Está en la página 1de 31

[ RIMS- 2016]

Title of the Project


Tax Assistant

Class
B.Com final year, Sem- VIth

Project report submitted to

Royal Institute of Management and


Advanced Studies
Signature (Guide):

Signature (Student):

Name of the Guide: Prof Amit Sharma

Name of Student: Sophia Nicholas


Students Roll No: 13134094

1|Page

[ RIMS- 2016]

Declaration of the Student

I Sophia Nicholas S/o Sh.Thomas certify that the project report entitled
Tax Asistant prepared by me is my personal and authentic work under the
guidance of Prof. Amit Sharma.

Date :

Signature :

Place :Ratlam

Name : Sophia Nicholas


Class : B.Com VI th Sem
Roll No.:13134094
Mob.No.: 9179647622

2|Page

[ RIMS- 2016]

Guide Declaration

I certify that the project report entitled Tax Assitant has been
prepared by Sophia Nicholas Class B.Com. VI Sem under my supervision and
bears the result of her original work.

Date :

Signature :

Place :

Name : Prof. Amit Sharma


Designation : Asst.Professor& H.O.D.
College: Royal College,

3|Page

[ RIMS- 2016]

Acknowledgement
I Sophia Nicholas Student of B.Com final year great fully acknowledge
the valuable contribution of various people related to my project report.
I my deepest regard & gratitude to our HOD and guide Prof Amit
Sharma. Hearty & sincere thanks to Professor, who is helping and guiding me.
The Support of entire staff of the institute where I have worked has
helped me a lot in growing in reason & understanding. So, I shall like to pay
my special thanks to the staff member of Swayed Institution.

Sophia Nicholas
B.Com VIth Sem

4|Page

[ RIMS- 2016]

Index
S.No

Contents

Page No.

.
1
2
3
4
5
6
7
8
9
10

Project Title Tax Assistant


Qualification required
Objects of Tax Assistant
Kinds of Tax
Existing problems in Tax Assistant
Suggestion of above problem
Future challenges and their solution
Experience of the Student
Guidance of the Guide
Result ( I sem to V sem )

6
8
10
13
23
24
26
30
31
31

5|Page

[ RIMS- 2016]

Project Title Tax Assistant


The word tax is conceived as a very negative word in India. People indeed imagine
like they are in the movie Lagaan where they are slayed and forced to pay tax.
However, it is our responsibility to pay tax as the citizens of our country. Tax that
the common man pays to the government is utilized for developmental activities in
the country and for providing facilities to the needy. The Tax moneys are utilized
for the army and hence the countrys defense depends on the tax you pay. Now
suddenly it seems patriotic to pay taxes.
Now, the rules and laws regarding taxes varies with every country, and so Ive made
this revolve a little bit around the Indian system. Ofcourse, this can be helpful for
people residing in other countries too. Its just that some of the specifics might not
hold in your respective country like it does in India.
I have tried compiling the FAQs with respect to taxes in this post. Here it goes
1. What are the different types of taxes?
Taxes are differentiated as Direct and Indirect taxes. An example for direct tax in
India is Income tax (Tax to be paid on income) and Wealth Tax (Tax on Wealth). It
is called direct tax as the taxes are directly levied on the individual. We need to pay
taxes

on

the

income

we

earn

in

the

particular

Assessment

year.

On the other hand, the Indirect taxes are VAT, Service Tax, etc. These taxes are
taxes on the product you purchase (VAT) and the services you avail. VAT is the tax
on the value addition of a product. The VAT is to be paid at every stage of value
addition (For example: the manufacture, packaging, final product, wholesaler,
retailer). However, the VAT suffered by the retailer would be transferred to the

6|Page

[ RIMS- 2016]

consumer and hence we pay tax indirectly. The tax will be collected by the seller of
the product and remitted to the government. Same in case of Service tax, but service
tax is levied on the service.
2. Is payment of Tax compulsory?
Sometimes we have such basic fundamental questions like these. Yes, payment of
tax is compulsory as the Government is empowered from the constitution to levy
taxes. As being born as citizens of India we are responsible to pay taxes to the
government. Now you may say that you havent signed the constitution saying that
you would pay taxes. But our forefathers have signed it and on our behalf. Hence
we are bound to pay taxes.
3. Can I escape tax?
Tax can be avoided yes, but there are legal and illegal means to do it. Tax planning
is process of planning the incomes so that the tax payment would be at a minimum.
Here you are just reducing the tax liability but using the loopholes in the Law.
However, Tax evasion includes certain illegal means by which you do not disclose a
particular income to avoid tax on such income. It is necessary to understand the line
between planning and evasion.
4. Can anyone else except the government impose tax?
Constitution says that only Government can levy taxes. And hence, any other body
imposing tax would amount to extortion. If government charges 100% tax too, it
doesnt amount to extortion. Yes I know the feeling, this is the law of taxation.

