Income Tax Concepts

Double Taxation Relief

One of the major risk in the International Business is the payment of taxes in both the  countries i.e. the country in which the business is actually effected and in the  country where the MNC is having its head office. This type of double taxation  will definitely impede the growth and development of the MNCs in multiple  ways. So the provisions are made to avoid the double taxation (Double Taxation Relief) between the two  countries through two types of relief namely Bilateral Relief and Unilateral  Relief.

Bilateral Relief

Under this scheme, relief against the burden of double taxation is worked out on  the basis of mutual agreement between two countries.… Read the rest

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Dual Income Taxation

The Dual Income Tax (DIT) is a combination of both comprehensive income tax system and flat tax system. It is not a plain comprehensive system with a single progressive tax development or a flat tax with only a proportional tax, but a combination of both. It attempts to tax the personal capital income at a uniform (low) proportional tax while maintaining a (higher) progressive rate on the labour income.

This taxation system was first introduced in Denmark 1987, other northern countries as Finland, Norway or Sweden followed. Until today the Norwegian system is seen as the most experienced one and is seen as very respected for the consistency with which it was implemented.… Read the rest

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Flat Tax System

An alternative to the global tax system or comprehensive taxation system is the so called flat tax system. Herewith a flat proportional taxation for all net income types, capital, labor and other income is installed. This taxation system does not consider the taxpayers ability to pay taxes but sets a flat level for all income types. Some east European countries (Russia and Slovakia) have installed this taxation system. Russia replaced its progressive taxation system with a single flat tax rate of 13%.

Under a pure flat tax without deductions, companies could simply, every period, make a single payment to the government covering the flat tax liabilities of their employees and the taxes owed on their business income.… Read the rest

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Comprehensive Income Taxation

The comprehensive income tax system also known by other synonyms as global income tax, unitary income tax or synthetic income tax is the most used taxation system in western European countries. It has got its name due to the fact that all income types are seen as a one and therefore are added together and taxed as one whole income. It was seen as the ideal tax system in Europe because in its original form it could align fully with the “ability to pay principle” and to both tasks of simplicity and fairness. This method is composed as a system which adds together all the taxpayer’s income (from labor, capital, rent and business) in a single measure and taxes it with a single progressive tax.… Read the rest

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Income Tax Assessment Procedure

Ascertaining total income is one major task of the procedure involved in levying tax on an assessee.   The task of assessing the income returned and determination of tax liability is called ‘assessment’.   The term ’assessment’ has been used in the Income-tax Act meaning differently contexts.   In certain situations, it refers to computation of income, sometimes to the determination of tax payable and in some cases to the whole procedure laid down in the Act of imposing tax liability on assessee.

Assessment of income relating to one Financial Year (FY) starts in the succeeding financial year, which is called Assesment Year (AY).… Read the rest

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Clubbing of Income Under Income Tax

An assessee may reduce his tax liability by transferring his assets in favor of a person who is related to him. As per [Sec 60] to [Sec 64], income belonging to some other person will be taxed in the hands of the assessee in certain situation for the purpose of avoiding tax evasion. This is called   clubbing of income.

  1. Transfer of income without the transfer of assets: Income arising to nay person by virtue of any transfer of any income, without transferring the assets is deemed to be the income of the transferor and is taxable in his hands.
… Read the rest
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