Summer Internship Program Report

On
INDIAN TAXATION SYSTEM OVERVIEW BEFORE AND AFTER
IMPLEMENTATION OF GOODS AND SERVICE TAX AND ITS IMPACT ON
ECONOMY GROWTH

SUBMITTED BY
Pendyala Sravanthi
PGD18015

INSTITUTE OF INSURANCE AND RISK MANAGEMENT

Hyderabad
August 2019

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 DECLARATION:

I hereby declare that this project titled “INDIAN TAXATION SYSTEM OVERVIEW BEFORE
AND AFTER IMPLEMENTATION OF GOODS AND SERVICE TAX AND ITS IMPACT ON
ECONOMY GROWTH” submitted is a bonafide work undertaken by me.

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ACKNOWLEDGEMENT:

I am glad to thank my college guide Dr. Vijender sir and my company guide
G.M.Venkatnaryana who guided me throughout my summer internship program and in
preparing my project report.

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Table of Contents
1) INTRODUCTION TO THE COMPANY: ................................................................................................................................... 7
1.1. SUCCESS PATH.................................................................................................................................................................. 7
1.2. SERVICES OF THE FIRM: ................................................................................................................................................... 8
1.3. CLIENTS OF THE FIRM: ..................................................................................................................................................... 9
1.4. SPECIAL ABOUT THE FIRM: .............................................................................................................................................. 9
1.5. ASSIGNED WORKS AT FIRM: ............................................................................................................................................ 9
1.5.1. Title: Performing desk review of the client ................................................................................................................... 9
1.5.2. How desk review will helps the auditor? .................................................................................................................... 10
1.5.3. Objectives of performing desk review: ....................................................................................................................... 10
2) INTRODUCTION TO INDIAN TAXATION SYSTEM: .............................................................................................................. 10
2.1. Brief history of Indian taxation system: ......................................................................................................................... 10
3) Taxation system of India: .................................................................................................................................................. 11
3.1. Structure of taxation system before implementation of GST:....................................................................................... 11
3.2. Tax collection bodies in India: ........................................................................................................................................ 12
3.3. Direct and indirect tax.................................................................................................................................................... 12
3.3.1. Income tax:.......................................................................................................................................................... 12
3.3.2. Types of residential status: ................................................................................................................................. 12
3.3.3. Conditions for determining residential status: ................................................................................................... 13
3.3.4. Incidence of tax: .................................................................................................................................................. 13
3.5. HEADS OF INCOME: ....................................................................................................................................................... 14
3.6. GIFT TAX: ........................................................................................................................................................................ 14
3.7. INDIAN CORPORATE TAX: .............................................................................................................................................. 14
3.7.1. Corporate tax rates graph: (graph-1) .................................................................................................................. 15
3.8. Dividend distribution tax:............................................................................................................................................... 15
3.9. CAPITAL GAIN TAX:......................................................................................................................................................... 16
3.9.1. CAPITAL GAIN TAX RATES: .................................................................................................................................. 16
3.10. DEDUCTIONS UNDER SECTION-80 OF INCOME TAX: ................................................................................................... 17
3.10.1. Meaning of tax deduction: ................................................................................................................................ 17
3.10.2. Deduction under sec-80: ................................................................................................................................... 17
3.11. COMPUTATION OF TOTAL INCOME: ............................................................................................................................ 18
3.13. SURCHARGE: ................................................................................................................................................................ 19
3.14.1 MEANING: .......................................................................................................................................................... 19
3.14.2 Central sales tax: ................................................................................................................................................ 19
3.14.3 Value added tax: ................................................................................................................................................ 19

