Unit 6

Taxation in India

Taxes are an important and largest source of income for the government. The government uses
the money collected from taxes for various projects for the development of the nation. The
Indian tax system is well structured and has a three-tier federal structure.

The tax structure consists of the central government, state governments, and local municipal
bodies. When it comes to taxes, there are two types of taxes in India - Direct and Indirect tax.
The direct tax includes income tax, gift tax, capital gain tax, etc while indirect tax includes
value-added tax, service tax, goods and services tax, customs duty, etc.
The Central Government of India imposes taxes such as customs duty, central excise duty,
income tax, and service tax. The state governments impose income tax on agricultural income,
state excise duty, professional tax, land revenue and stamp duty. The local bodies are allowed to
collect octroi, property tax, and other taxes on various services like water and drainage supply.

Types of Taxes in India

Taxation in India is majorly divided into Central and State Govt taxes with two types of taxes:

1. Direct Taxes

2. Indirect Taxes

While direct taxes are levied on your earnings in India, indirect taxes are levied on expenses. The
responsibility to deposit the direct tax liability lies with the earning party, whether individual,
HUF or a company.

Indirect taxes are collected majorly by the corporates and businesses providing services and
products. Thus, the responsibility to deposit indirect taxes lies with these entities.
 What is Direct Tax?

Direct taxes are imposed on corporate entities and individuals. These taxes cannot be transferred
to others. For individual taxpayers like you, the most important type of Direct tax is the income
tax. This tax is levied during each assessment year (1st April to 31st March). As per the Income
Tax Act, 1961, it is mandatory for you to make income tax payments if your annual income is
above the minimum exemption limit. You can get tax benefits under various sections of the Act.
What are the Different Types of Direct Tax?

Direct taxes account for almost 50% of the government’s revenue in India. However, income tax
is not the only direct tax. Here are the types of direct taxes applicable in India:

1. Income Tax

2. Capital Gains Tax

3. Corporate Tax

Income tax applies to any income of an Individual and HUF except capital gains and profits from
business and profession. Income tax is calculated as per the applicable slab rates for the
Assessment Year.
The central government announces the slab rates in the annual budget.

You also have the provision to reduce your taxable income using the tax-saving investments and
expenses under section 80C.

What other Taxes come under Direct Tax?

Individuals in India, earn an income in a diverse range. Therefore, it is important to levy a tax on
you based on your income and if someone earns more, the tax percentage should be different.
The Income Tax Act segregates the income range and charges different rates as per the
segregation. The different groups are known as tax slabs. Your income tax slab can vary not only
 based on your income but also your age. Every year during the Central Government’s Budget
Session, amendments are made in the income-tax slabs.

1. Capital Gains Tax

Capital gains tax apply to the profits from the sale of a capital asset only. The rate of tax on
capital gains depends on the type of capital gain. Income Tax Act, 1961 divides the capital gains
tax into the following two types:

 Short-Term Capital Gains Tax

 Long-Term Capital Gains Tax
Short-term capital gains are when the assets are sold within a specified period, for example:

1. Equity stocks sold within 12 months of purchase

2. Debt mutual fund units sold within 36 months of purchase

3. Real estate property or gold sold within 36 months of purchase

If the asset is sold after the specified period, the gains or losses will become long-term capital
gain or loss.

Depending on the type of asset your gain may receive indexation benefit on long-term capital
gains. Indexation allows you the benefit of inflation to your capital gains, reducing your tax
liability.
2. Corporate Tax

The corporate tax applies to the businesses and entities filing their returns as a company. This is
also a slab rate depending on the turnover of the firm.

