INVESTMENT

TAXATION SYSTEM IN INDIA

India has a well-developed tax structure with clearly demarcated authority between Central and State
Governments and local bodies.
Central Government levies taxes on income (except tax on agricultural income, which the State
Governments can levy), customs duties, central excise and service tax.
Value Added Tax (VAT), stamp duty, state excise, land revenue and profession tax are levied by the State
Governments.
Local bodies are empowered to levy tax on properties, octroi and for utilities like water supply, drainage
etc.
Indian taxation system has undergone tremendous reforms during the last decade. The tax rates have
been rationalized and tax laws have been simplified resulting in better compliance, ease of tax payment
and better enforcement. The process of rationalization of tax administration is ongoing in India.
Direct Taxes
In case of direct taxes (income tax, wealth tax, etc.), the burden directly falls on the taxpayer.
Income tax
According to Income Tax Act 1961, every person, who is an assessee and whose total income exceeds
the maximum exemption limit, shall be chargeable to the income tax at the rate or rates prescribed in
the Finance Act. Such income tax shall be paid on the total income of the previous year in the relevant
assessment year.
Assessee means a person by whom (any tax) or any other sum of money is payable under the Income
Tax Act, and includes (a) Every person in respect of whom any proceeding under the Income Tax Act has been taken for the
assessment of his income (or assessment of fringe benefits) or of the income of any other person in
respect of which he is assessable, or of the loss sustained by him or by such other person, or of the
amount of refund due to him or to such other person;
(b) Every person who is deemed to be an assessee under any provisions of the Income Tax Act;
(c) Every person who is deemed to be an assessee in default under any provision of the Income Tax Act.
Where a person includes:

Individual
Hindu Undivided Family (HUF)
Association of persons (AOP)
Body of individuals (BOI)
Company
Firm
A local authority and,

Every artificial judicial person not falling within any of the preceding categories.

Income tax is an annual tax imposed separately for each assessment year (also called the tax year).
Assessment year commences from 1st April and ends on the next 31st March.
The total income of an individual is determined on the basis of his residential status in India. For tax
purposes, an individual may be resident, nonresident or not ordinarily resident.
Resident
An individual is treated as resident in a year if present in India:
1.

For

182

days

during

the

year

or

2. For 60 days during the year and 365 days during the preceding four years. Individuals fulfilling neither
of these conditions are nonresidents. (The rules are slightly more liberal for Indian citizens residing
abroad or leaving India for employment abroad.)
Resident but not Ordinarily Resident
A resident who was not present in India for 730 days during the preceding seven years or who was
nonresident in nine out of ten preceding years is treated as not ordinarily resident.
Non-Residents
Non-residents are taxed only on income that is received in India or arises or is deemed to arise in India.
A person not ordinarily resident is taxed like a non-resident but is also liable to tax on income accruing
abroad if it is from a business controlled in or a profession set up in India.
Non-resident Indians (NRIs) are not required to file a tax return if their income consists of
only interest and dividends, provided taxes due on such income are deducted at source. It is
possible for non-resident Indians to avail of these special provisions even after becoming residents by
following certain procedures laid down by the Income Tax act.
Status

Indian Income

Foreign Income

Resident and ordinarily resident

Taxable

Taxable

Resident but not ordinary resident

Taxable

Not taxable

Non-Resident

Taxable

Not taxable

Personal income tax is levied by Central Government and is administered by Central Board of Direct taxes
under Ministry of Finance in accordance with the provisions of the Income Tax Act. The rates for personal
income tax for the Assessment Year 2008-09 are as follows: Income range (Rupee)

Tax Rate (%)

0-110,000

Nil

1,10,000-1,50,000

10

1,50,000-2,50,000

20

2,50,000 and above

30

Surcharges of 10% on total tax is levied if income exceeds Rs10,00,000

Senior citizens (above 65 years) with income up to Rs.1.95 lakh are exempt from Income tax
Resident women assessee (below 65 years of age) with income upto Rs.1.45 lakh are exempt
from income tax.
Education Cess of 2% is to be levied on the aggregate of income tax plus surcharge where
applicable
An additional secondary & higher education cess of 1%is leviable on the amount of income tax
and surcharge in addition to the education cess.
Marginal relief would be provided to ensure that the additional income tax payable including
surcharge, on the excess of income over Rs. 10 lakh is limited to the amount by which the
income is more than Rs. 10 lakh.

