Tax Structure in India:

The Tax Structure in India is quite strong and follows the financial year. The taxation under the tax structure in India is applicable for any kind of income pertaining to a person working as an employee under the public sector units, private sector units, foreign companies in India, Departments of the State Governments of India, and Departments of the Central Government of India or self-employed individuals engaged in commercial activities which is legal in nature. The several corporations engaged in commercial activities also come under the taxation. The public bodies, state governments and central government have clear demarcation of their functioning. The central government imposes tax on all kinds of income such as central excise, customs duties, and service tax apart from income pertaining to agriculture. The State Governments of India is responsible for imposing tax pertaining to Value Added Tax (VAT), sales tax, income from agriculture, state excise duty, stamp duty, professional tax, land revenue, etc. Taxes imposed by the local bodies are pertaining to octroi tax, water supply utilities, drainage and sewage utilities, property tax, etc.

Different taxes levied under tax structure in India:

Direct Taxes Personal Income Tax Tax on Corporate Income Tax Incentives Capital Gains Tax Indirect Taxes Securities Transaction Tax Service Tax Excise Duty Customs Duty Taxes Levied by State Governments and Local Bodies Other Taxes Sales Tax or Value Added Tax

The different heads of income for tax structure in India:

Salary House property Profit in business or profession Capital gains Other sources The different exemption schemes under the tax structure in India:

Exemption on income spent on higher educational purpose Exemption on income spent for the treatment of a diseased person who is dependent Exemption on income spent as contribution to provident fund, insurance policies, etc Exemption on the income spent on buying national savings certificates and investments in other government based savings schemes Exemption on the income of a disabled person Exemption on the income spent on the payment of interest on loan The important facts under the tax structure in India:

The laws on central government income tax collection and recovery is governed by the Department of Tax and Revenue under Ministry of Finance, India The system of taxation is completely based on the personal assessment of income Penalties and interest are charged on the non payment of taxes and failure to file returns The filing date is not extended and any late filing is charged with interest The returns pertaining to the losses have to be filed within the due date All the large sized and medium sized taxpayers are subjugated to investigative assessment Designated due dates are ascertained for the purpose of filing of returns The tax is deducted at source by the employers on behalf of the employees and from all kinds of defrayments to non residents

Tax Planning
Tax Planning India is an application to reduce tax liability through the finest use of all accessible allowances, exclusions, deductions, exemptions, etc, to trim down income and/or capital profits. Salaried individuals in India are not fully aware of the tax planning exercise which is why they rush at the end of the tax-planning season and make investments to reduce their tax liability. This has negative effect on tax payable by them and they eventually end up paying more taxes than they are required to. Tax-planning tips that can assist salaried people to reduce their tax accountability 1. Make full use of the entire Section 80C deduction - The maximum reduction available in Section 80C is ` 100,000 and salaried citizens whose gross salary is `250,000 or more are entitled to use the full` 100,000 limit. Individuals who make monetary infusions of over ` 100,000 in Section 80C in selected areas fail to understand that the advantages are limited. In spite of investing ` 70,000 and ` 40,000 in Public Provident Fund and ELSS respectively, the amount entitled by the investor is only ` 100,000. Following investments/contributions meet the criteria for Section 80C reduction:

y y y y y y y y

Public Provident Fund Accrued interest on National Saving Certificate Life Insurance Premium National Saving Certificate Tuition fees paid for children's education (maximum 2 children) Principal component of home loan repayment 5-Year fixed deposits with banks and Post Office Equity Linked Savings Schemes (ELSS)

2. Reduction of tax liability beyond Section 80C deductions - If your salary surpasses ` 250,000 pa and the reductions under Section 80C are not enough to minimize the general tax liability consider the following:

y y y

Home loan: Interest payments of upto ` 150,000 pa are entitled for reduction under Section 24. Medical insurance: A deduction of upto ` 15,000 pa under section 80D is applicable under this. Donations: Tax advantages under Section 80G entitle the donations to particular funds/institutions.

3. Assert tax advantages on house rent paid - If HRA is not included in the salary structure then the salaried individuals can asset rent paid by them for residential lodging. This reduction is accessible under Section 80GG and is smallest amount of the following:

y y y

25% of the total earnings or, ` 2,000 every month or, Surplus of housing charge paid over 10% of total salary

4. Reorganize the salary - Reorganizing the salary and incorporating certain apparatus can help in the long run in minimizing the tax liability. In order to assert tax benefits salary reform is a more competent measure. The following can be included in an individual's salary structure:

y y y y

Food coupons can release up to ` 60,000 per year from tax. Medical expenses which are compensated by the employer spare up to ` 15,000 per year. House Rent Allowance (HRA) should be incorporated in the salaries of individuals who stay in rented houses Transport allowance discharge upto ` 800 per month.

