TAX AUDIT

Group no: 2 t.y.b.b.i.

Acknowledgement
It gives us immense pleasure in acknowledging the valuable and co-operative assistance extended to us by the various individuals who have helped us successfully in completing our project.

We would also like to thank the Mumbai University and Professor Sonali for giving us the opportunity to showcase our project making skills and for giving us proper guidance in completing the same.

Last but not the least we would also like to thank our Parents, Friends and Colleagues who have helped us in successfully completing our project.

Declaration
We the students of St. Andrews College of T.Y.B.B.I. hereby declare that we have completed the Project TAX AUDIT for the Subject AUDITING for the year 2012-2013. Information submitted is true and original to the best of our knowledge.

GROUP MEMBERS
NAME Jashma Cordeiro Simona Dsouza Tejal Kelaskar Rebecca Mendes Jovita Palaty Sneha Pinto ROLL NO 8205 8216 8222 8227 8237 8242 SIGNATURE

Petrinell Nunes Valentina Henriques Sayli Patil

8252 8256 8238

CERTIFICATE
I hereby certify that the students of St. Andrews College of T.Y.B.B.I. have completed the Project TAX AUDIT for the Subject AUDITING for the year 2012-2013. Information submitted is true and original to the best of my knowledge.

___________ SIGN

INDEX
INTRODUCTION INCOME TAX AUDIT- INDIVIDUAL INCOME TAX AUDIT COMPANY SALES TAX AUDIT VAT AUDIT WEALTH AUDIT SERVICE TAX AUDIT CUSTOMS TAX AUDIT

STAMP DUTY AND EXCISE TAX AUDIT

INTRODUCTION

Tax audit is an audit to find out the accurate tax payable by the company as per the income tax 1961. And ensure that all statutory payments are remitted on or before the respective due dates by company.

Moreover, it helps to find out the difference between

Company's act and income tax act. The difference is called deferred tax assets and liability of the company.

Tax audit is compulsory for every company,partnership firm or undertaking whose turn over exceeds40 lacs and 10 lacs in case of professionals have to compulsory go for the auditing of accounts from a Chartered Accountant under section 44AB of the income tax act 1961.

WHO NEEDS TO GET A TAX AUDIT DONE ?

Audit under section 44AB is applicable to four categories of assesses The first category covers any person carrying on a business whose total sales, turnover or gross receipts exceed Rs. 60 Lakhs during the previous year.

The second category covers any person who is carrying on a profession whose gross receipts exceed Rs.15 Lakhs.

The third category covers persons whose income is assessed on a presumptive basis under section 44AE, 44BB or 44BBB. Where such assesses declare an income lower than that presumed under the Sections 44AE, 44BB or 44BBB, they are required get their accounts audited in accordance with Section 44AB.

The Fourth Category covers those persons who declare a lower income than the amount presumed under section 44AD. The difference between the fourth and the third category is that, in the case of the fourth category, assesses are subject to audit under section 44AB only if their income exceeds the basic exemption limit.

Any person who is covered by the above four categories is required to get his accounts audited by a Chartered Accountant before 30th September of each year.

Apart from the Tax audit under Section 44AB, there are audit and certification requirement for various assesses under various provisions of Income Tax Act. All such audit and certification under Income Tax is done by a Chartered Accountant.

INCOME TAX AUDIT (INDIVIDUAL)

An income tax is a tax levied on the income of individuals or businesses (corporations or other legal entities). Various income tax systems exist, with varying degrees of tax incidence. Income taxation can

be progressive, proportional, or regressive. When the tax is levied on the income of companies, it is often called a corporate tax, corporate income tax, or profit tax. Individual income taxes often tax the total income of the individual (with some deductions permitted), while corporate income taxes often tax net income (the difference between gross receipts, expenses, and additional writeoffs). Various systems define income differently, and often allow notional reductions of income (such as a reduction based on number of children supported). A personal or individual income tax is levied on the total income of the individual (with some deductions permitted). It is often collected on a pay-asyou-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. ncome taxes are used in most countries around the world, but are not without criticism. Frank Chodorov wrote "... you come up with the fact that it gives the government a prior lien on all the property produced by its subjects." The government "unashamedly proclaims the doctrine of collectivized wealth.That which it does not take is a concession." Some have argued that the economic effects of an income tax system penalize work, discourage saving and investing, and hinder the competitiveness of business and economic growth. Income taxes are also not border-adjustable; meaning the tax component embedded into products via taxes imposed on companies cannot be removed when exported to a foreign country. Alternate tax systems such as a national sales tax or value added tax remove the tax component when goods are exported and apply the tax

component on imports.

Income Tax Rates / slabs PERSONAL TAX RATES For individuals,

For the Assessment Year 2007-08 Taxable income slab (Rs.) Rate (%) Up to 1,00,000 (for men) NIL Up to 1,35,000 (for women) NIL Up to 1,85,000 (for resident individual of 65 years or above) NIL 1,00,000 1,50,000 10% education cess 2% (for men) 1,35,000 1,50,000 10% education cess 2% (for women) 1,50,001 2,50,000 20% education cess 2% (for both) 2,50,001 1,000,000 30% education cess 2% (for both) 1,000,001 upwards 30* A surcharge of 10 per cent of the total tax liability is applicable where the total income exceeds Rs 1,000,000.

PERSONAL TAX RATES For individuals,

For the Assessment Year 2008-09 Taxable income slab (Rs.) Rate (%) Up to 1,10,000 (For Men) NIL Up to 1,45,000 (for women)NIL Up to 1,95,000 (for resident individual of 65 years or above) NIL 1,10,000 1,50,000 10

1,50,001 2,50,000 20 2,50,001 1,000,000 30 1,000,001 upwards 30* A surcharge of 10 per cent of the total tax liability is applicable where the total income exceeds Rs 1,000,000.