Rates of Withholding Tax

Current rates for withholding tax for payment to non-residents are as follows
Interest

20%

Dividends (Domestic Companies)

Nil

Royalties

20%

Technical services

10%

Any other services

Individuals: 30% of the income

Companies: 40% of the net income

The above rates are general and are applicable in respect of countries with which India does not have a
Double Taxation Avoidance Agreement (DTAA).
Tax upon Capital Gains
Corporate tax
Definition of a company
A company has been defined as a juristic person having an independent and separate legal entity from its
shareholders. Income of the company is computed and assessed separately in the hands of the company.
However the income of the company, which is distributed to its shareholders as dividend, is assessed in
their individual hands. Such distribution of income is not treated as expenditure in the hands of
company; the income so distributed is an appropriation of the profits of the company.
Residence of a company

A company is said to be a resident in India during the relevant previous year if:

It is an Indian company
If it is not an Indian company but, the control and the management of its affairs is

situated wholly in India

A company is said to be non-resident in India if it is not an Indian company and some part of the

control and management of its affairs is situated outside India.

Corporate sector tax
The taxability of a company's income depends on its domicile. Indian companies are taxable in India on
their worldwide income. Foreign companies are taxable on income that arises out of their Indian
operations, or, in certain cases, income that is deemed to arise in India. Royalty, interest, gains from sale
of capital assets located in India (including gains from sale of shares in an Indian company), dividends
from Indian companies and fees for technical services are all treated as income arising in India. Current
rates of corporate tax
The current rates of corporate tax are
Company/ Tax

Tax rate(Inclusive of applicable

surcharge and cess)

Domestic Company
(i)Regular Tax
(a) Where totalIncome is more than Rs.10 million

33.99%

(b) Where the totalIncome is equal to orless than

Rs. 10million.

30.90%

(ii) Minimum Alternate Tax

(a) Where total Income is more than Rs. 10 million

11.33% of the book profits

(b) Where the total income is equal to or less than

Rs.10 million.

10.30% of book profits

(iii) Dividend Distribution Tax

16.995%

(iv) Fringe Benefit Tax

33.99%

Foreign Company
(i) Regular Tax
(a) Where total income is more than Rs. 10 million

42.23%

(b) Where the total income is equal to or less than

Rs. 10 million

41.20%

(ii) Minimum Alternate Tax

(a) Where total income is more than Rs. 10 million

10.5575% of book profits

(b) Where the total income is equal to or less than

Rs.10 million.

10.30% of book profits

(iii) Fringe Benefit Tax

31.6725%

Different kinds of taxes relating to a company

Minimum Alternative Tax (MAT)
Normally, a company is liable to pay tax on the income computed in accordance with the provisions of the
income tax Act, but the profit and loss account of the company is prepared as per provisions of the
Companies Act. There were large number of companies who had book profits as per their profit and loss
account but were not paying any tax because income computed as per provisions of the income tax act
was either nil or negative or insignificant. In such case, although the companies were showing book
profits and declaring dividends to the shareholders, they were not paying any income tax. These
companies are popularly known as Zero Tax companies. In order to bring such companies under the
income tax act net, section 115JA was introduced w.e.f assessment year 1997-98.
A new tax credit scheme is introduced by which MAT paid can be carried forward for set-off against
regular tax payable during the subsequent five year period subject to certain conditions, as under:-

