Direct tax

• A direct tax is generally a tax paid directly to the government by the person on whom it is imposed.
• Incidence and Impact at the same point

(1) Income Tax

(Calculated on Slab basic (2.5 lakh). Tax on Net Income not on Gross income)

Use New method when you do not claim exception, use Old method when claim exception.

Old Method	New Method
0-2.5 lakh - No Tax 2.5 – 5 lakh – 5%   Tax 5 – 10 lakh – 12,500   + 20% Tax Above 10 Lakh –   1,12,500 + 30% Tax	0-2.5 lakh - No Tax 2.5 – 5 lakh – 5%   Tax 5 – 7.5 lakh – 10%   Tax 7.5 – 10 lakh – 15%   Tax 10 – 12.5 lakh – 20%   Tax 12.5 – 15 lakh – 25%   Tax Above 15 Lakh – 30%   Tax
8,00,000 lakh income   0-2.5 lakh no tax, 2.5 – 5 lakh – 5%   tax = 12,500, Next 5 – 8 lakh –   20% tax = 60,000. Totally, 72,500 tax to pay	8,00,000 lakh   income. 0-2.5 lakh no tax, 2.5 – 5 lakh – 5%   tax = 12,500, Next 5 - 7.5 – 10%   tax = 25,000, Next 50,000 is 15%   tax = 7,500, Totally 45000 tax to pay
Claim Exception School fees,   Donation to trust/Political party, House Rent, Travel, Loan, Insurance.	No Exception

• Indian Income tax levies tax on individual taxpayers on the basis of a slab system. Slab system means different tax rates are prescribed for different ranges of income.
•  It means the tax rates keep increasing with an increase in the income of the taxpayer. This type of taxation enables progressive and fair tax systems in the country.
• Such income tax slabs tend to undergo a change during every budget.
• These slab rates are different for different categories of taxpayers. Income tax has classified three categories of “individual “taxpayers such as:
• Individuals (aged less than of 60 years) including residents and non-residents
• Resident Senior citizens (60 to 80 years of age)
• Resident Super senior citizens (aged more than 80 years)
• Every individual whose total income exceeds taxable limit has to pay income tax based on prevailing rates applicable time to time.
• For FY 2019-20 Income tax rates are:-

In this new regime, taxpayers has an OPTION to choose either:

• To pay income tax at lower rates as per New Tax regime on the condition that they forgo certain permissible exemptions and deductions available under income tax, Or
• To continue to pay taxes under the existing tax rates. The assesse can avail rebates and exemptions by staying in the old regime and paying tax at the existing higher rate.
• Please note that the tax rates in the New tax regime is the same for all categories of Individuals, i.e Individuals & HUF upto 60 years of age, Senior citizens above 60 years upto 80 years, and Super senior citizens above 80 years. Hence no increased basic exemption limit benefit will be available to senior and super senior citizens in the New Tax regime.
• Individuals with Net taxable income less than or equal to Rs 5 lakh will be eligible for tax rebate u/s 87A i.e tax liability will be nil of such individual in both – New and old/existing tax regimes.
• Basic exemption limit for NRIs is of Rs 2.5 Lakh irrespective of age.
• Additional Health and Education cess at the rate of 4 % will be added to the income tax liability in all cases. (increased from 3% since FY 18-19)
• Surcharge applicable as per tax rates below in all categories mentioned above:
• 10% of Income tax if total income > Rs.50 lakh
• 15% of Income tax if total income > Rs.1 crore
• 25% of Income tax if total income > Rs.2 crore
• 37% of Income tax if total income > Rs.5 crore

Conditions for opting New Tax regime.

