A BRIEF OVERVIEW OF THE PREVIOUS CLASS (05:04 PM)

GST- POSITIVES & NEGATIVES (05:06 PM)

• Positives of GST
• Simple and easy to administer because multiple indirect taxes at the central and the state level are replaced by a simple tax system. Moreover, backed by an end-to-end IT system (GSTN), it would be easy to administer.
• Relief in overall tax burden for the consumer. 
• Simple and Transparent tax that will lower inflation in the long run. 
• GST helps in the creation of a national market (One nation one tax). 
• Tax democracy- Luxury items would be taxed more and basic necessities will be exempted. 
• Ease of doing business due to better tax compliance.
• Removal of cascading effect thereby increasing tax efficiency
• Uniform tax rates will help in better decision-making and increased investment by corporates
• It increases specialization and ancilliarization and also helps in boosting foreign investments due to increased transparency. 
• GST helps in increasing economic growth in the long run.  
• GST increases logistics efficiency. 
• The GST system has led to an increase in new tax registrants i.e. Formalization of the Indian economy
• Better control of leakages.
• Tax inefficiency will reduce and it will lead to widening of the tax base. 
• Relief in overall tax burden for the consumer.
• Removal of cascading effect, thereby increasing tax efficiency.
• Reduction in transaction costs will lead to improved competitiveness.
• GST promotes cooperative federalism and competitive federalism. 
• Foreign investments will move faster. 
• Challenges of GST
• There are exemptions under GST and in the initial stages, there were very high revenue-neutral rates. 
• The anti-profiteering clause was seen as a backdoor entry of the license raj.
• Confusion regarding control over taxation.  
• Issues related to compensation to developed states
• IGST system looks complicated

GST COMPENSATION CESS (05:43 PM)

• Due to the consumption-based GST system, manufacturing states like Gujarat, Haryana, Karnataka, Maharashtra, and Tamil Nadu feared revenue losses, and therefore, GST Compensation Cess was introduced to compensate for plausible revenue losses suffered by such manufacturing states.
• Under existing rules, GST Compensation cess will be levied only for the first 5 years of the GST regime (July 1st, 2017- July 2022-currently extended to 2025-2026).
• The compensation cess payable to states is calculated based on the methodology specified in the GST Compensation to States Act 2017.
• The Compensation Fund so collected is released to the states every 2 months. 
• Any unused money from the compensation fund at the end of the transition period shall be distributed between the Centre and states as per any applicable formula.
• Compensation cess is levied on sin or luxury goods as mentioned in the GST Compensation to States Act 2017 and includes items such as Pan Masala, Tobacco, automobiles, etc.

E-WAY BILLS (05:50 PM)

• The electronic way Bill or e-way Bill system offers a technological framework to track intra-state as well as the inter-state movement of goods of value exceeding Rs. 50,000 for sales beyond 10 km in the GST regime.
• When an e-way Bill is generated a unique e-way Bill number is allocated and is available to the supplier, recipient, and transporter.
• E-way Bill was mainly launched to facilitate faster movement of goods and also to improve logistics efficiency. 
• A fine of Rs. 10,000 can be levied if a consignment moves without generating a valid e-way Bill. In some situations, goods & vehicles transporting them can be seized.

TYPES OF TAXES- DIRECT TAX (06:00 PM)