When a company pays tax under MAT, the tax credit earned by it shall be an amount, which is the
difference between the amount payable under MAT and the regular tax. Regular tax in this case
means the tax payable on the basis of normal computation of total income of the company.
MAT credit will be allowed carry forward facility for a period of five assessment years immediately
succeeding the assessment year in which MAT is paid. Unabsorbed MAT credit will be allowed to
be accumulated subject to the five-year carry forward limit.
In the assessment year when regular tax becomes payable, the difference between the regular
tax and the tax computed under MAT for that year will be set off against the MAT credit available.
The credit allowed will not bear any interest

Fringe Benefit Tax (FBT)

The Finance Act, 2005 introduced a new levy, namely Fringe Benefit Tax (FBT) contained in Chapter XIIH
(Sections 115W to 115WL) of the Income Tax Act, 1961.
Fringe Benefit Tax (FBT) is an additional income tax payable by the employers on value of fringe benefits
provided or deemed to have been provided to the employees. The FBT is payable by an employer who is
a company; a firm; an association of persons excluding trusts/a body of individuals; a local authority; a
sole trader, or an artificial juridical person. This tax is payable even where employer does not otherwise
have taxable income. Fringe Benefits are defined as any privilege, service, facility or amenity directly or
indirectly provided by an employer to his employees (including former employees) by reason of their
employment and includes expenses or payments on certain specified heads.
The benefit does not have to be provided directly in order to attract FBT. It may still be applied if the
benefit is provided by a third party or an associate of employer or by under an agreement with the
employer.
The value of fringe benefits is computed as per provisions under Section 115WC. FBT is payable at
prescribed percentage on the taxable value of fringe benefits. Besides, surcharge in case of both
domestic and foreign companies shall be leviable on the amount of FBT. On these amounts, education
cess shall also be payable.
Every company shall file return of fringe benefits to the Assessing Officer in the prescribed form by 31st
October of the assessment year as per provisions of Section 115WD. If the employer fails to file return
within specified time limit specified under the said section, he will have to bear penalty as per Section

271FB.
The scope of Fringe Benefit Tax is being widened by including the employees stock option as fringe
benefit liable for tax. The fair market value of the share on the date of the vesting of the option by the
employee as reduced by the amount actually paid by him or recovered from him shall be considered to
be the fringe benefit. The fair market value shall be determined in accordance with the method to be
prescribed by the CBDT.
Dividend Distribution Tax (DDT)
Under Section 115-O of the Income Tax Act, any amount declared, distributed or paid by a domestic
company by way of dividend shall be chargeable to dividend tax. Only a domestic company (not a foreign
company) is liable for the tax. Tax on distributed profit is in addition to income tax chargeable in respect
of total income. It is applicable whether the dividend is interim or otherwise. Also, it is applicable whether
such dividend is paid out of current profits or accumulated profits.
The tax shall be deposited within 14 days from the date of declaration, distribution or payment of
dividend, whichever is earliest. Failing to this deposition will require payment of stipulated interest for
every month of delay under Section115-P of the Act.
Rate of dividend distribution tax to be raised from 12.5% to 15% on dividends distributed by companies;
and to 25% on dividends paid by money market mutual funds and liquid mutual funds to all investors.
Banking Cash Transaction Tax (BCTT)
The Finance Act 2005 introduced the Banking Cash Transaction Tax (BCTT) w.e.f. June 1, 2005 and
applies to the whole of India except in the state of Jammu and Kashmir.BCTT continues to be an
extremely useful tool to track unaccounted monies and trace their source and destination. It has led the
Income Tax Department to many money laundering and hawala transactions.
BCTT is levied at the rate of 0.1% of the value of following "taxable banking transactions" entered with
any scheduled bank on any single day:

Withdrawal of cash from any bank account other than a saving bank account; and
Receipt of cash on encashment of term deposit(s).