7|Page

[ RIMS- 2016]

5. What is black money?


Black money! The money held in Swiss bank accounts by our beloved political
leaders. Thats all most of us know. But what exactly is Black money and how is it
generated? Some questions I too had before I started studying tax. But the answer
was simple. Black money is the moneys which are not disclosed to the government
by an individual and hence not taxed. So you sell your apartment and get 2 Crores
for it, if you arent disclosing it in your Income tax return and dont pay taxes on it,
it is indeed black money. The various scams and bribes that are accumulated by
government officials are piled up in Foreign bank accounts and hence kept as a
secret from a government. $1,456 Billions is the estimated amount of black money
of Indians in the Swiss bank alone. The bank account holders can just pay tax on
that and it turns out to be white! Revenue if taxes are paid on those would be
approximately $ 400 Billions.
6. What is the impact if taxes are not paid?
If lets say you have loads of unexplained income and you havent paid taxes on it,
if the same comes to the notice of the tax officials, you can be severely penalized or
jailed or both based on the gravity of the situation. It is our responsibility to pay
taxes and we indeed can make a difference in the economy of the country by
responsibly paying taxes.
7. Should you pay Income tax even if dont reside in India?
Residential status is a very important topic under the Income Tax Act, 1961. The
law says that you are supposed to pay taxes on the any income accrued or arise in
India. So if you are an American and you have a source of Income in India, remit
taxes to the Indian government on that particular income that has been earned in
India.
8|Page

[ RIMS- 2016]

8. What is TDS?
TDS stands for Tax Deducted at Source. In certain cases it is mandated by the law
that the service receiver deducts tax payable on that particular bill and remits it to
the government on the service providers behalf. This also works as a check on the
tax evasion.
9. How can I compute my tax payable?
The income of the Individual under Salary, Business or Profession, Capital gains,
House property income and other incomes shall be calculated separately and tax
payable shall be calculated based on different slab rates. The tax levy on the above
different sources of income is unique and involves a lot of analysis. Several online
tax calculation templates are available for your use.
10. What are IT Returns?
The income computation and tax payable shall be filed to the government in forms
called ITR Income Tax Returns. These returns are evidence that the income has
been disclosed and the tax has been paid on the same. The last date to file Income
tax returns for an individual is 31st July of every year.
Taxation has evolved through the sands of time and now the Indian taxation system
is among the best in the world. Tax is a huge subject to study and interesting and
never is it routine. Tax consultancy is one of the highest earning jobs as there is a
huge scope for tax planning. It is important for us to understand the taxation effects
and

the

impact

of

your

tax

on

the

society

you

live

in.

In my line of work I have had the opportunity to study in depth about taxation and it
is a never ending subject.

9|Page

[ RIMS- 2016]

Objective of Tax
A tax (from the Latin taxo; "rate") is a financial charge or other levy imposed upon
a taxpayer (an individual or legal entity) by a state or the functional equivalent of a
state to fund various public expenditures. A failure to pay, or evasion of or
resistance to taxation, is usually punishable by law. Taxes are also imposed by
many administrative divisions. Taxes consist of direct or indirect taxes and may be
paid in money or as its labour equivalent. Few countries impose almost no taxation
at all.
The purpose of taxes is to raise revenue to fund government. Money provided by
taxation has been used by states and their functional equivalents throughout history
to carry out many functions. Some of these include expenditures on economic
infrastructure (roads, public transportation, sanitation, legal systems, public safety,
education, health care systems), military, scientific research, culture and the
arts, public works, distribution, data collection and dissemination, public insurance,
and the operation of government itself.
When expenditures exceed tax revenue, a government accumulates debt. A portion
of taxes may be used to service past debts. Governments also use taxes to
fund welfare and

public

systems, pensions for

the

services.

These

services

elderly, unemployment

transportation. Energy, water and waste

can

include education

benefits,

management systems

and public
are

also

common public utilities.


Most economists, especially neoclassical economists, argue taxation creates market
distortion and results in economic inefficiency unless there are negative
externalities associated with the activities that are taxed. They have therefore sought

