Terms

Tax Buoyancy

It is conventionally defined as the ratio of percentage change in tax collection to percentage change in GDP.
It indicates the efficiency and responsiveness of tax revenue mobilisation to GDP growth

Tax Elasticity

changes in tax revenue in response to changes in tax rate

Tax Expenditure

It refers to the opportunity cost of taxing at concessional rates, or the opportunity cost of giving exemptions, deductions, rebates, deferrals credits etc. to the tax payers.
Tax expenditures indicate how much more revenue could have been collected by the Government if not for such measures.
In other words, it shows the extent of indirect subsidy enjoyed by the tax payers in the country.
Ex: Income Tax exemptions under Section 80C

Capital Gains tax

A capital gains tax is a tax levied on capital gains, profits which an investor realizes when he sells a capital asset for a price that is higher than the purchase price.
Capital gains taxes are only triggered when an asset is realized, not while it is held by an investor.
India classifies this tax into short term (capital gains made within 36 months) and long term capital gains (made beyond 36 months; 24 months has been specified for unlisted shares and immovable property).
Capital gains tax excluded for movable property, jewellery, agricultural land, gold and defence bonds, archeological collection, paintings
Budget 18-19, long-term capital gains tax introduced on gains arising from the transfer of listed equity shares.

Dividend Distribution Tax

Taxed at source while distributing dividends of shares to Company's shareholders. Paid by Companies
If the dividend is more than 10 lakh , taxed also at destination which is paid by dividend recipients

Countervailing duty

Counter vails

Countervailing Duties (CVDs) are tariffs levied on imported goods to offset subsidies made to producers of these goods in the exporting country.
CVDs are meant to level the playing field between domestic producers of a product and foreign producers of the same product who can afford to sell it at a lower price because of the subsidy they receive from their government.

Anti-dumping duty

It is a tariff that a domestic government imposes on foreign imports that it believes import product is priced below fair market value.
Dumping is a process where a company exports a product at a price lower than the price it normally charges on its own home market.
To protect local businesses and markets, many countries impose stiff duties on products they believe are being dumped in their national market.

Safeguard duty

Tariff imposed to restrict imports of a product temporarily (take “safeguar actions) if its domestic industry is injured or threatened with injury caused by a surge in imports

Inverted Duty Structure

It implies a situation where in the import duty on the finished products is low than the import duty on the raw materials that are used to manufacture that product
This makes the domestically manufactured goods expensive than the imports

General Anti-Avoidance Rules (GAAR Tax rules)

These rules target any transaction or business arrangement that is entered into with the objective of avoiding tax.
Tax eggodamu ane udesam tho chese panulu ni apatanike GAAR
Income-tax department will have powers to deny tax benefit if a transaction was carried out exclusively for the purpose of avoiding tax
For example, if an entity is set up in Mauritius with the sole intention of claiming exemption from capital gains tax, the tax authorities have the right to deny the claim for exemption provided under the India-Mauritius tax treaty.
Income Tax Commissioner will be empowered to declare an arrangement as an Impermissible Avoidance Arrangement (IAA) if

The whole, a step or a part of the arrangement has been entered with the objective of obtaining tax benefit,
The arrangement creates rights and an obligation not normally created in arm’s leng transactions or results in direct or indirect misuse or abuse of the provisions of the code or lack commercial substance in whole or part, or is not bonafide.

Parthasarathy Shome Panel 2012

Objective:

To draw up final guidelines of GAAR
To address issues of FII and non-resident investors

Recommendations

GAAR shall be deferred by three years on administrative grounds for which intensive training of tax officers, who would specialize in the finer aspects of international taxation, is needed.
Threshold tax benefit of more than 3 crores - GAAR should be applied
Approving Panel of GAAR

5 members including chairman
Chairman - retired judge of high court
2 members should be from outside the government (eminent persons)
Rest 2 is Chief commissioners or 1 Chief commissioner and 1 Commissioner

Loss Carry forward

Loss carry forward refers to an accounting technique that applies the current year's net operating losses to future years' profits to reduce tax liability and track profits accurately.
For example, Imagine a company lost $5 million one year and earned $6 million the next. Including the previous year's loss on its current balance sheets lowers the profits for that year to $1 million, a more accurate assessment of the company's overall state.
To encourage startups, loss carry forward is allowed if the 51% majority shareholder remains same.