THE TYPES OF TAXABLE INCOME Income from Salary Income from House Property Income from Business and Profession Income from Capital gains Income from Other Sources Remuneration for work done in India is taxable irrespective of the place of receipt. Remuneration includes: Tax upon salaries and wages Tax upon pension Tax upon bonus, fees & commissions Tax upon Gratuity Tax upon Annuity Tax upon profits in lieu of or in addition to salary Tax upon advance salary and perquisites Others: Tax upon Allowances Tax upon Deferred compensation Tax equalisation Besides remuneration for work, individuals may be taxed on the

following income: Tax upon Income from house property The annual value of property shall be chargeable to income tax under the head "Income from House Property". Tax upon Income from business or professions Tax upon Income from capital gains Tax upon Income from other sources Income of every kind, which is not chargeable to income tax under the heads salary income from house property, profits and gains of business and profession, capital gains can be taxed under the head "income from other sources". However such income should also not fall under income not forming part of total income

DEDUCTIONS Section 80 C Deductions Section 80C of the Income Tax Act allows certain investments and expenditure to be tax-exempt. The total limit under this section is Rs. 100,000 (Rs. 1 lakh) which can be any combination of the below: Contribution to Provident Fund or Public Provident Fund Payment of life insurance premium Investment in pension Plans

 Investment in Equity Linked Savings schemes (ELSS) of mutual funds (which usually have "Tax Saving" in their names) Investment in specified government infrastructure bonds Investment in National Savings Certificates (interest of past NSCs is reinvested every year and can be added to the Section 80C limit) Payments towards principal repayment of housing loans. Payments towards education fees for children. (Only for 2 children)

INCOME TAX ( COMPANIES)

Many countries impose corporation tax or company tax on the income or capital of some types of legal entities. A similar tax may be imposed at state or lower levels. The taxes may also be referred to as income tax or capital tax. Entities

treated as partnerships are generally not taxed at the entity level. Most countries tax all corporations doing business in the country on income from that country. Many countries tax all income of corporations organized in the country. Company income subject to tax is often determined much like taxable income for individuals. Generally, the tax is imposed on net profits. In some jurisdictions, rules for taxing companies may differ significantly from rules for taxing individuals. Certain corporate acts, like reorganizations, may not be taxed. Some types of entities may be exempt from tax. Many countries tax corporate entities on income and also tax the owners when the corporation pays a dividend. Where the owners are taxed, a withholding tax may be imposed. Generally, these taxes on owners are not referred to as corporate tax. Corporate tax or company tax refers to a tax imposed on entities that are taxed at the entity level in a particular jurisdiction. Such taxes may include income or other taxes. The tax systems of most countries impose an income tax at the entity level on certain type(s) of entities (company or corporation). Many systems additionally tax owners or members of those entities on dividends or other distributions by the entity to the members. The tax generally is imposed on net taxable income. Net taxable income for corporate tax is generally financial statement income with modifications, and may be defined in great detail within the system. The rate of tax varies by jurisdiction. The tax may have an alternative base, such as assets, payroll, or income computed in an alternative manner. Most income tax systems provide that certain types of corporate events are not taxable transactions. These generally include events related to formation or reorganization of the corporation. In addition, most systems provide specific rules for taxation of the entity and/or its members upon winding up or dissolution of the entity.

In systems where financing costs are allowed as reductions of the tax base (tax deductions), rules may apply that differentiate between classes of memberprovided financing. In such systems, items characterized as interest may be deductible, subject to interest limitations, while items characterized as dividends are not. Some systems limit deductions based on simple formulas, such as a debt-to-equity ratio, while other systems have more complex rules. Some systems provide a mechanism whereby groups of related corporations may obtain benefit from losses, credits, or other items of all members within the group. Mechanisms include combined or consolidated returns as well as group relief (direct benefit from items of another member). Most systems also tax company shareholders on distribution of

earnings as dividends. A few systems provide for partial integration of entity and member taxation. This is often accomplished by "imputation systems" or franking credits. In the past, mechanisms have existed for advance payment of member tax by corporations, with such payment offsetting entity level tax. Many systems (particularly sub-country level systems) impose a tax on particular corporate attributes. Such non-income taxes may be based on capital stock issued or authorized (either by number of shares or value), total equity, net capital, or other measures unique to corporations. Corporations, like other entities, may be subject to withholding tax obligations upon making certain varieties of payments to others. These obligations are generally not the tax of the corporation, but the system may impose penalties on the corporation or its officers or employees for failing to withhold and pay over such taxes. Corporations may be taxed on their incomes, property, or existence by various jurisdictions. Many jurisdictions impose a tax based on the existence or equity structure of the corporation. For example, Maryland imposes a tax on

corporations organized in that state based on the number of shares of capital stock issued and outstanding. Many jurisdictions instead impose a tax based on stated or computed capital, often including retained profits. Most jurisdictions tax corporations on their income. Generally, this tax is imposed at a specific rate or range of rates on taxable income as defined within the system. Some systems have a separate body of law or separate provisions relating to corporate taxation. In such cases, the law may apply only to entities and not to individuals operating a trade. Such laws may differentiate between broad types of income earned by corporations and tax such types of income differently. Generally, however, most such systems tax all income of a corporation in the same manner. Some systems (e.g., Canada and the United States) tax corporations under the same framework of tax law as individuals. In such systems, there are normally taxation differences related to differences between the inherent natures of corporations and individuals or unincorporated entities. For example, individuals are not formed, amalgamated, or acquired, and corporations do not generally incur medical expenses except by way of compensating individuals.[6] Many systems allow tax credits for specific items. Such direct reductions of tax are commonly allowed for foreign taxes on the same income and for withholding tax. Often these credits are the same as those available to individuals or for members of flow through entities such as partnerships. Most systems tax both domestic and foreign corporations. Often, domestic corporations are taxed on worldwide income while foreign corporations are taxed only on income from sources within the jurisdiction. Many jurisdictions imposing an income tax impose such tax income from a permanent establishment within the jurisdiction.

Corporations are also subject to property tax, payroll tax, withholding tax, excise tax, customs duties, value added tax, and other common taxes, generally in the same manner as other taxpayers. These, however, are rarely referred to as corporate tax.

WHY IS TAX AUDIT REQUIRED?

The objective of Tax Audit is to ensure that the books of accounts of the company have been maintained in accordance with the provisions of the Income Tax Act. A proper audit for tax purposes would ensure that

proper records are being maintained by the company and that the accounts properly reflect the income reported by the company in its tax returns. This audit effectively curbs tax evasion and ensures tax

compliance.