Income* Turnover less than or For other Foreign

equal to Rs 4 billion in FY domestic companies
2018/19 companies

Base Rate Effective# Base Effective Bas Effective

Rate # e #
Rate

Less than Rs 1 25 26 30 31.2 40 41.6

crore

More than Rs 1 25 27.82 30 33.38 40 42.43

crore but less than
Rs 10 crore

More than Rs 10 25 29.12 30 34.94 40 43.68

crore

* Surcharge of 10% if income exceeds Rs 1 crore

# Health & Education Cess of 4% as of FY 2020-21
 What are the Different Types of Indirect Taxes in India?

Indirect taxes in India have been the most consistent and largest revenue source for the
government. The Indian tax system has had multiple indirect taxes, some of these are still
operational:

1. Service Tax

2. Indian Excise Duty

3. Value Added Tax (VAT)

4. Customs Duty

5. Securities Transaction Tax (STT)

6. Stamp Duty

7. Entertainment Tax

Few of the indirect taxes in India like service tax, value-added tax and excise duty have been
removed for a large number of goods and services. These taxes have been replaced by a single
Goods and Services Tax.

Customs duty tax applies to the goods being imported into India from other countries, and in a
few cases on the goods being exported from India.

Securities Transaction Tax or STT applies to the transactions involving an exchange of financial
securities. For example, equity stocks, mutual fund units, future and options contracts. This tax is
necessarily applied to securities exchange transactions. However, you can also pay Stamp duty
and STT on securities changing hands outside the exchange or over the counter.
 STT allows the buyers and sellers of securities to benefit from lower short and long-term capital
gains taxes on the exchange.

Stamp duty is a State Government levy on the transfer of assets within their territory. It acts as
legal proof of ownership of the asset or security.

Entertainment tax in India is also a state subject and applies to the transactions involving the
entertainment business in the country. Such businesses and activities will include movie releases,
sporting events, concerts, amusement parks, theatres, etc.

What is Goods and Services Tax?

Goods and Services Tax or GST has been a consolidation of a complex web of indirect taxes in
India. Taxation in India can have three layers of levies – Centre, State and Local Authority or
Municipalities.

Before GST introduction in the Indian taxation system, the following indirect taxes could apply
to the goods and services in India:

1. Excise Duty

2. Entertainment Tax

3. Value Added Tax (VAT, State)

4. Octroi

5. Service Tax

6. Central Sales Tax (collected by State)

7. Purchase Tax

8. Entry Tax (State)

9. Luxury Tax (State)

These interconnecting and often overlapping taxes posed many disadvantages and conflicts for
suppliers and manufacturers along with the government bodies.

Disadvantages of Indirect Taxes before GST

1. A complex web of multiple tax points and returns for suppliers

2. Incidents of double taxation and cascading effect

3. Difficult web legal conditions for exporters

4. The difficulty of market entry due to varying rules and regulations

5. Very high after-tax prices for goods and services

The introduction of GST was to remove the complexity and hurdles towards participation in
nationwide markets for businesses. For the individuals and end consumers, GST made the goods
and services cheaper, while making taxation transparent and easy for sellers.

The Present State of GST

GST has simplified the indirect taxation for goods and services in India. With GST, instead of
five or six different taxes you only need to consider the following three (out of which only two
will apply):

 Central Goods & Services Tax (CGST)

 State Goods & Services Tax (SGST)
 Integrated Goods & Services Tax (IGST)
CGST and SGST will apply when the sale is happening within the state. IGST applies to the
goods being sold between states.
The Rate of GST

GST rates for different commodities and services are announced by the GST council under the
Central Board of Indirect Taxes and Customs (CBIC). The average rate of GST in India is about
12%.

Compared to the other countries and economies around the world using GST the rates are on the
lower side.

Difference between Direct and Indirect Tax

Taxation in India has been divided into direct and indirect taxes based on their application. Key
differences between the two tax methods are as follows:

Direct Taxes Indirect Taxes

Applicable on income receipts Applicable on expenses or sale of goods and

service; i.e., adds to the outflow rather than
reducing inflow unlike direct taxes

Investment in specified instruments or No rebate for the consumer. However, it could

spending on specified activities allow you apply to the sellers with turnover being the
to reduce direct tax on income basis of it

Paid by the person receiving money Paid by the person paying money but collected
directly to the Government by the supplier

Three types of Direct Tax in India - Income Indirect Taxes in India include - GST, excise
Tax, Corporate Tax and Capital Gains Tax duty, customs duty and VAT
 Exemptions on Tax Deduction