10 | P a g e

[ RIMS- 2016]

to identify the kind of tax system that would minimize this distortion. Recent
scholarship suggests that in the United States, the federal government effectively
taxes investments in higher education more heavily than it subsidizes higher
education, thereby contributing to a shortage of skilled workers and unusually high
differences in pre-tax earnings between highly educated and less educated workers.
Governments use different kinds of taxes and vary the tax rates. This is done to
distribute the tax burden among individuals or classes of the population involved in
taxable activities, such as business, or to redistribute resources between individuals
or classes in the population. Historically, the nobility were supported by taxes on
the poor; modern social security systems are intended to support the poor, the
disabled, or the retired by taxes on those who are still working. In addition, taxes
are

applied

to

fund

foreign

aid

and

military

ventures,

to

influence

the macroeconomic performance of the economy (the government's strategy for


doing this is called its fiscal policy; see also tax exemption), or to modify patterns
of consumption or employment within an economy, by making some classes of
transaction more or less attractive.
A nation's tax system is often a reflection of its communal values and the values of
those in current political power. To create a system of taxation, a nation must make
choices regarding the distribution of the tax burdenwho will pay taxes and how
much they will payand how the taxes collected will be spent. In democratic
nations where the public elects those in charge of establishing the tax system, these
choices reflect the type of community that the public wishes to create. In countries
where the public does not have a significant amount of influence over the system of
taxation, that system may be more of a reflection on the values of those in power.

11 | P a g e

[ RIMS- 2016]

All large businesses incur administrative costs in the process of delivering revenue
collected from customers to the suppliers of the goods or services being purchased.
Taxation is no different; the resource collected from the public through taxation is
always greater than the amount which can be used by the government. The
difference is called the compliance cost and includes for example the labour cost
and other expenses incurred in complying with tax laws and rules. The collection of
a tax in order to spend it on a specified purpose, for example collecting a tax on
alcohol to pay directly for alcoholism rehabilitation centres, is called hypothecation.
This practice is often disliked by finance ministers, since it reduces their freedom of
action. Some economic theorists consider the concept to be intellectually dishonest
since, in reality, money is fungible. Furthermore, it often happens that taxes or
excises initially levied to fund some specific government programs are then later
diverted to the government general fund. In some cases, such taxes are collected in
fundamentally inefficient ways, for example highway tolls.
Since governments also resolve commercial disputes, especially in countries
with common law, similar arguments are sometimes used to justify a sales
tax or value added tax. Others (e.g., libertarians) argue that most or all forms of
taxes

are immoral due

to

their

involuntary

(and

therefore

eventually coercive/violent) nature. The most extreme anti-tax view is anarchocapitalism, in which the provision of all social services should be voluntarily bought
by the person(s) using them.

12 | P a g e

[ RIMS- 2016]

Kind of Taxes
Taxes on income
Income tax
Many jurisdictions tax the income of individuals and business entities, including
corporations. Generally the tax is imposed on net profits from business, net gains,
and other income. Computation of income subject to tax may be determined under
accounting principles used in the jurisdiction, which may be modified or replaced
by tax law principles in the jurisdiction. The incidence of taxation varies by system,
and some systems may be viewed as progressive or regressive. Rates of tax may
vary or be constant (flat) by income level. Many systems allow individuals certain
personal allowances and other nonbusiness reductions to taxable income, although
business deductions tend to be favored over personal deductions.[5]
Personal income tax is often collected on a pay-as-you-earn basis, with small
corrections made soon after the end of the tax year. These corrections take one of
two forms: payments to the government, for taxpayers who have not paid enough
during the tax year; and tax refunds from the government for those who have
overpaid. Income tax systems will often have deductions available that lessen the
total tax liability by reducing total taxable income. They may allow losses from one
type of income to be counted against another. For example, a loss on the stock
market may be deducted against taxes paid on wages. Other tax systems may isolate
the loss, such that business losses can only be deducted against business tax by
carrying forward the loss to later tax years.

13 | P a g e

[ RIMS- 2016]

Negative income tax


In economics, a negative income tax (abbreviated NIT) is a progressive income
tax system where people earning below a certain amount receive supplemental pay
from the government instead of paying taxes to the government.
Capital gains tax
Most jurisdictions imposing an income tax treat capital gains as part of income
subject to tax. Capital gain is generally a gain on sale of capital assetsthat is,
those assets not held for sale in the ordinary course of business. Capital assets
include personal assets in many jurisdictions. Some jurisdictions provide
preferential rates of tax or only partial taxation for capital gains. Some jurisdictions
impose different rates or levels of capital gains taxation based on the length of time
the asset was held. Because tax rates are often much lower for capital gains than for
ordinary income, there is widespread controversy and dispute about the proper
definition of capital. Some tax scholars have argued that differences in the ways
different kinds of capital and investment are taxed contribute to economic
distortions.
Corporate tax

Corporate tax refers to income, capital, net worth, or other taxes imposed on
corporations. Rates of tax and the taxable base for corporations may differ from
those for individuals or other taxable persons.
Social security contributions
Many countries provide publicly funded retirement or health care systems. [7] In
connection with these systems, the country typically requires employers and/or