SALES TAX AUDIT

A sales tax audit is the examination of a companys financial documents by a government's tax agency to verify if the proper amount of sales tax has been remitted to the proper authority. Use tax was one of the first things that came up. Use tax applies when you purchase tax- able items or services without paying sales tax to the vendor. The rate is identical to sales tax and in some cities there is a use tax in addition to the state use tax. The tax is based on the cost of the taxable purchase.

It is pretty obvious that you pay a use tax on items purchased anywhere and used in state for which the vendor didn't charge a sales tax. But did it occur to you to pay a use tax on items bought in other states where a lower sales tax than your state's was charged. Buy in one state with a 4% tax? Then in Minneapolis you'd have to remit 2.5% use tax to the state and 0.5% use tax to the city! There are other times but those are the biggies.

Sales tax must be charged on lodging furnished for periods of more than 30 days if there is no enforceable lease agreement with the guest for a specific room. The lease agreement must require that the lessor and lessee give prior notice of their intention to vacate. It must be a specific guest not a company who uses it for several different employees.

Other items for which hotels must show sales taxes separately on the folio or state specifically that they are included in the price include: in-room movies; copier (but not fax) services; food and liquor from an in-room courtesy bar; game (pinball, pool, jukebox, etc.) receipts; laundry or dry cleaning services (coin operated are not taxable); no-show charges; parking fees and car wash

charges; popcorn prepared by the vendor; rental of equipment (primarily meeting room equipment if billed separately from non-taxable meeting room charges); rental of recreational equipment; telephone access charges, but not the actual cost of the service if shown separately; and a lot more things!

Here are some items which can be treated in unique ways. A telephone call accounting system doesn't show what the actual service costs. In this case charge a sales tax on the total and pay the sales tax shown on the phone bill from the vendor. The hotel is allowed to take an adjustment to the taxable amount reported on the sales tax return by the amount they are billed by the phone company for the actual costs of the guests' long distance calls. This can only be done if you can separate administrative calls from guest calls!

Some miscellaneous items. Whoever removes the coins from a machine is usually the one responsible for sales taxes. In a gift shop food, candy, soft drinks, clothing and health products may all be taxed at distinct rates. Gift certificates are not taxable and are treated as cash. The tax is charged when the recipient uses it. Items sold subject to the discount on a coupon are taxed at the discounted price unless you are being reimbursed for the amount by a third party. In Minnesota all equipment leased or purchased to provide lodging is taxable. If the vendor does not collect sales tax you must pay a use tax. Consumable supplies purchased by hotels are taxable. Food products are not, except for candy and soft drinks (containing less than 15% fruit juice - watch those labels) or food purchased from a caterer or restaurant! Please interpret that without calling me. Oh yes, if you are a restaurant some of those consumable items like place mats and paper napkins are not taxable. I'm not sure why toilet paper and tissues in hotels are treated differently for tax purposes, but they are! By the way the toilet paper would probably be exempt from sales tax both at time of purchase and sale if it were noted separately on the folio. Some states

have been successful in convincing their legislatures that a hotel's consumable items are actually resold in a package rate (the room rate) but none has challenged their status in Minnesota although it would save us considerable sums.

Supplies for repair or redecorating are taxable if they are purchased without installation. So have the UPS delivery person slide those ACs right into that sleeve and save sales tax. Seriously, you may realize a savings buying items installed by the vendor or a contractor. On the other hand, postage and shipping charges separately stated on an invoice are not taxable. Handling charges, whatever that really is, are taxable! If your vendor calls the shipping charge "shipping and handling" even it really is just shipping, then that entire line item is taxable. As you can see none of this is easy to follow, let alone get vendors from various states to do properly for your state as their state laws may tax them differently.

Here are a few items for which no sales tax needs to be charged: missing or damaged items; coat check; meeting room or hall rental; valet service (I'm not sure how this is different from laundry and dry cleaning service which some hotels call valet service which is taxable); and rented space (such as restaurants, barber shop or car rental booths) except for the use of the equipment in it.

What about the exempt status of government agencies and non-profits? One of the items we didn't do as well in as we thought we should because we had worked on it so hard was tax exempt certificates from various charities and government agencies. Sure, we knew the federal government was only tax exempt when it was billed directly with a government credit card. Well, it isn't so simple. It is tax exempt if it is the I.M.P.A.C. Visa card. If it is a federal government Amex card its first four digits will be 3783. Now here is the trick -

If the fifth digit is a 7 or 8 charge sales tax but if it is 9 do not. If the fifth digit is anything else I'm not sure what you do! And, try getting a hurried and harried Guest Service Agent to comply with these rules.

Sales billed to and paid directly by tribal governments are sales tax exempt. If someone tells you to bill the tribal government and then pays you with a personal check you probably must pay the sales tax out of your receipts. My interpretation of this is that if a management company is handling the tribe's money it is not sales tax exempt as the information states, "paid by tribal government", there is no reference to their agents. Of course if it is a local occupancy tax that the state does not handle, then the state doesn't care.

State and local governments of all kinds must pay sales taxes. Local governments are not required to pay local general sales taxes but may be required to pay other special restaurant, liquor or lodging taxes imposed by local governments. My theory is, if in doubt collect it and pay it to the state rather than get in trouble.

Lodging is taxable when sold to non-profit organizations and school districts or their personnel, even when billed directly to the school or non-profit organization. A Certificate Of Exempt Status, Form ST-17, cannot be used to purchase lodging exempt from sales tax. And, representatives of these organizations, thinking they are entitled to tax exemption will be very "forceful" with you staff.

Foreign Consular Officials receive special cards from the U.S. Department of State's Office of Foreign Missions. The cards have the diplomat's picture and other identification and clearly state on the back what exemptions they are to receive. Read those and if they qualify note the I.D. number of the folio.