The value of taxable banking transaction that attract BCTT is as under

In case of

Amount (Rs.)

An individual or HUF

50,000 or more

Assessee other than an individual or HUF

1,00,000 or more

Securities Transaction Tax (STT)

Securities Transaction Tax or turnover tax, as is generally known, is a tax that is leviable on taxable
securities transaction. STT is leviable on the taxable securities transactions with effect from 1st October,
2004 as per the notification issued by the Central Government. The surcharge is not leviable on the STT.
STT is levied on the value of taxable securities transactions as under:

Transaction Purchase/sale of equity

shares, units of equity
oriented mutual fund
(delivery based)

Sale of equity
shares, units of
equity oriented
mutual fund (nondelivery based)

Sale of
Derivatives

Sale of unit of
an equity
oriented fund to
the Mutual Fund

Rates

0.125 %

0.025 %

0.17 %

0.25 %

Paid by

Purchaser/Seller

Seller

Seller

Seller

Rebate available on the STT paid by an assessee Rebate on STT is available to assessee, whose income from the taxable securities transaction is charged
to tax as a business income. However, such rebate can be claimed only if the following conditions are
satisfied:
(a) The rebate can be claimed only against the tax computed on the income from the taxable securities
transaction;
(b) The evidence of payment of STT should be attached with the Return of Income;
(c) The deduction allowable will be maximum to the extent of tax on such income.

Wealth Tax
Wealth tax, in India, is levied under Wealth-tax Act, 1957. Wealth tax is a tax on the benefits derived
from property ownership. The tax is to be paid year after year on the same property on its
market value, whether or not such property yields any income.
Under the Act, the tax is charged in respect of the wealth held during the assessment year by the
following persons: -

Individual
Hindu Undivided Family (HUF)
Company

Chargeability to tax also depends upon the residential status of the assessee same as the
residential status for the purpose of the Income Tax Act.
Wealth tax is not levied on productive assets, hence investments in shares, debentures, UTI, mutual
funds, etc are exempt from it. The assets chargeable to wealth tax are Guest house, residential house,
commercial building, Motor car, Jewellery, bullion, utensils of gold, silver, Yachts, boats and aircrafts,
Urban
land
Cash in hand (in excess of 50,000 for Individual & HUF only).
The following will not be included in Assets: -

Assets held as Stock in trade.

A house held for business or profession.
Any property in nature of commercial complex.
A house let out for more than 300 days in a year.

Gold deposit bond.

A residential house allotted by a Company to an employee, or an Officer, or a Whole

Time Director (Gross salary i.e. excluding perquisites and before Standard Deduction of such Employee,
Officer, Director should be less than Rs. 5,00,000).
The assets exempt from Wealth tax are "Property held under a trust", Interest of the assessee in the
coparcenary property of a HUF of which he is a member, "Residential building of a former ruler", "Assets
belonging to Indian repatriates", one house or a part of house or a plot of land not exceeding
500sq.mts(for individual & HUF assessee)
Wealth tax is chargeable in respect of Net wealth corresponding to Valuation date where Net wealth is all
assets less loans taken to acquire those assets and valuation date is 31st March of immediately preceding
the assessment year. In other words, the value of the taxable assets on the valuation date is clubbed
together and is reduced by the amount of debt owed by the assessee. The net wealth so arrived at is
charged to tax at the specified rates. Wealth tax is charged @ 1% of the amount by which the net wealth
exceeds Rs.15 Lakhs.
Tax Rebates for Corporate Tax
The classical system of corporate taxation is followed in India

Domestic companies are permitted to deduct dividends received from other domestic companies
in certain cases.
Inter Company transactions are honored if negotiated at arm's length.
Special provisions apply to venture funds and venture capital companies.
Long-term capital gains have lower tax incidence.
There is no concept of thin capitalization.
Liberal deductions are allowed for exports and the setting up on new industrial undertakings
under certain circumstances.
There are liberal deductions for setting up enterprises engaged in developing, maintaining and
operating new infrastructure facilities and power-generating units.
Business losses can be carried forward for eight years, and unabsorbed depreciation can be
carried indefinitely. No carry back is allowed..
Dividends, interest and long-term capital gain income earned by an infrastructure fund or
company from investments in shares or long-term finance in enterprises carrying on the business
of developing, monitoring and operating specified infrastructure facilities or in units of mutual
funds involved with the infrastructure of power sector is proposed to be tax exempt.

