Topic

Taxation System in India & Australia

- A Comparative Study

St.Xavier’s College, Kolkata

Speakers

Rishabh Agarwal

Cheyus Singhania

Abhishek Singh

Mudit Gupta

B.Com (Hons.) 2nd Year, Semester 3.

Content

1) Introduction

2) Methodology

3) Objective

4) Sub-topicsa) Residential Status

b) Income from Salaries

c) Income from House Propertiesd) Computation of Tax Liabilities

5) Conclusion

Introduction

This is a comparative study of direct taxation between Commonwealth Developing & Developed nations, those being India &

Australia respectively.

Methodology

• Comparative Study• Sample Size: 2

Hence, entire population has been chosen• Tools: Subjective Analysis & Comparison

Objective

• Comparing Direct Taxation between India & Australia

• An attempt to learn International Taxation System

Residential statusA comparative study between India

and Australia

RESIDENTIAL STATUS-GENERAL NORMS

One has to keep in mind the following norms while deciding the residential status of an assessee:-

• Different taxable entities.• Different kinds of residential status.• Different residential status of different

assessment year.• Onus of proof.

Basic conditions for resident and ordinarily resident in India

• An individual is in India in the previous year for a period of 182 days or more.

• An individual is in India for a period of 60 days or more during the previous year and 365 days or more during 4 years immediately preceding the previous year

• AN INDIVIDUAL MUST SATISFY ANY ONE OF THE ABOVE CONDITIONS.

Additional conditions for resident but not ordinarily resident in India

• An individual has been resident in India for at least 2 out of 10 previous year immediately preceding the relevant previous year.

• An individual has been in India for a period of 730 days or more during 7 years immediately preceding the relevant previous year.

BASIC CONDITIONS FOR RESIDENTIAL STATUS IN AUSTRALIA

There are four tests to determine whether an individual is a resident for income tax purposes. An individual can be classified as a resident for taxation purposes if they satisfy any of the following conditions:

• If they are making contributions to a Commonwealth superannuation fund,

• In Australia for more than half the year, • Have their domicile or permanent place of abode in

Australia or finally• If they dwell permanently or for a considerable time in

Australia.

Taxable Income

• An individual is taxed on global income.• An individual interest on bank account is

assessed at usual rates.• An individual in Australia is liable for capital

gains tax.

Salary

A comparative study between India & Australia.

Identification Number

As with most countries, you will need an identification number for tax purposes in India as well as Australia.

A Tax File Number (TFN) is issued by Australia’s revenue authority, the Australian Taxation Office (ATO), and can be applied for online or can be done manually.

A Permanent Account Number (PAN) is issued by Income Tax Department of India.

Submission of the identification number.

• Should be submitted to employer with other required details in order to complete the declaration form.

• If you do not provide your employer will withhold taxes at the highest tax rate. (46.5% in Australia)

TDS or PAYG

Employers are suppose to withhold some percentage of the wage or salary paid to the employees as a deduction to pay to the tax collecting authority of the country.

In Australia this portion of amount is withheld under Pay As You Go (PAYG) system every time the payment of wage or salary is done. The PAYG is then remitted to ATO(Australian Taxation Office)

In India this portion of the payment is deducted in the name of TDS(tax deducted at source).

Advance tax or PAYG installments

If you receive untaxed income that is taxable in the country, you may be asked to pay interim tax payments by the tax collecting authority of the country during the tax year in anticipation of your tax liability on this income.

In Australia these payments are known as PAYG installments paid to the ATO. ATO notifies.

In India these payments are known as Advance Tax.(If the Income Tax Liability of any assessee is more than Rs. 10,000 in a financial year)

Due Dates for Advance tax & PAYG installments.

Due dates for Pay as you go (withholding and instalments) are July(14th & 28th), August(14th), October(21st, 28th & 31st), February(28th), April(28th).

Due dates for Advance tax payment are:

On or before 15th Sep - Not less than 30% of the Advance Tax Liability

On or before 15th Dec - Not less than 60% of the Advance Tax Liability as reduced by the amount, if any, paid in earlier instalment.

On or before 15th Mar - 100% of the Advance Tax Liability as reduced by the amount, if any, paid in earlier instalments.

Deadline for filing Income Tax Return

• The Australian tax year runs from 1 July to 30 June, with the tax return filing deadline being 31 October following the tax year end.

• In India the last for return filing is 31st of july of the financial year 1st April to 31st March.

In Australia.

