ‘5. Or else, just enter your salary ie., salary without availing exemptions such as HRA, LTA, standard deduction, professional tax and so on. (if you want to know your tax liability under the new tax slabs) ne J got 6. Along with taxable salary, you must enter other details such as interest income, rental income, interest paid on home loan for rented, and interest paid on loan for self occupied property. 7. For Income from Digital Assets, enter the net income (Sale consideration less Cost of Acquisition), such income is taxed at 30% Plus applicable surcharge and cess. 8. Click on ‘GotoNext Step’again. 9. Incase, you want to calculate your taxes under the old tax slabs,you will have to enter your tax saving investments under section 80C, 80D, 80G, 80E and 80TTA. 10. Click on ‘Calculate’ to get your tax liability. You will also be able to see a comparison of your re-budget and post-budget tax liability (old tax slabs and new tax slabs)Basic Tax Structure | 13.13 ne between &5 lakhs to €10 lls ate taxed at 20%, under the old regime. they will be taxed at halt ‘ate ie. 10%. Also, those with annual income of will have to pay 15% income tax. er is ben enefiting from exemptions and his ne the old tax regime, net tax payable is less, he/she can13.14 || Financial Literacy Q2. Ahona is salaried employee and earn €10 lakh pe ‘on home loan €1,50,000 and principal amount of 750,000. She ‘annum, She owns a house and paid interest x has contributed €1,00,000 toward parents. She has also contribute PPE She has taken a mediclaim policy of £25,000 for her dependend ; 5 der the tax and old tax regime. %50,000 toward NPS. Calculate her total tax liability un¢ For annual income upto 10 lakh with exemption af New Regime Gross Total Income 10,00,000 Less- Standard deduction 50,000 Total Deduction w/s 80¢ 1,50,000 ws 80cced (1B) nae w/s 80D 25,000 Interest on home loan 1,50,000 4,75,000 0 eae 5,25,000 10,00,000 a 27,500 75,000 Rebate 5 Sarcharge Health & Education Cess 1,100 3,000 sta asa 28,600 78,000 Q3. Mr Mehul is a salaried individual with a salary of 215 lakh, He has a home loan in which interest of ®2 lakh is paid. His contribution to PPF is 50,000 children tuition fees 70,000 and %30,000 as term insurance plan. He also contributed 750,000 in NPS to save extra tax. He has taken 25,000 toward the mediclaim policy for her family. Calculate the tax liability under old and new tax regime. Which tax regime should be opted by Mr Mahul and Why? For annual income upto 15 lakh with exemption Gross Total Income ‘Total Deduction u/s 80c Standard Deduction _ u/s 80cced (1B) u/s 80D Interest on home loan 0 15,00,000Basic Tax Structure || 13.15 - Old Regime |New Regime FY 21-22 ‘FY 21-22 ‘& Education Cess 4,800 5,000. -Fotal Tax Payable. 1,24,800 1,30,000 Mr Mehul has to choose the old regime because his tax lability is lower in case of old regime as ‘compared to new regime, © $0 we can compare whenever we decide about whether we have to choose between new regime or the old regime. (Qs. Mr Shah has a basic salary of 21,00,000 per month ‘House Rent Allowance (HRA) of £45,000 per month, Special allowance of & 20,000 per month ‘Leave Travel Allowance (LTA) of 220,000 per annum His taxable income would be calculated as follows: r ; ee. Basic Salary 1,00,000 x 12 |__= 12,00,000 HRA (House Rent Allowance) 45,000 * 12 5,40,000 Special Allowance 20,000 x 12 2,40,000 Leave Travel Allowance (LTA) 20,000 = 20,000 p ‘Total Annual Salary (Income) 20,00,000 ‘As his taxable income is £20,00,000, he falls in the slab of above 215 lakh of income tax. Now let us calculate his Total Taxable Income under both New Tax Regime and New Tax Regime. Beebe Regime | New TaxRegime | ‘Total Annual Salary 20,00,000 20,00,000 [Gross Total Income 20,00,000 %20,00,000 (Now less all the ible deduction, allowances, and exemptions) ‘Standard Deduction = 350,000 |= ‘Less: Deductions under Section 80C =2,50,000_| = [Less: Deductions under Section 80D = 350,000_|= ‘Less: House Rent Allowance (Out of 5,40,000 deduction of) = %3,00,000_| ~ ‘Less: Leave Travel Allowance (Out of 20,000 deduction of) = 210,000 | - (bills must be submitted) 14,40,000 = 22,54,280 = 83,37,500 ‘one may save a lot of money by making different tax-saving investments xample above.13.16 || Financial Literacy Q5. Basis Salary: 290,000 per months HRA: 245,000 per months Special allowance: £20,000 per month Leave Travel Allowance: 218,000 per Years Rent that is Paid: %25,000 per month. 210,80,000 22,40,000 2,40,000 28,000 240,000 %5,40,000 18,000 _ | €10,000 (bills must be submitted) Deductions (Standard) 50,000 50,000, + Gross Income [215.8000 ‘Under the new regime, several exemptions such as telephone bill reimbursement, investmenté made in savings instruments such as PPF, NPS, EPE, etc., and HRA are not available. The calculation of the ‘gross taxable income under the new regime and the old regime are mentioned below: Calculation of Gross Taxable Income under New Regime Salary 218,78,000 ‘Income that is generated from other sources 330,000 Gross Total Income 219,08,000 ‘Total income Tax 33,22,296 Components a Percentage Taxable Amount_| Upto 22,50,000 No tax needs to be paid 0 | 258 ‘sono 5% (85 lakh - 22.5 lakh) 212,500 em oad = 10% (7.5 lakh - @5 lakh) 225,000 ae a 159 (810 lakh - 27.5 lakh) 237,500 212,50,000 - 715,00,000 im gue a a z 15 lakh - 212.5 lakh) 262,500 Sees 30% (219.08 lakh - 215 lakh) 122,400 4% (312,500 + 825,000 + 237,500 + 212,396 = 350,000 + %62,500+ 21,13, 100)ca Basic Tax Structure || 13.17 iption: t generated from Savings Account: 25,000 _pPF: €40,000 -ELSS: 210,000 IC Premium: 26,000 Medical Insurance: 210,000 EPF Contribution: 21,15,200 can be claimed in a year i Deduction | Eligible Amount __| Amount Claimed Section 80C U,50,000 240,000 + 210,000 + %6,000 21,50,000 e +21,15,200 : r Section 80D 225,000 (self) 250,000 210,000 210,000 1 (parents) | [Section 80TTA 210,000 35,000 35,000 | Total 71,65,000 Calculation of Gross Taxable Income under Old Regime Ear ee Fa 215,80,000 330,000 216,10,000_ 21,50,000 210,000, 25,0000, 21,65,000 21445,000 22,55,840 Percentage ‘Taxable Amount ‘No tax needs to be paid o 5% 212,500, 20% 21,00,000 30% 21,33,500 “4% (212,500 + 21,00,000 + 29,840 4 21,33,500) %2,55,840 - ison utility, which is available on their web ne tax department has brought out atax comPATION TT better fr him/her. The ich, an individual jee ae Site goxla/ Tex Caletor!