Capital Gains Tax

A capital gain is income derived from the sale of an investment. A capital investment can be a home, a
farm, a ranch, a family business, work of art etc. In most years slightly less than half of taxable capital
gains are realized on the sale of corporate stock. The capital gain is the difference between the money
received from selling the asset and the price paid for it.
Capital gain also includes gain that arises on "transfer" (includes sale, exchange) of a capital asset and is
categorized into short-term gains and long-term gains.
The capital gains tax is different from almost all other forms of taxation in that it is a voluntary tax. Since
the tax is paid only when an asset is sold, taxpayers can legally avoid payment by holding on to their
assets--a phenomenon known as the "lock-in effect."

The scope of capital asset is being widened by including certain items held as personal effects such as
archaeological collections, drawings, paintings, sculptures or any work of art. Presently no capital gain
tax is payable in respect of transfer of personal effects as it does not fall in the definition of the capital
asset. To restrict the misuse of this provision, the definition of capital asset is being widened to include
those personal effects such as archaeological collections, drawings, paintings, sculptures or any work of
art. Transfer of above items shall now attract capital gain tax the way jewellery attracts despite being
personal effect as on date.
Short Term and Long Term capital Gains
Gains arising on transfer of a capital asset held for not more than 36 months (12 months in the case of a
share held in a company or other security listed on recognised stock exchange in India or a unit of a
mutual fund) prior to its transfer are "short-term". Capital gains arising on transfer of capital asset held
for a period exceeding the aforesaid period are "long-term".
Section 112 of the Income-Tax Act, provides for the tax on long-term capital gains, at 20 per cent of the
gain computed with the benefit of indexation and 10 per cent of the gain computed (in case of listed
securities or units) without the benefit of indexation.
Double Taxation Relief
Double Taxation means taxation of the same income of a person in more than one country. This results
due to countries following different rules for income taxation. There are two main rules of income
taxation i.e. (a) Source of income rule and (b) residence rule.
As per source of income rule, the income may be subject to tax in the country where the source of such
income exists (i.e. where the business establishment is situated or where the asset / property is located)
whether the income earner is a resident in that country or not.
On the other hand, the income earner may be taxed on the basis of the residential status in that country.
For example, if a person is resident of a country, he may have to pay tax on any income earned outside
that country as well.
Further some countries may follow a mixture of the above two rules. Thus, problem of double taxation
arises if a person is taxed in respect of any income on the basis of source of income rule in one country
and on the basis of residence in another country or on the basis of mixture of above two rules.
In India, the liability under the Income Tax Act arises on the basis of the residential status of the
assessee during the previous year. In case the assessee is resident in India, he also has to pay tax on the
income, which accrues or arises outside India, and also received outside India. The position in many
other countries being also broadly similar, it frequently happens that a person may be found to be a
resident in more than one country or that the same item of his income may be treated as accruing,
arising or received in more than one country with the result that the same item becomes liable to tax in
more than one country.
Relief against such hardship can be provided mainly in two ways: (a) Bilateral relief, (b) Unilateral relief.
Bilateral Relief
The Governments of two countries can enter into Double Taxation Avoidance Agreement (DTAA) to
provide relief against such Double Taxation, worked out on the basis of mutual agreement between the
two concerned sovereign states. This may be called a scheme of 'bilateral relief' as both concerned

powers agree as to the basis of the relief to be granted by either of them.