Superannuation

Employers are required to make minimum contributions to a qualifying superannuation fund (a type of pension fund) on behalf of employees under the Superannuation Guarantee Charge (SGC) scheme. The contribution rate is 9% on earnings up to $183,000.If you hold a temporary visa you may withdraw the funds in your superannuation account after you have left Australia permanently, subject to a 35% withholding tax.

Fringe Benefits Tax

• Non-cash remuneration is known as Fringe Benefits.

• Employees are not liable for tax on fringe benefits.

• Employers are liable to fringe benefit tax (FBT) @46.5% grossed up, unless specifically excluded from the FBT act.

Living Away From Home

Various concessions exist in relation to benefits provided to

employees who are required to live away from their usual place of residence for work purposes.

In order to qualify as living away from home (LAFH) you would

need to have an intention to return to your usual (or normal)

place of residence at the end of your employment or assignment.

If you are LAFH for work purposes, your employer may provide

you with tax free housing and a tax free food allowance for

reimbursement of actual costs.

Qualifying Criteria

In order to qualify for tax free food and accommodation

allowances or benefits, you would need to meet the following

three criteria:

• The duties of your employment require you to live away from a

home in Australia where you usually reside and it is reasonable

to conclude that you intend to return to that property.

• You have an ownership interest (this includes a lease) in the

place you are living away from.

• The home you are living away from must continue to be

available for your use throughout the LAFH period. It cannot be

let or sublet to a third party. If you qualify, the LAFH tax concessions will be available for the

first 12 months that you are required to live away from home to

perform the duties in a particular location.

There are complex transitional rules that apply to those who

were LAFH prior to 8 May 2012 that may allow you to qualify for

tax free food and accommodation allowances even if you do not

meet all of the criteria mentioned above.

Children’s Education Costs in Australia

• If you are a LAFH (in overseas)• Employer bears the children’s education cost,

tax free.• Child should be under 25 years of age.• It applies to full time education only whether

in Australia or in abroad.• This covers the costs of fees, books, uniforms,

excursions and any other education costs.

Children’s Education Allowance in India.

• Rs. 100 per month per child.• Upto a Maximum of Two Children. • Hostel expenditure for employees child:

Rs. 300 per month per child upto a maximum of two children.

Payroll Tax

• Payroll Tax is levied by each state and territory government on the gross payrolls of employers operating in that state or territory.

• The tax is paid by the employer, not the employee.

Income from House Property

Comparative Study of India and Australia

Australia

• Mortgage expenses for a period of 5 years.• Cannot claim Purchase Price, Legal Fees or

Stamp Duty.• Records must be kept for a minimum of 5

years.• Claim deduction of Depreciation and Capital

Works Schedule.

Constituents of Rental Income

• Rent Received• Rental Bond• Letting or Booking fee• Government Rebate• Insurance Payout for Unpaid Rent

Deductions for the cost of Setting up Loans

• Loan Establishment,• Title Search Fees,• Costs for Preparing and filing the Mortgage

Documents,• Mortgage Broker Fees,• Stamp Duty Charged on Mortgage,• Property Valuation, and• Mortgage Insurance.

Repairs and Maintenance

• ‘Repairs’ generally involve a replacement or renewal of a worn out or broken part.

• ‘Maintenance’ is preventing or fixing deterioration. And that can include painting the house, oiling a deck, or maintaining plumbing.

• Deductions in respect of Repairs and Maintenance can be claimed only for let out property.

Depreciation and Capital Works Schedule

Depreciation- The depreciation schedule is a record of assets in the house and the amount you can claim each year.

Capital Works Schedule- The capital works schedule is a record of the building construction costs and the amount you can claim each year, which is usually 2.5% over a period of 40 years.

Repairs and Renovations

• Repairs can be immediately claimed as deduction. – Example: replacing broken tiles of kitchen and

bathroom, replacing a stove.

• Renovations cannot be claimed as an immediate deduction. These are Building Costs which can be claimed @2.5% over a period of 40 years. – Example: replacing broken fence.

Comparison

India

• Deduction allowed for Self occupied Property in respect of Interest on Loan up to Rs. 150000 for purchase and construction and Rs. 30000 for repairs and renewals. No upper limit for Let Out Property.

• Only Standard Deduction @30% of GAV is allowed for Let Out Property.

Australia

• Deduction allowed for Interest on Loan on Let Out Property.

• Depreciation, Repairs, Renovations expenses can be claimed as a deduction without an upper limit for Let Out Property.