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 3.14.4 Service tax: ......................................................................................................................................................... 20
3.14.5 Custom duty: ...................................................................................................................................................... 20
4. ROADMAP TOWARDS GST: ............................................................................................................................................... 20
4.1. GST MODEL: ................................................................................................................................................................... 21
4.2. Different forms of GST: .................................................................................................................................................. 21
4.3. GST registration threshold limit: .................................................................................................................................... 22
4.3.1. Overview of earlier limit, new limit and applicability ......................................................................................... 22
4.4. GST RATES: ..................................................................................................................................................................... 22
5) NEED OF PROJECT ON INDIAN TAXATION SYSTEM:.......................................................................................................... 23
6) OBJECTIVES OF THE PROJECT: .......................................................................................................................................... 23
7) RESEARCH METHODOLOGY: ............................................................................................................................................. 23
7.1. Research design: .................................................................................................................................................... 23
7.2. Data collection: ...................................................................................................................................................... 24
7.3. Research Analysis: .................................................................................................................................................. 24
8) IMPACT OF TAXATION ON ECONOMY GROWTH: ............................................................................................................. 24
8.1. IMPACT OF DIRECT TAXES: ..................................................................................................................................... 24
8.2. IMPACT OF INDIRECT TAXES: ................................................................................................................................. 25
8.2.1. Impact on GDP: ................................................................................................................................................... 25
8.2.2. Impact on supply chain networks: ...................................................................................................................... 25
8.2.3. Impact of foreign direct investment: .................................................................................................................. 26
8.3. IMPACT OF GST ON OTHER SECTORS: ........................................................................................................................... 26
8.3.1. Food industry: ..................................................................................................................................................... 26
8.3.2. Housing and construction Industry: .................................................................................................................... 26
8.3.3. FMCG:.................................................................................................................................................................. 26
8.3.4. Financial services: ............................................................................................................................................... 26
8.3.5. Information technology and enabled services: .................................................................................................. 27
9) Issues in Indian tax structure: ........................................................................................................................................... 27
10) ROADMAP OF BUDGET-2019: ......................................................................................................................................... 28
11) CONTRIBUTION OF TAX TO GDP: .................................................................................................................................... 32
12) CONCLUSION:.................................................................................................................................................................. 34
13) References: ..................................................................................................................................................................... 35

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EXECUTIVE SUMMARY:

This project as a whole divided into two parts. The first part of project gives insights about
summer internship company profile and Indian taxation system overview before
implementation of goods and service tax, contribution of corporate tax to country’s
economy whereas second part of project dealt with overview of taxation system after
implementation of goods and service tax and its impact on economic growth of the country
and its impact on other sectors of the country.

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 1) INTRODUCTION TO THE COMPANY:
Hiregange & Associates a trusted and versatile professional firm, set up in 1988 by
Madhukar N Hiregange aimed at delivering value added & quality professional services in
the domain of Indirect Taxation.

In last thirty years of its services, the firm has grown certainly to the big heights
considering its vision, mission and value statements and mainly focusing on its clients in
delivering value of services to them. The updating technology, innovating ideas and in-
depth knowledge in services of Indirect Taxation coupled with experience of various
industries has provided the firm a good position in the society of services.

H&A has the team of about 13 members as its partners and around 140 chartered
accountants, company secretaries, and other professionals in it and having around seven
branches to serve its clients located at Bengaluru, Hyderabad, Gurgaon, Mumbai,
Vishakhapatnam, Pune and Chennai and through its associates at other places.

1.1. SUCCESS PATH

SOURCE: Hiregange&Associates website

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1.2. SERVICES OF THE FIRM:

Specialized services in the field of Indirect Taxes that is Goods and Service Tax, Custom
Duty, Foreign Trade Policy and pre-GST services like Central Excise Duty, Service Tax,
Value Added Tax, Central Sales Tax etc.

In addition, Service Portfolio of the firm includes

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1.3. CLIENTS OF THE FIRM:
Hiregange & Associates serves the different sector clients and it includes

 Pharmaceuticals
 Textiles
 Real estate
 Manufacturing
 E-commerce
 Aerospace and Defense etc.

1.4. SPECIAL ABOUT THE FIRM:

The Members of the Firm are also actively participating in the making tax laws simple and
easy to understand. The publications of the H&A includes

 GST Audits and Certification

 Annual Return (GSTR-9 and GSTR-9A) and Audit (GSTR-9C) under GST
 GST Ready Reckoner
 Compendium of Issues and Solutions in GST - with Exhaustive Commentary
book
 Classifications & Exemptions under GST etc.

1.5. ASSIGNED WORKS AT FIRM:

1.5.1. Title: Performing desk review of the client

Desk review is the first and foremost step taken by the auditor to conduct an audit. It is
simply means performing different audit procedures at the office initially by audit team
without going to client’s place of business. It involves collecting some audit information
from the assesse to understand the operations of his business.

General details considered while performing desk review includes the following

 Name and address of the assesse, his principal place of business, additional place of
business.
 Details of clients GSTIN, date of registration, details of other registration in some
state or other state if any

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  Details of assesse business status as if sole proprietorship or partnership whether
input service distributor etc.
 Details of GST accounts & records, the client accounting software’s name and version
 Input tax, output tax and other key details.

