Claim Tax Credits
Everyone in this world is troubled because of taxes. Whether a country is developed or not, irrespective of its government policy, tax is everywhere and spreads more so like a plague. The tax is like a bone in the neck which neither lets a person to breathe properly nor eat. Taxes are high in volume as well as rates. Although the Indian government claims to have lenient taxes as compared to other developing and developed countries, it is still more and needs quite a decrease. Taxes are to be paid on everything from incomes to expenditures because one’s expenditure is another’s income and vice versa. Be it on sale or purchase of goods and commodities, shares, debentures, providing or tasking a service, earning income through house property, salary, earning through speculation and many more.
Tax payment rules change from tax to tax. In some taxes, point of taxation is the person who is earning and in some cases the burden is on the person because of whom the person is earning that is a service receiver. Everyone is in the tax gamut which is becoming far more complex and modern day by day. Taxes are huge but are systematic in nature. Where tax is concerned there are seven types of assesses on which taxes can be levied. They are individual, Hindu Undivided Family (HUF), Company, Association of persons (AOP) or Body of Individuals (BOI), Any judicial body like Nagar nigam, Partnership firm and others which do not fall in the above mentioned categories. The tax burden is divided and so are the types of taxes. There are two styles of taxes predominant in India and the world as well, that is, direct and indirect taxes. These taxes differ because of the burden of tax and point of taxation. Direct taxes are levied directly on the assessee whereas indirect taxes are levied indirectly, that is on the person who transacted with the assessee. For example the burden of payment of service tax lies with the service receiver because as per the service tax rules service provider needs to charge service tax which should be ultimately paid by the receiver. In almost every tax there is also an element of recess which amounts to three percent of the tax liability.
Whenever we pay tax we always think of saving it by either paying it or getting a credit or refund. There was a time in India when tax rates were as high as ninety five percent and other taxes when added to the amount, grossed up to more than hundred percent. We have come a long way but still need to go further down to keep blood pressures and tension from rising. Tax credits can be availed legitimately whenever the final or net amount is paid. As we all know there are due dates for everything and non payment within the due dates attract penalties and interest on late payment of taxes. Tax credits can be claimed or availed in almost every tax but it has its own rules and regulations.
Let’s discuss about income tax first. In income tax credit can be claimed of many things. First and foremost is the advance tax paid and tax deducted at source that is TDS. TDS is a concept in which when a payment is made by the payer in certain condition it needs to cut a percent of tax and then pay it to the payee. For example if I render professional services amounting to Rs. 30000 or more under section 194J of the Income Tax Act, 1961 the payer or the service receiver will have to cut TDS at the rate of ten percent and then pay me the remaining amount. Thus if I render services amounting to Rs. 100000, income tax or TDS will be deducted with the amount of Rs. 10000 and Rs. 90000 will be paid to me. Whenever in the future at the end of financial year I’ll file my income tax return I will deduct Rs. 10000 from my gross tax liability and then pay tax. Similar is the case when advance tax is paid. The credits that can be availed are a few more. Income tax also allows such expenditures on which VAT, service tax or any other tax is paid on time. Under section 43B of the same act, if the tax on certain expenditure is paid within the time limit which is before thirtieth September of the assessment year then the expenditures will be allowed else will be disallowed. This is also a sort of tax credit.
Another type of tax credit is setting off of losses. Income tax allows assessees to set off their business losses up to five years old. Well we don’t have to pay tax on losses but losses can very well be carried forward to five years and set off against any incomes generated thereon. Income tax is very complex and has many exceptions and conditions which need to be fulfilled in order to get such benefits. In India there is a Direct Tax Code (DTC) proposed which will be far simpler and compact. We can be 101% sure that this too will become income tax in five years of its applicability. Tax evasion is an offence but tax saving and tax planning is not. It is a right of a person to save tax and pay the least.