Presumptive taxation

Presumptive taxation involves the use of indirect means to ascertain tax liability, which differ from the usual rules based on the taxpayer’s accounts. In India for calculating presumptive tax, deemed income is calculated.
8% of the total turnover or gross receipts of the assesse or any higher amount voluntarily declared by him shall be deemed to be his income chargeable to tax
Presumptive tax has following benefits: – It reduces burden of compliance. – Comba tax avoidance and tax evasion. – More equitable distribution of tax bu den.

Base Erosion and Profit Shifting (BEPS)

Refers to those instances where gaps between different tax rules leads to tax avoidance causing harm to the government.
It refers to all those artificial arrangements where:

Due to gaps in application of the bilateral tax treaties, cross border activities may go untaxed in any of the two countries.
No or low tax is paid by shifting profits to low tax jurisdictions and shifting losses and high expenditures to high tax jurisdictions.

Multilateral Convention to implement Tax Treaty Related Measures to Prevent BEPS / Multilateral Instrument

The Convention is an outcome of the OECD / G20 BEPS Project.
The convention was conceived as a multilateral instrument which would swiftly modify all covered bilateral tax treaties to implement BEPS measures
India recently signed the "Multilateral Instrument"
Countries such as USA, Mauritius and Singapore have not signed MLI

MLI works through a matching process where in two countries can mutually exclude some provisions of the document where they do not agree.
In case of India GAAR explicitly states that the domestic law overrides every other law in case of disputes which may amount to conflict with MLI rules

Significant Economic Presence

Place of Effective Management

Equalization Levy

To prevent Base erosion and profit shifting
The levy is charged @ 6% of the amount of consideration for specified services received or receivable

by a non-resident not having permanent establishment ('PE') in India, from a resident in India who carries out business or profession,

or

from a non-resident having permanent establishment in India, where the aggregate amount of such consideration exceeds 1 lakh in a previous year

Transfer Pricing

When the same company operating in two different countries, a product of that company in one country might be used by the same company in another country. In such cases, the company needs to sell the product to itself. The price at which it is sold to itself is called transfer pricing.
To evade taxes, companies often quote less transfer pricing for the goods sold to itself

Safe harbor regime

It is a provision of a statute or a regulation that specifies that certain conduct will be deemed not to violate a given rule
A new safe harbor regime has been notified for three years with effect from 1st April, 2017
Objective:

to reduce transfer pricing disputes,
provide certainty to taxpayers,
Align safe harbor margins with industry standards and enlarge the scope of safe harbor transactions

Example: W.r.t Transfer pricing provisions, the safe harbor rules provides a window for the taxpayers wherein in case of defined circumstances the income-tax authorities shall accept the transfer pricing declared by the taxpayer.
Advantages

Advance information or knowledge about the range of profits or prices to qualify for the safe. This brings certainty in transactions.
Elimination of the possibility of litigation between taxpayers and revenue authorities.
Automatic approvals and self-assessment procedures

Advance Pricing Agreement

Govt enters Advance Pricing Agreements with the companies (mostly other country companies)
Methods of transfer pricing and settling the prices in advance will bring stability for the tax payers.
This makes the companies to avoid arbitrary pricing by the Govts in calculating taxes
To provide certainty to taxpayers in the domain of transfer pricing by specifying the methods of pricing and setting the prices of international transactions in advance.