• The taxpayer opting for concessional rates in the New Tax regime will have to forgo certain exemptions and deductions available in the existing old tax regime.
• In all there are 70 deductions & exemptions that are not allowed, out of which the most commonly used are listed below:

List of common Exemptions and deductions “not allowed” under New Tax rate regime

• Leave Travel Allowance (LTA)
• House Rent Allowance (HRA)
• Conveyance allowance
• Daily expenses in the course of employment
• Relocation allowance
• Helper allowance
• Children education allowance
• Other special allowances [Section 10(14)]
• Standard deduction on salary
• Professional tax
• Interest on housing loan (Section 24)
• Deduction under Chapter VI-A deduction (80C,80D, 80E and so on) (Except Section 80CCD (2))
• List of deductions “allowed” under new Tax rate regime
• Transport allowance for especially abled people
• Conveyance allowance for expenditure incurred for travelling to work
• Investment in Notified Pension Scheme under section 80CCD (2)
• Deduction for employment of new employees under section 80JJAA
• Depreciation u/s 32 of the Income-tax act except additional depreciation.
• Any allowance for travelling for employment or on transfer

(2) Capital Gains Tax

(Buy home at 50,00,000, at the time of selling cost rise to 70,00,000. Tax on the Gain of Capital get Profit. [Property, Jewels, Share (short term is 1 year), all capitals…]

Classified: Short term (Sell less than 3 Years) & Long Term)

• Capital Gain tax as name suggests it is tax on gain in capital.
• If you sale property, shares, bonds & precious material etc. and earn profit on it within predefined time frame you are supposed to pay capital gain tax.
• The capital gain is the difference between the money received from selling the asset and the price paid for it.
• Capital gain tax is categorized into short-term gains and long-term gains. The Long-term Capital Gains Tax is charged if the capital assets are kept for more than certain period 1 year in case of share and 3 years in case of property.
•  Short-term Capital Gains Tax is applicable if these assets are held for less than the above-mentioned period.

Why is LTCG tax in the news now?

• Finance Minister Arun Jaitley, in his Union Budget speech, re-introduced LTCG tax on stocks on 2018, Jan 31.
• Investors will have to pay 10 per cent tax on profit exceeding Rs 1 lakh made from the sale of shares or equity mutual fund schemes held for over one year.
• Till now, LTCG was exempt from tax.

The budget talks about 'grandfathering' in LTCG. What is that?

• The 'grandfathering' clause is the exemption granted to existing investors or gains made by them before the new tax law comes into force.
• Whenever the government introduces a stricter tax law, it has to ensure that investors who have committed money keeping in mind the easier tax regime are protected. In the matter of LTCG tax on shares, the government said gains from shares or equity mutual funds made till January 31, will be grandfathered - or exempted.

(3) Securities Transaction Tax

(Tax on Transaction of Stocks)

• A lot of people do not declare their profit and avoid paying capital gain tax, as government can only tax those profits, which have been declared by people.
• To fight with this situation Government has introduced STT (Securities Transaction Tax) which is applicable on every transaction done at stock exchange.
• That means if you buy or sell equity shares, derivative instruments, equity oriented Mutual Funds this tax is applicable.
• This tax is added to the price of security during the transaction itself, hence you cannot avoid (save) it. As this tax amount is very low people do not notice it much.

(4) Perquisite Tax

(Tax on Benefits given to employee from employer. Tax on Employer.

Ex: In IT Company: Give Car with driver, Company Share, Laptop, House. This Tax Abolish in 2009)

• Earlier to Perquisite Tax we had tax called FBT (Fringe Benefit Tax) which was abolished in 2009, this tax is on benefit given by employer to employee.
• E.g. If your company provides you non-monetary benefits like car with driver, club membership, ESOP etc. All this benefit is taxable under perquisite Tax.

(5) Corporate Tax

(Directly levied tax on firms: 30% when claim exemptions, 22% {Effective tax 25.17%} without claim exemptions. New Company Register: tax 15% {Effective tax 17.01%} till March 2023).

• Corporate Taxes are annual taxes payable on the income of a corporate operating in India.
• For the purpose of taxation companies in India are broadly classified into domestic companies and foreign companies.