1.5.2. How desk review will helps the auditor?

Desk review will help the audit team in understanding the details of
 Domain of the assesse like their trade practices, ratio and sale trends
 Details of accounting terms like accounts payables ,accounts receivables
 Helps in knowing the details of tax compliances and non- tax compliances
 Desk review will also help in knowing and setting the parameters of client’s business
etc.

1.5.3. Objectives of performing desk review:

 The objective of the desk review is to obtain maximum information before visit to
clients place; this would save lots of time and effort
 Desk Review would enable us to plan the audit efficiently and effectively as the focus
areas can be identified during the audit
 Further, most of the works which don’t need the presence of audit team can be
completed before visiting the clients place which don’t need the presence of audit
team
 Also helps in obtaining clarity solutions to issues involved.

2) INTRODUCTION TO INDIAN TAXATION SYSTEM:

2.1. Brief history of Indian taxation system:

In India, Sir James Wilson for the first time introduced the tax system in order to meet
losses sustained by government because of the military mutiny of 1857. A new income tax
act passed in the year 1921 and which replaced by passing new act in 1922. This act was
in force up to AY- 1961-62 with numerous amendments. In consultation with ministry of
law and finance finally income tax act, 1961 passed. The Income Tax Act 1961 has bought
into force with effect from 1 April 1962. Income tax extends to whole of India including
Sikkim and Jammu & Kashmir.
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To undertake certain welfare measures and for the development of its state every country
need certain money. The prime source of revenue for the government will be tax. Depending
upon impact and incidence, tax divided into two types 1) direct taxes and 2) indirect taxes.
Direct taxes is form of income tax wherein impact and incidence of tax is on same person.
Whereas indirect taxes are imposed indirectly on the person.

Taxation is the only tool to achieve economic growth and development in the long run of
country and it is important to understand the concepts of tax and its components in order
to attain the economic growth. Personal income tax has no or less impact on economic
growth and corporate tax had considerable impact on country’s economic growth. It is very
important to understand the different tax sources and absolute essential to know targeted
revenue for imperative growth of economy.

3) Taxation system of India:

Indian taxation system has undergone with many changes, in last decade. For better
compliance, better enforcement and ease of tax payments, government has simplified the
tax laws and rationalized the tax rates. With effect of rationalization in tax rates, the Indian
taxation system has segmented into two, namely direct taxes and indirect taxes.

3.1. Structure of taxation system before implementation of GST:

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3.2. Tax collection bodies in India:
The tax collection bodies which collects tax has clearly defined their rules on what types of
taxes they are permitted to collect the tax

 CENTRAL GOVERNMRNT: Income tax, Custom duties, Central excise duties

 STATE GOVERNMENT: professional tax, value added tax, state excise duties ,
agricultural taxes
 LOCAL BODIES: water tax, property tax and other tax like drainage and small
services tax

3.3. Direct and indirect tax

In case of direct taxes, tax imposed directly on taxpayers whereas in case of indirect taxes,
tax imposed on one person and burden of tax is on another person.

3.3.1. Income tax:

According to income tax act 1961, every person whose total income exceeds the maximum
exemption limit is chargeable to income tax at rate prescribed by the finance act. As per
income tax 1961, person is an assesse may be individual, HUF, firm, company, local
authority, body of individuals and association of person. For calculating, the total income of
an individual determination of his residential status is important. For tax purposes,
individual can be resident, ordinarily resident or not ordinarily resident.

3.3.2. Types of residential status:

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3.3.3. Conditions for determining residential status:

Source: Income tax act (internet)

3.3.4. Incidence of tax:

Residential status Indian Income Foreign Income

Resident and ordinarily Taxable Taxable
resident
Resident but not ordinarily Taxable Not taxable
resident
Non resident Taxable Not taxable

Income tax levied on a person and central board of direct taxes administers it. As part of
direct taxes, income tax levied on person after determining his residential status and
whereas wealth tax is abolished from Indian taxation system.

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3.5. HEADS OF INCOME:

3.6. GIFT TAX:

Gift tax rate in India 2018-19 exemption limit was up to Rs. 50000. Now this limit
increased to RS. 60000. The income received from gift is included under the head Income
from other sources and this will be included to our income and taxed accordingly with tax
slab.

The total value of gift-received will included as income under the head income from other
sources. For example the amount received as gift is worth 75,000, thus the total amount
received is taxed as per tax slabs as the gift received is exceeding the exemption limit of
60,000.