Calculation of Income from House Property

– Gross Annual Value• Municipal Rent/Fair

Rent(higher)• Standard Rent(max.)• Rent Received

– Less: Municipal Taxes paid– Net Annual Value

• S.D. @ 30%• Interest on Loan

– Income from H.P.

– Actual Rent Received– Less: Expenses Incurred

Computation of Tax Liability

Comparative Study of India & Australia

Individual Income Tax Rates – Australia

Taxable income Tax on this income

0 – $18,200 Nil

$18,201 – $37,000 19c for each $1 over $18,200

$37,001 – $80,000 $3,572 plus 32.5c for each $1 over $37,000

$80,001 – $180,000 $17,547 plus 37c for each $1 over $80,000

$180,001 and over $54,547 plus 45c for each $1 over $180,000

Individual Income Tax Rates – India

Taxable income Tax on this income

Where the total income does not exceed Rs. 2,50,000/-.

Nil

Where the total income exceeds Rs. 2,50,000/- but does not exceed Rs. 5,00,000/-.

10% of amount by which the total income exceeds Rs. 2,50,000/-. Less ( in case of Resident Individuals only) : Tax Credit u/s 87A - 10% of taxable income up to a maximum of Rs. 2000/-.

Where the total income exceeds Rs. 5,00,000/- but does not exceed Rs. 10,00,000/-.

Rs. 25,000/- + 20% of the amount by which the total income exceeds Rs. 5,00,000/-.

Where the total income exceeds Rs. 10,00,000/-.

Rs. 125,000/- + 30% of the amount by which the total income exceeds Rs. 10,00,000/-.

A ComparisonForex Rate (1 Aus$ = Rs. 56.80)

Income @ Australia Tax Rate Income @ India Tax Rate

Rs 0 – 10,33,700 Nil Rs 0 – 2,50,000 Nil

Rs 10,33,756 – 21,01,476

19% on amount above Rs.10,33,700

Rs. 2,50,001 to Rs. 5,00,000

10% on amount above Rs.2,50,000

Rs. 21,01,532 – 45,43,733

Rs.2,02,877 + 32.5% on amount above Rs.21,01,476

Rs. 5,00,001 to 10,00,000

Rs.25,000 + 20% on amount above Rs.5,00,000

Rs. 45,43,789 – 1,02,23,400

Rs. 9,96,610 + 37% on amount above Rs. 45,43,733

Exceeding Rs.10,00,000

Rs.1,25,000 + 30% of amount above Rs.10,00,000

Exceeding Rs.1,02,23,400

Rs. 30,98,087 + 45% on amount above Rs. 1,02,23,400

--- ---

Example 1

Mr. A earns Rs.10,33,700/- (12,800 $)• If his income was in Australia. Tax he would

pay = Nil.• If his income was in India. Tax he would pay =

Rs.125,000 + 10,110 = Rs. 135,110• Now See the next Eg.

Example 2

Mr. A earns Rs.50,00,000/- (88,028 $)• If his income was in Australia. Tax he would

pay = Rs.9,96,610 + 1,68,818 = Rs.11,65,428• If his income was in India. Tax he would pay • = Rs.125,000 + 12,00,000 = Rs. 13,25,000• There you see the difference.

The point is…

In order to maintain a same standard of living a person earning Rs.10,00,000 in India will need to earn Rs.50,00,000 in

Australia & pay 12.5% higher taxes there.

Duh?

Conclusion

Australia is a Developed Nation.Their Economy is much-much stronger than ours.

We can conclude that the income of 18,200$ their is equivalent to Rs.2,50,000 here.

Even when it comes to Tax, on comparison we find that they have relatively higher Tax rates than ours.

We crib about Tax Rates in India being abnormally high. Agreed that our system of taxation is complicated, is there any

other excuse?The only conclusion is that they are developed because they

pay their taxes & the government maintains transparency while we don’t.

Limitations

Because of time constraints & limit in our knowledge of taxation. We

covered only the portions as in the ppt.

Feedback for improvements are appreciated.

Bibliography

We would like to acknowledge the following sources for their valuable information

• en.wikipedia.org/wiki/Taxation_in_Australia• en.wikipedia.org/wiki/Income_tax_in_Australia• www.ato.gov.au• en.wikipedia.org/wiki/Taxation_in_India• E&Y Magazine• www.numeo.com• And any other source whom we might have missed

The Team

From left to right: Mudit Gupta, Ahishek Singh, Cheyus Singhania & Rishabh Agarwal

Thank You