14 | P a g e

[ RIMS- 2016]

employees to make compulsory payments.[8] These payments are often computed by


reference to wages or earnings from self-employment. Tax rates are generally fixed,
but a different rate may be imposed on employers than on employees. [9] Some
systems provide an upper limit on earnings subject to the tax. A few systems
provide that the tax is payable only on wages above a particular amount. Such upper
or lower limits may apply for retirement but not health care components of the tax.
Some have argued that such taxes on wages are a form of "forced savings" and not
really a tax, while others point to redistribution through such systems between
generations (from newer cohorts to older cohorts) and across income levels (from
higher income levels to lower income levels) which suggest that such programs are
really tax and spending programs.[5] Some tax scholars argue that supporting social
security programs exclusively through taxes on wages, rather than through broader
taxes that include capital, creates distortions and underinvestment in human capital,
since the returns to such investments will be taxes as wages.
Taxes on payroll or workforce
Unemployment and similar taxes are often imposed on employers based on total
payroll. These taxes may be imposed in both the country and sub-country levels.[
Taxes on property
Recurrent property taxes may be imposed on immovable property (real property)
and some classes of movable property. In addition, recurrent taxes may be imposed
on net wealth of individuals or corporations. [11] Many jurisdictions impose estate
tax, gift tax or other inheritance taxes on property at death or gift transfer. Some
jurisdictions impose taxes on financial or capital transactions.
Property tax

15 | P a g e

[ RIMS- 2016]

A property tax (or millage tax) is an ad valorem tax levy on the value of property
that the owner of the property is required to pay to a government in which the
property is situated. Multiple jurisdictions may tax the same property. There are
three general varieties of property: land, improvements to land (immovable manmade things, e.g. buildings) and personal property (movable things). Real estate or
realty is the combination of land and improvements to land.
Property taxes are usually charged on a recurrent basis (e.g., yearly). A common
type of property tax is an annual charge on the ownership of real estate, where the
tax base is the estimated value of the property. For a period of over 150 years from
1695 a window tax was levied in England, with the result that one can still see listed
buildings with windows bricked up in order to save their owners money. A similar
tax on hearths existed in France and elsewhere, with similar results. The two most
common type of event driven property taxes are stamp duty, charged upon change
of ownership, and inheritance tax, which is imposed in many countries on the
estates of the deceased.
In contrast with a tax on real estate (land and buildings), a Land Value Tax (or LVT)
is levied only on the unimproved value of the land ("land" in this instance may
mean either the economic term, i.e., all natural resources, or the natural resources
associated with specific areas of the Earth's surface: "lots" or "land parcels").
Proponents of land value tax argue that it is economically justified, as it will not
deter production, distort market mechanisms or otherwise create deadweight
losses the way other taxes do.[12]
When real estate is held by a higher government unit or some other entity not
subject to taxation by the local government, the taxing authority may receive

16 | P a g e

[ RIMS- 2016]

a payment in lieu of taxes to compensate it for some or all of the foregone tax
revenues.
In many jurisdictions (including many American states), there is a general tax levied
periodically on residents who own personal property (personalty) within the
jurisdiction. Vehicle and boat registration fees are subsets of this kind of tax. The
tax is often designed with blanket coverage and large exceptions for things like food
and clothing. Household goods are often exempt when kept or used within the
household.[13] Any otherwise non-exempt object can lose its exemption if regularly
kept outside the household.[13] Thus, tax collectors often monitor newspaper articles
for stories about wealthy people who have lent art to museums for public display,
because the artworks have then become subject to personal property tax. [13] If an
artwork had to be sent to another state for some touch-ups, it may have become
subject to personal property tax in that state as well.[13]
Inheritance tax
Inheritance tax, estate tax, and death tax or duty are the names given to various
taxes which arise on the death of an individual. In United States tax law, there is a
distinction between an estate tax and an inheritance tax: the former taxes the
personal representatives of the deceased, while the latter taxes the beneficiaries of
the estate. However, this distinction does not apply in other jurisdictions; for
example, if using this terminology UK inheritance tax would be an estate tax.
Expatriation tax
An expatriation tax is a tax on individuals who renounce their citizenship or
residence. The tax is often imposed based on a deemed disposition of all the
individual's property. One example is the United States under the American Jobs
Creation Act, where any individual who has a net worth of $2 million or an average

17 | P a g e

[ RIMS- 2016]

income-tax liability of $127,000 who renounces his or her citizenship and leaves the
country is automatically assumed to have done so for tax avoidance reasons and is
subject to a higher tax rate.[14]