5. Go for a combined home loan - The primary reimbursement on a home loan is entitled for a reduction of up to ` 100,000 pa and the interest rewarded is entitled for a reduction of up to ` 150,000 pa. When a home loan is for a considerable amount then the interest and chief reimbursement surpass the allotted limit. A salaried individual can go for a combined joint home loan with his parent, spouse or sibling, to guarantee the best utilization of tax advantages. In this way both the owners can assert tax reductions in the percentage of their stake holding in the loan

SSSSSSSSSSSSSSSSSSIIIIIIIIIIIIIIIIIIIIIIII

In 1947 after gaining independence, India initiated a path of industrialization to achieve economic prosperity. India focused on developing the manufacturing base. Much of the countries development was done through the five year plans. Industries like iron and steel, oil refineries, cement and fertilizer were brought under the gamut of public sector enterprises. The decision makers then encouraged the development of small scale industries. They perceived that Indian small scale industries would play a vital role in the economic progress of the country and had immense potential for employment generation. Developing small scale sector would also result in decentralized industrial expansion, better distribution of wealth and to encourage investment and entrepreunial talent.

The government has initiated several policies for the growth and development of small scale industries. They included reservation of certain items to be manufactured only by the small scale sector. Other measures include credit marketing, technology, and entrepreneurship development, fiscal, financial and infrastructural support. In 1999, the government established the Ministry of Small Scale Industries and Agro and Rural industries to make policy decisions for the development and well being of the small scale industries.

Initially the small scale sector was characterized as traditional labor intensive units with outdated machineries and inefficient production techniques. But in the recent past the condition of the small

scale units has improved. Today they have installed modern machines, applied better management techniques and are much more productive than before.

SSI-Location Small Scale Industries are located throughout the country, though predominantly in the rural areas. The small scale industries in the rural areas are skill based, wherein the skill for manufacturing is passed on from one generation to another. Some of the goods manufactured in these units are textile handicrafts, woodcarving, stone carving, metal ware etc. Small scale industrial factories are also present in urban areas and usually they account for the maximum volume of production for that particular good in the country. For e.g. Ludhiana in the state of Punjab is the main center in the country for producing woolen hosiery, sewing machine parts, bicycles and its parts, similarly Tiruppur in Tamil Nadu accounts for small scale firms that are involved in spinning, weaving and dying of cotton garments.

Post Liberalization Post liberalization economic conditions has created immense growth prospect for the small scale industries. The government has also supported the small scale industries by the way of implementing policies like investment ceiling for the SSI sector and priority lending. The formation of WTO in 1995 resulted in a major challenge to the well being of the SSI. The protection given to the SSI in the form of reservation and quantitative restrictions has been withdrawn. More than 160 items reserved under the SSI category have been de reserved. It has been found that if the SSI upgrades the technology, adopt better management practices, reengineer the factories to improve productivity and provide qualitative product, they would be competitive in the post WTO scenario. The advancement in computer and telecommunication technology, increase in e commerce, opening up of markets due to WTO, mergers and acquisitions, improved infrastructure and outsourcing noncore area of business have all contributed to the growth of SSi.

Production
The small-scale industries sector plays a vital role in the growth of the country. It contributes almost 40% of the gross industrial value added in the Indian economy. It has been estimated that a million Rs. of investment in fixed assets in the small scale sector produces 4.62 million worth of goods or services with an approximate value addition of ten percentage points. The small-scale sector has grown rapidly over the years. The growth rates during the various plan periods have been very impressive. The number of small-scale units has increased from an estimated 0.87 million units in the year 1980-81 to over 3 million in the year 2000. When the performance of this sector is viewed against the growth in the manufacturing and the industry sector as a whole, it instills confidence in the resilience of the small-scale sector.

