Current Tax Cost in India

Octroi 0.5 to 5%

Interstate purchase
(CST)

Imports
Customs Duty
Basic 10%
CVD 12%
Ed. Cess 3%

Local purchase
VAT 5%/12.5%

Local purchase
VAT 5%/12.5%

Dealer

Retailer

Factory

Intra-State
Ex. Duty 12%
Edu. Cess 3%
VAT 5%/12.5%

Service Provider
Serv. Tax 12.36%

Stock transfer
(No tax)
Toll Manufacturer
Inter-State
Ex. Duty 12%
Edu. Cess 3%
CST 2%

VAT rate may range from 12.5-15% depending on the State

Goods Transporter
Serv. Tax-12.36%
Other
Service Provider
Serv. Tax 12.36%

Central Levy

Other
Service Provider
Serv. Tax 12.36%

State Levy

-Credit not fungible between State and Centre;

resulting in a cascading impact of taxes
- Cumulative burden of Indirect Taxes in India 28%
to 44% (approx.)

Current Taxes
and
Credits
Current
Taxes
and
Credits
Addnl. duty of Customs
Excise duty
Service tax

VAT (State Sales tax)

Central Sales
tax
Entry tax
Octroi

Excise duty
Service tax

VAT (State Sales tax)

No Credit

GENERAL PRINCIPLES OF INCOME

TAXATION
Resident citizenwithin & without
Non-resident citizen..within
OFW..within
Alien..within
Domestic corporationwithin & without
Foreign corporationwithin

CLASSIFICATION OF TAXPAYERS
INDIVIDUALS
resident citizens
non-resident citizens
resident aliens
non-resident aliens

CORPORATIONS
Domestic

GENERAL
PARTNERSHIP

ESTATES & TRUSTS

Formed by persons
deriving income from
engaging in any trade or
business

those incorporated under Phil.

law

Foreign (resident/nonresident)

those incorporated under foreign

law

Estate refers to all the property,

rights & obligations of a person
which are not extinguished by his
death.
Trusts refers to an arrangement
created by agreement or law

INCOME TAX THEORY

E
X
C
L
U
S
I
O
N
S

G
R
O
S
S
I
N
C
O
M
E

Income subject to IT
Deduction
Exemption
Capital Gains subject to CGT

Passive Income subject to FIT

RECEIPTS
IT-Income Tax

CGT-Capital Gains Tax

FIT-Final Income Tax

INCOME
- means all wealth which flows into the
taxpayer
return from service
from sale of property
from use of capital

GROSS INCOME
All income of whatever kind and
derived by a taxpayer from whatever
source but not including exclusions.

EXCLUSIONS
Those which are not included in
gross income and shall be exempt
from taxation.

EXCLUSIONS

L ife Insurance proceeds

A mount received as return of premium
Gi fts
C ompensation for injuries/sickness
I ncome exempt under treaty
Re tirement benefits, pensions
M iscellaneous items

L ife Insurance

proceeds
- paid to the
heirs or beneficiaries
upon the death of
the insured
illustration:
Mr. X purchased a life insurance policy with a
premium of P100,000. Under the policy, his heirs
would receive P1 million upon his death.
The P1 million Rupees received by the heirs is
excluded from their gross income, hence, not
taxable.

A mount received as
return of premium

Illustration:
Mr. Y, 25 yrs. old, purchased a life annuity plan
for P100,000. Under the plan, if he would still be
alive after 40 yrs., he would receive the amount
of P50,000 per year. Mr. Y died at the age of 75.

P50,000/yr
X 10 years
= P500,000

P100,000 as return of premium

P400,000 as profit

Gi fts
- no legally demandable obligation to give

C ompensation for injuries/sickness

- paid by Accident /Health insurance or paid
by defendant or accused in a lawsuit

I ncome exempt under treaty

- treaty obligation is binding upon the
Indian government

Re tirement benefits,
pensions,
separation pay

-retirement benefits:

retiree is at least 10 years in

service and
retiree is at least 50 yrs. old

- pensions: from SSS, GSIS, Retirement Plan

- separation pay: separation from the service is

because of death, sickness, or for any
cause beyond the control of the
employee.

M iscellaneous
items

- income derived by foreign government

- income derived by Indian government
- prizes and awards in recognition of
religious, charitable and educational
achievement
- prizes & awards in sports competition
- 13th month pay, Pongal bonus and other
benefits
- gains from indebtedness with a maturity of
more than 5 years

ITEMS of GROSS INCOME

Co mpensation for services
G ross income derived from conduct of trade
or business or exercise of a profession
G
I
R
Ro
D
A
P
P

ains derived from dealings in property

nterest
ents
yalties
ividends
nnuities
rizes and winnings
artners share from the income of a
general professional partnership

Compensation for
services
COMPENSATION
INCOME
- means arising from
personal
services
under an employeremployee
relationship

Gross income derived

from conduct of trade
or
business
or
exercise
of
a
profession
NON-COMPENSATION
INCOME
BUSINESS INCOME
PROFESSIONAL
INCOME
- income not derived from
personal services or not
related to an employeremployee relationship.

Gains derived
from dealings
in property

Interest

Rents

Royalties

Dividends

Annuities

Prizes and winnings

Partners share from

the income of a
general professional
partnership
General
Professional
Partnership (GPP)
- formed by persons for the
sole purpose of exercising
their common profession
- is not subject to income tax
but the partners are liable
for income tax in their
separate and individual
capacities
on
their
respective shares in the net
income of the partnership

DEDUCTIONS
- items which the law allows to be deducted
from the gross income of a taxpayer in order
to arrive at the taxable income

O
rdinary and necessary business expense
I
nterest
Ta xes
L
osses
Ba d debts
D
epreciation of property
D
epletion of natural resources
Char itable and other contributions
Pe nsion trust

O rdinary and necessary business

expense
- directly attributable to the conduct of the
trade, business or exercise of a profession
ex. salaries of employees
allowance for travel expenses
representation expense
promotion or advertising expense
rentals

I nterest

- paid on indebtedness in connection with

the taxpayers trade, business or profession
- ex. interest on bank loan used for
business expansion

T axes

- paid in connection with the taxpayers

trade, business or exercise of a profession
- ex. business tax paid for the operation of
the business

L osses

- of property connected with trade,

business or exercise of a profession
- not compensated for by insurance
- loss arise from fires, storms, robbery,
theft

Ba d debts

- actually ascertained to be worthless after

exerting a diligent effort to collect
- incurred in connection with the taxpayers
trade, business or exercise of a profession

D epreciation of property

- deduction of reasonable allowance for

the exhaustion, wear and tear of
property used in the trade, business or
exercise of a profession
- allocating the remaining value over the
economic life of the property
- ex.
property value P100,000
economic life 10 yrs.
= P10,000 deduction/yr. for 10 yrs.

D epletion of natural resources

- allocating the expenditure and

development of oil, gas, wells,
mines, etc. over the economic life of
such natural resources
- ex.
expenditure P10,000,000
eco. life
10 yrs.
= P1,000,000 deduction/yr for 10 yrs.

Char itable and other contributions

- to Indian government or any of its

agencies or political subdivision
exclusively for public purpose
- to organizations or associations operated
exclusively for religious, charitable,
educational purposes
- to social welfare institutions or NGOs

Pe nsion trust

- any contribution to it by the employer

is allowed to be deducted from
employers gross income

 For further details see the web site:

www.incometax.gov.in

Thank You