3.7. INDIAN CORPORATE TAX:

A corporate tax, also called as company tax or corporation tax is a direct tax imposed by
government on income or capital of corporation or legal entities. It is the tax imposed at
national level, and similar taxes may imposed at state or local level. It is the amount
collected from the companies, it amounts based on net income companies obtain while
exercising their business activities. As on august 2019 the following are the actual,
previous, highest corporate tax rates.

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 Actual Previous Highest Lowest Dates Unit Frequency
35 35 38.95 32.44 1997-2019 percentage Yearly

3.7.1. Corporate tax rates graph: (graph-1)

Source: Ministry of finance tradingeconomics.com

3.8. Dividend distribution tax:

Dividend is the amount distributed by company to its investors out of surplus profits its
earned. The amount distributed as dividend taxed in the hands of companies, as per sec-
115O.

Dividend distribution tax is the tax imposed by government of India on Indian companies
accordingly with the dividend distributed to company’s investors. At present, the tax
imposed on companies for dividend paid to investors is at 15%, additional surcharge is 15%
and educational Cess of 4%.

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3.9. CAPITAL GAIN TAX:
Capital gain is the amount earned by a person on sale of his capital assets. Such earned
capital gain will taxed under the head income from capital gains. For the purpose,
calculation of tax the Transfer of asset has made in the previous financial year.

Capital assets can be buildings, land, house property, vehicles, machinery, trademarks,
patents, leasehold rights, and it can include any legal rights like right of control or
management. However, capital asset does not include stock in trade, agricultural land in
rural areas, gold bonds under gold deposit scheme.

For easy taxation purpose, capital gain taxes classified as long-term capital gains and
short-term capital gain. Taxpayer holding shares or securities for a period of more than 36
months before transferring of an asset they gain received on such transfer is long-term
capital gain, and whereas holding period is less than 36 months before transfer of an asset,
the gain received on such transfer is short-term capital gain.

LONGTERM CAPITAL GAIN= Full value of consideration received-(indexed cost of

acquisition+ indexed cost of improvement+ cost of transfer)

SHORTTERM CAPITAL GAIN= Full value of consideration received-(cost of acquisition+ cost

of improvement+ cost of transfer)

3.9.1. CAPITAL GAIN TAX RATES:

SOURCE: INTERNET

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Until finance act 2018, long-term capital asset on sale of equity shares exempted. From
01.04.2018, any sale of asset will taxed @ 10% subjected to exemption limit of Rs. 1 lakhs.
In other words, long-term capital gains in excess of one lakhs taxed @ 10%.

3.10. DEDUCTIONS UNDER SECTION-80 OF INCOME TAX:

3.10.1. Meaning of tax deduction:

A tax deduction is a deduction that lowers the person’s tax liability by lowering his taxable
income. Deductions are expenses that the taxpayer incurs during the year is subtracted
from gross income in order to know how much is the tax owned by taxpayer.

Tax deduction decreases the overall tax liabilities and aids tax savings. The amount of
deduction differs from type of deduction it is. Any income tax deduction can claimed for
expenses incurred on medical expenses, charitable contribution, tuition fees etc. deduction
can also claimed on investment made on retirement scheme, national saving schemes, life
insurance plans etc. many of day to day expenses qualify for exemptions along with
information about them assist in saving money.

3.10.2. Deduction under sec-80:

SOURCE: TAXGURUU.COM (INTERNET)

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3.11. COMPUTATION OF TOTAL INCOME:

3.12. TAX RATES FOR ASSSEMENT YEAR 2019-2020:

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3.13. SURCHARGE:

3.14. INDIRECT TAXES:

3.14.1 MEANING:

An indirect tax is an income to the government, collected by an entity of supply chain either
of the producer of goods or any other person and paid to government, and passed on to the
consumer as part of purchase price of goods or services. The consumer is ultimately paying
the tax by paying more to the product.

The different taxes of indirect taxes before implementation of GST includes VAT, central
excise tax, central sales tax, service tax etc.

3.14.2 Central sales tax:

Central sales tax is the tax payable by the dealer for all sales in the course of interstate,
intrastate, or in the course of import into India or export out from India.

3.14.3 Value added tax:

VAT is multi-stage tax on goods that levied across various stages of production and supply
with credit given for tax paid at each stage of value addition.
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3.14.4 Service tax:

Service tax was a tax levied by the central government of India on services provided or
agreed to provide in future excluding the services that covered under negative list after
considering the place of provision of services.

3.14.5 Custom duty:

The central government of India on imported goods into India levies custom duties or
import duties. The rate at which import duty levied on the goods depends on the
classification of the goods determined under the customs tariff.