Now just to make sure you're on top of this, here is the test question. If a hotel in Minneapolis buys supplies outside of Minneapolis, such as a hardware store in Hennepin or Ramsey Counties, what is the sales tax impact on the hotel? The hotel must keep track of all those purchases and remit 0.5% use tax to make up for the higher sales tax in Minneapolis! Keeping detailed records of these purchases is no small burden on a hotel. Trust me, the auditor found every 0.5% owing for three years! Another example is if the owner of the hotel visits New Hampshire which has no sales tax and buys a lovely decorative item for his hotel on his credit card, thereafter getting reimbursed by the hotel for this expense, the hotel must remit the 6.5% or 7.0% to the state.

So, what happened as a result of our audit? The auditor stated that their goal was more one of education rather than collection and punishment or, as he put it, it is a "kinder, gentler Revenue Department". While all our rentals for more than 30 days were audited and found to be lacking a satisfactory lease agreement, they offered us a deal. If we agreed not to appeal the amounts in the audit they would charge us sales tax for only three of the 36 months on those 30 day rentals. We agreed and they picked the highest ones! We were still ahead. In addition, of course, we were charged all the unpaid sales and use taxes on purchases that were found (no deal there) and they found them all because every single invoice we paid for three years was examined. We were charged interest but no penalties because it was apparent that there was no intent to defraud the state. Or as one of our office humorists said, "We were just stupid."

VAT AUDIT
A value added tax (VAT) is a form of consumption tax. From the perspective of the buyer, it is a tax on the purchase price. From that of the seller, it is a tax only on the value added to a product, material, or service, from an accounting point of view, by this stage of its manufacture or distribution. The manufacturer remits to the government the difference between these two amounts, and retains the rest for themselves to offset the taxes they had previously paid on the inputs. The value added to a product by a business is the sale price charged to its customer, minus the cost of materials and other taxable inputs. A VAT is like a sales tax in that ultimately only the end consumer is taxed. It differs from the sales tax in that, with the latter, the tax is collected and remitted to the government only once, at the point of purchase by the end consumer. With the VAT, collections, remittances to the government, and credits for taxes already paid occur each time a business in the supply chain purchases products.

Overview Maurice Laur, Joint Director of the France Tax Authority, the Direction gnrale des impts, was first to introduce VAT on April 10, 1954, although German industrialist Dr. Wilhelm von Siemens proposed the concept in 1918. Initially directed at large businesses, it was extended over time to include all

business sectors. In France, it is the most important source of state finance, accounting for nearly 50% of state revenues. Personal end-consumers of products and services cannot recover VAT on purchases, but businesses are able to recover VAT (input tax) on the products and services that they buy in order to produce further goods or services that will be sold to yet another business in the supply chain or directly to a final consumer. In this way, the total tax levied at each stage in the economic chain of supply is a constant fraction of the value added by a business to its products, and most of the cost of collecting the tax is borne by business, rather than by the state. Value added taxes were introduced in part because they create stronger incentives to collect than a sales tax does. Both types of consumption tax create an incentive by end consumers to avoid or evade the tax, but the sales tax offers the buyer a mechanism to avoid or evade the taxpersuade the seller that the buyer is not really an end consumer, and therefore the seller is not legally required to collect it. The burden of determining whether the buyer's motivation is to consume or resell is on the seller, but the seller has no direct economic incentive to collect it. The VAT approach gives sellers a direct financial stake in collecting the tax, and eliminates the problematic decision by the seller about whether the buyer is or is not an end consumer. Comparison with sales tax Value added tax (VAT) in theory avoids the cascade effect of sales tax by taxing only the value added at each stage of production. For this reason, throughout the world, VAT has been gaining favour over traditional sales taxes. In principle, VAT applies to all provisions of goods and services. VAT is

assessed and collected on the value of goods or services that have been provided every time there is a transaction (sale/purchase). The seller charges VAT to the buyer, and the seller pays this VAT to the government. If, however, the purchaser is not an end user, but the goods or services purchased are costs to its business, the tax it has paid for such purchases can be deducted from the tax it charges to its customers. The government only receives the difference; in other words, it is paid tax on the gross margin of each transaction, by each participant in the sales chain. In many developing countries such as India, sales tax/VAT are key revenue sources as high unemployment and low per capita income render other income sources inadequate. However, there is strong opposition to this by many subnational governments as it leads to an overall reduction in the revenue they collect as well as a loss of some autonomy. In theory sales tax is normally charged on end users (consumers). The VAT mechanism means that the end-user tax is the same as it would be with a sales tax. The main difference is the extra accounting required by those in the middle of the supply chain; this disadvantage of VAT is balanced by application of the same tax to each member of the production chain regardless of its position in it and the position of its customers, reducing the effort required to check and certify their status. When the VAT system has few, if any, exemptions such as with GST in New Zealand, payment of VAT is even simpler. A general economic idea is that if sales taxes are high enough, people start engaging in widespread tax evading activity (like buying over the Internet, pretending to be a business, buying at wholesale, buying products through an employer etc.). On the other hand, total VAT rates can rise above 10% without widespread evasion because of the novel collection mechanism. However, because of its particular mechanism of collection, VAT becomes quite easily the

target of specific frauds like carousel fraud, which can be very expensive in terms of loss of tax incomes for states.

Implementation The standard way to implement a value added tax involves assuming a business owes some fraction on the price of the product minus all taxes previously paid on the good. By the method of collection, VAT can be accounts-based or invoice-based. Under the invoice method of collection, each seller charges VAT rate on his output and passes the buyer a special invoice that indicates the amount of tax charged. Buyers who are subject to VAT on their own sales (output tax), consider the tax on the purchase invoices as input tax and can deduct the sum from their own VAT liability. The difference between output tax and input tax is paid to the government (or a refund is claimed, in the case of negative liability). Under the accounts based method, no such specific invoices are used. Instead, the tax is calculated on the value added, measured as a difference between revenues and allowable purchases. Most countries today use the invoice method, the only exception being Japan, which uses the accounts method. By the timing of collection, VAT (as well as accounting in general) can be either accrual or cash based. Cash basis accounting is a very simple form of accounting. When a payment is received for the sale of goods or services, a deposit is made, and the revenue is recorded as of the date of the receipt of fundsno matter when the sale had been made. Cheques are written when funds are available to pay bills, and the expense is recorded as of the cheque dateregardless of when the expense had been incurred. The primary focus is