The tax deduction is a reduction of income that eventually lowers your tax liability. Deductions
are expenses that you incur during the year and it can be subtracted from your total income in
order to calculate how much tax you need to pay. There are many deductions that you can use to
reduce your total income. Here are some of the most commonly used ways for the tax deduction
–

1. House Rent Allowance

- If you have a rented accommodation, you can get the tax benefit under HRA. The amount
exempted can be totally or partially exempted from income tax.
2. Medical Insurance Deduction

- If you have brought a medical policy, the premium you paid for the policy could save your tax
as the amount is deducted from gross income (up to a limit).
3. Food Coupons

- Some employers may provide you with food coupons such as Sodexo. Such meal coupons are
tax-exempt up to a certain limit. The yearly exemption for food coupons is up to Rs 26,400.
4. Section 80C, 80CC and 80CCD(1)

- This is the most popular option and you must already be using it to reduce your taxes. Under
this, you can reduce your taxable income by putting your money in tax saving investments.

Section 80C - Deductions on You can claim a deduction of Rs 1.5 lakh your total
Investments income under section 80C.

Section 80CCC – Insurance Deduction for Premium Paid for Annuity Plan of LIC or
Premium Other Insurer

Section 80CCD – Pension Deduction for Contribution to Pension Account

Contribution
 Section 80GG – House Rent Paid Deduction for House Rent Paid Where HRA is not
received

Section 80 TTA – Interest on Deduction from Gross Total Income for Interest on
Savings Account Savings Bank Account

Section 80E – Interest on Deduction for Interest on Education Loan for Higher
Education Loan Studies

Section 80EE – Interest on Home Deductions on Home Loan Interest for First Time Home
Loan Owners

Section 80D – Medical Insurance Deduction for the premium paid for Medical Insurance

What are Tax Saving Investments?

Investment in certain instruments can help you reduce your taxable income. Such an investment
option which reduces your taxable income is known as Tax saving investment. Even the Indian
government offers few tax saving instruments like the Public Provident fund (PPF), National
Pension Scheme, etc. Other popular taxes saving investments are Life insurance premium/term
insurance premium, Equity Linked Savings Scheme (ELSS), Tax saving Fixed Deposits,
Employee Provident Fund (EPF), etc.

How does Tax Saving Investment Work?

The key feature of tax-saving investment is that they have a certain lock-in period. To understand
this better, let us take an example of a Term Insurance. Term Insurance provides cover for a
fixed period to the policyholder. If the policyholder dies during this period, the nominee is paid
the selected cover amount.
When you buy term insurance, not only it offers your loved ones financial security but also
reduces your taxable income. When you buy a term insurance plan from insurers like Canara
HSBC Life Insurance, you pay a nominal sum of money as a policy premium every year. This is
equivalent to the amount to be deducted from your total income to bring down your taxable
income. You can enjoy the tax benefits of up to a limit of Rs 1.5 Lakhs.

What Is Property Tax?

Property tax is a tax paid on property owned by an individual or other legal entity, such as a
corporation. Most commonly, property tax is a real estate ad-valorem tax, which can be
considered a regressive tax. It is calculated by a local government where the property is located
and paid by the owner of the property. The tax is usually based on the value of the owned
property, including land. However, many jurisdictions also tax tangible personal property , such
as cars and boats.

The local governing body will use the assessed taxes to fund water and sewer improvements,
and provide law enforcement, fire protection, education, road and highway construction,
libraries, and other services that benefit the community. Deeds of reconveyance do not interact
with property taxes.

KEY TAKEAWAYS

 Property owners pay property tax calculated by the local government where the property
is located.
 Property tax is based on the value of the property, which can be real estate or—in many
jurisdictions—also tangible personal property.
 Improvements in water and sewer use the assessed taxes.
Understanding Property Tax

Property tax rates and the types of properties taxed vary by jurisdiction. When purchasing
a property, it is essential to scrutinize the applicable tax laws.

