Taxes are the largest source of income for the government. This money is deployed for various purposes and projects for the development of the nation.
Taxes are determined by the Central and State Governments along with local authorities like municipal corporations. The government cannot impose any tax unless it is passed as a law.
Various Taxation in India is broadly classified into two categories:
- DIRECT TAX
- INDIRECT TAX
DIRECT TAX
A direct tax is a tax that you directly pay to the authority imposing the tax. These taxes cannot be transferred to any other entity or person.
For instance we pay income tax directly to the government.
In India Central Board of Direct Taxes (CBDT) which is governed by the Department of Revenue is in charge for the administration of direct taxes. The department is also involved in planning and providing inputs to the government regarding the implementation of direct taxes.
Types of Direct Taxes
There are various types of Direct taxes are as follows:
A) INCOME TAX
It is the tax that is levied on the annual income or the profits which is directly paid to the government. It is imposed on the income in the fiscal year. This tax is applicable to both companies as well as individuals.For different group of people the government of India has fixed various tax slabs.
For individuals below 60 years of age, the tax exemption limit is Rs.2.5 lakh per annum. For individuals between the age of 60 and 80, the tax exemption limit is Rs.3 lakh. For individuals above the age of 80, the tax exemption limit is Rs.5 lakh.
B) CAPITAL GAINS TAX
Every time you make capital gains, you will be required to pay capital gains tax. This capital gain could come from the sale of a property or from investments. It is generally of two types-
Long term Capital gains and Short term capital gains-
A long-term capital gain or loss is the gain or loss stemming from the sale of a qualifying investment that has been owned for longer than 12 months at the time of sale. This may be contrasted with short-term gains or losses on investments that are disposed of in less than 12 months time.
C) SECURITIES TRANSACTION TAX
This tax is levied on stock market and securities trading. The tax is levied on the price of the share as well as securities traded on the Indian Stock Exchange. Hence this type of tax is payable every time you purchase or sell a share.
D) PERQUISITE TAX
These are taxes that are levied on the different benefits and perks that are provided by a company to its employees. In other words perquisites are the privileges and perks that the employers might pull out to the employees.
E) CORPORATE TAX
The income tax paid by a company is defined as the corporate tax. It is based on the different slabs that the revenue falls under. There are four types of corporate taxes:
- Minimum Alternate Tax
Companies pay the income tax department through MAT which is governed by Section 115JA of the IT Act. Companies that are in the power and infrastructure sectorsare exempted from MAT.
- Fringe benefit tax:
This is tax applied on the fringe benefits that an employee receives from the company. This include expenses related to accommodation, transportation, leave travel allowance, entertainment, retirement fund contribution by the employee, employee welfare etc.
- Dividend distribution tax:
This tax came into existence after the end of Union Budget 2007.This tax is levied on the dividends that companies pay to the investors. It applies to the net or gross income that an investor receives from the investment.
INDIRECT TAX
Indirect tax is a type of tax where the incidence and impact of taxation does not fall on the same entity. In the case of indirect tax, the burden of tax can be shifted by the taxpayer to someone else. Indirect tax has the effect to raising the price of the products on which they are imposed. Currently the indirect tax levied by the government is the Goods and Service Tax (GST).
GOODS AND SERVICE TAX
GST is an Indirect Tax which has replaced many Indirect Taxes in India. The Goods and Service Tax Act was passed in the Parliament on 29th March 2017. The Act came into effect on 1st July 2017; Goods & Services Tax Law in India is a comprehensive, multi-stage, destination-based tax that is levied on every value addition.
In simple words, Goods and Service Tax (GST) is an indirect tax levied on the supply of goods and services. This law has replaced many indirect tax laws that previously existed in India.GST is one indirect tax for the entire country.Under the GST regime, the tax is levied at every point of sale. In the case of intra-state sales, Central GST and State GST are charged. Inter-state sales are chargeable to Integrated GST.
COMPONENTS
The three taxes are applicable under the system of GST. They are as follows:
- CGST: Collected by the Central Government on an intra-state sale.
- SGST: Collected by the State Government on an intra-state sale.
- IGST: Collected by the Central Government for inter-state sale.
PRE GST REGIME
In the earlier indirect tax regime, there were many indirect taxes levied by both state and centre. States mainly collected taxes in the form of Value Added Tax (VAT). Every state had a different set of rules and regulations.
- Interstate sale of goods was taxed by the Centre. CST (Central State Tax) was applicable in case of interstate sale of goods. Other than above there were many indirect taxes like entertainment tax, octroi and local tax that was levied by state and centre.CGST, SGST, and IGST has replaced all the taxes like Central Excise Duty ,Duties of Excise, Additional Duties of Excise, Additional Duties of Customs, Special Additional Duty of Customs, Cess, State VAT, Central Sales Tax etc.
CONCLUSION
Direct as well as indirect taxes both are abundantly important for the economy. Most of us think that tax payment is a financial burden. It is very important to understand that paying taxes should be a process that one must do every year as a responsible citizen. Make use of the available tax deductions as much as possible but do pay the remaining tax liabilities on time every year. This is because the taxes that you pay play a vital role in the infrastructure development of not only in your city but in the country as well.
You may contact me for consultation or advice by visiting Contact Us