on the amount of cash in the bank, and the secondary focus is on making sure all bills are paid. Little effort is made to match revenues to the time period in which they are earned, or to match expenses to the time period in which they are incurred. Accrual basis accounting matches revenues to the time period in which they are earned and matches expenses to the time period in which they are incurred. While it is more complex than cash basis accounting, it provides much more information about your business. The accrual basis allows you to track receivables (amounts due from customers on credit sales) and payables (amounts due to vendors on credit purchases). The accrual basis allows you to match revenues to the expenses incurred in earning them, giving you more meaningful financial reports. Registered VAT registered means registered for VAT purposes, that is entered into an official VAT payers register of a country. Both natural persons and legal entities can be VAT registered. Countries that use VAT have established different thresholds for remuneration derived by natural persons/legal entities during a calendar year (or a different period), by exceeding which the VAT registration is compulsory. Natural persons/legal entities that are VAT registered are obliged to calculate VAT on certain goods/services that they supply and pay VAT into a particular state budget. VAT registered persons/entities are entitled to a VAT deduction under legislative regulations of a particular country. The introduction of a VAT can reduce the cash economy because businesses that wish to buy and sell with other VAT registered businesses must themselves be VAT registered. With a value added tax

With a 10% VAT:

The manufacturer pays $1.10 ($1 + ($1 10%)) for the raw materials, and the seller of the raw materials pays the government $0.10.

The manufacturer charges the retailer $1.32 ($1.20 + ($1.20 10%)) and pays the government $0.02 ($0.12 minus $0.10), leaving the same gross margin of $0.20. ($1.32 $0.02 $1.10 = $0.20)

The retailer charges the consumer $1.65 ($1.50 + ($1.50 10%)) and pays the government $0.03 ($0.15 minus $0.12), leaving the same gross margin of $0.30 ($1.65 $0.03 $1.32 = $0.30).

The manufacturer and retailer realize less gross margin from a percentage perspective.

Note that the taxes paid by both the manufacturer and the retailer to the government are 10% of the values added by their respective business practices (e.g. the value added by the manufacturer is $1.20 minus $1.00, thus the tax payable by the manufacturer is ($1.20 - $1.00) 10% = $0.02).

With VAT, the consumer has paid, and the government received, the same as with sales tax. The businesses have not incurred any tax themselves. Their obligation is limited to assuming the necessary paperwork in order to pass on to the government the difference between what they collect in VAT (output tax, an 11th of their sales) and what they spend in VAT (input VAT, an 11th of their expenditure on goods and services subject to VAT). However they are freed from any obligation to request certifications from purchasers who are not end users, and of providing such certifications to their suppliers. On the other hand, they incur increased accounting costs for collecting the tax, which are not reimbursed by the taxing authority. For example, wholesale companies now have to hire staff and accountants to handle the VAT

paperwork, which would not be required if they were collecting sales tax instead. If you calculate the added overhead required to collect VAT, businesses collecting VAT have less profits overall than businesses collecting sales tax. The advantage of the VAT system over the sales tax system is that under sales tax, the seller has no incentive to disbelieve a purchaser who says it is not a final user. That is to say the payer of the tax has no incentive to collect the tax. Under VAT, all sellers collect tax and pay it to the government. A purchaser has an incentive to deduct input VAT, but must prove it has the right to do so, which is usually achieved by holding an invoice quoting the VAT paid on the purchase, and indicating the VAT registration number of the supplier. Limitations of VAT A VAT, like most taxes, distorts what would have happened without it. Because the price for someone rises, the quantity of goods traded decreases. Correspondingly, some people are worse off by more than the government is made better off by tax income. That is, more is lost due to supply and demand shifts than is gained in tax. This is known as a deadweight loss. If the income lost by the economy is greater than the government's income; the tax is inefficient. The entire amount of the government's income (the tax revenue) may not be a deadweight drag, if the tax revenue is used for productive spending or has positive externalities in other words, governments may do more than simply consume the tax income. While distortions occur, consumption taxes like VAT are often considered superior because they distort incentives to invest, save and work less than most other types of taxation in other words, a VAT discourages consumption rather than production.

WEALTH AUDIT
A wealth tax is generally conceived of as a levy based on the aggregate value of all household holdings actually accumulated as purchasing power stock (rather than flow), including owner-occupied housing; cash, bank deposits, money funds, and savings in insurance and pension plans; investment in real

estate and unincorporated businesses; and corporate stock, financial securities, and personal trusts. Some governments require declaration of the tax payer's balance sheet (assets and liabilities), and from that ask for 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 is in place for both "natural" and in some cases legal "persons". In France, the net worth tax on "natural persons" is called the "solidarity tax on wealth". In other places, the tax may be called, or be known as, a "Capital Tax", an "Equity Tax", a "Net Worth Tax", a "Net Wealth Tax", or just a "Wealth Tax". Some European countries have abandoned this kind of tax in the recent years: Austria, Denmark, Germany (1997), Sweden (2007), andSpain (2008).

On January 2006, wealth tax was abolished in Finland, Iceland (but temporarily re-introduced in 2010) and Luxembourg. In other countries,

like Belgium or Great Britain, no tax of this type has ever existed, although the Window Tax of 1696 was based on a similar concept. In the United States, property taxes are annual taxes on the market value of real estate (ranging from about 0.4% in Alabama to 4% inNew Hampshire) assessed both locally and by state governments to pay for local schools, as well as other services and infrastructure of various kinds. Local jurisdictions rely upon property taxes because real estate cannot be moved out of a jurisdiction, whereas paper wealth, income, etc. are more easily moved to other localities where they may be taxed less or not at all. Over time, the property taxes add up significantly, such that over a generation of 25 years, a family may pay, with annual increases forinflation, up to 50% of a property's market value in taxes (though over the same period of time, the land value of the family's home could have increased substantially as well). Heavy property taxation and especially sudden, large increases in appraised valuations caused by infrequent or inaccurate appraisals are major causes of local political discontent in jurisdictions throughout the United States and in other countries Because property taxes have often been labeled unfair (other assets such as CDs, equities, or partnerships are taxed rarely, if at all), some properties, such as certain farms or forest land, may have reduced valuations. However, unlike the value of most other assets, the value of land is largely a function of government spending on services and infrastructure (a relationship demonstrated by economists in the Henry George Theorem). This relationship argues that the land value portion of property taxes, at least, satisfies the "beneficiary pay" criterion of tax fairness. Non-profit (especially church) and government-owned properties are often exempt from property taxes.