In most Organization for Economic Co-operation and Development (OECD ) countries,

immovable property tax represents a low proportion of federal revenue when compared to
income taxes and value-added taxes. However, the rate in the United States is substantially
higher than in many European countries.1 Many empiricists and pundits have called for an
increase in property tax rates in developed economies. They argue that the predictability and
market-correcting character of the tax encourages both stability and proper

How Does Property Tax Work?

The amount owners owe in property tax is determined by multiplying the property tax rate by
the current market value of the lands in question. Most taxing authorities will recalculate the tax
rate annually. Almost all property taxes are levied on real property, which is legally defined and
classified by the state apparatus. Real property includes the land, structures, or other fixed
buildings.2

Ultimately, property owners are subject to the rates determined by the municipal government. A
municipality will hire a tax assessor who assesses the local property. In some areas, the tax
assessor may be an elected official. The assessor will assign property taxes to owners based on
current fair market values. This value becomes the assessed value for the home.

The payment schedule of property taxes varies by locality. In almost all local property tax
codes, there are mechanisms by which the owner can discuss their tax rate with the assessor
or formally contest the rate . When property taxes are left unpaid, the taxing authority may
assign a lien against the property. Buyers should always complete a full review of outstanding
liens before purchasing any property.
Property Tax calculation:
In general, the municipal authorities use one of the following 3 methods for the purpose of
calculation of Property Tax:

 Capital Value System (CVS): Under the Capital Value System (CVS), the Property Tax is
calculated as a percentage of the market value of the property. The market value of the
property is decided by the government on the basis of the locality of the property. This
valuation system is followed in the city of Mumbai
 Unit Area Value System (UAS): The tax valuation as per the Unit Area Value System or
UAS is calculated on the basis of the per unit price of the built-up area of the property. This
price is decided on the basis of the expected returns of the property, as per its location, usage
and land price. This value is further multiplied with the built-up area of the property to derive
the tax valuation. A number of municipal authorities such as Patna, Bengaluru, Delhi,
Hyderabad and Kolkata follow this method
 Annual Rental Value System or Rateable Value System (RVS): As per the RVS or the
Annual Rental Value System, the tax is calculated on the rental value, which is derived from
the property in a year. This need not be the actual rent amount, which is collected from the
property. However, it is the valuation of the rent, which is determined by the municipal
authority and is derived on the basis of the location, size and condition of the property. The
proximity of the property to landmarks and other relevant amenities is also taken into
consideration at the time of valuation. Chennai and parts of Hyderabad follow this method of
tax calculation.

Exemptions on Property Tax:

Even though the rules are different from one state to another and one city to another, certain
types of property owners enjoy rebate on their overall Property Tax liability.

Exemption is typically provided to:

 Religious organisations or governments

 Senior citizens
 People with disabilities
 Former army, navy or any other personnel employed by the defence services
 Families of martyrs from the Indian Army, BSF, police service, CRPF and fire brigade
 Educational institutes
 Agricultural properties.

Penalty for the non-payment of Property Tax:

Authorities across the country impose penalties on the delay in Property Tax payments.
Depending on the city where you reside, you will be liable to pay between 1% and 2% of the
outstanding amount, as monthly penalty. The Brihanmumbai Municipal Corporation charges 1%
penalty, per month on the outstanding Property Tax, while the penalty is 2% in Bengaluru. A
long delay in payments may also force authorities to attach your property and sell it, to recover
losses.

What is Corporate Tax?

 Corporate tax refers to the amount charged by the government on a company’s profits or net
income. It is an essential source of revenue for the government. It is also known as corporation
tax.
Corporation tax is calculated as per the specific norms of a country. Firms’ taxable incomes
comprise profits from the sale of goods or services, commissions, interests, capital gains, and
rents. To obtain the applicable taxable income, allowed deductions and exemptions are deducted
from the profits.