Unilateral relief
The above procedure for granting relief will not be sufficient to meet all cases. No country will be in a
position to arrive at such agreement with all the countries of the world for all time. The hardship of the
taxpayer however is a crippling one in all such cases. Some relief can be provided even in such cases by
home country irrespective of whether the other country concerned has any agreement with India or has
otherwise provided for any relief at all in respect of such double taxation. This relief is known as
unilateral relief.
India has signed Double Taxation Avoidance Agreement with the following countries:

Afghanistan
Australia
Austria
Bangladesh
Belarus
Belgium
Brazil
ulgaria
Canada
China
Cyprus
Czechoslovakia Socialist Republic
Czech Republic
Denmark
Ethiopia
Finland
French Republic
Germany
Greece
Hungary
Indonesia
Iran
Ireland
Israel
Italy
Japan
Jordan
Kazakhstan
Kenya
Korea
Kuwait
Kyrgyz Republic
Lebanon
Libyan Arab Jamahiriya

Malaysia
Malta
Mauritius
Mongolia
Morocco
Namibia
Nepal
Netherlands
New Zealand
Norway
Oman
Pakistan
Philippines
Poland
Portuguese Republic
Qatar
Romania
Russian Federation
Saudi Arabia
Singapore
South Africa
Spain
Sri Lanka
Sweden
Swiss Confederation
Syria
Tanzania
Thailand
Trinidad and Tobago
Turkey
Turkmenistan
Ukraine
United Arab Emirates
United Arab Republic
United Kingdom
United States Of America
Uzbekistan
Vietnam
Yemen Arab Republic
Peoples Democratic Republic of Yemen
Zambia

Indirect Taxation
Sales tax

Central Sales Tax (CST)

Central Sales tax is generally payable on the sale of all goods by a dealer in the course of inter-state
trade or commerce or, outside a state or, in the course of import into or, export from India.
The ceiling rate on central sales tax (CST), a tax on inter-state sale of goods, has been reduced from 4
per cent to 3 per cent in the current year.
Value Added Tax (VAT)
VAT is a multi-stage tax on goods that is levied across various stages of production and supply with credit
given for tax paid at each stage of Value addition. Introduction of state level VAT is the most significant
tax reform measure at state level. The state level VAT has replaced the existing State Sales Tax. The
decision to implement State level VAT was taken in the meeting of the Empowered Committee (EC) of
State Finance Ministers held on June 18, 2004, where a broad consensus was arrived at to introduce VAT
from April 1, 2005. Accordingly, all states/UTs have implemented VAT.
The Empowered Committee, through its deliberations over the years, finalized a design of VAT to be
adopted by the States, which seeks to retain the essential features of VAT, while at the same time,
providing a measure of flexibility to the States, to enable them to meet their local requirements. Some
salient features of the VAT design finalized by the Empowered Committee are as follows:

The rates of VAT on various commodities shall be uniform for all the States/UTs. There are 2 basic
rates of 4 per cent and 12.5 per cent, besides an exempt category and a special rate of 1 per
cent for a few selected items. The items of basic necessities have been put in the zero rate
bracket or the exempted schedule. Gold, silver and precious stones have been put in the 1 per
cent schedule. There is also a category with 20 per cent floor rate of tax, but the commodities
listed in this schedule are not eligible for input tax rebate/set off. This category covers items like
motor spirit (petrol), diesel, aviation turbine fuel, and liquor.
There is provision for eliminating the multiplicity of taxes. In fact, all the State taxes on purchase
or sale of goods (excluding Entry Tax in lieu of Octroi) are required to be subsumed in VAT or
made VATable.
Provision has been made for allowing "Input Tax Credit (ITC)", which is the basic feature of VAT.
However, since the VAT being implemented is intra-State VAT only and does not cover inter-State
sale transactions, ITC will not be available on inter-State purchases.
Exports will be zero-rated, with credit given for all taxes on inputs/ purchases related to such
exports.
There are provisions to make the system more business-friendly. For instance, there is provision
for self-assessment by the dealers. Similarly, there is provision of a threshold limit for registration
of dealers in terms of annual turnover of Rs. 5 lakh. Dealers with turnover lower than this
threshold limit are not required to obtain registration under VAT and are exempt from payment of
VAT. There is also provision for composition of tax liability up to annual turnover limit of Rs. 50
lakh.
Regarding the industrial incentives, the States have been allowed to continue with the existing
incentives, without breaking the VAT chain. However, no fresh sales tax/VAT based incentives are
permitted.

