Exchange traded funds taxation
In general terms, taxation means to levy taxes on the products when it comes to purchase. Taxation comes into the picture when we purchase the goods or products from either outside the state within the country or from abroad either for personal use or for the business. When we purchase imported items within a state or the country, a certain percent is taxed as the sellers would have purchased the products on a certain rate but they pay the tax in the form of customs duty or the excise duty which will be discussed later in this topic. Taxation varies from product to product and from country to country but I would like to talk about the taxation prevailing in India.
Taxation in india:
India's tax structure comprises of three-tier federal structure. They are:
The Union Government.
The State Governments and
The Urban/Rural Local Bodies.
The Indian Constitution has distributed the power levy taxes and duties among these government bodies as follows:
The Union Government has the authority to levy the main taxes/duties, Income Tax on all incomes. They are not authorized to levy taxes on agricultural income.
The State Governments can levy taxes on agricultural income, customs duties, central excise and sales tax on sale of goods from other state, stamp duty that is for the purpose of property transfer and service tax.
The local Bodies have the power to levy taxes on properties like land, building, vehicle, machinery etc. Stamp Duty is the duty on which property is legally transferred from one person to another. State Excise duty is levied on alcohol manufacture, land Revenue used for agricultural or non-agricultural purposes and entertainment and tax on professions & callings. Octroi is the tax paid when the goods enter into the market from other state or country for consumption inside the local body areas. Taxes are levied on markets for user charges like water supply, drainage utility, etc.
India's tax system has changed in the year 1991 with liberal economic policy and WTO commitments. The changes are as follows
1) Reduction in customs and excise duties
2) Lowering corporate Tax
3) Widening of the tax base and toning up the tax administration
Taxes are levied in two ways
Direct Taxes
Indirect Taxes
Direct Taxes
Direct taxes are those taxes which are taxed from the employee's salary at the time of their payment. Direct taxes cannot be evaded. There are two types of Direct tax.
1. Personal Income Tax: Individual income slabs varies from Rs. 60,000/- per annum to Rs. 1, 00,000/- and above. If an individuals income is less than Rs. 5000/- then he/she is exempted from tax. If the income is Rs. 60,000/- per annum then the person has to pay professional tax and above Rs. 1, 00,000/- per annum they have to pay the tax as per the income tax scale. If a person is having a business then he/she has to pay the tax if their income is Rs. 1, 00,000/- and above per year.
2. Corporate Income Tax: Taxes are levied for domestic companies, @ 35% + 5% surcharge. It includes the company's branch from the same location or other state. In case of a foreign company, the tax is @ 40% + 5% surcharge. It includes branch from other countries and the states of other countries or project offices. If an Indian registered company is a subsidiary of that foreign company then it is considered as an Indian company for the tax purpose.
Indirect Taxes
Indirect taxes are those taxes which are levied on the purchases of commodities. This type of tax is not directly taxed from the individual. For example when an imported pair of shoes is purchased the suppliers has to pay the tax to the customs as an import duty. The following is the structure:
|
Value of the shoes: |
Rs. 6,000 (After foreign exchange) |
|
Transportation charges: |
Rs. 9,000 |
|
Import Duty: |
Rs. 3,000 |
|
Excise: |
Rs. 1,000 |
|
Total: |
Rs.19,000 |
Here the supplier incurs Rs.19, 000/- as an expenditure. The actual value of the commodity is Rs.6000/- but when other expenses like transportation charges, import and excise duty is included, the total cost of the commodity is Rs.19, 000/- and the supplier can recover the cost only when the commodity is sold. So when the commodity comes to the market a certain percent is taxed to the buyer which is called VAT (Value Added Tax). Sales tax is the other form of indirect tax. Sales Tax is divided into two categories
Central Sales Tax
Local Sales Tax
Central Sales Tax (CST)
CST is taxed about 4% on the goods that are manufactured. The Central Government governs the CST.
Local Sales Tax (LST)
When a sale of commodity takes place within a state, LST is levied on the buyer. The state tax legislation has the power to govern the local sales tax. 15% tax is levied.
Excise Duty
Excise duty on all the commodities varies from 0 to 16% except on seven items like motor cars, tyres, aerated soft drinks, air conditioners; polyesters etc are imposed 32%. 30% duty is on petrol that included excise duty at Rs.7- per litre, depending on the notifications that come from time to time. Excise duty is exempted for small scale sector from annual production upto Rs. 10 million.
Customs Duty
Custom Duty rates vary from 0 to 30%. The features of customs duty are:
- Peak customs duty is reduced from 220% in the 1991 to 30% in the 2002.
The import duty for the general projects reduced from 85% to 25
Import duty under EPCG Scheme is 5%.
R&D imports are levied 5% as customs duty.
- When imported goods are exported, the supplier gets a concession of duty drawback
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