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. For example, suppose that in a given year, XYZ Company earns a profit of 3 million, pays 2 million in salaries, and spends an added 1 million on other expenses the IRS deemsContinue reading

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. Labor income is usually defined as income earned from activities as an employed individual. Capital income can take a variety of forms such as dividends,Continue reading

Overview of Tax Regime in India

DIRECT TAXES Individual Income Tax & Corporate Tax The provisions relating to income tax are contained in the Income Tax Act 1961 and the Income Tax Rules 1962. The Income Tax Department is governed by the Central Board for Direct Taxes (CBDT) which is part of the Department of Revenue under the Ministry of Finance. In terms of the Income Tax Act, 1961, a tax on income is levied on individuals, corporations and body of persons. Tax rates are prescribed by the government in the Finance Act, popularly known as Budget, every year. The Government of India has recently taken initiatives to reform and simplify the language and structure of the direct tax laws into a single legislation – the Direct Taxes Code (DTC). After public consultation the Direct Taxes Code 2010 was placed before the Indian Parliament on 30 August 2010, when passed DTC will replace the Income TaxContinue reading

Goods and Services Tax (GST) in India

Goods and Services Tax (GST) is part of the proposed tax reforms that centre round evolving an efficient consumption tax system in the country. Presently, there are parallel systems of indirect taxation at the central and state levels. In the Union Budget for the year 2006-2007, Finance Minister proposed that India should move towards national level Goods and Services Tax that should be shared between the Centre and the States. He proposed to set April 1, 2010 as the date for introducing the goods and service tax (GST). Goods and Services Tax is proposed to be an indirect tax levied on manufacture, sale and consumption of goods and services at a national level concurrently by Central and State Governments. This Integration of goods and services taxation would end the distortions of differential taxation treatments of manufacturing and service sector. The Central and State governments both charge a multitude of indirectContinue reading

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). Income tax assessment procedure begins when an assessee files his return of income to the income tax department. Filing of return [Sec 139 (1)] A person has to file return of income in the prescribed form within the specified time limit if his total income exceedsContinue reading

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. 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. The transfer may be revocable or not. There is no exception to this rule. Revocable transfer of assets: Any income arising to any person from an asset as a result of revocable transfer of asset shall be deemed to be the income of transferor. As per [Sec62] the income revocableContinue reading