4. ROADMAP TOWARDS GST:

Goods and service tax is the India’s most ambitious tax reform plan, which aims to stitch
together a common market by dismantling fiscal barriers between states. It is a single
national uniform tax levied across India on goods and services.

GST is the single tax policy on supply of goods and services from the manufacturer to
ultimate consumer. Credits of input taxes paid at each stage from manufacturing to
ultimate consumption will be available in the subsequent stage of value addition at each
stage. Consumer who will bear GST charged by the last dealer in the supply chain, with
set off benefits at all previous stage.

The following are the taxes subsumed at central level:

1. Additional excise duty

2. Service tax
3. Central excise duty
4. Additional custom duty commonly known as countervailing duty and
5. Special additional duty on customs

At state level, the following are the taxes subsumed

1. Subsuming of state value added tax
2. Octroi tax entry tax
3. Purchase tax
4. Luxury tax
5. Taxes on lottery, betting and gambling
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4.1. GST MODEL:
India adopted dual GST model in India that is tax will administered by both union and
state governments.

4.2. Different forms of GST:

SOURCE: GST WEBSITE

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4.3. GST registration threshold limit:
On considering the demand raised by MSME sector, GST council has increased the GST
registration threshold limit. The states have an option to continue with existing limit or can
choose higher threshold limit

4.3.1. Overview of earlier limit, new limit and applicability

Aggregate turnover Registration required Applicability

Earlier limits- for the sale of goods/ providing services
Exceeds rs.20 lakh Yes- for normal category Up to 31 march 2019
states
Exceeds rs.10 lakh Yes- for special category Up to 31 march 2019
states
New limits- for sale of goods
Exceeds rs.40 lakh Yes- for normal category From 1 April 2019
states
Exceeds rs.20 lakh Yes- for special category From 1 April 2019
states
New limit for providing services
There has been no change in the threshold limit of service providers

4.4. GST RATES:

Tax rates Products
5% Household necessities such as edible oil, sugar, spices, and lifesaving
drugs also covered under this GST slab
12% Computer and processed food
18% Hair oil, toothpaste and soaps, capital goods, industrial intermediaries are
covered in this slab
28% Luxury items such as small cars, consumer durables like AC, refrigerators,
premium cars, cigarettes, high end motorcycles are included here

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5) NEED OF PROJECT ON INDIAN TAXATION SYSTEM:
The development of any country’s economy directly depends on its taxation structure as
many revenue for the government is from the tax collections. A taxation system which
facilitates easy of doing business and having proper laws as would be no change of tax
avoidance brings prosperity to the economy. Vice versa a country which does not facilitates
easy of doing business or having inefficient laws which leads to tax evasion does not act
good for the country’s economic development.

6) OBJECTIVES OF THE PROJECT:

1. To understand Indian taxation system.
2. To study the progress of selected taxes in India
3. To analyze the contribution of Indian taxes to country’s GDP.
4. To study the overall progress of taxes over the years and its contribution to economic
growth.
5. To know the importance of performing desk review of a client, and benefits of
performing desk review.

7) RESEARCH METHODOLOGY:
Research is the logical and systematic search of useful information on a particular topic
and it is a systematic way to solve a problem. It is a science of study how research work will
carried. Essentially the researcher will describing, explaining phenomenon of research is
research methodology by the procedure.

7.1. Research design:

A good research design has characteristics of problem definition, time required for research
project and estimate of expenses to be incurred the function of research design is to ensure
that the required data are collected and they are collected and they are collected accurately
and economically. A research design is purely and simply the framework for a study that
guide the collection and analysis data. In any research design, the different types of
research can be descriptive research and exploratory research.

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7.2. Data collection:

Data collection can be from primary source or secondary source of data collection. Using
secondary data as source of information for conducting study on this project. Secondary
sources of data can include collecting data from internet, newspapers and different
magazines etc.

7.3. Research Analysis:

Data analysis is the crucial part of any research. Data analysis summarizes the data
collected. Data analysis involves the interpretation of data gathered with analytical and
logical reasoning to determine relationships, patterns and trends.

8) IMPACT OF TAXATION ON ECONOMY GROWTH:

The current globalized society is characteristic by the necessity of existence of
redistribution processes due to the fulfillment of elementary states functions. At the same
time, government spending as the basic tool of economic policy will conditioned by the
necessity of their financing, where the tax revenue usually represent the most significant
part of state budget income.