Table of contents

 What is Corporate Tax?

o Corporate Tax Explained
o Formula
o Corporate Tax Calculation
o Example
o Corporate Tax Planning
o Advantages
o Deductions
o Frequently Asked Questions (FAQs)
o Recommended Articles

Key Takeaways

 Corporation tax is the charges levied by a government on the taxable income of registered
private or public corporations.
 Governments revise corporation tax rates every year to boost the nation’s overall economic
growth.
 According to The Internal Revenue Service (IRS), C corporations are required to report business
returns by filing Form 1120. However, a pass-through taxation entity or S corporation is required
to file Form 1120-S— to avoid double taxation.
Corporate Tax Explained

A corporation is a separate legal entity that holds independent liabilities. It earns profit from
different sources such as sales revenue, capital gains, commissions, interests, and dividends. The
government charges a corporation tax on the profits.
The United States currently levies a flat 21% corporation tax on the Taxable Income of the
registered companies. In 2017, the US corporation tax rate was reduced from 35% to 21%. On
average, corporations pay 25.89% for local, state, and federal taxes.

It is an essential source of revenue for the government. The corporation tax rate undergoes
annual revisions around the globe. The amendments prioritize the growth of corporations and
the economy. It is often lowered to allow expenditure on business development and capital
enhancement. It is important to note that corporation tax is different from income tax charged on
an individual’s personal earnings.
A “C corporation” has to report corporate returns by filing Form 1120. However, if a company
files its returns using Form 1120-S, it is an “S corporation.” S corporations are pass-through
taxation entities. These corporations do not pay any tax. Instead, the profits and losses are passed
onto owners’ personal tax returns. The firms’ taxes are paid at an individual level by the owners.
Formula

For determining the corporation tax, the company’s taxable income has to be ascertained.
Consequently, the following formula is used to compute the corporate tax amount:

The Adjusted Gross Income (AGI) can be obtained by deducting the applicable adjustments
from gross income. The Gross Income is the total income arising from goods sales,
commissions, interests, rent, and other sources. The applicable adjustments include early
withdrawal penalties, employee expenses, operation expenses, and other business expenses.
The Internal Revenue Service (IRS) allows itemized deductions, but if the taxpayer does not
claim that, the standard deduction will be applied.
 Corporate Tax Calculation

Now, let us go through the basic steps involved in the calculation of the corporate tax:

1. First, find the adjusted gross income and the allowed deductions to compute the taxable income.
2. Evaluate the corporation’s taxable income using this formula: Taxable income = Adjusted
Gross Income – All Applicable Deductions.
3. Multiply the corporation tax percentage with the taxable income to determine the corporation tax
liability: Corporate Tax=Taxable Income × Corporate Tax Rate.

Example

XYZ Corporation has earned a net profit of $50,000 during the current financial year. The
company is allowed up to $5000 in deductions. The applicable corporation tax rate is 21%. Now,
calculate the corporation tax liability.

Solution:

Corporate Tax = Taxable Income × Corporate Tax Rate

Taxable Income = Adjusted Gross Income – All Applicable Deductions

Taxable Income = 50000 – 5000 = $45000

Corporate Tax = 45000 × 21% = $9450

Thus, XYZ Corporation is liable to pay $9450 as corporation tax.

Corporate Tax Planning

Firms can legitimately reduce the taxable income by utilizing tax planning alternatives—not to
be confused with unethical means—non-payment or tax evasion. By planning ahead, firms can
avoid paying excessive taxes.
 Tax consultants and chartered accountants decrease tax liability by using various deductions,
credits, government subsidies, and exemptions approved by the Internal Revenue Service (IRS).
These professionals have an in-depth knowledge of tax regulations, tax management, and tax
planning.

Advantages

We all have heard the cliché, “when businesses flourish, the nation’s economy grows.” But how
does this work exactly? The answer is corporation tax.

Some of its other benefits are discussed below:

 Unbiased: The corporation tax is levied on all the registered corporations equitably, whether it is
a public company or a private company.
 Source of Government Revenue: The government acquires enormous revenue through
corporation taxes. The government relies on the collected revenue to fund public services
like infrastructure, defense, and transportation.
 Tax Deductions: Companies can seek tax deductions on employee medical insurance, employee
wages, and other employee expenses. Bad debts and losses can also be deducted from the
taxable amount.
 Efficient Corporate Tax Planning: With proper tax planning, corporations can ethically reduce
tax liabilities.
 Tax Incentives: Many developing economies offer tax-related incentives to encourage
investments. A special economic zone (SEZ) refers to a particular region with specified
boundaries providing competitive infrastructure and tailored laws to attract foreign direct
investment into the nation.

