Welcome to the 'Oracle Financials for India (OFI) - India Localization Blog'.
In our constant endeavor to serve the esteemed Customers in different possible ways and share various important product communication, updates and features on regular basis, we have initiated the Oracle Financials for India (OFI) Blog.
With this, I am highly delighted to inform you that you will be shared on regular basis with Key product updates, different offerings from a product functionality perspective and also various important patch updates for some of the business critical issues.
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With this, will quickly move on to the first post 'India - Tax Applicability', which will help the users/audience understand the overall tax structure in India across different business scenarios.
The intent is to help the users understand at a very high level, various tax implications in regards to the day to day business transactions thereby aiding the users come up with the hassle free business mapping rules and gap analysis as they further embark on India specific roll out or implementation of the Oracle Financials for India (OFI) product.
The main objective of this Blog is to provide a brief overview of the tax applicability across different business transaction flows in India.
This content is intended to be supplementary in nature for knowledge & information purposes and does not in any way, purport to be a substitute for any official document existing or being drafted or currently published. Before initiating any purchase/sale transactions, the users should consult their respective tax/finance departments for any tax applicability details.
Businesses in India must pay to the supplier, the taxes related to central, state, and city tax authorities on most of the goods and services that they purchase. Also, Businesses collect from customers, the taxes related to central, state and city tax authorities on most of the goods and services that they sell.
Find below the quick snapshot of the Tax structure in India:
Following taxes are applicable for the business transactions in India based on the nature of transaction:
1. Income Tax:
Income Tax is the Tax levied on the income of the Individuals or other entities like Hindu Undivided Families or firms or any other trusts.
2. Capital Gains Tax:
Capital Gains Tax is a tax on Gains or Profits arising from transfer of a Capital Asset.
3. Securities Transaction Tax (SST:
SST is tax payables on the value of Securities.
4. Perquisite Tax:
Perquisites are the perks or benefits received by an individual in view of his employment/professional association with any Organization or company. Perquisite tax is the tax levied on these perquisites. This shall be paid by the employer who provides these benefits to the Employees.
5. Corporation Tax:
It is a tax levied on the net income of the Company. Companies which are registered in India under the Companies Act 1956 are liable to pay Corporate Tax.
It is an additional tax levied on the total tax liability. The applicability depends on the total tax liability payable.
7. Tax Deducted At Source (TDS):
Tax Deducted at source is the amount withheld from payments of various kinds such as salary, contract payment, commission etc.
8. Tax Collected At Source (TCS):
Tax Collected at Source arises on the part of the seller of goods. Here, tax is collected at the source of income itself. It is to be collected at source from the buyer, by the seller at the point of sale.
- Every person, being a seller, shall collect tax at source (TCS) from the buyer of goods specified in section 206 C (1)
9. Education Cess (EC):
Education Cess is an additional levy on the Basic tax liability. As the name suggests, this is a cess that is collected in order to enable the Govt. to run the education programs and any such scheme to improve the quality/standards of Education in India.
- Levied from 2004
- The Cess is levied in 2 parts:
- Primary Education cess(EC) => 2% applicable on the total tax payable.
- Secondary Higher Education Cess(SHC) => 1% applicable on the total tax payable.
- Budget 2015-2016 proposed to increase the present rate of service tax plus (EC+SHC) from 12.36% to a consolidated 14%. With this, it got proposed that both the EC and SHC will get subsumed into the new tax rate in Service Tax Regime. This is applicable even for the EC and SHC of the Excise tax.
10. Secondary Higher Education Cess (SHEC):
SHEC is the additional levy imposed to create an expenditure pool for higher education improvement.
11. Customs Duty:
Customs Duty is the duty levied by Customs on imported goods and exports (in some cases). In addition, Additional customs duty would also be applicable in case of some transactions.
12. Central Excise Duty:
Central Excise duty is an indirect tax levied on goods manufactured in India. The manufacturer of final product shall be allowed to take credit of duty of excise paid on any input received in the factory.
13. Service Tax:
Service tax is an indirect tax levied on specified taxable services. The responsibility of payment of the tax is cast on the service provider. The credit of the Service Tax paid on the input services/Central Excise duties paid on inputs/capital goods/Additional Customs duty can be utilized towards payment of Service Tax by an assessee on their output services.
- It is levied under Section 66B of the Finance Act, 1994.
- It is administered by the Central Excise & Service tax Commissionerates and the Service Tax Commissionerates working under the Central Board of Excise & Customs, Department of Revenue, Ministry of Finance, Government of India
- Section 68(1)confers liability to pay service tax on service provider
14. Swachh Bharath Cess (SBC):
It is a Cess which shall be levied and collected in accordance with the provisions of Chapter VI of the Finance Act, 2015 on all the taxable services at the rate of 0.5% of the value of taxable service.
- Came into effect from Nov-2015(Ref: (notification No.21/2015-Service Tax, dated 6th November, 2015)
- Effectively, the rate of SBC would be 0.5% and new rate of service tax plus SBC would be 14.5%.
- As such SBC translates into a tax of 50 paisa only on every one hundred rupees worth of taxable services. The proceeds from this cess will be exclusively used for Swachh Bharat initiatives
15. Krishi Kalyan Cess (KKC):
KKC is an additional levy imposed for the purpose of financing and promoting the Agriculture improvement initiatives and measures.
- This is a new Cess introduced from Budget 2016.
- This would be levied @0.5% on the Taxable Service value.
16. Sales Tax:
Sales tax is levied on the sale of a commodity, which is produced or imported and sold. Sales Tax is a levy on purchase and sale of goods in India and is levied under the authority of both Central Legislation (Central Sales Tax) and State Governments Legislations (Sales Tax).
The Government levies Sales Tax principally on intra-state sale of goods. States also levy tax on transactions which are "deemed sales" like works contracts and leases. In addition to Sales Tax, some states also levy additional tax, surcharge, turnover tax and the like. Ordinarily, Sales tax is recovered from the buyer as a part of consideration for sale of goods.
17. Value Added Tax (VAT):
Value Added Tax is a multi point sales tax with set off for tax paid on purchases. It is basically a tax on the value addition on the product. At present the set off would be available on the goods locally purchased within the State only. No set off would be available to the goods purchased in the course of inter state trade and commerce. VAT is a state subject.
18. Other Taxes (State Specific):
It is the tax on income of the individual. It is levied by the State Governments in India. The applicability tax amount varies from State to State.
Gift Tax is the tax imposed on the gift of property or any other such financial assets without receiving or expecting something of monetary gains or value in return.
It is a user fee collected from the people who use the road i.e the fee paid by the users for using the service offered.
Octroi is the duty levied on a certain goods entering a specific town /municipality or a City.
- Works Contracts Tax (WCT):
Works contract tax (WCT) is a tax imposed on a contract for work, such as assembling, construction, building, altering, fabricating etc.
Purchase Tax is the tax paid to the VAT department for the purchases made from an unregistered dealer.
Turnover Tax is the tax levied on the Net value of the sales done by a Business Firm in any particular financial year.
- It is not applicable as of now in India.
It is the tax levied on any financial transaction that is related to entertainment (e.g. Movie tickets, Amusement parks etc.)
It is the tax levied on any Registration of the documents (e.g. sale deed) made under the provisions of the relevant Registration act of any State.
Author has compiled this information to the best of his knowledge based on his expertise and knowledge across different domains and also data collected from different sources(e.g. Govt.Tax sites like CBDT etc). Author shall not be held responsible for the data accuracy in this article. All the details of article are view of author and he is not responsible for any action taken by reader.