Transfer tax
Historically, in many countries, a contract needed to have a stamp affixed to make it
valid. The charge for the stamp was either a fixed amount or a percentage of the
value of the transaction. In most countries the stamp has been abolished but stamp
duty remains. Stamp duty is levied in the UK on the purchase of shares and
securities, the issue of bearer instruments, and certain partnership transactions. Its
modern derivatives, stamp duty reserve tax and stamp duty land tax, are
respectively charged on transactions involving securities and land. Stamp duty has
the effect of discouraging speculative purchases of assets by decreasing liquidity. In
the United States, transfer tax is often charged by the state or local government and
(in the case of real property transfers) can be tied to the recording of the deed or
other transfer documents.
Wealth (net worth) tax
Some countries' governments will require declaration of the tax payers' balance
sheet (assets and liabilities), and from that exact a tax on net worth (assets minus
liabilities), as a percentage of the net worth, or a percentage of the net worth
exceeding a certain level. The tax may be levied on "natural" or legal "persons".
Taxes on goods and services
Value added tax (Goods and Services Tax)

18 | P a g e

[ RIMS- 2016]

A value added tax (VAT), also known as Goods and Services Tax (G.S.T), Single
Business Tax, or Turnover Tax in some countries, applies the equivalent of a sales
tax to every operation that creates value. To give an example, sheet steel is imported
by a machine manufacturer. That manufacturer will pay the VAT on the purchase
price, remitting that amount to the government. The manufacturer will then
transform the steel into a machine, selling the machine for a higher price to a
wholesale distributor. The manufacturer will collect the VAT on the higher price,
but will remit to the government only the excess related to the "value added" (the
price over the cost of the sheet steel). The wholesale distributor will then continue
the process, charging the retail distributor the VAT on the entire price to the retailer,
but remitting only the amount related to the distribution mark-up to the government.
The last VAT amount is paid by the eventual retail customer who cannot recover
any of the previously paid VAT. For a VAT and sales tax of identical rates, the total
tax paid is the same, but it is paid at differing points in the process.
VAT is usually administrated by requiring the company to complete a VAT return,
giving details of VAT it has been charged (referred to as input tax) and VAT it has
charged to others (referred to as output tax). The difference between output tax and
input tax is payable to the Local Tax Authority.
Sales taxes
Sales taxes are levied when a commodity is sold to its final consumer. Retail
organizations contend that such taxes discourage retail sales. The question of
whether they are generally progressive or regressive is a subject of much current
debate. People with higher incomes spend a lower proportion of them, so a flat-rate
sales tax will tend to be regressive. It is therefore common to exempt food, utilities
and other necessities from sales taxes, since poor people spend a higher proportion

19 | P a g e

[ RIMS- 2016]

of their incomes on these commodities, so such exemptions make the tax more
progressive. This is the classic "You pay for what you spend" tax, as only those who
spend money on non-exempt (i.e. luxury) items pay the tax.
A small number of U.S. states rely entirely on sales taxes for state revenue, as those
states do not levy a state income tax. Such states tend to have a moderate to large
amount of tourism or inter-state travel that occurs within their borders, allowing the
state to benefit from taxes from people the state would otherwise not tax. In this
way, the state is able to reduce the tax burden on its citizens. The U.S. states that do
not levy a state income tax are Alaska, Tennessee, Florida, Nevada, South Dakota,
Texas,[15] Washington state, and Wyoming. Additionally, New Hampshire and
Tennessee levy state income taxes only on dividends and interest income. Of the
above states, only Alaska and New Hampshire do not levy a state sales tax.
In the United States, there is a growing movement for the replacement of all federal
payroll and income taxes (both corporate and personal) with a national retail sales
tax and monthly tax rebate to households of citizens and legal resident aliens. The
tax proposal is named FairTax. In Canada, the federal sales tax is called the Goods
and Services tax (GST) and now stands at 5%. The provinces of British Columbia,
Saskatchewan, Manitoba, and Prince Edward Island also have a provincial sales tax
[PST]. The provinces of Nova Scotia, New Brunswick, Newfoundland & Labrador,
and Ontario have harmonized their provincial sales taxes with the GST
Harmonized Sales Tax [HST], and thus is a full VAT. The province of Quebec
collects the Quebec Sales Tax [QST] which is based on the GST with certain
differences. Most businesses can claim back the GST, HST and QST they pay, and
so effectively it is the final consumer who pays the tax.
Excises

20 | P a g e

[ RIMS- 2016]

An excise duty is an indirect tax imposed upon goods during the process of their
manufacture, production or distribution, and is usually proportionate to their
quantity or value. Excise duties were first introduced into England in the year 1643,
as part of a scheme of revenue and taxation devised by parliamentarian John
Pym and approved by the Long Parliament. These duties consisted of charges on
beer, ale, cider, cherry wine and tobacco, to which list were afterwards added paper,
soap, candles, malt, hops, and sweets. The basic principle of excise duties was that
they were taxes on the production, manufacture or distribution of articles which
could not be taxed through the customs house, and revenue derived from that source
is called excise revenue proper. The fundamental conception of the term is that of a
tax on articles produced or manufactured in a country. In the taxation of such
articles of luxury as spirits, beer, tobacco, and cigars, it has been the practice to
place a certain duty on the importation of these articles (a customs duty).
Excises (or exemptions from them) are also used to modify consumption patterns
(social

engineering).