Deductions

According to the Internal Revenue Service (IRS), the following expenses can be deducted
from taxable income:

 Business losses;
 All ordinary and necessary corporate expenditures;
 Business expenses for bookkeeping, tax preparation, legal charges, advertising, and travel;
 Employee expenses—salary, health insurance, bonus, and tuition reimbursements;
 Insurance premiums, interest payments, bad debts, excise tax, sales tax, and fuel tax.

Frequently Asked Questions (FAQs)

What is corporate tax planning?

Corporation tax planning is the process of curtailing taxable income in an ethical manner. This is
achieved by considering various allowable deductions and exemptions in accordance with the
IRS. Chartered accountants facilitate tax planning. They suggest multiple ways of reducing
liability compliant to regulations.

How to pay corporate tax?

The corporation tax is a form of direct tax applied to a firm’s taxable income. The registered
company must file IRS Form 1120 to report corporate tax returns. Consequently, the corporation
has to pay the due corporation tax every quarter. The payment has to commence before the 15th.

Who pays corporate taxes?

Every registered company, both private and public, has to pay the corporation tax. However, the
responsibility falls on shareholders—a portion of their profits are used to clear tax liabilities.
FINANCIAL REGULATORY BODIES IN INDIA

Several bodies set up the regulatory framework of the Indian financial system. They are all there
to ensure parity and responsibility among participants in that particular sub-sector. Every
regulator is instrumental in making sure that the interests of the investors and all other parties are
not compromised and that there is fairness in the financial system of India.

Financial Regulators In India

 SEBI: The market regulator in the Indian capital market is the Securities and Exchange
Board of India (SEBI).

 IRDAI: The Insurance Regulatory and Development Authority (IRDA) does the same for
the insurance sector.

 RBI: Reserve Bank of India (RBI) conducts the country’s monetary policy.

 PFRDA: Pension Funds Regulatory and Development Authority (PFRDA) regulates

pensions.

 MCA: Ministry of Corporate Affairs (MCA) regulates the corporate sector.

We will look at the role of these financial regulators in detail and some bodies that are not
regulatory but important to their respective sub-sectors, such as the Association of Mutual Funds
in India (AMFI).

RBI

The RBI’s primary responsibility is to ensure price stability in the economy and control credit
flow in the various sectors of the economy. Commercial banks and the non-banking financial
sector are most affected by the RBI’s pronouncements since they are at the forefront of lending
credit. The RBI is the money market and the banking regulator in India.
Its functions include:

 Printing and circulating currency throughout the country

 Maintaining banking sector reserves by setting reserve ratios

 Inspecting bank financial statements to keep an eye on any stresses in the financial sector

 Regulating payments and settlements as well as their infrastructure

 Instrumental in deciding interest rates and maintaining inflation rates in the country

 Managing the country’s foreign exchange (FX) reserves

 Regulating and controlling interest rates, which affects money market liquidity

SEBI

Established in 1992, SEBI was a response to increasing malpractices in the capital markets that
eroded investors’ confidence in the market back then. As a statutory body, its functions include
protective as well as regulatory ones.

Protection: To protect investors and other participants by preventing insider trading, price
rigging, and other malfeasances

Regulation: To implement codes of conduct and guidelines for the various market participants;
auditing various exchanges, registering brokers, investment bankers; deciding on the various fees
and fines

 SEBI has the power to supervise the stock exchanges’ functioning.

 It regulates the business of exchanges.

 It has complete access to the exchanges’ financial records and the companies listed on the
exchange.

 It oversees the listing and delisting process of companies from any exchange in the
country.
  It can take disciplinary action, including fines and penalties against malpractices.

 It also promotes investor education.