Roadmap

towards

GST

The Empowered Committee of State Finance Ministers has been entrusted with the task of preparing a
roadmap for the introduction of national level goods and services tax with effect from 01 April 2007.The
move is towards the reduction of CST to 2 per cent in 2008, 1 per cent in 2009 and 0 per cent in 2010 to

pave way for the introduction of GST (Goods and Services Tax).
Excise Duty
Central Excise duty is an indirect tax levied on goods manufactured in India. Excisable goods have been
defined as those, which have been specified in the Central Excise Tariff Act as being subjected to the duty
of excise.
There are three types of Central Excise duties collected in India namely
Basic Excise Duty
This is the duty charged under section 3 of the Central Excises and Salt Act,1944 on all excisable goods
other than salt which are produced or manufactured in India at the rates set forth in the schedule to the
Central Excise tariff Act,1985.
Additional Duty of Excise
Section 3 of the Additional duties of Excise (goods of special importance) Act, 1957 authorizes the levy
and collection in respect of the goods described in the Schedule to this Act. This is levied in lieu of sales
Tax and shared between Central and State Governments. These are levied under different enactments
like medicinal and toilet preparations, sugar etc. and other industries development etc.
Special Excise Duty
As per the Section 37 of the Finance Act,1978 Special excise Duty was attracted on all excisable goods on
which there is a levy of Basic excise Duty under the Central Excises and Salt Act,1944.Since then each
year the relevant provisions of the Finance Act specifies that the Special Excise Duty shall be or shall not
be levied and collected during the relevant financial year.
Recent Amendments in Finance Bill, 2007

Excise duty on texturised vegetable proteins (soya bari) has been reduced from 8% to Nil.
Similarly, excise duty on ready to eat packaged food has been reduced from 8% to Nil.
Full exemption from excise duty, presently available to biscuits of retail sale price (RSP)
equivalent of Rs.50 per kg. or less, has been extended to biscuits of RSP equivalent upto Rs.100
per kg.
Excise duty (excluding Biri Workers' Welfare Cess) has been reduced on hand made biris from Rs.
11 to Rs. 9 per thousand and on other biris (machine made) from Rs.24 to Rs.21 per thousand.
Excise duty on particleboards and other similar boards of heading 4410 and fiberboards of
heading 4411 has been reduced from 16% to 8%.
Water Purification Equipment based on ultra-filtration technology using polysulphone membranes
have been fully exempted from excise duty.
Excise duty on slide fasteners, including zip fasteners, and their parts falling under heading 9607
has been reduced from 16% to 8%.
An ad-valorem rate of excise duty at '12% of retail sale price' has been prescribed for cement of
retail sale price exceeding Rs.190 per 50 kg bag or per tonne equivalent retail sale price
exceeding Rs.3800. The tariff rate being Rs.600 PMT, the rate of excise duty on cement priced
above Rs.250 per 50 kg bag or per tonne equivalent retail sale price exceeding Rs. 5000 will be
Rs.600 PMT.

