what is tax ?

1. What is tax?
A tax is a mandatory financial charge or some other type of levy imposed upon a
taxpayer (an individual or other legal entity) by a governmental organization in order
to fund various public expenditures.
Direct tax
• Many jurisdictions tax the income of individuals and business entities,
including corporations. Generally, the tax is imposed on net profits from
business, net gains, and other income. Computation of income subject to tax
may be determined under accounting principles used in the jurisdiction,
which may be modified or replaced by tax law principles in the jurisdiction.
• Most jurisdictions imposing an income tax treat capital gains as part of income
subject to tax. Capital gain is generally a gain on sale of capital assets—that is,
those assets not held for sale in the ordinary course of business. Capital assets
include personal assets in many jurisdictions. Some jurisdictions provide
preferential rates of tax or only partial taxation for capital gains.

2. • Many countries provide publicly funded retirement or health care systems.[6]
In connection with these systems, the country typically requires employers
and/or employees to make compulsory payments.[7] These payments are often
computed by reference to wages or earnings from self-employment. Tax rates
are generally fixed.
• Property taxes are usually charged on a recurrent basis (e.g., yearly). A
common type of property tax is an annual charge on the ownership of real
estate, where the tax base is the estimated value of the property.
• Some countries' governments will require declaration of the tax payers'
balance sheet (assets and liabilities), and from that exact a tax on net worth
(assets minus liabilities), as a percentage of the net worth, or a percentage of
the net worth exceeding a certain level. The tax may be levied on "natural" or
legal "persons".

3. • In the United States, the term "direct tax" has acquired specific meaning under
constitutional law: a direct tax is a tax on property "by reason of its
ownership"[4] (such as an ordinary real estate property tax imposed on the
person owning the property as of January 1 of each year) as well as a capitation
(a "tax per head").

4. Indirect tax
• An indirect tax may increase the price of a good to raise the price of the products
for the consumers
• Excise duty is a governmental tax meant for producers and manufacturers on
certain goods.
• Manufacturers are considered to be:
1. Entities who manufacture goods themselves.
2. Entities who outsource manufacturing, but manufacturing takes place
from their name
• The most common example if an indirect tax is import duties. The duty is paid by
the importer of a good at the time it enters the country. If the importer goes on
to resell the good to a consumer, the cost of the duty in effect is hidden in the
price that the consumer pays. The consumer is likely to be unaware of this, but
he will nonetheless be indirectly paying the import duty.

5. Current taxation system (GST)
• The goods and services tax (GST) is an indirect federal sales tax that is applied to the
cost of certain goods and services.
• France was the first country to implement the GST in 1954, and since then an
estimated 160 countries have adopted this tax system in some form or another.
• The business adds the GST to the price of the product; a customer who buys the
product pays the sales price plus GST; and the GST portion is collected by the business
or seller and forwarded to the government.
• The main objective of incorporating the GST is to eliminate tax on tax i.e. double
taxation which cascades from the manufacturing level to the consumption level.
• HSN (Harmonized System of Nomenclature) is an 8-digit code for identifying the
applicable rate of GST on different products as per CGST rules.
• India adopted a dual GST model, meaning that taxation is administered by both the
Union and State Governments. Transactions made within a single state are levied with
Central GST (CGST) by the Central Government and State GST (SGST) by the State
governments.

6. ADDITIONAL INFORMATION
• In last assessment year, there were only 5.5 lakh people, out of the 3.65 crore
individuals who filed returns, paid income tax of more than Rs 5 lakh and accounted
for 57 per cent of the total tax collection. This essentially means that only 1.5 per
cent of those filing tax returns (3.65 crore) were contributing to 57 per cent of tax
kitty. The Prime Minister wanted to address this issue by bringing the unaccounted
money into banking channel.
• After the overhaul of indirect taxes, the government is now gearing up for the review
of direct taxes, which have been in force since 1961. Kicking off the process, the
government has set up a seven-member task force to draft a new direct taxes law.
• In, 1991, the Government set up the Tax Reforms Committee under the
Chairmanship of Raja J. Chelliah to examine the then tax structure of the country and
suggest appropriate changes therein. In its report submitted to the Government in
January 1993.
(i) To remove the present defects, and
(ii) To make it more productive (i.e., to make it more efficient from the revenue-
raising point of view).