Most of the studies on direct tax recommends mobilizing the revenue from direct taxes.
Among the components of direct taxes, individual taxes or personal income tax has no
impact on economic growth, as their contribution to revenue is very little, while corporate
income tax had a positive statistically significant impact on country’s economic growth in
the long run.

8.1. IMPACT OF DIRECT TAXES:

Direct tax is the important source of revenue to the government. Disposable income of
individuals also directly has little impact on economic growth. If the government increases
direct tax rate, people start saving for investment purposes. Due to this behavior of
individual’s income generation process of economy will hamper. Particularly this is true in
case of luxury commodities. Thus, decrease of production of luxury goods will adversely
affects the country’s GDP and standard of living. However if proper deductions are allowed
on investments, it leads to capital formation in the country. Thus, the following are broad
positive sides on economic growth.

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  Better capital formation
 Inducement of savings and investments
 Surety of government’s revenue growth
 Increase in planned expenditure of government
 Timely availability of revenue to the government
 Decrease in inflation rate due to lesser availability of disposable income to persons

8.2. IMPACT OF INDIRECT TAXES:

Since the burden of indirect taxes directly falls on the consumers, it directly affects the cost
of goods and services. Thus, indirect tax increases the efficiency of the producers, since to
maintain their demand they will have to put their full efforts towards cost cutting
measures.

This effort of producers also brings proper utilization of resources in the economy. The
consumers are at freedom to select products at their choice, thus healthy competition also
grows in the economy. The broad positive sides of indirect taxes on economic growth are as
follows

 Increase in efficiency of producers

 Growth of healthy competition in the market
 More freedom of choice to the consumers
 Better utilization of resources
 Increase in demand for luxury goods
 Increase in standard of living of people

8.2.1. Impact on GDP:

A study done by the national council of applied economic research has projected the impact
on growth due to reduction in direct cost and cost reduction on capital inputs pegged the
improvement in growth rate. Others also estimated economic growth will increases on
implementation of GST.

8.2.2. Impact on supply chain networks:

With implementation of the GST organizations has a chance to redesign their supply chain
to have optimal output and thus it will help to improve logistics of the country. This would
25
involves cost, but at the end, persisting high logistic costs would resolved by development
of logistics infrastructure.

8.2.3. Impact of foreign direct investment:

The GST will reduce the tax complexity in India and bring transparency and ease of doing
business. According to a survey of corporate India by feedback business consulting
services, which covered 67 companies from various sectors. GST rollout will be positive for
the economy.

Around 72 percent respondents felt investments will rise across sectors and a significant
portion of this will come in the form of FDI especially in heavy engineering and automotive
sectors.

8.3. IMPACT OF GST ON OTHER SECTORS:

8.3.1. Food industry:

The application of GST to food items will have impact on those industries who are living
under subsistence level. However, at the same time, a complete exemption for food items
would drastically shrink the tax base. Even if the food were within the scope of GST, such
sales would largely remain exempt due to small industries registration threshold. GST
under single rate would lead to doubling of tax burden on food.

8.3.2. Housing and construction Industry:

Construction, real estate and housing industry were within the scope of GST and could
contribute good revenue to government.

8.3.3. FMCG:

Despite of economic slowdown, India’s fat moving consumer goods has growing
consistently, implementation of GST would attract high FDI and the industry will grow.

8.3.4. Financial services:

India has followed the approach of bringing virtually all financial services within the ambit
of tax where consideration for them is in the form of an explicit fee. Thus, financial services
are also within the scope of GST.

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8.3.5. Information technology and enabled services:

To be sync with best international practices, domestic supply of software would attract GST
based on mode of transaction. If the software transferred through electronic form, it should
be consider as intellectual property and recorded as a service. In addition, if the software
transmitted on media or any other tangible property then it will treated as goods under GST
act.

9) Issues in Indian tax structure:

1) High rate and low yield of direct taxes:
In India, the rate of direct tax is very high but the contribution of direct tax revenue is very
low. In earlier 1950’s the rate of direct tax in India was one of the highest in the world but
the revenue generated is significantly very low.

The revenue generated is significantly low because of high tax rates encouraged tax evasion
and avoidance on a large scale, tax evasion that is failing to meet actual taxation liabilities,
which is not declaring the actual profits and avoiding the taxes.

As a result, government of India gradually reduced the direct tax rates, in spite of
decreasing the direct tax rates; it is the highest rate in the world even today.

2) Low contribution of income tax:

Although the rate of income tax is highest in India, the contribution from such taxes is very
low. Tax evasion seems to be the primary reason, and high exemption limit in a country
where per capita is very low would be the other reason for low contribution. Though after
changing the exemption limits, national and per capita income level have failed to increase
proportionately.