Customs Duty
Custom or import duties are levied by the Central Government of India on the goods imported into India.
The rate at which customs duty is leviable on the goods depends on the classification of the goods
determined under the Customs Tariff. The Customs Tariff is generally aligned with the Harmonised
System of Nomenclature (HSL).
In line with aligning the customs duty and bringing it at par with the ASEAN level, government has
reduced the peak customs duty from 12.5 per cent to 10 per cent for all goods other than agriculture
products. However, the Central Government has the power to generally exempt goods of any specified
description from the whole or any part of duties of customs leviable thereon. In addition,
preferential/concessional rates of duty are also available under the various Trade Agreements.
Recent Amendments in Finance Bill, 2007

Export duty on iron ores fines of Fe content of 62 percent and below has been reduced from
Rs.300 per metric tonne (PMT) to Rs.50 PMT.
Customs duty on N- paraffin has been reduced from 10% to 7.5%.
Cut and polished diamonds have been fully exempted from customs duty.
Customs duty on nickel and articles of nickel has been reduced from 5% to 2%.
Customs duty on 'refrigerated motor vehicles' has been reduced from 10% to Nil. CV duty has
also been reduced on such vehicles from 16% to 8% by way of excise duty reduction from 16%
to 8%.
Full exemption from customs and excise/CV duty has been extended to aircrafts and their parts,
imported/procured for providing 'Non-scheduled Air transport (passenger) services and Nonscheduled Air transport (charter) services, subject to specified conditions.
Similarly, full exemption from customs and excise/CV duty has been provided to aircrafts and
their parts, imported/procured by Aero Club of India or by Flying Training Institutes approved by
DGCA, subject to specified conditions.
By virtue of full exemption from customs and excise/CV duty, aircrafts and their parts mentioned
above will also be exempt from 4% additional duty of customs

Service Tax
Service tax was introduced in India way back in 1994 and started with mere 3 basic services viz. general
insurance, stock broking and telephone. Today the counter services subject to tax have reached over
100. There has been a steady increase in the rate of service tax. From a mere 5%, service tax is now
levied on specified taxable services at the rate of 12% of the gross value of taxable services. However, on
account of the imposition of education cess of 3%, the effective rate of service tax is at 12.36%.
The gradual expansion of the service tax, introduced in 1994-95 to redress the asymmetric and
distortionary treatment of goods and services in the tax regime, has been a buoyant source of revenue in
recent years. The number of services liable for taxation was raised from 3 in 1994-95 to 6 in 1996-97,
and then gradually to 99 in 2006- 07. Simultaneously, the rate of tax was raised from 8 per cent to 10
per cent in 2004-05, and further to 12.0 per cent in 2006-07.Revenue from service tax, as the combined
outcome of expanding tax net, creeping rate, and buoyant service sector growth, increased rapidly from
a paltry Rs. 407 crore in 1994-95 to Rs. 14,200 crore in 2004-05. In 2005-06 (Prov.), service tax
revenue was Rs.23, 055 crore. Budget 2006-07 took some significant steps in rationalising the service
tax regime.
Recent Amendments in Finance Bill, 2007

Exemption limit for small service providers to be raised from Rs.400, 000 to Rs.800, 000.
Extension of service tax to: services outsourced for mining of mineral, oil or gas; renting of
immovable property for use in commerce or business (residential properties, vacant land used for
agriculture and similar purposes, and land for sports, entertainment and parking purposes &
immovable property for educational or religious purposes to be excluded); development and
supply of content for use in telecom and advertising purposes; asset management services
provided by individuals; design services; services involved in execution of a works contract with
an optional composition scheme under which tax will be levied at only 2% of the total value of
works contract.
Exemption to: Services provided by Resident Welfare Associations to their members who
contribute Rs.3000 or less per month for services rendered, services provided by technology
business incubators, their incubatees whose annual business turnover does not exceed Rs.50
lakhs to be exempt for first three years; clinical trial of new drugs to make India a preferred
destination for drug testing.
Department of Telecommunications to constitute a committee to study the present structure of
levies on telecom industry.

Useful Weblinks

Central Board of Excise and Customs

Central Board of Direct Taxes