Arguments in favor There are four lines of argument in favor of a tax based on household wealth. The claims are that such a wealth tax improves thefairness of most tax systems, effectively raises government revenue, can further economic growth, and could have desirable secondary, social effects by reducing economic inequality. Fairness: According to the "beneficiary pay" criterion of tax fairness, a tax on property rights can be seen as a use fee. Specifically, protection of property rights is a primary purpose of government. Holders of property rights enjoy the existence of government more than do those who hold no property rights. Coupled with market-driven assessment (bids in escrow, for example) and deferment of tax liability at interest equal to long term government debt rates, the "beneficiary pay" criterion of "fairness" contrasts with the "ability to pay" criterion of "fairness" which is more expedient than essentially reciprocal. Revenue: In 1999, Donald Trump proposed a once off 14.25% wealth tax on the net worth of individuals and trusts worth $10 million or more. Trump claimed that this would generate $5.7 trillion in new taxes, which could be used to eliminate the national debt.[3] Economic Growth: A wealth tax that decreases other tax burdens, such as income, capital gains, sales, value added and inheritance, increases the time horizon for investment and can increase the return on investments over that

time. The increased time horizon of investment results from the competition for investment between the risk free asset of modern portfolio theory, and commercial assets. The higher return on investment results from the removal of taxes on profits. More economic equality has been correlated with higher levels of innovation. Social Effects: By unburdening the poor and middle class of taxation, while stimulating investment in commercial assets that create demand for labor, more financial resources in the hands of the poor and middle class would reduce their reliance on government delivery of social goods, such as improved educational opportunities for their children. This would promote social mobility, mean more citizens reach their full potential of productivity, and so improve the economy. Increased government revenue from a wealth tax could be used to promote public investment in services like education, basic science research, and transportation infrastructure, which in turn improve economic efficiency. Increased government revenue from a wealth tax coupled with restrained government spending would reduce government borrowing and so free more credit for the private sector to promote business. A strong, steadily growing economy could in turn increase tax revenues further, allowing for more deficit reduction, and so on in a virtuous cycle.]

Arguments against A 2006 article in The Washington Post titled "Old Money, New Money Flee France and Its Wealth Tax" pointed out some of the harm caused by France's wealth tax. The article gave examples of how the tax caused capital flight, brain drain, loss of jobs, and, ultimately, a net loss in tax revenue. Among other

things, the article stated, "ric Pichet, author of a French tax guide, estimates the wealth tax earns the government about $2.6 billion a year but has cost the country more than $125 billion in capital flight since 1998." Due to valuation and accounting difficulties, wealth taxes systems have high management costs, for both the taxpayer and the administrating authorities, compared to other taxes. Per one study in the Netherlands the aggregated cost of the taxs yield was roughly five times that of income tax.

SERVICE TAX AUDIT

The country is passing thorough a phase where the need of transparency at all levels appears to be explicitly essential. There is a trust deficit at all levels, be it the Civil society, public at large or government machinery. The assessees are entrusted with a self-assessment system wherein the tax paid by them is treated as true and fair. There is a trust deficit here too as such the Service tax department apprehends that there might be instances where either assessee deliberately avoids and evades tax or a case where ignorance of laws leads to non-payment of Service Tax. In both the cases government loses its revenue. To prevent such leakage of revenue, one of the basic tools employed by department is Audit of the assessee. The phrase departmental audit instills fear in the mind of the assessee. Smaller the assessee; higher the fear of facing audit. The Finance minister has announced in Budget 2011 that small assessee would be relieved from formalities of audit. Accordingly, such benefit was forwarded vide D.O.F. No. 334/3/2011-TRU dated : 28.02.2011; the said circular clarified that individual and sole proprietor assessees with a turnover upto Rs 60 lakhs shall not be subject to audit. It is pertinent to note here that such

relaxation only for individuals and it is not extended to Partnerships, Companies, Trusts, etc.

The department carries out audit of the assessee based on guidelines provided in Audit Manual. The audit manual outlines procedures to be adopted for conduct of audit. The recent states that, the existing Service Tax Audit Manual has been in use since 2003. With rapid change in service tax law over the years, growth in service tax categories, assessee base as well as revenue, there was desperate need felt to update the manual. The need for professionalism has been felt by the department and therefore new audit manual drives towards assessee friendly approach. According to the new Audit Manual, while conducting audit, the Auditor (departmental officer) is required to carry out his duties with utmost sincerity, integrity and diligence. As per this new audit guideline the Auditor has to aim at detection of non-compliance, procedural irregularities and leakage of revenue due to deliberate action or ignorance on the part of the taxpayer. The Auditor should keep in view the prevalent transactional and professional practices, as also the practical difficulties faced by a taxpayer. Therefore, the Auditor should take a balanced, fair and rational approach while conducting the audit. During the course of the audit, if any purely technical infractions, without any revenue implications, are noticed, the Auditor is expected to exercise sense of proportion and should guide the taxpayer in correcting the procedures.

Government's objective is to collect correct amount of tax levied under the Service Tax law in a cost-effective, responsive, fair and transparent manner and also to maintain public confidence in the integrity of the tax system. The audit should be participative and a fact finding mission, as against a fault finding exercise, with the

objective of guiding the taxpayer while at the same time guarding against any leakage of revenue.

The Department expects that the Auditor should recognize the rights of the taxpayers, such as the right to impartial and uniform application of law; the right to be treated with courtesy and fairness, the right to information permitted by law and the right to confidentiality of information disclosed only for Departmental audit. Auditor should use a constructive and tactful approach to gain the goodwill and confidence of the taxpayer. Further it is directed that confidentiality should be maintained in respect of sensitive and confidential information furnished to an Auditor during the course of audit. All records submitted by the service provider to the audit parties, in electronic or manual format, should be used only for verification of levy of service tax and tax compliance. These shall not be used for any other purposes without the express written consent of the taxpayer. Further, the officers should not disclose to outsiders any particulars learnt by them in their official capacity.

