2. What is Tax?
To delve deeper into income tax, we need to first
understand what tax is.
The government needs funds to carry out public
expenditures or conduct government activities. In other
words, it needs financial contribution from the public for
running the country. For this sake, the government
imposes a tax in the form of a compulsory financial
contribution on the income, profits, occupation, property,
etc. to keep its ship sailing.
In India: Taxes can be levied by the Central or State
Government or Local Bodies. They have to be in
accordance with the laws passed by the State Legislature
and Parliament.
3. Advantages of Paying Taxes
•The money is utilized in uplifting the society
•The government is able to carry out welfare activities
•Funding of plans for aiding the development and
protection of the country
•An investment pool is created to be utilized for the public
•For the betterment of the infrastructure facilities
4. Indirect
Types of Taxes
Taxes can be broadly classified into two types: Direct and Indirect
Direct Tax
Types of Taxes
5.
6. These taxes, as the name suggests, include taxes that need to be paid by you directly.
They cannot be transferred to anyone else. The Central Board of Direct Taxes or
CBDT overlooks this category of taxes. There are different acts that govern different
aspects of direct taxes, some of which are discussed below:
What is Direct Tax ?
Income Tax Act: The Income Tax Act or the IT Tax of 1961 is the one responsible for setting
rules that regulate income tax in India.Income can be derived from various sources like
salary, businesses, income from property, investment gains etc. The tax slabs and tax savings
through investments are decided by the Income Tax Act as are thetax benefits available on
life insurance premiums or fixed deposits.
7. Wealth Tax Act: The Wealth Tax has been abolished since April 01, 2015.
The Wealth Tax Act of 1951 was responsible for taxation pertaining to the net wealth
of an individual, company or HUF (Hindu Undivided Family).
It has been replaced by a surcharge amounting to 15% to those who earn more than
1 crore annually. Likewise, it applies to companies with a revenue of more than
10 crores annually.
Gift Tax Act: The Gift Tax Act came into being in 1958 and was abolished in 1998.
According to this act, if an individual received a gift in the form of money and
other valuables, he had to pay a tax on the gifts. As per the act, there was no tax on giving but
only on receiving gifts. It was set at 30%. Finally, it was re-introduced in the year 2004 under the
head income from other sources. Now, if a person receives over INR 50,000 worth of gifts,
it will be taxed as income in the hands of the receiver, with some exemptions, of course.
Expenditure Tax Act: The Expenditure Tax Act of 1987 is concerned with the expenses that
an individual incurs when he or she avails the services of a restaurant or hotel.
It is not applicable in Jammu and Kashmir. Some expenses are chargeable under the act
if they go over INR 3,000 in a hotel and all the expenses in a restaurant.
Interest Tax Act: The Interest Tax Act of 1974 deals with taxes payable on interest earned
in specific situations. Later on, it was amended to exclude the interest tax on interests
earned after March 2000.
8. Direct taxes can be categorized into the following:
1. Income Tax: The tax levied on one’s annual income or profits that are
paid directly to the government is the income tax. It is dependent on the
annual income and is required to be paid to the government directly.
Income Tax Slabs
Anyone and everyone who earns an income in India is bound to pay their
Income Tax. This includes Indian citizens below 60 years earning more than INR
2.5 lakhs per annum as well as those above 60 years earning more than INR 3
lakhs per annum. The other entities liable to pay taxes are HUF or Hindu
Undivided Family, AOP or Association of Persons, BOI or Body of Individuals,
Corporate Firms, Local Authorities, Companies and all Artificial Juridical
Persons.
9.
10.
11. Indirect Tax:
Indirect taxes are the taxes that are imposed on all goods and services. They are deemed
indirect as they are collected by the source that sells the product. These taxes are added to
the price of the services and products, thereby increasing the product’s cost.
GST: This consumption-based tax is levied wherever consumption happens or takes place.
It is added to value-added services and goods in each and every stage of consumption in
the entire supply chain. It was implemented on 01 July, 2017. GST helped in doing away with VAT
, customs, excise or CENVAT, customs duty and octroi
Other Tax:
All the other small cess taxes that are minor revenue generators fall under this category, like the o
Professional Tax: This is the employment tax that is levied by the Government of India on those
who earn a salaried income or practice a profession such as lawyers, doctors, chartered
accountants etc. The rate of this tax differs across states and all the states do not levy this tax.
Property Tax: This tax goes by many names like Municipal Tax or Real Estate Tax. This tax is
levied by city-wise local municipal bodies for the upkeep and maintenance of basic
civil services. Owners of commercial and residential properties are subject to this tax.
12. Stamp Duty, Registration Fees, Transfer Tax: A stamp duty, transfer tax or registration
fees is collected as a supplement to the property tax owing to the additional charges
than an employee pays at the time of purchasing a property.
Entertainment Tax: Entertainment tax is the tax that is levied on feature films, exhibitions,
television series etc. For the purpose of tax, the gross collection from earnings
is taken into account.
Education Cess: This tax was introduced in India to take care of educational programs
sponsored by the government. The rate is 2% of a person’s income.
Toll Tax and Road Tax: This self-explanatory tax is one that you pay for the use of
infrastructure of any sort that is developed by the government. The negligible tax is used
for the upkeep and maintenance of the facilities.
Entry Tax: An entry tax is collected by certain states such as Gujarat, Assam,
Madhya Pradesh, and Delhi etc. by charging 5.5-10% tax on all the items that enter the
state through e-commerce establishments.
13. Indirect Tax vs. Direct Taxes
Indirect taxes and direct taxes differ in many ways, but the most common is how they are paid.
1. From the name itself, direct tax is paid directly to the government while the indirect tax is
paid indirectly. It means that though it is imposed on a particular company or supplier,
it can pass the tax on to its consumers, ultimately transferring the burden to the latter.
2. Direct taxes, on the one hand, are taken from an individual’s earnings while indirect taxes
are imposed on goods that consumers buy. Furthermore, direct taxes are calculated based
on the paying capacity of the individual. Indirect taxes, on the other, do not look at the
consumer’s ability to pay but is the same for everyone who buys the goods or services.
3.Examples of indirect taxes are excise tax, VAT, and service tax. Examples of direct taxes are
income tax, personal property tax, real property tax, and corporate tax.