Finance Minister Nirmala Sitharaman has announced major changes in corporate income tax rates to revive growth in the broader economy. This has been achieved through an ordinance– the Taxation Laws (Amendment) Ordinance 2019.

What has the government done?

• Corporate tax rate to be 22 per cent without exemptions.
• No Minimum Alternate Tax (MAT) applicable on such companies.
• Effective corporate tax rate after surcharge and cess to be 25.17 percent.
• To attract investment in manufacturing, local companies incorporated after October 2019 and till March 2023, will pay tax at 15 percent.
• That effective tax for new companies shall be 17.01 percent, including cess and surcharge. Companies enjoying tax holidays would be able to avail concessional rates post the exemption period.
• Will give MAT relief for those opting to continue paying surcharge and cess. MAT has been reduced to 15 percent from 18.5 percent for companies who continue to avail exemptions and incentives.

Minimum Alternate Tax: -

(Even Claim all Exemption, must pay minimum of 18.5% Tax – to tax on Zero tax Company. Introduced Financial Act, 1987, force on 1988-1989. Withdraw in 1990 & reintroduce in 1996.)

• At times it may happen that a taxpayer, being a company, may have generated income during the year, but by taking the advantage of various provisions of Income-tax Law (like exemptions, deductions, depreciation, etc.), it may have reduced its tax liability or may not have paid any tax at all.
• Due to increase in the number of zero tax paying companies, MAT was introduced by the Finance Act, 1987 with effect from assessment year 1988-89.
• Later on, it was withdrawn by the Finance Act, 1990 and then reintroduced by Finance (No. 2) Act, 1996.
• The objective of introduction of MAT is to bring into the tax net "zero tax companies" which in spite of having earned substantial book profits and having paid handsome dividends, do not pay any tax due to various tax concessions and incentives provided under the Income-tax Law.

(6). Banking Cash Transaction Tax (BCTT)

(Tax of 0.1 on above 50k deposit, Now Ask PAN card for above 50 k deposit)

Abolish in 2009

• BCTT was a tax on withdrawal of cash from banks in India from 2005-2009.
• The Indian government had introduced 0.1 per cent BCCT in 2005 on cash withdrawals of more than Rs 50,000 (individuals) and Rs 1,00,000 for others in a single day from non-savings bank account maintained with any scheduled bank.
• This tax was withdrawn with effect from 1 April 2009.

(7). Wealth Tax

(Tax on wealth, individual having. Abolished in 2015 instead of that Surcharge (Tax on Tax) of 12% on Above 1 crore Income).

• The Wealth Tax Act, 1957 governs the taxation process associated with the Net Wealth of an Individual, a Hindu Undivided Family (HUF), or a Company possesses on the Valuation Date.
• Wealth tax is abolished by government in budget 2015.
• Now onwards surcharge of 12% is applicable on individual earning 1 crore and above.

Tax on Agricultural Income

(Exempt from Agriculture tax (Rent, Revenue, Farm House (Some Exemption), Saplings/ Seedling sell) – Section 10(1) of Income Tax Act).

For Plantation crop is taxable at specific ratio. Tea cultivation (40% (Business income - Taxable) - 60% (Agriculture Income)).

• In India, the agricultural income is exempt from tax by virtue of section 10(1) of Income Tax Act.
• Under the law, the agricultural income is defined as:
• Any rent or revenue derived from land, which is situated in India and is used for agricultural purposes.
• Any income derived from such land by agricultural operations including processing of agricultural produce, raised or received as rent-in-kind so as to render it fit for the market or sale of such produce.
• Income attributable to a farm house (subject to some conditions).
• Income derived from saplings or seedlings grown in a nursery.
• Kindly note that for some farming activities (Plantations), fraction of the income is taxable.
• For example, for Tea cultivation (40-60 ratio is used, which implies that 40% income is considered Business Income while 60% is agricultural income.
• This figure stands at 35-65 for latex, 25-75 for coffee growing and curing; 40-60 for coffee growing, curing, roasting and grounding