DUTIES & TAXES :-

Value Added Tax (VAT) :-

Value Added Tax  (VAT) is an indirect  tax on goods. Introduced  in lieu of sales tax, to ensure transparency and greater compliance with statutory norms. The basic premise of VAT is to tax the “true value” added to the goods, at each stage of the transaction chain. This ultimately reduces.

  Ø  Tax paid to the government.

  Ø  Cost / tax passed onto the consumer.

VAT is a multi – point tax as against sales tax, which is a single – point tax. Under the sales tax regime the ‘value’ of goods to be taxed at each stage is computed as basic cost + profit margin + Sales tax paid at the earlier stage.

VAT does away with the cascading effect of tax on tax, by allowing a set off for input tax, i.e. tax paid at the earlier stages on purchases. Therefore, it is an efficient, globally acceptable and easy to administer taxation system.

The advantages of implementing VAT are as follows.

  Ø  Enhancement of competitiveness by removal of the cascading effect of taxes.

  Ø  Simplifying the process of taxation.

  Ø  Self – regulatory mechanism ensuring greater compliance.

Terms associated with VAT :-

TERMS	DESCRIPTION
Input Tax	Tax paid on purchases.
Output  Tax	Tax charged on sales.
Input Credit	The amount of Input tax that is permitted to be set off against Output tax.
Composite Dealers	Dealers with annual gross turnover not exceeding a certain  threshold, (threshold is decided by the respective State Governments) , who can opt for a composition scheme whereby they will pay tax as a small percentage of their gross turnover. However, retailers opting  for this composition scheme will not be entitled to input Credit. The State Government fix the periods and the procedures for the payment of the lump sum.

Tax Collected at Source ( TCS)

TCS is collected by a seller of certain specified goods at the specified rates on the purchases of the goods and is remitted to the treasury on behalf of the buyer. A person granting specific services  such as a lease of licence in parking lot, toll – plaza and so on, also collects taxes at the specified rates and pays tax on behalf of the lessee.

Example: On  purchasing goods of Rs. 10,000/- the buyer pays an amount of Rs. 10,000/- + (x being the value of TCS as prescribed under the income tax Act, 1961 – India) to the seller. The seller deposits the Tax Collected  at Source (TCS) at any of the designated branches of the authorised banks.

Tax Deducted  at Source (TDS)

Tax Deducted at Source is one of the modes of collecting income tax. The buyer/payer (Deductor) deducts tax from payment made to the seller/payee (Deductee) . the deductor then remits this tax to the Income Tax Department within the Stipulated time.

The buyers (Corporate and  Non-Corporate) male payments under various heads such as salary rent, interest on securities, dividends, insurance commission, professional fees, commission on brokerages, commission on lottery tickets, to the sellers of these services. The tax on such transactions is deducted at the time of payments or credit to the account of the payee, whichever is earlier and remitted to the Government within the time limits prescribed by the law.

Fringe Benefit Tax (FBT)

The Finance Act, 2005 introduced a new tax structure under the title, “Fringe Benefit Tax (FBT) “ by including a new chapter, XII-H in the income tax Act 1961, containing sections 115W to 115WL, which provides for the levy of additional income tax on fringe benefits offered by employers to their employees. FBT is payable in the year in which the expenditure is incurred, irrespective of whether the expenditure is capitalised or not. However, the same expenditure will not be liable to FBT again in the year in which it is amortised and charged to profit.

Fringe Benefit Tax  is

  Ø  A tax on expenditure, not income.

  Ø  A tax on employers, not employees.

  Ø  A surrogate tax on employers.

  Ø  A tax on benefits enjoyed collectively by the employees
    which cannot be attributed to individual employees.

  Ø  Payables by the employer only if he has employees based 
    in India.

  Ø  Payables irrespective of whether the employer is liable 
    to pay income tax on his total income.

  Ø  In the nature of additional income tax.

Indirect Taxes :

  Ø  Central Excise Duty

  Ø  Customs Duty

  Ø  Service Tax

  Ø  Sales Tax

GOODS AND SERVICE TAX

What is GST? How does it work ?

A:-As already mentioned in answer to Question 1, GST is a tax  on goods and services with comprehensive and continuous chain of set-off benefits from the producer’s point and service provider’s point up to the retailer’s level. It is essentially a tax only on value addition at each stage, and a supplier at each stage is permitted to set-off, through a tax credit mechanism, the GST paid on the purchase of goods and services as available for set-off on the GST to be paid on the supply of goods and services. The final consumer will thus bear only the GST charged by the last dealer in the supply chain, with set-off benefits at all the previous stages.

                      The illustration shown below indicates, in terms of a hypothetical example with a manufacturer, one wholesaler and one retailer, how GST will work. Let us suppose that GST rate is 10%, with the manufacturer making value addition of Rs.30 on his purchases worth Rs.100 of input of goods and services used in the manufacturing process. The manufacturer will then pay net GST of Rs. 3 after setting-off Rs. 10 as GST paid on his inputs (i.e. Input Tax Credit) from gross GST of Rs. 13. The manufacturer sells the goods to the wholesaler. When the wholesaler sells the same goods after making value addition of (say), Rs. 20, he pays net GST of only Rs. 2, after setting-off of Input Tax Credit of Rs. 13 from the gross GST of
Rs. 15 to the manufacturer. Similarly, when a retailer sells the same goods after a value addition of (say) Rs. 10, he pays net GST of only Re.1, after setting-off Rs.15 from his gross GST of Rs. 16 paid to wholesaler. Thus, the manufacturer, wholesaler and retailer have to pay only Rs. 6 (= Rs. 3+Rs. 2+Re. 1) as GST on the value addition along the entire value chain from the producer to the retailer, after setting-off GST paid at the earlier stages. The overall burden of GST on the goods is thus much less. This is shown in the table below. The same illustration will hold in the case of final service provider as well.