For

example,

high

excise

is

used

to

discourage alcohol consumption, relative to other goods. This may be combined


with hypothecation if the proceeds are then used to pay for the costs of treating
illness caused by alcohol abuse. Similar taxes may exist on tobacco, pornography,
etc., and they may be collectively referred to as "sin taxes". A carbon tax is a tax on
the consumption of carbon-based non-renewable fuels, such as petrol, diesel-fuel,
jet fuels, and natural gas. The object is to reduce the release of carbon into the
atmosphere. In the United Kingdom, vehicle excise duty is an annual tax on vehicle
ownership.
Tariff

21 | P a g e

[ RIMS- 2016]

An import or export tariff (also called customs duty or impost) is a charge for the
movement of goods through a political border. Tariffs discourage trade, and they
may be used by governments to protect domestic industries. A proportion of tariff
revenues is often hypothecated to pay government to maintain a navy or border
police. The classic ways of cheating a tariff are smuggling or declaring a false value
of goods. Tax, tariff and trade rules in modern times are usually set together because
of their common impact on industrial policy, investment policy, and agricultural
policy.

Existing problems
Taxation is a general concept for devices used by governments to extract money or
other valuable things from people and organizations by the use of law. A tax
formula contains at least three elements: the definition of the base, the rate
structure, and the identification of the legal taxpayer. The base multiplied by the
appropriate rate gives a product, called the tax liability, which is the legal obligation
that the taxpayer must meet at specified dates. A tax is identified by the
characteristics of its base, such as income in the case of an income tax, the quantity
of distilled spirits sold in the case of a liquor tax, and so on. The rate structure may
be simple, consisting of one rate applying to the base, such as a specified number of
cents per gallon for a tax on gasoline, or complex, for example, varying rates
depending upon the size of the base for a tax on personal income.
Taxes may be assessed in money or in kind. The government of Communist China
imposes taxes on peasants assessed in units of grain produced, and it requires
payment in grain itself. In the American Confederacy, because of the deterioration

22 | P a g e

[ RIMS- 2016]

of the Confederate money during the latter phases of the American Civil War, some
taxes were assessed and collected in terms of commodities. In American frontier
settlements of the eighteenth and early nineteenth centuries, the local governments
formed by the people in the region commonly imposed taxes by requesting that
each adult male work a given number of days constructing community facilities
such as roads and schools. The modern-day counterpart of this practice is
conscription of men for service in the armed forces, although conscription is not
generally considered as a tax. The dominant practice, however, in the contemporary
world is the assessment of taxes in money and the settlement of the tax liability by
the payment of money.
Taxation presupposes private ownership of wealth. If a government owned all
wealth in a society, including the wealth embodied in people, it would obtain all
income, and there would be nothing to tax. No government has gone to such
extremes in concentrating the wealth of a society in its own hands. Even in highly
socialized societies, such as the Soviet Union, people are permitted, subject to
restrictions, to own themselves, household goods, savings accounts, and money.
Taxation therefore becomes feasible. Nevertheless, the more wealth a government
itself owns, the less is taxation necessary, because revenue from the management of
assets is a substitute for tax receipts. National governments, with the exception of
some of the highly socialized countries, typically find themselves on the other side
of the ledger, having on balance negative net worths apart from their taxing power.
Some local governments in western Europe and the United States have substantial
revenues from government-owned facilities such as electric power plants, municipal
water facilities, and transport systems. The profits from the management of these
facilities are occasionally sufficient to permit a government to dispense with
taxation altogether.
23 | P a g e

[ RIMS- 2016]

Taxes are to be distinguished from prices imposed by a government for goods and
services that it provides. A price is a money payment made as a condition of
obtaining goods or services. It serves as a rationing device provided that the price is
positive and provided that the amount of the goods or services the buyer receives in
return depends upon the price. If a government supplies water and charges
according to the amount of water taken by the buyer, the device is a price and not a
tax. Borderline cases arise in two types of circumstances: (1) when a charge is made
as a condition of an all-or-none choice, such as a fee for a license for an automobile
as a condition of operating the vehicle on any public highway; or (2) when a
government imposes a requirement that the citizen use a service and then charges
for the service taken, such as a requirement for a passport for foreign travel
accompanied by a charge for the passport. In situations in which the element of
government compulsion enters significantly, it is customary as well as reasonable to
treat the charge as a tax rather than as a price.
Classification of taxes . Taxes may be classified in various ways. Since a tax is a
formula of three ingredientsa base, a rate structure, and identification of the legal
taxpayera common characteristic of any of these three elements may be
employed for grouping. Thus taxes may be classified as personal or business. In
such a classification, a tax on beer is a business tax because business organizations
are in fact the legal taxpayers. More commonly, taxes are grouped on the basis of
similarities of the tax base; for example, commodity taxes refer to all taxes in which
the production or sale of commodities becomes the occasion for a government levy.
Even though personal income taxes vary widely in their characteristics among
countries, the presumed common element of the tax basepersonal incomeis
used for grouping purposes.