Thus, auditor is expected to ensure that audit is carried out in systematic manner, with optimum utilization of time and resources. Further auditor has to take care that the rights of the assessee are not violated in guise of audit. This is one step which

will help decreasing the trust deficit. The department expects that attitude of the auditor should be friendly and he should guide the service tax payers for better compliance rather than creating futile litigations.

The particulars of its organization, functions and duties:

Service Tax was introduced in India in 1994 by Chapter V of the Finance Act, 1994. The Central Board of Excise & Customs (CBEC), Department of Revenue, Ministry of Finance, deals with the task of formulation of policy concerning levy and collection of Service Tax. The CBEC is assisted by the Directorate of Service Tax located at Mumbai. The Service Tax is being administered by various Central Excise Commissioner spread across the country. The jurisdiction of each Commissionerate has been specified vide Notf. No. 14/2002-CE(NT) as amended from time to time. However there are six Commissioner located at metropolitan cities of Delhi, Mumbai, Kolkata, Chennai, Ahmedabad and Bangalore which deal exclusively with work related to Service Tax. These Commissionerates are supervised by the jurisdictional Chief Commissionerate of Central Excise. Each Commissionerate consists of 3 to 5 divisions with each division consisting of a number of range offices.The Commissioner is headed by the Commissioner who is

the supervisory head and final decision making authority with regard to any disputes arising regarding the levy of Service Tax on any service. The Commissioner is assisted by the Joint/Additional Commissioner. Further, the Commissioner consists of division headed by the Asstt./Dy.Commissioner. Each range office of the division is looked after by the Superintendent assisted by the Inspector. Refund/Rebate- The assessee may also apply for refund wherever he paid the service tax more than the tax assessed or payable. Such refund can be made in accordance with the provisions of Section 11B of Central Excise Act, 1994 as made applicable to Service Tax by virtue of Section 83 of the Finance Act, 1994. The Asstt./Dy.Commissioner of the jurisdictional division office is the authority to whom the claim for refund is to be filed and is also the sanctioning authority. However, all claims above Rs. 5 lakhs are required to be pre-audited and all refund claims are required to be post audited by the Commissioner.

Audit-

Audit of the Service Tax assessees is being conducted as per norms

prescribed by the Department. A service tax audit cell is functioning headed by the Joint/Addl. Commissioner under the overall supervision of the Commissioner. The audit of all units is being conducted by a team of officers comprising of Superintendents and Inspectors. The norms are specified in the Act. The rules, regulations, instructions, manuals and records held by it or under its control or used by its employees for discharging its functions.

Service Tax Rate The Current of Service Tax Rate is 12% Education Cess @ 2% and Senior and Higher Education Cess @ 1% are also liable to be payable on the above Service Tax Rate. Service Tax Rate (+) Education Cess @ 2% (+) Senior & Higher Education Cess @ 1% Effective Service Tax Rate = 12% = 0.2% = 0.1% = 12.36%

Service Tax is required to be deposited on a Monthly/Quarterly basis. The Service tax can be paid either by manually depositing in the Bank or through Online Payment of Service Tax. In case, of excess payment of Service Tax by the Service Provider with the Government, the Service Provider can either adjust the excess

amount paid or can claim Refund of the Excess Tax deposited. Refer: Service Tax Refund.

Case Study on Service Tax Lets understand via simple case, If a Chartered Accountant, provides services in the capacity of auditor to ABC Ltd. and the audit fees is Rs. 1,00,000 then the service tax chargeable will be 12.36% on Rs. 1,00,000 i.e. INR 12,360. Hence, the total billing to be done by CA to ABC Ltd will be INR 1, 12,360. The segregation of Value of Service Provided (i.e. Rs. 1,00,000)and the Service Tax payable thereon (i.e. Rs. 12,360) shall be separately showing on the Invoice. In case, no service tax is separately charged in Invoice or the service receiver makes partial payment then the service tax shall be proportionately taken to be

amount as on the gross amount received by the service provider for the taxable service provided or to be provided by him.

CUSTOMS TAX AUDIT

Custom Duty is imposed under the Indian Customs Act formulated in 1962 by the Constitution of India under the Article 265, which states that no tax shall be levied or collected except by authority of law. So, theIndian Custom Act was introduced that allow the Central Government to collect the taxes under the name of Custom Duty. Custom Duties are usually levied with ad valorem rates and their base is determined by the domestic value 'the imported goods calculated at the official exchange rate. Similarly, export duties are imposed on export values expressed in domestic currency. Export duties are levied occasionally to clear up excess profitability in international price of goods in respect of which domestic prices may be low at given time. But the concept of import duty is wide and almost universal,

except for a few goods like food grains, fertilizer, life saving drugs and equipment etc. The Indian Customs Duties are major source of revenue for the Union Government and constitute around 30% of its tax revenues. Together

with Central Excise duties, the contribution amount to nearly three-fourth of total tax revenue of the Union Government.

History of Indian Customs The Custom Duty in its present form dates back to 1786, when Bruisers formed the first Revenue Board in Calcutta. In 1808, a new Trade Board was introduced for export and import of goods from India. Once again, in 1859 Customs Duties Act was introduced in which provincial import duties were replaced by uniform Tariff Act and was applicable to all Indian territories within the country. In the subsequent year several changes in the Custom Policy took places and are as follow:

Sea Customs Act was passed by Government in 1878. Indian Tariff Act was passed in 1894. Air Customs having been covered under the India Aircrafts Act of 1911, Land Customs Act was passed in 1924.

Objectives of Custom Duties The customs duty is levied, primarily, for the following purpose:

Restricting Imports for conserving foreign exchange. Protecting Indian Industry from undue competition. Prohibiting imports and exports of goods for achieving the policy objectives of the Government.

Regulating export. Co-coordinating legal provisions with other laws dealing with foreign exchange such as Foreign Trade Act, Foreign Exchange Regulation Act, Conservation of Foreign Exchange and Prevention of Smuggling Act, etc.