Mutual Agreement Procedure MAP

MAP is a way by which taxpayer can seek relief in his country of residence when he feels that he is not being taxed according to the terms of the bilateral treaty between the two countries

Minimum Alternate Tax MAT

Applicable for companies/corporates
At times it may happen that a taxpayer, being a company, may have generated income during the year, but by taking the advantage of various provisions of Income-tax Law (like exemptions, deductions, depreciation, etc.), it may have reduced its tax liability or may not have paid any tax at all.
This resulted in various companies claimed as zero tax companies despite having book profits
Hence, MAT is introduced as Minimum tax to be paid by companies irrespective of exemptions in taxable income
As per the concept of MAT, the tax liability of a company will be higher of the following:

Normal Tax liability: Tax liability of the company computed as per the normal provisions of the Income-tax Law, (i.e including exemptions)
MAT : Tax computed @ 18.5% (plus surcharge and cess as applicable) on book profit

Of the above two, the company is liable to pay the normal tax liability/MAT, whichever is higher, the company is liable to pay that

provisions of MAT are applicable to every company whether public or private and whether Indian or foreign except MAT tax not levied on income from life insurance business and shipping income

Alternate Minimum Tax AMT

Same concept as MAT but AMT applicable to individual tax payer or HUF Hindu Undivided Family
The provisions of AMT will apply to every non-corporate taxpayer who has claimed

deduction under section 80H to 80RRB (except 80P),
deduction under section 35AD and
deduction under section 10AA.

In case of non-corporate taxpayer, AMT is levied @ 18.5% of adjusted total income (discussed later). Surcharge and cess as applicable will also be levied.

Tonnage Taxation

Tonnage tax is a scheme whereby, as an alternative to charging corporation tax on certain profits of a qualifying shipping company, a tax charge is levied each year on the tonnage of the ships operated by the company.

Fringe Benefit Tax

tax imposed on employees receivin g extra benefits in addition to their wage

Specific tax and Ad valorem tax

Specific tax is tax levied per unit
Ad valorem tax is tax levied on the value

Compound duty/Tax

combination of both a specific rate of duty and an ad valorem rate of duty.

Difference between cess, surcharge, levy and tax

Tax: Any money the government takes from you for doing any economic activity is tax.
Levy is the act of charging tax.
“Cess” means ta evied by the govt to raise funds for a specific purpose. It is also a tax on tax.
Surcharge is a charge on any tax, charged on the tax already paid. Govt can spend it anywhere.
Duty: This is an on-border tax charged on goods
Both surcharge and CESS is not distributed to states
CESS goes to public account while surcharge goes to Consolidated Fund of India
Surcharge levied on tax while CESS levied on aggregate of tax and surcharge if any

Exception to the normal process of CESS levy is w.r.t Swatch Bharat CESS and Krishi Kalyan CESS where in these are levied on tax only (excluding surcharge)

Hindu Undivided Family HUF

It is a separate entity created by members of a family for taxation purposes. (not individual)
Members of the HUF are lineal ascendants or descendants
Every member has equal share in the HUF.
Hindus, Buddhists, Jains and Sikhs can open HUFs
HUF gets a separate PAN and is taxed separately
It can only be funded through gifts from relatives or through inheritance under the gift tax laws.

Angel Tax

It is a tax levied on the investments made by external investors in startups or companies
The entire investment is not taxed but only the investment which is above the fair value valuations of the startup which is treated as income from other sources in the Income Tax Act of India

Withholding Tax

It is an amount that an employer withholds from employees' wages and pays directly to the government.
It is also a tax levied on income (interest and dividends) from securities owned by a non-resident as well as other income paid to nonresidents of a country

Directorate General of Goods and Service Tax Intelligence DGGSTI

New name given to the Directorate General of Central Excise Intelligence
Apex intelligence organisation functioning under CBEC, Dept of Revenue
Mandated to check service tax and central excise duty evasion
Recently DGGST is also the regulator with respect to money laundering cases in the gems and jewellery sector.

Directorate of Revenue Intelligence and Customs

It is the apex anti-smuggling agency of India, working under the Central Board of Excise Customs, Ministry of Finance.
It is tasked with detecting and curbing smuggling of contraband, including drug trafficking and illicit international trade in wildlife and environmentally sensitive items.
It also combats commercial frauds related to international trade and Custom duty evasion

Taxation Terms