Elucidate About The Taxation System In India Finance Essay
Tax is an amount payable by every earning individual of the country to the government for the maintenance and development of the country. Tax system in India is levied by the central government and state governments. Central government imposes direct taxes like personal income tax (PIT) and corporate tax and indirect taxes like excise duty, customs, and sales tax and service tax for interstate transactions. The state government levies a value added tax (VAT) on goods, state sales taxes and various other local taxes. Since 1991 the tax system has been rationalized in a vast way. There were a lot of changes made at the central government level like reduction of excise and customs and extending of VAT to various new industries. The principal direct taxes are personal income tax and corporate tax, state tax on agriculture, wealth and other withholdings. The personal income tax is levied at the rate of 10% to 31.5%. And it applies to Indians and foreigners for all income earned in India. The main indirect taxes are VAT, sales tax, customs and excise duties. The state vat and sales tax is levied on intrastate trade and CST is levied on interstate trade. VAT rates are 1%, 4 % and 12.5% and there are 5 states in India who have not implemented the VAT so they continue paying sales tax. The central government levies service tax on 71 services. Despite reforms tax structure in India is dominated by indirect taxes. State taxes on commodities and services are an important source of revenue for the central government. Income tax is charged every financial year that is from 1st April to 31st march.
INCOME TAX FOR NON RESIDENT INDIANS
Every non resident Indian who has a source of income based in India is liable to pay income tax to the government. This provision is stated in the income tax act 1961. In chapter XI of this act defines a NRI as a person of Indian origin or a citizen of India who is not a resident of India. However there are two criteria’s under which a citizen is considered to be a non resident Indian, they are :-
The person has to be outside India for 182 days or more
If a person has stayed outside for four years and in the current year stayed more than 60 days.
Non resident Indians are taxed on their Indian incomes and not the amount earned abroad but however if they receive any pension from overseas, they will be taxed by the Indian government. Section 9 states that a non resident Indian will be charged if he has a business in india, property or assets in india , or any other form of business that generates revenue in the country. The provision for the tax free income has been defined under the income t tax act 1961 and FERA act 1973.
INCOME TAX LAW IN INDIA
The income tax system in india is governed by the income tax act of 1961.first income tax act was introduced in 1860 under the financial difficulties faced in the year 1857 and it was decided to enact the law for 5 years. Agricultural income from lands above Rs 600 p.a. was included in the tax structure. This act lapsed in 1865 and was again revived in 1867 in form of licences tax on trades and profession on the basis of annual income. In 1868 legislature introduced the certificate tax which was materially different from the previous one. In 1869 this was changed to general income tax. The Act 2 of 1886 was the first important landmark in the history of income tax in the country. The basic schemes can be compared to the present tax law in India. The Income Tax Act of 1922 came into being as a result of the recommendations of the All India Income Tax Committee. The Act of 1922 made a departure by abandoning the system of specifying rates of taxation in its own schedule. There were various other changes made from the year 1939 to 1961 and in 1961 the income tax bill was introduced on the recommendation of the Lok Sabha which received presidents assent and on 13th September 1961 it finally became the Income Tax of India 1961. This Act has made considerable changes and departures from the pre 1961 legislations.
FOREIGN EXCHANGE MANAGEMENT ACT ( FEMA)
Foreign exchange regulation act was replaced by foreign exchange management. The new act was enacted on 1st June 2000.the main differences between FEMA and FERA were, the objective of FERA was to conserve forex and prevent misuse and the objective of FEMA is to facilitate external trade and payments and maintain the forex market in india.violation of fera was a criminal offence and were uncompundable but violation of fema is a civil offence and are compondable. Thirdly the citizenship was a criteria to determine residential status under fera but to determine residential status under fema one had to stay in india more than 182 days. The main objective of fema is to combine and regulate laws relating to foreign exchange with a view of regulating external trade and payments. It helps to maintain foreign market better in the country. The enactment of FEMA also brought in with in the prevention of money laundering act,2002 which came into effect from july 2005. FEMA extends to the whole of india and all the branches, offices and business outside india which are controlled by Indians. Howvere the rbi and the cenral government continue to be the regulatory bodies.
FEMA LAW IN INDIA
The fema act deals with laws relating to foreign exchange and other laws made to govern foreign investment in india. The most noticeable aspect of fema law is that there is no imprisonment prescribed for the contraventions of the law and not even alternative punishments for deliberate violations. The current law places places strictures on the conduct of foreign exchange in the country and the countrys nationals abroad. The FEMA law is enforced by a body known as enforcement directorate. Though the current law is way more liniet than the previous one (FERA) it still possess great power for gathering intelligence on suspects ,maintaining surveillance on suspects and the power to seize documents while investigation. The enforcement directorate has offices all over the country.
REAL ESTATE FOR NON RESIDENT INDIANS
Non residents can make real estate investments in india without the restriction on the number of investments. The government has made these investments in property smooth to generate a larger flow of foreign exchange in the country, however all purchases and sales are subjected to the rules and regulations under FEMA 1999. Another restriction on the nri investment was the restriction on returns one could take back or take out in relation to the investment he or she has made in the immovable property in india. The reserve bank of india has approved of non resident Indians to buy property for business or commercial purposes. These properties can ben acquired by inward remittances from any place outside india or through funds maintained in nri accounts in banks inside the country. The FEMA pre determines that before making the purchase a specif or particular form called the IPI7 is required to be filled with the central office of reserve bank along with supporting documents to prove that the person is a non resident indian. The form has to be filled within 90 days of purchasing the property.
PROPERTY FOR NRI
No approval is needed for non resident Indians to acquire movable or immovable property in india. There are no restrictions on the number of purchase however the amount has to be payed in foreign currency through normal banking channels or through the funds out from NRE/ FCNR accounts maintained with banks in india. Thisaquired property can be sold to other Indians or foreign nationals it can also be given out for rent, however the consideration has to be paid in indian rupee to the owner.
POWER OF ATTORNEY FOR NRI
When power of attorney is executed in india by a non resident indian
The power of attorney has to be executed on a non judicial stamp paper of the requisite value as per stamp duty prevalent in different states.
Each page of the power of attorney and wherever blanks are filled in should be initialled by the executants (all applicants to the loan). Power of Attorney should be signed by the Attorney on the last page.
Power Of Attorney Should be notarized by a Notary public.
When power of attorney is executed outside India by a non resident indian
The power of attorney should be first typed on a plain sheet of paper. Each page of the Power of Attorney and wherever the blanks are filled in should be initialled by the executants.
The signature of the executant/s should be attested by any authorized official of the Indian embassy/ India consulate/ Trade Commissioner of India in the country where the applicant resides.
On receipt of the POA in India it should be adjudicated within 60 days of its receipt in India.
The non resident indians can enter into agreements in india by executing their power of attorney as it is not possible for them to be present for carrying out the deals with builders and developers. The power of attorney is passed to a person who is residing in india to act on their behalf. However, the legal rules and regulations have to be followed for passing on the power of attorney.
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