• It is a tax where the burden of the tax can not be shifted. It should be paid by the person or entity on whom it is levied (the impact and incidence of the tax are on the same point.)
• Different types of taxes of the central government are as follows- 
• Income Tax 
• This is the most common type of tax that an individual pays to the government.
• The government also levies an additional surcharge, if the income crosses Rs. 50 Lakhs.
• [* It is generally progressive in nature although it turns out to become digressive after the 30% bracket.]
• Corporate Tax 
• It is like the Income Tax of corporates.
• A company whether Indian or foreign is liable to taxation under Income Tax Act 1961 [* The registrar of companies and the Company Law Board administers the provisions of the act.]
• Presently base corporate tax is 22%.
• Several companies try to avoid tax payments using loopholes in the taxing system and therefore, the government decided to levy a minimum percentage of tax on book profits (MAT).
• Minimum Alternate Tax (MAT)
• MAT is a provision in Direct Tax laws to limit tax exemptions availed by companies.
• MAT is fundamentally a means to prevent tax avoidance by making companies pay a minimum tax at a rate of 15% on their book profits.
• Once a company pays MAT it need not pay Corporate Tax.
• Fringe benefits tax
• It was applied to every fringe benefit passed by the employer to their employees. It covered employee welfare, accommodation, entertainment, employee stock option plan, etc 
• It was started in 2005 and scrapped in 2009. 
• Banking Cash Transaction Tax  NOT THERE NOW
• It was in force between 2005-09 at a rate of 0.1% on every bank transaction.  
• Capital Gains Tax
• Any profit or gain that arises from the sale of capital assets is a capital gain. [* The profit from the sale of capital is taxed.] 
• Capital assets include land, building, jewellery, patents, financial instruments, etc 
• Short-Term Capital Assets
• An asset which is held for not more than 36 months or less is a short-term capital asset.  
• From 2017-18, the criteria of 36 months have been reduced to 24 months, in the case of immovable properties like land and buildings 
• Long-term Capital Assets
• An asset that is held for more than 36 months is a long-term capital asset (* 24 months for land and buildings currently ) 
• Long-term capital gains tax is 20% plus a surcharge and education cess.  
• Tax on short-term capital assets
• a) When STT (Securities transaction tax) is not applicable- Short Term Capital Gains are added to your income tax liability and the taxpayer is taxed according to its income tax slab. 
• b) If STT is applicable, then short-term capital gains are taxable at a rate of 15% plus surcharge plus cess. 

TAXES ON WEALTH AND CAPITAL (07:09 PM)

• Wealth Tax
• It was first introduced in 1967. It was levied on the excess of net wealth over 30 lakhs at a rate of 1%. 
• Wealth tax has been a minor source of revenue and the tax stands abolished w.e.f 2015 
• Dividend Distribution Tax (DDT)
• Dividend refers to the distribution of profits to shareholders of a company.  
• Thus, the dividend distribution tax is a type of tax i.e. payable on the dividends offered to its shareholders by the corporation. Higher dividends mean higher taxes on the corporate entity.  
• In the Budget 2020, DDT was abolished and the incidence of dividend income taxation is shifted to investors from the companies.  
• Estate Duty
• It was first introduced in 1953. It was levied on the total property passing on after the death of a person.  
• The whole property of the deceased person constituted his wealth and is liable for the tax.  
• The tax was abolished in 1985 
• Gift tax
• The gift tax is a provision introduced by parliament in 1958. 
• It was introduced to impose a tax on giving and receiving gifts which are specified under the Acts. These gifts can be in any form including cash, jewellery, property, shares, vehicles etc. 
• Though Gift tax is applicable on gifts whose value exceeds Rs 50000, the gift is exempted from tax, if it is given by a relative. 
• Gifts received as part of inheritance are exempted from tax and also gifts received during weddings are exempt from tax. 
• Cash or rewards received from local authorities or educational institutions on the basis of merits is also exempted from tax. 

BUDGET- ANNUAL FINANCIAL STATEMENT (07:24 PM)

• An annual financial statement is mentioned in Article 112 of the Indian constitution. 
• The budget primarily consists of 2 components such as receipts and expenditure 
• The receipts are further classified into revenue receipts and capital receipts whereas the expenditure is further classified into - Revenue expenditure and capital expenditure 
• Structure of Government Receipts 
• 
• Structure of government expenditure 
• 
• Revenue expenditures are considered day-to-day expenditures. 

The Topic for the next class:- Budget components and Budgetary deficits.