3) Double taxation of dividends:

Due to double taxation of dividend, the rate of domestic saving and capital formation has
failed to increase appreciably. A portion of net profit after tax will distributed as dividends
among the shareholders, such dividend income is taxable in hands of corporates as
dividend distribution tax and it will taxed in form of personal income tax from the
shareholders.

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4) Absence of agricultural income tax:

Agriculture is the dominant sector of Indian economy, the contribution of agriculture and
related activities to Indian GDP is more than 30%, and planned investment on agriculture
is increasing over the period. However, agriculture has failed to contribute to Indian
economy, as agriculture income is the state subject and introduction of the agricultural
income tax system at the central level has not been possible, this is other reason for
reliance on indirect taxes.

5) Importance of indirect taxes:

Importance of indirect taxes increased over the period implies importance on direct taxes is
diminishing. In absolute terms, though the revenue from direct taxes increased but the
percentage contribution of such taxes in total tax revenue is decline.

6) Progressive taxes on income:

Progressive taxes encouraged tax evasion and avoidance and have failed to reduce
inequalities of income and wealth.

7) Widening the indirect of tax net:

With the implementation of GST, one nation one tax the commodities that we buy bear high
indirect taxes, and laws looks difficult, but the revenue contribution of indirect taxes is
gradually increasing.

8) Regressive nature:

Indirect taxes have become more and more regressive over the years, and taxes imposed on
consumption goods, thus marginal propensity to consume gradually decreases with an
increase in income.

10) ROADMAP OF BUDGET-2019:

Key factors relating to Indian taxes- highlights of budget-2019

Personal taxation:

Surcharge:

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  Surcharge to increase of about 3% for individuals having more than INR 2 crores to
and up to 5 crores
 Surcharge to increase up to 7% for individuals with taxable income of INR 5 Crores
and more.

Deductions for interest paid on loan for purchasing electric vehicles:

 In budget-2019, financial minister announced the benefit of additional 1.5 lakh INR
on interest paid on loan for purchasing electric vehicles, which amounts to total
benefit of up to 2.5 lakh INR over the total loan period.

Interest deduction on housing loan:

 An additional deduction of up to INR 1.5 lakh for interest paid on housing loan, the
loan that borrowed for affording a house of worth INR 45 lakhs.

Capital gain exemption:

 Extension of period of exemption for capital gains from sale of residential house
property and investment made on start-ups up to march 2021.

Other highlights for personal taxation

 Additional benefits for NPS subscribers
 Widening the scope of assesse in black money act

CORPORATE TAXATION
Increased turnover threshold for claiming additional tax rate of 25%
 The current tax rate of 25% is applicable to companies whose turnover is up to INR
250 crores, in budget- 2019 the annual threshold limit proposed to increase up to
INR 400 Crores.

Preventing tax abuse

 In budget 2019, it announced that listed companies should liable; to pay additional
tax at 20 percent in case of buyback of share, as is the case currently for unlisted
companies.
 Registration of trusts availing benefits to cancel in violating provisions of laws.

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Gifts to non-residents

It been proposed that gift of any property or sum of money situated in India to person
outside India on or after 05 of July 2019 is deemed to accrue or arise in India.

Other provisions of corporate tax

Interest on certain bad and doubtful debts to be taxable in the hands of deposit taking,
only in the year in which such interest received.

Benefit of section 35 AD

To boost economic growth and make in India initiative, a scheme is set up for sunrise and
technology areas, for which benefits under sec-35 AD will extended.

The benefit has given for manufacturing in area such as semi-conductor, fabrication, solar
photovoltaic cells, lithium storage batteries, computer servers, solar electric charging
infrastructure and laptops; however, finance bill has not made any other changes in sec-
35 AD.

International financial services center in GIFT city:

 Direct tax incentives to an IFSC, 100% profit-linked deduction under section 80 LA in

any 10-year block within a 15 year period
 Exemption from accumulated income and dividend distribution tax to mutual funds
and companies
 Interest payment on loan taken by IFSC from non-residents to be exempt from tax
 Capital exemption for certain securities if traded in recognized stock exchange.

Payments made by other electronic modes

The current income tax provisions permits only certain electronic payment modes like
demand draft. Finance bill -2019 clearly proposed that any electronic mode could used for
payments.