Year Target Achievement 1991-92 3.0 3.1 1992-93 5.0 5.6 1993-94 7.0 7.1 1994-95 9.1 10.1 1995-96 9.1 11.4 1996-97 9.1 11.3 1997-98 * 8.43 1998-99 * 7.7 1999-00 * 8.16 2000-01 (P) * 8.90

P-Projected (April-December) * Target not fixed at constant prices

Employment
SSI Sector in India creates largest employment opportunities for the Indian populace, next only to Agriculture. It has been estimated that 100,000 rupees of investment in fixed assets in the small-scale sector generates employment for four persons. Generation of Employment - Industry Group-wise Food products industry has ranked first in generating employment, providing employment to 0.48 million persons (13.1%). The next two industry groups were Non-metallic mineral products with employment of 0.45 million persons (12.2%) and Metal products with 0.37 million persons (10.2%). In Chemicals & chemical products, Machinery parts except Electrical parts, Wood products, Basic Metal Industries, Paper products & printing, Hosiery & garments, Repair services and Rubber & plastic products, the contribution ranged from 9% to 5%, the total contribution by these eight industry groups being 49%. In all other industries the contribution was less than 5%. Per unit employment Per unit employment was the highest (20) in units engaged in beverages, tobacco & tobacco products mainly due to the high employment potential of this industry particularly in Maharashtra, Andhra Pradesh, Rajasthan, Assam and Tamil Nadu. Next came Cotton textile products (17), Non-metallic mineral products (14.1), Basic metal industries (13.6) and Electrical machinery and parts (11.2.) The lowest figure of 2.4 was in Repair services line. Per unit employment was the highest (10) in metropolitan areas and lowest (5) in rural areas.

However, in Chemicals & chemical products, Non-metallic mineral products and Basic metal industries per unit employment was higher in rural areas as compared to metropolitan areas/urban areas. In urban areas highest employment per unit was in Beverages, tobacco products (31 persons) followed by Cotton textile products (18), Basic metal industries (13) and Non-metallic mineral products (12). Location-wise Employment Distribution - Rural Non-metallic products contributed 22.7% to employment generated in rural areas. Food Products accounted for 21.1%, Wood Products and Chemicals and chemical products shared between them 17.5%. Urban As for urban areas, Food Products and Metal Products almost equally shared 22.8% of employment. Machinery parts except electrical, Non-metallic mineral products, and Chemicals & chemical products between them accounted for 26.2% of employment. In metropolitan areas the leading industries were Metal products, Machinery and parts except electrical and Paper products & printing (total share being 33.6%). State-wise Employment Distribution Tamil Nadu (14.5%) made the maximum contribution to employment. This was followed by Maharashtra (9.7%), Uttar Pradesh (9.5%) and West Bengal (8.5%) the total share being 27.7%. Gujarat (7.6%), Andhra Pradesh (7.5%), Karnataka (6.7%) and Punjab (5.6%) together accounted for another 27.4%. Per unit employment was high - 17, 16 and 14 respectively - in Nagaland, Sikkim and Dadra & Nagar Haveli. It was 12 in Maharashtra, Tripura and Delhi. Madhya Pradesh had the lowest figure of 2. In all other cases it was around the average of 6.

Year

Target Achievement Growth rate (lakh nos.) (lakh nos.) 1992-93 128.0 134.06 3.28 1993-94 133.0 139.38 3.28 1994-95 138.6 146.56 5.15 1995-96 144.4 152.61 4.13 1996-97 150.5 160.00 4.88 1997-98 165 167.20 4.50 1998-99 170.1 171.58 2.61 1999-00 175.4 177.3 3.33

P-Provisional

Export
SSI Sector plays a major role in India's present export performance. 45%-50% of the Indian Exports is contributed by SSI Sector. Direct exports from the SSI Sector account for nearly 35% of total exports. Besides direct exports, it is estimated that small-scale industrial units contribute around 15% to exports indirectly. This takes place through merchant exporters, trading houses and export houses. They may also be in the form of export orders from large units or the production of parts and components for use for finished exportable goods. It would surprise many to know that non-traditional products account for more than 95% of the SSI exports. The exports from SSI sector have been clocking excellent growth rates in this decade. It has been mostly fuelled by the performance of garments, leather and gems and jewellery units from this sector. The product groups where the SSI sector dominates in exports, are sports goods, readymade garments, woollen garments and knitwear, plastic products, processed food and leather products. The SSI sector is reorienting its export strategy towards the new trade regime being ushered in by the WTO.

Year

Exports (Rs. Crores) (at current prices) 1994-95 29,068 (14.86) 1995-96 36,470 (25.50) 1996-97 39,249 (7.61) 1997-98 43946 (11.97) 1998-99 48979 (10.2) 1999-00 (P) 53975 (10.2) P-Provisional

Major Export Markets An evaluation study has been done by M/s A.C. Nielsen on behalf of Ministry of SSI. As per the findings and recommendations of the said study the major export markets identified having potential to enhance SSIs exports are US, EU and Japan. The potential items of SSIs have been categorised into three broad categories. More.. Export Destinations The Export Destinations of SSI products have been identified for 16 product groups. More..