 It undertakes inspection, conducts audits and inquiries when it spots any wrongdoing.

IRDA

Set up in 1999, the IRDA regulates the insurance industry and protects the interests of insurance
policyholders. Since the insurance sector is a constantly changing scene, IRDA advisories are
critical for insurance companies to keep up with changes in rules and regulations.

The IRDA has strict control over insurance rates, beyond which no insurer can go.

The IRDA specifies the qualifications and training required for insurance agents and other
intermediaries, which then have to be followed by the insurer. It can levy fees and modify them
as well, as per the IRDA Act. It regulates and controls premium rates and terms and conditions
that insurers are allowed to provide. Any benefit provided by an insurer has to be ratified by the
IRDA. This regulator also provides the critical function of grievance redressal in an industry
where claims can be disputed endlessly.

PFRDA

The PFRDA was set up in 2013 as the sole regulator of India’s pension sector. Its services extend
to all citizens, including non-resident Indians (NRIs). Its main objective is to ensure income
security for senior citizens. To this end, it regulates pension funds and protects pension scheme
subscribers.

PFRDA regulates the pension schemes: NPS and Atal Pension Yojana. PFRDA Act is applicable
to these schemes.
The PFRDA scope includes:

 Setting up guidelines for investing in pension funds

 Settling disputes between intermediaries and pension fund subscribers

 Increasing awareness about retirement and pension schemes

 Investigating intermediaries and other participants for malpractice

Ministry of Corporate Affairs (MCA)

The MCA concerns itself with administering the Companies Act and its various iterations. It sets
up the rules and regulations for the lawful functioning of the corporate sector.

Apart from the Companies Act, MCA also administered the Limited Liability Partnership Act,
2008. It oversees all Acts and rules that regulate the functioning of the corporate sector in India.

Its objective is to help the growth of companies. The MCA’s Registrar of Companies authorizes
company registrations as well as their functioning as per law.

Non-Statutory Bodies

Of the various entities discussed here, the Association of Mutual Funds in India (Amfi) is
different as it is a non-statutory body. Set up in 1995, it is a non-profit entity that is self-
regulatory. Its main aim is the development of the mutual fund industry in the country.

One of the main things it does is make mutual funds more accessible and transparent to the
public. To this end, it has done well in spreading awareness and critical information
about mutual funds to the investing public.

Practically all asset management companies and other financial entities involved in mutual funds
are members of AMFI and adhere to the AMFI code of ethics. All members have to follow this
code.
The AMFI’s most crucial function is to update net asset values (NAVs) of funds, which it does
daily on its website.

Like the AMFI, other such non-regulatory bodies nevertheless influence corporate behaviour due
to their influence.

One such body is the non-profit National Association of Software and Services Companies
(NASSCOM), which serves the $194 billion Indian IT sector.

Similarly, the Federation of Hotels & Restaurant Associations of India (FHRAI) “lobbies for
better privileges and more concessions” for the hotel and restaurant industry in the country.
Many such entities in the country cater to their specific sectors, using the weight of their
membership and bully pulpit to ensure high standards of behaviour and service.

Key Takeaways

 The RBI prints currency and distributes it across the country. It also manages the
country’s foreign exchange reserves. It sets interest rates for banks to lend, thus
controlling credit.

 The SEBI is the capital market watchdog. It protects investors as well as regulates how
the exchanges and capital market functions. It levies fines and punishments on bad actors.
It has the power to change laws on the stock exchanges’ functioning. It can conduct
hearings and pronounce judgments on cases.

 The IRDA keeps tabs on the country’s insurance sector. It regulates insurance premiums
as well as the products that companies offer customers. One of its primary functions is
complaint redressal.

 The PFRDA regulates the pension fund sector. Its main objective is income security for
senior citizens, and it regulates how the pension funds can invest their monies. Its brief
includes increasing awareness of pension schemes in the country.
 The MCA sets up the rules and regulations for the lawful functioning of the corporate
sector.

 The AMFI is a non-statutory body set up to ensure best practices in the mutual fund
sector. Its main aim is the development of the mutual fund industry in the country