TDS related amendments

 It is proposed in finance bill 2019, tax shall be withheld in taxable pay out of life
insurance companies on 5% net basis, instead of 1% gross basis as present

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  It is proposed to provide the online application form by a person providing payment
to non-resident
 The person failing under sec-195 shall not treated as default assesse and payment
under TDS will disallowed.
 Individuals or HUF to deduct tax at source at 5% from payments made to resident
contractors or professionals.

Simplification and procedurals:

 Aadhaar can be quoted wherever pan is required and Aadhaar can those who do not
have pan can file income tax return by using Aadhaar number.
 Pre filled tax returns will made available to tax payers
 TDS of 2% on cash withdrawals of amount exceeding INR 2 crores from a bank
account in a year
 No charge or merchant discount rate will charged on customers and merchants.

INDIRECT TAXES
Customs:
 Provisions introduced for the verification of identity or compliance through Aadhaar
number to protect interest of revenue and prevent smuggling
 Increase in road and infrastructure Cess on petrol and diesel

Service tax:

 Taxable services provided by state government for grant of liquor license during the
period 1 April 2016 to 30 June 2017
 Services provided by Indian institutes of management to their students for specified
educational programs during the period 1 July 2003 to 31 march 2016.

Goods and service tax:

 An option to pay GST under the composition scheme extended to suppliers of
services or suppliers of both goods and services with an annual turnover of up to INR
5 million in the previous FY
 Enabling provisions introduced to allow the government to prescribe a higher
threshold of up to INR 4 million at the request of any state or the recommendation of
GST council
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  Composite taxpayers to be allowed to furnish return on annual basis along with
quarterly payment of taxes
 A facility introduced to allow the registered person to transfer any amount of tax,
interest, penalty, fee, from one head to another head in the electronic cash ledger.
 Aadhaar authentication is made mandatory for all taxpayers except specified states
or class of tax payers
 The government may prescribe a class of registered persons who shall be mandatorily
required to give an option to their recipients to make payments through specified
electronic modes.
 National anti-profiteering authority has been empowered to input penalty equivalent
to 10% of the profiteered amount
 The central government has been empowered to disburse the refund amount in
respect of state taxes as well

11) CONTRIBUTION OF TAX TO GDP:

Financial year 2019 gross tax to GDP ratio dips to 10.9% on shortfall in indirect tax
revenue
In 2018-19, direct taxes grew by 13.4% owing to improved performance of corporate tax.
However, indirect taxes fell short of budget estimates by about 16%, following a shortfall in
GST revenues as compared to the budget estimates

Accordingly. Gross tax revenue as a proportion of GDP declined to 10.9% of GDP IN 2018-
19 lower by 0.3% points as compared to 2017-18.

The government had budgeted to collect INR 11.5 lakh crore from direct taxes and INR 7.43
lakh crore from GST in 2018-19.

The survey said there has improvement in tax to GDP ratio over last six years, gross tax
revenue as a proportion of GDP has declined by 0.3% points in 2018-19 over 2017-18.

Indirect taxes have fallen by 0.4% points of GDP primarily due to shortfall in GST
collections. This has partly offset by 0.1% points increase in direct taxes.

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Contribution of taxes to GDP:

Source:Internet

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Contribution of different taxes to country’s national income:

Source: Internet

12) CONCLUSION:
Progressive ideas to raise more revenue, reduce tax avoidance, and reduce the tax gap

 Raise high-end tax rates

 Stop favoring one type on income over another income
 Raise estate tax
 Cap deductions on high income tax payers
 Minimum foreign earnings tax
 Financial transaction tax

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13) References:

 All in one guide to ‘Budget 2019 Proposals related to Personal Finance’

 List of Income Tax Deductions for FY 2018-19 / AY 2019-20
 Standard Deduction of Rs 40,000 for the Salaried/ Pensioners for FY 2018-19
 Income Tax Deductions List FY 2019-20 | List of important Income Tax Exemptions
for AY 2020-21
 https://tax2win.in/assets-new/img/guides/slabs/slab_rates-2019.png
 https://prospect.org/article/were-going-need-more-tax-revenue-heres-how-raise-it
 https://www.google.com/search?q=how+to+increase+country+gdp+THROUGH+TAXE
S&oq=how+to+increase+country+gdp+THROUGH+TAXES&aqs=chrome..69i57.28838j
1j8&sourceid=chrome&ie=UTF-8
 https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/dttl-tax-
indiaguide-2018.pdf
 https://www.icsi.edu/media/webmodules/PRACTICE_MANUAL_09052016.pdf

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