Mode of Levy of Customs Duty Basically there are three modes of imposing Customs Duty: 1. Specific Duties: - Specific custom duty is a duty imposed on each and every unit of a commodity imported or exported. For example, Rs.5 on each meter of cloth imported or Rs.500 on each T.V. set imported. In this case, the value of commodity is not taken into consideration. 2. Advalorem Duties: Advalorem custom duty is a duty imposed on the total value of a commodity imported or exported. For example, 5% of F.O.B. value of cloth imported or 10% of C.LF. value of T.V. sets imported. In case of Advalorem custom duty, the physical units of commodity are not taken into consideration. 3. Compound Duties: - Compound custom duty is the combination of specific and advalorem custom duties. In this case, the quantities as well as the value of the commodity are taken into consideration while computing tariff. For example, 5% of F.O.B. value plus, 50 paisa per meter of cloth imported.

STAMP DUTY AND EXCISE TAX AUDIT

An excise or excise tax (sometimes called a duty of excise special tax) is commonly referred to as an inland tax on the sale, or production for sale, of specific goods; or, more narrowly, as a tax on a good produced for sale, or sold, within a country or licenses for specific activities. Excises are distinguished from customs duties, which are taxes on importation. Excises are inland taxes, whereas customs duties are border taxes. An excise is considered an indirect tax, meaning that the producer or seller who pays the tax to the government is expected to try to recover the tax by raising the price paid by the buyer (that is, to shift or pass on the tax). Excises are typically imposed in addition to another indirect tax such as a sales tax orvalue added tax (VAT). In common terminology (but not necessarily in law) an excise is distinguished from a sales tax or VAT in three ways: (i) an excise typically applies to a narrower range of products; (ii) an excise is typically heavier, accounting for higher fractions (sometimes half or more) of

the retail prices of the targeted products; and (iii) an excise is typically specific (so much per unit of measure; e.g. so many cents per gallon), whereas a sales tax or VAT isad valorem, i.e. proportional to value (a percentage of the price in the case of a sales tax, or of value added in the case of a VAT).

DEFINITION The word excise is derived from the Dutch accijns, which is presumed to come from the Latin accensare, meaning simply "to tax". Regulatory and legal definitions of 'excise' vary by country. For example: In India, an excise is described as an indirect tax levied and collected on the goods manufactured in India. In the United Kingdom, HM Revenue holdings and & Customs lists movements, "alcohol,

environmental

taxes, gambling,

hydrocarbon

oil, money laundering, refunds of duty, revenue trader's records, tobacco duty, and visiting forces" as being subject to excise.[1] Some of the listed items are not goods, but rather services. The Australian Taxation Office describes an excise as "a tax levied on certain types of goods produced or manufactured in Australia. These... include alcohol, tobacco and petroleum and alternative fuels".[2]

In Australia, the meaning of "excise" is not merely academic, but has been the subject of numerous court cases. The High Court of Australia has repeatedly held that a tax can be an "excise" regardless of whether the taxed goods are of domestic or foreign origin; most recently, in Ha v New South Wales (1997), the majority of the Court endorsed the view that an excise is "an inland tax on a step in production, manufacture, sale or distribution of goods", and took a wide view of the kind of "step" which, if subject to a tax, would make the tax an excise.

WHAT IS STAMP DUTY? Stamp Duty is a tax on documents relating to immovable properties, stocks or shares. Examples of such documents are : 1) Lease / Tenancy Agreements These are documents that are prepared and signed when you rent a property. Stamp Duty is calculated on the actual rent or market rent whichever is higher. The person who leases or rents the property (lessee or tenant) is responsible for paying Stamp Duty. 2) Acceptance to Option to Purchase / Sale & Purchase Agreements

These are documents that are prepared and signed when you buy or sell your property. Stamp Duty is payable on the actual price or market price whichever is higher. The buyer is responsible for paying Buyers Stamp Duty. Where Sellers Stamp Duty is applicable, the seller is responsible for paying Sellers Stamp Duty. 3) Mortgages These are documents that are prepared and signed when you obtain a loan from banks for your property purchase. Stamp Duty is payable on the loan amount. The person who obtains the loan (mortgagor) is responsible for paying the Stamp Duty on the mortgage document. 4) Share Transfer Documents These are documents that are prepared and signed when you buy or sell shares. Stamp Duty is payable on the actual price or net asset value of the shares whichever is higher. The person who buys the shares (transferee) is responsible for paying Stamp Duty on the Share Transfer document. If you have a document that relates to more than one matter, it will be charged separately for each matter. This means that more than one set of Stamp Duty is to be paid on that document. Examples include : 1. Sale and lease-back of property 2. Sale and buy-back of property 3. Lease with a contract for sale of fixtures

4. An instrument whereby more than one property is leased to the same tenant and where the terms and conditions for the lease of each of the properties are different

WHY SHOULD STAMP DUTY BE PAID? It is an offence to use a document which stamp duty has not been paid on. If IRAS detects a document where stamp duty has not been paid, a penalty of up to 4 times will be imposed. In addition, a document where Stamp Duty is paid can be admitted as evidence in the court in cases of disagreements. DOCUMENTS REQUIRED TO PAY STAMP DUTY Examples of documents where Stamp Duty is not payable :

Service contracts not in connection with the granting of a lease Deed of Appointment of Trustees - where it does not involve vesting of interest Loan agreements not relating to properties and shares Settlement not relating to properties and shares such as cash settlement Letters of Guarantee / Indemnity Statutory Declaration, Affidavit Assignment of intangible assets such as Goodwill, Trademark and Patents Assignment of book debts / receivables (eg. sale proceeds) Promissory Note Letters of Appointment / Revocation of Power of Attorney

Will Hire Purchase Agreement Charter-party Declaration to change from Joint Tenancy to Tenancy in Common of equal shares

Declaration to hold as Joint Tenants by Tenants in common in equal shares

WHEN SHOULD STAMP DUTY BE PAID? Once the document is signed and dated, Stamp Duty needs to be paid : 1. Within 14 days after the date of the document if the document is signed in Singapore or 2. Within 30 days after the date of its receipt in Singapore if the document is signed overseas