24 | P a g e

[ RIMS- 2016]

Perhaps the single most widely used distinction is between what is called direct
taxation and what is called indirect. This is a classification based on certain
presumed effects of various taxes. A direct tax in this usage refers to one in which
the legal taxpayer cannot shift any of the tax liability to other people, such as
customers or suppliers. A clear illustration of a direct tax is a lump-sum charge
levied on a personsometimes called a head tax or poll tax. Income, death, net
worth, expenditure, and sometimes property taxes are commonly classified as
direct. Indirect taxes refer to those that are thought to be shifted from the legal
taxpayer to others. Commonly, taxes on sales of commodities, import duties, and
license fees are grouped together as indirect.
By postulating common effects of various taxes, the direct-indirect classification
becomes subject to two serious defects. The effects of a particular tax device are not
intuitively apparent; their discovery entails careful scientific investigation. It is thus
awkward to employ a classification that begs these questions in advance. There is
the further difficulty that the shifting of a tax by the legal taxpayer to others may
occur in various degrees from 0 to 100 per cent. If a particular tax is proved to be
shifted to others by the amount of 25 per cent, for example, the direct-indirect
classification becomes irrelevant. One should have to say that the tax is 75 per cent
direct and 25 per cent indirect. The difficulty arises because an all-or-none test is
used when the relevant distinction is one of degree. For these and other reasons, the
direct-indirect classification, although widely used in reporting revenue data, is
usually avoided in scientific investigations.

Future challenges and their solution


25 | P a g e

[ RIMS- 2016]

The complicated nature of the individual income tax imposes costs not only on
taxpayers, who expend time and money preparing and filing their returns, but also
on the Internal Revenue Service, which has to audit those returns and deal with the
inevitable mistakes taxpayers make. Various steps to simplify the income tax could
reduce costs significantly for both taxpayers and the IRS.

Modify or repeal the alternative minimum tax: Originally designed to ensure that

high-income taxpayers pay at least some income tax, the alternative minimum tax
(AMT) now affects 4 million households, most of whom already pay significant
amounts of income tax and are far from the top of the income distribution. Only
annual congressional "patches" to the AMT have kept it from affecting millions
more taxpayers. Modifying the AMT to permanently limit its reach would
maintain some of its revenue stream while protecting most taxpayers from the tax,
but would not make the tax system simpler for those still subject to it. Repealing
the AMT would both simplify the income tax and eliminate the need for annual
patches.

Eliminate or align income limits and phase-outs : Many features of the tax code

are denied to some higher-income taxpayers or phase out over different ranges of
income. These features complicate tax returns and require multiple worksheets to
calculate taxable income, deductions, and credits. For example, the tax code
reduces the $1,000-per-child tax credit by 5 percent of adjusted gross income
(AGI) over $110,000 for married couples ($75,000 for single parents); the share
of expenses allowed for the child and dependent care credit falls from 35 percent
to 20 percent as AGI increases from $15,000 to $43,000; and single taxpayers
with AGI above $55,000 ($110,000 for joint filers) may not deduct the interest
they pay on student loans. Eliminating such restrictions would simplify tax filing,
but the benefits would go to higher-income taxpayers. Retaining these income
26 | P a g e

[ RIMS- 2016]

limits but setting them at the same or similar levels, at least for related activities,
would reduce complexity while keeping the benefits aimed at taxpayers with low
to moderate incomes. At the same time, however, if multiple benefits phased out
over the same income range, effective marginal tax rates in that range could reach
unacceptable levels.

Combine education tax benefits: Families with students in college may qualify

for multiple tax benefits to defray educational expenses but often may claim only
one of them. For example, a family may be able to claim either the HOPE credit
or the lifetime learning credit, but not both for the same student; if the family has
more than one student, it may claim one credit for one student and the other for a
second student. Determining which alternative is best requires multiple
calculations and can conflict with the use of other tax benefits for education, such
as Coverdell savings accounts and 529 savings plans. Combining or at least
coordinating the various tax benefits would make it easier for taxpayers both to
determine their eligibility for benefits and to calculate them.