Opportunity
The opportunities in the small-scale sector are enormous due to the following factors: y Less Capital Intensive y Extensive Promotion & Support by Government y Reservation for Exclusive Manufacture by small scale sector y Project Profiles y Funding - Finance & Subsidies y Machinery Procurement y Raw Material Procurement y Manpower Training y Technical & Managerial skills y Tooling & Testing support y Reservation for Exclusive Purchase by Government y Export Promotion y Growth in demand in the domestic market size due to overall economic growth y Increasing Export Potential for Indian products y Growth in Requirements for ancillary units due to the increase in number of greenfield units coming up in the large scale sector. Small industry sector has performed exceedingly well and enabled our country to achieve a wide measure of industrial growth and diversification. By its less capital intensive and high labour absorption nature, SSI sector has made significant contributions to employment generation and also to rural industrialisation. This sector is ideally suited to build on the strengths of our traditional skills and knowledge, by infusion of technologies, capital and innovative marketing practices. This is the opportune time to set up projects in the small-scale sector. It may be said that the outlook is positive, indeed promising, given some safeguards. This expectation is based on an essential feature of the Indian industry and the demand structures. The diversity in production systems and demand structures will ensure long term co-existence of many layers of demand for consumer products / technologies / processes. There will be flourishing and well grounded markets for the same product/process, differentiated by quality, value added and sophistication. This characteristic of the Indian economy will allow complementary existence for various diverse types of units. The promotional and protective policies of the Govt. have ensured the presence of this sector in an astonishing range of products, particularly in consumer goods. However, the bugbear of the sector has been the inadequacies in capital, technology and marketing. The process of liberalisation coupled with Government support will therefore, attract the infusion of just these things in the sector. Small industry sector has performed exceedingly well and enabled our country to achieve a wide measure of industrial growth and diversification. By its less capital intensive and high labour absorbtion nature, SSI sector has made significant contributions to employment generation and also to rural industrialisation. This sector is ideally suited to build on the strengths of our traditional skills and knowledge, by infusion of technologies, capital and innovative marketing practices. So this is the opportune time to set up projects in the small scale sector. It may be said that the outlook is positive, indeed promising, given some safeguards. This expectation is based on an essential feature of the Indian industry and the demand structures. The diversity in production systems and demand structures will ensure long term co-existence of many layers of demand for consumer products / technologies / processes. There will be flourishing and well grounded markets for the same product/process, differentiated by quality, value added and sophistication. This characteristic of the Indian economy will allow complementary existence for various diverse types of units. The promotional and protective policies of the Govt. have ensured the presence of this sector in an astonishing range of products, particularly in consumer goods. However, the bug bear of the sector has been the inadequacies in capital, technology and marketing. The process of liberalisation will therefore, attract the infusion of just these things in the sector.

Small Scale Industrial Undertakings

y The following requirements are to be complied with by an industrial undertaking to be graded as Small
Scale Industrial undertaking w.e.f. 21.12.1999

y An industrial undertaking in which the investment in fixed assets in plant and machinery whether held on
ownership terms on lease or on hire purchase does not exceed Rs 10 million. (Subject to the condition that the unit is not owned, controlled or subsidiary of any other industrial undertaking) (Subject to the condition that the unit is not owned, controlled or subsidiary of any other industrial undertaking) Explanation: For the purpose of this note:a. "owned" shall have the meaning as derived from the definition of the expression "owner" specified in clause (1) of section 3 of the said Act; b. "subsidiary" shall have the same meaning as in clause (47) of section 2, read with section 4, of the Companies Act, 1956 (1 of 1956); c. the expression "controlled by any other industrial undertaking" means as under:i. where two or more industrial undertakings are set up by the same person as a proprietor, each of such industrial undertakings shall be considered to be controlled by the other industrial undetaking or undertakings, ii. where two or more industrial undertakings are set up as partnership firms under the Indian Partnership Act, 1932 (1 of 1932) and one or more partners are common partner or partners in such firms, each such undertaking shall be considered to be controlled by other undertaking or undertakings, iii. where industrial undertakings are set up by companies under the Companies Act, 1956 (1 of 1956), an industrial undertaking shall be considered to be controlled by other industrial undertaking if:a. the equity holding by other industrial undertaking in it exceeds twenty four percent of its total equity; or b. the management control of an undertaking is passed on to the other industrial undertaking by way of the Managing Director of the first mentioned undertaking being also the Managing Director or Director in the other industrial undertaking or the majority of Directors on the Board of the first mentioned undertaking being the equity holders in the other industrial undertaking in terms of the provisions of the following items (a) and (b) of sub-clause (iv); (iv) the extent of equity participation by other industrial undertaking or undertakings in the undertaking as per subclause (iii) above shall be worked out as follows:a. the equity participation by other industrial undertaking shall include both foreign and domestic equity; b. equity participation by other industrial undertaking shall mean total equity held in an industrial undertaking by other industrial undertaking or undertakings, whether small scale or otherwise, put together as well as the equity held by persons who are Directors in any other industrial undertaking or