Now moving onto the deductions which also are part of tax credits, Income tax allows certain expenditures as deductions like life insurance premium, mediclaim premium, interest paid on education and housing loan, donation paid subject to certain conditions and many more. Income tax specifically points out to these deductions mentioned in the Section 80C to 80 U of the Income Tax Act, 1961. An assessee spending money on treatment of illness or a disorder of himself or herself, spouse, dependent children, dependent parents and dependent brother or sister can avail a tax deduction up to the amount of Rs. 20000 in one financial year. There are also various incomes that are exempt from tax for an assessee like agricultural income, income by way of earning dividend from a domestic company, earnings from unit linked insurance plans and other such cases. Income tax permits tax credit of other statutory liabilities like property tax, professional tax etc on payment basis. If a statutory liability is actually paid to the concerned regulating authority, tax credit of such a liability can be availed. Income tax is generous in some cases and practical too. It extends certain benefits to the assessees and if we do bit overlook them, taxes can easily be saved and indirectly availed.
Income tax provides an assessee quite a few benefits too but we tend to forget and overlook them. Tax credits can also be availed in other taxes as well. In case of service tax, a service provider can avail service tax credit if he too has received service from another assessee or paid him or her service tax. The service tax is applicable on people who provide services like Chartered Accountants, Doctors, Consultants, Architects etc. These people charge service tax and have the liability to collect it from their customer and deposit it with the service tax department. Service tax credit can be availed for expenses on which service tax is paid and such expenses were used during the course of business for business purposes. For example when we pay landline bill or mobile bill, service tax is charged on it which can be availed as a credit when we pay our liability. Service tax also permits credit of excise and custom duty paid to the department.
When we talk about VAT or Value Added Tax which is the newer and simpler version of Sales Tax we have quite a scope to avail tax credit. In a very simple case whenever we compute our VAT liability that is on sales we deduct the actual amount of VAT paid on purchase. Well this prevents cascading effect which is tax on tax and has a lesser burden on the assessee. Also in case of purchase of capital goods, the VAT paid can be availed. Many people tend to avoid taking invoices or bills to evade tax which is wrong and should be avoided. One should always take a bill and pay the tax because that tax will be there for you to avail as ad credit. Whenever we go to a hotel and pay luxury and service tax, income tax allows us to claim them. Same is the case with VAT, it allows credit of VAT paid on purchase of the goods.
Excise duty is a tax levied on people engaged in manufacturing of goods. A concern needs to pay and levy excise on sale and purchase of manufactured goods from and to manufacturing concerns. The department of excise and customs take care of service tax, excise duty and custom duty. The Act allows credit of three taxes that is service tax paid, excise duty paid and customs duty paid. All or any of the three taxes paid by the entity can be availed as a credit while remitting tax to the concerned authorities.
Taxes are meant for the benefit of nation, for its overall development and for that taxes need not be high. The problem of tax becoming high arises only when either it is not paid properly or not utilized effectively. In India, there are at least forty percent of people who do not pay taxes because they are either illiterate or taxes do not extend to them. If I take example of a person who has a tea stall, he earns almost Rs. 500 a day which calculates up to Rs. 15000 a month and Rs. 180000 for a year and still he does not have to pay a single penny of cash and that is because he either claims himself to be illiterate or below poverty line. And the best reason he gives is remove me from the place, I will put it up somewhere else, India is very big. When people like him have incomes but do not pay taxes its burden comes finally on people who can pay. They are asked to carry the burden of the others who cannot pay.
In the United States of America too, it was being proposed to increase the tax by two percent only for the elite and concerns who pay tax. It was to be levied on big corporate houses but the idea was thwarted because it was indirectly leading to increase in prices of commodities. Another reason for high tax rates is inefficient utilization of taxes. Tax is revenue of the government and if it is not adequately utilized it will lead to further increase of taxes. Chanakya, the extremely learned scholar had written that if taxes are high then your king is a thief and is corrupt. And I completely agree with him. If taxes collected by the Government go into their pockets instead of the Government treasury then, it is a waste of taxes and an indication of the taxes going to be high.
The present Indian Government is a cheat and a fraud. They have increased the taxes and because of their corrupt motives the Indian Revenue System is going to dogs. The country is on a peak of corruption where scams have become a normal thing. Inflation is gripping the country; rupee is falling against the world currencies, crimes have raised and all because of one thing corruption. If corruption decreases or ends then only the tax system will improve and strengthen. The country and the tax regime is in bad hands now and is falling apart every second. The hunger for personal gain and being in power has gripped everyone and like a termite slowly and steadily killing the nation from its deep recesses. Dante a very famous poet has written that those who maintain neutrality during the times of crisis attain the worst places in hell.