Coordinate tax benefits for dependent care: Taxpayers may reduce their costs for

dependent care through the child and dependent care credit and through flexible
spending accounts set up by their employers. They may, however, use only one of
the two options for a specific expense, which can make it difficult both to plan
how to finance child care and to complete tax returns. Coordinating the two
benefits or combining them into a single benefit would address both problems.

Simplify or eliminate the taxation of Social Security benefits : Whether and how

much of a persons Social Security benefits are subject to income tax depends on
the persons income: single beneficiaries with adjusted income below $25,000
($32,000 for couples) pay no tax on their benefits; those with higher incomes
must include up to 85 percent of their Social Security payments in taxable

27 | P a g e

[ RIMS- 2016]

income. Determining the amount to include requires completing an eighteen-line


worksheet that draws on information from other parts of the tax return. Making a
fixed fraction of benefits taxable (possibly zero) for all beneficiaries would
eliminate that worksheet and make tax filing easier for them.

Simplify the taxation of capital gains: The income tax currently imposes at least

eight different effective tax rates on capital gains, depending on the taxpayers
regular tax rate, how long an asset was owned, the type of asset, and whether the
taxpayer owes AMT. The IRS provides three different worksheets, one with 37
lines, to help taxpayers calculate their tax on capital gains. Allowing a percentage
exclusion for long-term gains (and perhaps other kinds of gain) and applying
regular tax rates to the rest would sharply reduce the complexity of returns while
maintaining different treatment for different kinds of gain.

Combine tax incentives to save for retirement : Workers can currently save for

retirement in various ways that receive different tax treatment; these include
deductible, nondeductible, and Roth Individual Retirement Accounts, regular and
Roth 401(k)s and similar plans, and traditional employment-based pension plans.
Each type of saving has its own eligibility requirements, income limits, and tax
benefits, which complicates the task of choosing among them. Combining
existing options into fewer alternatives and setting the same income limits for all
would simplify workers choices and reduce the cost of administering so many
programs.

Simplify the earned income tax credit: Claiming the EITC currently requires

completing a three-page worksheet to determine eligibility, and then a second


three-page worksheet to calculate the credit itself (but taxpayers may elect to have
the IRS do the second task). That complexity results from strict definitions of
qualifying children, different credit rates and income limits depending on the

28 | P a g e

[ RIMS- 2016]

number of children, and different accounting for different kinds of income.


Relaxing the requirements and making the credit parameters the same across
taxpayers with different characteristics could reduce complexity but would also
limit flexibility in providing different levels of benefits.

Use a single definition of "child": Various income tax benefits go to families

with children, but the definition of a "child" differs widely, particularly with
respect to age. Children under age 19 count in defining EITC benefits, those
under 17 qualify for the child credit, and only those under 13 are eligible for the
child and dependent care credit. Although these differences may result from
deliberate congressional decisions about who should receive tax benefits, they
complicate tax filing and can lead to inadvertent errors that the IRS then has to
correct. Other factors used to define qualifying children further complicate the
situation, including the childs physical residence, custody arrangements, and who
pays the childs living costs. Establishing a single definition to determine whether
taxpayers may claim tax benefits for children would simply both tax filing and
IRS processing of returns.

29 | P a g e

[ RIMS- 2016]

Experience of the Student


Benefits of Taxes:
Even though most people are always at odds with the idea of taxation, there are
some advantages to taxes, the least of which is that it provides the government the
resources it needs for economic development. Some of the other benefits of taxes
are:

It encourages savings and investments because if a person invests in certain


instruments, then the amount invested is reduced from their taxable income thus
bringing down the tax they have to pay. This investment is subject to certain
limits that are detailed in the IT Act.

Paying taxes means that you have to file your tax returns which in turn means
that when you apply for a home loan for that home loan, its easier to get it
because one of the things many banks require is proof that you have been filing
taxes regularly.
Penalty for Not Paying Taxes:
Each type of tax has its own penalties associated with it. These penalties can range
from fines to imprisonment depending on the severity of the crime. In some cases
the penalty could be that you will have to pay what is owed in taxes along with additional
sums as fine, which are decided upon by government officials.

It is always advisable to pay taxes on time and always be aware of the taxes that
you, as a consumer, are liable to pay so that no-one can take you for a ride.

30 | P a g e

[ RIMS- 2016]

Co-operation of Guide - Very Good


Getting Award/ Reward during course- Nothing

Results ( From I sem to V sem ) :


Sr.No.
1
2
3
4
5

Class
B.Com. I Sem
B.Com. II Sem
B.Com. III Sem
B.Com. IV Sem
B.Com. V Sem

Obtained
280
346
314
355
280

Out of
500
500
500
500
500

Result
Pass [56.00]
Pass [69.20]
Pass [62.80]
Pass [71.00]
ATKT [56.00]

31 | P a g e