undertakings even if the person concerned is a Director in other Industrial Undertaking or Undertakings; c. equity held by a person, having special technical qualification and experience, appointed as a Director in a small scale industrial undertaking, to the extent of qualification shares, if so provided in the Articles of Association, shall not be counted in computing the equity held by other industrial undertaking or undertakings even if the person concerned is a Director in other industrial undertakings or undertakings; (v) where an industrial undertaking is a subsidiary of, or is owned or controlled by, any other industrial undertaking or undertakings in terms of sub-clauses (i); (ii); or (iii) and if the total investment in fixed assets in plant and machinery of the first mentioned industrial undertaking and the other industrial undertaking or undertakings clubbed together exceeds the limit of investment specified in paragraphs (1) or (2) of this notification as the case may be, none of these industrial undertakings shall be considered to be a small scale or ancillary industrial undertaking. Note 2(a) In calculating the value of plant and machinery for the purposes of paragraphs (1) and (2) of this notification, the original price thereof, irrespective of whether the plant and machinery are new or second hand, shall be taken into account. (b) In calculating the value of plant and machinery, the following shall be excluded, namely:i. the cost of equipments such as tools, jigs, dies, moulds and spare parts for maintenance and the cost of consumable stores; ii. iii. iv. the cost of installation of plant and machinery; the cost of research and development equipment and pollution control equipment; the cost of generation sets and extra transformer installed by the undertaking as per the regulations of the State Electricity Board; v. the bank charges and service charges paid to the National Small Industries Corporation or the State Small Industries Corporation; vi. the cost involved in procurement or installation of cables, wiring, bus bars, electrical control panels (not those mounted on individual machines), oil circuit breakers or miniature circuit breakers which are necessarily to be used for providing electrical power to the plant and machinery or for safety measures; vii. viii. the cost of gas producer plants; transportation charges (excluding of sales tax and excise) for indigenous machinery from the place of manufacturing to the site of the factory; ix. charges paid for technical know how for erection of plant and machinery;

x.

cost of such storage tanks which store raw materials, finished products only and are not linked with the manufacturing process; and

xi.

cost of fire fighting equipments.

(c) In the case of imported machinery, the following shall be included in calculating the value, namely:i. import duty (excluding miscellaneous expenses as transportation from the port to the site of the factory, demurrage paid at the port); ii. iii. iv. the shipping charges; customs clearance charges; and sales tax.

Every industrial undertaking which has been issued a certificate of registration under section 10 of the said Act or a license under sections 11, 11A and 13 of the said Act by the Central Government and are covered by the provisions of paragraphs (1) and (2) above relating to the ancillary or small scale industrial undertaking, may be registered, at the discretion of the owner, as such, within a period of one hundred and eighty days from the date of publication of this notification in the Official Gazette. Ancillary Industrial Undertakings

y The following requirements are to be complied with by an industrial undertaking for being regarded as
ancillary industrial undertaking: An industrial undertaking which is engaged or is proposed to be engaged in the manufacture or production of parts, components, sub-assemblies, tooling or intermediates, or the rendering of services and the undertaking supplies or renders or proposes to supply or render not less than 50 per cent of its production or services, as the case may be, to one or more other industrial undertakings and whose investment in fixed assets in plant and machinery whether held on ownership terms or on lease or on hire-purchase, does not exceed Rs 10 million. Tiny Enterprises Investment limit in plant and machinery in respect of tiny enterprises is Rs 2.5 million irrespective of location of the unit. Women Entrepreneurs A Small Scale Industrial Unit/ Industry related service or business enterprise, managed by one or more women entrepreneurs in proprietary concerns, or in which she/ they individually or jointly have a share capital of not less than 51% as Partners/ Shareholders/ Directors of Private Limits Company/ Members of Cooperative Society.

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Residential Status of a Company [Section 6(3)]

When is a company said to be resident in India? A Company is said to be a resident in India in any previous year if:   it is an Indian company, or during the relevant previous year, the control and management of its affairs is situated wholly in India.

When is a company said to be Non-resident in India? A Company will be a non-Resident in any previous year if:   it is not an Indian company; and the control and management of its affairs is situated wholly or partially outside India.