16.Taxation Structure in India (Part - 2)

Question 1

What is a surcharge?

Answer 1

A surcharge is a tax on tax imposed by the government to address inequality in society. It is usually applied to individuals with higher earnings.

Question 2

What are the surcharge rates for individuals in India based on income?

Answer 2

*Rs 50 lakhs - 1 Crore: 10% surcharge
*1 Crore - 2 Crore: 15% surcharge
*2 Crore - 5 Crore: 25% surcharge
*More than 5 Crore: 37% surcharge

Question 3

What are the surcharge rates for corporates in India based on income?

Answer 3

For Domestic Companies:

*Income Rs 1 Crore - 10 crore: 7% surcharge
*Income more than Rs 10 crore: 12% surcharge

For Foreign Companies:

*Income Rs 1 Crore - 10 crore: 2% surcharge
*Income more than Rs 10 crore: 5% surcharge

Question 4

What is a cess?

Answer 4

A cess is a temporary levy imposed by the government for a specific objective. It may be withdrawn once the objective is achieved.

Question 5

What is the current cess applied by the government of India?

Answer 5

Currently, a 4% health and education cess is applied on individuals and corporations in India.

Question 6

What is Securities Transaction Tax (STT)?

Answer 6

Securities Transaction Tax (STT) is a tax imposed by the government on transactions in the stock market.

Question 7

When was Securities Transaction Tax (STT) introduced in India?

Answer 7

Securities Transaction Tax (STT) was introduced in the 2004-05 Union Budget and came into effect from 1 October 2004.

Question 8

What is the current rate of Securities Transaction Tax (STT) on equity shares?

Answer 8

The current rate of Securities Transaction Tax (STT) on equity shares purchased on a delivery basis is 0.1%.

Question 9

What are short-term capital gains?

Answer 9

Short-term capital gains refer to the profits earned on shares held for a period of less than 1 year.

Question 10

What is the current tax rate on short-term capital gains?

Answer 10

Currently, the tax rate on short-term capital gains is 15%.

Question 11

What are long-term capital gains?

Answer 11

Long-term capital gains refer to the profits earned on shares held for a period of more than 1 year.

Question 12

What is the current tax rate on long-term capital gains?

Answer 12

Currently, the tax rate on long-term capital gains is 10%.

Question 13

What is the difference between short-term shares and long-term shares?

Answer 13

Short-term shares are held for a period of less than 1 year, while long-term shares are held for a period of more than 1 year.

Question 14

What is Minimum Alternate Tax (MAT)?

Answer 14

Minimum Alternate Tax (MAT) is a concept introduced in the direct tax system to ensure that companies with large profits, but not paying sufficient corporate tax due to exemptions and incentives, pay a fixed percentage of book profits as tax.

Question 15

When was Minimum Alternate Tax (MAT) introduced?

Answer 15

Minimum Alternate Tax (MAT) was introduced in 1986.

Question 16

What is the basis for applying Minimum Alternate Tax (MAT)?

Answer 16

Minimum Alternate Tax (MAT) is applied on the book profits of a company.

Question 17

What is the current rate of Minimum Alternate Tax (MAT)?

Answer 17

The current rate of Minimum Alternate Tax (MAT) is 15%.

Question 18

What is tax planning?

Answer 18

Tax planning refers to the legal strategies employed by individuals or organizations to reduce their tax liabilities by utilizing the tax exemptions and benefits provided by the government.

Question 19

What was the problem with taxes before 1986?

Answer 19

Taxes were levied at every stage of production, resulting in double taxation and ‘tax on tax’ issues.

Question 20

What was introduced in 1986 to address the problem of double taxation?

Answer 20

The MODVAT (Modified Value Added Tax) system was introduced in 1986 to avoid multiple taxes accumulating in the final prices of goods.

Question 21

How does MODVAT work?

Answer 21

Under MODVAT, traders can set off the taxes or duties paid on raw materials or pre-sale purchases. Excise is levied on the final value, and a rebate is given on inputs.

Question 22

What replaced MODVAT in 2005?

Answer 22

In 2005, VAT (Value Added Tax) was introduced, which levies tax only on the value addition made in the product.

Question 23

Was the VAT system completely free of double taxation?

Answer 23

No, the VAT system still had some issues with double taxation.

Question 24

What tax system was introduced in 2017 to address the shortcomings of VAT?

Answer 24

In 2017, the Goods and Services Tax (GST) was introduced as a comprehensive tax system to overcome the problems of previous tax systems.